Fifth Third Bank 2009 Annual Report Download - page 29

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fifth Third Bancorp 27
Average interest-bearing core deposits increased $2.7 billion,
or five percent, compared to last year, primarily due to increased
interest checking, savings other time deposits balances, partially
offset by a decline in money market deposits. The cost of interest-
bearing core deposits was 1.28% in 2009; a decrease of 56 bp
from 1.84% in 2008. The year-over-year decrease is a result of the
decrease in short-term market interest rates as the federal funds
rate steadily declined over the course of 2008 and remained at a
historically low rate throughout 2009.
Interest expense on wholesale funding decreased 46%
compared to the prior year due to a 21% decrease in average
balances and a 100 bp decrease in the average rate. In 2009,
wholesale funding represented 35% of interest-bearing liabilities,
down from 42% in 2008. Impacting this change was a decrease in
average long-term debt of $2.9 billion, or 21%, which included a
yield decrease of 112 bp compared to 2008. This was driven by a
$1.0 billion FHLB advance maturing in the first quarter of 2009
and $1.2 billion in bank notes maturing in the second quarter of
2009, which were the primary factors of the reduction in interest
expense on long term debt of $239 million. Further impacting the
wholesale funding balance was a $3.8 billion, or a 35%, decline in
average short-term borrowings, including federal funds purchased,
as well as a 169 bp decline in the average rate on short term
borrowings, compared to 2008, which led to reductions in interest
expense of $59 million and $146 million, respectively. The
decreased reliance on wholesale funding in 2009 was a result of
the increase in the Bancorp’s average equity position compared to
2008 due to the issuance of $1 billion of common stock in the
second quarter of 2009 and from the sale of $3.4 billion of senior
preferred shares and related warrants to the U.S. Treasury on
December 31, 2008 under its Capital Purchase Program (CPP).
For more information on the Bancorp’s interest rate risk
management, including estimated earnings sensitivity to changes
in market interest rates, see the Market Risk Management section
of Management’s Discussion and Analysis.
TABLE 5: CONSOLIDATED AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME (FTE)
For the years ended December 31 2009 2008 2007
($ in millions)
Average
Balance
Revenue/
Cost
Average
Yield/Rate
A
verage
Balance
Revenue/
Cost
Average
Yield/Rate
Average
Balance
Revenue/
Cost
Average
Yield/Rate
A
ssets
Interest-earning assets:
Loans and leases (a):
Commercial loans $27,556 $1,162 4.22 % $28,426 $1,520 5.35 % $22,351 $1,639 7.33 %
Commercial mortgage 12,511 545 4.35 12,776 866 6.78 11,078 801 7.23
Commercial construction 4,638 134 2.90 5,846 342 5.85 5,661 421 7.44
Commercial leases 3,543 150 4.24 3,680 18 0.49 3,683 158 4.29
Subtotal - commercial 48,248 1,991 4.13 50,728 2,746 5.41 42,773 3,019 7.06
Residential mortgage 10,886 602 5.53 10,993 705 6.41 10,489 642 6.13
Home equity 12,534 520 4.15 12,269 701 5.71 11,887 897 7.54
Automobile loans 8,807 556 6.31 8,925 566 6.34 10,704 674 6.30
Credit card 1,907 193 10.10 1,708 167 9.77 1,276 133 10.39
Other consumer loans and leases 1,009 86 8.49 1,212 64 5.28 1,219 65 5.36
Subtotal - consumer 35,143 1,957 5.57 35,107 2,203 6.27 35,575 2,411 6.78
Total loans and leases 83,391 3,948 4.73 85,835 4,949 5.77 78,348 5,430 6.93
Securities:
Taxable 16,861 721 4.28 13,082 643 4.91 11,131 566 5.08
Exempt from income taxes (a) 239 17 7.19 342 25 7.35 499 36 7.29
Other short-term investments 1,035 1 0.14 621 13 2.15 404 19 4.80
Total interest-earning assets 101,526 4,687 4.62 99,880 5,630 5.64 90,382 6,051 6.70
Cash and due from banks 2,329 2,490 2,275
Other assets 14,266 13,411 10,613
A
llowance for loan and lease losses (3,265) (1,485) (793)
Total assets $114,856 $114,296 $102,477
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing core deposits:
Interest checking $15,070 $40 0.26 % $14,191 $128 0.91 % $14,820 $318 2.14 %
Savings 16,875 127 0.75 16,192 224 1.38 14,836 456 3.07
Money market 4,320 26 0.60 6,127 118 1.92 6,308 269 4.26
Foreign office deposits 2,108 10 0.45 2,153 34 1.60 1,762 73 4.15
Other time deposits 14,103 470 3.33 11,135 411 3.69 10,778 495 4.59
Total interest-bearing core deposits 52,476 673 1.28 49,798 915 1.84 48,504 1,611 3.32
Certificates - $100,000 and over 10,367 280 2.70 9,531 324 3.40 6,466 328 5.07
Other foreign office deposits 157 - 0.20 2,067 50 2.42 1,393 68 4.91
Federal funds purchased 517 1 0.20 2,975 70 2.34 3,646 184 5.04
Other short-term borrowings 6,463 42 0.64 7,785 178 2.29 3,244 140 4.32
Long-term debt 11,035 318 2.89 13,903 557 4.01 12,505 687 5.50
Total interest-bearing liabilities 81,015 1,314 1.62 86,059 2,094 2.43 75,758 3,018 3.98
Demand deposits 16,862 14,017 13,261
Other liabilities 3,926 4,182 3,875
Total liabilities 101,803 104,258 92,894
Shareholders’ equity 13,053 10,038 9,583
Total liabilities and shareholders’ equity $114,856 $114,296 $102,477
Net interest income $3,373 $3,536 $3,033
Net interest margin 3.32 % 3.54 % 3.36 %
Net interest rate spread 3.00 3.21 2.72
Interest-bearing liabilities to interest-earning assets 79.80 86.16 83.82
(a) The fully taxable-equivalent adjustments included in the above table are $19 million, $22 million and $24 million for the years ended December 31, 2009, 2008 and 2007, respectively.