Fifth Third Bank 2010 Annual Report Download - page 46

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fifth Third Bancorp
44
Investment Securities
The Bancorp uses investment securities as a means of managing
interest rate risk, providing liquidity support and providing
collateral for pledging purposes. As of December 31, 2010, total
investment securities were $16.1 billion compared to $18.9 billion
at December 31, 2009. See Note 1 of the Notes to Consolidated
Financial Statements for the Bancorp’s methodology for both
classifying investment securities and management’s evaluation of
securities in an unrealized loss position for OTTI.
At December 31, 2010, the Bancorp’s investment portfolio
primarily consisted of AAA-rated agency mortgage-backed
securities. In 2010, the Bancorp recognized $3 million of OTTI
on its investment securities portfolio. During the year ended
December 31, 2009, OTTI was immaterial to the Consolidated
Financial Statements. In 2008, the Bancorp recognized OTTI
charges of $67 million on FHLMC and FNMA preferred stock
and $37 million on certain trust preferred securities. Upon a
change in U.S. GAAP in 2009, the Bancorp concluded that the
OTTI charges on these trust preferred securities were due to non-
credit related factors and therefore, recognized an increase of $37
million to the investment balance and related unrealized losses.
The Bancorp did not hold asset-backed securities backed by
subprime mortgage loans in its investment portfolio as of, or for
the years ended December 31, 2010 and 2009. Additionally, there
was approximately $137 million of securities classified as below
investment grade as of December 31, 2010, compared to $178
million as of December 31, 2009.
As of December 31, 2010, available-for-sale securities on an
amortized cost basis decreased $3.0 billion from December 31,
2009. The decrease included the impact of a change in U.S.
GAAP that required the Bancorp to consolidate certain VIEs,
resulting in the elimination of $805 million in commercial paper
and $236 million of residual interests classified as available-for-sale
securities on January 1, 2010. Further impacting the available-for-
sale securities were approximately $1.1 billion in sales and
paydowns on agency mortgage-backed securities, primarily related
to the FNMA and FHLMC delinquent loan buy-back programs in
the second quarter of 2010, and management’s decision not to
fully reinvest cash flows in securities due to the low market rate
environment. In addition, sales of $579 million of FNMA and
FHLMC agency debentures, $151 million of commercial
mortgage-backed securities and commercial mortgage obligations
and $103 million of trust preferred securities as well as $150
million in paydowns on other asset-backed securities further drove
the decline from December 31, 2009.
At December 31, 2010, available-for-sale securities decreased
to 15% of interest-earning assets, compared to 18% at December
31, 2009. This was due to a 17% decrease in the available-for-sale
portfolio as discussed above, partially offset by the impact of a
four percent decline in average interest earning assets. The
estimated weighted-average life of the debt securities in the
available-for-sale portfolio was 4.4 years at December 31, 2010
and 2009. At December 31, 2010, the fixed-rate securities within
the available-for-sale securities portfolio had a weighted-average
yield of 4.24% compared to 4.48% at December 31, 2009.
Information presented in Table 21 is on a weighted-average
life basis, anticipating future prepayments. Yield information is
presented on an FTE basis and is computed using historical cost
balances. Maturity and yield calculations for the total available-for-
sale portfolio exclude equity securities that have no stated yield or
maturity. Market rates declined from 2009, which led to net
unrealized gains on agency mortgage-backed securities of $403
million, compared to $323 million as of December 31, 2009. Total
net unrealized gains on the available-for-sale securities portfolio
were $495 million at December 31, 2010, compared to $334
million at December 31, 2009.
TABLE 19: COMPONENTS OF AVERAGE TOTAL LOANS AND LEASES (INCLUDES HELD FOR SALE)
A
s of December 31 ($ in millions) 2010 2009 2008 2007 2006
Commercial:
Commercial and industrial loans $26,334 27,556 28,426 22,351 20,504
Commercial mortgage 11,585 12,511 12,776 11,078 9,797
Commercial construction 3,066 4,638 5,846 5,661 6,015
Commercial leases 3,343 3,543 3,680 3,683 3,730
Subtotal – commercial 44,328 48,248 50,728 42,773 40,046
Consumer:
Residential mortgage loans 9,868 10,886 10,993 10,489 9,574
Home equity 11,996 12,534 12,269 11,887 12,070
Automobile loans 10,427 8,807 8,925 10,704 9,570
Credit card 1,870 1,907 1,708 1,276 838
Other consumer loans and leases 743 1,009 1,212 1,219 1,395
Subtotal – consumer 34,904 35,143 35,107 35,575 33,447
Total average loans and leases $79,232 83,391 85,835 78,348 73,493
Total average portfolio loans and leases (excludes held for sale) $77,045 80,681 83,895 76,033 72,447
TABLE 20: COMPONENTS OF INVESTMENT SECURITIES
A
s of December 31 ($ in millions) 2010 2009 2008 2007 2006
A
vailable-for-sale and other: (amortized cost basis)
U.S. Treasury and Government agencies $225 $464 186 3 1,396
U.S. Government sponsored agencies 1,564 2,143 1,651 160 100
Obligations of states and political subdivisions 170 240 323 490 603
Agency mortgage-backed securities 10,570 11,074 8,529 8,738 7,999
Other bonds, notes and debentures 1,338 2,541 613 385 172
Other securities 1,052 1,417 1,248 1,045 966
Total available-for-sale and other $14,919 17,879 12,550 10,821 11,236
Held-to-maturity (amortized cost basis):
Obligations of states and political subdivisions $348 350 355 351 345
Other bonds, notes and debentures 555 411
Total held-to-maturity $353 355 360 355 356
Trading (fair value):
Variable rate demand notes $106 235 1,140 - -
Other securities 188 120 51 171 187
Total trading $294 355 1,191 171 187