Fifth Third Bank 2012 Annual Report Download - page 54

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
52 Fifth Third Bancorp
industrial loans increased $4.4 billion, or 15%, average commercial
mortgage loans decreased $761 million, or seven percent, and
average commercial construction loans decreased $905 million, or
52%, from December 31, 2011 due to the reasons previously
discussed in the end of period discussion above.
Average consumer loans and leases increased $1.7 billion, or
five percent, compared to December 31, 2011. The increase in
average consumer loans and leases from December 31, 2011 was
driven by an increase in average residential mortgage loans, average
automobile loans, and average credit card loans partially offset by a
decrease in average home equity loans. Average residential mortgage
loans increased $2.1 billion, or 18%, average credit card balances
increased $96 million, or five percent, and average home equity
loans decreased $708 million, or six percent, from December 31,
2011 due to the reasons previously discussed in the end of period
discussion above. Average automobile loans increased $497 million,
or four percent, due to strong originations in the second half of
2011 and throughout 2012.
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, 2012, total investment
securities were $15.7 billion compared to $15.9 billion at December
31, 2011. 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, 2012, the Bancorp’s investment portfolio
consisted primarily of AAA-rated available-for-sale securities. The
Bancorp did not hold asset-backed securities backed by subprime
mortgage loans in its investment portfolio. Additionally, there was
approximately $100 million of securities classified as below
investment grade as of December 31, 2012, compared to $122
million as of December 31, 2011.
The Bancorp’s management has evaluated the securities in an
unrealized loss position in the available-for-sale and held-to-
maturity portfolios for OTTI. During the years ended December
31, 2012, 2011, and 2010, the Bancorp recognized $58 million, $19
million and $3 million of OTTI on its investment securities
portfolio, respectively. The Bancorp did not recognize any OTTI on
any of its held-to-maturity investment securities during the years
ended December 31, 2012, 2011 or 2010.
TABLE 20: COMPONENTS OF INVESTMENT SECURITIES
A
s of December 31 ($ in millions) 2012 2011 2010 2009 2008
A
vailable-for-sale and other: (amortized cost basis)
U.S. Treasury and government agencies $41 171 225 464 186
U.S. Government sponsored agencies 1,730 1,782 1,564 2,143 1,651
Obligations of states and political subdivisions 203 96 170 240 323
A
gency mortgage-backed securities 8,403 9,743 10,570 11,074 8,529
Other bonds, notes and debentures(a) 3,161 1,792 1,338 2,541 613
Other securities(b) 1,033 1,030 1,052 1,417 1,248
Total available-for-sale and other securities $14,571 14,614 14,919 17,879 12,550
Held-to-maturity: (amortized cost basis)
Obligations of states and political subdivisions $282 320 348 350 355
Other bonds, notes and debentures 2 2 5 5 5
Total held-to-maturity $284 322 353 355 360
Trading: (fair value)
V
ariable rate demand notes - - 106 235 1,140
Other securities 207 177 188 120 51
Total trading $207 177 294 355 1,191
(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, 2012, available-for-sale securities on an
amortized cost basis decreased $43 million from December 31, 2011
due to a decrease in agency mortgage-backed securities and U.S.
Treasury and government agency securities partially offset by an
increase in obligations of states and political subdivision securities
and other bonds, notes, and debentures. Agency mortgage-backed
securities decreased $1.3 billion, or 14%, from December 31, 2011
primarily due to sales of collateralized mortgage obligations and
mortgage-backed securities totaling $2.2 billion which was partially
offset by reinvesting cash flows from securities paydown activity.
The decrease of $130 million, or 76%, in U.S. Treasury and
government agencies securities was due to maturities and the excess
cash was reinvested in obligations of states and political subdivisions
securities which increased $107 million, or 111%, from December
31, 2011. Other bonds, notes, and debentures increased $1.4 billion,
or 76%, due to purchases of commercial mortgage-backed
securities, asset-backed securities, and corporate bonds during the
year partially offset by sales, paydowns, and bonds called during the
year.
At December 31, 2012 and 2011, available-for-sale securities
were 14% of total interest-earning assets. The estimated weighted-
average life of the debt securities in the available-for-sale portfolio
was 3.8 years at December 31, 2012, compared to 3.6 years at
December 31, 2011. In addition, at December 31, 2012, the
available-for-sale securities portfolio had a weighted-average yield of
3.30%, compared to 3.66% at December 31, 2011.
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 $636 million at December 31, 2012,
compared to $748 million at December 31, 2011. The decrease in
net unrealized gains was driven by the sales of agency mortgage-
backed securities which generated a total realized gain of $67 million
recognized in the Consolidated Statements of Income. The
remaining decrease in net unrealized gains was due to a decline in
interest rates. The fair value of investment securities is impacted by