<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 September 30, 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 305,321,874 shares of the Registrant's Common Stock, without par
value, outstanding as of October 31, 1999.
<PAGE> 2
FIFTH THIRD BANCORP
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1999 and 1998 and December 31, 1998 3
Consolidated Statements of Income -
Three and Nine Months Ended September 30, 1999 and 1998 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1999 and 1998 5
Consolidated Statements of Changes in Shareholders' Equity -
Nine Months Ended September 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7 - 12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13 - 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
Part II. Other Information 20
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
FIFTH THIRD BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, December 31, September 30,
($000'S) 1999 1998 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
- ------------------------------------------------------------------------------------------------------------------------
Cash and Due from Banks $ 716,591 $ 820,716 $ 749,403
Securities Available for Sale (a) 9,985,754 8,464,697 8,559,241
Securities Held to Maturity (b) 91,189 86,013 85,175
Other Short-Term Investments 354,198 126,048 143,851
Loans Held for Sale 117,982 492,017 367,355
Loans and Leases
Commercial Loans 5,261,495 4,822,992 4,682,028
Construction Loans 715,862 586,116 556,906
Commercial Mortgage Loans 1,485,076 1,214,329 1,219,803
Commercial Lease Financing 1,978,367 1,739,316 1,650,675
Residential Mortgage Loans 4,596,824 4,469,469 4,603,837
Consumer Loans 3,936,522 3,358,336 3,262,111
Consumer Lease Financing 3,386,144 2,530,535 2,386,936
Unearned Income (834,081) (690,342) (669,317)
Reserve for Credit Losses (303,416) (267,666) (262,341)
- ------------------------------------------------------------------------------------------------------------------------
Total Loans and Leases 20,222,793 17,763,085 17,430,638
Bank Premises and Equipment 345,274 334,867 328,283
Accrued Income Receivable 259,591 284,298 272,009
Other Assets 1,144,305 946,559 803,758
- ------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 33,237,677 $ 29,318,300 $ 28,739,713
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------------------------------------------
Deposits
Demand $ 3,246,117 $ 3,196,448 $ 2,879,293
Interest Checking 3,216,060 3,170,731 2,811,776
Savings and Money Market 4,551,127 4,466,576 4,394,455
Time Deposits 8,525,025 8,152,429 8,756,523
- ------------------------------------------------------------------------------------------------------------------------
Total Deposits 19,538,329 18,986,184 18,842,047
Federal Funds Borrowed 3,306,603 2,038,541 2,023,793
Short-Term Bank Notes 467,000 - 60,000
Other Short-Term Borrowings 3,674,709 1,655,386 1,730,674
Accrued Taxes, Interest and Expenses 774,721 712,535 757,587
Other Liabilities 413,233 271,521 186,679
Long-Term Debt 1,657,822 2,438,151 1,992,663
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 29,832,417 26,102,318 25,593,443
- ------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY ( c )
- ------------------------------------------------------------------------------------------------------------------------
Common Stock 610,345 596,281 595,850
Capital Surplus 536,804 513,313 483,121
Retained Earnings 2,401,195 2,081,520 2,020,766
Unrealized Gains (Losses) on
Securities Available for Sale (138,093) 82,827 117,803
Non-Officer Employee Stock Grant (4,991) - -
Treasury Stock - (57,959) (71,270)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 3,405,260 3,215,982 3,146,270
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 33,237,677 $ 29,318,300 $ 28,739,713
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Amortized cost: September 30, 1999 - $10,198,311, December 31, 1998 -
$8,337,530 and September 30, 1998 - $8,378,25.
(b) Market value: September 30, 1999 - $90,972, December 31, 1998 - $86,013 and
September 30, 1998 - $85,170.
(c) Preferred stock no par value; 500,000 shares authorized; none issued.
Common stock stated value $2.22 per share; authorized 500,000,000;
outstanding September 30, 1999 - 274,930,084, December 31, 1998 -
268,595,140 (excludes 922,028 treasury shares) and September 30, 1998 -
268,400,854 (excludes 1,116,365 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>
FIFTH THIRD BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED Nine Months Ended
SEPTEMBER 30, September 30,
-----------------------------------------------------------------
($000'S) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans and Leases $ 392,692 $ 371,737 $ 1,122,008 $ 1,105,621
Interest on Securities
Taxable 154,052 131,713 447,233 418,588
Exempt from Income Taxes 2,760 3,097 8,635 9,005
- ---------------------------------------------------------------------------------------------------------------------------
Total Interest on Securities 156,812 134,810 455,868 427,593
Interest on Other Short-Term Investments 2,987 2,574 5,774 7,828
- ---------------------------------------------------------------------------------------------------------------------------
Total Interest Income 552,491 509,121 1,583,650 1,541,042
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on Deposits
Interest Checking 18,238 18,074 50,655 50,720
Savings and Money Market 34,915 37,271 100,479 116,380
Time Deposits 113,793 120,350 319,057 366,735
- ---------------------------------------------------------------------------------------------------------------------------
Total Interest on Deposits 166,946 175,695 470,191 533,835
Interest on Federal Funds Borrowed 51,386 30,800 121,493 89,891
Interest on Short-Term Bank Notes 3,001 3,219 16,651 25,746
Interest on Other Short-Term Borrowings 22,385 21,130 63,305 66,295
Interest on Long-Term Debt and Notes 23,616 25,531 72,075 76,073
- ---------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 267,334 256,375 743,715 791,840
- ---------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 285,157 252,746 839,935 749,202
Provision for Credit Losses 23,233 15,279 77,944 82,971
- ---------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 261,924 237,467 761,991 666,231
OTHER OPERATING INCOME
Investment Advisory Income 43,114 38,489 124,821 97,453
Service Charges on Deposits 36,220 32,936 101,790 94,199
Data Processing Income 45,098 35,412 123,647 97,569
Other Service Charges and Fees 70,746 58,303 205,366 159,750
Securities Gains 1,965 2,236 3,662 7,207
- ---------------------------------------------------------------------------------------------------------------------------
Total Other Operating Income 197,143 167,376 559,286 456,178
OPERATING EXPENSES
Salaries, Wages and Incentives 81,376 76,065 242,321 214,520
Employee Benefits 13,390 15,053 49,551 42,349
Equipment Expenses 8,797 8,191 26,722 24,004
Net Occupancy Expenses 14,664 13,304 41,568 38,110
Other Operating Expenses 77,907 70,159 236,087 210,916
Merger-Related Charges - - - 89,701
- ---------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 196,134 182,772 596,249 619,600
- ---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 262,933 222,071 725,028 502,809
Applicable Income Taxes 89,429 77,282 248,047 174,835
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME (b) $ 173,504 $ 144,789 $ 476,981 $ 327,974
- ---------------------------------------------------------------------------------------------------------------------------
Per Share (a):
Basic Earnings $ 0.64 $ 0.54 $ 1.76 $ 1.23
Diluted Earnings $ 0.62 $ 0.53 $ 1.72 $ 1.21
Cash Dividends $ 0.24 $ 0.17 $ 0.64 $ 0.51
- ---------------------------------------------------------------------------------------------------------------------------
Average Shares (000's) (a):
Outstanding 273,445 268,327 270,796 266,227
Diluted 278,381 273,711 276,597 271,446
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE> 5
<TABLE>
<CAPTION>
FIFTH THIRD BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
($000's) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 476,981 $ 327,974
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses 77,944 82,971
Depreciation, Amortization and Accretion 61,296 60,287
Provision for Deferred Income Taxes 122,171 37,947
Realized Securities Gains (5,079) (9,321)
Realized Securities Losses 1,417 2,114
Proceeds from Sales of Residential Mortgage Loans Held for Sale 1,743,538 2,382,295
Net Gains on Sales of Loans (26,685) (24,022)
Increase in Residential Mortgage Loans Held for Sale (1,369,503) (2,444,211)
Decrease (Increase) in Accrued Income Receivable 24,707 (57,847)
Increase in Other Assets (219,845) (81,031)
Increase (Decrease) in Accrued Taxes, Interest and Expenses (60,391) 112,412
Increase (Decrease) in Other Liabilities 141,620 (27,615)
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 968,171 361,953
- ---------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from Sales of Securities Available for Sale 903,968 1,627,182
Proceeds from Calls, Paydowns and Maturities of Securities Available for Sale 1,964,079 1,745,668
Purchases of Securities Available for Sale (3,714,455) (2,644,878)
Proceeds from Calls, Paydowns and Maturities of Securities Held to Maturity 30,526 39,356
Purchases of Securities Held to Maturity (32,513) (52,058)
Decrease (Increase) in Other Short-Term Investments (223,355) 46,904
Increase in Loans and Leases (3,330,068) (1,200,693)
Purchases of Bank Premises and Equipment (51,246) (50,207)
Proceeds from Disposal of Bank Premises and Equipment 13,459 7,621
Net Cash Acquired (Paid) in Acquisitions 493 (15,000)
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (4,439,112) (496,105)
- ---------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase (Decrease) in Core Deposits 203,664 (426,634)
Increase in CDs - $100,000 and Over, including Foreign 343,615 53,417
Increase in Federal Funds Borrowed 1,268,062 770,240
Increase (Decrease) in Short-Term Bank Notes 467,000 (495,000)
Increase (Decrease) in Other Short-Term Borrowings 2,019,109 (136,704)
Proceeds from Issuance of Long-Term Debt and Notes 320,000 1,562,869
Repayment of Long-Term Debt (1,100,416) (1,148,889)
Payment of Cash Dividends (174,130) (124,143)
Exercise of Stock Options 20,800 19,573
Proceeds from Sale of Common Stock - 178,125
Purchases of Treasury Stock - (143,890)
Other (888) (3,598)
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,366,816 105,366
- ---------------------------------------------------------------------------------------------------------------------------
DECREASE IN CASH AND DUE FROM BANKS (104,125) (28,786)
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 820,716 778,189
- ---------------------------------------------------------------------------------------------------------------------------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 716,591 $ 749,403
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE> 6
<TABLE>
<CAPTION>
FIFTH THIRD BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------------
($000'S) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE AT DECEMBER 31 $ 3,215,982 $ 2,794,260
Net Income 476,981 327,974
Nonowner Changes in Equity, Net of Tax:
Change in Unrealized Gains on Securities Available for Sale (220,920) 19,498
- ---------------------------------------------------------------------------------------------------------------------------
Net Income and Nonowner Changes in Equity 256,061 347,472
Cash Dividends Declared (1999 - $.64 per share
and 1998 - $.34 per share) (a) (173,719) (133,326)
Shares Acquired for Treasury - (143,890)
Non-Officer Employee Stock Grant ( c ) (4,991) -
Earnings Adjustment of Pooled Entities (b) 548 (7,803)
Stock Options Exercised
Including Treasury Shares Issued 20,800 19,573
Fractional Shares Issued (44) -
Stock Issued in Public Offering - 178,125
Stock Issued in Acquisitions and Other 90,623 91,859
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30 $ 3,405,260 $ 3,146,270
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Cash dividends per common share for the 1999 period are those of Fifth
Third Bancorp declared prior to the second quarter 1999 merger with
Enterprise Federal Bancorp, Inc. ("Enterprise"). Cash dividends per common
share for the 1998 period are those of Fifth Third Bancorp declared prior
to the 1998 second quarter mergers with CitFed Bancorp, Inc. ("CitFed") and
State Savings Company.
(b) The restatement of the Enterprise merger was accomplished by combining
Enterprise's September 30, 1998 fiscal year-end financial information with
that of the Bancorp's December 31, 1998 calendar information. In 1999,
Enterprises' 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 1998 excludes Enterprise's net income
for the three months ended December 31, 1998 of $548. An adjustment to
shareholders' equity includes the effect of excluding Enterprise's
financial results for the three months ended December 31, 1998. The
restatement of the CitFed 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 statement 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.
(c) See Note 8 to the Consolidated Financial Statements.
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 September 30, 1999 and 1998, the results of operations
for the three and nine months ended September 30, 1999 and 1998, and
the statements of cash flows for the nine months ended September 30,
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
statements of cash flows for the three and nine months ended September
30, 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 all prior periods have been restated to reflect the
second quarter 1999 acquisition with Enterprise Federal Bancorp, Inc.
("Enterprise"), a publicly-traded savings and loan holding company
headquartered in West Chester, Ohio with $539 million in assets. The
acquisition was a tax-free, stock-for-stock exchange accounted for as a
pooling-of-interests. The Registrant exchanged 1,676,596 shares of
Fifth Third common stock with the shareholders of Enterprise. The
contribution of Enterprise to consolidated net interest income, other
operating income, and net income for the periods prior to the merger
was as follows:
<TABLE>
<CAPTION>
Three Months Three Months Nine Months
Ended Ended Ended
March 31, September 30, September 30,
($000's) 1999 1998 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Interest Income
- ---------------------------------------------------------------------------------------------------------
Fifth Third Bancorp $ 270,194 250,395 742,832
Enterprise Federal Bancorp, Inc. 2,542 2,351 6,370
- ---------------------------------------------------------------------------------------------------------
Combined $ 272,736 252,746 749,202
- ---------------------------------------------------------------------------------------------------------
Other Operating Income
- ---------------------------------------------------------------------------------------------------------
Fifth Third Bancorp $ 174,966 167,337 455,722
Enterprise Federal Bancorp, Inc. 57 39 456
- ---------------------------------------------------------------------------------------------------------
Combined $ 175,023 167,376 456,178
- ---------------------------------------------------------------------------------------------------------
Net Income
- ---------------------------------------------------------------------------------------------------------
Fifth Third Bancorp $ 150,447 144,073 326,064
Enterprise Federal Bancorp, Inc. (729) 716 1,910
- ---------------------------------------------------------------------------------------------------------
Combined $ 149,718 144,789 327,974
- ---------------------------------------------------------------------------------------------------------
</TABLE>
-7-
<PAGE> 8
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED):
3. PENDING BUSINESS COMBINATION:
On July 12, 1999, the Registrant agreed to acquire Peoples Bank
Corporation of Indianapolis ("Peoples") and its subsidiary, Peoples
Bank & Trust Company. As of September 30, 1999, Peoples had total
assets of $675 million and total deposits of $587 million. The merger
agreement provides that 1.09 shares of Fifth Third's common stock will
be exchanged for each share of Peoples' common stock on a tax-free
basis. The transaction is expected to close in November 1999. In
connection with this acquisition, the Registrant expects to exchange
approximately 3,850,000 shares of Fifth Third common stock with the
shareholders of Peoples.
4. COMPLETED BUSINESS COMBINATIONS:
On October 29, 1999, the Registrant completed the acquisition of CNB
Bancshares, Inc. ("CNB") a bank holding company based in Evansville,
Indiana which owns Civitas Bank. As of September 30, 1999, CNB had
total assets of $7.9 billion and deposits of $4.9 billion. In
connection with this acquisition, the Registrant exchanged
approximately 30.4 million shares of Fifth Third common stock with the
shareholders of CNB.
A summary of unaudited proforma financial information giving effect to
the CNB acquisition is shown below. The unaudited financial information
is not indicative of the results that would have been realized had the
entities been combined during these periods, nor is it indicative of
the actual results the combined companies will report in the future.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
For the Years Ended
($000' except for per share amounts) 1998 1997 1996
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Interest Income $ 1,233,612 $ 1,144,795 $ 1,058,265
Other Operating Income $ 742,928 $ 583,749 $ 487,593
Net Income $ 537,699 $ 520,732 $ 436,026
-----------------------------------------------------------------------------------------
Net Income, Per Share Diluted $ 1.77 $ 1.73 $ 1.43
-----------------------------------------------------------------------------------------
</TABLE>
The Registrant expects to incur $101 million and $18 million in pre-tax
merger-related costs during the fourth quarter of 1999 in connection
with the integration of the CNB and Peoples acquisitions, respectively.
The Registrant could incur additional pre-tax merger related costs up
to $23 million during the first quarter of 2000 in connection with the
CNB acquisition.
On August 6, 1999, the Registrant completed the acquisition of Emerald
Financial Corp., ("Emerald") a unitary saving and loan holding company
based in Strongsville, Ohio. At March 31, 1999, Emerald had total
assets of $677 million and total deposits of $562 million. In
connection with this acquisition, the Registrant exchanged 3,379,539
shares of Fifth Third common stock with the shareholders of Emerald.
On July 9, 1999, the Registrant acquired Vanguard Financial Co., a
privately-held commercial mortgage banking company headquarted in
Cincinnati, Ohio. The transaction was accounted for as a purchase.
-8-
<PAGE> 9
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED):
On June 11, 1999, the Registrant completed the acquisition of South
Florida Bank Holding Corporation ("South Florida"), a bank holding
company based in Ft. Myers, Florida, which owns South Florida Bank. At
March 31, 1999, South Florida had total assets of $93 million and
deposits of $79 million. In connection with this acquisition, the
Registrant exchanged 442,560 shares of Fifth Third common stock with
the shareholders of South Florida.
On April 16, 1999, the Registrant completed the acquisition of Ashland
Bankshares, Inc., ("Ashland") which owns the Bank of Ashland. Ashland
is based in Ashland, Kentucky, with $168 million of 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
with the shareholders of Ashland.
The Consolidated Financial Statements for the nine months ended
September 30, 1999 have not been restated to include the South Florida,
Emerald, and Ashland acquisitions, accounted for as
pooling-of-interests, due to immateriality.
5. For the nine months of 1999, the Registrant paid $751,276,000 in
interest and $82,750,000 in Federal income taxes. For the first nine
months of 1998, the Registrant paid $797,217,000 in interest and
$110,000,000 in Federal income taxes. During the first nine months of
1999 and 1998, the Registrant had noncash investing activities
consisting of the securitization of $819,101,000 and $942,600,000 of
residential mortgage loans, respectively.
6. In June 1998, the Financial Accounting Standards Board issued Statement
of Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", effective for all fiscal periods
beginning after June 15, 1999. In June 1999, the FASB issued Statement
No. 137 "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133",
to amend Statement No. 133 to be effective for all fiscal years
beginning after June 15, 2000. Statement No. 133 establishes accounting
and reporting standards for derivative instruments and hedging
activities. It requires recognition of all derivatives as either assets
or liabilities in the statement of financial condition and measurement
of those instruments at fair value. The adoption of Statement No. 133
is not expected to have a material effect on the Registrant's
consolidated statement of financial condition.
7. 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,
-9-
<PAGE> 10
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED):
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
provide a full range of investment alternatives for individuals,
companies, and not-for-profit organizations. Data processing, through
Midwest Payment Systems (MPS), provides electronic funds transfer (EFT)
services, merchant transaction processing, operates the Registrant's
Jeanie ATM network and provides other data processing services to
affiliated 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.
Total revenues exclude securities gains and losses. Results of
operations and selected financial information by operating segment for
the three and nine months ended September 30, 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED INVESTMENT GENERAL
SEPTEMBER 30, COMMERCIAL RETAIL ADVISORY DATA ACQUIRED CORPORATE
($000'S) BANKING BANKING SERVICES PROCESSING (a) ENTITIES AND OTHER ELIMINATIONS (a) TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
1999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Revenues $ 121,599 $ 252,875 $ 53,269 $ 48,732 $ - $ 7,941 $ (4,081) $ 480,335
- ------------------------------------------------------------------------------------------------------------------------------
Net Income $ 52,439 $ 87,680 $ 17,107 $ 15,590 $ - $ 688 $ - $ 173,504
- ------------------------------------------------------------------------------------------------------------------------------
1998
Total Revenues $ 96,795 $ 214,612 $ 46,239 $ 39,174 $ 2,390 $ 22,849 $ (4,173) $ 417,886
- ------------------------------------------------------------------------------------------------------------------------------
Net Income $ 29,445 $ 88,438 $ 11,791 $ 12,249 $ 747 $ 2,119 $ - $ 144,789
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED INVESTMENT GENERAL
SEPTEMBER 30, COMMERCIAL RETAIL ADVISORY DATA ACQUIRED CORPORATE
($000'S) BANKING BANKING SERVICES PROCESSING (a) ENTITIES AND OTHER ELIMINATIONS (a) TOTAL
- -----------------------------------------------------------------------------------------------------------------------------
1999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Revenues $ 359,852 $ 731,268 $ 157,213 $ 133,242 $ 4,158 $ 20,812 $(10,986) $1,395,559
- ------------------------------------------------------------------------------------------------------------------------------
Net Income $ 151,086 $ 244,919 $ 49,596 $ 41,799 $ (8,526) $ (1,893) $ - $ 476,981
- ------------------------------------------------------------------------------------------------------------------------------
1998
Total Revenues $ 274,648 $ 548,916 $ 118,585 $ 107,105 $ 99,561 $ 59,734 $(10,376) $1,198,173
- ------------------------------------------------------------------------------------------------------------------------------
Net Income $ 93,345 $ 202,712 $ 36,638 $ 31,426 $(50,990) $ 14,843 $ - $ 327,974
- ------------------------------------------------------------------------------------------------------------------------------
</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.
-10-
<PAGE> 11
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED):
8. On May 3, 1999, the Registrant issued 86,375 shares of common stock
under the 1998 Long-Term Incentive Plan. These shares were awarded to
non-officer employees with three or more years of service. The market
value of these shares on the date of grant was approximately $6.5
million. This award is being recognized as compensation expense over
the two-year vesting period. The unamortized cost is reported as a
reduction of shareholders' equity.
9. 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 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
nine months ended September 30, 1999 and 1998 are provided below
($000s).
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reclassification Adjustments, Before Tax
- ---------------------------------------------------------------------------------------------------------------------------
Change in Unrealized (Losses) Gains Arising During Period $(343,538) $ 22,790
Reclassification Adjustment for Gains Included in Net Income 3,662 7,207
- ---------------------------------------------------------------------------------------------------------------------------
Net Unrealized (Losses) Gains on Securities Available for Sale $(339,876) $ 29,997
- ---------------------------------------------------------------------------------------------------------------------------
Related Tax Effects
- ---------------------------------------------------------------------------------------------------------------------------
Change in Unrealized (Losses) Gains Arising During Period $ 120,237 $ (7,977)
Reclassification Adjustment for Gains Included in Net Income (1,281) (2,522)
- ---------------------------------------------------------------------------------------------------------------------------
Net Unrealized (Losses) Gains on Securities Available for Sale $ 118,956 $(10,499)
- ---------------------------------------------------------------------------------------------------------------------------
Reclassification Adjustments, Net of Tax
- ---------------------------------------------------------------------------------------------------------------------------
Change in Unrealized (Losses) Gains Arising During Period $(223,301) $ 14,813
Reclassification Adjustment for Gains Included in Net Income 2,381 4,685
- ---------------------------------------------------------------------------------------------------------------------------
Net Unrealized (Losses) Gains on Securities Available for Sale $(220,920) $ 19,498
- ---------------------------------------------------------------------------------------------------------------------------
Accumulated Nonowner Changes in Equity
- ---------------------------------------------------------------------------------------------------------------------------
Beginning Balance-Unrealized Holding Gains on
Securities Available for Sale $ 82,827 $ 98,305
Current Period Change (220,920) 19,498
- ---------------------------------------------------------------------------------------------------------------------------
Ending Balance-Unrealized Holding Gains (Losses) on Securities Available for Sale $(138,093) $117,803
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
-11-
<PAGE> 12
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED):
10. On May 12, 1998, the Registrant issued 3,600,000 shares of common stock
through a public offering. The Registrant used the net proceeds from
the sale of common stock for general corporate purposes. The issuance
of the shares also facilitated the Registrant's ability to account for
the acquisition of State Savings Company as a pooling-of-interests.
11. Reconciliation of Earnings Per Share to Diluted Earning Per Share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
NET AVERAGE PER-SHARE NET AVERAGE PER-SHARE
($000's) INCOME SHARES AMOUNT INCOME SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EPS
Income available to
Common shareholders $ 173,504 273,445 $ 0.64 $ 144,789 268,327 $ 0.54
EFFECT OF DILUTIVE SECURITIES
Stock Options 5,384
4,936
- -------------------------------------------------------------------------------------------------------------------------
DILUTED EPS
Income available to
Common shareholders
Plus assumed conversions $ 173,504 278,381 $ 0.62 $144,789 273,711 $ 0.53
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
NET AVERAGE PER-SHARE NET AVERAGE PER-SHARE
($000's) INCOME SHARES AMOUNT INCOME SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EPS
Income available to
Common shareholders $ 476,981 270,796 $ 1.76 $327,974 266,227 $ 1.23
EFFECT OF DILUTIVE SECURITIES
Stock Options 5,219
5,801
- -------------------------------------------------------------------------------------------------------------------------
DILUTED EPS
Income available to
Common shareholders
Plus assumed conversions $ 476,981 276,597 $ 1.72 $327,974 271,446 $ 1.21
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
-12-
<PAGE> 13
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
- ---------------------
The Registrant's operating earnings were $477 million, up 18.2 percent, for the
first nine months of 1999 from the $403.6 million last year. For the third
quarter of 1999, net income was $173.5 million, up 19.8 percent for the period,
compared to $144.8 million for the same period last year. Third quarter diluted
earnings per share were $.62, up 17 percent over last year's $.53 and diluted
operating earnings per share were $1.72 for the first nine months of 1999, up
15.4 percent over 1998's $1.49.
Operating earnings, in 1998, exclude nonrecurring pretax charges of $106.4
million resulting from the second quarter mergers with CitFed Bancorp, Inc. and
State Savings Company. The effect of these charges was to reduce net income by
$75.6 million, or $.28 per diluted share. Including the nonrecurring charges,
net income for the nine months ended September 30, 1998, was $327.9 million, or
$1.21 per diluted share.
Total assets were $33 billion at quarter end, compared to 1998's quarter end
assets of $28.7 billion. Return on average equity was 19.7 percent and return on
average assets was 2.13 percent for the third quarter of 1999 compared to 19.2
percent and 2.02 percent, respectively, for the same quarter of last year.
-13-
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Net interest income on a fully taxable equivalent basis for the third quarter of
1999 was $300.2 million, a 13.5 percent increase over $264.6 million for the
same period last year. For the nine month period of 1999, net interest income on
a fully taxable equivalent basis increased to $883.5 million, or 12.6 percent,
from the $784.8 million reported in the same period last year. The increase in
net interest income during the third quarter over prior year resulted
principally from a 13.3 percent growth in average interest-earning assets.
During the nine month period, net interest margin improved 22 basis points to
4.09 percent from 3.87 percent in 1998.
The provision for credit losses was $23.2 million in the 1999 third quarter,
compared to $15.3 million in the same period last year. For the 1999 nine month
period, the provision for credit losses was $77.9 million compared to $83
million in the same period last year. In 1998, the provision for credit losses
included a $16.7 million provision to conform acquired companies to the
Registrant's reserving and charge-off practices. Net charge-offs for the third
quarter of 1999 were .33 percent of average loans and leases, compared with .53
percent for the third quarter of 1998. Underperforming assets of $123.4 million
at September 30, 1999 were .60 percent of total loans and leases and other real
estate owned, down from the $136.3 million reported in the same period last year
or .77 percent of total loans and leases and other real estate owned.
Nonperforming assets as a percentage of total loans, leases and other real
estate owned was .21 percent at September 30, 1999, down from .22 percent last
quarter and .34 percent for the same period last year.
The Registrant maintains a reserve to absorb probable loan and lease losses
inherent in the portfolio. Credit losses are charged and recoveries are credited
to the reserve. Provisions for credit losses are credited to the reserve in an
amount that management considers necessary to maintain an appropriate level of
reserves given the estimated losses in the portfolio.
The reserve is based on ongoing quarterly assessments of the probable estimated
losses inherent in the loan and lease portfolio. In determining the appropriate
level of reserves, the Registrant estimates losses using a range derived from
"base" and "conservative" estimates. The Registrant's methodology for assessing
the appropriate reserve level consists of several key elements.
Larger commercial loans that exhibit potential or observed credit weaknesses are
subject to individual review. Where appropriate, reserves are allocated to
individual loans based on management's estimate of the borrower's ability to
repay the loan given the availability of collateral, other sources of cash flow
and legal options available to the Registrant.
-14-
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Included in the review of individual loans are those that are impaired as
provided in SFAS No. 114, "Accounting by Creditors for Impairment of a Loan".
Any reserves for impaired loans are measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate or
fair value of the underlying collateral. The Registrant evaluates the
collectibility of both principal and interest when assessing the need for loss
accrual.
Historical loss rates are applied to other commercial loans not subject to
specific reserve allocations. The loss rates are derived from a migration
analysis, which computes the net charge-offs experience sustained on loans
according to their internal risk grade. These grades encompass nine categories
that define a borrower's ability to repay their loan obligations.
Homogenous loans, such as consumer installment, residential mortgage loans, and
automobile leases are not individually risk graded. Reserves are established for
each pool of loans based on the expected net-charge-offs for one year. Loss
rates are based on the average net charge-off history by loan category.
An unallocated reserve is maintained to recognize the imprecision in estimating
and measuring loss when evaluating reserves for individual loans or pools of
loans.
Historical loss rates for commercial and consumer loans may be adjusted for
significant factors that, in management's judgement, reflect the impact of any
current conditions on loss recognition. Factors which management considers in
the analysis include the effects of the national and local economies, trends in
the nature and volume of loans (delinquencies, charge-offs, nonaccrual and
problem loans), changes in the internal lending policies and credit standards,
collection practices, and examination results from bank regulatory agencies and
the Registrant's internal credit examiners.
Reserves on individual loans and historical loss rates are reviewed quarterly
and adjusted as necessary based on changing borrower and/or collateral
conditions and actual collection and charge-off experience.
Total other operating income, excluding securities gains, increased 18.2 percent
to $195.2 million in the third quarter of 1999 compared to $165.1 million in the
third quarter of 1998. For the first nine months of 1999 other operating income,
excluding securities gains, was $555.6 million, for a 23.8 percent increase over
the $448.9 million reported in same period last year. Data processing income
increased 27.4 percent to $45.1 million for the third quarter of 1999 over prior
year. Increases in electronic funds transfer (EFT) and higher transaction volume
from expanded debit and ATM card usage coupled with expansion of
business-to-business e:commerce contributed to the increase in data processing
income.
-15-
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Investment advisory income in 1999, increased 12 percent primarily due to
double-digit sales in personal trust, employee benefits, corporate trust and
brokerage revenue coupled with several new annuity products offerings.
Improvements in commercial banking income and loans and lease fees contributed
to the 21.3 percent increase in other service charges and fees during the third
quarter.
The overhead ratio (operating expenses divided by the sum of taxable equivalent
net interest income and other operating income) was 39.6 percent for the 1999
third quarter, down from 42.3 percent in the same period last year. For the
first nine months of 1999 the overhead ratio was 41.4 percent, compared to 42.9
percent last year, excluding merger-related charges. Operating expenses in 1998
include a one-time, merger-related pretax charge of $89.7 million resulting
directly from the acquisitions of CitFed Bancorp, Inc. and State Savings
Company. The charges consist of employee-related obligations, including
change-of-control benefits and severance, costs to eliminate duplicate
facilities and equipment, contract terminations, conversion expenses and
professional fees. The improvement in the 1999 overhead ratio was primarily due
to increased revenues during the third quarter and nine month period. Total
operating expenses, increased to $196.1 million in the 1999 third quarter, or
7.3 percent over the same period last year. Salaries, wages, and incentives in
1999, increased 7 percent in the third quarter primarily due to additional
compensation incurred to support improved sale volumes coupled with an increase
in full-time-equivalent employees as a result of recent acquisitions. Net
occupancy expense increased to $14.7 million during the third quarter primarily
due to repairs and maintenance on existing and recently acquired facilities.
Total other operating expenses increased 7.3 percent, to $77.9 million, for the
quarter.
Financial Condition
- -------------------
The Registrant's balance sheet remains strong with high-quality assets and solid
capital levels. Net interest income growth continues to be fueled by improved
interest earning-asset and deposit mix, interest earning-asset growth, and net
interest margin improvement. Average demand deposits and interest checking
accounts grew 14.7 percent and 11.6 percent, in the third quarter and nine month
period, respectively, from the same periods last year highlighting the success
in emphasizing customer deposit accounts. Direct installment loan originations
were $703.6 million this quarter, up 32.4 percent from last quarter's $531.6
million and up 67.4 percent from the $420 million in the third quarter last
year. Residential mortgage originations increased to $1.1 billion, or 9.6
percent over last quarter's $1 billion compared to $1.2 billion in the same
quarter a year ago. Consumer lease originations improved 3.8 percent to $494.5
million over last quarter and benefited from double-digit growth over the same
period last year.
-16-
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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 September 30, 1999, shareholders' equity was $3.405 billion, compared to
$3.146 billion at September 30, 1998, an increase of $259 million, or 8.2
percent. Shareholders' equity as a percentage of total assets as of September
30, 1999 was 10.3 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 September 30, 1999 and
1998. At September 30, 1999, the Registrant had a Tier 1 risk-based capital
ratio of 13.04 percent, a total risk-based capital ratio of 15.16 percent and a
leverage ratio of 11.16 percent. At September 30, 1998, the Registrant had a
Tier 1 risk-based capital ratio of 12.08 percent, a total risk-based capital
ratio of 14.26 percent and a leverage ratio of 10.22 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
-17-
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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 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.
-18-
<PAGE> 19
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 5.50 percent over one
year and increase by 2.21 percent over two years. A 200 basis point immediate,
sustained downward shock in the yield curve would increase net interest income
by an estimated 3.14 percent over one year and decrease net interest income by
an estimated 8.52 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.
-19-
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
(27)-Financial Data Schedules for the Nine Months Ended
September 30, 1999
(b) There were no Reports on Form 8-K filed during the third quarter.
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: November 12, 1999 /s/ Neal E. Arnold
-------------------
Neal E. Arnold
Senior Vice President and
Chief Financial Officer
-20-
<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 SEPTEMBER 30,
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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 716,591
<INT-BEARING-DEPOSITS> 278,316
<FED-FUNDS-SOLD> 75,882
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,985,754
<INVESTMENTS-CARRYING> 91,189
<INVESTMENTS-MARKET> 90,972
<LOANS> 20,526,209
<ALLOWANCE> 303,416
<TOTAL-ASSETS> 33,237,677
<DEPOSITS> 19,538,239
<SHORT-TERM> 7,444,312
<LIABILITIES-OTHER> 1,157,954
<LONG-TERM> 1,657,822
0
0
<COMMON> 610,345
<OTHER-SE> 2,795,915
<TOTAL-LIABILITIES-AND-EQUITY> 33,237,677
<INTEREST-LOAN> 1,122,008
<INTEREST-INVEST> 455,868
<INTEREST-OTHER> 5,774
<INTEREST-TOTAL> 1,583,650
<INTEREST-DEPOSIT> 470,191
<INTEREST-EXPENSE> 743,715
<INTEREST-INCOME-NET> 839,935
<LOAN-LOSSES> 77,944
<SECURITIES-GAINS> 3,662
<EXPENSE-OTHER> 596,249
<INCOME-PRETAX> 725,028
<INCOME-PRE-EXTRAORDINARY> 476,981
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 476,981
<EPS-BASIC> 1.76
<EPS-DILUTED> 1.72
<YIELD-ACTUAL> 4.10
<LOANS-NON> 36,625
<LOANS-PAST> 79,628
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 266,860
<CHARGE-OFFS> 81,001
<RECOVERIES> 24,535
<ALLOWANCE-CLOSE> 303,416
<ALLOWANCE-DOMESTIC> 303,416
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
