<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, 1999
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 268,680,691 shares of the Registrant's Common Stock, without par
value, outstanding as of April 30, 1999.
<PAGE> 2
FIFTH THIRD BANCORP
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1999 and 1998 and December 31, 1998 3
Consolidated Statements of Income -
For the three months ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows -
For the three months ended March 31, 1999 and 1998 5
Consolidated Statements of Changes in Shareholders' Equity -
For the three months ended March 31, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
FIFTH THIRD BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
===========================================================================================
MARCH 31, December 31, March 31,
($000'S) 1999 1998 1998
===========================================================================================
ASSETS
===========================================================================================
<S> <C> <C> <C>
Cash and Due from Banks $ 726,310 819,862 734,594
Securities Available for Sale (a) 9,235,845 8,334,625 8,998,778
Securities Held to Maturity (b) 86,030 86,013 92,917
Other Short-Term Investments 95,076 118,535 64,238
Loans Held for Sale 396,247 492,017 560,644
Loans and Leases
Commercial Loans 4,968,319 4,822,992 4,416,525
Construction Loans 562,680 572,082 571,910
Commercial Mortgage Loans 1,169,615 1,178,752 1,256,828
Commercial Lease Financing 1,757,930 1,739,316 1,460,629
Residential Mortgage Loans 4,095,671 4,269,880 5,025,370
Consumer Loans 3,422,498 3,354,681 3,107,644
Consumer Lease Financing 2,772,445 2,530,535 2,206,632
Unearned Income (707,611) (689,215) (583,975)
Reserve for Credit Losses (270,703) (266,860) (252,799)
===========================================================================================
Total Loans and Leases 17,770,844 17,512,163 17,208,764
Bank Premises and Equipment 331,880 330,838 310,927
Accrued Income Receivable 269,231 282,551 216,743
Other Assets 740,735 945,178 796,148
- -------------------------------------------------------------------------------------------
TOTAL ASSETS $ 29,652,198 28,921,782 28,983,753
===========================================================================================
LIABILITIES
===========================================================================================
Deposits
Demand $ 2,964,611 3,194,782 2,809,823
Interest Checking 3,030,200 3,160,227 2,584,621
Savings and Money Market 4,453,103 4,418,523 4,617,504
Time Deposits 8,413,791 8,006,823 8,817,118
===========================================================================================
Total Deposits 18,861,705 18,780,355 18,829,066
Federal Funds Borrowed 2,235,817 2,038,541 2,323,342
Short-Term Bank Notes 600,000 -- 622,000
Other Short-Term Borrowings 1,858,552 1,655,386 1,752,629
Accrued Taxes, Interest and Expenses 842,480 710,772 609,210
Other Liabilities 186,439 270,055 219,116
Long-Term Debt 1,788,318 2,288,151 1,796,211
===========================================================================================
TOTAL LIABILITIES 26,373,311 25,743,260 26,151,574
===========================================================================================
SHAREHOLDERS' EQUITY (c)
===========================================================================================
Common Stock (d) 593,571 592,559 583,656
Capital Surplus 287,566 495,067 438,938
Retained Earnings 2,349,362 2,066,407 1,897,815
Unrealized Gains on
Securities Available for Sale 77,688 82,448 86,782
Treasury Stock (29,300) (57,959) (175,012)
===========================================================================================
TOTAL SHAREHOLDERS' EQUITY 3,278,887 3,178,522 2,832,179
===========================================================================================
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 29,652,198 28,921,782 28,983,753
===========================================================================================
</TABLE>
(a) Amortized cost: March 31, 1999 - $9,117,029, December 31, 1998 - $8,208,032
and March 31, 1998 - $8,865,192.
(b) Market value: March 31, 1999 - $85,839, December 31, 1998 - $86,013 and
March 31, 1998 - $93,223.
(c) 500,000 shares of no par value preferred stock are authorized of which none
have been issued.
(d) Stated value $2.22 per share; authorized 500,000,000; outstanding at March
31, 1999 - 267,374,461, (excludes 466,111 treasury shares); at December
31, 1998 - 266,918,544 (excludes 922,028 treasury shares) and at March 31,
1998 - 262,908,321 (excludes 5,131,205 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
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
=====================================================================================================
THREE MONTHS ENDED
MARCH 31,
-------------------------------------
($000'S) 1999 1998
=====================================================================================================
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans and Leases $ 353,016 355,344
Interest on Securities
Taxable 138,538 144,848
Exempt from Income Taxes 2,828 2,940
- -----------------------------------------------------------------------------------------------------
Total Interest on Securities 141,366 147,788
Interest on Other Short-Term Investments 1,896 3,612
- -----------------------------------------------------------------------------------------------------
Total Interest Income 496,278 506,744
- -----------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on Deposits
Interest Checking 14,973 15,791
Savings and Money Market 32,145 39,456
Time Deposits 99,697 122,895
- -----------------------------------------------------------------------------------------------------
Total Interest on Deposits 146,815 178,142
Interest on Federal Funds Borrowed 31,127 27,208
Interest on Short-Term Bank Notes 6,423 12,466
Interest on Other Short-Term Borrowings 20,979 22,140
Interest on Long-Term Debt and Notes 20,740 23,934
- -----------------------------------------------------------------------------------------------------
Total Interest Expense 226,084 263,890
- -----------------------------------------------------------------------------------------------------
NET INTEREST INCOME 270,194 242,854
Provision for Credit Losses 23,360 22,828
- -----------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 246,834 220,026
OTHER OPERATING INCOME
Investment Advisory Income 39,384 27,815
Service Charges on Deposits 31,545 28,516
Data Processing Income 37,668 29,830
Other Service Charges and Fees 65,110 49,804
Securities Gains 1,259 4,155
- -----------------------------------------------------------------------------------------------------
Total Other Operating Income 174,966 140,120
- -----------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Salaries, Wages and Incentives 75,585 66,876
Employee Benefits 17,694 17,594
Equipment Expenses 8,770 7,498
Net Occupancy Expenses 13,131 12,058
Other Operating Expenses 77,620 69,257
- -----------------------------------------------------------------------------------------------------
Total Operating Expenses 192,800 173,283
- -----------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 229,000 186,863
Applicable Income Taxes 78,553 62,632
- -----------------------------------------------------------------------------------------------------
NET INCOME (b) $ 150,447 124,231
=====================================================================================================
Per Share (a):
Earnings $ 0.56 0.47
Diluted Earnings $ 0.55 0.46
Cash Dividends $ 0.20 0.17
=====================================================================================================
Average Shares (000's) (a):
Outstanding 267,149 262,738
Diluted 272,823 268,073
=====================================================================================================
(a) and (b) are described on Page 6.
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE> 5
<TABLE>
<CAPTION>
FIFTH THIRD BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
============================================================================================================================
THREE MONTHS ENDED
MARCH 31,
------------------------------------
($000'S) 1999 1998
============================================================================================================================
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $150,447 124,231
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses 23,360 22,828
Depreciation, Amortization and Accretion 22,215 22,170
Provision for Deferred Income Taxes 11,200 4,328
Realized Securities Gains (1,274) (4,466)
Realized Securities Losses 15 311
Proceeds from Sales of Residential Mortgage Loans Held for Sale 822,457 354,022
Net Gains on Sales of Loans (13,929) (5,316)
Increase in Residential Mortgage Loans Held for Sale (721,259) (714,618)
Decrease (Increase) in Accrued Income Receivable 13,320 (5,563)
Decrease (Increase) in Other Assets 206,913 (116,846)
Increase in Accrued Taxes, Interest and Expenses 84,953 43,020
Increase (Decrease) in Other Liabilities (30,616) 15,052
============================================================================================================================
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 567,802 (260,847)
============================================================================================================================
INVESTING ACTIVITIES
Proceeds from Sales of Securities Available for Sale 158,659 136,107
Proceeds from Calls, Paydowns and Maturities of Securities Available for Sale 808,679 551,767
Purchases of Securities Available for Sale (1,774,450) (1,166,683)
Proceeds from Calls, Paydowns and Maturities of Securities Held to Maturity 5,589 257,222
Purchases of Securities Held to Maturity (5,606) (20,123)
Decrease (Increase) in Other Short-Term Investments 23,459 (36,682)
Increase in Loans and Leases (405,341) (834,773)
Purchases of Bank Premises and Equipment (14,064) (18,241)
Proceeds from Disposal of Bank Premises and Equipment 4,645 317
============================================================================================================================
NET CASH USED IN INVESTING ACTIVITIES (1,198,430) (1,131,089)
============================================================================================================================
FINANCING ACTIVITIES
Increase (Decrease) in Core Deposits (638,113) 32,003
Increase (Decrease) in CDs - $100,000 and Over, including Foreign 719,463 (302,331)
Increase in Federal Funds Borrowed 197,276 1,122,789
Increase in Short-Term Bank Notes 600,000 67,000
Increase in Other Short-Term Borrowings 203,166 35,086
Proceeds from Issuance of Long-Term Debt and Notes - 558,223
Repayment of Long-Term Debt (499,833) (132,842)
Payment of Cash Dividends (52,964) (35,685)
Exercise of Stock Options 6,208 4,342
Other 1,873 567
============================================================================================================================
NET CASH PROVIDED BY FINANCING ACTIVITIES 537,076 1,349,152
============================================================================================================================
DECREASE IN CASH AND DUE FROM BANKS (93,552) (42,784)
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 819,862 777,378
============================================================================================================================
CASH AND DUE FROM BANKS AT END OF PERIOD $726,310 734,594
============================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE> 6
FIFTH THIRD BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
=========================================================================================================
THREE MONTHS ENDED MARCH 31,
-----------------------------
($000'S) 1999 1998
=========================================================================================================
<S> <C> <C>
BALANCE AT DECEMBER 31 $ 3,178,522 2,762,836
Net Income 150,447 124,231
Nonowner Changes in Equity, Net of Tax:
Change in Unrealized Gains on Securities Available for Sale (4,760) (11,472)
=========================================================================================================
Net Income and Nonowner Changes in Equity 145,687 112,759
Cash Dividends Declared (1999 - $.20 per share
and 1998 - $.17 per share) (a) (53,475) (41,131)
Earnings Adjustment of Pooled Entity (b) - (7,803)
Stock Options Exercised
Including Treasury Shares Issued 6,208 4,342
Other 1,945 1,175
=========================================================================================================
BALANCE AT MARCH 31 $ 3,278,887 2,832,178
=========================================================================================================
</TABLE>
(a) Cash dividends per common share for the 1998 period are those of Fifth
Third Bancorp declared prior to the second quarter 1998 mergers with
CitFed Bancorp, Inc. and State Savings Company.
(b) The restatement of the CitFed Bancorp, Inc. merger was accomplished by
combining CitFed's March 31, 1998 fiscal year financial information
with the Bancorp's December 31, 1997 calendar year financial
information. In 1998, CitFed's fiscal year was conformed to the
Bancorp's calendar year. As a result of conforming fiscal periods, the
Bancorp's consolidated statements of income for the fourth quarter of
1997 and the first quarter of 1998 include CitFed's net income for the
three months ended March 31, 1998 of $7,803. An adjustment to
shareholders' equity removes the effect of including CitFed's financial
results in both periods.
See Notes to Consolidated Financial Statements
6
<PAGE> 7
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------
1. In the opinion of management, the unaudited Consolidated Financial
Statements include all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the consolidated financial
position as of March 31, 1999 and 1998, the results of operations, and
the statements of cash flows for the three months ended March 31, 1999
and 1998. In accordance with generally accepted accounting principles
for interim financial information, these statements do not include
certain information and footnote disclosures required by generally
accepted accounting principles for complete annual financial
statements. Financial information as of December 31, 1998 has been
derived from the audited Consolidated Financial Statements of Fifth
Third Bancorp (the "Registrant"). The results of operations and the
statements of cash flows for the three months ended March 31, 1999 and
1998 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, 1998, included in the Registrant's Annual Report on Form 10-K.
2. Financial data for the period ended March 31, 1998 has been restated to
reflect the second quarter 1998 mergers with CitFed Bancorp, Inc., a
publicly-traded savings and loan holding company with $3.1 billion in
assets, and State Savings Company, a privately-owned thrift holding
company with $2.7 billion in assets. Both transactions were tax-free,
stock-for-stock exchanges accounted for as poolings-of-interests. The
Registrant exchanged 13,222,869 and 16,625,271 shares of the
Registrant's common stock for all outstanding shares of CitFed Bancorp,
Inc. and State Savings Company, respectively. The contributions of
CitFed Bancorp, Inc. and State Savings Company to consolidated net
interest income, other operating income and net income for the three
month period ended March 31, 1998, prior to the mergers were as follows
($000's):
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1998
=================================================================================
NET INTEREST INCOME
=================================================================================
<S> <C>
Fifth Third Bancorp $ 197,900
CitFed Bancorp, Inc. 19,614
State Savings Company 25,340
=================================================================================
Combined $ 242,854
=================================================================================
OTHER OPERATING INCOME
=================================================================================
Fifth Third Bancorp $ 126,381
CitFed Bancorp, Inc. 7,804
State Savings Company 5,935
=================================================================================
Combined $140,120
=================================================================================
NET INCOME
=================================================================================
Fifth Third Bancorp $ 108,981
CitFed Bancorp, Inc. 7,803
State Savings Company 7,447
=================================================================================
Combined $ 124,231
=================================================================================
</TABLE>
7
<PAGE> 8
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- ---------------------------------------------------------------
The combined consolidated results of operations are not necessarily
indicative of the results that would have occurred had the mergers been
consummated in the past or which may be attained in the future.
3. On April 16, 1999, the Registrant completed the acquisition of Ashland
Bankshares, Inc., which owns the Bank of Ashland. Ashland Bankshares,
Inc. is based in Ashland, Kentucky, with $168 million in assets and
deposits of $152 million at March 31, 1999. In connection with the
acquisition, the Registrant exchanged 1,224,860 shares of Fifth Third
common stock for all the outstanding shares of capital stock of Ashland
Bankshares, Inc.
4. On October 28, 1998, the Registrant agreed to acquire South Florida
Bank Holding Coroporation, a bank holding company based in Ft. Myers,
Florida, which owns South Florida Bank. As of March 31, 1999, South
Florida had total assets of $92.5 million and deposits of $78.8
million. The acquisition is expected to be completed in the second
quarter of 1999. In connection with this acquisition the Registrant
expects to issue aproximately 440,000 shares of Fifth Third common
stock to shareholders of South Florida.
5. On September 25, 1998, the Registrant agreed to acquire Enterprise
Federal Bancorp, Inc., a savings and loan holding company based in
West Chester, Ohio. As of March 31, 1999, Enterprise Federal Bancorp,
Inc. had total assets of $539 million and total deposits of $323
million. The acquisition is expected to be completed in the second
quarter of 1999. In connection with this acquisition the Registrant
expects to issue aproximately 1,640,000 shares of Fifth Third common
stock to shareholders of Enterprise Federal Bancorp, Inc.
6. On February 27, 1999, the Registrant agreed to acquire Emerald
Financial Corp., a savings and loan holding company based in
Strongsville, Ohio. At March 31, 1999, Emerald had total assets of
$677.1 million and total deposits of $562.4 million. The acquisition is
expected to be completed in the third quarter of 1999. In connection
with this acquisition the Registrant expects to issue aproximately
3,430,000 shares of Fifth Third common stock to shareholders of Emerald
Financial Corp.
7. On June 12, 1998, the Registrant acquired The Ohio Company, a
full-service broker-dealer for retail and institutional clients
headquartered in Columbus, Ohio. On April 9, 1998, the Registrant
acquired W. Lyman Case & Company, a commercial mortgage banking firm
based in Columbus, Ohio, which originated more than $680 million in
financing and equity transactions in 1998 and has a loan servicing
portfolio of $2 billion. In connection with The Ohio Company
acquisition, the Registrant exchanged 1,862,765 shares of the Fifth
Third common stock for all of the outstanding shares of capital stock
of The Ohio Company. The acquisitions were accounted for as purchases
and the financial results of The Ohio Company and W. Lyman Case &
Company, are included in the results of operations subsequent to the
date of acquisition. The proforma effects of the transactions were not
material to the Registrant's financial condition and operating results
for the periods presented.
8
<PAGE> 9
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- ---------------------------------------------------------------
8. In the first three months of 1999, the Registrant paid $228,895,460 in
interest and $6,250,000 in Federal income taxes. For the same period
last year the Registrant paid $197,239,000 in interest and no Federal
income taxes. The Registrant had non cash investing activities
consisting of the securitization of residential mortgages of
$123,300,000 in the first quarter of 1999 and $82,604,000 for the same
period last year.
9. Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities,"
establishes accounting and reporting standards for derivative
instruments and hedging activities and requires recognition of all
derivatives as either assets or liabilities measured at fair value. The
accounting for changes in the fair value of a derivative depends on the
intended use of the derivative and the resulting designation. The
statement is required for the year 2000. The adoption of SFAS No. 133
is not expected to have a material effect on the Consolidated Financial
Statements of the Registrant.
10. In 1998, The Registrant adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which requires
financial disclosure and descriptive information about reportable
operating segments, based on how chief decision makers manage the
business. The Registrant's principal segments include retail banking,
commercial banking, investment advisory 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. Investment advisory services
provides a full range of investment alternatives for individuals,
companies and not-for-profit organizations. Data processing, through
Midwest Payement Systems (MPS), provides electronic funds transfer
(EFT) services, merchant transaction processing, operates the
Registrant's Jeanie ATM network and provides other data processing
services to affliliated and unaffiliated customers. General corporate
and other includes the investment portfolio, certain non-deposit
funding, unassigned equity, the net effect of funds transfer
pricing and other items not allocated to operating segments.
of operations and selected financial information by operating
segement for the three months ended March 31, 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
INVESTMENT GENERAL
COMMERCIAL RETAIL ADVISORY DATA ACQUIRED CORPORATE
($000'S) BANKING BANKING SERVICES PROCESSING (a) ENTITIES AND OTHER ELIMINATIONS (a) TOTAL
===================================================================================================================================
MARCH 31, 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Revenues $113,505 $ 239,638 $50,111 $40,121 $ - $ 3,729 $(3,203) $ 443,901
===================================================================================================================================
Net Income $ 47,284 $ 81,021 $15,617 $11,753 $ - $(5,228) $ - $ 150,447
===================================================================================================================================
MARCH 31, 1998
Total Revenues $ 85,146 $ 162,390 $34,127 $32,538 $ 58,751 $ 8,754 $(2,887) $ 378,819
===================================================================================================================================
Net Income $ 35,225 $ 52,487 $11,831 $8 ,970 $ 15,250 $ 468 $ - $ 124,231
===================================================================================================================================
</TABLE>
(a) - Data Processing services revenues provided to the banking segments by MPS
are eliminated in the Consolidated Statements of Income.
There were no material changes in the identifiable assets that were
disclosed in the Registrant's December 31, 1998 Annual Report on Form
10-K.
9
<PAGE> 10
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- ---------------------------------------------------------------
11. On March 17, 1998, the Registrant's board of directors approved a
three-for-two stock split. The additional shares resulting from the
split were distributed on April 15, 1998 to shareholders 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.
12. 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
Statements of Changes in Shareholders' Equity on page 6. The caption
"Net Income and Nonowner Changes in Equity," represents total
comprehensive income as 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, 1999 and 1998 are provided below ($000's).
<TABLE>
<CAPTION>
1999 1998
====================================================================================================
Reclassification Adjustments, Before Tax
====================================================================================================
<S> <C> <C>
Change in Unrealized Gains Arising During Period $ (8,581) (21,804)
Reclassification Adjustment for Gains Included in Net Income 1,259 4,155
====================================================================================================
Net Unrealized Gains on Securities Available for Sale $ (7,322) (17,649)
====================================================================================================
Related Tax Effects
====================================================================================================
Change in Unrealized Gains Arising During Period $ (3,003) (7,631)
Reclassification Adjustment for Gains Included in Net Income 441 1,454
====================================================================================================
Net Unrealized Gains on Securities Available for Sale $ (2,562) (6,177)
====================================================================================================
Reclassification Adjustments, Net of Tax
====================================================================================================
Change in Unrealized Gains Arising During Period $ (5,578) (14,173)
Reclassification Adjustment for Gains Included in Net Income 818 2,701
====================================================================================================
Net Unrealized Gains on Securities Available for Sale $ (4,760) (11,472)
====================================================================================================
Accumulated Nonowner Changes in Equity
====================================================================================================
Beginning Balance-Unrealized Holding Gains on Securities Available for Sale $ 82,448 98,254
Current Period Change (4,760) (11,472)
====================================================================================================
Ending Balance-Unrealized Holding Gains on Securities Available for Sale $ 77,688 86,782
====================================================================================================
</TABLE>
13. Reconciliation of Earnings Per Share to Diluted Earnings Per Share
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999 1998
=========================================================================================================================
AVERAGE PER-SHARE AVERAGE PER-SHARE
($000's) INCOME SHARES AMOUNT INCOME SHARES AMOUNT
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
EPS
Income available to
Common shareholders $ 150,447 267,149 $ 0.56 $124,231 262,738 $ 0.47
EFFECT OF DILUTIVE SECURITIES
Stock Options 5,674 5,335
- -------------------------------------------------------------------------------------------------------------------------
DILUTED EPS
Income available to
Common shareholders
plus assumed conversions $ 150,447 272,823 $ 0.55 $124,231 268,073 $ 0.46
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
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.
This report includes forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended 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, changes
in the banking industry including the effects of consolidation resulting from
possible mergers of financial institutions, acquisitions and integration of
acquired businesses. The Registrant undertakes no obligation to release
revisions to these forward-looking statements or reflect events or circumstances
after the date of this report.
RESULTS OF OPERATIONS
Net income was $150.4 million for the first three months of 1998, up 21.1
percent, compared to $124.2 million for the same period last year. Diluted
earnings per share was $.55 for the first quarter, a 20 percent increase over
last year's $.46.
Total assets were $29.7 billion at current quarter end, compared to 1998's
quarter end assets of $29 billion. Return on average equity was 19.3 percent and
return on average assets was 2.08 percent for the first quarter compared to 18.6
percent and 1.78 percent, respectively, for the same period last year.
Net interest income on a fully taxable equivalent basis for the first quarter of
1999 was $284.2 million, an 11.6 percent increase over $254.7 million for the
same 1998 period. This increase resulted primarily from improved earning-asset
and deposits, earning-asset growth and a 36 basis point (bp) interest margin
improvement.
The net provision for credit losses was $23.4 million in the 1999 first quarter
compared to $22.8 million in the first quarter in 1998. Net charge offs were .44
percent of average loans and leases compared to .55 percent for the same period
last year. The net charge-off ratio remains near the Registrant's historical
10-year average of .50 percent.
Nonperforming assets as a percentage of total loans, leases and other real
estate owned was .25 percent at March 31, 1999, down from .52 percent at March
31, 1998. The reserve for credit losses as a percentage of total loans and
leases was 1.50 percent at March 31, 1999 compared to 1.45 percent one year
earlier.
Total other operating income, excluding securities gains, for the 1999 first
quarter increased 28 percent to $173.7 million compared to the first quarter of
1998. Investment advisory income improved 42 percent, due to a larger customer
base and higher fees primarily attributable to more assets under
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS (CONTINUED)
- -------------------------
management. Mortgage banking revenue, commercial banking income and cardholder
fees contributed to the 31 percent improvement in service charges and other
fees. Increased EFT and merchant processing volume coupled with higher
transaction volume from expanded debit and ATM card usage provided a 26 percent
increase in data processing income.
The overhead ratio (operating expenses divided by the sum of taxable equivalent
net interest income and other operating income) for the quarter was 42 percent,
down from 43.9 percent for the first quarter of 1998. Total operating expenses
were up 11 percent from 1998's first quarter. Salaries, wages and benefits
increased approximately 10 percent as acquisitions synergies were partially
offset by more variable compensation for increased sales production. Equipment
expense increased 17 percent due to technology investments to improve efficiency
and Year 2000 readiness. Volume-driven expenses of the Registrant's processing
and fee businesses principally contributed to the 12 percent increase in other
operating expenses.
Financial data for the 1998 first quarter has been restated to reflect the
second quarter 1998 mergers with Citfed Bancorp, Inc. and State Savings Company.
Both mergers were accounted for as pooling-of-interests.
FINANCIAL CONDITION
The Registrant's balance sheet remains strong with high-quality assets and solid
capital levels. Net interest margin was 4.23 percent in the first quarter, up
from 4.08 percent last quarter and 3.87 percent in the first quarter a year ago.
The improvement in the net interest margin is primarily due to lower funding
costs coupled with deposit growth and a better deposit mix. Interest earning
assets increased to $27.8 million, up 2.5 percent compared to $27.2 million from
the similar period last year. Successful sales campaigns at branch location
generated direct loan originations of $454 million, an increase over the $449
million in the last quarter and $361 million of the 1998 first quarter.
Residential mortgage originations were $1.1 billion this quarter down from the
$1.2 billion reported during last quarter and $1.6 for the 1998 first quarter.
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, 1999, shareholders' equity was $3.279 billion, compared to $2.832
billion at March 31, 1998, an increase of $447 million, or 15.8 percent.
Shareholders' equity as a percentage of total assets as of March 31, 1999 was
11.1 percent and 9.8 percent as of March 31, 1998. The Federal Reserve Board has
adopted risk-based capital guidelines, which assign risk weightings to assets
and off-balance
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS (CONTINUED)
- -------------------------
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, 1999. At March 31, 1999, the Registrant had a Tier 1 risk-based capital
ratio of 12.24 percent, a total risk-based capital ratio of 14.33 percent and a
leverage ratio of 10.37 percent. At March 31, 1998, the Registrant had a Tier 1
risk-based capital ratio of 10.81 percent, a total risk-based capital ratio of
13.02 percent and a leverage ratio of 9.4 percent.
YEAR 2000
As with other companies, the Registrant's computer programs were originally
designed to recognize calendar years by their last two digits. Calculations
performed using these truncated fields may not work properly with dates from the
Year 2000 ("Y2K") and beyond. The Registrant began planning its Y2K conversion
early in 1996 and formed a project committee that meets biweekly to review the
status of the conversion. The Registrant's project includes both internal and
external reviews. The Registrant's internal efforts address information
technology systems and computer chip embedded functions such as vaults,
elevators, security systems, building heating and cooling and other operating
facilities. External efforts address critical business partners including
customers, vendors, service suppliers, and utilities. The Registrants efforts
are being conducted in accordance with the Federal Financial Institutions
Examinations Council (FFIEC) guidelines. The project management process as
required by the FFIEC involves phases and facilitates the categorization of
systems according to lost revenues or liability that would be incurred if the
system failed. Senior management oversees the project and regularly reports to
the Board of Directors. The Registrant identified critical systems as those
where failure would result in at least $50,000 in losses per day or $1.5 million
of total exposure. All five phases of the FFIEC have been completed with respect
to critical systems and substantially completed for the remaining internal
systems. During 1999, the Registrant will conduct additional internal
integration testing and interface testing with critical business partners.
Although this testing is not required, the Registrant is taking steps to ensure
its efforts are successful in addressing Y2K problems.
Because internal staff is largely completing the Y2K compliance effort, the
Registrant does not expect to incur any significant costs with outside
contractors relative to the completion of this task. The Registrant anticipates
a total compliance cost of under $10 million; however, no material incremental
costs are projected to be incurred. All, but an immaterial amount, of these
costs are internal costs related to the lost opportunity of allocating time of
the internal staff elsewhere. The estimated cost includes all software,
hardware, and labor costs. The Registrant presently believes that with the
planned modifications to existing systems and conversion to new systems, the Y2K
compliance issues will be resolved on a timely basis, and that any related costs
will not have a material impact on the operations, cash flows, or financial
condition of future periods.
The risks associated with the Registrant's Y2K compliance relate primarily to
its relationship with critical business partners, which include customers,
vendors, service suppliers, and utilities and their
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS (CONTINUED)
- -------------------------
ability to effectively address their own Y2K issues. Major risks associated with
the Y2K issue as it applies to external parties include a shut down of voice and
data communication systems due to failure by systems, satellites or telephone
companies; excessive cash withdrawal activities; ATM failures; cash courier
delays or non-availability; problems with international accounts or offices,
including inaccurate or delayed information or inaccessibility to data; and
government facilities or utility companies not opening or operating. Each
division within the Registrant has initiated projects to assess the Y2K
preparedness of individual customers and material relationships and the impact
on the Registrant in accordance with FFIEC guidelines. Contingency plans for
critical business partners are being developed as their Y2K plans and procedures
are analyzed. The Federal Reserve, which is the Registrant's primary bank
regulator, includes a review of the risk assessments and contingency plans in
its quarterly examinations of the Registrant's Y2K preparedness.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 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 2.22 percent over one
year and increase by 3.57 percent over two years. A 200 basis point immediate,
sustained downward shock in the yield curve would increase net interest income
by an estimated .86 percent over one year and decrease net interest income by an
estimated 4.53 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.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSON OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
On March 16, 1999, the Registrant held its Annual Meeting of Stockholders for
which the Board of Directors solicited proxies. At the Annual Meeting, the
shareholders adopted all of the proposals stated in the Proxy Statement dated
February 9, 1999, which is incorporated herein by reference. The proposals voted
on and approved by the shareholders are as follows:
1. The election of six Class I Directors (Thomas B. Donnell, Joan R.
Herschede, William G. Kagler, James D. Kiggen, David E. Reese, Dennnis
J. Sullivan, Jr.) to serve until the Annual Meeting of Stockholders in
2002.
2. Approval of the proposal to amend Article Fourth of the Amended
Articles of Incorporation to increase the authorized number of shares
of Common Stock, without par value, from 300,000,000 shares to
500,000,000 by a vote of 225,376,485 for, 3,127,314 against, and
1,031,201 withheld.
14
<PAGE> 15
ITEM 4. SUBMISSON OF MATTERS TO A VOTE OF SECURITY HOLDERS (CONTINUED)
- ------------------------------------------------------------------------
3. Approval of the proposal to appoint the firm Deloitte & Touche LLP to serve
as independent auditors for the Registrant for the year 1999 by a vote of
228,244,491 For, 623,193 against, and 667,317 withheld.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
(a) List of Exhibits
(3) (i) -Second Amended Articles of Incorporation. As Amended.
(27) -Financial Data Schedule for the Three Months Ended March 31,
1999
(b) Reports on Form 8-K
None
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, 1999 /s/ Neal E. Arnold
------------------
Neal E. Arnold
Executive Vice President and
Chief Financial Officer
15
<PAGE> 1
EXHIBIT 3i
SECOND AMENDED ARTICLES OF INCORPORATION
OF
FIFTH THIRD BANCORP, AS AMENDED
FIRST: The name of the corporation shall be FIFTH THIRD BANCORP.
SECOND: The place in the State of Ohio where the principal office of the
corporation is to be located is the City of Cincinnati, County of Hamilton.
THIRD: The purpose for which the corporation is formed is to engage in any
and/or all lawful acts or activities for which corporations may be formed under
Section 1701.01 to 1701.98, inclusive, of the Ohio Revised Code, as amended.
FOURTH: (A) The total authorized number of shares of the corporation is Five
Hundred Million, Five Hundred Thousand (500,500,000) shares, which shall be
classified as follows:
1) Five Hundred Million (500,000,000) shares of
common stock, without par value. Each share of common stock shall entitle the
holder thereof to one (1) vote on each matter properly submitted to the
stockholders for their vote, consent, waiver, release or other action, subject
to the provisions of the law with respect to cumulative voting.
2) Five Hundred Thousand (500,000) shares of
preferred stock, without par value.
(a) Each share of the preferred stock shall
entitle the holder thereof to no voting rights, except as otherwise required by
law.
(b) The dividend rights of the preferred
stock shall be non-cumulative, except as otherwise provided by the Board of
Directors.
(c) The Board of Directors shall have the
right to adopt amendments to these Articles of Incorporation in respect of any
unissued or treasury shares of the preferred stock and thereby fix or change:
the division of such shares into series and the designation and authorized
number of shares of each series; the dividend rate; whether dividend rights
shall be cumulative or non-cumulative; the dates of payment of dividends and the
dates from which they are cumulative; liquidation price; redemption rights and
price; sinking fund requirements, conversion rights; and restrictions on the
issuance of such shares or any series thereof; provided however, except for the
foregoing variations which the Board of Directors are authorized to fix or
change, all of the express terms of different series of such shares be
identical.
Upon the adoption of any amendment pursuant to the foregoing authority,
a certificate signed by the president or a vice president and by a secretary or
an assistant secretary, containing a copy of the resolutions adopting the
amendment and a statement of the manner and basis of its adoption, shall be
filed in the office of the Secretary of State of the State of Ohio, accompanied
by the fees then required by law, before the corporation shall have the right to
issue any such shares.
<PAGE> 2
(B) The Board of Directors may, from time to time, determine
the time when, the terms under which, and the considerations for which the
corporation issues, disposes of, or receives subscriptions for its shares of any
class or series thereof, including treasury shares. Payment for shares shall be
made with money or other property of any description, or any interest therein,
actually transferred to the corporation, or labor or services actually rendered
to the corporation.
FIFTH: The corporation, by its Board of Directors, may, subject to these
Articles of Incorporation, purchase, repurchase, redeem or otherwise acquire the
shares of any class issued by it, at such times and on such terms as they shall
determine to be in the best interests of the corporation. All shares of the
corporation purchased, redeemed or otherwise acquired, unless the Board of
Directors or the laws of the State of Ohio specifically provide otherwise, shall
be held as treasury shares. Provided, however, that this Article Fifth shall not
create authority in the Board of Directors to cause an involuntary redemption of
the shares of the common stock.
SIXTH: The Board of Directors shall have the right, to the extent permitted by
law: (i) to fix, determine and vary the amount of stated capital of the
corporation; (ii) to determine whether any, and if any, what part of the surplus
of the corporation, however created or arising, shall be used, disposed of or
declared in dividends or paid to the stockholders; and (iii) without action by
the stockholder, to use and apply the surplus of the corporation, or any part
thereof, at any time or from time to time, in the purchase or acquisition of
shares of any class, voting trust certificates for shares, bonds, debentures,
notes, script, warrants, obligations, evidences of indebtedness, or other
securities of the corporation, to such extent of in such amount, in such manner
and upon such terms as the Board of Directors shall determine expedient.
SEVENTH: No holder of any share or shares of any class issued by the corporation
shall be entitled as such, as a matter of right, at any time, to subscribe for
or purchase (i) shares of any class issued by the corporation, now or hereafter
authorized, (ii) securities of the corporation convertible into or exchangeable
for shares of any class issued by the corporation, now or hereafter authorized,
or (iii) securities of the corporation to which shall be attached or appertain
any rights or options, whether by the terms of such securities or in the
contracts, warrants or other instruments (whether transferable or
non-transferable or separable or inseparable from such securities) evidencing
such rights or options, entitling the holders thereof to subscribe for or
purchase shares of any class issued by the corporation, now or hereafter
authorized; it being the intent and is the effect of this Article Seventh to
fully eliminate any and all pre-emptive rights with respect to the shares of any
class issued by the corporation, now or hereafter authorized.
EIGHTH: These Amended Articles of Incorporation supersede and take the place of
the existing Amended Articles of Incorporation.
<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
NINE MONTHS ENDED MARCH 31, 1999, 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 726,310
<INT-BEARING-DEPOSITS> 79,376
<FED-FUNDS-SOLD> 15,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,235,845
<INVESTMENTS-CARRYING> 86,030
<INVESTMENTS-MARKET> 85,839
<LOANS> 18,041,547
<ALLOWANCE> 270,703
<TOTAL-ASSETS> 29,652,198
<DEPOSITS> 18,861,705
<SHORT-TERM> 4,694,369
<LIABILITIES-OTHER> 1,028,919
<LONG-TERM> 1,788,318
0
0
<COMMON> 593,571
<OTHER-SE> 2,685,316
<TOTAL-LIABILITIES-AND-EQUITY> 29,652,198
<INTEREST-LOAN> 353,016
<INTEREST-INVEST> 141,366
<INTEREST-OTHER> 1,896
<INTEREST-TOTAL> 496,278
<INTEREST-DEPOSIT> 146,815
<INTEREST-EXPENSE> 226,084
<INTEREST-INCOME-NET> 270,194
<LOAN-LOSSES> 23,360
<SECURITIES-GAINS> 1,259
<EXPENSE-OTHER> 192,800
<INCOME-PRETAX> 229,000
<INCOME-PRE-EXTRAORDINARY> 150,447
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 150,447
<EPS-PRIMARY> .56
<EPS-DILUTED> .55
<YIELD-ACTUAL> 4.23
<LOANS-NON> 35,084
<LOANS-PAST> 83,150
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 266,860
<CHARGE-OFFS> 26,460
<RECOVERIES> 7,002
<ALLOWANCE-CLOSE> 270,703
<ALLOWANCE-DOMESTIC> 270,703
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
