<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 31, 1996 Commission File Number 0-8076
FIFTH THIRD BANCORP
(Exact name of Registrant as specified in its charter)
Ohio 31-0854434
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
38 Fountain Square Plaza
Cincinnati, Ohio 45263
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (513) 579-5300
Securities registered pursuant to Section 12(g) of the Act:
Common Stock Without Par Value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes: /X/ No: / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The Aggregate Market Value of the Voting Stock held by non-affiliates of the
Registrant was $5,807,647,414 as of January 31, 1997. (NOTE 1)
The number of shares outstanding of the Registrant's Common Stock, without par
value, as of January 31, 1997 was 105,881,698 shares.
DOCUMENTS INCORPORATED BY REFERENCE
1996 Annual Report to Stockholders: Parts I, II and IV
Proxy Statement for 1997 Annual Meeting of Stockholders: Parts III and IV
NOTE 1: In calculating the market value of securities held by non-affiliates of
Registrant as disclosed on the cover page of this Form 10-K, Registrant has
treated as securities held by affiliates as of December 31, 1996, voting stock
owned of record by its directors and principal executive officers, stockholders
owning greater than 10% of the voting stock, and voting stock held by
Registrant's trust departments in a fiduciary capacity.
Total Pages: 64
--
<PAGE> 2
FIFTH THIRD BANCORP
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
PAGE
----
Item 1. Business 3
Item 2. Properties 13
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
PART II
Item 5. Market For Registrant's Common Equity and Related
Stockholder Matters 13
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 13
PART III
Item 10. Directors and Executive Officers of the Registrant 14
Item 11. Executive Compensation 15
Item 12. Security Ownership of Certain Beneficial Owners and Management 15
Item 13. Certain Relationships and Related Transactions 15
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 16
Page 2
<PAGE> 3
PART I
ITEM 1. BUSINESS
- -----------------
ORGANIZATION
Registrant was organized in 1974 under the laws of the State of Ohio. It began
operations in 1975 upon reorganization of its principal subsidiary, The Fifth
Third Bank. The executive offices of the Registrant are located in Cincinnati,
Ohio. The Registrant is a multi-bank holding company as defined in the Bank
Holding Company Act of 1956, as amended, and is registered as such with the
Board of Governors of the Federal Reserve System. The Registrant is also a
multi-savings-and-loan holding company and is registered with the Office of
Thrift Supervision. Registrant has sixteen wholly-owned subsidiaries: The Fifth
Third Bank; The Fifth Third Bank of Columbus; The Fifth Third Bank of
Northwestern Ohio, N.A.; The Fifth Third Bank of Southern Ohio; The Fifth Third
Bank of Western Ohio; Fifth Third Bank of Northeastern Ohio; Fifth Third Savings
Bank of Northern Ohio, FSB; Fifth Third Bank of Florida; Fifth Third Bank of
Northern Kentucky, Inc.; Fifth Third Savings Bank of Northern Kentucky, FSB;
Fifth Third Bank of Kentucky, Inc.; The Fifth Third Savings Bank of Western
Kentucky, FSB; The Fifth Third Bank of Central Indiana; Fifth Third Community
Development Company; Fifth Third Investment Company; and Fountain Square
Insurance Company. Unless the context otherwise indicates the term "Company" as
used herein means the Registrant and the term "Bank" means its wholly-owned
subsidiary, The Fifth Third Bank.
During January 1997, the Fifth Third Savings Bank of Western Kentucky, FSB was
merged into and with Fifth Third Bank of Kentucky, Inc., Fifth Third Savings
Bank of Northern Ohio, FSB was merged into and with Fifth Third Bank of
Northeastern Ohio and Fifth Third Savings Bank of Northern Kentucky, FSB was
merged into and with Fifth Third Bank of Northern Kentucky, Inc. At the same
time, the Company was deregistered as a savings-and-loan holding company.
As of December 31, 1996, the Company's consolidated total assets were
$20,548,998,000 and stockholders' equity totalled $2,144,125,000.
The Bank has five wholly-owned subsidiaries: Midwest Payment Systems, Inc.;
Fifth Third Securities, Inc.; The Fifth Third Company; The Fifth Third Leasing
Company; and Fifth Third International Company.
Fifth Third International Company has a 99.9% owned subsidiary: Fifth Third
Trade Services Limited. Fifth Third Investment Company owns the remaining .01%.
ACQUISITIONS
The Company is the result of mergers and acquisitions over the years involving
financial institutions throughout Ohio, Indiana, Kentucky, and Florida. The
Company made the following acquisitions during 1996:
On January 19, 1996, the Company purchased approximately $1.4 billion of
deposits and the fixed assets of 28 Cleveland-area offices from 1st Nationwide
Bank. The acquisition price of the deposits, offices and other fixed assets was
approximately $136 million.
Page 3
<PAGE> 4
On February 23, 1996, the Company purchased the Ohio operations of First Chicago
NBD Corporation including $534 million in deposits, $222 million in loans and 25
offices in Columbus and Dayton, Ohio for $39.5 million.
On March 15, 1996, the Company acquired Kentucky Enterprise Bancorp, Inc., with
consolidated assets of $276 million, and its wholly-owned subsidiary, Kentucky
Enterprise Bank, FSB in a transaction accounted for as a pooling of interests.
COMPETITION
There are hundreds of commercial banks, savings and loans and other financial
services providers in Ohio, Kentucky, Indiana, Florida and nationally, which
provide strong competition to the Company's banking subsidiaries. As providers
of a full range of financial services, these subsidiaries compete with national
and state banks, savings and loan associations, securities dealers, brokers,
mortgage bankers, finance and insurance companies, and other financial service
companies. With respect to data processing services, the Bank's data processing
subsidiary, Midwest Payment Systems, Inc., competes with other electronic fund
transfer (EFT) service providers such as Deluxe Corporation and Electronic
Data Systems and other merchant processing providers such as First Data
Corporation, National Processing, Inc. and First USA Paymentech, Inc.
The earnings of the Company are affected by general economic conditions as well
as by the monetary policies of the Federal Reserve Board. Such policies, which
include regulating the national supply of bank reserves and bank credit, can
have a major effect upon the source and cost of funds and the rates of return
earned on loans and investments. The Federal Reserve influences the size and
distribution of bank reserves through its open market operations and changes in
cash reserve requirements against member bank deposits.
REGULATION AND SUPERVISION
The Company, as a bank holding company, is subject to the restrictions of the
Bank Holding Company Act of 1956, as amended (the "Act"). The Act provides
that the acquisition of control of a bank is subject to the prior approval of
the Board of Governors of the Federal Reserve System. The Company is required
to obtain the prior approval of the Federal Reserve Board before it can acquire
control of more than 5% of the voting shares of another bank. The Act does not
permit the Federal Reserve Board to approve an acquisition by the Company, or
any of its subsidiaries, of any bank located in a state other than Ohio, unless
the acquisition is specifically authorized by the law of the state in which
such bank is located.
On September 29, 1994, the Act was amended by The Interstate Banking and Branch
Efficiency Act of 1994 which authorizes interstate bank acquisitions anywhere in
the country effective one year after the date of enactment, and interstate
branching by acquisition and consolidation effective June 1, 1997, in those
states that have not opted out by that date. The impact of this amendment on the
Company cannot be measured at this time.
The Company's subsidiary state banks are primarily subject to the laws of the
state in which each is located, the Board of Governors of the Federal Reserve
System and/or the Federal Deposit Insurance Corporation. The subsidiary bank
which is organized under the laws of the United States is primarily subject to
regulation by the Comptroller of the Currency and the Federal Deposit Insurance
Corporation. Prior to January, 1997, the Company, as a savings and loan holding
company, and its savings and loan subsidiaries were subject to regulation by the
Office of Thrift Supervision.
Page 4
<PAGE> 5
The Company and its subsidiaries are subject to certain restrictions on
intercompany loans and investments. The Company and its subsidiaries are also
subject to certain restrictions with respect to engaging in the underwriting and
public sale and distribution of securities. In addition, the Company and its
subsidiaries are subject to examination at the discretion of supervisory
authorities.
The Bank Holding Company Act limits the activities which may be engaged in by
the Company and its subsidiaries to ownership of banks and those activities
which the Federal Reserve Board has deemed or may in the future find to be so
closely related to banking as to be a proper incident thereto.
The Financial Reform, Recovery and Enforcement Act of 1989 (FIRREA) provides
that a holding company's controlled insured depository institutions are liable
for any loss incurred by the Federal Deposit Insurance Corporation in connection
with the default of, or any FDIC-assisted transaction involving, an affiliated
insured bank or savings association.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the "FDIC
Improvement Act") covers a wide expanse of banking regulatory issues. The FDIC
Improvement Act deals with the recapitalization of the Bank Insurance Fund, with
deposit insurance reform, including requiring the FDIC to establish a risk-based
premium assessment system, and with a number of other regulatory and supervisory
matters.
EMPLOYEES
As of December 31, 1996, there were no employees of the Company. Subsidiaries of
the Company employed 6,970 employees--1,178 were officers and 1,379 were
part-time employees.
STATISTICAL INFORMATION
Pages 6 to 12 contain statistical information on the Company and its
subsidiaries.
Page 5
<PAGE> 6
SECURITIES PORTFOLIO
The securities portfolio as of December 31 for each of the last five years, and
the maturity distribution and weighted average yield of securities as of
December 31, 1996, are incorporated herein by reference to the securities tables
on pages 32 and 33 of the Company's 1996 Annual Report to Stockholders attached
to this filing as Exhibit 13.
The weighted average yields for the securities portfolio are yields to maturity
weighted by the par values of the securities. The weighted average yields on
securities exempt from income taxes are computed on a taxable equivalent basis.
The taxable equivalent yields are net after-tax yields to maturity divided by
the complement of the full corporate tax rate (35%). In order to express yields
on a taxable equivalent basis, yields on obligations of states and political
subdivisions (municipal securities) have been increased as follows:
Under 1 year 2.42%
1 - 5 years 2.32%
6 - 10 years 2.28%
Over 10 years 2.64%
Total municipal securities 2.33%
AVERAGE BALANCE SHEETS
The average balance sheets are incorporated herein by reference to Table 1 on
pages 28 and 29 of the Company's 1996 Annual Report to Stockholders attached to
this filing as Exhibit 13.
ANALYSIS OF NET INTEREST INCOME AND NET INTEREST INCOME CHANGES
The analysis of net interest income and the analysis of net interest income
changes are incorporated herein by reference to Table 1 and Table 2 and the
related discussion on pages 28 through 30 of the Company's 1996 Annual Report to
Stockholders attached to this filing as Exhibit 13.
Page 6
<PAGE> 7
<TABLE>
<CAPTION>
Types of Loans and Leases
-------------------------
A summary of loans and leases by major category as of December 31 follows
($000's):
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural loans $4,013,785 3,584,124 3,045,315 2,685,558 2,490,077
Real estate - construction loans 375,938 312,098 286,088 342,177 330,587
Real estate - mortgage loans 2,946,225 2,769,178 3,076,463 3,434,496 2,964,402
Consumer loans 2,600,169 3,062,697 2,407,261 2,090,154 1,713,842
Lease financing 3,026,834 2,288,573 1,703,492 1,170,231 737,186
---------------- ---------------- ----------------- ---------------- ----------------
Loans and leases, gross 12,962,951 12,016,670 10,518,619 9,722,616 8,236,094
Unearned income (448,159) (326,027) (232,162) (155,718) (120,504)
Reserve for credit losses (187,278) (177,388) (155,918) (144,537) (121,452)
---------------- ---------------- ----------------- ---------------- ----------------
Loans and leases, net $12,327,514 11,513,255 10,130,539 9,422,361 7,994,138
================ ================ ================= ================ ================
</TABLE>
<TABLE>
<CAPTION>
Maturities and Sensitivity of Loans to Changes in Interest Rates
----------------------------------------------------------------
The remaining maturities of the loan portfolio distributed to reflect expected
cash flows (excluding residential mortgage and consumer loans) at December 31,
1996, and the sensitivity of loans to interest rate changes for loans due after
one year was as follows ($000's):
Commercial,
Financial and Real Estate Real Estate
Agricultural Construction Commercial
Loans Loans Loans Total
---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Due in one year or less $2,461,311 73,498 161,541 2,696,350
Due after one year through
five years 1,262,114 290,158 532,342 2,084,614
Due after five years 290,360 12,282 101,716 404,358
---------------- ---------------- ----------------- ----------------
Total $4,013,785 375,938 795,599 5,185,322
================ ================ ================= ================
Loans due after one year:
Predetermined interest rate $985,538 290,216 497,952 1,773,706
================ ================ ================= ================
Floating or adjustable
interest rate $566,936 12,224 136,106 715,266
================ ================ ================= ================
</TABLE>
Page 7
<PAGE> 8
<TABLE>
<CAPTION>
Risk Elements
- -------------
Interest on loans is normally accrued at the rate agreed upon at the time each
loan was negotiated. It is the Company's policy to discontinue accrual of
interest on commercial, construction and mortgage loans when there is a clear
indication that the borrower's cash flow may not be sufficient to meet payments
as they become due. Loans, other than consumer loans, are placed on nonaccrual
status when principal or interest is past due ninety days or more, unless the
loan is well secured and in the process of collection. For purposes of applying
Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by
Creditors for Impairment of a Loan", as amended, impaired loans have been
defined as all nonaccrual loans. The following table presents data concerning
loans and leases at risk at December 31, 1996 and previous years ($000's):
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual loans and leases $29,046 37,049 20,725 18,961 32,772
Loans and leases contractually
past due ninety days or more as
to interest, principal or rental
payments 38,053 20,455 13,237 10,444 21,804
Loans and leases renegotiated to
provide a reduction or deferral of
interest, principal or rental payments
because of the financial position
deterioration of the borrower 1,121 506 443 2,378 3,693
Loans and leases currently performing
in accordance with contractual terms
where there are serious doubts as to
the ability of the borrower to comply
with such terms 43,097 39,621 35,254 35,992 35,097
</TABLE>
For calendar year 1996, interest income of $569,000 was recorded on nonaccrual
and renegotiated loans and leases. Additional interest income of $3,805,000
would have been recorded if the nonaccrual and renegotiated loans and leases had
been current in accordance with their original terms.
Page 8
<PAGE> 9
<TABLE>
<CAPTION>
Summary of Credit Loss Experience
- ---------------------------------
A summary of the activity in the reserve for credit losses arising from
provisions charged to operations, losses charged off and recoveries of losses
previously charged off was as follows ($000's):
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans and leases outstanding at
December 31 $12,514,792 11,690,643 10,286,457 9,566,898 8,115,590
=============== ============== ============== =============== ===============
Average loans and leases
outstanding $12,304,544 10,960,757 9,902,901 8,869,432 7,189,975
=============== ============== ============== =============== ===============
Reserve for credit losses,
January 1 $177,388 155,918 144,537 121,452 97,319
--------------- -------------- -------------- --------------- ---------------
Losses charged off:
Commercial, financial and
agricultural loans (10,500) (6,596) (8,793) (12,113) (24,156)
Real estate - construction loans -- -- -- -- --
Real estate - mortgage loans (3,774) (3,697) (3,485) (7,174) (6,488)
Consumer loans (53,027) (26,330) (16,416) (16,035) (22,164)
Lease financing (13,143) (5,084) (2,252) (1,850) (1,910)
--------------- -------------- -------------- --------------- ---------------
Total losses (80,444) (41,707) (30,946) (37,172) (54,718)
--------------- -------------- -------------- --------------- ---------------
Recoveries of losses previously
charged off:
Commercial, financial and
agricultural loans 2,865 1,443 1,795 2,103 1,109
Real estate - construction loans -- -- -- -- --
Real estate - mortgage loans 1,608 611 3,006 564 462
Consumer loans 13,174 8,399 7,898 6,793 6,883
Lease financing 2,835 1,393 773 638 499
--------------- -------------- -------------- --------------- ---------------
Total recoveries 20,482 11,846 13,472 10,098 8,953
--------------- -------------- -------------- --------------- ---------------
Net losses charged off:
Commercial, financial and
agricultural loans (7,635) (5,153) (6,998) (10,010) (23,047)
Real estate - construction loans -- -- -- -- --
Real estate - mortgage loans (2,166) (3,086) (479) (6,610) (6,026)
Consumer loans (39,853) (17,931) (8,518) (9,242) (15,281)
Lease financing (10,308) (3,691) (1,479) (1,212) (1,411)
--------------- -------------- -------------- --------------- ---------------
Total net losses charged off (59,962) (29,861) (17,474) (27,074) (45,765)
--------------- -------------- -------------- --------------- ---------------
LOC contract -- -- (7,800) -- --
Reserve of acquired
institutions and other 5,838 8,369 875 2,122 3,798
Provision charged to operations 64,014 42,962 35,780 48,037 66,100
--------------- -------------- -------------- --------------- ---------------
Reserve for credit losses,
December 31 $187,278 177,388 155,918 144,537 121,452
=============== ============== ============== =============== ===============
</TABLE>
Page 9
<PAGE> 10
<TABLE>
<CAPTION>
Summary of Credit Loss Experience, continued
- --------------------------------------------
Reserve for credit losses,
December 31: 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural loans $98,491 92,988 72,906 71,825 66,260
Real estate - construction loans 4,853 5,033 5,405 6,442 6,096
Real estate - mortgage loans 39,879 30,392 26,298 23,397 16,638
Consumer loans 25,045 32,126 36,272 33,450 26,997
Lease financing 19,010 16,849 15,037 9,423 5,461
-------------- ------------- ------------- ------------- -----------
Total reserve for credit losses $187,278 177,388 155,918 144,537 121,452
============== ============= ============= ============= ===========
</TABLE>
<TABLE>
<CAPTION>
The analysis above is for analytical purposes. The reserve for credit losses is
general in nature and is available to absorb losses from any portion of the loan
and lease portfolio.
The distribution of loans and leases by type and the ratio of net charge-offs to
average loans and leases outstanding was as follows:
1996 1995 1994 1993 1992
---- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C>
Percentage of loans and leases to total
loans and leases at December 31
Commercial, financial and
agricultural loans 31.9% 30.5 29.5 28.0 30.5
Real estate - construction loans 3.0 2.7 2.8 3.6 4.1
Real estate - mortgage loans 23.6 23.7 29.9 35.8 36.5
Consumer loans 20.8 26.2 23.4 21.9 21.1
Lease financing 20.7 16.9 14.4 10.7 7.8
------------ ----------- ------------ ----------- ----------
Total 100.0% 100.0 100.0 100.0 100.0
============ =========== ============ =========== ==========
Ratio of net charge-offs during year
to average loans and leases outstanding
during year
Commercial, financial and
agricultural loans 0.20% 0.15 0.24 0.38 0.98
Real estate - construction loans -- -- -- -- --
Real estate - mortgage loans 0.07 0.10 0.01 0.21 0.25
Consumer loans 1.40 0.68 0.38 0.49 0.96
Lease financing 0.45 0.22 0.12 0.15 0.29
Weighted Average Ratio 0.49 0.27 0.18 0.31 0.64
</TABLE>
Page 10
<PAGE> 11
Reserve for Credit Losses
- -------------------------
The reserve for credit losses is established through charges to operations by a
provision for credit losses. Loans and leases which are determined to be
uncollectible are charged against the reserve and any subsequent recoveries are
credited to the reserve. The amount charged to operations is based on several
factors. These include the following:
1. Analytical reviews of the credit loss experience in relationship to
outstanding loans and leases to determine an adequate reserve for
credit losses required for loans and leases at risk.
2. A continuing review of problem or at risk loans and leases and
the overall portfolio quality.
3. Regular examinations and appraisals of the loan and lease
portfolio conducted by the Company's examination staff and the
banking supervisory authorities.
4. Management's judgement with respect to the current and expected
economic conditions and their impact on the existing loan and
lease portfolio.
The amount provided for credit losses exceeded actual net charge-offs by
$4,052,000 in 1996, $13,101,000 in 1995 and $18,306,000 in 1994.
Management reviews the reserve on a quarterly basis to determine whether
additional provisions should be made after considering the factors noted above.
Based on these procedures, management is of the opinion that the reserve at
December 31, 1996 of $187,278,000 was adequate.
<TABLE>
<CAPTION>
Maturity Distribution of Domestic Certificates of Deposit of $100,000 and Over at December 31, 1996 ($000's)
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Three months or less $532,832
Over three months through six months 142,997
Over six months through twelve months 74,481
Over twelve months 36,477
-------------
Total certificates - $100,000 and over $786,787
=============
</TABLE>
Note: Foreign office deposits are denominated in amounts greater than $100,000.
Page 11
<PAGE> 12
<TABLE>
<CAPTION>
Return on Equity and Assets
- ---------------------------
The following table presents certain operating ratios:
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Return on assets (A) * 1.72% 1.78 1.77
Return on equity (B) * 17.2% 18.1 18.6
Dividend payout ratio (C) * 34.8% 33.9 32.3
Equity to assets ratio (D) 9.99% 9.82 9.50
- --------------------------------------------
<FN>
(A) net income divided by average assets
(B) net income divided by average equity
(C) dividends declared per share divided by fully diluted net income per share
(D) average equity divided by average assets
* 1996 ratios include the special SAIF assessment of $16.6 million pretax
($10.8 million after tax or $.10 per share). For comparability, excluding
the impact of this assessment, return on average assets, return on average
equity and the dividend payout ratio for 1996 would have been 1.78%, 17.8%
and 33.7%, respectively.
</TABLE>
Page 12
<PAGE> 13
ITEM 2. PROPERTIES
- -------------------
The Company's executive offices and the main office of the Bank are located on
Fountain Square Plaza in downtown Cincinnati, Ohio, located in a 32-story office
tower and a 5-story office building and parking garage known as the Fifth Third
Center and the William S. Rowe Building, respectively. One of the Bank's
subsidiaries owns 100% of these buildings.
At December 31, 1996, the Company, through its subsidiary banks and savings
banks, seven located in Ohio, four in Kentucky, one in Indiana and one in
Florida, operated 414 banking centers, of which 208 were owned and 206 were
leased. The properties owned are free from mortgages and encumbrances.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
The Company and its subsidiaries are not parties to any material legal
proceedings other than routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------------------
The information required by this item is incorporated herein by reference to
Page 1 of Registrant's 1996 Annual Report to Stockholders attached to this
filing as Exhibit 13.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
The information required by this item is incorporated herein by reference to
page 37 of Registrant's 1996 Annual Report to Stockholders attached to this
filing as Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
The information required by this item is incorporated herein by reference to
pages 28 through 36 of Registrant's 1996 Annual Report to Stockholders attached
to this filing as Exhibit 13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The information required by this item is incorporated herein by reference to
pages 15 through 27 and page 37 of Registrant's 1996 Annual Report to
Stockholders attached to this filing as Exhibit 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- --------------------------------------------------------------------------------
None
Page 13
<PAGE> 14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
The information required by this item concerning Directors is incorporated
herein by reference under the caption "ELECTION OF DIRECTORS" of the
Registrant's 1997 Proxy Statement. The names, ages and positions of the
Executive Officers of the Company as of January 31, 1997 are listed below along
with their business experience during the past 5 years. Officers are appointed
annually by the Board of Directors at the meeting of Directors immediately
following the Annual Meeting of Stockholders.
<TABLE>
<CAPTION>
CURRENT POSITION AND
NAME AND AGE BUSINESS EXPERIENCE DURING PAST 5 YEARS
- ------------ ---------------------------------------
<S> <C>
George A. Schaefer, Jr., 51 PRESIDENT AND CEO. President and Chief
Executive Officer of the Company and the
Bank.
George W. Landry, 56 EXECUTIVE VICE PRESIDENT. Executive Vice
President of the Company and the Bank.
Stephen J. Schrantz, 48 EXECUTIVE VICE PRESIDENT. Executive Vice
President of the Company and the Bank.
Michael D. Baker, 46 EXECUTIVE VICE PRESIDENT. Executive Vice
President of the Company and the Bank since
August, 1995. Previously, Mr. Baker was
Senior Vice President of the Company since
March, 1993, and of the Bank.
P. Michael Brumm, 49 EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER. Executive Vice
President of the Company and the Bank since
August, 1995. Previously, Mr. Brumm was
Senior Vice President and CFO of the
Company and the Bank.
Robert P. Niehaus, 50 EXECUTIVE VICE PRESIDENT. Executive Vice
President of the Company and the Bank since
August, 1995. Previously, Mr. Niehaus was
Senior Vice President of the Company since
March, 1993, and Senior Vice President of
the Bank.
Michael K. Keating, 41 EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY. Executive Vice President of
the Company and the Bank since August, 1995
and Secretary of the Company and the Bank
since January, 1994. Previously, Mr.
Keating was Senior Vice President and
General Counsel of the Company since March,
1993, and Senior Vice President and Counsel
of the Bank. Mr. Keating is a son of Mr.
William J. Keating, Director.
</TABLE>
Page 14
<PAGE> 15
<TABLE>
<CAPTION>
CURRENT POSITION AND
NAME AND AGE BUSINESS EXPERIENCE DURING PAST 5 YEARS
- ------------ ---------------------------------------
<S> <C>
Robert J. King, Jr., 41 SENIOR VICE PRESIDENT. Senior Vice
President of the Company since March, 1995,
and President and CEO of Fifth Third Bank
of Northwestern Ohio, N.A.
James R. Gaunt, 51 SENIOR VICE PRESIDENT. Senior Vice
President of the Company since March, 1994,
and President and CEO of Fifth Third Bank
of Kentucky, Inc. since August, 1994.
Previously, Mr. Gaunt was Senior Vice
President of the Bank.
Neal E. Arnold, 36 TREASURER. Treasurer of the Company and
the Bank, and Senior Vice President of the
Bank since April, 1993. Previously, Mr.
Arnold was Vice President of the Bank.
Gerald L. Wissel, 40 AUDITOR. Auditor of the Company and the
Bank. Executive Vice President of the Bank
since January, 1997. Previously, Mr.
Wissel was Senior Vice President of the
Bank.
Roger W. Dean, 34 CONTROLLER. Controller of the Company and
Vice President of the Bank since June,
1993. Previously, Mr. Dean was with
Deloitte & Touche LLP, independent public
accountants.
Paul L. Reynolds, 35 ASSISTANT SECRETARY. Assistant Secretary
of the Company since March, 1995, and Vice
President, General Counsel and Assistant
Secretary of the Bank since January, 1995.
Previously, Mr. Reynolds was Vice
President, Counsel and Assistant Secretary
of the Bank.
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
The information required by this item is incorporated herein by reference under
the caption "EXECUTIVE COMPENSATION" of the Registrant's 1997 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The information required by this item is incorporated herein by reference under
the captions "CERTAIN BENEFICIAL OWNERS, ELECTION OF DIRECTORS, AND EXECUTIVE
COMPENSATION" of the Registrant's 1997 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The information required by this item is incorporated herein by reference under
the caption "CERTAIN TRANSACTIONS" of the Registrant's 1997 Proxy Statement.
Page 15
<PAGE> 16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
a) Documents Filed as Part of the Report PAGE
----
1. Index to Financial Statements
Consolidated Statements of Income for the
Years Ended December 31, 1996, 1995 and 1994 *
Consolidated Balance Sheets, December 31, 1996
and 1995 *
Consolidated Statements of Changes in
Stockholders' Equity for the Years Ended
December 31, 1996, 1995 and 1994 *
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1996, 1995 and 1994 *
Notes to Consolidated Financial Statements *
* Incorporated by reference to pages 15 through 27 of Registrant's 1996
Annual Report to Stockholders attached to this filing as Exhibit 13.
2. Financial Statement Schedules
The schedules for Registrant and its subsidiaries are omitted because
of the absence of conditions under which they are required, or because
the information is set forth in the consolidated financial statements
or the notes thereto.
3. Exhibits
EXHIBIT
NO.
-------
3- Amended Articles of Incorporation and Code of Regulations (a)
10(a)- Fifth Third Bancorp Unfunded Deferred Compensation Plan for
Non-Employee Directors (b)
10(b)- Fifth Third Bancorp 1990 Stock Option Plan (c)
10(c)- Fifth Third Bancorp 1987 Stock Option Plan (d)
10(d)- Fifth Third Bancorp 1982 Stock Option Plan (e)
10(e)- Fifth Third Bancorp Stock Option Plan for Employees of The
Fifth Third Bank of Miami Valley, National Association (f)
10(f)- Fifth Third Bancorp Stock Option Plan for Employees of The
Fifth Third Bank of Eastern Indiana (g)
10(g)- Indenture effective November 19, 1992 between Fifth Third
Bancorp, Issuer and NBD Bank, N.A., Trustee (h)
Page 16
<PAGE> 17
10(h)- Fifth Third Bancorp Amended and Restated Stock Option Plan
for Employees and Directors of The TriState Bancorp (i)
10(i)- Fifth Third Bancorp 1993 Discount Stock Purchase Plan (j)
10(j)- Fifth Third Bancorp Amended and Restated Stock Incentive
Plan for selected Executive Officers, Employees and
Directors of The Cumberland Federal Bancorporation, Inc. (k)
10(k)- Fifth Third Bancorp Master Profit Sharing Plan (l)
10(l)- Fifth Third Bancorp Amended and Restated Stock Option and
Incentive Plan for Selected Executive Officers, Employees
and Directors of Falls Financial, Inc. (m)
10(m)- Fifth Third Bancorp Amended 1993 Discount Stock Purchase
Plan (n)
11- Computation of Consolidated Net Income Per Share for the
Years Ended December 31, 1996, 1995, 1994, 1993 and 1992
13- Fifth Third Bancorp 1996 Annual Report to Stockholders
21- Fifth Third Bancorp Subsidiaries
23- Independent Auditors' Consent
b) Reports on Form 8-K
NONE.
- --------------------
(a) Incorporated by reference to Registrant's Registration
Statement, Exhibits 3.1 and 3.2, on Form S-4, Registration
No. 33-19965 which is effective.
(b) Incorporated in this Form 10-K Annual Report by reference to
Form 10-K filed for fiscal year ended December 31, 1985.
(c) Incorporated by reference to Registrant's filing with the
Securities and Exchange Commission as an exhibit to a
Registration Statement on Form S-8, Registration No. 33-
34075, which is effective.
(d) Incorporated by reference to Registrant's filing with the
Securities and Exchange Commission as an exhibit to a
Registration Statement on Form S-8, Registration No. 33-
13252, which is effective.
(e) Incorporated by reference to Registrant's filing with the
Securities and Exchange Commission as an exhibit to a
Registration Statement on Form S-8, Registration No. 2-98550,
which is effective.
(f) Incorporated by reference to Registrant's filing with the
Securities and Exchange Commission as an exhibit to a
Registration Statement on Form S-8, Registration No. 33-
20888, which is effective.
Page 17
<PAGE> 18
(g) Incorporated by reference to Registrant's filing with the
Securities and Exchange Commission on November 18, 1992 a
Form 8-K Current Report as an exhibit to a Registration
Statement on Form S-8, Registration No. 33-30690, which is
effective.
(h) Incorporated by reference to Registrant's filing with the
Securities and Exchange Commission on November 18, 1992 a Form
8-K Current Report dated November 16, 1992 and as Exhibit 4.1
to a Registration Statement on Form S-3, Registration No.
33-54134, which is effective.
(i) Incorporated by reference to Registrant's filing with the
Securities and Exchange Commission as an exhibit to a
Registration Statement on Form S-8, Registration No. 33-
51679, which is effective.
(j) Incorporated by reference to Registrant's filing with the
Securities and Exchange Commission as an exhibit to a
Registration Statement on Form S-8, Registration No. 33-
60474, which is effective.
(k) Incorporated by reference to Registrant's filing with the
Securities and Exchange Commission as an exhibit to a
Registration Statement on Form S-8, Registration No. 33-
55223, which is effective.
(l) Incorporated by reference to Registrant's filing with the
Securities and Exchange Commission as an exhibit to a
Registration Statement on Form S-8, Registration No. 33-
55553, which is effective.
(m) Incorporated by reference to Registrant's filing with the
Securities and Exchange Commission as an exhibit to a
Registration Statement on Form S-8, Registration No. 33-
61149, which is effective.
(n) Incorporated by reference to Registrant's filing with the
Securities and Exchange Commission as Exhibit 10 to the
Quarterly Report on Form 10-Q for the quarter ended June 30,
1996.
Page 18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FIFTH THIRD BANCORP
(Registrant)
/s/ George A. Schaefer, Jr. March 3, 1997
- --------------------------
George A. Schaefer, Jr.
President and CEO
(Principal Executive Officer)
Pursuant to requirements of the Securities Exchange Act of 1934, this report has
been signed on March 3, 1997 by the following persons on behalf of the
Registrant and in the capacities indicated.
<TABLE>
<CAPTION>
/s/ P. Michael Brumm /s/ Roger W. Dean
- -------------------------- --------------------------
P. Michael Brumm Roger W. Dean
Executive Vice President and CFO Controller
(Chief Financial Officer) (Principal Accounting Officer)
<S> <C> <C>
/s/ John F. Barrett /s/ Joseph H. Head, Jr. /s/ James E. Rogers
- -------------------------- -------------------------- --------------------------
John F. Barrett Joseph H. Head, Jr. James E. Rogers
Director Director Director
/s/ Milton C. Boesel, Jr. /s/ Brian H. Rowe
- -------------------------- -------------------------- --------------------------
Milton C. Boesel, Jr. Joan R. Herschede Brian H. Rowe
Director Director Director
/s/ George A. Schaefer, Jr.
- -------------------------- -------------------------- --------------------------
Gerald V. Dirvin William G. Kagler George A. Schaefer, Jr.
Director Director Director
/s/ Thomas B. Donnell /s/ John J. Schiff, Jr.
- -------------------------- -------------------------- --------------------------
Thomas B. Donnell William J. Keating John J. Schiff, Jr.
Director Director Director
/s/ James D. Kiggen /s/ Dennis J. Sullivan, Jr.
- -------------------------- -------------------------- --------------------------
Richard T. Farmer James D. Kiggen Dennis J. Sullivan, Jr.
Director Director Director
/s/ Robert B. Morgan
- -------------------------- -------------------------- --------------------------
John D. Geary Robert B. Morgan Dudley S. Taft
Director Director Director
- -------------------------- --------------------------
Ivan W. Gorr Michael H. Norris
Director Director
</TABLE>
Page 19
<PAGE> 1
<TABLE>
<CAPTION>
EXHIBIT 11
FIFTH THIRD BANCORP
-------------------
COMPUTATION OF CONSOLIDATED NET INCOME PER SHARE
------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31
-------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Income $ 335,059 287,685 244,459 206,235 172,021
============ ========== =========== ========== ==========
Net income per common share - assuming no dilution:
Weighted average number of shares outstanding (a) 103,994 98,879 96,580 93,973 93,494
============ ========== =========== =========== ==========
Per share (net income divided by the weighted
average number of shares outstanding) $ 3.22 2.91 2.53 2.19 1.84
============ ========== =========== =========== ==========
Net income per common and common equivalent share:
Net income $ 335,059 287,685 244,459 206,235 172,021
Add - Interest on 4 1/4% convertible subordinated
notes due 1998, net of applicable income taxes 1,637 4,257 4,332 4,393 546
------------ ---------- ----------- ----------- ----------
Adjusted net income $ 336,696 291,942 248,791 210,628 172,567
============ ========== =========== =========== ==========
Adjusted weighted average number of shares
outstanding - after giving effect to the
conversion of stock options and convertible
subordinated notes (a) 106,402 102,642 100,388 98,007 94,623
============ ========== =========== =========== ==========
Per share (adjusted net income divided by
the adjusted weighted average number of
shares outstanding) $ 3.16 2.84 2.48 2.15 1.82
============ ========== =========== =========== ==========
Net income per common share - assuming full dilution:
Adjusted net income $ 336,696 291,942 248,791 210,628 172,567
============ ========== =========== =========== ==========
Adjusted weighted average number of shares
outstanding - after giving effect to the
conversion of stock options and convertible
subordinated notes (a) 106,615 103,106 100,386 98,007 94,782
============ ========== =========== =========== ==========
Per share (adjusted net income divided by
the adjusted weighted average number of
shares outstanding) $ 3.16 2.83 2.48 2.15 1.82
============ ========== =========== =========== ==========
<FN>
(a) Per share amounts and average shares outstanding have been adjusted for the
three-for-two stock splits effected in the form of stock dividends paid
January 12, 1996 and April 15, 1992.
</TABLE>
<PAGE> 1
FOCUS
[ARTWORK]
FIFTH THIRD
BANCORP
1996
ANNUAL REPORT
<PAGE> 2
PERFORMANCE
HIGHLIGHTS
CONTENTS
2 President's Letter
6 Management
Editorial
15 Consolidated
Statements of
Income
16 Consolidated
Balance Sheets
17 Consolidated
Statements of
Changes in
Stockholders' Equity
18 Consolidated
Statements of
Cash Flows
19 Notes to Consolidated
Financial Statements
27 Independent
Auditors' Report
28 Management's
Discussion and
Analysis of Financial
Condition and Results
of Operations
37 Consolidated Six Year
Summary of
Operations, Condensed
Consolidated Balance
Sheet Information and
Summarized Quarterly
Financial Information
38 Consolidated Ten Year
Comparison
Directors and Officers
on inside Back Cover
In 1996, our focus on the basics of
sales, credit quality, teamwork, expense
control & hard work resulted in another
successful year for Fifth Third Bancorp.
<PAGE> 3
[The following tables are representive of graphs shown under performance
highlights in the Bancorp's Annual Report]
<TABLE>
<CAPTION>
Fully-diluted Net Income Per Share
Five Year Compound Growth Rate 16%*
<S> <C>
1991 $ 1.52
1992 $ 1.82
1993 $ 2.15
1994 $ 2.48
1995 $ 2.83
1996 $ 3.26*
1996 $ 3.16
<FN>
* excluding SAIF
</TABLE>
<TABLE>
<CAPTION>
Dividends Declared Per Share
Five Year Compound Growth Rate 16%
<S> <C>
1991 $ .52
1992 $ .60
1993 $ .68
1994 $ .80
1995 $ .96
1996 $ 1.10
</TABLE>
<TABLE>
<CAPTION>
Book Value Per Share
Five Year Compound Growth Rate 15%
<S> <C>
1991 $ 10.15
1992 $ 11.48
1993 $ 13.29
1994 $ 14.41
1995 $ 17.17
1996 $ 20.25
</TABLE>
<TABLE>
<CAPTION>
Total Assets ($ in billions)
Five Year Compound Growth Rate 16%
<S> <C>
1991 $ 9.981
1992 $ 11.390
1993 $ 13.129
1994 $ 14.957
1995 $ 17.053
1996 $ 20.549
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
FIFTH THIRD BANCORP
AND SUBSIDIARIES FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------
1996 1995 % Change
=================================================================================
<S> <C> <C> <C>
EARNINGS AND DIVIDENDS ($000'S)
Net Income ............................... $ 335,059 287,685 16.5
Operating Earnings (a) ................... 345,857 287,685 20.2
Cash Dividends Declared .................. 115,515 95,181 21.4
- ---------------------------------------------------------------------------------
PER SHARE
Net Income ............................... $ 3.22 2.91 10.7
Fully-Diluted Net Income ................. 3.16 2.83 11.7
Excluding Special SAIF Assessment (a) . 3.26 2.83 15.2
Cash Dividends Declared .................. 1.10 .96 14.6
Year-End Book Value ...................... 20.25 17.17 17.9
Year-End Market Price .................... 62.81 48.83 28.6
- ---------------------------------------------------------------------------------
AT YEAR END ($ IN MILLIONS)
Assets ................................... $ 20,549 17,053 20.5
Loans and Leases (b) ..................... 12,514 11,690 7.0
Deposits ................................. 14,375 12,486 15.1
Stockholders' Equity ..................... 2,144 1,725 24.3
- ---------------------------------------------------------------------------------
KEY RATIOS
Return on Average Assets (a) ............. 1.78% 1.78 --
Return on Average Equity (a) ............. 17.8 18.1 (1.7)
Overhead Ratio (a,c) ..................... 43.5 43.9 (.9)
Net Interest Margin ...................... 3.99 3.90 2.3
- ---------------------------------------------------------------------------------
Number of Shares ......................... 105,892,554 100,422,996 5.4
Number of Stockholders ................... 15,632 15,148 3.2
Number of Banking Locations .............. 414 384 7.8
Number of Full-Time Equivalent Employees . 6,549 6,108 7.2
- ---------------------------------------------------------------------------------
<FN>
(a) For comparability, certain financial ratios and statistics exclude the
impact of the 1996 special SAIF assessment of $16.6 million pretax
($10.8 million after tax or $.10 per share).
(b) Excluding the effect of loan sales and securitizations over the past year,
total loan and lease outstandings would have increased 25.8%.
(c) Operating expenses divided by the sum of fully taxable equivalent net
interest income and other operating income.
</TABLE>
<TABLE>
<CAPTION>
FIFTH THIRD BANCORP
STOCKHOLDER AND CORPORATE INFORMATION
======================================================================
Stock Data Dividends
Paid Per
Year Period High Low Share
- ----------------------------------------------------------------------
<C> <C> <C> <C>
1996 FIRST QUARTER $59 3/16 $43 3/4 $.26
SECOND QUARTER 58 1/4 50 1/8 .26
THIRD QUARTER 58 1/8 50 1/4 .26
FOURTH QUARTER 73 3/4 58 1/2 .29
- ----------------------------------------------------------------------
1995 First Quarter $35 1/6 $31 3/8 $.20 2/3
Second Quarter 38 1/4 32 1/12 .23 1/3
Third Quarter 38 5/6 36 1/3 .23 1/3
Fourth Quarter 50 5/12 37 3/4 .23 1/3
- ----------------------------------------------------------------------
</TABLE>
The common stock of Fifth Third Bancorp is traded in the over-the-counter
market and is listed under the symbol "FITB" on the NASDAQ National
Market System.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
RATINGS Standard Duff &
Moody's & Poor's Fitch Phelps
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIFTH THIRD BANCORP
Commercial Paper P1 A1+ F1+ Duff-1+
- ------------------------------------------------------------------
FIFTH THIRD BANK-CINCINNATI
Short-Term Deposit P1 A1+ F1+ Duff-1+
Long-Term Deposit Aa2 AA- AA+ AA
Medium-Term Deposit Aa2 AA- AA+ AA
- ------------------------------------------------------------------
FIFTH THIRD BANKS OF NORTHWESTERN OHIO, N.A.,
COLUMBUS, NORTHEASTERN OHIO, CENTRAL INDIANA AND
KENTUCKY, INC.
Short-Term Deposit P1 A1+ F1+ Duff-1+
Long-Term Deposit Aa3 AA- AA+ AA
- ------------------------------------------------------------------
</TABLE>
CORPORATE OFFICE
The Corporate Office is located at Fifth Third Center, Cincinnati, Ohio 45263.
The telephone number is (513) 579-5300.
ANNUAL MEETING
The Annual Meeting of Stockholders will be held at 11:30 a.m. on Tuesday, March
18, 1997, on the fifth floor of the Corporate Office.
INVESTOR INFORMATION
Any individual requesting general information or a copy of the Corporation's
1996 Form 10-K Report (to be filed with the Securities and Exchange Commission
before March 31, 1997) may obtain these by writing to Investor Relations at the
Corporate Office. Investor information can be accessed on the Internet at
www.53.com/bancorp.
DIVIDEND REINVESTMENT
For the convenience of stockholders, the Corporation has established a plan
whereby stockholders may have their dividends automatically reinvested in Fifth
Third Bancorp common stock. Details of the plan will be sent on request (see
back page).
TRANSFER AGENT AND REGISTRAR
Transfer agent and registrar is Fifth Third Bank, Fifth Third Center,
Cincinnati, Ohio 45263.
1
<PAGE> 5
DEAR STOCKHOLDERS AND FRIENDS:
I am pleased to report that Fifth Third Bancorp's 1996 operating earnings
increased to $345,857,000 up 20% over 1995. We achieved this success by
remaining focused on the basics of sales, credit quality, teamwork, expense
control and hustle.
For 1996, we achieved a return on equity of 17.8% and return on assets of
1.78%. Revenue growth and expense control lowered our overhead ratio for 1996 to
43.5%, ranking us the best of the top 50 U.S. banking companies for the second
consecutive year.
[Photo George A. Schaefer, Jr., President and CEO]
In September, we increased our quarterly dividend to $.29 per share,
representing a 24% increase over September, 1995. We are proud to have followed
a pattern of increasing our quarterly dividend every nine months for over 10
years.
Net income, including a special, pretax charge of $16.6 million, or $.10
per share, mandated by federal legislation to recapitalize the Savings
Association Insurance Fund (SAIF) of the FDIC, was $335,059,000, an increase of
16% from 1995. This charge during the third quarter of 1996 applied to
approximately $2.7 billion of thrift deposits we acquired over the years. While
it translates to little more than government confiscation, it was $1.4 million
less than originally anticipated and reduces ongoing deposit insurance expense
by $6.1 million annually. I am very pleased that we were able to overcome this
special charge and still post the double-digit earnings growth that shareholders
have come to expect.
Looking at our results for 1996, I was especially encouraged by our net
revenue growth of 22% over 1995. Although acquisitions in the fourth quarter of
1995 and the first quarter of 1996 helped, most of the revenue growth was
internally generated through a focus on new products, fee initiatives, new
campaigns and promotions, and, of course, aggressive selling. For example, trust
and data processing revenue increased 20% and 17%, respectively, through new
customer sales and referrals. International and letter of credit fee income grew
10% as we helped our commercial customers conduct their businesses abroad. Other
examples include 41% growth in mortgage loan fee income driven by strong
originations in
2
<PAGE> 6
all of our markets, and significantly higher ATM revenues as we deployed more
ATMs and focused on customer convenience.
Our balance sheet is as strong as ever. Our capital ratios and leverage are
at the top of the industry, a fact continuously recognized by rating agencies,
analysts, investors and even regulators. Our funding mix improved considerably
in 1996 as we improved the deposit base of acquired offices and focused on
transaction accounts. Loans and leases continue to grow, but the balance sheet
only tells part of the story this year. We have used loan sales and
securitizations to allow us to further expand our origination and servicing
capability without increasing balance sheet leverage. While average loan and
lease outstandings increased 12%, origination volumes increased even more. For
example, mortgage originations were $1.6 billion in 1996, compared to $1 billion
in 1995. Consumer loan and lease originations were $2.8 billion in 1996 compared
to $2.3 billion in 1995. Through effective securitization, origination capacity
and service fee income are no longer constrained by capital levels. We think
this approach improves flexibility and will provide much more value to our
shareholders over time while allowing us to maintain a strong balance sheet.
Looking at credit quality, consumer charge-offs admittedly were higher than
any of us expected heading into 1996. The nearly $30 million increase over 1995
created some earnings challenges that we overcame, but I think the whole
industry was lulled by the unusually low charge-offs of the last three or four
years. At .49%, our current ratio of net charge-offs to average loans and
leases is about the same as our historical 10-year average, and our reserve for
credit losses is more than five times nonperforming assets. Our loan losses are
lower than average for other banks and our level of underperforming assets is
among the best. We will continue to work hard to manage charge-offs and credit
risk in 1997.
We continue to fill in our markets along the interstate highways. After
successfully integrating the six acquisitions from 1995 and the purchases of 1st
Nationwide's Cleveland offices, NBD's Ohio operations and Kentucky Enterprise
Bancorp during the first quarter of 1996, we focused the rest of the year on
integrating these acquired locations and ensuring they are delivering the
performance you have come to expect from Fifth Third.
The acquisitions strengthened our ability to compete in these markets by
increasing our presence, consumer access and sales force. Fifth Third Bank of
Northeastern Ohio, which grew to $2.7 billion in assets with the purchase of
Falls Financial and 1st Nationwide, added 288,000 new customers and now serves a
six-county area with 61 banking locations. Our purchase of NBD Ohio enhanced
3
<PAGE> 7
market share in Columbus, which now ranks as the fourth largest bank in that
area and in Dayton, which now boasts 23 Banking Centers, six Bank Marts(R) and
two new fully automated, 24-hour Quick Source SM locations. Fifth Third Bank of
Northern Kentucky, the largest financial institution in that market,
successfully integrated the deposits and offices of Kentucky Enterprise Bancorp
in 1996. We are able to serve 27,000 more customers as a result of the
acquisition with only three more locations than we had prior to the acquisition.
We have actually purchased a total of 72 locations since September of 1995.
However, the net number of Fifth Third offices has only increased by 32 after
consolidation. With excess capacity in the industry, we believe that quick and
decisive consolidation is the key to successful acquisitions. It makes us more
efficient while still providing the convenience customers expect.
We have continued to invest in equipment and personnel to achieve growth in
all our rapidly evolving businesses. While developing new initiatives in payment
technology for future consumer benefit, Midwest Payment Systems (MPS), our data
processing subsidiary, continued to grow in 1996. This activity helped drive a
17% increase in revenue for MPS, which the group realized through sales, not
acquisition. The Trust and Investment Group also made significant investments
in staff and technology. As a result, the group posted a 20% increase in
revenue.
With growth and acquisitions come expenses. Year over year expense growth
was higher than normal for us as we worked hard to integrate new locations. Our
expense growth rate slowed considerably in the second half of the year and our
industry-leading overhead ratio actually improved over 1995. The American Banker
recognized us as #1 among the top 50 U.S. banking companies for our efficiency
ratio of 41.04% at the end of the third quarter.
This month, we authorized the repurchase of $250 million of our common
stock over the course of the coming year. Strong earnings, asset securitization
and the conversion of our subordinated debt to equity all contributed to high
capital levels, even by our standards. We have always adhered to capital levels
and balance sheet quality that is at the top of our industry, but we are equally
[The following table is representative of the graph shown on page 4 in the
Bancorp's Annual Report.]
<TABLE>
<CAPTION>
Overhead Ratio
Growing revenues faster than expenses drives our overhead ratio to one of the
lowest in the industry.
Fifth Third Peer
----------- ----
<S> <C> <C>
1991 49.5% 63.9%
1992 48.6% 62.6%
1993 48.6% 62.0%
1994 46.6% 63.1%
1995 43.9% 61.3%
1996 43.5% N/A
</TABLE>
4
<PAGE> 8
committed to delivering to you consistently high returns and the
disciplined use of your money. Of course, we will always maintain adequate
capital to grow.
We were pleased to recently announce the appointment of Dr. Mitchel D.
Livingston, Vice President for Student Affairs and Human Resources at the
University of Cincinnati, to serve as a Director for Fifth Third.
At the Bancorp's Annual Meeting in March, John D. Geary will retire from
the Board after 20 years of service. On behalf of all Fifth Third stockholders,
I'd like to thank Jack for his guidance and support and wish him continued
success.
As we look ahead, the traits that differentiate Fifth Third -- teamwork,
hard work, sales, strong credit quality and expense control -- will continue to
serve our shareholders well as industry challenges continue to change. We want
to focus on bringing more of our revenues down to the bottom line and investing
resources in the lines of business providing the greatest return. We will
continue to be aggressive in increasing loan and lease growth, fee income, and
dissemination of our products and services.
During 1996 we were added to the S&P 500 index. We were also recognized by
FinancialWorld magazine, which named Fifth Third the #1 Bank among the country's
100 largest financial institutions. In addition, Salomon Brothers ranked us the
#1 U.S. Bank in overall profitability, capital, productivity and credit quality.
Teamwork produced the results that earned these accolades and, as always, I
want to thank all of the 6,970 members of the Fifth Third Team for staying
focused on the basics which resulted in another successful year.
Finally, I close by thanking our customers, suppliers, Boards of Directors,
stockholders and the communities in which we operate for their continued
loyalty, support and confidence.
Sincerely,
/s/ George A. Schaefer, Jr.
George A. Schaefer, Jr.
President and CEO
January, 1997
GROWTH
5
<PAGE> 9
RETAIL BANKING
DELIVER CONVENIENCE
1996 was a challenging year for the Retail Banking Group. After
assimilating six acquisitions in 1995, we expanded four existing markets through
branch acquisitions during the first quarter of 1996. The Retail team, in
conjunction with the Bancorp's other business and support groups, successfully
merged $2.1 billion in deposits, $378 million in loans and 65 offices through
the acquisitions of 1st Nationwide in Cleveland, NBD in Columbus and Dayton, and
Kentucky Enterprise Bancorp in Northern Kentucky. As a result, our Northeastern
Ohio affiliate grew to 61 Banking Centers and $2.7 billion in assets and is now
the third largest bank in the Cleveland market. Columbus integrated $346 million
in deposits, and 11 offices, while Dayton added two locations. Fifth Third Bank
of Northern Kentucky acquired $216 million in deposits and three new offices and
continues to have the largest market share in Northern Kentucky.
With this solid infrastructure in place to deliver convenience, we turned
our attention to building core deposits. We introduced new products, cross-sold
existing services and promoted transaction accounts. Demand deposits and
interest bearing checking and savings account balances grew by 53% over last
year. Traditional checking account options were tailored to offer custom product
choices for four distinct customer segments and their specific financial needs.
This product launch featured the debut of our newest checking account, Platinum
One(SM), which rewards higher balances with premium interest rates. Customer
demand fueled growth of our new products throughout all our markets. Platinum
One balances have grown to $370 million since June, and MaxSaver(SM), our tiered
savings product introduced in late 1995, grew to $1.2 billion in deposits.
Florida, Lexington and Northern Kentucky had exceptional savings account
growth, posting 787%, 137% and 244% increases, respectively. We worked hard at
cross-selling and used creative marketing campaigns to improve our deposit mix
while reducing our overall cost of funds.
Convenience remains paramount for most consumers in choosing a financial
services provider. We remain committed to delivering it through a variety of
options. After all, convenience means different things for different customers.
Delivery of sales and service through the traditional Banking Center remains our
primary means, with full-service Bank Mart locations, open seven days a week
inside grocery stores, continuing to increase in popularity.
We built on our 10-year Bank Mart experience during the year with the
introduction of Quick Source. These facilities, available 24-hours a day inside
grocery stores, feature a video resource center with Johnny Bench, our
spokesperson for the past 23 years, providing product information. Jeanie(R)
ATMs and Jeanie Telephone Banking are also available for customers'
around-the-clock convenience. We will continue to look for opportunities to
expand this concept as it enables us to provide 24-hour service without the
staffing expense.
The deployment of more ATMs to non-traditional locations is increasing. In
1996, we added 131 new Jeanie ATMs throughout all our markets. We are
continually evaluating location opportunities in recreational facilities,
shopping centers, restaurants and other high traffic areas where our customers
will find convenience, while non-customers will be willing to pay extra for it,
thereby generating additional fee income.
Overall, we made some fairly dramatic changes in the retail delivery network
in our markets over the past 15
6
<PAGE> 10
months. Since the third quarter of 1995, we have purchased 72 traditional
branches, but our number of traditional banking centers only increased by 25,
highlighting our success in consolidating and improving profitability without
sacrificing customer convenience. At the same time, we added seven new Bank
Marts, 131 ATMs and introduced four Quick Sources.
Our retail banking delivery system will continue to evolve as our customers
dictate. We haven't abandoned "bricks and mortar," but we will make sure the
branches we have make sense and are as productive as possible. Alternatives such
as Quick Sources will expand and, with help from Midwest Payment Systems, we
will explore other electronic banking delivery opportunties.
[photo]
Bank Mart Manager, Keith Richburg, discusses the benefits and conveniences of a
Fifth Third Home Equity loan with his customer, Evelyn Watson.
Consumer loan and lease originations remained strong in all of our markets
during 1996. We used sales and securitization to expand origination and
servicing capability without increasing balance sheet leverage. Consumer loan
and lease origination volumes increased 29% over 1995. For the year, we
originated $1.6 billion in residential mortgage loans, compared to $1 billion in
1995. Consumer loan and lease originations were $2.8 billion and $2.3 billion,
respectively, in 1996 and 1995, while new consumer lease volumes increased from
$783 million in 1995 to $1.2 billion in 1996.
Development of innovative products like the "Perfect Mortgage(SM)," which
features five adjustable-rate mortgage options, low closing costs and low
charges for conversion to a fixed rate mortgage will continue to drive our
mortgage volume, particularly in newer markets where our market share is not yet
#1. Combining innovative product development with successful cross-sell
initiatives will continue to build market share throughout all our communities.
Our portfolio of credit card products was enhanced during the year to offer
expense management solutions for small and medium-size businesses with the
introduction of the Visa(R) Purchasing, Visa Corporate and Visa Business credit
cards. Credit card outstandings were up 12% over year end 1995.
Retail banking is about choices, and our continued success will depend
on our ability to remain flexible and deliver the products and services our
customers want when they need them. It is also known as "convenience". Positive
transaction account growth and cross-selling efforts, evidenced by across the
board increases in all of our retail product lines, demonstrate that we are on
target. We will continue to focus on the basics to stay there.
[photo]
Fifth Third remains committed to delivering convenience to its customers. Bank
Marts and Jeanie ATMs are two of the more popular options provided today.
7
<PAGE> 11
COMMERCIAL BANKING
DEVELOP RELATIONSHIPS
The Commercial Banking Group met the challenge of more aggressive
competition by continuing to develop relationships with our customers during
1996. Fifth Third relationship officers throughout our markets responded to
customers' demands that we understand their businesses and deliver value-added,
creative business banking solutions. Commercial bankers became financial
architects and consultants, working closely with customers to design their
business banking package of services.
[photo]
The team featured in the photo had been instrumental in developing a
relationship with the retirement community of Cedar Village. This has led to
other referrals of new business to Fifth Third, including Jewish Vocational
Service. Seated left to right: Brian Rogg, Commercial Mortgage; Patricia
Borger, Foundation and Endowment Services; Valerie Scott, Relationship Manager;
standing Nicole Wilheim, Treasury Management; Doug Burgess, Commercial
Mortgage.
Our hard work and responsiveness grew commercial loan and lease
outstandings to $6.1 billion, a 13% increase over last year, while commercial
deposits increased 20% over 1995. Activity in all our markets was strong, with
Columbus, Central Indiana, Louisville and Northeastern Ohio delivering
impressive results. In Columbus, for example, a team comprised of veteran Fifth
Third employees and new employees from the NBD Ohio acquisition, forged ahead to
capitalize on the expanded market. As a result of these cross-sell efforts,
Columbus added over $175 million in commercial loans and leases in 1996 along
with $10 million in deposits. In Indiana, our team made over 20,000 personal
visits to customers and prospective customers during the year. The market
responded positively, evidenced by the growth of $44 million in commercial loans
and leases during 1996 as well as an increase of $15 million in demand deposits.
Louisville delivered equally impressive results through its aggressive calling
campaign. Commercial demand deposits grew 12% and loans and leases increased
33%.
The Commercial Banking Group also sharpened its focus on several niche
services. Leveraging our delivery system of Banking Centers and Bank Marts, the
Business Development Group was realigned to meet the needs of small and mid-size
companies with enhanced products, volume-based pricing structures and hands-on
customer service. Our Business 53(R) checking account was segmented into three
distinct packages to provide the most value to our customers while generating a
profitable relationship for the Bank. Business 53 Essentials, Business 53
Advantage and Business 53 Premier all offer the small and mid-size business
owner time and money-saving banking options.
Another niche we are developing focuses on the dynamic health care
industry. The Health Care Banking Group, comprised of commercial lenders and
private bankers, continued to work closely with high-net-worth medical
professionals, hospitals, insurance companies, and other service providers to
offer business and personal banking solutions.
Corporate Treasury Management continued to develop solid relationships with
customers and co-workers to increase awareness of business banking solutions
8
<PAGE> 12
they provide. This effort, combined with superior technology and customer
service, drove income, including business service charges, to a record 33%
increase over 1995. Trans-Act:PC(R), Positive Pay, Lockbox and the Corporate
One Account(R) were the fastest growing services in 1996. Successful marketing
of treasury products including payment services, Electronic Data Interchange,
ACH, disbursement services, Account Reconciliation Plans, cashiering services,
sweep arrangements, including Information Reporting Systems, contributed to
Corporate Treasury Management income growth of 53% over last year. Technology
plays a major role in supporting our electronic banking products, and the
Corporate Treasury Management team, which includes 11 Certified Cash Managers,
will continue to update its technical and industry expertise to ensure future
success.
As business customers are looking to automate more of their financial
functions, our Corporate Treasury Management Group is challenged to provide
innovative solutions as never before. They're meeting these challenges with a
combination of hard working, expert personnel and cutting-edge technology tools.
We anticipate additional technology investments so that we can maintain our
competitive edge, be a part of the payment system revolution and win many new
contracts while solidifying existing relationships.
The Fifth Third Leasing Company continued its record-setting growth in 1996
by employing quality personnel who showed a true entrepreneurial spirit in
embracing new opportunities. We kept a close control on expenses, increased our
use of syndication and constructed non-traditional deals. The Company surpassed
$1 billion in outstandings in June 1996, exceeding our own expectations. By
mid-year, originations were equal to those for the entire year 1993. The Fifth
Third Leasing Company is also laying the foundation for future success by
employing experienced leasing professionals in markets where it makes sense
while capitalizing on Bancorp acquisitions to increase familiarity with its
products and services. Looking forward, we will continue to focus on
strengthening our vendor program sales initiatives to build relationships
within this vast market.
The commitment to the international banking market remains strong as fees
increased 10% over 1995. During the year, a Fifth Third trading representative
was permanently established in Brussels, Belgium to expand our calling efforts
on companies headquartered in Europe with operations in our markets here at
home. We also opened an office in Hong Kong to better serve our import-export
customers.
Our vision for 1997 is clear. We will focus on the basics, while providing
creative business banking solutions for our customers through ongoing training
of bank personnel and a sharpened attention to developing relationships. We will
also continue to take advantage of our central geographic location. Fifth
Third's access to excellent freight and distribution centers offers us a
continual source of business prospects. Creating and executing a plan to convert
these prospects into customers is Fifth Third's Commercial Banking Group's
mission. We'll achieve it by bringing value-added solutions to them, developing
lending niches and being "more than a banker." We are working hard to raise the
bar of this commodity business by truly understanding our customers' needs, and
then championing their success.
[photo]
Comair, a regional airline headquartered in Northern Kentucky, continues to
expand throughout the country while developing its relationship with Fifth Third
to include Treasury Management and International Banking services.
9
<PAGE> 13
TRUST & INVESTMENT SERVICES
BUILD WEALTH
Revenue from the Trust and Investment Group was up 20% for 1996. With
approximately $10 billion in assets under management, Fifth Third Investment
Advisors continued to build wealth for personal, institutional and
not-for-profit clients by staying close to them, working to understand their
needs and then offering them the best and most appropriate solutions.
The Fountain Square(R) funds, the Bank's proprietary family of stock, bond
and money market mutual funds surpassed $2 billion in assets in 1996 and is now
ranked in the top 50 fund families in the country.
The Quality Growth Fund received a four-star rating from Morningstar for
its three-year performance ending December 31 and an "A" rating for its one-year
performance from The Wall Street Journal (December 31). Investor's Business
Daily ranked it among the top 25 Growth Funds for its six-month performance
(December 3) and gave it an "A" ranking, placing it in the top 10% of all funds
for its three-year returns.
The Balanced Fund was featured in Fortune magazine's list of "Best Mutual
Funds For Your Money Now" (December 23) while the American Banker ranked it the
#1 bank-managed mixed asset mutual fund for its third quarter results. The
fund's three-year performance also merited an "A" ranking by The Wall Street
Journal (November 29) and Lipper placed it in the top 3% for its one-month
performance (November 30).
Investor's Business Daily gave the Mid Cap Fund a "B+" ranking and placed
it among the top 20% of all funds for its three-year investment performance. It
was also included in the American Banker list of top 25 bank-managed equity
funds for its third quarter performance and placed among the top 2% by Lipper
for one-month investment results (November 30).
The International Equity Fund exceeded $120 million in assets during the
year and continued to outperform the EAFE Index, a benchmark for international
investing, by 4.10%. The Ohio Tax Free Bond Fund and U.S. Government Securities
Fund both received three-star ratings from Morningstar for their three-year
investment performance, while the Commercial Paper Fund, Government Cash
Reserves Fund and Treasury Obligations Fund received positive one-month Lipper
rankings, placing them in the top 7%, 10% and 3%, respectively (November 30).
In Private Banking, we continued to use technology to find solutions for
our customers. We responded to the increasing sophistication of our personal
customers' financial and investment needs with the introduction of the One
Account Advantage(SM). The product offers a checking account with an automated
sweep feature to various investment alternatives along with the convenience of a
consolidated statement showing both bank and brokerage balances and activity.
Private Banking's expertise in Health Care Banking and Corporate and
Professional Services have fueled continued growth by responding to each
customer's needs.
During 1996 Personal Trust income increased 18%, as did the depth and
breadth of our products and services. We enhanced our ability to provide trust
and investment services with the creation of the Personal Wealth Management
Group, for high net worth individuals, and the Personal Investment Management
Group, for clients seeking more active management. We also created the
Closely-Held Business Unit to serve the estate and succession planning needs of
closely-held businesses. Aggressive direct marketing, combined with seminars and
sales blitzes in all our markets, contributed to this significant growth.
Fifth Third Securities, Inc., our brokerage subsidiary, continued to listen
and serve the needs of our clients and, as a result, posted a 60% increase in
revenues. The Group
10
<PAGE> 14
added investment representatives to expand sales and introduced VoiceBroker(R),
an automated telephone trading service, to allow real-time, 24-hour stock,
mutual fund, bond and option trading via a touch-tone phone.
The Employee Benefits Group continued to add new companies to its Fountain
Square 401(k) Advantage(R) program, highlighted by Consolidated Stores.
Headquartered in Ohio, Consolidated operates 1,900 retail outlets, including Odd
Lots and Big Lots. The company has 33,000 employees and annual sales of over
$2.9 billion. Other new plan participants during the year include Phar-Mor, the
Columbus-based discount pharmacy chain, Lexington's Studio Plus, an executive
travel lodging corporation and Cincinnati-based Gold Medal Products. Our
advanced daily valuation capabilities make us an industry leader in helping our
plan participants build wealth for their retirement.
The Securities Services Group expanded its penetration in the institutional
custody and mutual fund services markets during the year. The group combined
technology, the expertise of its professional accounting staff and a commitment
to serving a market that many other providers are exiting. We created an
electronic interface with Princeton Financial Systems to enhance automation and
communication for invesment portfolio reporting and reconciliation. The group
also introduced mutual fund accounting to its portfolio of custody processing
services, which includes cash management, credit facilities, closed-end/stock
transfer agency, foreign exchange, affinity credit cards and 401(k)
record-keeping services. As a result, several large customers were added during
the year, including Bennington Capital Management's Accessor Funds, a family of
eight mutual funds with over $400 million in assets. At year end, trust assets
under care totaled over $92 billion. The Stock Transfer Group, a contributor to
Corporate Trust services fee income, was recognized during the year by Rutgers
University in a study that ranked Fifth Third as the #1 transfer agent in Ohio,
Kentucky, Indiana and Illinois. The Bank was cited as excelling in client and
shareholder service, technological operating innovations and cost containment.
Corporate Trust service fee income was up 19% in 1996.
[photo]
Kathy DeLaura, Executive Director of the Cincinnati Ballet, seated in the
middle, reviews with Fifth Third Investment Advisors, Roberta Tucker, Chip
Peitengill and John Schmitz the solutions for building wealth for her
organization.
For our not-for-profit customers, the Foundation and Endowment Group manages
over 250 relationships and over $2 billion in assets. Our dedicated team
provides a variety of products including Investment Management, Planned Giving,
Fountain Square 403(b) Advantage Retirement Program and Custody services for
endowments. The Group has taken the lead in offering socially responsible
investment alternatives to accommodate a variety of clients' interests and
concerns.
We have also created a consulting service and a seminar series entitled,
"Composing A Strong Future." This positions us to assist our not-for-profit
clients in accessing an estimated $10.4 trillion in wealth expected to pass
intergenerationally by the year 2040. This unique combination of innovative
products and dedicated professionals generated a 26% increase in revenue.
Fifth Third's Trust and Investment Group is focused on providing our
personal, institutional and not-for-profit clients with the best solutions for
building wealth. We strive to be recognized as the preferred provider of
investment and financial services in all our markets.
11
<PAGE> 15
MIDWEST PAYMENT SYSTEMS
PROVIDE SOLUTIONS
Midwest Payment Systems (MPS) continued to provide merchant processing and
electronic funds transfer (EFT) solutions, superior products and technical
excellence that drove a 17% increase in revenue over 1995.
Merchant processing continues to be the fastest growing component of MPS'
business, with transactions increasing at an annual rate of over 33%. Solely
through internally-generated sales, MPS has grown from 27th largest in the
industry in 1993 to one of the top ten largest merchant processors today based
on sales volume. With its integrated debit card processing capability, MPS has
the ability to serve large, national chains and has focused on retailers and
supermarkets. By year-end 1997, MPS should be ranked in the top five merchant
processors.
[photo]
Pictured are members of the MPS Team who provide solutions to EFT and merchant
customers around the world. Seated left to right are: Rob Crawford, Lynn
Strickmeyer, Shawn McCabe, and standing left to right: Joe Pappano, Lisa
Kintyalocts, and Tom Behringer.
During 1996, MPS expanded its long-standing card processing relationship
with Federated Department Stores, Inc. to include Macy's stores. Other large,
multi-outlet customers added during the year include The Automotive Marketing
Association and its network of 6,000 All Pro/Bumper to Bumper auto parts stores
and Sally Beauty Company, which markets beauty products internationally through
1,500 outlets. Additionally, MPS now processes credit card payments for Sprint
Communications and one of its subsidiaries, Sprint PCS. MPS' total merchant
processing portfolio, including new customers awaiting conversion, has grown to
$20 billion in merchant sales on an annualized basis.
Revenue from MPS' EFT business continues to grow, with margins improving
through the pricing of new products and lower operating costs. EFT services for
financial institutions include ATM processing, card authorization and
settlement, and gateway access to regional and national EFT networks. During
1996, MPS added 65 financial institutions as new EFT customers, expanding its
presence in the Northeastern U.S., California, Illinois, Kentucky and Tennessee.
MPS also added 25 new member financial institutions to Jeanie, Fifth Third's
proprietary ATM network which now serves over 4.2 million cardholders.
As the financial industry continues to consolidate, growth in the EFT
business will come from new products and services. The increasing popularity of
debit cards as a check-free payment alternative led to the addition of over 75
financial institutions to MasterCard MasterMoney(TM) and VISA CheckCard
processing services during 1996, and a backlog of 50 more new customers to be
converted. Capitalizing on over 20 years of EFT and
12
<PAGE> 16
data processing experience, MPS has developed proprietary, fully-integrated
software that processes cardholder and EFT transactions on a single platform.
This gives MPS an advantage in debit card processing by allowing it to offer a
single debit and credit card solution to financial institutions and merchants.
MPS expanded its EFT relationship with NationsBank to provide ATM
processing and settlement services to U.S. military forces and civilian defense
employees overseas. In 1993, MPS made its initial venture abroad by placing ATMs
on military bases in Japan. This experience and MPS' ability to directly link
ATMs to all major U.S. networks were key in getting this business. MPS now
dispenses U.S. dollars and other currencies ranging from British pounds to
Korean won across Europe, the Netherlands, Germany, Japan, Korea and Panama. The
United Kingdom presented a special challenge by requiring that account
reconciliation occur in local currency, rather than the customary format of U.S.
dollars. MPS' programming team responded by creating the software to convert its
dollars and cents processing system to support pound sterling ATM transaction
posting and reconciliation.
MPS believes that the data processing industry will continue to
consolidate. MPS is committed to this business and believes that it has strong
growth potential through new sales, new products and technology. We believe MPS'
proven ability to provide the lowest cost solution with the best technology will
always win in this industry. MPS continues to use its experience and expertise
to develop leading-edge technology. A good example is Bill Payer 2000(SM), MPS'
new automatic bill paying service first piloted in early 1995. Unlike home
computer or phone banking systems, Bill Payer 2000 requires no effort by the
customer unless there is an objection to the bill. The advantage is that it can
electronically pay bills of varying amounts and frequency, and it works for
customer accounts at any bank or savings and loan, not just Fifth Third. In
1996, MPS signed up several newspaper, cable television and public utility
customers in Ohio and Indiana.
Many financial institutions issued separate securities for their processing
subsidiaries during 1996's torrid market for "partial spin offs" and IPOs. We
will continue to monitor this evolving industry closely and act in our
shareholders' best interests. We have responded to investor inquiries by
publishing revenue and profitability by business segments in the detailed
financial statements which follow.
Looking ahead to 1997, product and systems development, innovative
alliances in the merchant and EFT businesses, and aggressive sales are all
expected to play a large role in MPS' growth.
[photo]
The Data Center at Fifth Third facilitates the processing for MPS which is now
the second largest EFT processor in the country and ranks among the top 10
credit card merchant processors in the business.
13
<PAGE> 17
FIFTH THIRD CARES
Banking is a people business. People with different educational, cultural
and professional backgrounds helping people in the community meet their goals,
dreams and visions. It's what we do at Fifth Third Bancorp everyday, and can be
seen in the way we build our business. We get close to our customers in our
communities so we can understand their needs and provide solutions. We work to
empower people so they can build a stronger community where they live and work,
and recognize that our ability to do so is limited only by the scope of our
imagination.
It's this commitment to people that compels over 6,900 Fifth Third
employees to provide time, expertise and financial support to organizations and
causes which they believe will enhance the overall quality of life in their
communities. The Bank has a long history of generosity. In 1948, Fifth Third
became one of the first financial institutions in the country to establish a
charitable foundation. Through funding proposals initiated by Bank employees,
the Fifth Third Foundation provides support to: COMMUNITY AND NEIGHBORHOOD
ORGANIZATIONS involved with housing and business development, training in
community development, and minority empowerment programs; INSTITUTIONS OF
HIGHER EDUCATION, including a matching gift program for employees; CULTURAL AND
ARTS ORGANIZATIONS seeking to make arts more accessible to all members of the
community, especially youth; and HEALTH and HUMAN SERVICES ORGANIZATIONS with
major support provided through the United Way.
During 1996, The Fifth Third Foundation awarded over $1.7 million in
grants throughout our 11 affiliate communities. Highlights of the year included
grants to the URBAN LEAGUE OF GREATER CINCINNATI for the construction of a new
administration building, the ADAMS/BROWN COUNTIES ECONOMIC OPPORTUNITIES, INC.
for the creation of job opportunities for impoverished residents, Northern
Kentucky's PARISH KITCHEN for the construction of a new facility to feed the
poor, WGTE PUBLIC BROADCASTING in Toledo to enhance its transmission and relay
capacity, PROJECT HELP, INC. in Naples, Florida for continuation of its
domestic violence hotline and referral services, and a grant to the city of
Dayton for the construction of FIFTH THIRD GATEWAY PARK, a stop along Dayton's
newest bike path to be completed this year.
Affordable housing and economic development was also a central theme in the
Foundation's giving. CHRISTMAS IN APRIL received a grant to devote one day in
April to repair dilapidated homes for low income, disabled and elderly Columbus
residents. HABITAT FOR HUMANITY received a grant for the construction of a new
home in Louisville and to begin the first phase of a 30-house construction
project in Lexington. THE REHAB PROJECT in Lima, Ohio was able to extend credit
to low-income residents for housing rehabilitation, and the EAST AKRON
NEIGHBORHOOD DEVELOPMENT CORPORATION, as well as the BOS COMMUNITY DEVELOPMENT
CORPORATION IN INDIANAPOLIS received assistance to help low-to-moderate income
residents obtain safe and affordable housing.
In addition, Fifth Third Bank has the special privilege of managing private
foundations created by caring persons in the community. As trustee or agent of
these foundations, Fifth Third awarded over $8.2 million in charitable grants in
1996 to worthy programs to benefit the community.
[photo]
George A. Schaefer, Jr., interacts with members of the Bank's Diversity
Council.
Fifth Third employees also strive to build a workplace community that
embraces personal differences. Through interactive diversity education and
training, Fifth Third employees at all levels have embraced the importance of
creating a workplace consistent with the diversity of our customers. Their
ongoing commitment and dedication to this goal is exemplified by the creation of
FIFTH THIRD'S DIVERSITY COUNCIL. Comprised of both exempt and non-exempt
employees, the council represents all four divisions of the bank with a
cross-section of minority representation, and works to provide direction and
support to activities and issues which promote and enhance awareness of
diversity in our workplace.
[The following table is representative of the graph shown at the bottom of page
14. In the Bancorp's Annual Report.]
<TABLE>
<CAPTION>
FIFTH THIRD BANCORP
UNITED WAY GIVING
Includes Employee and Corporate Contributions
<S> <C>
1993 $1,624,000
1994 1,923,629
1995 2,149,882
1996 2,402,911
</TABLE>
14
<PAGE> 18
FIFTH THIRD BANCORP
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
For the Years Ended December 31 ($000's) 1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans and Leases ............... $ 992,407 898,310 735,530
- --------------------------------------------------------------------------------------------
Interest on Securities
Taxable .......................................... 369,851 250,590 169,316
Exempt from Income Taxes ......................... 21,336 23,014 16,436
- --------------------------------------------------------------------------------------------
Total Interest on Securities ........................ 391,187 273,604 185,752
- --------------------------------------------------------------------------------------------
Interest on Other Short-Term Investments ............ 1,519 1,251 1,019
- --------------------------------------------------------------------------------------------
Total Interest Income ............................... 1,385,113 1,173,165 922,301
- --------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on Deposits
Interest Checking ................................ 37,309 28,472 25,572
Savings .......................................... 54,317 14,572 14,511
Money Market ..................................... 57,088 62,233 40,326
Other Time ....................................... 305,682 248,860 194,375
Certificates-$100,000 and Over ................... 47,553 40,522 13,135
Foreign Office ................................... 28,407 46,646 24,165
- --------------------------------------------------------------------------------------------
Total Interest on Deposits .......................... 530,356 441,305 312,084
Interest on Federal Funds Borrowed .................. 64,942 63,492 34,925
Interest on Short-Term Bank Notes ................... 30,278 47,956 20,285
Interest on Other Short-Term Borrowings ............. 48,644 41,136 25,818
Interest on Long-Term Debt and Notes ................ 21,649 15,844 12,436
- --------------------------------------------------------------------------------------------
Total Interest Expense .............................. 695,869 609,733 405,548
- --------------------------------------------------------------------------------------------
NET INTEREST INCOME ................................. 689,244 563,432 516,753
Provision for Credit Losses ......................... 64,014 42,962 35,780
- --------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 625,230 520,470 480,973
- --------------------------------------------------------------------------------------------
OTHER OPERATING INCOME
Trust Income ........................................ 74,032 61,755 55,238
Service Charges on Deposits ......................... 83,590 66,344 60,905
Data Processing Income .............................. 88,195 75,311 64,394
Other Service Charges and Fees ...................... 118,035 97,516 74,978
Securities Gains .................................... 4,563 4,789 393
- --------------------------------------------------------------------------------------------
Total Other Operating Income ........................ 368,415 305,715 255,908
- --------------------------------------------------------------------------------------------
OPERATING EXPENSES
Salaries, Wages and Incentives ...................... 185,793 156,545 148,039
Employee Benefits ................................... 44,682 38,648 36,710
Equipment Expenses .................................. 20,006 16,655 16,045
Net Occupancy Expenses .............................. 35,596 28,521 26,137
Other Operating Expenses ............................ 190,641 155,248 144,614
SAIF Assessment ..................................... 16,612 -- --
- --------------------------------------------------------------------------------------------
Total Operating Expenses ............................ 493,330 395,617 371,545
- --------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES .......................... 500,315 430,568 365,336
Applicable Income Taxes ............................. 165,256 142,883 120,877
- --------------------------------------------------------------------------------------------
NET INCOME .......................................... $ 335,059 287,685 244,459
- --------------------------------------------------------------------------------------------
NET INCOME PER SHARE ................................ $ 3.22 2.91 2.53
- --------------------------------------------------------------------------------------------
AVERAGE SHARES OUTSTANDING (000's) .................. 103,994 98,879 96,580
CASH DIVIDENDS DECLARED PER SHARE ................... $ 1.10 .96 .80
- --------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
Printed on recycled paper.
15
<PAGE> 19
<TABLE>
<CAPTION>
FIFTH THIRD BANCORP
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------------------
December 31 ($000's) 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and Due from Banks ................................................................. $ 808,926 628,535
Securities Available for Sale (amortized cost 1996-$6,198,346 and 1995-$4,129,405) ...... 6,223,881 4,151,178
Securities Held to Maturity (market value 1996-$176,798 and 1995-$187,091) .............. 176,804 187,091
Other Short-Term Investments ............................................................ 44,579 6,822
Loans and Leases
Commercial Loans ..................................................................... 4,013,785 3,584,124
Construction Loans ................................................................... 375,938 312,098
Commercial Mortgage Loans ............................................................ 795,599 794,267
Commercial Lease Financing ........................................................... 1,093,422 830,644
Residential Mortgage Loans ........................................................... 2,150,626 1,974,911
Consumer Loans ....................................................................... 2,600,169 3,062,697
Consumer Lease Financing ............................................................. 1,933,412 1,457,929
Unearned Income ...................................................................... ( 448,159) ( 326,027)
Reserve for Credit Losses ............................................................ ( 187,278) ( 177,388)
- ----------------------------------------------------------------------------------------------------------------------
Total Loans and Leases .................................................................. 12,327,514 11,513,255
Bank Premises and Equipment ............................................................. 231,389 195,990
Accrued Income Receivable ............................................................... 182,854 133,998
Other Assets ............................................................................ 553,051 236,014
- ----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS ............................................................................ $20,548,998 17,052,883
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES
- ----------------------------------------------------------------------------------------------------------------------
Deposits
Demand ............................................................................... $2,495,839 1,827,837
Interest Checking .................................................................... 1,957,895 1,558,506
Savings .............................................................................. 1,940,897 795,799
Money Market ......................................................................... 1,462,794 1,920,871
Other Time ........................................................................... 5,597,729 4,621,401
Certificates-$100,000 and Over ....................................................... 786,787 704,968
Foreign Office ....................................................................... 132,715 1,056,398
- ----------------------------------------------------------------------------------------------------------------------
Total Deposits .......................................................................... 14,374,656 12,485,780
Federal Funds Borrowed .................................................................. 1,420,694 553,041
Short-Term Bank Notes ................................................................... 806,000 450,000
Other Short-Term Borrowings ............................................................. 1,038,738 1,002,454
Accrued Taxes, Interest and Expenses .................................................... 374,304 315,026
Other Liabilities ....................................................................... 112,820 96,611
Long-Term Debt .......................................................................... 277,661 281,996
Convertible Subordinated Notes .......................................................... -- 143,400
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES ....................................................................... 18,404,873 15,328,308
- ----------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (a)
- ----------------------------------------------------------------------------------------------------------------------
Common Stock (b) ........................................................................ 235,090 222,939
Capital Surplus ......................................................................... 525,038 338,555
Retained Earnings ....................................................................... 1,367,653 1,148,279
Unrealized Gains on Securities Available for Sale ....................................... 16,598 14,802
Treasury Stock .......................................................................... ( 254) --
- ----------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY .............................................................. 2,144,125 1,724,575
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .............................................. $20,548,998 17,052,883
- ----------------------------------------------------------------------------------------------------------------------
<FN>
(a) 500,000 shares of no par value preferred stock are authorized of which none
have been issued.
(b) Stated value $2.22 per share; authorized 300,000,000; outstanding 1996 --
105,892,554 (excludes 3,931 treasury shares) and 1995 -- 100,422,996.
</TABLE>
See Notes to Consolidated Financial Statements.
16
<PAGE> 20
FIFTH THIRD BANCORP
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK
-------------------- UNREALIZED
SHARES CAPITAL RETAINED TREASURY GAINS
($000'S) OUTSTANDING AMOUNT SURPLUS EARNINGS STOCK (LOSSES) TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994 .................... 64,099,139 $142,300 260,150 862,785 -- 12,425 1,277,660
Net Income .................................... 244,459 244,459
Cash Dividends Declared:
Fifth Third Bancorp, at $.80 per share ..... ( 75,843) ( 75,843)
Pooled Acquisition ......................... ( 1,063) ( 1,063)
Shares Acquired for Treasury .................. ( 3,409) ( 178) ( 178)
Stock Options Exercised,
Including Treasury Shares Issued ........... 400,482 882 7,671 178 8,731
Corporate Tax Benefit Related to Exercise
of Non-Qualified Stock Options ............. 2,328 2,328
Stock Issued in Acquisition and Other ......... 213,092 473 2,850 3,323
Change in Unrealized Gains/Losses
on Securities Available for Sale ........... (60,643) ( 60,643)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 .................. 64,709,304 143,655 272,999 1,030,338 -- (48,218) 1,398,774
Net Income .................................... 287,685 287,685
Cash Dividends Declared at $.96 per share ..... ( 95,181) ( 95,181)
Three-for-Two Stock Split Effected in
the Form of a Stock Dividend ............... 32,354,651 71,827 ( 71,827) --
Shares Acquired for Treasury .................. ( 2,851) ( 73) ( 73)
Stock Options Exercised,
Including Treasury Shares Issued ........... 201,942 442 3,175 73 3,690
Corporate Tax Benefit Related to Exercise
of Non-Qualified Stock Options ............. 357 357
Fractional Shares Purchased in Stock Split
Effected in the Form of a Stock Dividend ... ( 250) ( 250)
Stock Issued in Conversion of
Subordinated Notes ......................... 8,250 18 332 350
Stock Issued in Acquisitions and Other ........ 3,151,700 6,997 61,692 ( 2,486) 66,203
Change in Unrealized Gains/Losses
on Securities Available for Sale ........... 63,020 63,020
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 .................. 100,422,996 222,939 338,555 1,148,279 -- 14,802 1,724,575
Net Income .................................... 335,059 335,059
Cash Dividends Declared at $1.10 per share .... ( 115,515) ( 115,515)
Shares Acquired for Treasury .................. ( 46,054) ( 3,096) ( 3,096)
Stock Options Exercised,
Including Treasury Shares Issued ........... 410,368 832 7,224 2,842 10,898
Corporate Tax Benefit Related to Exercise
of Non-Qualified Stock Options ............. 871 871
Stock Issued in Conversion of
Subordinated Notes ......................... 3,377,328 7,498 135,757 143,255
Stock Issued in Acquisition and Other ......... 1,727,916 3,821 42,631 ( 170) 46,282
Change in Unrealized Gains/Losses
on Securities Available for Sale ........... 1,796 1,796
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 .................. 105,892,554 $235,090 525,038 1,367,653 ( 254) 16,598 2,144,125
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
17
<PAGE> 21
FIFTH THIRD BANCORP
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31 ($000's) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net Income....................................................................... $ 335,059 287,685 244,459
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses................................................... 64,014 42,962 35,780
Depreciation, Amortization and Accretion...................................... 49,724 27,612 29,987
Provision for Deferred Income Taxes........................................... 74,886 65,155 44,719
Realized Securities Gains..................................................... ( 6,251) ( 6,118) ( 720)
Realized Securities Losses.................................................... 1,688 1,329 327
Proceeds from Sales of Residential Mortgage Loans Held for Sale............... 473,310 481,140 615,590
Net Gains on Sales of Loans................................................... ( 7,479) ( 9,915) ( 9,870)
Increase in Residential Mortgage Loans Held for Sale.......................... ( 513,915) ( 405,248) ( 503,233)
Increase in Accrued Income Receivable......................................... ( 46,784) ( 16,427) ( 13,761)
Increase in Other Assets...................................................... ( 142,743) ( 6,765) ( 5,545)
Increase (Decrease) in Accrued Taxes, Interest and Expenses................... ( 22,214) 16,544 ( 9,378)
Increase (Decrease) in Other Liabilities...................................... ( 12,185) ( 17,622) 13,321
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES........................................ 247,110 460,332 441,676
- ---------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from Sales of Securities Available for Sale............................. 411,117 568,171 185,114
Proceeds from Calls, Paydowns and Maturities of Securities Available for Sale.... 811,793 328,898 296,922
Purchases of Securities Available for Sale....................................... (2,368,274) ( 521,435) ( 710,030)
Proceeds from Sales of Securities Held to Maturity............................... -- -- 62,487
Proceeds from Calls, Paydowns and Maturities of Securities Held to Maturity...... 274,400 494,311 565,319
Purchases of Securities Held to Maturity......................................... ( 264,657) ( 462,161) (1,084,102)
Decrease (Increase) in Other Short-Term Investments.............................. ( 34,269) 38,666 ( 12,628)
Purchase of Loans in Acquisitions................................................ ( 224,313) ( 178,101) --
Proceeds from Securitization and Sale of Automobile Loans........................ 824,607 -- --
Increase in Loans and Leases..................................................... (2,111,951) (1,708,565) (1,145,395)
Purchases of Bank Premises and Equipment......................................... ( 40,327) ( 33,194) ( 27,564)
Proceeds from Disposal of Bank Premises and Equipment............................ 4,473 4,778 1,728
Cash Paid in Purchases of Subsidiaries and Other Acquisitions.................... ( 175,572) ( 40,575) ( 10,012)
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES............................................ (2,892,973) (1,509,207) (1,878,161)
- ---------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Purchases of Deposits............................................................ 1,921,019 389,586 294,126
Increase (Decrease) in Core Deposits............................................. 695,847 404,207 ( 21,337)
Increase (Decrease) in CDs-- $100,000 and Over, including Foreign................ ( 944,129) 457,641 800,441
Increase (Decrease) in Federal Funds Borrowed.................................... 867,653 ( 125,566) ( 315,252)
Increase (Decrease) in Short-Term Bank Notes..................................... 356,000 ( 394,995) 844,995
Increase in Other Short-Term Borrowings.......................................... 36,284 90,559 229,437
Proceeds from Issuance of Long-Term Debt and Notes............................... 10,125 266,556 --
Repayment of Long-Term Debt...................................................... ( 15,257) ( 20,115) ( 232,512)
Payment of Cash Dividends........................................................ ( 110,907) ( 89,131) ( 73,425)
Exercise of Stock Options........................................................ 11,769 4,047 10,307
Other............................................................................ ( 2,150) ( 388) ( 178)
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES........................................ 2,826,254 982,401 1,536,602
- ---------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS................................... 180,391 ( 66,474) 100,117
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR..................................... 628,535 695,009 594,892
- ---------------------------------------------------------------------------------------------------------------------------
CASH AND DUE FROM BANKS AT END OF YEAR........................................... $ 808,926 628,535 695,009
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
Note: The Bancorp paid Federal income taxes of $106,000,000, $72,000,000 and $78,000,000 in 1996, 1995 and 1994, respectively.
The Bancorp paid interest of $701,318,000, $602,818,000 and $392,688,000 in 1996, 1995 and 1994,
respectively.
The Bancorp had noncash investing activities consisting of the securitization and transfer to securities of $829,108,000,
$854,511,000 and $341,199,000 of residential mortgage loans in 1996, 1995 and 1994, respectively.
The Bancorp had noncash activities consisting of the reclassification of $2,311,567,000 in securities from held to maturity
to available for sale in 1995.
</TABLE>
See Notes to Consolidated Financial Statements.
18
<PAGE> 22
FIFTH THIRD BANCORP
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING AND
REPORTING POLICIES
NATURE OF OPERATIONS
Fifth Third Bancorp (Bancorp) conducts its principal activities through its
banking and non-banking subsidiaries from 414 offices located throughout Ohio,
Indiana, Kentucky and Florida. Principal activities include commercial and
retail banking, trust and investment services and data processing.
BASIS OF PRESENTATION
The Consolidated Financial Statements include the accounts of Fifth Third
Bancorp and its subsidiaries. All material intercompany transactions and
balances have been eliminated. Certain prior period data has been reclassified
to conform to current period presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
SECURITIES
Securities are classified as held to maturity, available for sale or trading.
Only those securities classified as held to maturity, and which management has
the intent and ability to hold to maturity, are reported at amortized cost.
Available for sale and trading securities are reported at fair value with
unrealized gains and losses, net of related deferred income taxes, included in
stockholders' equity or income, respectively. Realized securities gains or
losses are reported in the Consolidated Statements of Income. The cost of
securities sold is based on the specific identification method.
LOANS AND LEASES
Interest income on loans is based on the principal balance outstanding, with
the exception of interest on discount basis loans which is computed using a
method which approximates the interest method. The accrual of interest for
commercial, construction and mortgage loans is discontinued when there is a
clear indication that the borrower's cash flow may not be sufficient to meet
payments as they become due. Such loans are also placed on nonaccrual status
when principal or interest is past due ninety days or more, unless the loan is
well secured and in the process of collection. When a loan is placed on
nonaccrual status, all previously accrued and unpaid interest is charged against
income.
Loan and lease origination and commitment fees and certain direct loan
origination costs are deferred and the net amount amortized over the estimated
life of the related loans or commitments as a yield adjustment.
Income on direct financing leases is recognized on a basis to achieve a
constant periodic rate of return on the outstanding investment. Income on
leveraged leases is recognized on a basis to achieve a constant rate of return
on the outstanding investment in the lease, net of the related deferred tax
liability, in the years in which the net investment is positive.
Residential mortgage loans held for sale are valued at the lower of aggregate
cost or market value and were $15,756,000 and $22,954,000 at December 31, 1996
and 1995, respectively. The Bancorp has commitments to sell residential mortgage
loans held for sale in the secondary market. Gains or losses on sales are
recognized in Other Service Charges and Fees upon delivery.
Statement of Financial Accounting Standards (SFAS) No. 122, "Accounting for
Mortgage Servicing Rights," requires an entity that sells or securitizes
mortgage loans with servicing rights retained to allocate the total cost of the
mortgage loans to the servicing rights and the loans based on their relative
fair values. The resulting servicing rights are amortized in proportion to, and
over the period of, estimated net servicing revenues. Servicing rights are
assessed for impairment periodically based on fair value, with any impairment
recognized through a valuation allowance. For purposes of measuring impairment,
the rights are stratified based on interest rate and original maturity. The
effect of adopting SFAS No. 122 in the third quarter of 1995 was to increase
gains on sales of residential mortgage loans by $2.5 million (pretax).
The Bancorp adopted SFAS No. 114, "Accounting by Creditors for Impairment of
a Loan," as amended, effective January 1, 1995. This statement requires that
impaired loans be measured based on the present value of expected future cash
flows discounted at the loan's effective interest rates or the fair value of the
underlying collateral. For purposes of applying this standard, impaired loans
have been defined as all nonaccrual loans. The Bancorp's policy for income
recognition was not affected by adoption of the standard. The adoption of SFAS
No. 114 did not have any effect on the total reserve for credit losses or
related provision.
RESERVE FOR CREDIT LOSSES
The reserve is maintained at a level management considers to be adequate to
absorb potential loan and lease losses. Credit losses are charged and recoveries
are credited to the reserve. Provisions for credit losses are based on
management's review of the historical credit loss experience and such other
factors which, in management's judgment, deserve consideration under existing
economic conditions in estimating potential credit losses.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment, including leasehold improvements, are stated at
cost less accumulated depreciation and amortization. Depreciation is computed on
the straight-line method over the estimated useful lives of the related assets.
Amortization of leasehold improvements is computed on the straight-line method
over the lives of the related leases or useful lives of the related assets,
whichever is shorter. Maintenance, repairs and minor improvements are charged to
operating expenses as incurred.
INTANGIBLE ASSETS
Goodwill and premium on purchased deposits are amortized on a straight-line
basis generally over a period of up to 15 years. Management reviews intangible
assets for possible impairment if there is a significant event that
detrimentally affects operations. Impairment is measured using estimates of the
future earnings potential of the entity or assets acquired.
DERIVATIVE FINANCIAL INSTRUMENTS
The Bancorp enters into foreign exchange forward contracts primarily to
enable customers involved in international trade to hedge their exposure to
foreign currency fluctuations. The Bancorp hedges its exposure to market rate
fluctuations by entering into offsetting third party forward contracts.
Unrealized gains and losses on forward contracts are generally insignificant and
are recognized in Other Service Charges and Fees when realized.
The Bancorp has purchased options to hedge the value of mortgage servicing
rights against changes in prepayment rates. Option premiums are amortized over
the option life on a straight-line basis. The contracts are designated as
hedges, with gains and losses recorded as basis adjustments to the mortgage
servicing rights.
The Bancorp does not hold or issue derivative financial instruments for
trading purposes.
NET INCOME PER SHARE
Net income per share is calculated by dividing net income for the period by
the weighted average number of shares of common stock outstanding during the
period. The assumed conversion of convertible subordinated notes and the
exercise of stock options do not have a materially dilutive effect.
19
<PAGE> 23
FIFTH THIRD BANCORP
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OTHER
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," was adopted January 1, 1996 and requires
that long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amounts of these assets may not be recoverable. The adoption of SFAS
No. 121 did not have a material effect on the Consolidated Financial Statements.
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," was issued in June, 1996 and provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. SFAS No. 125 applies to transactions
occurring after December 31, 1996. The adoption of SFAS No. 125 is not expected
to have a material effect on the Consolidated Financial Statements.
Securities and other property held by the Trust and Investment Group of the
Bancorp subsidiaries in a fiduciary or agency capacity are not included in the
Consolidated Balance Sheets because such items are not assets of the
subsidiaries. Trust income is recognized on the accrual basis.
Treasury stock is carried at cost.
NOTE 2-SECURITIES
Securities available for sale as of December 31:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1996
------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
($000'S) COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government
and agencies
obligations ............. $ 341,056 6,860 -- 347,916
Obligations of
states and political
subdivisions ............ 291,365 5,482 -- 296,847
Agency mortgage-
backed
securities .............. 4,913,277 20,472 ( 7,981) 4,925,768
Other bonds,
notes and
debentures .............. 595,933 5,257 ( 7,270) 593,920
Other securities .......... 56,715 2,740 ( 25) 59,430
- -----------------------------------------------------------------------------
Total securities .......... $6,198,346 40,811 ( 15,276) 6,223,881
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
1995
---------------------------------------------
Amortized Unrealized Unrealized Market
($000's) Cost Gains Losses Value
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government
and agencies
obligations ............. $ 371,808 13,300 ( 50) 385,058
Obligations of
states and political
subdivisions ............ 295,605 5,184 ( 2) 300,787
Agency mortgage-
backed
securities .............. 2,759,663 14,935 ( 557) 2,774,041
Other bonds,
notes and
debentures .............. 669,128 513 (14,556) 655,085
Other securities .......... 33,201 3,006 -- 36,207
- -----------------------------------------------------------------------------
Total securities .......... $4,129,405 36,938 (15,165) 4,151,178
- -----------------------------------------------------------------------------
Securities held to maturity as of December 31:
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996
------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
($000'S) COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of
states and political
subdivisions ................... $150,232 -- -- 150,232
Other bonds,
notes and
debentures ..................... 1,805 -- (6) 1,799
Other securities ................. 24,767 -- -- 24,767
- --------------------------------------------------------------------------------
Total securities ................. $176,804 -- (6) 176,798
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995
-------------------------------------------
Amortized Unrealized Unrealized Market
($000's) Cost Gains Losses Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of
states and political
subdivisions .................. $167,992 -- -- 167,992
Other bonds,
notes and
debentures .................... 1,505 -- -- 1,505
Other securities ................ 17,594 -- -- 17,594
- --------------------------------------------------------------------------------
Total securities ................ $187,091 -- -- 187,091
- --------------------------------------------------------------------------------
</TABLE>
The amortized cost and approximate market value of securities at December 31,
1996, by contractual maturity, are shown in the following table. Actual
maturities may differ from contractual maturities when there exists a right to
call or prepay obligations with or without call or prepayment penalties.
Maturities of mortgage-backed securities were estimated based on historical and
expected future prepayment trends.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
AVAILABLE FOR SALE HELD TO MATURITY
------------------ -----------------
AMORTIZED MARKET AMORTIZED MARKET
($000'S) COST VALUE COST VALUE
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt securities:
Under 1 year ..................$ 245,770 247,092 $75,386 75,386
1-5 years ..................... 5,007,252 5,029,113 75,866 75,866
6-10 years .................... 678,250 674,001 785 779
Over 10 years ................. 210,359 214,245 -- --
Other securities ................ 56,715 59,430 24,767 24,767
- --------------------------------------------------------------------------
Total securities ................$6,198,346 6,223,881 $176,804 176,798
- -------------------------------------------------------------------------
</TABLE>
At December 31, 1996 and 1995, securities with a book value of $2,819,040,000
and $2,117,342,000, respectively, were pledged to secure short-term borrowings,
public deposits, trust funds and for other purposes as required or permitted by
law.
On November 15, 1995, management took a permitted, one-time opportunity to
re-evaluate securities classification under SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," and reclassified securities
with an amortized cost of $2,311,567,000 from held to maturity to available for
sale. The unrealized gain at the time of transfer was $19,797,000.
NOTE 3-RESERVE FOR CREDIT LOSSES
Transactions in the reserve for credit losses for the years ended
December 31:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
($000's) 1996 1995 1994
- ------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 ........... $177,388 155,918 144,537
Losses charged off ............. ( 80,444) ( 41,707) ( 30,946)
Recoveries of losses previously
charged off .................. 20,482 11,846 13,472
- ------------------------------------------------------------------
Net charge-offs ................ ( 59,962) ( 29,861) ( 17,474)
Letter of credit contract ...... -- -- (7,800)
Provision charged to operations 64,014 42,962 35,780
Reserve of acquired institutions
and other .................... 5,838 8,369 875
- ------------------------------------------------------------------
Balance at December 31 ......... $187,278 177,388 155,918
- ------------------------------------------------------------------
</TABLE>
20
<PAGE> 24
FIFTH THIRD BANCORP
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years 1996, 1995 and 1994, interest income of $569,000, $1,066,000
and $556,000, respectively, was recorded on nonaccrual and renegotiated loans
and leases. Additional interest income of $3,805,000, $2,271,000 and $1,767,000
would have been recorded if the nonaccrual and renegotiated loans and leases had
been current in accordance with their original terms.
Impaired loan information, under SFAS No. 114, at
December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
($000's) 1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Impaired loans with a valuation reserve.... $22,432 29,257
Impaired loans with no valuation reserve... 6,614 7,792
- --------------------------------------------------------------
Total impaired loans ...................... $29,046 37,049
- --------------------------------------------------------------
Valuation reserve on impaired loans ....... $16,395 10,370
Average impaired loans .................... $33,048 25,848
- --------------------------------------------------------------
</TABLE>
Cash basis interest income recognized on those loans during both years was
immaterial.
NOTE 4-LEASE FINANCING
A summary of the gross investment in lease financing at December 31:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
($000's) 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C>
Direct financing leases ................... $2,967,668 2,248,322
Leveraged leases .......................... 59,166 40,251
- ------------------------------------------------------------------------
Total lease financing ..................... $3,026,834 2,288,573
- ------------------------------------------------------------------------
</TABLE>
The components of the investment in lease financing at December 31:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
($000's) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Rentals receivable, net of principal and
interest on nonrecourse debt .................... $1,866,445 1,453,802
Estimated residual value of leased assets ......... 1,160,389 834,771
- --------------------------------------------------------------------------------
Gross investment in lease financing ............... 3,026,834 2,288,573
Unearned income ................................... ( 421,387) ( 304,864)
- --------------------------------------------------------------------------------
Total net investment in lease financing ........... $2,605,447 1,983,709
- --------------------------------------------------------------------------------
</TABLE>
At December 31, 1996, the minimum future lease payments receivable for each
of the years 1997 through 2001 were $766,964,000, $740,993,000, $642,760,000,
$457,913,000 and $390,532,000, respectively.
NOTE 5-BANK PREMISES AND EQUIPMENT
A summary of bank premises and equipment at December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Estimated
($000's) Useful Life 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Land and improvements .............. $ 42,963 36,803
Buildings .......................... 18 to 50 yrs. 159,519 141,449
Equipment .......................... 3 to 20 yrs. 136,410 115,922
Leasehold improvements ............. 6 to 25 yrs. 45,020 37,564
Accumulated depreciation
and amortization ................. (152,523) (135,748)
- --------------------------------------------------------------------------------
Total bank premises and
equipment ........................ $ 231,389 195,990
- --------------------------------------------------------------------------------
</TABLE>
Depreciation and amortization expense related to bank premises and equipment
was $21,689,000 in 1996, $18,072,000 in 1995 and $15,388,000 in 1994.
Occupancy expense has been reduced by rental income from leased premises of
$7,400,000 in 1996, $8,145,000 in 1995 and $8,900,000 in 1994.
The Bancorp's subsidiaries have entered into a number of noncancelable lease
agreements with respect to bank premises and equipment. A summary of the minimum
annual rental commitments under these leases at December 31, 1996, exclusive of
taxes and other charges payable by the lessee:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
LAND AND
($000'S) BUILDINGS EQUIPMENT TOTAL
- -----------------------------------------------------------
<C> <C> <C> <C>
1997 ....................... $10,841 198 11,039
1998 ....................... 10,243 143 10,386
1999 ....................... 9,828 128 9,956
2000 ....................... 9,191 127 9,318
2001 ....................... 8,274 -- 8,274
2002 and subsequent years... 38,475 -- 38,475
- -----------------------------------------------------------
Total $86,852 596 87,448
- -----------------------------------------------------------
</TABLE>
Rental expense for cancelable and noncancelable leases was $14,947,000 for
1996, $12,470,000 for 1995 and $11,891,000 for 1994.
<TABLE>
<CAPTION>
NOTE 6-INTANGIBLE ASSETS
Intangibles, net of accumulated amortization, included in Other Assets in the
Consolidated Balance Sheets at December 31:
- ---------------------------------------------------------------------
($000's) 1996 1995
- ---------------------------------------------------------------------
<S> <C> <C>
Goodwill ................................. $ 24,719 27,221
Premium on purchased deposits ............ 263,268 73,170
- ---------------------------------------------------------------------
Total intangibles ........................ $287,987 100,391
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NOTE 7-SHORT-TERM BORROWINGS
A summary of short-term borrowings and rates at December 31:
- --------------------------------------------------------------------------------
($000's) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal funds borrowed:
Balance ................. $1,420,694 553,041 716,312
Rate .................... 5.39% 4.59 5.34
- --------------------------------------------------------------------------------
Short-term bank notes:
Balance ................. $ 806,000 450,000 844,995
Rate .................... 5.41% 5.60 5.90
- --------------------------------------------------------------------------------
Securities sold under
agreements to repurchase:
Balance ................. $ 924,290 835,773 687,493
Rate .................... 4.77% 4.96 4.30
- --------------------------------------------------------------------------------
Other:
Balance ................. $ 114,448 166,681 203,418
Rate .................... 5.81% 4.93 5.75
- --------------------------------------------------------------------------------
Total short-term
borrowings:
Balance ................. $3,265,432 2,005,495 2,452,218
Rate .................... 5.23% 5.00 5.28
- --------------------------------------------------------------------------------
Average outstanding ....... $2,780,806 2,669,477 1,967,819
Maximum month-end
balance ................. $3,265,432 2,984,427 2,452,218
Weighted average
interest rate ........... 5.17% 5.72 4.12
- --------------------------------------------------------------------------------
</TABLE>
A $3 billion senior and subordinated bank note facility was established in
1996. This facility replaced the $1 billion facility established in 1994.
Short-term senior notes are offered with maturities ranging from 30 days to 1
year and are obligations of six of the Bancorp's subsidiary banks and are
included in the above table as short-term bank notes. In addition, medium-term
senior notes with maturities ranging from one year to 30 years and subordinated
bank notes with maturities ranging from 5 years to 30 years can be issued by the
six subsidiary banks, none of which are outstanding as of December 31, 1996.
At December 31, 1996, the Bancorp had issued $27,277,000 in commercial paper,
with unused lines of credit of $40,000,000 available to support commercial paper
transactions and other corporate requirements.
21
<PAGE> 25
FIFTH THIRD BANCORP
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8-LONG-TERM BORROWINGS
A summary of long-term borrowings at December 31:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
($000's) 1996 1995
- ---------------------------------------------------------------------
<S> <C> <C>
Bancorp:
Convertible subordinated notes,
4.25%, due 1998 ....................... $ -- 143,400
- ---------------------------------------------------------------------
Subsidiaries:
Subordinated notes,
6.75%, due 2005 ....................... 247,061 246,715
Federal Home Loan Bank advances ......... 30,395 34,986
Other, 7% ............................... 205 295
- ---------------------------------------------------------------------
Total long-term debt .................... 277,661 281,996
- ---------------------------------------------------------------------
Total long-term borrowings .............. $277,661 425,396
- ---------------------------------------------------------------------
</TABLE>
The subordinated notes are unsecured obligations of a subsidiary bank.
Interest is payable semiannually and the notes qualify as total capital for
regulatory capital purposes.
At December 31,1996, Federal Home Loan Bank (FHLB) advances have rates
ranging from 3.22% to 7.51%, with interest payable monthly. The advances were
secured by cash, certain securities with book values of $34,560,000 and
$24,449,000 at December 31, 1996 and 1995, respectively, and by certain
residential mortgage loans with a book value of $160,662,000 at December 31,
1995. The advances mature as follows: $20,000,000 in 1997, $10,000,000 in 1998
and $395,000 after 2002.
Other promissory notes mature as follows: $100,000 in 1997 and $105,000 in
1998.
The Bancorp issued notice of redemption effective May 31, 1996 for its 4.25%
convertible subordinated notes issued in 1992. As a result, 3.4 million common
shares were issued and $143.3 million was added to equity capital.
NOTE 9-INCOME TAXES
The Bancorp and its subsidiaries file a consolidated Federal income tax
return. A summary of applicable income taxes included in the Consolidated
Statements of Income:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
($000's) 1996 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Current U.S. income taxes ............ $ 87,584 75,162 74,013
State and local income taxes ......... 2,786 2,566 2,145
- -------------------------------------------------------------------------
Total ................................ 90,370 77,728 76,158
- -------------------------------------------------------------------------
Deferred U.S. income taxes
resulting from temporary
differences ........................ 74,886 65,155 44,719
- -------------------------------------------------------------------------
Applicable income taxes .............. $165,256 142,883 120,877
- -------------------------------------------------------------------------
</TABLE>
Deferred income taxes are included in the caption Accrued Taxes, Interest and
Expenses in the Consolidated Balance Sheets and are comprised of the following
temporary differences at December 31:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
($000's) 1996 1995
- -------------------------------------------------------------------
<S> <C> <C>
Lease financing ........................ $ 288,699 222,857
Reserve for credit losses .............. (63,640) (57,530)
Bank premises and equipment ............ 10,099 10,038
Unrealized gains on securities
available for sale ................... 8,937 7,971
Other .................................. 16,351 1,258
- -------------------------------------------------------------------
Total net deferred tax liability ....... $ 260,446 184,594
- -------------------------------------------------------------------
</TABLE>
A reconciliation between the statutory U.S. income tax rate and the Bancorp's
effective tax rate:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate ....................... 35.0% 35.0 35.0
Increase (decrease) resulting from:
Tax-exempt interest .................... ( 2.4) ( 2.6) ( 2.5)
Other-net .............................. .4 .8 .6
- ----------------------------------------------------------------------
Effective tax rate ....................... 33.0% 33.2 33.1
- ----------------------------------------------------------------------
</TABLE>
Retained earnings at December 31, 1996 includes approximately $35.5 million
in allocations of earnings for bad debt deductions of thrift subsidiaries for
which no income tax has been provided. Under current tax law, if certain of the
Bancorp's subsidiaries use these bad debt reserves for purposes other than to
absorb bad debt losses, they will be subject to federal income tax at the
current corporate tax rate.
NOTE 10-OTHER SERVICE CHARGES AND FEES AND OTHER OPERATING EXPENSES
The major components for the years ended December 31:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
($000's) 1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Other Service Charges and Fees:
Cardholder fees ...................... $ 23,936 16,422 13,003
Consumer loan and lease fees ......... 29,629 15,899 12,526
Commercial banking ................... 19,150 18,368 14,138
Mortgage banking ..................... 24,789 28,554 20,249
Other ................................ 20,531 18,273 15,062
- -----------------------------------------------------------------------------
Total other service charges
and fees ............................. $118,035 97,516 74,978
- -----------------------------------------------------------------------------
Other Operating Expenses:
Marketing and
communications ..................... $ 33,494 28,544 25,001
FDIC insurance ....................... 7,137 14,269 20,669
Franchise taxes ...................... 20,525 15,138 13,460
Printing and supplies ................ 13,939 12,501 11,720
Bankcard ............................. 24,429 18,581 13,110
Loan and lease ....................... 16,559 11,667 8,550
Intangible amortization .............. 20,205 5,349 4,823
Other ................................ 54,353 49,199 47,281
- -----------------------------------------------------------------------------
Total other operating expenses ......... $190,641 155,248 144,614
- -----------------------------------------------------------------------------
</TABLE>
NOTE 11-STOCK OPTIONS
Options can be granted under the Bancorp's Stock Option Plans to key
employees and directors of the Bancorp and its subsidiaries for up to 4.8
million shares of the Bancorp's common stock. All options granted have up to ten
year terms and vest and become fully exercisable at the end of three years of
continued employment. A summary of option transactions during 1996, 1995 and
1994:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
1996 1995 1994
---------------- ------------------ --------------------
AVERAGE Average Average
SHARES OPTION SHARES Option Shares Option
(000'S) PRICE (000's) Price (000's) Price
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning
of year .. 3,167 $ 33.09 2,398 $30.25 2,436 $24.77
Exercised .. ( 410) 26.43 ( 202) 18.43 ( 600) 12.23
Expired .... ( 87) 38.23 ( 94) 35.19 ( 120) 34.59
Granted .... 1,060 52.83 1,065 36.89 682 34.75
- ------------------------------------------------------------------------
Outstanding,
end of
year .. 3,730 $39.30 3,167 $33.09 2,398 $30.25
- ------------------------------------------------------------------------
Exercisable,
end of
year .. 2,110 2,028 1,367
- ------------------------------------------------------------------------
</TABLE>
22
<PAGE> 26
FIFTH THIRD BANCORP
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1996, options outstanding have exercise prices between
$13.67 and $63.50 and a weighted average remaining contractual life of 7.5
years. The majority of options outstanding have exercise prices ranging from
$35.17 to $52.75 with a weighted average remaining contractual life of 7.1
years.
At December 31, 1996, there were 2,376,415 incentive options and 1,353,654
nonqualified options outstanding and 434,652 shares were available for granting
additional options.
SFAS No. 123 "Accounting for Stock-Based Compensation," was adopted January
1, 1996 and encourages, but does not require, adoption of a fair-value-based
accounting method for employee stock-based compensation arrangements. As
permitted by the statement, the Bancorp has elected to only disclose pro forma
net income and net income per share as if the fair-value-based method had been
applied in measuring compensation costs. The Bancorp's pro forma information for
the years ended December 31:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Pro forma net income ($000's) ............... $330,271 285,522
Pro forma net income per share .............. $ 3.18 2.89
- -----------------------------------------------------------------------------
</TABLE>
Compensation expense reflected in the pro forma disclosures is not indicative
of future amounts when the SFAS No. 123 prescribed method will apply to all
outstanding nonvested awards.
The weighted average fair value of options granted was $13.35 in 1996 and
$11.44 in 1995. The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions used for grants in 1996 and 1995: expected dividend yield of 2% and
expected option lives of nine years for both years; expected volatility of 21%
and 22% and risk-free interest rates of 6.5% and 5.9%, respectively.
NOTE 12-RETIREMENT PLAN AND BENEFIT PLANS
The Bancorp maintains a noncontributory retirement plan covering
substantially all regular full-time employees and providing defined benefits
based on years of credited service and compensation level, partially offset by
social security benefits. Contributions to the plan are based on the unit credit
actuarial method and are limited to amounts currently deductible for federal
income tax purposes.
A summary of the qualified plan's funded status at December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
($000's) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Vested benefit obligation ......................... $ 21,671 23,308
Non-vested benefit obligation ..................... 4,637 3,233
- -------------------------------------------------------------------------------
Accumulated benefit obligation .................... $ 26,308 26,541
- -------------------------------------------------------------------------------
Plan assets at fair value, primarily
common trust and mutual funds
managed by The Fifth Third Bank,
listed stocks and U.S. bonds .................... $ 59,574 56,201
Projected benefit obligation for service
rendered to date ................................ 34,548 31,816
- -------------------------------------------------------------------------------
Plan assets in excess of projected benefit
obligation ...................................... 25,026 24,385
Unrecognized transition asset ..................... ( 1,151) ( 1,396)
Unrecognized prior service cost ................... ( 1,891) ( 3,667)
Unrecognized net gain ............................. ( 7,056) ( 5,485)
- -------------------------------------------------------------------------------
Prepaid pension cost .............................. $ 14,928 13,837
- -------------------------------------------------------------------------------
</TABLE>
A summary of the components of the provision for retirement cost for the
qualified plan for the years ended December 31:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
($000's) 1996 1995 1994
- --------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for current year .... $ 2,115 1,611 1,567
Interest cost .................... 2,385 2,246 1,976
Actual return on plan assets ..... (7,038) (10,395) ( 527)
Amortization, primarily of initial
unrecognized asset and prior
service cost ................... ( 625) ( 626) ( 942)
Net gain (loss)-- deferred ....... 2,072 6,161 (3,217)
- -------------------------------------------------------------------
Net retirement income ............ $(1,091) (1,003) (1,143)
- -------------------------------------------------------------------
</TABLE>
In determining the actuarial present value of the projected benefit
obligation, the following weighted average rates were used:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------------
<S> <C> <C>
Discount rate ................................ 7.75% 7.25
Rate of increase in compensation levels ...... 5.00 5.00
Expected long-term rate of return on assets... 9.00 9.00
- ----------------------------------------------------------------------
</TABLE>
The Bancorp also sponsors a nonqualified, unfunded Supplemental Retirement
Income Plan (SERP) that provides certain officers with defined pension benefits
in excess of the limits imposed on the qualified plan by federal tax law.
A summary of the SERP's status at December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
($000's) 1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Vested benefit obligation ..................... $1,900 2,247
Non-vested benefit obligation ................. 500 728
- --------------------------------------------------------------------
Accumulated benefit obligation ................ $2,400 2,975
- --------------------------------------------------------------------
Projected benefit obligation for service
rendered to date ............................ $6,884 6,539
Unrecognized transition asset ................. 63 77
Unrecognized prior service cost ............... 369 ( 913)
Unrecognized net loss ......................... (2,362) (1,772)
- --------------------------------------------------------------------
Accrued pension cost .......................... $4,954 3,931
- -------------------------------------------------------------------
</TABLE>
A summary of the components of the provision for SERP expense for the years
ended December 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
($000's) 1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for current year ............ $ 347 281 472
Interest cost ............................ 495 433 566
Amortization, primarily of initial
unrecognized asset and prior
service cost ........................... 90 94 62
Net gain--deferred ...................... 102 32 392
- ----------------------------------------------------------------------
Net SERP expense ......................... $1,034 840 1,492
- ----------------------------------------------------------------------
</TABLE>
In determining the actuarial present value of the projected benefit
obligation, the following weighted average rates were used:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Discount rate .................................. 7.75% 7.25
Rate of increase in compensation levels ........ 7.00 7.00
- -----------------------------------------------------------------------------
</TABLE>
The Bancorp has a profit sharing plan covering substantially all employees.
The contribution to the plan is an amount determined annually by the Board of
Directors and was $22,101,000 for 1996, $18,793,000 for 1995 and $16,770,000 for
1994.
23
<PAGE> 27
FIFTH THIRD BANCORP
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13-COMMITMENTS AND CONTINGENT LIABILITIES
The Bancorp, in the normal course of business, is a party to financial
instruments with off-balance-sheet risk to meet the financing needs of its
customers in Ohio, Kentucky, Indiana and Florida, and to minimize exposure to
fluctuations in interest and foreign exchange rates. These financial instruments
primarily include commitments to extend credit, standby and commercial letters
of credit, foreign exchange contracts, purchased options and commitments to sell
residential mortgage loans. These instruments involve, to varying degrees,
elements of credit risk, counterparty risk and market risk in excess of the
amounts recognized in the Consolidated Balance Sheets. The contract or notional
amounts of these instruments reflect the extent of involvement the Bancorp has
in particular classes of financial instruments.
Creditworthiness for all instruments is evaluated on a case-by-case basis in
accordance with Bancorp credit policies. Collateral, if deemed necessary, is
based on management's credit evaluation of the counterparty and may include
business assets of commercial borrowers as well as personal property and real
estate of individual borrowers and guarantors.
A summary of significant commitments and other off-balance-sheet items at
December 31:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Contract or
Notional Amount
----------------------------
($000's) 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit .............. $5,922,515 5,114,125
Letters of credit (including
standby letters of credit) .............. 769,413 611,535
Foreign exchange contracts:
Commitments to purchase ................. 73,404 54,959
Commitments to sell ..................... 74,495 51,550
Purchased option contracts ................ 75,000 --
Commitments to sell
residential mortgage loans .............. 47,960 31,600
- -------------------------------------------------------------------------
</TABLE>
Commitments to extend credit are agreements to lend. Commitments generally
have fixed expiration dates or other termination clauses that may require
payment of a fee. Since many of the commitments may expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements. The Bancorp's exposure to credit risk in the event of
nonperformance by the other party is the contract amount. Fixed rate commitments
are subject to market risk resulting from fluctuations in interest rates and the
Bancorp's exposure is limited to the replacement value of those commitments.
Standby and commercial letters of credit are conditional commitments issued
to guarantee the performance of a customer to a third party. At December 31,
1996, approximately $434,825,000 of standby letters of credit will expire within
one year, $258,588,000 expire between one to five years and $40,161,000 expire
thereafter. At December 31, 1996, letters of credit of approximately $35,839,000
were issued to commercial customers for a duration of one year or less to
facilitate trade payments in domestic and foreign transactions. The amount of
credit risk involved in issuing letters of credit in the event of nonperformance
by the other party is the contract amount.
Foreign exchange forward contracts are for future delivery or purchase of
foreign currency at a specified price. Risks arise from the possible inability
of counterparties to meet the terms of their contracts and from any resultant
exposure to movement in foreign exchange rates, limiting the Bancorp's exposure
to the replacement value of the contracts rather than the notional principal or
contract amounts. The Bancorp reduces its market risk for foreign exchange
contracts by entering into offsetting third party forward contracts. The foreign
exchange contracts outstanding at December 31, 1996 mature in one year or less.
The Bancorp enters into forward contracts for future delivery of residential
mortgage loans at a specified yield to reduce the interest rate risk associated
with fixed-rate residential mortgages held for sale and commitments to fund
residential mortgages. Credit risk arises from the possible inability of the
other parties to comply with the contract terms. The majority of the Bancorp's
contracts are with U.S. government-sponsored agencies (FNMA, FHLMC).
At December 31, 1996, the Bancorp had purchased option contracts with a total
notional amount of $75,000,000 to hedge the value of mortgage servicing rights
against changes in prepayment rates. The contracts have a five year term and
give the Bancorp the right to receive payments on fixed rates ranging from 5.15%
to 6.15% and to make payments based on the six-month London Interbank Offering
Rate (LIBOR). These contracts carry the risk of the counterparty's future
ability to perform under the agreement. A limit of market exposure is approved
for all counterparties, contracts are marked-to-market and exposures are
collateralized by the counterparty in accordance with Bancorp policy.
There are claims pending against the Bancorp and its subsidiaries. Based on a
review of such litigation with legal counsel, management believes that any
resulting liability would not have a material effect upon the Bancorp's
consolidated financial position or results of operations.
NOTE 14-ACQUISITIONS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
CONSIDERATION
-----------------
COMMON
DATE CASH SHARES METHOD OF
COMPLETED ($000'S) ISSUED ACCOUNTING
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
KENTUCKY ENTERPRISE 3/15/96 $36 1,726,285 POOLING
BANCORP, INC.
NEWPORT, KENTUCKY
Bank of Naples 9/08/95 6 266,031 Pooling
Naples, Florida
Falls Financial, Inc. 7/21/95 49 2,219,028 Pooling
Cuyahoga Falls, Ohio
Mutual Federal Savings 1/20/95 9 666,641 Pooling
Bank of Miamisburg,
A Stock Savings Bank
Miamisburg, Ohio
The Cumberland Federal 8/26/94 15 4,045,323 Pooling
Bancorporation, Inc.
Louisville, Kentucky
The National Bancorp
of Kentucky, Inc. 6/03/94 -- 381,138 Pooling
Cynthiana, Kentucky
- ------------------------------------------------------------------
</TABLE>
The Consolidated Financial Statements have been restated to include the
acquisition of The Cumberland Federal Bancorporation, Inc. No other restatements
have been made due to immateriality.
On January 19, 1996, the Bancorp purchased deposits of approximately
$1.4 billion and the fixed assets of the 28 offices of 1st Nationwide Bank in
the Cleveland, Ohio area for $136 million. On February 23, 1996, the Bancorp
acquired the Ohio operations of First Chicago NBD Corporation with $534 million
in deposits, $222 million in loans and 25 offices in Columbus and Dayton for
$39.5 million.
NOTE 15-REGULATORY MATTERS
The principal source of income and funds for the Bancorp (parent company) are
dividends from its subsidiaries. During the year 1997, the amount of dividends
that the subsidiaries can pay to the Bancorp without prior approval of
regulatory agencies is limited to their 1997 eligible net profits, as defined,
and $121,967,000, the adjusted retained 1996 and 1995 net income of the
subsidiaries.
The banks must maintain noninterest-bearing cash balances on
24
<PAGE> 28
FIFTH THIRD BANCORP
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
reserve with the Federal Reserve Bank. In 1996 and 1995, the banks were required
to maintain average reserve balances of $176,114,000 and $165,549,000,
respectively.
The Federal Reserve Board adopted quantitative measures which assign risk
weightings to assets and off-balance-sheet items and also define and set minimum
regulatory capital requirements (risk-based capital ratios). All banks are
required to have core capital (Tier 1) of at least 4% of risk-weighted assets,
total capital of at least 8% of risk-weighted assets and a minimum Tier 1
leverage ratio of 3% of adjusted quarterly average assets. Tier 1 capital
consists principally of stockholders' equity excluding unrealized gains and
losses on securities available for sale, less goodwill and certain other
intangibles. Total capital consists of Tier 1 capital plus certain debt
instruments and the reserve for credit losses, subject to limitation. Failure to
meet certain capital requirements can initiate certain actions by regulators
that, if undertaken, could have a direct material effect on the Consolidated
Financial Statements. The regulations also define well capitalized levels of
Tier 1, total capital and Tier 1 leverage as 6%, 10% and 5%, respectively. The
Bancorp and each of its subsidiaries had Tier 1, total capital and leverage
ratios above the well capitalized levels at December 31, 1996 and 1995. The
risk-based capital ratios for Fifth Third Bank of Northern Kentucky, Inc. and
Fifth Third Bank of Kentucky, Inc. have been computed on a pro forma basis to
include inter-affiliate mergers which have been approved by the appropriate
regulatory agencies and occurred in January, 1997. As of December 31, 1996, the
most recent notification from the Federal Reserve Bank categorized the Bancorp
and each of its subsidiary banks as well capitalized under the regulatory
framework for prompt corrective action.
Capital and risk-based capital and leverage ratios for the Bancorp and its
significant subsidiaries at December 31:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1996
-----------------------
($000'S) AMOUNT RATIO
- ------------------------------------------------------------------------------
<S> <C> <C>
TOTAL CAPITAL (TO RISK-WEIGHTED ASSETS):
Fifth Third Bancorp (Consolidated) .............. $2,275,000 14.06%
The Fifth Third Bank, Cincinnati ................ 1,025,000 12.81
Fifth Third Bank of Northwestern Ohio, N.A ...... 198,000 11.38
Fifth Third Bank of Northeastern Ohio ........... 142,000 10.37
TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS):
Fifth Third Bancorp (Consolidated) .............. 1,840,000 11.37
The Fifth Third Bank, Cincinnati ................ 699,000 8.73
Fifth Third Bank of Northwestern Ohio, N.A ...... 177,000 10.17
Fifth Third Bank of Northeastern Ohio ........... 126,000 9.21
TIER 1 LEVERAGE CAPITAL (TO AVERAGE ASSETS):
Fifth Third Bancorp (Consolidated) .............. 1,840,000 9.22
The Fifth Third Bank, Cincinnati ................ 699,000 7.47
Fifth Third Bank of Northwestern Ohio, N.A ...... 177,100 6.94
Fifth Third Bank of Northeastern Ohio ........... 126,000 5.32
================================================================================
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
1995
----------------------
($000's) Amount Ratio
- -----------------------------------------------------------------------------
<S> <C> <C>
TOTAL CAPITAL (TO RISK-WEIGHTED ASSETS):
Fifth Third Bancorp (Consolidated) ............... $2,092,000 14.33%
The Fifth Third Bank, Cincinnati ................. 1,011,000 13.04
Fifth Third Bank of Northwestern Ohio, N.A ....... 221,000 13.29
Fifth Third Bank of Northeastern Ohio ............ 112,000 11.90
TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS):
Fifth Third Bancorp (Consolidated) ............... 1,610,000 11.03
The Fifth Third Bank, Cincinnati ................. 622,000 8.02
Fifth Third Bank of Northwestern Ohio, N.A ....... 201,000 12.04
Fifth Third Bank of Northeastern Ohio ............ 101,000 10.65
TIER 1 LEVERAGE CAPITAL (TO AVERAGE ASSETS):
Fifth Third Bancorp (Consolidated) ............... 1,610,000 9.47
The Fifth Third Bank, Cincinnati ................. 622,000 6.96
Fifth Third Bank of Northwestern Ohio, N.A ....... 201,000 9.01
Fifth Third Bank of Northeastern Ohio ............ 101,000 9.69
- ------------------------------------------------------------------------------
</TABLE>
NOTE 16-RELATED PARTY TRANSACTIONS
At December 31, 1996 and 1995, certain directors, executive officers,
principal holders of Bancorp common stock and associates of such persons were
indebted to the banking subsidiaries in the aggregate amount, net of
participations, of $112,029,000 and $122,719,000, respectively. During 1996, new
loans aggregating $38,133,000 were made to such parties and loans aggregating
$48,823,000 were repaid. Such indebtedness was incurred in the ordinary course
of business on substantially the same terms as those prevailing at the time of
comparable transactions with unrelated parties.
NOTE 17-FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts and estimated fair values for financial instruments at
December 31:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
1996
--------------------------
CARRYING FAIR
($000'S) AMOUNT VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
FINANCIAL ASSETS:
Cash and due from banks ................ $ 808,926 808,926
Securities available for sale .......... 6,223,881 6,223,881
Securities held to maturity ............ 176,804 176,798
Other short-term investments ........... 44,579 44,579
Loans, net ............................. 9,722,067 9,750,386
Mortgage servicing rights .............. 18,639 23,382
FINANCIAL LIABILITIES:
Deposits ............................... 14,374,656 14,429,081
Federal funds borrowed ................. 1,420,694 1,420,694
Short-term bank notes .................. 806,000 806,000
Other short-term borrowings ............ 1,038,738 1,038,738
Long-term debt ......................... 277,661 266,967
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS:
Commitments to extend credit ........... 484 4,147
Letters of credit ...................... 2,462 9,233
Purchased options ...................... 1,460 1,460
Forward contracts:
Commitments to sell loans ............ -- 147
Foreign exchange contracts:
Commitments to purchase ............ -- ( 939)
Commitments to sell ................ -- 1,149
=======================================================================
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
1995
-------------------------
Carrying Fair
($000's) Amount Value
- -----------------------------------------------------------------------
<S> <C> <C>
FINANCIAL ASSETS:
Cash and due from banks ................ $ 628,535 628,535
Securities available for sale .......... 4,151,178 4,151,178
Securities held to maturity ............ 187,091 187,091
Other short-term investments ........... 6,822 6,822
Loans, net ............................. 9,529,546 9,586,298
Mortgage servicing rights .............. 10,107 13,744
FINANCIAL LIABILITIES:
Deposits ............................... 12,485,780 12,477,035
Federal funds borrowed ................. 553,041 553,041
Short-term bank notes .................. 450,000 450,000
Other short-term borrowings ............ 1,002,454 1,002,454
Long-term debt ......................... 281,996 287,963
Convertible subordinated notes ......... 143,400 137,384
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS:
Commitments to extend credit ........... 773 5,340
Letters of credit ...................... 2,030 7,644
Forward contracts:
Commitments to sell loans ............ -- 120
Foreign exchange contracts:
Commitments to purchase ............ -- ( 233)
Commitments to sell ................ -- 364
- -------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 29
FIFTH THIRD BANCORP
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair values for financial instruments were based on various assumptions and
estimates as of a specific point in time, represent liquidation values and may
vary significantly from amounts that will be realized in actual transactions. In
addition, certain financial instruments and all non-financial instruments were
excluded from the fair value disclosure requirements. Therefore, the fair values
presented above should not be construed as the underlying value of the Bancorp.
The following methods and assumptions were used in determining the fair value
of selected financial instruments:
SHORT-TERM FINANCIAL ASSETS AND LIABILITIES-for financial instruments with
short or no stated maturity, prevailing market rates and limited credit risk,
carrying amounts approximate fair value. Those financial instruments include
cash and due from banks, other short-term investments, certain deposits (demand,
interest checking, savings and money market), Federal funds borrowed, short-term
bank notes and other short-term borrowings.
SECURITIES, AVAILABLE FOR SALE AND HELD TO MATURITY-fair values were based on
quoted market prices, dealer quotes and prices obtained from independent pricing
services.
LOANS-fair values were estimated by discounting the future cash flows using
the current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
MORTGAGE SERVICING RIGHTS-fair values were derived from a variety of sources
indicative of servicing values, including values from previous sales of
servicing rights and FNMA/FHLMC mortgage pricing.
DEPOSITS-fair values for other time, certificates of deposit-$100,000 and
over and foreign office were estimated using a discounted cash flow calculation
that applies interest rates currently being offered for deposits of similar
remaining maturities.
LONG-TERM DEBT AND CONVERTIBLE SUBORDINATED NOTES-fair value of long-term
debt was based on quoted market prices, when available, and a discounted cash
flow calculation using prevailing market rates for borrowings of similar terms.
COMMITMENTS AND LETTERS OF CREDIT-fair values of loan commitments, letters of
credit and commitments to sell loans, representing assets to the Bancorp, were
based on fees currently charged to enter into similar agreements with similar
maturities.
PURCHASED OPTIONS-fair values were based on the estimated amounts the Bancorp
would receive or pay to terminate the contracts at the reporting date. The fair
values represent an asset.
FOREIGN EXCHANGE CONTRACTS-fair values were based on quoted market prices of
comparable instruments and represent a net asset to the Bancorp.
NOTE 18-SEGMENTS
The Bancorp's principal activities include Retail Banking, Commercial
Banking, Trust and Investment Services and Data Processing. Retail Banking
provides a full range of deposit products and consumer loans and leases.
Commercial Banking offers services to business, government and professional
customers. Trust and Investment Services provides a full range of investment
alternatives for individuals, companies and not-for-profit organizations. Data
Processing, through Midwest Payment Systems (MPS), provides Electronic Funds
Transfer (EFT) services, merchant transaction processing, operates our Jeanie
ATM network and provides other data processing services to affiliated and
unaffiliated customers. General Corporate and Other includes a portion of the
investment portfolio, certain long-term funding, the associated interest income
and expense and other items not allocated to the operating segments.
The financial information for each business segment reflect those which are
specifically identifiable or which are allocated based on an internal allocation
method. The allocation has been consistently applied for all periods presented.
Revenues from affiliated transactions, principally EFT data processing services
from MPS to the banking segments, are charged generally at rates available to
and transacted with unaffiliated customers.
The measurement of the performance of the business segments is based on the
management structure of the Bancorp and is not necessarily comparable with
similar information for any other financial institution. The information
presented is also not necessarily indicative of the segments' financial
condition and results of operations if they were independent entities.
Selected financial information by business segment for each of the three
years ended December 31 is included in the following summary:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
($000's) 1996 1995 1994
- -------------------------------------------------------------
REVENUES:
<S> <C> <C> <C>
Commercial Banking... $ 330,375 287,849 261,085
Retail Banking....... 532,910 426,662 377,136
Trust and Investment
Services........... 87,631 73,108 67,255
Data Processing (a).. 94,936 80,139 68,004
General Corporate and
Other.............. 18,548 6,217 2,791
Eliminations (a)..... ( 6,741) ( 4,828) ( 3,610)
- -------------------------------------------------------------
TOTAL $ 1,057,659 869,147 772,661
- -------------------------------------------------------------
NET INCOME:
Commercial Banking... $ 118,934 101,753 92,848
Retail Banking....... 154,967 130,111 113,083
Trust and Investment
Services........... 32,277 24,424 20,881
Data Processing (before
cumulative effect of
accounting change)(b) 25,942 23,873 20,299
General Corporate and
Other.............. 2,939 7,524 ( 2,652)
- ------------------------------------------------------------
TOTAL $ 335,059 287,685 244,459
- ------------------------------------------------------------
IDENTIFIABLE ASSETS:
Commercial Banking... $ 5,856,505 5,182,514 4,374,766
Retail Banking....... 11,559,492 9,174,350 7,835,114
Trust and Investment
Services........... 308,445 206,563 272,221
Data Processing...... 37,718 32,884 19,353
General Corporate and
Other............... 2,786,838 2,456,572 2,455,555
- ------------------------------------------------------------
TOTAL $20,548,998 17,052,883 14,957,009
- ------------------------------------------------------------
<FN>
(a) Data processing service revenues provided to the banking segments by MPS are
eliminated in the Consolidated Statements of Income.
(b) In 1995, MPS changed its method of accounting for the cost of converting new
merchant customers and financial institutions. The cumulative effect of
change in accounting method totalling $2,680,000 in 1995 has been excluded.
</TABLE>
Capital expenditures for the Bancorp totalled $40,327,000, $33,194,000 and
$27,564,000 in 1996, 1995 and 1994, respectively. These expenditures consisted
primarily of investments in data processing equipment, including new mainframe
and network computer technology, software, operations equipment and the Retail
distribution network. Much of the Bancorp's efficiency is attributable to the
fact that each of the business segments share the benefits of improvements in
data processing technology and equipment improvements. Separating or dividing
most of these capital expenditures among individual segments is not meaningful.
The cost of centralized data processing and operations is allocated to each
business segment based on various measures of usage and the corresponding
expense is included in the determination of segment operating results as
disclosed above.
<PAGE> 30
FIFTH THIRD BANCORP
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NOTE 19-PARENT COMPANY FINANCIAL STATEMENTS
The condensed financial statements of the Bancorp ($000's):
- ---------------------------------------------------------------
CONDENSED STATEMENTS OF INCOME (PARENT COMPANY ONLY)
For the Years Ended December 31 1996 1995 1994
- ---------------------------------------------------------------
INCOME
<S> <C> <C> <C>
Dividends from Subsidiaries... $360,470 140,307 79,855
Interest on Loans to
Subsidiaries................ 3,932 19,442 16,075
Securities Gains.............. 215 -- --
Other......................... 794 163 119
- ---------------------------------------------------------------
TOTAL INCOME.................. 365,411 159,912 96,049
- ---------------------------------------------------------------
EXPENSES
Interest...................... 4,477 10,267 10,193
Other......................... 2,796 2,471 2,222
- ---------------------------------------------------------------
TOTAL EXPENSES................ 7,273 12,738 12,415
- ---------------------------------------------------------------
INCOME BEFORE TAXES AND
CHANGE IN UNDISTRIBUTED
EARNINGS OF SUBSIDIARIES.... 358,138 147,174 83,634
Applicable Income Taxes
(Benefit).................... ( 426) 2,771 1,554
- ---------------------------------------------------------------
INCOME BEFORE CHANGE IN
UNDISTRIBUTED EARNINGS OF
SUBSIDIARIES ................ 358,564 144,403 82,080
Increase (Decrease) in
Undistributed Earnings of
Subsidiaries.................( 23,505) 143,282 162,379
- ---------------------------------------------------------------
NET INCOME.................... $335,059 287,685 244,459
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<Command>
- ---------------------------------------------------------------
CONDENSED BALANCE SHEETS (PARENT COMPANY ONLY)
December 31 1996 1995
- ---------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash........................... $ 200 204
Interest-Bearing Deposits...... 24,655 --
Loans to Subsidiaries.......... 269,993 347,604
Investment in Subsidiaries..... 1,879,891 1,603,458
Goodwill....................... 11,384 12,139
Other Assets................... 15,454 2,043
- ---------------------------------------------------------------
TOTAL ASSETS................... $ 2,201,577 1,965,448
- ---------------------------------------------------------------
LIABILITIES
Commercial Paper............... $ 27,277 67,562
Accrued Expenses and Other
Liabilities................... 30,175 29,911
Convertible Subordinated Notes -- 143,400
- ---------------------------------------------------------------
TOTAL LIABILITIES 57,452 240,873
- ---------------------------------------------------------------
STOCKHOLDERS' EQUITY 2,144,125 1,724,575
- ---------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 2,201,577 1,965,448
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY)
For the Years Ended December 31 1996 1995 1994
- --------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net Income............................ $335,059 287,685 244,459
Adjustments to Reconcile Net
Income to Net Cash Provided
by Operating Activities:
Amortization...................... 755 1,200 1,285
Provision for Deferred
Income Taxes.................... ( 169) ( 93) ( 44)
Realized Securities Gains......... ( 215) -- --
Decrease in Dividends Receivable -- -- 6,818
Decrease (Increase) in
Other Assets.................... ( 9,145) 9,163 ( 5,392)
Increase (Decrease) in Accrued
Expenses and Other Liabilities.. ( 5,379) 226 718
Decrease (Increase) in Undistributed
Earnings of Subsidiaries........ 23,505 ( 143,282) (162,379)
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES................ 344,411 154,899 85,553
- ---------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from Maturities of
Securities Held to Maturity......... -- -- 90
Proceeds from Sales of
Securities Available for Sale....... 11,117 -- --
Net Increase in Interest-Bearing
Deposits............................ ( 24,655) -- --
Decrease in Loans to Subsidiaries..... 77,611 20,221 6,681
Capital Contributions to Subsidiaries. (266,775) (108,800) ( 22,801)
Purchases of Subsidiaries............. -- ( 64) (15)
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN
INVESTING ACTIVITIES................ (202,702) ( 88,643) ( 16,045)
- ---------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase (Decrease) in Other
Short-Term Borrowings............... ( 40,285) 19,155 ( 7,889)
Repayment of Long-Term Debt........... (145) -- ( 2,402)
Payment of Cash Dividends............. (110,907) ( 89,131) ( 73,425)
Shares Acquired for Treasury.......... ( 3,096) ( 73) ( 178)
Fractional Shares Purchased
in Stock Split...................... -- ( 250) --
Exercise of Stock Options............. 11,769 4,047 10,307
Other................................. 951 -- 128
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN
FINANCING ACTIVITIES................ (141,713) ( 66,252) ( 73,459)
- ---------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH........... ( 4) 4 ( 3,951)
CASH AT BEGINNING OF YEAR............. 204 200 4,151
- ---------------------------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR................... $ 200 204 200
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Fifth Third Bancorp:
We have audited the accompanying consolidated balance sheets of Fifth Third
Bancorp and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of materia
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Companies at December 31,
1996 and 1995, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Cincinnati, Ohio
January 15, 1997
27
<PAGE> 31
FIFTH THIRD BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Many of the statements in Management's Discussion and Analysis of Financial
Condition and Results of Operations, including the following discussion of the
banking industry, set forth management's opinions with respect to present or
future trends or factors affecting the operations, markets and products of Fifth
Third Bancorp and its consolidated subsidiaries (the "Bancorp").
The data presented in the following pages should be read in conjunction with
the audited Consolidated Financial Statements on pages 15 to 27 of this report.
RESULTS OF OPERATIONS
SUMMARY
Net income advanced by 16.5% in 1996 and 17.7% in 1995. The Bancorp's net
income to average assets, referred to as return on average assets (ROA), and
return on average stockholders' equity (ROE) follow:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income ($000's)............. $335,059 287,685 244,459 206,235 172,021
Net income per share (a)........ $ 3.22 2.91 2.53 2.19 1.84
ROA (b)......................... 1.78% 1.78 1.77 1.71 1.63
ROE (b)......................... 17.8% 18.1 18.6 17.8 16.9
Originally reported (c):
ROA........................... 1.78% 1.78 1.77 1.80 1.74
ROE........................... 17.8% 18.1 18.6 18.2 17.3
- ---------------------------------------------------------------------------------------
</TABLE>
(a) Per share amounts have been adjusted for the three-for-two stock splits
effected in the form of stock dividends paid January 12, 1996 and April 15,
1992.
(b) For comparability, certain financial ratios exclude the impact of the 1996
special SAIF assessment of $16.6 million pretax ($10.8 million after tax, or
$.10 per share).
(c) Excludes the results of The Cumberland pooling prior to 1994.
NET INTEREST INCOME
The largest source of the Bancorp's revenue is net interest income. Net
interest income is the spread between interest income on interest-earning
assets, such as loans and leases and securities, and the interest expense on
liabilities used to fund those assets, such as interest-bearing deposits and
borrowings. Net interest income is affected by both changes in the level of
interest rates and changes in the amount and composition of interest-earning
assets and interest-bearing liabilities. Changes in net interest income are
frequently measured by two statistics-net interest margin and net interest rate
spread. Net interest margin is expressed as net interest income divided by
average interest-earning assets. Net interest rate spread is the difference
between the average yield earned on interest-earning assets and the average rate
incurred on interest-bearing liabilities. Both of these measures are reported on
a taxable equivalent basis. Net interest
<TABLE>
<CAPTION>
TABLE 1.-CONSOLIDATED AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
For the Years Ended December 31 (Taxable Equivalent Basis)
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995
AVERAGE AVERAGE Average Average
OUT- REVENUE/ YIELD/ Out- Revenue/ Yield/
($000's) STANDING COST RATE standing Cost Rate
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
Interest-Earning Assets
<S> <C> <C> <C> <C> <C> <C>
Loans and Leases........................ $12,304,544 $1,020,768 8.30% $10,960,757 $ 919,596 8.39%
Securities
Taxable................................ 5,468,864 369,851 6.76 3,809,435 250,590 6.58
Exempt from Income Taxes............... 436,477 31,708 7.26 471,338 34,248 7.27
Other Short-Term Investments............ 32,214 1,519 4.72 25,084 1,251 4.99
- ---------------------------------------------------------------------------------------------------------------------------
Total Interest-Earning Assets............. 18,242,099 1,423,846 7.81 15,266,614 1,205,685 7.90
- ---------------------------------------------------------------------------------------------------------------------------
Cash and Due from Banks................... 531,876 552,534
Other Assets.............................. 889,466 511,677
Reserve for Credit Losses................. ( 183,203) ( 164,618)
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS.............................. $19,480,238 $16,166,207
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Interest-Bearing Liabilities
Interest Checking....................... $ 1,747,280 37,309 2.14 $ 1,430,921 28,472 1.99
Savings................................. 1,692,134 54,317 3.21 660,379 14,572 2.21
Money Market............................ 1,664,443 57,088 3.43 1,779,851 62,233 3.50
Other Time Deposits..................... 5,569,023 305,682 5.49 4,319,791 248,860 5.76
Certificates-$100,000 and Over.......... 892,247 47,553 5.33 700,575 40,522 5.78
Foreign Office Deposits................. 522,216 28,407 5.44 780,475 46,646 5.98
Federal Funds Borrowed.................. 1,230,219 64,942 5.28 1,071,792 63,492 5.92
Short-Term Bank Notes................... 553,924 30,278 5.47 769,000 47,956 6.24
Other Short-Term Borrowings............. 996,663 48,644 4.88 828,685 41,136 4.96
Long-Term Debt and Convertible
Subordinated Notes.................... 342,187 21,649 6.33 290,824 15,844 5.45
- ---------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities........ 15,210,336 695,869 4.57 12,632,293 609,733 4.83
- ---------------------------------------------------------------------------------------------------------------------------
Demand Deposits........................... 1,872,843 1,585,256
Other Liabilities......................... 450,624 361,936
- ---------------------------------------------------------------------------------------------------------------------------
Total Liabilities......................... 17,533,803 14,579,485
STOCKHOLDERS' EQUITY...................... 1,946,435 1,586,722
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $19,480,238 $16,166,207
- ---------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME
MARGIN ON A TAXABLE EQUIVALENT BASIS.... $727,977 3.99% $595,952 3.90%
NET INTEREST RATE SPREAD.................. 3.24% 3.07%
INTEREST-BEARING LIABILITIES
TO INTEREST-EARNING ASSETS.............. 83.38% 82.74%
</TABLE>
28
<PAGE> 32
FIFTH THIRD BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
margin is greater than net interest spread due to the interest
income earned on interest-earning assets funded by non-interest-bearing, or free
funding, sources, primarily demand deposits and stockholders' equity.
Table 1, Consolidated Average Balance Sheets and Analysis of Net Interest
Income, presents the net interest income, net interest margin and net interest
rate spread for the five years 1992 through 1996, comparing interest revenue and
average interest-earning assets outstanding with interest cost and average
interest-bearing liabilities outstanding. All three of these measures are
reported on a taxable equivalent basis. Nonaccrual loans and leases have been
included in the average loan and lease balances. Average outstanding securities
balances were based on amortized cost excluding unrealized gains or losses on
securities available for sale.
Net interest income grew to $728 million in 1996, an increase of 22.2% over
the $596 million earned during 1995. Net interest income increased 10.1% in 1995
over 1994. For 1996, net interest income growth resulted from an increase in
average interest-earning assets and improvement in the net interest margin from
lower funding cost. The increase in 1995 was attributable primarily to average
interest-earning asset growth which overcame the effect of a compressed net
interest margin.
During 1996, average interest-earning assets grew by $3 billion to $18.2
billion, an increase of 19.5% over 1995. In 1995, average interest-earning
assets grew 17.2% over 1994. Securitization and sales of consumer loans and cash
proceeds from significant deposit acquisitions early in 1996 affected the
Bancorp's earning asset mix in 1996. The Bancorp continues to use loan
securitization and sales to increase balance sheet flexibility. Sales and
securitizations allow us to expand origination and servicing, and the related
fee income, faster than the balance sheet without increasing leverage. Sales and
securitization of residential mortgage loans totalled $1.3 billion in both 1996
and 1995, with the majority of securitized loans retained in the securities
portfolio. In 1996, the Bancorp securitized and sold $820 million in auto loans
while retaining the servicing. Also, proceeds from the 1st Nationwide and NBD
Ohio deposit acquisitions were primarily invested in securities to provide
liquidity to fund loan and lease growth in our Cleveland and Columbus markets.
Average interest-bearing liabilities grew from $10.8 billion in 1994 to
$12.6 billion in 1995 to $15.2 billion in 1996. Core deposits, (which
exclude certificates $100,000 and over and foreign office deposits), remain our
most important funding source because they are relatively lower cost and the
basis for ongoing customer relationships. In 1996, average core deposits
increased 28.3% due to a renewed focus on new transaction account
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992
-------------------------------- ------------------------------- ---------------------------------
Average Average Average Average Average Average
Out- Revenue/ Yield/ Out- Revenue/ Yield/ Out- Revenue/ Yield/
standing Cost Rate standing Cost Rate standing Cost Rate
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 9,902,901 $751,974 7.59% $ 8,869,432 $679,792 7.66% $ 7,189,975 $619,626 8.62%
2,741,490 169,316 6.18 2,098,650 134,387 6.40 2,289,817 165,160 7.21
359,830 24,568 6.83 267,247 18,797 7.03 203,418 15,801 7.77
23,988 1,019 4.25 10,426 319 3.06 112,052 3,806 3.40
- ---------------------------------------------------------------------------------------------------------------------------------
13,028,209 946,877 7.27 11,245,755 833,295 7.41 9,795,262 804,393 8.21
- ---------------------------------------------------------------------------------------------------------------------------------
526,007 494,141 440,908
428,266 435,966 439,332
( 153,141) ( 134,808) ( 109,908)
- ---------------------------------------------------------------------------------------------------------------------------------
$13,829,341 $12,041,054 $10,565,594
- ---------------------------------------------------------------------------------------------------------------------------------
$ 1,512,670 25,572 1.69 $ 1,326,759 28,295 2.13 $ 1,097,918 28,322 2.58
698,756 14,511 2.08 656,868 16,298 2.48 539,997 17,183 3.18
1,582,863 40,326 2.55 1,493,802 37,465 2.51 1,440,309 45,635 3.17
3,923,418 194,375 4.95 3,531,301 173,764 4.92 3,275,879 190,086 5.80
336,521 13,135 3.90 441,882 15,622 3.54 490,293 23,456 4.78
529,434 24,165 4.56 242,245 8,030 3.31 48,200 1,714 3.56
848,217 34,925 4.12 622,068 18,963 3.05 529,201 17,316 3.27
429,642 20,285 4.72 ---- ---- ---- ---- ---- ----
689,960 25,818 3.74 743,002 24,326 3.27 700,463 29,420 4.20
249,612 12,436 4.98 343,617 16,636 4.84 127,639 6,238 4.89
- ---------------------------------------------------------------------------------------------------------------------------------
10,801,093 405,548 3.75 9,401,544 339,399 3.61 8,249,899 359,370 4.36
- ---------------------------------------------------------------------------------------------------------------------------------
1,414,048 1,268,371 1,070,387
299,859 213,727 229,029
- ---------------------------------------------------------------------------------------------------------------------------------
12,515,000 10,883,642 9,549,315
- ---------------------------------------------------------------------------------------------------------------------------------
1,314,341 1,157,412 1,016,279
- ---------------------------------------------------------------------------------------------------------------------------------
$13,829,341 $12,041,054 $10,565,594
- ---------------------------------------------------------------------------------------------------------------------------------
$541,329 4.16% $493,896 4.39% $445,023 4.54%
- ---------------------------------------------------------------------------------------------------------------------------------
3.52% 3.80% 3.85%
- ---------------------------------------------------------------------------------------------------------------------------------
82.91% 83.60% 84.22%
</TABLE>
29
<PAGE> 33
FIFTH THIRD BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
TABLE 2.-ANALYSIS OF NET INTEREST INCOME CHANGES (TAXABLE EQUIVALENT BASIS)
- ---------------------------------------------------------------------------------------------------------------------------
1996 COMPARED TO 1995 1995 Compared to 1994
-------------------------------------- --------------------------------
($000's) VOLUME YIELD/RATE MIX TOTAL Volume Yield/Rate Mix Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Interest Income
Loans and Leases.......................... $112,743 $(10,308)$( 1,263) $101,172 $ 80,328 $78,869 $ 8,425 $167,622
Securities
Taxable................................... 109,160 7,036 3,065 119,261 65,957 11,023 4,294 81,274
Exempt from Income Taxes.................. ( 2,533) ( 8) 1 ( 2,540) 7,613 1,578 489 9,680
Other Short-Term Investments.............. 356 ( 69) ( 19) 268 47 177 8 232
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME CHANGE................ 219,726 ( 3,349) 1,784 218,161 153,945 91,647 13,216 258,808
- ---------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Interest Expense
Interest Checking......................... 6,295 2,082 460 8,837 ( 1,382) 4,527 ( 245) 2,900
Savings................................... 22,767 6,626 10,352 39,745 ( 797) 908 ( 50) 61
Money Market.............................. ( 4,035) ( 1,187) 77( 5,145) 5,019 15,019 1,869 21,907
Other Time Deposits....................... 71,967 (11,748) ( 3,397) 56,822 19,637 31,650 3,198 54,485
Certificates-$100,000 and Over............ 11,087 ( 3,185) ( 871) 7,031 14,210 6,330 6,847 27,387
Foreign Office Deposits................... ( 15,436) ( 4,190) 1,387 ( 18,239) 11,458 7,477 3,546 22,481
Federal Funds Borrowed.................... 9,385 ( 6,913) ( 1,022) 1,450 9,206 15,323 4,038 28,567
Short-Term Bank Notes..................... ( 13,412) ( 5,922) 1,656 ( 17,678) 16,022 6,508 5,141 27,671
Other Short-Term Borrowings............... 8,338 ( 690) ( 140) 7,508 5,191 8,432 1,695 15,318
Long-Term Debt and Convertible
Subordinated Notes...................... 2,799 2,555 451 5,805 2,053 1,163 192 3,408
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE CHANGE............... 99,755 (22,572) 8,953 86,136 80,617 97,337 26,231 204,185
- ---------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET INTEREST
INCOME ON A TAXABLE EQUIVALENT BASIS...... $119,971 $19,223 $( 7,169) 132,025 $ 73,328 $( 5,690)$(13,015) 54,623
- ---------------------------------------------------------------------------------------------------------------------------
INCREASE IN TAXABLE
EQUIVALENT ADJUSTMENT..................... ( 6,213) ( 7,944)
- ---------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME CHANGE.................. $125,812 $ 46,679
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
products and promotions, and deposit acquisitions in early-1996 and late-1995.
Acquisitions contributed approximately $2 billion of the $2.8 billion total
growth in core deposits. Average demand, interest checking and savings accounts
comprised 42.3% of total core deposits, compared to 37.6% in 1995 and 39.7% in
1994. Average non-core deposits and short-term borrowings declined to 23% from
27.2% of average interest-earning assets in 1995, further illustrating the
success of growing core deposits in 1996.
The net interest margin improved 9 basis points (bp) (a basis point is
equivalent to .01%) to 3.99% in 1996 from 3.90% in 1995. The 1996 increase
follows a 26 bp drop in net interest margin in 1995. Total cost of
interest-bearing liabilities declined 26 bps during 1996 to 4.57%, the result of
growth in core deposits, an improved deposit mix and lower interest rates on
short-term borrowings. The interest-bearing deposit cost dropped 17 bps from
4.56% in 1995 to 4.39% in 1996, while the cost of borrowed funds, including
federal funds borrowed, short-term bank notes, other short-term borrowings and
long-term debt, declined 39 bps from 5.69% in 1995 to 5.30% in 1996. The effect
of free funds on the net interest margin declined from 83 bps in 1995 to 75 bps
in 1996, reflecting lower earning asset yields. The earning asset yield declined
9 bps in 1996 from 7.9% to 7.81% due to a 9 bp decline in the loan and lease
portfolio yields, offset in part by a 15 bp increase in securities and other
short-term investment yields. Net interest margins compressed during 1994 and
the first part of 1995, due primarily to 1994's rapid rise in short-term
interest rates which caused short-term liabilities to reprice upward faster than
term assets. Margins stabilized in the last part of 1995 as strong loan and
lease volume and higher interest rates improved average interest-earning asset
yields. Our margin has also been affected in part by thrift acquisitions which
have lower interest rate spreads and margins due to asset mix and less free
funding sources.
Table 2, the Analysis of Net Interest Income Changes, separates the Bancorp's
change in net interest income into its three components: (1) volume of average
interest-earning assets and interest-bearing liabilities outstanding; (2)
average yields on interest-earning assets and average rates for interest-bearing
liabilities; and (3) combined volume and yield/rate effects. Table 2 illustrates
the net interest income effect of balance sheet changes and changes in interest
rate levels which occurred during 1996 and 1995.
OTHER OPERATING INCOME
The table below shows the components of other operating income for the five
years ending December 31, 1996. Total other operating income excluding
securities gains increased 20.9% over 1995 and was up 17.8% in 1995 over 1994.
Trust income totalled $74,032,000 in 1996, an increase of 20% over 1995's
$61,755,000. This increase was led by growth in Personal Trust and Fifth Third
Securities income, reflecting continued strength in the equity markets and
strong new sales. Our proprietary Fountain Square Funds performed well and
during the fourth quarter exceeded $2 billion in assets. Trust fees, most of
which are based on the market value of managed trust assets, benefited from
asset increases of 15.9% to $9.8 billion in 1996. Trust income growth of 11.8%
in 1995 was primarily attributable to the rebound in the equity markets, a 26.5%
increase in
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
($000's) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Trust income ...................................... $ 74,032 61,755 55,238 53,442 49,183
Service charges on deposits ....................... 83,590 66,344 60,905 57,212 51,525
Data processing income ............................ 88,195 75,311 64,394 52,823 45,842
Other service charges and fees .................... 118,035 97,516 74,978 61,595 50,780
- ------------------------------------------------------------------------------------------------------------------------------------
Subtotal .......................................... 363,852 300,926 255,515 225,072 197,330
- ------------------------------------------------------------------------------------------------------------------------------------
Securities gains .................................. 4,563 4,789 393 6,078 8,978
- ------------------------------------------------------------------------------------------------------------------------------------
Total ............................................. $368,415 305,715 255,908 231,150 206,308
- ------------------------------------------------------------------------------------------------------------------------------------
After-tax securities gains ........................ $ 2,918 3,114 255 3,658 6,009
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 34
FIFTH THIRD BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
managed trust assets, the success of our Fountain Square Funds and
fee increases.
Service charges on deposits totalled $83,590,000 in 1996 and $66,344,000 in
1995, up 26% and 8.9%, respectively. The growth in both years was fueled by an
expanding delivery system, deposit acquisitions, successful product campaigns
and pricing enhancements. Our commercial transaction deposit accounts grew
significantly in 1996 and were a source for additional commercial analysis fee
income.
Data processing income was up 17.1% in 1996 and 17% in 1995. Merchant
processing revenues, approximately 40% of total data processing revenues,
increased 20.5% in 1996 and 42% in 1995, due to new customers and resulting
increases in merchant transaction volumes. Electronic funds transfer (EFT), the
other portion of data processing income, increased 7.2% in 1996 and 5% in
1995, the result of the success of debit cards, new products and an expanding
customer base.
Other service charges and fees reached $118,035,000 in 1996, compared to
$97,516,000 in 1995, an increase of $20,519,000 or 21%. Total mortgage banking
income, net of gains, increased 41.3%, aided by lower interest rates that fueled
strong origination volume in the first half of the year. During 1996, we
originated $1.6 billion in residential mortgage loans compared to $1 billion in
1995. Securitizations and sales totaled $1.3 billion in both years. Gains on
sales of residential mortgage loans and servicing for 1996 were $7,225,000
compared to $16,122,000, for 1995, which included the effect of adopting SFAS
No. 122. Residential mortgage loans serviced at December 31, 1996 were $5.3
billion, including $3.1 billion serviced for others. This compares to $4.7
billion, including $2.7 billion serviced for others, at the end of 1995.
Consumer loan and lease fees provided $13.7 million of the increase in other
service charges and fees due to strong installment loan origination volume,
coupled with the securitization and sale of over $820 million in auto loans. Our
growing credit card portfolio contributed to a $7.5 million, or 45.8%, increase
in cardholder fees.
In 1995, other service charges and fees increased 30.1% over 1994. Mortgage
banking income contributed the largest increase, with net servicing fees up
18.9% over 1994, due to strong volume and sales or securitizations. Other
service charges and fees also included a gain of $3.1 million on the sale of
three retail branches acquired with The Cumberland. Consumer loan, lease and
commercial banking fees, along with cardholder fees, increased 27.8% over 1994,
due in part to strong loan and lease volume.
OPERATING EXPENSES
The Bancorp's success in controlling operating expenses comes from efficient
staffing, a constant focus on improving productivity and the centralization of
various internal functions such as data processing and loan servicing.
Operating expense levels are often measured using an overhead ratio
(operating expenses divided by the sum of taxable equivalent net interest income
and other operating income). As the chart below illustrates, the Bancorp's ratio
has remained well below our peers, at 43.5%, excluding the special SAIF
assessment for 1996, 43.9% in 1995 and under 50% since 1991. Total operating
expenses increased 20.5% in 1996, before the impact of the SAIF assessment of
$16,612,000, and 6.5% in 1995 over the previous year. Acquisitions and growth
affected year-to-year operating expense comparisons. Although the expense growth
rate for 1996 was higher than customary, expense growth slowed considerably in
the last half of the year as acquisitions from early in the year were
integrated.
Excluding the 1996 assessment, salaries, wages, incentives and employee
benefits comprised 48.3% and 49.3% of total operating expenses in 1996 and 1995,
respectively, and increased by 18.1% and 5.7% during the same periods. The
number of full-time equivalent (FTE) employees was 6,549 at the end of the year,
an increase of 441 over year end 1995, but down from a peak of 6,777 in the
second quarter of 1996. The majority of the increases in FTE employees is
directly due to acquisitions. Average salaries, wages, incentives and benefits
per FTE employee have increased 10.1% from 1995, which was relatively unchanged
from 1994. The Bancorp's productivity ratios, which measure the degree of
efficiency of our employees, have shown improvement since 1991. Excluding the
special SAIF assessment, net income per employee was $53,000 for 1996, compared
to $31,000 for 1991, an increase of 70% as illustrated below.
Equipment and net occupancy expenses increased 23.1% in
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
($000's) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries, wages and incentives .................... $185,793 156,545 148,039 134,680 120,741
Employee benefits ................................. 44,682 38,648 36,710 36,436 31,927
Equipment expenses ................................ 20,006 16,655 16,045 15,446 14,548
Net occupancy expenses ............................ 35,596 28,521 26,137 26,014 23,270
Other operating expenses .......................... 190,641 155,248 144,614 140,144 125,829
- ------------------------------------------------------------------------------------------------------------------------------------
Total operating expenses .......................... 476,718 395,617 371,545 352,720 316,315
- ------------------------------------------------------------------------------------------------------------------------------------
SAIF assessment ................................... 16,612 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total ............................................. $493,330 395,617 371,545 352,720 316,315
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
[The following tables are representative of graphs shown at the bottom of page
31 in the Bancorp's Annual Report]
OTHER OPERATING
INCOME
($ in millions) GROWTH IN NET INCOME
Five Year Growth PER EMPLOYEE OVERHEAD RATIO
Rate: 14.3% 1991 Base Year = 100 Fifth Third Peer
---------------- -------------------- -------------- ----
<S> <C> <C> <C> <C>
1991 $ 189.0 100 49.5% 63.9%
1992 $ 206.3 110 48.6% 62.6%
1993 $ 231.2 123 48.6% 62.0%
1994 $ 255.9 139 46.6% 63.1%
1995 $ 305.7 152 43.9% 61.3%
1996 $ 368.4 170* 43.5%* N/A
* For comparability, certain financial ratios and statistics exclude the impact
of the 1996 special SAIF assessment of $16.6 million pretax ($10.8 million
after tax or $.10 per share).
</TABLE>
31
<PAGE> 35
FIFTH THIRD BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1996 and 7.1% in 1995. Increased costs in 1996 are associated with the net
addition of 30 locations, primarily from acquisitions, and 131 new ATM machines,
including rental property costs, utilities, real estate taxes and depreciation.
Upgrades of equipment to support growth and processing technology also
contributed to the increase.
Operating expenses include a pretax charge of $16.6 million, or $.10 per
share, mandated by federal legislation to recapitalize the Savings Association
Insurance Fund (SAIF). During 1996, the Bancorp paid no insurance premiums on
approximately 70% of deposits which are insured by the Bank Insurance Fund (BIF)
of the FDIC and 23 cents per $100 on the portion of deposits acquired from
thrifts over the years that remain insured by SAIF. Deposit insurance premiums
in 1997 will be 1.3 and 6.48 cents per $100 of deposits for BIF insured and SAIF
insured deposits, respectively. During 1995, the FDIC lowered the federal
deposit insurance premium on approximately 80% of deposits insured by the Bank
Insurance Fund from 23 cents to 4 cents per $100 of deposits and FDIC expense
decreased 31% from 1994.
Other operating expenses increased to $190,641,000, up $35,393,000 or 22.8%
over 1995. Bankcard, loan and lease, and data processing expenses accounted for
$15.7 million of the increase, which was directly related to increased volumes
in these areas. Intangible amortization was up approximately $14.9 million due
to acquisition activity, and franchise tax expense was up $5.4 million primarily
as a result of growth in shareholders' equity. These increases were partially
offset by a $3.5 million decrease in other real estate owned expenses.
Other operating expenses were $155,248,000 in 1995, up 7.4% over 1994.
FINANCIAL CONDITION
SECURITIES
The investment portfolio consists largely of fixed and floating rate mortgage
related securities, predominantly underwritten to the standards of and
guaranteed by the government-sponsored agencies of FHLMC and FNMA. These
securities differ from traditional debt securities primarily in that they have
uncertain maturity dates and are priced based on estimated prepayment rates on
the underlying mortgages. The estimated average life of the portfolio is 5.3
years based on current prepayment expectations.
The Bancorp securitized $829,108,000 and $854,511,000 of residential
mortgages in 1996 and 1995, respectively. These securitizations, along with the
investment of proceeds from deposit acquisitions, contributed to the growth in
the securities portfolio in 1996. The securities portfolio provides liquidity to
fund future loan and lease growth in our expanding affiliate markets.
<TABLE>
<CAPTION>
SECURITIES PORTFOLIO AT DECEMBER 31
- -----------------------------------------------------------------------------------------------------------------------------------
($000's) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Securities Available for Sale:
U.S. Treasury ........................................ $ 266,376 298,312 210,599 63,183 --
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Government agencies and corporations ............ 81,540 86,746 18,458 136,303 --
- -----------------------------------------------------------------------------------------------------------------------------------
States and political subdivisions .................... 296,847 300,787 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Agency mortgage-backed securities .................... 4,925,768 2,774,041 895,931 595,133 --
- -----------------------------------------------------------------------------------------------------------------------------------
Other bonds, notes and debentures .................... 593,920 655,085 -- 96,369 --
- -----------------------------------------------------------------------------------------------------------------------------------
Other securities ..................................... 59,430 36,207 4,504 7,086 --
- -----------------------------------------------------------------------------------------------------------------------------------
Securities Held to Maturity:
U.S. Treasury ........................................ -- -- 98,742 -- 111,268
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Government agencies and corporations ............ -- -- -- 13,189 179,849
- -----------------------------------------------------------------------------------------------------------------------------------
States and political subdivisions .................... 150,232 167,992 463,759 327,636 222,015
- -----------------------------------------------------------------------------------------------------------------------------------
Agency mortgage-backed securities .................... -- -- 1,750,549 1,249,465 1,689,391
- -----------------------------------------------------------------------------------------------------------------------------------
Other bonds, notes and debentures .................... 1,805 1,505 160,394 166,954 196,259
- -----------------------------------------------------------------------------------------------------------------------------------
Other securities ..................................... 24,767 17,594 34,099 19,150 20,639
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE> 36
FIFTH THIRD BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
MATURITIES OF SECURITIES AT DECEMBER 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------
MATURITY 1-5 YEAR 6-10 YEAR OVER 10
UNDER 1 YEAR MATURITY MATURITY YEAR MATURITY TOTAL
--------------- -------------- --------------- --------------- --------------
($000's) AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
- ---------------------------------------------------------------------------------------------------------------------------
Securities Available for Sale:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury................. $ 46,774 7.35% $ 219,477 6.86% $ - - % $ 125 8.63% $ 266,376 6.95%
- ---------------------------------------------------------------------------------------------------------------------------
U.S. Government agencies
and corporations............ 3,315 7.24 75,762 6.08 1,963 6.56 500 8.55 81,540 6.15
- ---------------------------------------------------------------------------------------------------------------------------
States and political
subdivisions (a)............. 35,730 7.75 159,357 7.43 96,602 7.32 5,158 8.35 296,847 7.45
- ---------------------------------------------------------------------------------------------------------------------------
Agency mortgage-
backed securities (b)........ 151,534 6.90 4,045,217 6.90 530,800 7.01 198,217 6.89 4,925,768 6.91
- ---------------------------------------------------------------------------------------------------------------------------
Other bonds, notes and
debentures (c)............... 9,739 6.20 529,300 6.33 44,636 7.41 10,245 7.20 593,920 6.42
- ---------------------------------------------------------------------------------------------------------------------------
Securities Held to Maturity:
States and political
subdivisions (a)............. 75,116 7.00 75,116 6.90 -- -- -- -- 150,232 6.95
Other bonds, notes and
debentures................... 270 8.28 750 7.92 785 8.57 -- -- 1,805 8.26
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
Maturities of mortgage-backed securities were estimated based on historical and
predicted prepayment trends.
(a) taxable equivalent yield
(b) included in agency mortgage-backed securities available for sale are
floating rate securities totalling $1,135,965,000.
(c) included in other bonds, notes and debentures available for sale are
floating rate securities totalling $320,213,000.
</TABLE>
<TABLE>
<CAPTION>
LOAN AND LEASE PORTFOLIO AT DECEMBER 31
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------- --------------- -------------- -------------- ---------------
($ in millions) AMOUNT % Amount % Amount % Amount % Amount %
- ---------------------------------------------------------------------------------------------------------------------------
Commercial:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial.............. $ 3,987 31.9% $ 3,563 30.5% $ 3,032 29.5% $2,680 28.0% $2,481 30.5%
Mortgage................ 796 6.4 794 6.8 729 7.1 703 7.3 567 7.0
Construction............ 376 3.0 312 2.7 286 2.8 342 3.6 331 4.1
Leases.................. 918 7.3 696 5.9 479 4.6 302 3.2 236 2.9
- ---------------------------------------------------------------------------------------------------------------------------
6,077 48.6 5,365 45.9 4,526 44.0 4,027 42.1 3,615 44.5
- ---------------------------------------------------------------------------------------------------------------------------
Consumer:
Installment............. 2,236 17.9 2,737 23.4 2,131 20.7 1,881 19.7 1,531 18.9
Mortgage................ 2,150 17.2 1,975 16.9 2,347 22.8 2,731 28.5 2,397 29.5
Credit Card............. 364 2.9 325 2.8 275 2.7 207 2.2 178 2.2
Leases.................. 1,687 13.4 1,288 11.0 1,007 9.8 721 7.5 395 4.9
- ---------------------------------------------------------------------------------------------------------------------------
6,437 51.4 6,325 54.1 5,760 56.0 5,540 57.9 4,501 55.5
- ---------------------------------------------------------------------------------------------------------------------------
Total..................... $12,514 100.0% $11,690 100.0% $10,286 100.0% $9,567 100.0% $8,116 100.0%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Loan and lease balances increased 7% and 13.6%, respectively, in 1996 and
1995. In both years, the growth in outstandings was affected considerably by
sales and securitizations of consumer loans, which allows the Bancorp to be
selective in how much of the expanding origination volume is retained in the
loan and lease portfolio. For example, residential mortgage loan originations
were $1.6 billion in 1996 compared to $1 billion in 1995, a 60% increase, but
the related mortgage loan outstandings only increased 8.9% because $1.3 billion
of this origination volume was sold or securitized. Similarly, installment loan
balances actually declined during 1996 because the Bancorp securitized and sold
$820 million in auto loans. Consumer leases grew 30.9% and 27.9% in 1996 and
1995, respectfully.
Commercial loan and lease outstandings were up 13.3% in 1996 and 18.5% in
1995. Commercial leasing contributed increases of 31.9% and 45.3%, respectively,
consisting largely of credits within our market areas of Ohio, Kentucky and
Indiana. Commercial mortgages represent 6.4% of our total loan and lease
portfolio and include primarily financing of owner-occupied properties--loans
on properties occupied by the principal borrower.
33
<PAGE> 37
FIFTH THIRD BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
RESERVE FOR CREDIT LOSSES FIVE YEAR HISTORY
- ---------------------------------------------------------------------------------------------------------------------------
($000's) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1........................... $ 177,388 155,918 144,537 121,452 97,319
Provision for credit losses.................... 64,014 42,962 35,780 48,037 66,100
Losses charged off............................. ( 80,444) ( 41,707) ( 30,946) ( 37,172) ( 54,718)
Recoveries of losses previously charged off.... 20,482 11,846 13,472 10,098 8,953
Letter of credit............................... -- -- ( 7,800) -- --
Reserve of acquired institutions and other..... 5,838 8,369 875 2,122 3,798
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31......................... $ 187,278 177,388 155,918 144,537 121,452
- ---------------------------------------------------------------------------------------------------------------------------
Loans and leases outstanding at December 31.... $12,514,792 $11,690,643 $10,286,457 $9,566,898 $8,115,590
Reserve as a percent of loans and leases
outstanding.................................. 1.50% 1.52% 1.52% 1.51% 1.50%
Average loans and leases....................... $12,304,544 $10,960,757 $ 9,902,901 $8,869,432 $7,189,975
Net charge-offs as a percent of average loans
and leases outstanding........................ .49% .27% .18% .31% .64%
Reserve as a percent of total nonperforming
assets........................................ 531.48% 436.06% 570.50% 362.84% 155.53%
Reserve as a percent of total under-performing
assets....................................... 255.53% 290.16% 384.35% 287.47% 121.58%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
PROVISION AND RESERVE FOR CREDIT LOSSES
The Bancorp provides as an expense an amount for expected credit losses. This
provision is based on the growth of the loan and lease portfolio and on recent
loss experience and is called the provision for credit losses in the
Consolidated Statements of Income. Actual losses on loans and leases are charged
against the reserve created on the Consolidated Balance Sheets through the
provision for credit losses. The amount of loans and leases actually removed as
assets from the Consolidated Balance Sheets is referred to as charge-offs and,
after netting out recoveries on previously charged off assets, becomes net
charge-offs.
Charge-offs, net of recoveries, increased $30.1 million over 1995 due to
higher losses on consumer loans. Net charge-offs as a percent of average loans
and leases outstanding were .49%, .27%, and .18% for 1996, 1995 and 1994,
respectively. Although net charge-offs have risen in 1996, the net charge-off
ratio remains near the Bancorp's historical 10-year average of .48% and the
reserve for credit losses is in excess of five times nonperforming assets. The
reserve for credit losses as a percentage of total loans and leases was 1.50% at
December 31, 1996 and 1.52% at December 31, 1995.
The table above presents credit loss data for the most recent five year
period.
UNDERPERFORMING ASSETS
Underperforming assets consist of (1) nonaccrual loans and leases on which
the ultimate collectibility of the full amount of interest is uncertain, (2)
loans and leases which have been renegotiated to provide for a reduction or
deferral of interest or principal because of a deterioration in the financial
position of the borrower, (3) loans and leases past due ninety days or more as
to principal or interest and (4) other real estate owned. A summary of
underperforming assets at December 31 follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
($000's) 1996 1995 1994
- -----------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans and leases .... $29,046 37,049 20,725
Renegotiated loans and leases... 1,121 506 443
Other real estate owned ........ 5,070 3,125 6,162
- -----------------------------------------------------------
Total nonperforming assets .... 35,237 40,680 27,330
Ninety days past due loans
and leases .................... 38,053 20,455 13,237
- -----------------------------------------------------------
Total underperforming assets ... $73,290 61,135 40,567
- -----------------------------------------------------------
Nonperforming assets as a
percent of total loans,
leases and other real estate
owned ......................... .28% .35 .27
Underperforming assets as a
percent of total loans, leases
and other real estate owned... .59% .52 .39
- -----------------------------------------------------------
</TABLE>
Nonperforming assets as a percentage of total loans, leases and other real
estate owned decreased to .28% at December 31, 1996 compared to .35% at December
31, 1995. Of the total underperforming assets at December 31, 1996, $45,007,000
are to borrowers or projects in the Cincinnati-Dayton market area, $4,454,000 in
the Toledo market area, $5,399,000 in Columbus, $625,000 in the Louisville
market area, $4,907,000 in the Cleveland market area, $9,199,000 distributed in
the market areas of our smaller affiliate banks and $3,699,000 outside of the
Ohio-Kentucky-Indiana area.
Of the total nonperforming assets at December 31, 1996, $11,050,000 or 31.4%
were related to commercial real estate. Nonaccrual commercial real estate loans
were $7,093,000, a decrease of 43.7% from 1995's $12,597,000. At December 31,
1996, there were no renegotiated commercial real estate loans compared to
$123,000 in 1995. Commercial other real estate owned increased from $2,007,000
in 1995 to $3,957,000 in 1996, an increase of 97.2%.
DEPOSITS
Interest-earning assets are funded primarily by core deposits. The
accompanying tables show the relative composition of the Bancorp's average
deposits and the change in average deposit sources during the last five years.
Other time deposits is comprised of consumer certificates of deposit. Foreign
office deposits are denominated in amounts greater than $100,000.
Average core deposits increased 28.3% in 1996 due to a renewed focus on
transaction accounts and deposit acquisitions. Our new MaxSaver product fueled
the increase in savings balances, while the new Platinum One product and
promotional campaigns contributed to advances in demand and interest checking.
Strong core deposit growth in 1996 resulted in a shift in the Bancorp's overall
funding mix from borrowings to customer deposits. The acquisition of deposits
from 1st Nationwide, NBD Ohio and Kentucky Enterprise Bancorp increased deposits
by $2 billion. Deposits acquired in 1995 totaled approximately $1 billion.
<TABLE>
<CAPTION>
DISTRIBUTION OF AVERAGE DEPOSITS
- ------------------------------------------------------------
1996 1995 1994 1993 1992
- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Demand 13.4% 14.1 14.2 14.2 13.4
Interest checking 12.5 12.7 15.1 14.8 13.8
Savings 12.1 5.9 7.0 7.3 6.8
Money market 11.9 15.8 15.8 16.7 18.1
Other time 39.9 38.4 39.2 39.4 41.1
Certificates-
$100,000
and over 6.4 6.2 3.4 4.9 6.2
Foreign office 3.8 6.9 5.3 2.7 .6
- ------------------------------------------------------------
Total 100.0% 100.0 100.0 100.0 100.0
- ------------------------------------------------------------
</TABLE>
34
<PAGE> 38
FIFTH THIRD BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
CHANGE IN AVERAGE DEPOSIT SOURCES
- -------------------------------------------------------------------------
($000) 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Demand $ 287,587 171,208 145,677 197,984 177,481
Interest checking 316,359 ( 81,749) 185,911 228,841 267,195
Savings 1,031,755 ( 38,377) 41,888 116,871 101,289
Money market ( 115,408) 196,988 89,061 53,493 163,175
Other time 1,249,232 396,373 392,117 255,422 188,403
Certificates-
$100,000
and over 191,672 364,054 ( 105,361) ( 48,411) (386,076)
Foreign office ( 258,259) 251,041 287,189 194,045 35,121
- -------------------------------------------------------------------------
Total change $ 2,702,938 1,259,538 1,036,482 998,245 546,588
- -------------------------------------------------------------------------
</TABLE>
SHORT-TERM BORROWINGS
These primarily consist of short-term excess funds from correspondent banks,
securities sold under agreements to repurchase, short-term bank notes and
commercial paper issuances. Short-term borrowings primarily fund short-term,
rate-sensitive earning asset growth. During 1996, borrowings supported a
relatively smaller proportion of earning asset growth because of the
aforementioned success in increasing core deposits. Average short-term
borrowings as a percentage of average earning assets declined from 17.5% in 1995
to 15.2% in 1996. In 1995 and 1994, loan and lease growth outpaced core deposit
growth, increasing the reliance on short-term borrowings. As the following table
of average short-term borrowings and average Federal funds loaned indicates, the
Bancorp was a net borrower of funds of $2,762,537,000 in 1996, up from
$2,645,914,000 in 1995:
<TABLE>
<CAPTION>
AVERAGE SHORT-TERM BORROWINGS
- ---------------------------------------------------------------------------
($000's) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Federal funds
borrowed........ $1,230,219 1,071,792 848,217 622,068 529,201
Short-term
bank notes...... 553,924 769,000 429,642 -- --
Other short-term
borrowings...... 996,663 828,685 689,960 743,002 700,463
- ----------------------------------------------------------------------------
Total short-term
borrowings...... 2,780,806 2,669,477 1,967,819 1,365,070 1,229,664
- ----------------------------------------------------------------------------
Federal funds
loaned.......... 18,269 23,563 17,712 9,342 79,194
- ----------------------------------------------------------------------------
Net funds
borrowed........ $2,762,537 2,645,914 1,950,107 1,355,728 1,150,470
- ----------------------------------------------------------------------------
</TABLE>
CAPITAL RESOURCES
The Bancorp maintains a relatively high level of capital as a margin of
safety for its depositors and stockholders. At December 31, 1996, stockholders'
equity was $2,144,125,000 compared to $1,724,575,000 at December 31, 1995, an
increase of $419,550,000 or 24.3%. This increase in capital resulted primarily
from the retention of earnings, the calling for redemption its 4.25% convertible
subordinated notes and the issuance of stock in an acquisition.
The following table shows several capital and liquidity ratios for the last
three years:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------
Average stockholders' equity to
<S> <C> <C> <C>
Average assets.................. 9.99% 9.82% 9.50%
Average deposits................ 13.94 14.10 13.15
Average loans and leases........ 15.82 14.48 13.27
- -------------------------------------------------------------
</TABLE>
In January 1997, the Bancorp authorized the repurchase of
$250 million of its common stock over the course of the coming year. This
authorization follows the December 1996 announcement of the approval of the
repurchase of approximately $30 million of common stock to fund employee stock
option and dividend reinvestment plans for the coming year.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The objective of the Bancorp's Asset/Liability Management function is to
maintain consistent growth in net interest income within the Bancorp's policy
guidelines. This objective is accomplished through flexible management of the
Bancorp's balance sheet liquidity and interest rate risk exposures due to
changes in economic conditions, interest rate levels and customer preferences.
The goal of liquidity management is to provide adequate funds to meet changes
in loan and lease demand or any potential unexpected deposit withdrawals. This
goal is accomplished primarily by maintaining sufficient liquid assets in the
form of investment securities along with consistent core deposit growth, and the
availability of unused capacity to purchase funds in the national money markets.
At December 31, 1996, the Bancorp had approximately $1.2 billion in securities
and other short-term investments maturing or repricing within one year compared
to $1.8 billion at year-end 1995. Additional asset liquidity is provided by the
remainder of the securities portfolio and selected securitizable loan assets.
The Bancorp has a practice of maintaining core deposits as the primary means of
funding interest-earning assets. Average core deposits have funded approximately
70% of total average interest-earning assets over the last five years, with the
ratio improving in 1996. This, in addition to the Bancorp's 10% average equity
capital base, serves as a stable funding base.
In addition to its core deposit funding, the Bancorp accesses a variety of
other short-term and long-term funding sources. The Bancorp also utilizes the
Federal Home Loan Bank (FHLB) as a funding source, issuing notes payable through
its FHLB-member subsidiaries.
The Bancorp has significant unused national money market funding capability.
The Bancorp maintains A1+/P1 Standard & Poor's and Moody's ratings on its
commercial paper, and its lead bank, The Fifth Third Bank in Cincinnati, Ohio,
maintains an Aa2 Moody's rating for long-term deposits. Five of the Bancorp's
subsidiaries, The Fifth Third Bank of Northwestern Ohio, N.A., The Fifth Third
Bank of Columbus, Fifth Third Bank of Northeastern Ohio, The Fifth Third Bank of
Central Indiana and Fifth Third Bank of Kentucky, Inc. maintain P1 and Aa3
Moody's ratings on its short-term and long-term deposits, respectively. These
ratings, along with capital ratios significantly above the current regulatory
guidelines, provide the Bancorp additional liquidity. Management does not rely
on any one source of liquidity and has managed these levels in response to other
balance sheet factors.
The Bancorp employs a variety of measurement techniques to identify and
manage its exposure to changing interest rates. The Bancorp uses simulation
techniques which attempt to measure the net interest income volatility of
changes in the level of interest rates, basic banking interest rate spreads, the
shape of the yield curve and changing product growth patterns. The table which
follows shows the Bancorp's interest rate sensitivity analysis for the year
ended December 31, 1996. The assets and liabilities are distributed to reflect
expected cash flows and are based on historical deposit rate relationships to
changes in market interest over long-term rate changes.
35
<PAGE> 39
FIFTH THIRD BANCORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
RATE SENSITIVITY ANALYSIS DECEMBER 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------
MATURING OR REPRICING
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL NON-RATE
1-30 31-90 91-180 181-365 1 YEAR SENSITIVE &
($ in millions) DAYS DAYS DAYS DAYS & UNDER OVER 1 YEAR TOTAL
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets
Loans and leases........................ $ 3,290 844 1,018 1,579 6,731 5,783 12,514
Securities available for sale........... 91 188 277 546 1,102 5,122 6,224
Securities held to maturity............. -- -- -- 75 75 102 177
Other short-term investments............ 45 -- -- -- 45 -- 45
- ---------------------------------------------------------------------------------------------------------------------------
Total Interest-Earning Assets............. 3,426 1,032 1,295 2,200 7,953 11,007 18,960
Other assets.............................. -- -- -- -- -- 1,589 1,589
- ---------------------------------------------------------------------------------------------------------------------------
Total Assets.............................. 3,426 1,032 1,295 2,200 7,953 12,596 20,549
- ---------------------------------------------------------------------------------------------------------------------------
Interest-Bearing Liabilities
Interest checking....................... 861 -- -- -- 861 1,097 1,958
Savings................................. 641 -- -- -- 641 1,300 1,941
Money market............................ 1,068 -- -- -- 1,068 395 1,463
Other time deposits..................... 596 494 1,025 1,761 3,876 1,722 5,598
Certificates-$100,000 and over.......... 336 197 143 74 750 37 787
Foreign office.......................... 133 -- -- -- 133 -- 133
Federal funds borrowed.................. 1,421 -- -- -- 1,421 -- 1,421
Short-term bank notes................... -- 806 -- -- 806 -- 806
Other short-term borrowings............. 1,016 23 -- -- 1,039 -- 1,039
Long-term debt and convertible
subordinated notes................... -- 20 -- -- 20 258 278
- ---------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities....... 6,072 1,540 1,168 1,835 10,615 4,809 15,424
- ---------------------------------------------------------------------------------------------------------------------------
Demand deposits ......................... -- -- -- -- -- 2,495 2,495
Other liabilities........................ -- -- -- -- -- 486 486
Stockholders' equity..................... -- -- -- -- -- 2,144 2,144
- ---------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity 6,072 1,540 1,168 1,835 10,615 9,934 20,549
- ---------------------------------------------------------------------------------------------------------------------------
Rate Sensitivity Gap..................... (2,646) ( 508) 127 365 (2,662) 2,662
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative Gap........................... $(2,646) (3,154) (3,027) (2,662)
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative Gap as a Percentage of
Total Assets........................... ( 12.9)% ( 15.3)% ( 14.7)% ( 13.0)%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE> 40
FIFTH THIRD BANCORP
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED SIX YEAR SUMMARY OF OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31 ($000's) 1996 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income................................... $1,385,113 1,173,165 922,301 812,914 787,240 829,628
Interest Expense.................................. 695,869 609,733 405,548 339,399 359,370 466,381
- --------------------------------------------------------------------------------------------------------------------------
Net Interest Income............................... 689,244 563,432 516,753 473,515 427,870 363,247
Provision for Credit Losses....................... 64,014 42,962 35,780 48,037 66,100 62,464
- --------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for
Credit Losses.................................. 625,230 520,470 480,973 425,478 361,770 300,783
Other Operating Income............................ 368,415 305,715 255,908 231,150 206,308 189,002
Operating Expenses................................ 476,718 395,617 371,545 352,720 316,315 282,844
SAIF Assessment................................... 16,612 -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes........................ 500,315 430,568 365,336 303,908 251,763 206,941
Applicable Income Taxes........................... 165,256 142,883 120,877 97,673 79,742 63,987
- --------------------------------------------------------------------------------------------------------------------------
Net Income........................................ $ 335,059 287,685 244,459 206,235 172,021 142,954
- --------------------------------------------------------------------------------------------------------------------------
Net Income Per Share (a).......................... $ 3.22 2.91 2.53 2.19 1.84 1.54
- --------------------------------------------------------------------------------------------------------------------------
Cash Dividends Declared Per Share (a)............. $ 1.10 .96 .80 .68 .60 .52
- --------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Per share amounts have been adjusted for the three-for-two stock splits effected in the form of stock dividends paid
January 12, 1996 and April 15, 1992.
</TABLE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEET INFORMATION
- ---------------------------------------------------------------------------------------------------------------------------
As of December 31 ($000's) 1996 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Securities......................................... $ 6,400,685 4,338,269 3,637,035 2,674,468 2,419,421 2,625,968
Loans and Leases................................... 12,514,792 11,690,643 10,286,457 9,566,898 8,115,590 6,325,918
Assets............................................. 20,548,998 17,052,883 14,957,009 13,128,544 11,390,289 9,981,383
Deposits........................................... 14,374,656 12,485,780 10,630,878 9,477,306 8,447,812 7,633,362
Short-Term Borrowings.............................. 3,265,432 2,005,495 2,452,218 1,691,744 1,348,105 1,127,768
Long-Term Debt and Convertible Subordinated Notes.. 277,661 425,396 178,713 407,864 309,730 52,436
Stockholders' Equity............................... 2,144,125 1,724,575 1,398,774 1,277,660 1,076,854 944,691
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SUMMARIZED QUARTERLY FINANCIAL INFORMATION
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995
-------------------------------------------- ---------------------------------------------
FOURTH THIRD SECOND FIRST Fourth Third Second First
(Unaudited)($000's) QUARTER QUARTER QUARTER QUARTER Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income................ $359,402 359,030 343,631 323,050 313,316 302,741 287,956 269,152
Net interest income............ 178,988 177,099 171,529 161,628 151,188 142,849 135,670 133,725
Provision for credit losses.... 19,785 16,431 18,048 9,750 14,483 10,698 8,207 9,574
Income before income taxes..... 138,808 118,355 124,845 118,307 115,564 112,881 102,803 99,320
Net income..................... 93,615 79,055 83,249 79,140 77,864 75,189 68,514 66,118
Net income per share........... .88 .75 .80 .79 .78 .75 .70 .68
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE> 41
FIFTH THIRD BANCORP
AND SUBSIDIARIES
CONSOLIDATED TEN YEAR COMPARISON
<TABLE>
<CAPTION>
AVERAGE ASSETS ($000's)
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS
-----------------------------------------------------------------
FEDERAL INTEREST-BEARING CASH AND TOTAL
LOANS AND FUNDS DEPOSITS DUE FROM OTHER AVERAGE
YEAR LEASES LOANED (a) IN BANKS (a) SECURITIES TOTAL BANKS ASSETS ASSETS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 $12,304,544 $ 18,269 $13,945 $5,905,341 $18,242,099 $531,876 $889,466 $19,480,238
1995 10,960,757 23,563 1,521 4,280,773 15,266,614 552,534 511,677 16,166,207
1994 9,902,901 17,712 6,276 3,101,320 13,028,209 526,007 428,266 13,829,341
1993 8,869,432 9,342 1,084 2,365,897 11,245,755 494,141 435,966 12,041,054
1992 7,189,975 79,194 32,858 2,493,235 9,795,262 440,908 439,332 10,565,594
1991 6,246,679 227,754 35,090 2,373,916 8,883,439 378,185 368,909 9,534,199
1990 5,920,686 289,796 40,927 1,845,413 8,096,822 389,521 361,659 8,759,775
1989 5,450,876 245,017 35,610 1,520,720 7,252,223 374,155 310,550 7,858,542
1988 4,610,145 228,238 44,788 1,404,117 6,287,288 357,575 275,004 6,854,056
1987 3,865,255 368,234 31,700 1,222,676 5,487,865 327,996 240,697 6,001,774
- ---------------------------------------------------------------------------------------------------------------------------
AVERAGE DEPOSITS AND SHORT-TERM BORROWINGS ($000'S)
- ---------------------------------------------------------------------------------------------------------------------------
DEPOSITS
-----------------------------------------------------------------------------------------
CERTIFICATES- SHORT-
INTEREST MONEY OTHER $100,000 FOREIGN TERM
YEAR DEMAND CHECKING SAVINGS MARKET TIME AND OVER OFFICE TOTAL BORROWINGS TOTAL
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 $1,872,843 $1,747,280$1,692,134 $1,664,443 $5,569,023 $892,247 $522,216 $13,960,186 $2,780,806 $16,740,992
1995 1,585,256 1,430,921 660,379 1,779,851 4,319,791 700,575 780,475 11,257,248 2,669,477 13,926,725
1994 1,414,048 1,512,670 698,756 1,582,863 3,923,418 336,521 529,434 9,997,710 1,967,819 11,965,529
1993 1,268,371 1,326,759 656,868 1,493,802 3,531,301 441,882 242,245 8,961,228 1,365,070 10,326,298
1992 1,070,387 1,097,918 539,997 1,440,309 3,275,879 490,293 48,200 7,962,983 1,229,664 9,192,647
1991 892,906 830,723 438,708 1,277,134 3,087,476 876,369 13,079 7,416,395 913,608 8,330,003
1990 826,426 719,378 451,571 1,183,786 2,851,996 935,769 2,313 6,971,239 655,942 7,627,181
1989 821,388 605,081 458,849 1,094,001 2,280,222 889,802 5,596 6,154,939 676,627 6,831,566
1988 786,610 547,988 443,267 1,037,427 1,875,876 668,786 7,507 5,367,461 593,035 5,960,496
1987 733,928 476,873 415,816 963,542 1,562,196 497,977 3,130 4,653,462 550,262 5,203,724
- ---------------------------------------------------------------------------------------------------------------------------
INCOME ($000'S, EXCEPT PER SHARE)
- ---------------------------------------------------------------------------------------------------------------------------
PER SHARE(b)
--------------------------------
ORIGINALLY
OTHER REPORTED DIVIDENDS
INTEREST INTEREST OPERATING OPERATING NET NET DIVIDENDS NET PAID AS % OF
YEAR INCOME EXPENSE INCOME EXPENSE INCOME INCOME DECLARED INCOME NET INCOME
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 $1,385,113 $695,869 $368,415 $493,330 $335,059 $3.22 $1.10 $3.22 33.2%
1995 1,173,165 609,733 305,715 395,617 287,685 2.91 .96 2.91 31.2
1994 922,301 405,548 255,908 371,545 244,459 2.53 .80 2.53 30.5
1993 812,914 339,399 231,150 352,720 206,235 2.19 .68 2.19 29.7
1992 787,240 359,370 206,308 316,315 172,021 1.84 .60 1.83 30.6
1991 829,628 466,381 189,002 282,844 142,954 1.54 .52 1.55 32.3
1990 822,593 504,950 141,490 246,588 121,026 1.31 .45 1/3 1.37 33.1
1989 756,749 460,376 129,580 226,205 113,337 1.24 .40 1.24 30.1
1988 610,819 353,053 110,850 196,736 97,816 1.09 .34 2/3 1.17 31.1
1987 510,437 289,577 98,017 179,977 88,716 1.01 .30 2/9 1.01 28.9
- ---------------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS AT DECEMBER 31 ($000'S, EXCEPT SHARE INFORMATION)
- ---------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity
--------------------------------------------------------------------------------
Number of Reserve
Shares of Stock Common Capital Retained Unrealized Per for Credit
Year Outstanding(b) Stock(c) Surplus Earnings Gains/(Losses) Total Share (b) Losses
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 105,892,554 $234,836 $525,038 $1,367,653 $16,598 $2,144,125 $20.25 $187,278
1995 100,422,996 222,939 338,555 1,148,279 14,802 1,724,575 17.17 177,388
1994 97,063,956 143,655 272,999 1,030,338 (48,218) 1,398,774 14.41 155,918
1993 96,148,709 142,300 260,150 862,785 12,425 1,277,660 13.29 144,537
1992 93,792,633 138,442 218,391 720,021 ---- 1,076,854 11.48 121,452
1991 93,108,219 93,480 203,607 647,604 ---- 944,691 10.15 97,319
1990 92,665,974 93,426 199,884 552,015 ---- 845,325 9.12 90,242
1989 92,113,769 92,881 197,136 472,266 ---- 762,283 8.28 85,664
1988 90,516,237 62,866 187,051 419,514 ---- 669,431 7.40 73,008
1987 88,179,389 61,329 169,706 352,363 ---- 583,398 6.62 60,776
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Federal funds loaned and interest-bearing deposits in banks are combined in
other short-term investments in the Consolidated Financial Statements.
(b) Number of shares outstanding and per share data have been adjusted for stock
splits in 1996, 1992, 1990 and 1987.
(c) Includes $254,000 of treasury stock in 1996 and $404,000 of treasury stock
in 1992 and 1991.
</TABLE>
38
<PAGE> 42
DIRECTORS AND OFFICERS
FIFTH THIRD BANCORP AND
FIFTH THIRD BANK DIRECTORS
GEORGE A. SCHAEFER, JR.,
President & CEO
Fifth Third Bancorp and Fifth
Third Bank
JOHN F. BARRETT,
President & CEO
The Western & Southern Life
Insurance Company
MILTON C. BOESEL, JR.,*
Counsel
Ritter, Robinson, McCready &
James
GERALD V. DIRVIN,
Former Executive Vice
President
The Procter & Gamble
Company
THOMAS B. DONNELL,*
Chairman
Fifth Third Bank of
Northwestern Ohio, National
Association
RICHARD T. FARMER,
Chairman
Cintas Corporation
John D. Geary,
Former President
Midland Enterprises, Inc.
IVAN W. GORR,*
Former Chairman & CEO
Cooper Tire & Rubber
Company
JOSEPH H. HEAD, JR.,
Chairman & CEO
Atkins & Pearce, Inc.
JOAN R. HERSCHEDE,
President & CEO
The Frank Herschede
Company
WILLIAM G. KAGLER,
Former Chairman of the
Executive Committee of the
Board of Directors
Skyline Chili, Inc.
WILLIAM J. KEATING,
Former Publisher & Chairman
The Cincinnati Enquirer
JAMES D. KIGGEN,
Chairman, CEO & President
Xtek, Inc.
ROBERT B. MORGAN,
President & CEO
Cincinnati Financial
Corporation
MICHAEL H. NORRIS,
Former President
The Deerfield Manufacturing
Company
JAMES E. ROGERS,
Vice Chairman, President &
CEO
CINergy Corporation
BRIAN H. ROWE,
Chairman Emeritus
GE Aircraft Engines
JOHN J. SCHIFF, JR.,
Chairman
John J. & Thomas R. Schiff &
Co., Inc.
DENNIS J. SULLIVAN, JR.,
Executive Counselor
Dan Pinger Public Relations
DUDLEY S. TAFT,
President
Taft Broadcasting Company
DIRECTORS EMERITI
Neil A. Armstrong
William D. Atteberry
Philip G. Barach
Vincent H. Beckman
J. Kenneth Blackwell
Richard G. Brierley
Clement L. Buenger
Nolan W. Carson
Douglas G. Cowan
Thomas L. Dahl
Ronald A. Dauwe
Nicholas M. Evans
Louis R. Fiore
Don R. Hinkley
William A. Hopple, III
Paul W. Huenefeld
Charles L. McKelvy, Jr.
David Pollak
C. Wesley Rowles
John J. Schiff, Sr.
David B. Sharrock
Stephen Stranahan
N. Beverley Tucker, Jr.
Richard E. Wagner
FIFTH THIRD BANCORP
OFFICERS
GEORGE A. SCHAEFER, JR.,
President & CEO
MICHAEL D. BAKER,
Executive Vice President
P. MICHAEL BRUMM,
Executive Vice President &
CFO
MICHAEL K. KEATING,
Executive Vice President
General Counsel, Secretary
GEORGE W. LANDRY,
Executive Vice President
ROBERT P. NIEHAUS,
Executive Vice President
STEPHEN J. SCHRANTZ,
Executive Vice President
JAMES R. GAUNT,
Senior Vice President
ROBERT J. KING, JR.,
Senior Vice President
NEAL E. ARNOLD,
Treasurer
ROGER W. DEAN,
Controller
PAUL L. REYNOLDS,
Assistant Secretary
GERALD L. WISSEL,
Auditor
FIFTH THIRD BANK OFFICERS
GEORGE A. SCHAEFER, JR.,
President & CEO
MICHAEL D. BAKER,
Executive Vice President
P. MICHAEL BRUMM,
Executive Vice President &
CFO
JAMES J. HUDEPOHL,
Executive Vice President
MICHAEL K. KEATING,
Executive Vice President &
Secretary
GEORGE W. LANDRY,
Executive Vice President &
Cashier
ROBERT P. NIEHAUS,
Executive Vice President
STEPHEN J. SCHRANTZ,
Executive Vice President
GERALD L. WISSEL,
Executive Vice President &
Auditor
NEAL E. ARNOLD,
Senior Vice President &
Treasurer
J. PATRICK BELL,
Senior Vice President
JAMES D. BERGHAUSEN,
Senior Vice President
TOM A. BOBENREAD,
Senior Vice President
ROBERT L. ERNST,
Senior Vice President
HENRY W. HOBSON, III,
Senior Vice President
EDWARD H. SILVA, JR.,
Senior Vice President
DIANE L. DEWBREY,
Senior Vice President
R. DANIEL SADLIER,
President, Dayton Region
REGINA G. LIVERS,
Community Affairs Officer
PAUL L. REYNOLDS,
General Counsel
AFFILIATE BANKS' CHAIRMEN,
PRESIDENTS AND CEOS
SAMUEL G. BARNES,
President
Fifth Third Bank of Kentucky
Lexington, Kentucky
THOMAS B. DONNELL,
Chairman
ROBERT J. KING, JR.,
President & CEO
Fifth Third Bank of
Northwestern Ohio, National
Association
Toledo, Ohio
PATRICK J. FEHRING, JR.,
President
Fifth Third Bank of Columbus
Columbus, Ohio
PAUL E. FISHER, JR., Chairman
JOHN B. ARNOLD, President &
CEO
Fifth Third Bank of Western Ohio
Piqua, Ohio
JAMES R. GAUNT, President
Fifth Third Bank of Kentucky
Louisville, Kentucky
ROBERT A. HODSON, Chairman
STEWART M. GREENLEE,
President & CEO
Fifth Third Bank of
Southern Ohio
Hillsboro, Ohio
COLLEEN M. KVETKO, President
Fifth Third Bank of Florida
Naples, Florida
CHARLES J. SCHEIDT, JR.,
President
Fifth Third Bank of
Northeastern Ohio
Cleveland, Ohio
JAMES B. STURGES, Chairman
MICHAEL J. ALLEY,
President & CEO
Fifth Third Bank of Central
Indiana
Indianapolis, Indiana
WILLIAM J. WILLIAMS, Chairman
BRADLEE F. STAMPER,
President & CEO
Fifth Third Bank of Northern
Kentucky
Florence, Kentucky
*Director of Fifth Third Bancorp only.
(C) Fifth Third Bank 1997
Member F.D.I.C. - Federal Reserve
System
(R) Reg. U.S. Pat. & T.M. Office
<PAGE> 43
[photo]
[logo]
Fifth Third Bancorp
Fifth Third Center
Cincinnati, Ohio 45263
<PAGE> 1
EXHIBIT 21
----------
Fifth Third Bancorp Subsidiaries
<TABLE>
<CAPTION>
Jurisdiction
of
Name Incorporation
- ---- -------------
<S> <C>
The Fifth Third Bank Ohio
The Fifth Third Company Ohio
The Fifth Third Leasing Company Ohio
Fifth Third Securities, Inc. Ohio
Midwest Payment Systems, Inc. Ohio
Fifth Third International Company Kentucky
Fifth Third Trade Services Limited Hong Kong
Fifth Third Bank of Kentucky, Inc. Kentucky
The Fifth Third Savings Bank of Western Kentucky, FSB Federal
Fifth Third Bank of Northern Kentucky, Inc. Kentucky
Fifth Third Savings Bank of Northern Kentucky, FSB Federal
The Fifth Third Bank of Columbus Ohio
The Fifth Third Bank of Northwestern Ohio,
National Association Federal
The Fifth Third Bank of Southern Ohio Ohio
The Fifth Third Bank of Western Ohio Ohio
Fifth Third Bank of Northeastern Ohio Ohio
Fifth Third Savings Bank of Northern Ohio, FSB Federal
The Fifth Third Bank of Central Indiana Indiana
Fifth Third Bank of Florida Florida
Fifth Third Community Development Company Ohio
Fifth Third Investment Company Ohio
Fountain Square Insurance Company Arizona
</TABLE>
<PAGE> 1
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No. 33-
34075, 33-13252, 2-98550, 33-20888, 33-30690, 33-51679, 33-60474, 33-55223, 33-
55553, and 33-61149 of Fifth Third Bancorp on Form S-8 and in Registration
Statements No. 33-19965 on Form S-4 and No. 33-54134 on Form S-3 of our report
dated January 15, 1997, incorporated by reference in this Annual Report on
Form 10-K of Fifth Third Bancorp for the year ended December 31, 1996.
/s/Deloitte & Touche LLP
March 3, 1997
Cincinnati, Ohio
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIFTH THIRD
BANCORP'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 808,926
<INT-BEARING-DEPOSITS> 31,424
<FED-FUNDS-SOLD> 13,155
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,223,881
<INVESTMENTS-CARRYING> 176,804
<INVESTMENTS-MARKET> 176,798
<LOANS> 12,514,792
<ALLOWANCE> 187,278
<TOTAL-ASSETS> 20,548,998
<DEPOSITS> 14,374,656
<SHORT-TERM> 3,265,432
<LIABILITIES-OTHER> 487,124
<LONG-TERM> 277,661
<COMMON> 235,090
0
0
<OTHER-SE> 1,909,035
<TOTAL-LIABILITIES-AND-EQUITY> 20,548,998
<INTEREST-LOAN> 992,407
<INTEREST-INVEST> 391,187
<INTEREST-OTHER> 1,519
<INTEREST-TOTAL> 1,385,113
<INTEREST-DEPOSIT> 530,356
<INTEREST-EXPENSE> 695,869
<INTEREST-INCOME-NET> 689,244
<LOAN-LOSSES> 64,014
<SECURITIES-GAINS> 4,563
<EXPENSE-OTHER> 493,330
<INCOME-PRETAX> 500,315
<INCOME-PRE-EXTRAORDINARY> 335,059
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 335,059
<EPS-PRIMARY> 3.22
<EPS-DILUTED> 3.16
<YIELD-ACTUAL> 3.99
<LOANS-NON> 29,046
<LOANS-PAST> 38,053
<LOANS-TROUBLED> 1,121
<LOANS-PROBLEM> 43,097
<ALLOWANCE-OPEN> 177,388
<CHARGE-OFFS> 80,444
<RECOVERIES> 20,482
<ALLOWANCE-CLOSE> 187,278
<ALLOWANCE-DOMESTIC> 187,278
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
