-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UhGSioxh06K3HiXET0TYlz1PABg0IMkwJNlIlEgPo4vbgf7sVYmZumnQIksuJIlj 7fhD9koloLJKgNUmgTJr9A== 0000035527-96-000004.txt : 19960229 0000035527-96-000004.hdr.sgml : 19960229 ACCESSION NUMBER: 0000035527-96-000004 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960228 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIFTH THIRD BANCORP CENTRAL INDEX KEY: 0000035527 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 310854434 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-08076 FILM NUMBER: 96527517 BUSINESS ADDRESS: STREET 1: 38 FOUNTAIN SQ PLZ STREET 2: FIFTH THIRD CENTER CITY: CINCINNATI STATE: OH ZIP: 45263 BUSINESS PHONE: 5135795300 10-K405 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For fiscal year ended December 31, 1995 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 4-1/4% Convertible Subordinated Notes due 1998 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. /X/ The Aggregate Market Value of the Voting Stock held by non-affiliates of the Registrant was $3,297,167,024 as of February 1, 1996. (NOTE 1) The number of shares outstanding of the Registrant's Common Stock, without par value, as of February 1, 1996 was 100,447,368 shares. DOCUMENTS INCORPORATED BY REFERENCE 1995 Annual Report to Stockholders: Parts I, II and IV Proxy Statement for 1996 Annual Meeting of Stockholders: Parts III and IV NOTE 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, 1995, voting stock owned of record by its directors and principal executive officers, stockholders owning greater than 10% of the voting stock, and voting stock held by Registrant's trust departments in a fiduciary capacity. Total Pages: FIFTH THIRD BANCORP 1995 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PART I PAGE Item 1. Business 3 Item 2. Properties 13 Item 3. Legal Proceedings 13 Item 4. Submission of Matters to a Vote of Security Holders 13 PART II Item 5. Market For Registrant's Common Equity and Related Stockholder Matters 13 Item 6. Selected Financial Data 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 8. Financial Statements and Supplementary Data 13 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 13 PART III Item 10. Directors and Executive Officers of the Registrant 14 Item 11. Executive Compensation 15 Item 12. Security Ownership of Certain Beneficial Owners and Management 15 Item 13. Certain Relationships and Related Transactions 15 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 16 Page 2 PART I ITEM 1. BUSINESS ORGANIZATION Registrant was organized in 1974 under the laws of the State of Ohio. It began operations in 1975 upon reorganization of its principal subsidiary, The Fifth Third Bank. The executive offices of the Registrant are located in Cincinnati, Ohio. The Registrant is a multi-bank holding company as defined in the Bank Holding Company Act of 1956, as amended, and is registered as such with the Board of Governors of the Federal Reserve System. The Registrant is also a multi-savings-and-loan holding company and is registered with the Office of Thrift Supervision. Registrant has sixteen wholly-owned subsidiaries: Fifth Third Kentucky Bank Holding Company; The Fifth Third Bank; The Fifth Third Bank of Columbus Ohio; The Fifth Third Bank of Northwestern Ohio, N.A.; The Fifth Third Bank of Southern Ohio; The Fifth Third Bank of Western Ohio; Fifth Third Bank of Northeastern Ohio; Fifth Third Savings Bank of Northern Ohio, FSB; Fifth Third Bank of Florida; Fifth Third Bank of Northern Kentucky, Inc.; Fifth Third Bank of Kentucky, Inc.; The Fifth Third Savings Bank of Western Kentucky, FSB; Fifth Third Community Development Company; Fifth Third Investment Company; and Fountain Square Insurance Company. Unless the context otherwise indicates the term "Company" as used herein means the Registrant and the term "Bank" means its wholly-owned subsidiary, The Fifth Third Bank. As of December 31, 1995, the Company's consolidated total assets were $17,052,883,000 and stockholders' equity totalled $1,724,575,000. The Bank has four wholly-owned subsidiaries: Midwest Payment Systems, Inc.; Fifth Third Securities, Inc.; The Fifth Third Company; and The Fifth Third Leasing Company. ACQUISITIONS The Company is the result of mergers and acquisitions over the years involving financial institutions throughout Ohio, Indiana, Kentucky, and Florida. The Company made the following acquisitions during 1995: On January 20, 1995, the Company acquired Mutual Federal Savings Bank of Miamisburg (Ohio), A Federal Savings Bank, with total assets of approximately $78 million, in a transaction accounted for as a pooling of interests. On June 23, 1995, the Company purchased approximately $16 million in deposits and the fixed assets of the Lebanon, Ohio branch of Bank One. On July 21, 1995, the Company acquired Falls Financial, Inc., with consolidated assets of approximately $573 million, and its wholly-owned subsidiary, Falls Savings Bank, FSB ("Falls FSB") in a transaction accounted for as a pooling of interests. Page 3 On September 8, 1995, the Company acquired Bank of Naples (Florida), with total assets of approximately $49 million, in a transaction accounted for as a pooling of interests. Concurrent with this transaction, Fifth Third Trust Co. & Savings Bank, FSB retained the bank charter of Bank of Naples and was renamed Fifth Third Bank of Florida. On September 22, 1995, the Company purchased the Dayton Division of PNC Bank (Ohio). The offices, with approximately $256 million in deposits and $215 million in assets, were merged into the Bank's branch network. On November 17, 1995, the Company purchased approximately $118 million in deposits and the fixed assets of several offices of Bank One, Cincinnati. In August of 1995, the Company entered into a merger agreement with Kentucky Enterprise Bancorp, Inc., with $280 million in assets. In October of 1995 the Company entered into an agreement with NBD Bank (Ohio), a subsidiary of NBD Bancorp, Inc. to acquire 25 offices with deposits of $542 million in Columbus and Dayton. These transactions are expected to be completed in the first quarter of 1996. On January 19, 1996, the Company purchased approximately $1.4 billion in deposits and the fixed assets of 28 Cleveland-area offices from 1st Nationwide Bank. The acquisition price of the deposits, offices and other fixed assets was approximately $136 million. COMPETITION There are hundreds of commercial banks, savings and loans and other financial services providers in Ohio, Kentucky, Indiana, Florida and nationally, which provide strong competition to the Company's banking subsidiaries. As providers of a full range of financial services, these subsidiaries compete with national and state banks, savings and loan associations, securities dealers, brokers, mortgage bankers, finance and insurance companies, and other financial service companies. With respect to data processing services, the Bank's data processing subsidiary, Midwest Payment Systems, Inc., competes with other electronic fund transfer (EFT) service providers such as Deluxe Data Services, EDS and Electronic Payment Systems and other merchant processing providers such as FDR, NPC and FIRST USA. The earnings of the Company are affected by general economic conditions as well as by the monetary policies of the Federal Reserve Board. 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 influences the size and distribution of bank reserves through its open market operations and changes in cash reserve requirements against member bank deposits. REGULATION AND SUPERVISION The Company, as a bank holding company, is subject to the restrictions of the Bank Holding Company act of 1956, as amended. This 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 Company is required to obtain the prior approval of the Federal Reserve Board before it can acquire control of more than 5% of the voting shares of another bank. The Act does not permit the Federal Reserve Board to approve an acquisition by the Company, 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. Page 4 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 impact of this amendment on the Company cannot be measured at this time. The Company'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/or the Federal Deposit Insurance Corporation. The subsidiary bank which is organized under the laws of the United States is primarily subject to regulation by the Comptroller of the Currency and the Federal Deposit Insurance Corporation. The Company, as a savings and loan holding company, and its savings and loan subsidiaries are subject to regulation by the Office of Thrift Supervision. The Company and its subsidiaries are subject to certain restrictions on intercompany loans and investments. The Company and its subsidiaries are also subject to certain restrictions with respect to engaging in the underwriting and public sale and distribution of securities. In addition, the Company and its subsidiaries are subject to examination at the discretion of supervisory authorities. The Bank Holding Company Act limits the activities which may be engaged in by the Company and its subsidiaries to ownership of banks and those activities which the Federal Reserve Board has deemed or may in the future find to be so closely related to banking as to be a proper incident thereto. 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 Federal Deposit Insurance Corporation 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. EMPLOYEES As of December 31, 1995, there were no employees of the Company. Subsidiaries of the Company employed 6,432 employees--1,042 were officers and 1,270 were part-time employees. STATISTICAL INFORMATION Pages 6 to 12 contain statistical information on the Company and its subsidiaries. Page 5 SECURITIES PORTFOLIO The securities portfolio as of December 31 for each of the last five years, and the maturity distribution and weighted average yield of securities as of December 31, 1995, are incorporated herein by reference to the securities tables on page 32 of the Company's 1995 Annual Report to Stockholders attached to this filing as Exhibit 13. The weighted average yields for the securities portfolio are yields to maturity weighted by the par values of the securities. The weighted average yields on 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%). 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 2.48% 1 - 5 years 2.56% 6 - 10 years 2.63% Over 10 years 2.95% Total municipal securities 2.56% AVERAGE BALANCE SHEETS The average balance sheets are incorporated herein by reference to Table 1 on pages 28 and 29 of the Company's 1995 Annual Report to Stockholders 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 28 through 30 of the Company's 1995 Annual Report to Stockholders attached to this filing as Exhibit 13. Page 6 Types of Loans and Leases - ------------------------- A summary of loans and leases by major category as of December 31 follows ($000's):
1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ Commercial, financial and agricultural loans $3,584,124 3,045,315 2,685,558 2,490,077 2,212,069 Real estate - construction loans 312,098 286,088 342,177 330,587 306,655 Real estate - mortgage loans 2,769,178 3,076,463 3,434,496 2,964,402 1,919,438 Consumer loans 3,062,697 2,407,261 2,090,154 1,713,842 1,517,022 Lease financing 2,288,573 1,703,492 1,170,231 737,186 478,125 ---------- --------- ---------- ---------- ---------- Loans and leases, gross 12,016,670 10,518,619 9,722,616 8,236,094 6,433,309 Unearned income (326,027) (232,162) (155,718) (120,504) (107,391) Reserve for credit losses (177,388) (155,918) (144,537) (121,452) (97,319) ---------- --------- ---------- ---------- ---------- Loans and leases, net $11,513,255 10,130,539 9,422,361 7,994,138 6,228,599 ========== ========= ========== ========== ==========
Maturities and Sensitivity of Loans to Changes in Interest Rates - ------------------------------------------------------------------- The remaining maturities of the loan portfolio distributed to reflect expected cash flows (excluding residential mortgage and consumer loans) at December 31, 1995, and the sensitivity of loans to interest rate changes for loans due after one year was as follows ($000's):
Commercial, Financial and Real Estate Real Estate Agricultural Construction Commercial Loans Loans Loans Total ------------ ------------ ------------ ------------ Due in one year or less $1,994,810 112,569 106,801 2,214,180 Due after one year through five years 1,253,772 119,835 396,274 1,769,881 Due after five years 335,542 79,694 291,192 706,428 ---------- ---------- -------- ---------- Total $3,584,124 312,098 794,267 4,690,489 ========== ========== ======== ========== Loans due after one year: Predetermined interest rate $988,656 190,730 509,524 1,688,910 ========== ========== ======== ========== Floating or adjustable interest rate $600,658 8,799 177,942 787,399 ========== ========== ======== ==========
Page 7 Risk Elements - ------------- Interest on loans is normally accrued at the rate agreed upon at the time each loan was negotiated. It is the Company's policy to discontinue accrual of interest on commercial, construction and mortgage loans when there is a clear indication that 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 at December 31, 1995 and previous years ($000's):
1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ Nonaccrual loans and leases $37,049 20,725 18,961 32,772 70,618 Loans and leases contractually past due ninety days or more as to interest, principal or rental payments 20,455 13,237 10,444 21,804 27,699 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 506 443 2,378 3,693 4,370 Loans and leases now current where there are serious doubts as to the ability of the borrower to comply with present repayment terms 39,621 35,254 35,992 35,097 32,819 For calendar year 1995, interest income of $1,066,000 was recorded on nonaccrual and renegotiated loans and leases. Additional interest income of $2,271,000 would have been recorded if the nonaccrual and renegotiated loans and leases had been current in accordance with their original terms.
Page 8 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):
1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ Loans and leases outstanding at December 31 $11,690,643 10,286,457 9,566,898 8,115,590 6,325,918 ============ =========== =========== =========== =========== Average loans and leases outstanding $10,960,757 9,902,901 8,869,432 7,189,975 6,246,679 ============ =========== =========== =========== =========== Reserve for credit losses, January 1 $155,918 144,537 121,452 97,319 90,242 --------- --------- --------- --------- --------- Losses charged off: Commercial, financial and agricultural loans (6,596) (8,793) (12,113) (24,156) (22,380) Real estate - construction loans -- -- -- -- -- Real estate - mortgage loans (3,697) (3,485) (7,174) (6,488) (11,994) Consumer loans (26,330) (16,416) (16,035) (22,164) (26,473) Lease financing (5,084) (2,252) (1,850) (1,910) (2,556) --------- --------- --------- --------- --------- Total losses (41,707) (30,946) (37,172) (54,718) (63,403) --------- --------- --------- --------- --------- Recoveries of losses previously charged off: Commercial, financial and agricultural loans 1,443 1,795 2,103 1,109 1,580 Real estate - construction loans -- -- -- -- -- Real estate - mortgage loans 611 3,006 564 462 398 Consumer loans 8,399 7,898 6,793 6,883 5,202 Lease financing 1,393 773 638 499 538 --------- --------- --------- --------- --------- Total recoveries 11,846 13,472 10,098 8,953 7,718 --------- --------- --------- --------- --------- Net losses charged off: Commercial, financial and agricultural loans (5,153) (6,998) (10,010) (23,047) (20,800) Real estate - construction loans -- -- -- -- -- Real estate - mortgage loans (3,086) (479) (6,610) (6,026) (11,596) Consumer loans (17,931) (8,518) (9,242) (15,281) (21,271) Lease financing (3,691) (1,479) (1,212) (1,411) (2,018) --------- --------- --------- --------- --------- Total net losses charged off (29,861) (17,474) (27,074) (45,765) (55,685) --------- --------- --------- --------- --------- LOC contract -- (7,800) -- -- -- Reserve of acquired banks 8,369 875 2,122 3,798 298 Provision charged to operations 42,962 35,780 48,037 66,100 62,464 --------- --------- --------- --------- --------- Reserve for credit losses, December 31 $177,388 163,718 144,537 121,452 97,319 ========= ========= ========= ========= =========
Page 9 Summary of Credit Loss Experience, continued - --------------------------------------------
1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ Reserve for credit losses, December 31: Commercial, financial and agricultural loans $92,988 72,906 71,825 66,260 49,358 Real estate - construction loans 5,033 5,405 6,442 6,096 -- Real estate - mortgage loans 30,392 26,298 23,397 16,638 20,182 Consumer loans 32,126 36,272 33,450 26,997 23,428 Lease financing 16,849 15,037 9,423 5,461 4,351 --------- --------- --------- --------- --------- Total reserve for credit losses $177,388 155,918 144,537 121,452 97,319 ========= ========= ========= ========= ========= The analysis above is for analytical purposes. The reserve for credit losses is general in nature and available to absorb losses from any portion of the loan and lease portfolio.
The distribution of loans and leases by type, the ratio of net charge-offs to average loans and leases outstanding and the ratio of the reserve for credit losses to loans and leases outstanding is as follows:
1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ Percentage of loans and leases to total loans and leases at December 31 Commercial, financial and agricultural loans 30.5 % 29.5 28.0 30.5 34.8 Real estate - construction loans 2.7 2.8 3.6 4.1 4.8 Real estate - mortgage loans 23.7 29.9 35.8 36.5 30.4 Consumer loans 26.2 23.4 21.9 21.1 23.7 Lease financing 16.9 14.4 10.7 7.8 6.3 ------ ------ ------ ------ ------ Total 100.0 % 100.0 100.0 100.0 100.0 ------ ------ ------ ------ ------ Ratio of net charge-offs during year to average loans and leases outstanding during year Commercial, financial and agricultural loans 0.15 % 0.24 0.38 0.98 0.92 Real estate - construction loans -- -- -- -- -- Real estate - mortgage loans 0.10 0.01 0.21 0.25 0.63 Consumer loans 0.68 0.38 0.49 0.96 1.44 Lease financing 0.22 0.12 0.15 0.29 0.54 Weighted Average Ratio 0.27 0.18 0.31 0.64 0.89
Page 10 Reserve for Credit Losses - ------------------------- The reserve for credit losses is established through charges to operations by a provision for credit losses. Loans and leases which are determined to be uncollectible are charged against the reserve and any subsequent recoveries are credited to the reserve. The amount charged to operations is based on several factors. These include the following: 1. Analytical reviews of the credit loss experience in relationship to outstanding loans and leases to determine an adequate reserve for credit losses required for loans and leases at risk. 2. A continuing review of problem or at risk loans and leases and the overall portfolio quality. 3. Regular examinations and appraisals of the loan and lease portfolio conducted by the Bank's examination staff and the banking supervisory authorities. 4. Management's judgement with respect to the current and expected economic conditions and their impact on the existing loan and lease portfolio. The amount provided for credit losses exceeded actual net charge-offs by $13,101,000 in 1995, $18,306,000 in 1994 and $20,963,000 in 1993. Management reviews the reserve on a quarterly basis to determine whether additional provisions should be made after considering the factors noted above. Based on these procedures, management is of the opinion that the reserve at December 31, 1995 of $177,388,000 is adequate. Maturity Distribution of Domestic Certificates of Deposit of $100,000 - --------------------------------------------------------------------- and Over at December 31, 1995 ($000's) -------------------------------------- Three months or less $456,803 Over three months through six months 149,296 Over six months through twelve months 69,059 Over twelve months 29,810 -------- Total certificates - $100,000 and over $704,968 ======== Note: Foreign office deposits are denominated in amounts greater then $100,000. Page 11 Return on Equity and Assets - --------------------------- The following table presents certain operating ratios: 1995 1994 1993 ------ ------ ------ Return on assets (A) 1.78% 1.77 1.71 Return on equity (B) 18.1% 18.6 17.8 Dividend payout ratio (C) 33.9% 32.3 31.7 Equity to assets ratio (D) 9.82% 9.50 9.61 - ------------------------------------ (A) net income divided by average assets (B) net income divided by average equity (C) dividends declared per share divided by fully diluted net income per share (D) average equity divided by average assets Page 12 ITEM 2. PROPERTIES The Company'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 and parking garage known as the Fifth Third Center and the William S. Rowe Building, respectively. One of the Bank's subsidiaries owns 100% of these buildings. The Company, through its subsidiary banks and savings banks, seven located in Ohio, three in Kentucky, one in Indiana and one in Florida, operate 384 banking centers, of which 191 are owned and 193 are leased. The properties owned are free from mortgages and encumbrances. ITEM 3. LEGAL PROCEEDINGS The Company 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 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this item is incorporated herein by reference to Page 1 of Registrant's 1995 Annual Report to Stockholders attached to this filing as Exhibit 13. ITEM 6. SELECTED FINANCIAL DATA The information required by this item is incorporated herein by reference to page 37 of Registrant's 1995 Annual Report to Stockholders attached to this filing as Exhibit 13. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is incorporated herein by reference to pages 28 through 36 of Registrant's 1995 Annual Report to Stockholders 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 15 through 27 and page 37 of Registrant's 1995 Annual Report to Stockholders attached to this filing as Exhibit 13. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None Page 13 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item concerning Directors is incorporated herein by reference under the caption "ELECTION OF DIRECTORS" of the Registrant's 1996 Proxy Statement. The names, ages and positions of the Executive Officers of the Company as of January 31, 1996 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 Stockholders. CURRENT POSITION and Name and Age Business Experience During Past 5 Years George A. Schaefer, Jr., 50 PRESIDENT AND CEO. President and Chief Executive Officer of the Company and the Bank since January, 1991. Previously, Mr. Schaefer was President and COO of the Company and the Bank. George W. Landry, 55 EXECUTIVE VICE PRESIDENT. Executive Vice President of the Company and the Bank. Stephen J. Schrantz, 47 EXECUTIVE VICE PRESIDENT. Executive Vice President of the Company and the Bank. Michael D. Baker, 45 EXECUTIVE VICE PRESIDENT. Executive Vice President of the Company and the Bank since August, 1995. Previously, Mr. Baker was Senior Vice President of the Company since March, 1993, and of the Bank. P. Michael Brumm, 48 EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER. Executive Vice President of the Company and the Bank since August, 1995. Previously, Mr. Brumm was CFO of the Company and the Bank and Senior Vice President of the Bank. Robert P. Niehaus, 49 EXECUTIVE VICE PRESIDENT. Executive Vice President of the Company and the Bank since August, 1995. Previously, Mr. Niehaus was Senior Vice President of the Company since March, 1993, and Senior Vice President of the Bank. Michael K. Keating, 40 EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY. Executive Vice President of the Company and the Bank since August, 1995 and Secretary of the Company and the Bank since January, 1994. Previously, Mr. Keating was Senior Vice President and General Counsel of the Company since March, 1993, and Senior Vice President and Counsel of the Bank. Mr. Keating is a son of Mr. William J. Keating, Director. Page 14 CURRENT POSITION and Name and Age Business Experience During Past 5 Years Robert J. King, Jr., 40 SENIOR VICE PRESIDENT. Senior Vice President of the Company since March, 1995, and President and CEO of Fifth Third Bank of Northwestern Ohio, N.A. James R. Gaunt, 50 SENIOR VICE PRESIDENT. Senior Vice President of the Company 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 Bank. Neal E. Arnold, 35 TREASURER. Treasurer of the Company and the Bank, and Senior Vice President of the Bank since April, 1993. Previously, Mr. Arnold was Vice President of the Bank. Gerald L. Wissel, 39 AUDITOR. Auditor of the Company and the Bank, and Senior Vice President of the Bank since November 1991. Previously, Mr. Wissel was Vice President of the Bank. Roger W. Dean, 33 CONTROLLER. Controller of the Company and Vice President of the Bank since June, 1993. Previously, Mr. Dean was with Deloitte & Touche LLP, independent public accountants. Paul L. Reynolds, 34 ASSISTANT SECRETARY. Assistant Secretary of the Company since March, 1995, and Vice President, General Counsel and Assistant Secretary of the Bank since January, 1995. Previously, Mr. Reynolds was Vice President, Counsel and Assistant Secretary of the Bank. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated herein by reference under the caption "EXECUTIVE COMPENSATION" of the Registrant's 1996 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" of the Registrant's 1996 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" of the Registrant's 1996 Proxy Statement. Page 15 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K a) Documents Filed as Part of the Report PAGE 1. Index to Financial Statements Consolidated Statements of Income for the Years Ended December 31, 1995, 1994 and 1993 * Consolidated Balance Sheets, December 31, 1995 and 1994 * Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1995, 1994 and 1993 * Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 * Notes to Consolidated Financial Statements * * Incorporated by reference to pages 15 through 27 of Registrant's 1995 Annual Report to Stockholders 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. 3. Exhibits EXHIBIT NO. 3- Amended Articles of Incorporation and Code of Regulations (a) 10(a)- Fifth Third Bancorp Unfunded Deferred Compensation Plan for Non-Employee Directors (b) 10(b)- Fifth Third Bancorp 1990 Stock Option Plan (c) 10(c)- Fifth Third Bancorp 1987 Stock Option Plan (d) 10(d)- Fifth Third Bancorp 1982 Stock Option Plan (e) 10(e)- Fifth Third Bancorp Stock Option Plan for Employees of The Fifth Third Bank of Miami Valley, National Association (f) 10(f)- Fifth Third Bancorp Stock Option Plan for Employees of The Fifth Third Bank of Eastern Indiana (g) 10(g)- Indenture effective November 19, 1992 between Fifth Third Bancorp, Issuer and NBD Bank, N.A., Trustee (h) Page 16 10(h)- Fifth Third Bancorp Amended and Restated Stock Option Plan for Employees and Directors of The TriState Bancorp (i) 10(i)- Fifth Third Bancorp 1993 Discount Stock Purchase Plan (j) 10(j)- Fifth Third Bancorp Amended and Restated Stock Incentive Plan for selected Executive Officers, Employees and Directors of The Cumberland Federal Bancorporation, Inc. (k) 10(k)- Fifth Third Bancorp Master Profit Sharing Plan (l) 10(l)- Fifth Third Bancorp Amended and Restated Stock Option and Incentive Plan for Selected Executive Officers, Employees and Directors of Falls Financial, Inc. (m) 11- Computation of Consolidated Net Income Per Share for the Years Ended December 31, 1995, 1994, 1993, 1992 and 1991 13- Fifth Third Bancorp 1995 Annual Report to Stockholders 21- Fifth Third Bancorp Subsidiaries 23- Independent Auditors' Consent b) Reports on Form 8-K NONE. ____________________ (a) Incorporated by reference to Registrant's Registration Statement, Exhibits 3.1 and 3.2, on Form S-4, Registration No. 33-19965 which is effective. (b) Incorporated in this Form 10-K Annual Report by reference to Form 10-K filed for fiscal year ended December 31, 1985. (c) 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, which is effective. (d) 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, which is effective. (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. 2-98550, which is effective. (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- 20888, which is effective. Page 17 (g) Incorporated by reference to Registrant's filing with the Securities and Exchange Commission on November 18, 1992 a Form 8-K Current Report as an exhibit to a Registration Statement on Form S-8, Registration No. 33-30690, which is effective. (h) 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, which is effective. (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- 51679, which is effective. (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- 60474, which is effective. (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- 55223, which is effective. (l) 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, which is effective. (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. 33- 61149, which is effective. 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. February 20, 1996 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 February 20, 1996 by the following persons on behalf of the Registrant and in the capacities indicated. /s/P. Michael Brumm /s/Roger W. Dean P. Michael Brumm Roger W. Dean Executive Vice President and CFO Controller (Chief Financial Officer) (Principal Accounting Officer) Page 18 /s/John F. Barrett /s/Michael H. Norris John F. Barrett Ivan W. Gorr Michael H. Norris Director Director Director /s/Joseph H. Head, Jr. /s/James E. Rogers Milton C. Boesel, Jr.Joseph H. Head, Jr. James E. Rogers Director Director Director /s/Clement L. Buenger/s/Joan R. Herschede /s/Brian H. Rowe Clement L. Buenger Joan R. Herschede Brian H. Rowe Director Director Director /s/Gerald V. Dirvin /s/George A. Schaefer, Jr. Gerald V. Dirvin William G. Kagler George A. Schaefer, Jr. Director Director Director /s/William J. Keating /s/John J. Schiff, Jr. Thomas B. Donnell William J. Keating John J. Schiff, Jr. Director Director Director /s/James D. Kiggen /s/Dennis J. Sullivan, Jr. Richard T. Farmer James D. Kiggen Dennis J. Sullivan, Jr. Director Director Director /s/John D. Geary /s/Robert B. Morgan /s/Dudley S. Taft John D. Geary Robert B. Morgan Dudley S. Taft Director Director Director Page 19 EX-11 2 EXHIBIT 11 FIFTH THIRD BANCORP COMPUTATION OF CONSOLIDATED NET INCOME PER SHARE ($000's except per share data)
1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ Net Income $ 287,685 244,459 206,235 172,021 142,954 ======== ======== ======== ======== ======== Net income per common share - assuming no dilution: Weighted average number of shares outstanding (a) 98,879 96,580 93,973 93,494 92,846 ======== ======== ======== ======== ======== Per share (net income divided by the weighted average number of shares outstanding) $ 2.91 2.53 2.19 1.84 1.54 ======== ======== ======== ======== ======== Net income per common and common equivalent share: Net income $ 287,685 244,459 206,235 172,021 142,954 Add - Interest on 4 1/4% convertible subordinated notes due 1998, net of applicable income taxes 4,257 4,332 4,393 546 -- -------- -------- -------- -------- -------- Adjusted net income $ 291,942 248,791 210,628 172,567 142,954 ======== ======== ======== ======== ======== Adjusted weighted average number of shares outstanding - after giving effect to the conversion of stock options and convertible subordinated notes (a) 102,642 100,388 98,007 94,623 93,455 ======== ======== ======== ======== ======== Per share (adjusted net income divided by the adjusted weighted average number of shares outstanding) $ 2.84 2.48 2.15 1.82 1.53 ======== ======== ======== ======== ======== Net income per common share - assuming full dilution: Adjusted net income $ 291,942 248,791 210,628 172,567 142,954 ======== ======== ======== ======== ======== Adjusted weighted average number of shares outstanding - after giving effect to the conversion of stock options and convertible subordinated notes (a) 103,106 100,386 98,007 94,782 93,791 ======== ======== ======== ======== ======== Per share (adjusted net income divided by the adjusted weighted average number of shares outstanding) $ 2.83 2.48 2.15 1.82 1.52 ======== ======== ======== ======== ======== (a) Per share amounts and average shares outstanding reflect the three-for-two stock splits effected in the form of stock dividends paid January 12, 1996 and April 15, 1992.
EX-13 3 Fifth Third Bancorp And Subsidiaries FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------ 1995 1994 % Change - ------------------------------------------------------------------------------------------------------------------------ EARNINGS AND DIVIDENDS ($000'S) Net Income ............................................................ $ 287,685 244,459 17.7 Cash Dividends Declared ............................................... 95,181 76,906 23.8 - ------------------------------------------------------------------------------------------------------------------------ PER SHARE(a) Net Income ............................................................ $ 2.91 2.53 15.0 Cash Dividends Declared ............................................... .96 .80 20.0 Year-End Book Value ................................................... 17.17 14.41 19.2 Year-End Market Price ................................................. 48.83 32.00 52.6 - ------------------------------------------------------------------------------------------------------------------------ AT YEAR END ($ in millions) Assets ................................................................ $ 17,053 14,957 14.0 Loans and Leases ...................................................... 11,690 10,286 13.6 Deposits .............................................................. 12,486 10,631 17.4 Stockholders' Equity .................................................. 1,725 1,399 23.3 - ------------------------------------------------------------------------------------------------------------------------ KEY RATIOS Return on Average Assets .............................................. 1.78% 1.77 .6 Return on Average Equity .............................................. 18.1 18.6 ( 2.7) Overhead Ratio(b) ..................................................... 43.9 46.6 ( 5.8) Net Interest Margin ................................................... 3.90 4.16 ( 6.3) - ------------------------------------------------------------------------------------------------------------------------ Number of Shares(a) ................................................... 100,422,996 97,063,956 3.5 Number of Stockholders ................................................ 15,148 13,763 10.1 Number of Banking Locations ........................................... 384 353 8.8 Number of Full-Time Equivalent Employees .............................. 6,108 5,644 8.2 - ------------------------------------------------------------------------------------------------------------------------ (a) Per share amounts and number of shares have been adjusted for the three-for-two stock split effected in the form of a stock dividend paid January 12, 1996. (b) Operating expenses divided by the sum of fully taxable equivalent net interest income and other operating income.
FIFTH THIRD BANCORP STOCKHOLDER AND CORPORATE INFORMATION - -----------------------------------------------------------------------------
- --------------------------------------------------------------- Stock Data Dividends Paid Per Year Period High Low Share - --------------------------------------------------------------- 1995 First Quarter $ 35 1/6 $ 31 3/8 $ .20 2/3 Second Quarter 38 1/4 32 1/12 .23 1/3 Third Quarter 38 5/6 36 1/3 .23 1/3 Fourth Quarter 50 5/12 37 3/4 .23 1/3 - --------------------------------------------------------------- 1994 First Quarter $ 34 1/12 $ 30 1/12 $ .18 Second Quarter 36 2/3 31 1/6 .18 Third Quarter 35 1/2 33 1/4 .20 2/3 Fourth Quarter 35 31 .20 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 System. Stock data has been adjusted for the three-for-two stock split effected in the form of a stock dividend paid January 12, 1996.
- --------------------------------------------------------------- Ratings Standard Moody's & Poor's Fitch - --------------------------------------------------------------- Fifth Third Bancorp Commercial Paper P1 A1+ F1+ - --------------------------------------------------------------- Fifth Third Bank-Cincinnati Short-Term Deposit P1 A1+ F1 Long-Term Deposit Aa2 AA- AA Medium-Term Deposit Aa2 AA- AA - --------------------------------------------------------------- Fifth Third Bank of Northwestern Ohio, N.A. Short-Term Deposit P1 A1+ F1 Long-Term Deposit Aa3 AA- AA - ---------------------------------------------------------------
CORPORATE OFFICE The Corporate Office is located at Fifth Third Center, Cincinnati, Ohio 45263. The telephone number is (513) 579-5300. ANNUAL MEETING The Annual Meeting of Stockholders will be held at 11:30 a.m. on Tuesday, March 19, 1996, on the fifth floor of the Corporate Office. INVESTOR INFORMATION Any individual requesting general information or a copy of the Corporation's 1995 Form 10-K Report (to be filed with the Securities and Exchange Commission before March 29, 1996) may obtain these by writing to Investor Relations at the Corporate Office. Investor information can be accessed on the Internet at WWW.FIFTHTHIRD.COM. DIVIDEND REINVESTMENT For the convenience of stockholders, the Corporation has established a plan whereby stockholders may have their dividends automatically reinvested in Fifth Third Bancorp common stock. Details of the plan will be sent on request (see back page). TRANSFER AGENT AND REGISTRAR Transfer agent and registrar is Fifth Third Bank, Fifth Third Center, Cincinnati, Ohio 45263. 14 Fifth Third Bancorp And Subsidiaries CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31 ($000's) 1995 1994 1993 - -------------------------------------------------------------------------------------------------------- INTEREST INCOME Interest and Fees on Loans and Leases .......................... $ 898,310 735,530 665,649 - -------------------------------------------------------------------------------------------------------- Interest on Securities Taxable ..................................................... 250,590 169,316 134,387 Exempt from Income Taxes .................................... 23,014 16,436 12,559 - -------------------------------------------------------------------------------------------------------- Total Interest on Securities ................................... 273,604 185,752 146,946 - -------------------------------------------------------------------------------------------------------- Interest on Other Short-Term Investments ....................... 1,251 1,019 319 - -------------------------------------------------------------------------------------------------------- Total Interest Income .......................................... 1,173,165 922,301 812,914 - -------------------------------------------------------------------------------------------------------- INTEREST EXPENSE Interest on Deposits Interest Checking ........................................... 28,472 25,572 28,295 Savings ..................................................... 14,572 14,511 16,298 Money Market ................................................ 62,233 40,326 37,465 Other Time .................................................. 248,860 194,375 173,764 Certificates-$100,000 and Over .............................. 40,522 13,135 15,622 Foreign Office .............................................. 46,646 24,165 8,030 - -------------------------------------------------------------------------------------------------------- Total Interest on Deposits ..................................... 441,305 312,084 279,474 Interest on Federal Funds Borrowed ............................. 63,492 34,925 18,963 Interest on Short-Term Bank Notes .............................. 47,956 20,285 -- Interest on Other Short-Term Borrowings ........................ 41,136 25,818 24,326 Interest on Long-Term Debt and Notes ........................... 15,844 12,436 16,636 - -------------------------------------------------------------------------------------------------------- Total Interest Expense ......................................... 609,733 405,548 339,399 - -------------------------------------------------------------------------------------------------------- NET INTEREST INCOME ............................................ 563,432 516,753 473,515 Provision for Credit Losses .................................... 42,962 35,780 48,037 - -------------------------------------------------------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES .......... 520,470 480,973 425,478 - -------------------------------------------------------------------------------------------------------- OTHER OPERATING INCOME Trust Income ................................................... 61,755 55,238 53,442 Service Charges on Deposits .................................... 66,344 60,905 57,212 Data Processing Income ......................................... 75,311 64,394 52,823 Other Service Charges and Fees ................................. 97,516 74,978 61,595 Securities Gains ............................................... 4,789 393 6,078 - -------------------------------------------------------------------------------------------------------- Total Other Operating Income ................................... 305,715 255,908 231,150 - -------------------------------------------------------------------------------------------------------- OPERATING EXPENSES Salaries and Wages ............................................. 152,220 144,513 129,644 Employee Benefits .............................................. 38,648 36,710 36,436 Equipment Expenses ............................................. 16,655 16,045 15,446 Net Occupancy Expenses ......................................... 28,521 26,137 26,014 Other Operating Expenses ....................................... 159,573 148,140 145,180 - -------------------------------------------------------------------------------------------------------- Total Operating Expenses ....................................... 395,617 371,545 352,720 - -------------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES ..................................... 430,568 365,336 303,908 Applicable Income Taxes ........................................ 142,883 120,877 97,673 - -------------------------------------------------------------------------------------------------------- NET INCOME ..................................................... $ 287,685 244,459 206,235 - -------------------------------------------------------------------------------------------------------- NET INCOME PER SHARE (a) ....................................... $ 2.91 2.53 2.19 - -------------------------------------------------------------------------------------------------------- AVERAGE SHARES OUTSTANDING (000's) (a) ......................... 98,879 96,580 93,973 CASH DIVIDENDS DECLARED PER SHARE (a) .......................... $ .96 .80 .68 - -------------------------------------------------------------------------------------------------------- (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 paid January 12, 1996. See Notes to Consolidated Financial Statements.
15 Fifth Third Bancorp And Subsidiaries CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------------------------------------- December 31 ($000's) 1995 1994 - --------------------------------------------------------------------------------------------------------------------- ASSETS - --------------------------------------------------------------------------------------------------------------------- Cash and Due from Banks .......................................................... $ 628,535 695,009 Securities Available for Sale (amortized cost 1995-$4,129,405 and 1994-$1,203,677) 4,151,178 1,129,492 Securities Held to Maturity (market value 1995-$187,091 and 1994-$2,410,536) ..... 187,091 2,507,543 Other Short-Term Investments ..................................................... 6,822 23,765 Loans and Leases Commercial Loans .............................................................. 3,584,124 3,045,315 Construction Loans ............................................................ 312,098 286,088 Commercial Mortgage Loans ..................................................... 794,267 729,532 Commercial Lease Financing .................................................... 830,644 569,539 Residential Mortgage Loans .................................................... 1,974,911 2,346,931 Consumer Loans ................................................................ 3,062,697 2,407,261 Consumer Lease Financing ...................................................... 1,457,929 1,133,953 Unearned Income ............................................................... (326,027) (232,162) Reserve for Credit Losses ..................................................... (177,388) (155,918) - --------------------------------------------------------------------------------------------------------------------- Total Loans and Leases ........................................................... 11,513,255 10,130,539 Bank Premises and Equipment ...................................................... 195,990 176,897 Accrued Income Receivable ........................................................ 133,998 114,039 Other Assets ..................................................................... 236,014 179,725 - --------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS ..................................................................... $ 17,052,883 14,957,009 - --------------------------------------------------------------------------------------------------------------------- LIABILITIES - --------------------------------------------------------------------------------------------------------------------- Deposits Demand ........................................................................ $ 1,827,837 1,679,625 Interest Checking ............................................................. 1,558,506 1,486,780 Savings ....................................................................... 795,799 637,609 Money Market .................................................................. 1,920,871 1,688,147 Other Time .................................................................... 4,621,401 3,863,103 Certificates-$100,000 and Over ................................................ 704,968 262,402 Foreign Office ................................................................ 1,056,398 1,013,212 - --------------------------------------------------------------------------------------------------------------------- Total Deposits ................................................................... 12,485,780 10,630,878 Federal Funds Borrowed ........................................................... 553,041 716,312 Short-Term Bank Notes ............................................................ 450,000 844,995 Other Short-Term Borrowings ...................................................... 1,002,454 890,911 Accrued Taxes, Interest and Expenses ............................................. 315,026 194,753 Other Liabilities ................................................................ 96,611 101,673 Long-Term Debt ................................................................... 281,996 35,409 Convertible Subordinated Notes ................................................... 143,400 143,304 - --------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES ................................................................ 15,328,308 13,558,235 - --------------------------------------------------------------------------------------------------------------------- STOCKHOLDERS'S EQUITY (a) - --------------------------------------------------------------------------------------------------------------------- Common Stock (b) ................................................................. 222,939 143,655 Capital Surplus .................................................................. 338,555 272,999 Retained Earnings ................................................................ 1,148,279 1,030,338 Unrealized Gains (Losses) on Securities Available for Sale ....................... 14,802 (48,218) - --------------------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS'S EQUITY ...................................................... 1,724,575 1,398,774 - --------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....................................... $ 17,052,883 14,957,009 - --------------------------------------------------------------------------------------------------------------------- (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 140,000,000; outstanding 1995 - 100,422,996 and 1994 - 64,709,304. The number of shares at December 31, 1995, has been adjusted for the three-for-two stock split effected in the form of a stock dividend paid January 12, 1996. See Notes to Consolidated Financial Statements.
16 Fifth Third Bancorp And Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'S EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------- COMMON STOCK ----------------------- UNREALIZED SHARES CAPITAL RETAINED TREASURY GAINS ($000'S) OUTSTANDING AMOUNT SURPLUS EARNINGS STOCK (LOSSES) TOTAL - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT JANUARY 1, 1993.................... 62,528,422 $138,846 218,391 720,021 (404) -- 1,076,854 Net Income.................................... 206,235 206,235 Cash Dividends Declared:...................... Fifth Third Bancorp, at $.68 per share (a). (61,544) (61,544) Pooled Acquisition......................... (1,927) (1,927) Shares Acquired for Treasury.................. (440) (22) (22) Stock Options Exercised, Including Treasury Shares Issued........... 218,843 452 3,672 426 4,550 Corporate Tax Benefit Related to Exercise of Non-Qualified Stock Options............. 286 286 Stock Issued in Acquisition and Other......... 1,352,314 3,002 37,801 40,803 Effect of Change in Accounting for Securities Available for Sale.............. 12,425 12,425 - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1993.................. 64,099,139 142,300 260,150 862,785 -- 12,425 1,277,660 Net Income.................................... 244,459 244,459 Cash Dividends Declared: Fifth Third Bancorp at $.80 per share (a).. (75,843) (75,843) Pooled Acquisition......................... (1,063) (1,063) Shares Acquired for Treasury.................. (3,409) (178) (178) Stock Options Exercised, Including Treasury Shares Issued........... 400,482 882 7,671 178 8,731 Corporate Tax Benefit Related to Exercise of Non-Qualified Stock Options............. 2,328 2,328 Stock Issued in Acquisition and Other......... 213,092 473 2,850 3,323 Change in Unrealized Gains/Losses on Securities Available for Sale........... (60,643) (60,643) - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1994.................. 64,709,304 143,655 272,999 1,030,338 -- (48,218) 1,398,774 Net Income.................................... 287,685 287,685 Cash Dividends Declared at $.96 per share (a). (95,181) (95,181) Three-for-Two Stock Split Effected in the Form of a Stock Dividend............... 32,354,651 71,827 (71,827) -- Shares Acquired for Treasury.................. (2,851) (73) (73) Stock Options Exercised, Including Treasury Shares Issued........... 201,942 442 3,175 73 3,690 Corporate Tax Benefit Related to Exercise of Non-Qualified Stock Options............. 357 357 Fractional Shares Purchased in Stock Split Effected in the Form of a Stock Dividend... (250) (250) Stock Issued in Conversion of Subordinated Notes......................... 8,250 18 332 350 Stock Issued in Acquisitions and Other........ 3,151,700 6,997 61,692 (2,486) 66,203 Change in Unrealized Gains/Losses on Securities Available for Sale........... 63,020 63,020 - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1995.................. 100,422,996 $222,939 338,555 1,148,279 -- 14,802 1,724,575 - ----------------------------------------------------------------------------------------------------------------------------------- (a) Cash dividends declared per share have been adjusted for the three-for-two stock split effected in the form of a stock dividend paid January 12, 1996. See Notes to Consolidated Financial Statements.
17 Fifth Third Bancorp And Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31 ($000's) 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net Income........................................................................ $ 287,685 244,459 206,235 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Provision for Credit Losses.................................................... 42,962 35,780 48,037 Depreciation, Amortization and Accretion....................................... 27,612 29,987 32,394 Provision for Deferred Income Taxes............................................ 65,155 44,719 21,929 Realized Securities Gains...................................................... (6,118) (720) (7,640) Realized Securities Losses..................................................... 1,329 327 1,562 Proceeds from Sales of Residential Mortgage Loans Held for Sale................ 481,140 615,590 727,169 Net Gains from Sales of Residential Mortgage Loans Held for Sale............... (9,915) (9,870) (11,210) Increase in Residential Mortgage Loans Held for Sale........................... (405,248) (503,233) (850,168) Increase in Accrued Income Receivable.......................................... (16,427) (13,761) (15,389) Decrease (Increase) in Other Assets............................................ (6,765) (5,545) 21,938 Increase (Decrease) in Accrued Taxes, Interest and Expenses.................... 16,544 (9,378) 41,766 Increase (Decrease) in Other Liabilities....................................... (17,622) 13,321 (9,703) - ----------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES......................................... 460,332 441,676 206,920 - ----------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Proceeds from Sales of Securities Available for Sale.............................. 568,171 185,114 270,206 Proceeds from Calls, Paydowns and Maturities of Securities Available for Sale..... 328,898 296,922 213,299 Purchases of Securities Available for Sale........................................ (521,435) (710,030) (301,520) Proceeds from Sales of Securities Held to Maturity................................ -- 62,487 -- Proceeds from Calls, Paydowns and Maturities of Securities Held to Maturity....... 494,311 565,319 898,732 Purchases of Securities Held to Maturity.......................................... (462,161) (1,084,102) (881,696) Decrease (Increase) in Other Short-Term Investments............................... 38,666 (12,628) (950) Increase in Loans and Leases...................................................... (1,886,666) (1,145,395) (1,449,143) Purchases of Bank Premises and Equipment.......................................... (33,194) (27,564) (44,415) Proceeds from Disposals of Bank Premises and Equipment............................ 4,778 1,728 2,040 Cash Paid in Purchases of Subsidiaries............................................ (40,575) (10,012) (11,207) - ----------------------------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES............................................. (1,509,207) (1,878,161) (1,304,654) - ----------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Increase in Deposits ............................................................. 861,848 779,104 442,589 Purchases of Deposits............................................................. 389,586 294,126 290,857 Increase (Decrease) in Federal Funds Borrowed..................................... (125,566) (315,252) 564,675 Increase (Decrease) in Short-Term Bank Notes...................................... (394,995) 844,995 -- Increase (Decrease) in Other Short-Term Borrowings................................ 90,559 229,437 (222,371) Proceeds from Issuance of Long-Term Debt and Notes................................ 266,556 -- 180,000 Repayment of Long-Term Debt....................................................... (20,115) (232,512) (83,845) Payment of Cash Dividends......................................................... (89,131) (73,425) (61,155) Exercise of Stock Options......................................................... 4,047 10,307 4,754 Fractional Shares Purchased in Stock Split........................................ (250) -- -- Other............................................................................. (138) (178) 236 - ----------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES......................................... 982,401 1,536,602 1,115,740 - ----------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH AND DUE FROM BANKS.................................... (66,474) 100,117 18,006 CASH AND DUE FROM BANKS AT BEGINNING OF YEAR...................................... 695,009 594,892 576,886 - ----------------------------------------------------------------------------------------------------------------------------- CASH AND DUE FROM BANKS AT END OF YEAR............................................ $ 628,535 695,009 594,892 - ----------------------------------------------------------------------------------------------------------------------------- Note: The Bancorp paid Federal income taxes of $72,000,000, $78,000,000 and $74,000,000 in 1995, 1994 and 1993, respectively. The Bancorp paid interest of $602,818,000, $392,688,000 and $327,916,000 in 1995, 1994 and 1993, respectively. The Bancorp had noncash investing activities consisting of the securitization and transfer to securities of $854,511,000, $341,199,000 and $291,586,000 of residential mortgage loans in 1995, 1994 and 1993, respectively. The Bancorp had noncash activities consisting of the reclassification of $2,311,567,000 in securities from held to maturity to available for sale in 1995 and $932,971,000 in securities to available for sale in 1993. See Notes to Consolidated Financial Statements.
18 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 384 offices located throughout Ohio, Indiana, Kentucky and Florida. Principal activities include commercial and retail banking, trust and data processing. BASIS OF PRESENTATION The Consolidated Financial Statements include the accounts of Fifth Third 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. 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 Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities," requires securities to be classified as held to maturity, available for sale or trading. 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, included in stockholders' equity or income, respectively. The Bancorp adopted this Statement effective December 31, 1993. 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 which is computed using a method which approximates the interest method. The accrual of interest for commercial, construction and mortgage loans is discontinued when there is a clear indication that 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 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 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. Income on direct financing leases is recognized on a basis to achieve a constant periodic rate of return on the outstanding investment. Income on leveraged leases is recognized on a basis to achieve a constant rate of return on the outstanding investment in the lease, net of the related deferred 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 market value and were $22,954,000 and $4,168,000 at December 31, 1995 and 1994, respectively. The Bancorp 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. SFAS No. 122, "Accounting for Mortgage Servicing Rights," requires an entity that sells or securitizes mortgage loans with servicing rights retained to allocate the total cost of the mortgage loans to the mortgage servicing rights and the loans based on their relative fair values. Resulting capitalized mortgage servicing rights must be assessed for impairment periodically based on fair value, with any impairment recognized through a valuation allowance. The effect of adopting SFAS No. 122 in the third quarter of 1995 was to increase gains on sales of residential mortgage loans by $2.5 million (pre-tax). The Bancorp adopted SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," as amended, effective January 1, 1995. This statement requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rates or the fair value of the underlying collateral, and specifies alternative methods for recognizing interest income on loans that are impaired or for which there are credit concerns. For purposes of applying this standard, impaired loans have been defined as all nonaccrual loans. The Bancorp's policy for income recognition was not affected by adoption of the standard. The adoption of SFAS No. 114 did not have any effect on the total reserve for credit losses or related provision. RESERVE FOR CREDIT LOSSES The reserve is maintained at a level management considers to be adequate to absorb potential loan and lease losses. 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 other factors which, in management's judgment, deserve consideration under existing economic conditions in estimating potential credit losses. BANK PREMISES AND EQUIPMENT Bank premises and equipment, including leasehold improvements, are stated at cost less accumulated depreciation and amortization. Depreciation is computed on the straight-line method over the estimated useful lives of the related assets. Amortization of leasehold improvements is computed on 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 premium on purchased deposits are amortized on a straight-line basis generally over a period of 15 years. Management reviews intangible assets for possible impairment if there is a significant event that detrimentally affects operations. Impairment is measured using estimates of the 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 hedges its exposure to market rate fluctuations by entering into offsetting third party forward contracts. Unrealized gains and losses on forward contracts are generally insignificant and are recognized in Other Service Charges and Fees when realized. The Bancorp does not hold or issue derivative financial instruments for trading purposes. NET INCOME PER SHARE Net income 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 notes and the exercise of stock options do not have a materially dilutive effect. All references to per share amounts for prior years in the Consolidated Financial Statements and related Notes have been adjusted for the three-for-two stock split effected in the form of a stock dividend paid January 12, 1996. 19 Fifth Third Bancorp And Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OTHER SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be recoverable. This statement is effective January 1, 1996 and is not expected to have a material effect on the Consolidated Financial Statements. Securities and other property held by the Trust and Investment Group of the Bancorp subsidiaries in a fiduciary or agency capacity are not included in the Consolidated Balance Sheets because such items are not assets of the subsidiaries. Trust income is recognized on the accrual basis. NOTE 2-SECURITIES Securities available for sale as of December 31:
- ----------------------------------------------------------------------------------- 1995 ------------------------------------------------------------- Amortized Unrealized Unrealized Market ($000's) Cost Gains Losses Value - ----------------------------------------------------------------------------------- U.S. Government and agencies obligations......... $ 371,808 13,300 (50) 385,058 Obligations of states and political subdivisions........ 295,605 5,184 (2) 300,787 Agency mortgage- backed securities.......... 2,759,663 14,935 (557) 2,774,041 Other bonds, notes and debentures.......... 669,128 513 (14,556) 655,085 Other securities...... 33,201 3,006 -- 36,207 - ----------------------------------------------------------------------------------- Total securities...... $4,129,405 36,938 (15,165) 4,151,178 - -----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------- 1994 ------------------------------------------------------------- Amortized Unrealized Unrealized Market ($000's) Cost Gains Losses Value - ----------------------------------------------------------------------------------- U.S. Government and agencies obligations........ $ 233,512 -- (4,455) 229,057 Agency mortgage- backed securities......... 965,154 168 (69,391) 895,931 Other securities..... 5,011 -- (507) 4,504 - ----------------------------------------------------------------------------------- Total securities..... $1,203,677 168 (74,353) 1,129,492 - -----------------------------------------------------------------------------------
Securities held to maturity as of December 31:
- ----------------------------------------------------------------------------------- 1995 ------------------------------------------------------------- Amortized Unrealized Unrealized Market ($000's) Cost Gains Losses Value - ----------------------------------------------------------------------------------- Obligations of states and political subdivisions........ $167,992 -- -- 167,992 Other bonds, notes and debentures.......... 1,505 -- -- 1,505 Other securities..... 17,594 -- -- 17,594 - ----------------------------------------------------------------------------------- Total securities..... $187,091 -- -- 187,091 - -----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------- 1994 ------------------------------------------------------------- Amortized Unrealized Unrealized Market ($000's) Cost Gains Losses Value - ----------------------------------------------------------------------------------- U.S. Government and agencies obligations......... $ 98,742 150 -- 98,892 Obligations of states and political subdivisions........ 463,759 22 (6,953) 456,828 Agency mortgage- backed securities.......... 1,750,549 -- (86,813) 1,663,736 Other bonds, notes and debentures.......... 160,394 330 (3,743) 156,981 Other securities...... 34,099 -- -- 34,099 - ----------------------------------------------------------------------------------- Total securities...... $2,507,543 502 (97,509) 2,410,536 - -----------------------------------------------------------------------------------
The amortized cost and approximate market value of securities at December 31, 1995, 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. Maturities of mortgage-backed securities were estimated based on historical and expected future prepayment trends.
- ------------------------------------------------------------------------------ Available for Sale Held to Maturity -------------------- ---------------------- Amortized Market Amortized Market ($000's) Cost Value Cost Value - ------------------------------------------------------------------------------ Debt securities Under 1 year.............. $ 158,292 160,115 $ 83,996 83,996 1-5 years................. 2,447,234 2,461,953 83,996 83,996 6-10 years................ 1,338,815 1,339,824 1,505 1,505 Over 10 years............. 151,863 153,079 -- -- Other securities............ 33,201 36,207 17,594 17,594 - ------------------------------------------------------------------------------ Total securities............ $4,129,405 4,151,178 $187,091 187,091 - ------------------------------------------------------------------------------
At December 31, 1995 and 1994, securities with a book value of $2,117,342,000 and $1,984,935,000 respectively, were pledged to secure short-term borrowings, public deposits, trust funds and for other purposes as required or permitted by law. On November 15, 1995, management took a permitted, one-time opportunity to re-evalute securities classification under SFAS No. 115 and reclassified securities with an amortized cost of $2,311,567,000 from held to maturity to available for sale. The unrealized gain at the time of transfer was $19,797,000. During the first quarter of 1994, the Bancorp sold $62,280,000 of GNMA adjustable rate mortgage-backed securities, which were classified as held to maturity at December 31, 1993, at an immaterial gain. 20 Fifth Third Bancorp And Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3-RESERVE FOR CREDIT LOSSES Transactions in the reserve for credit losses for the years ended December 31:
- ------------------------------------------------------------------------------- ($000's) 1995 1994 1993 - ------------------------------------------------------------------------------- Balance at January 1............. $155,918 144,537 121,452 Losses charged off............... ( 41,707) ( 30,946) ( 37,172) Recoveries of losses previously charged off................... 11,846 13,472 10,098 - ------------------------------------------------------------------------------- Net charge-offs.................. ( 29,861) ( 17,474) ( 27,074) Letter of credit contract........ -- ( 7,800) -- Provision charged to operations.. 42,962 35,780 48,037 Reserve of acquired institutions and other..................... 8,369 875 2,122 - ------------------------------------------------------------------------------- Balance at December 31........... $177,388 155,918 144,537 - -------------------------------------------------------------------------------
For calendar years 1995, 1994 and 1993, interest income of $1,066,000, $556,000 and $547,000, respectively, was recorded on nonaccrual and renegotiated loans and leases. Additional interest income of $2,271,000, $1,767,000 and $1,469,000 would have been recorded if the nonaccrual and renegotiated loans and leases had been current in accordance with their original terms. The recorded investment in loans considered impaired at December 31, 1995, under SFAS No. 114, was $37,049,000, of which $7,792,000 related to loans with no valuation reserve and $29,257,000 related to loans with a valuation reserve of $10,370,000. For the year ended December 31, 1995, the average recorded investment in impaired loans was approximately $25,848,000 and cash basis interest income recognized on those loans during the year was immaterial. NOTE 4-LEASE FINANCING A summary of the gross investment in lease financing at December 31:
- ------------------------------------------------------------------------------- ($000's) 1995 1994 - ------------------------------------------------------------------------------- Direct financing leases...................... $2,248,322 1,650,923 Leveraged leases............................. 40,251 52,569 - ------------------------------------------------------------------------------- Total lease financing........................ $2,288,573 1,703,492 - -------------------------------------------------------------------------------
The components of the investment in lease financing at December 31:
- ------------------------------------------------------------------------------- ($000's) 1995 1994 - ------------------------------------------------------------------------------- Rentals receivable, net of principal and interest on nonrecourse debt............... $1,453,802 1,100,040 Estimated residual value of leased assets.... 834,771 603,452 - ------------------------------------------------------------------------------- Gross investment in lease financing.......... 2,288,573 1,703,492 Unearned income.............................. ( 304,864) ( 217,970) - ------------------------------------------------------------------------------- Total net investment in lease financing...... $1,983,709 1,485,522 - -------------------------------------------------------------------------------
At December 31, 1995, the minimum future lease payments receivable for each of the years 1996 through 2000 were $567,109,000, $597,188,000, $513,374,000, $346,822,000 and $208,515,000, respectively. NOTE 5-BANK PREMISES AND EQUIPMENT A summary of bank premises and equipment at December 31:
- ------------------------------------------------------------------------------- Estimated ($000's) Usefil Life 1995 1994 - ------------------------------------------------------------------------------- Land and improvements........... $ 36,803 34,258 Buildings....................... 18 to 50 yrs. 141,449 133,654 Equipment....................... 3 to 20 yrs. 115,922 99,023 Leasehold improvements.......... 6 to 25 yrs. 37,564 31,352 Accumulated depreciation and amortization.............. (135,748) (121,390) - ------------------------------------------------------------------------------- Total bank premises and equipment..................... $195,990 176,897 - -------------------------------------------------------------------------------
Depreciation and amortization expense related to bank premises and equipment was $18,072,000 in 1995, $15,388,000 in 1994 and $14,305,000 in 1993. Occupancy expense has been reduced by rental income from leased premises of $8,145,000 in 1995, $8,900,000 in 1994 and $8,618,000 in 1993. The Bancorp's subsidiaries have entered into a number of noncancelable lease agreements with respect to bank premises and equipment. A summary of the minimum annual rental commitments under these leases at December 31, 1995, exclusive of taxes and other charges payable by the lessee:
- ------------------------------------------------------------------------------- Land and ($000's) Buildings Equipment Total - ------------------------------------------------------------------------------- 1996................................. $ 9,914 365 10,279 1997................................. 9,140 281 9,421 1998................................. 8,379 195 8,574 1999................................. 7,475 186 7,661 2000................................. 6,930 161 7,091 2001 and subsequent years............ 31,177 -- 31,177 - ------------------------------------------------------------------------------- Total................................ $73,015 1,188 74,203 - -------------------------------------------------------------------------------
Rental expense for cancelable and noncancelable leases was $12,470,000 for 1995, $11,891,000 for 1994 and $11,500,000 for 1993. NOTE 6-INTANGIBLE ASSETS Intangibles, net of accumulated amortization, included in Other Assets in the Consolidated Balance Sheets at December 31:
- ------------------------------------------------------------------------------- ($000's) 1995 1994 - ------------------------------------------------------------------------------- Goodwill........................................ $ 27,221 30,204 Premium on purchased deposits................... 73,170 31,361 Purchased mortgage servicing rights............. -- 56 - ------------------------------------------------------------------------------- Total intangibles............................... $100,391 61,621 - -------------------------------------------------------------------------------
21 Fifth Third Bancorp And Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7-SHORT-TERM BORROWINGS A summary of short-term borrowings and rates at December 31:
- ------------------------------------------------------------------------------- ($000's) 1995 1994 1993 - ------------------------------------------------------------------------------- Federal funds borrowed: Balance......................... $ 553,041 716,312 1,031,564 Rate............................ 4.59% 5.34 2.90 - ------------------------------------------------------------------------------- Short-term bank notes: Balance......................... $ 450,000 844,995 -- Rate............................ 5.60% 5.90 -- - ------------------------------------------------------------------------------- Securities sold under agreements to repurchase: Balance......................... $ 835,773 687,493 472,250 Rate............................ 4.96% 4.30 2.64 - ------------------------------------------------------------------------------- Other: Balance......................... $ 166,681 203,418 187,930 Rate............................ 4.93% 5.75 2.92 - ------------------------------------------------------------------------------- Total short-term borrowings: Balance......................... $2,005,495 2,452,218 1,691,744 Rate............................ 5.00% 5.28 2.83 - ------------------------------------------------------------------------------- Average outstanding............... $2,669,477 1,967,819 1,365,070 Maximum month-end balance......................... $2,984,427 2,452,218 1,734,920 Weighted average interest rate................... 5.72% 4.12 3.17 - -------------------------------------------------------------------------------
A $1 billion short-term bank note facility was established in 1994. The notes are offered with maturity dates of less than one year and are uninsured obligations of two of the Bancorp's subsidiary banks. At December 31, 1995, the Bancorp had issued $67,562,000 in commercial paper, with unused lines of credit of $40,000,000 available to support commercial paper transactions and other corporate requirements. NOTE 8-LONG-TERM BORROWINGS A summary of long-term borrowings at December 31:
- ---------------------------------------------------------------------------- ($000's) 1995 1994 - ---------------------------------------------------------------------------- Bancorp: Convertible subordinated notes, 4.25%, due 1998............................ $143,400 143,304 - ---------------------------------------------------------------------------- Subsidiaries: Subordinated notes, 6.75%, due 2005............................ 246,715 -- Federal Home Loan Bank advances.............. 34,986 35,000 Other, 7%.................................... 295 409 - ---------------------------------------------------------------------------- Total long-term debt......................... 281,996 35,409 - ---------------------------------------------------------------------------- Total long-term borrowings................... $425,396 178,713 - ----------------------------------------------------------------------------
The convertible subordinated notes convert into Bancorp common stock at $42.417 per share and at December 31, 1995, $350,000 of these notes had been converted. The notes are redeemable in whole or in part at 101.7% from January 22, 1996 to January 21, 1997, and at 100.85% thereafter, until maturity. A portion of these notes qualify as total capital for regulatory capital purposes. The subordinated notes 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, 1995, Federal Home Loan Bank (FHLB) advances have rates ranging from 4.4% to 5.3%, with interest payable monthly. The advances were secured by certain residential mortgage loans with book values of $160,622,000 and $234,667,000 at December 31, 1995 and 1994, respectively, and by certain securities with a book value of $24,449,000 at December 31, 1995. The advances mature as follows: $15,000,000 in 1996 and $19,986,000 in 1997. Other promissory notes mature as follows: $90,000 in 1996, $100,000 in 1997 and $105,000 in 1998. 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:
- ------------------------------------------------------------------------------- ($000's) 1995 1994 1993 - ------------------------------------------------------------------------------- Current U.S. income taxes............. $ 75,162 74,013 73,674 State and local income taxes.......... 2,566 2,145 2,070 - ------------------------------------------------------------------------------- Total................................. 77,728 76,158 75,744 - ------------------------------------------------------------------------------- Deferred U.S. income taxes resulting from temporary differences......................... 65,155 44,719 21,929 - ------------------------------------------------------------------------------- Applicable income taxes............... $142,883 120,877 97,673 - -------------------------------------------------------------------------------
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:
- ------------------------------------------------------------------------------- ($000's) 1995 1994 - ------------------------------------------------------------------------------- Lease financing................................ $222,857 159,770 Reserve for credit losses...................... ( 57,530) ( 54,113) Bank premises and equipment.................... 10,038 8,241 Unrealized gains (losses) on securities available for sale........................... 7,971 ( 25,967) Other.......................................... 1,258 ( 2,430) - ------------------------------------------------------------------------------- Total net deferred tax liability............... $184,594 85,501 - -------------------------------------------------------------------------------
A reconciliation between the statutory U.S. income tax rate and the Bancorp's effective tax rate:
- ------------------------------------------------------------------------------- ($000's) 1995 1994 1993 - ------------------------------------------------------------------------------- Statutory tax rate....................... 35.0% 35.0 35.0 Increase (decrease) resulting from Tax-exempt interest................... (2.6) (2.5) (2.8) Other-net............................. .8 .6 ( .1) - ------------------------------------------------------------------------------- Effective tax rate....................... 33.2% 33.1 32.1 - -------------------------------------------------------------------------------
Retained earnings at December 31, 1995 includes approximately $30.2 million in allocations of earnings for bad debt deductions of thrift subsidiaries for which no income tax has been provided. Under current tax law, if these subsidiaries do not continue to operate as thrifts or 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. 22 Fifth Third Bancorp And Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10-OTHER SERVICE CHARGES AND FEES AND OTHER OPERATING EXPENSES The major components for the years ended December 31:
- ------------------------------------------------------------------------------- ($000's) 1995 1994 1993 - ------------------------------------------------------------------------------- Other Service Charges and Fees Cardholder fees..................... $ 16,422 13,003 10,742 Consumer loan fees.................. 15,899 12,526 10,279 Commercial banking.................. 18,368 14,138 11,271 Mortgage banking.................... 28,554 20,249 21,078 Other............................... 18,273 15,062 8,225 - ------------------------------------------------------------------------------- Total other service charges and fees............................ $ 97,516 74,978 61,595 - ------------------------------------------------------------------------------- Other Operating Expenses: Marketing and communications.................... $ 28,544 25,001 23,513 FDIC insurance...................... 14,269 20,669 19,203 Franchise taxes..................... 15,138 13,460 11,305 Printing and supplies............... 12,501 11,720 11,487 Bankcard............................ 18,581 13,110 8,926 Loan and lease...................... 11,667 8,550 11,611 Other............................... 58,873 55,630 59,135 - ------------------------------------------------------------------------------- Total other operating expenses $159,573 148,140 145,180 - -------------------------------------------------------------------------------
NOTE 11-STOCK OPTIONS Options have been granted under the Bancorp's Stock Option Plans to key employees and directors of the Bancorp and its subsidiaries. A summary of option transactions during 1995, 1994 and 1993:
- ------------------------------------------------------------------------------- 1995 1994 1993 ------------------ ------------------ -------------------- Average Average Average Shares Option Shares Option Shares Option (000's) Price (000's) Price (000's) Price - ------------------------------------------------------------------------------- Outstanding, beginning of year..... 2,398 $30.25 2,436 $24.77 2,054 $19.46 Exercised..... ( 202) 18.43 ( 600) 12.23 ( 329) 13.73 Expired....... ( 94) 35.19 ( 120) 34.59 ( 51) 31.39 Granted....... 1,065 36.89 682 34.75 762 34.75 - ------------------------------------------------------------------------------- Outstanding end of year..... 3,167 $33.09 2,398 $30.25 2,436 $24.77 - -------------------------------------------------------------------------------
At December 31, 1995, there were 2,101,268 incentive options and 1,065,775 nonqualified options outstanding. At December 31, 1995, options to purchase 2,028,604 shares were exercisable and 1,407,590 shares were available for granting additional options. SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but does not require, adoption of a fair-value-based accounting method for employee stock-based compensation arrangements and is effective January 1, 1996. Management intends to elect disclosure of its pro forma net income and net income per share as if the fair-value-based method had been applied in measuring compensation cost. NOTE 12-RETIREMENT PLAN AND BENEFIT PLANS The Bancorp maintains a noncontributory retirement plan covering substantially all regular full-time employees and providing defined benefits based on years of credited service and compensation level, partially offset by social security benefits. Contributions to the plan are based on the entry age actuarial cost method and are limited to amounts currently deductible for income tax purposes. In determining the actuarial present value of the projected benefit obligation, the weighted average discount rate was 7.25% in 1995 and 8.25% in 1994, and the rate of increase in future compensation levels was 5% in 1995 and 5.5% in 1994. The expected long-term rate of return on retirement plan assets was 9% in both years. A summary of the qualified plan's funded status at December 31:
- ------------------------------------------------------------------------------- ($000's) 1995 1994 - ------------------------------------------------------------------------------- Vested benefit obligation..................... $23,308 11,899 Non-vested benefit obligation................. 3,233 1,706 - ------------------------------------------------------------------------------- Accumulated benefit obligation................ $26,541 13,605 - ------------------------------------------------------------------------------- Plan assets at fair value, primarily common trust and mutual funds managed by The Fifth Third Bank, listed stocks and U.S. bonds................ $56,201 37,837 Projected benefit obligation for service rendered to date............................ 31,816 18,018 - ------------------------------------------------------------------------------- Plan assets in excess of projected benefit obligation.................................. 24,385 19,819 Unrecognized transition asset................. ( 1,396) ( 1,642) Unrecognized reduction in prior service cost.. ( 3,667) ( 4,047) Unrecognized net gain......................... ( 5,485) ( 1,299) - ------------------------------------------------------------------------------- Prepaid pension cost.......................... $13,837 12,831 ===============================================================================
A summary of the components of the provision for retirement cost for the qualified plan for the years ended December 31:
- ------------------------------------------------------------------------------- ($000's) 1995 1994 1993 - ------------------------------------------------------------------------------- Service cost for current year.......... $ 1,611 1,567 1,453 Interest cost.......................... 2,246 1,976 1,928 Actual return on plan assets........... (10,395) ( 527) ( 104) Amortization, primarily of initial unrecognized asset and prior service cost......................... ( 626) ( 942) (1,004) Net gain (loss) - deferred............. 6,161 (3,217) (4,284) - ------------------------------------------------------------------------------- Net retirement income.................. $( 1,003) (1,143) (2,011) ===============================================================================
The Bancorp also sponsors a nonqualified, unfunded Supplemental Retirement Income Plan (SERP) that provides certain officers with defined pension benefits in excess of the limits imposed on the qualified plan by federal tax law. In determining the actuarial present value of the projected benefit obligation, the weighted average discount rate was 7.25% in 1995 and 8.25% in 1994, and the rate of increase in future compensation levels was 7% in 1995 and 7.5% in 1994. A summary of the SERP's status at December 31:
- ------------------------------------------------------------------------------- ($000's) 1995 1994 - ------------------------------------------------------------------------------- Vested benefit obligation..................... $2,247 1,769 Non-vested benefit obligation................. 728 456 - ------------------------------------------------------------------------------- Accumulated benefit obligation................ $2,975 2,225 - ------------------------------------------------------------------------------- Projected benefit obligation for service rendered to date............................ $6,539 4,748 Unrecognized transition asset................. 77 90 Unrecognized increase in prior service cost... ( 913) ( 832) Unrecognized net loss......................... (1,772) ( 805) - ------------------------------------------------------------------------------- Accrued pension cost.......................... $3,931 3,201 ===============================================================================
A summary of the components of the provision for SERP expense for the years ended December 31:
- ------------------------------------------------------------------------------- ($000's) 1995 1994 1993 - ------------------------------------------------------------------------------- Service cost for current year.......... $281 472 90 Interest cost.......................... 433 566 163 Amortization, primarily of initial unrecognized asset and prior service cost........................... 94 62 91 Net gain - deferred.................... 32 392 89 - ------------------------------------------------------------------------------- Net SERP expense....................... $840 1,492 433 ===============================================================================
The Bancorp has a profit sharing plan covering substantially all employees. The contribution to the plan is an amount determined annually by the Board of Directors and was $18,793,000 for 1995, $16,770,000 for 1994 and $15,400,000 for 1993. 23 Fifth Third Bancorp And Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13-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 and Florida, and to minimize exposure to fluctuations in interest and foreign exchange rates. These financial instruments primarily include commitments to extend credit, standby and commercial letters of credit, foreign exchange contracts, interest rate swaps 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 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 at December 31:
- -------------------------------------------------------------------------------- Contract or Notional Amount ------------------------------ ($000's) 1995 1994 - -------------------------------------------------------------------------------- Commitments to extend credit....... $5,114,125 4,162,788 Letters of credit (including standby letters of credit)....... 611,535 563,267 Interest rate swaps................ -- 30,000 Foreign exchange contracts: Commitments to purchase.......... 54,959 107,407 Commitments to sell.............. 51,550 108,723 Commitments to sell residential mortgage loans....... 31,600 7,532 - --------------------------------------------------------------------------------
Commitments to extend credit are agreements to lend. Commitments generally have fixed expiration dates or other termination clauses that may require payment of a fee. Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash 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, 1995, approximately $311,465,000 of standby letters of credit will expire within one year, $223,269,000 expire between one to five years and $41,431,000 expire thereafter. At December 31, 1995, letters of credit of approximately $35,370,000 were issued to commercial customers for a duration of one year or less to facilitate trade payments in domestic and foreign 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 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 entering into offsetting third party forward contracts. The foreign exchange contracts outstanding at December 31, 1995 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 rate risk associated with fixed-rate residential mortgages held for sale and commitments to fund residential mortgages. 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, 1994, the Bancorp had two interest rate swaps acquired with The Cumberland Federal Bancorporation, Inc. (The Cumberland) which had a total notional amount of $30,000,000. Both agreements required the Bancorp to pay a fixed interest rate of 4.69% and receive a variable rate based on the three-month London Interbank Offering Rate (LIBOR). Both agreements expired in 1995. There are claims pending against the Bancorp and its subsidiaries. Based on a review of such litigation with legal counsel, management believes that any resulting liability would not have a material effect upon the Bancorp's consolidated financial position or results of operations. NOTE 14-ACQUISITIONS
- -------------------------------------------------------------------------------- Consideration ------------------ Common Date Cash Shares Method of Completed ($000's) Issued Accounting - -------------------------------------------------------------------------------- Bank of Naples 9/08/95 $ 6 266,031 Pooling Naples, Florida Falls Financial, Inc. 7/21/95 49 2,219,028 Pooling Cuyahoga Falls, Ohio Mutual Federal Savings 1/20/95 9 666,641 Pooling Bank of Miamisburg, A Stock Savings Bank Miamisburg, Ohio The Cumberland Federal 8/26/94 15 4,045,323 Pooling Bancorporation, Inc. Louisville, Kentucky The National Bancorp of Kentucky, Inc. 6/03/94 -- 381,138 Pooling Cynthiana, Kentucky The TriState Bancorp 12/23/93 12 2,034,471 Pooling Cincinnati, Ohio - --------------------------------------------------------------------------------
The Consolidated Financial Statements have been restated to include the acquisition of The Cumberland Federal Bancorporation, Inc. No other restatements have been made due to immateriality. In August of 1995, the Bancorp entered into a merger agreement with Kentucky Enterprise Bancorp, Inc., with $280 million in assets. The merger is expected to be completed in early 1996 and will be accounted for as a pooling of interests. In September of 1995, the Bancorp entered into an agreement to acquire $1.4 billion in deposits and 28 Cleveland-area offices from 1st Nationwide Bank. The acquisition price of the deposits, offices and other fixed assets is $136 million. In October of 1995, the Bancorp entered into an agreement with NBD Bank (Ohio), a subsidiary of NBD Bancorp, Inc., to acquire 25 offices with deposits of $542 million in Columbus and Dayton. These transactions are expected to be completed in the first quarter of 1996, pending approval by appropriate regulatory agencies. 24 Fifth Third Bancorp And Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15-REGULATORY MATTERS The principal source of income and funds for the Bancorp (parent company) are dividends from its subsidiaries. During the year 1996, the amount of dividends that the subsidiaries can pay to the Bancorp without prior approval of regulatory agencies is limited to their 1996 eligible net profits, as defined, and $280,482,000, the adjusted retained 1995 and 1994 net income of the subsidiaries. The banks must maintain noninterest-bearing cash balances on reserve with the Federal Reserve Bank. In 1995 and 1994, the banks were required to maintain average reserve balances of $165,549,000 and $203,410,000, respectively. NOTE 16-RELATED PARTY TRANSACTIONS At December 31, 1995 and 1994, 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 of $185,190,000 and $153,262,000, respectively. During 1995, new loans aggregating $358,081,000 were made to such parties and loans aggregating $326,153,000 were repaid. 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 17-FAIR VALUE OF FINANCIAL INSTRUMENTS Carrying amounts and estimated fair values for financial instruments as of December 31:
- ------------------------------------------------------------------- 1995 -------------------------------- Carrying Fair ($000's) Amount Value - ------------------------------------------------------------------- Financial Assets: Cash and due from banks........ $ 628,535 628,535 Securities available for sale.. 4,151,178 4,151,178 Securities held to maturity.... 187,091 187,091 Other short-term investments... 6,822 6,822 Loans, net..................... 9,529,546 9,586,298 Mortgage servicing rights...... 10,107 13,744 Financial Liabilities: Deposits....................... 12,485,780 12,477,035 Federal funds borrowed......... 553,041 553,041 Short-term bank notes.......... 450,000 450,000 Other short-term borrowings.... 1,002,454 1,002,454 Long-term debt................. 281,996 287,963 Convertible subordinated notes. 143,400 137,384 Off-Balance-Sheet Financial Instruments: Commitments to extend credit... 773 5,340 Letters of credit.............. 2,030 7,644 Forward contracts: Commitments to sell loans.... -- 120 Foreign exchange contracts: Commitments to purchase... -- ( 233) Commitments to sell....... -- 364 - -------------------------------------------------------------------
- ------------------------------------------------------------------- 1994 -------------------------------- Carrying Fair ($000's) Amount Value - ------------------------------------------------------------------- Financial Assets: Cash and due from banks........ $ 695,009 695,009 Securities available for sale.. 1,129,492 1,129,492 Securities held to maturity.... 2,507,543 2,410,536 Other short-term investments... 23,765 23,765 Loans, net..................... 8,645,017 8,501,868 Financial Liabilities: Deposits....................... 10,630,878 10,570,852 Federal funds borrowed......... 716,312 716,312 Short-term bank notes.......... 844,995 844,995 Other short-term borrowings.... 890,911 890,911 Long-term debt................. 35,409 34,005 Convertible subordinated notes. 143,304 137,622 Off-Balance-Sheet Financial Instruments: Commitments to extend credit... 805 5,723 Letters of credit.............. 1,598 6,196 Interest rate swap agreements.. -- 576 Forward contracts: Commitments to sell loans.... -- 40 Foreign exchange contracts Commitments to purchase... -- 2,583 Commitments to sell....... -- ( 2,531) - -------------------------------------------------------------------
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 above 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 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, certain deposits (demand, interest checking, savings and money market), Federal funds borrowed, short-term bank notes and other short-term borrowings. 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. Mortgage servicing rights-fair values were derived from a variety of sources indicative of servicing values, including values from previous sales of servicing rights and FNMA/FHLMC mortgage pricing. 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 and convertible subordinated notes-fair value of convertible subordinated notes was based on quoted market prices. 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. 25 Fifth Third Bancorp And Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Interest rate swap agreements-fair values were based on the 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 value represents an asset at December 31, 1994. Foreign exchange contracts-fair value was based on quoted market prices of comparable instruments and represents a net asset to the Bancorp. NOTE 18-PARENT COMPANY FINANCIAL STATEMENTS The condensed financial statements of the Bancorp ($000's):
- ----------------------------------------------------------------- Condensed Statements of Income (Parent Company Only) For the Years Ended December 31 1995 1994 1993 - ----------------------------------------------------------------- INCOME Dividends from Subsidiaries.. $140,307 79,855 67,360 Interest on Loans to Subsidiaries............... 19,442 16,075 15,890 Other........................ 163 119 107 - ----------------------------------------------------------------- Total Income................. 159,912 96,049 83,357 - ----------------------------------------------------------------- EXPENSES Interest..................... 10,267 10,193 9,578 Other........................ 2,471 2,222 2,956 - ----------------------------------------------------------------- Total Expenses............... 12,738 12,415 12,534 - ----------------------------------------------------------------- Income Before Taxes and Change in Undistributed Earnings of Subsidiaries... 147,174 83,634 70,823 Applicable Income Taxes...... 2,771 1,554 1,640 - ----------------------------------------------------------------- Income Before Change in Undistributed Earnings of Subsidiaries............... 144,403 82,080 69,183 Increase in Undistributed Earnings of Subsidiaries... 143,282 162,379 137,052 - ----------------------------------------------------------------- Net Income................... $287,685 244,459 206,235 =================================================================
- ---------------------------------------------------------------------- Condensed Balance Sheets (Parent Company Only) December 31 1995 1994 - ---------------------------------------------------------------------- Assets Cash................................... $ 204 200 Loans to Subsidiaries.................. 347,604 367,825 Investment in Subsidiaries............. 1,603,458 1,230,465 Goodwill............................... 12,139 12,893 Other Assets........................... 2,043 2,830 - ---------------------------------------------------------------------- Total Assets........................... $1,965,448 1,614,213 ====================================================================== Liabilities Commercial Paper....................... $ 67,562 48,407 Accrued Expenses and Other Liabilities. 29,911 23,728 Convertible Subordinated Notes......... 143,400 143,304 - ---------------------------------------------------------------------- Total Liabilities...................... 240,873 215,439 - ---------------------------------------------------------------------- Stockholders' Equity................... 1,724,575 1,398,774 - ---------------------------------------------------------------------- Total Liabilities and Stockholders' Equity................. $1,965,448 1,614,213 ======================================================================
- ---------------------------------------------------------------------- Condensed Statements of Cash Flows (Parent Company Only) For the Years Ended December 31 1995 1994 1993 - ---------------------------------------------------------------------- Operating Activities Net Income..................... $287,685 244,459 206,235 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Amortization............... 1,200 1,285 1,236 Provision for Deferred Income Taxes.............. ( 93) 44 ( 1,099) Decrease (Increase) in Dividends Receivable from Subsidiaries......... -- 6,818 ( 6,324) Decrease (Increase) in Other Assets.............. 9,163 ( 5,392) 399 Increase in Accrued Expenses and Other Liabilities..... 226 718 3,744 Increase in Undistributed Earnings of Subsidiaries.. (143,282) (162,379) (137,052) - ---------------------------------------------------------------------- Net Cash Provided by Operating Activities......... 154,899 85,553 67,139 ====================================================================== Investing Activities Proceeds from Maturities of Securities Held to Maturity.. -- 90 475 Decrease in Loans to Subsidiaries.............. 20,221 6,681 71,425 Capital Contributions to Subsidiaries................. (108,800) ( 22,801) ( 37,000) Purchases of Subsidiaries...... ( 64) ( 15) ( 12) - ---------------------------------------------------------------------- Net Cash Provided by (Used in) Investing Activities......... ( 88,643) ( 16,045) 34,888 ====================================================================== Financing Activities Increase (Decrease) in Other Short-Term Borrowings........ 19,155 ( 7,889) ( 43,326) Repayment of Long-Term Debt.... -- ( 2,402) ( 1,152) Payment of Cash Dividends...... ( 89,131) ( 73,425) ( 61,155) Shares Acquired for Treasury... ( 73) ( 178) ( 22) Fractional Shares Purchased in Stock Split............... ( 250) -- -- Exercise of Stock Options...... 4,047 10,307 4,754 Other.......................... -- 128 269 - ---------------------------------------------------------------------- Net Cash Used in Financing Activities......... ( 66,252) ( 73,459) (100,632) - ---------------------------------------------------------------------- Increase (Decrease) in Cash.... 4 ( 3,951) 1,395 Cash at Beginning of Year...... 200 4,151 2,756 - ---------------------------------------------------------------------- Cash at End of Year............ $204 200 4,151 ======================================================================
26 Fifth Third Bancorp And Subsidiaries INDEPENDENT AUDITORS' REPORT To the Stockholders 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, 1995 and 1994, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. 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, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. As discussed in Note 1 to the Consolidated Financial Statements, the Bancorp changed its method of accounting for debt and equity securities effective December 31, 1993. /s/Deloitte & Touche LLP - ------------------------ Cincinnati, Ohio January 12, 1996 27 Fifth Third Bancorp And Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The data presented in the following pages should be read in conjunction with the audited Consolidated Financial Statements on pages 15 to 27 of this report. RESULTS OF OPERATIONS SUMMARY Net income advanced by 17.7% in 1995 and 18.5% in 1994. The Bancorp's net income to average assets, referred to as return on average assets (ROA), and return on average stockholders' equity (ROE) follow:
- -------------------------------------------------------------------------- 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------- Net Income ($000's).... $287,685 244,459 206,235 172,021 142,954 Net income per share (a) $ 2.91 2.53 2.19 1.84 1.54 Return on assets....... 1.78% 1.77 1.71 1.63 1.50 Return on equity....... 18.1% 18.6 17.8 16.9 15.9 Originally reported (b): Return on assets..... 1.78% 1.77 1.80 1.74 1.68 Return on equity..... 18.1% 18.6 18.2 17.3 16.6 - --------------------------------------------------------------------------
(a) Per share amounts have been adjusted for the three-for-two stock splits effected in the form of stock dividends paid January 12, 1996 and April 15, 1992. (b) Excludes the results of The Cumberland pooling prior to 1994. NET INTEREST INCOME The largest source of the Bancorp's revenue is net interest income. Net interest income is the spread between interest income on interest-earning assets, such as loans and leases and securities, and the interest expense on liabilities used to fund those assets, such as interest-bearing deposits and borrowings. Net interest income is affected by both changes in the level of interest rates and changes in the amount and composition of interest-earning assets and interest-bearing liabilities. Changes in net interest income are frequently measured by two statistics-net interest margin and net interest rate spread. Net interest margin is expressed as net interest income divided by average interest-earning assets. Net interest rate spread is the difference between the average yield earned on interest-earning assets and the average rate incurred on interest-bearing liabilities. Both of these measures are reported on a taxable equivalent basis. Net interest margin is greater than net interest rate spread due to the interest income earned on interest-earning assets funded by non-interest-bearing, or free funding, sources, primarily demand deposits and stockholders' equity. TABLE 1.-CONSOLIDATED AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME For the Years Ended December 31 (Taxable Equivalent Basis)
1995 1994 ------------------------------- ----------------------------- Average Average Average Average Out- Revenue/ Yield/ Out- Revenue/ Yield/ ($000's) standing Cost Rate standing Cost Rate - -------------------------------------------------------------------------------------------------------------------------- Assets Interest-Earning Assets Loans and Leases...................... $10,960,757 $ 919,596 8.39% $ 9,902,901 $751,974 7.59% Securities Taxable.............................. 3,809,435 250,590 6.58 2,741,490 169,316 6.18 Exempt from Income Taxes............. 471,338 34,248 7.27 359,830 24,568 6.83 Other Short-Term Investments............ 25,084 1,251 4.99 23,988 1,019 4.25 - -------------------------------------------------------------------------------------------------------------------------- Total Interest-Earning Assets........... 15,266,614 1,205,685 7.90 13,028,209 946,877 7.27 ========================================================================================================================== Cash and Due from Banks................. 552,534 526,007 Other Assets............................ 511,677 428,266 Reserve for Credit Losses............... ( 164,618) ( 153,141) - -------------------------------------------------------------------------------------------------------------------------- Total Assets............................ $16,166,207 $13,829,341 ========================================================================================================================== Liabilities Interest-Bearing Liabilities Interest Checking..................... $ 1,430,921 28,472 1.99 $ 1,512,670 25,572 1.69 Savings............................... 660,379 14,572 2.21 698,756 14,511 2.08 Money Market.......................... 1,779,851 62,233 3.50 1,582,863 40,326 2.55 Other Time Deposits................... 4,319,791 248,860 5.76 3,923,418 194,375 4.95 Certificates-$100,000 and Over........ 700,575 40,522 5.78 336,521 13,135 3.90 Foreign Office Deposits............... 780,475 46,646 5.98 529,434 24,165 4.56 Federal Funds Borrowed................ 1,071,792 63,492 5.92 848,217 34,925 4.12 Short-Term Bank Notes................. 769,000 47,956 6.24 429,642 20,285 4.72 Other Short-Term Borrowings........... 828,685 41,136 4.96 689,960 25,818 3.74 Long-Term Debt and Convertible Subordinated Notes.................. 290,824 15,844 5.45 249,612 12,436 4.98 - -------------------------------------------------------------------------------------------------------------------------- Total Interest-Bearing Liabilities...... 12,632,293 609,733 4.83 10,801,093 405,548 3.75 ========================================================================================================================== Demand Deposits......................... 1,585,256 1,414,048 Other Liabilities....................... 361,936 299,859 - -------------------------------------------------------------------------------------------------------------------------- Total Liabilities....................... 14,579,485 12,515,000 ========================================================================================================================== Stockholders' Equity.................... 1,586,722 1,314,341 - -------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity................ $16,166,207 $13,829,341 ========================================================================================================================== Net Interest Income Margin on a Taxable Equivalent Basis.. $ 595,952 3.90% $541,329 4.16% ========================================================================================================================== Net Interest Rate Spread................ 3.07% 3.52% ========================================================================================================================== Interest-Bearing Liabilities to Interest-Earning Assets............ 82.74% 82.91% ==========================================================================================================================
28 Fifth Third Bancorp And Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Table 1, 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 five years 1991 through 1995, comparing interest revenue and average interest-earning assets outstanding with interest cost and average interest-bearing liabilities outstanding. All three of these measures are reported on a taxable equivalent basis. Nonaccrual loans and leases have been included in the average loan and lease balances. Average outstanding securities balances were based on amortized cost excluding unrealized gains or losses on securities available for sale. Net interest income grew to $596 million in 1995, an increase of 10.1% over the $541.3 million earned during 1994. Net interest income increased 9.6% in 1994 over 1993. For both 1995 and 1994, increases in net interest income were attributable primarily to average interest-earning asset growth that overcame the effect of compressed net interest margins. During 1995, average interest-earning assets grew by $2.2 billion to $15.3 billion, an increase of 17.2% over 1994. In 1994, average interest-earning assets grew 15.9% over 1993. Average loans and leases increased $1.1 billion or 10.7% in 1995 and $1 billion or 11.7% in 1994. Average loans and leases comprised 71.8% of total average interest-earning assets in 1995, compared to 76% for 1994 and 78.9% for 1993. This shift in earning-asset mix from loans and leases to securities is primarily due to securitizations of the Bancorp's residential mortgage loans of $854.5 million in 1995 and $341.2 million in 1994. Securitization improves liquidity, reduces interest rate risk and provides more balance sheet flexibility. Management expects to continue to securitize consumer loans in future years. Average interest-bearing liabilities grew from $9.4 billion in 1993 to $10.8 billion in 1994 to $12.6 billion in 1995. Interest-bearing core deposits, (which exclude certificates $100,000 and over and foreign office deposits), remain our most important funding source because they are relatively lower cost and the basis for an ongoing customer relationship. For the past three years, the Bancorp's core deposit growth, like most Midwestern banks, has not kept pace with strong loan and lease volume. This demonstrates the difficulty of maintaining deposits at lower rates following a rapid increase in short-term market rates and the popularity of other investment alternatives. Average non-core deposits and short-term borrowings have grown from 18.2% of average interest-earning assets in 1993 to 27.2% in 1995. The net interest margin declined 26 basis points (bp) (a basis point is equivalent to .01%) to 3.90% in 1995 from 4.16% in 1994 and 23 bp in 1994 from 1993's 4.39%. Net interest margin compressed during 1994 and the first part of 1995, due primarily
- ------------------------------------------------------------------------------------------------------------------------ 1993 1992 1991 -------------------------------- -------------------------------- --------------------------------- Average Average Average Average Average Average Out- Revenue/ Yield/ Out- Revenue/ Yield/ Out- Revenue/ Yield/ standing Cost Rate standing Cost Rate standing Cost Rate - ------------------------------------------------------------------------------------------------------------------------- $ 8,869,432 $ 679,792 7.66% $ 7,189,975 $619,626 8.62% $ 6,246,679 $631,283 10.11% 2,098,650 134,387 6.40 2,289,817 165,160 7.21 2,159,002 183,401 8.49 267,247 18,797 7.03 203,418 15,801 7.77 214,914 18,216 8.48 10,426 319 3.06 112,052 3,806 3.40 262,844 15,851 6.03 - ------------------------------------------------------------------------------------------------------------------------- 11,245,755 833,295 7.41 9,795,262 804,393 8.21 8,883,439 848,751 9.55 ========================================================================================================================= 494,141 440,908 378,185 435,966 439,332 368,909 ( 134,808) ( 109,908) ( 96,334) - ------------------------------------------------------------------------------------------------------------------------- $12,041,054 $10,565,594 $ 9,534,199 ========================================================================================================================= $ 1,326,759 28,295 2.13 $ 1,097,918 28,322 2.58 $ 830,723 33,886 4.08 656,868 16,298 2.48 539,997 17,183 3.18 438,708 20,196 4.60 1,493,802 37,465 2.51 1,440,309 45,635 3.17 1,277,134 63,811 5.00 3,531,301 173,764 4.92 3,275,879 190,086 5.80 3,087,476 227,154 7.36 441,882 15,622 3.54 490,293 23,456 4.78 876,369 57,021 6.51 242,245 8,030 3.31 48,200 1,714 3.56 13,079 756 5.78 622,068 18,963 3.05 529,201 17,316 3.27 298,923 16,760 5.61 -- -- -- -- -- -- -- -- -- 743,002 24,326 3.27 700,463 29,420 4.20 614,685 37,274 6.06 343,617 16,636 4.84 127,639 6,238 4.89 109,205 9,523 8.72 - ------------------------------------------------------------------------------------------------------------------------- 9,401,544 339,399 3.61 8,249,899 359,370 4.36 7,546,302 466,381 6.18 ========================================================================================================================= 1,268,371 1,070,387 892,906 213,727 229,029 197,046 - ------------------------------------------------------------------------------------------------------------------------- 10,883,642 9,549,315 8,636,254 ========================================================================================================================= 1,157,412 1,016,279 897,945 - ------------------------------------------------------------------------------------------------------------------------- $12,041,054 $10,565,594 $ 9,534,199 ========================================================================================================================= $ 493,896 4.39% $445,023 4.54% $382,370 4.30% ========================================================================================================================= 3.80% 3.85% 3.37% ========================================================================================================================= 83.60% 84.22% 84.95% =========================================================================================================================
29 Fifth Third Bancorp And Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TABLE 2.-ANALYSIS OF NET INTEREST INCOME CHANGES (TAXABLE EQUIVALENT BASIS)
- ----------------------------------------------------------------------------------------------------------------------------- 1995 Compared to 1994 1994 Compared to 1993 ------------------------------ ------------------------------------------- ($000's) Volume Yield/Rate Mix Total Volume Yield/Rate Mix Total - ----------------------------------------------------------------------------------------------------------------------------- Increase (Decrease) in Interest Income Loans and Leases........................ $ 80,328 $78,869 $8,425 $167,622 $ 79,210 $(6,294) $( 734) $72,182 Securities Taxable................................. 65,957 11,023 4,294 81,274 41,164 (4,773) ( 1,462) 34,929 Exempt from Income Taxes................ 7,613 1,578 489 9,680 6,512 ( 550) ( 191) 5,771 Other Short-Term Investments............ 47 177 8 232 415 124 161 700 - ----------------------------------------------------------------------------------------------------------------------------- Total Interest Income Change.............. 153,945 91,647 13,216 258,808 127,301 (11,493) ( 2,226) 113,582 ============================================================================================================================= Increase (Decrease) in Interest Expense... Interest Checking....................... ( 1,382) 4,527 ( 245) 2,900 3,965 ( 5,866) ( 822) (2,723) Savings................................. ( 797) 908 ( 50) 61 1,039 ( 2,657) ( 169) (1,787) Money Market............................ 5,019 15,019 1,869 21,907 2,234 592 35 2,861 Other Time Deposits..................... 19,637 31,650 3,198 54,485 19,295 1,185 131 20,611 Certificates-$100,000 and Over.......... 14,210 6,330 6,847 27,387 (3,725) 1,625 ( 387) (2,487) Foreign Office Deposits................. 11,458 7,477 3,546 22,481 9,520 3,027 3,588 16,135 Federal Funds Borrowed.................. 9,206 15,323 4,038 28,567 6,894 6,650 2,418 15,962 Short-Term Bank Notes................... 16,022 6,508 5,141 27,671 -- -- 20,285 20,285 Other Short-Term Borrowings............. 5,191 8,432 1,695 15,318 ( 1,737) 3,477 ( 248) 1,492 Long-Term Debt and Convertible Subordinated Notes.................... 2,053 1,163 192 3,408 ( 4,551) 483 ( 132) ( 4,200) - ----------------------------------------------------------------------------------------------------------------------------- Total Interest Expense Change............. 80,617 97,337 26,231 204,185 32,934 8,516 24,699 66,149 ============================================================================================================================= Increase (Decrease) in Net Interest Income on a Taxable Equivalent Basis.... $ 73,328 $( 5,690) $(13,015) 54,623 $94,367 $(20,009) $(26,925) 47,433 ============================================================================================================================= Increase in Taxable Equivalent Adjustment................... ( 7,944) ( 4,195) - ----------------------------------------------------------------------------------------------------------------------------- Net Interest Income Change................ $ 46,679 $ 43,238 =============================================================================================================================
to 1994's rapid rise in short-term interest rates which caused short-term liabilities to reprice upward faster than term assets. The acquisitions of several thrifts, which have lower net interest rate spreads and margins due to asset mix and less free funding sources, have also contributed to the tightening of net interest margins. Margins stabilized in the last part of 1995 as strong loan and lease volume and higher interest rates improved average interest-earning asset yields. Earning asset yield rose 63 bps in 1995 from 7.27% to 7.9% due to an 80 bp increase in loan and lease yields and a 40 bp increase in securities yields. Interest-bearing deposit cost rose by 92 bps from 3.64% in 1994 to 4.56% in 1995. Total funding cost rose by 108 bps from 3.75% to 4.83% in 1995. Growth in average demand deposits of 12.1% and 11.5%, respectively, in 1995 and 1994, along with higher interest-earning asset yields in 1995, have increased the positive impact of free funding on net interest margin in 1995. The effect of free funds on net interest margin climbed from a low of 59 bp in 1993 to 83 bp in 1995. Table 2, the Analysis of Net Interest Income Changes, separates the Bancorp's change in net interest income into its three components: (1) volume of average interest-earning assets and interest-bearing liabilities outstanding; (2) average yields on interest-earning assets and average rates for interest-bearing liabilities; and (3) combined volume and yield/rate effects. Table 2 illustrates the net interest income effect of balance sheet changes and changes in interest rate levels which occurred during 1995 and 1994. OTHER OPERATING INCOME The table below shows the components of other operating income for the five years ending December 31, 1995. Total other operating income excluding securities gains increased 17.8% over 1994 and was up 13.5% in 1994 over 1993. Trust income totalled $61,755,000 in 1995, an increase of 11.8% over 1994's $55,238,000. This was primarily attributable to strong investment performance, major new customer business, the success of our Fountain Square(R) mutual funds and fee increases. During 1995, trust assets under care increased 85% to $79.6 billion and trust assets under management increased 27% to $8.5 billion. Trust income increased 3.4% in 1994 over 1993. The rate of growth in 1994 was lower primarily due to the low overall returns of equity markets that year, as asset values are the basis of much of our trust fees. Service charges on deposits totalled $66,344,000 in 1995 and $60,905,000 in 1994, up 8.9% and 6.5%, respectively. The growth in both years was fueled by an expanding delivery system, deposit acquisitions, successful product campaigns and pricing enhancements. The slower growth rate in 1994 paralleled slower overall deposit growth and demonstrated the difficulty of maintaining deposits in 1994's rising interest rate environment. Total data processing income was up 17% in 1995 and 21.9% in 1994. Merchant processing revenues, approximately 40% of data processing income, increased 42% in 1995 and 51% in 1994. In both years, the growth was due to new customers and
- ------------------------------------------------------------------------------------------------------------------------- ($000's) 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------------- Trust income.................................. $ 61,755 55,238 53,442 49,183 42,412 Service charges on deposits................... 66,344 60,905 57,212 51,525 43,223 Data processing income........................ 75,311 64,394 52,823 45,842 40,601 Other service charges and fees................ 97,516 74,978 61,595 50,780 54,498 - ------------------------------------------------------------------------------------------------------------------------- Subtotal...................................... 300,926 255,515 225,072 197,330 180,734 - ------------------------------------------------------------------------------------------------------------------------- Securities gains.............................. 4,789 393 6,078 8,978 8,268 - ------------------------------------------------------------------------------------------------------------------------- Total......................................... $305,715 255,908 231,150 206,308 189,002 ========================================================================================================================= After-tax securities gains.................... $ 3,114 255 3,658 6,009 5,450 =========================================================================================================================
30 Fifth Third Bancorp And Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS resulting increases in merchant transaction volumes. Electronic funds transfer (EFT), the other portion of data processing income, increased 5% in 1995 and 12% in 1994. EFT income growth is attributable to new processing contracts and new products. The slower growth rate in EFT for 1995 is due to the loss of a large network customer in the fourth quarter of 1995. Although consolidation of ATM networks, and the banking industry, will continue to lead to relatively lower growth rates for portions of the Bancorp's EFT business, management expects this to be supplemented in the future by the success of new products such as debit and check cards. Other service charges and fees in 1995 were $97,516,000, an increase of 30.1% over 1994, led by mortgage banking income. Mortgage originations for 1995 were over $1 billion and this strong volume, along with the sale or securitization of over $1.3 billion in residential mortgage loans during the year, led to an increase of 18.9% in net servicing fees. Our servicing portfolio at year-end 1995 totalled $4.7 billion, including $2.7 billion serviced for others. This is compared to $4.4 billion, including $2.1 billion serviced for others, at the end of 1994. Gains on sales of residential mortgage loans and servicing for 1995 were $16,122,000 compared to 1994's $9,870,000. Other service charges and fees also included a gain of $3.1 million on the sale of three retail branches acquired with The Cumberland. Consumer loan and commercial banking fees, along with cardholder fees, were up 27.8% over 1994, due in part to strong loan volume. In 1994, other service charges and fees increased 21.7% over 1993. Consumer loan and commercial banking fees, as well as cardholder fees, were up consistent with the increases in outstandings in consumer loans and leases, commercial loans and leases and credit cards, respectively. Mortgage banking income in 1994 decreased over 1993, due to slower origination volume and a decrease in gains on sales of mortgage loans of 12%. OPERATING EXPENSES The Bancorp's success in controlling operating expenses comes from efficient staffing, a constant focus on improving productivity, a comprehensive budgeting system and the centralization of certain internal functions such as data processing and loan servicing. 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 below illustrates, the Bancorp's ratio has remained well below our peers, at 43.9% for 1995 and 46.6% for 1994, and under 50% since 1991. Total operating expenses increased 6.5% in 1995 and 5.3% in 1994 over the previous year. Salaries, wages and employee benefits comprised 48.2% and 48.8% of total operating expenses in 1995 and 1994, respectively, and increased by 5.3% and 9.1% during the same periods. Full-time equivalent (FTE) employees increased by 464 in 1995 to 6,108, with approximately one-half of the increase resulting directly from acquisitions. Average salaries, wages and benefits per FTE employee have remained relatively flat over the last three years. The Bancorp's productivity ratios, which measure the degree of efficiency of our employees, have shown continuous improvement since 1990. Average interest-earning assets per employee has increased 35% since 1990, while net income per employee has increased 74%, as illustrated below. Equipment and net occupancy expenses rose 7.1% in 1995 and 1.7% in 1994. The higher growth rate in 1995 is due in part to costs such as rent, utilities, taxes and depreciation associated with additional, newer locations, mostly from acquisitions. Upgrades of older equipment to support expansion and new processing technology also contributed to 1995's expense growth. Other operating expenses increased to $159,573,000, up 7.7% over 1994. In September 1995, the FDIC lowered the federal deposit insurance premium from 23 cents to four cents per $100 on the approximately 80% of the Bancorp's deposits insured by the Bank Insurance Fund (BIF). In December, the FDIC set the 1996 premium for BIF-insured deposits at zero. The portion of the Bancorp's deposits acquired from thrifts over the years remains insured by the Savings Association Insurance Fund (SAIF) of the FDIC and continues to be assessed at 23 cents. However, Congress is currently considering a special, one-time assessment on SAIF-insured deposits. If enacted, this assessment could result in a one-time, pre-tax charge of up to $18 million, which could be offset by lower ongoing insurance costs in the future. Other operating expenses were $148,140,000 in 1994, up 2% over 1993. FDIC insurance was up 7.6%, marketing and communications were up 6.3%, bankcard and loan and lease fees were up 5.5% and all other operating expenses showed little change from 1993.
- ---------------------------------------------------------------------------------------------------------------------------- ($000's) 1995 1994 1993 1992 1991 - ---------------------------------------------------------------------------------------------------------------------------- Salaries and wages....................................... $152,220 144,513 129,644 117,717 104,760 Employee benefits........................................ 38,648 36,710 36,436 31,927 27,975 Equipment expenses....................................... 16,655 16,045 15,446 14,548 13,398 Net occupancy expenses................................... 28,521 26,137 26,014 23,270 21,100 Other operating expenses................................. 159,573 148,140 145,180 128,853 115,611 - ---------------------------------------------------------------------------------------------------------------------------- Total.................................................... $395,617 371,545 352,720 316,315 282,844 =============================================================================================================================
[The following tables are representative of graphs shown at the bottom of page 31 in the Bancorp's Annual Report.]
OTHER OPERATING INCOME ($ in millions) Five Year Growth Rate: 16.7% 1990 $141.5 1991 $189.0 1992 $206.3 1993 $231.2 1994 $255.9 1995 $305.7
GROWTH IN NET INCOME PER EMPLOYEE 1990 Base Year = 100 1990 100 1991 114 1992 126 1993 141 1994 160 1995 174
OVERHEAD RATIO Fifth Third Peer ---------------- ------------- 1990 51.5% 66.1% 1991 49.5% 63.9% 1992 48.6% 62.6% 1993 48.7% 62.0% 1994 46.6% 63.1% 1995 43.9% N/A
31 Fifth Third Bancorp And Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION SECURITIES The investment portfolio 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 and FNMA. 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 5.1 years based on current prepayment expectations. The Bancorp securitized $854,511,000 and $341,199,000 fixed and adjustable rate residential mortgages in 1995 and 1994, respectively. These securitizations improve liquidity, reduce interest rate risk and the reserve for credit losses, and preserve capital. This activity is expected to continue in 1996. SECURITIES AT DECEMBER 31
- ----------------------------------------------------------------------------------------------------------------------------- ($000's) 1995 1994 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------------------- Securities Available for Sale: U.S. Treasury................................. $ 298,312 210,599 63,183 -- -- - ----------------------------------------------------------------------------------------------------------------------------- U.S. Government agencies and corporations..... 86,746 18,458 136,303 -- -- - ----------------------------------------------------------------------------------------------------------------------------- States and political subdivisions............. 300,787 -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------- Agency mortgage-backed securities............. 2,774,041 895,931 595,133 -- -- - ----------------------------------------------------------------------------------------------------------------------------- Other bonds, notes and debentures............. 655,085 -- 96,369 -- -- - ----------------------------------------------------------------------------------------------------------------------------- Other securities.............................. 36,207 4,504 7,086 -- -- - ----------------------------------------------------------------------------------------------------------------------------- Securities Held to Maturity: U.S. Treasury................................. -- 98,742 -- 111,268 295,404 - ----------------------------------------------------------------------------------------------------------------------------- U.S. Government agencies and corporations..... -- -- 13,189 179,849 282,195 - ----------------------------------------------------------------------------------------------------------------------------- States and political subdivisions............. 167,992 463,759 327,636 222,015 207,049 - ----------------------------------------------------------------------------------------------------------------------------- Agency mortgage-backed securities............. -- 1,750,549 1,249,465 1,689,391 1,701,155 - ----------------------------------------------------------------------------------------------------------------------------- Other bonds, notes and debentures............. 1,505 160,394 166,954 196,259 121,246 - ----------------------------------------------------------------------------------------------------------------------------- Other securities.............................. 17,594 34,099 19,150 20,639 18,919 - -----------------------------------------------------------------------------------------------------------------------------
SECURITIES AT DECEMBER 31, 1995
- ----------------------------------------------------------------------------------------------------------------------------- Maturity 1-5 Year 6-10 Year Over 10 Under 1 Year Maturity Maturity Year Maturity Total --------------- -------------- --------------- --------------- -------------- ($000's) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield - ----------------------------------------------------------------------------------------------------------------------------- Securities Available for Sale: U.S. Treasury............... $24,755 6.75% $ 273,432 7.39% $ -- --% $ 125 8.63% $298,312 7.34% - ----------------------------------------------------------------------------------------------------------------------------- U.S. Government agencies and corporations.......... 7,187 6.76 20,535 5.59 58,512 6.20 512 8.54 86,746 6.12 - ----------------------------------------------------------------------------------------------------------------------------- States and political subdivisions (a).......... 40,349 7.80 122,281 7.67 131,525 7.52 6,632 8.43 300,787 7.64 - ----------------------------------------------------------------------------------------------------------------------------- Agency mortgage- backed securities (b)..... 85,959 6.66 1,595,812 6.55 979,005 6.52 113,265 6.62 2,774,041 6.55 - ----------------------------------------------------------------------------------------------------------------------------- Other bonds, notes and debentures (c)............ 1,865 9.79 449,893 6.45 170,782 6.60 32,545 6.58 655,085 6.51 - ----------------------------------------------------------------------------------------------------------------------------- Securities Held to Maturity: States and political subdivisions.............. 83,996 6.76 83,996 6.76 -- -- -- -- 167,992 6.76 - ----------------------------------------------------------------------------------------------------------------------------- Other bonds, notes and debentures................ -- -- -- -- 1,505 8.80 -- -- 1,505 8.80 - -----------------------------------------------------------------------------------------------------------------------------
Maturities of mortgage-backed securities were estimated based on historical and predicted prepayment trends. (a) taxable equivalent yield (b) included in agency mortgage-backed securities available for sale are floating rate securities totalling $860,848,000. (c) included in other bonds, notes and debentures available for sale are floating rate securities totalling $420,612,000. 32 Fifth Third Bancorp And Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LOANS AND LEASES The following table shows the history of commercial and consumer loans and leases by major category at December 31.
LOAN AND LEASE PORTFOLIOS - ------------------------------------------------------------------------------------------------------------------------------ 1995 1994 1993 1992 1991 ------------- ------------- ------------- ------------- ------------- Amount % Amount % Amount % Amount % Amount % - ------------------------------------------------------------------------------------------------------------------------------ Commercial: Commercial............... $ 3,563 30.5 $ 3,032 29.5% $2,680 28.0% $2,481 30.5% $2,202 34.8% Mortgage................. 794 6.8 729 7.1 703 7.3 567 7.0 498 7.9 Construction............. 312 2.7 286 2.8 342 3.6 331 4.1 306 4.8 Leases................... 696 5.9 479 4.6 302 3.2 236 2.9 201 3.2 - ------------------------------------------------------------------------------------------------------------------------------ 5,365 45.9 4,526 44.0 4,027 42.1 3,615 44.5 3,207 50.7 - ------------------------------------------------------------------------------------------------------------------------------ Consumer: Installment.............. 2,737 23.4 2,131 20.7 1,881 19.7 1,531 18.9 1,304 20.6 Mortgage................. 1,975 16.9 2,347 22.8 2,731 28.5 2,397 29.5 1,421 22.5 Credit Card.............. 325 2.8 275 2.7 207 2.2 178 2.2 197 3.1 Leases................... 1,288 11.0 1,007 9.8 721 7.5 395 4.9 197 3.1 - ------------------------------------------------------------------------------------------------------------------------------ 6,325 54.1 5,760 56.0 5,540 57.9 4,501 55.5 3,119 49.3 - ------------------------------------------------------------------------------------------------------------------------------ Total..................... $11,690 100.0% $10,286 100.0% $9,567 100.0% $8,116 100.0% $6,326 100.0% - ------------------------------------------------------------------------------------------------------------------------------
The consumer loan and lease portfolio's most significant growth during 1995 and 1994 was in consumer leases and installment loans. Leasing continued its popularity as an alternative financing tool for new automobiles, reaching record outstandings of $1.3 billion at year-end 1995, after increasing 40% in 1994. Installment loans have averaged approximately 20% of the total loan and lease portfolio over the last five years, aided by the strength of automobile and home equity loans. Consumer loans and leases, excluding residential mortgage loans, increased 27% over 1994. Residential mortgage loan volume during 1995 and 1994 exceeded $1 billion each year, with stronger refinancing volume during the last half of 1995. Commercial loan and lease outstandings were up 18.5% in 1995 and 12.4% in 1994. Commercial leasing contributed increases of 45.3% and 58.6%, respectively, consisting largely of credits within our market areas of Ohio, Kentucky and Indiana. Commercial mortgages represent approximately 7% of our total loan and lease portfolio and include primarily financing of owner-occupied properties-loans on properties occupied by the principal borrower. PROVISION AND RESERVE FOR CREDIT LOSSES The Bancorp provides as an expense an amount for expected credit losses. This provision is based on the growth of the loan and lease portfolio and on recent loss experience and is called the provision for credit losses in the consolidated statements of income. Actual losses on loans and leases are charged against the reserve built up 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 as a percent of average loans and leases outstanding were .27%, .18% and .31%, for 1995, 1994 and 1993, respectively. These consistently low levels of net charge-offs over the last three years have contributed to a lower provision. During 1994, $3.8 million was provided for additional expected losses on letter of credit (LOC) obligations acquired in The Cumberland acquisition. A subsequent contract to settle this LOC contingency resulted in a decrease of $7.8 million in the reserve for credit losses. The table below presents credit loss data for the most recent five year period.
RESERVE FOR CREDIT LOSSES FIVE YEAR HISTORY - ----------------------------------------------------------------------------------------------------------------------------- ($000's) 1995 1994 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------------------- Balance at January 1................................. $ 155,918 144,537 121,452 97,319 90,242 Provision for credit losses.......................... 42,962 35,780 48,037 66,100 62,464 Losses charged off................................... ( 41,707) ( 30,946) ( 37,172) ( 54,718) ( 63,403) Recoveries of losses previously charged off.......... 11,846 13,472 10,098 8,953 7,718 Letter of credit..................................... -- ( 7,800) -- -- -- Reserve of acquired institutions and other........... 8,369 875 2,122 3,798 298 - ----------------------------------------------------------------------------------------------------------------------------- Balance at December 31 .............................. $ 177,388 155,918 144,537 121,452 97,319 - ----------------------------------------------------------------------------------------------------------------------------- Loans and leases outstanding at December 31 $11,690,643 $10,286,457 $9,566,898 $8,115,590 $6,325,918 Reserve as a percent of loans and leases outstanding. 1.52% 1.52% 1.51% 1.50% 1.54% Average loans and leases............................. $10,960,757 $ 9,902,901 $8,869,432 $7,189,975 $6,246,679 Net charge-offs as a percent of average loans and leases outstanding................................. .27% .18% .31% .64% .89% Reserve as a percent of total nonperforming assets... 436.06% 570.50% 362.84% 155.53% 68.01% Reserve as a percent of total under-performing assets 290.16% 384.35% 287.47% 121.58% 56.98% - -----------------------------------------------------------------------------------------------------------------------------
33 Fifth Third Bancorp And Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS UNDER-PERFORMING ASSETS Under-performing 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 ninety days or more as to principal or interest and (4) other real estate owned. A summary of under-performing assets at December 31 follows:
- ---------------------------------------------------------------------------- ($000's) 1995 1994 1993 - ---------------------------------------------------------------------------- Nonaccrual loans and leases.............. $37,049 20,725 18,961 Renegotiated loans and leases............ 506 443 2,378 Other real estate owned.................. 3,125 6,162 18,496 - ---------------------------------------------------------------------------- Total nonperforming assets............... 40,680 27,330 39,835 Ninety days past due loans and leases.... 20,455 13,237 10,444 - ---------------------------------------------------------------------------- Total under performing assets............ $61,135 40,567 50,279 - ---------------------------------------------------------------------------- Nonperforming assets as a percent of total loans, leases and other real estate owned...................... .35% .27 .42 Under-performing assets as a percent of total loans, leases and other real estate owned............ .52% .39 .52 - ----------------------------------------------------------------------------
Of the total under-performing assets at December 31, 1995, $43,110,000 are to borrowers or projects in the Cincinnati-Dayton market area, $2,904,000 in the Toledo market area, $2,405,000 in Columbus, $838,000 in the Louisville market area, $3,763,000 in the Cleveland market area, $5,594,000 distributed in the market areas of our smaller affiliate banks and $2,521,000 outside of the Ohio-Kentucky-Indiana area. Of the total nonperforming assets at December 31, 1995, $14,727,000 or 36.2% were related to commercial real estate. Nonaccrual commercial real estate loans were $12,597,000, an increase of 8.2% from 1994's $11,640,000. At December 31, 1995, there were $123,000 renegotiated commercial real estate loans compared to none in 1994. Commercial other real estate owned decreased from $5,391,000 in 1994 to $2,007,000 in 1995, a decline of 62.8%. 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 is comprised primarily of consumer certificates of deposit. Foreign office deposits are denominated in amounts greater than $100,000. The Bancorp completed $683,712,000 in deposit acquisitions during the last two years ($389,586,000 from Bank One and PNC Bank in 1995 and $294,126,000 from Equitable Savings Bank in 1994). Additionally, the Bancorp acquired $603 million in deposits through the acquisitions of Mutual Federal, Falls Financial and Bank of Naples in 1995. DISTRIBUTION OF AVERAGE DEPOSITS
- ------------------------------------------------------- 1995 1994 1993 1992 1991 - ------------------------------------------------------- Demand......... 14.1% 14.2 14.2 13.4 12.1 Interest....... checking..... 12.7 15.1 14.8 13.8 11.2 Savings........ 5.9 7.0 7.3 6.8 5.9 Money.......... market....... 15.8 15.8 16.7 18.1 17.2 Other time..... 38.4 39.2 39.4 41.1 41.6 Certificates-.. $100,000..... and over..... 6.2 3.4 4.9 6.2 11.8 Foreign office. 6.9 5.3 2.7 .6 .2 - ------------------------------------------------------- Total 100.0% 100.0 100.0 100.0 100.0 - -------------------------------------------------------
CHANGE IN AVERAGE DEPOSIT SOURCES
- --------------------------------------------------------------------------- ($000) 1995 1994 1993 1992 1991 - --------------------------------------------------------------------------- Demand............ $ 171,208 145,677 197,984 177,481 66,480 Interest checking........ ( 81,749) 185,911 228,841 267,195 111,345 Savings........... ( 38,377) 41,888 116,871 101,289 ( 12,863) Money market.......... 196,988 89,061 53,493 163,175 93,348 Other time........ 396,373 392,117 255,422 188,403 235,480 Certificates- $100,000 and over........ 364,054 (105,361) (48,411) (386,076) (59,400) Foreign office......... 251,041 287,189 194,045 35,121 10,766 - --------------------------------------------------------------------------- Total change...... $1,259,538 1,036,482 998,245 546,588 445,156 ===========================================================================
SHORT-TERM BORROWINGS These primarily consist of short-term excess funds from correspondent banks, securities sold under agreements to repurchase, short-term bank notes and commercial paper issuances. The Bancorp primarily funds short-term, rate-sensitive interest-earning asset growth from this source. The increase in borrowed funds in 1995 is in part a result of the Bancorp's loan and lease growth out pacing 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 funds of $2,645,914,000 in 1995, up from $1,950,107,000 in 1994: AVERAGE SHORT-TERM BORROWINGS
- -------------------------------------------------------------------------- ($000's) 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------- Federal funds borrowed...... $1,071,792 848,217 622,068 529,201 298,923 Short-term bank notes.... 769,000 429,642 -- -- -- Other short-term borrowings.... 828,685 689,960 743,002 700,463 614,685 - -------------------------------------------------------------------------- Total short-term borrowings.... 2,669,477 1,967,819 1,365,070 1,229,664 913,608 - -------------------------------------------------------------------------- Federal funds loaned........ 23,563 17,712 9,342 79,194 227,754 - -------------------------------------------------------------------------- Net funds borrowed...... $2,645,914 1,950,107 1,355,728 1,150,470 685,854 ==========================================================================
34 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 stockholders. At December 31, 1995, stockholders' equity was $1,724,575,000 compared to $1,398,774,000 at December 31, 1994, an increase of $325,801,000 or 23.3%. This increase in capital resulted primarily from the retention of earnings and the issuance of stock in acquisitions. The Federal Reserve Board 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 8% of risk-weighted assets and a Tier 1 leverage ratio of 3% of adjusted quarterly average assets. Tier 1 capital consists principally of stockholders' equity 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. The regulations also define well capitalized levels of Tier 1, total capital and leverage ratios 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, 1995 and 1994. The risk-based capital and leverage ratios for the Bancorp and its significant bank subsidiaries for the last two years follows:
- ------------------------------------------------------------- 1995 1994 - ------------------------------------------------------------- Total Capital: Bancorp................................ 14.33% 13.21% Fifth Third Bank, Cincinnati........... 13.04 10.73 Fifth Third Bank of Northwestern Ohio.. 13.29 13.09 - ------------------------------------------------------------- Tier 1: Bancorp................................ 11.03 11.26 Fifth Third Bank, Cincinnati........... 8.02 8.16 Fifth Third Bank of Northwestern Ohio.. 12.04 11.84 - ------------------------------------------------------------- Leverage: Bancorp................................ 9.47 9.62 Fifth Third Bank, Cincinnati........... 6.96 7.43 Fifth Third Bank of Northwestern Ohio.. 9.01 8.53 - -------------------------------------------------------------
During 1995, the Bancorp issued $250 million, ten-year maturity, subordinated notes through its lead bank. These notes qualify for total regulatory capital and increase total capital ratios at December 31, 1995, by 293 bp for Fifth Third Bank, Cincinnati and 169 bp for the Bancorp. The federal bank regulatory agencies have issued final regulations which revise the current risk-based capital guidelines to include a measurement of interest rate risk. Based on an analysis of the Bancorp's current interest rate sensitivity, management believes there will be no adverse effects from the adoption of these new capital guidelines. The following table shows several capital and liquidity ratios for the last three years:
- ------------------------------------------------------------ 1995 1994 1993 - ------------------------------------------------------------ Average stockholders' equity to Average assets............... 9.82% 9.50% 9.61% Average deposits............. 14.10 13.15 12.92 Average loans and leases..... 14.48 13.27 13.05 - ------------------------------------------------------------
LIQUIDITY AND INTEREST RATE SENSITIVITY The objective of the Bancorp's Asset/Liability Management function is to maintain consistent growth in net interest income within the Bancorp's policy guidelines. This objective is accomplished through flexible management of the Bancorp's balance sheet liquidity and interest rate risk exposures due to changes in economic conditions, interest rate levels and customer preferences. The goal of liquidity management is to provide adequate funds to meet changes in loan and lease demand or any potential unexpected deposit withdrawals. This goal is accomplished primarily by maintaining sufficient liquid assets in the form of investment securities and readily securitizable consumer loans, along with consistent core deposit growth, and the availability of unused capacity to purchase funds in the national money markets. At year-end 1995, the Bancorp had approximately $1.8 billion in securities and other short-term investments maturing or repricing within one year compared to $1.4 billion at year-end 1994. Additional asset liquidity is provided by the remainder of the securities portfolio and selected securitizable loan assets. The Bancorp has a practice of maintaining core deposits as the primary means of funding interest-earning assets. Average core deposits have funded approximately 71% of total average interest-earning assets over the last five years. This, in addition to the Bancorp's 10% average equity capital base, serves as a stable funding base. In addition to its core deposit funding, the Bancorp accesses a variety of other short-term and long-term funding sources. The Bancorp also utilizes the Federal Home Loan Bank (FHLB) as a funding source, issuing notes payable through its FHLB-member subsidiaries. The Bancorp has significant unused national money market funding capability. The Bancorp maintains A1+/P1 Standard & Poor's and Moody's ratings on its commercial paper, and its lead bank, The Fifth Third Bank in Cincinnati, Ohio, maintains an Aa2 Moody's rating for long-term deposits. The Bancorp's subsidiary in Toledo, The Fifth Third Bank of Northwestern Ohio, N.A., maintains P1 and Aa3 Moody's ratings on its short-term and long-term deposits, respectively. These ratings, along with capital ratios significantly above the current regulatory guidelines, provide the Bancorp additional liquidity. Management does not rely on any one source of liquidity and has managed these levels in response to other balance sheet factors. The Bancorp employs a variety of measurement techniques to identify and manage its exposure to changing interest rates. The Bancorp uses simulation techniques which attempt to measure the net interest income volatility of changes in the level of interest rates, basic banking interest rate spreads, the shape of the yield curve and changing product growth patterns. The table which follows shows the Bancorp's interest rate sensitivity analysis for the year ended December 31, 1995. The assets and liabilities are distributed to reflect expected cash flows and are based on historical deposit rate relationships to changes in market interest over long-term rate changes. 35 Fifth Third Bancorp And Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RATE SENSITIVITY ANALYSIS DECEMBER 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------ MATURING or REPRICING ------------------------------------------------------------------------------------ TOTAL NON-RATE 1-30 31-90 91-180 181-365 1 YEAR SENSITIVE & ($ IN MILLIONS) DAYS DAYS DAYS DAYS & UNDER OVER 1 YEAR TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ Interest Earning Assets Loans and leases......................... $ 2,917 687 870 1,422 5,896 5,794 11,690 Securities available for sale............ 524 244 346 608 1,722 2,429 4,151 Securities held to maturity.............. 22 21 21 21 85 102 187 Other short term investments............. 7 ---- ---- ---- 7 ---- 7 - ------------------------------------------------------------------------------------------------------------------------------------ Total Interest-Earning Assets.............. 3,470 952 1,237 2,051 7,710 8,325 16,035 Other assets............................... ---- ---- ---- ---- ---- 1,018 1,018 - ------------------------------------------------------------------------------------------------------------------------------------ Total Assets............................... 3,470 952 1,237 2,051 7,710 9,343 17,053 - ------------------------------------------------------------------------------------------------------------------------------------ Interest-Bearing Liabilities Interest checking........................ 312 ---- ---- ---- 312 1,247 1,559 Savings.................................. 159 ---- ---- ---- 159 637 796 Money market............................. 1,153 ---- ---- ---- 1,153 768 1,921 Other time deposits...................... 376 448 830 1,874 3,528 1,093 4,621 Certificates-$100,000 and over........... 261 196 149 69 675 30 705 Foreign office........................... 1,056 ---- ---- ---- 1,056 ---- 1,056 Federal funds borrowed................... 524 12 17 ---- 553 ---- 553 Short-term bank notes.................... 450 ---- ---- ---- 450 ---- 450 Other short-term borrowings.............. 996 6 ---- ---- 1,002 ---- 1,002 Long-term debt and convertible subordinated notes.................... ---- 5 5 5 15 410 425 - ------------------------------------------------------------------------------------------------------------------------------------ Total Interest-Bearing Liabilities......... 5,287 667 1,001 1,948 8,903 4,185 13,088 - ------------------------------------------------------------------------------------------------------------------------------------ Demand deposits............................ ---- ---- ---- ---- ---- 1,828 1,828 Other liabilities.......................... ---- ---- ---- ---- ---- 412 412 Stockholders' equity....................... ---- ---- ---- ---- ---- 1,725 1,725 - ------------------------------------------------------------------------------------------------------------------------------------ Total Liabilities and Stockholders' Equity. 5,287 667 1,001 1,948 8,903 8,150 17,053 - ------------------------------------------------------------------------------------------------------------------------------------ Rate Sensitivity Gap....................... (1,817) 285 236 103 (1,193) 1,193 - ------------------------------------------------------------------------------------------------------------------------------------ Cumulative Gap............................. $(1,817) (1,532) (1,296) (1,193) - ------------------------------------------------------------------------------------------------------------------------------------ Cumulative Gap as a Percentage of Total Assets ( 10.7)% ( 9.0)% ( 7.6) ( 7.0)% - ------------------------------------------------------------------------------------------------------------------------------------
36 Fifth Third Bancorp And Subsidiaries CONSOLIDATED SIX YEAR SUMMARY OF OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31 ($000's) 1995 1994 1993 1992 1991 1990 - ----------------------------------------------------------------------------------------------------------------------- Interest Income................................. $1,173,165 922,301 812,914 787,240 829,628 822,593 Interest Expense................................ 609,733 405,548 339,399 359,370 466,381 504,950 - ---------------------------------------------------------------------------------------------------------------------- Net Interest Income............................. 563,432 516,753 473,515 427,870 363,247 317,643 Provision for Credit Losses..................... 42,962 35,780 48,037 66,100 62,464 43,479 - ----------------------------------------------------------------------------------------------------------------------- Net Interest Income After Provision for Credit Losses................................ 520,470 480,973 425,478 361,770 300,783 274,164 Other Operating Income.......................... 305,715 255,908 231,150 206,308 189,002 141,490 Operating Expenses.............................. 395,617 371,545 352,720 316,315 282,844 246,588 - ----------------------------------------------------------------------------------------------------------------------- Income Before Income Taxes...................... 430,568 365,336 303,908 251,763 206,941 169,066 Applicable Income Taxes......................... 142,883 120,877 97,673 79,742 63,987 48,040 - ----------------------------------------------------------------------------------------------------------------------- Net Income...................................... $ 287,685 244,459 206,235 172,021 142,954 121,026 - ----------------------------------------------------------------------------------------------------------------------- Net Income Per Share (a)........................ $ 2.91 2.53 2.19 1.84 1.54 1.31 - ----------------------------------------------------------------------------------------------------------------------- Cash Dividends Declared Per Share (a)........... $ .96 .80 .68 .60 .52 .45 1/3 - -----------------------------------------------------------------------------------------------------------------------
(a) Per share amounts have been adjusted for the three-for-two stock splits effected in the form of stock dividends paid January 12, 1996, April 15, 1992 and January 13, 1990. CONDENSED CONSOLIDATED BALANCE SHEET INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------- As of December 31 ($000's) 1995 1994 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------------------------------------------- Securities............................... $ 4,338,269 3,637,035 2,674,468 2,419,421 2,625,968 2,002,083 Loans and Leases......................... 11,690,643 10,286,457 9,566,898 8,115,590 6,325,918 6,165,808 Assets................................... 17,052,883 14,957,009 13,128,544 11,390,289 9,981,383 9,344,994 Deposits................................. 12,485,780 10,630,878 9,477,306 8,447,812 7,633,362 7,354,767 Short-Term Borrowings.................... 2,005,495 2,452,218 1,691,744 1,348,105 1,127,768 832,457 Long-Term Debt and Convertible Subordinated Notes.................... 425,396 178,713 407,864 309,730 52,436 125,798 Stockholders' Equity .................... 1,724,575 1,398,774 1,277,660 1,076,854 944,691 845,325 - -------------------------------------------------------------------------------------------------------------------------------
SUMMARIZED QUARTERLY FINANCIAL INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------ 1995 1994 ----------------------------------------- ------------------------------------------ Fourth Third Second First Fourth Third Second First (Unaudited)($000's) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------------------------ Interest income.............. $313,316 302,741 287,956 269,152 248,739 236,911 223,065 213,586 Net interest income.......... 151,188 142,849 135,670 133,725 130,436 131,172 127,346 127,799 Provision for credit losses.. 14,483 10,698 8,207 9,574 9,379 7,263 7,842 11,296 Income before income taxes... 115,564 112,881 102,803 99,320 96,505 92,421 89,163 87,247 Net income................... 77,864 75,189 68,514 66,118 64,653 62,844 59,081 57,881 Net income per share (a)..... .78 .75 .70 .68 .67 .65 .61 .60 - ------------------------------------------------------------------------------------------------------------------------------
(a) Per share amounts have been adjusted for the three-for-two stock split effected in the form of a stock dividend paid January 12, 1996. 37 Fifth Third Bancorp And Subsidiaries CONSOLIDATED TEN YEAR COMPARISON AVERAGE ASSETS ($000'S)
- ---------------------------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------------------------- 1995 $10,960,757 $ 23,563 $ 1,521 $4,280,773 $15,266,614 $552,534 $511,677 $16,166,207 1994 9,902,901 17,712 6,276 3,101,320 13,028,209 526,007 428,266 13,829,341 1993 8,869,432 9,342 1,084 2,365,897 11,245,755 494,141 435,966 12,041,054 1992 7,189,975 79,194 32,858 2,493,235 9,795,262 440,908 439,332 10,565,594 1991 6,246,679 227,754 35,090 2,373,916 8,883,439 378,185 368,909 9,534,199 1990 5,920,686 289,796 40,927 1,845,413 8,096,822 389,521 361,659 8,759,775 1989 5,450,876 245,017 35,610 1,520,720 7,252,223 374,155 310,550 7,858,542 1988 4,610,145 228,238 44,788 1,404,117 6,287,288 357,575 275,004 6,854,056 1987 3,865,255 368,234 31,700 1,222,676 5,487,865 327,996 240,697 6,001,774 1986 3,181,583 421,937 29,818 1,191,845 4,825,183 283,904 253,338 5,317,156 - ----------------------------------------------------------------------------------------------------------------------------
AVERAGE DEPOSITS AND SHORT-TERM BORROWINGS ($000'S)
- --------------------------------------------------------------------------------------------------------------------------------- Deposits ------------------------------------------------------------------------------------------ Certificates- Short- Interest Money Other $100,000 Foreign Term Year Demand Checking Savings Market Time and Over Office Total Borrowings Total - --------------------------------------------------------------------------------------------------------------------------------- 1995 $1,585,256 $1,430,921 $660,379 $1,779,851 $4,319,791 $700,575 $780,475 $11,257,248 $2,669,477 $13,926,725 1994 1,414,048 1,512,670 698,756 1,582,863 3,923,418 336,521 529,434 9,997,710 1,967,819 11,965,529 1993 1,268,371 1,326,759 656,868 1,493,802 3,531,301 441,882 242,245 8,961,228 1,365,070 10,326,298 1992 1,070,387 1,097,918 539,997 1,440,309 3,275,879 490,293 48,200 7,962,983 1,229,664 9,192,647 1991 892,906 830,723 438,708 1,277,134 3,087,476 876,369 13,079 7,416,395 913,608 8,330,003 1990 826,426 719,378 451,571 1,183,786 2,851,996 935,769 2,313 6,971,239 655,942 7,627,181 1989 821,388 605,081 458,849 1,094,001 2,280,222 889,802 5,596 6,154,939 676,627 6,831,566 1988 786,610 547,988 443,267 1,037,427 1,875,876 668,786 7,507 5,367,461 593,035 5,960,496 1987 733,928 476,873 415,816 963,542 1,562,196 497,977 3,130 4,653,462 550,262 5,203,724 1986 664,827 375,040 334,989 872,743 1,508,733 346,774 3,851 4,106,957 492,845 4,599,802 - ---------------------------------------------------------------------------------------------------------------------------------
INCOME ($000'S, EXCEPT PER SHARE)
- ----------------------------------------------------------------------------------------------------------------------------- Per Share(b) ------------------------------ Originally Other Reported Dividends Interest Interest Operating Operating Net Net Dividends Net Paid as % of Year Income Expense Income Expense Income Income Declared Income Net Income - ----------------------------------------------------------------------------------------------------------------------------- 1995 $1,173,165 $609,733 $305,715 $395,617 $287,685 $2.91 $.96 $2.91 31.2% 1994 922,301 405,548 255,908 371,545 244,459 2.53 .80 2.53 30.5 1993 812,914 339,399 231,150 352,720 206,235 2.19 .68 2.19 29.7 1992 787,240 359,370 206,308 316,315 172,021 1.84 .60 1.83 30.6 1991 829,628 466,381 189,002 282,844 142,954 1.54 .52 1.55 32.3 1990 822,593 504,950 141,490 246,588 121,026 1.31 .45 1/3 1.37 33.1 1989 756,749 460,376 129,580 226,205 113,337 1.24 .40 1.24 30.1 1988 610,819 353,053 110,850 196,736 97,816 1.09 .34 2/3 1.17 31.1 1987 510,437 289,577 98,017 179,977 88,716 1.01 .30 2/9 1.01 28.9 1986 473,705 281,278 88,511 164,906 77,346 .91 .26 .86 27.0 - -----------------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS AT DECEMBER 31 ($000'S, EXCEPT SHARE INFORMATION)
- ------------------------------------------------------------------------------------------------------------------------------ Stockholders' Equity ------------------------------------------------------------------------------- Number of Reserve Shares of Stock Common Capital Retained Unrealized Per for Credit Year Outstanding(b) Stock(c) Surplus Earnings Gains/(Losses) Total Share (b) Losses - ------------------------------------------------------------------------------------------------------------------------------ 1995 100,422,996 $222,939 $338,555 $1,148,279 $14,802 $1,724,575 $17.17 $177,388 1994 97,063,956 143,655 272,999 1,030,338 (48,218) 1,398,774 14.41 155,918 1993 96,148,709 142,300 260,150 862,785 12,425 1,277,660 13.29 144,537 1992 93,792,633 138,442 218,391 720,021 ---- 1,076,854 11.48 121,452 1991 93,108,219 93,480 203,607 647,604 ---- 944,691 10.15 97,319 1990 92,665,974 93,426 199,884 552,015 ---- 845,325 9.12 90,242 1989 92,113,769 92,881 197,136 472,266 ---- 762,283 8.28 85,664 1988 90,516,237 62,866 187,051 419,514 ---- 669,431 7.40 73,008 1987 88,179,389 61,329 169,706 352,363 ---- 583,398 6.62 60,776 1986 87,940,289 42,776 145,976 308,663 ---- 497,415 5.66 49,587 - ------------------------------------------------------------------------------------------------------------------------------
(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 1996, 1992, 1990, 1987 and 1986. (c) Includes $404,000 of treasury stock in 1992 and 1991. 38 EX-21 4 EXHIBIT 21 Fifth Third Bancorp Subsidiaries Jurisdiction of Name Incorporation - ----- ------------- The Fifth Third Bank Ohio The Fifth Third Company Ohio The Fifth Third Leasing Company Ohio Fifth Third Securities, Inc. Ohio Midwest Payment Systems, Inc. Ohio Fifth Third Kentucky Bank Holding Company Kentucky Fifth Third Bank of Kentucky, Inc. Kentucky Fifth Third Bank of Northern Kentucky, Inc. Kentucky The Fifth Third Savings Bank of Western Kentucky, FSB Federal The Fifth Third Bank of Columbus Ohio Ohio The Fifth Third Bank of Northwestern Ohio, National Association Federal The Fifth Third Bank of Southern Ohio Ohio The Fifth Third Bank of Western Ohio Ohio Fifth Third Bank of Northeastern Ohio Ohio Fifth Third Savings Bank of Northern Ohio, FSB Federal The Fifth Third Bank of Central Indiana Indiana Fifth Third Bank of Florida Florida Fifth Third Community Development Company Ohio Fifth Third Investment Company Ohio Fountain Square Insurance Company Arizona EX-23 5 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 33- 34075, 33-13252, 2-98550, 33-20888, 33-30690, 33-51679, 33-60474, 33-55223, 33- 55553, and 33-61149 of Fifth Third Bancorp on Form S-8 of our report dated January 12, 1996, incorporated by reference in this Annual Report on Form 10-K of Fifth Third Bancorp for the year ended December 31, 1995. /s/Deloitte & Touche LLP February 22, 1996 Cincinnati, Ohio EX-27 6
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIFTH THIRD BANCORP'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 628,535 717 6,105 0 4,151,178 187,091 187,091 11,690,643 177,388 17,052,883 12,485,780 2,005,495 411,637 425,396 0 0 222,939 1,501,636 17,052,883 898,310 273,604 1,251 1,173,165 441,305 609,733 563,432 42,962 4,789 395,617 430,568 287,685 0 0 287,685 2.84 2.83 3.90 37,049 20,455 506 39,621 155,918 41,707 11,846 177,388 177,388 0 0
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