Fifth Third Bank 2008 Annual Report Download - page 42

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
40 Fifth Third Bancorp
method to fund earning asset growth.
Core deposits increased one percent compared to 2007 due
to acquisitions during the past year. Exclusive of acquisitions,
core deposits decreased three percent, as growth in demand,
savings, and other time deposits was more than offset by a three
percent decrease in interest-bearing core deposits as a result of
increased competitor pricing on time deposits. A majority of the
increase in deposit pricing was the result of the impact of the
illiquidity in the marketplace that provided other financial
institutions limited access to alternative funding sources. The
Bancorp increased its rates during the third quarter of 2008 to
approximate competitor rates and experienced increases in its
interest-bearing core deposit products following these actions.
Certificates $100,000 and over at December 31, 2008
increased by $5.1 billion and other deposits decreased by $2.5
billion compared to December 31, 2007 primarily driven by
growth in customer jumbo CD’s and other time deposits in an
overall effort by the Bancorp to reduce exposure to market related
funding.
On an average basis, core deposits increased three percent
primarily due to acquisitions that occurred since 2007. Exclusive
of acquisitions, average core deposits remained flat compared to
2007 as increases in demand deposits due to decreased earnings
credit rates were partially offset by the decrease in interest-bearing
core deposit products.
On an average basis, savings deposits increased nine percent
primarily due to acquisitions that occurred since 2007. Exclusive
of acquisitions, average savings deposits increased seven percent.
This growth is primarily due to a mix shift as customers migrated
from lower yielding interest checking into higher yielding savings
accounts.
Borrowings
Total borrowings increased $1.8 billion, or eight percent, over
2007, to provide funding for the growth in the assets throughout
2008. As of December 31, 2008 and December 31, 2007, total
borrowings as a percentage of interest-bearing liabilities remained
consistent at 27%.
Total short-term borrowings were $10.2 billion at December
31, 2008 compared to $9.2 billion at December 31, 2007. The
reduction in the overnight fed funds purchased balance was due
to the receipt of $3.4 billion in equity funding from the U.S.
Treasury under the CPP on December 31, 2008 and an increase in
other short-term borrowings primarily through the purchase of
term funding through FHLB advances and Term Auction Facility
funds.
Long-term debt at December 31, 2008 increased six percent
compared with December 31, 2007 due to increased fair value
marks on hedged debt. Among debt issuances, new issuances
during the first and second quarters of 2008 were offset by $2.1
billion of long-term bank notes maturing during 2008. In
February 2008, the Bancorp issued $1.0 billion of 8.25%
subordinated notes, a portion of which were subsequently hedged
to floating, with a maturity date of March 1, 2038. In April 2008,
the Bancorp issued $750 million of 6.25% senior notes with a
maturity date of May 1, 2013. The notes are not subject to
redemption at the Bancorp’s option at any time prior to maturity.
Additionally, in May 2008, an unconsolidated trust issued $400
million of Tier 1-qualifying trust preferred securities and invested
these proceeds in junior subordinated notes issued by the
Bancorp. The notes mature on May 15, 2068 and bear a fixed rate
of 8.875% until May 15, 2058. After May 15, 2058, the notes bear
interest at a variable rate of three-month LIBOR plus 5.00%. The
Bancorp has subsequently entered into hedges related to these
notes.
Information on the average rates paid on borrowings is
located in the Statements of Income Analysis. Further detail on
the Bancorp’s long-term debt can be found in Note 14 of the
Notes to Consolidated Financial Statements. In addition, refer to
the Liquidity Risk Management section for a discussion on the
role of borrowings in the Bancorp’s liquidity management.
TABLE 25: BORROWINGS
As of December 31 ($ in millions) 2008 2007 2006 2005 2004
Federal funds purchased $287 4,427 1,421 5,323 4,714
Short-term bank notes --- -775
Other short-term borrowings 9,959 4,747 2,796 4,246 4,537
Long-term debt 13,585 12,857 12,558 15,227 13,983
Total borrowings $23,831 22,031 16,775 24,796 24,009