Fifth Third is a diversified financial services company headquartered in Cincinnati, Ohio. Fifth Third has $44 billion in assets, operates 14 affiliate banks with 640 full-service Banking Centers and 1,400 ATMs in the Midwest, Florida and Arizona. Fifth Third operates four main businesses: Retail, Commercial, Investment Advisors and Midwest Payment Systems, the Bank's data processing subsidiary.

General

       The following discussion compares the financial condition of Ottawa Financial Corporation and its wholly owned subsidiary, AmeriBank at September 30, 2000 and December 31, 1999, and the results of operations for the three and nine months ended September 30, 2000, compared to the same periods in 1999. This discussion should be read with the interim consolidated condensed financial statements and footnotes attached.

       This document, including information included or incorporated by reference, contains, and future filing by the Company on Form 10-K, Form 10-Q and Form 8-K and future oral and written statements by the Company and its management may contain, forward-looking statements about Ottawa Financial and its subsidiaries which we believe are within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements with respect to anticipated future operating and financial performance, growth opportunities, interest rates, cost savings and funding advantages expected or anticipated to be realized by management. Words such as "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan" and similar expressions are intended to identify these forward-looking statements. Forward-looking statements by the Company and its management are based on beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions of management and are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information, or otherwise. The important factors we discuss below and elsewhere in this document, as well as other factors discussed under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this document and identified in our filings with the SEC and those presented elsewhere by our management from time to time, could cause actual results to differ materially from those indicated by the forward-looking statements made in this document.

       The following factors, many of which are subject to change based on various other factors beyond our control, could cause our financial performance to differ materially from plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements:

• the strength of the United States economy in general and the strength of the local economies in which we conduct operations;
• the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board;

• inflation, interest rate, market and monetary fluctuations;
• the timely development of and acceptance of our new products and services and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors' products and services;
• the willingness of users to substitute competitors' products and services for our products and services;
• our success in gaining regulatory approval of our products and services, when required;
• the impact of changes in financial services' laws and regulations (including laws concerning taxes, banking, securities and insurance);
• the impact of technological changes;
• acquisitions;
• changes in consumer spending and saving habits; and
• our success at managing the risks involved in the foregoing.

Financial Condition

       Total assets increased to $1.10 billion at September 30, 2000 from $1.02 billion at December 31, 1999. This growth was in the loan portfolio and was funded primarily with federal funds purchased, and to a lesser extent through the growth in deposits and the use of low-yielding investable funds.

       Net loans receivable increased to $964.57 million at September 30, 2000 from $856.76 million at December 31, 1999. Through our focus on the development of our commercial and business banking services, as well as healthy loan demand in our market area, we were able to grow our commercial business and commercial real estate portfolio by $64.18 million during the first nine months of 2000. This growth was accompanied by an increase in our residential mortgage loan portfolio of $35.36 million during the same period. While the fixed-rate portion of the residential mortgage loan portfolio declined, the adjustable-rate portion grew as a result of rising interest rates earlier in the year and loan demand in our market area.

       Deposits increased to $732.76 million at September 30, 2000 from $711.95 million at December 31, 1999. The growth was in certificates of deposit, commercial checking and money market savings accounts. Commercial checking accounts grew by $5.61 million during the first nine months of this year due to our increased emphasis on growing commercial deposit relationships and partly as a by-product of our growth in commercial lending.

       The decrease of $35.23 million in Federal Home Loan Bank advances was due to refinancing the daily adjustable rate portion of such advances into Federal funds purchased upon substantially the same terms but at a slightly reduced interest rate. Additional federal funds of $56.00 million were purchased to supplement the growth in deposits used to fund the loan growth discussed above.

       The primary components of growth in shareholders' equity for the nine months ended September 30, 2000 related to net income, as well as proceeds received from the exercise of stock options. The increases were partially offset by cash dividends declared and additional repurchases of common stock.

Average Balances, Interest Rates and Yields

       This table presents the amount of interest income from average interest-earning assets and the yields earned on those assets, as well as the interest expense on average interest-bearing liabilities and the rates paid on those liabilities. Loans receivable are calculated net of deferred loan fees, loan discounts, loans in process, and loan reserves. Tax exempt interest on loans and securities has been converted to a fully - taxable equivalent basis. All average balances are daily average balances.

Rate/Volume Analysis

       This table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). Changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.

Results of Operations

       Net income for the quarter ended September 30, 2000 was $2.24 million or $.33 per diluted common share compared to net income of $2.49 million or $.36 per diluted common share for the same period in 1999. Net income for the nine months ended September 30, 2000 was $6.73 million or $1.00 per diluted common share compared to net income of $6.86 million or $.98 per diluted common share for the same period in 1999. The decrease in the Corporation's net income for the quarter ended September 30, 2000 compared to the same period of the prior year was largely due to the decline in net interest income, expenses relating to the pending merger with Fifth Third Bank as well as the effect of Management's priorities and focus on the proceedings associated with the merger. For the nine months ended September 30, 2000, the decline in net interest income was accompanied by a decrease in gains on sales of loans and offset by a reduction in noninterest expenses compared to the same period of the prior year. All per share information has been retroactively adjusted to reflect the 10% stock dividend paid on June 30, 2000.

       To supplement the earnings per share information typically disclosed, we provide "cash" or "tangible" earnings per share as an alternative measure for evaluating the Corporation's ability to grow tangible capital. The calculations of cash earnings per share are specifically formulated by us and may not be comparable to similarly titled measures reported by other companies. This measure is not intended to reflect cash flow per share. The "cash" or "tangible" earnings per share for the third quarter of 2000 was $.40, which was $.07 per share higher than the diluted earnings per share, compared to a cash earnings per share of $.44 for the third quarter of 1999. The cash or tangible earnings per share for the nine months ended September 30, 2000 was $1.22, which was $.22 per share higher than the diluted earnings per share, compared to a cash earnings per share of $1.22 for the same period in 1999. This measure and the factors influencing its calculation are described more fully in the 1999 Annual Report to Shareholders.

       Net interest income decreased $29,000 on a tax equivalent basis for the nine months ended September 30, 2000 compared to the same period in 1999. The healthy growth in earning assets, especially in the commercial lending portfolio, was overcome by the effect of the sharp increases in short-term interest rates by the Federal Reserve earlier in the year causing an overall reduction in net interest income compared to the same period in the prior year. The increase in the cost of interest-bearing liabilities resulted from the rise in general market interest rates, as well as an increase in FHLB advances and federal funds purchased as a percent of total interest-bearing liabilities during the first nine months of 2000 compared to the same period in the prior year. While there was a 59 basis point rise in the cost of interest-bearing liabilities, there was only a 13 basis point rise in the yield on interest-earning assets. The limited improvement in yield on interest-earning assets was due to the increased demand for, and our resulting growth in, adjustable-rate mortgage loans during the first nine months of 2000. Competitive initial rates on adjustable-rate mortgages were low relative to other loan products and the overall yield of our total loan portfolio, and as a result, these lower-yielding originations offset the improvement in yield that resulted from the growth in the commercial loan portfolio. Due the increase in the cost of interest-bearing liabilities and the limited increase in yield on interest-earning assets, we saw a reduction in our net interest rate spread and net interest margin during the first nine months of 2000 compared to the same period of the prior year.

       The provision for loan losses is a result of management's periodic analysis of the adequacy of the allowance for loan losses. Although actual losses on loans for the nine months ended September 30, 2000 are comparable to actual losses for the same period of the prior year, the provision of $1.04 million for the nine months ended September 30, 2000 compared to $855,000 for the same period of the prior year was in response to the growth achieved in the commercial loan portfolio, which generally involves a greater degree of credit risk than one- to four-family mortgage lending.

       The allowance is maintained by management at a level considered adequate to cover possible loan losses that are currently anticipated based on past loss experience, general economic conditions, information about specific borrower situations, including their financial position and collateral values, and other factors and estimates, which are subject to change over time. Although the level of non-performing assets is considered in establishing the allowance for loan losses balance, variations in non-performing loans have not been meaningful based upon our past loss experience and, as such, have not had a significant impact on the overall level of the allowance for loan losses. Delinquent loans more than 90 days are put on non-accrual status unless they are adequately collateralized and in the process of collection (see discussion on Non-Performing Assets and Allowance for Loan Losses below).

       Noninterest income decreased to $4.81 million for the nine months ended September 30, 2000 from $5.03 million for the same period in 1999. The decrease related primarily to lower gains on sales of mortgage loans which fell by $465,000 compared to the first nine months of 1999. The rising interest rate environment caused a shift in the mix of our mortgage loan originations from fixed-rate to adjustable-rate loans. Since we did not begin selling our adjustable-rate mortgage production until late in the second quarter of 2000, our overall loan sale volume for the nine month period decreased compared to the prior year. Noninterest income, excluding gains on sales of mortgage loans, grew $237,000 during the nine months ended September 30, 2000 compared to the same period of the prior year. This growth was due primarily to increases in fees on sales of mutual funds and annuities, as well as deposit account service fees.

       Noninterest expense increased to $5.27 million for the quarter ended September 30, 2000 from $5.23 million for the same period of the prior year, while it decreased to $15.71 million for the nine months ended September 30, 2000 from $15.91 million for the same period of the prior year. The increase in noninterest expense for the quarter ended September 30, 2000 compared to the same period of the prior year was largely due to the impact of the $150,000 in legal expenses relating to the pending merger with Fifth Third Bank. The decrease in noninterest expense for the nine months ended September 30, 2000 compared to the same period of the prior year was achieved through the management of furniture, fixtures and equipment expense, state single business tax strategies implemented in the first quarter of the year and a decrease in the FDIC deposit insurance premiums.

Non-Performing Assets and Allowance for Loan Losses

       Non-performing assets increased to $4.03 million at September 30, 2000 from $2.10 million at December 31, 1999 primarily due to an increase in commercial business non-accruing loans. The percentage of non-performing assets to total assets was .37% at September 30, 2000 compared to .21% at December 31, 1999. Our allowance for loan losses as a percentage of non-performing loans at September 30, 2000 was 162.14% compared to 359.21% at December 31, 1999. The increase in commercial business non-accruing loans was primarily due to the addition of one loan to this category. Management anticipates based on collateral value that the principal due on this loan will be collected in full.

       The table below sets forth the amounts and categories of non-performing assets at September 30, 2000 and December 31, 1999.