Fifth Third Bank 2013 Annual Report Download - page 56

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
54 Fifth Third Bancorp
The increase in average commercial loans and leases was
primarily driven by an increase in average commercial and industrial
loans partially offset by a decrease in average commercial mortgage
loans. Average commercial and industrial loans increased $4.9
billion, or 15%, from December 31, 2012 due to an increase in new
loan origination activity from an increase in demand due to a
strengthening economy and targeted marketing efforts. Average
commercial mortgage loans decreased $1.2 billion, or 12%, from
December 31, 2012 due to continued runoff as the level of new
originations was less than the repayments on the current portfolio.
The increase in average consumer loans and leases from
December 31, 2012 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 $1.1 billion, or eight
percent, from December 31, 2012 due to strong refinancing activity
during the first half of 2013 and due to the continued retention of
certain shorter term residential mortgage loans originated through
the Bancorp’s retail branches. Average automobile loans increased
$172 million, or one percent, from December 31, 2012 due to loan
originations exceeding runoff, partially offset by the impact of the
securitization and sale of $509 million of automobile loans in the
first quarter of 2013. Average credit card loans increased $161
million, or eight percent, from December 31, 2012 due to an
increase in average balances per account and the volume of new
customer accounts. Average home equity loans decreased $815
million, or eight percent, from December 31, 2012 as payoffs
exceeded new loan production.
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, 2013, total investment
securities were $19.1 billion compared to $15.7 billion at December
31, 2012. 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, 2013, 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, securities
classified as below investment grade were immaterial as of
December 31, 2013 and had a carrying value of $31 million as of
December 31, 2012.
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, 2013, 2012, and 2011, the Bancorp recognized $74 million, $58
million and $19 million of OTTI on its available-for-sale and other
investment securities portfolio, respectively. The Bancorp did not
recognize any OTTI on any of its held-to-maturity investment
securities during the years ended December 31, 2013, 2012 or 2011.
TABLE 21: COMPONENTS OF INVESTMENT SECURITIES
A
s of December 31 ($ in millions) 2013 2012 2011 2010 2009
A
vailable-for-sale and other: (amortized cost basis)
U.S. Treasury and government agencies $26 41 171 225 464
U.S. Government sponsored agencies 1,523 1,730 1,782 1,564 2,143
Obligations of states and political subdivisions 187 203 96 170 240
A
gency mortgage-backed securities 12,294 8,403 9,743 10,570 11,074
Other bonds, notes and debentures(a) 3,514 3,161 1,792 1,338 2,541
Other securities(b) 865 1,033 1,030 1,052 1,417
Total available-for-sale and other securities $18,409 14,571 14,614 14,919 17,879
Held-to-maturity: (amortized cost basis)
Obligations of states and political subdivisions $207 282 320 348 350
Other bonds, notes and debentures 1 2 2 5 5
Total held-to-maturity $208 284 322 353 355
Trading: (fair value)
U.S. Treasury and government agencies $1 1 - 1 -
U.S. Government sponsored agencies 4 6 - - -
Obligations of states and political subdivisions 13 17 9 21 57
A
gency mortgage-backed securities 3 7 11 8 24
Other bonds, notes and debentures 7 15 13 120 205
Other securities 315 161 144 144 69
Total trading $343 207 177 294 355
(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, 2013, available-for-sale securities on an
amortized cost basis increased $3.8 billion, or 26%, from December
31, 2012 due to a increase in agency mortgage-backed securities and
other bonds, notes and debentures partially offset by an decrease in
U.S. Government sponsored agencies. Agency mortgage-backed
securities increased $3.9 billion, or 46%, from December 31, 2012
due to $15.0 billion in purchases of agency mortgage-backed
securities partially offset by $8.4 billion in sales and $2.7 billion in
paydowns on the portfolio during the year ended December 31,
2013. Other bonds, notes, and debentures increased $353 million, or
11%, due to the purchase of $1.6 billion of asset backed securities,
collateralized loan obligations and collateralized mortgage backed
securities partially offset by the sale of $1.1 billion of asset backed
securities, collateralized loan obligations and corporate bonds and
$126 million of paydowns and TruPS that were called during the
year ended December 31, 2013. U.S. Government sponsored
agencies securities decreased $207 million, or 12%, primarily due to
approximately $204 million of agency debentures that were called in
2013.
At December 31, 2013 and 2012, available-for-sale securities
were 16% and 14% of total interest-earning assets. The estimated
weighted-average life of the debt securities in the available-for-sale