<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1998
Commission File Number 0-8076
FIFTH THIRD BANCORP
(Exact name of Registrant as specified in its charter)
Ohio 31-0854434
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
Fifth Third Center
Cincinnati, Ohio 45263
(Address of principal executive offices)
Registrant's telephone number, including area code: (513) 579-5300
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
----- -----
There were 233,130,522 shares of the Registrant's Common Stock, without par
value, outstanding as of March 31, 1998.
<PAGE> 2
FIFTH THIRD BANCORP
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1998 and 1997 and December 31, 1997 3
Consolidated Statements of Income -
Three Months Ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1998 and 1997 5
Consolidated Statements of Changes in Shareowners' Equity -
Three Months Ended March 31, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits 13
2
<PAGE> 3
FIFTH THIRD BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
==================================================================================================
MARCH 31, December 31, March 31,
($000'S) 1998 1997 1997
==================================================================================================
ASSETS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and Due from Banks $ 707,635 720,133 506,720
Securities Available for Sale (a) 7,229,858 6,397,077 6,465,434
Securities Held to Maturity (b) 80,555 72,236 88,119
Other Short-Term Investments 205,673 29,424 32,641
Loans Held for Sale 248,933 62,110 9,509
Loans and Leases
Commercial Loans 4,327,931 4,268,238 4,102,127
Construction Loans 362,402 360,242 375,093
Commercial Mortgage Loans 796,681 810,436 794,602
Commercial Lease Financing 1,459,723 1,416,227 1,092,127
Residential Mortgage Loans 2,240,699 2,234,161 2,066,783
Consumer Loans 2,813,925 2,769,786 2,533,339
Consumer Lease Financing 2,105,676 2,064,642 1,910,198
Unearned Income (558,441) (547,125) (446,292)
Reserve for Credit Losses (202,703) (200,931) (187,343)
- --------------------------------------------------------------------------------------------------
Total Loans and Leases 13,345,893 13,175,676 12,240,634
Bank Premises and Equipment 261,468 251,898 233,163
Accrued Income Receivable 181,717 178,803 162,036
Other Assets 594,767 487,697 437,441
- --------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 22,856,499 $ 21,375,054 $ 20,175,697
==================================================================================================
LIABILITIES
==================================================================================================
Deposits
Demand $ 2,491,436 2,426,198 2,039,309
Interest Checking 2,283,393 2,252,571 2,002,915
Savings 2,362,684 2,298,749 1,999,459
Money Market 1,127,124 1,106,850 1,430,396
Other Time 5,140,010 5,278,375 5,520,254
Certificates - $100,000 and Over 1,071,554 1,010,438 802,097
Foreign Office 255,788 540,951 128,086
- --------------------------------------------------------------------------------------------------
Total Deposits 14,731,989 14,914,132 13,922,516
Federal Funds Borrowed 2,323,342 1,253,553 1,512,613
Short-Term Bank Notes 622,000 555,000 705,000
Other Short-Term Borrowings 1,157,629 1,252,378 1,184,792
Accrued Taxes, Interest and Expenses 550,947 505,048 387,143
Other Liabilities 183,180 159,654 90,995
Long-Term Debt 947,965 457,878 457,747
- --------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 20,517,052 19,097,643 18,260,806
==================================================================================================
SHAREOWNERS' EQUITY
==================================================================================================
Common Stock (c) 517,550 516,898 513,728
Capital Surplus 446,690 452,568 459,530
Retained Earnings 1,471,034 1,401,649 1,197,289
Unrealized Gains (Losses)
on Securities Available for Sale 79,185 90,876 (26,978)
Treasury Stock (175,012) (184,580) (228,678)
==================================================================================================
TOTAL SHAREOWNERS' EQUITY 2,339,447 2,277,411 1,914,891
==================================================================================================
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $ 22,856,499 21,375,054 20,175,697
==================================================================================================
</TABLE>
(a) Amortized cost: March 31, 1998 - $7,108,034, December 31, 1997 -
$6,257,268, and March 31, 1997 - $6,506,939.
(b) Market value: March 31, 1998 - $80,555, December 31, 1997 - $72,236 and
March 31, 1997 - $88,119.
(c) Stated value $2.22 per share; authorized 300,000,000; outstanding March 31,
1998 - 233,130,522 (EXCLUDES 5,131,205 TREASURY SHARES), December 31, 1997
- 232,836,842 (excludes 5,424,885 treasury shares) and March 31, 1997 -
231,409,388 (excludes 6,857,703 treasury shares). Outstanding and treasury
shares have been adjusted for the three-for-two stock split effected in the
form of a stock dividend declared March 17, 1998 and distributed April 15,
1998.
See Notes to Consolidated Financial Statements
3
<PAGE> 4
FIFTH THIRD BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
=========================================================================================================
THREE MONTHS ENDED
MARCH 31,
-----------------------------------------
($000S) 1998 1997
=========================================================================================================
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans and Leases $ 273,076 250,725
Interest on Securities
Taxable 115,598 107,159
Exempt from Income Taxes 2,940 4,374
- ---------------------------------------------------------------------------------------------------------
Total Interest on Securities 118,538 111,533
Interest on Other Short-Term Investments 1,382 487
- ---------------------------------------------------------------------------------------------------------
Total Interest Income 392,996 362,745
- ---------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on Deposits
Interest Checking 13,911 11,561
Savings 19,925 15,933
Money Market 8,776 11,967
Other Time 69,838 75,268
Certificates - $100,000 and Over 13,009 10,313
Foreign Office 4,779 4,453
- ---------------------------------------------------------------------------------------------------------
Total Interest on Deposits 130,238 129,495
Interest on Federal Funds Borrowed 27,208 24,969
Interest on Short-Term Bank Notes 12,466 9,365
Interest on Other Short-Term Borrowings 14,116 12,558
Interest on Long-Term Debt and Notes 11,068 5,042
- ---------------------------------------------------------------------------------------------------------
Total Interest Expense 195,096 181,429
- ---------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 197,900 181,316
Provision for Credit Losses 19,825 17,446
- ---------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 178,075 163,870
OTHER OPERATING INCOME
Investment Advisory Income 26,912 20,851
Service Charges on Deposits 24,809 22,433
Data Processing Income 29,830 22,739
Other Service Charges and Fees 40,618 31,865
Securities Gains 4,212 672
- ---------------------------------------------------------------------------------------------------------
Total Other Operating Income 126,381 98,560
OPERATING EXPENSES
Salaries, Wages and Incentives 55,738 47,408
Employee Benefits 14,153 10,011
Equipment Expenses 5,878 5,254
Net Occupancy Expenses 9,098 9,337
Other Operating Expenses 55,007 48,965
- ---------------------------------------------------------------------------------------------------------
Total Operating Expenses 139,874 120,975
- ---------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 164,582 141,455
Applicable Income Taxes 55,601 46,959
- ---------------------------------------------------------------------------------------------------------
NET INCOME $ 108,981 94,496
=========================================================================================================
Per Share (a):
Earnings $ 0.47 0.41
Diluted Earnings $ 0.46 0.39
Cash Dividends $ 0.17 .12-7/8
=========================================================================================================
Average Shares (000s) (a):
Outstanding 232,980 234,869
Diluted 237,905 238,373
=========================================================================================================
</TABLE>
(a) Per share amounts and average shares outstanding have been adjusted for the
three-for-two stock split effected in the form of a stock dividend declared
March 17, 1998 and distributed April 15, 1998.
See Notes to Consolidated Financial Statements
4
<PAGE> 5
FIFTH THIRD BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
=======================================================================================================================
THREE MONTHS ENDED
MARCH 31,
------------------------------
($000S) 1998 1997
=======================================================================================================================
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 108,981 94,496
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses 19,825 17,446
Depreciation, Amortization and Accretion 15,100 15,231
Provision for Deferred Income Taxes 4,329 4,174
Realized Securities Gains (4,344) (1,848)
Realized Securities Losses 132 1,176
Proceeds from Sales of Residential Mortgage Loans Held for Sale 255,430 78,311
Net Gains on Sales of Loans (3,972) (2,626)
Increase in Residential Mortgage Loans Held for Sale (438,269) (71,138)
Decrease (Increase) in Accrued Income Receivable (2,914) 20,818
Decrease (Increase) in Other Assets (112,878) 110,158
Increase in Accrued Taxes, Interest and Expenses 47,865 32,129
Increase (Decrease) in Other Liabilities 18,042 (21,067)
- -----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (92,673) 277,260
=======================================================================================================================
INVESTING ACTIVITIES
Proceeds from Sales of Securities Available for Sale 76,877 435,221
Proceeds from Calls, Paydowns and Maturities of Securities Available for Sale 444,334 186,563
Purchases of Securities Available for Sale (1,287,849) (933,877)
Proceeds from Calls, Paydowns and Maturities of Securities Held to Maturity 11,804 96,264
Purchases of Securities Held to Maturity (20,123) (7,579)
Decrease (Increase) in Other Short-Term Investments (176,249) 11,938
Decrease (Increase) in Loans and Leases (272,658) 55,378
Purchases of Bank Premises and Equipment (16,369) (7,840)
Proceeds from Disposal of Bank Premises and Equipment 317 545
- -----------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (1,239,916) (163,387)
=======================================================================================================================
FINANCING ACTIVITIES
Increase (Decrease) in Core Deposits 41,904 (462,821)
Increase (Decrease) in CDs - $100,000 and Over, including Foreign (224,047) 10,681
Increase in Federal Funds Borrowed 1,069,789 91,919
Increase (Decrease) in Short-Term Bank Notes 67,000 (101,000)
Increase (Decrease) in Other Short-Term Borrowings (94,749) 146,054
Proceeds from Issuance of Long-Term Debt and Notes 500,000 200,000
Repayment of Long-Term Debt (10,000) (20,000)
Payment of Cash Dividends (34,149) (30,718)
Exercise of Stock Options 4,342 3,762
Purchases of Treasury Stock -- (253,956)
- -----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) BY FINANCING ACTIVITIES 1,320,090 (416,079)
=======================================================================================================================
DECREASE IN CASH AND DUE FROM BANKS (12,499) (302,206)
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 720,133 808,926
- -----------------------------------------------------------------------------------------------------------------------
CASH AND DUE FROM BANKS AT END OF PERIOD 707,634 506,720
=======================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE> 6
FIFTH THIRD BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
======================================================================================================
THREE MONTHS ENDED
MARCH 31,
-----------------------------------
($000S) 1998 1997
======================================================================================================
<S> <C> <C>
BALANCE AT JANUARY 1 $ 2,277,411 2,144,125
Net Income 108,981 94,496
Nonowner Changes in Equity, Net of Tax:
Unrealized Gains/(Losses) on Securities Available for Sale (11,691) (43,576)
- -----------------------------------------------------------------------------------------------------
Net Income and Nonowner Changes in Equity 97,290 50,920
Cash Dividends Declared (1998 - $.17 per share
and 1997 - $.12-7/8 per share) (a) (39,596) (29,960)
Shares Acquired for Treasury -- (253,956)
Stock Options Exercised
Including Treasury Shares Issued 4,342 3,762
- -----------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31 $ 2,339,447 1,914,891
======================================================================================================
</TABLE>
(a) Per share amounts have been adjusted for the three-for-two stock split
effected in the form of a stock dividend declared March 17, 1998 and
distributed April 15, 1998.
See Notes to Consolidated Financial Statements
6
<PAGE> 7
FINANCIAL INFORMATION
Item 1. Notes to Consolidated Financial Statements
1. In the opinion of management, the unaudited consolidated financial
statements include all adjustments (which consist of normal recurring
accruals) necessary to present fairly the consolidated financial position
as of March 31, 1998 and 1997, and the results of operations and cash flows
for the three months ended March 31, 1998 and 1997. In accordance with
generally accepted accounting principles for interim financial information,
these statements do not include all of the information and footnotes
required by generally accepted accounting principles for complete annual
financial statements. Financial information as of December 31, 1997 has
been derived from the audited consolidated financial statements of the
Registrant. The results of operations and cash flows for the three months
ended March 31, 1998 and 1997 are not necessarily indicative of the results
to be expected for the full year. For further information, refer to the
consolidated financial statements and footnotes thereto for the year ended
December 31, 1997, included in the Registrant's Annual Report on Form 10-K.
2. Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" is required for 1998.
The statement is not required to be applied to interim reporting and will
be applied in the Registrant's 1998 annual financial statements. The
statement requires financial disclosure and descriptive information about
reportable operating segments. Upon its adoption, this statement may result
in additional financial statement disclosures.
3. The Registrant's board of directors approved a three-for-two stock split on
March 17, 1998. The additional shares resulting from the split were
distributed on April 15, 1998 to shareowners of record as of March 31,
1998. The consolidated financial statements, notes and other references to
share and per share data have been retroactively restated for the stock
split.
4. In the first three months of 1998, the Registrant paid $197,239,000 in
interest and no Federal income taxes. In the first three months of 1997,
the Registrant paid $192,683,000 in interest and no Federal income taxes.
In the first three months of 1998, the Registrant had noncash investing
activities consisting of the securitization of $82,604,000 of residential
mortgage loans. There were no loan securitizations during the first three
months of 1997.
5. In 1998, the Registrant adopted SFAS No. 130, "Reporting Comprehensive
Income." The statement establishes standards for the reporting and display
of net income and nonowner changes in equity. The Registrant elected to
present the required disclosures in the Consolidated Statement of Changes
in Shareowners' Equity on page 6. The caption "Net income and nonowner
changes in equity," represents total comprehensive income as
7
<PAGE> 8
defined in the statement. Disclosure of the reclassification adjustments,
related tax effects allocated to nonowner changes in equity and accumulated
nonowner changes in equity for the three months ended March 31 is provided
below ($000s).
<TABLE>
<CAPTION>
===========================================================================================================================
Reclassification Adjustments, Before Tax 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Change in Unrealized Gains/(Losses) Arising During Period $ (22,198) (67,712)
Less: Reclassification Adjustment For Gains Included in Net Income 4,212 672
- ---------------------------------------------------------------------------------------------------------------------------
Net Unrealized Losses on Securities Available for Sale $ (17,986) (67,040)
- ---------------------------------------------------------------------------------------------------------------------------
Related Tax Effects
- ---------------------------------------------------------------------------------------------------------------------------
Change in Unrealized Gains/(Losses) Arising During Period $ 7,769 23,699
Less: Reclassification Adjustment For Gains Included in Net Income (1,474) (235)
- ---------------------------------------------------------------------------------------------------------------------------
Net Unrealized Losses on Securities Available for Sale $ 6,295 23,464
- ---------------------------------------------------------------------------------------------------------------------------
Reclassification Adjustments, Net of Tax
- ---------------------------------------------------------------------------------------------------------------------------
Change in Unrealized Gains/(Losses) Arising During Period $ (14,429) (44,013)
Less: Reclassification Adjustment For Gains Included in Net Income 2,738 437
- ---------------------------------------------------------------------------------------------------------------------------
Net Unrealized Losses on Securities Available for Sale $ (11,691) (43,576)
- ---------------------------------------------------------------------------------------------------------------------------
Accumulated Nonowner Changes in Equity
- ---------------------------------------------------------------------------------------------------------------------------
Beginning Balance-Unrealized Holding Gains on Securities Available for Sale $ 90,876 16,598
Current Period Change (11,691) (43,576)
- ---------------------------------------------------------------------------------------------------------------------------
Ending Balance-Unrealized Holding Gains (Losses) on Securities Available for Sale $ 79,185 (26,978)
===========================================================================================================================
</TABLE>
6. In January 1998, the Registrant entered into merger agreements with State
Savings Company, a privately-owned thrift holding company headquartered in
Columbus, Ohio with $2.8 billion in assets and CitFed Bancorp, Inc., a
publicly-traded savings and loan holding company headquartered in Dayton,
Ohio with $3.5 billion in assets. These transactions will be tax-free,
stock-for-stock exchanges accounted for as poolings of interests. The
Registrant will exchange 16,625,340 shares of Fifth Third Bancorp common
stock for all outstanding shares of State Savings Company. The Registrant
will exchange 1.005 shares of Fifth Third Bancorp common stock for each
outstanding share of CitFed Bancorp, Inc. Both transactions are expected to
be completed in mid-1998 and are subject to approval by shareowners and
appropriate regulatory agencies.
7. In December 1997, the Registrant entered into a merger agreement with The
Ohio Company, a full-service broker-dealer for retail and institutional
clients headquartered in Columbus, Ohio. The merger is expected to be
completed in mid-1998, will be accounted for as a purchase and is subject
to approval by shareowners and appropriate regulatory agencies. In
connection with the acquisition of The Ohio Company, the Registrant will
exchange all of the outstanding shares of capital stock of The Ohio Company
for shares of Fifth Third Common Stock having a fair market value of $80
million.
8
<PAGE> 9
8. On April 9, 1998, the Registrant acquired W. Lyman Case & Company, a
commercial mortgage banking firm based in Columbus, Ohio which originated
more than $800 million in financing and equity transactions in 1997 and has
a loan servicing portfolio in excess of $2 billion. The transaction was
accounted for as a purchase. The pro forma effects of the acquisition were
not material.
9. On May 12, 1998, the Registrant, through a public offering, issued
3,600,000 shares of Common Stock. The net proceeds from the sale of Common
Stock will be used by the Registrant as working capital for general
corporate purposes. The issuance of the offered shares will also facilitate
the Registrant's ability to account for the acquisition of State Savings
Company and/or the acquisition of CitFed Bancorp, Inc. as a
pooling-of-interests.
10. The following appears in accordance with the Securities Litigation Reform
Act of 1995:
This report includes forward-looking statements that involve inherent risks
and uncertainties. A number of important factors could cause actual results
to differ materially from those in the forward-looking statements. Those
factors include the economic environment, competition, products and pricing
in geographic and business areas in which the Registrant operates,
prevailing interest rates, changes in government regulations and policies
affecting financial services companies, credit quality and credit risk
management, acquisitions and integration of acquired businesses. Fifth
Third Bancorp undertakes no obligation to release revisions to these
forward-looking statements or reflect events or circumstances after the
date of this report.
11. Certain prior year's data has been reclassified to conform to current
presentation.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following is management's discussion and analysis of certain significant
factors which have affected the Registrant's financial condition and results of
operations during the periods included in the consolidated financial statements
which are a part of this filing.
Results of Operations
The Registrant's net income was $108,981,000 for the first quarter of 1998, up
15 percent compared to $94,496,000 for the same period last year. Diluted
earnings per share for the first quarter was $.46, an 18 percent increase over
1997's $.39.
Total assets were $22.9 billion at quarter end, compared to 1997's quarter-end
assets of $20.2 billion. Return on average equity was 19.9 percent and return on
average assets was 2.00 percent for the first quarter of 1998 compared to 18.7
percent and 1.88 percent, respectively, for the same quarter of last year.
9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
The Registrant's net interest income on a fully taxable equivalent basis for the
first quarter of 1998 was $209.7 million, a 9.1 percent increase over $192.2
million for the same period of 1997. This increase resulted primarily from
strong loan and lease volume, an emphasis on direct lending and higher loan
yields.
The net provision for credit losses was $19.8 million in the first quarter of
1998 and $17.4 million in the first quarter of 1997. Net charge-offs for the
first quarter were .55 percent of average loans and leases compared to .56
percent for the first quarter of 1997. The net charge-off ratio remains near the
Registrant's historical 10-year average of .50 percent and the reserve for
credit losses is in excess of four times nonperforming assets.
Nonperforming assets as a percentage of total loans, leases and other real
estate owned was .33 percent at March 31, 1998, down from .36 percent at March
31, 1997. The reserve for credit losses as a percentage of total loans and
leases was 1.50 percent at March 31, 1998 and 1.51 percent at March 31, 1997.
Total other operating income, excluding securities gains, for the first quarter
increased 25 percent to $122.2 million compared to the first quarter of 1997.
Data processing income was up 31 percent in the first quarter as a result of new
customers and resulting increases in merchant transaction volumes, the success
of debit cards and increased popularity of ATMs. Successful new sales efforts
and continued strength in the financial markets led to 29 percent growth in
investment advisory income. Commercial banking income, consumer loan and lease
fees and mortgage banking revenue contributed to the 27 percent increase in
other service charges and fees. Mortgage banking fee income increased 40
percent, driven by a favorable interest rate environment and successful selling
that fueled strong origination volume in the first quarter. Mortgage loan
servicing fees were up 14 percent, consistent with the related increase in the
Registrant's $6.3 billion residential mortgage servicing portfolio.
The overhead ratio (operating expenses divided by the sum of taxable equivalent
net interest income and other operating income) remained unchanged at 41.6
percent as compared to the first quarter of 1997, well below industry norms. The
Registrant's expense growth over first quarter 1997 was higher than customary as
the Registrant used strong revenue growth to invest, in part, in technology
upgrades and Year 2000 systems integration and implementation projects.
Salaries, wages, incentives and employee benefits rose in the first quarter as a
result of more variable compensation for increased sales production, increased
staffing costs related to computer programming and additional FTEs to support
sales and the Registrant's volume-related businesses. Equipment expenses
increased 12 percent over 1997's first quarter due primarily to software and
processing technology upgrades and the addition of 307 ATMs. Volume-related
expenses of the Registrant's processing and fee businesses, along with higher
loan and lease processing costs from record volumes, contributed mostly to the
12 percent increase in other operating expense.
10
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Financial Condition
The Registrant continues to focus on improved asset mix. Improved earning asset
yields combined with eight percent growth in average loan and lease balances led
to net interest income growth. Direct installment loan originations exceeded
$313 million this quarter compared to $243 million last quarter and $181 million
in the same quarter a year ago. Residential mortgage originations exceeded $677
million this quarter compared to $510 million last quarter and $291 million in
the first quarter last year. A successful direct loan campaign lead to a 30
percent increase in home equity loans and lines of credit. During the first
quarter of 1997, the Registrant, through its wholly-owned Fifth Third Capital
Trust I, a Delaware statutory business trust (the "Trust"), issued $200 million
of 8.136 percent Capital Securities. These securities, representing Junior
Subordinate Deferrable Interest Debentures, are classified as long-term debt in
the Consolidated Balance Sheet and qualify as Tier 1 regulatory capital.
Liquidity and Capital Resources
The maintenance of an adequate level of liquidity is necessary to ensure
sufficient funds are available to meet customer loan demand and deposit
withdrawals. The banking subsidiaries' liquidity sources consist of short-term
marketable securities, maturing loans and federal funds loaned and selected
securitizable loan assets. Liquidity has also been obtained through liabilities
such as customer-related core deposits, funds borrowed, certificates of deposit
and public funds deposits.
At March 31, 1998, shareowners' equity was $2.339 billion, compared to $1.915
billion at March 31, 1997, an increase of $424 million, or 22.1 percent.
Shareowners' equity as a percentage of total assets as of March 31, 1998 was
10.2 percent. The Federal Reserve Board has adopted risk-based capital
guidelines which assign risk weightings to assets and off-balance sheet items
and also define and set minimum capital requirements (risk-based capital
ratios). The guidelines also define "well-capitalized" ratios of Tier 1, total
capital and leverage as 6 percent, 10 percent and 5 percent, respectively. The
Registrant exceeded these "well-capitalized" ratios at March 31, 1998 and 1997.
At March 31, 1998, the Registrant had a Tier 1 risk-based capital ratio of 11.35
percent, a total risk-based capital ratio of 13.71 percent and a leverage ratio
of 9.90 percent. At March 31, 1997, the Registrant had a Tier 1 risk-based
capital ratio of 11.59 percent, a total risk-based capital ratio of 14.30
percent and a leverage ratio of 9.23 percent.
In January 1998, the Registrant's board of directors rescinded Fifth Third
Bancorp's stock repurchase programs. No shares have been purchased under these
programs since June 1997. The Registrant anticipates approximately 1,500,000
shares of Fifth Third Bancorp Common Stock will be issued to the shareowners of
The Ohio Company pursuant to the proposed merger. Prior to the closing of this
acquisition, the Registrant may repurchase up to 1,500,000 shares of Fifth Third
Common Stock in the open market to be used solely for such issuance.
11
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Market Risk
Interest rate risk management focuses on maintaining consistent growth in net
interest income within Board-approved policy limits. The Registrant uses an
earnings simulation model to analyze net interest income sensitivity to
movements in interest rates. Given an immediate, sustained 200 basis point
upward shock to the yield curve used in the simulation model, it is estimated
net interest income for the Registrant would decrease by a negative 2.56 percent
over one year and increase by 6.4 percent over two years. A 200 basis point
immediate, sustained downward shock in the yield curve would increase net
interest income by an estimated .79 percent over one year and decrease net
interest income by an estimated negative 7.74 percent over two years. All of
these estimated changes in net interest income are within the policy guidelines
established by the Registrant's board of directors.
Item 4. Submission of Matters to a Vote of Security Holders
On March 17, 1998, the Registrant held its Annual Meeting of Stockholders for
which the Board of Directors solicited proxies. At the Annual Meeting, the
shareowners adopted all the proposals stated in the Proxy Statement dated
February 9, 1998, which is incorporated herein by reference. The proposals voted
on and approved by the shareowners are as follows (all votes have been adjusted
for the 3-for-2 stock split declared on March 17, 1998 and distributed April 15,
1998:
1. The election of six Class III Directors (Darryl F. Allen, Gerald V. Dirvin,
Ivan W. Gorr, Joseph H. Head, Jr., Dr. Mitchel O. Livingston and James E.
Rogers) to serve until the Annual Meeting of Stockholders in 2001.
2. Approval of the proposal to adopt the Variable Compensation Plan by a vote
of 197,606,624 for, 6,106,952 against and 2,172,924 abstaining.
3. Approval of the proposal to adopt the 1998 Long-Term Incentive Stock Plan
by a vote of 162,567,513 for, 31,568,945 against and 2,116,692 abstaining.
4. Approval of the appointment of the firm of Deloitte & Touche LLP to serve
as independent auditors for the Registrant for the year 1998 by a vote of
203,365,806 for, 1,759,955 against and 421,305 abstaining.
12
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits
(11) - Computation of Consolidated Earnings Per Share for the Three
Months Ended March 31, 1998 and 1997
(27) - Financial Data Schedules for the Three Months Ended March 31,
1998 and 1997
(27.1) - Financial Data Schedules for the Three Months Ended March 31,
1997, Six Months Ended June 30, 1997 and Nine Months Ended
September 30, 1997
(27.2) - Financial Data Schedules for the Three Months Ended March 31,
1996, Six Months Ended June 30, 1996 and Nine Months Ended
September 30, 1996
(27.3) - Financial Data Schedules for the Years Ended December 31, 1997
and 1996
(b) Form 8-K dated March 17, 1998 describing the three-for-two stock split
declared March 17, 1998 and distributed April 15, 1998 and the
resulting effect on the exchange ratios offerred in the pending
acquisitions of CitFed Bancorp, Inc. and State Savings Company, was
previously filed and is incorporated into this Form 10-Q by reference.
SIGNATURES
Pursuant to the requirements 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
Date: May 14, 1998 /s/ Neal E. Arnold
---------------------------
Neal E. Arnold
Senior Vice President and
Chief Financial Officer
13
<PAGE> 1
EXHIBIT 11
FIFTH THIRD BANCORP
COMPUTATION OF CONSOLIDATED EARNINGS PER SHARE
FOR THE THREE MONTHS ENDED MARCH 31
($000'S, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
NET INCOME $108,981 94,496
======== =======
EARNINGS PER SHARE:
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (a) 232,980 234,869
======== =======
PER SHARE (NET INCOME DIVIDED BY THE WEIGHTED
AVERAGE NUMBER OF SHARES OUTSTANDING) $ 0.47 0.41
======== =======
DILUTED EARNINGS PER SHARE:
NET INCOME $108,981 94,496
======== =======
ADJUSTED WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING - AFTER GIVING EFFECT TO THE
CONVERSION OF STOCK OPTIONS (A) 237,905 238,373
======== =======
PER SHARE (ADJUSTED NET INCOME DIVIDED BY
THE ADJUSTED WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING) $ 0.46 0.39
======== =======
</TABLE>
- --------------------------------------------------------
(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 April 15, 1998 and July 15, 1997.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIFTH THIRD
BANCORP'S QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31,
1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000035527
<NAME> FIFTH THIRD BANCORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 707,635
<INT-BEARING-DEPOSITS> 178,550
<FED-FUNDS-SOLD> 27,123
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,229,858
<INVESTMENTS-CARRYING> 80,555
<INVESTMENTS-MARKET> 80,555
<LOANS> 13,797,529
<ALLOWANCE> 202,703
<TOTAL-ASSETS> 22,856,499
<DEPOSITS> 14,731,989
<SHORT-TERM> 4,102,971
<LIABILITIES-OTHER> 734,127
<LONG-TERM> 947,965
0
0
<COMMON> 517,550
<OTHER-SE> 1,821,897
<TOTAL-LIABILITIES-AND-EQUITY> 22,856,499
<INTEREST-LOAN> 273,076
<INTEREST-INVEST> 118,538
<INTEREST-OTHER> 1,382
<INTEREST-TOTAL> 392,996
<INTEREST-DEPOSIT> 130,238
<INTEREST-EXPENSE> 195,096
<INTEREST-INCOME-NET> 197,900
<LOAN-LOSSES> 19,825
<SECURITIES-GAINS> 4,212
<EXPENSE-OTHER> 139,874
<INCOME-PRETAX> 164,582
<INCOME-PRE-EXTRAORDINARY> 108,981
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 108,981
<EPS-PRIMARY> .47
<EPS-DILUTED> .46
<YIELD-ACTUAL> 4.11
<LOANS-NON> 42,610
<LOANS-PAST> 41,861
<LOANS-TROUBLED> 125
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 200,931
<CHARGE-OFFS> 23,443
<RECOVERIES> 5,388
<ALLOWANCE-CLOSE> 202,703
<ALLOWANCE-DOMESTIC> 202,703
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIFTH THIRD
BANCORP'S QUARTERLY REPORTS ON FORM 10-Q FOR THE QUARTERS ENDED MARCH 31, 1997,
JUNE 30, 1997, AND SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000035527
<NAME> FIFTH THIRD BANCORP
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 506,720 847,525 645,916
<INT-BEARING-DEPOSITS> 30,836 30,052 28,306
<FED-FUNDS-SOLD> 1,805 21,030 2,550
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 6,465,434 6,210,577 6,437,593
<INVESTMENTS-CARRYING> 88,119 75,740 76,426
<INVESTMENTS-MARKET> 85,119 75,740 76,426
<LOANS> 12,437,486 12,724,097 13,023,979
<ALLOWANCE> 187,343 191,434 194,773
<TOTAL-ASSETS> 20,175,697 20,694,518 20,927,002
<DEPOSITS> 13,922,516 13,972,647 14,594,731
<SHORT-TERM> 3,402,405 3,676,148 3,132,263
<LIABILITIES-OTHER> 478,138 584,361 599,397
<LONG-TERM> 457,757 457,834 457,791
0 0 0
0 0 0
<COMMON> 513,728<F3> 513,142<F3> 515,773<F3>
<OTHER-SE> 1,401,163<F3> 1,490,386<F3> 1,627,047<F3>
<TOTAL-LIABILITIES-AND-EQUITY> 20,175,697 20,694,518 20,927,002
<INTEREST-LOAN> 250,725 505,184 770,233
<INTEREST-INVEST> 111,533 222,722 328,173
<INTEREST-OTHER> 487 1,118 1,731
<INTEREST-TOTAL> 362,745 729,024 1,100,137
<INTEREST-DEPOSIT> 129,495 262,127 396,148
<INTEREST-EXPENSE> 181,429 362,893 547,640
<INTEREST-INCOME-NET> 181,316 366,131 552,497
<LOAN-LOSSES> 17,446 37,596 55,437
<SECURITIES-GAINS> 672 857 2,929
<EXPENSE-OTHER> 120,975 248,772 377,486
<INCOME-PRETAX> 141,455 286,999 441,844
<INCOME-PRE-EXTRAORDINARY> 94,496 190,577 294,001
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 94,496 190,577 294,001
<EPS-PRIMARY> .41<F1> .82<F1> 1.27<F1>
<EPS-DILUTED> .39<F2> .80<F2> 1.24<F2>
<YIELD-ACTUAL> 4.07 4.09 4.09
<LOANS-NON> 40,149 42,041 39,226
<LOANS-PAST> 35,287 40,634 43,354
<LOANS-TROUBLED> 95 96 104
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 187,278 187,278 187,278
<CHARGE-OFFS> 23,016 44,913 68,005
<RECOVERIES> 5,635 11,473 17,358
<ALLOWANCE-CLOSE> 187,343 191,434 194,773
<ALLOWANCE-DOMESTIC> 187,343 191,434 194,773
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0
<FN>
<F1>BASIC EARNINGS PER SHARE IN ACCORDANCE WITH STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 128
<F2>DILUTED EARNINGS PER SHARE IN ACCORDANCE WITH STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 128
<F3>RESTATED TO GIVE RETROACTIVE EFFECT TO THE 3-FOR-2 STOCK SPLIT DECLARED MARCH 17,
1998 AND DISTRIBUTED APRIL 15, 1998
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIFTH THIRD
BANCORP'S QUARTERLY REPORTS ON FORM 10-Q FOR THE QUARTERS ENDED MARCH 31, 1996,
JUNE 30, 1996, AND SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000035527
<NAME> FIFTH THIRD BANCORP
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996
<CASH> 470,337 474,963 683,196
<INT-BEARING-DEPOSITS> 10,751 12,796 29,735
<FED-FUNDS-SOLD> 10,005 15,180 14,355
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 5,436,077 6,183,028 6,098,576
<INVESTMENTS-CARRYING> 185,987 114,252 166,145
<INVESTMENTS-MARKET> 185,987 114,252 166,145
<LOANS> 12,104,260 12,266,352 12,393,286
<ALLOWANCE> 181,006 183,876 185,689
<TOTAL-ASSETS> 18,869,875 19,855,498 20,086,988
<DEPOSITS> 13,709,298 14,723,901 14,576,688
<SHORT-TERM> 2,455,723 2,474,512 2,721,738
<LIABILITIES-OTHER> 482,384 423,765 480,120
<LONG-TERM> 429,703 282,594 277,565
0 0 0
0 0 0
<COMMON> 510,952<F3> 528,284<F3> 528,829<F3>
<OTHER-SE> 1,281,815<F3> 1,422,442<F3> 1,502,048<F3>
<TOTAL-LIABILITIES-AND-EQUITY> 18,869,875 19,855,498 20,086,988
<INTEREST-LOAN> 239,636 488,608 742,627
<INTEREST-INVEST> 83,223 177,694 282,457
<INTEREST-OTHER> 191 379 627
<INTEREST-TOTAL> 323,050 666,681 1,025,711
<INTEREST-DEPOSIT> 122,278 256,991 395,722
<INTEREST-EXPENSE> 161,422 333,524 515,455
<INTEREST-INCOME-NET> 161,628 333,157 510,256
<LOAN-LOSSES> 9,750 27,798 44,229
<SECURITIES-GAINS> 205 372 390
<EXPENSE-OTHER> 117,239 237,626 375,289
<INCOME-PRETAX> 118,307 243,152 361,507
<INCOME-PRE-EXTRAORDINARY> 79,140 162,389 241,444
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 79,140 162,389 241,444
<EPS-PRIMARY> .35<F1><F3> .71<F1><F3> 1.04<F1><F3>
<EPS-DILUTED> .34<F2><F3> .69<F2><F3> 1.02<F2><F3>
<YIELD-ACTUAL> 4.04 4.02 3.99
<LOANS-NON> 36,884 42,637 40,127
<LOANS-PAST> 22,179 22,356 31,315
<LOANS-TROUBLED> 394 469 863
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 177,388 177,388 177,388
<CHARGE-OFFS> 15,744 37,478 56,991
<RECOVERIES> 3,774 10,330 15,225
<ALLOWANCE-CLOSE> 181,006 183,876 185,689
<ALLOWANCE-DOMESTIC> 181,006 183,876 185,689
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0
<FN>
<F1>BASIC EARNINGS PER SHARE IN ACCORDANCE WITH STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 128
<F2>DILUTED EARNINGS PER SHARE IN ACCORDANCE WITH STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 128
<F3>RESTATED TO GIVE RETROACTIVE EFFECT TO THE 3-FOR-2 STOCK SPLITS DISTRIBUTED
APRIL 15, 1998 AND JULY 15, 1997
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIFTH THIRD
BANCORP'S ANNUAL REPORTS ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 AND
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000035527
<NAME> FIFTH THIRD BANCORP
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 720,133 808,926
<INT-BEARING-DEPOSITS> 27,224 31,424
<FED-FUNDS-SOLD> 2,200 13,155
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 6,397,077 6,223,881
<INVESTMENTS-CARRYING> 72,236 176,804
<INVESTMENTS-MARKET> 72,236 176,798
<LOANS> 13,438,717 12,514,792
<ALLOWANCE> 200,931 187,278
<TOTAL-ASSETS> 21,375,054 20,548,998
<DEPOSITS> 14,914,132 14,374,656
<SHORT-TERM> 3,060,931 3,265,432
<LIABILITIES-OTHER> 664,702 487,124
<LONG-TERM> 457,878 277,661
0 0
0 0
<COMMON> 516,898<F4> 528,933<F3>
<OTHER-SE> 1,760,513<F4> 1,615,192<F3>
<TOTAL-LIABILITIES-AND-EQUITY> 21,375,054 20,548,998
<INTEREST-LOAN> 1,043,102 992,407
<INTEREST-INVEST> 433,105 391,187
<INTEREST-OTHER> 2,181 1,519
<INTEREST-TOTAL> 1,478,388 1,385,113
<INTEREST-DEPOSIT> 531,631 530,356
<INTEREST-EXPENSE> 733,426 695,869
<INTEREST-INCOME-NET> 744,962 689,244
<LOAN-LOSSES> 80,342 64,014
<SECURITIES-GAINS> 6,326 4,563
<EXPENSE-OTHER> 506,158 493,330
<INCOME-PRETAX> 603,923 500,315
<INCOME-PRE-EXTRAORDINARY> 401,237 335,059
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 401,237 335,059
<EPS-PRIMARY> 1.73<F4> 1.43<F1><F3>
<EPS-DILUTED> 1.69<F4> 1.41<F2><F3>
<YIELD-ACTUAL> 4.11 3.99
<LOANS-NON> 37,401 29,046
<LOANS-PAST> 46,281 38,053
<LOANS-TROUBLED> 128 1,121
<LOANS-PROBLEM> 29,145 43,097
<ALLOWANCE-OPEN> 187,278 177,388
<CHARGE-OFFS> 91,801 80,444
<RECOVERIES> 23,407 20,482
<ALLOWANCE-CLOSE> 200,931 187,278
<ALLOWANCE-DOMESTIC> 200,931 187,278
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
<FN>
<F1>BASIC EARNINGS PER SHARE IN ACCORANCE WITH STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 128
<F2>DILUTED EARNINGS PER SHARE IN ACCORDANCE WITH STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 128
<F3>RESTATED TO GIVE RETROACTIVE EFFECT TO THE 3-FOR-2 STOCK SPLITS DISTRIBUTED
APRIL 15, 1998 AND JULY 15, 1997
<F4>RESTATED TO GIVE RETROACTIVE EFFECT TO THE 3-FOR-2 STOCK SPLIT DISTRIBUTED
APRIL 15, 1998
</FN>
</TABLE>
