<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 2000
Commission File Number 0-8076
FIFTH THIRD BANCORP
(Exact name of Registrant as specified in its charter)
Ohio 31-0854434
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
Fifth Third Center
Cincinnati, Ohio 45263
(Address of principal executive offices)
Registrant's telephone number, including area code: (513) 579-5300
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
There were 461,898,260 shares of the Registrant's Common Stock, without par
value, outstanding as of October 31, 2000.
<PAGE> 2
FIFTH THIRD BANCORP
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 2000 and 1999 and December 31, 1999 3
Consolidated Statements of Income -
Three and Nine Months Ended September 30, 2000 and 1999 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2000 and 1999 5
Consolidated Statements of Changes in Shareholders' Equity -
Nine Months Ended September 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7 - 12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13 - 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Part II. Other Information 19
2
<PAGE> 3
FIFTH THIRD BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, December 31, September 30,
($000'S) 2000 1999 1999
-----------------------------------------------------------------------------------------------------------------------------------
ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and Due from Banks $ 779,589 1,213,089 891,346
Securities Available for Sale (a) 14,847,612 12,687,529 12,761,330
Securities Held to Maturity (b) 44,110 129,142 132,207
Other Short-Term Investments 200,381 355,447 394,831
Loans Held for Sale 437,466 297,277 189,827
Loans and Leases
Commercial Loans 6,572,227 6,206,712 6,123,536
Construction Loans 1,220,328 1,067,887 1,023,419
Commercial Mortgage Loans 2,877,651 2,651,378 2,614,915
Commercial Lease Financing 2,608,536 2,283,006 2,064,190
Residential Mortgage Loans 4,860,877 4,813,971 5,781,461
Consumer Loans 5,799,465 5,283,684 5,114,346
Consumer Lease Financing 2,978,860 3,579,600 3,386,144
Unearned Income (1,056,219) (922,618) (857,053)
Reserve for Credit Losses (383,923) (366,640) (373,242)
-----------------------------------------------------------------------------------------------------------------------------------
Total Loans and Leases 25,477,802 24,596,980 24,877,716
Bank Premises and Equipment 498,990 481,531 467,243
Accrued Income Receivable 348,414 321,025 320,217
Other Assets 1,761,536 1,507,492 1,411,771
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 44,395,900 41,589,512 41,446,488
===================================================================================================================================
LIABILITIES
-----------------------------------------------------------------------------------------------------------------------------------
Deposits
Demand $ 4,041,285 3,834,191 3,913,375
Interest Checking 4,814,869 4,792,196 4,427,958
Savings and Money Market 5,047,826 5,167,896 5,494,370
Time Deposits 11,570,601 12,289,277 11,170,891
-----------------------------------------------------------------------------------------------------------------------------------
Total Deposits 25,474,581 26,083,560 25,006,594
Federal Funds Borrowed 3,598,709 2,971,855 3,591,383
Short-Term Bank Notes 2,900,536 1,317,400 467,000
Other Short-Term Borrowings 1,695,180 4,084,878 4,921,572
Accrued Taxes, Interest and Expenses 1,157,945 785,927 631,130
Other Liabilities 238,478 292,589 377,328
Long-Term Debt 4,721,842 1,803,772 2,371,239
Guaranteed Preferred Beneficial Interest in
Convertible Subordinated Debentures 172,500 172,500 172,500
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 39,959,771 37,512,481 37,538,746
-----------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (C)
-----------------------------------------------------------------------------------------------------------------------------------
Common Stock (d) 1,033,188 1,028,592 1,027,911
Capital Surplus 620,893 568,360 336,966
Retained Earnings 3,102,851 2,704,595 2,733,001
Unrealized Losses on Securities
Available for Sale (156,031) (224,516) (190,136)
Treasury Stock (164,772) -- --
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 4,436,129 4,077,031 3,907,742
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 44,395,900 41,589,512 41,446,488
===================================================================================================================================
</TABLE>
(a) Amortized cost: September 30, 2000 - $15,088,645, December 31, 1999 -
$13,037,903 and September 30, 1999 - $13,305,252.
(b) Market value: September 30, 2000 - $44,110, December 31, 1999 - $129,142
and September 30, 1999 - $131,990.
(c) 500,000 shares of no par value preferred stock are authorized of which none
have been issued.
(d) Stated value $2.22 per share; authorized 650,000,000; outstanding at
September 30, 2000 - 461,799,811 (excludes 3,600,000 treasury shares),
December 31, 1999 - 463,329,888 and at September 30, 1999 - 463,023,074.
Outstanding and treasury shares have been adjusted for the three-for-two
stock split effected in the form of a stock dividend paid July 14, 2000.
See Notes to Consolidated Financial Statements
3
<PAGE> 4
<TABLE>
<CAPTION>
FIFTH THIRD BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
------------------------------------------------------------------------------------------------- -------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ------------------------------
($000'S) 2000 1999 2000 1999
------------------------------------------------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans and Leases $ 556,262 492,136 $1,591,557 1,408,967
Interest on Securities
Taxable 274,598 197,910 799,807 568,387
Exempt from Income Taxes 9,315 9,440 28,064 28,135
------------------------------------------------------------------------------------------------- ----------------------------
Total Interest on Securities 283,913 207,350 827,871 596,522
Interest on Other Short-Term Investments 2,085 3,336 7,928 6,735
------------------------------------------------------------------------------------------------- ----------------------------
Total Interest Income 842,260 702,822 2,427,356 2,012,224
------------------------------------------------------------------------------------------------- ----------------------------
INTEREST EXPENSE
Interest on Deposits
Interest Checking 36,695 26,550 101,836 74,188
Savings and Money Market 48,218 41,917 137,847 121,940
Time Deposits 208,787 148,740 599,769 424,806
------------------------------------------------------------------------------------------------- ----------------------------
Total Interest on Deposits 293,700 217,207 839,452 620,934
Interest on Federal Funds Borrowed 66,316 54,080 210,442 127,572
Interest on Short-Term Bank Notes 16,676 3,001 50,433 16,651
Interest on Other Short-Term Borrowings 36,715 36,900 106,900 98,004
Interest on Long-Term Debt and Notes 57,859 34,347 120,971 100,360
------------------------------------------------------------------------------------------------- ----------------------------
Total Interest Expense 471,266 345,535 1,328,198 963,521
------------------------------------------------------------------------------------------------- ----------------------------
NET INTEREST INCOME 370,994 357,287 1,099,158 1,048,703
Provision for Credit Losses 18,235 29,648 65,926 90,310
------------------------------------------------------------------------------------------------- ----------------------------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 352,759 327,639 1,033,232 958,393
OTHER OPERATING INCOME
Investment Advisory Income 49,037 47,787 149,271 138,628
Service Charges on Deposits 57,633 45,317 160,631 127,715
Data Processing Income 62,037 46,214 169,652 126,514
Other Service Charges and Fees 85,255 85,744 262,270 257,391
Securities Gains (Losses) 416 (3,003) 778 (383)
------------------------------------------------------------------------------------------------- ----------------------------
Total Other Operating Income 254,378 222,059 742,602 649,865
------------------------------------------------------------------------------------------------- ----------------------------
OPERATING EXPENSES
Salaries, Wages and Incentives 105,767 107,474 324,660 319,018
Employee Benefits 21,090 18,209 70,437 64,533
Equipment Expenses 12,409 12,005 37,331 36,304
Net Occupancy Expenses 18,914 18,797 57,505 53,753
Other Operating Expenses 111,036 100,017 322,886 303,447
Merger-Related and Special Charges -- -- 33,548 --
------------------------------------------------------------------------------------------------- ----------------------------
Total Operating Expenses 269,216 256,502 846,367 777,055
------------------------------------------------------------------------------------------------- ----------------------------
INCOME BEFORE INCOME TAXES 337,921 293,196 929,467 831,203
Applicable Income Taxes 109,895 97,748 302,984 279,241
------------------------------------------------------------------------------------------------- ----------------------------
NET INCOME $ 228,026 195,448 $ 626,483 551,962
================================================================================================= ============================
Per Share:
Earnings $ 0.49 0.42 $ 1.35 1.21
Diluted Earnings $ 0.48 0.42 $ 1.33 1.19
Cash Dividends $ 0.18 0.16 $ 0.52 0.42 2/3
================================================================================================= ============================
Average Shares (000's)
Outstanding 464,086 461,016 464,202 457,369
Diluted 476,125 473,598 475,625 471,157
================================================================================================= ============================
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE> 5
<TABLE>
<CAPTION>
FIFTH THIRD BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-----------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
($000'S) 2000 1999
-----------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 626,483 551,962
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses 65,926 90,310
Depreciation, Amortization and Accretion 82,319 82,571
Provision for Deferred Income Taxes 136,649 122,171
Realized Securities Gains (2,862) (7,523)
Realized Securities Losses 2,084 7,906
Proceeds from Sales of Residential Mortgage Loans Held for Sale 2,408,438 2,296,947
Net Gains on Sales of Loans (25,863) (35,270)
Increase in Residential Mortgage Loans Held for Sale (2,522,764) (1,871,059)
Decrease (Increase) in Accrued Income Receivable (27,389) 22,623
Increase in Other Assets (244,004) (244,183)
Increase (Decrease) in Accrued Taxes, Interest and Expenses 194,513 (58,583)
Increase (Decrease) in Other Liabilities (54,504) 136,307
-----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 639,026 1,094,179
===================================================================================================================================
INVESTING ACTIVITIES
Proceeds from Sales of Securities Available for Sale 4,506,048 1,905,349
Proceeds from Calls, Paydowns and Maturities of Securities Available for Sale 1,161,024 2,407,482
Purchases of Securities Available for Sale (6,823,362) (5,571,062)
Proceeds from Calls, Paydowns and Maturities of Securities Held to Maturity 8,483 30,526
Purchases of Securities Held to Maturity (10,057) (32,513)
Decrease (Increase) in Other Short-Term Investments 155,066 (225,276)
Increase in Loans and Leases (1,804,694) (3,758,232)
Purchases of Bank Premises and Equipment (66,698) (67,593)
Proceeds from Disposal of Bank Premises and Equipment 10,475 13,969
-----------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (2,863,715) (5,297,350)
===================================================================================================================================
FINANCING ACTIVITIES
Increase in Transaction Account Deposits 109,697 224,567
Increase in Consumer Time Deposits 76,865 12,258
Increase (Decrease) in CDs - $100,000 and Over, including Foreign (795,541) 274,085
Increase in Federal Funds Borrowed 626,854 1,453,472
Increase in Short-Term Bank Notes 1,583,136 467,000
Increase (Decrease) in Other Short-Term Borrowings (2,390,019) 2,544,453
Proceeds from Issuance of Long-Term Debt and Notes 4,872,936 594,380
Repayment of Long-Term Debt (1,955,125) (1,286,619)
Payment of Cash Dividends (234,440) (200,705)
Exercise of Stock Options 31,826 29,308
Purchase of Treasury Stock (164,772) --
Other 29,772 (62,950)
-----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,791,189 4,049,149
===================================================================================================================================
DECREASE IN CASH AND DUE FROM BANKS (433,500) (154,022)
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 1,213,089 1,045,368
-----------------------------------------------------------------------------------------------------------------------------------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 779,589 891,346
===================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE> 6
FIFTH THIRD BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
===================================================================================================================================
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
($000'S) 2000 1999
===================================================================================================================================
<S> <C> <C>
BALANCE AT DECEMBER 31 $ 4,077,031 3,795,054
Net Income 626,483 551,962
Nonowner Changes in Equity, Net of Tax:
Change in Unrealized Losses on Securities Available for Sale 68,485 (284,856)
-----------------------------------------------------------------------------------------------------------------------------------
Net Income and Nonowner Changes in Equity 694,968 267,106
Cash Dividends Declared:
Fifth Third Bancorp (2000 - $.52 per share and 1999 - $ .42 2/3 per share) (241,135) (173,719)
Pooled Companies Prior to Acquisition -- (36,694)
Stock Options Exercised including Treasury Shares Issued 31,826 29,308
Treasury Shares Purchased (164,772) --
Stock Issued in Acquisitions and Other 38,211 26,687
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30 $ 4,436,129 3,907,742
===================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE> 7
FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, the unaudited Consolidated Financial
Statements include all adjustments (which consist of normal recurring
accruals) necessary, to present fairly the consolidated financial
position as of September 30, 2000 and 1999, the results of operations
for the three and nine months ended September 30, 2000 and 1999 and the
statements of cash flows for the nine months ended September 30, 2000
and 1999. In accordance with generally accepted accounting principles
for interim financial information, these statements do not include
certain information and footnote disclosures required by generally
accepted accounting principles for complete annual financial
statements. Financial information as of December 31, 1999 has been
derived from the audited Consolidated Financial Statements of Fifth
Third Bancorp (the "Registrant"). The results of operations and
statements of cash flows for the three and nine months ended September
30, 2000 and 1999 are not necessarily indicative of the results to be
expected for the full year. For further information, refer to the
Consolidated Financial Statements and footnotes thereto for the year
ended December 31, 1999, included in the Registrant's Annual Report on
Form 10-K. Certain reclassifications have been made to prior periods'
consolidated financial statements and related notes to conform with the
current period presentation.
2. PENDING BUSINESS COMBINATIONS:
On October 25, 2000, the Registrant agreed to acquire Capital Holdings,
Inc. ("Capital") and its subsidiary, Capital Bank N.A., headquartered
in Sylvania, Ohio. As of September 30, 2000, Capital had total assets
of $1.1 billion and total deposits of $874 million. The merger
agreement provides that .638 shares of Fifth Third's common stock will
be exchanged for each share of Capital's common stock on a tax-free
basis. The transaction is expected to close in the first quarter of
2001, pending regulatory and shareholder approval, and be accounted for
as a pooling-of-interests. In connection with this acquisition, the
Registrant expects to exchange approximately 5.0 million shares of
Fifth Third common stock with the shareholders of Capital.
On August 31, 2000, the Registrant agreed to acquire Ottawa Financial
Corporation ("Ottawa") and its subsidiary, AmeriBank, headquartered in
Holland, Michigan. As of September 30, 2000, Ottawa had total assets of
$1.1 billion and total deposits of $733 million. The merger agreement
provides that .54 shares of Fifth Third's common stock will be
exchanged for each share of Ottawa's common stock on a tax-free basis,
subject to adjustment based on the average closing price per share of
Fifth Third's common stock for the 20 consecutive trading days ending
on the fifth day before the effective time of the merger. The
transaction is expected to be completed in December 2000, pending
regulatory and shareholder approval, and be accounted for as a
purchase. In connection with this acquisition, the Registrant expects
to exchange approximately 4.0 million shares of Fifth Third common
stock with the shareholders of Ottawa.
7
<PAGE> 8
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. On June 20, 2000, the Registrant's Board of Directors approved a
three-for-two stock split to be effected in the form of a stock
dividend. The additional shares resulting from the stock split were
paid July 14, 2000 to shareholders of record as of June 30, 2000. Share
and per share amounts reflected throughout the consolidated financial
statements and notes thereto have been retroactively restated for the
stock split.
4. On June 20, 2000, the Registrant's Board of Directors authorized the
Registrant to purchase in the open market up to five percent of the
outstanding shares of Fifth Third common stock. The form and amount of
such repurchase will be at the discretion and final determination of
executive management. The authorization will remain in effect until all
shares authorized have been repurchased, unless sooner terminated by
the Registrant's Board of Directors. As of September 30, 2000, the
Registrant had repurchased 3.6 million shares of Fifth Third common
stock under this authorization.
5. Financial data for the period ended September 30, 1999 has been
restated to reflect the fourth quarter 1999 mergers with Peoples Bank
Corporation of Indianapolis ("Peoples") and CNB Bancshares, Inc.
("CNB"), both publicly-traded bank holding companies with $675 million
and $7.9 billion in total assets, respectively. Both transactions were
tax-free, stock-for-stock exchanges accounted for as
pooling-of-interests. In connection with these acquisitions the
Registrant issued approximately 5.1 million shares and 45.6 million
shares of Fifth Third common stock for all the outstanding shares of
Peoples and CNB, respectively. The contributions of Peoples and CNB to
consolidated net interest income, other operating income and net income
for the three and nine months ended September 30, 1999, prior to the
mergers, were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999
===================================================================================================================================
PEOPLES BANK
FIFTH CORPORATION CNB
THIRD OF BANCSHARES,
($000'S) BANCORP INDIANAPOLIS INC. OTHER COMBINED
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Interest Income $285,157 $ 6,723 $ 65,407 $ -- $ 357,287
Other Operating Income 197,143 1,584 23,332 -- 222,059
Net Income 173,504 2,297 19,647 -- 195,448
===================================================================================================================================
NINE MONTHS ENDED SEPTEMBER 30, 1999
===================================================================================================================================
PEOPLES BANK
FIFTH CORPORATION CNB
THIRD OF BANCSHARES,
($000'S) BANCORP INDIANAPOLIS INC. OTHER COMBINED
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Interest Income $835,824 $19,396 $189,372 $ 4,111 $1,048,703
Other Operating Income 559,461 5,925 84,654 (175) 649,865
Net Income 485,507 6,800 68,181 (8,526) 551,962
===================================================================================================================================
</TABLE>
8
<PAGE> 9
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The combined results are not necessarily indicative of the results that
would have occurred had the acquisitions been consummated in the past
or which might be attained in the future. During the second quarter of
2000, the Registrant incurred additional merger-related costs and
special charges in connection with the integration of CNB totaling
$33,548,000 ($23,057,000 after tax, or $.05 per diluted share). The
merger-related costs consisted of net employee-related obligations and
conversion expenses and special charges related to the restructuring of
certain investment securities.
6. For the first nine months of 2000, the Registrant paid $1,334,531,000
in interest and $15,000,000 in Federal income taxes. For the same
period in 1999, the Registrant paid $1,043,983,000 in interest and
$114,713,000 in Federal income taxes. During the first nine months of
2000 and 1999, the Registrant had noncash investing activities
consisting of the securitization of $864,629,000 and $1,190,978,000 of
residential mortgage loans, respectively.
7. In September 2000, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." The statement is effective for
transfers and servicing of financial assets occurring after March 31,
2001, with certain disclosure and reclassification requirements
effective for financial statements for fiscal years ending after
December 15, 2000. Included in SFAS No. 140, which replaced SFAS No.
125 of the same name, are the accounting and reporting standards
related to securitizations and Qualifying Special Purpose Entities
("QSPE"). The adoption of SFAS No. 140 is not expected to have a
material effect on the Registrant.
8. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." As amended, SFAS No. 133 is
effective for all fiscal years beginning after June 15, 2000 and
establishes accounting and reporting standards for derivative
instruments and hedging activities, requiring recognition of all
derivatives as either assets or liabilities in the statement of
financial condition and measurement of those instruments at fair value.
A substantial portion of the Registrant's derivative instruments are
interest rate swaps, for which it is believed hedge accounting will be
attained, and contracts entered into on behalf of customers, on which
the Registrant maintains an offsetting position. As such, the adoption
of SFAS No. 133 is not expected to have a material effect on the
Registrant.
9. In accordance with SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," the Registrant has determined its
principal segments to be 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
9
<PAGE> 10
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
transaction processing, operates the Registrant's Jeanie ATM network
and provides other data processing services to affiliated and
unaffiliated customers. General corporate and other includes the
investment portfolio, certain non-deposit funding, unassigned equity,
the net effect of funds transfer pricing and other items not allocated
to operating segments.
Total revenues exclude securities gains and losses. Results of
operations and selected financial information by operating segment for
the three and nine months ended September 30, 2000 and 1999 are as
follows:
<TABLE>
<CAPTION>
Three Months Ended Investment General
September 30, Commercial Retail Advisory Data Acquired Corporate
($000's) Banking Banking Services Processing (a) Entities And Other Eliminations (a) Total
-----------------------------------------------------------------------------------------------------------------------------------
2000
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Revenues $164,726 $322,824 $ 58,736 $ 67,042 $ -- $ 17,211 $ (5,583) $ 624,956
-----------------------------------------------------------------------------------------------------------------------------------
Net Income $ 68,140 $110,109 $ 17,456 $ 21,345 $ -- $ 10,976 $ -- $ 228,026
===================================================================================================================================
1999
Total Revenues $121,599 $252,875 $ 53,269 $ 48,732 $102,014 $ 7,941 $ (4,081) $ 582,349
-----------------------------------------------------------------------------------------------------------------------------------
Net Income $ 52,439 $ 87,680 $ 17,107 $ 15,590 $ 21,944 $ 688 $ -- $ 195,448
===================================================================================================================================
Nine Months Ended Investment General
September 30, Commercial Retail Advisory Data Acquired Corporate
($000's) Banking Banking Services Processing (a) Entities And Other Eliminations (a) Total
-----------------------------------------------------------------------------------------------------------------------------------
2000
Total Revenues $474,973 $939,784 $179,166 $182,062 $ -- $ 79,434 $(14,437) $1,840,982
-----------------------------------------------------------------------------------------------------------------------------------
Net Income $190,153 $306,935 $ 53,900 $ 57,159 $ -- $ 18,336 $ -- $ 626,483
===================================================================================================================================
1999
Total Revenues $359,852 $731,268 $157,213 $133,242 $307,550 $ 20,812 $(10,986) $1,698,951
-----------------------------------------------------------------------------------------------------------------------------------
Net Income $151,086 $244,919 $ 49,596 $ 41,799 $ 66,455 $ (1,893) $ -- $ 551,962
===================================================================================================================================
</TABLE>
(a) Data Processing services revenues provided to the banking segments by MPS
are eliminated in the Consolidated Statements of Income.
There were no material changes in the identifiable assets that were
disclosed in the Registrant's December 31, 1999 Annual Report on Form
10-K.
10
<PAGE> 11
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. The Registrant has elected to present the disclosures required by SFAS
No. 130, "Reporting Comprehensive Income," in the Consolidated
Statement of Changes in Shareholders' Equity on page 6. The caption
"Net Income and Nonowner Changes in Equity" represents total
comprehensive income as defined in the statement. Disclosure of the
reclassification adjustments, related tax effects allocated to nonowner
changes in equity and accumulated nonowner changes in equity for the
nine months are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
($000'S) 2000 1999
===================================================================================================================================
Reclassification Adjustments, Before Tax
===================================================================================================================================
<S> <C> <C>
Change in Unrealized Gains (Losses) Arising During Period $ 110,119 (384,940)
Reclassification Adjustment for Gains (Losses) Included in Net Income 778 (383)
-----------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Gains (Losses) on Securities Available for Sale $ 109,341 (384,557)
===================================================================================================================================
Related Tax Effects
===================================================================================================================================
Change in Unrealized Gains (Losses) Arising During Period $ 41,128 (99,835)
Reclassification Adjustment for Gains (Losses) Included in Net Income 272 (134)
-----------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Gains (Losses) on Securities Available for Sale $ 40,856 (99,701)
===================================================================================================================================
Reclassification Adjustments, Net of Tax
===================================================================================================================================
Change in Unrealized Gains (Losses) Arising During Period $ 68,991 (285,105)
Reclassification Adjustment for Gains (Losses) Included in Net Income 506 (249)
-----------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Gains (Losses) on Securities Available for Sale $ 68,485 (284,856)
===================================================================================================================================
Accumulated Nonowner Changes in Equity
===================================================================================================================================
Beginning Balance-Unrealized Holding Gains (Losses) on
Securities Available for Sale $(224,516) 94,720
Current Period Change 68,485 (284,856)
-----------------------------------------------------------------------------------------------------------------------------------
Ending Balance-Unrealized Holding Losses on Securities
Available for Sale $(156,031) (190,136)
===================================================================================================================================
</TABLE>
11
<PAGE> 12
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. The reconciliation of earnings per share to earnings per diluted share
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 2000 1999
===================================================================================================================================
NET AVERAGE PER-SHARE NET AVERAGE PER-SHARE
($000'S) INCOME SHARES AMOUNT INCOME SHARES AMOUNT
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
EPS
Income Available to
Common Shareholders $228,026 464,086 $ 0.49 $195,448 461,016 $ 0.42
EFFECT OF DILUTIVE SECURITIES
Stock Options 7,623 8,166
Interest on 6% Convertible
Subordinated Debentures due 2028,
Net of Applicable Income Taxes 1,640 4,416 1,640 4,416
-----------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER DILUTED SHARE
Income Available to
Common Shareholders
Plus Assumed Conversions $229,666 476,125 $ 0.48 $197,088 473,598 $ 0.42
===================================================================================================================================
NINE MONTHS ENDED SEPTEMBER 30, 2000 1999
===================================================================================================================================
NET AVERAGE PER-SHARE NET AVERAGE PER-SHARE
($000'S) INCOME SHARES AMOUNT INCOME SHARES AMOUNT
===================================================================================================================================
EPS
Income Available to
Common Shareholders $626,483 464,202 $ 1.35 $551,962 457,369 $ 1.21
EFFECT OF DILUTIVE SECURITIES
Stock Options 7,007 9,372
Interest on 6% Convertible
Subordinated Debentures due 2028,
Net of Applicable Income Taxes 4,920 4,416 4,920 4,416
------------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER DILUTED SHARE
Income Available to
Common Shareholders
Plus Assumed Conversions $631,403 475,625 $ 1.33 $556,882 471,157 $ 1.19
===================================================================================================================================
</TABLE>
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Registrant's financial condition and results of
operations during the periods included in the Consolidated Financial Statements
which are a part of this filing.
This report includes forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended that involve inherent risks and
uncertainties. A number of important factors could cause actual results to
differ materially from those in the forward-looking statements. Those factors
include the economic environment, competition, products and pricing in
geographic and business areas in which the Registrant operates, prevailing
interest rates, changes in government regulations and policies affecting
financial services companies, credit quality and credit risk management, changes
in the banking industry including the effects of consolidation resulting from
possible mergers of financial institutions, acquisitions and integration of
acquired businesses. The Registrant undertakes no obligation to release
revisions to these forward-looking statements or reflect events or circumstances
after the date of this report.
RESULTS OF OPERATIONS
The Registrant's net income was $228.0 million for the third quarter of 2000 and
$649.5 million on an operating basis for the first nine months of 2000, up 16.7
percent and 17.7 percent, respectively, compared to $195.4 million and $552.0
million for the same periods last year. Earnings per diluted share were $.48 for
the third quarter, up 14.3 percent over last year's $.42. For the first nine
months of 2000, operating earnings per diluted share were $1.38, up 16 percent
over 1999's $1.19.
Operating income for the nine months ended September 30, 2000, excludes
nonrecurring pretax charges of $33.5 million resulting from the completion of
systems integration of CNB Bancshares, Inc. ("CNB") during the second quarter.
The effect of these charges was to reduce net income by $23.1 million, or $.05
per diluted share. Including the nonrecurring charges, net income totaled $626.5
million, or $1.33 per diluted share, during the nine-month period.
Net interest income on a fully taxable equivalent basis for the third quarter of
2000 was $394.7 million, a 4.9 percent increase over $376.3 million for the same
period last year. For the nine-month period, net interest income on a fully
taxable equivalent basis increased to $1,167.4 million, or 5.8 percent, from the
$1,103.8 million reported in the same period last year. The increase in both the
third quarter and the nine-month period resulted principally from 10.4 percent
and 13.7 percent growth, respectively, in average interest-earning assets.
During the third quarter, net interest margin declined to 3.74 percent, or 19
basis points ("bp"), from 3.93 percent during the 1999 third quarter. For the
nine-month period, net interest margin declined to 3.77 percent, or 28bp, from
4.05 percent in the same period in 1999. The yield on interest-earning assets
improved 67bp over the 1999 third quarter and 46bp over the first nine months of
1999, as new loan growth at higher interest rates caused assets to reprice
upward. The positive effects of higher asset yields in both the three and nine
months ended September 30, 2000 were offset by 100bp and 84bp increases,
respectively, in funding cost, resulting from faster repricing of borrowed funds
and higher deposit rates to retain accounts.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Credit quality remained at strong levels due to continued management initiatives
to proactively identify and resolve problem credits. The provision for credit
losses was $18.2 million in the 2000 third quarter compared to $29.6 million in
the same period last year. Net charge-offs declined to $18.2 million from the
$19.0 million in the same period last year, reflecting a 6.2 percent improvement
in loan and lease losses and a 10.1 percent decrease in recoveries. Net
charge-offs for the 2000 third quarter, as a percent of average loans and leases
outstanding, declined 4bp to .27 percent from .31 percent in the same period
last year. Nonperforming assets as a percentage of total loans, leases and other
real estate owned was .32 percent at September 30, 2000, down 6bp from .38
percent at September 30, 1999. Underperforming assets were $168.1 million at
September 30, 2000, or .65 percent of total loans, leases and other real estate
owned, down 8bp from the $184.5 million, or .73 percent, at September 30, 1999.
The Registrant maintains a reserve to absorb probable loan and lease losses
inherent in the portfolio. Credit losses are charged and recoveries are credited
to the reserve. Provisions for credit losses are credited to the reserve in an
amount that management considers necessary to maintain an appropriate level of
reserves given the estimated losses in the portfolio.
The reserve is based on ongoing quarterly assessments of the probable estimated
losses inherent in the loan and lease portfolio. In determining the appropriate
level of reserves, the Registrant estimates losses using a range derived from
"base" and "conservative" estimates. The Registrant's methodology for assessing
the appropriate reserve level consists of several key elements.
Larger commercial loans that exhibit potential or observed credit weaknesses are
subject to individual review. Where appropriate, reserves are allocated to
individual loans based on management's estimate of the borrower's ability to
repay the loan given the availability of collateral, other sources of cash flow
and legal options available to the Registrant.
Included in the review of individual loans are those that are impaired as
provided in SFAS No. 114, "Accounting by Creditors for Impairment of a Loan."
Any reserves for impaired loans are measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate or
fair value of the underlying collateral. The Registrant evaluates the
collectibility of both principal and interest when assessing the need for loss
accrual.
Historical loss rates are applied to other commercial loans not subject to
specific reserve allocations. The loss rates are derived from a migration
analysis, which computes the net charge-offs experience sustained on loans
according to their internal risk grade. These grades encompass nine categories
that define a borrower's ability to repay their loan obligations.
Homogenous loans, such as consumer installment, residential mortgage loans and
automobile leases are not individually risk graded. Reserves are established for
each pool of loans based on the expected net-charge-offs for one year. Loss
rates are based on the average net charge-off history by loan category.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
An unallocated reserve is maintained to recognize the imprecision in estimating
and measuring loss when evaluating reserves for individual loans or pools of
loans.
Historical loss rates for commercial and consumer loans may be adjusted for
significant factors that, in management's judgement, reflect the impact of any
current conditions on loss recognition. Factors which management considers in
the analysis include the effects of the national and local economies, trends in
the nature and volume of loans (delinquencies, charge-offs, nonaccrual and
problem loans), changes in the internal lending policies and credit standards,
collection practices and examination results from bank regulatory agencies and
the Registrant's internal credit examiners.
Reserves on individual loans and historical loss rates are reviewed quarterly
and adjusted as necessary based on changing borrower and/or collateral
conditions and actual collection and charge-off experience.
Total other operating income, excluding securities gains, for the third quarter
of 2000 increased 12.8 percent to $254.0 million compared to $225.1 million in
the third quarter of 1999, and increased to $741.8 million for the first nine
months of 2000, or 14.1 percent over the same period last year. Compared to the
same periods in 1999, data processing income increased 34.2 percent, to $62.0
million, in the 2000 third quarter and 34.1 percent, to $169.7 million, in the
nine-month period. This growth reflects increases in electronic funds transfers
("EFT"), higher transaction volume from increased debit and ATM card usage and
expansion of business-to-business e-commerce.
During the three and nine months ended September 30, 2000, service charges on
deposits increased 27.2 percent, to $57.6 million, and 25.8 percent, to $160.6
million, respectively, over the comparable 1999 periods, reflecting the success
of new account campaigns and treasury management services. Compared to the
comparable 1999 periods, investment advisory income increased 2.6 percent, to
$49.0 million, in the third quarter of 2000 and 7.7 percent, to $149.3 million,
in the nine-month period. These increases reflect solid personal trust account
sales growth, coupled with the effects of lower equity market performance on
personal trust and brokerage revenue.
During the 2000 third quarter, the overhead ratio (operating expenses divided by
the sum of taxable equivalent net interest income and other operating income)
was 41.5 percent, an improvement from 42.9 percent in the 1999 third quarter.
Excluding the $33.5 million nonrecurring pretax charge for merger-related costs
and special charges incurred in the second quarter in connection with the
integration of CNB, the overhead ratio for the nine-month period was 42.6
percent compared to 44.3 percent in the 1999 period. The merger-related costs
consisted of net employee-related obligations and conversion expenses and
special charges related to the restructuring of certain investment securities.
The improvement in these ratios over 1999 reflects revenue growth at a rate
that has outpaced expenses. Total operating expenses increased 5 percent, to
$269.2 million during the third quarter and to $812.8 million, excluding the
nonrecurring charge, during the nine-month period ended September 30, 2000.
Reflecting the full benefits of
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
completing the systems and processing integration of the CNB and Peoples Bank
Corporation of Indianapolis mergers, salaries, incentives and benefits increased
.9 percent in the third quarter of 2000 and 3 percent during the nine-month
period. Productivity gains from the merger integration offset sales force
increases in other markets and related variable compensation from successful
sales results.
Net occupancy expense increased to $18.9 million and $57.5 million,
respectively, for the three and nine months ended September 30, 2000. Total
other operating expenses increased 11 percent, to $111.0 million, for the
quarter and 6.4 percent, to $322.9 million, for the nine-month period.
FINANCIAL CONDITION
The Registrant's balance sheet remains strong with high-quality assets and solid
capital levels. Total assets were $44.4 billion at September 30, 2000 compared
to assets of $41.6 billion at December 31, 1999 and $41.4 billion at September
30, 1999, an increase of 6.7 percent and 7.1 percent, respectively. Return on
average equity was 20.5 percent and return on average assets was 2.02 percent
for the third quarter of 2000 compared to 19.2 percent and 1.90 percent,
respectively, for the same quarter of last year.
Net interest income growth continues to be fueled by interest-earning asset
growth, partially offset by a decline in net interest margin. Interest-earning
assets increased to $41.4 billion for the third quarter of 2000, an increase of
$2.7 billion, or 6.9 percent, over the same period last year and $3.0 billion,
or 7.7 percent, over 1999 year-end. Interest-earning assets increased primarily
due to growth in securities available for sale, coupled with growth in
commercial loans and leases and consumer loans. During the third quarter of
2000, the Registrant sold, with servicing retained, $958 million in consumer
leases. Excluding the effect of this sale, total consumer lease financing
balances increased 16.3 percent over September 30, 1999 and 10 percent over
year-end.
Reflecting the success of campaigns emphasizing customer deposit accounts,
demand deposit and interest-bearing checking account balances increased 6.2
percent and 2.7 percent over September 30, 1999 and December 31, 1999,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
The maintenance of an adequate level of liquidity is necessary to ensure
sufficient funds are available to meet customer loan demand and deposit
withdrawals. The banking subsidiaries' liquidity sources consist of short-term
marketable securities, maturing loans and federal funds loaned and selected
securitizable loan assets. Liquidity has also been obtained through liabilities
such as customer-related core deposits, funds borrowed, certificates of deposit
and public funds deposits.
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
At September 30, 2000, shareholders' equity was $4.436 billion compared to
$3.908 billion at September 30, 1999, an increase of $528 million, or 13.5
percent. Shareholders' equity as a percentage of total assets as of September
30, 2000 was 10 percent. The Federal Reserve Board has adopted risk-based
capital guidelines which assign risk weightings to assets and off-balance sheet
items and also define and set minimum capital requirements (risk-based capital
ratios). The guidelines also define "well-capitalized" ratios of Tier 1, total
capital and leverage as 6 percent, 10 percent and 5 percent, respectively. The
Registrant exceeded these "well-capitalized" ratios at September 30, 2000 and
1999. At September 30, 2000, the Registrant had a Tier 1 risk-based capital
ratio of 12.88 percent, a total risk-based capital ratio of 14.72 percent and a
leverage ratio of 9.99 percent. At September 30, 1999, the Registrant had a Tier
1 risk-based capital ratio of 13.15 percent, a total risk-based capital ratio of
15.12 percent and a leverage ratio of 10.15 percent.
17
<PAGE> 18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk management focuses on maintaining consistent growth in net
interest income within Board-approved policy limits. The Registrant uses an
earnings simulation model to analyze net interest income sensitivity to
movements in interest rates. Given an immediate, sustained 200 basis point
upward shock to the yield curve used in the simulation model, it is estimated
net interest income for the Registrant would decrease by 4.97 percent over one
year and decrease by 3.08 percent over two years. A 200 basis point immediate,
sustained downward shock in the yield curve would decrease net interest income
by an estimated .68 percent over one year and decrease net interest income by an
estimated 7.43 percent over two years.
18
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
(3)(i) Amended Articles of Incorporation, as amended,
incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2000
(3)(ii) Code of Regulations, as amended, incorporated by
reference to Registrant Registration Statement, on
Form S-4, Registration No. 33-63966
(27) Financial Data Schedules for the Nine Months Ended
September 30, 2000
(b) Reports on Form 8-K
The Registrant filed a report on Form 8-K dated July 17, 2000
related to 1) its three-for-two stock split effected in the
form of a stock dividend paid July 14, 2000; 2) the increase
in the quarterly cash dividend paid July 14, 2000 to $.18 per
share; and 3) the authorization of the Registrant to purchase
in the open market up to five percent of its outstanding
shares of Common Stock.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Fifth Third Bancorp
-------------------
Registrant
Date: November 14, 2000 /s/ Neal E. Arnold
------------------
Neal E. Arnold
Executive Vice President and
Chief Financial Officer
19
