<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from_______ to _______
Commission file number 0-8076
FIFTH THIRD BANCORP
(Exact name of Registrant as specified in its charter)
Ohio 31-0854434
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
38 Fountain Square Plaza
Cincinnati, Ohio 45263
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (513) 579-5300
Securities registered pursuant to Section 12(g) of the Act:
Common Stock Without Par Value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes: [ X ] No: [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The Aggregate Market Value of the Voting Stock held by non-affiliates of the
Registrant was $15,230,004,978 as of March 29, 2000. (1)
There were 309,380,174 shares of the Registrant's Common Stock, without par
value, outstanding as of February 29, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
1999 Annual Report to Shareholders: Parts I, II and IV
Proxy Statement for 2000 Annual Meeting of Shareholders: Parts III and IV
(1) In calculating the market value of securities held by non-affiliates of
Registrant as disclosed on the cover page of this Form 10-K, Registrant has
treated as securities held by affiliates as of December 31, 1999, voting stock
owned of record by its directors and principal executive officers, shareholders
owning greater than 10% of the voting stock and voting stock held by
Registrant's trust departments in a fiduciary capacity.
<PAGE> 2
FIFTH THIRD BANCORP
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Page
----
Item 1. Business 3-16
Item 2. Properties 17
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 17
PART II
Item 5. Market For Registrant's Common Equity and Related
Shareholder Matters 18
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18-19
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 19
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 19
PART III
Item 10. Directors and Executive Officers of the Registrant 20-23
Item 11. Executive Compensation 23
Item 12. Security Ownership of Certain Beneficial Owners and Management 23
Item 13. Certain Relationships and Related Transactions 23
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 24-30
2
<PAGE> 3
PART I
ITEM 1. BUSINESS
- -----------------
ORGANIZATION
Fifth Third Bancorp (the "Registrant") is an Ohio corporation organized in 1975
as a bank holding company registered under the Bank Holding Company Act of 1956,
as amended (the "Act"), and subject to regulation by the Federal Reserve Board
("FRB"). The Registrant, with its principal office located in Cincinnati, is a
multi-bank holding company as defined in the Act and is registered as such with
the Board of Governors of the Federal Reserve System and at December 31, 1999
had 18 wholly-owned subsidiaries: Fifth Third Bank; Fifth Third Bank, Central
Ohio; Fifth Third Bank, Northwestern Ohio, N.A.; Fifth Third Bank, Ohio Valley;
Fifth Third Bank, Western Ohio; Fifth Third Bank, Florida; Fifth Third Bank,
Northern Kentucky, Inc.; Fifth Third Bank, Kentucky, Inc.; Fifth Third Bank,
Indiana; Fifth Third Bank, Southwest, F.S.B.; Civitas Bank; Fifth Third
Community Development Company; CNB Capital Trust I; Fifth Third Investment
Company; Calvin Hotel Co.; Fifth Third Securities; State Savings Mortgage
Company and Heartland Capital Management, Inc. On March 17, 2000, Fifth Third
Bank, Indiana merged into Civitas Bank and Civitas Bank simultaneously changed
its name to Fifth Third Bank, Indiana.
At December 31, 1999, the Registrant, its affiliated banks and other
subsidiaries, had consolidated total assets of $41.6 billion, consolidated total
deposits of $26.1 billion and consolidated total shareholders' equity of $4.1
billion.
The Registrant, through its subsidiaries, engages primarily in commercial,
retail and trust banking, data processing services, investment advisory services
and leasing activities. In addition, the Registrant provides credit life,
accident, health and mortgage insurance, discount brokerage services and
property management for its properties. Each of the banking affiliates has
deposit insurance provided by the Federal Deposit Insurance Corporation ("FDIC")
through the Bank Insurance Fund ("BIF") and the Savings Association Insurance
Fund ("SAIF"). Significant subsidiaries of the Registrant's affiliate banks
consist of The Fifth Third Company; The Fifth Third Leasing Company; Midwest
Payment Systems, Inc. ("MPS"); Fifth Third International Company; Fifth Third
Real Estate Capital Markets Co.; Fifth Third Mortgage Company; Fifth Third Real
Estate Investment Trust, Inc.; Fifth Third Insurance Reinsurance Company; and
Fifth Third Insurance Agency. The Registrant's subsidiaries provide a full range
of financial products and services to the retail, commercial, financial,
governmental, educational and medical sectors, including a wide variety of
checking, savings and money market accounts, and credit products such as credit
cards, installment loans, mortgage loans and leasing.
The Registrant, through its MPS subsidiary, operates for itself and other
financial institutions a proprietary automated teller machine ("ATM") network,
Jeanie(R). The Jeanie(R) system participates in several regional shared ATM
networks including "Money Station(R)," "Pulse(R)" and "Star(R)". These networks
include approximately 6,500, 42,000 and 70,000 ATMs, respectively. The "Money
Station(R)" network, in which the Registrant has a 20% ownership, participates
in another shared ATM network called "PLUS System(R)," which is a nationwide
network with over 490,000 participating ATM's. MPS also provides electronic fund
transfers,
3
<PAGE> 4
PART I
ITEM 1. BUSINESS (CONTINUED)
- -----------------------------
ORGANIZATION
ATM processing, electronic personal banking, merchant transaction processing,
electronic bill payment and electronic benefit transfer services for several
regional banks, bank holding companies, service retailers and other financial
institutions throughout the United States.
Fifth Third International Company has a 99.9 percent-owned subsidiary: Fifth
Third Trade Services Limited. Fifth Third Investment Company owns the remaining
.01 percent. These subsidiaries provide foreign exchange trading, automated
letters of credit and import/export services to commercial customers.
The Fifth Third Leasing Company has a 100 percent-owned subsidiary: The Fifth
Third Auto Leasing Trust, which provides indirect auto loans and leases to
consumers.
Additional information regarding the Registrant's businesses is included in the
Management Editorial (pages 4 -12) in the Registrant's 1999 Annual Report to
Shareholders and is incorporated herein by reference and attached to this filing
as Exhibit 13.
ACQUISITIONS
The Registrant is the result of mergers and acquisitions over the years
involving financial institutions throughout Ohio, Indiana, Kentucky, Michigan,
Illinois, Arizona and Florida. The Registrant's strategy for growth includes
strengthening its presence in core markets, expanding into contiguous markets
and broadening its product offerings. Consistent with this strategy the
Registrant completed the following acquisitions during 1999:
On November 19, 1999, the Registrant acquired Peoples Bank Corporation of
Indianapolis ("Peoples") and its subsidiary, Peoples Bank & Trust Company with
total assets of $675 million and total deposits of $587 million. The Registrant
exchanged 3,381,220 shares of Fifth Third common stock for each outstanding
share of Peoples.
On October 29, 1999, the Registrant acquired CNB Bancshares, Inc. ("CNB") a bank
holding company based in Evansville, Indiana which owns Civitas Bank, with total
assets of $7.9 billion and total deposits of $4.9 billion. The Registrant
exchanged 30,370,745 shares of Fifth Third common stock for each outstanding
share of CNB.
On August 6, 1999, the Registrant acquired Emerald Financial Corp., ("Emerald")
a unitary savings and loan holding company based in Strongsville, Ohio with
total assets of $677 million and total deposits of $562 million. The Registrant
exchanged 3,379,539 shares of Fifth Third common stock for each outstanding
share of Emerald.
4
<PAGE> 5
PART I
ITEM 1. BUSINESS (CONTINUED)
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ACQUISITIONS
In addition, to the above mentioned acquisitions, the Registrant acquired
Vanguard Financial Co., based in Cincinnati, Ohio; Enterprise Federal Bancorp,
Inc. based in West Chester, Ohio; South Florida Bank Holding Corporation, based
in Ft Myers, Florida; and Ashland Bankshares, Inc., based in Ashland, Kentucky.
Information, with respect to acquisitions is included in Note 18 (pages 25-26)
of the Notes to Consolidated Financial Statements in the Registrant's 1999
Annual Report to Shareholders, and is incorporated herein by reference and
attached to this filing as Exhibit 13.
COMPETITION
There are hundreds of commercial banks, savings and loans and other financial
service providers in Ohio, Kentucky, Michigan, Illinois, Indiana, Arizona,
Florida and nationally, which provide strong competition to the Registrant's
banking subsidiaries. The Registrant competes for deposits; loans and other
banking services in its principal geographic markets as well as in selected
national markets as opportunities arise. In addition to the challenge of
attracting and retaining customers for traditional banking services, the
Registrant's competitors now include securities dealers, brokers, mortgage
bankers, investment advisors and insurance companies who seek to offer one-stop
financial services to their customers which include services that traditional
banks have not been able or allowed to offer their customers in the past.
Moreover, under the Gramm-Leach-Bliley Act of 1999 (the "Gramm-Leach-Bliley
Act"), effective March 11, 2000, securities firms, insurance companies and other
financial services providers that elect to become financial holding companies
may acquire banks and other financial institutions. The Gramm-Leach-Bliley Act
may significantly change the competitive environment in which the Registrant
conducts business. See "Regulation and Supervision" below. The increasingly
competitive environment is a result primarily of changes in regulation, changes
in technology, product delivery systems and the accelerating pace of
consolidation among financial service providers. These competitors with focused
products targeted at highly profitable customer segments, compete across
geographic boundaries and provide customers increasing access to meaningful
alternatives to banking services in nearly all-significant products. These
competitive trends are likely to continue. The Registrant's ability to maintain
its history of strong financial performance and return on investment to
shareholders will depend in part on the Registrant's ability to expand its scope
of available financial services as needed to meet the needs and demands of its
customers. With respect to data processing services, the Bank's data processing
subsidiary, MPS, competes with other electronic fund transfer (EFT) service
providers such as Concord EFS, Inc., Deluxe Corporation and Electronic Data
Systems and other merchant processing providers such as First Data Corporation,
National Processing, Inc. and First USA Paymentech, Inc.
5
<PAGE> 6
PART I
ITEM 1. BUSINESS (CONTINUED)
- -----------------------------
REGULATION AND SUPERVISION
The earnings of the Registrant are affected by general economic conditions as
well as by the monetary policies of the FRB. Such policies, which include
regulating the national supply of bank reserves and bank credit, can have a
major effect upon the source and cost of funds and the rates of return earned on
loans and investments. The Federal Reserve System exerts a substantial influence
on interest rates and credit conditions, primarily through open market
operations in U.S. Government securities, varying the discount rate on member
bank borrowings and setting cash reserve requirements against deposits. Changes
in monetary policy, including changes in interest rates, will influence the
origination of loans, the purchase of investments, the generation of deposits
and rates received on loans and investment securities and paid on deposits.
Fluctuations in the Federal Reserve monetary policies have had a significant
effect on the operating results of financial institutions in the past and are
expected to continue to do so in the future.
The Registrant, as a bank holding company, is subject to the restrictions of the
Act. The Act provides that the acquisition of control of a bank is subject to
the prior approval of the Board of Governors of the Federal Reserve System. The
Registrant is required to obtain the prior approval of the FRB before acquiring
control of more than 5 percent of the voting shares of another bank. The Act
does not permit the FRB to approve an acquisition by the Registrant, or any of
its subsidiaries, of any bank located in a state other than Ohio, unless the
acquisition is specifically authorized by the law of the state in which such
bank is located.
On September 29, 1994, the Act was amended by The Interstate Banking and Branch
Efficiency Act of 1994 which authorizes interstate bank acquisitions anywhere in
the country effective one year after the date of enactment, and interstate
branching by acquisition and consolidation effective June 1, 1997, in those
states that have not opted out by that date.
The Act limits the activities which may be engaged in by the Registrant and its
subsidiaries to ownership of banks and those activities which the FRB has deemed
or may in the future find to be so closely related to banking as to be a proper
incident thereto.
The Gramm-Leach-Bliley Act, which became law on November 12, 1999, repeals
provisions of the Glass-Steagall Act: Section 20, which restricted the
affiliation of banks with firms "engaged principally" in specified securities
activities and Section 32, which restricts officer, director, or employee
interlocks between a bank and any company or person "primarily engaged" in
specified securities activities. Moreover, the general effect of the law is to
establish a comprehensive framework to permit affiliations among commercial
banks, insurance companies, securities firms and other financial service
providers by revising and expanding the
6
<PAGE> 7
PART I
ITEM 1. BUSINESS (CONTINUED)
- -----------------------------
REGULATION AND SUPERVISION
Act framework to permit a holding company system, such as the Registrant, to
engage in a full range of financial activities through a new entity known as a
financial holding company. "Financial activities" are broadly defined to include
not only banking, insurance, and securities activities, but also merchant
banking and additional activities that the FBR, in consultation with the
Secretary of the Treasury, determines to be financial in nature. These
activities are incidental to such financial activities or complementary
activities that do not pose a substantial risk to the safety and soundness of
depository institutions or the financial system in general. In sum, the
Gramm-Leach-Bliley Act is intended to permit bank holding companies that qualify
and elect to be treated as a financial holding company to engage in a
significantly broader range of activities described above that are not so
treated.
In order to elect to become a financial holding company and engage in the new
activities, a bank holding company must meet certain tests and file an election
form with the FRB, which generally is acted on within thirty days. To qualify,
all of a bank holding company's subsidiary banks must be well-capitalized and
well-managed, as measured by regulatory guidelines. In addition, to engage in
the new activities each of the bank holding company's banks must have been rated
"satisfactory" or better in its most recent Federal Community Reinvestment Act
evaluation. Furthermore a bank holding company that elects to be treated as a
financial holding company may face significant consequences. If its banks fail
to maintain the required capital and management ratings including entering into
an agreement with the FRB which imposes limitations on its operations and may
even require divestitures. Such possible ramifications may limit the ability of
a bank subsidiary to significantly expand or acquire less than well-capitalized
and well-managed institutions. The Registrant elected to become a financial
holding company.
The Registrant's subsidiary state banks are primarily subject to the laws of the
state in which each is located, the Board of Governors of the Federal Reserve
System and the FDIC. The Registrant's national bank is subject to regulation by
the Comptroller of the Currency and the FDIC. The Registrant's savings and loan
subsidiary is subject to regulation by the Office of Thrift Supervision. The
Registrant is required to file reports of its operations with the Board of
Governors of the Federal Reserve System and the Office of Thrift Supervision,
and is subject to examination.
The Registrant and its subsidiaries are subject to certain restrictions on
intercompany loans, investments, and restrictions on the terms of transactions
between the Registrant and its affiliates and on any extension of credit to its
affiliates. Dividends payable by the affiliate banks to the Registrant without
express regulatory approval are limited by a formula. The Registrant and its
subsidiaries are also subject to certain restrictions with respect to engaging
in the underwriting and public sale and distribution of securities. The
Registrant's commercial banks are subject to
7
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PART I
ITEM 1. BUSINESS (CONTINUED)
- -----------------------------
REGULATION AND SUPERVISION
requirements and restrictions under federal and state law, including
requirements to maintain reserves against deposits, restrictions on the types
and amounts of loans that may be granted and the interest that may be charged
thereon, and limitations on the types of investments that may be made and the
type of services which may be offered. Various consumer laws and regulations
also effect the operations of the Registrant's banking subsidiaries. The
Registrant's state-chartered banking subsidiaries are subject to federal and
state regulation of their activities and business, including in the case of
banks chartered in Ohio, by the Ohio Division of Financial Institutions; in
Kentucky, by the Kentucky Department of Financial Institutions; in Indiana, by
the Indiana Department of Financial Institutions; in Florida, by the Florida
Department of Banking and Finance; and in Michigan, by the Financial
Institutions Bureau.
The Financial Reform, Recovery and Enforcement Act of 1989 (FIRREA) provides
that a holding company's controlled insured depository institutions are liable
for any loss incurred by the FDIC in connection with the default of, or any
FDIC-assisted transaction involving an affiliated insured bank or savings
association.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the "FDIC
Improvement Act") covers a wide expanse of banking regulatory issues. The FDIC
Improvement Act deals with the recapitalization of the Bank Insurance Fund, with
deposit insurance reform, including requiring the FDIC to establish a risk-based
premium assessment system, and with a number of other regulatory and supervisory
matters.
Additional information regarding regulatory matters is included in Note 15 (page
24) of the Notes to Consolidated Financial Statements in the 1999 Annual Report
to Shareholders, and is incorporated herein by reference and attached to this
filing as Exhibit 13.
EMPLOYEES
As of December 31, 1999, there were no employees of the Registrant. Subsidiaries
of the Registrant employed 12,240 employees -- 1,624 were officers and 1,700
were part-time employees. There were 11,692 full-time equivalent employees as of
December 31, 1999.
8
<PAGE> 9
PART I
ITEM 1. BUSINESS (CONTINUED)
- -----------------------------
STATISTICAL INFORMATION
Pages 9 to 14 contain statistical information on the Registrant and its
subsidiaries. Information about the Registrant's business segments is
incorporated herein by reference to pages 28 and 29 of the Registrant's 1999
Annual Report to Shareholders attached to this filing as Exhibit 13.
AVERAGE BALANCE SHEETS
The average balance sheets for each of the last three fiscal years are
incorporated herein by reference to Table 1 on page 31 of the Registrant's 1999
Annual Report to Shareholders attached to this filing as Exhibit 13.
ANALYSIS OF NET INTEREST INCOME AND NET INTEREST INCOME CHANGES
The analysis of net interest income and the analysis of net interest income
changes are incorporated herein by reference to Table 1 and Table 2 and the
related discussion on pages 32 through 33 of the Registrant's 1999 Annual Report
to Shareholders attached to this filing as Exhibit 13.
INVESTMENT SECURITIES PORTFOLIO
The investment securities portfolio as of December 31 for each of the last five
years and the maturity distribution and weighted average yield of investment
securities as of December 31, 1999, are incorporated herein by reference to the
securities portfolio and maturities of securities tables on page 36 of the
Registrant's 1999 Annual Report to Shareholders attached to this filing as
Exhibit 13.
The weighted average yields for the investment securities portfolio are yields
to maturity, weighted by the par values of the investment securities. The
weighted average yields on investment securities exempt from income taxes are
computed on a taxable-equivalent basis. The taxable-equivalent yields are net
after-tax yields to maturity divided by the complement of the full corporate tax
rate (35 percent). In order to express yields on a taxable-equivalent basis
yields on obligations of states and political subdivisions (municipal
securities) have been increased as follows:
Under 1 year 3.07%
1 - 5 years 2.87%
6 - 10 years 2.71%
Over 10 years 2.42%
Total municipal securities 2.63%
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TYPES OF LOANS AND LEASES
A summary of loans and leases by major category for the last five fiscal years
ended as of December 31 follows ($000's):
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural loans $ 6,206,712 5,558,578 5,751,656 5,173,420 4,722,344
Real estate - construction loans 1,067,887 826,289 723,809 742,674 623,135
Real estate - mortgage loans 7,465,349 7,884,032 8,336,299 8,019,065 7,043,320
Consumer loans 5,283,684 4,458,005 4,053,995 3,652,083 4,081,271
Lease financing 5,862,606 4,343,010 3,621,773 3,108,759 2,306,224
------------ ------------ ------------ ------------ ------------
Loans and leases, gross 25,886,238 23,069,914 22,487,532 20,696,001 18,776,294
Unearned income (922,618) (713,390) (588,578) (488,121) (353,619)
Reserve for credit losses (366,640) (331,621) (312,264) (284,284) (271,006)
------------ ------------ ------------ ------------ ------------
Loans and leases, net $ 24,596,980 22,024,903 21,586,690 19,923,596 18,151,669
============ ============ ============ ============ ============
Loans held for sale $ 297,277 588,972 315,156 93,279 390,938
============ ============ ============ ============ ============
</TABLE>
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
The remaining maturities of the loan portfolio distributed to reflect cash flows
(excluding residential mortgages, consumer loans and lease financing) at
December 31, 1999, based on scheduled repayments and the sensitivity of loans to
interest rate changes for loans due after one year was as follows ($000's):
<TABLE>
<CAPTION>
Commercial,
Financial and Real Estate Real Estate
Agricultural Construction Commercial
Loans Loans Loans Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $2,952,754 497,633 612,130 $4,062,517
Due after one year through five years 2,495,053 293,340 1,208,109 3,996,502
Due after five years 758,905 276,914 831,139 1,866,958
---------- ---------- ---------- ----------
Total $6,206,712 $1,067,887 $2,651,378 $9,925,977
========== ========== ========== ==========
LOANS DUE AFTER ONE YEAR:
Predetermined interest rate $2,364,136 418,006 1,609,838 $4,391,980
========== ========== ========== ==========
Floating or adjustable interest rate $ 889,822 152,248 429,410 $1,471,480
========== ========== ========== ==========
</TABLE>
10
<PAGE> 11
RISK ELEMENTS
Interest on loans is normally accrued at the rate agreed upon at the time each
loan was negotiated. It is the Registrant's policy to discontinue accrual of
interest on commercial, construction and mortgage loans when there is a clear
indication the borrower's cash flow may not be sufficient to meet payments
as they become due. Loans, other than consumer loans, are placed on nonaccrual
status when principal or interest is past due ninety days or more, unless the
loan is well secured and in the process of collection. The following table
presents data concerning loans and leases at risk as of December 31, ($000's)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------- -------- -------- ------- ------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans and leases $66,805 77,177 102,059 98,819 107,638
Loans and leases contractually
past due 90 days or more as
to principal, interest, or rental
payments $68,233 87,002 55,779 48,060 25,893
Loans and leases renegotiated to
provide a reduction or deferral of
interest, principal or rental payments
because of the financial position
deterioration of the borrower $ -- 1,195 1,795 3,062 2,274
</TABLE>
As of December 31, 1999, loans and leases of $39,574 were currently performing
in accordance with contractual terms where there are serious doubts as to the
ability of the borrower to comply with such terms.
For the years 1999, 1998 and 1997, interest income of $839, $2,343 and 2,388,
respectively was recorded on nonaccrual and renegotiated loans and leases.
Additional interest income of $5,447, $6,063 and $8,100 would have been recorded
if the nonaccrual and renegotiated loans and leases had been current in
accordance with their original terms.
11
<PAGE> 12
SUMMARY OF CREDIT LOSS EXPERIENCE
A summary of the activity in the reserve for credit losses arising from
provisions charged to operations, losses charged off and recoveries of losses
previously charged off was as follows ($000's):
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Loans and leases outstanding at
December 31 $ 24,963,620 22,356,524 21,898,954 20,207,880 18,422,675
============ ============ ============ ============ ============
Loans held for sale 297,277 588,972 315,156 93,279 390,938
Average loans and leases
outstanding 24,382,553 22,542,611 21,129,681 19,632,693 17,641,384
============ ============ ============ ============ ============
Reserve for credit losses,
January 1 $ 331,621 312,264 284,284 271,006 245,925
------------ ------------ ------------ ------------ ------------
Losses charged off:
Commercial, financial and
agricultural loans (49,684) (44,526) (16,347) (16,826) (10,163)
Real estate - construction loans (539) (953) (243) (147) (69)
Real estate - mortgage loans (2,636) (9,795) (11,894) (9,005) (8,143)
Consumer loans (64,176) (58,947) (70,188) (64,293) (34,639)
Lease financing (37,233) (28,570) (23,034) (13,285) (5,084)
------------ ------------ ------------ ------------ ------------
Total losses (154,268) (142,791) (121,706) (103,556) (58,098)
------------ ------------ ------------ ------------ ------------
Recoveries of losses previously
charged off:
Commercial, financial and
agricultural loans 10,459 4,338 4,094 4,989 2,808
Real estate - construction loans -- 75 293 -- 63
Real estate - mortgage loans 678 2,893 2,392 3,545 3,108
Consumer loans 19,468 20,044 17,440 14,844 9,885
Lease financing 11,855 5,612 6,315 2,866 1,393
------------ ------------ ------------ ------------ ------------
Total recoveries 42,460 32,962 30,534 26,244 17,257
------------ ------------ ------------ ------------ ------------
Net losses charged off:
Commercial, financial and
agricultural loans (39,225) (40,188) (12,253) (11,837) (7,355)
Real estate - construction loans (539) (878) 50 (147) (6)
Real estate - mortgage loans (1,958) (6,902) (9,502) (5,460) (5,035)
Consumer loans (44,708) (38,903) (52,748) (49,449) (24,754)
Lease financing (25,378) (22,958) (16,719) (10,419) (3,691)
------------ ------------ ------------ ------------ ------------
Total net losses charged off (111,808) (109,829) (91,172) (77,312) (40,841)
------------ ------------ ------------ ------------ ------------
Letter of credit
Reserve of acquired
institutions and other 12,770 5,697 2,206 7,710 11,103
Provision charged to operations 134,057 123,489 116,946 82,880 54,819
Reserve for credit losses, ------------ ------------ ------------ ------------ ------------
December 31 $ 366,640 331,621 312,264 284,284 271,006
============ ============ ============ ============ ============
Reserve as a percent of loans
and leases outstanding 1.47% 1.48% 1.43% 1.41% 1.47%
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
SUMMARY OF CREDIT LOSS EXPERIENCE, CONTINUED
Allocation of reserve for credit losses,
December 31: 1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural loans $143,676 83,264 117,569 124,563 151,003
Real estate - construction loans 8,895 5,001 7,454 2,373 1,804
Real estate - mortgage loans 13,214 1,750 2,110 2,360 2,439
Consumer loans 105,187 149,750 116,988 103,092 79,913
Lease financing 95,668 91,856 68,143 51,896 35,847
-------- -------- -------- -------- --------
Total reserve for credit losses $366,640 331,621 312,264 284,284 271,006
======== ======== ======== ======== ========
</TABLE>
The reserve for credit losses is general in nature and is available to absorb
losses from any portion of the loan and lease portfolio.
As of December 31, 1999, the allowance for loan losses was $367 million or 1.47
percent of total loans, net of unearned interest. This compares to $332 million
or 1.48 percent of total loans, net of unearned interest, as of December 31,
1998. The decline in this ratio was due to an improvement in the credit quality
of consumer loans, as exhibited by the decrease of nonaccrual loans and leases
from $77.1 million at December 31, 1998 to $66.8 million at December 31, 1999.
Total underperforming assets also decreased from $177.9 million, or .80% of
total loans and leases outstanding, at December 31, 1998 to $145.5 million, or
.58% of total loans and leases outstanding, at December 31, 1999.
As shown in the table above, the impact of the above improvement in
underperforming assets was partially offset by an increase in commercial
exposure through acquisitions. The allocation of the allowance for loan and
lease losses for consumer and commercial mortgages increased from $1.8 million,
or 1% of the allowance for loan and lease losses, at December 31, 1998 to $13.2
million, or 4% of the allowance for loan and lease losses, December 31, 1999.
The allocation of the allowance for loan and lease losses for commercial loans
increased from $83.3 million, or 25% of the allowance for loan and lease losses,
at December 31, 1998 to $143.7 million, or 39% of the allowance for loan and
lease losses, at December 31, 1999.
Net charge-offs increased in 1999 to $112 million from $110 million in 1998.
In 1999 and 1998, the Registrant recorded $26.2 million and $16.7 million,
respectively of merger-related charge-offs in connection with acquisitions of
Peoples and CNB in 1999 and CitFed Bancorp, Inc. and State Savings Company in
1998. Merger-related charge-offs occurred due to the change in intent of the
management regarding the work-out strategy for certain acquired problem loans
and to conform the acquired entities' charge-off practices to those of the
Registrant. Excluding merger-related charge-offs in 1999 and 1998, net
charge-offs declined to $85 million from $93 million.
13
<PAGE> 14
SUMMARY OF CREDIT LOSS EXPERIENCE, CONTINUED
The distribution of loans and leases by type and the ratio of net charge-offs to
average loans and leases outstanding was as follows:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Percentage of loans and leases to total
loans and leases at December 31:
Commercial, financial and
agricultural loans 24.0 24.1 25.6 25.0 25.2
Real estate - construction loans 4.1 3.6 3.2 3.6 3.3
Real estate - mortgage loans 28.8 34.2 37.1 38.8 37.5
Consumer loans 20.4 19.3 18.0 17.6 21.7
Lease financing 22.7 18.8 16.1 15.0 12.3
------- ------ ------- ------- -------
Total 100.0 100.0 100.0 100.0 100.0
======= ======= ======= ======= =======
<S> <C> <C> <C> <C> <C>
Ratio of net charge-offs during year
to average loans and leases outstanding
during year:
Commercial, financial and
agricultural loans 0.67% 0.71% 0.22% 0.24% 0.17%
Real estate - construction loans 0.06% 0.11% -0.01% 0.02% 0.00%
Real estate - mortgage loans 0.03% 0.09% 0.12% 0.07% 0.07%
Consumer loans 0.92% 0.91% 1.37% 1.28% 0.67%
Lease financing 0.59% 0.68% 0.58% 0.45% 0.21%
Weighted Average Ratio 0.36% 0.47% 0.43% 0.40% 0.23%
</TABLE>
14
<PAGE> 15
RESERVE FOR CREDIT LOSSES
The reserve for credit losses is maintained at a level management considers to
be adequate to absorb probable loan and lease losses inherent in the portfolio,
based on evaluations of the collectibility and historical loss experience of
loans and leases. Credit losses are charged and recoveries are credited to the
reserve. Provisions for credit losses are based on management's review of the
historical credit loss experience and such factors which, in management's
judgement, deserve consideration under existing economic conditions in
estimating potential credit losses. 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. 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.
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.
An unallocated reserve is maintained to recognize the imprecision in estimating
and measuring loss when evaluating reserves for individual loans or pools of
loans.
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.
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.
The Registrant's primary market area for lending in Ohio, Kentucky, Indiana,
Florida, Michigan, Illinois and Arizona. When evaluating the adequacy of
reserves, consideration is given to this regional geographic concentration and
the closely-associated effect changing economic conditions has on the
Registrant's customers.
Based on the procedures discussed above, management is of the opinion the
reserve of $366,640,000 was adequate to absorb estimated credit losses
associated with the loan and lease portfolio at December 31, 1999.
15
<PAGE> 16
MATURITY DISTRIBUTION OF DOMESTIC CERTIFICATES OF DEPOSIT OF $100,000 AND OVER
AT DECEMBER 31, 1999 ($000'S)
<TABLE>
<CAPTION>
<S> <C>
Three months or less $ 847,585
Over three months through six months 185,402
Over six months through twelve months 153,817
Over twelve months 105,882
----------------
Total certificates - $100,000 and over $ 1,292,686
================
</TABLE>
Note: Foreign office deposits totaling $2,150,352 are denominated in amounts
greater than $100,000.
RETURN ON EQUITY AND ASSETS
The following table presents certain operating ratios:
1999(1) 1998(2) 1997
------- ------- --------
Return on assets (a) 1.68% 1.51 1.57
Return on equity (b) 16.9% 15.4 17.2
Dividend payout ratio (c) 40.9% 39.9 32.5
Equity to assets ratio (d) 9.95% 9.80 9.16
(a) net income divided by average assets
(b) net income divided by average equity
(c) dividends declared per share divided by diluted earnings per share
(d) average equity divided by average assets
1.Certain 1999 ratios and statistics include merger-related items of $108.4
million pretax ($83.8 million after tax, or $.27 per share). For comparability,
excluding the merger-related items, return on average assets, return on average
equity and the dividend payout ratio for 1999 would have been 1.89%, 19.0% and
36.5%, respectively.
2. Certain 1998 ratios and statistics include merger-related items of $138
million pretax ($98.7 million after tax, or $.32 per share). For comparability,
excluding the merger-related items, return on average assets, return on average
equity and the dividend payout ratio for 1998 would have been 1.78%, 18.2% and
33.8%, respectively.
16
<PAGE> 17
PART I
ITEM 2. PROPERTIES
- -------------------
The Registrant's executive offices and the main office of the Bank are located
on Fountain Square Plaza in downtown Cincinnati, Ohio, located in a 32-story
office tower and a 5-story office building with attached parking garage known as
the Fifth Third Center and the William S. Rowe Building, respectively. One of
the subsidiaries of the Registrant owns 100 percent of these buildings.
At December 31, 1999, the Registrant, through its subsidiary banks, five located
in Ohio, two in Kentucky, one in each of Indiana, Arizona, Michigan and Florida,
operated 648 banking centers, of which 407 were owned and 241 were leased. The
properties owned are free from mortgages and encumbrances. On March 17, 2000,
the Indiana subsidiary bank was merged into the Michigan subsidiary bank.
Management's Editorial (pages 4-11) and Note 5 (page 20) of Notes to
Consolidated Financial Statements of the Registrant's 1999 Annual Report to
Shareholders is incorporated herein by reference and attached to this filing as
Exhibit 13.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
The Registrant and its subsidiaries are not parties to any material legal
proceedings other than routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
None.
17
<PAGE> 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
- -----------------------------------------------------------------------------
The information required by this item is incorporated herein by reference to
Financial Highlights (page 1) of Registrant's 1999 Annual Report to Shareholders
attached to this filing as Exhibit 13.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
The information required by this item is incorporated herein by reference to
Note 1 (pages 17 -18) and Note 18 (page 25 -26) of Notes to Consolidated
Financial Statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations (pages 39) of the Registrant's 1999 Annual
Report to Shareholders attached to this filing as Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS
- -------------
Year 2000 Readiness
- -------------------
The Registrant completed the awareness, assessment, renovation, integration and
interface testing, validation and implementation efforts for the Year 2000 (Y2K)
date change. This effort included both internal and external resources to
identify and remediate all information technology systems and computer chip
embedded functions including the Y2K efforts of critical business partners,
vendors and service suppliers. The Registrant's efforts were conducted in
accordance with the guidelines provided by the Federal Financial Institutions
Examination Council (FFIEC). Because internal staff largely completed the Y2K
compliance effort, the Registrant did not incur significant costs from outside
contractors. To date, the Registrant has spent under $10 million. All but
immaterial amounts of these costs are internal costs, related to the lost
opportunity of allocating time of the internal staff elsewhere. The costs also
include all software, hardware and labor costs. The Registrant's information
technology systems, hardware functions and business critical functions and
services are operating without any Y2K problems. The Registrant is not aware of
any significant Y2K related problems experienced by its vendors or service
suppliers.
The Registrant believes all its critical systems are Y2K ready. However, there
is no guarantee that problems will not arise in the future. The Registrant has
contingency plans to be implemented if required, should a significant problem
occur. Contingency plans for critical business partners were also developed. The
Federal Reserve, which is the Registrant's primary regulator, includes a review
of the risk assessments and contingency plans in its quarterly examinations of
the Registrant. Thus, the Registrant believes that the risk related to future
exposure of Y2K issues is minimal and will not have a material impact on
operations.
18
<PAGE> 19
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS (CONTINUED)
- -------------------------
Additional Management's Discussion and Analysis information required by this
item is incorporated herein by reference to pages 31 through 39 of Registrant's
1999 Annual Report to Shareholders attached to this filing as Exhibit 13.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------
The information required by this item is incorporated herein by reference to
page 38 of the Registrant's 1999 Annual Report to Shareholders attached to this
filing as Exhibit 13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The information required by this item is incorporated herein by reference to
pages 13 through 30 of the Registrant's 1999 Annual Report to Shareholders
attached to this filing as Exhibit 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
None.
19
<PAGE> 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
The names, ages and positions of the Executive Officers of the Registrant as of
February 1, 2000 are listed below along with their business experience during
the past 5 years. Officers are appointed annually by the Board of Directors at
the meeting of Directors immediately following the Annual Meeting of
Shareholders.
<TABLE>
<CAPTION>
CURRENT POSITION AND
NAME AND AGE BUSINESS EXPERIENCE DURING PAST 5 YEARS
- ------------ ---------------------------------------
<S> <C>
George A. Schaefer, Jr., 54 PRESIDENT AND CEO. President and Chief Executive Officer of
the Registrant and Fifth Third Bank.
Neal E. Arnold, 40 EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND
TREASURER. Executive Vice President of the Registrant and
Fifth Third Bank since December 1998. Chief Financial
Officer of the Registrant and Fifth Third Bank since June
1997. Mr. Arnold has been the Treasurer of the Registrant
and Fifth Third Bank. Previously, Mr. Arnold was Treasurer
and Senior Vice President of Fifth Third Bank.
Michael D. Baker, 49 EXECUTIVE VICE PRESIDENT. Executive Vice President of the
Registrant and Fifth Third Bank since August 1995.
Previously, Mr. Baker was Senior Vice President of the
Registrant since March 1993, and of Fifth Third Bank.
Barry L. Boerstler, 52 EXECUTIVE VICE PRESIDENT. Executive Vice President of the
Registrant and Fifth Third Bank since September 1999.
Mr. Boerstler was Senior Vice President of the Registrant
since December 1997 and of Fifth Third Bank. Previously,
Mr. Boerstler was a Vice President of Fifth Third Bank.
</TABLE>
20
<PAGE> 21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
CURRENT POSITION AND
NAME AND AGE BUSINESS EXPERIENCE DURING PAST 5 YEARS
- ------------ ---------------------------------------
<S> <C>
James J. Hudepohl, 47 EXECUTIVE VICE PRESIDENT. Executive Vice President of the
Registrant and Fifth Third Bank since January 1997.
Previously, Mr. Hudepohl was Senior Vice President of Fifth
Third Bank.
Michael K. Keating, 44 EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY.
Executive Vice President of the Registrant and Fifth Third
Bank since August 1995 and Secretary of the Registrant and
Fifth Third Bank since January 1994. Previously, Mr.
Keating was Senior Vice President and General Counsel of the
Registrant since March 1993, and Senior Vice President and
Counsel of Fifth Third Bank.
Robert P. Niehaus, 53 EXECUTIVE VICE PRESIDENT. Executive Vice President of the
Registrant and Fifth Third Bank since August 1995.
Previously, Mr. Niehaus was Senior Vice President of the
Registrant since March 1993, and Senior Vice President of
Fifth Third Bank.
Stephen J. Schrantz, 50 EXECUTIVE VICE PRESIDENT. Executive Vice President of the
Registrant and Fifth Third Bank.
Gerald L. Wissel, 43 EXECUTIVE VICE PRESIDENT. Executive Vice President of Fifth
Third Bank since January 1997. Auditor of the Registrant
and Fifth Third Bank. Previously, Mr. Wissel was Senior Vice
President of Fifth Third Bank.
</TABLE>
21
<PAGE> 22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
CURRENT POSITION AND
NAME AND AGE BUSINESS EXPERIENCE DURING PAST 5 YEARS
- ------------ ---------------------------------------
<S> <C>
Robert J. King, Jr., 44 EXECUTIVE VICE PRESIDENT. Executive Vice President of the
Registrant since June 1997. Vice Chairman of Fifth Third
Bank, Northwestern Ohio, N.A. and President and CEO of
Fifth Third Bank Northeast. Previously, Mr. King was
President and CEO of Fifth Third Bank, Northwestern Ohio,
N.A. Mr. King was Senior Vice President of the Registrant
since March 1995.
James R. Gaunt, 54 EXECUTIVE VICE PRESIDENT. Executive Vice President of the
Registrant since June 1997. Senior Vice President of the
Registrant since March 1994, and President and CEO of Fifth
Third Bank of Kentucky, Inc. since August 1994. Previously,
Mr. Gaunt was Senior Vice President of the Registrant and
Fifth Third Bank.
Paul L. Reynolds, 38 EXECUTIVE VICE PRESIDENT, ASSISTANT SECRETARY. Executive
Vice President of the Registrant since September 1999.
Previously, Senior Vice President of the Registrant and
Fifth Third Bank since March 1997. Assistant Secretary of
the Registrant since March 1995, General Counsel and
Assistant Secretary of Fifth Third Bank since January 1995.
Roger W. Dean, 37 CONTROLLER. Senior Vice President of the Registrant and
Fifth Third Bank since March 1997. Controller of the
Registrant and Fifth Third Bank since June 1993.
Previously, Mr. Dean was Vice President of the Registrant
and Fifth Third Bank.
</TABLE>
The information required by this item concerning Directors is incorporated
herein by reference under the caption "ELECTION OF DIRECTORS" (pages 2 - 6) of
the Registrant's 2000 Proxy Statement.
22
<PAGE> 23
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
The information required by this item is incorporated herein by reference under
the caption "EXECUTIVE COMPENSATION" (pages 7 -13) of the Registrant's 2000
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The information required by this item is incorporated herein by reference under
the captions "CERTAIN BENEFICIAL OWNERS, ELECTION OF DIRECTORS AND EXECUTIVE
COMPENSATION" (pages 1- 13) of the Registrant's 2000 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The information required by this item is incorporated herein by reference under
the caption "CERTAIN TRANSACTIONS" (page 13) of the Registrant's 2000 Proxy
Statement.
23
<PAGE> 24
<TABLE>
<CAPTION>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
a) Documents Filed as Part of the Report Page
----
<S> <C> <C>
1. Index to Financial Statements
Consolidated Statements of Income for the
Years Ended December 31, 1999, 1998 and 1997 *
Consolidated Balance Sheets, December 31, 1999
and 1998 *
Consolidated Statements of Changes in
Shareholders' Equity for the Years Ended
December 31, 1999, 1998 and 1997 *
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1999, 1998 and 1997 *
Notes to Consolidated Financial Statements *
* Incorporated by reference to pages 13 through 29 of the
Registrant's 1999 Annual Report to Shareholders attached to this
filing as Exhibit 13.
2. Financial Statement Schedules
The schedules for Registrant and its subsidiaries are omitted
because of the absence of conditions under which they are
required, or because the information is set forth in the
consolidated financial statements or the notes thereto.
</TABLE>
24
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- ---------------------------------------------------------------------------
(CONTINUED)
- -----------
3. Exhibits
Exhibit No.
-----------
3.1 Code of Regulations of Fifth Third Bancorp, as amended
(a)
3.2 Second Amended Articles of Incorporation of Fifth Third
Bancorp, as amended (b)
4(a) Junior Subordinated Indenture, dated as of March 20,
1997 between Fifth Third Bancorp and Wilmington Trust
Company, as Debenture Trustee (c)
4(b) Certificate Representing the 8.136% Junior Subordinated
Deferrable Interest Debentures, Series A, of Fifth Third
Bancorp (c)
4(c) Amended and Restated Trust Agreement, dated as of March
20, 1997 of Fifth Third Capital Trust II, among Fifth
Third Bancorp, as Depositor, Wilmington Trust Company,
as Property Trustee, and the Administrative Trustees
name therein (c)
4(d) Certificate Representing the 8.136% Capital Securities,
Series A, of Fifth Third Capital Trust I (c)
4(e) Guarantee Agreement, dated as of March 20, 1997 between
Fifth Third Bancorp, as Guarantor, and Wilmington Trust
Company, as Guarantee Trustee (c)
4(f) Agreement as to Expense and Liabilities, dated as of
March 20, 1997 between Fifth Third Bancorp, as the
holder of the Common Securities of Fifth Third Capital
Trust I and Fifth Third Capital Trust II (c)
10(a) Fifth Third Bancorp Unfunded Deferred Compensation Plan
for Non-Employee Directors (d)+
25
<PAGE> 26
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- ---------------------------------------------------------------------------
(CONTINUED)
- -----------
3. Exhibits
Exhibit No.
-----------
10(b) Fifth Third Bancorp 1990 Stock Option Plan (e)+
10(c) Fifth Third Bancorp 1987 Stock Option Plan (f)+
10(d) Indenture effective November 19, 1992 between Fifth
Third Bancorp, Issuer and NBD Bank, N.A., Trustee (g)
10(e) Fifth Third Bancorp 1993 Discount Stock Purchase Plan
(h)+
10(f) Fifth Third Bancorp Amended and Restated Stock Incentive
Plan for selected Executive Officers, Employees and
Directors of The Cumberland Federal Bancorporation, Inc.
(i)+
10(g) Fifth Third Bancorp Master Profit Sharing Plan (j)+
10(h) Fifth Third Bancorp Amended and Restated Stock Option
and Incentive Plan for Selected Executive Officers,
Employees and Directors of Falls Financial, Inc. (k)+
10(i) Fifth Third Bancorp Amended 1993 Discount Stock Purchase
Plan (l)+
10(j) Fifth Third Bancorp 1998 Long-Term Incentive Stock Plan
(m)+
10(k) Fifth Third Bancorp Variable Compensation Plan (n)+
10(l) CitFed Bancorp, Inc. Amended and Restated 1991 Stock
Option and Incentive Plan (o)+
10(m) Fifth Third Bancorp Non-qualified Deferred Compensation
Plan. (p)+
10(n) Emerald Financial Corp. 1994 Long Term Incentive Plan
and Emerald Financial Corp. 1998 Stock Option and
Incentive Plan. (q)+
26
<PAGE> 27
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
(CONTINUED)
- -----------
3. Exhibits
Exhibit No.
-----------
10(o) CNB Bancshares, Inc. 1999 Stock Incentive Plan, 1995
Stock Incentive Plan, 1992 Stock Incentive Plan and
Associate Stock Option Plan; King City Federal Savings
Bank 1986 Stock Option and Incentive Plan; Indiana
Bancshares, Inc. 1990 Stock Option Plan; National
Bancorp Stock Option Plan; Indiana Federal Corporation
1986 Stock Option and Incentive Plan; and UF Bancorp,
Inc. 1991 Stock Option and Incentive Plan (r) +
10(p) Peoples Bank Corporation of Indianapolis 1998 Stock
Option Plan; Peoples Bank Corporation of Indianapolis
Stock Option Plan; and Peoples Bank Corporation of
Indianapolis Directors Stock Option Plan. (s) +
11 Computation of Consolidated Earnings Per Share for the
Years Ended December 31, 1999, 1998, 1997, 1996 and 1995
13 Fifth Third Bancorp 1999 Annual Report to Shareholders
21 Fifth Third Bancorp Subsidiaries
23 Independent Auditors' Consent
27.1 Financial Data Schedule for the Year Ended December 31,
1999
27.2 Financial Data Schedule restated for the Three Months
Ended March 31, 1999, for the Six Months Ended June 30,
1999, and for the Nine Months Ended September 30, 1999.
27.3 Financial Data Schedules restated for the Year Ended
December 31, 1998 and for the Year Ended December 31,
1997.
27.4 Financial Data Schedule restated for the Three Months
Ended March 31, 1998, for the Six Months Ended June 30,
1998 and for the Nine Months Ended September 30, 1998.
+ Denotes management contract or compensatory plan or arrangement.
b) Reports on Form 8-K
The Registrant filed a report on Form 8-K dated December 17, 1999, related to
the unaudited condensed financial statements and supplemental financial data for
the years ended December 31, 1998, 1997, 1996, 1995, 1994 and for the three
months ended September 30, 1999, June 30, 1999, March 31, 1999, December 31,
1998, September 30, 1998, June 30, 1998 and March 31, 1998. The unaudited
condensed financial statements and supplemental financial data preliminarily
reflected the effect of the Registrant's acquisitions, as if all the pooled
entities had been combined for all the periods presented.
27
<PAGE> 28
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
(CONTINUED)
- -----------
- -----------------------
(a) Incorporated by reference to Registrant's Registration Statement, on
Form S-4, Registration No. 33-63966.
(b) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999.
(c) Incorporated by reference to Registrant's filing with the Securities
and Exchange Commission on March 26, 1997, a Form 8-K Current Report.
(d) Incorporated by reference to Registrant's Form 10-K Annual Report by
reference to Form 10-K filed for fiscal year ended December 31, 1985.
(e) Incorporated by reference to Registrant's filing with the Securities
and Exchange Commission as an exhibit to a Registration Statement on
Form S-8, Registration No. 33-34075.
(f) Incorporated by reference to Registrant's filing with the Securities
and Exchange Commission as an exhibit to a Registration Statement on
Form S-8, Registration No. 33-13252.
(g) Incorporated by reference to Registrant's filing with the Securities
and Exchange Commission on November 18, 1992, a Form 8-K Current Report
dated November 16, 1992 and as Exhibit 4.1 to a Registration Statement
on Form S-3, Registration No. 33-54134.
(h) Incorporated by reference to Registrant's filing with the Securities
and Exchange Commission as an exhibit to a Registration Statement on
Form S-8, Registration No. 33-60474.
(i) Incorporated by reference to Registrant's filing with the Securities
and Exchange Commission as an exhibit to a Registration Statement on
Form S-8, Registration No. 33-55223.
(j) Incorporated by reference to Registrant's filing with the Securities
and Exchange Commission as an exhibit to a Registration Statement on
Form S-8, Registration No. 33-55553.
(k) Incorporated by reference to Registrant's filing with the Securities
and Exchange Commission as an exhibit to a Registration Statement on
Form S-8, Registration No. 33-61149.
28
<PAGE> 29
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
(CONTINUED)
- -----------
(l) Incorporated by reference to Registrant's filing with the Securities
and Exchange Commission as Exhibit 10 to the Quarterly Report on Form
10-Q for the quarter ended June 30, 1996.
(m) Incorporated by reference to Registrant's filing with the Securities
and Exchange Commission as an exhibit to a Registration Statement on
Form S-8, Registration No. 333-58249.
(n) Incorporated by reference to Registrant's Proxy Statement dated
February 9, 1998.
(o) Incorporated by reference to Registrant's filing with the Securities
and Exchange Commission as an exhibit to a Registration Statement on
Form S-8, Registration No. 333-48049 and by reference to CitFed
Bancorp's Form 10-K for the fiscal year ended March 31, 1996.
(p) Filed with the Securities and Exchange Commission as Exhibit 10.4 to a
Registration Statement on Form S-4, Registration No. 33-21139.
(q) Incorporated by reference to Registrant's filing with the Securities
and Exchange Commission as an exhibit to a Registration Statement on
Form S-4, Registration No. 333-77293 and by reference to Emerald
Financial Corporation Form 10-K for the fiscal year ended March 31,
1999 and Form S-8 filed April 30, 1998.
(r) Incorporated by reference to Registrant's filing with the Securities
and Exchange Commission as an exhibit to a Registration Statement on
Form S-4, Registration No. 333-84955 and by reference to CNB Bancshares
Form 10-K, as amended, for the fiscal year ended December 31, 1998.
(s) Incorporated by reference to Peoples Bank Corporation of Indianapolis
filings with the Securities and Exchange Commission as an Exhibit to
Form 10K for each of the fiscal years ended December 31, 1998, December
31, 1995, and December 31, 1996, respectively.
29
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FIFTH THIRD BANCORP
(Registrant)
/s/George A. Schaefer, Jr. March 21, 2000
- -------------------------------
George A. Schaefer, Jr.
President and CEO
(Principal Executive Officer)
Pursuant to requirements of the Securities Exchange Act of 1934, this report has
been signed on March 21, 2000 by the following persons on behalf of the
Registrant and in the capacities indicated.
<TABLE>
<S> <C> <C>
/s/Neal E. Arnold /s/Roger W. Dean /s/Robert B. Morgan
- ------------------------------- ----------------------------- --------------------------
Neal E. Arnold Roger W. Dean Robert B. Morgan
Executive Vice President and CFO Controller Director
(Principal Financial Officer) (Principal Accounting Officer)
/s/Darryl F. Allen /s/Joan R. Herschede /s/David E. Reese
- ------------------------------- ----------------------------- --------------------------
Darryl F. Allen Joan R. Herschede David E. Reese
Director Director Director
/s/John F. Barrett /s/Allen M. Hill /s/James E. Rogers
- ------------------------------- ----------------------------- --------------------------
John F. Barrett Allen M. Hill James E. Rogers
Director Director Director
/s/Gerald V. Dirvin /s/William G. Kagler /s/Brian H. Rowe
- ------------------------------- ----------------------------- --------------------------
Gerald V. Dirvin William G. Kagler Brian H. Rowe
Director Director Director
/s/Thomas B. Donnell /s/James D. Kiggen /s/Donald B. Shackelford
- ------------------------------- ----------------------------- --------------------------
Thomas B. Donnell James D. Kiggen Donald B. Shackelford
Director Director Director
/s/Richard T. Farmer /s/Jerry L. Kirby /s/George A. Schaefer, Jr.
- ------------------------------- ----------------------------- --------------------------
Richard T. Farmer Jerry L. Kirby George A. Schaefer, Jr.
Director Director Director, President and CEO
(Principal Executive Officer)
/s/Joseph H. Head, Jr. /s/Mitchel D. Livingston, Ph. D. /s/John J. Schiff, Jr.
- ------------------------------- -------------------------------- --------------------------
Joseph H. Head, Jr. Mitchel D. Livingston, Ph. D. John J. Schiff, Jr.
Director Director Director
</TABLE>
31
<PAGE> 31
<TABLE>
<S> <C> <C>
/s/Dennis J. Sullivan, Jr. /s/Dudley S. Taft /s/John J. Schiff, Jr.
- ------------------------------- -------------------------- -----------------------
Dennis J. Sullivan, Jr. Dudley S. Taft John J. Schiff, Jr.
Director Director Director
/s/Alton C. Wendzel /s/Robert L. Koch II /s/Thomas W. Traylor
- ------------------------------- -------------------------- -----------------------
Alton C. Wendzel Robert L. Koch II Thomas W. Traylor
Director Director Director
</TABLE>
32
<PAGE> 1
EXHIBIT 11
FIFTH THIRD BANCORP
COMPUTATION OF CONSOLIDATED EARNINGS PER SHARE
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET INCOME $668,229 546,512 529,379 442,876 389,017
======== ======== ======== ======== ========
EARNINGS PER SHARE:
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (a) 306,119 301,335 297,864 299,175 285,501
======== ======== ======== ======== ========
PER SHARE (NET INCOME DIVIDED BY THE WEIGHTED
AVERAGE NUMBER OF SHARES OUTSTANDING) $ 2.18 1.81 1.78 1.48 1.36
======== ======== ======== ======== ========
DILUTED EARNINGS PER SHARE:
NET INCOME $668,229 546,512 529,379 442,876 389,017
ADD - INTEREST ON 6% CONVERTIBLE SUBORDINATED
NOTES DUE 2028, NET OF APPLICABLE INCOME TAXES 6,728 3,364 0 0 0
-------- -------- -------- -------- --------
ADJUSTED NET INCOME $674,957 549,876 529,379 442,876 389,017
======== ======== ======== ======== ========
ADJUSTED WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING - AFTER GIVING EFFECT TO THE
CONVERSION OF STOCK OPTIONS AND CONVERTIBLE
SUBORDINATED NOTES (a) 314,570 308,752 302,827 305,761 295,252
======== ======== ======== ======== ========
PER SHARE (ADJUSTED NET INCOME DIVIDED BY
THE ADJUSTED WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING) $ 2.15 1.78 1.75 1.45 1.32
======== ======== ======== ======== ========
<FN>
- ---------------------------------------------------------
(a) Per share amounts and average shares outstanding have been adjusted for the
three-for-two stock split effected in the form of a stock dividend declared
March 17, 1998 and distributed April 15, 1998.
</TABLE>
<PAGE> 1
Exhibit 13
1999 ANNUAL REPORT
[NEWSPAPER GRAPHICS]
QUALITY GROWTH
[FIFTH THIRD BANK LOGO]
<PAGE> 2
CORPORATE PROFILE
CORPORATE PROFILE
Fifth Third Bancorp is a diversified financial services company headquartered in
Cincinnati, Ohio. Fifth Third operates 14 affiliate banks principally in Ohio,
Kentucky, Indiana, Florida and Arizona, and provides a broad array of products
and services through four primary businesses: Commercial Banking, Retail
Banking, Investment Advisors and Midwest Payment Systems, the bank's data
processing subsidiary. With $42 billion in assets, we are among the top 30
largest bank holding companies in the country and among the 15 largest in market
capitalization. Corporate Office Fifth Third Center Cincinnati, Ohio 45263 (513)
579-5300
INVESTMENT QUALITIES
If you had invested $1,000 in Fifth Third stock in 1979, it would have grown to
$163,611 by December 31, 1999. Since 1979, Fifth Third Bancorp has:
- Posted consecutive increased earnings per share and dividend growth
- Increased earnings at an average rate of 17.5%
- Outperformed the Standard & Poor's 500 13-fold
- Grown one share of stock to 51 shares, due to nine stock splits since
1983
CORPORATE OFFICE
Fifth Third Center
Cincinnati, Ohio 45263
(513) 579-5300
WEB SITE
www.53.com
INVESTOR RELATIONS
Neal E. Arnold, Executive Vice President &
Chief Financial Officer
(513) 579-4356 (513) 579-6246 (facsimile)
[email protected]
TRANSFER AGENT/
SHAREHOLDER RELATIONS
Fifth Third Bank
Corporate Trust Services, Mail Drop 10AT66-3212
Fifth Third Center, Cincinnati, Ohio 45263
(800) 837-2755 (513) 579-5320 (outside continental U.S.)
8 a.m. - 5 p.m. Eastern Standard Time
PRESS RELEASES
For faxed copies of current press releases, call (800) 758-5804, ext. 281775
TABLE OF CONTENTS
2 President's Letter
4 Management Editorial
13 Consolidated Statements of Income
14 Consolidated Balance Sheets
15 Consolidated Statements of Changes in Shareholders' Equity
16 Consolidated Statements of Cash Flows
17 Notes to Consolidated Financial Statements
30 Independent Auditors' Repo
31 Management's Discussion and Analysis of Financial Condition and Results of
Operations
39 Consolidated Six Year Summary of Operations, Condensed Consolidated Balance
Sheet Information and Summarized Quarterly Financial Information
40 Consolidated Ten Year Comparison
<PAGE> 3
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS 1999 1998 % CHANGE
- ------------------------------------------------------------------------------------------------------------
EARNINGS AND DIVIDENDS ($ IN MILLIONS)
<S> <C> <C> <C>
Operating Earnings (a) $ 752 645 16.6
Net Income 668 547 22.1
Cash Dividends Declared 248 187 32.6
- ------------------------------------------------------------------------------------------------------------
PER SHARE
Diluted Operating Earnings (a) 2.41 2.10 14.8
Earnings 2.18 1.81 20.4
Diluted Earnings 2.15 1.78 20.8
Cash Dividends Declared .88 .71 23.9
Year-End Book Value 13.20 12.56 5.1
Year-End Market Price 73.38 71.31 2.9
- ------------------------------------------------------------------------------------------------------------
AT YEAR END ($ IN MILLIONS)
Assets $ 41,589 37,092 12.1
Loans and Leases 24,964 22,357 11.7
Deposits 25,886 24,496 5.7
Shareholders' Equity 4,077 3,795 7.4
Market Capitalization 22,666 21,540 5.2
- ------------------------------------------------------------------------------------------------------------
KEY RATIOS
Return on Average Assets (a) 1.89% 1.78 6.2
Return on Average Equity (a) 19.0 18.2 4.4
Overhead Ratio (a)(b) 44.1 45.3 (2.6)
Net Interest Margin 3.99 3.93 1.5
- ------------------------------------------------------------------------------------------------------------
Number of Shares 308,886,592 302,064,369 2.3
Number of Shareholders 35,277 32,909 7.2
Number of Banking Locations 648 631 2.7
Number of Full-Time Equivalent Employees 11,692 11,354 3.0
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For comparability, certain ratios and statistics exclude merger-related
items of $108.4 million pretax ($83.8 million after tax, or $.27 per share)
for 1999 and merger-related items of $138 million pretax ($98.7 million
after tax, or $.32 per share) for 1998.
(b) Operating expenses divided by the sum of fully taxable equivalent net
interest income and other operating income.
FIFTH THIRD BANCORP SHAREHOLDER INFORMATION AND DEBT RATINGS
<TABLE>
<CAPTION>
STOCK DATA DIVIDENDS
PAID PER
YEAR PERIOD HIGH LOW SHARE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 FOURTH QUARTER $75.44 $57.88 $.24
THIRD QUARTER 69.88 58.63 .20
SECOND QUARTER 74.25 61.63 .20
FIRST QUARTER 75.44 62.38 .20
- ------------------------------------------------------------------------------------------------------------
1998 Fourth Quarter $74.13 $50.31 $.17
Third Quarter 67.25 49.25 .17
Second Quarter 63.13 47.50 .17
First Quarter 58.83 49.50 .14 2/3
- ------------------------------------------------------------------------------------------------------------
The common stock of Fifth Third Bancorp is traded in the over-the-counter market
and is listed under the symbol "FITB" on the Nasdaq National Market.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS
STANDARD DUFF &
MOODY'S & POOR'S FITCH PHELPS
- ------------------------------------------------------------------------------------------------------------
FIFTH THIRD BANCORP
<S> <C> <C> <C> <C>
Commercial Paper P1 A1+ F1+ Duff-1+
- ------------------------------------------------------------------------------------------------------------
FIFTH THIRD BANK-CINCINNATI
Short-Term Deposit P1 A1+ F1+ Duff-1+
Long-Term Deposit Aa2 AA- AA+ AA
- -------------------------------------------------------------------------------------------------------------
FIFTH THIRD BANKS OF NORTHWESTERN OHIO, N.A., WESTERN OHIO, CENTRAL OHIO, INDIANA, KENTUCKY, INC.,
AND NORTHERN KENTUCKY
Short-Term Deposit P1 A1+ F1+ Duff-1+
Long-Term Deposit Aa3 AA- AA+ AA
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 4
LETTER FROM THE PRESIDENT
QUALITY GROWTH FROM HARD WORKING PERFORMANCE
Dear Shareholders and Friends:
Nineteen ninety-nine was another outstanding year for Fifth Third. Diluted
operating earnings per share rose 15% to $2.41, driven by operating earnings of
$752 million, up 17% over 1998's $645 million. Return on average equity was 19%
on an abundant capital base, while return on average assets was 1.89%. Our
industry-leading efficiency ratio continued to improve to 44.1%. We are
especially proud of our high ROE, ROA and efficiency this year because each was
lowered slightly as we combined the pre-merger results of several acquisitions.
In fact, in the third quarter of 1999, we achieved historic highs for ROA and
ROE and our efficiency ratio dipped below 40%, a new milestone, before
restatements for our most recent acquisitions.
[PHOTO]
Financial results for the year were highlighted by solid revenue growth,
improved efficiency, a rock-solid balance sheet and solid, steadily improving
credit quality. Fee income grew by 16%, fueled by double-digit revenue growth
across all of our lines of business. Data processing led with a 28% increase in
revenue driven by record credit card merchant processing volumes and higher EFT
volume from debit card and ATM usage. Fifth Third, through its data processing
subsidiary Midwest Payment Systems, ranks #1 and #6 in the nation, respectively,
in EFT and merchant processing, handling over 3.7 billion electronic
transactions in 1999. MPS' world-class capabilities as a transaction processor
position us well to take advantage of the opportunities of e-commerce.
Investment advisory income rose 22% on strong sales across all product lines. We
are one of the largest money managers in the Midwest with over $167 billion in
assets under care, $22 billion of which we manage. Net interest income rose 11%
over 1998, highlighted by strong loan growth across all categories. For example,
we sold over $2.4 billion in new direct installment loans through our Banking
Centers this year, up 50% from last year's sales of $1.6 billion. Our web site,
www.53.com, now has 115,000 active users, and with 300 new users per day, this
is clearly a growing point of access for Fifth Third products and services.
Commercial loans and leases outstanding grew 17% on strong performance in our
affiliate bank markets. Overall, we were pleased with the quality growth and
performance of each of our business lines in 1999. You can learn more about
their successes in the sections that follow.
In addition to core growth in our established markets, we successfully completed
seven acquisitions -- more than any year in our history. This year's
acquisitions of CNB Bancshares, Inc. and Peoples Bank Corporation of
Indianapolis vaulted us to #3 market share in Indiana. Our 1998 acquisitions,
along with the mergers of Emerald Financial and Enterprise Federal earlier this
year, moved us to second in Ohio with over 10% market share. Most importantly,
all were accomplished without sacrificing our financial performance. We intend
to focus on execution and building relationships with our new customers to
create a strong platform for future earnings opportunities in the tri-state
area. We will add to existing markets in the area through aggressive selling and
possibly fill-in acquisitions where they make sense, keeping in mind that
"bigger isn't always better."
I'd like to sincerely thank our employees and those welcomed through mergers for
their efforts. Their hard work and dedication are the key to sustaining Fifth
Third's financial performance through the integration, while making the
transition as smooth as possible for our customers.
As we continue to expand, one of the questions that our management team always
faces is how to sustain Fifth Third's
<PAGE> 5
growth company track record. Unlike most of our industry, we manage growth in a
decentralized manner through separate affiliate banks in each of our major
geographical regions. Each of our affiliates has a CEO who is accountable for
everything that happens in their market, including delivering required net
income growth for their affiliate. This ensures that sales efforts across our
four lines of business are aligned and focused on each market's customers. To
better understand the way we manage growth, it is worth mentioning that today,
four of our affiliates, Western Ohio, Northeastern Ohio, Central Ohio and
Central Indiana, each have about $3.5 billion in assets, which is the same size
that our lead bank in Cincinnati was just 15 years ago in 1985. These affiliates
are individually managed for growth, capitalizing on the benefits of several
small companies, instead of a single large one. We continue to believe that this
management approach is the best way to keep the company "small" and give more
individual managers the opportunity to grow their own business.
The challenge of growing successfully in all of our markets heightens our
dedication to the communities we serve. This year, Fifth Third committed $9
billion to our communities through our unprecedented BLITZ (Building, Lending,
Investments and Technology Zones) program. BLITZ is our promise to spark
community development loans and programs, fund affordable mortgages and small
business loans, and create computer centers with Internet access to address the
needs of low- and moderate-income consumers and businesses.
It was a great honor to receive several accolades from the investment community
in 1999. Our strong financial performance earned us the #1 spot in Salomon Smith
Barney's Top 50 Bank Annual in 1999 for an unprecedented eighth year in a row.
And, among Moody's Investor Services Dividend Achievers we rose in the ranks to
#6 out of 13,200 companies for consistency and growth rate of dividends.
Last year was our 26th year of uninterrupted earnings increases, with the last
21 at a double-digit growth rate. It was also a year that bank stocks seemed to
have fallen out of favor with investors, with some competitors stumbling. This
year promises to be another year of rapid change. Technology, a new regulatory
environment and intensified competition will present significant new challenges
and opportunities. There has been a lot of speculation concerning recent banking
legislation. While we are thankful for less governmental boundaries, we don't
intend to rush haphazardly into "new worlds" with your money. We like the
banking business and expect our management team to remain focused on what works.
Times like this make us more wary and mindful than ever of our obligation to
deliver consistent shareholder returns. We are accustomed to delivering
profitable growth through varying economic conditions. I realize that our
longstanding philosophy of simply executing on the basics better than anyone
isn't particularly flashy in a period when some of our peers are making
headlines with virtual banking and the value of "bigness," but it has served our
shareholders well over the past 26 years.
I sincerely thank our customers, employees, suppliers, members of our Boards and
the communities we serve for their contributions to our 1999 success and their
continued loyalty and support. As we move into 2000, all of us at Fifth Third
will be working hard to deliver another year of consistent, quality growth for
you. I look forward to reporting our accomplishments.
Sincerely,
/s/ George A. Schaefer, Jr.
George A. Schaefer, Jr.
President & CEO
January 2000
[GRAPHS - ON SIDE OF PAGE]
$1.12 $1.32 $1.55 $1.75 $2.10 $2.41
94 95 96 97 98 99
DILUTED EARNINGS PER SHARE
Five Year Compound Growth Rate: 17%
excludes SAIF and Merger Charges
$.36 $.43 $.49 $.57 $.71 $.88
94 95 96 97 98 99
DIVIDENDS DECLARED PER SHARE
Five Year Compound Growth Rate: 20%
$24.8 $28.3 $33.1 $35.2 $37.1 $41.6
94 95 96 97 98 99
TOTAL ASSETS ($ IN BILLIONS)
Five Year Compound Growth Rate: 11%
$7.71 $9.15 $10.35 $11.28 $12.56 $13.20
94 95 96 97 98 99
BOOK VALUE PER SHARE
Five Year Compound Growth Rate: 11%
3
<PAGE> 6
RETAIL BANKING:
- --------------------------------------------------------------------------------
WORKING HARD TO DELIVER CONVENIENCE
Stop by any of our 650 Banking Centers or Bank Mart(R) locations in Kroger and
TOPS grocery stores any day of the week and you'll find a front-line sales force
focused on delivering convenient, smart banking and investment products and
services.
Visit Fifth Third Online(SM), our Internet banking and investment service, dial
up Jeanie(R) Telephone Banking, breeze through a Quick Source(TM) location or
stop by one of our 1,400 Jeanie ATMs, and the story's the same: great, quick
service.
Successful sales campaigns in our Banking Centers drove direct installment loan
originations of $2.4 billion, a historic high for Fifth Third, and an increase
of 50% over 1998. Our Banking Center sales team was also responsible for a 13%
increase in average demand deposit and interest-bearing checking account
[PHOTO - CAROLYN CORDELL, CUSTOMER - MAINEVILLE, OHIO]
[TEXT IN PHOTO]
Carolyn and George Cordell began their relationship with Fifth Third in 1977
when they built their home in Maineville. "When I walk in the door, I feel like
I'm going to see a friend," Mrs. Cordell offers. George, a retired engineer
from Procter & Gamble, and his wife, Carolyn, a retired nurse, bank with Landen
Banking Center Manager Andrea Allen for their equity line, Club 53(g) account
and credit cards. "It's a good feeling, and I wouldn't go anywhere else."
<PAGE> 7
RETAIL BANKING SOLUTIONS
balances and a 23% increase in fee income. By identifying customers' financial
needs and matching them with Fifth Third products that best met those needs, we
were also able to reach an all-time high of $3.1 billion for consumer leases of
which auto leasing was the driving force.
Fifth Third remained "your home for loans" in 1999 by originating over $4.8
billion in residential mortgages, solidifying our position as the leading home
loan lender in Cincinnati, northern Kentucky, and western, northwestern and
central Ohio. Our expanded mortgage loan portfolio is also an excellent source
of cross-selling opportunities: 88% of our mortgage customers also have Fifth
Third BillPayer 2000(R) automatic bill payment service, while 72% have checking
accounts, 37% have direct loans and 31% have credit cards.
Over 350,000 customers are now active Jeanie (R) enhanced debit card holders.
This payment option continues to grow in popularity and debit cards generated
$15.5 million in revenue -- an 80% increase! We also introduced a business debit
card product which posted strong first-year results, while Fifth Third's retail
sales team throughout our Banking Centers drove a 54% increase in sales of our
family of credit card products.
Fifth Third Online, now in its second year, drew over 530,000 visitors in 1999.
With a more intuitive, action-oriented home page, customers now have easier
access to their accounts for transferring funds, checking balances, tailoring
statements, paying bills, applying for a credit card or loan and linking to
Fifth Third's Online Investment Services, where they can make trades and get
stock quotes.
[NEWSPAPER ARTICLE]
[GRAPH]
$969 $778 $606 $547 $452 [ ] REVENUE
$334 $281 $192 $171 $147 [ ] NET INCOME
- ----------------------------------------
99 98 97 96 95
RETAIL ($ IN MILLIONS)
Our toll-free customer service phone line provided another point of access for
sales and service. Fielding over 13 million calls, our Call Center staff
capitalized on these opportunities to generate $145 million in sales, a 190%
increase over 1998.
As a result of our 1999 acquisitions, we now have a considerable market share in
all of our major metropolitan areas. This positions us to strengthen our retail
business even further by extending our many products and services to our new
customers. The potential in our new markets is limitless as Fifth Third can now
compete across all product categories in these cities.
For our millions of customers, the message is clear: by delivering banking and
investment products and services wherever and whenever needed, we are truly
"Working Hard To Be The Only Bank You'll Ever Need(R).
5
<PAGE> 8
COMMERCIAL BANKING:
- --------------------------------------------------------------------------------
WORKING HARD TO BUILD RELATIONSHIPS
Fifth Third's team of commercial bankers is committed to a single goal --
forging solid relationships with our business partners by matching outstanding
services to their needs. Our products range from traditional funding for
expansion, real estate and venture capital opportunities, to leasing,
international finance, IPOs and closely-held services. In 1999, we significantly
increased our market share in the Cincinnati area and capitalized on new
opportunities resulting from recent acquisitions.
The outstanding efforts of several of our affiliates, including Northern
Kentucky, Northeastern Ohio and Central Ohio resulted in commercial banking
revenue growth of 27%. Average commercial demand deposits increased 14%, average
loan and lease outstandings grew 15% and net income was up by 44%.
[TEXT IN PHOTO]
Fifth Third provides lockbox services to the Cleveland Plain Dealer. With a
daily ciruclation of 400,000. The "P.D." is the state's largest newspaper.
Fifth Third Bank President & CEO Bob King, far right, checks out the day's
news with Bob Long and Greg Kosch, Fifth Third Senior Vice President.
[PHOTO OF ROBERT M. LONG, EXECUTIVE VICE PRESIDENT
THE PLAIN DEALER, CLEVELAND]
<PAGE> 9
COMMERCIAL BANKING SOLUTIONS
Commercial Leasing continued to expand its delivery network with the opening of
an eighth regional sales office in Houston. Leasing services are available
throughout Fifth Third's core marketplace of Ohio, Kentucky, Indiana, Florida,
Arizona and Michigan, as well as in Chicago, St. Louis, Omaha, Baltimore,
Nashville and Pittsburgh. Expanded territories for marketing equipment
financing, lease lines of credit, small-ticket and municipal leases, broker
discount programs and other services drove a 19% growth in average outstandings,
an important source of new fee income and higher-yielding assets.
As the only bank in the region with offices in Europe and Asia, Fifth Third is
the natural choice for local and regional customers with international business.
Fifth Third offers a complete range of services to help our commercial
customers, including expediting international payments, international receipts
and automated letters of credit. This distinction has also made us a dominant
provider of banking services to foreign-based companies operating in our
markets. Foreign currency trading, together with letters of credit, trade
finance and other related services fueled a 35% rise in related fee income.
The purchase of Vanguard Financial added to our already considerable strength in
commercial real estate development financing and created one of the leading
mortgage companies in the Midwest: Fifth Third Real Estate Capital Markets
Company. We now offer unsurpassed construction, mini-permanent and alternative
real estate financing products with extended terms and amortization. With a
servicing portfolio of $2.1 billion, we rank among the nation's top 30
commercial real estate financing companies.
[NEWSPAPER ARTICLE]
[GRAPH]
$220 $270 $297 $378 $481 [ ] REVENUE
$92 $106 $124 $135 $195 [ ] NET INCOME
- ----------------------------------------
95 96 97 98 99
COMMERCIAL ($ IN MILLIONS)
Fifth Third Corporate Treasury Management offers a full line of cash management
services, competitive prices and superior technology-based delivery. By
continuing to simplify electronic banking for our domestic and international
business customers, we forged several sizable new lockbox processing
relationships with FORTUNE(R) 1000 companies. These partnerships, and the
information technology products we provide, drove a 12% increase in fee income.
As we begin a new year, we see tremendous potential in all our markets.
Additions such as CNB Bancshares present us with a unique opportunity to further
develop our comprehensive product offerings and expand the depth and breadth of
our services through a sales force of experienced commercial lenders. With a
proven strategy and a dedication to forging strong partnerships, we will
continue to provide our customers with solutions that create lasting business
relationships.
7
<PAGE> 10
INVESTMENT ADVISORS:
- --------------------------------------------------------------------------------
WORKING HARD TO BUILD WEALTH
Fifth Third Investment Advisors is in the business of managing money for
individuals, companies and not-for-profit organizations. Driven by a philosophy
of "consistent, quality growth," our seasoned professionals focus on investing
in companies that are growing and have the potential to do so consistently.
One of the largest money managers in the Midwest, Fifth Third has over $167
billion in assets under care, of which we manage $22 billion for personal,
institutional and not-for-profit clients. We grew this business in 1999 by
delivering a net income gain of 30% and total revenue growth of 27%.
Total revenue growth for our investment advisory businesses was significant.
Corporate and Personal Trust delivered 30% and 14% increases, respectively.
Institutional Trust had a banner year with a 22% revenue increase, driven in
large part by superior sales in Foundation & Endowment Services, which was up
18%.
[PHOTO OF CHRIS GREINER, SR.
GREINER BROS. ENGINEERING, INC., INDIANAPOLIS]
[TEXT IN PHOTO]
Fifth Third Investment Advisors Vice President Steve Wilson manages Greiner
Bros.' investments and provides a profit sharing plan that allows them to
attract and retain employees. The mechanical engineering firm, led by Chris
Sr., Tom and Chris Jr., recently completed work on the Conseco Fieldhouse, home
of the Indiana Pacers.
<PAGE> 11
INVESTMENT ADVISING SOLUTIONS
Retirement Plan Services was up 25%, reflecting the national interest in
planning for the future. Our brokerage business at Fifth Third Securities also
contributed strongly with 31% revenue growth.
Our investment philosophy of "consistent, quality growth" continues to drive the
management of the Fifth Third Funds(R), a family of 16 mutual funds, and the
portfolios individually managed here at Fifth Third. Several of the Funds
received accolades from leading industry mutual fund analysts during 1999 for
their outstanding performance. We remain focused on investing in companies that
are growing, and that have the potential to do so consistently over time.
Earnings growth fuels long-term performance, and we are committed to delivering
this performance to our clients.
Fifth Third Securities continued to offer investors a wide range of unique
investment vehicles. Our Strategic Communications & Technology Unit Trust,
launched in late 1998 to invest in 44 name-brand and emerging technology
companies including America Online and Lucent Technologies, delivered a 162%
appreciation in value. The fund matures in 2003, and others are in the offing
for 2000. We also developed an Exchange Fund for individuals with highly
appreciated stock. And as part of a strategy of offering very conservative
clients an opportunity to receive higher rates of return on their cash
investments, we introduced several annuity products, and sales increased by
168%.
Fifth Third Securities grew its public finance business in 1999 to become the
second largest underwriter and financial advisor in Ohio for infrastructure and
development projects. We served as senior co-manager of the State of Ohio's
Treasury debt issue and completed an $84 million bond sale for Ohio State
University and a $45 million issue for Franklin County, Ohio. Other deals
included a $22 million private placement for a Florida health care company, a $7
million offering for the City of Springdale and a $1.7 million deal for
Fairfield Township. We are proud to serve as financial adviser to the city of
Ashland, Kentucky and, with our recently opened public finance offices in
Lexington and Indianapolis, we are well-positioned to continue to capitalize on
school financing and geographic expansion opportunities.
[NEWSPAPER ARTICLE]
[GRAPH]
$78 $97 $115 $165 $209 [ ] REVENUE
$29 $33 $41 $50 $65 [ ] NET INCOME
- ----------------------------------------
95 96 97 98 99
INVESTMENT ADVISORS ($ IN MILLIONS)
The Securities Services Group, which now provides securities processing services
to 188 mutual funds and over 700 financial services companies, introduced the
Securities Workstation, an Internet-based product to give institutional clients
access to custodial account information in a secure environment. The group has
$118 billion in total assets under custody.
Fifth Third is a full-service money management firm, offering investments,
brokerage, trust, and private banking services, including underwriting and
public financing services to our clients. As we continue to expand our services
throughout the Midwest, we remain focused on building wealth for our customers
through consistent quality growth of the portfolios we manage and through the
delivery of superior service to all clients.
9
<PAGE> 12
MIDWEST PAYMENT SYSTEMS:
- --------------------------------------------------------------------------------
WORKING HARD TO DEVELOP
DATA PROCESSING SOLUTIONS
Whenever you use a credit or debit card to purchase a suit at Saks, a book at
Barnes & Noble, or a pair of wingtips from Shoe Carnival, Fifth Third is there.
When you stop at an ATM in England, Japan or anywhere in the U.S. Midwest, Fifth
Third is there, too, providing data processing solutions to over 60,000 retail
locations and financial institutions around the world.
Fifth Third, a leader in e-commerce, processed 3.7 billion transactions in 18
different currencies last year through our data processing subsidiary, Midwest
Payment Systems (MPS). MPS posted a 28% increase in revenue growth and a 35%
increase in net income by providing Electronic Fund Transfer
[PHOTO OF SCOTT A. HONNOLD, VICE PRESIDENT & TREASURER, SAKS INCORPORATED]
[SAKS FIFTH AVENUE LOGO]
[TEXT IN PHOTO]
SAKS took advantage of MPS' credit card processing and Internet-based imaging
technology for their network at over 350 retail stores, including Saks Fifth
Avenue, Proffitt's, Carson Pirie Scott, Parisian, McRae's, Yonkers and
Herberger's. MPS Executive Vice President Barry Boerstler, center, and Vice
President Joe Pappano review plans with Scott, who offers, "MPS' Mvision(TM)
imaging technology enhances our overall payment system and improves our bottom
line by giving us instant access to all of our credit card transaction
information."
<PAGE> 13
(EFT), Merchant Processing and Electronic Benefits Transfer (EBT) service
solutions.
MPS now delivers EFT services, including ATM processing, electronic personal
banking services, and Visa(R) check card and MasterMoney(TM) debit card programs
to 769 financial institutions. The group added 134 new financial institutions
last year, and for the second year running, MPS was named the #1 EFT processor
by Faulkner & Gray for its combined EFT and credit card volume of 306 million
transactions during the month of March.
Jeanie(R), Fifth Third's proprietary ATM network, was welcomed at 51 new
institutions and merchants during the year. The network is now available in 20
states, plus Washington D.C., and serves 6.5 million cardholders.
Anticipating more than 40 million Visa check card and MasterCard(R) debit card
transactions next year, Houston-based Pulse Network sought a processing partner
to handle its off-line debit business. Pulse President and Chief Executive
Officer Stan Paur offers, "With the exploding deployment of signature-based
debit cards, Pulse needed a very efficient, state-of-the-art service provider.
We chose MPS because it offered the most technologically sound solution with
unprecedented flexibility. And with online back-office support capabilities, an
automated fraud prevention system and Internet-accessible reports and
transaction information, MPS was the stand-out choice for processing services."
The MPS Merchant Processing Group added 3,035 new credit, debit and EBT service
retailers, including Saks, Barnes & Noble, Belk, Best Buy Direct and Giant
Eagle. Now processing for over 62,800 retail locations, MPS ranks sixth
nationally in merchant processing and has demonstrated the fastest growth among
the top 10 processors.
[NEWSPAPER ARTICLE]
[GRAPH]
$80 $94 $119 $151 $194 [ ] REVENUE
$24 $25 $33 $46 $62 [ ] NET INCOME
- -------------------------------------
95 96 97 98 99
MPS ($ IN MILLIONS)
For the fourth consecutive year, Visa recognized MPS as having one of the best
chargeback and copy request fulfillment rates in the business.
Fifth Third's investment in technology continues to play a pivotal role in the
MPS success story. MPS' capabilities as a transaction processor are perfect for
business-to-business e-commerce. MPS now offers a suite of website services for
any type and size of business, including shopping cart capabilities, real time
order placement, card authorization and settlement, and online bill presentment
and payment services. In fact, PC Week magazine recently ranked MPS #1 among
their "Financial Fast Track 100" for our innovative e-commerce capabilities.
MPS strives to develop and deliver the most flexible and technologically
advanced products available. We combine service with innovation and, as always,
we are working hard to develop data processing solutions.
11
<PAGE> 14
FIFTH THIRD CARES:
- ------------------
WORKING HARD IN OUR COMMUNITIES
Building a stronger community helps build a stronger bank. That's why Fifth
Third introduced its innovative Building, Lending, Investments and Technology
Zones, or BLITZ initiative, in 1999. BLITZ pledged $9 billion in development
funds over the next three years to the communities where our customers and
employees live and work.
BLITZ gives low- and moderate-income consumers and targeted businesses greater
access to a broad spectrum of financial products and services. For example, it
offers reduced rates on building projects, and reduced percentage points and
closing costs on our Fifth Third Good Neighbor(R) mortgage products. BLITZ
includes investments in low-income tax credit and venture capital projects.
Another feature is free computers with Internet access for community centers,
like the one featured on this page.
[PHOTO WITH LANGUAGE BELOW]
[Santa Maria Community Services' Social Director Stephanie Larkins works with
area children on a Fifth Third Building, Lending, Investments and Technology
Zones, or "BLITZ" computer.]
[GRAPH - UNITED WAY GIVING] ($ in millions)
$2.1 $2.4 $2.7 $3.3 $4.1
95 96 97 98 99
Includes employee and corporate contributions.
BLITZ offers financing options to not-for-profit agencies and information,
products and services to consumers who wish to purchase a home. With BLITZ,
Fifth Third can fund initiatives to promote wellness, community and
self-reliance through investments in projects that have the potential to bring
prosperity to area residents.
The announcement of BLITZ is further evidence of our commitment to give
something back to communities in each of our markets. In 1999, we contributed
$2.5 million through our Fifth Third Foundation, and $11 million through the
charitable trusts for which we proudly serve as trustee. In addition, corporate
and employee United Way contributions for 1999 totaled $4.1 million.
In 1948, Fifth Third became one of the first institutions to establish a
permanently endowed foundation. Since its creation, the Fifth Third Foundation
has provided over $17 million to worthwhile projects and organizations. Today,
the Foundation has grown to $43 million in assets, thanks to the sound
management of Fifth Third Bank's investment professionals.
<PAGE> 15
FIFTH THIRD BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31 ($ in millions, except per share data) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and Fees on Loans and Leases......................................... $1,912 1,856 1,761
- ---------------------------------------------------------------------------------------------------------------------------
Interest on Securities
Taxable.................................................................... 776 687 669
Exempt from Income Taxes................................................... 38 32 28
- ---------------------------------------------------------------------------------------------------------------------------
Total Interest on Securities.................................................. 814 719 697
- ---------------------------------------------------------------------------------------------------------------------------
Interest on Other Short-Term Investments...................................... 12 10 19
- ---------------------------------------------------------------------------------------------------------------------------
Total Interest Income......................................................... 2,738 2,585 2,477
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on Deposits
Interest Checking ......................................................... 79 73 69
Savings ................................................................... 116 128 96
Money Market .............................................................. 75 74 105
Other Time ................................................................ 440 515 554
Certificates-$100,000 and Over ............................................ 104 105 91
Foreign Office ............................................................ 45 13 22
- ---------------------------------------------------------------------------------------------------------------------------
Total Interest on Deposits ................................................... 859 908 937
Interest on Federal Funds Borrowed ........................................... 172 122 86
Interest on Short-Term Bank Notes............................................. 33 26 37
Interest on Other Short-Term Borrowings....................................... 133 120 115
Interest on Long-Term Debt and Notes ......................................... 136 140 129
- ---------------------------------------------------------------------------------------------------------------------------
Total Interest Expense ....................................................... 1,333 1,316 1,304
- ---------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME .......................................................... 1,405 1,269 1,173
Provision for Credit Losses .................................................. 134 123 117
- ---------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES ........................ 1,271 1,146 1,056
- ---------------------------------------------------------------------------------------------------------------------------
OTHER OPERATING INCOME
Investment Advisory Income ................................................... 184 151 112
Service Charges on Deposits .................................................. 174 156 132
Data Processing Income ....................................................... 180 141 113
Other Service Charges and Fees ............................................... 338 294 225
Securities Gains ............................................................. 1 12 8
- ---------------------------------------------------------------------------------------------------------------------------
Total Other Operating Income ................................................. 877 754 590
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Salaries, Wages and Incentives ............................................... 425 382 335
Employee Benefits ............................................................ 80 72 67
Equipment Expenses ........................................................... 49 45 40
Net Occupancy Expenses ....................................................... 73 67 63
Other Operating Expenses ..................................................... 413 379 344
Merger-Related Charges ....................................................... 82 121 --
- ---------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses ..................................................... 1,122 1,066 849
- ---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES ................................................... 1,026 834 797
Applicable Income Taxes ...................................................... 358 287 268
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME ................................................................... $ 668 547 529
- ---------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE ........................................................... $ 2.18 1.81 1.78
DILUTED EARNINGS PER SHARE ................................................... $ 2.15 1.78 1.75
- ---------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS DECLARED PER SHARE ............................................ $ .88 .71 .57
- ---------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
13
<PAGE> 16
FIFTH THIRD BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
December 31 ($ in millions) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and Due from Banks ........................................................ $ 1,213 1,045
Securities Available for Sale (amortized cost 1999-$13,038 and 1998-$11,037) ... 12,688 11,184
Securities Held to Maturity (fair value 1999-$129 and 1998-$122) ............... 129 122
Other Short-Term Investments ................................................... 355 165
Loans Held for Sale ............................................................ 297 588
Loans and Leases
Commercial Loans ............................................................ 6,207 5,559
Construction Loans .......................................................... 1,068 826
Commercial Mortgage Loans ................................................... 2,651 2,193
Commercial Lease Financing .................................................. 2,283 1,812
Residential Mortgage Loans .................................................. 4,814 5,691
Consumer Loans .............................................................. 5,284 4,458
Consumer Lease Financing .................................................... 3,580 2,531
Unearned Income ............................................................. ( 923) ( 713)
Reserve for Credit Losses ................................................... ( 367) ( 332)
- ---------------------------------------------------------------------------------------------------------------------------
Total Loans and Leases ......................................................... 24,597 22,025
Bank Premises and Equipment .................................................... 482 449
Accrued Income Receivable ...................................................... 321 343
Other Assets ................................................................... 1,507 1,171
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS ................................................................... $41,589 37,092
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- ---------------------------------------------------------------------------------------------------------------------------
Deposits
Demand ...................................................................... $ 3,834 3,873
Interest Checking ........................................................... 4,177 3,808
Savings ..................................................................... 4,167 4,090
Money Market ................................................................ 1,617 1,840
Other Time .................................................................. 8,846 8,794
Certificates-$100,000 and Over .............................................. 1,292 1,737
Foreign Office .............................................................. 2,150 354
- ---------------------------------------------------------------------------------------------------------------------------
Total Deposits ................................................................. 26,083 24,496
Federal Funds Borrowed ......................................................... 2,971 2,138
Short-Term Bank Notes .......................................................... 1,317 --
Other Short-Term Borrowings .................................................... 4,085 2,377
Accrued Taxes, Interest and Expenses ........................................... 786 754
Other Liabilities .............................................................. 293 296
Long-Term Debt ................................................................. 1,804 3,063
Guaranteed Preferred Beneficial Interests in Convertible Subordinated Debentures 173 173
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES .............................................................. 37,512 33,297
- ---------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (a)
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock (b) ............................................................... 686 671
Capital Surplus ................................................................ 916 884
Retained Earnings .............................................................. 2,704 2,204
Accumulated Nonowner Changes in Equity ......................................... ( 225) 94
Treasury Stock ................................................................. -- ( 58)
Other .......................................................................... ( 4) --
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY ..................................................... 4,077 3,795
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..................................... $41,589 37,092
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) 500,000 shares of no par value preferred stock are authorized of which none
have been issued.
(b) Stated value $2.22 per share; authorized 500,000,000; outstanding 1999 --
308,886,592 and 1998 -- 302,064,369 (excludes 922,028 treasury shares).
See Notes to Consolidated Financial Statements.
14
<PAGE> 17
FIFTH THIRD BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
NONOWNER
COMMON CAPITAL RETAINED CHANGES TREASURY
($ IN MILLIONS) STOCK SURPLUS EARNINGS IN EQUITY STOCK OTHER TOTAL
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 ................ $673 826 1,626 10 -- -- 3,135
Net Income and Nonowner Changes
in Equity, Net of Tax:
Net Income .................................. 529 529
Change in Unrealized Gains on Securities
Available for Sale ....................... 95 95
- ---------------------------------------------------------------------------------------------------------------------------
Net Income and Nonowner Changes in Equity 624
Cash Dividends Declared
Fifth Third Bancorp at $.56 8/9 ............ ( 137) ( 137)
Pooled Companies Prior to Acquisition .... ( 34) ( 34)
Shares Acquired for Treasury ................ ( 17) ( 259) ( 276)
Stock Options Exercised,
Including Treasury Shares Issued ......... 2 ( 11) 35 26
Corporate Tax Benefit Related to Exercise
of Non-Qualified Stock Options ........... 2 2
Pooled Operations for the Year Ended
December 31, 1997 ........................ 10 ( 40) ( 30)
Stock Issued in Acquisitions and Other ... 3 5 40 48
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 ................ 661 832 1,944 105 ( 184) -- 3,358
Net Income and Nonowner Changes
in Equity, Net of Tax:
Net Income .................................. 547 547
Change in Unrealized Losses on Securities
Available for Sale ....................... ( 11) ( 11)
- ---------------------------------------------------------------------------------------------------------------------------
Net Income and Nonowner Changes in Equity 536
Cash Dividends Declared
Fifth Third Bancorp at $.71 per share .... ( 187) ( 187)
Pooled Companies Prior to Acquisition .... ( 32) ( 32)
Shares Acquired for Treasury ................ ( 5) ( 138) ( 143)
Earnings Adjustment of Pooled Entity (a) ( 8) ( 8)
Stock Options Exercised,
Including Treasury Shares Issued ......... 3 ( 40) 59 22
Corporate Tax Benefit Related to Exercise
of Non-Qualified Stock Options ........... 4 4
Pooled Operations for the Year Ended
December 31, 1998 ........................ 34 ( 60) ( 26)
Stock Issued in Public Offering ............. 8 48 122 178
Stock Issued in Acquisitions and Other ...... 4 6 83 93
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 ................ 671 884 2,204 94 ( 58) -- 3,795
Net Income and Nonowner Changes
in Equity, Net of Tax:
Net Income 668 668
Change in Unrealized Losses on Securities ...
Available for Sale ....................... ( 319) ( 319)
- ---------------------------------------------------------------------------------------------------------------------------
Net Income and Nonowner Changes in Equity 349
Cash Dividends Declared
Fifth Third Bancorp at $.88 per share .... ( 248) ( 248)
Pooled Companies Prior to Acquisition .... ( 37) ( 37)
Stock Options Exercised,
Including Treasury Shares Issued ......... 3 ( 23) 58 38
Corporate Tax Benefit Related to Exercise
of Non-Qualified Stock Options ........... 15 15
Pooled Operations For the Year Ended
December 31, 1999 ........................ ( 66) ( 66)
Stock Issued in Acquisitions and Other ...... 12 106 117 ( 4) 231
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 ................ $686 916 2,704 ( 225) -- ( 4) 4,077
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The restatement of the CitFed Bancorp, Inc. (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 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 $7.8 million. An adjustment to shareholders' equity
removes the effect of including CitFed's financial results in both periods.
See Notes to Consolidated Financial Statements.
15
<PAGE> 18
FIFTH THIRD BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31 ($ in millions) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net Income .................................................................... $ 668 547 529
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses ............................................. 134 123 117
Depreciation, Amortization and Accretion ............................... 104 118 94
Provision for Deferred Income Taxes ..................................... 255 81 87
Realized Securities Gains................................................ ( 12) ( 16) ( 17)
Realized Securities Losses .............................................. 11 4 9
Proceeds from Sales of Residential Mortgage Loans Held for Sale ......... 2,709 4,009 1,582
Net Gains on Sales of Loans ............................................. ( 36) ( 46) ( 20)
Increase in Residential Mortgage Loans Held for Sale .................... (2,381) (4,171) (1,786)
Decrease (Increase) in Accrued Income Receivable ........................ 25 ( 72) ( 3)
Decrease (Increase) in Other Assets ..................................... ( 229) ( 210) 37
Increase (Decrease) in Accrued Taxes, Interest and Expenses ............. ( 227) 144 15
Increase in Other Liabilities ........................................... 17 14 43
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ..................................... 1,038 525 687
- ---------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from Sales of Securities Available for Sale .......................... 3,934 3,098 3,042
Proceeds from Calls, Paydowns and Maturities of Securities Available
for Sale ................................................................... 3,244 3,724 1,727
Purchases of Securities Available for Sale .................................... (6,891) (6,454) (4,042)
Proceeds from Calls, Paydowns and Maturities of Securities Held to Maturity ... 48 78 282
Purchases of Securities Held to Maturity ...................................... ( 55) ( 53) ( 125)
Decrease (Increase) in Other Short-Term Investments ........................... ( 163) ( 75) 141
Purchases of Loans in Acquisitions ............................................ -- ( 41) --
Increase in Loans and Leases .................................................. (4,615) (1,519) (2,743)
Purchases of Bank Premises and Equipment ...................................... ( 116) ( 82) ( 79)
Proceeds from Disposal of Bank Premises and Equipment ......................... 35 9 7
Net Cash Received (Paid) in Acquisitions ...................................... 47 24 ( 15)
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES ......................................... (4,532) (1,291) (1,805)
- ---------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Purchases of Deposits.......................................................... 120 117 129
Increase (Decrease) in Core Deposits .......................................... ( 86) 61 ( 73)
Increase (Decrease) in CDs-- $100,000 and Over, including Foreign Office ...... 1,328 ( 179) 800
Increase (Decrease) in Federal Funds Borrowed ................................. 833 802 ( 192)
Increase (Decrease) in Short-Term Bank Notes .................................. 1,317 ( 555) ( 301)
Increase (Decrease) in Other Short-Term Borrowings ............................ 1,706 ( 137) 570
Proceeds from Issuance of Long-Term Debt ...................................... 1,570 2,676 3,409
Proceeds Pertaining to Guaranteed Preferred Beneficial Interests in
Convertible Subordinated Debentures ........................................ -- 173 --
Repayment of Long-Term Debt ................................................... (2,830) (1,916) (2,893)
Payment of Cash Dividends ..................................................... ( 269) ( 168) ( 134)
Exercise of Stock Options ..................................................... 53 27 28
Proceeds from Sale of Common Stock ............................................ -- 178 --
Purchases of Treasury Stock ................................................... -- ( 199) ( 317)
Other ......................................................................... ( 80) ( 33) ( 30)
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ..................................... 3,662 847 996
- ---------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS ................................ 168 81 ( 122)
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR .................................. 1,045 964 1,086
- ---------------------------------------------------------------------------------------------------------------------------
CASH AND DUE FROM BANKS AT END OF YEAR ........................................ $1,213 1,045 964
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: The Bancorp paid Federal income taxes of $141 million, $174 million and
$155 million in 1999, 1998 and 1997, respectively. The Bancorp paid
interest of $1,302 million, $1,319 million and $1,309 million in 1999,
1998 and 1997, respectively.
The Bancorp had noncash investing activities consisting of the
securitization and transfer to securities of $2.1 billion, $1.6 billion
and $1.1 billion of residential mortgage loans in 1999, 1998 and 1997,
respectively.
See Notes to Consolidated Financial Statements.
16
<PAGE> 19
FIFTH THIRD BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
NATURE OF OPERATIONS
Fifth Third Bancorp (Bancorp) conducts its principal activities through its
banking and non-banking subsidiaries from 648 offices located throughout Ohio,
Indiana, Kentucky, Michigan, Illinois, Arizona and Florida. Principal activities
include commercial and retail banking, investment advisory services and data
processing.
BASIS OF PRESENTATION
The Consolidated Financial Statements include the accounts of the Bancorp
and its subsidiaries. All material intercompany transactions and balances have
been eliminated. Certain prior period data has been reclassified to conform to
current period presentation.
Financial data for all prior periods has been restated to reflect the 1999
mergers with CNB Bancshares, Inc. (CNB) and Peoples Bank Corporation of
Indianapolis (Peoples). These mergers were accounted for as
poolings-of-interests. Cash dividends per common share are those the Bancorp
declared prior to the mergers with CNB and Peoples.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
SECURITIES
Securities are classified as held to maturity, available for sale or
trading on the date of purchase. Only those securities classified as held to
maturity, and which management has the intent and ability to hold to maturity,
are reported at amortized cost. Available for sale and trading securities are
reported at fair value with unrealized gains and losses, net of related deferred
income taxes and are included in accumulated nonowner changes in equity or
income, respectively. Realized securities gains or losses are reported in the
Consolidated Statements of Income. The cost of securities sold is based on the
specific identification method.
LOANS AND LEASES
Interest income on loans is based on the principal balance outstanding,
with the exception of interest on discount basis loans, computed using a method
which approximates the interest income. The accrual of interest income for
commercial, construction and mortgage loans is discontinued when there is a
clear indication the borrower's cash flow may not be sufficient to meet payments
as they become due. Such loans are also placed on nonaccrual status when the
principal or interest is past due ninety days or more, unless the loan is well
secured and in the process of collection. When a loan is placed on nonaccrual
status, all previously accrued and unpaid interest is charged against income.
Loan and lease origination and commitment fees and certain direct loan
origination costs are deferred and the net amount amortized over the estimated
life of the related loans or commitments as a yield adjustment.
Interest income on direct financing leases is recognized to achieve a
constant periodic rate of return on the outstanding investment. Interest income
on leveraged leases is recognized to achieve a constant rate of return on the
outstanding investment in the lease, net of the related deferred income tax
liability, in the years in which the net investment is positive.
Residential mortgage loans held for sale are valued at the lower of
aggregate cost or fair value. The Bancorp generally has commitments to sell
residential mortgage loans held for sale in the secondary market. Gains or
losses on sales are recognized in Other Service Charges and Fees upon delivery.
Statement of Financial Accounting Standards (SFAS)No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
was adopted in 1997 and provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities.
The adoption of SFAS No. 125 did not have a material effect on the Consolidated
Financial Statements of the Bancorp.
When the Bancorp sells or securitizes mortgage loans with servicing rights
retained, the total cost of the mortgage loan is allocated to the servicing
rights and the loans based on their relative fair values. The resulting
servicing rights are amortized in proportion to, and over the period of
estimated net servicing revenues. Servicing rights are assessed for impairment
periodically, based on fair value, with any impairment recognized through a
valuation allowance. For purposes of measuring impairment, the rights are
stratified based on interest rate and original maturity. Fees received for
servicing mortgage loans owned by investors are based on a percentage of the
outstanding monthly principal balance of such loans and are included in income
as loan payments are received. Costs of servicing loans are charged to expense
as incurred.
Impaired loans are measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or the fair value of
the underlying collateral. The Bancorp evaluates the collectibility of both the
interest and principal when assessing the need for a loss accrual.
RESERVE FOR CREDIT LOSSES
The Bancorp 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 Bancorp estimates losses using a range
derived from "base" and "conservative" estimates. The Bancorp'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 Bancorp.
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 loans' effective interest rate or
fair value of the underlying collateral. The Bancorp 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.
17
<PAGE> 20
FIFTH THIRD BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 Bancorp'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.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment, including leasehold improvements, are stated
at cost less accumulated depreciation and amortization. Depreciation is
calculated using the straight-line method based on estimated useful lives of the
assets for book purposes, while accelerated depreciation is used for income tax
purposes. Amortization of leasehold improvements is computed using the
straight-line method over the lives of the related leases or useful lives of the
related assets, whichever is shorter. Maintenance, repairs and minor
improvements are charged to operating expenses as incurred.
INTANGIBLE ASSETS
Goodwill and other intangibles are amortized on a straight-line basis,
generally over a period of up to 25 years. Intangible assets, net of accumulated
amortization, included in Other Assets in the Consolidated Balance Sheets at
December 31, 1999 and 1998 were $544.6 million and $415.2 million, respectively.
Management reviews intangible assets for possible impairment if there is a
significant event that detrimentally affects operations. Impairment is measured
using estimates of the discounted future earnings potential of the entity or
assets acquired.
DERIVATIVE FINANCIAL INSTRUMENTS
The Bancorp enters into foreign exchange forward contracts primarily to
enable customers involved in international trade to hedge their exposure to
foreign currency fluctuations. The Bancorp generally hedges its exposure to
market rate fluctuations by entering into offsetting third-party forward
contracts, which are predominantly settled daily. Unrealized gains and losses on
forward contracts are insignificant and are recognized in Other Service Charges
and Fees in the Consolidated Statements of Income when realized.
The Bancorp has purchased options and interest rate floors to hedge a
portion of the value of mortgage servicing rights against changes in prepayment
rates. Premiums are amortized over the option life on a straight-line basis. The
contracts are designated as hedges, with gains and losses recorded as basis
adjustments to the mortgage servicing rights.
The Bancorp has interest rate caps, floors and swaps to adjust the interest
rate sensitivity of long-term, fixed-rate capital-qualifying securities and
hedge the risk of future fluctuations in interest rates relating to hedging
transactions effected for commercial clients. The unamortized cost of acquiring
interest rate caps and floors is included in Other Assets in the Consolidated
Balance Sheets and amortized over the term of the agreements as interest
expense. Interest rate swaps are linked through designation with certain assets
or liabilities of the Bancorp. Net interest income (expense) resulting from the
differential between exchanging floating and fixed-rate interest payments is
recorded on an accrual basis as an adjustment to the interest income (expense)
of the associated asset or liability.
The Bancorp does not hold or issue derivative financial instruments for
trading purposes.
EARNINGS PER SHARE
Earnings per share is calculated by dividing net income for the period by
the weighted average number of shares of common stock outstanding during the
period. The assumed conversion of convertible subordinated debentures and the
exercise of stock options is included in the calculation of diluted earnings per
share.
SFAS No. 128, "Earnings Per Share," was adopted in 1997 with all
prior-period earnings per share data restated. SFAS No. 128 requires dual
presentation of earnings per share and diluted earnings per share on the
Consolidated Statements of Income and other computational changes. The adoption
of SFAS No. 128 did not have a material effect on previously reported earnings
per share.
OTHER
SFAS No. 130, "Reporting Comprehensive Income," was adopted in 1998. The
statement requires additional reporting of items that effect comprehensive
income but not net income. Examples relevant to the Bancorp include unrealized
gains and losses on securities available for sale. The Bancorp elected to
present the required disclosures in the Consolidated Statements of Shareholders'
Equity. The caption "Net Income and Nonowner Changes in Equity, Net of Tax,"
represents total comprehensive income as defined in SFAS No. 130. Because the
statement solely relates to disclosure requirements, it had no effect on the
Bancorp's financial results.
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," was adopted in 1998. The statement requires financial disclosure
and descriptive information about reportable operating segments of an
enterprise. This statement resulted in additional financial statement
disclosures upon adoption, however, the Bancorp did not make material changes to
its segment groupings.
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. SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133," amended Statement No. 133 to be effective for all
fiscal years beginning after June 15, 2000. Although the Bancorp has not
formally completed its evaluation of SFAS No. 133, as amended, the adoption of
the statement is not expected to have a material effect on the Bancorp's
Consolidated Financial Statements.
Securities and other property held by Fifth Third Investment Advisors, a
division of the Bancorp's banking subsidiaries, in a fiduciary or agency
capacity are not included in the Consolidated Balance Sheets because such items
are not assets of the subsidiaries. Investment advisory income in the
Consolidated Statements of Income is recognized on the accrual basis.
Treasury stock is carried at cost.
18
<PAGE> 21
FIFTH THIRD BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2-SECURITIES
Securities available for sale as of December 31:
- --------------------------------------------------------------------------------
1999
--------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
($ in millions) COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
U.S. Government
and agencies
obligations....... $ 654.0 0.4 ( 13.9) 640.5
Obligations of
states and
political
subdivisions...... 716.8 5.5 ( 22.7) 699.6
Agency mortgage-
backed
securities........ 10,087.4 11.2 (311.8) 9,786.8
Other bonds,
notes and
debentures........ 1,378.7 .4 ( 22.3) 1,356.8
Other securities.... 200.9 13.0 ( 10.1) 203.8
- --------------------------------------------------------------------------------
Total securities.... $13,037.8 30.5 (380.8) 12,687.5
- --------------------------------------------------------------------------------
1998
--------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
($ in millions) COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
U.S. Government
and agencies
obligations....... $ 303.8 6.7 -- 310.5
Obligations of
states and
political
subdivisions...... 681.7 24.1 ( 1.9) 703.9
Agency mortgage-
backed
securities........ 8,878.6 134.7 (11.3) 9,002.0
Other bonds,
notes and
debentures........ 808.2 5.4 (25.1) 788.5
Other securities.... 364.9 15.4 ( 1.3) 379.0
- --------------------------------------------------------------------------------
Total securities.... $11,037.2 186.3 (39.6) 11,183.9
- --------------------------------------------------------------------------------
Securities held to maturity as of December 31:
- --------------------------------------------------------------------------------
1999
--------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
($ in millions) COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
Obligations of
states and
political
subdivisions...... $ 117.1 -- -- 117.1
Other bonds,
notes and
debentures........ 1.5 -- -- 1.5
Other securities.... 10.5 -- -- 10.5
- --------------------------------------------------------------------------------
Total securities.... $129.1 -- -- 129.1
- --------------------------------------------------------------------------------
1998
--------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
($ in millions) COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
Obligations of
states and
political
subdivisions...... $ 86.0 -- -- 86.0
Other bonds,
notes and
debentures........ 1.7 -- -- 1.7
Other securities.... 34.2 -- -- 34.2
- --------------------------------------------------------------------------------
Total securities.... $121.9 -- -- 121.9
- --------------------------------------------------------------------------------
The amortized cost and approximate fair value of securities at December 31,
1999, by contractual maturity, are shown in the following table. Actual
maturities may differ from contractual maturities when there exists a right to
call or prepay obligations with or without call or prepayment penalties.
- --------------------------------------------------------------------------------
AVAILABLE FOR SALE HELD TO MATURITY
------------------ ----------------
AMORTIZED FAIR AMORTIZED FAIR
($ in millions) COST VALUE COST VALUE
- --------------------------------------------------------------------------------
Debt securities:
Under 1 year... $ 132.4 132.0 $ 50.9 50.9
1-5 years...... 928.4 914.6 19.9 19.9
6-10 years..... 1,051.2 1,040.3 4.1 4.1
Over 10 years.. 637.5 610.0 43.7 43.7
Agency mortgage-
backed
securities..... 10,087.4 9,786.8 -- --
Other securities 200.9 203.8 10.5 10.5
- --------------------------------------------------------------------------------
Total securities $13,037.8 12,687.5 $129.1 129.1
- --------------------------------------------------------------------------------
At December 31, 1999 and 1998, securities with a book value of $7.7 billion
and $7.1 billion, respectively, were pledged to secure short-term borrowings,
public deposits, trust funds and for other purposes as required or permitted by
law.
NOTE 3-RESERVE FOR CREDIT LOSSES
Transactions in the reserve for credit losses for the years ended December
31:
- --------------------------------------------------------------------------------
($ in millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Balance at January 1........ $ 331.6 312.2 284.3
Losses charged off.......... ( 154.3) ( 142.8) ( 121.7)
Recoveries of losses
previously charged off.... 42.5 33.0 30.5
- --------------------------------------------------------------------------------
Net charge-offs............. ( 111.8) ( 109.8) ( 91.2)
Provision charged to
operations................ 134.0 123.5 116.9
Reserve of acquired
institutions and other.... 12.8 5.7 2.2
- --------------------------------------------------------------------------------
Balance at December 31...... $ 366.6 331.6 312.2
- --------------------------------------------------------------------------------
Impaired loan information, under SFAS No. 114, at December 31:
- --------------------------------------------------------------------------------
($ in millions) 1999 1998
- --------------------------------------------------------------------------------
Impaired loans with a
valuation reserve........ $ 22.9 41.1
Impaired loans with
no valuation reserve..... 24.7 29.7
- --------------------------------------------------------------------------------
Total impaired loans........ $ 47.6 70.8
Valuation reserve on
impaired loans............ $ 9.4 10.9
- --------------------------------------------------------------------------------
Average impaired loans, net of valuation reserves, were $49.1 million in
1999, $63.8 million in 1998 and $56.1 million in 1997. Cash basis interest
income recognized on those loans during each of the years was immaterial.
19
<PAGE> 22
FIFTH THIRD BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4-LEASE FINANCING
A summary of the gross investment in lease financing at December 31:
- --------------------------------------------------------------------------------
($ in millions) 1999 1998
- --------------------------------------------------------------------------------
Direct financing leases.......... $5,184.5 3,875.7
Leveraged leases................. 678.0 467.3
- --------------------------------------------------------------------------------
Total lease financing............ $5,862.5 4,343.0
- --------------------------------------------------------------------------------
The components of the investment in lease financing at December 31:
- --------------------------------------------------------------------------------
($ in millions) 1999 1998
- --------------------------------------------------------------------------------
Rentals receivable, net of
principal and interest
on nonrecourse debt........... $3,453.3 2,645.8
Estimated residual value
of leased assets.............. 2,409.2 1,697.2
- --------------------------------------------------------------------------------
Gross investment in lease
financing..................... 5,862.5 4,343.0
Unearned income.................. ( 875.7) ( 664.4)
- --------------------------------------------------------------------------------
Total net investment in lease
financing...................... $4,986.8 3,678.6
- --------------------------------------------------------------------------------
At December 31, 1999, the minimum future lease payments receivable for each
of the years 2000 through 2004 were $1,162.2 million, $1,135.3 million, $1,082.3
million, $862.4 million and $552.1 million, respectively.
NOTE 5-BANK PREMISES AND EQUIPMENT
A summary of bank premises and equipment at December 31:
- --------------------------------------------------------------------------------
Estimated
($ in millions) Useful Life 1999 1998
- --------------------------------------------------------------------------------
Land and improvements..... $118.5 82.6
Buildings................. 18 to 50 yrs. 343.3 324.8
Equipment................. 3 to 20 yrs. 313.4 310.0
Leasehold improvements.... 6 to 25 yrs. 79.0 80.4
Accumulated depreciation
and amortization........ ( 372.7) ( 349.0)
- --------------------------------------------------------------------------------
Total bank premises and
equipment............... $481.5 448.8
- --------------------------------------------------------------------------------
Depreciation and amortization expense related to bank premises and
equipment was $52.9 million in 1999, $46.5 million in 1998 and $42.8 million in
1997.
Occupancy expense has been reduced by rental income from leased premises of
$10.6 million in 1999 and $9.7 million in 1998 and 1997.
The Bancorp's subsidiaries have entered into a number of noncancelable
lease agreements with respect to bank premises and equipment. Equipment under
noncancelable lease agreements was not material to the Bancorp. A summary of the
minimum annual rental commitments under noncancelable lease agreements for land
and buildings at December 31, 1999, exclusive of income taxes and other charges
payable by the lessee:
- --------------------------------------------------------------------------------
LAND AND
($ in millions) BUILDINGS
- --------------------------------------------------------------------------------
2000........................... $ 22.2
2001........................... 20.6
2002........................... 18.0
2003........................... 16.2
2004........................... 18.4
2005 and subsequent years...... 52.5
- --------------------------------------------------------------------------------
Total.......................... $147.9
- --------------------------------------------------------------------------------
Rental expense for cancelable and noncancelable leases was $30.1 million
for 1999, $24.9 million for 1998 and $24.1 million for 1997.
NOTE 6-SHORT-TERM BORROWINGS
A summary of short-term borrowings and rates at December 31:
- --------------------------------------------------------------------------------
($ in millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Federal funds borrowed:
Balance................... $2,971.9 2,137.9 1,358.1
Rate...................... 5.71% 4.65% 5.66%
- --------------------------------------------------------------------------------
Short-term bank notes:
Balance................... $1,317.4 -- 555.0
Rate...................... 5.98% -- 5.85%
- --------------------------------------------------------------------------------
Securities sold under
Agreements to repurchase:
Balance................... $3,761.4 2,275.3 1,825.8
Rate...................... 5.08% 4.63% 4.96%
- --------------------------------------------------------------------------------
Other:
Balance................... $323.0 101.4 652.4
Rate...................... 5.46% 4.27% 5.75%
- --------------------------------------------------------------------------------
Total short-term
borrowings:
Balance................... $8,373.7 4,514.6 4,391.3
Rate...................... 5.45% 4.63% 5.41%
- --------------------------------------------------------------------------------
Average outstanding......... $6,964.6 5,105.5 4,481.6
Maximum month-end
balance................... $8,786.9 6,073.1 5,227.8
Weighted average
interest rate............. 4.85% 5.26% 5.31%
- --------------------------------------------------------------------------------
Short-term senior notes are offered with maturities ranging from 30 days to
one year, are obligations of seven of the Bancorp's subsidiary banks and are
included in the above table as short-term bank notes. In addition, medium-term
senior notes and subordinated bank notes with maturities ranging from five years
to 30 years can be issued by the seven subsidiary banks, none of which were
outstanding as of December 31, 1999 or 1998.
At December 31, 1999, the Bancorp had issued $18.3 million in commercial
paper, with unused lines of credit of $40 million available to support
commercial paper transactions and other corporate requirements.
NOTE 7-LONG-TERM BORROWINGS
A summary of long-term borrowings at December 31:
- --------------------------------------------------------------------------------
($ in millions) 1999 1998
- --------------------------------------------------------------------------------
Bancorp:
Capital Securities,
8.136%, due 2027............... $ 200.0 200.0
Subsidiaries:
Subordinated notes,
6.75%, due 2005................ 248.1 247.8
Federal Home Loan Bank advances.. 1,163.8 1,560.6
Securities sold under agreements
to repurchase.................. 129.5 1,050.0
Other............................ 62.4 5.2
- --------------------------------------------------------------------------------
Total long-term borrowings....... $1,803.8 3,063.6
- --------------------------------------------------------------------------------
In March 1997, Fifth Third Capital Trust 1 (FTCT1), a wholly-owned
subsidiary of the Bancorp, issued $200 million 8.136% Capital Securities due in
2027. The Bancorp has fully and unconditionally guaranteed all of FTCT1's
obligations under the Capital Securities. The Capital Securities qualify as Tier
1 capital for regulatory capital purposes.
The 6.75% Subordinated Notes due in 2005 are unsecured obligations of a
subsidiary bank. Interest is payable semiannually and the notes qualify as total
capital for regulatory capital purposes.
At December 31, 1999, Federal Home Loan Bank advances have rates ranging
from 3.22% to 8.34%, with interest payable
20
<PAGE> 23
monthly. The advances were secured by certain mortgage loans and securities. The
advances mature as follows: $423.1 million in 2000, $12.7 million in 2001,
$137.8 million in 2002, $140.9 million in 2003, $55.1 million in 2004 and $394.2
million thereafter.
At December 31, 1999, securities sold under agreements to repurchase have
rates ranging from 3.46% to 7.51%, with interest payable monthly. The repurchase
agreements mature as follows: $4.7 million in 2000, $4.9 million in 2001, $105.1
million in 2002, $2.6 million in 2003, $1.3 million in 2004 and $10.9 million
thereafter.
NOTE 8-GUARANTEED PREFERRED BENEFICIAL INTERESTS IN CONVERTIBLE SUBORDINATED
DEBENTURES
In connection with the merger of CNB, the Bancorp assumed $172.5 million of
trust preferred securities through CNB Capital Trust I, a Delaware statutory
business trust. The trust preferred securities have a liquidation amount of $25
per share with a cumulative annual distribution rate of 6.0%, or $.375 per
share, payable quarterly, and maturing on June 30, 2028. The trust preferred
securities are convertible at any time at the conversion ratio of .4267 shares
of common stock of the Bancorp for each trust preferred security (equivalent to
a conversion price of $58.59), subject to certain adjustments.
The sole assets of CNB Capital Trust I are $177.8 million of convertible
subordinated debentures of the Bancorp with the interest rate, maturity date and
conversion rate substantially identical to those of the trust preferred
securities. The back-up obligations of the Bancorp with respect to the trust
preferred securities constitute, in the aggregate, a full and unconditional
guarantee by the Bancorp of the obligations of CNBCapital Trust I under the
trust preferred securities.
The Bancorp may redeem the convertible subordinated debentures and thereby
cause a redemption of the trust preferred securities in whole (or in part from
time to time) on or after June 23, 2001, or in whole (but not in part) within 90
days following the occurrence and continuance of certain adverse federal income
tax or capital treatment events.
Costs associated with the issuance of the trust preferred securities
totaling $4.8 million were capitalized and are being amortized through the
maturity date of the securities. The unamortized balance is included in Other
Assets in the Consolidated Balance Sheets.
The Bancorp records distributions payable on the trust preferred securities
as Other Operating Expenses in its Consolidated Statements of Income.
NOTE 9-INCOME TAXES
The Bancorp and its subsidiaries file a consolidated Federal income tax
return. A summary of applicable income taxes included in the Consolidated
Statements of Income at December 31:
- --------------------------------------------------------------------------------
($ in millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Current U.S. income taxes......... $ 87.6 194.2 172.0
State and local income taxes...... 15.9 11.9 8.3
- --------------------------------------------------------------------------------
Total............................. 103.5 206.1 180.3
- --------------------------------------------------------------------------------
Deferred U.S. income taxes
resulting from temporary
differences..................... 254.5 81.0 87.4
- --------------------------------------------------------------------------------
Applicable income taxes........... $358.0 287.1 267.7
- --------------------------------------------------------------------------------
Deferred income taxes are included in the caption Accrued Taxes, Interest
and Expenses in the Consolidated Balance Sheets and are comprised of the
following temporary differences at December 31:
- --------------------------------------------------------------------------------
($ in millions) 1999 1998
- --------------------------------------------------------------------------------
Lease financing................... $713.1 476.5
Reserve for credit losses......... ( 125.0) ( 111.6)
Bank premises and equipment....... 18.6 17.3
Unrealized gains (losses) on
securities available for sale... ( 125.7) 52.0
Other............................. 43.4 13.4
- --------------------------------------------------------------------------------
Total net deferred tax liability.. $524.4 447.6
- --------------------------------------------------------------------------------
A reconciliation between the statutory U.S. income tax rate and the
Bancorp's effective tax rate for the years ended December 31:
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Statutory tax rate................. 35.0% 35.0% 35.0%
Increase (Decrease) resulting
from:
Tax-exempt interest............. (1.7) (2.1) (2.1)
Other-net....................... 1.6 1.5 .7
- --------------------------------------------------------------------------------
Effective tax rate................. 34.9% 34.4% 33.6%
- --------------------------------------------------------------------------------
Retained earnings at December 31, 1999 includes $132.4 million in
allocations of earnings for bad debt deductions of former thrift subsidiaries
for which no income tax has been provided. Under current tax law, if certain of
the Bancorp's subsidiaries use these bad debt reserves for purposes other than
to absorb bad debt losses, they will be subject to Federal income tax at the
current corporate tax rate.
NOTE 10-RELATED PARTY TRANSACTIONS
At December 31, 1999 and 1998, certain directors, executive officers,
principal holders of Bancorp common stock and associates of such persons were
indebted to the banking subsidiaries in the aggregate amount, net of
participations, of $179.9 million and $144.9 million, respectively. Such
indebtedness was incurred in the ordinary course of business on substantially
the same terms as those prevailing at the time of comparable transactions with
unrelated parties.
NOTE 11-STOCK OPTIONS AND EMPLOYEE STOCK GRANT
The Bancorp has historically emphasized employee stock ownership.
Accordingly, the Bancorp encourages further ownership through granting stock
options to approximately 18% of its employees. Share grants represented
approximately 1.5% of average outstanding shares in each of the last three
years.
Options can be granted under the Bancorp's 1998 Stock Option Plan to key
employees and directors of the Bancorp and its subsidiaries for up to 15.2
million shares of the Bancorp's common stock. Options granted generally have up
to ten year terms and vest and become fully exercisable at the end of three
years of continued employment. A summary of option transactions during the years
ended December 31:
21
<PAGE> 24
FIFTH THIRD BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1999 1998 1997
AVERAGE Average Average
SHARES OPTION Shares Option Shares Option
(000'S) PRICE (000'S) Price (000's) Price
- --------------------------------------------------------------------------------
Outstanding
beginning
of year.... 15,054 $33.01 12,543 $23.26 10,324 $16.92
Exercised.... ( 1,926) 21.36 ( 1,539) 17.67 ( 1,855) 14.81
Expired...... ( 268) 54.36 ( 436) 41.78 ( 238) 24.76
Granted...... 4,446 71.41 4,486 55.09 4,312 34.87
- --------------------------------------------------------------------------------
Outstanding
end of
year....... 17,306 $43.84 15,054 $33.01 12,543 $23.26
- --------------------------------------------------------------------------------
Exercisable
end of
year....... 11,602 $35.09 9,386 $25.43 7,769 $19.17
- --------------------------------------------------------------------------------
As of December 31, 1999, options outstanding have exercise prices between
$3.98 and $73.81 and a weighted average remaining contractual life of 7.4 years.
The majority of options outstanding have exercise prices ranging from $15.44 to
$73.81 with a weighted average remaining contractual life of 7.4 years.
At December 31, 1999, there were 8 million incentive options and 9.3
million nonqualified options outstanding and 7.1 million shares were available
for granting additional options. Options outstanding represent 5.6% of the
Bancorp's issued shares at December 31, 1999.
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation,"
the Bancorp has elected to disclose pro forma net income and earnings per share
amounts as if the fair-value-based method had been applied in measuring
compensation costs.
The Bancorp's pro forma information for the years ended December 31:
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Pro forma net income ($ in millions)........ $616.9 516.4 515.9
Pro forma earnings per share................ $ 2.02 1.71 1.73
Pro forma diluted earnings per share........ $ 1.98 1.67 1.70
- --------------------------------------------------------------------------------
Compensation expense in the pro forma disclosures is not indicative of
future amounts as options vest over several years and additional grants are
generally made each year.
The weighted average fair value of options granted was $28.13, $20.44 and
$9.47 in 1999, 1998 and 1997, respectively. The fair value of each option grant
is estimated on the date of grant using the Black-Scholes option-pricing model
with the following assumptions used for grants in 1999, 1998 and 1997: expected
option lives of nine years for all three years; expected dividend yield of 1%
for all three years; expected volatility of 25%, 25% and 24% and risk-free
interest rates of 5.9%, 4.6% and 5.4%, respectively.
On May 3, 1999, the Bancorp 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 $6.5 million. This award is being
recognized as compensation expense over the two-year vesting period. The
unamortized cost is reported as a reduction of shareholders' equity.
NOTE 12-COMMITMENTS AND CONTINGENT LIABILITIES
The Bancorp, in the normal course of business, is a party to financial
instruments with off-balance-sheet risk to meet the financing needs of its
customers in Ohio, Kentucky, Indiana, Michigan, Illinois, Arizona and Florida,
and to minimize exposure to fluctuations in interest and foreign currency
exchange rates. These financial instruments primarily include commitments to
extend credit, standby and commercial letters of credit, foreign exchange
contracts, interest rate swap agreements, interest rate floors and caps,
purchased options and commitments to sell residential mortgage loans. These
instruments involve, to varying degrees, elements of credit risk, counterparty
risk and market risk in excess of the amounts recognized in the Consolidated
Balance Sheets. The contract or notional amounts of these instruments reflect
the extent of involvement the Bancorp has in particular classes of financial
instruments.
Creditworthiness for all instruments is evaluated on a case-by-case basis
in accordance with the Bancorp credit policies. Collateral, if deemed necessary,
is based on management's credit evaluation of the counterparty and may include
business assets of commercial borrowers as well as personal property and real
estate of individual borrowers and guarantors.
A summary of significant commitments and other off-balance-sheet items at
December 31:
- --------------------------------------------------------------------------------
Contract or
Notional Amount
-------------------
($ in millions) 1999 1998
- --------------------------------------------------------------------------------
Commitments to extend credit......... $9,196.0 8,293.4
Letters of credit (including
standby letters of credit)......... 1,458.0 1,467.7
Foreign exchange contracts:
Commitments to purchase............ 289.2 97.4
Commitments to sell................ 301.6 99.7
Interest rate swap agreements........ 1,014.9 898.3
Interest rate floors................. 103.9 267.0
Interest rate caps................... 11.9 30.0
Purchased options.................... 75.0 106.0
Commitments to sell
residential mortgage loans......... 93.9 322.0
- --------------------------------------------------------------------------------
Commitments to extend credit are agreements to lend. Commitments to extend
credit generally have fixed expiration dates or other termination clauses that
may require payment of a fee. Since many of the commitments to extend credit may
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash flow requirements. The Bancorp's exposure to credit risk
in the event of nonperformance by the other party is the contract amount.
Fixed-rate commitments are subject to market risk resulting from fluctuations in
interest rates and the Bancorp's exposure is limited to the replacement value of
those commitments.
Standby and commercial letters of credit are conditional commitments issued
to guarantee the performance of a customer to a third party. At December 31,
1999, approximately $577.9 million of standby letters of credit will expire
within one year, $790.9 million expire between one to five years and $78.6
million expire thereafter. At December 31, 1999, letters of credit of
approximately $10.6 million were issued to commercial customers for a duration
of one year or less to facilitate trade payments in domestic and foreign
currency transactions. The amount of credit risk involved in issuing letters of
credit in the event of nonperformance by the other party is the contract amount.
Foreign exchange forward contracts are for future delivery or purchase of
foreign currency at a specified price. Risks arise from the possible inability
of counterparties to meet the terms of their contracts and from any resultant
exposure to movement in foreign currency exchange rates, limiting the Bancorp's
exposure to the replacement value of the contracts rather than the notional
principal or contract amounts. The Bancorp reduces its market risk for foreign
exchange contracts by generally entering into offsetting third-party forward
contracts. The foreign exchange contracts outstanding at December 31, 1999
primarily mature in one year or less.
The Bancorp enters into forward contracts for future delivery of
residential mortgage loans at a specified yield to reduce the interest
22
<PAGE> 25
rate risk associated with fixed-rate residential mortgages held for sale and
commitments to fund residential mortgage loans. Credit risk arises from the
possible inability of the other parties to comply with the contract terms. The
majority of the Bancorp's contracts are with U.S. government-sponsored agencies
(FNMA, FHLMC).
At December 31, 1999, the Bancorp had purchased option contracts and
interest rate floor agreements with notional values of $75 million and $103.9
million, respectively, to hedge a portion of the value of mortgage servicing
rights against changes in value with changing prepayment rates. The options have
an original term of five years and give the Bancorp the right to receive
payments on fixed rates ranging from 5.15% to 6.15% and to make payments based
on the six-month London Interbank Offering Rate (LIBOR). The Bancorp may receive
a payment each quarter on the interest rate floor agreements if the reference
index is below the strike rate established at the outset of each transaction.
These contracts carry the risk of the counterparty's future ability to perform
under the agreements. A market exposure limit is approved for counterparties,
contracts are market-to-market and exposures are collateralized in accordance
with the Bancorp policy.
In 1997, the Bancorp entered into an interest rate swap agreement with a
notional principal amount of $200 million in connection with the issuance of
$200 million of long-term, fixed-rate capital-qualifying securities. The Bancorp
receives fixed-rate payments at 8.136% and pays a variable interest rate based
upon three-month LIBOR. The Bancorp has also entered into interest rate
contracts to fix the interest costs of certain deposits, repurchase agreements
and long-term borrowings to manage its interest rate sensitivity. At December
31, 1999 and 1998, the Bancorp had swaps with notional values of $490 million
and $440 million, respectively, which mature on or prior to April 28, 2005. The
swaps require the Bancorp to pay a fixed rate of interest ranging from 5.22% to
5.59% and receive a variable rate based on one-month or three-month LIBOR. In
addition, the Bancorp has entered into interest rate contracts whereby the
Bancorp will receive a fixed rate of interest ranging from 4.85% to 8.71% and
pay a variable rate of interest based on various indices. At December 31, 1999,
these swaps had a notional value of $95 million and mature on or prior to
January 31, 2001. As of December 31, 1999, the Bancorp had entered into interest
rate swap agreements with commercial clients and an unconsolidated qualifying
special-purpose entity with an aggregate notional principal amount of $41.6
million and $146.7 million, respectively. The agreements generally provide for
the Bancorp to receive a fixed rate and pay a variable rate that resets
periodically. The Bancorp has hedged its interest rate exposure on transactions
with commercial clients by executing offsetting swap agreements with primary
dealers. These transactions involve the exchange of fixed and floating interest
rate payments without the exchange of the underlying principal amounts.
Therefore, while notional principal amounts are typically used to express the
volume of these transactions, they do not represent the much smaller amounts
that are potentially subject to credit risk. Entering into interest rate swap
agreements involves the risk of dealing with counterparties and their ability to
meet the terms of the contract. The Bancorp controls the credit risk of these
transactions through adherence to a derivative products policy, credit approval
policies and monitoring procedures.
The Bancorp sells, subject to recourse, certain commercial loans to an
unconsolidated qualifying special-purpose entity. At December 31, 1999 and 1998,
the outstanding balance of these loans, excluding trust preferred shares, was
$1.4 billion and $1.1 billion, respectively. The Bancorp did not repurchase any
of these loans during 1999 or 1998.
There are claims pending against the Bancorp and its subsidiaries. Based on
a review of such litigation with legal counsel, management believes any
resulting liability would not have a material effect upon the Bancorp's
consolidated financial position or results of operations.
NOTE 13-OTHER SERVICE CHARGES AND FEES AND OTHER OPERATING EXPENSES
The major components of other service charges and fees and other operating
expenses for the years ended December 31:
- --------------------------------------------------------------------------------
($ in millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Other Service Charges and Fees:
Cardholder fees......................... $ 33.8 30.9 29.1
Consumer loan and lease fees............ 43.0 34.9 29.4
Commercial banking...................... 63.1 43.9 30.0
Mortgage banking........................ 97.2 95.9 62.9
Other................................... 100.7 87.7 73.9
- --------------------------------------------------------------------------------
Total other service charges
and fees................................ $337.8 293.3 225.3
- --------------------------------------------------------------------------------
Other Operating Expenses:
Marketing and
communications........................ $ 71.4 63.6 59.7
Bankcard................................ 55.1 44.6 34.5
Intangibles amortization................ 35.7 32.2 29.9
Franchise taxes......................... 25.6 27.3 28.5
Loan and lease......................... 32.3 26.2 19.0
Printing and supplies................... 21.3 22.2 22.4
FDIC insurance.......................... 7.5 8.2 8.2
Other................................... 164.0 154.2 141.5
- --------------------------------------------------------------------------------
Total other operating expenses............ $412.9 378.5 343.7
- --------------------------------------------------------------------------------
NOTE 14-RETIREMENT AND BENEFIT PLANS
A combined summary of the defined benefit retirement plans at and for the
years ended December 31:
- --------------------------------------------------------------------------------
($ in millions) 1999 1998
- --------------------------------------------------------------------------------
Change in benefit obligation:
Projected benefit obligation at
beginning of year.................... $139.6 110.3
Service cost.......................... 4.5 5.2
Interest cost......................... 8.1 7.7
Curtailment........................... -- ( 17.4)
Acquisition/divestiture............... -- 23.8
Amendments............................ 1.8 6.2
Actuarial loss (gain)................. ( 11.7) 12.5
Benefits paid......................... ( 16.7) ( 8.7)
- --------------------------------------------------------------------------------
Projected benefit obligation at
end of year........................... $125.6 139.6
- --------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at
beginning of year................... $202.4 153.4
Actual return on assets............... 26.2 26.8
Contributions......................... .1 .6
Acquired plan......................... -- 30.3
Benefits paid......................... ( 16.7) ( 8.7)
- --------------------------------------------------------------------------------
Fair value of plan assets at end
of year............................... $212.0 202.4
- --------------------------------------------------------------------------------
Funded status........................... $ 86.3 62.8
Unrecognized transition amount.......... ( 2.7) ( 3.4)
Unrecognized actuarial gain............. ( 55.5) ( 32.6)
- --------------------------------------------------------------------------------
Unrecognized prior service cost......... 6.0 4.7
- --------------------------------------------------------------------------------
Net amount recognized................... $ 34.1 31.5
- --------------------------------------------------------------------------------
Amounts recognized in the Consolidated
Balance Sheets consist of:
Prepaid benefit cost.................... $ 45.8 42.2
Accrued benefit liability............... ( 11.7) ( 10.7)
- --------------------------------------------------------------------------------
Net amount recognized................... $ 34.1 31.5
- --------------------------------------------------------------------------------
23
<PAGE> 26
FIFTH THIRD BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
($ in millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Components of net periodic pension cost:
Service cost............................... $ 4.5 5.2 5.6
Interest cost.............................. 8.1 7.7 7.3
Curtailment................................ -- (12.2) --
Expected return on assets.................. (15.8) (13.1) (10.5)
Amortization and deferral of
transition amount........................ ( .7) ( .6) ( .6)
Amortization of actuarial gain............. ( 2.9) (1.3) --
Amortization of unrecognized prior
service cost............................. .5 .2 --
- --------------------------------------------------------------------------------
Net periodic pension cost (benefit).......... $( 6.3) (14.1) 1.8
- --------------------------------------------------------------------------------
Plan assets consist primarily of common trust and mutual funds managed by
Fifth Third Bank, an affiliate of the Bancorp, listed stocks and U.S. bonds.
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Weighted-average assumptions:
For disclosure:
Discount rate......................... 7.75% 6.83% 7.22%
Rate of compensation increase......... 5.14 4.87 4.87
For measuring net periodic pension cost:
Discount rate......................... 6.83 7.22 7.66
Rate of compensation increase......... 4.87 4.87 4.93
Expected return on plan assets........ 9.31 9.30 8.98
- --------------------------------------------------------------------------------
During 1998, to emphasize 401(k) and employer matching, the Bancorp froze
its defined benefit pension plan and all benefits earned to date became fully
vested.
For the Bancorp's nonqualified supplemental defined benefit plans, with an
accumulated benefit obligation exceeding assets, the total projected benefit
obligation, accumulated benefit obligation and fair value of plan assets were
$14.7 million, $10.3 million and $0, respectively as of December 31, 1999 and
$11.8 million, $9.1 million and $0, respectively as of December 31, 1998. The
Bancorp's profit sharing plan contribution was $25.2 million for 1999, $25
million for 1998 and $25.6 million for 1997.
NOTE 15-REGULATORY MATTERS
The principal source of income and funds for the Bancorp (parent company)
are dividends from its subsidiaries. During 2000, the amount of dividends the
subsidiaries can pay to the Bancorp without prior approval of regulatory
agencies is limited to their 2000 eligible net profits, as defined, and the
adjusted retained 1999 and 1998 net income of the subsidiaries.
The affiliate banks must maintain noninterest-bearing cash balances on
reserve with the Federal Reserve Bank (FRB). In 1999 and 1998, the banks were
required to maintain average reserve balances of $328.5 million and $297.7
million, respectively.
The FRB adopted quantitative measures which assign risk weightings to
assets and off-balance-sheet items and also define and set minimum regulatory
capital requirements (risk-based capital ratios). All banks are required to have
core capital (Tier 1) of at least 4% of risk-weighted assets, total capital of
at least 8% of risk-weighted assets and a minimum Tier 1 leverage ratio of 3% of
adjusted quarterly average assets. Tier 1 capital consists principally of
shareholders' equity including capital-qualifying subordinated debt but
excluding unrealized gains and losses on securities available for sale, less
goodwill and certain other intangibles. Total capital consists of Tier 1 capital
plus certain debt instruments and the reserve for credit losses, subject to
limitation. Failure to meet certain capital requirements can initiate certain
actions by regulators that, if undertaken, could have a direct material effect
on the Consolidated Financial Statements of the Bancorp. The regulations also
define well-capitalized levels of Tier 1, total capital and Tier 1 leverage as
6%, 10% and 5%, respectively. The Bancorp and each of its subsidiaries had Tier
1, total capital and leverage ratios above the well-capitalized levels at
December 31, 1999 and 1998. The risk-based capital ratios of certain affiliates
have been computed on a pro forma basis to include inter-affiliate mergers,
which were approved by the appropriate regulatory agencies prior to year end and
occurred in the following January. As of December 31, 1999, the most recent
notification from the FRB categorized the Bancorp and each of its subsidiary
banks as well capitalized under the regulatory framework for prompt corrective
action.
Capital and risk-based capital and leverage ratios for the Bancorp and its
significant subsidiaries at December 31:
- --------------------------------------------------------------------------------
1999
---------------------
($ in millions) AMOUNT RATIO
- --------------------------------------------------------------------------------
TOTAL CAPITAL (TO RISK-WEIGHTED ASSETS):
Fifth Third Bancorp (Consolidated)....... $4,926.1 17.94%
Fifth Third Bank, Cincinnati............. 1,506.7 13.12
Fifth Third Bank, Northwestern
Ohio, N.A. ............................ 481.5 12.79
Fifth Third Bank, Kentucky, Inc. ........ 196.9 14.15
Fifth Third Bank, Western Ohio........... 454.8 13.81
Fifth Third Bank, Central Ohio........... 306.7 12.55
Civitas Bank............................. 594.8 12.55
TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS):
Fifth Third Bancorp (Consolidated)....... 4,240.1 15.44
Fifth Third Bank, Cincinnati............. 936.4 8.15
Fifth Third Bank, Northwestern
Ohio, N.A. ............................ 338.9 9.00
Fifth Third Bank, Kentucky, Inc. ........ 179.5 12.90
Fifth Third Bank, Western Ohio........... 367.5 11.15
Fifth Third Bank, Central Ohio........... 276.2 11.30
Civitas Bank ............................ 537.0 11.33
TIER 1 LEVERAGE CAPITAL (TO AVERAGE ASSETS):
Fifth Third Bancorp (Consolidated)....... 4,240.1 10.11
Fifth Third Bank, Cincinnati............. 936.4 6.81
Fifth Third Bank, Northwestern
Ohio, N.A. ............................ 338.9 6.18
Fifth Third Bank, Kentucky, Inc.......... 179.5 8.94
Fifth Third Bank, Western Ohio........... 367.5 6.82
Fifth Third Bank, Central Ohio .......... 276.2 8.33
Civitas Bank ............................ 537.0 6.97
- --------------------------------------------------------------------------------
1998
----------------------
($ in millions) AMOUNT RATIO
- --------------------------------------------------------------------------------
TOTAL CAPITAL (TO RISK-WEIGHTED ASSETS):
Fifth Third Bancorp (Consolidated)....... $4,225.5 14.44%
Fifth Third Bank, Cincinnati............. 1,221.0 10.71
Fifth Third Bank, Northwestern
Ohio, N.A. ............................ 434.0 13.75
Fifth Third Bank, Kentucky, Inc. ........ 199.0 14.59
Fifth Third Bank, Western Ohio .......... 366.0 10.29
Fifth Third Bank, Central Ohio .......... 303.0 12.04
Civitas Bank............................. 569.9 13.04
TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS):
Fifth Third Bancorp (Consolidated)....... 3,648.5 12.47
Fifth Third Bank, Cincinnati............. 787.0 6.90
Fifth Third Bank, Northwestern
Ohio, N.A. ............................ 299.0 9.46
Fifth Third Bank, Kentucky, Inc. ........ 182.0 13.35
Fifth Third Bank, Western Ohio .......... 302.0 8.49
Fifth Third Bank, Central Ohio........... 272.0 10.77
Civitas Bank............................. 515.3 11.79
TIER 1 LEVERAGE CAPITAL (TO AVERAGE ASSETS):
Fifth Third Bancorp (Consolidated)....... 3,648.5 10.09
Fifth Third Bank, Cincinnati............. 787.0 7.46
Fifth Third Bank, Northwestern
Ohio, N.A. ............................ 299.0 5.95
Fifth Third Bank, Kentucky, Inc. ........ 182.0 8.55
Fifth Third Bank, Western Ohio........... 302.0 6.39
Fifth Third Bank, Central Ohio........... 272.0 7.69
Civitas Bank ............................ 515.3 7.47
- --------------------------------------------------------------------------------
24
<PAGE> 27
FIFTH THIRD BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 16-NONOWNER CHANGES IN EQUITY
Reclassification adjustments, related tax effects allocated to nonowner
changes in equity and accumulated nonowner changes in equity as of and for the
years ended December 31:
- --------------------------------------------------------------------------------
($ in millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Reclassification adjustment, pretax:
Change in unrealized gains (losses)
arising during year.................... $(497.7) ( 29.2) 138.0
Reclassification adjustment for
gains in net income.................... .6 12.3 8.5
- --------------------------------------------------------------------------------
Change in unrealized gains (losses)
on securities available for sale $(497.1) ( 16.9) 146.5
- --------------------------------------------------------------------------------
Related tax effects:
Change in unrealized gains (losses)
arising during year.................... $(178.2) ( 10.4) 48.6
Reclassification adjustment for
gains in net income.................... .2 4.4 3.0
- --------------------------------------------------------------------------------
Change in unrealized gains (losses)
on securities available for sale....... $(178.0) ( 6.0) 51.6
- --------------------------------------------------------------------------------
Reclassification adjustment, net of tax:
Change in unrealized gains (losses)
arising during year.................... $(319.5) ( 18.8) 89.4
Reclassification adjustment for
gains in net income.................... .4 7.9 5.5
- --------------------------------------------------------------------------------
Change in unrealized gains (losses)
on securities available for sale....... $(319.1) ( 10.9) 94.9
- --------------------------------------------------------------------------------
Accumulated nonowner changes in equity:
Beginning balance--
Unrealized gains on
securities available for sale ......... $ 94.6 105.5 10.6
Current period change.................... (319.1) ( 10.9) 94.9
- --------------------------------------------------------------------------------
Ending balance--
Unrealized gains (losses) on
securities available for sale.......... $(224.5) 94.6 105.5
- --------------------------------------------------------------------------------
NOTE 17-MORTGAGE SERVICING RIGHTS
Changes in capitalized mortgage servicing rights for the years ended
December 31:
- --------------------------------------------------------------------------------
($ in millions) 1999 1998
- --------------------------------------------------------------------------------
Balance beginning of period............... $81.2 64.6
Amount capitalized........................ 45.3 35.1
Amortization.............................. (18.5) (13.9)
Sales..................................... (18.3) --
Valuation allowance....................... 9.2 ( 4.6)
- --------------------------------------------------------------------------------
Balance, end of period ................... $98.9 81.2
- --------------------------------------------------------------------------------
The fair value of capitalized servicing rights was $139.6 million at
December 31, 1999 and $87.8 million at December 31, 1998. The Bancorp serviced
$11.4 billion of residential mortgage loans for other investors at December 31,
1999 and $11.8 billion at December 31, 1998.
NOTE 18-ACQUISITIONS
- --------------------------------------------------------------------------------
CONSIDERATION
-----------------
COMMON
DATE CASH SHARES METHOD OF
COMPLETED ($000'S) ISSUED ACCOUNTING
- --------------------------------------------------------------------------------
Peoples Bank Corporation 11/19/99 $ -- 3,381,220 Pooling
of Indianapolis
Indianapolis, Indiana
CNB Bancshares, Inc. 10/29/99 -- 30,370,745 Pooling
Evansville, Indiana
Emerald Financial Corp. 8/6/99 7 3,379,539 Pooling
Strongsville, Ohio
Vanguard Financial Co. 7/9/99 85 72,082 Purchase
Cincinnati, Ohio
South Florida Bank 6/11/99 17 442,560 Purchase
Holding Corporation
Ft. Myers, Florida
Enterprise Federal 5/14/99 17 1,676,596 Purchase
Bancorp, Inc.
Cincinnati, Ohio
Ashland Bankshares, Inc. 4/16/99 10 1,224,860 Purchase
Ashland, Kentucky
CitFed Bancorp, Inc. 6/26/98 51 13,222,869 Pooling
Dayton, Ohio
State Savings Company 6/19/98 4 16,625,271 Pooling
Columbus, Ohio
The Ohio Company 6/12/98 2 1,862,765 Purchase
Columbus, Ohio
W. Lyman Case 4/9/98 15,000 -- Purchase
and Company
Columbus, Ohio
Heartland Capital 11/24/97 -- 351,004 Purchase
Management, Inc.
Indianapolis, Indiana
Suburban 7/25/97 11 870,218 Purchase
Bancorporation, Inc.
Cincinnati, Ohio
- --------------------------------------------------------------------------------
The assets, liabilities and shareholders' equity of the pooled entities
were recorded on the books of the Bancorp at their values as reported on the
books of the pooled entities immediately prior to the consummation of the merger
with the Bancorp. This presentation required the restatements of prior periods
as if the companies had been combined for all years presented. The contributions
of the pooled entities to consolidated net interest income, other operating
income and net income for the periods prior to the mergers were as follows:
25
<PAGE> 28
FIFTH THIRD BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
YEAR THROUGH Years Ended
SEPTEMBER 30, December 31,
($ in millions) 1999 1998 1997
- --------------------------------------------------------------------------------
NET INTEREST INCOME
- --------------------------------------------------------------------------------
Fifth Third Bancorp......... $ 835.8 1,002.8 912.3
CNB Bancshares, Inc. ....... 189.4 233.7 232.5
Other ...................... 23.5 33.4 28.7
- --------------------------------------------------------------------------------
Combined ................... $1,048.7 1,269.9 1,173.5
- --------------------------------------------------------------------------------
OTHER OPERATING INCOME
- --------------------------------------------------------------------------------
Fifth Third Bancorp......... $ 559.4 636.2 501.8
CNB Bancshares, Inc. ....... 84.6 109.8 82.0
Other ...................... 5.9 7.5 6.6
- --------------------------------------------------------------------------------
Combined.................... $ 649.9 753.5 590.4
- --------------------------------------------------------------------------------
NET INCOME
- --------------------------------------------------------------------------------
Fifth Third Bancorp......... $ 485.5 476.1 460.9
CNB Bancshares, Inc. ....... 68.2 61.6 59.9
Other....................... ( 1.8) 8.8 8.6
- --------------------------------------------------------------------------------
Combined.................... $ 551.9 546.5 529.4
- --------------------------------------------------------------------------------
The combined consolidated results of operations are not necessarily
indicative of the results that would have occurred had the acquisitions been
consummated in the past or which may be attained in the future.
In the fourth quarter of 1999 as a direct result of the Peoples and CNB
acquisitions, the Bancorp recorded merger-related costs of $108.4 million ($83.8
million after tax), of which $82.1 million was recorded as operating expense and
$26.3 million was recorded as additional provision for credit losses. The charge
to operating expenses consisted of employee severance and benefit obligations,
costs to eliminate duplicate facilities and equipment, contract terminations,
conversion expenses and professional fees. The additional provision for credit
losses was charged in connection with a change in the management of Peoples and
CNB problem loans and to conform Peoples and CNB to the Bancorp's reserve and
charge-off practices. Merger-related costs in 1998 of $121.3 million were
associated with the mergers of the Bancorp with CitFed Bancorp, Inc. and State
Savings Company and with the merger of CNB Bancshares, Inc. and Pinnacle
Financial Services, Inc.
The merger-related charges consist of:
- --------------------------------------------------------------------------------
($ in millions) 1999 1998
- --------------------------------------------------------------------------------
Employee severence and benefit
obligations............................... $28.6 59.7
Duplicate facilities and equipment.......... 14.4 18.4
- --------------------------------------------------------------------------------
Conversion expenses and
professional fees......................... 22.6 28.2
Contract termination costs.................. 4.5 2.9
Other ...................................... 12.0 12.1
- --------------------------------------------------------------------------------
Merger-related charge ...................... $82.1 121.3
- --------------------------------------------------------------------------------
Summary of merger-related accrual activity at December 31:
- --------------------------------------------------------------------------------
($ in millions) 1999 1998
- --------------------------------------------------------------------------------
Balance January 1........................... $31.6 --
Merger-related charge....................... 82.1 121.3
Cash payments............................... (57.3) ( 71.3)
Noncash writedowns.......................... (22.6) ( 18.4)
- --------------------------------------------------------------------------------
Balance December 31......................... $33.8 31.6
- --------------------------------------------------------------------------------
The Bancorp expects to incur additional merger-related costs during the
first quarter of 2000 in connection with the integration of CNB Bancshares Inc.
The pro forma effect and the financial results of Vanguard Financial Co.,
Enterprise Federal Bancorp, Inc., South Florida Bank Holding Corp., and Ashland
Bankshares, Inc. included in the results of operations subsequent to the date of
the acquisitions, were not material to the Bancorp's financial condition and
operating results for the periods presented.
NOTE 19-EARNINGS PER SHARE
Reconciliation of Earnings Per Share to Diluted Earnings Per Share for the
years ended December 31:
- --------------------------------------------------------------------------------
1999
----------------------------
AVERAGE PER-SHARE
($ in millions, except per share amounts) INCOME SHARES AMOUNT
- --------------------------------------------------------------------------------
EPS
Income available to
common shareholders................... $668.2 306,119 $2.18
EFFECT OF DILUTIVE SECURITIES
Stock Options........................... 5,507
Interest on 6% convertible
subordinated debentures
due 2028, net of applicable
income taxes............................ 6.7 2,944
- --------------------------------------------------------------------------------
DILUTED EPS
Income available to
common shareholders
plus assumed conversions............. $674.9 314,570 $2.15
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1998
----------------------------
Average Per-Share
($ in millions, except per share amounts) Income Shares Amount
- --------------------------------------------------------------------------------
EPS
Income available to
common shareholders................... $546.5 301,335 $1.81
EFFECT OF DILUTIVE SECURITIES
Stock Options........................... 5,945
Interest on 6% convertible
subordinated debentures
due 2028, net of applicable
income taxes.......................... 3.3 1,472
- --------------------------------------------------------------------------------
DILUTED EPS
Income available to
common shareholders
plus assumed conversions.............. $549.8 308,752 $1.78
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1997
----------------------------
Average Per-Share
($ in millions, except per share amounts) Income Shares Amount
- --------------------------------------------------------------------------------
EPS
Income available to
common shareholders................... $529.4 297,864 $1.78
EFFECT OF DILUTIVE SECURITIES
Stock Options 4,963
- --------------------------------------------------------------------------------
DILUTED EPS
Income available to
common shareholders
plus assumed conversions.............. $529.4 302,827 $1.75
- --------------------------------------------------------------------------------
Options to purchase 3.1 million shares were outstanding at December 31,
1999 and were not included in the computation of diluted net income per share
because the exercise price of these options was greater than the average market
price of the common shares, and therefore, the effect would be antidilutive.
26
<PAGE> 29
FIFTH THIRD BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 20-FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts and estimated fair values for financial instruments at
December 31:
- --------------------------------------------------------------------------------
1999
-----------------------
CARRYING FAIR
($ in millions) AMOUNT VALUE
- --------------------------------------------------------------------------------
FINANCIAL ASSETS
Cash and due from banks ............... $ 1,213.1 1,213.1
Securities available for sale ......... 12,687.5 12,687.5
Securities held to maturity ........... 129.1 129.1
Other short-term investments .......... 355.4 355.4
Loans held for sale ................... 297.1 297.3
Loans, net ............................ 19,616.1 19,115.5
Accrued interest receivable ........... 321.0 321.0
FINANCIAL LIABILITIES
Deposits .............................. 25,886.1 25,050.0
Federal funds borrowed ................ 2,971.9 2,995.0
Short-term bank notes ................. 1,317.4 1,317.4
Other short-term borrowings ........... 4,084.4 4,009.9
Accrued interest payable .............. 137.8 137.8
Long-term debt ........................ 1,803.8 1,821.2
Guaranteed preferred beneficial
interests in convertible subordinated
debentures .......................... 172.5 240.0
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
Commitments to extend credit .......... .1 16.6
Letters of credit ..................... 3.3 15.9
Purchased options ..................... .7 .6
Interest rate swap agreements ......... -- 2.9
Interest rate floors .................. -- ( .2)
Interest rate caps .................... -- .4
Forward contracts:
Commitments to sell loans ........... -- .5
Foreign exchange contracts:
Commitments to purchase ........... -- 1.8
Commitments to sell ............... -- ( 3.2)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1998
-----------------------
CARRYING FAIR
($ in millions) AMOUNT VALUE
- --------------------------------------------------------------------------------
FINANCIAL ASSETS
Cash and due from banks ............... $ 1,045.4 1,045.4
Securities available for sale ......... 11,183.9 11,183.9
Securities held to maturity ........... 121.9 121.9
Other short-term investments .......... 164.7 164.7
Loans held for sale ................... 588.9 588.9
Loans, net ............................ 18,346.3 18,623.6
Accrued interest receivable ........... 343.4 343.4
FINANCIAL LIABILITIES
Deposits .............................. 24,495.8 23,536.9
Federal funds borrowed ................ 2,137.9 2,137.9
Other short-term borrowings ........... 2,376.7 2,376.7
Accrued interest payable .............. 117.7 117.7
Long-term debt ........................ 3,063.6 3,136.2
Guaranteed preferred beneficial
interests in convertible subordinated
debentures .......................... 172.5 193.6
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
Commitments to extend credit .......... .6 33.5
Letters of credit ..................... 2.9 13.0
Purchased options ..................... 3.6 3.7
Interest rate swap agreements ......... -- 20.3
Interest rate floors .................. 3.9 3.7
Interest rate caps .................... .1 --
Forward contracts:
Commitments to sell loans ........... -- .7
Foreign exchange contracts:
Commitments to purchase ........... -- 2.5
Commitments to sell ............... -- ( 2.1)
- --------------------------------------------------------------------------------
Fair values for financial instruments were based on various assumptions and
estimates as of a specific point in time, represent liquidation values and may
vary significantly from amounts that will be realized in actual transactions. In
addition, certain financial instruments and all non-financial instruments were
excluded from the fair value disclosure requirements. Therefore, the fair values
presented in the adjacent table should not be construed as the underlying value
of the Bancorp.
The following methods and assumptions were used in determining the fair
value of selected financial instruments:
SHORT-TERM FINANCIAL ASSETS AND LIABILITIES-for financial instruments with
a short or no stated maturity, prevailing market rates and limited credit risk,
carrying amounts approximate fair value. Those financial instruments include
cash and due from banks, other short-term investments, accrued interest
receivable, certain deposits (demand, interest checking, savings and money
market), Federal funds borrowed, short-term bank notes, other short-term
borrowings and accrued interest payable.
SECURITIES, AVAILABLE FOR SALE AND HELD TO MATURITY-fair values were based
on quoted market prices, dealer quotes and prices obtained from independent
pricing services.
LOANS-fair values were estimated by discounting the future cash flows using
the current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
LOANS HELD FOR SALE-the fair value of loans held for sale is estimated
based on outstanding commitments from investors or current investor yield
requirements.
DEPOSITS-fair values for other time, certificates of deposit-$100,000 and
over and foreign office were estimated using a discounted cash flow calculation
that applies interest rates currently being offered for deposits of similar
remaining maturities.
LONG-TERM DEBT-fair value of long-term debt was based on quoted market
prices, when available, and a discounted cash flow calculation using prevailing
market rates for borrowings of similar terms.
COMMITMENTS AND LETTERS OF CREDIT-fair values of loan commitments, letters
of credit and commitments to sell loans, representing assets to the Bancorp,
were based on fees currently charged to enter into similar agreements with
similar maturities.
INTEREST RATE SWAP AGREEMENTS-fair value was based on the estimated amount
the Bancorp would receive or pay to terminate the swap agreements, taking into
account the current interest rates and the creditworthiness of the swap
counterparties. The fair values represent an asset at December 31, 1999.
PURCHASED OPTIONS AND INTEREST RATE FLOORS AND CAPS-fair values were based
on the estimated amounts the Bancorp would receive from terminating the
contracts at the reporting date.
FOREIGN EXCHANGE CONTRACTS-fair values were based on quoted market prices
of comparable instruments and represent a net asset to the Bancorp.
27
<PAGE> 30
FIFTH THIRD BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 21-PARENT COMPANY FINANCIAL STATEMENTS
The condensed financial statements of the Bancorp ($ in millions):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CONDENSED STATEMENTS OF INCOME (PARENT COMPANY ONLY)
For the Years Ended December 31 1999 1998 1997
- -----------------------------------------------------------------------------------------------
INCOME
<S> <C> <C> <C>
Dividends from Subsidiaries ............................... $ 507.2 491.3 603.8
Interest on Loans to
Subsidiaries ............................................ 34.9 27.0 8.3
Securities Losses ......................................... -- -- (.2)
Other ..................................................... 3.2 15.0 12.9
- -----------------------------------------------------------------------------------------------
TOTAL INCOME .............................................. 545.3 533.3 624.8
- -----------------------------------------------------------------------------------------------
EXPENSES
Interest .................................................. 23.8 22.6 15.6
Other ..................................................... 30.8 48.6 34.9
- -----------------------------------------------------------------------------------------------
TOTAL EXPENSES ............................................ 54.6 71.2 50.5
- -----------------------------------------------------------------------------------------------
INCOME BEFORE TAXES AND
CHANGE IN UNDISTRIBUTED
EARNINGS OF SUBSIDIARIES ................................ 490.7 462.1 574.3
Applicable Income Tax Benefit ............................. (3.3) ( 6.3) ( 8.2)
- -----------------------------------------------------------------------------------------------
INCOME BEFORE CHANGE IN
UNDISTRIBUTED EARNINGS OF
SUBSIDIARIES ............................................ 494.0 468.4 582.5
Increase (Decrease) in Undistributed
Earnings of Subsidiaries ................................ 174.2 78.1 (53.1)
- -----------------------------------------------------------------------------------------------
NET INCOME ................................................ $ 668.2 546.5 529.4
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- -----------------------------------------------------------------------------------------------
CONDENSED BALANCE SHEETS (PARENT COMPANY ONLY)
<S> <C> <C>
December 31 1999 1998
- -----------------------------------------------------------------------------------------------
ASSETS
Cash ...................................................... $ .8 3.6
Interest-Bearing Deposits ................................. 11.5 114.9
Securities Available for Sale ............................. .9 3.6
Loans to Subsidiaries ..................................... 1,107.8 833.4
Investment in Subsidiaries ................................ 3,272.4 3,291.3
Goodwill .................................................. 150.3 9.9
Other Assets .............................................. 56.9 33.6
- -----------------------------------------------------------------------------------------------
TOTAL ASSETS .............................................. $ 4,600.6 4,290.3
- -----------------------------------------------------------------------------------------------
LIABILITIES
Commercial Paper .......................................... $ 18.3 46.0
Accrued Expenses and Other Liabilities .................... 127.5 68.9
Long-Term Debt ............................................ 200.0 202.5
Guaranteed Preferred Beneficial Interest
in Convertible Subordinated Debentures .................. 177.8 177.8
- -----------------------------------------------------------------------------------------------
TOTAL LIABILITIES ......................................... 523.6 495.2
- -----------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY ...................................... 4,077.0 3,795.1
- -----------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY .................................... $ 4,600.6 4,290.3
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- -----------------------------------------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY)
<S> <C> <C> <C>
For the Years Ended December 31 1999 1998 1997
- -----------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income ................................................ $ 668.2 546.5 529.4
Adjustments to Reconcile Net
Income to Net Cash Provided
by Operating Activities:
Amortization/Depreciation ............................... .8 1.3 1.4
Provision for Deferred
Income Taxes ........................................ 1.6 (3.2) 1.6
Securities Losses ..................................... -- -- .2
Decrease (Increase) in
Other Assets ........................................ (23.3) 9.1 (9.0)
Increase (Decrease) in Accrued
Expenses and Other Liabilities....................... 58.6 2.3 (4.1)
- -----------------------------------------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOW (PARENT COMPANY ONLY)
For the Years Ended December 31 ..................... 1999 1998 1997
- -----------------------------------------------------------------------------------------------
Decrease (Increase) in
Undistributed Earnings of
Subsidiaries ........................................ (174.2) (78.1) 53.1
- -----------------------------------------------------------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES .................................... 531.7 477.9 572.6
- -----------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from Sales of
Securities Available for Sale ........................... 2.7 3.2 8.5
Net Decrease (Increase) in
Interest-Bearing Deposits ............................... 103.4 (37.0) (37.6)
Increase in Loans
to Subsidiaries ......................................... (274.4) (299.2) (219.0)
Capital Contributions to Subsidiaries ( 13.4) ( 87.1) (104.9)
- -----------------------------------------------------------------------------------------------
NET CASH USED IN
INVESTING ACTIVITIES .................................... (181.7) (420.1) (353.0)
- -----------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase (Decrease) in Other
Short-Term Borrowings ................................... (27.7) 17.7 1.0
Proceeds from Issuance
of Long-Term Debt ....................................... -- 10.0 235.0
Repayment of Long-Term Debt ............................... -- (82.3) (7.1)
Proceeds from Sale of Convertible
Subordinated Debentures ................................. -- 177.8 --
Payment of Cash Dividends ................................. (269.0) (167.9) (133.8)
Purchases of Treasury Stock ............................... -- (199.1) (316.9)
Exercise of Stock Options ................................. 53.7 27.0 28.2
Proceeds from Sale of
Common Stock ............................................ -- 178.1 --
Other ..................................................... (109.8) (30.3) (24.3)
- -----------------------------------------------------------------------------------------------
NET CASH USED IN
FINANCING ACTIVITIES .................................... (352.8) (69.0) (217.9)
- -----------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH ............................... (2.8) (11.2) 1.7
CASH AT BEGINNING OF YEAR ................................. 3.6 14.8 13.1
- -----------------------------------------------------------------------------------------------
CASH AT END OF YEAR ....................................... $ .8 3.6 14.8
- -----------------------------------------------------------------------------------------------
</TABLE>
NOTE 22-SEGMENTS
The Bancorp's principal activities 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 Payment Systems (MPS), provides electronic funds
transfer (EFT) services, merchant transaction processing, operates our Jeanie
ATM network and provides other data processing services to affiliated and
unaffiliated customers. General Corporate and Other includes the investment
portfolio, certain non-deposit funding, unassigned equity, the net effect of
funds transfer pricing and other items not allocated to operating segments.
The financial information for each operating segment is reported on the
basis used internally by the Bancorp's management to evaluate performance and
allocate resources. The allocation has been consistently applied for all periods
presented. Revenues from affiliated transactions, principally EFT data
processing services from MPS to the banking segments, are charged generally at
rates available to and transacted with unaffiliated customers.
The measurement of the performance of the operating segments is based on
the management structure of the Bancorp and is not necessarily comparable with
similar information for any other financial institution. The information
presented is also not necessarily indicative of the segments' financial
condition and results of operations if they were independent entities.
28
<PAGE> 31
FIFTH THIRD BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Bancorp did not allocate resources or assess the ongoing operating
performance of acquired entities prior to acquisition. Therefore, financial
information prior to acquisition is shown separately as acquired entities.
Following acquisition, results of operations are included in the Bancorp's
segment information for the acquired entities.
Results of operations and selected financial information by operating
segment for each of the three years ended December 31:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
INVESTMENT DATA GENERAL
COMMERCIAL RETAIL ADVISORY PROCESS- ACQUIRED CORPORATE ELIMINA-
($ in millions) BANKING BANKING SERVICES ING(a) ENTITIES OTHER TIONS(a) TOTAL
- -----------------------------------------------------------------------------------------------------------------------------
1999
RESULTS OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Interest Income (Expense) ..... $ 367.6 677.8 35.5 ( 1.9) 280.8 44.8 -- 1,404.6
Provision for Credit Losses ....... 36.0 54.7 2.3 -- 41.0 -- -- 134.0
- -----------------------------------------------------------------------------------------------------------------------------
Net Interest Income (Expense) After
Provision for Credit Losses ..... 331.6 623.1 33.2 ( 1.9) 239.8 44.8 -- 1,270.6
Other Operating Income ............ 113.6 291.0 173.9 196.0 121.6 ( 3.9) (15.2) 877.0
Merger-Related Charges ............ -- -- -- -- 82.1 -- -- 82.1
Operating Expenses ................ 150.0 407.6 108.0 100.1 240.6 48.8 (15.2) 1,039.9
- -----------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes ........ 295.2 506.5 99.1 94.0 38.7 ( 7.9) -- 1,025.6
Applicable Income Taxes ........... 100.4 172.3 33.7 32.0 25.0 ( 5.6) -- 357.8
After Tax Securities Gains (Losses) -- -- -- -- 1.3 ( .9) -- .4
- -----------------------------------------------------------------------------------------------------------------------------
Net Income ........................ $ 194.8 334.2 65.4 62.0 15.0 ( 3.2) -- 668.2
- -----------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL INFORMATION
- -----------------------------------------------------------------------------------------------------------------------------
Identifiable Assets ............... $8,869.3 13,438.7 436.4 93.5 7,514.4 11,237.2 -- 41,589.5
Capital Expenditures .............. $ .2 71.2 -- 15.1 26.1 3.7 -- 116.3
Depreciation and Amortization ..... $ .3 7.4 .4 1.1 18.4 25.3 -- 52.9
- -----------------------------------------------------------------------------------------------------------------------------
1998
RESULTS OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net Interest Income (Expense) ..... $ 301.9 542.0 31.2 ( 1.3) 335.5 60.6 -- 1,269.9
Provision for Credit Losses ....... 54.0 30.7 .9 -- 37.9 -- -- 123.5
- -----------------------------------------------------------------------------------------------------------------------------
Net Interest Income (Expense)
After Provision
for Credit Losses ............... 247.9 511.3 30.3 ( 1.3) 297.6 60.6 -- 1,146.4
Other Operating Income ............ 76.2 236.0 133.3 152.7 139.5 18.0 (14.5) 741.2
Merger-Related Charges ............ -- -- -- -- 121.3 -- -- 121.3
Operating Expenses ................ 119.7 321.9 88.2 82.2 284.0 63.5 (14.5) 945.0
- -----------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes ........ 204.4 425.4 75.4 69.2 31.8 15.1 -- 821.3
Applicable Income Taxes ........... 69.5 144.6 25.6 23.6 15.6 3.8 -- 282.7
After Tax Securities Gains ........ -- -- -- -- 1.6 6.3 -- 7.9
- -----------------------------------------------------------------------------------------------------------------------------
Net Income ........................ $ 134.9 280.8 49.8 45.6 17.8 17.6 -- 546.5
- -----------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL INFORMATION
- -----------------------------------------------------------------------------------------------------------------------------
Identifiable Assets ............... $7,713.3 11,515.0 374.7 86.8 8,170.7 9,231.8 -- 37,092.3
Capital Expenditures .............. $ 6.1 49.7 1.0 7.8 17.8 -- -- 82.4
Depreciation and Amortization ..... $ .3 5.9 .4 1.0 18.6 20.3 -- 46.5
- -----------------------------------------------------------------------------------------------------------------------------
1997
RESULTS OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net Interest Income (Expense) ..... $ 240.7 432.1 24.9 ( 1.0) 428.5 48.3 -- 1,173.5
Provision for Credit Losses ....... 15.8 64.5 -- -- 36.6 -- -- 116.9
- -----------------------------------------------------------------------------------------------------------------------------
Net Interest Income (Expense)
After Provision
for Credit Losses ............... 224.9 367.6 24.9 ( 1.0) 391.9 48.3 -- 1,056.6
Other Operating Income ............ 56.0 173.5 90.2 120.0 142.2 7.5 ( 7.5) 581.9
Operating Expenses ................ 93.1 250.5 52.3 68.4 343.7 49.4 ( 7.5) 849.9
- -----------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes ........ 187.8 290.6 62.8 50.6 190.4 6.4 -- 788.6
Applicable Income Taxes ........... 63.9 98.8 21.3 17.2 64.0 ( .5) -- 264.7
After Tax Securities Gains ........ -- -- -- -- 1.7 3.8 -- 5.5
- -----------------------------------------------------------------------------------------------------------------------------
Net Income ........................ $ 123.9 191.8 41.5 33.4 128.1 10.7 -- 529.4
- -----------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL INFORMATION
- -----------------------------------------------------------------------------------------------------------------------------
Identifiable Assets ............... $6,414.2 8,151.9 330.1 73.4 13,805.1 6,405.5 -- 35,180.2
Capital Expenditures .............. $ 3.4 34.0 1.7 3.5 36.3 -- -- 78.9
Depreciation and Amortization ..... $ .7 4.4 1.1 2.6 18.8 15.2 -- 42.8
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Data processing service revenues provided to the banking segments by MPS
are eliminated in the Consolidated Statements of Income.
29
<PAGE> 32
FIFTH THIRD BANCORP AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of Fifth Third Bancorp:
We have audited the accompanying consolidated balance sheets of Fifth Third
Bancorp and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Companies at December
31, 1999 and 1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999 in conformity with
generally accepted accounting principles.
/S/ Deloitte L. Touche LLP
Cincinnati, Ohio
January 14, 2000
<PAGE> 33
FIFTH THIRD BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
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 Bancorp 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. Fifth Third Bancorp undertakes no obligation to release revisions to
these forward-looking statements or reflect events or circumstances after the
date of this report.
The data presented in the following pages should be read in conjunction
with the audited Consolidated Financial Statements on pages 13 to 30 of this
report.
<TABLE>
<CAPTION>
TABLE 1-CONSOLIDATED AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
For the Years Ended December 31 (Taxable Equivalent Basis)
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
--------------------------------- ------------------------------- ------------------------------
AVERAGE AVERAGE Average Average Average Average
OUT- REVENUE/ YIELD/ Out- Revenue/ Yield/ Out- Revenue/ Yield/
($ in millions) STANDING COST RATE standing Cost Rate standing Cost Rate
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-Earning Assets
Loans and Leases................. $24,382.6 $1,964.0 8.05% $22,542.6 $1,901.2 8.43% $21,129.8 $1,799.1 8.51%
Securities
Taxable......................... 11,658.3 776.3 6.66 10,379.2 686.7 6.62 9,731.0 668.8 6.87
Exempt from Income Taxes........ 775.7 59.7 7.70 673.2 48.8 7.25 538.7 41.4 7.69
Other Short-Term Investments..... 221.3 11.6 5.24 255.7 10.4 4.07 346.2 19.4 5.60
- ---------------------------------------------------------------------------------------------------------------------------------
Total Interest-Earning Assets...... 37,037.9 2,811.6 7.59 33,850.7 2,647.1 7.82 31,745.7 2,528.7 7.97
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and Due from Banks ........... 953.3 884.2 727.9
Other Assets ...................... 2,108.4 1,752.6 1,495.2
Reserve for Credit Losses ......... ( 355.2) ( 319.9) ( 292.3)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS....................... $39,744.4 $36,167.6 $ 33,676.5
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Interest-Bearing Liabilities
Interest Checking................ $ 3,813.1 $ 78.6 2.06% $ 3,347.4 $ 73.5 2.20% $ 2,921.4 $ 68.4 2.34%
Savings.......................... 4,210.8 116.5 2.77 4,082.1 128.2 3.14 3,023.3 96.3 3.19
Money Market..................... 1,852.6 74.8 4.04 1,821.4 B 73.8 4.05 2,666.8 104.5 3.92
Other Time Deposits.............. 8,655.9 440.1 5.08 9,353.2 B514.7 5.50 9,912.5 553.6 5.58
Certificates-$100,000
and Over....................... 2,065.4 103.6 5.02 1,930.0 105.5 5.47 1,560.4 91.7 5.88
Foreign Office Deposits.......... 877.1 45.6 5.20 232.4 12.7 5.46 401.7 22.2 5.53
Federal Funds Borrowed........... 3,424.7 172.1 5.03 2,314.4 121.7 5.26 1,535.9 85.5 5.57
Short-Term Bank Notes............ 643.2 33.1 5.15 461.8 26.0 5.63 658.1 36.9 5.61
Other Short-Term Borrowings...... 2,896.7 132.7 4.58 2,325.3 120.4 5.18 2,287.6 116.5 5.09
Long-Term Debt................... 2,322.8 136.3 5.87 2,495.0 139.5 5.59 2,114.9 128.5 6.08
- ---------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing
Liabilities...................... 30,762.3 1,333.4 4.33 28,363.0 1,316.0 4.64 27,082.6 1,304.1 4.82
- ---------------------------------------------------------------------------------------------------------------------------------
Demand Deposits.................... 3,716.0 3,308.7 2,833.0
Other Liabilities.................. 1,312.1 951.4 677.7
- ---------------------------------------------------------------------------------------------------------------------------------
Total Liabilities.................. 35,790.4 32,623.1 30,593.3
- ---------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity............... 3,954.0 3,544.5 3,083.2
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY............. $39,744.4 $36,167.6 $ 33,676.5
- ---------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME MARGIN ON
A TAXABLE EQUIVALENT BASIS....... $ 1,478.2 3.99% $ 1,331.1 3.93% $ 1,224.6 3.86%
- ---------------------------------------------------------------------------------------------------------------------------------
NET INTEREST RATE SPREAD........... 3.26% 3.18% 3.15%
- ---------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
TO INTEREST-EARNING ASSETS....... 83.06% 83.79% 85.31%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 34
FIFTH THIRD BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE 2-ANALYSIS OF NET INTEREST INCOME CHANGES (TAXABLE EQUIVALENT BASIS)
- -----------------------------------------------------------------------------------------------------------------------------
1999 COMPARED TO 1998 1998 Compared to 1997
-------------------------------------- -----------------------------------
($ in millions) VOLUME YIELD/RATE MIX TOTAL Volume Yield/Rate Mix Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Interest Income
Loans and Leases .................... $ 155.2 $ (85.4) $ (7.0) $ 62.8 120.2 (16.9) (1.2) 102.1
Securities
Taxable ........................... 84.6 4.4 .5 89.5 44.5 (24.5) (1.7) 18.3
Exempt from Income Taxes .......... 7.4 3.0 .5 10.9 10.3 (2.4) (.6) 7.3
Other Short-Term Investments ........ (1.4) 3.0 (.4) 1.2 (5.1) (5.3) 1.4 (9.0)
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME CHANGE .......... 245.8 (75.0) (6.4) 164.4 169.9 (49.1) (2.1) 118.7
- -----------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Interest Expense
Interest Checking ................... 10.2 (4.5) (.6) 5.1 10.0 (4.1) (.6) 5.3
Savings ............................. 4.0 (15.3) (.5) (11.8) 33.8 (1.5) (.5) 31.8
Money Market ........................ 1.3 (.3) -- 1.0 (33.1) 3.5 (1.1) (30.7)
Other Time Deposits ................. (38.4) (39.1) 2.9 (74.6) (31.2) (7.9) .5 (38.6)
Certificates-$100,000 and Over ...... 7.4 (8.7) (.6) (1.9) 21.7 (6.4) (1.5) 13.8
Foreign Office Deposits ............. 35.2 (.6) (1.7) 32.9 (9.4) (.3) .1 (9.6)
Federal Funds Borrowed .............. 58.4 (5.4) (2.6) 50.4 43.4 (4.8) (2.4) 36.2
Short-Term Bank Notes ............... 10.2 (2.2) (.9) 7.1 (11.0) .1 -- (10.9)
Other Short-Term Borrowings ......... 29.6 (13.9) (3.4) 12.3 1.9 2.1 -- 4.0
Long-Term Debt ...................... (9.6) 6.9 (.5) (3.2) 23.1 (10.4) (1.8) 10.9
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE CHANGE ......... 108.3 (83.1) (7.9) 17.3 49.2 (29.7) (7.3) 12.2
- -----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET INTEREST
INCOME ON A TAXABLE EQUIVALENT BASIS $ 137.5 $ 8.1 $ 1.5 147.1 120.7 (19.4) 5.2 106.5
- -----------------------------------------------------------------------------------------------------------------------------
INCREASE IN TAXABLE
EQUIVALENT ADJUSTMENT ............... (12.4) (10.1)
- -----------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME CHANGE ............ $ 134.7 96.4
</TABLE>
RESULTS OF OPERATIONS
SUMMARY
Net income advanced by 22% in 1999 and 3% in 1998. The Bancorp's net income
to average assets, referred to as return on average assets (ROA), and return on
average shareholders' equity (ROE) follow:
- --------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Net income ($ in millions) $668.2 546.5 529.4 442.8 389.0
Earnings per share (a)...... $ 2.18 1.81 1.78 1.48 1.36
Diluted earnings per
share (a)................. $ 2.15 1.78 1.75 1.45 1.32
ROA (b)..................... 1.89% 1.78 1.57 1.52 1.47
ROE (b)..................... 19.0% 18.2 17.2 16.3 15.9
Overhead ratio (b).......... 44.1% 45.3 46.8 48.3 50.1
Originally reported (c):
ROA (b)................... 1.89% 1.93 1.96 1.78 1.78
ROE (b)................... 19.0% 18.7 19.6 17.8 18.1
Overhead ratio (b)........ 44.1% 42.3 41.0 43.5 43.9
- --------------------------------------------------------------------------------
(a) Per share amounts have been adjusted for the three-for-two stock splits
effected in the form of stock dividends paid April 15, 1998, July 15, 1997
and January 12, 1996.
(b) For comparability, certain financial ratios exclude the impact of 1999
merger-related items of $108.4 million pretax ($83.8 million after tax, or
$.27 per share), 1998 merger-related items of $138 million pretax ($98.7
million after tax, or $.32 per share) and the impact of the 1996 special
SAIF assessment of $49.6 million pretax ($31.3 million after tax, or $.11
per share).
(c) Excludes the results of the CNB and Peoples poolings-of-interest prior to
1999 and Citfed Bancorp, Inc. and State Savings Company
poolings-of-interest prior to 1998.
NET INTEREST INCOME
Net interest income is the difference between interest income on earning
assets such as loans, leases and securities, and interest expense paid on
liabilities such as deposits and borrowings, and continues to be the Bancorp's
largest revenue source. Net interest income is affected by the general level of
interest rates, changes in interest rates and by changes in the amount and
composition of interest-earning assets and interest-bearing liabilities. The
relative performance of the lending and deposit-raising functions is frequently
measured by two statistics - net interest margin and net interest rate spread.
The net interest margin is determined by dividing fully-taxable equivalent net
interest revenue by average earning assets. The net interest rate spread is the
difference between the average fully-taxable equivalent yield earned on
interest-earning assets and the average rate paid on interest-bearing
liabilities. The net interest margin is generally greater than the net interest
rate spread due to the additional income earned on those assets funded by
non-interest-bearing liabilities, or free funding, such as demand deposits and
shareholders' equity.
Table 1 on page 31, Consolidated Average Balance Sheets and Analysis of Net
Interest Income, presents the net interest income, net interest margin, and net
interest rate spread for the three years 1997 through 1999, comparing interest
revenue, average interest-bearing liabilities and average free funding
outstanding. Each of these measures is reported on a fully-taxable equivalent
basis. Nonaccrual loans and leases and loans held for sale have been included in
the average loans and lease balances. Average outstanding securities balances
are based upon amortized cost excluding any unrealized gains or losses on
securities available for sale.
Net interest income rose 11% to $1.5 billion in 1999 from $1.3 billion in
1998. The improvement in 1999's net interest income was attributable to a higher
level of average interest-earning assets, improvement in the deposit mix, and
the favorable repricing of interest-bearing liabilities. The net interest margin
improved by 6 basis points (bps) to 3.99% in 1999 from 3.93% in 1998. The
improvement in 1999 follows a similar 7 bps improvement in the net interest
margin from 1998 to 1999. Lower rates in late 1998 and early 1999 continued to
put downward pressure on lending rates, reducing the yield on interest-earning
assets by 23 bps to 7.59% in 1999. The average yield on loans and leases was
down by 38 bps, while the yield on taxable securities was up 4 bps. Continued
strong growth in interest-bearing
32
<PAGE> 35
FIFTH THIRD BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
FIFTH THIRD BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
($ in millions) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Investment advisory income ... $ 184.2 151.2 111.8 91.8 75.9
Service charges on deposits .. 174.2 155.8 132.3 115.4 92.5
Data processing income ....... 180.8 140.9 112.5 88.9 75.9
Other service charges and fees 337.8 293.3 225.3 188.7 154.0
- --------------------------------------------------------------------------------
Subtotal ..................... 877.0 741.2 581.9 484.8 398.3
- --------------------------------------------------------------------------------
Securities gains ............. .6 12.3 8.5 9.2 8.9
- --------------------------------------------------------------------------------
Total ........................ $ 877.6 753.5 590.4 494.0 407.2
- --------------------------------------------------------------------------------
After-tax securities gains ... $ .4 7.9 5.5 5.8 5.7
- --------------------------------------------------------------------------------
transaction deposits and lower short-term borrowing costs reduced the cost of
interest-bearing liabilities by 31 bps in 1999, to 4.33% from 1998's 4.64%. The
cost of borrowed funds, including foreign office deposits, federal funds
borrowed, short-term bank notes, other short-term borrowings and long-term debt
decreased by 26 bps in 1999, to 5.11%, from 5.37% in 1998. The positive
contribution of free funding to the net interest margin was 73 bps in 1999
versus 75 bps in 1998.
Average interest-earning assets increased by 9% to $37 billion in 1999, an
increase of over $3.2 billion from 1998. During 1998, interest-earning assets
grew by 7% over the prior year. The acquisition of Ashland Bankshares, Inc.,
Enterprise Federal Bancorp, Inc., Emerald Financial Corp. and CNB Bancshares
Inc., in addition to strong growth in the residential mortgage lending business,
led to the securitization of approximately $2.1 billion of residential mortgages
during 1999. The Bancorp continues to use loan securitizations and sales to
manage the composition of the balance sheet and to improve balance sheet
liquidity. Securitizations and sales permit the Bancorp to grow the origination
and servicing functions and to increase fee income without increasing capital
leverage. Sales and securitizations of loans totaled approximately $4.7 billion
in 1999 and $4.2 billion in 1998.
Average interest-bearing liabilities grew to $30.7 billion during 1999, an
increase of 8% over the $28.4 billion average in 1998. Core deposits (which
excludes certificates of deposit with balances greater than $100,000 and foreign
office deposits) remain the Bancorp's most important and lowest cost source of
funding.
OPERATING INCOME
The table at the top of this page shows the components of other operating
income for the five years ended December 31. Total other operating income,
excluding securities gains, increased 18% in 1999 and was up 27% in 1998. There
was strong growth across both traditional and non-banking business lines.
Investment advisory income was $184.2 million in 1999, up from $151.2 million in
1998. Fifth Third is one of the largest money managers in the Midwest and as of
December 31, 1999, had over $167 billion in assets under care, $22 billion in
assets under management and $4.9 billion in its proprietary Fifth Third Funds.
Strong sales of our Fifth Third Funds were attributable to recognition awards by
Morningstar and The Wall Street Journal. The increase in investment advisory
income was primarily
- --------------------------------------------------------------------------------
($ in millions) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Salaries, wages and incentives $ 425.3 382.2 335.1 309.5 266.3
Employee benefits ............ 79.8 72.1 67.3 72.0 62.3
Equipment expenses ........... 49.0 45.3 40.4 38.6 34.7
Net occupancy expenses ....... 72.9 66.9 63.4 60.6 51.5
Other operating expenses ..... 412.9 378.5 343.7 303.1 260.6
- --------------------------------------------------------------------------------
Total operating expenses ..... 1,039.9 945.0 849.9 783.8 675.4
- --------------------------------------------------------------------------------
Merger-related charges ....... 82.1 121.3 -- -- --
SAIF assessment .............. -- -- -- 49.6 --
- --------------------------------------------------------------------------------
Total ........................ $ 1,122.0 1,066.3 849.9 833.4 675.4
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
($ IN THOUSANDS) 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
OTHER OPERATING INCOME
FIVE YEAR GROWTH RATE: 20% 345,635 407,160 494,024 590,428 753,544 877,686
OPERATING EARNINGS PER
EMPLOYEES 325,746 389,017 474,135 529,379 645,212 752,029
OVERHEAD RATIO 52.5 50.1 48.3 46.8 45.3 44.1
</TABLE>
*For comparability, certain financial ratios and statistics exclude the impact
of the 1999 merger-related items of $108.4 million pretax ($83.8 million
after-tax, or $.27 per share), 1998 merger-related items of $138 million pretax
($98.7 million after tax, or $.32 per share) and the 1996 special SAIF
assessment of $49.6 million pretax ($31.3 million after tax, or $.11 per share).
33
<PAGE> 36
FIFTH THIRD BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSI0N AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
attributed to strong growth in all product lines and the addition of several new
annuities products. Corporate trust service fee income was up 30% and our
personal trust fee income grew by 14%. Fifth Third Securities contributed a 31%
increase in fee income as a result of successful new sales efforts, a new
Internet-based securities workstation and the introduction of a Strategic
Communications & Technology Unit Trust. Strength in equity markets and the
acquisition of The Ohio Company led to 35% investment advisory income growth in
1998. Service charges on deposits reached $174.2 million in 1999, an increase of
12% over 1998's $155.8 million. Service charges on deposits increased 18% in
1998. The growth in both years was fueled by the expansion of delivery systems
and successful sales campaigns promoting checking and savings accounts. Retail
service charges on deposits increased 16% while commercial service charges
increased 13% in 1999.
Data processing income was up 28% in 1999 and up 25% in 1998 due to higher
electronic transfer volume from debit and ATM card usage, expansion of
business-to-business e-commerce and new sales. Merchant processing revenues,
approximately 34% of total data processing revenues, increased 23% this year and
24% in 1998 due to new customers and resulting increases in merchant transaction
volumes. Electronic funds transfer, the other portion of data processing income,
grew by 38% this year and 27% in 1998 fueled by higher debit and ATM card usage.
MPS ranks #1 and #6 in the nation, respectively, in EFT and merchant processing,
handling over 3.7 billion electronic transactions in 1999. MPS' world-class
capabilities as a transaction processor position us well to take advantage of
the opportunities of e-commerce.
Other service charges and fees climbed to $337.8 million in 1999, an
increase of 15% over 1998. Mortgage banking revenue, commercial banking income,
cardholder fees and consumer loan and lease fees represent the majority of other
service charges and fees. Mortgage banking revenue was $97.2 million in 1999, a
1% increase over 1998. Residential mortgage loan originations declined to $4.8
billion in 1999, or 22% from 1998 primarily due to changes in the interest rate
environment and rationalization of certain out-of-market portions of the
mortgage businesses acquired in the CitFed and State Savings acquisitions in
1998. Gains on sales of residential mortgages increased 23% over 1998. Sales and
securitizations of residential mortgage loans were $4.7 billion in 1999, up from
$4.2 billion in 1998. Fifth Third's total residential mortgage loan servicing
portfolio was $16.6 billion at year-end 1999, with $11.4 billion of loans
serviced for other investors, compared to $16.7 billion with $11.8 billion
serviced for others at the end of 1998. Outstanding sales efforts in our
affiliates resulted in commercial banking revenue growth of 44% to $63.1 million
in 1999, led by international department revenue which included foreign currency
exchange, letters of credit and trade financing. The information technology
products offered by our Corporate Treasury Management, several sizable lockbox
processing relationships and credit enhancement fees also contributed to this
year's growth. Cardholder fees from our credit card portfolio provided $33.8
million, up 9% and consumer loan and lease fees contributed $43 million, up 23%
on strong origination activity.
Commercial banking income of $43.9 million in 1998 represented an increase
of 46% over 1997 and resulted primarily from International department revenue
and credit enhancement fee growth. Mortgage-banking revenue increased 52% to
$95.9 million on strong origination and secondary marketing activity during
1998. Consumer loan and lease fees increased 19% to $34.9 million, 1998 over
1997. Other service charges and fees were $293.3 million in 1998, compared to
$225.3 million in 1997, an increase of 30%.
OPERATING EXPENSES
The Bancorp continues to lead the banking industry in driving its overhead
ratio to record levels by consistently generating revenue at a rate faster than
expenses. The Bancorp's success in controlling operating expenses comes from
efficient staffing, a constant focus on process improvement and centralization
of various internal functions such as data processing, loan servicing and
corporate overhead functions.
Operating expense levels are often measured using an overhead ratio
(operating expenses divided by the sum of taxable equivalent net interest income
and other operating income). As the chart on page 33 illustrates, the Bancorp's
ratio has remained well below our peers, at 44% for 1999 and 45% in 1998 and
under 50% since 1996. Total operating expenses increased 10% in 1999 and 11% in
1998, excluding merger-related charges of $82.1 million and $121.3 million,
respectively. Salaries, wages and incentives comprised 41% and 40% of total
operating expenses, excluding merger-related charges, in 1999 and 1998,
respectively. Compensation increased 11% in 1999 and 14% in 1998 as a result of
more variable compensation for increased sales production, higher staffing costs
related to computer programming, a tighter labor market, acquisitions and
additional personnel to support sales and our volume-related business. The
Bancorp's productivity ratios, which measure the degree of efficiency of our
employees, have shown improvement since 1994. Operating earnings per employee
were $64.3 thousand for 1999, compared to $33.9 thousand in 1994, an increase of
89% as the chart on page 33 illustrates.
LOAN AND LEASE PORTFOLIO
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------- ------------------- ------------------ ----------------- ------------------
($ in millions) AMOUNT % Amount % Amount % Amount % Amount %
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial:
Commercial.......... $ 6,288.0 24.9% $ 5,827.5 25.4% $ 5,718.4 25.7% $ 5,351.6 26.4% $ 4,700.4 25.0%
Mortgage ........... 2,651.4 10.5 1,887.9 8.2 1,778.2 8.0 1,697.9 8.4 1,618.6 8.6
Construction ....... 1,067.9 4.2 826.3 3.6 723.4 3.3 707.7 3.4 623.2 3.3
Leases ............. 1,843.4 7.3 1,463.4 6.4 1,207.0 5.4 928.4 4.6 703.9 3.7
- -----------------------------------------------------------------------------------------------------------------------------------
Subtotal 11,850.7 46.9 10,005.1 43.6 9,427.0 42.4 8,685.6 42.8 7,646.1 40.6
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer:
Installment ........ 4,987.3 19.7 4,179.4 18.2 3,681.3 16.6 3,311.4 16.3 3,674.4 19.5
Mortgage ........... 4,967.3 19.7 6,201.4 27.0 6,848.9 30.8 6,119.8 30.2 5,801.2 30.8
Credit Card ........ 318.0 1.3 344.7 1.5 369.8 1.7 436.3 2.1 393.9 2.1
Leases ............. 3,137.4 12.4 2,214.8 9.7 1,887.0 8.5 1,748.0 8.6 1,298.0 7.0
- -----------------------------------------------------------------------------------------------------------------------------------
Subtotal 13,410.0 53.1 12,940.3 56.4 12,787.0 57.6 11,615.5 57.2 11,167.5 59.4
- -----------------------------------------------------------------------------------------------------------------------------------
Total ................ $25,260.7 100.0% $22,945.4 100.0% $22,214.0 100.0% $20,301.1 100.0% $18,813.6 100.0%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE> 37
FIFTH THIRD BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
Employee benefits expense increased 11% in 1999 resulting from a higher employee
base. Full-time-equivalent (FTE) employees were 11,692 at December 31, 1999, a
3% increase over 1998's 11,354. FTEs at December 31, 1997 were 11,246.
The addition of ATMs and software and processing technology upgrades led to
an increase of 8% and 12% in equipment expense in 1999 and 1998, respectively.
Net occupancy expenses increased 9% in 1999 and 5% in 1998. Contributing to net
occupancy expense growth was the utilization of additional office rental space
to support growth and repairs and maintenance expense to the existing branch
network.
Volume-related expenses of our processing and fee businesses, along with
higher loan and lease processing costs from strong origination volumes,
principally contributed to the increase in 1999 and 1998 other operating
expenses. Other operating expenses increased to $412.9 million in 1999, up $34.4
million or 9% over 1998 and increased $34.8 million or 10% in 1998 over 1997.
Loan and lease and bankcard expense increased $16.6 million or 23% in 1999 and
$17.3 million or 32% in 1998. Marketing and communications expense increased
$7.8 million to $71.4 million in 1999 and $3.9 million in 1998, primarily due to
the continued promotion of the Bancorp's diversified loan, investment and
deposit products.
Operating expenses for 1999 and 1998 include merger-related pretax charges
of $82.1 million and $121.3 million, respectively. For 1999, the merger charge
relates directly to the acquisitions of CNB Bancshares and Peoples Bank
Corporation of Indianapolis. For 1998, the merger charge relates to the
acquisitions of CitFed and State Savings and CNB's acquisition of Pinnacle
Financial Services, Inc. These charges consist primarily of employee benefit
obligations, costs to eliminate duplicate facilities and equipment, contract
terminations, conversion expenses and professional fees. See Note 18 of the
Notes to Consolidated Financial Statements for additional discussion.
FINANCIAL CONDITION
LOANS AND LEASES
The table on page 34 shows the history of commercial and consumer loans and
leases by major category at December 31.
On-balance-sheet loan and leases increased 10% and 3%, respectively, in
1999 and 1998. In both years, the growth in outstandings was affected
considerably by sales and securitizations of residential and commercial loans,
which allows the Bancorp to be selective in how much of the expanding
origination volume is retained in the loan and lease portfolio. Although
residential mortgage loan originations were $4.8 billion for 1999, the related
loans decreased 20% because $4.7 billion of the respective origination volume
was sold or securitized. Installment loan balances grew 19% during 1999 and 14%
during 1998; as a result of successful direct installment loan sales in the
Bancorp's Banking Centers. Consumer leases grew 42% during 1999 and 17% in 1998,
and represent 12% and 10% of total loans and leases at December 31, 1999 and
1998, respectively.
Commercial loan and lease outstandings were up 12% in 1999 and 5% in 1998.
Commercial leasing contributed to increases of 26% and 21%, respectively,
consisting largely of improvements within our market areas of Ohio, Kentucky,
Indiana, Florida, Michigan, Illinois and Arizona. Commercial mortgages represent
11% of our total loan and lease portfolio and primarily include financing of
owner-occupied properties--loans on properties occupied by the principal
borrower. To maintain balance sheet flexibility and to serve as a source of fee
income, the Bancorp, during 1999 and 1998 sold, with servicing retained, certain
floating-rate commercial loans to a commercial paper funding corporation. The
outstanding balances of these loans were $1.4 billion and $1.1 billion at
December 31, 1999 and 1998, respectively.
In addition to the loan and lease portfolio, the Bancorp serviced loans for
others of approximately $15.4 billion, $14.3 billion and $11.1 billion at
December 31, 1999, 1998 and 1997, respectively.
UNDERPERFORMING ASSETS
Underperforming assets consist of (1) nonaccrual loans and leases on which
the ultimate collectibility of the full amount of interest is uncertain, (2)
loans and leases which have been renegotiated to provide for a reduction or
deferral of interest or principal because of a deterioration in the financial
position of the borrower, (3) loans and leases past due 90 days or more as to
principal or interest and (4) other real estate owned. A summary of
underperforming assets at December 31 follows:
- --------------------------------------------------------------------------------
($ in millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Nonaccrual loans and
leases .................... $ 66.8 77.1 102.1
Renegotiated loans and leases -- 1.2 1.8
Other real estate owned ..... 10.5 12.6 13.8
- --------------------------------------------------------------------------------
Total nonperforming assets .. 77.3 90.9 117.7
Ninety days past due loans
and leases ................ 68.2 87.0 55.7
- --------------------------------------------------------------------------------
Total underperforming assets $ 145.5 177.9 173.4
- --------------------------------------------------------------------------------
Nonperforming assets as
a percent of total loans,
leases and other real
estate owned ............. .31% .41 .54
Underperforming assets as a
percent of total loans,
leases and other real
estate owned ............ .58% .80 .79
- --------------------------------------------------------------------------------
RESERVE FOR CREDIT LOSSES FIVE YEAR HISTORY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
($ in millions) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1 ............ $ 331.6 312.2 284.3 271.0 245.9
Provision for credit losses ..... 134.0 123.5 116.9 82.9 54.8
Losses charged off .............. ( 154.3) ( 142.8) ( 121.7) ( 103.6) ( 58.0)
Recoveries of losses previously
charged off .................. 42.5 33.0 30.5 26.3 17.2
Reserve of acquired institutions
and other .................... 12.8 5.7 2.2 7.7 11.1
- -------------------------------------------------------------------------------------------------------------------
Balance at December 31 .......... $ 366.6 331.6 312.2 284.3 271.0
- -------------------------------------------------------------------------------------------------------------------
Loans and leases outstanding at
December 31 .................. $ 24,963.6 $ 22,356.5 $ 21,898.9 $ 20,207.8 $ 18,422.7
Reserve as a percent of loans and
leases outstanding ............ 1.47% 1.48% 1.43% 1.41% 1.47%
Average loans and leases (a) .... $ 23,840.4 $ 22,188.2 $ 20,972.4 $ 19,485.7 $ 17,524.2
Net charge-offs as a percent of
average loans and
leases outstanding ............ .36% .47% .43% .40% .23%
Reserve as a percent of total
nonperforming assets .......... 474.06% 364.44% 265.41% 228.08% 206.69%
Reserve as a percent of total
underperforming assets ........ 251.86% 186.31% 180.05% 164.61% 172.61%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Average loans and leases exclude loans held for sale.
35
<PAGE> 38
FIFTH THIRD BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
Nonperforming assets as a percentage of total loans, leases and other real
estate owned was .31% at December 31, 1999, a decrease from .41% at December 31,
1998. At December 31, 1999, 1998 and 1997, nonaccrual loans and leases included
residential mortgage loans of $18.6 million, $22.6 million and $35.4 million,
respectively, and commercial loans and leases of $39.1 million, $36.9 million
and $49.6 million, respectively. A decline in residential mortgage loans was the
primary reason for the decrease in nonaccrual loans and leases during 1999. At
December 31, 1999, 1998, and 1997, loans and leases 90 days past due included
residential mortgage loans of $35.9 million, $37.3 million and $17.5 million,
respectively, installment loans and consumer leases of $9.0 million, $26.2
million and $17.6 million, respectively, and commercial loans and leases of
$18.4 million, $16.6 million and $15.2 million, respectively. At December 31,
1999, 1998 and 1997, credit card receivables of $4.9 million, $6.9 million and
$5.4 million, respectively, were 90 days past due. A decrease in residential
mortgage loans was the primary reason for the decrease in loans and leases 90
days past due. Of the total underperforming assets at December 31, 1999, $42.6
million are to borrowers or projects in the Cincinnati-Dayton market area, $49.5
million in the Indiana market area, $21.6 million in the Columbus market area,
$6.1 million in the Louisville market area, $7.7 million in the Cleveland market
area, $10.5 million distributed in the market areas of our smaller affiliate
banks and $7.5 million outside of the Ohio-Kentucky-Indiana area.
SECURITIES
The investment portfolio shown below consists largely of fixed and
floating-rate mortgage-related securities, predominantly underwritten to the
standards of and guaranteed by the government-sponsored agencies of FHLMC, FNMA
and GNMA. These securities differ from traditional debt securities primarily in
that they have uncertain maturity dates and are priced based on estimated
prepayment rates on the underlying mortgages. The estimated average life of the
portfolio is 5.2 years based on current prepayment expectations.
The Bancorp securitized $2.1 billion of fixed and adjustable-rate
residential mortgages in 1999 and $1.6 billion in 1998.
<TABLE>
<CAPTION>
SECURITIES PORTFOLIO AT DECEMBER 31
- -------------------------------------------------------------------------------------------------------
($ in millions) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Securities Available for Sale:
U.S. Treasury ............................ $ 113.9 255.9 257.8 301.7 339.4
- -------------------------------------------------------------------------------------------------------
U.S. Government agencies and
corporations ........................... 526.6 54.6 659.2 538.5 530.5
- -------------------------------------------------------------------------------------------------------
States and political subdivisions ........ 699.6 703.9 352.0 410.6 409.3
- -------------------------------------------------------------------------------------------------------
Agency mortgage-backed securities ........ 9,786.8 9,002.0 7,979.6 7,072.2 4,538.8
- -------------------------------------------------------------------------------------------------------
Other bonds, notes and debentures ........ 1,356.8 788.5 621.7 931.3 901.8
- -------------------------------------------------------------------------------------------------------
Other securities ......................... 203.8 379.0 344.7 202.5 150.5
- -------------------------------------------------------------------------------------------------------
Securities Held to Maturity:
U.S. Treasury ........................... -- -- -- 3.0 3.0
- -------------------------------------------------------------------------------------------------------
U.S. Government agencies and corporations -- -- -- 189.1 153.0
States and political subdivisions ....... 117.1 86.0 179.5 290.6 246.8
- -------------------------------------------------------------------------------------------------------
Agency mortgage-backed securities ....... -- -- 98.4 121.4 134.9
- -------------------------------------------------------------------------------------------------------
Other bonds, notes and debentures ....... 1.5 1.7 1.5 1.8 1.5
Other securities ........................ 10.5 34.2 36.5 82.9 66.7
- -------------------------------------------------------------------------------------------------------
</TABLE>
MATURITIES OF SECURITIES AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
MATURITY 1-5 YEAR 6-10 YEAR
UNDER 1 YEAR MATURITY MATURITY
----------------- --------------------- ---------------------
($ in millions) AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Securities Available for Sale:
U.S. Treasury ............ $ 70.1 5.83% $ 41.4 4.66% $ 2.0 6.75%
- ----------------------------------------------------------------------------------------------------------------
U.S. Government agencies
and corporations ...... 7.0 6.31 17.6 6.05 496.2 7.11
- ----------------------------------------------------------------------------------------------------------------
States and political
subdivisions (a) ....... 29.4 8.78 154.9 8.20 193.2 7.74
- ----------------------------------------------------------------------------------------------------------------
Agency mortgage-
backed securities (b) .. 365.7 6.64 6,896.0 6.70 1,447.4 6.70
- ----------------------------------------------------------------------------------------------------------------
Other bonds, notes and
debentures (c) ......... 25.5 6.47 700.7 6.60 348.9 6.96
- ----------------------------------------------------------------------------------------------------------------
Securities Held to Maturity:
States and political
subdivisions (a) ...... 50.7 4.62 19.0 5.16 3.8 5.40
- ----------------------------------------------------------------------------------------------------------------
Other bonds, notes and
debentures ............. 0.2 6.75 1.0 7.52 0.3 6.53
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
OVER 10
YEAR MATURITY TOTAL
----------------------- --------------------
($ in millions) AMOUNT YIELD AMOUNT YIELD
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities Available for Sale:
U.S. Treasury ............ 0.4 8.63% $ 113.9 5.43%
- ------------------------------------------------------------------------------------
U.S. Government agencies
and corporations ...... 5.8 6.66 526.6 7.06
- ------------------------------------------------------------------------------------
States and political
subdivisions (a) ....... 322.1 6.90 699.6 7.50
- ------------------------------------------------------------------------------------
Agency mortgage-
backed securities (b) .. 1,077.7 6.86 9,786.8 6.72
- ------------------------------------------------------------------------------------
Other bonds, notes and
debentures (c) ......... 281.7 6.94 1,356.8 6.76
- ------------------------------------------------------------------------------------
Securities Held to Maturity:
States and political
subdivisions (a) ...... 43.6 5.99 117.1 5.24
- ------------------------------------------------------------------------------------
Other bonds, notes and
debentures ............. -- -- 1.5 7.21
- ------------------------------------------------------------------------------------
</TABLE>
Maturities of mortgage-backed securities were estimated based on historical and
predicted prepayment trends.
(a) taxable-equivalent yield using the statutory rate in effect.
(b) included in agency mortgage-backed securities available for sale are
floating-rate securities totaling $1.4 billion.
(c) included in other bonds, notes and debentures available for sale are
floating-rate securities totaling $.7 million.
36
<PAGE> 39
FIFTH THIRD BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
These securitizations improve liquidity, reduce interest rate risk and the
reserve for credit losses and preserve capital. Further securitizations in 2000
are expected.
PROVISION AND RESERVE FOR CREDIT LOSSES
The Bancorp provides as an expense an amount for expected credit losses
which is based on the growth of the loan and lease portfolio and on recent loss
experience. The expected credit loss expense is included in the Consolidated
Statements of Income in the caption Provision for Credit Losses. Actual losses
on loans and leases are charged against the Reserve for Credit Losses on the
Consolidated Balance Sheets through the provision for credit losses. The amount
of loans and leases actually removed as assets from the Consolidated Balance
Sheets is referred to as charge-offs and, after netting out recoveries on
previously charged off assets, becomes net charge-offs.
Net charge-offs increased $2 million over 1998 due to higher losses on
commercial loans and leases. Net charge-offs as a percent of average loans and
leases outstanding were .36%, .47% and .43% for 1999, 1998 and 1997,
respectively. Although this percentage declined in 1999, the net charge-off
ratio remains near the Bancorp's historical 10-year average of .50%. The reserve
for credit losses as a percentage of total loans and leases was 1.47% and 1.48%
at December 31, 1999 and 1998, respectively.
The table on page 35 presents credit loss data for the most recent five
year period.
DEPOSITS
Interest-earning assets are funded primarily by core deposits. The
accompanying tables show the relative composition of the Bancorp's average
deposits and the change in average deposit sources during the last five years.
Other time deposits are comprised of consumer certificates of deposit. Foreign
office deposits are denominated in amounts greater than $100,000.
The Bancorp's continued focus on Banking Center sales campaigns for
transaction accounts throughout 1999 sustained strong growth in core deposits.
Average demand, interest checking and saving balances rose 9% in 1999 and 22% in
1998. Our MaxSaver product contributed to the growth in savings balances, while
the Platinum One and Business 53 products and other promotional campaigns drove
the increase in demand and interest checking.
In 1998, the Bancorp acquired deposits of $116.6 million from Bank One
Corporation in 1998. During 1997, the Bancorp acquired deposits of $128.9
million from Great Lakes National Bank Ohio and $126.1 million of deposits
through the acquisition of Suburban Bancorporation, Inc.
DISTRIBUTION OF AVERAGE DEPOSITS
- --------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Demand .......... 14.8% 13.7 12.2 11.3 11.7
Interest checking 15.1 13.9 12.5 11.6 11.7
Savings ......... 16.7 16.9 13.0 12.0 8.8
Money market .... 7.4 7.6 11.4 13.0 14.5
Other time ...... 34.3 38.9 42.5 43.4 43.4
Certificates-
$ 100,000
and over ...... 8.2 8.0 6.7 6.4 5.8
Foreign office .. 3.5 1.0 1.7 2.3 4.1
- --------------------------------------------------------------------------------
Total 100% 100% 100% 100% 100%
- --------------------------------------------------------------------------------
CHANGE IN AVERAGE DEPOSIT SOURCES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
($ in millions) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Demand .......... $ 407.3 475.7 293.4 316.5 270.9
Interest checking 465.7 426.0 322.6 367.6 ( 137.3)
Savings ......... 128.7 1,058.8 326.7 1,017.5 ( 329.8)
Money market .... 31.2 ( 845.4) (248.5) 167.6 375.3
Other time ...... ( 697.3) ( 559.3) 172.1 1,499.6 1,067.0
Certificates-
$100,000
and over ...... 135.4 369.6 115.8 336.7 479.3
Foreign office .. 644.7 ( 169.3) (120.5) ( 258.3) 251.0
- -------------------------------------------------------------------------------------
Total change .... $ 1,115.7 756.1 861.6 3,447.2 1,976.4
- -------------------------------------------------------------------------------------
</TABLE>
SHORT-TERM BORROWINGS
Short-term borrowings consist primarily of short-term excess funds from
correspondent banks, securities sold under agreements to repurchase, short-term
bank notes and commercial paper issuances. Short-term borrowings primarily fund
short-term, rate-sensitive earning-asset growth. Average short-term borrowings
as a percentage of average earning-assets increased from 15% in 1998 to 19% in
1999. Although the Bancorp was successful in attracting transaction accounts in
both 1999 and 1998, the overall funding mix shifted with short-term borrowings
supporting a relatively higher proportion of earning-assets. During 1999 and
1998, the Bancorp increased its reliance on short-term borrowings as loan and
lease growth outpaced core deposit growth. As the following table of average
short-term borrowings and average Federal funds loaned indicates, the Bancorp
was a net borrower of $6.8 billion in 1999, up from $4.9 billion in 1998.
AVERAGE SHORT-TERM BORROWINGS
- --------------------------------------------------------------------------------
($ in millions) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Federal funds
borrowed ........... $3,424.7 2,314.4 1,535.9 1,295.1 1,108.9
- --------------------------------------------------------------------------------
Short-term
bank notes.......... 643.2 461.8 658.1 553.9 769.0
Other short-term
borrowings.......... 2,896.7 2,325.3 2,287.6 1,728.2 1,380.2
- --------------------------------------------------------------------------------
Total short-term
borrowings.......... 6,964.6 5,101.5 4,481.6 3,577.2 3,258.1
Federal funds
loaned.............. 130.6 140.8 183.7 170.7 193.6
Net funds
borrowed.......... $6,834.0 4,960.7 4,297.9 3,406.5 3,064.5
- --------------------------------------------------------------------------------
37
<PAGE> 40
FIFTH THIRD BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
CAPITAL RESOURCES
The Bancorp maintains a relatively high level of capital as a margin of
safety for its depositors and shareholders. At December 31, 1999, shareholders'
equity was $4.1 billion compared to $3.8 billion at December 31, 1998, an
increase of $282 million, or 7%.
The following table shows several capital and liquidity ratios for the last
three years:
- ---------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------
Average shareholders' equity to
Average assets................... 9.95% 9.80 9.16
Average deposits................. 15.69% 14.72 13.22
Average loans and leases......... 16.22% 15.72 14.59
- ----------------------------------------------------------------
LIQUIDITY AND MARKET RISK
The objective of the Bancorp's Asset/Liability management function is to
maintain consistent growth in net interest income within the Bancorp's policy
limits. This objective is accomplished through management of the Bancorp's
balance sheet composition, liquidity, and interest rate risk exposures arising
from changing economic conditions, interest rates and customer preferences.
The goal of liquidity management is to provide adequate funds to meet
changes in loan and lease demand or unexpected deposit withdrawals. This is
accomplished by maintaining liquid assets in the form of investment securities,
maintaining sufficient unused borrowing capacity in the national money markets
and delivering consistent growth in core deposits. As of December 31, 1999, the
Bancorp had approximately $3 billion in securities and other short-term
investments maturing or repricing within one year. Additional asset-driven
liquidity is provided by the remainder of the securities portfolio and
securitizable loan and lease assets. These sources, in addition to the Bancorp's
10% average equity capital base, provide a stable funding base.
In addition to core deposit funding, the Bancorp also accesses a variety of
other short-term and long-term funding sources. The Bancorp also uses the
Federal Home Loan Bank (FHLB)as a funding source, issuing notes payable through
its FHLB member subsidiaries. The Bancorp also has significant unused funding
capacity in the national money markets. The Bancorp's A1+/P-1 ratings on its
commercial paper, along with an AA-/Aa2 ratings for long-term deposits at Fifth
Third Bank, its lead bank, continue to be among the best in the industry. Seven
of the Bancorp's other subsidiaries, Fifth Third Bank, Northwestern Ohio, N.A.;
Fifth Third Bank, Central Ohio; Fifth Third Bank, Western Ohio; Fifth Third
Bank, Indiana; Fifth Third Bank, Northern Kentucky, Inc.; Fifth Third Bank,
Kentucky, Inc.; and Civitas Bank maintain current deposit ratings of A1+/P1 and
AA-/Aa3 on their short-term and long-term deposits, respectively. These ratings,
along with capital ratios significantly above the current regulatory guidelines,
provide the Bancorp with additional liquidity. Management does not rely on any
one source of liquidity and manages availability in response to changing balance
sheet needs.
Management considers interest rate risk the Bancorp's most significant
market risk. Interest rate risk is the exposure to adverse changes in net
interest income due to changes in interest rates. Consistency of the Bancorp's
net interest revenue is largely dependent upon the effective management of
interest rate risk.
The Bancorp employs a variety of measurement techniques to identify and
manage its interest rate risk including the use of an earnings simulation model
to analyze net interest income sensitivity to changing interest rates. The model
is based on actual cash flows and repricing characteristics for on and
off-balance sheet instruments and incorporates market-based assumptions
regarding the effect of changing interest rates on the prepayment rates of
certain assets and liabilities. The model also includes senior management
projections for activity levels in each of the product lines offered by the
Bancorp. Assumptions based on the historical behavior of deposit rates and
balances in relation to changes in interest rates are also incorporated into the
model. These assumptions are inherently uncertain, and as a result, the model
cannot precisely measure net interest income or precisely predict the impact of
fluctuations in interest rates on net interest income. Actual results will
differ from simulated results due to timing, magnitude, and frequency of
interest rate changes as well as changes in market conditions and management
strategies.
The Bancorp's Asset/Liability Management Committee (ALCO), which includes
senior management representatives and reports to the Board of Directors,
monitors and manages interest rate risk within Board-approved policy limits. The
Bancorp's current interest rate risk policy limits are determined by measuring
the anticipated change in net interest income over a 12 and 24 month horizon
assuming a 200 basis point immediate and sustained increase or decrease in all
interest rates. Current policy limits this exposure to plus or minus 5% of net
interest income for a 12 month horizon and plus or minus 9% of net interest
income over a 24 month horizon.
The following table shows the Bancorp's estimated earnings sensitivity
profile as of December 31, 1999:
- --------------------------------------------------------------------------------
CHANGE IN PERCENTAGE CHANGE IN
INTEREST RATES NET INTEREST INCOME
(BASIS POINTS) 12 MONTHS 24 MONTHS
- --------------------------------------------------------------------------------
+200 (4.9)% 1.3%
-200 1.3% (7.7)%
- --------------------------------------------------------------------------------
Given an immediate and sustained 200 basis point increase in the yield
curve used in the simulation model, it is estimated net interest income for the
Bancorp would decrease by 5% over one year and increase by 1% over two years. A
200 basis point immediate and sustained decrease in interest rates would
increase net interest income by 1% over one year and would decrease net interest
income by an estimated 8% over two years. All of these estimated changes in net
interest income are within the policy guidelines established by the Board of
Directors.
In order to reduce the exposure to interest rate fluctuations and to manage
liquidity, the Bancorp has developed securitization and sale procedures for
several types of interest-sensitive assets. All long-term, fixed-rate single
family residential mortgage loans underwritten according to Federal Home Loan
Mortgage Corporation or Federal National Mortgage Association guidelines are
sold for cash upon origination. Periodically, additional assets such as
adjustable-rate residential mortgages and certain short-term commercial loans
are also securitized or sold. In 1999 and 1998, $4.7 billion and $4.2 billion,
respectively, of fixed and adjustable-rate residential mortgages were
securitized or sold. In addition in 1999 and 1998, certain primarily fixed-rate,
short-term commercial loans were sold to a commercial paper funding conduit.
Management focuses its efforts on consistent net interest revenue and net
interest margin growth through each of the retail and wholesale business lines.
The Bancorp does not currently engage in trading activities.
38
<PAGE> 41
FIFTH THIRD BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED SIX YEAR SUMMARY OF OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31 ($ in millions) 1999 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income ..................... $ 2,738.1 2,585.8 2,477.6 2,272.0 1,949.9 1,544.4
Interest Expense .................... 1,333.5 1,315.9 1,304.1 1,189.3 1,045.4 720.3
- ----------------------------------------------------------------------------------------------------------------------------
Net Interest Income ................. 1,404.6 1,269.9 1,173.5 1,082.7 904.5 824.1
Provision for Credit Losses ......... 134.0 123.5 116.9 82.9 54.8 49.3
- ----------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision
for Credit Losses ................ 1,270.6 1,146.4 1,056.6 999.8 849.7 774.8
Other Operating Income .............. 877.6 753.5 590.4 494.0 407.2 345.6
Operating Expenses .................. 1,039.9 945.0 849.9 783.8 675.4 630.0
SAIF Assessment ..................... -- -- -- 49.6 -- --
Merger-Related Charges .............. 82.1 121.3 -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes .......... 1,026.2 833.6 797.1 660.4 581.5 490.4
Applicable Income Taxes ............. 358.0 287.1 267.7 217.6 192.5 164.7
- ----------------------------------------------------------------------------------------------------------------------------
Net Income .......................... $ 668.2 546.5 529.4 442.8 389.0 325.7
- ----------------------------------------------------------------------------------------------------------------------------
Earnings Per Share (a) .............. $ 2.18 1.81 1.78 1.48 1.36 1.16
Diluted Earnings Per Share (a) ...... $ 2.15 1.78 1.75 1.45 1.32 1.12
- ----------------------------------------------------------------------------------------------------------------------------
Cash Dividends Declared Per Share (a) $ .88 .71 .56% .48% .42% .35%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Per share amounts have been adjusted for the three-for-two stock splits
effected in the form of stock dividends paid April 15, 1998, July 15, 1997
and January 12, 1996.
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEET INFORMATION
- ----------------------------------------------------------------------------------------------------------
As of December 31 ($ in millions) 1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Securities ................... $ 12,816.6 11,305.8 10,530.9 10,145.6 7,476.2 6.466.8
Loans and Leases ............. 24,963.6 22,356.5 21,898.9 20,207.8 18,422.7 16,389.1
Loans Held for Sale .......... 297.1 588.9 315.1 93.3 390.9 55.5
Assets ....................... 41,589.5 37,092.3 35,180.2 33,135.1 28,302.0 24,798.5
Deposits ..................... 26,083.1 24,495.8 24,289.6 23,306.0 20,825.6 18,063.5
Short-Term Borrowings ........ 8,373.7 4,514.6 4,391.3 4,263.3 2,474.0 3,174.6
Long-Term Debt and Convertible
Subordinated Notes ........ 1,976.3 3,236.1 2,305.3 1,795.1 1,781.7 969.8
Shareholders' Equity ......... 4,077.0 3,795.1 3,358.5 3,135.4 2,658.6 2,179.7
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SUMMARIZED QUARTERLY FINANCIAL INFORMATION
- ----------------------------------------------------------------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------------------------------
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
(Unaudited)($ in millions) QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income ............. $725.9 702.9 668.6 640.7 641.7 646.2 652.6 645.3
Net Interest Income ......... 355.9 357.3 352.3 339.1 329.0 320.0 314.1 306.8
Provision for Credit Losses.. 43.7 29.6 35.3 25.4 30.1 17.1 47.1 29.2
Income Before Income Taxes... 195.1 293.2 272.0 265.9 267.4 261.0 89.0 216.2
Net Income .................. 116.3 195.4 180.2 176.3 177.8 171.1 53.3 144.3
Earnings Per Share .......... .37 .64 .59 .58 .59 .56 .18 .48
Diluted Earnings Per Share... .37 .63 .58 .57 .57 .56 .18 .47
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE> 42
FIFTH THIRD BANCORP AND SUBSIDIARIES
CONSOLIDATED TEN YEAR COMPARISON
<TABLE>
<CAPTION>
AVERAGE ASSETS ($ IN MILLIONS)
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS
----------------------------------------------------------------
FEDERAL INTEREST-BEARING CASH AND TOTAL
LOANS AND FUNDS DEPOSITS DUE FROM OTHER AVERAGE
YEAR LEASES LOANED (a) IN BANKS (a) SECURITIES TOTAL BANKS ASSETS ASSETS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 $24,382.6 $130.6 $ 90.7 $12,434.0 $37,037.9 $953.3 $2,108.4 $39,744.4
1998 22,542.6 140.8 114.9 11,052.4 33,850.7 884.2 1,752.6 36,167.6
1997 21,129.8 183.7 162.5 10,269.7 31,745.7 727.9 1,495.2 33,676.5
1996 19,632.7 170.7 162.9 9,469.3 29,435.6 744.7 1,380.7 31,280.5
1995 17,641.4 193.6 87.8 7,103.7 25,026.5 767.4 949.4 26,485.5
1994 15,466.7 211.3 97.4 5,843.2 21,618.6 747.3 798.5 22,925.6
1993 13,974.2 175.7 178.4 5,002.5 19,330.8 709.0 783.1 20,609.7
1992 12,028.6 331.0 186.7 4,974.7 17,521.0 630.3 789.8 18,770.7
1991 11,128.9 502.1 223.0 4,562.3 16,416.3 574.5 739.9 17,582.8
1990 10,713.7 573.0 184.2 3,987.7 15,458.6 588.3 771.8 16,683.6
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE DEPOSITS AND SHORT-TERM BORROWINGS ($ IN MILLIONS)
- ---------------------------------------------------------------------------------------------------------------------------
DEPOSITS
------------------------------------------------------------------------------------------
CERTIFICATES- SHORT-
INTEREST MONEY OTHER $100,000 FOREIGN TERM
YEAR DEMAND CHECKING SAVINGS MARKET TIME AND OVER OFFICE TOTAL BORROWINGS TOTAL
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999 $3,716.0 $3,813.1 $4,210.8 $1,852.6 $8,655.9 $2,065.4 $877.1 $25,190.9 $6,964.6 $32,155.5
1998 3,308.7 3,347.4 4,082.1 1,821.4 9,353.2 1,930.0 232.4 24,075.2 5,101.5 29,176.7
1997 2,833.0 2,921.4 3,023.3 2,666.8 9,912.5 1,560.4 401.7 23,319.1 4,481.6 27,800.7
1996 2,539.6 2,598.8 2,696.6 2,915.3 9,740.4 1,444.6 522.2 22,457.5 3,577.2 26,034.7
1995 2,223.1 2,231.2 1,679.1 2,747.7 8,240.8 1,107.9 780.5 19,010.3 3,258.1 22,268.4
1994 1,952.2 2,368.5 2,008.9 2,372.4 7,173.9 628.6 529.4 17,033.9 2,519.2 19,553.1
1993 1,801.0 2,118.2 2,038.3 2,243.3 6,616.2 710.4 242.3 15,769.7 1,611.5 17,381.2
1992 1,532.7 1,809.6 1,702.0 2,214.2 6,598.2 753.8 48.2 14,658.7 1,397.7 16,056.4
1991 1,288.2 1,398.9 1,523.3 1,970.3 6,694.7 1,196.1 13.1 14,084.6 1,065.1 15,149.7
1990 1,189.5 1,241.7 1,355.8 1,858.6 6,561.9 1,327.3 2.3 13,537.1 847.5 14,384.6
</TABLE>
<TABLE>
<CAPTION>
INCOME ($ IN MILLIONS, EXCEPT PER SHARE)
- ---------------------------------------------------------------------------------------------------------------------------
PER SHARE (b)
------------------------------------------------------
ORIGINALLY REPORTED
-------------------------------
OTHER DIVIDEND
INTEREST INTEREST OPERATING OPERATING NET DILUTED DIVIDENDS DILUTED PAYOUT
YEAR INCOME EXPENSE INCOME EXPENSE INCOME EARNINGS EARNINGS DECLARED EARNINGS EARNINGS RATIO
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999 $2,738.1 $1,333.5 $877.6 $1,122.0 $668.2 $2.18 $2.15 $.88 $2.18 $2.15 40.9%
1998 2,585.8 1,315.9 753.5 1,066.3 546.5 1.81 1.78 .71 1.80 1.76 40.3
1997 2,477.6 1,304.1 590.4 849.9 529.4 1.78 1.75 .568/9 1.73 1.69 33.6
1996 2,272.0 1,189.3 494.0 833.4 442.8 1.48 1.45 .488/9 1.43 1.40 34.9
1995 1,949.9 1,045.4 407.2 675.4 389.0 1.36 1.32 .422/3 1.29 1.26 33.8
1994 1,544.4 720.3 345.6 630.0 325.7 1.16 1.12 .355/9 1.13 1.10 32.3
1993 1,408.3 634.1 325.7 594.9 299.8 1.10 1.06 .302/9 .97 .95 31.8
1992 1,412.9 700.6 286.6 538.0 239.8 .90 .89 .262/3 .81 .81 33.0
1991 1,529.7 917.4 254.6 492.2 190.0 .71 .71 .231/9 .69 .69 33.5
1990 1,555.1 1,024.8 171.8 444.3 123.2 .48 .48 .201/7 .61 .61 33.0
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MISCELLANEOUS AT DECEMBER 31 ($ IN MILLIONS, EXCEPT SHARE INFORMATION)
- -----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
------------------------------------------------------------------------------------
ACCUMULATED
NUMBER OF NONOWNER RESERVE
SHARES OF STOCK COMMON CAPITAL RETAINED CHANGES IN TREASURY PER FOR CREDIT
YEAR OUTSTANDING (b) STOCK SURPLUS EARNINGS EQUITY STOCK TOTAL SHARE (b) LOSSES
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 (c) 308,886,592 $685.7 911.2 2,708.9 $(224.5) -- $4,077.0 $13.20 $366.6
1998 302,064,369 670.6 883.6 2,204.2 94.7 ( 58.0) 3,795.1 12.56 331.6
1997 297,760,466 661.0 832.1 1,944.4 105.6 (184.6) 3,358.5 11.28 312.2
1996 303,013,639 672.7 826.1 1,626.2 10.6 ( .2) 3,135.4 10.35 284.3
1995 290,579,395 645.1 639.3 1,350.4 23.8 -- 2,658.6 9.15 271.0
1994 282,869,895 628.0 520.5 1,098.1 ( 66.9) -- 2,179.7 7.71 245.9
1993 280,982,447 623.8 442.0 936.9 20.0 -- 2,022.7 7.20 223.5
1992 272,162,755 604.2 365.8 748.9 -- ( .4) 1,718.5 6.31 190.3
1991 270,618,302 600.8 292.7 627.9 -- ( .4) 1,521.0 5.62 150.9
1990 260,269,607 577.8 289.3 508.3 -- -- 1,375.4 5.28 137.1
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Federal funds loaned and interest-bearing deposits in banks are combined in
other short-term investments in the Consolidated Financial Statements.
(b) Number of shares outstanding and per share data have been adjusted for
stock splits in 1998, 1997, 1996, 1992 and 1990.
(c) Excludes non-officer employee stock grant of $4.3 million.
40
<PAGE> 43
DIRECTORS AND OFFICERS
FIFTH THIRD BANCORP DIRECTORS
-------------------------------------------------
GEORGE A. SCHAEFER, JR.,
President & CEO
Fifth Third Bancorp and
Fifth Third Bank
DARRYL F. ALLEN,
Special Advisor to the Chairman
Eaton Corporation
JOHN F. BARRETT,
President & CEO
The Western & Southern
Life Insurance Company
GERALD V. DIRVIN,
Former Executive Vice President
The Procter & Gamble Company
THOMAS B. DONNELL,
Chairman
Fifth Third Bank,
Northwestern Ohio,
National Association
RICHARD T. FARMER,
Chairman
Cintas Corporation
JOSEPH H. HEAD, JR.,
Chairman
Atkins & Pearce, Inc.
JOAN R. HERSCHEDE,
President & CEO
The Frank Herschede Company
ALLEN M. HILL,
President & CEO
DPL, Inc.
WILLIAM G. KAGLER,
Former Chairman of the
Executive Committee of the
Board of Directors
Skyline Chili, Inc.
JAMES D. KIGGEN,
Chairman
BroadWing, Inc.
JERRY L. KIRBY,
Chairman
Fifth Third Bank,
Western Ohio
ROBERT L. KOCH II,
President & CEO
Koch Enterprises, Inc.
MITCHEL D. LIVINGSTON, PH.D.,
Vice President for Student
Affairs & Human Resources
University of Cincinnati
ROBERT B. MORGAN,
Executive Counselor & Director
Cincinnati Financial Corporation
DAVID E. REESE,
Chairman
Fifth Third Bank,
Southwest F.S.B.
JAMES E. ROGERS,
Vice Chairman,
President & CEO
Cinergy Corporation
BRIAN H. ROWE,
Chairman Emeritus
GE Aircraft Engines
JOHN J. SCHIFF, JR.,
Chairman & CEO
Cincinnati Financial Corporation
DONALD B. SHACKELFORD,
Chairman
Fifth Third Bank,
Central Ohio
DENNIS J. SULLIVAN, JR.,
Executive Counselor
Dan Pinger Public Relations
DUDLEY S. TAFT,
President
Taft Broadcasting Company
THOMAS W. TRAYLOR,
Chairman & CEO
Traylor Bros., Inc.
ALTON C. WENDZEL,
President & CEO
Coloma Frozen Foods, Inc.
DIRECTORS EMERITI
-------------------------------------------------------------
Neil A. Armstrong
Philip G. Barach
Vincent H. Beckman
J. Kenneth Blackwell
Milton C. Boesel, Jr.
Richard G. Brierley
Clement L. Buenger
Douglas G. Cowan
Thomas L. Dahl
Ronald A. Dauwe
Nicholas M. Evans
Louis R. Fiore
John D. Geary
Ivan W. Gorr
Don R. Hinkley
William A. Hopple III
Paul W. Huenefeld
William J. Keating
Charles L. McKelvy, Jr.
Michael H. Norris
C. Wesley Rowles
David B. Sharrock
Stephen Stranahan
N. Beverley Tucker, Jr.
Richard E. Wagner
FIFTH THIRD BANCORP OFFICERS
---------------------------------------------------
GEORGE A. SCHAEFER, JR.,
President & CEO
NEAL E. ARNOLD,
Executive Vice President,
Treasurer, CFO
MICHAEL D. BAKER,
Executive Vice President
BARRY L. BOERSTLER,
Executive Vice President
JAMES R. GAUNT,
Executive Vice President
JAMES J. HUDEPOHL,
Executive Vice President
MICHAEL K. KEATING,
Executive Vice President,
General Counsel, Secretary
ROBERT J. KING, JR.,
Executive Vice President
ROBERT P. NIEHAUS,
Executive Vice President
PAUL L. REYNOLDS,
Executive Vice President,
Assistant Secretary
STEPHEN J. SCHRANTZ,
Executive Vice President
GERALD L. WISSEL,
Executive Vice President, Auditor
ROGER W. DEAN,
Senior Vice President,
Controller
AFFILIATE BANKS' CHAIRMEN, PRESIDENTS, CEOs
------------------------------------
THOMAS B. DONNELL,
Chairman
ROBERT J. KING, JR.,
Vice Chairman
DONALD H. KINCADE,
President & CEO
Fifth Third Bank,
Northwestern Ohio,
National Association
Toledo, Ohio
ROBERT L. ERNST,
Chairman
Fifth Third Bank,
Butler County
JERRY L. KIRBY,
Chairman
R. DANIEL SADLIER,
President & CEO
Fifth Third Bank, Western Ohio
Dayton, Ohio
WILLIAM A. STINNETT III,
Chairman
STEWART M. GREENLEE,
President & CEO
Fifth Third Bank, Ohio Valley
Hillsboro, Ohio
DONALD B. SHACKELFORD,
Chairman
PATRICK J. FEHRING, JR.,
President & CEO
Fifth Third Bank, Central Ohio
Columbus, Ohio
ROBERT J. KING, JR.,
President & CEO
Fifth Third Bank,
Northeastern Ohio
Cleveland, Ohio
WILLIAM J. WILLIAMS,
Chairman
TIMOTHY P. RAWE,
President & CEO
Fifth Third Bank
Florence, Kentucky
SAMUEL G. BARNES,
President & CEO
Fifth Third Bank
Lexington, Kentucky
JAMES R. GAUNT,
President & CEO
Fifth Third Bank
Louisville, Kentucky
JAMES J. GIANCOLA,
President & CEO
Fifth Third Bank, Indiana
JAMES B. STURGES,
Chairman
MICHAEL J. ALLEY,
President & CEO
Fifth Third Bank
Indianapolis, Indiana
BRADLEE F. STAMPER,
President & CEO
Fifth Third Bank
Valparaiso, Indiana
DAVID L. KNAPP,
President & CEO
Fifth Third Bank
Evansville, Indiana
COLLEEN M. KVETKO,
President & CEO
Fifth Third Bank, Florida
Naples, Florida
DAVID E. REESE,
Chairman
WILLIAM A. ROBERT,
President & CEO
Fifth Third Bank,
Southwest F.S.B.
Scottsdale, Arizona
(C)Fifth Third Bank 2000
Member F.D.I.C. - Federal Reserve System
(R)Reg. U.S. Pat. & T.M. Office
<PAGE> 44
[PHOTO]
www.53.com
<PAGE> 1
EXHIBIT 21
----------
FIFTH THIRD BANCORP SUBSIDIARIES
Jurisdiction
of
Name Incorporation
- ---- -------------
Fifth Third Bank Ohio
The Fifth Third Company Ohio
The Fifth Third Leasing Company Ohio
Fifth Third Auto Leasing Trust Delaware
Fifth Third Insurance Agency, Inc. Ohio
Midwest Payment Systems, Inc. Ohio
Fifth Third International Company Kentucky
Fifth Third Trade Services Limited Hong Kong
Fifth Third Real Estate Capital Markets Co. Ohio
Fifth Third Bank, Kentucky, Inc. Kentucky
Fifth Third Bank, Northern Kentucky, Inc. Kentucky
Fifth Third Bank, Central Ohio Ohio
Fidelity Calvin Corporation Ohio
American Home Foundation Ohio
Fifth Third Bank, Northwestern Ohio, National Association Federal
Fifth Third Mortgage Insurance/Reinsurance Company Vermont
Fifth Third Bank, Ohio Valley Ohio
Fifth Third Bank, Western Ohio Ohio
Fifth Third Mortgage Company Ohio
Fifth Third Real Estate Investment Trust, Inc. Maryland
CF Property Management Company Ohio
<PAGE> 2
EXHIBIT 21
----------
FIFTH THIRD BANCORP SUBSIDIARIES
Jurisdiction
of
Name Incorporation
- ---- -------------
Fifth Third Bank, Indiana Indiana
Peoples Building Corporation Indiana
PIC Limited Bermuda
Fifth Third Bank, Southwest, F.S.B. Federal
Calvin Securities, Incorporated Arizona
Fifth Third Bank, Florida Florida
Civitas Bank Michigan
Civitas Leasing, Inc. Kentucky
Community Financial Services, Inc. Indiana
Pecor Investments 1994 XXLP Indiana
Wedgewood Partners, Inc. Missouri
Civitas Insurance Indiana
CNB Capital Trust I Indiana
Fifth Third Securities, Inc Ohio
IBI and Associates Indiana
Fifth Third Community Development Company Indiana
Fifth Third Investment Company Ohio
Fountain Square Insurance Company Arizona
<PAGE> 3
EXHIBIT 21
----------
FIFTH THIRD BANCORP SUBSIDIARIES
Jurisdiction
of
Name Incorporation
- ---- -------------
Heartland Capital Management, Inc. Indiana
State Savings Mortgage Company Arizona
Calvin Hotel Co. Arizona
<PAGE> 1
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
No. 33-34075, 33-13252, 33-60474, 33-55223, 33-55553, 333-58249, 333-48049,
33-61149, 333-77293, and 333-84955 of Fifth Third Bancorp on Form S-8 and
in Registration Statements No. 33-19965 and 333-84911 on Form S-4 and
No. 33-54134, 333-58265, 333-42379, 333-80919, and 333-86645 on Form S-3
of our report dated January 14, 2000 incorporated by reference in this
Annual Report on Form 10-K of Fifth Third Bancorp for the year ended
December 31, 1999.
March 30, 2000
Cincinnati, Ohio
<TABLE> <S> <C>
<ARTICLE>9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIFTH THIRD
BANCORP'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000035527
<NAME> FIFTH THIRD BANCORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999 <F1>
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,213,089
<INT-BEARING-DEPOSITS> 355,447
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,687,529
<INVESTMENTS-CARRYING> 129,142
<INVESTMENTS-MARKET> 129,142
<LOANS> 24,963,620
<ALLOWANCE> 366,640
<TOTAL-ASSETS> 41,589,512
<DEPOSITS> 26,083,560
<SHORT-TERM> 8,374,133
<LIABILITIES-OTHER> 1,078,516
<LONG-TERM> 1,803,772
172,500
0
<COMMON> 685,728
<OTHER-SE> 3,391,303
<TOTAL-LIABILITIES-AND-EQUITY> 41,589,512
<INTEREST-LOAN> 1,912,490
<INTEREST-INVEST> 813,969
<INTEREST-OTHER> 11,623
<INTEREST-TOTAL> 2,738,082
<INTEREST-DEPOSIT> 859,286
<INTEREST-EXPENSE> 1,333,491
<INTEREST-INCOME-NET> 1,404,591
<LOAN-LOSSES> 134,057
<SECURITIES-GAINS> 555
<EXPENSE-OTHER> 1,121,956
<INCOME-PRETAX> 1,026,264
<INCOME-PRE-EXTRAORDINARY> 668,229
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 668,229
<EPS-BASIC> 2.19
<EPS-DILUTED> 2.15
<YIELD-ACTUAL> 3.99
<LOANS-NON> 66,805
<LOANS-PAST> 68,233
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 331,621
<CHARGE-OFFS> 154,268
<RECOVERIES> 42,460
<ALLOWANCE-CLOSE> 366,640
<ALLOWANCE-DOMESTIC> 366,640
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>
FINANCIAL DATA HAS BEEN RESTATED TO REFLECT THE FOURTH QUARTER 1999 MERGERS
WITH CNB BANCSHARES, INC. AND PEOPLES BANK CORPORATION OF INDIANAPOLIS.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE>9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FIFTH THIRD BANCORP'S QUARTERLY REPORT ON FORM 10-Q FOR THE
THREE MONTHS ENDED MARCH 31, 1999, JUNE 30, 1999, AND SEPTEMBER 30, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000035527
<NAME> FIFTH THIRD BANCORP
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999<F1> DEC-31-1999<F1> DEC-31-1999<F1>
<PERIOD-START> JAN-01-1999 JAN-01-1999 JAN-01-1999
<PERIOD-END> MAR-31-1999 JUN-30-1999 SEP-30-1999
<CASH> 901,638 941,901 891,346
<INT-BEARING-DEPOSITS> 143,534 147,682 394,831
<FED-FUNDS-SOLD> 0 0 0
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 12,353,721 12,638,561 12,761,330
<INVESTMENTS-CARRYING> 124,282 101,687 132,207
<INVESTMENTS-MARKET> 124,091 107,155 131,990
<LOANS> 22,652,735 23,700,856 25,250,958
<ALLOWANCE> 336,377 350,486 373,242
<TOTAL-ASSETS> 38,061,118 39,987,015 41,446,488
<DEPOSITS> 24,668,315 25,601,981 25,006,594
<SHORT-TERM> 5,693,158 6,717,762 8,979,955
<LIABILITIES-OTHER> 1,096,954 1,019,066 1,008,458
<LONG-TERM> 2,542,160 2,609,964 2,371,239
172,500 172,500 172,500
0 0 0
<COMMON> 671,594 676,441 684,646
<OTHER-SE> 3,216,436 3,189,301 3,223,096
<TOTAL-LIABILITIES-AND-EQUITY> 38,061,118 39,987,015 41,446,488
<INTEREST-LOAN> 451,418 916,831 1,408,967
<INTEREST-INVEST> 186,972 389,172 596,522
<INTEREST-OTHER> 2,416 3,399 6,735
<INTEREST-TOTAL> 640,806 1,309,402 2,012,224
<INTEREST-DEPOSIT> 201,033 403,726 620,933
<INTEREST-EXPENSE> 301,711 617,986 963,521
<INTEREST-INCOME-NET> 339,095 691,416 1,048,703
<LOAN-LOSSES> 25,391 60,662 90,310
<SECURITIES-GAINS> 1,632 2,620 (383)
<EXPENSE-OTHER> 254,311 520,553 777,055
<INCOME-PRETAX> 265,987 538,007 831,203
<INCOME-PRE-EXTRAORDINARY> 176,342 356,514 551,962
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 176,342 356,514 551,962
<EPS-BASIC> .58 1.17 1.81
<EPS-DILUTED> .57 1.15 1.78
<YIELD-ACTUAL> 0 0 0
<LOANS-NON> 71,780 75,210 83,750
<LOANS-PAST> 91,311 79,920 87,686
<LOANS-TROUBLED> 0 0 0
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 331,621 336,377 350,486
<CHARGE-OFFS> 29,107 62,685 91,508
<RECOVERIES> 8,070 18,769 28,547
<ALLOWANCE-CLOSE> 336,377 350,486 373,242
<ALLOWANCE-DOMESTIC> 336,377 350,486 373,242
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0
<FN>
<F1> FINANCIAL DATA HAS BEEN RESTATED TO REFLECT THE FOURTH QUARTER 1999 MERGERS WITH CNB BANCSHARES, INC.
AND PEOPLES BANK CORPORATION OF INDIANAPOLIS.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE>9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FIFTH THIRD BANCORP'S ANNUAL REPORT ON FORM 10-K FOR THE
YEARS ENDED DECEMBER 31, 1998 AND 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000035527
<NAME> FIFTH THIRD BANCORP
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998<F1> DEC-31-1997<F1>
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 1,045,368 963,840
<INT-BEARING-DEPOSITS> 164,760 211,528
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 11,183,935 10,215,015
<INVESTMENTS-CARRYING> 121,880 315,913
<INVESTMENTS-MARKET> 121,882 321,617
<LOANS> 22,356,524 21,898,954
<ALLOWANCE> 331,621 312,264
<TOTAL-ASSETS> 37,092,266 35,180,173
<DEPOSITS> 24,495,784 24,289,566
<SHORT-TERM> 4,514,636 4,391,386
<LIABILITIES-OTHER> 1,050,702 835,340
<LONG-TERM> 3,063,590 2,305,341
172,500 0
0 0
<COMMON> 670,582 661,000
<OTHER-SE> 3,124,472 2,697,540
<TOTAL-LIABILITIES-AND-EQUITY> 37,092,266 35,180,173
<INTEREST-LOAN> 1,856,733 1,761,411
<INTEREST-INVEST> 718,811 696,855
<INTEREST-OTHER> 10,383 19,346
<INTEREST-TOTAL> 2,585,927 2,477,612
<INTEREST-DEPOSIT> 908,320 936,907
<INTEREST-EXPENSE> 1,315,947 1,304,077
<INTEREST-INCOME-NET> 1,269,980 1,173,535
<LOAN-LOSSES> 123,489 116,946
<SECURITIES-GAINS> 12,352 8,471
<EXPENSE-OTHER> 1,066,207 849,902
<INCOME-PRETAX> 833,828 797,115
<INCOME-PRE-EXTRAORDINARY> 546,512 529,379
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 546,512 529,379
<EPS-BASIC> 1.81 1.78
<EPS-DILUTED> 1.78 1.75
<YIELD-ACTUAL> 3.93 3.86
<LOANS-NON> 77,177 102,059
<LOANS-PAST> 87,002 55,779
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 312,264 284,284
<CHARGE-OFFS> 142,791 121,707
<RECOVERIES> 32,962 30,535
<ALLOWANCE-CLOSE> 331,621 312,264
<ALLOWANCE-DOMESTIC> 331,621 312,264
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
<FN>
<F1> FINANCIAL DATA HAS BEEN RESTATED TO REFLECT THE FOURTH QUARTER 1999 MERGERS WITH CNB BANCSHARES, INC.
AND PEOPLES BANK CORPORATION OF INDIANAPOLIS.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE>9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FIFTH THIRD BANCORP'S QUARTERLY REPORT ON FORM 10-Q FOR THE
THREE MONTHS ENDED MARCH 31, 1998, JUNE 30, 1998, AND SEPTEMBER 30, 1998, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000035527
<NAME> FIFTH THIRD BANCORP
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998<F1> DEC-31-1998<F1> DEC-31-1998<F1>
<PERIOD-START> JAN-01-1998 JAN-01-1998 JAN-01-1998
<PERIOD-END> MAR-31-1998 JUN-30-1998 SEP-30-1998
<CASH> 945,601 1,164,871 935,300
<INT-BEARING-DEPOSITS> 103,129 96,699 152,120
<FED-FUNDS-SOLD> 0 0 0
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 11,322,910 10,348,202 11,085,982
<INVESTMENTS-CARRYING> 122,896 132,830 116,467
<INVESTMENTS-MARKET> 123,202 132,834 116,462
<LOANS> 21,978,115 22,417,647 21,981,021
<ALLOWANCE> 314,960 331,841 325,294
<TOTAL-ASSETS> 36,471,255 35,954,104 36,209,536
<DEPOSITS> 24,188,934 24,251,755 24,210,315
<SHORT-TERM> 5,402,357 4,570,947 4,449,118
<LIABILITIES-OTHER> 894,309 922,691 1,012,743
<LONG-TERM> 2,548,620 2,370,260 2,630,210
0 172,500 172,500
0 0 0
<COMMON> 661,679 672,752 670,151
<OTHER-SE> 2,775,356 2,993,199 3,064,499
<TOTAL-LIABILITIES-AND-EQUITY> 36,471,255 35,954,104 36,209,536
<INTEREST-LOAN> 455,608 925,558 1,395,038
<INTEREST-INVEST> 186,542 366,617 540,142
<INTEREST-OTHER> 3,181 5,768 9,000
<INTEREST-TOTAL> 645,331 1,297,943 1,944,180
<INTEREST-DEPOSIT> 232,540 462,586 691,573
<INTEREST-EXPENSE> 338,554 677,023 1,003,246
<INTEREST-INCOME-NET> 306,777 620,920 940,934
<LOAN-LOSSES> 29,189 76,269 93,392
<SECURITIES-GAINS> 4,816 6,202 8,957
<EXPENSE-OTHER> 226,269 581,905 821,646
<INCOME-PRETAX> 216,350 305,444 566,477
<INCOME-PRE-EXTRAORDINARY> 144,383 197,644 368,715
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 144,383 197,644 368,715
<EPS-BASIC> .48 .66 1.22
<EPS-DILUTED> .47 .65 1.21
<YIELD-ACTUAL> 0 0 0
<LOANS-NON> 114,208 109,864 87,844
<LOANS-PAST> 50,425 56,068 84,351
<LOANS-TROUBLED> 0 0 0
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 312,264 314,960 331,841
<CHARGE-OFFS> 36,525 76,026 109,153
<RECOVERIES> 7,380 16,451 23,795
<ALLOWANCE-CLOSE> 314,960 331,841 325,294
<ALLOWANCE-DOMESTIC> 314,960 331,841 325,294
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0
<FN>
<F1> FINANCIAL DATA HAS BEEN RESTATED TO REFLECT THE FOURTH QUARTER 1999 MERGERS WITH CNB BANCSHARES, INC.
AND PEOPLES BANK CORPORATION OF INDIANAPOLIS.
</FN>
</TABLE>
