Fifth Third Bank 2003 Annual Report Download - page 62

FIFTH THIRD BANCORP AND SUBSIDIARIES
60
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Checking Account and the Platinum Capital Account — the
Bancorp’s consolidated bank and investment account. These balances
represent an important source of funding and revenue growth
opportunity as the Bancorp is continuing to focus on net checking
account growth in its retail and commercial franchises. The Bancorp
also realized a decrease in time deposit balances, resulting from the
declining interest rate environment. The Bancorp expects near term
trends in transaction account deposit growth will continue to reflect
success in attracting new customer relationships across the footprint
mitigated by the implications of an improving interest rate
environment. Table 22 below shows the relative composition of the
Bancorp’s average deposits and Table 20 below shows the change in
average deposit sources during the last five years. Other time deposits
are comprised of consumer certificates of deposit. All foreign office
deposits are denominated in amounts greater than $100,000.
Table 20–Change in Average Deposit Sources
($ in millions) 2003 2002 2001 2000 1999
Demand . . . . . . . . $1,529 1,559 1,137 178 452
Interest checking . . 2,440 4,750 1,958 978 1,523
Savings . . . . . . . . . (1,445) 4,537 (871) (407) (126)
Money market. . . . 2,027 (1,390) 1,613 (389) (143)
Other time . . . . . . (2,235) (4,070) (243) (142) (1,259)
Certificates–$100,000
and over . . . . . . 1,401 (2,132) (462) 86 341
Foreign office . . . . 1,844 26 (1,904) 2,944 682
Total change . . . . . $5,561 3,280 1,228 3,248 1,470
Certificates carrying a balance of $100,000 or more and deposits in
the Bancorp’s foreign branch located in the Cayman Islands are
wholesale funding tools utilized to fund asset growth. Maturity
distribution of domestic certificates of deposit of $100,000 and over at
December 31, 2003 are as follows:
Table 21–Maturity Distribution of Certificates —
$100,000 and over
($ in millions)
Three months or less . . . . . . . . . . . . . . . . $ 872
Over three months through six months. . . 179
Over six months through twelve months. . 166
Over twelve months . . . . . . . . . . . . . . . . . 154
Total certificates-$100,000 and over . . . . . $1,371
Borrowings
Short-term borrowings consist primarily of short-term excess funds
from correspondent banks, securities sold under agreements to
repurchase and commercial paper issuances. Short-term borrowings
primarily fund short-term, rate-sensitive earning-asset growth. As part
of its overall interest rate risk management strategy reflective of
shortening asset durations in 2003, the Bancorp increased its use of
short-term borrowings to fund a portion of the growth in the average
earning-asset portfolio. As Table 23 indicates, the Bancorp was a net
borrower of $12.3 billion in 2003, compared to $7.0 billion in 2002.
Table 23–Average Short-Term Borrowings
($ in millions) 2003 2002 2001 2000 1999
Federal funds
purchased . . $ 7,001 3,262 3,682 4,801 4,443
Short-term
bank notes . 22 2 10 1,102 1,053
Other short-term
borrowings . 5,350 3,927 5,107 3,822 3,077
Total short-term
borrowings . 12,373 7,191 8,799 9,725 8,573
Federal funds
sold . . . . . . (92) (155) (69) (118) (224)
Net funds
borrowed . . . $12,281 7,036 8,730 9,607 8,349
Long-term debt was $9.1 billion at December 31, 2003, compared
with $8.2 billion at December 31, 2002. As previously discussed, the early
adoption of FIN 46 on July 1, 2003 resulted in the consolidation of an
SPE for which the Bancorp is deemed to be the primary beneficiary. The
early adoption of FIN 46 resulted in the consolidation of a long-term
debt obligation totaling $1.1 billion on July 1, 2003. See Note 1 of the
Notes to Consolidated Financial Statements for further discussion of
adoption of FIN 46. The adoption of SFAS No. 150 on July 1, 2003
resulted in the reclassification of a $482 million minority interest to long-
term debt, relating to preferred stock issued during 2001 by a subsidiary
of the Bancorp. See Note 1 of the Notes to Consolidated Financial
Statements for further discussion of adoption of SFAS No. 150. In
addition to the above, during 2003, the Bancorp retired approximately
$200 million of Federal Home Loan Bank advances with a coupon of
6.38 percent and a maturity date of June 29, 2005, incurring a charge to
operating expenses of approximately $20 million. Also, during 2003 the
Bancorp issued $500 million, 4.50% Subordinated Notes due June 1,
2018 under a shelf registration in place with the Securities and Exchange
Commission that had $2 billion of issuance availability. The Bancorp
continues to explore additional alternatives regarding the level and cost of
various other sources of funds.
Capital Resources
The Bancorp maintains a relatively high level of capital as a margin of
safety for its depositors and shareholders. At December 31, 2003,
shareholders’ equity was $8.5 billion. The Federal Reserve Board has
adopted risk-based capital guidelines that assign risk weightings to assets
Table 22–Distribution of Average Deposits
2003 2002 2001 2000 1999
($ in millions) Amount % Amount % Amount % Amount % Amount %
Demand . . . . . . . . . . . . . . . . . $10,482 19% $ 8,953 18% $ 7,394 16% $ 6,257 14% $ 6,079 15%
Interest checking . . . . . . . . . . . . 18,679 34 16,239 33 11,489 25 9,531 22 8,553 21
Savings . . . . . . . . . . . . . . . . . . . 8,020 15 9,465 19 4,928 11 5,799 13 6,206 15
Money market . . . . . . . . . . . . . 3,189 6 1,162 3 2,552 6 939 2 1,328 3
Other time . . . . . . . . . . . . . . . . 7,168 13 9,403 19 13,473 30 13,716 31 13,858 34
Certificates–$100,000
and over
. . . . . . . . . . . . . . . . 3,090 6 1,689 4 3,821 8 4,283 9 4,197 10
Foreign office . . . . . . . . . . . . . . 3,862 7 2,018 4 1,992 4 3,896 9 952 2
Total
. . . . . . . . . . . . . . . . . . . $54,490 100% $48,929 100% $45,649 100% $44,421 100% $41,173 100%