-----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, WA0O4oNiYaST2FRg3/QlV8k80SymuqAznJQQWmRsAy/aiyCC5deS9C+Z192iRU9O 7lcK9m76DKhezQIMUHPeJQ== 0000950152-97-001600.txt : 19970305 0000950152-97-001600.hdr.sgml : 19970305 ACCESSION NUMBER: 0000950152-97-001600 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970304 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: 97550451 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 FIFTH THIRD BANCORP ANNUAL REPORT 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, 1996 Commission File Number 0-8076 FIFTH THIRD BANCORP (Exact name of Registrant as specified in its charter) Ohio 31-0854434 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 38 Fountain Square Plaza Cincinnati, Ohio 45263 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (513) 579-5300 Securities registered pursuant to Section 12(g) of the Act: Common Stock Without Par Value Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: /X/ No: / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The Aggregate Market Value of the Voting Stock held by non-affiliates of the Registrant was $5,807,647,414 as of January 31, 1997. (NOTE 1) The number of shares outstanding of the Registrant's Common Stock, without par value, as of January 31, 1997 was 105,881,698 shares. DOCUMENTS INCORPORATED BY REFERENCE 1996 Annual Report to Stockholders: Parts I, II and IV Proxy Statement for 1997 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, 1996, 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: 64 -- 2 FIFTH THIRD BANCORP 1996 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 3 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: The Fifth Third Bank; The Fifth Third Bank of Columbus; 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 Savings Bank of Northern Kentucky, FSB; Fifth Third Bank of Kentucky, Inc.; The Fifth Third Savings Bank of Western Kentucky, FSB; The Fifth Third Bank of Central Indiana; 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. During January 1997, the Fifth Third Savings Bank of Western Kentucky, FSB was merged into and with Fifth Third Bank of Kentucky, Inc., Fifth Third Savings Bank of Northern Ohio, FSB was merged into and with Fifth Third Bank of Northeastern Ohio and Fifth Third Savings Bank of Northern Kentucky, FSB was merged into and with Fifth Third Bank of Northern Kentucky, Inc. At the same time, the Company was deregistered as a savings-and-loan holding company. As of December 31, 1996, the Company's consolidated total assets were $20,548,998,000 and stockholders' equity totalled $2,144,125,000. The Bank has five wholly-owned subsidiaries: Midwest Payment Systems, Inc.; Fifth Third Securities, Inc.; The Fifth Third Company; The Fifth Third Leasing Company; and Fifth Third International Company. Fifth Third International Company has a 99.9% owned subsidiary: Fifth Third Trade Services Limited. Fifth Third Investment Company owns the remaining .01%. 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 1996: On January 19, 1996, the Company purchased approximately $1.4 billion of 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. Page 3 4 On February 23, 1996, the Company purchased the Ohio operations of First Chicago NBD Corporation including $534 million in deposits, $222 million in loans and 25 offices in Columbus and Dayton, Ohio for $39.5 million. On March 15, 1996, the Company acquired Kentucky Enterprise Bancorp, Inc., with consolidated assets of $276 million, and its wholly-owned subsidiary, Kentucky Enterprise Bank, FSB in a transaction accounted for as a pooling of interests. 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 Corporation and Electronic Data Systems and other merchant processing providers such as First Data Corporation, National Processing, Inc. and First USA Paymentech, Inc. 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 (the "Act"). The Act provides that the acquisition of control of a bank is subject to the prior approval of the Board of Governors of the Federal Reserve System. The 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. 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. Prior to January, 1997, the Company, as a savings and loan holding company, and its savings and loan subsidiaries were subject to regulation by the Office of Thrift Supervision. Page 4 5 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, 1996, there were no employees of the Company. Subsidiaries of the Company employed 6,970 employees--1,178 were officers and 1,379 were part-time employees. STATISTICAL INFORMATION Pages 6 to 12 contain statistical information on the Company and its subsidiaries. Page 5 6 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, 1996, are incorporated herein by reference to the securities tables on pages 32 and 33 of the Company's 1996 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 2.42% 1 - 5 years 2.32% 6 - 10 years 2.28% Over 10 years 2.64% Total municipal securities 2.33% AVERAGE BALANCE SHEETS The average balance sheets are incorporated herein by reference to Table 1 on pages 28 and 29 of the Company's 1996 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 1996 Annual Report to Stockholders attached to this filing as Exhibit 13. Page 6 7
Types of Loans and Leases ------------------------- A summary of loans and leases by major category as of December 31 follows ($000's): 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Commercial, financial and agricultural loans $4,013,785 3,584,124 3,045,315 2,685,558 2,490,077 Real estate - construction loans 375,938 312,098 286,088 342,177 330,587 Real estate - mortgage loans 2,946,225 2,769,178 3,076,463 3,434,496 2,964,402 Consumer loans 2,600,169 3,062,697 2,407,261 2,090,154 1,713,842 Lease financing 3,026,834 2,288,573 1,703,492 1,170,231 737,186 ---------------- ---------------- ----------------- ---------------- ---------------- Loans and leases, gross 12,962,951 12,016,670 10,518,619 9,722,616 8,236,094 Unearned income (448,159) (326,027) (232,162) (155,718) (120,504) Reserve for credit losses (187,278) (177,388) (155,918) (144,537) (121,452) ---------------- ---------------- ----------------- ---------------- ---------------- Loans and leases, net $12,327,514 11,513,255 10,130,539 9,422,361 7,994,138 ================ ================ ================= ================ ================
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, 1996, 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 $2,461,311 73,498 161,541 2,696,350 Due after one year through five years 1,262,114 290,158 532,342 2,084,614 Due after five years 290,360 12,282 101,716 404,358 ---------------- ---------------- ----------------- ---------------- Total $4,013,785 375,938 795,599 5,185,322 ================ ================ ================= ================ Loans due after one year: Predetermined interest rate $985,538 290,216 497,952 1,773,706 ================ ================ ================= ================ Floating or adjustable interest rate $566,936 12,224 136,106 715,266 ================ ================ ================= ================
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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. For purposes of applying Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan", as amended, impaired loans have been defined as all nonaccrual loans. The following table presents data concerning loans and leases at risk at December 31, 1996 and previous years ($000's): 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Nonaccrual loans and leases $29,046 37,049 20,725 18,961 32,772 Loans and leases contractually past due ninety days or more as to interest, principal or rental payments 38,053 20,455 13,237 10,444 21,804 Loans and leases renegotiated to provide a reduction or deferral of interest, principal or rental payments because of the financial position deterioration of the borrower 1,121 506 443 2,378 3,693 Loans and leases currently performing in accordance with contractual terms where there are serious doubts as to the ability of the borrower to comply with such terms 43,097 39,621 35,254 35,992 35,097
For calendar year 1996, interest income of $569,000 was recorded on nonaccrual and renegotiated loans and leases. Additional interest income of $3,805,000 would have been recorded if the nonaccrual and renegotiated loans and leases had been current in accordance with their original terms. Page 8 9
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): 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Loans and leases outstanding at December 31 $12,514,792 11,690,643 10,286,457 9,566,898 8,115,590 =============== ============== ============== =============== =============== Average loans and leases outstanding $12,304,544 10,960,757 9,902,901 8,869,432 7,189,975 =============== ============== ============== =============== =============== Reserve for credit losses, January 1 $177,388 155,918 144,537 121,452 97,319 --------------- -------------- -------------- --------------- --------------- Losses charged off: Commercial, financial and agricultural loans (10,500) (6,596) (8,793) (12,113) (24,156) Real estate - construction loans -- -- -- -- -- Real estate - mortgage loans (3,774) (3,697) (3,485) (7,174) (6,488) Consumer loans (53,027) (26,330) (16,416) (16,035) (22,164) Lease financing (13,143) (5,084) (2,252) (1,850) (1,910) --------------- -------------- -------------- --------------- --------------- Total losses (80,444) (41,707) (30,946) (37,172) (54,718) --------------- -------------- -------------- --------------- --------------- Recoveries of losses previously charged off: Commercial, financial and agricultural loans 2,865 1,443 1,795 2,103 1,109 Real estate - construction loans -- -- -- -- -- Real estate - mortgage loans 1,608 611 3,006 564 462 Consumer loans 13,174 8,399 7,898 6,793 6,883 Lease financing 2,835 1,393 773 638 499 --------------- -------------- -------------- --------------- --------------- Total recoveries 20,482 11,846 13,472 10,098 8,953 --------------- -------------- -------------- --------------- --------------- Net losses charged off: Commercial, financial and agricultural loans (7,635) (5,153) (6,998) (10,010) (23,047) Real estate - construction loans -- -- -- -- -- Real estate - mortgage loans (2,166) (3,086) (479) (6,610) (6,026) Consumer loans (39,853) (17,931) (8,518) (9,242) (15,281) Lease financing (10,308) (3,691) (1,479) (1,212) (1,411) --------------- -------------- -------------- --------------- --------------- Total net losses charged off (59,962) (29,861) (17,474) (27,074) (45,765) --------------- -------------- -------------- --------------- --------------- LOC contract -- -- (7,800) -- -- Reserve of acquired institutions and other 5,838 8,369 875 2,122 3,798 Provision charged to operations 64,014 42,962 35,780 48,037 66,100 --------------- -------------- -------------- --------------- --------------- Reserve for credit losses, December 31 $187,278 177,388 155,918 144,537 121,452 =============== ============== ============== =============== ===============
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Summary of Credit Loss Experience, continued - -------------------------------------------- Reserve for credit losses, December 31: 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Commercial, financial and agricultural loans $98,491 92,988 72,906 71,825 66,260 Real estate - construction loans 4,853 5,033 5,405 6,442 6,096 Real estate - mortgage loans 39,879 30,392 26,298 23,397 16,638 Consumer loans 25,045 32,126 36,272 33,450 26,997 Lease financing 19,010 16,849 15,037 9,423 5,461 -------------- ------------- ------------- ------------- ----------- Total reserve for credit losses $187,278 177,388 155,918 144,537 121,452 ============== ============= ============= ============= ===========
The analysis above is for analytical purposes. The reserve for credit losses is general in nature and is available to absorb losses from any portion of the loan and lease portfolio. The distribution of loans and leases by type and the ratio of net charge-offs to average loans and leases outstanding was as follows: 1996 1995 1994 1993 1992 ---- ---- ---- ----- ---- Percentage of loans and leases to total loans and leases at December 31 Commercial, financial and agricultural loans 31.9% 30.5 29.5 28.0 30.5 Real estate - construction loans 3.0 2.7 2.8 3.6 4.1 Real estate - mortgage loans 23.6 23.7 29.9 35.8 36.5 Consumer loans 20.8 26.2 23.4 21.9 21.1 Lease financing 20.7 16.9 14.4 10.7 7.8 ------------ ----------- ------------ ----------- ---------- 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 0.20% 0.15 0.24 0.38 0.98 Real estate - construction loans -- -- -- -- -- Real estate - mortgage loans 0.07 0.10 0.01 0.21 0.25 Consumer loans 1.40 0.68 0.38 0.49 0.96 Lease financing 0.45 0.22 0.12 0.15 0.29 Weighted Average Ratio 0.49 0.27 0.18 0.31 0.64
Page 10 11 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 Company'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 $4,052,000 in 1996, $13,101,000 in 1995 and $18,306,000 in 1994. 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, 1996 of $187,278,000 was adequate.
Maturity Distribution of Domestic Certificates of Deposit of $100,000 and Over at December 31, 1996 ($000's) - ------------------------------------------------------------------------------------------------------------ Three months or less $532,832 Over three months through six months 142,997 Over six months through twelve months 74,481 Over twelve months 36,477 ------------- Total certificates - $100,000 and over $786,787 =============
Note: Foreign office deposits are denominated in amounts greater than $100,000. Page 11 12
Return on Equity and Assets - --------------------------- The following table presents certain operating ratios: 1996 1995 1994 ---- ---- ---- Return on assets (A) * 1.72% 1.78 1.77 Return on equity (B) * 17.2% 18.1 18.6 Dividend payout ratio (C) * 34.8% 33.9 32.3 Equity to assets ratio (D) 9.99% 9.82 9.50 - -------------------------------------------- (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 * 1996 ratios include the special SAIF assessment of $16.6 million pretax ($10.8 million after tax or $.10 per share). For comparability, excluding the impact of this assessment, return on average assets, return on average equity and the dividend payout ratio for 1996 would have been 1.78%, 17.8% and 33.7%, respectively.
Page 12 13 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. At December 31, 1996, the Company, through its subsidiary banks and savings banks, seven located in Ohio, four in Kentucky, one in Indiana and one in Florida, operated 414 banking centers, of which 208 were owned and 206 were 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 1996 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 1996 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 1996 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 1996 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 14 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 1997 Proxy Statement. The names, ages and positions of the Executive Officers of the Company as of January 31, 1997 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., 51 PRESIDENT AND CEO. President and Chief Executive Officer of the Company and the Bank. George W. Landry, 56 EXECUTIVE VICE PRESIDENT. Executive Vice President of the Company and the Bank. Stephen J. Schrantz, 48 EXECUTIVE VICE PRESIDENT. Executive Vice President of the Company and the Bank. Michael D. Baker, 46 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, 49 EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER. Executive Vice President of the Company and the Bank since August, 1995. Previously, Mr. Brumm was Senior Vice President and CFO of the Company and the Bank. Robert P. Niehaus, 50 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, 41 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.
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CURRENT POSITION AND NAME AND AGE BUSINESS EXPERIENCE DURING PAST 5 YEARS - ------------ --------------------------------------- Robert J. King, Jr., 41 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, 51 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, 36 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, 40 AUDITOR. Auditor of the Company and the Bank. Executive Vice President of the Bank since January, 1997. Previously, Mr. Wissel was Senior Vice President of the Bank. Roger W. Dean, 34 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, 35 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 1997 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 1997 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 1997 Proxy Statement. Page 15 16 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, 1996, 1995 and 1994 * Consolidated Balance Sheets, December 31, 1996 and 1995 * Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1996, 1995 and 1994 * Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 * Notes to Consolidated Financial Statements * * Incorporated by reference to pages 15 through 27 of Registrant's 1996 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 17 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) 10(m)- Fifth Third Bancorp Amended 1993 Discount Stock Purchase Plan (n) 11- Computation of Consolidated Net Income Per Share for the Years Ended December 31, 1996, 1995, 1994, 1993 and 1992 13- Fifth Third Bancorp 1996 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 18 (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. (n) Incorporated by reference to Registrant's filing with the Securities and Exchange Commission as Exhibit 10 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 1996. Page 18 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIFTH THIRD BANCORP (Registrant) /s/ George A. Schaefer, Jr. March 3, 1997 - -------------------------- George A. Schaefer, Jr. President and CEO (Principal Executive Officer) Pursuant to requirements of the Securities Exchange Act of 1934, this report has been signed on March 3, 1997 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) /s/ John F. Barrett /s/ Joseph H. Head, Jr. /s/ James E. Rogers - -------------------------- -------------------------- -------------------------- John F. Barrett Joseph H. Head, Jr. James E. Rogers Director Director Director /s/ Milton C. Boesel, Jr. /s/ Brian H. Rowe - -------------------------- -------------------------- -------------------------- Milton C. Boesel, Jr. Joan R. Herschede Brian H. Rowe Director Director Director /s/ George A. Schaefer, Jr. - -------------------------- -------------------------- -------------------------- Gerald V. Dirvin William G. Kagler George A. Schaefer, Jr. Director Director Director /s/ Thomas B. Donnell /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/ Robert B. Morgan - -------------------------- -------------------------- -------------------------- John D. Geary Robert B. Morgan Dudley S. Taft Director Director Director - -------------------------- -------------------------- Ivan W. Gorr Michael H. Norris Director Director
Page 19 EX-11 2 EXHIBIT 11 1
EXHIBIT 11 FIFTH THIRD BANCORP ------------------- COMPUTATION OF CONSOLIDATED NET INCOME PER SHARE ------------------------------------------------ FOR THE YEARS ENDED DECEMBER 31 ------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Net Income $ 335,059 287,685 244,459 206,235 172,021 ============ ========== =========== ========== ========== Net income per common share - assuming no dilution: Weighted average number of shares outstanding (a) 103,994 98,879 96,580 93,973 93,494 ============ ========== =========== =========== ========== Per share (net income divided by the weighted average number of shares outstanding) $ 3.22 2.91 2.53 2.19 1.84 ============ ========== =========== =========== ========== Net income per common and common equivalent share: Net income $ 335,059 287,685 244,459 206,235 172,021 Add - Interest on 4 1/4% convertible subordinated notes due 1998, net of applicable income taxes 1,637 4,257 4,332 4,393 546 ------------ ---------- ----------- ----------- ---------- Adjusted net income $ 336,696 291,942 248,791 210,628 172,567 ============ ========== =========== =========== ========== Adjusted weighted average number of shares outstanding - after giving effect to the conversion of stock options and convertible subordinated notes (a) 106,402 102,642 100,388 98,007 94,623 ============ ========== =========== =========== ========== Per share (adjusted net income divided by the adjusted weighted average number of shares outstanding) $ 3.16 2.84 2.48 2.15 1.82 ============ ========== =========== =========== ========== Net income per common share - assuming full dilution: Adjusted net income $ 336,696 291,942 248,791 210,628 172,567 ============ ========== =========== =========== ========== Adjusted weighted average number of shares outstanding - after giving effect to the conversion of stock options and convertible subordinated notes (a) 106,615 103,106 100,386 98,007 94,782 ============ ========== =========== =========== ========== Per share (adjusted net income divided by the adjusted weighted average number of shares outstanding) $ 3.16 2.83 2.48 2.15 1.82 ============ ========== =========== =========== ========== (a) Per share amounts and average shares outstanding 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.
EX-13 3 EXHIBIT 13 1 FOCUS [ARTWORK] FIFTH THIRD BANCORP 1996 ANNUAL REPORT 2 PERFORMANCE HIGHLIGHTS CONTENTS 2 President's Letter 6 Management Editorial 15 Consolidated Statements of Income 16 Consolidated Balance Sheets 17 Consolidated Statements of Changes in Stockholders' Equity 18 Consolidated Statements of Cash Flows 19 Notes to Consolidated Financial Statements 27 Independent Auditors' Report 28 Management's Discussion and Analysis of Financial Condition and Results of Operations 37 Consolidated Six Year Summary of Operations, Condensed Consolidated Balance Sheet Information and Summarized Quarterly Financial Information 38 Consolidated Ten Year Comparison Directors and Officers on inside Back Cover In 1996, our focus on the basics of sales, credit quality, teamwork, expense control & hard work resulted in another successful year for Fifth Third Bancorp. 3 [The following tables are representive of graphs shown under performance highlights in the Bancorp's Annual Report]
Fully-diluted Net Income Per Share Five Year Compound Growth Rate 16%* 1991 $ 1.52 1992 $ 1.82 1993 $ 2.15 1994 $ 2.48 1995 $ 2.83 1996 $ 3.26* 1996 $ 3.16 * excluding SAIF
Dividends Declared Per Share Five Year Compound Growth Rate 16% 1991 $ .52 1992 $ .60 1993 $ .68 1994 $ .80 1995 $ .96 1996 $ 1.10
Book Value Per Share Five Year Compound Growth Rate 15% 1991 $ 10.15 1992 $ 11.48 1993 $ 13.29 1994 $ 14.41 1995 $ 17.17 1996 $ 20.25
Total Assets ($ in billions) Five Year Compound Growth Rate 16% 1991 $ 9.981 1992 $ 11.390 1993 $ 13.129 1994 $ 14.957 1995 $ 17.053 1996 $ 20.549
4
FIFTH THIRD BANCORP AND SUBSIDIARIES FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------- 1996 1995 % Change ================================================================================= EARNINGS AND DIVIDENDS ($000'S) Net Income ............................... $ 335,059 287,685 16.5 Operating Earnings (a) ................... 345,857 287,685 20.2 Cash Dividends Declared .................. 115,515 95,181 21.4 - --------------------------------------------------------------------------------- PER SHARE Net Income ............................... $ 3.22 2.91 10.7 Fully-Diluted Net Income ................. 3.16 2.83 11.7 Excluding Special SAIF Assessment (a) . 3.26 2.83 15.2 Cash Dividends Declared .................. 1.10 .96 14.6 Year-End Book Value ...................... 20.25 17.17 17.9 Year-End Market Price .................... 62.81 48.83 28.6 - --------------------------------------------------------------------------------- AT YEAR END ($ IN MILLIONS) Assets ................................... $ 20,549 17,053 20.5 Loans and Leases (b) ..................... 12,514 11,690 7.0 Deposits ................................. 14,375 12,486 15.1 Stockholders' Equity ..................... 2,144 1,725 24.3 - --------------------------------------------------------------------------------- KEY RATIOS Return on Average Assets (a) ............. 1.78% 1.78 -- Return on Average Equity (a) ............. 17.8 18.1 (1.7) Overhead Ratio (a,c) ..................... 43.5 43.9 (.9) Net Interest Margin ...................... 3.99 3.90 2.3 - --------------------------------------------------------------------------------- Number of Shares ......................... 105,892,554 100,422,996 5.4 Number of Stockholders ................... 15,632 15,148 3.2 Number of Banking Locations .............. 414 384 7.8 Number of Full-Time Equivalent Employees . 6,549 6,108 7.2 - --------------------------------------------------------------------------------- (a) For comparability, certain financial ratios and statistics exclude the impact of the 1996 special SAIF assessment of $16.6 million pretax ($10.8 million after tax or $.10 per share). (b) Excluding the effect of loan sales and securitizations over the past year, total loan and lease outstandings would have increased 25.8%. (c) 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 - ---------------------------------------------------------------------- 1996 FIRST QUARTER $59 3/16 $43 3/4 $.26 SECOND QUARTER 58 1/4 50 1/8 .26 THIRD QUARTER 58 1/8 50 1/4 .26 FOURTH QUARTER 73 3/4 58 1/2 .29 - ---------------------------------------------------------------------- 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 - ----------------------------------------------------------------------
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.
- ------------------------------------------------------------------ RATINGS Standard Duff & Moody's & Poor's Fitch Phelps - ------------------------------------------------------------------ FIFTH THIRD BANCORP Commercial Paper P1 A1+ F1+ Duff-1+ - ------------------------------------------------------------------ FIFTH THIRD BANK-CINCINNATI Short-Term Deposit P1 A1+ F1+ Duff-1+ Long-Term Deposit Aa2 AA- AA+ AA Medium-Term Deposit Aa2 AA- AA+ AA - ------------------------------------------------------------------ FIFTH THIRD BANKS OF NORTHWESTERN OHIO, N.A., COLUMBUS, NORTHEASTERN OHIO, CENTRAL INDIANA AND KENTUCKY, INC. Short-Term Deposit P1 A1+ F1+ Duff-1+ Long-Term Deposit Aa3 AA- 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 18, 1997, on the fifth floor of the Corporate Office. INVESTOR INFORMATION Any individual requesting general information or a copy of the Corporation's 1996 Form 10-K Report (to be filed with the Securities and Exchange Commission before March 31, 1997) may obtain these by writing to Investor Relations at the Corporate Office. Investor information can be accessed on the Internet at www.53.com/bancorp. 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. 1 5 DEAR STOCKHOLDERS AND FRIENDS: I am pleased to report that Fifth Third Bancorp's 1996 operating earnings increased to $345,857,000 up 20% over 1995. We achieved this success by remaining focused on the basics of sales, credit quality, teamwork, expense control and hustle. For 1996, we achieved a return on equity of 17.8% and return on assets of 1.78%. Revenue growth and expense control lowered our overhead ratio for 1996 to 43.5%, ranking us the best of the top 50 U.S. banking companies for the second consecutive year. [Photo George A. Schaefer, Jr., President and CEO] In September, we increased our quarterly dividend to $.29 per share, representing a 24% increase over September, 1995. We are proud to have followed a pattern of increasing our quarterly dividend every nine months for over 10 years. Net income, including a special, pretax charge of $16.6 million, or $.10 per share, mandated by federal legislation to recapitalize the Savings Association Insurance Fund (SAIF) of the FDIC, was $335,059,000, an increase of 16% from 1995. This charge during the third quarter of 1996 applied to approximately $2.7 billion of thrift deposits we acquired over the years. While it translates to little more than government confiscation, it was $1.4 million less than originally anticipated and reduces ongoing deposit insurance expense by $6.1 million annually. I am very pleased that we were able to overcome this special charge and still post the double-digit earnings growth that shareholders have come to expect. Looking at our results for 1996, I was especially encouraged by our net revenue growth of 22% over 1995. Although acquisitions in the fourth quarter of 1995 and the first quarter of 1996 helped, most of the revenue growth was internally generated through a focus on new products, fee initiatives, new campaigns and promotions, and, of course, aggressive selling. For example, trust and data processing revenue increased 20% and 17%, respectively, through new customer sales and referrals. International and letter of credit fee income grew 10% as we helped our commercial customers conduct their businesses abroad. Other examples include 41% growth in mortgage loan fee income driven by strong originations in 2 6 all of our markets, and significantly higher ATM revenues as we deployed more ATMs and focused on customer convenience. Our balance sheet is as strong as ever. Our capital ratios and leverage are at the top of the industry, a fact continuously recognized by rating agencies, analysts, investors and even regulators. Our funding mix improved considerably in 1996 as we improved the deposit base of acquired offices and focused on transaction accounts. Loans and leases continue to grow, but the balance sheet only tells part of the story this year. We have used loan sales and securitizations to allow us to further expand our origination and servicing capability without increasing balance sheet leverage. While average loan and lease outstandings increased 12%, origination volumes increased even more. For example, mortgage originations were $1.6 billion in 1996, compared to $1 billion in 1995. Consumer loan and lease originations were $2.8 billion in 1996 compared to $2.3 billion in 1995. Through effective securitization, origination capacity and service fee income are no longer constrained by capital levels. We think this approach improves flexibility and will provide much more value to our shareholders over time while allowing us to maintain a strong balance sheet. Looking at credit quality, consumer charge-offs admittedly were higher than any of us expected heading into 1996. The nearly $30 million increase over 1995 created some earnings challenges that we overcame, but I think the whole industry was lulled by the unusually low charge-offs of the last three or four years. At .49%, our current ratio of net charge-offs to average loans and leases is about the same as our historical 10-year average, and our reserve for credit losses is more than five times nonperforming assets. Our loan losses are lower than average for other banks and our level of underperforming assets is among the best. We will continue to work hard to manage charge-offs and credit risk in 1997. We continue to fill in our markets along the interstate highways. After successfully integrating the six acquisitions from 1995 and the purchases of 1st Nationwide's Cleveland offices, NBD's Ohio operations and Kentucky Enterprise Bancorp during the first quarter of 1996, we focused the rest of the year on integrating these acquired locations and ensuring they are delivering the performance you have come to expect from Fifth Third. The acquisitions strengthened our ability to compete in these markets by increasing our presence, consumer access and sales force. Fifth Third Bank of Northeastern Ohio, which grew to $2.7 billion in assets with the purchase of Falls Financial and 1st Nationwide, added 288,000 new customers and now serves a six-county area with 61 banking locations. Our purchase of NBD Ohio enhanced 3 7 market share in Columbus, which now ranks as the fourth largest bank in that area and in Dayton, which now boasts 23 Banking Centers, six Bank Marts(R) and two new fully automated, 24-hour Quick Source SM locations. Fifth Third Bank of Northern Kentucky, the largest financial institution in that market, successfully integrated the deposits and offices of Kentucky Enterprise Bancorp in 1996. We are able to serve 27,000 more customers as a result of the acquisition with only three more locations than we had prior to the acquisition. We have actually purchased a total of 72 locations since September of 1995. However, the net number of Fifth Third offices has only increased by 32 after consolidation. With excess capacity in the industry, we believe that quick and decisive consolidation is the key to successful acquisitions. It makes us more efficient while still providing the convenience customers expect. We have continued to invest in equipment and personnel to achieve growth in all our rapidly evolving businesses. While developing new initiatives in payment technology for future consumer benefit, Midwest Payment Systems (MPS), our data processing subsidiary, continued to grow in 1996. This activity helped drive a 17% increase in revenue for MPS, which the group realized through sales, not acquisition. The Trust and Investment Group also made significant investments in staff and technology. As a result, the group posted a 20% increase in revenue. With growth and acquisitions come expenses. Year over year expense growth was higher than normal for us as we worked hard to integrate new locations. Our expense growth rate slowed considerably in the second half of the year and our industry-leading overhead ratio actually improved over 1995. The American Banker recognized us as #1 among the top 50 U.S. banking companies for our efficiency ratio of 41.04% at the end of the third quarter. This month, we authorized the repurchase of $250 million of our common stock over the course of the coming year. Strong earnings, asset securitization and the conversion of our subordinated debt to equity all contributed to high capital levels, even by our standards. We have always adhered to capital levels and balance sheet quality that is at the top of our industry, but we are equally [The following table is representative of the graph shown on page 4 in the Bancorp's Annual Report.]
Overhead Ratio Growing revenues faster than expenses drives our overhead ratio to one of the lowest in the industry. Fifth Third Peer ----------- ---- 1991 49.5% 63.9% 1992 48.6% 62.6% 1993 48.6% 62.0% 1994 46.6% 63.1% 1995 43.9% 61.3% 1996 43.5% N/A
4 8 committed to delivering to you consistently high returns and the disciplined use of your money. Of course, we will always maintain adequate capital to grow. We were pleased to recently announce the appointment of Dr. Mitchel D. Livingston, Vice President for Student Affairs and Human Resources at the University of Cincinnati, to serve as a Director for Fifth Third. At the Bancorp's Annual Meeting in March, John D. Geary will retire from the Board after 20 years of service. On behalf of all Fifth Third stockholders, I'd like to thank Jack for his guidance and support and wish him continued success. As we look ahead, the traits that differentiate Fifth Third -- teamwork, hard work, sales, strong credit quality and expense control -- will continue to serve our shareholders well as industry challenges continue to change. We want to focus on bringing more of our revenues down to the bottom line and investing resources in the lines of business providing the greatest return. We will continue to be aggressive in increasing loan and lease growth, fee income, and dissemination of our products and services. During 1996 we were added to the S&P 500 index. We were also recognized by FinancialWorld magazine, which named Fifth Third the #1 Bank among the country's 100 largest financial institutions. In addition, Salomon Brothers ranked us the #1 U.S. Bank in overall profitability, capital, productivity and credit quality. Teamwork produced the results that earned these accolades and, as always, I want to thank all of the 6,970 members of the Fifth Third Team for staying focused on the basics which resulted in another successful year. Finally, I close by thanking our customers, suppliers, Boards of Directors, stockholders and the communities in which we operate for their continued loyalty, support and confidence. Sincerely, /s/ George A. Schaefer, Jr. George A. Schaefer, Jr. President and CEO January, 1997 GROWTH 5 9 RETAIL BANKING DELIVER CONVENIENCE 1996 was a challenging year for the Retail Banking Group. After assimilating six acquisitions in 1995, we expanded four existing markets through branch acquisitions during the first quarter of 1996. The Retail team, in conjunction with the Bancorp's other business and support groups, successfully merged $2.1 billion in deposits, $378 million in loans and 65 offices through the acquisitions of 1st Nationwide in Cleveland, NBD in Columbus and Dayton, and Kentucky Enterprise Bancorp in Northern Kentucky. As a result, our Northeastern Ohio affiliate grew to 61 Banking Centers and $2.7 billion in assets and is now the third largest bank in the Cleveland market. Columbus integrated $346 million in deposits, and 11 offices, while Dayton added two locations. Fifth Third Bank of Northern Kentucky acquired $216 million in deposits and three new offices and continues to have the largest market share in Northern Kentucky. With this solid infrastructure in place to deliver convenience, we turned our attention to building core deposits. We introduced new products, cross-sold existing services and promoted transaction accounts. Demand deposits and interest bearing checking and savings account balances grew by 53% over last year. Traditional checking account options were tailored to offer custom product choices for four distinct customer segments and their specific financial needs. This product launch featured the debut of our newest checking account, Platinum One(SM), which rewards higher balances with premium interest rates. Customer demand fueled growth of our new products throughout all our markets. Platinum One balances have grown to $370 million since June, and MaxSaver(SM), our tiered savings product introduced in late 1995, grew to $1.2 billion in deposits. Florida, Lexington and Northern Kentucky had exceptional savings account growth, posting 787%, 137% and 244% increases, respectively. We worked hard at cross-selling and used creative marketing campaigns to improve our deposit mix while reducing our overall cost of funds. Convenience remains paramount for most consumers in choosing a financial services provider. We remain committed to delivering it through a variety of options. After all, convenience means different things for different customers. Delivery of sales and service through the traditional Banking Center remains our primary means, with full-service Bank Mart locations, open seven days a week inside grocery stores, continuing to increase in popularity. We built on our 10-year Bank Mart experience during the year with the introduction of Quick Source. These facilities, available 24-hours a day inside grocery stores, feature a video resource center with Johnny Bench, our spokesperson for the past 23 years, providing product information. Jeanie(R) ATMs and Jeanie Telephone Banking are also available for customers' around-the-clock convenience. We will continue to look for opportunities to expand this concept as it enables us to provide 24-hour service without the staffing expense. The deployment of more ATMs to non-traditional locations is increasing. In 1996, we added 131 new Jeanie ATMs throughout all our markets. We are continually evaluating location opportunities in recreational facilities, shopping centers, restaurants and other high traffic areas where our customers will find convenience, while non-customers will be willing to pay extra for it, thereby generating additional fee income. Overall, we made some fairly dramatic changes in the retail delivery network in our markets over the past 15 6 10 months. Since the third quarter of 1995, we have purchased 72 traditional branches, but our number of traditional banking centers only increased by 25, highlighting our success in consolidating and improving profitability without sacrificing customer convenience. At the same time, we added seven new Bank Marts, 131 ATMs and introduced four Quick Sources. Our retail banking delivery system will continue to evolve as our customers dictate. We haven't abandoned "bricks and mortar," but we will make sure the branches we have make sense and are as productive as possible. Alternatives such as Quick Sources will expand and, with help from Midwest Payment Systems, we will explore other electronic banking delivery opportunties. [photo] Bank Mart Manager, Keith Richburg, discusses the benefits and conveniences of a Fifth Third Home Equity loan with his customer, Evelyn Watson. Consumer loan and lease originations remained strong in all of our markets during 1996. We used sales and securitization to expand origination and servicing capability without increasing balance sheet leverage. Consumer loan and lease origination volumes increased 29% over 1995. For the year, we originated $1.6 billion in residential mortgage loans, compared to $1 billion in 1995. Consumer loan and lease originations were $2.8 billion and $2.3 billion, respectively, in 1996 and 1995, while new consumer lease volumes increased from $783 million in 1995 to $1.2 billion in 1996. Development of innovative products like the "Perfect Mortgage(SM)," which features five adjustable-rate mortgage options, low closing costs and low charges for conversion to a fixed rate mortgage will continue to drive our mortgage volume, particularly in newer markets where our market share is not yet #1. Combining innovative product development with successful cross-sell initiatives will continue to build market share throughout all our communities. Our portfolio of credit card products was enhanced during the year to offer expense management solutions for small and medium-size businesses with the introduction of the Visa(R) Purchasing, Visa Corporate and Visa Business credit cards. Credit card outstandings were up 12% over year end 1995. Retail banking is about choices, and our continued success will depend on our ability to remain flexible and deliver the products and services our customers want when they need them. It is also known as "convenience". Positive transaction account growth and cross-selling efforts, evidenced by across the board increases in all of our retail product lines, demonstrate that we are on target. We will continue to focus on the basics to stay there. [photo] Fifth Third remains committed to delivering convenience to its customers. Bank Marts and Jeanie ATMs are two of the more popular options provided today. 7 11 COMMERCIAL BANKING DEVELOP RELATIONSHIPS The Commercial Banking Group met the challenge of more aggressive competition by continuing to develop relationships with our customers during 1996. Fifth Third relationship officers throughout our markets responded to customers' demands that we understand their businesses and deliver value-added, creative business banking solutions. Commercial bankers became financial architects and consultants, working closely with customers to design their business banking package of services. [photo] The team featured in the photo had been instrumental in developing a relationship with the retirement community of Cedar Village. This has led to other referrals of new business to Fifth Third, including Jewish Vocational Service. Seated left to right: Brian Rogg, Commercial Mortgage; Patricia Borger, Foundation and Endowment Services; Valerie Scott, Relationship Manager; standing Nicole Wilheim, Treasury Management; Doug Burgess, Commercial Mortgage. Our hard work and responsiveness grew commercial loan and lease outstandings to $6.1 billion, a 13% increase over last year, while commercial deposits increased 20% over 1995. Activity in all our markets was strong, with Columbus, Central Indiana, Louisville and Northeastern Ohio delivering impressive results. In Columbus, for example, a team comprised of veteran Fifth Third employees and new employees from the NBD Ohio acquisition, forged ahead to capitalize on the expanded market. As a result of these cross-sell efforts, Columbus added over $175 million in commercial loans and leases in 1996 along with $10 million in deposits. In Indiana, our team made over 20,000 personal visits to customers and prospective customers during the year. The market responded positively, evidenced by the growth of $44 million in commercial loans and leases during 1996 as well as an increase of $15 million in demand deposits. Louisville delivered equally impressive results through its aggressive calling campaign. Commercial demand deposits grew 12% and loans and leases increased 33%. The Commercial Banking Group also sharpened its focus on several niche services. Leveraging our delivery system of Banking Centers and Bank Marts, the Business Development Group was realigned to meet the needs of small and mid-size companies with enhanced products, volume-based pricing structures and hands-on customer service. Our Business 53(R) checking account was segmented into three distinct packages to provide the most value to our customers while generating a profitable relationship for the Bank. Business 53 Essentials, Business 53 Advantage and Business 53 Premier all offer the small and mid-size business owner time and money-saving banking options. Another niche we are developing focuses on the dynamic health care industry. The Health Care Banking Group, comprised of commercial lenders and private bankers, continued to work closely with high-net-worth medical professionals, hospitals, insurance companies, and other service providers to offer business and personal banking solutions. Corporate Treasury Management continued to develop solid relationships with customers and co-workers to increase awareness of business banking solutions 8 12 they provide. This effort, combined with superior technology and customer service, drove income, including business service charges, to a record 33% increase over 1995. Trans-Act:PC(R), Positive Pay, Lockbox and the Corporate One Account(R) were the fastest growing services in 1996. Successful marketing of treasury products including payment services, Electronic Data Interchange, ACH, disbursement services, Account Reconciliation Plans, cashiering services, sweep arrangements, including Information Reporting Systems, contributed to Corporate Treasury Management income growth of 53% over last year. Technology plays a major role in supporting our electronic banking products, and the Corporate Treasury Management team, which includes 11 Certified Cash Managers, will continue to update its technical and industry expertise to ensure future success. As business customers are looking to automate more of their financial functions, our Corporate Treasury Management Group is challenged to provide innovative solutions as never before. They're meeting these challenges with a combination of hard working, expert personnel and cutting-edge technology tools. We anticipate additional technology investments so that we can maintain our competitive edge, be a part of the payment system revolution and win many new contracts while solidifying existing relationships. The Fifth Third Leasing Company continued its record-setting growth in 1996 by employing quality personnel who showed a true entrepreneurial spirit in embracing new opportunities. We kept a close control on expenses, increased our use of syndication and constructed non-traditional deals. The Company surpassed $1 billion in outstandings in June 1996, exceeding our own expectations. By mid-year, originations were equal to those for the entire year 1993. The Fifth Third Leasing Company is also laying the foundation for future success by employing experienced leasing professionals in markets where it makes sense while capitalizing on Bancorp acquisitions to increase familiarity with its products and services. Looking forward, we will continue to focus on strengthening our vendor program sales initiatives to build relationships within this vast market. The commitment to the international banking market remains strong as fees increased 10% over 1995. During the year, a Fifth Third trading representative was permanently established in Brussels, Belgium to expand our calling efforts on companies headquartered in Europe with operations in our markets here at home. We also opened an office in Hong Kong to better serve our import-export customers. Our vision for 1997 is clear. We will focus on the basics, while providing creative business banking solutions for our customers through ongoing training of bank personnel and a sharpened attention to developing relationships. We will also continue to take advantage of our central geographic location. Fifth Third's access to excellent freight and distribution centers offers us a continual source of business prospects. Creating and executing a plan to convert these prospects into customers is Fifth Third's Commercial Banking Group's mission. We'll achieve it by bringing value-added solutions to them, developing lending niches and being "more than a banker." We are working hard to raise the bar of this commodity business by truly understanding our customers' needs, and then championing their success. [photo] Comair, a regional airline headquartered in Northern Kentucky, continues to expand throughout the country while developing its relationship with Fifth Third to include Treasury Management and International Banking services. 9 13 TRUST & INVESTMENT SERVICES BUILD WEALTH Revenue from the Trust and Investment Group was up 20% for 1996. With approximately $10 billion in assets under management, Fifth Third Investment Advisors continued to build wealth for personal, institutional and not-for-profit clients by staying close to them, working to understand their needs and then offering them the best and most appropriate solutions. The Fountain Square(R) funds, the Bank's proprietary family of stock, bond and money market mutual funds surpassed $2 billion in assets in 1996 and is now ranked in the top 50 fund families in the country. The Quality Growth Fund received a four-star rating from Morningstar for its three-year performance ending December 31 and an "A" rating for its one-year performance from The Wall Street Journal (December 31). Investor's Business Daily ranked it among the top 25 Growth Funds for its six-month performance (December 3) and gave it an "A" ranking, placing it in the top 10% of all funds for its three-year returns. The Balanced Fund was featured in Fortune magazine's list of "Best Mutual Funds For Your Money Now" (December 23) while the American Banker ranked it the #1 bank-managed mixed asset mutual fund for its third quarter results. The fund's three-year performance also merited an "A" ranking by The Wall Street Journal (November 29) and Lipper placed it in the top 3% for its one-month performance (November 30). Investor's Business Daily gave the Mid Cap Fund a "B+" ranking and placed it among the top 20% of all funds for its three-year investment performance. It was also included in the American Banker list of top 25 bank-managed equity funds for its third quarter performance and placed among the top 2% by Lipper for one-month investment results (November 30). The International Equity Fund exceeded $120 million in assets during the year and continued to outperform the EAFE Index, a benchmark for international investing, by 4.10%. The Ohio Tax Free Bond Fund and U.S. Government Securities Fund both received three-star ratings from Morningstar for their three-year investment performance, while the Commercial Paper Fund, Government Cash Reserves Fund and Treasury Obligations Fund received positive one-month Lipper rankings, placing them in the top 7%, 10% and 3%, respectively (November 30). In Private Banking, we continued to use technology to find solutions for our customers. We responded to the increasing sophistication of our personal customers' financial and investment needs with the introduction of the One Account Advantage(SM). The product offers a checking account with an automated sweep feature to various investment alternatives along with the convenience of a consolidated statement showing both bank and brokerage balances and activity. Private Banking's expertise in Health Care Banking and Corporate and Professional Services have fueled continued growth by responding to each customer's needs. During 1996 Personal Trust income increased 18%, as did the depth and breadth of our products and services. We enhanced our ability to provide trust and investment services with the creation of the Personal Wealth Management Group, for high net worth individuals, and the Personal Investment Management Group, for clients seeking more active management. We also created the Closely-Held Business Unit to serve the estate and succession planning needs of closely-held businesses. Aggressive direct marketing, combined with seminars and sales blitzes in all our markets, contributed to this significant growth. Fifth Third Securities, Inc., our brokerage subsidiary, continued to listen and serve the needs of our clients and, as a result, posted a 60% increase in revenues. The Group 10 14 added investment representatives to expand sales and introduced VoiceBroker(R), an automated telephone trading service, to allow real-time, 24-hour stock, mutual fund, bond and option trading via a touch-tone phone. The Employee Benefits Group continued to add new companies to its Fountain Square 401(k) Advantage(R) program, highlighted by Consolidated Stores. Headquartered in Ohio, Consolidated operates 1,900 retail outlets, including Odd Lots and Big Lots. The company has 33,000 employees and annual sales of over $2.9 billion. Other new plan participants during the year include Phar-Mor, the Columbus-based discount pharmacy chain, Lexington's Studio Plus, an executive travel lodging corporation and Cincinnati-based Gold Medal Products. Our advanced daily valuation capabilities make us an industry leader in helping our plan participants build wealth for their retirement. The Securities Services Group expanded its penetration in the institutional custody and mutual fund services markets during the year. The group combined technology, the expertise of its professional accounting staff and a commitment to serving a market that many other providers are exiting. We created an electronic interface with Princeton Financial Systems to enhance automation and communication for invesment portfolio reporting and reconciliation. The group also introduced mutual fund accounting to its portfolio of custody processing services, which includes cash management, credit facilities, closed-end/stock transfer agency, foreign exchange, affinity credit cards and 401(k) record-keeping services. As a result, several large customers were added during the year, including Bennington Capital Management's Accessor Funds, a family of eight mutual funds with over $400 million in assets. At year end, trust assets under care totaled over $92 billion. The Stock Transfer Group, a contributor to Corporate Trust services fee income, was recognized during the year by Rutgers University in a study that ranked Fifth Third as the #1 transfer agent in Ohio, Kentucky, Indiana and Illinois. The Bank was cited as excelling in client and shareholder service, technological operating innovations and cost containment. Corporate Trust service fee income was up 19% in 1996. [photo] Kathy DeLaura, Executive Director of the Cincinnati Ballet, seated in the middle, reviews with Fifth Third Investment Advisors, Roberta Tucker, Chip Peitengill and John Schmitz the solutions for building wealth for her organization. For our not-for-profit customers, the Foundation and Endowment Group manages over 250 relationships and over $2 billion in assets. Our dedicated team provides a variety of products including Investment Management, Planned Giving, Fountain Square 403(b) Advantage Retirement Program and Custody services for endowments. The Group has taken the lead in offering socially responsible investment alternatives to accommodate a variety of clients' interests and concerns. We have also created a consulting service and a seminar series entitled, "Composing A Strong Future." This positions us to assist our not-for-profit clients in accessing an estimated $10.4 trillion in wealth expected to pass intergenerationally by the year 2040. This unique combination of innovative products and dedicated professionals generated a 26% increase in revenue. Fifth Third's Trust and Investment Group is focused on providing our personal, institutional and not-for-profit clients with the best solutions for building wealth. We strive to be recognized as the preferred provider of investment and financial services in all our markets. 11 15 MIDWEST PAYMENT SYSTEMS PROVIDE SOLUTIONS Midwest Payment Systems (MPS) continued to provide merchant processing and electronic funds transfer (EFT) solutions, superior products and technical excellence that drove a 17% increase in revenue over 1995. Merchant processing continues to be the fastest growing component of MPS' business, with transactions increasing at an annual rate of over 33%. Solely through internally-generated sales, MPS has grown from 27th largest in the industry in 1993 to one of the top ten largest merchant processors today based on sales volume. With its integrated debit card processing capability, MPS has the ability to serve large, national chains and has focused on retailers and supermarkets. By year-end 1997, MPS should be ranked in the top five merchant processors. [photo] Pictured are members of the MPS Team who provide solutions to EFT and merchant customers around the world. Seated left to right are: Rob Crawford, Lynn Strickmeyer, Shawn McCabe, and standing left to right: Joe Pappano, Lisa Kintyalocts, and Tom Behringer. During 1996, MPS expanded its long-standing card processing relationship with Federated Department Stores, Inc. to include Macy's stores. Other large, multi-outlet customers added during the year include The Automotive Marketing Association and its network of 6,000 All Pro/Bumper to Bumper auto parts stores and Sally Beauty Company, which markets beauty products internationally through 1,500 outlets. Additionally, MPS now processes credit card payments for Sprint Communications and one of its subsidiaries, Sprint PCS. MPS' total merchant processing portfolio, including new customers awaiting conversion, has grown to $20 billion in merchant sales on an annualized basis. Revenue from MPS' EFT business continues to grow, with margins improving through the pricing of new products and lower operating costs. EFT services for financial institutions include ATM processing, card authorization and settlement, and gateway access to regional and national EFT networks. During 1996, MPS added 65 financial institutions as new EFT customers, expanding its presence in the Northeastern U.S., California, Illinois, Kentucky and Tennessee. MPS also added 25 new member financial institutions to Jeanie, Fifth Third's proprietary ATM network which now serves over 4.2 million cardholders. As the financial industry continues to consolidate, growth in the EFT business will come from new products and services. The increasing popularity of debit cards as a check-free payment alternative led to the addition of over 75 financial institutions to MasterCard MasterMoney(TM) and VISA CheckCard processing services during 1996, and a backlog of 50 more new customers to be converted. Capitalizing on over 20 years of EFT and 12 16 data processing experience, MPS has developed proprietary, fully-integrated software that processes cardholder and EFT transactions on a single platform. This gives MPS an advantage in debit card processing by allowing it to offer a single debit and credit card solution to financial institutions and merchants. MPS expanded its EFT relationship with NationsBank to provide ATM processing and settlement services to U.S. military forces and civilian defense employees overseas. In 1993, MPS made its initial venture abroad by placing ATMs on military bases in Japan. This experience and MPS' ability to directly link ATMs to all major U.S. networks were key in getting this business. MPS now dispenses U.S. dollars and other currencies ranging from British pounds to Korean won across Europe, the Netherlands, Germany, Japan, Korea and Panama. The United Kingdom presented a special challenge by requiring that account reconciliation occur in local currency, rather than the customary format of U.S. dollars. MPS' programming team responded by creating the software to convert its dollars and cents processing system to support pound sterling ATM transaction posting and reconciliation. MPS believes that the data processing industry will continue to consolidate. MPS is committed to this business and believes that it has strong growth potential through new sales, new products and technology. We believe MPS' proven ability to provide the lowest cost solution with the best technology will always win in this industry. MPS continues to use its experience and expertise to develop leading-edge technology. A good example is Bill Payer 2000(SM), MPS' new automatic bill paying service first piloted in early 1995. Unlike home computer or phone banking systems, Bill Payer 2000 requires no effort by the customer unless there is an objection to the bill. The advantage is that it can electronically pay bills of varying amounts and frequency, and it works for customer accounts at any bank or savings and loan, not just Fifth Third. In 1996, MPS signed up several newspaper, cable television and public utility customers in Ohio and Indiana. Many financial institutions issued separate securities for their processing subsidiaries during 1996's torrid market for "partial spin offs" and IPOs. We will continue to monitor this evolving industry closely and act in our shareholders' best interests. We have responded to investor inquiries by publishing revenue and profitability by business segments in the detailed financial statements which follow. Looking ahead to 1997, product and systems development, innovative alliances in the merchant and EFT businesses, and aggressive sales are all expected to play a large role in MPS' growth. [photo] The Data Center at Fifth Third facilitates the processing for MPS which is now the second largest EFT processor in the country and ranks among the top 10 credit card merchant processors in the business. 13 17 FIFTH THIRD CARES Banking is a people business. People with different educational, cultural and professional backgrounds helping people in the community meet their goals, dreams and visions. It's what we do at Fifth Third Bancorp everyday, and can be seen in the way we build our business. We get close to our customers in our communities so we can understand their needs and provide solutions. We work to empower people so they can build a stronger community where they live and work, and recognize that our ability to do so is limited only by the scope of our imagination. It's this commitment to people that compels over 6,900 Fifth Third employees to provide time, expertise and financial support to organizations and causes which they believe will enhance the overall quality of life in their communities. The Bank has a long history of generosity. In 1948, Fifth Third became one of the first financial institutions in the country to establish a charitable foundation. Through funding proposals initiated by Bank employees, the Fifth Third Foundation provides support to: COMMUNITY AND NEIGHBORHOOD ORGANIZATIONS involved with housing and business development, training in community development, and minority empowerment programs; INSTITUTIONS OF HIGHER EDUCATION, including a matching gift program for employees; CULTURAL AND ARTS ORGANIZATIONS seeking to make arts more accessible to all members of the community, especially youth; and HEALTH and HUMAN SERVICES ORGANIZATIONS with major support provided through the United Way. During 1996, The Fifth Third Foundation awarded over $1.7 million in grants throughout our 11 affiliate communities. Highlights of the year included grants to the URBAN LEAGUE OF GREATER CINCINNATI for the construction of a new administration building, the ADAMS/BROWN COUNTIES ECONOMIC OPPORTUNITIES, INC. for the creation of job opportunities for impoverished residents, Northern Kentucky's PARISH KITCHEN for the construction of a new facility to feed the poor, WGTE PUBLIC BROADCASTING in Toledo to enhance its transmission and relay capacity, PROJECT HELP, INC. in Naples, Florida for continuation of its domestic violence hotline and referral services, and a grant to the city of Dayton for the construction of FIFTH THIRD GATEWAY PARK, a stop along Dayton's newest bike path to be completed this year. Affordable housing and economic development was also a central theme in the Foundation's giving. CHRISTMAS IN APRIL received a grant to devote one day in April to repair dilapidated homes for low income, disabled and elderly Columbus residents. HABITAT FOR HUMANITY received a grant for the construction of a new home in Louisville and to begin the first phase of a 30-house construction project in Lexington. THE REHAB PROJECT in Lima, Ohio was able to extend credit to low-income residents for housing rehabilitation, and the EAST AKRON NEIGHBORHOOD DEVELOPMENT CORPORATION, as well as the BOS COMMUNITY DEVELOPMENT CORPORATION IN INDIANAPOLIS received assistance to help low-to-moderate income residents obtain safe and affordable housing. In addition, Fifth Third Bank has the special privilege of managing private foundations created by caring persons in the community. As trustee or agent of these foundations, Fifth Third awarded over $8.2 million in charitable grants in 1996 to worthy programs to benefit the community. [photo] George A. Schaefer, Jr., interacts with members of the Bank's Diversity Council. Fifth Third employees also strive to build a workplace community that embraces personal differences. Through interactive diversity education and training, Fifth Third employees at all levels have embraced the importance of creating a workplace consistent with the diversity of our customers. Their ongoing commitment and dedication to this goal is exemplified by the creation of FIFTH THIRD'S DIVERSITY COUNCIL. Comprised of both exempt and non-exempt employees, the council represents all four divisions of the bank with a cross-section of minority representation, and works to provide direction and support to activities and issues which promote and enhance awareness of diversity in our workplace. [The following table is representative of the graph shown at the bottom of page 14. In the Bancorp's Annual Report.]
FIFTH THIRD BANCORP UNITED WAY GIVING Includes Employee and Corporate Contributions 1993 $1,624,000 1994 1,923,629 1995 2,149,882 1996 2,402,911
14 18 FIFTH THIRD BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------------------- For the Years Ended December 31 ($000's) 1996 1995 1994 - -------------------------------------------------------------------------------------------- INTEREST INCOME Interest and Fees on Loans and Leases ............... $ 992,407 898,310 735,530 - -------------------------------------------------------------------------------------------- Interest on Securities Taxable .......................................... 369,851 250,590 169,316 Exempt from Income Taxes ......................... 21,336 23,014 16,436 - -------------------------------------------------------------------------------------------- Total Interest on Securities ........................ 391,187 273,604 185,752 - -------------------------------------------------------------------------------------------- Interest on Other Short-Term Investments ............ 1,519 1,251 1,019 - -------------------------------------------------------------------------------------------- Total Interest Income ............................... 1,385,113 1,173,165 922,301 - -------------------------------------------------------------------------------------------- INTEREST EXPENSE Interest on Deposits Interest Checking ................................ 37,309 28,472 25,572 Savings .......................................... 54,317 14,572 14,511 Money Market ..................................... 57,088 62,233 40,326 Other Time ....................................... 305,682 248,860 194,375 Certificates-$100,000 and Over ................... 47,553 40,522 13,135 Foreign Office ................................... 28,407 46,646 24,165 - -------------------------------------------------------------------------------------------- Total Interest on Deposits .......................... 530,356 441,305 312,084 Interest on Federal Funds Borrowed .................. 64,942 63,492 34,925 Interest on Short-Term Bank Notes ................... 30,278 47,956 20,285 Interest on Other Short-Term Borrowings ............. 48,644 41,136 25,818 Interest on Long-Term Debt and Notes ................ 21,649 15,844 12,436 - -------------------------------------------------------------------------------------------- Total Interest Expense .............................. 695,869 609,733 405,548 - -------------------------------------------------------------------------------------------- NET INTEREST INCOME ................................. 689,244 563,432 516,753 Provision for Credit Losses ......................... 64,014 42,962 35,780 - -------------------------------------------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 625,230 520,470 480,973 - -------------------------------------------------------------------------------------------- OTHER OPERATING INCOME Trust Income ........................................ 74,032 61,755 55,238 Service Charges on Deposits ......................... 83,590 66,344 60,905 Data Processing Income .............................. 88,195 75,311 64,394 Other Service Charges and Fees ...................... 118,035 97,516 74,978 Securities Gains .................................... 4,563 4,789 393 - -------------------------------------------------------------------------------------------- Total Other Operating Income ........................ 368,415 305,715 255,908 - -------------------------------------------------------------------------------------------- OPERATING EXPENSES Salaries, Wages and Incentives ...................... 185,793 156,545 148,039 Employee Benefits ................................... 44,682 38,648 36,710 Equipment Expenses .................................. 20,006 16,655 16,045 Net Occupancy Expenses .............................. 35,596 28,521 26,137 Other Operating Expenses ............................ 190,641 155,248 144,614 SAIF Assessment ..................................... 16,612 -- -- - -------------------------------------------------------------------------------------------- Total Operating Expenses ............................ 493,330 395,617 371,545 - -------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES .......................... 500,315 430,568 365,336 Applicable Income Taxes ............................. 165,256 142,883 120,877 - -------------------------------------------------------------------------------------------- NET INCOME .......................................... $ 335,059 287,685 244,459 - -------------------------------------------------------------------------------------------- NET INCOME PER SHARE ................................ $ 3.22 2.91 2.53 - -------------------------------------------------------------------------------------------- AVERAGE SHARES OUTSTANDING (000's) .................. 103,994 98,879 96,580 CASH DIVIDENDS DECLARED PER SHARE ................... $ 1.10 .96 .80 - -------------------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements.
Printed on recycled paper. 15 19
FIFTH THIRD BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------------------------------------------- December 31 ($000's) 1996 1995 - --------------------------------------------------------------------------------------------------------------------- ASSETS - --------------------------------------------------------------------------------------------------------------------- Cash and Due from Banks ................................................................. $ 808,926 628,535 Securities Available for Sale (amortized cost 1996-$6,198,346 and 1995-$4,129,405) ...... 6,223,881 4,151,178 Securities Held to Maturity (market value 1996-$176,798 and 1995-$187,091) .............. 176,804 187,091 Other Short-Term Investments ............................................................ 44,579 6,822 Loans and Leases Commercial Loans ..................................................................... 4,013,785 3,584,124 Construction Loans ................................................................... 375,938 312,098 Commercial Mortgage Loans ............................................................ 795,599 794,267 Commercial Lease Financing ........................................................... 1,093,422 830,644 Residential Mortgage Loans ........................................................... 2,150,626 1,974,911 Consumer Loans ....................................................................... 2,600,169 3,062,697 Consumer Lease Financing ............................................................. 1,933,412 1,457,929 Unearned Income ...................................................................... ( 448,159) ( 326,027) Reserve for Credit Losses ............................................................ ( 187,278) ( 177,388) - ---------------------------------------------------------------------------------------------------------------------- Total Loans and Leases .................................................................. 12,327,514 11,513,255 Bank Premises and Equipment ............................................................. 231,389 195,990 Accrued Income Receivable ............................................................... 182,854 133,998 Other Assets ............................................................................ 553,051 236,014 - ---------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS ............................................................................ $20,548,998 17,052,883 - ---------------------------------------------------------------------------------------------------------------------- LIABILITIES - ---------------------------------------------------------------------------------------------------------------------- Deposits Demand ............................................................................... $2,495,839 1,827,837 Interest Checking .................................................................... 1,957,895 1,558,506 Savings .............................................................................. 1,940,897 795,799 Money Market ......................................................................... 1,462,794 1,920,871 Other Time ........................................................................... 5,597,729 4,621,401 Certificates-$100,000 and Over ....................................................... 786,787 704,968 Foreign Office ....................................................................... 132,715 1,056,398 - ---------------------------------------------------------------------------------------------------------------------- Total Deposits .......................................................................... 14,374,656 12,485,780 Federal Funds Borrowed .................................................................. 1,420,694 553,041 Short-Term Bank Notes ................................................................... 806,000 450,000 Other Short-Term Borrowings ............................................................. 1,038,738 1,002,454 Accrued Taxes, Interest and Expenses .................................................... 374,304 315,026 Other Liabilities ....................................................................... 112,820 96,611 Long-Term Debt .......................................................................... 277,661 281,996 Convertible Subordinated Notes .......................................................... -- 143,400 - ---------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES ....................................................................... 18,404,873 15,328,308 - ---------------------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY (a) - ---------------------------------------------------------------------------------------------------------------------- Common Stock (b) ........................................................................ 235,090 222,939 Capital Surplus ......................................................................... 525,038 338,555 Retained Earnings ....................................................................... 1,367,653 1,148,279 Unrealized Gains on Securities Available for Sale ....................................... 16,598 14,802 Treasury Stock .......................................................................... ( 254) -- - ---------------------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY .............................................................. 2,144,125 1,724,575 - ---------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .............................................. $20,548,998 17,052,883 - ---------------------------------------------------------------------------------------------------------------------- (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 300,000,000; outstanding 1996 -- 105,892,554 (excludes 3,931 treasury shares) and 1995 -- 100,422,996.
See Notes to Consolidated Financial Statements. 16 20 FIFTH THIRD BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCK -------------------- UNREALIZED SHARES CAPITAL RETAINED TREASURY GAINS ($000'S) OUTSTANDING AMOUNT SURPLUS EARNINGS STOCK (LOSSES) TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT JANUARY 1, 1994 .................... 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 ..... ( 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 ..... ( 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 Net Income .................................... 335,059 335,059 Cash Dividends Declared at $1.10 per share .... ( 115,515) ( 115,515) Shares Acquired for Treasury .................. ( 46,054) ( 3,096) ( 3,096) Stock Options Exercised, Including Treasury Shares Issued ........... 410,368 832 7,224 2,842 10,898 Corporate Tax Benefit Related to Exercise of Non-Qualified Stock Options ............. 871 871 Stock Issued in Conversion of Subordinated Notes ......................... 3,377,328 7,498 135,757 143,255 Stock Issued in Acquisition and Other ......... 1,727,916 3,821 42,631 ( 170) 46,282 Change in Unrealized Gains/Losses on Securities Available for Sale ........... 1,796 1,796 - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1996 .................. 105,892,554 $235,090 525,038 1,367,653 ( 254) 16,598 2,144,125 - -----------------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements 17 21 FIFTH THIRD BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31 ($000's) 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net Income....................................................................... $ 335,059 287,685 244,459 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Provision for Credit Losses................................................... 64,014 42,962 35,780 Depreciation, Amortization and Accretion...................................... 49,724 27,612 29,987 Provision for Deferred Income Taxes........................................... 74,886 65,155 44,719 Realized Securities Gains..................................................... ( 6,251) ( 6,118) ( 720) Realized Securities Losses.................................................... 1,688 1,329 327 Proceeds from Sales of Residential Mortgage Loans Held for Sale............... 473,310 481,140 615,590 Net Gains on Sales of Loans................................................... ( 7,479) ( 9,915) ( 9,870) Increase in Residential Mortgage Loans Held for Sale.......................... ( 513,915) ( 405,248) ( 503,233) Increase in Accrued Income Receivable......................................... ( 46,784) ( 16,427) ( 13,761) Increase in Other Assets...................................................... ( 142,743) ( 6,765) ( 5,545) Increase (Decrease) in Accrued Taxes, Interest and Expenses................... ( 22,214) 16,544 ( 9,378) Increase (Decrease) in Other Liabilities...................................... ( 12,185) ( 17,622) 13,321 - --------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES........................................ 247,110 460,332 441,676 - --------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Proceeds from Sales of Securities Available for Sale............................. 411,117 568,171 185,114 Proceeds from Calls, Paydowns and Maturities of Securities Available for Sale.... 811,793 328,898 296,922 Purchases of Securities Available for Sale....................................... (2,368,274) ( 521,435) ( 710,030) Proceeds from Sales of Securities Held to Maturity............................... -- -- 62,487 Proceeds from Calls, Paydowns and Maturities of Securities Held to Maturity...... 274,400 494,311 565,319 Purchases of Securities Held to Maturity......................................... ( 264,657) ( 462,161) (1,084,102) Decrease (Increase) in Other Short-Term Investments.............................. ( 34,269) 38,666 ( 12,628) Purchase of Loans in Acquisitions................................................ ( 224,313) ( 178,101) -- Proceeds from Securitization and Sale of Automobile Loans........................ 824,607 -- -- Increase in Loans and Leases..................................................... (2,111,951) (1,708,565) (1,145,395) Purchases of Bank Premises and Equipment......................................... ( 40,327) ( 33,194) ( 27,564) Proceeds from Disposal of Bank Premises and Equipment............................ 4,473 4,778 1,728 Cash Paid in Purchases of Subsidiaries and Other Acquisitions.................... ( 175,572) ( 40,575) ( 10,012) - --------------------------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES............................................ (2,892,973) (1,509,207) (1,878,161) - --------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Purchases of Deposits............................................................ 1,921,019 389,586 294,126 Increase (Decrease) in Core Deposits............................................. 695,847 404,207 ( 21,337) Increase (Decrease) in CDs-- $100,000 and Over, including Foreign................ ( 944,129) 457,641 800,441 Increase (Decrease) in Federal Funds Borrowed.................................... 867,653 ( 125,566) ( 315,252) Increase (Decrease) in Short-Term Bank Notes..................................... 356,000 ( 394,995) 844,995 Increase in Other Short-Term Borrowings.......................................... 36,284 90,559 229,437 Proceeds from Issuance of Long-Term Debt and Notes............................... 10,125 266,556 -- Repayment of Long-Term Debt...................................................... ( 15,257) ( 20,115) ( 232,512) Payment of Cash Dividends........................................................ ( 110,907) ( 89,131) ( 73,425) Exercise of Stock Options........................................................ 11,769 4,047 10,307 Other............................................................................ ( 2,150) ( 388) ( 178) - --------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES........................................ 2,826,254 982,401 1,536,602 - --------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH AND DUE FROM BANKS................................... 180,391 ( 66,474) 100,117 CASH AND DUE FROM BANKS AT BEGINNING OF YEAR..................................... 628,535 695,009 594,892 - --------------------------------------------------------------------------------------------------------------------------- CASH AND DUE FROM BANKS AT END OF YEAR........................................... $ 808,926 628,535 695,009 - --------------------------------------------------------------------------------------------------------------------------- Note: The Bancorp paid Federal income taxes of $106,000,000, $72,000,000 and $78,000,000 in 1996, 1995 and 1994, respectively. The Bancorp paid interest of $701,318,000, $602,818,000 and $392,688,000 in 1996, 1995 and 1994, respectively. The Bancorp had noncash investing activities consisting of the securitization and transfer to securities of $829,108,000, $854,511,000 and $341,199,000 of residential mortgage loans in 1996, 1995 and 1994, 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.
See Notes to Consolidated Financial Statements. 18 22 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 414 offices located throughout Ohio, Indiana, Kentucky and Florida. Principal activities include commercial and retail banking, trust and investment services 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 Securities are 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. 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 and lease origination and commitment fees and certain direct loan origination costs are deferred and the net amount amortized over the estimated life of the related loans or commitments as a yield adjustment. 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 $15,756,000 and $22,954,000 at December 31, 1996 and 1995, 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. Statement of Financial Accounting Standards (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 servicing rights and the loans based on their relative fair values. The resulting servicing rights are amortized in proportion to, and over the period of, estimated net servicing revenues. Servicing rights are assessed for impairment periodically based on fair value, with any impairment recognized through a valuation allowance. For purposes of measuring impairment, the rights are stratified based on interest rate and original maturity. 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 (pretax). 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. 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 up to 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 has purchased options to hedge the value of mortgage servicing rights against changes in prepayment rates. Option premiums are amortized over the option life on a straight-line basis. The contracts are designated as hedges, with gains and losses recorded as basis adjustments to the mortgage servicing rights. The Bancorp 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. 19 23 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," was adopted January 1, 1996 and 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. The adoption of SFAS No. 121 did not have a material effect on the Consolidated Financial Statements. SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," was issued in June, 1996 and provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. SFAS No. 125 applies to transactions occurring after December 31, 1996. The adoption of SFAS No. 125 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. Treasury stock is carried at cost. NOTE 2-SECURITIES Securities available for sale as of December 31:
- ------------------------------------------------------------------------------ 1996 ------------------------------------------------ AMORTIZED UNREALIZED UNREALIZED MARKET ($000'S) COST GAINS LOSSES VALUE - ------------------------------------------------------------------------------ U.S. Government and agencies obligations ............. $ 341,056 6,860 -- 347,916 Obligations of states and political subdivisions ............ 291,365 5,482 -- 296,847 Agency mortgage- backed securities .............. 4,913,277 20,472 ( 7,981) 4,925,768 Other bonds, notes and debentures .............. 595,933 5,257 ( 7,270) 593,920 Other securities .......... 56,715 2,740 ( 25) 59,430 - ----------------------------------------------------------------------------- Total securities .......... $6,198,346 40,811 ( 15,276) 6,223,881 - -----------------------------------------------------------------------------
- ----------------------------------------------------------------------------- 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 - ----------------------------------------------------------------------------- Securities held to maturity as of December 31:
- -------------------------------------------------------------------------------- 1996 ------------------------------------------ AMORTIZED UNREALIZED UNREALIZED MARKET ($000'S) COST GAINS LOSSES VALUE - -------------------------------------------------------------------------------- Obligations of states and political subdivisions ................... $150,232 -- -- 150,232 Other bonds, notes and debentures ..................... 1,805 -- (6) 1,799 Other securities ................. 24,767 -- -- 24,767 - -------------------------------------------------------------------------------- Total securities ................. $176,804 -- (6) 176,798 - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------
The amortized cost and approximate market value of securities at December 31, 1996, 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 ($000'S) COST VALUE COST VALUE - -------------------------------------------------------------------------- Debt securities: Under 1 year ..................$ 245,770 247,092 $75,386 75,386 1-5 years ..................... 5,007,252 5,029,113 75,866 75,866 6-10 years .................... 678,250 674,001 785 779 Over 10 years ................. 210,359 214,245 -- -- Other securities ................ 56,715 59,430 24,767 24,767 - -------------------------------------------------------------------------- Total securities ................$6,198,346 6,223,881 $176,804 176,798 - -------------------------------------------------------------------------
At December 31, 1996 and 1995, securities with a book value of $2,819,040,000 and $2,117,342,000, 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-evaluate securities classification under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," 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. NOTE 3-RESERVE FOR CREDIT LOSSES Transactions in the reserve for credit losses for the years ended December 31:
- ------------------------------------------------------------------ ($000's) 1996 1995 1994 - ------------------------------------------------------------------ Balance at January 1 ........... $177,388 155,918 144,537 Losses charged off ............. ( 80,444) ( 41,707) ( 30,946) Recoveries of losses previously charged off .................. 20,482 11,846 13,472 - ------------------------------------------------------------------ Net charge-offs ................ ( 59,962) ( 29,861) ( 17,474) Letter of credit contract ...... -- -- (7,800) Provision charged to operations 64,014 42,962 35,780 Reserve of acquired institutions and other .................... 5,838 8,369 875 - ------------------------------------------------------------------ Balance at December 31 ......... $187,278 177,388 155,918 - ------------------------------------------------------------------
20 24 FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years 1996, 1995 and 1994, interest income of $569,000, $1,066,000 and $556,000, respectively, was recorded on nonaccrual and renegotiated loans and leases. Additional interest income of $3,805,000, $2,271,000 and $1,767,000 would have been recorded if the nonaccrual and renegotiated loans and leases had been current in accordance with their original terms. Impaired loan information, under SFAS No. 114, at December 31:
- -------------------------------------------------------------- ($000's) 1996 1995 - -------------------------------------------------------------- Impaired loans with a valuation reserve.... $22,432 29,257 Impaired loans with no valuation reserve... 6,614 7,792 - -------------------------------------------------------------- Total impaired loans ...................... $29,046 37,049 - -------------------------------------------------------------- Valuation reserve on impaired loans ....... $16,395 10,370 Average impaired loans .................... $33,048 25,848 - --------------------------------------------------------------
Cash basis interest income recognized on those loans during both years was immaterial. NOTE 4-LEASE FINANCING A summary of the gross investment in lease financing at December 31:
- ------------------------------------------------------------------------ ($000's) 1996 1995 - ------------------------------------------------------------------------ Direct financing leases ................... $2,967,668 2,248,322 Leveraged leases .......................... 59,166 40,251 - ------------------------------------------------------------------------ Total lease financing ..................... $3,026,834 2,288,573 - ------------------------------------------------------------------------
The components of the investment in lease financing at December 31:
- ------------------------------------------------------------------------------- ($000's) 1996 1995 - ------------------------------------------------------------------------------- Rentals receivable, net of principal and interest on nonrecourse debt .................... $1,866,445 1,453,802 Estimated residual value of leased assets ......... 1,160,389 834,771 - -------------------------------------------------------------------------------- Gross investment in lease financing ............... 3,026,834 2,288,573 Unearned income ................................... ( 421,387) ( 304,864) - -------------------------------------------------------------------------------- Total net investment in lease financing ........... $2,605,447 1,983,709 - --------------------------------------------------------------------------------
At December 31, 1996, the minimum future lease payments receivable for each of the years 1997 through 2001 were $766,964,000, $740,993,000, $642,760,000, $457,913,000 and $390,532,000, respectively. NOTE 5-BANK PREMISES AND EQUIPMENT A summary of bank premises and equipment at December 31:
- -------------------------------------------------------------------------------- Estimated ($000's) Useful Life 1996 1995 - -------------------------------------------------------------------------------- Land and improvements .............. $ 42,963 36,803 Buildings .......................... 18 to 50 yrs. 159,519 141,449 Equipment .......................... 3 to 20 yrs. 136,410 115,922 Leasehold improvements ............. 6 to 25 yrs. 45,020 37,564 Accumulated depreciation and amortization ................. (152,523) (135,748) - -------------------------------------------------------------------------------- Total bank premises and equipment ........................ $ 231,389 195,990 - --------------------------------------------------------------------------------
Depreciation and amortization expense related to bank premises and equipment was $21,689,000 in 1996, $18,072,000 in 1995 and $15,388,000 in 1994. Occupancy expense has been reduced by rental income from leased premises of $7,400,000 in 1996, $8,145,000 in 1995 and $8,900,000 in 1994. 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, 1996, exclusive of taxes and other charges payable by the lessee:
- ----------------------------------------------------------- LAND AND ($000'S) BUILDINGS EQUIPMENT TOTAL - ----------------------------------------------------------- 1997 ....................... $10,841 198 11,039 1998 ....................... 10,243 143 10,386 1999 ....................... 9,828 128 9,956 2000 ....................... 9,191 127 9,318 2001 ....................... 8,274 -- 8,274 2002 and subsequent years... 38,475 -- 38,475 - ----------------------------------------------------------- Total $86,852 596 87,448 - -----------------------------------------------------------
Rental expense for cancelable and noncancelable leases was $14,947,000 for 1996, $12,470,000 for 1995 and $11,891,000 for 1994.
NOTE 6-INTANGIBLE ASSETS Intangibles, net of accumulated amortization, included in Other Assets in the Consolidated Balance Sheets at December 31: - --------------------------------------------------------------------- ($000's) 1996 1995 - --------------------------------------------------------------------- Goodwill ................................. $ 24,719 27,221 Premium on purchased deposits ............ 263,268 73,170 - --------------------------------------------------------------------- Total intangibles ........................ $287,987 100,391 - ---------------------------------------------------------------------
NOTE 7-SHORT-TERM BORROWINGS A summary of short-term borrowings and rates at December 31: - -------------------------------------------------------------------------------- ($000's) 1996 1995 1994 - -------------------------------------------------------------------------------- Federal funds borrowed: Balance ................. $1,420,694 553,041 716,312 Rate .................... 5.39% 4.59 5.34 - -------------------------------------------------------------------------------- Short-term bank notes: Balance ................. $ 806,000 450,000 844,995 Rate .................... 5.41% 5.60 5.90 - -------------------------------------------------------------------------------- Securities sold under agreements to repurchase: Balance ................. $ 924,290 835,773 687,493 Rate .................... 4.77% 4.96 4.30 - -------------------------------------------------------------------------------- Other: Balance ................. $ 114,448 166,681 203,418 Rate .................... 5.81% 4.93 5.75 - -------------------------------------------------------------------------------- Total short-term borrowings: Balance ................. $3,265,432 2,005,495 2,452,218 Rate .................... 5.23% 5.00 5.28 - -------------------------------------------------------------------------------- Average outstanding ....... $2,780,806 2,669,477 1,967,819 Maximum month-end balance ................. $3,265,432 2,984,427 2,452,218 Weighted average interest rate ........... 5.17% 5.72 4.12 - --------------------------------------------------------------------------------
A $3 billion senior and subordinated bank note facility was established in 1996. This facility replaced the $1 billion facility established in 1994. Short-term senior notes are offered with maturities ranging from 30 days to 1 year and are obligations of six of the Bancorp's subsidiary banks and are included in the above table as short-term bank notes. In addition, medium-term senior notes with maturities ranging from one year to 30 years and subordinated bank notes with maturities ranging from 5 years to 30 years can be issued by the six subsidiary banks, none of which are outstanding as of December 31, 1996. At December 31, 1996, the Bancorp had issued $27,277,000 in commercial paper, with unused lines of credit of $40,000,000 available to support commercial paper transactions and other corporate requirements. 21 25 FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8-LONG-TERM BORROWINGS A summary of long-term borrowings at December 31:
- --------------------------------------------------------------------- ($000's) 1996 1995 - --------------------------------------------------------------------- Bancorp: Convertible subordinated notes, 4.25%, due 1998 ....................... $ -- 143,400 - --------------------------------------------------------------------- Subsidiaries: Subordinated notes, 6.75%, due 2005 ....................... 247,061 246,715 Federal Home Loan Bank advances ......... 30,395 34,986 Other, 7% ............................... 205 295 - --------------------------------------------------------------------- Total long-term debt .................... 277,661 281,996 - --------------------------------------------------------------------- Total long-term borrowings .............. $277,661 425,396 - ---------------------------------------------------------------------
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 31,1996, Federal Home Loan Bank (FHLB) advances have rates ranging from 3.22% to 7.51%, with interest payable monthly. The advances were secured by cash, certain securities with book values of $34,560,000 and $24,449,000 at December 31, 1996 and 1995, respectively, and by certain residential mortgage loans with a book value of $160,662,000 at December 31, 1995. The advances mature as follows: $20,000,000 in 1997, $10,000,000 in 1998 and $395,000 after 2002. Other promissory notes mature as follows: $100,000 in 1997 and $105,000 in 1998. The Bancorp issued notice of redemption effective May 31, 1996 for its 4.25% convertible subordinated notes issued in 1992. As a result, 3.4 million common shares were issued and $143.3 million was added to equity capital. 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) 1996 1995 1994 - ------------------------------------------------------------------------- Current U.S. income taxes ............ $ 87,584 75,162 74,013 State and local income taxes ......... 2,786 2,566 2,145 - ------------------------------------------------------------------------- Total ................................ 90,370 77,728 76,158 - ------------------------------------------------------------------------- Deferred U.S. income taxes resulting from temporary differences ........................ 74,886 65,155 44,719 - ------------------------------------------------------------------------- Applicable income taxes .............. $165,256 142,883 120,877 - -------------------------------------------------------------------------
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) 1996 1995 - ------------------------------------------------------------------- Lease financing ........................ $ 288,699 222,857 Reserve for credit losses .............. (63,640) (57,530) Bank premises and equipment ............ 10,099 10,038 Unrealized gains on securities available for sale ................... 8,937 7,971 Other .................................. 16,351 1,258 - ------------------------------------------------------------------- Total net deferred tax liability ....... $ 260,446 184,594 - -------------------------------------------------------------------
A reconciliation between the statutory U.S. income tax rate and the Bancorp's effective tax rate:
- ---------------------------------------------------------------------- 1996 1995 1994 - ---------------------------------------------------------------------- Statutory tax rate ....................... 35.0% 35.0 35.0 Increase (decrease) resulting from: Tax-exempt interest .................... ( 2.4) ( 2.6) ( 2.5) Other-net .............................. .4 .8 .6 - ---------------------------------------------------------------------- Effective tax rate ....................... 33.0% 33.2 33.1 - ----------------------------------------------------------------------
Retained earnings at December 31, 1996 includes approximately $35.5 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 certain of the Bancorp's subsidiaries use these bad debt reserves for purposes other than to absorb bad debt losses, they will be subject to federal income tax at the current corporate tax rate. NOTE 10-OTHER SERVICE CHARGES AND FEES AND OTHER OPERATING EXPENSES The major components for the years ended December 31:
- ----------------------------------------------------------------------------- ($000's) 1996 1995 1994 - ----------------------------------------------------------------------------- Other Service Charges and Fees: Cardholder fees ...................... $ 23,936 16,422 13,003 Consumer loan and lease fees ......... 29,629 15,899 12,526 Commercial banking ................... 19,150 18,368 14,138 Mortgage banking ..................... 24,789 28,554 20,249 Other ................................ 20,531 18,273 15,062 - ----------------------------------------------------------------------------- Total other service charges and fees ............................. $118,035 97,516 74,978 - ----------------------------------------------------------------------------- Other Operating Expenses: Marketing and communications ..................... $ 33,494 28,544 25,001 FDIC insurance ....................... 7,137 14,269 20,669 Franchise taxes ...................... 20,525 15,138 13,460 Printing and supplies ................ 13,939 12,501 11,720 Bankcard ............................. 24,429 18,581 13,110 Loan and lease ....................... 16,559 11,667 8,550 Intangible amortization .............. 20,205 5,349 4,823 Other ................................ 54,353 49,199 47,281 - ----------------------------------------------------------------------------- Total other operating expenses ......... $190,641 155,248 144,614 - -----------------------------------------------------------------------------
NOTE 11-STOCK OPTIONS Options can be granted under the Bancorp's Stock Option Plans to key employees and directors of the Bancorp and its subsidiaries for up to 4.8 million shares of the Bancorp's common stock. All options granted have up to ten year terms and vest and become fully exercisable at the end of three years of continued employment. A summary of option transactions during 1996, 1995 and 1994:
- ------------------------------------------------------------------------ 1996 1995 1994 ---------------- ------------------ -------------------- AVERAGE Average Average SHARES OPTION SHARES Option Shares Option (000'S) PRICE (000's) Price (000's) Price - ------------------------------------------------------------------------ Outstanding, beginning of year .. 3,167 $ 33.09 2,398 $30.25 2,436 $24.77 Exercised .. ( 410) 26.43 ( 202) 18.43 ( 600) 12.23 Expired .... ( 87) 38.23 ( 94) 35.19 ( 120) 34.59 Granted .... 1,060 52.83 1,065 36.89 682 34.75 - ------------------------------------------------------------------------ Outstanding, end of year .. 3,730 $39.30 3,167 $33.09 2,398 $30.25 - ------------------------------------------------------------------------ Exercisable, end of year .. 2,110 2,028 1,367 - ------------------------------------------------------------------------
22 26 FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 1996, options outstanding have exercise prices between $13.67 and $63.50 and a weighted average remaining contractual life of 7.5 years. The majority of options outstanding have exercise prices ranging from $35.17 to $52.75 with a weighted average remaining contractual life of 7.1 years. At December 31, 1996, there were 2,376,415 incentive options and 1,353,654 nonqualified options outstanding and 434,652 shares were available for granting additional options. SFAS No. 123 "Accounting for Stock-Based Compensation," was adopted January 1, 1996 and encourages, but does not require, adoption of a fair-value-based accounting method for employee stock-based compensation arrangements. As permitted by the statement, the Bancorp has elected to only disclose pro forma net income and net income per share as if the fair-value-based method had been applied in measuring compensation costs. The Bancorp's pro forma information for the years ended December 31:
- ----------------------------------------------------------------------------- 1996 1995 - ----------------------------------------------------------------------------- Pro forma net income ($000's) ............... $330,271 285,522 Pro forma net income per share .............. $ 3.18 2.89 - -----------------------------------------------------------------------------
Compensation expense reflected in the pro forma disclosures is not indicative of future amounts when the SFAS No. 123 prescribed method will apply to all outstanding nonvested awards. The weighted average fair value of options granted was $13.35 in 1996 and $11.44 in 1995. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for grants in 1996 and 1995: expected dividend yield of 2% and expected option lives of nine years for both years; expected volatility of 21% and 22% and risk-free interest rates of 6.5% and 5.9%, respectively. 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 unit credit actuarial method and are limited to amounts currently deductible for federal income tax purposes. A summary of the qualified plan's funded status at December 31:
- -------------------------------------------------------------------------------- ($000's) 1996 1995 - -------------------------------------------------------------------------------- Vested benefit obligation ......................... $ 21,671 23,308 Non-vested benefit obligation ..................... 4,637 3,233 - ------------------------------------------------------------------------------- Accumulated benefit obligation .................... $ 26,308 26,541 - ------------------------------------------------------------------------------- Plan assets at fair value, primarily common trust and mutual funds managed by The Fifth Third Bank, listed stocks and U.S. bonds .................... $ 59,574 56,201 Projected benefit obligation for service rendered to date ................................ 34,548 31,816 - ------------------------------------------------------------------------------- Plan assets in excess of projected benefit obligation ...................................... 25,026 24,385 Unrecognized transition asset ..................... ( 1,151) ( 1,396) Unrecognized prior service cost ................... ( 1,891) ( 3,667) Unrecognized net gain ............................. ( 7,056) ( 5,485) - ------------------------------------------------------------------------------- Prepaid pension cost .............................. $ 14,928 13,837 - -------------------------------------------------------------------------------
A summary of the components of the provision for retirement cost for the qualified plan for the years ended December 31:
- ------------------------------------------------------------------- ($000's) 1996 1995 1994 - -------------------------------------------------------------------- Service cost for current year .... $ 2,115 1,611 1,567 Interest cost .................... 2,385 2,246 1,976 Actual return on plan assets ..... (7,038) (10,395) ( 527) Amortization, primarily of initial unrecognized asset and prior service cost ................... ( 625) ( 626) ( 942) Net gain (loss)-- deferred ....... 2,072 6,161 (3,217) - ------------------------------------------------------------------- Net retirement income ............ $(1,091) (1,003) (1,143) - -------------------------------------------------------------------
In determining the actuarial present value of the projected benefit obligation, the following weighted average rates were used:
- ---------------------------------------------------------------------- 1996 1995 - ---------------------------------------------------------------------- Discount rate ................................ 7.75% 7.25 Rate of increase in compensation levels ...... 5.00 5.00 Expected long-term rate of return on assets... 9.00 9.00 - ----------------------------------------------------------------------
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. A summary of the SERP's status at December 31:
- -------------------------------------------------------------------- ($000's) 1996 1995 - -------------------------------------------------------------------- Vested benefit obligation ..................... $1,900 2,247 Non-vested benefit obligation ................. 500 728 - -------------------------------------------------------------------- Accumulated benefit obligation ................ $2,400 2,975 - -------------------------------------------------------------------- Projected benefit obligation for service rendered to date ............................ $6,884 6,539 Unrecognized transition asset ................. 63 77 Unrecognized prior service cost ............... 369 ( 913) Unrecognized net loss ......................... (2,362) (1,772) - -------------------------------------------------------------------- Accrued pension cost .......................... $4,954 3,931 - -------------------------------------------------------------------
A summary of the components of the provision for SERP expense for the years ended December 31:
- ---------------------------------------------------------------------- ($000's) 1996 1995 1994 - ---------------------------------------------------------------------- Service cost for current year ............ $ 347 281 472 Interest cost ............................ 495 433 566 Amortization, primarily of initial unrecognized asset and prior service cost ........................... 90 94 62 Net gain--deferred ...................... 102 32 392 - ---------------------------------------------------------------------- Net SERP expense ......................... $1,034 840 1,492 - ----------------------------------------------------------------------
In determining the actuarial present value of the projected benefit obligation, the following weighted average rates were used:
- ----------------------------------------------------------------------------- 1996 1995 - ----------------------------------------------------------------------------- Discount rate .................................. 7.75% 7.25 Rate of increase in compensation levels ........ 7.00 7.00 - -----------------------------------------------------------------------------
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 $22,101,000 for 1996, $18,793,000 for 1995 and $16,770,000 for 1994. 23 27 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, purchased options and commitments to sell residential mortgage loans. These instruments involve, to varying degrees, elements of credit risk, counterparty risk and market risk in excess of the amounts recognized in the Consolidated Balance Sheets. The contract or notional amounts of these instruments reflect the extent of involvement the Bancorp has in particular classes of financial instruments. Creditworthiness for all instruments is evaluated on a case-by-case basis in accordance with Bancorp credit policies. Collateral, if deemed necessary, is based on management's credit evaluation of the counterparty and may include business assets of commercial borrowers as well as personal property and real estate of individual borrowers and guarantors. A summary of significant commitments and other off-balance-sheet items at December 31:
- ------------------------------------------------------------------------- Contract or Notional Amount ---------------------------- ($000's) 1996 1995 - ------------------------------------------------------------------------- Commitments to extend credit .............. $5,922,515 5,114,125 Letters of credit (including standby letters of credit) .............. 769,413 611,535 Foreign exchange contracts: Commitments to purchase ................. 73,404 54,959 Commitments to sell ..................... 74,495 51,550 Purchased option contracts ................ 75,000 -- Commitments to sell residential mortgage loans .............. 47,960 31,600 - -------------------------------------------------------------------------
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, 1996, approximately $434,825,000 of standby letters of credit will expire within one year, $258,588,000 expire between one to five years and $40,161,000 expire thereafter. At December 31, 1996, letters of credit of approximately $35,839,000 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, 1996 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, 1996, the Bancorp had purchased option contracts with a total notional amount of $75,000,000 to hedge the value of mortgage servicing rights against changes in prepayment rates. The contracts have a five year term and give the Bancorp the right to receive payments on fixed rates ranging from 5.15% to 6.15% and to make payments based on the six-month London Interbank Offering Rate (LIBOR). These contracts carry the risk of the counterparty's future ability to perform under the agreement. A limit of market exposure is approved for all counterparties, contracts are marked-to-market and exposures are collateralized by the counterparty in accordance with Bancorp policy. 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 - ------------------------------------------------------------------ KENTUCKY ENTERPRISE 3/15/96 $36 1,726,285 POOLING BANCORP, INC. NEWPORT, KENTUCKY 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 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. On January 19, 1996, the Bancorp purchased deposits of approximately $1.4 billion and the fixed assets of the 28 offices of 1st Nationwide Bank in the Cleveland, Ohio area for $136 million. On February 23, 1996, the Bancorp acquired the Ohio operations of First Chicago NBD Corporation with $534 million in deposits, $222 million in loans and 25 offices in Columbus and Dayton for $39.5 million. NOTE 15-REGULATORY MATTERS The principal source of income and funds for the Bancorp (parent company) are dividends from its subsidiaries. During the year 1997, the amount of dividends that the subsidiaries can pay to the Bancorp without prior approval of regulatory agencies is limited to their 1997 eligible net profits, as defined, and $121,967,000, the adjusted retained 1996 and 1995 net income of the subsidiaries. The banks must maintain noninterest-bearing cash balances on 24 28 FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS reserve with the Federal Reserve Bank. In 1996 and 1995, the banks were required to maintain average reserve balances of $176,114,000 and $165,549,000, respectively. 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 at least 8% of risk-weighted assets and a minimum Tier 1 leverage ratio of 3% of adjusted quarterly average assets. Tier 1 capital consists principally of 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. Failure to meet certain capital requirements can initiate certain actions by regulators that, if undertaken, could have a direct material effect on the Consolidated Financial Statements. The regulations also define well capitalized levels of Tier 1, total capital and Tier 1 leverage as 6%, 10% and 5%, respectively. The Bancorp and each of its subsidiaries had Tier 1, total capital and leverage ratios above the well capitalized levels at December 31, 1996 and 1995. The risk-based capital ratios for Fifth Third Bank of Northern Kentucky, Inc. and Fifth Third Bank of Kentucky, Inc. have been computed on a pro forma basis to include inter-affiliate mergers which have been approved by the appropriate regulatory agencies and occurred in January, 1997. As of December 31, 1996, the most recent notification from the Federal Reserve Bank categorized the Bancorp and each of its subsidiary banks as well capitalized under the regulatory framework for prompt corrective action. Capital and risk-based capital and leverage ratios for the Bancorp and its significant subsidiaries at December 31:
- ------------------------------------------------------------------------------ 1996 ----------------------- ($000'S) AMOUNT RATIO - ------------------------------------------------------------------------------ TOTAL CAPITAL (TO RISK-WEIGHTED ASSETS): Fifth Third Bancorp (Consolidated) .............. $2,275,000 14.06% The Fifth Third Bank, Cincinnati ................ 1,025,000 12.81 Fifth Third Bank of Northwestern Ohio, N.A ...... 198,000 11.38 Fifth Third Bank of Northeastern Ohio ........... 142,000 10.37 TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS): Fifth Third Bancorp (Consolidated) .............. 1,840,000 11.37 The Fifth Third Bank, Cincinnati ................ 699,000 8.73 Fifth Third Bank of Northwestern Ohio, N.A ...... 177,000 10.17 Fifth Third Bank of Northeastern Ohio ........... 126,000 9.21 TIER 1 LEVERAGE CAPITAL (TO AVERAGE ASSETS): Fifth Third Bancorp (Consolidated) .............. 1,840,000 9.22 The Fifth Third Bank, Cincinnati ................ 699,000 7.47 Fifth Third Bank of Northwestern Ohio, N.A ...... 177,100 6.94 Fifth Third Bank of Northeastern Ohio ........... 126,000 5.32 ================================================================================
- ----------------------------------------------------------------------------- 1995 ---------------------- ($000's) Amount Ratio - ----------------------------------------------------------------------------- TOTAL CAPITAL (TO RISK-WEIGHTED ASSETS): Fifth Third Bancorp (Consolidated) ............... $2,092,000 14.33% The Fifth Third Bank, Cincinnati ................. 1,011,000 13.04 Fifth Third Bank of Northwestern Ohio, N.A ....... 221,000 13.29 Fifth Third Bank of Northeastern Ohio ............ 112,000 11.90 TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS): Fifth Third Bancorp (Consolidated) ............... 1,610,000 11.03 The Fifth Third Bank, Cincinnati ................. 622,000 8.02 Fifth Third Bank of Northwestern Ohio, N.A ....... 201,000 12.04 Fifth Third Bank of Northeastern Ohio ............ 101,000 10.65 TIER 1 LEVERAGE CAPITAL (TO AVERAGE ASSETS): Fifth Third Bancorp (Consolidated) ............... 1,610,000 9.47 The Fifth Third Bank, Cincinnati ................. 622,000 6.96 Fifth Third Bank of Northwestern Ohio, N.A ....... 201,000 9.01 Fifth Third Bank of Northeastern Ohio ............ 101,000 9.69 - ------------------------------------------------------------------------------
NOTE 16-RELATED PARTY TRANSACTIONS At December 31, 1996 and 1995, certain directors, executive officers, principal holders of Bancorp common stock and associates of such persons were indebted to the banking subsidiaries in the aggregate amount, net of participations, of $112,029,000 and $122,719,000, respectively. During 1996, new loans aggregating $38,133,000 were made to such parties and loans aggregating $48,823,000 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 at December 31:
- ----------------------------------------------------------------------- 1996 -------------------------- CARRYING FAIR ($000'S) AMOUNT VALUE - ----------------------------------------------------------------------- FINANCIAL ASSETS: Cash and due from banks ................ $ 808,926 808,926 Securities available for sale .......... 6,223,881 6,223,881 Securities held to maturity ............ 176,804 176,798 Other short-term investments ........... 44,579 44,579 Loans, net ............................. 9,722,067 9,750,386 Mortgage servicing rights .............. 18,639 23,382 FINANCIAL LIABILITIES: Deposits ............................... 14,374,656 14,429,081 Federal funds borrowed ................. 1,420,694 1,420,694 Short-term bank notes .................. 806,000 806,000 Other short-term borrowings ............ 1,038,738 1,038,738 Long-term debt ......................... 277,661 266,967 OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS: Commitments to extend credit ........... 484 4,147 Letters of credit ...................... 2,462 9,233 Purchased options ...................... 1,460 1,460 Forward contracts: Commitments to sell loans ............ -- 147 Foreign exchange contracts: Commitments to purchase ............ -- ( 939) Commitments to sell ................ -- 1,149 =======================================================================
- ----------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------
25 29 FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 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. PURCHASED OPTIONS-fair values were based on the estimated amounts the Bancorp would receive or pay to terminate the contracts at the reporting date. The fair values represent an asset. FOREIGN EXCHANGE CONTRACTS-fair values were based on quoted market prices of comparable instruments and represent a net asset to the Bancorp. NOTE 18-SEGMENTS The Bancorp's principal activities include Retail Banking, Commercial Banking, Trust and Investment 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. Trust and Investment Services provides a full range of investment alternatives for individuals, companies and not-for-profit organizations. Data Processing, through Midwest Payment Systems (MPS), provides Electronic Funds Transfer (EFT) services, merchant transaction processing, operates our Jeanie ATM network and provides other data processing services to affiliated and unaffiliated customers. General Corporate and Other includes a portion of the investment portfolio, certain long-term funding, the associated interest income and expense and other items not allocated to the operating segments. The financial information for each business segment reflect those which are specifically identifiable or which are allocated based on an internal allocation method. The allocation has been consistently applied for all periods presented. Revenues from affiliated transactions, principally EFT data processing services from MPS to the banking segments, are charged generally at rates available to and transacted with unaffiliated customers. The measurement of the performance of the business segments is based on the management structure of the Bancorp and is not necessarily comparable with similar information for any other financial institution. The information presented is also not necessarily indicative of the segments' financial condition and results of operations if they were independent entities. Selected financial information by business segment for each of the three years ended December 31 is included in the following summary:
- ------------------------------------------------------------ ($000's) 1996 1995 1994 - ------------------------------------------------------------- REVENUES: Commercial Banking... $ 330,375 287,849 261,085 Retail Banking....... 532,910 426,662 377,136 Trust and Investment Services........... 87,631 73,108 67,255 Data Processing (a).. 94,936 80,139 68,004 General Corporate and Other.............. 18,548 6,217 2,791 Eliminations (a)..... ( 6,741) ( 4,828) ( 3,610) - ------------------------------------------------------------- TOTAL $ 1,057,659 869,147 772,661 - ------------------------------------------------------------- NET INCOME: Commercial Banking... $ 118,934 101,753 92,848 Retail Banking....... 154,967 130,111 113,083 Trust and Investment Services........... 32,277 24,424 20,881 Data Processing (before cumulative effect of accounting change)(b) 25,942 23,873 20,299 General Corporate and Other.............. 2,939 7,524 ( 2,652) - ------------------------------------------------------------ TOTAL $ 335,059 287,685 244,459 - ------------------------------------------------------------ IDENTIFIABLE ASSETS: Commercial Banking... $ 5,856,505 5,182,514 4,374,766 Retail Banking....... 11,559,492 9,174,350 7,835,114 Trust and Investment Services........... 308,445 206,563 272,221 Data Processing...... 37,718 32,884 19,353 General Corporate and Other............... 2,786,838 2,456,572 2,455,555 - ------------------------------------------------------------ TOTAL $20,548,998 17,052,883 14,957,009 - ------------------------------------------------------------ (a) Data processing service revenues provided to the banking segments by MPS are eliminated in the Consolidated Statements of Income. (b) In 1995, MPS changed its method of accounting for the cost of converting new merchant customers and financial institutions. The cumulative effect of change in accounting method totalling $2,680,000 in 1995 has been excluded.
Capital expenditures for the Bancorp totalled $40,327,000, $33,194,000 and $27,564,000 in 1996, 1995 and 1994, respectively. These expenditures consisted primarily of investments in data processing equipment, including new mainframe and network computer technology, software, operations equipment and the Retail distribution network. Much of the Bancorp's efficiency is attributable to the fact that each of the business segments share the benefits of improvements in data processing technology and equipment improvements. Separating or dividing most of these capital expenditures among individual segments is not meaningful. The cost of centralized data processing and operations is allocated to each business segment based on various measures of usage and the corresponding expense is included in the determination of segment operating results as disclosed above. 30 FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19-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 1996 1995 1994 - --------------------------------------------------------------- INCOME Dividends from Subsidiaries... $360,470 140,307 79,855 Interest on Loans to Subsidiaries................ 3,932 19,442 16,075 Securities Gains.............. 215 -- -- Other......................... 794 163 119 - --------------------------------------------------------------- TOTAL INCOME.................. 365,411 159,912 96,049 - --------------------------------------------------------------- EXPENSES Interest...................... 4,477 10,267 10,193 Other......................... 2,796 2,471 2,222 - --------------------------------------------------------------- TOTAL EXPENSES................ 7,273 12,738 12,415 - --------------------------------------------------------------- INCOME BEFORE TAXES AND CHANGE IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES.... 358,138 147,174 83,634 Applicable Income Taxes (Benefit).................... ( 426) 2,771 1,554 - --------------------------------------------------------------- INCOME BEFORE CHANGE IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES ................ 358,564 144,403 82,080 Increase (Decrease) in Undistributed Earnings of Subsidiaries.................( 23,505) 143,282 162,379 - --------------------------------------------------------------- NET INCOME.................... $335,059 287,685 244,459 - ---------------------------------------------------------------
- --------------------------------------------------------------- CONDENSED BALANCE SHEETS (PARENT COMPANY ONLY) December 31 1996 1995 - --------------------------------------------------------------- ASSETS Cash........................... $ 200 204 Interest-Bearing Deposits...... 24,655 -- Loans to Subsidiaries.......... 269,993 347,604 Investment in Subsidiaries..... 1,879,891 1,603,458 Goodwill....................... 11,384 12,139 Other Assets................... 15,454 2,043 - --------------------------------------------------------------- TOTAL ASSETS................... $ 2,201,577 1,965,448 - --------------------------------------------------------------- LIABILITIES Commercial Paper............... $ 27,277 67,562 Accrued Expenses and Other Liabilities................... 30,175 29,911 Convertible Subordinated Notes -- 143,400 - --------------------------------------------------------------- TOTAL LIABILITIES 57,452 240,873 - --------------------------------------------------------------- STOCKHOLDERS' EQUITY 2,144,125 1,724,575 - --------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,201,577 1,965,448 - ---------------------------------------------------------------
- -------------------------------------------------------------------------- CONDENSED STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY) For the Years Ended December 31 1996 1995 1994 - -------------------------------------------------------------------------- OPERATING ACTIVITIES Net Income............................ $335,059 287,685 244,459 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Amortization...................... 755 1,200 1,285 Provision for Deferred Income Taxes.................... ( 169) ( 93) ( 44) Realized Securities Gains......... ( 215) -- -- Decrease in Dividends Receivable -- -- 6,818 Decrease (Increase) in Other Assets.................... ( 9,145) 9,163 ( 5,392) Increase (Decrease) in Accrued Expenses and Other Liabilities.. ( 5,379) 226 718 Decrease (Increase) in Undistributed Earnings of Subsidiaries........ 23,505 ( 143,282) (162,379) - --------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES................ 344,411 154,899 85,553 - --------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Proceeds from Maturities of Securities Held to Maturity......... -- -- 90 Proceeds from Sales of Securities Available for Sale....... 11,117 -- -- Net Increase in Interest-Bearing Deposits............................ ( 24,655) -- -- Decrease in Loans to Subsidiaries..... 77,611 20,221 6,681 Capital Contributions to Subsidiaries. (266,775) (108,800) ( 22,801) Purchases of Subsidiaries............. -- ( 64) (15) - --------------------------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES................ (202,702) ( 88,643) ( 16,045) - --------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Increase (Decrease) in Other Short-Term Borrowings............... ( 40,285) 19,155 ( 7,889) Repayment of Long-Term Debt........... (145) -- ( 2,402) Payment of Cash Dividends............. (110,907) ( 89,131) ( 73,425) Shares Acquired for Treasury.......... ( 3,096) ( 73) ( 178) Fractional Shares Purchased in Stock Split...................... -- ( 250) -- Exercise of Stock Options............. 11,769 4,047 10,307 Other................................. 951 -- 128 - --------------------------------------------------------------------------------------------------------------------------- NET CASH USED IN FINANCING ACTIVITIES................ (141,713) ( 66,252) ( 73,459) - --------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH........... ( 4) 4 ( 3,951) CASH AT BEGINNING OF YEAR............. 204 200 4,151 - --------------------------------------------------------------------------------------------------------------------------- CASH AT END OF YEAR................... $ 200 204 200 - ---------------------------------------------------------------------------------------------------------------------------
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, 1996 and 1995, 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, 1996. 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 materia 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, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ DELOITTE & TOUCHE LLP Cincinnati, Ohio January 15, 1997 27 31 FIFTH THIRD BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Many of the statements in Management's Discussion and Analysis of Financial Condition and Results of Operations, including the following discussion of the banking industry, set forth management's opinions with respect to present or future trends or factors affecting the operations, markets and products of Fifth Third Bancorp and its consolidated subsidiaries (the "Bancorp"). 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 16.5% in 1996 and 17.7% in 1995. The Bancorp's net income to average assets, referred to as return on average assets (ROA), and return on average stockholders' equity (ROE) follow:
- --------------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 - --------------------------------------------------------------------------------------- Net income ($000's)............. $335,059 287,685 244,459 206,235 172,021 Net income per share (a)........ $ 3.22 2.91 2.53 2.19 1.84 ROA (b)......................... 1.78% 1.78 1.77 1.71 1.63 ROE (b)......................... 17.8% 18.1 18.6 17.8 16.9 Originally reported (c): ROA........................... 1.78% 1.78 1.77 1.80 1.74 ROE........................... 17.8% 18.1 18.6 18.2 17.3 - ---------------------------------------------------------------------------------------
(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 and April 15, 1992. (b) For comparability, certain financial ratios exclude the impact of the 1996 special SAIF assessment of $16.6 million pretax ($10.8 million after tax, or $.10 per share). (c) 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
TABLE 1.-CONSOLIDATED AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME For the Years Ended December 31 (Taxable Equivalent Basis) - --------------------------------------------------------------------------------------------------------------------------- 1996 1995 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........................ $12,304,544 $1,020,768 8.30% $10,960,757 $ 919,596 8.39% Securities Taxable................................ 5,468,864 369,851 6.76 3,809,435 250,590 6.58 Exempt from Income Taxes............... 436,477 31,708 7.26 471,338 34,248 7.27 Other Short-Term Investments............ 32,214 1,519 4.72 25,084 1,251 4.99 - --------------------------------------------------------------------------------------------------------------------------- Total Interest-Earning Assets............. 18,242,099 1,423,846 7.81 15,266,614 1,205,685 7.90 - --------------------------------------------------------------------------------------------------------------------------- Cash and Due from Banks................... 531,876 552,534 Other Assets.............................. 889,466 511,677 Reserve for Credit Losses................. ( 183,203) ( 164,618) - --------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS.............................. $19,480,238 $16,166,207 - --------------------------------------------------------------------------------------------------------------------------- LIABILITIES Interest-Bearing Liabilities Interest Checking....................... $ 1,747,280 37,309 2.14 $ 1,430,921 28,472 1.99 Savings................................. 1,692,134 54,317 3.21 660,379 14,572 2.21 Money Market............................ 1,664,443 57,088 3.43 1,779,851 62,233 3.50 Other Time Deposits..................... 5,569,023 305,682 5.49 4,319,791 248,860 5.76 Certificates-$100,000 and Over.......... 892,247 47,553 5.33 700,575 40,522 5.78 Foreign Office Deposits................. 522,216 28,407 5.44 780,475 46,646 5.98 Federal Funds Borrowed.................. 1,230,219 64,942 5.28 1,071,792 63,492 5.92 Short-Term Bank Notes................... 553,924 30,278 5.47 769,000 47,956 6.24 Other Short-Term Borrowings............. 996,663 48,644 4.88 828,685 41,136 4.96 Long-Term Debt and Convertible Subordinated Notes.................... 342,187 21,649 6.33 290,824 15,844 5.45 - --------------------------------------------------------------------------------------------------------------------------- Total Interest-Bearing Liabilities........ 15,210,336 695,869 4.57 12,632,293 609,733 4.83 - --------------------------------------------------------------------------------------------------------------------------- Demand Deposits........................... 1,872,843 1,585,256 Other Liabilities......................... 450,624 361,936 - --------------------------------------------------------------------------------------------------------------------------- Total Liabilities......................... 17,533,803 14,579,485 STOCKHOLDERS' EQUITY...................... 1,946,435 1,586,722 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $19,480,238 $16,166,207 - --------------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME MARGIN ON A TAXABLE EQUIVALENT BASIS.... $727,977 3.99% $595,952 3.90% NET INTEREST RATE SPREAD.................. 3.24% 3.07% INTEREST-BEARING LIABILITIES TO INTEREST-EARNING ASSETS.............. 83.38% 82.74%
28 32 FIFTH THIRD BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS margin is greater than net interest 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, presents the net interest income, net interest margin and net interest rate spread for the five years 1992 through 1996, 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 $728 million in 1996, an increase of 22.2% over the $596 million earned during 1995. Net interest income increased 10.1% in 1995 over 1994. For 1996, net interest income growth resulted from an increase in average interest-earning assets and improvement in the net interest margin from lower funding cost. The increase in 1995 was attributable primarily to average interest-earning asset growth which overcame the effect of a compressed net interest margin. During 1996, average interest-earning assets grew by $3 billion to $18.2 billion, an increase of 19.5% over 1995. In 1995, average interest-earning assets grew 17.2% over 1994. Securitization and sales of consumer loans and cash proceeds from significant deposit acquisitions early in 1996 affected the Bancorp's earning asset mix in 1996. The Bancorp continues to use loan securitization and sales to increase balance sheet flexibility. Sales and securitizations allow us to expand origination and servicing, and the related fee income, faster than the balance sheet without increasing leverage. Sales and securitization of residential mortgage loans totalled $1.3 billion in both 1996 and 1995, with the majority of securitized loans retained in the securities portfolio. In 1996, the Bancorp securitized and sold $820 million in auto loans while retaining the servicing. Also, proceeds from the 1st Nationwide and NBD Ohio deposit acquisitions were primarily invested in securities to provide liquidity to fund loan and lease growth in our Cleveland and Columbus markets. Average interest-bearing liabilities grew from $10.8 billion in 1994 to $12.6 billion in 1995 to $15.2 billion in 1996. 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 ongoing customer relationships. In 1996, average core deposits increased 28.3% due to a renewed focus on new transaction account
- --------------------------------------------------------------------------------------------------------------------------------- 1994 1993 1992 -------------------------------- ------------------------------- --------------------------------- Average Average Average Average Average Average Out- Revenue/ Yield/ Out- Revenue/ Yield/ Out- Revenue/ Yield/ standing Cost Rate standing Cost Rate standing Cost Rate - --------------------------------------------------------------------------------------------------------------------------------- $ 9,902,901 $751,974 7.59% $ 8,869,432 $679,792 7.66% $ 7,189,975 $619,626 8.62% 2,741,490 169,316 6.18 2,098,650 134,387 6.40 2,289,817 165,160 7.21 359,830 24,568 6.83 267,247 18,797 7.03 203,418 15,801 7.77 23,988 1,019 4.25 10,426 319 3.06 112,052 3,806 3.40 - --------------------------------------------------------------------------------------------------------------------------------- 13,028,209 946,877 7.27 11,245,755 833,295 7.41 9,795,262 804,393 8.21 - --------------------------------------------------------------------------------------------------------------------------------- 526,007 494,141 440,908 428,266 435,966 439,332 ( 153,141) ( 134,808) ( 109,908) - --------------------------------------------------------------------------------------------------------------------------------- $13,829,341 $12,041,054 $10,565,594 - --------------------------------------------------------------------------------------------------------------------------------- $ 1,512,670 25,572 1.69 $ 1,326,759 28,295 2.13 $ 1,097,918 28,322 2.58 698,756 14,511 2.08 656,868 16,298 2.48 539,997 17,183 3.18 1,582,863 40,326 2.55 1,493,802 37,465 2.51 1,440,309 45,635 3.17 3,923,418 194,375 4.95 3,531,301 173,764 4.92 3,275,879 190,086 5.80 336,521 13,135 3.90 441,882 15,622 3.54 490,293 23,456 4.78 529,434 24,165 4.56 242,245 8,030 3.31 48,200 1,714 3.56 848,217 34,925 4.12 622,068 18,963 3.05 529,201 17,316 3.27 429,642 20,285 4.72 ---- ---- ---- ---- ---- ---- 689,960 25,818 3.74 743,002 24,326 3.27 700,463 29,420 4.20 249,612 12,436 4.98 343,617 16,636 4.84 127,639 6,238 4.89 - --------------------------------------------------------------------------------------------------------------------------------- 10,801,093 405,548 3.75 9,401,544 339,399 3.61 8,249,899 359,370 4.36 - --------------------------------------------------------------------------------------------------------------------------------- 1,414,048 1,268,371 1,070,387 299,859 213,727 229,029 - --------------------------------------------------------------------------------------------------------------------------------- 12,515,000 10,883,642 9,549,315 - --------------------------------------------------------------------------------------------------------------------------------- 1,314,341 1,157,412 1,016,279 - --------------------------------------------------------------------------------------------------------------------------------- $13,829,341 $12,041,054 $10,565,594 - --------------------------------------------------------------------------------------------------------------------------------- $541,329 4.16% $493,896 4.39% $445,023 4.54% - --------------------------------------------------------------------------------------------------------------------------------- 3.52% 3.80% 3.85% - --------------------------------------------------------------------------------------------------------------------------------- 82.91% 83.60% 84.22%
29 33 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) - --------------------------------------------------------------------------------------------------------------------------- 1996 COMPARED TO 1995 1995 Compared to 1994 -------------------------------------- -------------------------------- ($000's) VOLUME YIELD/RATE MIX TOTAL Volume Yield/Rate Mix Total - --------------------------------------------------------------------------------------------------------------------------- Increase (Decrease) in Interest Income Loans and Leases.......................... $112,743 $(10,308)$( 1,263) $101,172 $ 80,328 $78,869 $ 8,425 $167,622 Securities Taxable................................... 109,160 7,036 3,065 119,261 65,957 11,023 4,294 81,274 Exempt from Income Taxes.................. ( 2,533) ( 8) 1 ( 2,540) 7,613 1,578 489 9,680 Other Short-Term Investments.............. 356 ( 69) ( 19) 268 47 177 8 232 - --------------------------------------------------------------------------------------------------------------------------- TOTAL INTEREST INCOME CHANGE................ 219,726 ( 3,349) 1,784 218,161 153,945 91,647 13,216 258,808 - --------------------------------------------------------------------------------------------------------------------------- Increase (Decrease) in Interest Expense Interest Checking......................... 6,295 2,082 460 8,837 ( 1,382) 4,527 ( 245) 2,900 Savings................................... 22,767 6,626 10,352 39,745 ( 797) 908 ( 50) 61 Money Market.............................. ( 4,035) ( 1,187) 77( 5,145) 5,019 15,019 1,869 21,907 Other Time Deposits....................... 71,967 (11,748) ( 3,397) 56,822 19,637 31,650 3,198 54,485 Certificates-$100,000 and Over............ 11,087 ( 3,185) ( 871) 7,031 14,210 6,330 6,847 27,387 Foreign Office Deposits................... ( 15,436) ( 4,190) 1,387 ( 18,239) 11,458 7,477 3,546 22,481 Federal Funds Borrowed.................... 9,385 ( 6,913) ( 1,022) 1,450 9,206 15,323 4,038 28,567 Short-Term Bank Notes..................... ( 13,412) ( 5,922) 1,656 ( 17,678) 16,022 6,508 5,141 27,671 Other Short-Term Borrowings............... 8,338 ( 690) ( 140) 7,508 5,191 8,432 1,695 15,318 Long-Term Debt and Convertible Subordinated Notes...................... 2,799 2,555 451 5,805 2,053 1,163 192 3,408 - --------------------------------------------------------------------------------------------------------------------------- TOTAL INTEREST EXPENSE CHANGE............... 99,755 (22,572) 8,953 86,136 80,617 97,337 26,231 204,185 - --------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET INTEREST INCOME ON A TAXABLE EQUIVALENT BASIS...... $119,971 $19,223 $( 7,169) 132,025 $ 73,328 $( 5,690)$(13,015) 54,623 - --------------------------------------------------------------------------------------------------------------------------- INCREASE IN TAXABLE EQUIVALENT ADJUSTMENT..................... ( 6,213) ( 7,944) - --------------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME CHANGE.................. $125,812 $ 46,679 - ---------------------------------------------------------------------------------------------------------------------------
products and promotions, and deposit acquisitions in early-1996 and late-1995. Acquisitions contributed approximately $2 billion of the $2.8 billion total growth in core deposits. Average demand, interest checking and savings accounts comprised 42.3% of total core deposits, compared to 37.6% in 1995 and 39.7% in 1994. Average non-core deposits and short-term borrowings declined to 23% from 27.2% of average interest-earning assets in 1995, further illustrating the success of growing core deposits in 1996. The net interest margin improved 9 basis points (bp) (a basis point is equivalent to .01%) to 3.99% in 1996 from 3.90% in 1995. The 1996 increase follows a 26 bp drop in net interest margin in 1995. Total cost of interest-bearing liabilities declined 26 bps during 1996 to 4.57%, the result of growth in core deposits, an improved deposit mix and lower interest rates on short-term borrowings. The interest-bearing deposit cost dropped 17 bps from 4.56% in 1995 to 4.39% in 1996, while the cost of borrowed funds, including federal funds borrowed, short-term bank notes, other short-term borrowings and long-term debt, declined 39 bps from 5.69% in 1995 to 5.30% in 1996. The effect of free funds on the net interest margin declined from 83 bps in 1995 to 75 bps in 1996, reflecting lower earning asset yields. The earning asset yield declined 9 bps in 1996 from 7.9% to 7.81% due to a 9 bp decline in the loan and lease portfolio yields, offset in part by a 15 bp increase in securities and other short-term investment yields. Net interest margins compressed during 1994 and the first part of 1995, due primarily to 1994's rapid rise in short-term interest rates which caused short-term liabilities to reprice upward faster than term assets. Margins stabilized in the last part of 1995 as strong loan and lease volume and higher interest rates improved average interest-earning asset yields. Our margin has also been affected in part by thrift acquisitions which have lower interest rate spreads and margins due to asset mix and less free funding sources. 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 1996 and 1995. OTHER OPERATING INCOME The table below shows the components of other operating income for the five years ending December 31, 1996. Total other operating income excluding securities gains increased 20.9% over 1995 and was up 17.8% in 1995 over 1994. Trust income totalled $74,032,000 in 1996, an increase of 20% over 1995's $61,755,000. This increase was led by growth in Personal Trust and Fifth Third Securities income, reflecting continued strength in the equity markets and strong new sales. Our proprietary Fountain Square Funds performed well and during the fourth quarter exceeded $2 billion in assets. Trust fees, most of which are based on the market value of managed trust assets, benefited from asset increases of 15.9% to $9.8 billion in 1996. Trust income growth of 11.8% in 1995 was primarily attributable to the rebound in the equity markets, a 26.5% increase in
- ----------------------------------------------------------------------------------------------------------------------------------- ($000's) 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------------ Trust income ...................................... $ 74,032 61,755 55,238 53,442 49,183 Service charges on deposits ....................... 83,590 66,344 60,905 57,212 51,525 Data processing income ............................ 88,195 75,311 64,394 52,823 45,842 Other service charges and fees .................... 118,035 97,516 74,978 61,595 50,780 - ------------------------------------------------------------------------------------------------------------------------------------ Subtotal .......................................... 363,852 300,926 255,515 225,072 197,330 - ------------------------------------------------------------------------------------------------------------------------------------ Securities gains .................................. 4,563 4,789 393 6,078 8,978 - ------------------------------------------------------------------------------------------------------------------------------------ Total ............................................. $368,415 305,715 255,908 231,150 206,308 - ------------------------------------------------------------------------------------------------------------------------------------ After-tax securities gains ........................ $ 2,918 3,114 255 3,658 6,009 - ------------------------------------------------------------------------------------------------------------------------------------
30 34 FIFTH THIRD BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS managed trust assets, the success of our Fountain Square Funds and fee increases. Service charges on deposits totalled $83,590,000 in 1996 and $66,344,000 in 1995, up 26% and 8.9%, respectively. The growth in both years was fueled by an expanding delivery system, deposit acquisitions, successful product campaigns and pricing enhancements. Our commercial transaction deposit accounts grew significantly in 1996 and were a source for additional commercial analysis fee income. Data processing income was up 17.1% in 1996 and 17% in 1995. Merchant processing revenues, approximately 40% of total data processing revenues, increased 20.5% in 1996 and 42% in 1995, due to new customers and resulting increases in merchant transaction volumes. Electronic funds transfer (EFT), the other portion of data processing income, increased 7.2% in 1996 and 5% in 1995, the result of the success of debit cards, new products and an expanding customer base. Other service charges and fees reached $118,035,000 in 1996, compared to $97,516,000 in 1995, an increase of $20,519,000 or 21%. Total mortgage banking income, net of gains, increased 41.3%, aided by lower interest rates that fueled strong origination volume in the first half of the year. During 1996, we originated $1.6 billion in residential mortgage loans compared to $1 billion in 1995. Securitizations and sales totaled $1.3 billion in both years. Gains on sales of residential mortgage loans and servicing for 1996 were $7,225,000 compared to $16,122,000, for 1995, which included the effect of adopting SFAS No. 122. Residential mortgage loans serviced at December 31, 1996 were $5.3 billion, including $3.1 billion serviced for others. This compares to $4.7 billion, including $2.7 billion serviced for others, at the end of 1995. Consumer loan and lease fees provided $13.7 million of the increase in other service charges and fees due to strong installment loan origination volume, coupled with the securitization and sale of over $820 million in auto loans. Our growing credit card portfolio contributed to a $7.5 million, or 45.8%, increase in cardholder fees. In 1995, other service charges and fees increased 30.1% over 1994. Mortgage banking income contributed the largest increase, with net servicing fees up 18.9% over 1994, due to strong volume and sales or securitizations. 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, lease and commercial banking fees, along with cardholder fees, increased 27.8% over 1994, due in part to strong loan and lease volume. OPERATING EXPENSES The Bancorp's success in controlling operating expenses comes from efficient staffing, a constant focus on improving productivity and the centralization of various 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 43.5%, excluding the special SAIF assessment for 1996, 43.9% in 1995 and under 50% since 1991. Total operating expenses increased 20.5% in 1996, before the impact of the SAIF assessment of $16,612,000, and 6.5% in 1995 over the previous year. Acquisitions and growth affected year-to-year operating expense comparisons. Although the expense growth rate for 1996 was higher than customary, expense growth slowed considerably in the last half of the year as acquisitions from early in the year were integrated. Excluding the 1996 assessment, salaries, wages, incentives and employee benefits comprised 48.3% and 49.3% of total operating expenses in 1996 and 1995, respectively, and increased by 18.1% and 5.7% during the same periods. The number of full-time equivalent (FTE) employees was 6,549 at the end of the year, an increase of 441 over year end 1995, but down from a peak of 6,777 in the second quarter of 1996. The majority of the increases in FTE employees is directly due to acquisitions. Average salaries, wages, incentives and benefits per FTE employee have increased 10.1% from 1995, which was relatively unchanged from 1994. The Bancorp's productivity ratios, which measure the degree of efficiency of our employees, have shown improvement since 1991. Excluding the special SAIF assessment, net income per employee was $53,000 for 1996, compared to $31,000 for 1991, an increase of 70% as illustrated below. Equipment and net occupancy expenses increased 23.1% in
- ------------------------------------------------------------------------------------------------------------------------------------ ($000's) 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------------ Salaries, wages and incentives .................... $185,793 156,545 148,039 134,680 120,741 Employee benefits ................................. 44,682 38,648 36,710 36,436 31,927 Equipment expenses ................................ 20,006 16,655 16,045 15,446 14,548 Net occupancy expenses ............................ 35,596 28,521 26,137 26,014 23,270 Other operating expenses .......................... 190,641 155,248 144,614 140,144 125,829 - ------------------------------------------------------------------------------------------------------------------------------------ Total operating expenses .......................... 476,718 395,617 371,545 352,720 316,315 - ------------------------------------------------------------------------------------------------------------------------------------ SAIF assessment ................................... 16,612 -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Total ............................................. $493,330 395,617 371,545 352,720 316,315 - ------------------------------------------------------------------------------------------------------------------------------------
[The following tables are representative of graphs shown at the bottom of page 31 in the Bancorp's Annual Report] OTHER OPERATING INCOME ($ in millions) GROWTH IN NET INCOME Five Year Growth PER EMPLOYEE OVERHEAD RATIO Rate: 14.3% 1991 Base Year = 100 Fifth Third Peer ---------------- -------------------- -------------- ---- 1991 $ 189.0 100 49.5% 63.9% 1992 $ 206.3 110 48.6% 62.6% 1993 $ 231.2 123 48.6% 62.0% 1994 $ 255.9 139 46.6% 63.1% 1995 $ 305.7 152 43.9% 61.3% 1996 $ 368.4 170* 43.5%* N/A * For comparability, certain financial ratios and statistics exclude the impact of the 1996 special SAIF assessment of $16.6 million pretax ($10.8 million after tax or $.10 per share).
31 35 FIFTH THIRD BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 1996 and 7.1% in 1995. Increased costs in 1996 are associated with the net addition of 30 locations, primarily from acquisitions, and 131 new ATM machines, including rental property costs, utilities, real estate taxes and depreciation. Upgrades of equipment to support growth and processing technology also contributed to the increase. Operating expenses include a pretax charge of $16.6 million, or $.10 per share, mandated by federal legislation to recapitalize the Savings Association Insurance Fund (SAIF). During 1996, the Bancorp paid no insurance premiums on approximately 70% of deposits which are insured by the Bank Insurance Fund (BIF) of the FDIC and 23 cents per $100 on the portion of deposits acquired from thrifts over the years that remain insured by SAIF. Deposit insurance premiums in 1997 will be 1.3 and 6.48 cents per $100 of deposits for BIF insured and SAIF insured deposits, respectively. During 1995, the FDIC lowered the federal deposit insurance premium on approximately 80% of deposits insured by the Bank Insurance Fund from 23 cents to 4 cents per $100 of deposits and FDIC expense decreased 31% from 1994. Other operating expenses increased to $190,641,000, up $35,393,000 or 22.8% over 1995. Bankcard, loan and lease, and data processing expenses accounted for $15.7 million of the increase, which was directly related to increased volumes in these areas. Intangible amortization was up approximately $14.9 million due to acquisition activity, and franchise tax expense was up $5.4 million primarily as a result of growth in shareholders' equity. These increases were partially offset by a $3.5 million decrease in other real estate owned expenses. Other operating expenses were $155,248,000 in 1995, up 7.4% over 1994. 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 5.3 years based on current prepayment expectations. The Bancorp securitized $829,108,000 and $854,511,000 of residential mortgages in 1996 and 1995, respectively. These securitizations, along with the investment of proceeds from deposit acquisitions, contributed to the growth in the securities portfolio in 1996. The securities portfolio provides liquidity to fund future loan and lease growth in our expanding affiliate markets.
SECURITIES PORTFOLIO AT DECEMBER 31 - ----------------------------------------------------------------------------------------------------------------------------------- ($000's) 1996 1995 1994 1993 1992 - ----------------------------------------------------------------------------------------------------------------------------------- Securities Available for Sale: U.S. Treasury ........................................ $ 266,376 298,312 210,599 63,183 -- - ----------------------------------------------------------------------------------------------------------------------------------- U.S. Government agencies and corporations ............ 81,540 86,746 18,458 136,303 -- - ----------------------------------------------------------------------------------------------------------------------------------- States and political subdivisions .................... 296,847 300,787 -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Agency mortgage-backed securities .................... 4,925,768 2,774,041 895,931 595,133 -- - ----------------------------------------------------------------------------------------------------------------------------------- Other bonds, notes and debentures .................... 593,920 655,085 -- 96,369 -- - ----------------------------------------------------------------------------------------------------------------------------------- Other securities ..................................... 59,430 36,207 4,504 7,086 -- - ----------------------------------------------------------------------------------------------------------------------------------- Securities Held to Maturity: U.S. Treasury ........................................ -- -- 98,742 -- 111,268 - ----------------------------------------------------------------------------------------------------------------------------------- U.S. Government agencies and corporations ............ -- -- -- 13,189 179,849 - ----------------------------------------------------------------------------------------------------------------------------------- States and political subdivisions .................... 150,232 167,992 463,759 327,636 222,015 - ----------------------------------------------------------------------------------------------------------------------------------- Agency mortgage-backed securities .................... -- -- 1,750,549 1,249,465 1,689,391 - ----------------------------------------------------------------------------------------------------------------------------------- Other bonds, notes and debentures .................... 1,805 1,505 160,394 166,954 196,259 - ----------------------------------------------------------------------------------------------------------------------------------- Other securities ..................................... 24,767 17,594 34,099 19,150 20,639 - -----------------------------------------------------------------------------------------------------------------------------------
32 36 FIFTH THIRD BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MATURITIES OF SECURITIES AT DECEMBER 31, 1996 - --------------------------------------------------------------------------------------------------------------------------- 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................. $ 46,774 7.35% $ 219,477 6.86% $ - - % $ 125 8.63% $ 266,376 6.95% - --------------------------------------------------------------------------------------------------------------------------- U.S. Government agencies and corporations............ 3,315 7.24 75,762 6.08 1,963 6.56 500 8.55 81,540 6.15 - --------------------------------------------------------------------------------------------------------------------------- States and political subdivisions (a)............. 35,730 7.75 159,357 7.43 96,602 7.32 5,158 8.35 296,847 7.45 - --------------------------------------------------------------------------------------------------------------------------- Agency mortgage- backed securities (b)........ 151,534 6.90 4,045,217 6.90 530,800 7.01 198,217 6.89 4,925,768 6.91 - --------------------------------------------------------------------------------------------------------------------------- Other bonds, notes and debentures (c)............... 9,739 6.20 529,300 6.33 44,636 7.41 10,245 7.20 593,920 6.42 - --------------------------------------------------------------------------------------------------------------------------- Securities Held to Maturity: States and political subdivisions (a)............. 75,116 7.00 75,116 6.90 -- -- -- -- 150,232 6.95 Other bonds, notes and debentures................... 270 8.28 750 7.92 785 8.57 -- -- 1,805 8.26 - --------------------------------------------------------------------------------------------------------------------------- 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 $1,135,965,000. (c) included in other bonds, notes and debentures available for sale are floating rate securities totalling $320,213,000.
LOAN AND LEASE PORTFOLIO AT DECEMBER 31 - --------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 -------------- --------------- -------------- -------------- --------------- ($ in millions) AMOUNT % Amount % Amount % Amount % Amount % - --------------------------------------------------------------------------------------------------------------------------- Commercial: Commercial.............. $ 3,987 31.9% $ 3,563 30.5% $ 3,032 29.5% $2,680 28.0% $2,481 30.5% Mortgage................ 796 6.4 794 6.8 729 7.1 703 7.3 567 7.0 Construction............ 376 3.0 312 2.7 286 2.8 342 3.6 331 4.1 Leases.................. 918 7.3 696 5.9 479 4.6 302 3.2 236 2.9 - --------------------------------------------------------------------------------------------------------------------------- 6,077 48.6 5,365 45.9 4,526 44.0 4,027 42.1 3,615 44.5 - --------------------------------------------------------------------------------------------------------------------------- Consumer: Installment............. 2,236 17.9 2,737 23.4 2,131 20.7 1,881 19.7 1,531 18.9 Mortgage................ 2,150 17.2 1,975 16.9 2,347 22.8 2,731 28.5 2,397 29.5 Credit Card............. 364 2.9 325 2.8 275 2.7 207 2.2 178 2.2 Leases.................. 1,687 13.4 1,288 11.0 1,007 9.8 721 7.5 395 4.9 - --------------------------------------------------------------------------------------------------------------------------- 6,437 51.4 6,325 54.1 5,760 56.0 5,540 57.9 4,501 55.5 - --------------------------------------------------------------------------------------------------------------------------- Total..................... $12,514 100.0% $11,690 100.0% $10,286 100.0% $9,567 100.0% $8,116 100.0% - ---------------------------------------------------------------------------------------------------------------------------
Loan and lease balances increased 7% and 13.6%, respectively, in 1996 and 1995. In both years, the growth in outstandings was affected considerably by sales and securitizations of consumer loans, which allows the Bancorp to be selective in how much of the expanding origination volume is retained in the loan and lease portfolio. For example, residential mortgage loan originations were $1.6 billion in 1996 compared to $1 billion in 1995, a 60% increase, but the related mortgage loan outstandings only increased 8.9% because $1.3 billion of this origination volume was sold or securitized. Similarly, installment loan balances actually declined during 1996 because the Bancorp securitized and sold $820 million in auto loans. Consumer leases grew 30.9% and 27.9% in 1996 and 1995, respectfully. Commercial loan and lease outstandings were up 13.3% in 1996 and 18.5% in 1995. Commercial leasing contributed increases of 31.9% and 45.3%, respectively, consisting largely of credits within our market areas of Ohio, Kentucky and Indiana. Commercial mortgages represent 6.4% of our total loan and lease portfolio and include primarily financing of owner-occupied properties--loans on properties occupied by the principal borrower. 33 37 FIFTH THIRD BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESERVE FOR CREDIT LOSSES FIVE YEAR HISTORY - --------------------------------------------------------------------------------------------------------------------------- ($000's) 1996 1995 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------------- Balance at January 1........................... $ 177,388 155,918 144,537 121,452 97,319 Provision for credit losses.................... 64,014 42,962 35,780 48,037 66,100 Losses charged off............................. ( 80,444) ( 41,707) ( 30,946) ( 37,172) ( 54,718) Recoveries of losses previously charged off.... 20,482 11,846 13,472 10,098 8,953 Letter of credit............................... -- -- ( 7,800) -- -- Reserve of acquired institutions and other..... 5,838 8,369 875 2,122 3,798 - --------------------------------------------------------------------------------------------------------------------------- Balance at December 31......................... $ 187,278 177,388 155,918 144,537 121,452 - --------------------------------------------------------------------------------------------------------------------------- Loans and leases outstanding at December 31.... $12,514,792 $11,690,643 $10,286,457 $9,566,898 $8,115,590 Reserve as a percent of loans and leases outstanding.................................. 1.50% 1.52% 1.52% 1.51% 1.50% Average loans and leases....................... $12,304,544 $10,960,757 $ 9,902,901 $8,869,432 $7,189,975 Net charge-offs as a percent of average loans and leases outstanding........................ .49% .27% .18% .31% .64% Reserve as a percent of total nonperforming assets........................................ 531.48% 436.06% 570.50% 362.84% 155.53% Reserve as a percent of total under-performing assets....................................... 255.53% 290.16% 384.35% 287.47% 121.58% - ---------------------------------------------------------------------------------------------------------------------------
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 created 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. Charge-offs, net of recoveries, increased $30.1 million over 1995 due to higher losses on consumer loans. Net charge-offs as a percent of average loans and leases outstanding were .49%, .27%, and .18% for 1996, 1995 and 1994, respectively. Although net charge-offs have risen in 1996, the net charge-off ratio remains near the Bancorp's historical 10-year average of .48% and the reserve for credit losses is in excess of five times nonperforming assets. The reserve for credit losses as a percentage of total loans and leases was 1.50% at December 31, 1996 and 1.52% at December 31, 1995. The table above presents credit loss data for the most recent five year period. UNDERPERFORMING ASSETS Underperforming assets consist of (1) nonaccrual loans and leases on which the ultimate collectibility of the full amount of interest is uncertain, (2) loans and leases which have been renegotiated to provide for a reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower, (3) loans and leases past due ninety days or more as to principal or interest and (4) other real estate owned. A summary of underperforming assets at December 31 follows:
- ----------------------------------------------------------- ($000's) 1996 1995 1994 - ----------------------------------------------------------- Nonaccrual loans and leases .... $29,046 37,049 20,725 Renegotiated loans and leases... 1,121 506 443 Other real estate owned ........ 5,070 3,125 6,162 - ----------------------------------------------------------- Total nonperforming assets .... 35,237 40,680 27,330 Ninety days past due loans and leases .................... 38,053 20,455 13,237 - ----------------------------------------------------------- Total underperforming assets ... $73,290 61,135 40,567 - ----------------------------------------------------------- Nonperforming assets as a percent of total loans, leases and other real estate owned ......................... .28% .35 .27 Underperforming assets as a percent of total loans, leases and other real estate owned... .59% .52 .39 - -----------------------------------------------------------
Nonperforming assets as a percentage of total loans, leases and other real estate owned decreased to .28% at December 31, 1996 compared to .35% at December 31, 1995. Of the total underperforming assets at December 31, 1996, $45,007,000 are to borrowers or projects in the Cincinnati-Dayton market area, $4,454,000 in the Toledo market area, $5,399,000 in Columbus, $625,000 in the Louisville market area, $4,907,000 in the Cleveland market area, $9,199,000 distributed in the market areas of our smaller affiliate banks and $3,699,000 outside of the Ohio-Kentucky-Indiana area. Of the total nonperforming assets at December 31, 1996, $11,050,000 or 31.4% were related to commercial real estate. Nonaccrual commercial real estate loans were $7,093,000, a decrease of 43.7% from 1995's $12,597,000. At December 31, 1996, there were no renegotiated commercial real estate loans compared to $123,000 in 1995. Commercial other real estate owned increased from $2,007,000 in 1995 to $3,957,000 in 1996, an increase of 97.2%. 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 of consumer certificates of deposit. Foreign office deposits are denominated in amounts greater than $100,000. Average core deposits increased 28.3% in 1996 due to a renewed focus on transaction accounts and deposit acquisitions. Our new MaxSaver product fueled the increase in savings balances, while the new Platinum One product and promotional campaigns contributed to advances in demand and interest checking. Strong core deposit growth in 1996 resulted in a shift in the Bancorp's overall funding mix from borrowings to customer deposits. The acquisition of deposits from 1st Nationwide, NBD Ohio and Kentucky Enterprise Bancorp increased deposits by $2 billion. Deposits acquired in 1995 totaled approximately $1 billion.
DISTRIBUTION OF AVERAGE DEPOSITS - ------------------------------------------------------------ 1996 1995 1994 1993 1992 - ------------------------------------------------------------ Demand 13.4% 14.1 14.2 14.2 13.4 Interest checking 12.5 12.7 15.1 14.8 13.8 Savings 12.1 5.9 7.0 7.3 6.8 Money market 11.9 15.8 15.8 16.7 18.1 Other time 39.9 38.4 39.2 39.4 41.1 Certificates- $100,000 and over 6.4 6.2 3.4 4.9 6.2 Foreign office 3.8 6.9 5.3 2.7 .6 - ------------------------------------------------------------ Total 100.0% 100.0 100.0 100.0 100.0 - ------------------------------------------------------------
34 38 FIFTH THIRD BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CHANGE IN AVERAGE DEPOSIT SOURCES - ------------------------------------------------------------------------- ($000) 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------- Demand $ 287,587 171,208 145,677 197,984 177,481 Interest checking 316,359 ( 81,749) 185,911 228,841 267,195 Savings 1,031,755 ( 38,377) 41,888 116,871 101,289 Money market ( 115,408) 196,988 89,061 53,493 163,175 Other time 1,249,232 396,373 392,117 255,422 188,403 Certificates- $100,000 and over 191,672 364,054 ( 105,361) ( 48,411) (386,076) Foreign office ( 258,259) 251,041 287,189 194,045 35,121 - ------------------------------------------------------------------------- Total change $ 2,702,938 1,259,538 1,036,482 998,245 546,588 - -------------------------------------------------------------------------
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. Short-term borrowings primarily fund short-term, rate-sensitive earning asset growth. During 1996, borrowings supported a relatively smaller proportion of earning asset growth because of the aforementioned success in increasing core deposits. Average short-term borrowings as a percentage of average earning assets declined from 17.5% in 1995 to 15.2% in 1996. In 1995 and 1994, loan and lease growth outpaced core deposit growth, increasing the reliance on short-term borrowings. As the following table of average short-term borrowings and average Federal funds loaned indicates, the Bancorp was a net borrower of funds of $2,762,537,000 in 1996, up from $2,645,914,000 in 1995:
AVERAGE SHORT-TERM BORROWINGS - --------------------------------------------------------------------------- ($000's) 1996 1995 1994 1993 1992 - --------------------------------------------------------------------------- Federal funds borrowed........ $1,230,219 1,071,792 848,217 622,068 529,201 Short-term bank notes...... 553,924 769,000 429,642 -- -- Other short-term borrowings...... 996,663 828,685 689,960 743,002 700,463 - ---------------------------------------------------------------------------- Total short-term borrowings...... 2,780,806 2,669,477 1,967,819 1,365,070 1,229,664 - ---------------------------------------------------------------------------- Federal funds loaned.......... 18,269 23,563 17,712 9,342 79,194 - ---------------------------------------------------------------------------- Net funds borrowed........ $2,762,537 2,645,914 1,950,107 1,355,728 1,150,470 - ----------------------------------------------------------------------------
CAPITAL RESOURCES The Bancorp maintains a relatively high level of capital as a margin of safety for its depositors and stockholders. At December 31, 1996, stockholders' equity was $2,144,125,000 compared to $1,724,575,000 at December 31, 1995, an increase of $419,550,000 or 24.3%. This increase in capital resulted primarily from the retention of earnings, the calling for redemption its 4.25% convertible subordinated notes and the issuance of stock in an acquisition. The following table shows several capital and liquidity ratios for the last three years:
- ------------------------------------------------------------- 1996 1995 1994 - ------------------------------------------------------------- Average stockholders' equity to Average assets.................. 9.99% 9.82% 9.50% Average deposits................ 13.94 14.10 13.15 Average loans and leases........ 15.82 14.48 13.27 - -------------------------------------------------------------
In January 1997, the Bancorp authorized the repurchase of $250 million of its common stock over the course of the coming year. This authorization follows the December 1996 announcement of the approval of the repurchase of approximately $30 million of common stock to fund employee stock option and dividend reinvestment plans for the coming year. 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 along with consistent core deposit growth, and the availability of unused capacity to purchase funds in the national money markets. At December 31, 1996, the Bancorp had approximately $1.2 billion in securities and other short-term investments maturing or repricing within one year compared to $1.8 billion at year-end 1995. 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 70% of total average interest-earning assets over the last five years, with the ratio improving in 1996. 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. Five of the Bancorp's subsidiaries, The Fifth Third Bank of Northwestern Ohio, N.A., The Fifth Third Bank of Columbus, Fifth Third Bank of Northeastern Ohio, The Fifth Third Bank of Central Indiana and Fifth Third Bank of Kentucky, Inc. maintain 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, 1996. 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 39 FIFTH THIRD BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RATE SENSITIVITY ANALYSIS DECEMBER 31, 1996 - --------------------------------------------------------------------------------------------------------------------------- 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........................ $ 3,290 844 1,018 1,579 6,731 5,783 12,514 Securities available for sale........... 91 188 277 546 1,102 5,122 6,224 Securities held to maturity............. -- -- -- 75 75 102 177 Other short-term investments............ 45 -- -- -- 45 -- 45 - --------------------------------------------------------------------------------------------------------------------------- Total Interest-Earning Assets............. 3,426 1,032 1,295 2,200 7,953 11,007 18,960 Other assets.............................. -- -- -- -- -- 1,589 1,589 - --------------------------------------------------------------------------------------------------------------------------- Total Assets.............................. 3,426 1,032 1,295 2,200 7,953 12,596 20,549 - --------------------------------------------------------------------------------------------------------------------------- Interest-Bearing Liabilities Interest checking....................... 861 -- -- -- 861 1,097 1,958 Savings................................. 641 -- -- -- 641 1,300 1,941 Money market............................ 1,068 -- -- -- 1,068 395 1,463 Other time deposits..................... 596 494 1,025 1,761 3,876 1,722 5,598 Certificates-$100,000 and over.......... 336 197 143 74 750 37 787 Foreign office.......................... 133 -- -- -- 133 -- 133 Federal funds borrowed.................. 1,421 -- -- -- 1,421 -- 1,421 Short-term bank notes................... -- 806 -- -- 806 -- 806 Other short-term borrowings............. 1,016 23 -- -- 1,039 -- 1,039 Long-term debt and convertible subordinated notes................... -- 20 -- -- 20 258 278 - --------------------------------------------------------------------------------------------------------------------------- Total Interest-Bearing Liabilities....... 6,072 1,540 1,168 1,835 10,615 4,809 15,424 - --------------------------------------------------------------------------------------------------------------------------- Demand deposits ......................... -- -- -- -- -- 2,495 2,495 Other liabilities........................ -- -- -- -- -- 486 486 Stockholders' equity..................... -- -- -- -- -- 2,144 2,144 - --------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity 6,072 1,540 1,168 1,835 10,615 9,934 20,549 - --------------------------------------------------------------------------------------------------------------------------- Rate Sensitivity Gap..................... (2,646) ( 508) 127 365 (2,662) 2,662 - --------------------------------------------------------------------------------------------------------------------------- Cumulative Gap........................... $(2,646) (3,154) (3,027) (2,662) - --------------------------------------------------------------------------------------------------------------------------- Cumulative Gap as a Percentage of Total Assets........................... ( 12.9)% ( 15.3)% ( 14.7)% ( 13.0)% - ---------------------------------------------------------------------------------------------------------------------------
36 40 FIFTH THIRD BANCORP AND SUBSIDIARIES
CONSOLIDATED SIX YEAR SUMMARY OF OPERATIONS - -------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31 ($000's) 1996 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------------------------------------------------- Interest Income................................... $1,385,113 1,173,165 922,301 812,914 787,240 829,628 Interest Expense.................................. 695,869 609,733 405,548 339,399 359,370 466,381 - -------------------------------------------------------------------------------------------------------------------------- Net Interest Income............................... 689,244 563,432 516,753 473,515 427,870 363,247 Provision for Credit Losses....................... 64,014 42,962 35,780 48,037 66,100 62,464 - -------------------------------------------------------------------------------------------------------------------------- Net Interest Income After Provision for Credit Losses.................................. 625,230 520,470 480,973 425,478 361,770 300,783 Other Operating Income............................ 368,415 305,715 255,908 231,150 206,308 189,002 Operating Expenses................................ 476,718 395,617 371,545 352,720 316,315 282,844 SAIF Assessment................................... 16,612 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Income Before Income Taxes........................ 500,315 430,568 365,336 303,908 251,763 206,941 Applicable Income Taxes........................... 165,256 142,883 120,877 97,673 79,742 63,987 - -------------------------------------------------------------------------------------------------------------------------- Net Income........................................ $ 335,059 287,685 244,459 206,235 172,021 142,954 - -------------------------------------------------------------------------------------------------------------------------- Net Income Per Share (a).......................... $ 3.22 2.91 2.53 2.19 1.84 1.54 - -------------------------------------------------------------------------------------------------------------------------- Cash Dividends Declared Per Share (a)............. $ 1.10 .96 .80 .68 .60 .52 - -------------------------------------------------------------------------------------------------------------------------- (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.
CONDENSED CONSOLIDATED BALANCE SHEET INFORMATION - --------------------------------------------------------------------------------------------------------------------------- As of December 31 ($000's) 1996 1995 1994 1993 1992 1991 - --------------------------------------------------------------------------------------------------------------------------- Securities......................................... $ 6,400,685 4,338,269 3,637,035 2,674,468 2,419,421 2,625,968 Loans and Leases................................... 12,514,792 11,690,643 10,286,457 9,566,898 8,115,590 6,325,918 Assets............................................. 20,548,998 17,052,883 14,957,009 13,128,544 11,390,289 9,981,383 Deposits........................................... 14,374,656 12,485,780 10,630,878 9,477,306 8,447,812 7,633,362 Short-Term Borrowings.............................. 3,265,432 2,005,495 2,452,218 1,691,744 1,348,105 1,127,768 Long-Term Debt and Convertible Subordinated Notes.. 277,661 425,396 178,713 407,864 309,730 52,436 Stockholders' Equity............................... 2,144,125 1,724,575 1,398,774 1,277,660 1,076,854 944,691 - ---------------------------------------------------------------------------------------------------------------------------
SUMMARIZED QUARTERLY FINANCIAL INFORMATION - --------------------------------------------------------------------------------------------------------------------------- 1996 1995 -------------------------------------------- --------------------------------------------- FOURTH THIRD SECOND FIRST Fourth Third Second First (Unaudited)($000's) QUARTER QUARTER QUARTER QUARTER Quarter Quarter Quarter Quarter - --------------------------------------------------------------------------------------------------------------------------- Interest income................ $359,402 359,030 343,631 323,050 313,316 302,741 287,956 269,152 Net interest income............ 178,988 177,099 171,529 161,628 151,188 142,849 135,670 133,725 Provision for credit losses.... 19,785 16,431 18,048 9,750 14,483 10,698 8,207 9,574 Income before income taxes..... 138,808 118,355 124,845 118,307 115,564 112,881 102,803 99,320 Net income..................... 93,615 79,055 83,249 79,140 77,864 75,189 68,514 66,118 Net income per share........... .88 .75 .80 .79 .78 .75 .70 .68 - ---------------------------------------------------------------------------------------------------------------------------
37 41 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 - --------------------------------------------------------------------------------------------------------------------------- 1996 $12,304,544 $ 18,269 $13,945 $5,905,341 $18,242,099 $531,876 $889,466 $19,480,238 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 - --------------------------------------------------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------------------------------------------------- 1996 $1,872,843 $1,747,280$1,692,134 $1,664,443 $5,569,023 $892,247 $522,216 $13,960,186 $2,780,806 $16,740,992 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 - --------------------------------------------------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------------------------------------------------- 1996 $1,385,113 $695,869 $368,415 $493,330 $335,059 $3.22 $1.10 $3.22 33.2% 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 - --------------------------------------------------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------------------------------------------------- 1996 105,892,554 $234,836 $525,038 $1,367,653 $16,598 $2,144,125 $20.25 $187,278 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 - --------------------------------------------------------------------------------------------------------------------------- (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 and 1987. (c) Includes $254,000 of treasury stock in 1996 and $404,000 of treasury stock in 1992 and 1991.
38 42 DIRECTORS AND OFFICERS FIFTH THIRD BANCORP AND FIFTH THIRD BANK DIRECTORS GEORGE A. SCHAEFER, JR., President & CEO Fifth Third Bancorp and Fifth Third Bank JOHN F. BARRETT, President & CEO The Western & Southern Life Insurance Company MILTON C. BOESEL, JR.,* Counsel Ritter, Robinson, McCready & James GERALD V. DIRVIN, Former Executive Vice President The Procter & Gamble Company THOMAS B. DONNELL,* Chairman Fifth Third Bank of Northwestern Ohio, National Association RICHARD T. FARMER, Chairman Cintas Corporation John D. Geary, Former President Midland Enterprises, Inc. IVAN W. GORR,* Former Chairman & CEO Cooper Tire & Rubber Company JOSEPH H. HEAD, JR., Chairman & CEO Atkins & Pearce, Inc. JOAN R. HERSCHEDE, President & CEO The Frank Herschede Company WILLIAM G. KAGLER, Former Chairman of the Executive Committee of the Board of Directors Skyline Chili, Inc. WILLIAM J. KEATING, Former Publisher & Chairman The Cincinnati Enquirer JAMES D. KIGGEN, Chairman, CEO & President Xtek, Inc. ROBERT B. MORGAN, President & CEO Cincinnati Financial Corporation MICHAEL H. NORRIS, Former President The Deerfield Manufacturing Company JAMES E. ROGERS, Vice Chairman, President & CEO CINergy Corporation BRIAN H. ROWE, Chairman Emeritus GE Aircraft Engines JOHN J. SCHIFF, JR., Chairman John J. & Thomas R. Schiff & Co., Inc. DENNIS J. SULLIVAN, JR., Executive Counselor Dan Pinger Public Relations DUDLEY S. TAFT, President Taft Broadcasting Company DIRECTORS EMERITI Neil A. Armstrong William D. Atteberry Philip G. Barach Vincent H. Beckman J. Kenneth Blackwell Richard G. Brierley Clement L. Buenger Nolan W. Carson Douglas G. Cowan Thomas L. Dahl Ronald A. Dauwe Nicholas M. Evans Louis R. Fiore Don R. Hinkley William A. Hopple, III Paul W. Huenefeld Charles L. McKelvy, Jr. David Pollak C. Wesley Rowles John J. Schiff, Sr. David B. Sharrock Stephen Stranahan N. Beverley Tucker, Jr. Richard E. Wagner FIFTH THIRD BANCORP OFFICERS GEORGE A. SCHAEFER, JR., President & CEO MICHAEL D. BAKER, Executive Vice President P. MICHAEL BRUMM, Executive Vice President & CFO MICHAEL K. KEATING, Executive Vice President General Counsel, Secretary GEORGE W. LANDRY, Executive Vice President ROBERT P. NIEHAUS, Executive Vice President STEPHEN J. SCHRANTZ, Executive Vice President JAMES R. GAUNT, Senior Vice President ROBERT J. KING, JR., Senior Vice President NEAL E. ARNOLD, Treasurer ROGER W. DEAN, Controller PAUL L. REYNOLDS, Assistant Secretary GERALD L. WISSEL, Auditor FIFTH THIRD BANK OFFICERS GEORGE A. SCHAEFER, JR., President & CEO MICHAEL D. BAKER, Executive Vice President P. MICHAEL BRUMM, Executive Vice President & CFO JAMES J. HUDEPOHL, Executive Vice President MICHAEL K. KEATING, Executive Vice President & Secretary GEORGE W. LANDRY, Executive Vice President & Cashier ROBERT P. NIEHAUS, Executive Vice President STEPHEN J. SCHRANTZ, Executive Vice President GERALD L. WISSEL, Executive Vice President & Auditor NEAL E. ARNOLD, Senior Vice President & Treasurer J. PATRICK BELL, Senior Vice President JAMES D. BERGHAUSEN, Senior Vice President TOM A. BOBENREAD, Senior Vice President ROBERT L. ERNST, Senior Vice President HENRY W. HOBSON, III, Senior Vice President EDWARD H. SILVA, JR., Senior Vice President DIANE L. DEWBREY, Senior Vice President R. DANIEL SADLIER, President, Dayton Region REGINA G. LIVERS, Community Affairs Officer PAUL L. REYNOLDS, General Counsel AFFILIATE BANKS' CHAIRMEN, PRESIDENTS AND CEOS SAMUEL G. BARNES, President Fifth Third Bank of Kentucky Lexington, Kentucky THOMAS B. DONNELL, Chairman ROBERT J. KING, JR., President & CEO Fifth Third Bank of Northwestern Ohio, National Association Toledo, Ohio PATRICK J. FEHRING, JR., President Fifth Third Bank of Columbus Columbus, Ohio PAUL E. FISHER, JR., Chairman JOHN B. ARNOLD, President & CEO Fifth Third Bank of Western Ohio Piqua, Ohio JAMES R. GAUNT, President Fifth Third Bank of Kentucky Louisville, Kentucky ROBERT A. HODSON, Chairman STEWART M. GREENLEE, President & CEO Fifth Third Bank of Southern Ohio Hillsboro, Ohio COLLEEN M. KVETKO, President Fifth Third Bank of Florida Naples, Florida CHARLES J. SCHEIDT, JR., President Fifth Third Bank of Northeastern Ohio Cleveland, Ohio JAMES B. STURGES, Chairman MICHAEL J. ALLEY, President & CEO Fifth Third Bank of Central Indiana Indianapolis, Indiana WILLIAM J. WILLIAMS, Chairman BRADLEE F. STAMPER, President & CEO Fifth Third Bank of Northern Kentucky Florence, Kentucky *Director of Fifth Third Bancorp only. (C) Fifth Third Bank 1997 Member F.D.I.C. - Federal Reserve System (R) Reg. U.S. Pat. & T.M. Office 43 [photo] [logo] Fifth Third Bancorp Fifth Third Center Cincinnati, Ohio 45263 EX-21 4 EXHIBIT 21 1 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 International Company Kentucky Fifth Third Trade Services Limited Hong Kong Fifth Third Bank of Kentucky, Inc. Kentucky The Fifth Third Savings Bank of Western Kentucky, FSB Federal Fifth Third Bank of Northern Kentucky, Inc. Kentucky Fifth Third Savings Bank of Northern Kentucky, FSB Federal The Fifth Third Bank of Columbus 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 1 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 and in Registration Statements No. 33-19965 on Form S-4 and No. 33-54134 on Form S-3 of our report dated January 15, 1997, incorporated by reference in this Annual Report on Form 10-K of Fifth Third Bancorp for the year ended December 31, 1996. /s/Deloitte & Touche LLP March 3, 1997 Cincinnati, Ohio EX-27 6 EXHIBIT 27
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, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 808,926 31,424 13,155 0 6,223,881 176,804 176,798 12,514,792 187,278 20,548,998 14,374,656 3,265,432 487,124 277,661 235,090 0 0 1,909,035 20,548,998 992,407 391,187 1,519 1,385,113 530,356 695,869 689,244 64,014 4,563 493,330 500,315 335,059 0 0 335,059 3.22 3.16 3.99 29,046 38,053 1,121 43,097 177,388 80,444 20,482 187,278 187,278 0 0
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