Fifth Third Bank 2014 Annual Report Download - page 55

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
53 Fifth Third Bancorp
million, or 88%, from December 31, 2013 primarily due to an
increase in new loan origination activity and utilization resulting
from a strengthening economy and targeted marketing efforts.
Average commercial mortgage loans decreased $736 million, or nine
percent, from December 31, 2013 due to continued run-off as the
level of new originations was outpaced by increased repayments on
the current portfolio.
Average consumer loans and leases decreased from December
31, 2013 primarily due to decreases in average residential mortgage
loans and average home equity partially offset by an increase in
average credit card loans. Average residential mortgage loans
decreased $1.1 billion, or eight percent, from December 31, 2013
primarily due to a decline in average loans held for sale of $1.5
billion from reduced origination volumes driven by a reduction in
refinance activity and the exit of the broker origination channel
during 2014. This decrease was partially offset by the continued
retention of certain shorter term residential mortgage loans
originated through the Bancorp’s retail branches and the decision to
retain certain conforming ARMs and certain other fixed-rate loans
originated during the year ended December 31, 2014. Average home
equity decreased $495 million, or five percent, from December 31,
2013 as payoffs exceeded new loan production. Average credit card
loans increased $150 million, or seven percent, from December 31,
2013 primarily due to an increase in open and active accounts driven
by the volume of new customer accounts.
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, 2014, total investment
securities were $23.0 billion compared to $19.1 billion at December
31, 2013. Refer to 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, 2014, 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, 2014 and 2013. 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. The
Bancorp recognized $24 million, $74 million and $58 million of
OTTI on its available-for-sale and other debt securities, included in
securities gains, net and securities gains, net – non-qualifying hedges
on mortgage servicing rights, in the Bancorp’s Consolidated
Statements of Income during the years ended December 31, 2014,
2013 and 2012, respectively. The Bancorp did not recognize OTTI
on any of its available-for-sale equity securities or held-to-maturity
debt securities for the years ended December 31, 2014, 2013 and
2012.
TABLE 24: COMPONENTS OF INVESTMENT SECURITIES
A
s of December 31 ($ in millions) 2014 2013 2012 2011 2010
A
vailable-for-sale and other: (amortized cost basis)
U.S. Treasury and federal agencies $1,545 1,549 1,771 1,953 1,789
Obligations of states and political subdivisions 185 187 203 96 170
Mortgage-backed securities:
A
gency residential mortgage-backed securities 11,968 12,294 8,403 9,743 10,570
A
gency commercial mortgage-backed securities 4,465 - - - -
Non-agency residential mortgage-backed securities - - - 28 41
Non-agency commercial mortgage-backed securities 1,489 1,368 1,089 498 -
A
sset-backed securities and other debt securities 1,324 2,146 2,072 1,266 1,297
Equity securities(a) 701 865 1,033 1,030 1,052
Total available-for-sale and other securities $21,677 18,409 14,571 14,614 14,919
Held-to-maturity: (amortized cost basis)
Obligations of states and political subdivisions $186 207 282 320 348
A
sset-backed securities and other debt securities 1 1 2 2 5
Total held-to-maturity $187 208 284 322 353
Trading: (fair value)
U.S. Treasury and federal agencies $14 5 7 - 1
Obligations of states and political subdivisions 8 13 17 9 21
Mortgage-backed securities:
A
gency residential mortgage-backed securities 9 3 7 11 8
Non-agency residential mortgage-backed securities - - - 1 -
A
sset-backed securities and other debt securities 13 7 15 12 120
Equity securities 316 315 161 144 144
Total trading $360 343 207 177 294
(a) Equity 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, 2014, available-for-sale and other securities on
an amortized cost basis increased $3.3 billion, or 18%, from
December 31, 2013 primarily due to an increase in agency
commercial mortgage-backed securities partially offset by a decrease
in asset-backed securities and other debt securities. Agency
commercial mortgage-backed securities increased $4.5 billion from
December 31, 2013 due to $4.7 billion in purchases of agency
commercial mortgage-backed securities partially offset by $196
million in sales and $20 million in paydowns on the portfolio during
the year ended December 31, 2014. Asset-backed securities and
other debt securities decreased $822 million, or 38%, due primarily
to sales of $1.1 billion of asset-backed securities, collateralized loan
obligations and corporate bonds and paydowns on the portfolio of