Fifth Third Bank 2010 Annual Report Download - page 45

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fifth Third Bancorp 43
BALANCE SHEET ANALYSIS
Loans and Leases
The Bancorp classifies its loans and leases based upon the primary
purpose of the loan. Table 18 summarizes end of period loans and
leases, including loans held for sale, and Table 19 summarizes
average total loans and leases, including loans held for sale.
At December 31, 2010, total loans and leases, including loans
held for sale, increased $861 million, or one percent, compared to
December 31, 2009. The increase consisted of a $2.1 billion
increase in consumer loans partially offset by a $1.3 billion
decrease in commercial loans. In accordance with a change in U.S.
GAAP, on January 1, 2010 the Bancorp consolidated certain
commercial and industrial, automobile and home equity loans with
remaining outstanding balances of $372 million, $648 million and
$241 million, respectively, at December 31, 2010. Excluding the
impact of this change in U.S. GAAP, total loans and leases were
relatively flat compared to December 31, 2009. For further
discussion on this change in U.S. GAAP, refer to Note 1 of the
Notes to Consolidated Financial Statements.
Total commercial loans and leases decreased $1.3 billion, or
three percent, compared to December 31, 2009 primarily as the
result of decreases in commercial construction loans and
commercial mortgage loans, partially offset by an increase in
commercial and industrial loans. Commercial construction loans
decreased $1.8 billion, or 45%, from December 31, 2009 primarily
due to management’s strategy to suspend new lending on
commercial non-owner occupied real estate beginning in 2008 and
the outflow of completed construction projects that were
transitioned to commercial mortgage loans. Despite the transition
of commercial construction loans, commercial mortgage loans
decreased $944 million, or eight percent, from December 31, 2009
due to tighter underwriting standards on commercial real estate
loans in an overall effort to limit exposure to commercial real
estate. Commercial and industrial loans increased $1.6 billion, or
six percent, compared to December 31, 2009 as a result of the
previously mentioned change in U.S. GAAP and an increase in
new loan originations activity, primarily due to an increase in
customer demand with continued growth in the manufacturing
and healthcare industries. This increase was partially offset by an
$856 million decrease in loans originally issued to FTPS in
conjunction with the Processing Business Sale; FTPS refinanced
the original $1.25 billion in loans into a larger syndicated loan
structure in connection with an acquisition.
Total consumer loans and leases increased $2.1 billion, or six
percent, from December 31, 2009. This increase was primarily the
result of increases in automobile loans and residential mortgage
loans, partially offset by a decrease in home equity loans.
Automobile loans increased $2.0 billion, or 22%, compared to
December 31, 2009 primarily as a result of the previously
mentioned impact on automobile loans due to the change in U.S.
GAAP and a strategic focus to increase automobile lending during
2010 through consistent and competitive pricing, enhanced
customer service with our dealership network and disciplined sales
execution. Residential mortgage loans increased $1.0 billion, or
10%, from December 31, 2009 as a result of a 51% increase in
origination activity for the fourth quarter of 2010 compared to the
fourth quarter of 2009 and management’s decision in the third
quarter of 2010 to retain certain mortgage loans primarily
originated through the Bancorp’s retail branches. Home equity
loans decreased $660 million, or five percent, from December 31,
2009 as tighter underwriting standards and a decrease in customer
demand were partially offset by the previously mentioned impact
on home equity loans due to the change in U.S. GAAP. Credit
card loans decreased $94 million, or five percent, as a result of a
decrease in new account origination activity throughout 2010.
Other consumer loans and leases, primarily made up of student
loans designated as held for sale and automobile leases, decreased
$110 million, or 14%, due to a decline in new originations driven
by tighter underwriting standards.
Average commercial loans and leases decreased $3.9 billion,
or eight percent, compared to 2009. The decrease in average
commercial loans consisted of a decrease of $1.6 billion, or 34%,
in average commercial construction loans, $1.2 billion, or four
percent, in average commercial and industrial loans and $926
million, or seven percent, in average commercial mortgage loans.
These decreases were driven by lower customer line utilization
rates, lower demand for new loans and tighter underwriting
standards on commercial real estate loans to manage risk, partially
offset by the impact of the previously discussed change in U.S.
GAAP. Commercial and industrial loans experienced an increase
in origination activity primarily during the fourth quarter of 2010
which led to a higher period end balance at December 31, 2010
compared to December 31, 2009
Average consumer loans and leases were relatively flat
compared to 2009. An increase in average automobile loans of
$1.6 billion, or 18%, was offset by decreases in average residential
mortgage loans of $1.0 billion, or nine percent, and average home
equity loans of $538 million, or four percent. The impact of the
previously mentioned consolidation of automobile and home
equity loans was largely offset by a decrease in customer demand
and tighter underwriting standards. Residential mortgage
originations in 2009 were higher than in 2010 resulting in a lower
annual average; however volume of new originations during the
fourth quarter of 2010 were greater than the fourth quarter of
2009 resulting in a higher period end balance at December 31,
2010 compared to December 31, 2009.
TABLE 18: COMPONENTS OF TOTAL LOANS AND LEASES (INCLUDES HELD FOR SALE)
A
s of December 31 ($ in millions) 2010 2009 2008 2007 2006
Commercial:
Commercial and industrial loans $27,275 25,687 29,220 26,079 20,831
Commercial mortgage 10,992 11,936 12,731 11,967 10,405
Commercial construction 2,111 3,871 5,335 5,561 6,168
Commercial leases 3,378 3,535 3,666 3,737 3,841
Subtotal – commercial 43,756 45,029 50,952 47,344 41,245
Consumer:
Residential mortgage loans 10,857 9,846 10,292 11,433 9,905
Home equity 11,513 12,174 12,752 11,874 12,154
Automobile loans 10,983 8,995 8,594 11,183 10,028
Credit card 1,896 1,990 1,811 1,591 1,004
Other consumer loans and leases 702 812 1,194 1,157 1,167
Subtotal – consumer 35,951 33,817 34,643 37,238 34,258
Total loans and leases $79,707 78,846 85,595 84,582 75,503
Total loans and leases (excludes held for sale) $77,491 76,779 84,143 80,253 74,353