Fifth Third Bank 2011 Annual Report Download - page 50

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
48 Fifth Third Bancorp
Average total commercial loans and leases decreased $254 million,
or one percent, compared to December 31, 2010. The decrease in
average total commercial loans and leases was driven by a decrease
in average commercial mortgage loans and average commercial
construction loans, partially offset by an increase in average
commercial and industrial loans. Average commercial mortgage
loans decreased $1.1 billion, or 10%, average commercial
construction loans decreased $1.3 billion, or 43%, and average
commercial and industrial loans increased $2.2 billion, or eight
percent due to the reasons previously discussed.
Average total consumer loans and leases increased $1.2 billion,
or four percent, compared to December 31, 2010. The increase in
average total consumer loans and leases from December 2010 was
driven by an increase in average residential mortgage loans and
average automobile loans, partially offset by a decrease in home
equity loans and other consumer loans and leases. Average
residential mortgage loans increased $1.5 billion, or 15%, average
automobile loan balances increased $925 million, or nine percent,
average home equity loans decreased $919 million, or eight percent,
and average other consumer loans and leases decreased $214
million, or 29%, from December 31, 2010 due to the reasons
previously discussed.
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, 2011, total investment
securities were $15.9 billion compared to $16.1 billion at December
31, 2010. 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, 2011, the Bancorp’s investment portfolio
consisted primarily of AAA-rated available-for-sale securities.
During the years ended December 31, 2011 and 2010, the Bancorp
recognized $19 million and $3 million of OTTI on its investments
securities portfolio, respectively. During the year ended December
31, 2009, OTTI was immaterial to the Consolidated Financial
Statements.
The Bancorp did not hold asset-backed securities backed by
subprime mortgage loans in its investment portfolio. Additionally,
there was approximately $122 million of securities classified as
below investment grade as of December 31, 2011, compared to
$137 million as of December 31, 2010.
TABLE 20: COMPONENTS OF INVESTMENT SECURITIES
A
s of December 31 ($ in millions) 2011 2010 2009 2008 2007
A
vailable-for-sale and other: (amortized cost basis)
U.S. Treasury and Government agencies $ 171 225 464 186 3
U.S. Government sponsored agencies 1,782 1,564 2,143 1,651 160
Obligations of states and political subdivisions 96 170 240 323 490
A
gency mortgage-backed securities 9,743 10,570 11,074 8,529 8,738
Other bonds, notes and debentures(a) 1,792 1,338 2,541 613 385
Other securities(b) 1,030 1,052 1,417 1,248 1,045
Total available-for-sale and other securities $ 14,614 14,919 17,879 12,550 10,821
Held-to-maturity: (amortized cost basis)
Obligations of states and political subdivisions $ 320 348 350 355 351
Other bonds, notes and debentures 2 5 5 5 4
Total held-to-maturity $ 322 353 355 360 355
Trading: (fair value)
V
ariable rate demand notes $ - 106 235 1,140 -
Other securities 177 188 120 51 171
Total trading $ 177 294 355 1,191 171
(a) Other bonds, notes, and debentures consist of non-agency mortgage backed securities, certain other asset backed securities (primarily automobile and commercial loan backed securities) and corporate bond
securities.
(b) Other securities consist of FHLB and FRB restricted stock holdings that are carried at par, FHLMC and FNMA preferred stock holdings and certain mutual fund holdings and equity security
holdings.
As of December 31, 2011, available-for-sale securities on an
amortized cost basis decreased $305 million, or two percent, from
December 31, 2010 due to a decrease in agency mortgage-backed
securities, partially offset by an increase in U.S. government
sponsored agencies securities and an increase in other bonds, notes
and debentures. Agency mortgage-backed securities decreased from
2010 as excess cash was invested in other short-term investments.
The increase in both U.S. government sponsored agencies securities
and other bonds, notes and debentures was primarily driven by
increased purchases of these instruments.
At December 31, 2011 and 2010, available-for-sale securities
were 14% of total interest-earning assets compared to 15% at
December 31, 2010. The estimated weighted-average life of the debt
securities in the available-for-sale portfolio was 3.6 years at
December 31, 2011, compared to 4.4 years at December 31, 2010.
In addition, at December 31, 2011, the available-for-sale
securities portfolio had a weighted-average yield of 3.66%,
compared to 4.24% at December 31, 2010.
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. Total net unrealized gains on the available-for-sale
securities portfolio were $748 million at December 31, 2011,
compared to $495 million at December 31, 2010. The increase in
net unrealized gains was due to the Federal Reserve’s low interest
rates causing an increase in investor demand for higher-coupon
securities that offer a higher yield.