Fifth Third Bank 2009 Annual Report Download - page 38

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
36 Fifth Third Bancorp
Investment Advisors
Investment Advisors provides a full range of investment
alternatives for individuals, companies and not-for-profit
organizations. Investment Advisors is made up of four main
businesses: Fifth Third Securities, Inc., (FTS) an indirect wholly-
owned subsidiary of the Bancorp; Fifth Third Asset Management,
Inc., an indirect wholly-owned subsidiary of the Bancorp; Fifth
Third Private Banking; and Fifth Third Institutional services. FTS
offers full service retail brokerage services to individual clients and
broker dealer services to the institutional marketplace. Fifth Third
Asset Management, Inc., provides asset management services and
also advises the Bancorp’s proprietary family of mutual funds.
Fifth Third Private Banking offers holistic strategies to affluent
clients in wealth planning, investing, insurance and wealth
protection. Fifth Third Institutional services provide advisory
services for institutional clients including states and municipalities.
Table 17 contains selected financial data for the Investment
Advisors segment.
Comparison of 2009 with 2008
Net income decreased $45 million, or 46%, compared to 2008 as
decreases in net interest income and investment advisory revenue
were only partially offset by lower salaries and benefit expenses.
Average loans decreased from $3.5 billion in 2008 to $3.1 billion
in 2009 due to a decrease in commercial loans of $402 million
while the balance in average consumer loans was flat compared to
2008. Average core deposits increased six percent compared to
2008 due to an increase in average foreign deposits of $642
million partially offset by a decrease in average savings balance of
$359 million.
Noninterest income decreased $50 million, or 13%,
compared to 2008, as investment advisory income decreased 11%,
to $315 million, with private client services income declining $14
million or 10% and institutional income declining $13 million or
16%, driven by lower asset values on assets managed compared to
2008. Also included within investment advisory revenue is
securities and brokerage income, which declined $10 million or
nine percent compared to 2008, reflecting a decline in transaction-
based revenue as well as the continued shift in assets from equity
products to lower yielding money market funds due to market
volatility through much of 2009.
Noninterest expense decreased $22 million, or six percent,
compared to 2008 as the segment continued to focus on expense
control by reducing personnel and reducing performance based
compensation.
Comparison of 2008 with 2007
Net income decreased $1 million in 2008 compared to 2007 as
higher net interest income and lower operating expenses were
offset by higher provision for loan and lease losses and lower
investment advisory revenue.
Noninterest income decreased $22 million in 2008 compared
to 2007, as investment advisory revenue decreased to $354
million. Included in the decrease of investment advisory income
was a decline in broker income of $11 million driven by clients
moving to lower fee, cash based products from equity products
due to extreme market volatility and a decline in transaction based
revenues. Additionally, institutional trust revenue within
investment advisory revenue decreased $7 million due to overall
lower asset values. Noninterest expense decreased $19 million
compared to 2007 as the segment continued to focus on expense
control.
General Corporate and Other
General Corporate and Other includes the unallocated portion of
the investment securities portfolio, securities gains/losses, certain
non-core deposit funding, unassigned equity, provision expense in
excess of net charge-offs, the payment of preferred stock
dividends, historical financial information for the merchant
acquiring and financial institutions processing businesses and
certain support activities and other items not attributed to the
business segments.
Comparison of 2009 with 2008
The results of General Corporate and Other were primarily
impacted by a $1.8 billion pre-tax gain ($1.1 billion after tax)
resulting from the Processing Business Sale in 2009 and provision
expense in excess of net charge-offs of $1 billion in 2009. Current
year results also include an $18 million benefit in noninterest
income due to mark-to-market adjustments on warrants and put
options related to the Processing Business Sale. A $106 million tax
benefit was recognized in 2009 as a result of the Bancorp’s
decision to surrender one of its BOLI policies partially offset by a
$54 million BOLI charge reflecting reserves recorded in the
connection with the intent to surrender the policy. Additionally,
the Bancorp recorded a $244 million gain on the sale of its Visa
Inc., Class B shares and a $73 million benefit from the reversal of
Visa litigation reserve in non-interest expense. These benefits were
partially offset by $226 million in preferred stock dividends and a
$22 million pre-tax litigation reserve accrual recorded in other
noninterest expense for litigation associated with bank card
association membership. Provision expense in excess of net
charge-offs decreased from $1.9 billion in 2008 to $1 billion in
2009.
Comparison of 2008 with 2007
Results were primarily impacted by the significant increase in the
provision expense in excess of net charge-offs, which increased
from $167 million in 2007 to $1.9 billion in 2008. The results in
2008 also included: $273 million in income related to the
redemption of a portion of Fifth Third’s ownership interests in
Visa, $99 million in net reductions to noninterest expense to
reflect the reversal of a portion of the litigation reserve related to
the Bancorp’s indemnification of Visa, $229 million after-tax
impact of charges relating to certain leveraged leases, charges
related to a reduction in the current cash surrender value of one of
the Bancorp’s BOLI policies totaling $215 million, OTTI charges
totaling $104 million from FNMA and FHLMC preferred stock
and certain bank trust preferred securities, a net benefit of $40
million from the resolution of a prior litigation partially offset by
$67 million in preferred stock dividends in 2008. The results in
2007 included a charge of $177 million related to a reduction in
the current cash surrender value of one of the Bancorp’s BOLI
policies and charges totaling $172 million in Visa related charges.
TABLE 17: INVESTMENT ADVISORS
For the years ended December 31
($ in millions) 2009 2008 2007
Income Statement Data
Net interest income $157 191 153
Provision for loan and lease losses 57 49 12
Noninterest income:
Investment advisory revenue 315 354 386
Other noninterest income 21 32 22
Noninterest expense:
Salaries, incentives and benefits 140 159 167
Other noninterest expense 214 217 228
Income before taxes 82 152 154
A
pplicable income tax expense 29 54 55
Net income $53 98 99
A
verage Balance Sheet Data
Loans $3,112 3,527 3,206
Core deposits 4,939 4,666 4,959