-----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, WLv6c7pbugOfxb9UY+BjTw05ll9tF7tSgxaXfRSiwxZSw/jyZS//ChTUNgoacX8E LdTSZFVfyfTLyy9eaOXu+Q== 0000950152-98-006857.txt : 19980817 0000950152-98-006857.hdr.sgml : 19980817 ACCESSION NUMBER: 0000950152-98-006857 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIFTH THIRD BANCORP CENTRAL INDEX KEY: 0000035527 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 310854434 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-08076 FILM NUMBER: 98691335 BUSINESS ADDRESS: STREET 1: 38 FOUNTAIN SQ PLZ STREET 2: FIFTH THIRD CENTER CITY: CINCINNATI STATE: OH ZIP: 45263 BUSINESS PHONE: 5135795300 10-Q 1 FIFTH THIRD BANCORP 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended June 30, 1998 Commission File Number 0-8076 FIFTH THIRD BANCORP (Exact name of Registrant as specified in its charter) Ohio 31-0854434 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) Fifth Third Center Cincinnati, Ohio 45263 (Address of principal executive offices) Registrant's telephone number, including area code: (513) 579-5300 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- There were 267,895,839 shares of the Registrant's Common Stock, without par value, outstanding as of June 30, 1998. 2 FIFTH THIRD BANCORP INDEX Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets - June 30, 1998 and 1997 and December 31, 1997 3 Consolidated Statements of Income - Three and Six Months Ended June 30, 1998 and 1997 4 Consolidated Statements of Cash Flows - Six Months Ended June 30, 1998 and 1997 5 Consolidated Statements of Changes in Shareowners' Equity - Six Months Ended June 30, 1998 and 1997 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 14 Part II. Other Information Item 6. Exhibits 14 2 3 FIFTH THIRD BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------ JUNE 30, December 31, June 30, ($000'S) 1998 1997 1997 - ------------------------------------------------------------------------------------------------------------------------ ASSETS - ------------------------------------------------------------------------------------------------------------------------ Cash and Due from Banks $ 882,432 777,378 899,340 Securities Available for Sale (a) 7,890,292 8,139,465 7,380,068 Securities Held to Maturity (b) 100,510 85,010 330,724 Other Short-Term Investments 39,028 180,425 219,748 Loans Held for Sale 329,870 263,772 101,361 Loans and Leases Commercial Loans 4,562,990 4,363,289 4,120,917 Construction Loans 554,584 560,381 589,988 Commercial Mortgage Loans 1,239,497 1,273,885 1,275,172 Commercial Lease Financing 1,612,704 1,417,133 1,152,307 Residential Mortgage Loans 5,212,635 5,037,987 5,255,670 Consumer Loans 3,164,660 3,068,597 2,804,457 Consumer Lease Financing 2,275,574 2,165,598 2,023,350 Unearned Income (647,530) (573,927) (480,976) Reserve for Credit Losses (270,129) (250,950) (238,292) - ------------------------------------------------------------------------------------------------------------------------ Total Loans and Leases 17,704,985 17,061,993 16,502,593 Bank Premises and Equipment 316,588 301,029 278,105 Accrued Income Receivable 221,150 213,049 198,744 Other Assets 807,827 688,552 775,290 - ------------------------------------------------------------------------------------------------------------------------ TOTAL ASSETS $ 28,292,682 27,710,673 26,685,973 ======================================================================================================================== LIABILITIES - ------------------------------------------------------------------------------------------------------------------------ Deposits Demand $ 2,992,603 2,738,191 2,654,953 Interest Checking 2,885,282 2,555,108 2,321,099 Savings and Money Market 4,349,236 4,503,926 4,317,846 Time Deposits 8,565,222 9,222,671 8,659,254 - ------------------------------------------------------------------------------------------------------------------------ Total Deposits 18,792,343 19,019,896 17,953,152 Federal Funds Borrowed 1,872,756 1,253,553 1,570,905 Short-Term Bank Notes 350,000 555,000 780,000 Other Short-Term Borrowings 1,712,296 1,842,378 1,834,231 Accrued Taxes, Interest and Expenses 651,217 567,906 463,507 Other Liabilities 199,439 200,421 207,082 Long-Term Debt 1,637,185 1,508,683 1,417,919 - ------------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES 25,215,236 24,947,837 24,226,796 ======================================================================================================================== SHAREOWNERS' EQUITY - ------------------------------------------------------------------------------------------------------------------------ Common Stock (c) 594,729 583,005 579,020 Capital Surplus 484,359 444,815 444,412 Retained Earnings 1,907,147 1,821,342 1,653,600 Unrealized Gains on Securities Available for Sale 91,211 98,254 21,159 Treasury Stock - (184,580) (239,014) - ------------------------------------------------------------------------------------------------------------------------ TOTAL SHAREOWNERS' EQUITY 3,077,446 2,762,836 2,459,177 - ------------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $ 28,292,682 27,710,673 26,685,973 - ------------------------------------------------------------------------------------------------------------------------ (a) Amortized cost: June 30, 1998 - $7,749,882, December 31, 1997 - $7,988,085 and June 30, 1997 - $7,347,356. (b) Market value: June 30, 1998 - $100,514, December 31, 1997 - $85,375 and June 30, 1997 - $332,432. (c) Stated value $2.22 per share; authorized 300,000,000; outstanding June 30, 1998 - 267,895,839, December 31, 1997 - 262,614,641 (excludes 5,424,885 treasury shares) and June 30, 1997 - 260,819,656 (excludes 7,116,629 treasury shares). Outstanding and treasury shares have been adjusted for the three-for-two stock split effected in the form of a stock dividend declared March 17, 1998 and distributed April 15, 1998.
3 4 FIFTH THIRD BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------------------------------------------------- ($000'S) 1998 1997 1998 1997 - --------------------------------------------------------------------------------------------------------------------------- INTEREST INCOME Interest and Fees on Loans and Leases $ 369,690 335,551 $ 725,034 662,138 Interest on Securities Taxable 138,792 131,886 284,520 263,030 Exempt from Income Taxes 2,968 3,268 5,908 7,642 - --------------------------------------------------------------------------------------------------------------------------- Total Interest on Securities 141,760 135,154 290,428 270,672 Interest on Other Short-Term Investments 1,924 3,885 4,656 8,359 - --------------------------------------------------------------------------------------------------------------------------- Total Interest Income 513,374 474,590 1,020,118 941,169 - --------------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE Interest on Deposits Interest Checking 16,790 14,150 32,581 27,249 Savings and Money Market 38,897 37,991 78,353 75,866 Time Deposits 120,001 127,987 242,896 251,260 - --------------------------------------------------------------------------------------------------------------------------- Total Interest on Deposits 175,688 180,128 353,830 354,375 Interest on Federal Funds Borrowed 31,881 17,605 59,091 42,574 Interest on Short-Term Bank Notes 10,061 9,457 22,527 18,822 Interest on Other Short-Term Borrowings 22,314 20,682 44,470 38,485 Interest on Long-Term Debt and Notes 23,847 21,387 47,763 39,631 - --------------------------------------------------------------------------------------------------------------------------- Total Interest Expense 263,791 249,259 527,681 493,887 - --------------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME 249,583 225,331 492,437 447,282 Provision for Credit Losses 44,774 21,013 67,602 40,361 - --------------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 204,809 204,318 424,835 406,921 OTHER OPERATING INCOME Investment Advisory Income 31,149 22,960 58,964 44,580 Service Charges on Deposits 32,747 27,388 61,263 53,277 Data Processing Income 32,327 26,573 62,157 49,312 Other Service Charges and Fees 51,562 44,576 101,366 87,923 Securities Gains 480 135 4,635 307 - --------------------------------------------------------------------------------------------------------------------------- Total Other Operating Income 148,265 121,632 288,385 235,399 OPERATING EXPENSES Salaries, Wages and Incentives 70,004 59,308 136,880 116,995 Employee Benefits 9,702 13,296 27,296 26,448 Equipment Expenses 8,216 7,542 16,219 14,586 Net Occupancy Expenses 12,623 11,739 24,681 23,689 Other Operating Expenses 70,815 66,283 139,567 127,011 Merger-Related Charges 89,701 - 89,701 - - --------------------------------------------------------------------------------------------------------------------------- Total Operating Expenses 261,061 158,168 434,344 308,729 - --------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 92,013 167,782 278,876 333,591 Applicable Income Taxes 34,253 56,510 96,885 111,351 - --------------------------------------------------------------------------------------------------------------------------- NET INCOME (b) $ 57,760 111,272 $ 181,991 222,240 =========================================================================================================================== Per Share (a): Earnings $ 0.22 0.43 $ 0.69 0.85 Diluted Earnings $ 0.22 0.42 $ 0.68 0.83 Cash Dividends $ 0.17 .14 2/3 $ 0.34 .27 9/16 =========================================================================================================================== Average Shares (000's) (a): Outstanding 264,988 260,979 263,836 262,738 Diluted 270,026 264,784 268,952 267,374 =========================================================================================================================== (a) and (b) are described on Page 6.
4 5 FIFTH THIRD BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED JUNE 30, ------------------------------ ($000'S) 1998 1997 - ------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net Income $ 181,991 222,240 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Provision for Credit Losses 67,602 40,361 Depreciation, Amortization and Accretion 40,408 35,072 Provision for Deferred Income Taxes 6,213 14,846 Realized Securities Gains (6,922) (3,687) Realized Securities Losses 2,287 3,380 Proceeds from Sales of Residential Mortgage Loans Held for Sale 1,705,308 454,247 Net Gains on Sales of Loans (14,278) (5,051) Increase in Residential Mortgage Loans Held for Sale (1,757,128) (477,343) Decrease (Increase) in Accrued Income Receivable (8,101) 12,283 Increase in Other Assets (65,987) (59,323) Increase in Accrued Taxes, Interest and Expenses 80,890 13,828 Increase in Other Liabilities 12,337 64,657 - ------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 244,620 315,510 ========================================================================================================================= INVESTING ACTIVITIES Proceeds from Sales of Securities Available for Sale 1,209,351 660,294 Proceeds from Calls, Paydowns and Maturities of Securities Available for Sale 1,310,853 523,252 Purchases of Securities Available for Sale (2,194,182) (1,152,819) Proceeds from Calls, Paydowns and Maturities of Securities Held to Maturity 28,824 164,195 Purchases of Securities Held to Maturity (51,865) (69,629) Decrease in Other Short-Term Investments 141,397 57,404 Decrease (Increase) in Loans and Leases (793,197) (742,442) Purchases of Bank Premises and Equipment (31,399) (24,627) Proceeds from Disposal of Bank Premises and Equipment 4,517 2,747 Net Cash Paid in Acquisitions (15,000) - - ------------------------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (390,701) (581,625) ========================================================================================================================= FINANCING ACTIVITIES Increase (Decrease) in Core Deposits 13,164 (308,889) Increase (Decrease) in CDs - $100,000 and Over, including Foreign (240,717) 100,714 Increase in Federal Funds Borrowed 619,203 150,211 Decrease in Short-Term Bank Notes (205,000) (26,000) Increase (Decrease) in Other Short-Term Borrowings (130,082) 479,752 Proceeds from Issuance of Long-Term Debt and Notes 1,102,869 705,291 Repayment of Long-Term Debt (973,383) (482,052) Payment of Cash Dividends (76,627) (63,285) Exercise of Stock Options 9,759 8,784 Proceeds from Sale of Common Stock 178,125 - Purchases of Treasury Stock (45,896) (276,307) Other (280) (197) - ------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 251,135 288,022 ========================================================================================================================= INCREASE IN CASH AND DUE FROM BANKS 105,054 21,907 CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 777,378 877,433 - ------------------------------------------------------------------------------------------------------------------------- CASH AND DUE FROM BANKS AT END OF PERIOD 882,432 899,340 =========================================================================================================================
5 6 FIFTH THIRD BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED JUNE 30, -------------------------------------- ($000'S) 1998 1997 - -------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31 $ 2,762,836 2,561,335 Net Income 181,991 222,240 Nonowner Changes in Equity, Net of Tax: Change in Unrealized Gains on Securities Available for Sale (7,043) 9,842 - -------------------------------------------------------------------------------------------------------------------------- Net Income and Nonowner Changes in Equity 174,948 232,082 Cash Dividends Declared (1998 - $.34 per share and 1997 - $.27 9/16 per share) (a) (87,983) (66,538) Shares Acquired for Treasury (45,896) (276,307) Earnings Adjustment of Pooled Entity (b) (7,803) - Stock Options Exercised Including Treasury Shares Issued 9,759 8,784 Stock Issued in Public Offering 178,125 - Stock Issued in Acquisitions and Other 93,460 (179) - -------------------------------------------------------------------------------------------------------------------------- BALANCE AT JUNE 30 $ 3,077,446 2,459,177 ========================================================================================================================== (a) Average shares and per share amounts have been adjusted for the three-for-two stock split effected in the form of a stock dividend declared March 17, 1998 and distributed April 15, 1998. Cash dividends per common share are those of Fifth Third Bancorp declared prior to the mergers with CitFed Bancorp, Inc. and State Savings Company. (b) The restatement of the CitFed Bancorp, Inc. merger was accomplished by combining CitFed's March 31, 1998 fiscal year financial information with the Bancorp's December 31, 1997 calendar year financial information. In 1998, CitFed's fiscal year was conformed to the Bancorp's calendar year. As a result of conforming fiscal periods, the Bancorp's consolidated statements of income for the fourth quarter of 1997 and the first quarter of 1998 include CitFed's net income for the three months ended March 31, 1998 of $7,803. An adjustment to shareowners' equity removes the effect of including CitFed's financial results in both periods.
6 7 FINANCIAL INFORMATION Item 1. Notes to Consolidated Financial Statements - --------------------------------------------------- 1. In the opinion of management, the unaudited consolidated financial statements include all adjustments (which consist of normal recurring accruals) necessary to present fairly the consolidated financial position as of June 30, 1998 and 1997, the results of operations for the three and six months ended June 30, 1998 and 1997, and cash flows for the six months ended June 30, 1997. In accordance with generally accepted accounting principles for interim financial information, these statements do not include all of the information and footnotes required by generally accepted accounting principles for complete annual financial statements. Financial information as of December 31, 1997 has been derived from the audited consolidated financial statements of the Registrant. The results of operations for the three and six months ended June 30, 1998 and 1997 and cash flows for the six months ended June 30, 1998 and 1997 are not necessarily indicative of the results to be expected for the full year. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 1997, included in the Registrant's Annual Report on Form 10-K. 2. Financial data for all prior periods have been restated to reflect the second quarter 1998 mergers with CitFed Bancorp, Inc., a publicly-traded savings and loan holding company headquartered in Dayton, Ohio with $3.1 billion in assets, and State Savings Company, a privately-owned thrift holding company headquartered in Columbus, Ohio with $2.7 billion in assets. Both transactions were tax-free, stock-for-stock exchanges accounted for as poolings-of-interest. The Registrant exchanged 13,219,085 and 16,625,271 shares of Fifth Third Common Stock for all outstanding shares of CitFed Bancorp, Inc. and State Savings Company, respectively. The contributions of CitFed Bancorp, Inc. and State Savings Company to consolidated net interest income, other operating income and net income for the periods prior to the mergers were as follows:
Three Months Three Months Six Months Ended Ended Ended (000's) March 31, 1998 June 30, 1997 June 30, 1997 ---------------------------------------------------------------------------------------------------------- Net Interest Income: Fifth Third Bancorp $ 197,900 184,815 366,131 CitFed Bancorp, Inc. 19,614 17,361 35,152 State Savings Company 25,340 23,155 45,999 ---------------------------------------------------------------------------------------------------------- Combined $ 242,854 225,331 447,282 ---------------------------------------------------------------------------------------------------------- Other Operating Income: Fifth Third Bancorp $ 126,381 108,676 207,236 CitFed Bancorp, Inc. 7,804 8,500 16,765 State Savings Company 5,935 4,456 11,398 ---------------------------------------------------------------------------------------------------------- Combined $ 140,120 121,632 235,399 ----------------------------------------------------------------------------------------------------------
7 8 Net Income: Fifth Third Bancorp $ 108,981 96,081 190,577 CitFed Bancorp, Inc. 7,803 6,224 12,110 State Savings Company 7,447 8,967 19,553 ---------------------------------------------------------------------------------------------------------- Combined $ 124,231 111,272 222,240 ----------------------------------------------------------------------------------------------------------
The combined consolidated results of operations are not necessarily indicative of the results that would have occurred had the acquisition been consummated in the past or which may be attained in the future. 3. On June 12, 1998, the Registrant acquired The Ohio Company, a full-service broker-dealer for retail and institutional clients headquartered in Columbus, Ohio. The merger was accounted for as a purchase. In connection with the acquisition, the Registrant exchanged 1,862,765 shares of Fifth Third Common Stock for all of the outstanding shares of capital stock of The Ohio Company. The financial results of The Ohio Company, included in the results of operations subsequent to the date of acquisition, were not material to the Registrant's financial condition and operating results for the quarter. 4. On April 9, 1998, the Registrant acquired W. Lyman Case & Company, a commercial mortgage banking firm based in Columbus, Ohio which originated more than $800 million in financing and equity transactions in 1997 and has a loan servicing portfolio in excess of $2 billion. The transaction was accounted for as a purchase. The financial results of W. Lyman Case & Company, included in the results of operations subsequent to the date of acquisition, were not material to the Registrant's financial condition and operating results for the quarter. 5. Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," establishes accounting and reporting standards for derivative instruments and hedging activities and requires recognition of all derivatives as either assets or liabilities measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. The statement is required for the year 2000. The Registrant has not determined whether it will adopt early the provisions of this statement or the impact on the consolidated financial statements. 6. Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," is required for 1998 and will be applied in the Registrant's 1998 annual financial statements. The statement requires financial disclosure and descriptive information about reportable operating segments. Upon its adoption, this statement may result in additional financial statement disclosures. 8 9 7. The Registrant's board of directors approved a three-for-two stock split on March 17, 1998. The additional shares resulting from the split were distributed on April 15, 1998 to shareowners of record as of March 31, 1998. The consolidated financial statements, notes and other references to share and per share data have been retroactively restated for the stock split. 8. In the first half of 1998, the Registrant paid $533,868,000 in interest and $83,950,000 in Federal income taxes. In the first six months of 1997, the Registrant paid $503,005,000 in interest and $66,250,000 in Federal income taxes. In the first half of 1998, the Registrant had noncash investing activities consisting of the securitization of $82,604,000 of residential mortgage loans. There were no loan securitizations during the first six months of 1997. 9. In 1998, the Registrant adopted SFAS No. 130, "Reporting Comprehensive Income." The statement establishes standards for the reporting and display of net income and nonowner changes in equity. The Registrant elected to present the required disclosures in the Consolidated Statement of Changes in Shareowners' Equity on page 6. The caption "Net income and nonowner changes in equity," represents total comprehensive income as defined in the statement. Disclosure of the reclassification adjustments, related tax effects allocated to nonowner changes in equity and accumulated nonowner changes in equity for the six months ended June 30 is provided below ($000s).
1998 1997 - ------------------------------------------------------------------------------------------------------------ Reclassification Adjustments, Before Tax - ------------------------------------------------------------------------------------------------------------ Change in Unrealized Gains Arising During Period $(15,470) 14,835 Reclassification Adjustment for Gains Included in Net Income 4,635 307 - ------------------------------------------------------------------------------------------------------------ Net Unrealized Losses on Securities Available for Sale $(10,835) 15,142 ============================================================================================================ Related Tax Effects - ------------------------------------------------------------------------------------------------------------ Change in Unrealized Gains Arising During Period $ 5,414 (5,193) Reclassification Adjustment for Gains Included in Net Income (1,622) (107) - ------------------------------------------------------------------------------------------------------------ Net Unrealized Losses on Securities Available for Sale $ 3,792 (5,300) ============================================================================================================ Reclassification Adjustments, Net of Tax - ------------------------------------------------------------------------------------------------------------ Change in Unrealized Gains Arising During Period $(10,056) 9,642 Reclassification Adjustment for Gains Included in Net Income 3,013 200 - ------------------------------------------------------------------------------------------------------------ Net Unrealized Losses on Securities Available for Sale $ (7,043) 9,842 ============================================================================================================ Accumulated Nonowner Changes in Equity - ------------------------------------------------------------------------------------------------------------ Beginning Balance-Unrealized Holding Gains on Securities Available for Sale $ 98,254 11,317 Current Period Change (7,043) 9,842 - ------------------------------------------------------------------------------------------------------------ Ending Balance-Unrealized Holding Gains on Securities Available for Sale $ 91,211 21,159 ============================================================================================================
9 10 10. On May 12, 1998, the Registrant issued 3,600,000 shares of Common Stock through a public offering. The net proceeds from the sale of Common Stock were used by the Registrant for general corporate purposes. The issuance of the shares also facilitated the Registrant's ability to account for the acquisition of State Savings Company as a pooling-of-interests. Item 2. Management's Discussion and Analysis of Financial Condition - ------------------------------------------------------------------- and Results of Operations ------------------------- The following is management's discussion and analysis of certain significant factors which have affected the Registrant's financial condition and results of operations during the periods included in the consolidated financial statements which are a part of this filing. This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, that involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those in the forward-looking statements. Those factors include the economic environment, competition, products and pricing in geographic and business areas in which the Registrant operates, prevailing interest rates, changes in government regulations and policies affecting financial services companies, credit quality and credit risk management, charges in the banking industry including the effects of consolidation resulting from possible mergers of financial institutions, acquisitions and integration of acquired businesses. Fifth Third Bancorp undertakes no obligation to release revisions to these forward-looking statements or reflect events or circumstances after the date of this report. Results of Operations - --------------------- The Registrant's operating income was $257.6 million for the first six months of 1998 and $133.3 million for the second quarter, up 15.9 percent and 19.8 percent, respectively, compared to $222.2 million and $111.3 million for the same periods last year. Second quarter diluted operating earnings per share was $.50, up 19 percent over last year's $.42 and $.96 for the first six months, up 15.7 percent over 1997's $.83. Operating earnings exclude nonrecurring pretax charges of $106.4 million resulting from mergers with CitFed Bancorp, Inc. and State Savings Company. The effect of these charges was to reduce net income by $75.6 million, or $.28 per diluted share. Including the nonrecurring charges, earnings per diluted share was $.22 for the second quarter with net income totaling $57.8 million. Total assets were $28.3 billion at quarter end, compared to 1997's quarter-end assets of $26.7 billion. On an operating basis, return on average equity was 18.4 percent and return on average assets was 1.86 percent for the second quarter of 1998 compared to 18.5 percent and 1.71 percent, respectively, for the same quarter of last year. 10 11 Item 2. Management's Discussion and Analysis of Financial Condition - ------------------------------------------------------------------- and Results of Operations (continued) ------------------------------------- The Registrant's net interest income on a fully taxable equivalent basis for the second quarter of 1998 was $261.5 million, a 10.9 percent increase over $235.9 million for the same period of 1997. This increase resulted principally from improved earning-asset and deposit mix, earning-asset growth and net interest margin improvement. The net provision for credit losses was $44.8 million in the 1998 second quarter, including a $16.7 million provision to conform State Savings and CitFed to the Registrant's reserving and charge-off practices, compared to $21 million in the same 1997 quarter. Net charge-offs for the second quarter were .49 percent of average loans and leases, compared with .55 percent for last quarter and .42 percent for the second quarter of 1997. The net charge-off ratio remains near the Registrant's historical 10-year average of .50 percent and the reserve for credit losses is in excess of three times nonperforming assets. Nonperforming assets as a percentage of total loans, leases and other real estate owned was .49 percent at June 30, 1998, down from .54 percent at June 30, 1997. The reserve for credit losses as a percentage of total loans and leases was 1.50 percent at June 30, 1998 compared to 1.42 percent one year earlier. Total other operating income, excluding securities gains, for the second quarter increased 21.6 percent to $147.8 million compared to the second quarter of 1997. Investment advisory income increased 35.7 percent due to a larger customer base and higher fees resulting from more assets under management. Increased EFT and merchant processing volume along with higher transaction volume from expanded debit and ATM card usage led to the 21.7 percent increase in data processing income. Commercial banking income, credit card fees and mortgage banking revenue contributed to the 15.7 percent increase in service charges and other fees. The overhead ratio (operating expenses divided by the sum of taxable equivalent net interest income and other operating income) for the quarter, excluding merger-related charges, was 41.8 percent, down from 44.2 percent for the second quarter of 1997. Total operating expenses were up only 8.3 percent from 1997's second quarter despite higher than customary spending for technology upgrades and Year 2000 efforts. Salaries, wages, incentives and employee benefits increased 9.8 percent compared to last year. Equipment expenses increased 8.9 percent over 1997's second quarter primarily as the result of processing technology upgrades and the addition of more than 350 ATMs during the past year. Volume-driven expenses of the Registrant's processing and fee businesses principally contributed to the 6.8 percent increase in other operating expenses. 11 12 Item 2. Management's Discussion and Analysis of Financial Condition - ------------------------------------------------------------------- and Results of Operations (continued) ------------------------------------- Operating expenses include a one-time, merger-related pretax charge of $89.7 million resulting directly from the acquisitions of CitFed Bancorp, Inc. and State Savings Company. The charge consists of employee-related obligations, including change-of-control benefits and severance, costs to eliminate duplicate facilities and equipment, contract terminations, conversion expenses and professional fees. Financial Condition - ------------------- The Registrant's balance sheet remains strong with high-quality assets and solid capital levels. Net interest income growth continues to be fueled by improved earning-asset and deposit mix, earning-asset growth and net interest margin improvement. Although Fifth Third's net interest margin was affected by the addition of over $5.8 billion in lower-margin assets from the quarter's acquisitions, the Registrant's enhanced product mix and focus on deposit accounts improved the results of the acquired entities. Demand deposits and interest checking accounts grew 13 percent and 24 percent, respectively, highlighting Fifth Third's success in emphasizing customer deposit accounts. Direct installment loan originations were $410 million this quarter, far exceeding $361 million last quarter and $291 million in the second quarter last year. Residential mortgage originations surpassed $1.5 billion this quarter compared to $1 billion in the same quarter a year ago. Commercial loans and commercial and consumer leases all benefited from double-digit growth, led by a 40 percent increase in commercial leases. Fifth Third sold or securitized more than $1.3 billion of loans during the second quarter, including $201 million of commercial loans, which improved the mix of earning-assets and permitted further expansion of origination and servicing capability without increasing balance sheet leverage. Liquidity and Capital Resources - ------------------------------- The maintenance of an adequate level of liquidity is necessary to ensure sufficient funds are available to meet customer loan demand and deposit withdrawals. The banking subsidiaries' liquidity sources consist of short-term marketable securities, maturing loans and federal funds loaned and selected securitizable loan assets. Liquidity has also been obtained through liabilities such as customer-related core deposits, funds borrowed, certificates of deposit and public funds deposits. At June 30, 1998, shareowners' equity was $3.077 billion, compared to $2.459 billion at June 30, 1997, an increase of $618 million, or 25.1 percent. Shareowners' equity as a percentage of total assets as of June 30, 1998 was 10.9 percent. The Federal Reserve Board has adopted risk-based capital guidelines which assign risk weightings to assets and off-balance sheet items and also define and set minimum capital requirements (risk-based capital ratios). The guidelines also define "well-capitalized" ratios of Tier 1, total capital and leverage as 6 percent, 10 percent and 5 12 13 Item 2. Management's Discussion and Analysis of Financial Condition - ------------------------------------------------------------------- and Results of Operations (continued) ------------------------------------- percent, respectively. The Registrant exceeded these "well-capitalized" ratios at June 30, 1998 and 1997. At June 30, 1998, the Registrant had a Tier 1 risk-based capital ratio of 11.93 percent, a total risk-based capital ratio of 14.28 percent and a leverage ratio of 9.88 percent. At June 30, 1997, the Registrant had a Tier 1 risk-based capital ratio of 11.04 percent, a total risk-based capital ratio of 13.52 percent and a leverage ratio of 9.05 percent. In January 1998, the Registrant's board of directors rescinded Fifth Third Bancorp's stock repurchase programs. No shares were purchased under these programs from June 1997 to May 1998. In June 1998 following the closing of the State Savings Company acquisition, 843,500 shares were repurchased in the open market for $45.9 million, or an average purchase price of $54.41 per share, and were subsequently reissued in the acquisition of CitFed Bancorp on June 26, 1998. In July 1998, 1,559,000 shares of the Fifth Third Bancorp Common Stock were repurchased in the open market for $98 million, or an average purchase price of $62.86 per share, to replace shares issued in The Ohio Company acquisition and remain available for reissuance in the Registrant's stock option and dividend reinvestment plans. The Registrant does not intend to repurchase any additional shares in 1998. Year 2000 - --------- As with other companies, the Bancorp's computer programs were originally designed to recognize calendar years by their last two digits. Calculations performed using these truncated fields will not work properly with dates from the Year 2000 and beyond. The Bancorp began planning its Year 2000 conversion early in 1996 and formed a project committee that meets biweekly to review the status of the conversion. Senior management oversees the project and regularly reports to the Board of Directors. The Registrant expects to have its internal computer systems Year 2000 compliant by the end of 1998 and management estimates that approximately 70 percent of this effort is complete through the second quarter of 1998 with 87 percent of the critical application effort completed. The awareness and assessment phases of Fifth Third's Year 2000 effort are complete and the renovation, validation and implementation phases are scheduled to be complete for all systems by year-end 1998. Many of the Registrant's systems are vendor-supplied, and all vendors have provided Fifth Third with certification or a delivery commitment letter. Testing of those certifications or following delivery by outside vendors will occur in 1999. Because the Year 2000 compliance effort is largely being completed by internal staff, Fifth Third does not expect to incur any significant costs with outside contractors relative to the completion of this task. Fifth Third anticipates a total compliance cost of $10 million; however, no material incremental costs are projected to be incurred. The Registrant presently believes that with the planned modifications to existing systems and conversion to new systems, the Year 2000 compliance issues will be resolved on a timely basis, and that any related costs will not have a material impact on the operations, cash flows, or financial condition of future periods. 13 14 Item 2. Management's Discussion and Analysis of Financial Condition - ------------------------------------------------------------------- and Results of Operations (continued) ------------------------------------- The risks associated with Fifth Third's Year 2000 compliance relate primarily to its relationship with critical business partners, which include customers and service suppliers, and their ability to effectively address their own Year 2000 issues. Each division within Fifth Third has initiated projects to assess the Year 2000 preparedness of individual customers and material relationships and the impact on the Registrant in accordance with Federal Financial Institutions Examination Council guidelines. Contingency plans for critical business partners are being developed as their Year 2000 plans and procedures are analyzed. Item 3. Quantitative and Qualitative Disclosures About Market Risk - ------------------------------------------------------------------- Interest rate risk management focuses on maintaining consistent growth in net interest income within Board-approved policy limits. The Registrant uses an earnings simulation model to analyze net interest income sensitivity to movements in interest rates. Given an immediate, sustained 200 basis point upward shock to the yield curve used in the simulation model, it is estimated net interest income for the Registrant would increase by 1.25 percent over one year and increase by 7.96 percent over two years. A 200 basis point immediate, sustained downward shock in the yield curve would decrease net interest income by an estimated 2.41 percent over one year and decrease net interest income by an estimated 8.46 percent over two years. All of these estimated changes in net interest income are within the policy guidelines established by the Registrant's board of directors. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) List of Exhibits (11) - Computation of Consolidated Earnings Per Share for the Three and Six Months Ended June 30, 1998 and 1997 (27) - Financial Data Schedules for the Six Months Ended June 30, 1998 (b) Reports on Form 8-K None 14 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Fifth Third Bancorp Registrant Date: August 14, 1998 /s/ Neal E. Arnold ------------------- Neal E. Arnold Senior Vice President and Chief Financial Officer 15 EX-11 2 EXHIBIT 11 1 EXHIBIT 11 ---------- FIFTH THIRD BANCORP COMPUTATION OF CONSOLIDATED EARNINGS PER SHARE ($000'S, EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, -------------------------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- NET INCOME $57,760 111,272 181,991 222,240 ======= ======= ======= ======= EARNINGS PER SHARE: WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (a) 264,988 260,979 263,836 262,738 ======= ======= ======= ======= PER SHARE (NET INCOME DIVIDED BY THE WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING) $ 0.22 0.43 0.69 0.85 ======= ======= ======= ======= DILUTED EARNINGS PER SHARE: NET INCOME $57,760 111,272 181,991 222,240 ======= ======= ======= ======= ADJUSTED WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - AFTER GIVING EFFECT TO THE CONVERSION OF STOCK OPTIONS (a) 270,026 264,784 268,952 267,374 ======= ======= ======= ======= PER SHARE (ADJUSTED NET INCOME DIVIDED BY THE ADJUSTED WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING) $ 0.22 0.42 0.68 0.83 ======= ======= ======= ======= - ------------------- (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 April 15, 1998 and July 15, 1997.
EX-27 3 EXHIBIT 27
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIFTH THIRD BANCORP'S QUARTERLY REPORT ON FORM 10-Q FOR THE SIX MONTHS ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000035527 FIFTH THIRD BANCORP 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 882,432 38,328 700 0 7,890,292 100,510 100,514 17,975,114 270,129 28,292,682 18,792,343 3,935,052 850,656 1,637,185 0 0 594,729 2,482,717 28,292,682 725,034 290,428 4,656 1,020,118 353,830 527,681 492,437 67,602 4,635 434,344 278,876 181,991 0 0 181,991 .69 .68 3.85 80,743 48,700 0 0 250,950 64,629 13,375 270,129 270,129 0 0
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