-----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, BIbf/fENUSO9rxzJST1bMTv9vmxwwDJe6Pk5OD1kDwKqShboeLCWcP/qg7/38Abi 47W8zSvHq9kRNXiLdnT5gw== 0000950152-99-004500.txt : 19990517 0000950152-99-004500.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950152-99-004500 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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-Q SEC ACT: SEC FILE NUMBER: 333-72465 FILM NUMBER: 99624315 BUSINESS ADDRESS: STREET 1: 38 FOUNTAIN SQ PLZ STREET 2: FIFTH THIRD CENTER CITY: CINCINNATI STATE: OH ZIP: 45263 BUSINESS PHONE: 5135795300 10-Q 1 FIFTH THIRD BANCORP FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended March 31, 1999 Commission File Number 0-8076 FIFTH THIRD BANCORP (Exact name of Registrant as specified in its charter) Ohio 31-0854434 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) Fifth Third Center Cincinnati, Ohio 45263 (Address of principal executive offices) Registrant's telephone number, including area code: (513) 579-5300 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- There were 268,680,691 shares of the Registrant's Common Stock, without par value, outstanding as of April 30, 1999. 2 FIFTH THIRD BANCORP INDEX
Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets - March 31, 1999 and 1998 and December 31, 1998 3 Consolidated Statements of Income - For the three months ended March 31, 1999 and 1998 4 Consolidated Statements of Cash Flows - For the three months ended March 31, 1999 and 1998 5 Consolidated Statements of Changes in Shareholders' Equity - For the three months ended March 31, 1999 and 1998 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures about Market Risk 14 Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders 14 Item 6. Exhibits and Reports on Form 8-K 15
2 3
FIFTH THIRD BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) =========================================================================================== MARCH 31, December 31, March 31, ($000'S) 1999 1998 1998 =========================================================================================== ASSETS =========================================================================================== Cash and Due from Banks $ 726,310 819,862 734,594 Securities Available for Sale (a) 9,235,845 8,334,625 8,998,778 Securities Held to Maturity (b) 86,030 86,013 92,917 Other Short-Term Investments 95,076 118,535 64,238 Loans Held for Sale 396,247 492,017 560,644 Loans and Leases Commercial Loans 4,968,319 4,822,992 4,416,525 Construction Loans 562,680 572,082 571,910 Commercial Mortgage Loans 1,169,615 1,178,752 1,256,828 Commercial Lease Financing 1,757,930 1,739,316 1,460,629 Residential Mortgage Loans 4,095,671 4,269,880 5,025,370 Consumer Loans 3,422,498 3,354,681 3,107,644 Consumer Lease Financing 2,772,445 2,530,535 2,206,632 Unearned Income (707,611) (689,215) (583,975) Reserve for Credit Losses (270,703) (266,860) (252,799) =========================================================================================== Total Loans and Leases 17,770,844 17,512,163 17,208,764 Bank Premises and Equipment 331,880 330,838 310,927 Accrued Income Receivable 269,231 282,551 216,743 Other Assets 740,735 945,178 796,148 - ------------------------------------------------------------------------------------------- TOTAL ASSETS $ 29,652,198 28,921,782 28,983,753 =========================================================================================== LIABILITIES =========================================================================================== Deposits Demand $ 2,964,611 3,194,782 2,809,823 Interest Checking 3,030,200 3,160,227 2,584,621 Savings and Money Market 4,453,103 4,418,523 4,617,504 Time Deposits 8,413,791 8,006,823 8,817,118 =========================================================================================== Total Deposits 18,861,705 18,780,355 18,829,066 Federal Funds Borrowed 2,235,817 2,038,541 2,323,342 Short-Term Bank Notes 600,000 -- 622,000 Other Short-Term Borrowings 1,858,552 1,655,386 1,752,629 Accrued Taxes, Interest and Expenses 842,480 710,772 609,210 Other Liabilities 186,439 270,055 219,116 Long-Term Debt 1,788,318 2,288,151 1,796,211 =========================================================================================== TOTAL LIABILITIES 26,373,311 25,743,260 26,151,574 =========================================================================================== SHAREHOLDERS' EQUITY (c) =========================================================================================== Common Stock (d) 593,571 592,559 583,656 Capital Surplus 287,566 495,067 438,938 Retained Earnings 2,349,362 2,066,407 1,897,815 Unrealized Gains on Securities Available for Sale 77,688 82,448 86,782 Treasury Stock (29,300) (57,959) (175,012) =========================================================================================== TOTAL SHAREHOLDERS' EQUITY 3,278,887 3,178,522 2,832,179 =========================================================================================== TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 29,652,198 28,921,782 28,983,753 ===========================================================================================
(a) Amortized cost: March 31, 1999 - $9,117,029, December 31, 1998 - $8,208,032 and March 31, 1998 - $8,865,192. (b) Market value: March 31, 1999 - $85,839, December 31, 1998 - $86,013 and March 31, 1998 - $93,223. (c) 500,000 shares of no par value preferred stock are authorized of which none have been issued. (d) Stated value $2.22 per share; authorized 500,000,000; outstanding at March 31, 1999 - 267,374,461, (excludes 466,111 treasury shares); at December 31, 1998 - 266,918,544 (excludes 922,028 treasury shares) and at March 31, 1998 - 262,908,321 (excludes 5,131,205 treasury shares); Outstanding and treasury shares have been adjusted for the three-for-two stock split effected in the form of a stock dividend declared March 17, 1998 and distributed April 15, 1998. See Notes to Consolidated Financial Statements 3 4
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) ===================================================================================================== THREE MONTHS ENDED MARCH 31, ------------------------------------- ($000'S) 1999 1998 ===================================================================================================== INTEREST INCOME Interest and Fees on Loans and Leases $ 353,016 355,344 Interest on Securities Taxable 138,538 144,848 Exempt from Income Taxes 2,828 2,940 - ----------------------------------------------------------------------------------------------------- Total Interest on Securities 141,366 147,788 Interest on Other Short-Term Investments 1,896 3,612 - ----------------------------------------------------------------------------------------------------- Total Interest Income 496,278 506,744 - ----------------------------------------------------------------------------------------------------- INTEREST EXPENSE Interest on Deposits Interest Checking 14,973 15,791 Savings and Money Market 32,145 39,456 Time Deposits 99,697 122,895 - ----------------------------------------------------------------------------------------------------- Total Interest on Deposits 146,815 178,142 Interest on Federal Funds Borrowed 31,127 27,208 Interest on Short-Term Bank Notes 6,423 12,466 Interest on Other Short-Term Borrowings 20,979 22,140 Interest on Long-Term Debt and Notes 20,740 23,934 - ----------------------------------------------------------------------------------------------------- Total Interest Expense 226,084 263,890 - ----------------------------------------------------------------------------------------------------- NET INTEREST INCOME 270,194 242,854 Provision for Credit Losses 23,360 22,828 - ----------------------------------------------------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 246,834 220,026 OTHER OPERATING INCOME Investment Advisory Income 39,384 27,815 Service Charges on Deposits 31,545 28,516 Data Processing Income 37,668 29,830 Other Service Charges and Fees 65,110 49,804 Securities Gains 1,259 4,155 - ----------------------------------------------------------------------------------------------------- Total Other Operating Income 174,966 140,120 - ----------------------------------------------------------------------------------------------------- OPERATING EXPENSES Salaries, Wages and Incentives 75,585 66,876 Employee Benefits 17,694 17,594 Equipment Expenses 8,770 7,498 Net Occupancy Expenses 13,131 12,058 Other Operating Expenses 77,620 69,257 - ----------------------------------------------------------------------------------------------------- Total Operating Expenses 192,800 173,283 - ----------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 229,000 186,863 Applicable Income Taxes 78,553 62,632 - ----------------------------------------------------------------------------------------------------- NET INCOME (b) $ 150,447 124,231 ===================================================================================================== Per Share (a): Earnings $ 0.56 0.47 Diluted Earnings $ 0.55 0.46 Cash Dividends $ 0.20 0.17 ===================================================================================================== Average Shares (000's) (a): Outstanding 267,149 262,738 Diluted 272,823 268,073 ===================================================================================================== (a) and (b) are described on Page 6.
See Notes to Consolidated Financial Statements 4 5
FIFTH THIRD BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) ============================================================================================================================ THREE MONTHS ENDED MARCH 31, ------------------------------------ ($000'S) 1999 1998 ============================================================================================================================ OPERATING ACTIVITIES Net Income $150,447 124,231 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Provision for Credit Losses 23,360 22,828 Depreciation, Amortization and Accretion 22,215 22,170 Provision for Deferred Income Taxes 11,200 4,328 Realized Securities Gains (1,274) (4,466) Realized Securities Losses 15 311 Proceeds from Sales of Residential Mortgage Loans Held for Sale 822,457 354,022 Net Gains on Sales of Loans (13,929) (5,316) Increase in Residential Mortgage Loans Held for Sale (721,259) (714,618) Decrease (Increase) in Accrued Income Receivable 13,320 (5,563) Decrease (Increase) in Other Assets 206,913 (116,846) Increase in Accrued Taxes, Interest and Expenses 84,953 43,020 Increase (Decrease) in Other Liabilities (30,616) 15,052 ============================================================================================================================ NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 567,802 (260,847) ============================================================================================================================ INVESTING ACTIVITIES Proceeds from Sales of Securities Available for Sale 158,659 136,107 Proceeds from Calls, Paydowns and Maturities of Securities Available for Sale 808,679 551,767 Purchases of Securities Available for Sale (1,774,450) (1,166,683) Proceeds from Calls, Paydowns and Maturities of Securities Held to Maturity 5,589 257,222 Purchases of Securities Held to Maturity (5,606) (20,123) Decrease (Increase) in Other Short-Term Investments 23,459 (36,682) Increase in Loans and Leases (405,341) (834,773) Purchases of Bank Premises and Equipment (14,064) (18,241) Proceeds from Disposal of Bank Premises and Equipment 4,645 317 ============================================================================================================================ NET CASH USED IN INVESTING ACTIVITIES (1,198,430) (1,131,089) ============================================================================================================================ FINANCING ACTIVITIES Increase (Decrease) in Core Deposits (638,113) 32,003 Increase (Decrease) in CDs - $100,000 and Over, including Foreign 719,463 (302,331) Increase in Federal Funds Borrowed 197,276 1,122,789 Increase in Short-Term Bank Notes 600,000 67,000 Increase in Other Short-Term Borrowings 203,166 35,086 Proceeds from Issuance of Long-Term Debt and Notes - 558,223 Repayment of Long-Term Debt (499,833) (132,842) Payment of Cash Dividends (52,964) (35,685) Exercise of Stock Options 6,208 4,342 Other 1,873 567 ============================================================================================================================ NET CASH PROVIDED BY FINANCING ACTIVITIES 537,076 1,349,152 ============================================================================================================================ DECREASE IN CASH AND DUE FROM BANKS (93,552) (42,784) CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 819,862 777,378 ============================================================================================================================ CASH AND DUE FROM BANKS AT END OF PERIOD $726,310 734,594 ============================================================================================================================
See Notes to Consolidated Financial Statements 5 6 FIFTH THIRD BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
========================================================================================================= THREE MONTHS ENDED MARCH 31, ----------------------------- ($000'S) 1999 1998 ========================================================================================================= BALANCE AT DECEMBER 31 $ 3,178,522 2,762,836 Net Income 150,447 124,231 Nonowner Changes in Equity, Net of Tax: Change in Unrealized Gains on Securities Available for Sale (4,760) (11,472) ========================================================================================================= Net Income and Nonowner Changes in Equity 145,687 112,759 Cash Dividends Declared (1999 - $.20 per share and 1998 - $.17 per share) (a) (53,475) (41,131) Earnings Adjustment of Pooled Entity (b) - (7,803) Stock Options Exercised Including Treasury Shares Issued 6,208 4,342 Other 1,945 1,175 ========================================================================================================= BALANCE AT MARCH 31 $ 3,278,887 2,832,178 =========================================================================================================
(a) Cash dividends per common share for the 1998 period are those of Fifth Third Bancorp declared prior to the second quarter 1998 mergers with CitFed Bancorp, Inc. and State Savings Company. (b) The restatement of the CitFed Bancorp, Inc. merger was accomplished by combining CitFed's March 31, 1998 fiscal year financial information with the Bancorp's December 31, 1997 calendar year financial information. In 1998, CitFed's fiscal year was conformed to the Bancorp's calendar year. As a result of conforming fiscal periods, the Bancorp's consolidated statements of income for the fourth quarter of 1997 and the first quarter of 1998 include CitFed's net income for the three months ended March 31, 1998 of $7,803. An adjustment to shareholders' equity removes the effect of including CitFed's financial results in both periods. See Notes to Consolidated Financial Statements 6 7 ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------- 1. In the opinion of management, the unaudited Consolidated Financial Statements include all adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated financial position as of March 31, 1999 and 1998, the results of operations, and the statements of cash flows for the three months ended March 31, 1999 and 1998. In accordance with generally accepted accounting principles for interim financial information, these statements do not include certain information and footnote disclosures required by generally accepted accounting principles for complete annual financial statements. Financial information as of December 31, 1998 has been derived from the audited Consolidated Financial Statements of Fifth Third Bancorp (the "Registrant"). The results of operations and the statements of cash flows for the three months ended March 31, 1999 and 1998 are not necessarily indicative of the results to be expected for the full year. For further information, refer to the Consolidated Financial Statements and footnotes thereto for the year ended December 31, 1998, included in the Registrant's Annual Report on Form 10-K. 2. Financial data for the period ended March 31, 1998 has been restated to reflect the second quarter 1998 mergers with CitFed Bancorp, Inc., a publicly-traded savings and loan holding company with $3.1 billion in assets, and State Savings Company, a privately-owned thrift holding company with $2.7 billion in assets. Both transactions were tax-free, stock-for-stock exchanges accounted for as poolings-of-interests. The Registrant exchanged 13,222,869 and 16,625,271 shares of the Registrant's common stock for all outstanding shares of CitFed Bancorp, Inc. and State Savings Company, respectively. The contributions of CitFed Bancorp, Inc. and State Savings Company to consolidated net interest income, other operating income and net income for the three month period ended March 31, 1998, prior to the mergers were as follows ($000's):
Three Months Ended March 31, 1998 ================================================================================= NET INTEREST INCOME ================================================================================= Fifth Third Bancorp $ 197,900 CitFed Bancorp, Inc. 19,614 State Savings Company 25,340 ================================================================================= Combined $ 242,854 ================================================================================= OTHER OPERATING INCOME ================================================================================= Fifth Third Bancorp $ 126,381 CitFed Bancorp, Inc. 7,804 State Savings Company 5,935 ================================================================================= Combined $140,120 ================================================================================= NET INCOME ================================================================================= Fifth Third Bancorp $ 108,981 CitFed Bancorp, Inc. 7,803 State Savings Company 7,447 ================================================================================= Combined $ 124,231 =================================================================================
7 8 ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) - --------------------------------------------------------------- The combined consolidated results of operations are not necessarily indicative of the results that would have occurred had the mergers been consummated in the past or which may be attained in the future. 3. On April 16, 1999, the Registrant completed the acquisition of Ashland Bankshares, Inc., which owns the Bank of Ashland. Ashland Bankshares, Inc. is based in Ashland, Kentucky, with $168 million in assets and deposits of $152 million at March 31, 1999. In connection with the acquisition, the Registrant exchanged 1,224,860 shares of Fifth Third common stock for all the outstanding shares of capital stock of Ashland Bankshares, Inc. 4. On October 28, 1998, the Registrant agreed to acquire South Florida Bank Holding Coroporation, a bank holding company based in Ft. Myers, Florida, which owns South Florida Bank. As of March 31, 1999, South Florida had total assets of $92.5 million and deposits of $78.8 million. The acquisition is expected to be completed in the second quarter of 1999. In connection with this acquisition the Registrant expects to issue aproximately 440,000 shares of Fifth Third common stock to shareholders of South Florida. 5. On September 25, 1998, the Registrant agreed to acquire Enterprise Federal Bancorp, Inc., a savings and loan holding company based in West Chester, Ohio. As of March 31, 1999, Enterprise Federal Bancorp, Inc. had total assets of $539 million and total deposits of $323 million. The acquisition is expected to be completed in the second quarter of 1999. In connection with this acquisition the Registrant expects to issue aproximately 1,640,000 shares of Fifth Third common stock to shareholders of Enterprise Federal Bancorp, Inc. 6. On February 27, 1999, the Registrant agreed to acquire Emerald Financial Corp., a savings and loan holding company based in Strongsville, Ohio. At March 31, 1999, Emerald had total assets of $677.1 million and total deposits of $562.4 million. The acquisition is expected to be completed in the third quarter of 1999. In connection with this acquisition the Registrant expects to issue aproximately 3,430,000 shares of Fifth Third common stock to shareholders of Emerald Financial Corp. 7. On June 12, 1998, the Registrant acquired The Ohio Company, a full-service broker-dealer for retail and institutional clients headquartered in Columbus, Ohio. On April 9, 1998, the Registrant acquired W. Lyman Case & Company, a commercial mortgage banking firm based in Columbus, Ohio, which originated more than $680 million in financing and equity transactions in 1998 and has a loan servicing portfolio of $2 billion. In connection with The Ohio Company acquisition, the Registrant exchanged 1,862,765 shares of the Fifth Third common stock for all of the outstanding shares of capital stock of The Ohio Company. The acquisitions were accounted for as purchases and the financial results of The Ohio Company and W. Lyman Case & Company, are included in the results of operations subsequent to the date of acquisition. The proforma effects of the transactions were not material to the Registrant's financial condition and operating results for the periods presented. 8 9 ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) - --------------------------------------------------------------- 8. In the first three months of 1999, the Registrant paid $228,895,460 in interest and $6,250,000 in Federal income taxes. For the same period last year the Registrant paid $197,239,000 in interest and no Federal income taxes. The Registrant had non cash investing activities consisting of the securitization of residential mortgages of $123,300,000 in the first quarter of 1999 and $82,604,000 for the same period last year. 9. Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," establishes accounting and reporting standards for derivative instruments and hedging activities and requires recognition of all derivatives as either assets or liabilities measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. The statement is required for the year 2000. The adoption of SFAS No. 133 is not expected to have a material effect on the Consolidated Financial Statements of the Registrant. 10. In 1998, The Registrant adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which requires financial disclosure and descriptive information about reportable operating segments, based on how chief decision makers manage the business. The Registrant's principal segments include retail banking, commercial banking, investment advisory services and data processing. Retail banking provides a full range of deposit products and consumer loans and leases. Commercial banking offers services to business, government and professional customers. Investment advisory services provides a full range of investment alternatives for individuals, companies and not-for-profit organizations. Data processing, through Midwest Payement Systems (MPS), provides electronic funds transfer (EFT) services, merchant transaction processing, operates the Registrant's Jeanie ATM network and provides other data processing services to affliliated and unaffiliated customers. General corporate and other includes the investment portfolio, certain non-deposit funding, unassigned equity, the net effect of funds transfer pricing and other items not allocated to operating segments. of operations and selected financial information by operating segement for the three months ended March 31, 1999 and 1998 are as follows:
INVESTMENT GENERAL COMMERCIAL RETAIL ADVISORY DATA ACQUIRED CORPORATE ($000'S) BANKING BANKING SERVICES PROCESSING (a) ENTITIES AND OTHER ELIMINATIONS (a) TOTAL =================================================================================================================================== MARCH 31, 1999 Total Revenues $113,505 $ 239,638 $50,111 $40,121 $ - $ 3,729 $(3,203) $ 443,901 =================================================================================================================================== Net Income $ 47,284 $ 81,021 $15,617 $11,753 $ - $(5,228) $ - $ 150,447 =================================================================================================================================== MARCH 31, 1998 Total Revenues $ 85,146 $ 162,390 $34,127 $32,538 $ 58,751 $ 8,754 $(2,887) $ 378,819 =================================================================================================================================== Net Income $ 35,225 $ 52,487 $11,831 $8 ,970 $ 15,250 $ 468 $ - $ 124,231 ===================================================================================================================================
(a) - Data Processing services revenues provided to the banking segments by MPS are eliminated in the Consolidated Statements of Income. There were no material changes in the identifiable assets that were disclosed in the Registrant's December 31, 1998 Annual Report on Form 10-K. 9 10 ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) - --------------------------------------------------------------- 11. On March 17, 1998, the Registrant's board of directors approved a three-for-two stock split. The additional shares resulting from the split were distributed on April 15, 1998 to shareholders of record as of March 31, 1998. The Consolidated Financial Statements, notes and other references to share and per share data have been retroactively restated for the stock split. 12. In 1998, the Registrant adopted SFAS No. 130, "Reporting Comprehensive Income." The statement establishes standards for the reporting and display of net income and nonowner changes in equity. The Registrant elected to present the required disclosures in the Consolidated Statements of Changes in Shareholders' Equity on page 6. The caption "Net Income and Nonowner Changes in Equity," represents total comprehensive income as defined in the statement. Disclosure of the reclassification adjustments, related tax effects allocated to nonowner changes in equity and accumulated nonowner changes in equity for the three months ended March 31, 1999 and 1998 are provided below ($000's).
1999 1998 ==================================================================================================== Reclassification Adjustments, Before Tax ==================================================================================================== Change in Unrealized Gains Arising During Period $ (8,581) (21,804) Reclassification Adjustment for Gains Included in Net Income 1,259 4,155 ==================================================================================================== Net Unrealized Gains on Securities Available for Sale $ (7,322) (17,649) ==================================================================================================== Related Tax Effects ==================================================================================================== Change in Unrealized Gains Arising During Period $ (3,003) (7,631) Reclassification Adjustment for Gains Included in Net Income 441 1,454 ==================================================================================================== Net Unrealized Gains on Securities Available for Sale $ (2,562) (6,177) ==================================================================================================== Reclassification Adjustments, Net of Tax ==================================================================================================== Change in Unrealized Gains Arising During Period $ (5,578) (14,173) Reclassification Adjustment for Gains Included in Net Income 818 2,701 ==================================================================================================== Net Unrealized Gains on Securities Available for Sale $ (4,760) (11,472) ==================================================================================================== Accumulated Nonowner Changes in Equity ==================================================================================================== Beginning Balance-Unrealized Holding Gains on Securities Available for Sale $ 82,448 98,254 Current Period Change (4,760) (11,472) ==================================================================================================== Ending Balance-Unrealized Holding Gains on Securities Available for Sale $ 77,688 86,782 ====================================================================================================
13. Reconciliation of Earnings Per Share to Diluted Earnings Per Share follows:
THREE MONTHS ENDED MARCH 31, 1999 1998 ========================================================================================================================= AVERAGE PER-SHARE AVERAGE PER-SHARE ($000's) INCOME SHARES AMOUNT INCOME SHARES AMOUNT ========================================================================================================================= EPS Income available to Common shareholders $ 150,447 267,149 $ 0.56 $124,231 262,738 $ 0.47 EFFECT OF DILUTIVE SECURITIES Stock Options 5,674 5,335 - ------------------------------------------------------------------------------------------------------------------------- DILUTED EPS Income available to Common shareholders plus assumed conversions $ 150,447 272,823 $ 0.55 $124,231 268,073 $ 0.46 - -------------------------------------------------------------------------------------------------------------------------
10 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------------------------------------------------------------------------------- OF OPERATIONS - ------------- The following is management's discussion and analysis of certain significant factors which have affected the Registrant's financial condition and results of operations during the periods included in the Consolidated Financial Statements which are a part of this filing. This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended that involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those in the forward-looking statements. Those factors include the economic environment, competition, products and pricing in geographic and business areas in which the Registrant operates, prevailing interest rates, changes in government regulations and policies affecting financial services companies, credit quality and credit risk management, changes in the banking industry including the effects of consolidation resulting from possible mergers of financial institutions, acquisitions and integration of acquired businesses. The Registrant undertakes no obligation to release revisions to these forward-looking statements or reflect events or circumstances after the date of this report. RESULTS OF OPERATIONS Net income was $150.4 million for the first three months of 1998, up 21.1 percent, compared to $124.2 million for the same period last year. Diluted earnings per share was $.55 for the first quarter, a 20 percent increase over last year's $.46. Total assets were $29.7 billion at current quarter end, compared to 1998's quarter end assets of $29 billion. Return on average equity was 19.3 percent and return on average assets was 2.08 percent for the first quarter compared to 18.6 percent and 1.78 percent, respectively, for the same period last year. Net interest income on a fully taxable equivalent basis for the first quarter of 1999 was $284.2 million, an 11.6 percent increase over $254.7 million for the same 1998 period. This increase resulted primarily from improved earning-asset and deposits, earning-asset growth and a 36 basis point (bp) interest margin improvement. The net provision for credit losses was $23.4 million in the 1999 first quarter compared to $22.8 million in the first quarter in 1998. Net charge offs were .44 percent of average loans and leases compared to .55 percent for the same period last year. The net charge-off ratio remains near the Registrant's historical 10-year average of .50 percent. Nonperforming assets as a percentage of total loans, leases and other real estate owned was .25 percent at March 31, 1999, down from .52 percent at March 31, 1998. The reserve for credit losses as a percentage of total loans and leases was 1.50 percent at March 31, 1999 compared to 1.45 percent one year earlier. Total other operating income, excluding securities gains, for the 1999 first quarter increased 28 percent to $173.7 million compared to the first quarter of 1998. Investment advisory income improved 42 percent, due to a larger customer base and higher fees primarily attributable to more assets under 11 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------------------------------------------------------------------------------- OF OPERATIONS (CONTINUED) - ------------------------- management. Mortgage banking revenue, commercial banking income and cardholder fees contributed to the 31 percent improvement in service charges and other fees. Increased EFT and merchant processing volume coupled with higher transaction volume from expanded debit and ATM card usage provided a 26 percent increase in data processing income. The overhead ratio (operating expenses divided by the sum of taxable equivalent net interest income and other operating income) for the quarter was 42 percent, down from 43.9 percent for the first quarter of 1998. Total operating expenses were up 11 percent from 1998's first quarter. Salaries, wages and benefits increased approximately 10 percent as acquisitions synergies were partially offset by more variable compensation for increased sales production. Equipment expense increased 17 percent due to technology investments to improve efficiency and Year 2000 readiness. Volume-driven expenses of the Registrant's processing and fee businesses principally contributed to the 12 percent increase in other operating expenses. Financial data for the 1998 first quarter has been restated to reflect the second quarter 1998 mergers with Citfed Bancorp, Inc. and State Savings Company. Both mergers were accounted for as pooling-of-interests. FINANCIAL CONDITION The Registrant's balance sheet remains strong with high-quality assets and solid capital levels. Net interest margin was 4.23 percent in the first quarter, up from 4.08 percent last quarter and 3.87 percent in the first quarter a year ago. The improvement in the net interest margin is primarily due to lower funding costs coupled with deposit growth and a better deposit mix. Interest earning assets increased to $27.8 million, up 2.5 percent compared to $27.2 million from the similar period last year. Successful sales campaigns at branch location generated direct loan originations of $454 million, an increase over the $449 million in the last quarter and $361 million of the 1998 first quarter. Residential mortgage originations were $1.1 billion this quarter down from the $1.2 billion reported during last quarter and $1.6 for the 1998 first quarter. LIQUIDITY AND CAPITAL RESOURCES The maintenance of an adequate level of liquidity is necessary to ensure sufficient funds are available to meet customer loan demand and deposit withdrawals. The banking subsidiaries' liquidity sources consist of short-term marketable securities, maturing loans and federal funds loaned and selected securitizable loan assets. Liquidity has also been obtained through liabilities such as customer-related core deposits, funds borrowed, certificates of deposit and public funds deposits. At March 31, 1999, shareholders' equity was $3.279 billion, compared to $2.832 billion at March 31, 1998, an increase of $447 million, or 15.8 percent. Shareholders' equity as a percentage of total assets as of March 31, 1999 was 11.1 percent and 9.8 percent as of March 31, 1998. The Federal Reserve Board has adopted risk-based capital guidelines, which assign risk weightings to assets and off-balance 12 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------------------------------------------------------------------------------- OF OPERATIONS (CONTINUED) - ------------------------- sheet items and also define and set minimum capital requirements (risk-based capital ratios). The guidelines also define "well-capitalized" ratios of Tier 1, total capital, and leverage as 6 percent, 10 percent, and 5 percent, respectively. The Registrant exceeded these "well-capitalized" ratios at March 31, 1999. At March 31, 1999, the Registrant had a Tier 1 risk-based capital ratio of 12.24 percent, a total risk-based capital ratio of 14.33 percent and a leverage ratio of 10.37 percent. At March 31, 1998, the Registrant had a Tier 1 risk-based capital ratio of 10.81 percent, a total risk-based capital ratio of 13.02 percent and a leverage ratio of 9.4 percent. YEAR 2000 As with other companies, the Registrant's computer programs were originally designed to recognize calendar years by their last two digits. Calculations performed using these truncated fields may not work properly with dates from the Year 2000 ("Y2K") and beyond. The Registrant began planning its Y2K conversion early in 1996 and formed a project committee that meets biweekly to review the status of the conversion. The Registrant's project includes both internal and external reviews. The Registrant's internal efforts address information technology systems and computer chip embedded functions such as vaults, elevators, security systems, building heating and cooling and other operating facilities. External efforts address critical business partners including customers, vendors, service suppliers, and utilities. The Registrants efforts are being conducted in accordance with the Federal Financial Institutions Examinations Council (FFIEC) guidelines. The project management process as required by the FFIEC involves phases and facilitates the categorization of systems according to lost revenues or liability that would be incurred if the system failed. Senior management oversees the project and regularly reports to the Board of Directors. The Registrant identified critical systems as those where failure would result in at least $50,000 in losses per day or $1.5 million of total exposure. All five phases of the FFIEC have been completed with respect to critical systems and substantially completed for the remaining internal systems. During 1999, the Registrant will conduct additional internal integration testing and interface testing with critical business partners. Although this testing is not required, the Registrant is taking steps to ensure its efforts are successful in addressing Y2K problems. Because internal staff is largely completing the Y2K compliance effort, the Registrant does not expect to incur any significant costs with outside contractors relative to the completion of this task. The Registrant anticipates a total compliance cost of under $10 million; however, no material incremental costs are projected to be incurred. All, but an immaterial amount, of these costs are internal costs related to the lost opportunity of allocating time of the internal staff elsewhere. The estimated cost includes all software, hardware, and labor costs. The Registrant presently believes that with the planned modifications to existing systems and conversion to new systems, the Y2K compliance issues will be resolved on a timely basis, and that any related costs will not have a material impact on the operations, cash flows, or financial condition of future periods. The risks associated with the Registrant's Y2K compliance relate primarily to its relationship with critical business partners, which include customers, vendors, service suppliers, and utilities and their 13 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------------------------------------------------------------------------------- OF OPERATIONS (CONTINUED) - ------------------------- ability to effectively address their own Y2K issues. Major risks associated with the Y2K issue as it applies to external parties include a shut down of voice and data communication systems due to failure by systems, satellites or telephone companies; excessive cash withdrawal activities; ATM failures; cash courier delays or non-availability; problems with international accounts or offices, including inaccurate or delayed information or inaccessibility to data; and government facilities or utility companies not opening or operating. Each division within the Registrant has initiated projects to assess the Y2K preparedness of individual customers and material relationships and the impact on the Registrant in accordance with FFIEC guidelines. Contingency plans for critical business partners are being developed as their Y2K plans and procedures are analyzed. The Federal Reserve, which is the Registrant's primary bank regulator, includes a review of the risk assessments and contingency plans in its quarterly examinations of the Registrant's Y2K preparedness. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest rate risk management focuses on maintaining consistent growth in net interest income within Board-approved policy limits. The Registrant uses an earnings simulation model to analyze net interest income sensitivity to movements in interest rates. Given an immediate, sustained 200 basis point upward shock to the yield curve used in the simulation model, it is estimated net interest income for the Registrant would decrease by 2.22 percent over one year and increase by 3.57 percent over two years. A 200 basis point immediate, sustained downward shock in the yield curve would increase net interest income by an estimated .86 percent over one year and decrease net interest income by an estimated 4.53 percent over two years. All of these estimated changes in net interest income are within the policy guidelines established by the Registrant's board of directors. PART II. OTHER INFORMATION ITEM 4. SUBMISSON OF MATTERS TO A VOTE OF SECURITY HOLDERS - ----------------------------------------------------------- On March 16, 1999, the Registrant held its Annual Meeting of Stockholders for which the Board of Directors solicited proxies. At the Annual Meeting, the shareholders adopted all of the proposals stated in the Proxy Statement dated February 9, 1999, which is incorporated herein by reference. The proposals voted on and approved by the shareholders are as follows: 1. The election of six Class I Directors (Thomas B. Donnell, Joan R. Herschede, William G. Kagler, James D. Kiggen, David E. Reese, Dennnis J. Sullivan, Jr.) to serve until the Annual Meeting of Stockholders in 2002. 2. Approval of the proposal to amend Article Fourth of the Amended Articles of Incorporation to increase the authorized number of shares of Common Stock, without par value, from 300,000,000 shares to 500,000,000 by a vote of 225,376,485 for, 3,127,314 against, and 1,031,201 withheld. 14 15 ITEM 4. SUBMISSON OF MATTERS TO A VOTE OF SECURITY HOLDERS (CONTINUED) - ------------------------------------------------------------------------ 3. Approval of the proposal to appoint the firm Deloitte & Touche LLP to serve as independent auditors for the Registrant for the year 1999 by a vote of 228,244,491 For, 623,193 against, and 667,317 withheld. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ---------------------------------------- (a) List of Exhibits (3) (i) -Second Amended Articles of Incorporation. As Amended. (27) -Financial Data Schedule for the Three Months Ended March 31, 1999 (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Fifth Third Bancorp ------------------- Registrant Date: May 14, 1999 /s/ Neal E. Arnold ------------------ Neal E. Arnold Executive Vice President and Chief Financial Officer 15 EX-3.I 2 EXHIBIT 3(I) 1 EXHIBIT 3i SECOND AMENDED ARTICLES OF INCORPORATION OF FIFTH THIRD BANCORP, AS AMENDED FIRST: The name of the corporation shall be FIFTH THIRD BANCORP. SECOND: The place in the State of Ohio where the principal office of the corporation is to be located is the City of Cincinnati, County of Hamilton. THIRD: The purpose for which the corporation is formed is to engage in any and/or all lawful acts or activities for which corporations may be formed under Section 1701.01 to 1701.98, inclusive, of the Ohio Revised Code, as amended. FOURTH: (A) The total authorized number of shares of the corporation is Five Hundred Million, Five Hundred Thousand (500,500,000) shares, which shall be classified as follows: 1) Five Hundred Million (500,000,000) shares of common stock, without par value. Each share of common stock shall entitle the holder thereof to one (1) vote on each matter properly submitted to the stockholders for their vote, consent, waiver, release or other action, subject to the provisions of the law with respect to cumulative voting. 2) Five Hundred Thousand (500,000) shares of preferred stock, without par value. (a) Each share of the preferred stock shall entitle the holder thereof to no voting rights, except as otherwise required by law. (b) The dividend rights of the preferred stock shall be non-cumulative, except as otherwise provided by the Board of Directors. (c) The Board of Directors shall have the right to adopt amendments to these Articles of Incorporation in respect of any unissued or treasury shares of the preferred stock and thereby fix or change: the division of such shares into series and the designation and authorized number of shares of each series; the dividend rate; whether dividend rights shall be cumulative or non-cumulative; the dates of payment of dividends and the dates from which they are cumulative; liquidation price; redemption rights and price; sinking fund requirements, conversion rights; and restrictions on the issuance of such shares or any series thereof; provided however, except for the foregoing variations which the Board of Directors are authorized to fix or change, all of the express terms of different series of such shares be identical. Upon the adoption of any amendment pursuant to the foregoing authority, a certificate signed by the president or a vice president and by a secretary or an assistant secretary, containing a copy of the resolutions adopting the amendment and a statement of the manner and basis of its adoption, shall be filed in the office of the Secretary of State of the State of Ohio, accompanied by the fees then required by law, before the corporation shall have the right to issue any such shares. 2 (B) The Board of Directors may, from time to time, determine the time when, the terms under which, and the considerations for which the corporation issues, disposes of, or receives subscriptions for its shares of any class or series thereof, including treasury shares. Payment for shares shall be made with money or other property of any description, or any interest therein, actually transferred to the corporation, or labor or services actually rendered to the corporation. FIFTH: The corporation, by its Board of Directors, may, subject to these Articles of Incorporation, purchase, repurchase, redeem or otherwise acquire the shares of any class issued by it, at such times and on such terms as they shall determine to be in the best interests of the corporation. All shares of the corporation purchased, redeemed or otherwise acquired, unless the Board of Directors or the laws of the State of Ohio specifically provide otherwise, shall be held as treasury shares. Provided, however, that this Article Fifth shall not create authority in the Board of Directors to cause an involuntary redemption of the shares of the common stock. SIXTH: The Board of Directors shall have the right, to the extent permitted by law: (i) to fix, determine and vary the amount of stated capital of the corporation; (ii) to determine whether any, and if any, what part of the surplus of the corporation, however created or arising, shall be used, disposed of or declared in dividends or paid to the stockholders; and (iii) without action by the stockholder, to use and apply the surplus of the corporation, or any part thereof, at any time or from time to time, in the purchase or acquisition of shares of any class, voting trust certificates for shares, bonds, debentures, notes, script, warrants, obligations, evidences of indebtedness, or other securities of the corporation, to such extent of in such amount, in such manner and upon such terms as the Board of Directors shall determine expedient. SEVENTH: No holder of any share or shares of any class issued by the corporation shall be entitled as such, as a matter of right, at any time, to subscribe for or purchase (i) shares of any class issued by the corporation, now or hereafter authorized, (ii) securities of the corporation convertible into or exchangeable for shares of any class issued by the corporation, now or hereafter authorized, or (iii) securities of the corporation to which shall be attached or appertain any rights or options, whether by the terms of such securities or in the contracts, warrants or other instruments (whether transferable or non-transferable or separable or inseparable from such securities) evidencing such rights or options, entitling the holders thereof to subscribe for or purchase shares of any class issued by the corporation, now or hereafter authorized; it being the intent and is the effect of this Article Seventh to fully eliminate any and all pre-emptive rights with respect to the shares of any class issued by the corporation, now or hereafter authorized. EIGHTH: These Amended Articles of Incorporation supersede and take the place of the existing Amended Articles of Incorporation. EX-27 3 EXHIBIT 27
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIFTH THIRD BANCORP'S QUARTERLY REPORT ON FORM 10-Q FOR THE NINE MONTHS ENDED MARCH 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000035527 FIFTH THIRD BANCORP 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 726,310 79,376 15,700 0 9,235,845 86,030 85,839 18,041,547 270,703 29,652,198 18,861,705 4,694,369 1,028,919 1,788,318 0 0 593,571 2,685,316 29,652,198 353,016 141,366 1,896 496,278 146,815 226,084 270,194 23,360 1,259 192,800 229,000 150,447 0 0 150,447 .56 .55 4.23 35,084 83,150 0 0 266,860 26,460 7,002 270,703 270,703 0 0
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