-----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, N2LQe8dAMU6Y5GJY7dui6peY7pjw1QEqxciJmVQYlJxCbThiUGKD+UEdw0YTSrWi a94sL/88cdyITSw7bJdqwQ== 0000950152-99-000999.txt : 19990217 0000950152-99-000999.hdr.sgml : 19990217 ACCESSION NUMBER: 0000950152-99-000999 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990216 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: SEC FILE NUMBER: 000-08076 FILM NUMBER: 99538393 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 BANKCORP 10-K405 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For fiscal year ended December 31, 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 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 $12,846,228,056 as of February 1, 1999. (1) There were 267,147,048 shares of the Registrant's Common Stock, without par value, outstanding as of February 1, 1999. DOCUMENTS INCORPORATED BY REFERENCE 1998 Annual Report to Shareholders: Parts I, II and IV Proxy Statement for 1999 Annual Meeting of Shareholders: Parts III and IV (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, 1998, voting stock owned of record by its directors and principal executive officers, shareholders owning greater than 10% of the voting stock and voting stock held by Registrant's trust departments in a fiduciary capacity. 2 FIFTH THIRD BANCORP 1998 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PART I
Page ---- Item 1. Business 3 Item 2. Properties 14 Item 3. Legal Proceedings 14 Item 4. Submission of Matters to a Vote of Security Holders 14 PART II Item 5. Market For Registrant's Common Equity and Related Shareholder Matters 17 Item 6. Selected Financial Data 17 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 17 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 17 Item 8. Financial Statements and Supplementary Data 17 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 17 PART III Item 10. Directors and Executive Officers of the Registrant 17 Item 11. Executive Compensation 18 Item 12. Security Ownership of Certain Beneficial Owners and Management 18 Item 13. Certain Relationships and Related Transactions 18 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 18
2 3 PART I ITEM 1. BUSINESS - ----------------- ORGANIZATION Fifth Third Bancorp (the "Company") is an Ohio corporation organized in 1975 as a bank holding company registered under the Bank Holding Company Act of 1956, as amended (the "Act"), and subject to regulation by the Federal Reserve Board. The Company, with its principal office located in Cincinnati, is a multi-bank holding company as defined in the Act and is registered as such with the Board of Governors of the Federal Reserve System and has 17 wholly-owned subsidiaries: Fifth Third Bank; Fifth Third Bank, Central Ohio; Fifth Third Bank, Northwestern Ohio, N.A.; Fifth Third Bank, Ohio Valley; Fifth Third Bank, Western Ohio; Fifth Third Bank, Florida; Fifth Third Bank, Northern Kentucky, Inc.; Fifth Third Bank, Kentucky, Inc.; Fifth Third Bank, Indiana; Fifth Third Bank, Southwest, F.S.B.; Fifth Third Community Development Company; Fifth Third Investment Company; Fountain Square Insurance Company; Calvin Hotel Co.; Fifth Third/The Ohio Company; State Savings Mortgage Company and Heartland Capital Management, Inc. At December 31, 1998, the Company, its affiliated banks and other subsidiaries had consolidated total assets of $28.9 billion, consolidated total deposits of $18.8 billion and consolidated total shareholders' equity of $3.2 billion. The Company, through its subsidiaries, engages primarily in commercial, retail and trust banking, investment services and leasing activities and also provides credit life, accident and health insurance, discount brokerage services and property management for its properties. Those subsidiaries consist of The Fifth Third Company, Fifth Third Securities, Inc., The Fifth Third Leasing Company, Midwest Payment Systems, Inc. ("MPS"), Fifth Third International Company and Fifth Third/W. Lyman Case & Company. Fifth Third's affiliates provide a full range of financial products and services to the retail, commercial, financial, governmental, educational and medical sectors, including a wide variety of checking, savings and money market accounts, and credit products such as credit cards, installment loans, mortgage loans and leasing. Each of the banking affiliates has deposit insurance provided by the Federal Deposit Insurance Corporation ("FDIC") through the Bank Insurance Fund ("BIF") and the Savings Association Insurance Fund ("SAIF"). The Company, through its banking subsidiaries, operates for itself and other financial institutions a proprietary automated teller machine ("ATM") network, Jeanie(R). The Jeanie system participates in a shared ATM network called "Money Station(R)," which includes several Ohio bank holding companies and over 5,000 ATM's. The "Money Station" network participates in another shared ATM network called "PLUS System(R)," which is a nationwide network with over 170,000 participating ATM's. Fifth Third Bank, through its wholly-owned subsidiary, MPS, also provides electronic switch services for several regional banks and bank holding companies in Ohio, Kentucky and Illinois. 3 4 Fifth Third International Company has a 99.9 percent owned subsidiary: Fifth Third Trade Services Limited. Fifth Third Investment Company owns the remaining .01 percent. The Fifth Third Leasing Company has a 100 percent owned subsidiary: Fifth Third Auto Leasing Trust. ACQUISITIONS The Company is the result of mergers and acquisitions over the years involving financial institutions throughout Ohio, Indiana, Kentucky, Arizona and Florida. The Company made the following acquisitions during 1998: On April 9, 1998, the Company acquired W. Lyman Case & Company, a commercial mortgage banking company headquartered in Columbus, Ohio, for $15 million. W. Lyman Case & Company originated more than $680 million in financing and equity transactions since acquisition and has a loan servicing portfolio of $2 billion at year-end 1998. On June 12, 1998, the Company acquired The Ohio Company, a full-service broker-dealer for retail and institutional clients headquartered in Columbus, Ohio, for consideration consisting of 1,862,765 shares of the Company's common stock. These transactions were accounted for as purchases. On June 19, 1998, the Company acquired State Savings Company ("State"), a privately-owned thrift holding company headquartered in Columbus, Ohio with $2.7 billion in assets. On June 26, 1998, the Company acquired CitFed Bancorp, Inc. ("CitFed"), a publicly-traded savings and loan holding company headquartered in Dayton, Ohio with $3.1 billion in assets. These transactions were tax-free, stock-for-stock exchanges accounted for as poolings-of-interests. The Company exchanged 16,625,271 shares of the Company's common stock for all outstanding shares of State. The Company exchanged 13,222,869 shares of the Company's common stock for each outstanding share of CitFed. Financial data for all prior periods has been restated to reflect the second quarter 1998 mergers with CitFed and State. Cash dividends per common share are those of the Company declared prior to the mergers with CitFed and State. The restatement of the CitFed merger was accomplished by combining CitFed's March 31, 1998 fiscal year financial information with the Company's December 31, 1997 calendar year financial information. In 1998, CitFed's fiscal year was conformed to the Company's calendar year. As a result of conforming fiscal periods, the Company'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 $7.8 million. An adjustment to shareholders' equity removes the effect of including CitFed's financial results in both periods. COMPETITION There are hundreds of commercial banks, savings and loans and other financial services providers in Ohio, Kentucky, Indiana, Arizona and Florida and nationally, which provide strong 4 5 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 Electronic Payment Systems, 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 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 percent 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 Company's subsidiary state banks are primarily subject to the laws of the state in which each is located, the Board of Governors of the Federal Reserve System and/or the Federal Deposit Insurance Corporation. The subsidiary bank which is organized under the laws of the United States is primarily subject to regulation by the Comptroller of the Currency and the Federal Deposit Insurance Corporation. The Company's savings and loan subsidiary is subject to regulation by the Office of Thrift Supervision. The Company and its subsidiaries are subject to certain restrictions on intercompany loans and investments. The Company and its subsidiaries are also subject to certain restrictions with respect to engaging in the underwriting and public sale and distribution of securities. In addition, 5 6 the Company and its subsidiaries are subject to examination at the discretion of supervisory authorities. The 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, 1998, there were no employees of the Company. Subsidiaries of the Company employed 8,761 employees -- 1,383 were officers and 1,568 were part-time employees. There were 8,330 full-time equivalent employees as of December 31, 1998. STATISTICAL INFORMATION Pages 6 to 13 contain statistical information on the Company and its subsidiaries. Information about the Company's business segments is incorporated herein by reference to pages 28 and 29 of Registrant's 1998 Annual Report to Shareholders attached to this filing as Exhibit 13. 6 7 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, 1998, are incorporated herein by reference to the securities tables on page 36 of the Company's 1998 Annual Report to Shareholders 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 percent). 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 2.70% 1 - 5 years 2.46% 6 - 10 years 2.55% Over 10 years 2.83% Total municipal securities 2.52%
AVERAGE BALANCE SHEETS The average balance sheets are incorporated herein by reference to Table 1 on pages 30 and 31 of the Company's 1998 Annual Report to Shareholders 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 30 through 32 of the Company's 1998 Annual Report to Shareholders attached to this filing as Exhibit 13. 7 8 TYPES OF LOANS AND LEASES A summary of loans and leases by major category as of December 31 ($000's):
1998 1997 1996 1995 1994 ---- ---- ---- ---- --- Commercial, financial and agricultural loans $ 4,822,992 4,363,289 4,093,432 3,663,973 3,104,599 Real estate - construction loans 572,082 560,381 593,276 530,940 438,073 Real estate - mortgage loans 5,448,632 6,311,872 5,884,557 5,425,989 5,443,570 Consumer loans 3,354,681 3,068,597 2,837,742 3,235,003 2,546,688 Lease financing 4,269,851 3,582,731 3,095,894 2,297,125 1,703,492 ------------------------------------ ---------------- ---------------- --------------- Loans and leases, gross 18,468,238 17,886,870 16,504,901 15,153,030 13,236,422 Unearned income (689,215) (573,927) (470,378) (339,833) (243,648) Reserve for credit losses (266,860) (250,950) (233,803) (224,134) (202,009) ------------------------------------ ---------------- ---------------- --------------- Loans and leases, net $ 17,512,163 17,061,993 15,800,720 14,589,063 12,790,765 ==================================== ================ ================ =============== Loans held for sale $ 492,017 263,772 74,916 139,484 41,723 ==================================== ================ ================ ===============
MATURITIES AND SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES The remaining maturities of the loan portfolio distributed to reflect cash flows (excluding residential mortgage and consumer loans) at December 31, 1998, based on scheduled repayments and the sensitivity of loans to interest rate changes for loans due after one year ($000's):
Commercial, Financial and Real Estate Real Estate Agricultural Construction Commercial Loans Loans Loans Total ------------------------------------ ---------------- ---------------- Due in one year or less $ 2,219,859 332,350 476,777 $ 3,028,986 Due after one year through five years 1,795,744 155,026 582,166 2,532,936 Due after five years 807,389 84,706 119,809 1,011,904 ------------------------------------ ---------------- ---------------- Total $ 4,822,992 572,082 1,178,752 $ 6,573,826 ==================================== ================ ================ Loans due after one year: Predetermined interest rate $ 2,075,132 154,495 531,405 $ 2,761,032 ==================================== ================ ================ Floating or adjustable interest rate $ 528,001 85,237 170,570 $ 783,808 ==================================== ================ ================
8 9 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 the borrower's cash flow may not be sufficient to meet payments as they become due. Such loans, other than consumer 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. The following table presents data concerning loans and leases at risk at December 31 ($000's):
1998 1997 1996 1995 1994 ----- ----- ----- ----- ---- Nonaccrual loans and leases $ 42,760 71,667 66,745 76,281 39,253 Loans and leases contractually past due ninety days or more as to interest, principal or rental payments but still accruing interest 79,233 46,281 38,053 20,455 13,237 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 - 128 1,121 506 443
As of December 31, 1998, there were $46,742,000 of 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. For the years 1998, 1997 and 1996, interest income of $789,000, $714,000 and $807,000, respectively was recorded on nonaccrual and renegotiated loans and leases. Additional interest income of $2,837,000, $5,482,000 and $6,329,000 would have been recorded if the nonaccrual and renegotiated loans and leases had been current in accordance with their original terms. 9 10 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 ($000's):
1998 1997 1996 1995 1994 ----- ----- ----- ----- ---- Loans and leases outstanding at December 31: $ 17,779,023 17,312,943 16,034,523 14,813,197 12,992,774 ================= ================ ================ ================ ================ Loans held for sale $ 492,017 263,772 74,916 139,484 41,723 ================= ================ ================ ================ ================ Average loans and leases outstanding $ 17,664,000 16,583,000 15,612,000 13,929,000 12,195,000 ================= ================ ================ ================ ================ Reserve for credit losses, January 1 $ 250,950 233,803 224,134 202,009 185,416 ----------------- ---------------- ---------------- ---------------- ---------------- Losses charged off: Commercial, financial and agricultural loans (35,335) (8,952) (11,349) (6,950) (9,321) Real estate - construction loans (953) (5) (147) (69) - Real estate - mortgage loans (7,562) (8,348) (7,602) (7,776) (4,894) Consumer loans (51,267) (61,177) (54,216) (26,967) (17,105) Lease financing (28,570) (23,034) (13,284) (5,084) (2,252) ----------------- ---------------- ---------------- ---------------- ---------------- Total losses (123,687) (101,516) (86,598) (46,846) (33,572) ----------------- ---------------- ---------------- ---------------- ---------------- Recoveries of losses previously charged off: Commercial, financial and agricultural loans 1,313 2,461 2,915 1,607 1,864 Real estate - construction loans 75 293 - 61 - Real estate - mortgage loans 2,096 2,017 2,866 2,845 4,229 Consumer loans 17,824 15,777 13,400 8,652 9,041 Lease financing 5,612 6,315 2,866 1,393 773 ----------------- ---------------- ---------------- ---------------- ---------------- Total recoveries 26,920 26,863 22,047 14,558 15,907 ----------------- ---------------- ---------------- ---------------- ---------------- Net losses charged off: Commercial, financial and agricultural loans (34,022) (6,491) (8,434) (5,343) (7,457) Real estate - construction loans (878) 288 (147) (8) - Real estate - mortgage loans (5,466) (6,331) (4,736) (4,931) (665) Consumer loans (33,443) (45,400) (40,816) (18,315) (8,064) Lease financing (22,958) (16,719) (10,418) (3,691) (1,479) ----------------- ---------------- ---------------- ---------------- ---------------- Total net losses charged off (96,767) (74,653) (64,551) (32,288) (17,665) ----------------- ---------------- ---------------- ---------------- ---------------- Letter of credit - - - - (7,800) Reserve of acquired institutions and other 3,506 1,705 5,838 8,479 875 Provision charged to operations 109,171 90,095 68,382 45,934 41,183 ----------------- ---------------- ---------------- ---------------- ---------------- Reserve for credit losses, December 31 $ 266,860 250,950 233,803 224,134 202,009 ================= ================ ================ ================ ================ Reserve as a percent of loans and leases outstanding 1.50% 1.45 1.46 1.51 1.55 ================= ================ ================ ================ ================
10 11 SUMMARY OF CREDIT LOSS EXPERIENCE, CONTINUED
Reserve for credit losses, December 31: 1998 1997 1996 1995 1994 ----- ----- ----- ----- ---- Commercial, financial and agricultural loans $ 95,924 20,034 28,636 35,120 79,315 Real estate - construction loans 920 342 552 733 813 Real estate - mortgage loans 12,448 18,209 11,273 26,397 10,205 Consumer loans 96,199 155,526 151,355 134,170 94,535 Lease financing 61,369 53,839 41,987 27,714 17,141 -------------- --------------- -------------- ---------------------------- Total reserve for credit losses $ 266,860 250,950 233,803 224,134 202,009 ============== =============== ============== ============================
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:
1998 1997 1996 1995 1994 ----- ----- ----- ----- ---- Percentage of loans and leases to total loans and leases at December 31: Commercial, financial and agricultural loans 26.2% 24.6 25.2 24.4 23.7 Real estate - construction loans 3.1 3.2 3.7 3.5 3.3 Real estate - mortgage loans 32.2 37.4 37.0 37.1 42.0 Consumer loans 18.7 17.5 17.6 21.6 19.6 Lease financing 19.8 17.3 16.5 13.4 11.4 -------------- --------------- -------------- ---------------- ------------ 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 0.74% 0.15 0.22 0.16 0.24 Real estate - construction loans 0.16 (0.05) 0.03 0.00 0.00 Real estate - mortgage loans 0.09 0.10 0.08 0.09 0.01 Consumer loans 1.04 1.54 1.34 0.63 0.32 Lease financing 0.69 0.58 0.45 0.21 0.10 Weighted Average Ratio 0.55 0.45 0.41 0.23 0.14
11 12 RESERVE FOR CREDIT LOSSES The reserve is maintained at a level management considers to be adequate to absorb probable loan and lease losses inherent in the portfolio. 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. Based on the procedures discussed below, management is of the opinion the reserve of $266,860,000 at December 31, 1998 was adequate. In determining the adequacy of the reserve for credit losses, management of each affiliate bank, on a quarterly basis, specifically evaluates the necessity of a reserve for individual loans classified by management. The specifically allocated reserve for a classified loan is determined based on management's estimate of the borrower's ability to repay the loan given the availability of collateral, other sources of cash flow, and legal options available to the Company. Once a review is completed, the need for a specific reserve is determined by senior management and allocated to the loan. Other loans not specifically reviewed by management are evaluated using a rolling five-year average historical charge-off experience ratio calculated by type of loan. The historical charge-off ratio factors into account the homogeneous nature of the loans, the geographical lending areas involved, regulatory examination findings, specific grading systems applied and any other known factors which may impact the ratios used. Specific reserves on individual loans and historical ratios are reviewed quarterly and adjusted as necessary based on subsequent collections, loan upgrades or downgrades, nonperforming trends or actual principal charge-offs. The Company's primary market area for lending is Ohio, Kentucky and Indiana. When evaluating the adequacy of reserves, consideration is given to this regional geographic concentration and the closely-associated effect changing economic conditions has on the Company's customers. MATURITY DISTRIBUTION OF DOMESTIC CERTIFICATES OF DEPOSIT OF $100,000 AND OVER AT DECEMBER 31, 1998 ($000'S) Three months or less $ 782,236 Over three months through six months 192,588 Over six months through twelve months 183,535 Over twelve months 125,221 ------------- Total certificates - $100,000 and over $ 1,283,580 =============
Foreign office deposits totaling $353,824 are denominated in amounts greater than $100,000. 12 13 RETURN ON EQUITY AND ASSETS The following table presents certain operating ratios:
1998(1) 1997 1996(2) ------- ---- ------- Return on assets (a) 1.67% 1.74 1.55 Return on equity (b) 16.2% 18.4 16.3 Dividend payout ratio (c) 40.3% 33.6 34.8 Equity to assets ratio (d) 10.33% 9.48 9.46
- --------------------------------------------------------------- (a) net income divided by average assets (b) net income divided by average equity (c) dividends declared per share divided by diluted earnings per share, as originally reported (d) average equity divided by average assets (1) Certain 1998 ratios and statistics include merger-related items of $106.4 million pretax ($75.6 million after tax or $.28 per share). For comparability, excluding the merger-related items, return on average assets, return on average equity and the dividend payout ratio for 1998 would have been 1.93%, 18.7% and 34.8%, respectively. (2) Certain 1996 ratios include the special SAIF assessment of $37.9 million pretax ($24.6 million after tax or $.09 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 1.64%, 17.4% and 33.8%, respectively. 13 14 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 percent of these buildings. At December 31, 1998, the Company, through its subsidiary banks, five located in Ohio, two in Kentucky, one in Indiana, one in Arizona and one in Florida, operated 468 banking centers, of which 253 were owned and 215 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. EXECUTIVE OFFICERS OF THE REGISTRANT ------------------------------------ The names, ages and positions of the Executive Officers of the Company as of February 1, 1999 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 Shareholders. CURRENT POSITION AND NAME AND AGE BUSINESS EXPERIENCE DURING PAST 5 YEARS - ------------ --------------------------------------- George A. Schaefer, Jr., 53 PRESIDENT AND CEO. President and Chief Executive Officer of the Company and the Bank. Neal E. Arnold, 38 EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER. Executive Vice President of the Company and the Bank since December, 1998. Chief Financial Officer of the Company and the Bank since June, 1997. Mr. Arnold has been the Treasurer of the Company and the Bank. Previously, Mr. Arnold was Treasurer and Senior Vice President of the Bank. 14 15 CURRENT POSITION AND NAME AND AGE BUSINESS EXPERIENCE DURING PAST 5 YEARS - ------------ --------------------------------------- Michael D. Baker, 48 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, 51 EXECUTIVE VICE PRESIDENT. Executive Vice President of the Company and the Bank since August, 1995. Until June, 1997, Mr. Brumm was Chief Financial Officer of the Company and the Bank. Previously, Mr. Brumm was Senior Vice President and CFO of the Company and the Bank. James J. Hudepohl, 46 EXECUTIVE VICE PRESIDENT. Executive Vice President of the Company and the Bank since January, 1997. Previously, Mr. Hudepohl was Senior Vice President of the Bank. Michael K. Keating, 43 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. Robert P. Niehaus, 52 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. Stephen J. Schrantz, 49 EXECUTIVE VICE PRESIDENT. Executive Vice President of the Company and the Bank. Gerald L. Wissel, 42 EXECUTIVE VICE PRESIDENT. Executive Vice President of the Bank since January, 1997. Auditor of the Company and the Bank. Previously, Mr. Wissel was Senior Vice President of the Bank. 15 16 CURRENT POSITION AND NAME AND AGE BUSINESS EXPERIENCE DURING PAST 5 YEARS - ------------ --------------------------------------- Robert J. King, Jr., 43 EXECUTIVE VICE PRESIDENT. Executive Vice President of the Company since June, 1997. Vice Chairman of Fifth Third Bank, Northwestern Ohio, N.A. Previously, Mr. King was President and CEO of Fifth Third Bank, Northwestern Ohio, N.A. Mr. King was Senior Vice President of the Company since March, 1995. James R. Gaunt, 53 EXECUTIVE VICE PRESIDENT. Executive Vice President of the Company since June, 1997. 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 Company and the Bank. Roger W. Dean, 36 CONTROLLER. Senior Vice President of the Company and of the Bank since March, 1997. Controller of the Company and the Bank since June 1993. Previously, Mr. Dean was Vice President of the Company and the Bank. Prior to June 1993, Mr. Dean was with Deloitte & Touche LLP, independent public accountants. Paul L. Reynolds, 37 ASSISTANT SECRETARY. Senior Vice President of the Company and the Bank since March, 1997. Assistant Secretary of the Company since March, 1995, General Counsel and Assistant Secretary of the Bank since January, 1995. Previously, Mr. Reynolds was Vice President, Counsel and Assistant Secretary of the Bank since 1990. Regina G. Livers, 41 COMMUNITY AFFAIRS OFFICER. Community Affairs Officer of the Company since March 1997. Previously, Ms. Livers was Vice President and Community Affairs Officer of the Bank. 16 17 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS - ------------------------------------------------------------------------------ The information required by this item is incorporated herein by reference to Page 1 of Registrant's 1998 Annual Report to Shareholders 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 39 of Registrant's 1998 Annual Report to Shareholders 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 30 through 39 of Registrant's 1998 Annual Report to Shareholders attached to this filing as Exhibit 13. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - -------------------------------------------------------------------- The information required by this item is incorporated herein by reference to pages 37 and 38 of Registrant's 1998 Annual Report to Shareholders 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 13 through 29 and page 39 of Registrant's 1998 Annual Report to Shareholders attached to this filing as Exhibit 13. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------------------------------------------------------------------------- FINANCIAL DISCLOSURE - -------------------- None. 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 1998 Proxy Statement. 17 18 ITEM 11. EXECUTIVE COMPENSATION - -------------------------------- The information required by this item is incorporated herein by reference under the caption "EXECUTIVE COMPENSATION" of the Registrant's 1999 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 1999 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 1999 Proxy Statement. 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, 1998, 1997 and 1996 * Consolidated Balance Sheets, December 31, 1998 and 1997 * Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 1998, 1997 and 1996 * Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 * Notes to Consolidated Financial Statements * * Incorporated by reference to pages 13 through 29 of Registrant's 1998 Annual Report to Shareholders attached to this filing as Exhibit 13. 2. Financial Statement Schedules
18 19 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) 4(a) Junior Subordinated Indenture, dated as of March 20, 1997 between Fifth Third Bancorp and Wilmington Trust Company, as Debenture Trustee (b) 4(b) Certificate Representing the 8.136% Junior Subordinated Deferrable Interest Debentures, Series A, of Fifth Third Bancorp (b) 4(c) Amended and Restated Trust Agreement, dated as of March 20, 1997 of Fifth Third Capital Trust II, among Fifth Third Bancorp, as Depositor, Wilmington Trust Company, as Property Trustee, and the Administrative Trustees name therein (b) 4(d) Certificate Representing the 8.136% Capital Securities, Series A, of Fifth Third Capital Trust I (b) 4(e) Guarantee Agreement, dated as of March 20, 1997 between Fifth Third Bancorp, as Guarantor, and Wilmington Trust Company, as Guarantee Trustee (b) 4(f) Agreement as to Expense and Liabilities, dated as of March 20, 1997 between Fifth Third Bancorp, as the holder of the Common Securities of Fifth Third Capital Trust I and Fifth Third Capital Trust II (b) 10(a) Fifth Third Bancorp Unfunded Deferred Compensation Plan for Non-Employee Directors (c) 10(b) Fifth Third Bancorp 1990 Stock Option Plan (d) 10(c) Fifth Third Bancorp 1987 Stock Option Plan (e) 19 20 10(d) Indenture effective November 19, 1992 between Fifth Third Bancorp, Issuer and NBD Bank, N.A., Trustee (f) 10(e) Fifth Third Bancorp 1993 Discount Stock Purchase Plan (g) 10(f) Fifth Third Bancorp Amended and Restated Stock Incentive Plan for selected Executive Officers, Employees and Directors of The Cumberland Federal Bancorporation, Inc. (h) 10(g) Fifth Third Bancorp Master Profit Sharing Plan (i) 10(h) Fifth Third Bancorp Amended and Restated Stock Option and Incentive Plan for Selected Executive Officers, Employees and Directors of Falls Financial, Inc. (j) 10(i) Fifth Third Bancorp Amended 1993 Discount Stock Purchase Plan (k) 10(j) Fifth Third Bancorp 1998 Long-Term Incentive Stock Plan (l) 10(k) Fifth Third Bancorp Variable Compensation Plan (m) 10(l) CitFed Bancorp, Inc. Amended and Restated 1991 Stock Option and Incentive Plan (n) 11 Computation of Consolidated Earnings Per Share for the Years Ended December 31, 1998, 1997, 1996, 1995 and 1994 13 Fifth Third Bancorp 1998 Annual Report to Shareholders 21 Fifth Third Bancorp Subsidiaries 23 Independent Auditors' Consent 27 Financial Data Schedules for the Years Ended December 31, 1998, 1997 and 1996 27.1 Financial Data Schedules for the Three Months Ended March 31, 1998, Six Months Ended June 30, 1998 and Nine Months Ended September 30, 1998 27.2 Financial Data Schedules for the Three Months Ended March 31, 1997, Six Months Ended June 30, 1997 and Nine Months Ended September 30, 1997 20 21 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. (b) Incorporated by reference to Registrant's filing with the Securities and Exchange Commission on March 26, 1997, a Form 8-K Current Report. (c) Incorporated in this Form 10-K Annual Report by reference to Form 10-K filed for fiscal year ended December 31, 1985. (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. 33-34075. (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. 33-13252. (f) 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. (g) 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. (h) 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. (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. 33-55553. (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. 33-61149. (k) 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. 21 22 (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. 333-58249. (m) Incorporated by reference to Registrant's Proxy Statement dated February 9, 1998. (n) 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. 333-48049 and by reference to CitFed Bancorp's Form 10-K for the fiscal year ended March 31, 1996. 22 23 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIFTH THIRD BANCORP (Registrant) /s/George A. Schaefer, Jr. February 12, 1999 - ------------------------- George A. Schaefer, Jr. President and CEO (Principal Executive Officer) Pursuant to requirements of the Securities Exchange Act of 1934, this report has been signed on February 12, 1999 by the following persons on behalf of the Registrant and in the capacities indicated. /s/Neal E. Arnold /s/Roger W. Dean /s/Robert B. Morgan - -------------------------------- ------------------------------ ------------------------------ Neal E. Arnold Roger W. Dean Robert B. Morgan Executive Vice President and CFO Controller Director (Principal Financial Officer) (Principal Accounting Officer) /s/Darryl F. Allen /s/Joan R. Herschede /s/David E. Reese - -------------------------------- ------------------------------ ------------------------------ Darryl F. Allen Joan R. Herschede David E. Reese Director Director Director /s/John F. Barrett /s/Allen M. Hill - -------------------------------- ------------------------------ ------------------------------ John F. Barrett Allen M. Hill James E. Rogers Director Director Director /s/Gerald V. Dirvin /s/Brian H. Rowe - -------------------------------- ------------------------------ ------------------------------ Gerald V. Dirvin William G. Kagler Brian H. Rowe Director Director Director /s/James D. Kiggen - -------------------------------- ------------------------------ ------------------------------ Thomas B. Donnell James D. Kiggen Donald B. Schackelford Director Director Director /s/Richard T. Farmer /s/Jerry L. Kirby /s/George A. Schaefer, Jr. - -------------------------------- ------------------------------ ------------------------------ Richard T. Farmer Jerry L. Kirby George A. Schaefer, Jr. Director Director Director, President and CEO (Principal Executive Officer) /s/Joseph H. Head, Jr. /s/Mitchel D. Livingston, Ph. D. /s/John J. Schiff, Jr. - -------------------------------- ------------------------------ ------------------------------ Joseph H. Head, Jr. Mitchel D. Livingston, Ph. D. John J. Schiff, Jr. Director Director Director
23 24 /s/Dennis J. Sullivan, Jr. - -------------------------------- Dennis J. Sullivan, Jr. Director /s/Dudley S. Taft - -------------------------------- Dudley S. Taft Director 24 EX-11 2 EXHIBIT 11 1 EXHIBIT 11 FIFTH THIRD BANCORP COMPUTATION OF CONSOLIDATED EARNINGS PER SHARE FOR THE YEARS ENDED DECEMBER 31
1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Net Income $476,128 460,858 382,344 330,447 275,625 ======== ======= ======= ======= ======= Earnings per share: Weighted average number of shares outstanding (a) 265,338 262,338 263,523 251,863 246,722 ======== ======= ======= ======= ======= Per share (net income divided by the weighted average number of shares outstanding) $ 1.80 1.76 1.45 1.31 1.21 ======== ======= ======= ======= ======= Diluted earnings per share: Net income $476,128 460,858 382,344 330,447 275,625 Add - Interest on 4 1/4% convertible subordinated notes due 1998, net of applicable income taxes -- -- 1,637 4,257 4,332 -------- ------- ------- ------- ------- Adjust net income $476,128 460,858 383,981 334,704 279,957 ======== ======= ======= ======= ======= Adjusted weighted average number of shares outstanding - after giving effect to the conversion of stock options and convertible subordinated notes (a) 270,674 266,680 269,444 260,867 255,581 ======== ======= ======= ======= ======= Per share (adjusted net income divided by the adjusted weighted average number of shares outstanding) $ 1.76 1.73 1.42 1.27 1.08 ======== ======= ======= ======= =======
- ------------------------ (a) Per share amounts and average shares outstanding have been adjusted for the three-for-two stock split effected in the form of a stock dividend declared March 17, 1998 and distributed April 15, 1998. EX-13 3 EXHIBIT 13 1 Exhibit 13 Financial Highlights - --------------------------------------------------------------------------------
1998 1997 % Change - --------------------------------------------------------------------------------------------------------------------------- Earnings and Dividends ($000's) Operating Earnings (a) .................................................. $ 551,701 460,858 19.7 Net Income ............................................................. 476,128 460,858 3.3 Cash Dividends Declared ................................................. 186,710 137,288 36.0 - --------------------------------------------------------------------------------------------------------------------------- Per Share Diluted Operating Earnings (a) ........................................... $ 2.04 1.73 17.9 Earnings ................................................................. 1.80 1.76 2.3 Diluted Earnings ......................................................... 1.76 1.73 1.7 Cash Dividends Declared .................................................. .71 .56 8/9 24.8 Year-End Book Value ...................................................... 11.91 10.52 13.2 Year-End Market Price .................................................... 71.31 54.50 30.8 - --------------------------------------------------------------------------------------------------------------------------- At Year End ($ in millions) Assets .................................................................. $ 28,922 27,710 4.4 Loans and Leases ......................................................... 17,779 17,312 2.7 Deposits ................................................................. 18,780 19,020 (1.3) Shareholders' Equity ..................................................... 3,179 2,763 15.1 Market Capitalization .................................................... 19,035 12,690 50.0 - --------------------------------------------------------------------------------------------------------------------------- Key Ratios Return on Average Assets (a) ............................................. 1.93% 1.74 10.9 Return on Average Equity (a) ............................................. 18.7 18.4 1.6 Overhead Ratio (a)(b) .................................................... 42.3 43.3 (2.3) Net Interest Margin ..................................................... 3.94 3.84 2.6 - --------------------------------------------------------------------------------------------------------------------------- Number of Shares ......................................................... 266,918,544 262,614,641 1.6 Number of Shareholders ................................................... 19,190 16,386 17.1 Number of Banking Locations .............................................. 468 410 14.1 Number of Full-Time Equivalent Employees ................................. 8,330 6,787 22.7 - ---------------------------------------------------------------------------------------------------------------------------
(a) For comparability, certain 1998 ratios and statistics exclude merger-related items of $106.4 million pretax ($75.6 million after tax or $.28 per share). (b) Operating expenses divided by the sum of fully taxable equivalent net interest income and other operating income. Fifth Third Bancorp Shareholder And Corporate Information - --------------------------------------------------------------------------------
Stock Data Dividends Paid Per Year Period High Low Share - ------------------------------------------------------------------------ 1998 Fourth Quarter ......... $74.13 $50.31 $.17 Third Quarter ......... 67.25 49.25 .17 Second Quarter ......... 63.13 47.50 .17 First Quarter ......... 58.83 49.50 .14 2/3 - ------------------------------------------------------------------------ 1997 Fourth Quarter ......... $55.67 $41.08 $.14 2/3 Third Quarter ......... 44.33 36.33 .14 2/3 Second Quarter ......... 38.06 30.94 .12 7/8 First Quarter ......... 39.78 27.00 .12 7/8
- -------------------------------------------------------------------------------- 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. - --------------------------------------------------------------------------------
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 - -------------------------------------------------------------------------- Fifth Third Banks of Northwestern Ohio, N.A., Western Ohio, Central Ohio, Indiana, Kentucky, Inc., and Northern Kentucky Short-Term Deposit ....... P1 A1+ F1+ Duff-1+ Long-Term Deposit ....... Aa3 AA- AA+ AA
CORPORATE OFFICE Fifth Third Center, Cincinnati, Ohio 45263 (513) 579-5300 ANNUAL MEETING The Annual Meeting of Shareholders will be held at 11:30 a.m. on Tuesday, March 16, 1999 on the fifth floor of the Corporate Office. FORM 10-K The Bancorp's 1998 Annual Report on Form 10-K (to be filed with the Securities and Exchange Commission before March 31, 1999) will be provided without charge to shareholders upon request. Send requests to the Investor Relations Department at the Corporate Office. INVESTOR RELATIONS/ANALYST CONTACT Neal E. Arnold, Executive Vice President and Chief Financial Officer (513) 579-4356 (513) 579-6246 (facsimile) investorrelations.cincinnati@53.com TRANSFER AGENT/SHAREHOLDER RELATIONS Fifth Third Bank Corporate Trust Services, Mail Drop 10AT66-3212 Fifth Third Center, Cincinnati, Ohio 45263 (800) 837-2755 (513) 579-5320 (outside the continental U.S.) 8 a.m.-5 p.m. Eastern Standard Time DIVIDEND REINVESTMENT AND DIRECT DEPOSIT For the convenience of shareholders, the Bancorp has established a plan whereby shareholders may have their dividends automatically reinvested in Fifth Third Bancorp common stock or the dividends may be deposited directly into your bank account. To take advantage of these options, return the card on the back page or contact Shareholder Relations. 2
============================================================================================================ FIFTH THIRD BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME ============================================================================================================ - ------------------------------------------------------------------------------------------------------------ For the Years Ended December 31 ($000's, except per share data) 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------ INTEREST INCOME Interest and Fees on Loans and Leases ......................... $1,451,573 1,365,511 1,271,569 - ------------------------------------------------------------------------------------------------------------ Interest on Securities Taxable .................................................... 547,435 523,231 466,685 Exempt from Income Taxes ................................... 12,021 13,889 21,336 - ------------------------------------------------------------------------------------------------------------ Total Interest on Securities .................................. 559,456 537,120 488,021 - ------------------------------------------------------------------------------------------------------------ Interest on Other Short-Term Investments ...................... 7,648 16,452 12,820 - ------------------------------------------------------------------------------------------------------------ Total Interest Income ......................................... 2,018,677 1,919,083 1,772,410 - ------------------------------------------------------------------------------------------------------------ INTEREST EXPENSE Interest on Deposits Interest Checking .......................................... 65,940 57,919 43,665 Savings .................................................... 116,010 80,722 64,803 Money Market ............................................... 33,845 74,621 85,502 Other Time ................................................. 378,084 414,094 413,625 Certificates-$100,000 and Over ............................. 81,168 71,462 63,831 Foreign Office ............................................. 12,708 22,212 28,407 - ------------------------------------------------------------------------------------------------------------ Total Interest on Deposits .................................... 687,755 721,030 699,833 Interest on Federal Funds Borrowed ............................ 115,940 81,196 64,942 Interest on Short-Term Bank Notes ............................. 26,033 36,852 30,278 Interest on Other Short-Term Borrowings ....................... 89,025 81,048 63,541 Interest on Long-Term Debt and Notes .......................... 97,100 86,707 72,783 - ------------------------------------------------------------------------------------------------------------ Total Interest Expense ........................................ 1,015,853 1,006,833 931,377 - ------------------------------------------------------------------------------------------------------------ Net Interest Income ........................................... 1,002,824 912,250 841,033 Provision for Credit Losses ................................... 109,171 90,095 68,382 - ------------------------------------------------------------------------------------------------------------ Net Interest Income After Provision for Credit Losses ......... 893,653 822,155 772,651 - ------------------------------------------------------------------------------------------------------------ OTHER OPERATING INCOME Investment Advisory Income .................................... 134,872 93,557 77,404 Service Charges on Deposits ................................... 127,095 109,500 95,837 Data Processing Income ........................................ 138,154 112,506 88,195 Other Service Charges and Fees ................................ 226,230 180,404 151,289 Securities Gains .............................................. 9,843 5,802 6,182 - ------------------------------------------------------------------------------------------------------------ Total Other Operating Income .................................. 636,194 501,769 418,907 - ------------------------------------------------------------------------------------------------------------ OPERATING EXPENSES Salaries, Wages and Incentives ................................ 286,274 242,972 225,052 Employee Benefits ............................................. 53,556 49,431 55,587 Equipment Expenses ............................................ 32,588 27,980 27,087 Net Occupancy Expenses ........................................ 50,756 48,530 45,964 Other Operating Expenses ...................................... 290,702 261,595 230,097 SAIF Assessment ............................................... -- -- 37,867 Merger-Related Charges ........................................ 89,701 -- -- - ------------------------------------------------------------------------------------------------------------ Total Operating Expenses ...................................... 803,577 630,508 621,654 - ------------------------------------------------------------------------------------------------------------ Income Before Income Taxes .................................... 726,270 693,416 569,904 Applicable Income Taxes ....................................... 250,142 232,558 187,560 - ------------------------------------------------------------------------------------------------------------ NET INCOME .................................................... $ 476,128 460,858 382,344 - ------------------------------------------------------------------------------------------------------------ EARNINGS PER SHARE ............................................ $ 1.80 1.76 1.45 DILUTED EARNINGS PER SHARE .................................... $ 1.76 1.73 1.42 - ------------------------------------------------------------------------------------------------------------ CASH DIVIDENDS DECLARED PER SHARE ............................. $ .71 .56 8/9 .48 8/9 - ------------------------------------------------------------------------------------------------------------ See Notes to Consolidated Financial Statements
13 3
================================================================================================================================== FIFTH THIRD BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ================================================================================================================================== - ---------------------------------------------------------------------------------------------------------------------------------- December 31 ($000's) 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------------- ASSETS - ---------------------------------------------------------------------------------------------------------------------------------- Cash and Due from Banks ......................................................................... $ 819,862 777,378 Securities Available for Sale (amortized cost 1998-$8,208,032 and 1997-$7,988,085) .............. 8,334,625 8,139,465 Securities Held to Maturity (fair value 1998-$86,015 and 1997-$85,375) .......................... 86,013 85,010 Other Short-Term Investments .................................................................... 118,535 180,425 Loans Held for Sale ............................................................................. 492,017 263,772 Loans and Leases Commercial Loans ............................................................................. 4,822,992 4,363,289 Construction Loans ........................................................................... 572,082 560,381 Commercial Mortgage Loans .................................................................... 1,178,752 1,273,885 Commercial Lease Financing ................................................................... 1,739,316 1,417,133 Residential Mortgage Loans ................................................................... 4,269,880 5,037,987 Consumer Loans ............................................................................... 3,354,681 3,068,597 Consumer Lease Financing ..................................................................... 2,530,535 2,165,598 Unearned Income .............................................................................. (689,215) (573,927) Reserve for Credit Losses .................................................................... (266,860) (250,950) - ---------------------------------------------------------------------------------------------------------------------------------- Total Loans and Leases .......................................................................... 17,512,163 17,061,993 Bank Premises and Equipment ..................................................................... 330,838 301,029 Accrued Income Receivable ....................................................................... 282,551 212,949 Other Assets .................................................................................... 945,178 688,652 - ---------------------------------------------------------------------------------------------------------------------------------- Total Assets .................................................................................... $28,921,782 27,710,673 - ---------------------------------------------------------------------------------------------------------------------------------- LIABILITIES - ---------------------------------------------------------------------------------------------------------------------------------- Deposits Demand ....................................................................................... $ 3,194,782 2,738,191 Interest Checking ............................................................................ 3,160,227 2,555,108 Savings ...................................................................................... 3,397,170 2,666,423 Money Market ................................................................................. 1,021,353 1,837,503 Other Time ................................................................................... 6,369,419 7,349,190 Certificates-$100,000 and Over ............................................................... 1,283,580 1,332,530 Foreign Office ............................................................................... 353,824 540,951 - ---------------------------------------------------------------------------------------------------------------------------------- Total Deposits .................................................................................. 18,780,355 19,019,896 Federal Funds Borrowed .......................................................................... 2,038,541 1,278,573 Short-Term Bank Notes ........................................................................... - 555,000 Other Short-Term Borrowings ..................................................................... 1,655,386 1,817,358 Accrued Taxes, Interest and Expenses ............................................................ 710,772 567,906 Other Liabilities ............................................................................... 270,055 200,421 Long-Term Debt .................................................................................. 2,288,151 1,508,683 - ---------------------------------------------------------------------------------------------------------------------------------- Total Liabilities ............................................................................... 25,743,260 24,947,837 - ---------------------------------------------------------------------------------------------------------------------------------- Shareholders' Equity (a) - ---------------------------------------------------------------------------------------------------------------------------------- Common Stock (b) ................................................................................ 592,559 583,005 Capital Surplus ................................................................................. 495,067 481,036 Retained Earnings ............................................................................... 2,066,407 1,785,121 Accumulated Nonowner Changes in Equity .......................................................... 82,448 98,254 Treasury Stock .................................................................................. (57,959) (184,580) - ---------------------------------------------------------------------------------------------------------------------------------- Total Shareholders' Equity ...................................................................... 3,178,522 2,762,836 - ---------------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity ...................................................... $28,921,782 27,710,673 - ----------------------------------------------------------------------------------------------------------------------------------
(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 1998 - 266,918,544 (excludes 922,028 treasury shares) and 1997 - 262,614,641 (excludes 5,424,885 treasury shares). See Notes to Consolidated Financial Statements. 14 4
================================================================================================================================== FIFTH THIRD BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY ================================================================================================================================== - ---------------------------------------------------------------------------------------------------------------------------------- COMMON STOCK ACCUMULATED ------------------------ NONOWNER SHARES CAPITAL RETAINED CHANGES TREASURY ($000'S) OUTSTANDING AMOUNT SURPLUS EARNINGS IN EQUITY STOCK TOTAL - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1995 ............... 255,433,570 $ 567,063 320,078 1,198,040 17,557 - 2,102,738 Net Income and Nonowner Changes in Equity, Net of Tax: Net Income ................................. 382,344 382,344 Change in Unrealized Gains on Securities Available for Sale ...................... (6,240) (6,240) - ---------------------------------------------------------------------------------------------------------------------------------- Net Income and Nonowner Changes in Equity .. 376,104 Cash Dividends Declared at $.48 8/9 per share (118,477) (118,477) Shares Acquired for Treasury ............... (103,622) (230) (2,866) (3,096) Stock Options Exercised, Including Treasury Shares Issued ........ 1,059,254 2,351 6,677 2,689 11,717 Corporate Tax Benefit Related to Exercise of Non-Qualified Stock Options .......... 871 871 Stock Issued in Conversion of Subordinated Notes ...................... 7,598,988 16,870 126,385 143,255 Stock Issued in Acquisitions and Other ..... 3,879,624 8,613 39,781 (171) 48,223 - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1996 ............... 267,867,814 594,667 493,792 1,461,736 11,317 (177) 2,561,335 Net Income and Nonowner Changes in Equity, Net of Tax: Net Income ................................. 460,858 460,858 Change in Unrealized Gains on Securities Available for Sale ...................... 86,937 86,937 - ---------------------------------------------------------------------------------------------------------------------------------- Net Income and Nonowner Changes in Equity .. 547,795 Cash Dividends Declared at $.56 8/9 per share (137,288) (137,288) Shares Acquired for Treasury ............... (7,787,140) (17,288) (259,019) (276,307) Stock Options Exercised, Including Treasury Shares Issued ........ 1,313,794 2,917 (20,082) 34,466 17,301 Corporate Tax Benefit Related to Exercise of Non-Qualified Stock Options .......... 1,929 1,929 Fractional Shares Purchased in Stock Split Effected in the Form of a Stock Dividend (5,364) (12) (185) (197) Stock Issued in Acquisition and Other ...... 1,225,537 2,721 5,397 40,150 48,268 - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1997 ............... 262,614,641 583,005 481,036 1,785,121 98,254 (184,580) 2,762,836 Net Income and Nonowner Changes in Equity, Net of Tax: Net Income ................................. 476,128 476,128 Change in Unrealized Gains on Securities Available for Sale ...................... (15,806) (15,806) - ---------------------------------------------------------------------------------------------------------------------------------- Net Income and Nonowner Changes in Equity .. 460,322 Cash Dividends Declared at $.71 per share .. (186,710) (186,710) Shares Acquired for Treasury ............... (2,402,500) (5,334) (138,556) (143,890) Earnings Adjustment of Pooled Entity (a) ... (7,803) (7,803) Stock Options Exercised, Including Treasury Shares Issued ........ 1,254,009 2,784 (43,402) 59,032 18,414 Corporate Tax Benefit Related to Exercise of Non-Qualified Stock Options .......... 3,768 3,768 Fractional Shares Purchased in Stock Split Effected in the Form of a Stock Dividend (6,751) (15) (329) (344) Stock Issued in Public Offering ............ 3,600,000 7,992 47,644 122,489 178,125 Stock Issued in Acquisitions and Other ..... 1,859,145 4,127 6,021 83,656 93,804 - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1998 ............... 266,918,544 $ 592,559 495,067 2,066,407 82,448 (57,959) 3,178,522 - ----------------------------------------------------------------------------------------------------------------------------------
(a)The restatement of the CitFed Bancorp, Inc. (CitFed) 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 $7,803,000. An adjustment to shareholders' equity removes the effect of including CitFed's financial results in both periods. See Notes to Consolidated Financial Statements. 15 5
=========================================================================================================================== FIFTH THIRD BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS =========================================================================================================================== - --------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31 ($000's) 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net Income............................... $ 476,128 460,858 382,344 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Provision for Credit Losses.................................................... 109,171 90,095 68,382 Depreciation, Amortization and Accretion....................................... 80,540 69,447 62,571 Provision for Deferred Income Taxes............................................ 83,859 90,857 80,417 Realized Securities Gains...................................................... (12,193) (12,508) (8,518) Realized Securities Losses..................................................... 2,350 6,706 2,336 Proceeds from Sales of Loans Held for Sale..................................... 3,208,903 1,326,077 1,184,957 Net Gains on Sales of Loans.................................................... (30,275) (14,735) (15,862) Increase in Loans Held for Sale................................................ (3,425,319) (1,501,898) (1,230,070) Increase in Accrued Income Receivable.......................................... (69,422) (511) (47,913) Decrease (Increase) in Other Assets............................................ (180,962) 83,152 (129,678) Increase (Decrease) in Accrued Taxes, Interest and Expenses.................... 147,271 10,018 (21,069) Increase (Decrease) in Other Liabilities....................................... 14,815 41,626 (7,165) - --------------------------------------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities......................................... 404,866 649,184 320,732 - --------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Proceeds from Sales of Securities Available for Sale.............................. 1,706,048 1,842,489 567,060 Proceeds from Calls, Paydowns and Maturities of Securities Available for Sale..... 2,597,141 1,256,298 1,047,848 Purchases of Securities Available for Sale........................................ (3,383,136) (2,379,583) (2,756,281) Proceeds from Calls, Paydowns and Maturities of Securities Held to Maturity....... 39,356 264,805 339,084 Purchases of Securities Held to Maturity.......................................... (52,896) (124,766) (376,116) Decrease (Increase) in Other Short-Term Investments............................... (59,793) 96,727 (63,265) Purchases of Loans in Acquisitions................................................ (41,348) (186) (224,313) Proceeds from Securitizations and Sales of Automobile Loans....................... -- -- 824,607 Increase in Loans and Leases...................................................... (1,577,395) (2,306,302) (2,513,494) Purchases of Bank Premises and Equipment.......................................... (67,795) (60,726) (48,605) Proceeds from Disposal of Bank Premises and Equipment............................. 9,124 6,649 5,676 Net Cash Received (Paid) in Acquisitions.......................................... 1,576 (15,159) (175,572) - --------------------------------------------------------------------------------------------------------------------------- Net Cash Used in Investing Activities............................................. (829,118) (1,419,754) (3,373,371) - --------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Purchases of Deposits............................................................. 116,648 128,927 1,921,019 Increase (Decrease) in Core Deposits.............................................. (117,185) (172,535) 713,955 Increase (Decrease) in CDs-- $100,000 and Over, including Foreign................. (239,004) 776,106 (780,775) Increase (Decrease) in Federal Funds Borrowed .................................... 759,968 (157,848) 867,653 Increase (Decrease) in Short-Term Bank Notes...................................... (555,000) (301,000) 356,000 Increase (Decrease) in Other Short-Term Borrowings................................ (170,634) 478,606 288,785 Proceeds from Issuance of Long-Term Debt.......................................... 2,256,658 3,020,115 1,518,438 Repayment of Long-Term Debt....................................................... (1,473,067) (2,710,880) (1,536,532) Payment of Cash Dividends......................................................... (167,896) (133,857) (113,869) Exercise of Stock Options......................................................... 22,182 19,230 12,588 Proceeds from Sale of Common Stock................................................ 178,125 -- -- Purchases of Treasury Stock....................................................... (143,890) 276,307) (3,096) Other............................................................................. (169) (42) 890 - --------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES......................................... 466,736 670,515 3,245,056 - --------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH AND DUE FROM BANKS.................................... 42,484 (100,055) 192,417 CASH AND DUE FROM BANKS AT BEGINNING OF YEAR...................................... 777,378 877,433 685,016 - --------------------------------------------------------------------------------------------------------------------------- CASH AND DUE FROM BANKS AT END OF YEAR............................................ $ 819,862 777,378 877,433 - ---------------------------------------------------------------------------------------------------------------------------
Note: The Bancorp paid Federal income taxes of $142,650,000, $116,150,000 and $122,880,000 in 1998, 1997 and 1996, respectively. The Bancorp paid interest of $1,018,824,000, $1,016,296,000 and $934,152,000 in 1998, 1997 and 1996, respectively. The Bancorp had noncash investing activities consisting of the securitization and transfer to securities of $1,058,862,000, $1,107,761,000 and $899,371,000 of residential mortgage loans in 1998, 1997 and 1996, respectively. In connection with the 1997 acquisition of Suburban Bancorporation, the Bancorp acquired $178,021,000 of loans and $18,509,000 of securities and assumed $126,071,000 of deposits. See Notes to Consolidated Financial Statements. 16 6 ================================================================================ 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 468 offices located throughout Ohio, Indiana, Kentucky, Arizona and Florida. Principal activities include commercial and retail banking, investment advisory 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. Financial data for all prior periods has been restated to reflect the second quarter 1998 mergers with CitFed Bancorp, Inc. (CitFed) and State Savings Company (State). Both mergers were accounted for as poolings-of-interests. Cash dividends per common share are those of Fifth Third Bancorp declared prior to the mergers with CitFed and State. The restatement of the CitFed 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 $7,803,000. An adjustment to shareholders' equity removes the effect of including CitFed's financial results in both periods. 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 on the date of purchase. 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 accumulated nonowner changes in 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 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 fair value. The Bancorp generally 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. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," was adopted for 1997 and provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. The adoption of SFAS No. 125 did not have a material effect on the Consolidated Financial Statements. When the Bancorp sells or securitizes mortgage loans with servicing rights retained, the total cost of the mortgage loans is allocated 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. Fees received for servicing mortgage loans owned by investors are based on a percentage of the outstanding monthly principal balance of such loans and are included in income as loan payments are received. Costs of servicing loans are charged to expense as incurred. Mortgage servicing rights, net of the valuation reserve, included in Other Assets were $73,664,000 and $68,248,000 at December 31, 1998 and 1997, respectively. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or the fair value of the underlying collateral. The Bancorp evaluates the collectibility of both the interest and principal when assessing the need for a loss accrual. RESERVE FOR CREDIT LOSSES The reserve is maintained at a level management considers to be adequate to absorb probable loan and lease losses inherent in the portfolio. 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. In determining the adequacy of the reserve for credit losses, management of each affiliate bank, on a quarterly basis, specifically evaluates the necessity of a reserve for individual loans classified by management. The specifically allocated reserve for a classified loan is determined based on management's estimate of the borrower's ability to repay the loan given the availability of collateral, other sources of cash flow, and legal options available to the Bancorp. Once a review is completed, the need for a specific reserve is determined by senior management and allocated to the loan. Other loans not specifically reviewed by management are evaluated using a rolling five-year average historical charge-off experience ratio calculated by type of loan. The historical charge-off ratio factors into account the homogeneous nature of the loans, the geographical lending areas involved, regulatory examination findings, specific grading systems applied and any other known factors which may impact the ratios used. Specific reserves on individual loans and historical ratios are reviewed quarterly and adjusted as necessary based on subsequent collections, loan upgrades or downgrades, nonperforming trends or 17 7 ================================================================================ FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ actual principal charge-offs. The Bancorp's primary market area for lending is Ohio, Kentucky and Indiana. When evaluating the adequacy of reserves, consideration is given to this regional geographic concentration and the closely-associated effect changing economic conditions has on the Bancorp's customers. 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 other intangibles are amortized on a straight-line basis generally over a period of up to 15 years. Intangible assets, net of accumulated amortization, included in Other Assets at December 31, 1998 and 1997 total $370,734,000 and $323,289,000, respectively. Management reviews intangible assets for possible impairment if there is a significant event that detrimentally affects operations. Impairment is measured using estimates of the discounted 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 generally hedges its exposure to market rate fluctuations by entering into offsetting third-party forward contracts, which are predominantly settled daily. Unrealized gains and losses on forward contracts are insignificant and are recognized in Other Service Charges and Fees when realized. The Bancorp has purchased options and interest rate floors to hedge a portion of the value of mortgage servicing rights against changes in prepayment rates. 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 has interest rate caps, floors and swaps to adjust the interest rate sensitivity of long-term, fixed-rate capital-qualifying securities and hedge the risk of future fluctuations in interest rates relating to hedging transactions effected for commercial clients. The unamortized cost of acquiring caps and floors is included in Other Assets and amortized over the term of the agreements as interest expense. Interest rate swaps are linked through designation with certain assets or liabilities of the Bancorp. Net interest income (expense) resulting from the differential between exchanging floating and fixed-rate interest payments is recorded on an accrual basis as an adjustment to the interest (expense) income of the associated asset or liability. The Bancorp does not hold or issue derivative financial instruments for trading purposes. EARNINGS PER SHARE Earnings 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 is included in the calculation of diluted earnings per share. SFAS No. 128, "Earnings Per Share," was adopted for 1997 with all prior-period earnings per share data restated. The statement requires dual presentation of earnings per share and diluted earnings per share on the Consolidated Statements of Income and other computational changes. The adoption of SFAS No. 128 did not have a material effect on previously reported earnings per share. STOCK SPLIT The Bancorp's board of directors approved a three-for-two stock split in March 1998. The additional shares resulting from the split were distributed on April 15, 1998 to shareholders of record as of March 31, 1998. The Consolidated Financial Statements, notes and other references to share and per share data have been retroactively restated for the stock split. OTHER SFAS No. 130, "Reporting Comprehensive Income," was adopted for 1998. The statement requires additional reporting of items that affect comprehensive income but not net income. Examples relevant to the Bancorp include unrealized gains and losses on securities available for sale. The Bancorp elected to present the required disclosures in the Consolidated Statements of Shareholders' Equity. The caption "Net Income and Nonowner Changes in Equity," represents total comprehensive income as defined in SFAS No. 130. Because the statement solely relates to disclosure requirements, it had no effect on the Bancorp's financial results. SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," was adopted for 1998. The statement requires financial disclosure and descriptive information about reportable operating segments. This statement resulted in additional financial statement disclosures upon adoption, however, the Bancorp did not make material changes to its segment groupings. SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," establishes accounting and reporting standards for derivative instruments and hedging activities and requires recognition of all derivatives as either assets or liabilities measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. The statement is required for the year 2000. The adoption of SFAS No. 133 is not expected to have a material effect on the Consolidated Financial Statements. Securities and other property held by Fifth Third Investment Advisors, a division of the Bancorp's banking subsidiaries, in a fiduciary or agency capacity are not included in the Consolidated Balance Sheets because such items are not assets of the subsidiaries. Investment advisory income is recognized on the accrual basis. Treasury stock is carried at cost. NOTE 2-SECURITIES Securities available for sale as of December 31:
- -------------------------------------------------------------------- 1998 -------------------------------------------------- AMORTIZED UNREALIZED UNREALIZED FAIR ($000'S) COST GAINS LOSSES VALUE - -------------------------------------------------------------------- U.S. Government and agencies obligations........... $ 276,216 5,756 (3) 281,969 Obligations of states and political subdivisions.......... 183,739 7,934 (338) 191,335 Agency mortgage- backed securities............ 6,728,501 123,335 (3,953) 6,847,883 Other bonds, notes and debentures............ 766,692 4,382 (25,064) 746,010 Other securities........ 252,884 14,994 (450) 267,428 - -------------------------------------------------------------------- Total securities $8,208,032 156,401 (29,808) 8,334,625 - --------------------------------------------------------------------
18 8 ================================================================================ FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1997 ------------------------------------------------ Amortized Unrealized Unrealized Fair ($000's) Cost Gains Losses Value - -------------------------------------------------------------------------------- U.S. Government and agencies obligations ............ $ 529,028 7,344 (230) 536,142 Obligations of states and political subdivisions ........... 187,308 7,105 (260) 194,153 Agency mortgage- backed securities ............. 6,465,597 75,654 (15,323) 6,525,928 Other bonds, notes and debentures ............. 609,685 6,267 (6,966) 608,986 Other securities ......... 196,467 77,791 (2) 274,256 - -------------------------------------------------------------------------------- Total securities ......... $7,988,085 174,161 (22,781) 8,139,465 - --------------------------------------------------------------------------------
Securities held to maturity as of December 31:
- -------------------------------------------------------------------------------- 1998 ------------------------------------------------ Amortized Unrealized Unrealized Fair ($000's) Cost Gains Losses Value - -------------------------------------------------------------------------------- Obligations of states and political subdivisions ........... $ 55,210 -- -- 55,210 Other bonds, notes and debentures ............. 1,660 2 -- 1,662 Other securities ......... 29,143 -- -- 29,143 - -------------------------------------------------------------------------------- Total securities ......... $ 86,013 2 -- 86,015 - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 1997 ------------------------------------------------ Amortized Unrealized Unrealized Fair ($000's) Cost Gains Losses Value - -------------------------------------------------------------------------------- Obligations of states and political subdivisions ........... $ 41,982 -- -- 41,982 Agency mortgage- backed securities ...... 4,996 -- (134) 4,862 Other bonds, notes and debentures ............. 1,535 -- -- 1,535 Other securities ......... 36,497 499 -- 36,996 - -------------------------------------------------------------------------------- Total securities ......... $ 85,010 499 (134) 85,375 - --------------------------------------------------------------------------------
The amortized cost and approximate fair value of securities at December 31, 1998, 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.
- -------------------------------------------------------------------------------- Available for Sale Held to Maturity ------------------ ---------------- Amortized Fair Amortized Fair ($000's) Cost Value Cost Value - -------------------------------------------------------------------------------- Debt securities: Under 1 year ...... $ 153,462 157,686 $37,248 37,248 1-5 years ......... 849,455 841,623 14,624 14,624 6-10 years ........ 71,622 74,714 3,055 3,055 Over 10 years ..... 152,108 145,291 1,943 1,945 Agency mortgage- backed securities . 6,728,501 6,847,883 -- -- Other securities .... 252,884 267,428 29,143 29,143 - -------------------------------------------------------------------------------- Total securities..... $8,208,032 8,334,625 $86,013 86,015 - --------------------------------------------------------------------------------
At December 31, 1998 and 1997, securities with a book value of $4,952,486,000 and $4,251,089,000, respectively, were pledged to secure short-term borrowings, public deposits, trust funds and for other purposes as required or permitted by law. NOTE 3-RESERVE FOR CREDIT LOSSES Transactions in the reserve for credit losses for the years ended December 31:
- -------------------------------------------------------------------------------- ($000's) 1998 1997 1996 - -------------------------------------------------------------------------------- Balance at January 1 ..................... $ 250,950 233,803 224,134 Losses charged off ....................... (123,687) (101,517) (86,598) Recoveries of losses previously charged off ............................ 26,920 26,864 22,047 - -------------------------------------------------------------------------------- Net charge-offs .......................... (96,767) (74,653) (64,551) Provision charged to operations 109,171 90,095 68,382 Reserve of acquired institutions and other .............................. 3,506 1,705 5,838 - -------------------------------------------------------------------------------- Balance at December 31 ................... $ 266,860 250,950 233,803 - --------------------------------------------------------------------------------
Impaired loan information, under SFAS No. 114, at December 31:
- -------------------------------------------------------------------------------- ($000's) 1998 1997 - -------------------------------------------------------------------------------- Impaired loans with a valuation reserve...................... $27,285 38,782 Impaired loans with no valuation reserve..................... 3,725 7,577 - -------------------------------------------------------------------------------- Total impaired loans ........................................ $31,010 46,359 - -------------------------------------------------------------------------------- Valuation reserve on impaired loans ......................... $ 8,404 25,467 - --------------------------------------------------------------------------------
Average impaired loans, net of valuation reserves, were $21,749,000 in 1998, $18,093,000 in 1997 and $27,833,000 in 1996. Cash basis interest income recognized on those loans during each of the years was immaterial. NOTE 4-LEASE FINANCING A summary of the gross investment in lease financing at December 31:
- -------------------------------------------------------------------------------- ($000's) 1998 1997 - -------------------------------------------------------------------------------- Direct financing leases............................. $3,863,881 3,448,363 Leveraged leases.................................... 405,970 134,368 - -------------------------------------------------------------------------------- Total lease financing............................... $3,863,881 3,582,731 - --------------------------------------------------------------------------------
The components of the investment in lease financing at December 31:
- -------------------------------------------------------------------------------- ($000's) 1998 1997 - -------------------------------------------------------------------------------- Rentals receivable, net of principal and interest on nonrecourse debt .................... $ 2,577,062 2,187,868 Estimated residual value of leased assets 1,692,789 1,394,863 - -------------------------------------------------------------------------------- Gross investment in lease financing ............... 4,269,851 3,582,731 Unearned income ................................... (653,360) (527,479) - -------------------------------------------------------------------------------- Total net investment in lease financing ........... $ 3,616,491 3,055,252 - --------------------------------------------------------------------------------
At December 31, 1998, the minimum future lease payments receivable for each of the years 1999 through 2003 were $864,737,000, $906,013,000, $843,194,000, $595,354,000 and $408,506,000, respectively. 19 9 =============================================================================== FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS =============================================================================== NOTE 5-BANK PREMISES AND EQUIPMENT A summary of bank premises and equipment at December 31:
- ------------------------------------------------------------------------------- Estimated ($000's) Useful Life 1998 1997 - ------------------------------------------------------------------------------- Land and improvements .......... $ 64,866 56,030 Buildings ...................... 18 to 50 yrs. 219,256 196,226 Equipment ...................... 3 to 20 yrs. 223,916 208,995 Leasehold improvements ......... 6 to 25 yrs. 67,505 59,253 Accumulated depreciation and amortization ............. (244,705) (219,475) - ------------------------------------------------------------------------------- Total bank premises and equipment .................... $330,838 301,029 - -------------------------------------------------------------------------------
Depreciation and amortization expense related to bank premises and equipment was $35,470,000 in 1998, $31,469,000 in 1997 and $27,373,000 in 1996. Occupancy expense has been reduced by rental income from leased premises of $8,436,000 in 1998, $7,936,000 in 1997 and $7,400,000 in 1996. 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, 1998, exclusive of taxes and other charges payable by the lessee:
- ------------------------------------------------------------------------------- Land and ($000's) Buildings Equipment Total =============================================================================== 1999 ................................ $ 18,893 201 19,094 2000 ................................ 18,035 179 18,214 2001 ................................ 16,228 42 16,270 2002 ................................ 14,629 30 14,659 2003 ................................ 13,759 -- 13,759 2004 and subsequent years ........... 49,069 -- 49,069 - ------------------------------------------------------------------------------- Total ............................... $130,613 452 131,065 ===============================================================================
Rental expense for cancelable and noncancelable leases was $20,813,000 for 1998, $20,283,000 for 1997 and $19,256,000 for 1996. NOTE 6-LONG-TERM BORROWINGS A summary of long-term borrowings at December 31:
=============================================================================== ($000's) 1998 1997 =============================================================================== Bancorp: Capital Securities, 8.136%, due 2027 ...................... $ 200,000 200,000 Subordinated notes, 8.25%, repaid in 1998 ................. -- 36,321 Subsidiaries: Subordinated notes, 6.75%, due 2005 ....................... 247,752 247,405 Federal Home Loan Bank advances ......... 790,399 399,836 Securities sold under agreements to repurchase ......................... 1,050,000 497,000 Other ................................... -- 128,121 - ------------------------------------------------------------------------------ Total long-term borrowings .............. $2,288,151 1,508,683 ==============================================================================
In March 1997, Fifth Third Capital Trust 1 (FTCT1), a wholly-owned subsidiary of the Bancorp, issued $200 million 8.136% Capital Securities due in 2027. The Bancorp has fully and unconditionally guaranteed all of FTCT1's obligations under the Capital Securities. The Capital Securities qualify as Tier 1 capital for regulatory capital purposes. The Subordinated Notes are unsecured obligations of a subsidiary bank. Interest is payable semiannually and the notes qualify as total capital for regulatory capital purposes. At December 31, 1998, Federal Home Loan Bank advances have rates ranging from 3.22% to 7.51%, with interest payable monthly. The advances were secured by certain mortgage loans and securities. The advances mature as follows: $4,420,000 in 1999, $16,044,000 in 2000, $4,911,000 in 2001, $550,087,000 in 2002, $27,618,000 in 2003 and $187,319,000 thereafter. At December 31, 1998, securities sold under agreements to repurchase have rates ranging from 4.37% to 5.07%, with interest payable monthly. The repurchase agreements mature as follows: $500,000,000 in 2000, $200,000,000 in 2001 and $350,000,000 in 2008. The Bancorp issued notice of redemption effective May 31, 1996 for its 4.25% convertible subordinated notes issued in 1992. As a result, 7.6 million common shares were issued and $143.3 million was added to equity capital during 1996. NOTE 7-SHORT-TERM BORROWINGS A summary of short-term borrowings and rates at December 31:
================================================================================ ($000's) 1998 1997 1996 ================================================================================ Federal funds borrowed: Balance ..................... $2,038,541 1,278,573 1,436,421 Rate ........................ 4.63% 5.65 5.39 - -------------------------------------------------------------------------------- Short-term bank notes: Balance ..................... $ -- 555,000 806,000 Rate ........................ -- 5.85 5.41 Securities sold under agreements to repurchase: Balance ..................... $1,562,867 1,226,718 1,080,804 Rate ........................ 4.53% 4.73 4.89 - -------------------------------------------------------------------------------- Other: Balance ..................... $ 92,519 590,640 257,948 Rate ........................ 4.27% 5.76 6.09 - -------------------------------------------------------------------------------- Total short-term borrowings: Balance ..................... $3,693,927 3,650,931 3,581,173 Rate ........................ 4.58% 5.39 5.30 - -------------------------------------------------------------------------------- Average outstanding ........... $4,399,248 3,730,665 3,048,557 Maximum month-end balance ..................... $5,179,827 4,328,648 3,645,069 Weighted average interest rate ............... 5.25% 5.34 5.21 ================================================================================
A $3 billion senior and subordinated bank note facility was established in 1996. Short-term senior notes are offered with maturities ranging from 30 days to one year, are obligations of seven 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 five years to 30 years can be issued by the seven subsidiary banks, none of which are outstanding as of December 31, 1998 or 1997. At December 31, 1998, the Bancorp had issued $45,995,000 in commercial paper, with unused lines of credit of $40,000,000 available to support commercial paper transactions and other corporate requirements. 20 =============================================================================== 10 =============================================================================== FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS =============================================================================== NOTE 8-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) 1998 1997 1996 ================================================================================ Current U.S. income taxes ......... $161,250 138,445 104,357 State and local income taxes ...... 5,033 3,256 2,786 - -------------------------------------------------------------------------------- Total ............................. 166,283 141,701 107,143 - -------------------------------------------------------------------------------- Deferred U.S. income taxes resulting from temporary differences ..................... 83,859 90,857 80,417 - -------------------------------------------------------------------------------- Applicable income taxes ........... $250,142 232,558 187,560 ================================================================================
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) 1998 1997 - -------------------------------------------------------------------------------- Lease financing ........................ $474,240 368,526 Reserve for credit losses .............. (88,908) (84,969) Bank premises and equipment ............ 11,903 10,842 Unrealized gains on securities available for sale ................... 44,145 53,126 Other .................................. 12,923 31,900 - -------------------------------------------------------------------------------- Total net deferred tax liability ....... $454,303 379,425 - --------------------------------------------------------------------------------
A reconciliation between the statutory U.S. income tax rate and the Bancorp's effective tax rate:
- ------------------------------------------------------------------------------- 1998 1997 1996 =============================================================================== Statutory tax rate ....................... 35.0% 35.0 35.0 Increase (decrease) resulting from: Tax-exempt interest .................... (1.4) (1.6) (2.1) Other-net .............................. .8 .1 -- - ------------------------------------------------------------------------------- Effective tax rate ....................... 34.4% 33.5 32.9 ===============================================================================
Retained earnings at December 31, 1998 includes $116,996,000 in allocations of earnings for bad debt deductions of former 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 9-RELATED PARTY TRANSACTIONS At December 31, 1998 and 1997, 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 $122,002,000 and $139,451,000, respectively. During 1998, new loans aggregating $62,688,000 were made to such parties and loans aggregating $80,137,000 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 10-STOCK OPTIONS The Bancorp has historically emphasized employee stock ownership. Accordingly, the Bancorp encourages further ownership through granting stock options to approximately 17% of its employees. Share grants represented .9% to 1.6% of average outstanding shares in each of the last three years. Options can be granted under the Bancorp's 1998 Stock Option Plan to key employees and directors of the Bancorp and its subsidiaries for up to 15.16 million shares of the Bancorp's common stock. Options granted generally 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 the years ended December 31:
- -------------------------------------------------------------------------------- 1998 1997 1996 ------------------- ------------------- ------------------ Average Average Average Shares Option Shares Option Shares Option (000's) Price (000's) Price (000's) Price ================================================================================== Outstanding, beginning of year .... 11,098 $22.78 8,964 $ 16.67 7,834 $ 13.85 Exercised .... (1,332) 17.15 (1,343) 13.68 (1,059) 11.04 Expired ...... (382) 41.57 (218) 24.12 (197) 16.99 Granted ...... 4,198 55.74 3,695 34.35 2,386 23.48 ================================================================================== Outstanding, end of year ....... 13,582 $33.01 11,098 $ 22.78 8,964 $ 16.67 ================================================================================== Exercisable, end of year ....... 8,472 $25.37 6,929 $ 18.75 5,266 $ 13.82 ==================================================================================
As of December 31, 1998, options outstanding have exercise prices between $3.87 and $71.94 and a weighted average remaining contractual life of 7.4 years. The majority of options outstanding have exercise prices ranging from $15.48 to $55.29 with a weighted average remaining contractual life of 7.6 years At December 31, 1998, there were 6,856,372 incentive options and 6,725,654 nonqualified options outstanding and 11,141,577 shares were available for granting additional options. Options outstanding represent 5.1% of the Bancorp's issued shares at December 31, 1998. SFAS No. 123, "Accounting for Stock-Based Compensation," was adopted for 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 disclose pro forma net income and earnings per share amounts 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:
=============================================================================== 1998 1997 1996 =============================================================================== Pro forma net income ($000's) $447,617 448,705 378,027 Pro forma earnings per share $ 1.69 1.71 1.43 Pro forma diluted earnings per share $ 1.65 1.68 1.40 ===============================================================================
Compensation expense in the pro forma disclosures is not indicative of future amounts as options vest over several years and additional grants are generally made each year. The weighted average fair value of options granted was $20.44, $9.47 and $5.93 in 1998, 1997 and 1996, respectively. 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 1998, 1997 and 1996: expected option lives of nine years for all three years; expected dividend yield of 1%, 1% and 2%; expected volatility of 25%, 24% and 21% and risk-free interest rates of 4.6%, 5.4% and 6.5%, respectively. 21 11 =============================================================================== FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS =============================================================================== NOTE 11-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, Arizona and Florida, and to minimize exposure to fluctuations in interest and foreign exchange rates. These financial instruments primarily include commitments to extend credit, standby and commercial letters of credit, foreign exchange contracts, interest rate swap agreements, interest rate floors, interest rate caps, 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) 1998 1997 - --------------------------------------------------------------------------------- Commitments to extend credit ............... $7,444,472 6,137,251 Letters of credit (including standby letters of credit) ............... 1,198,767 863,462 Foreign exchange contracts: Commitments to purchase .................. 97,388 202,499 Commitments to sell ...................... 99,730 203,742 Interest rate swap agreements .............. 398,265 356,250 Interest rate floors ....................... 267,000 267,000 Interest rate caps ......................... 30,000 80,000 Purchased options .......................... 106,000 75,000 Commitments to sell residential mortgage loans ............... 319,700 473,168 =================================================================================
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, 1998, approximately $487,355,000 of standby letters of credit will expire within one year, $635,807,000 expire between one to five years and $57,329,000 expire thereafter. At December 31, 1998, letters of credit of approximately $18,276,000 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 generally entering into offsetting third-party forward contracts. The foreign exchange contracts outstanding at December 31, 1998 primarily 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, 1998, the Bancorp had purchased option contracts and interest rate floor agreements with notional values of $75 million and $222 million, respectively, to hedge a portion of the value of mortgage servicing rights against changes in value with changing prepayment rates. The options have an original term of five years 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). The Bancorp may receive a payment each quarter on the interest rate floor agreements if the reference index is below the strike rate established at the outset of each transaction. These contracts carry the risk of the counterparty's future ability to perform under the agreements. A market exposure limit is approved for counterparties, contracts are marked-to-market and exposures are collateralized in accordance with Bancorp policy. In 1997, the Bancorp entered into an interest rate swap agreement with a notional principal amount of $200 million in connection with the issuance of $200 million of long-term, fixed-rate capital-qualifying securities. The Bancorp receives fixed-rate payments at 8.136% and pays a variable interest rate based upon three-month LIBOR. As of December 31, 1998, the Bancorp had entered into interest rate swap agreements with commercial clients and an unconsolidated qualifying special-purpose entity with an aggregate notional principal amount of $43.5 million and $111.3 million, respectively. The agreements generally provide for the Bancorp to receive a fixed rate and pay a variable rate that resets periodically. The Bancorp has hedged its interest rate exposure on transactions with commercial clients by executing offsetting swap agreements with primary dealers. These transactions involve the exchange of fixed and floating interest rate payments without the exchange of the underlying principal amounts. Therefore, while notional principal amounts are typically used to express the volume of these transactions, they do not represent the much smaller amounts that are potentially subject to credit risk. Entering into interest rate swap agreements involves the risk of dealing with counterparties and their ability to meet the terms of the contract. The Bancorp controls the credit risk of these transactions through adherence to a derivative products policy, credit approval policies and monitoring procedures. The Bancorp sells, subject to recourse, certain commercial loans to an unconsolidated qualifying special-purpose entity. At December 31, 1998 and 1997, the outstanding balance of these loans was $1.1 billion and $468.5 million, respectively. The Bancorp did not repurchase any loans during 1998 or 1997. There are claims pending against the Bancorp and its subsidiaries. Based on a review of such litigation with legal counsel, management believes any resulting liability would not have a material effect upon the Bancorp's consolidated financial position or results of operations. 22 12 =============================================================================== FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS =============================================================================== NOTE 12-OTHER SERVICE CHARGES AND FEES AND OTHER OPERATING EXPENSES The major components for the years ended December 31:
- ------------------------------------------------------------------------------- ($000's) 1998 1997 1996 - ------------------------------------------------------------------------------- Other Service Charges and Fees: Cardholder fees .................... $ 29,572 28,084 25,283 Consumer loan and lease fees ....... 31,269 26,730 29,965 Commercial banking ................. 40,842 27,813 19,186 Mortgage banking ................... 72,412 46,098 47,290 Other .............................. 52,135 51,679 29,565 - ------------------------------------------------------------------------------- Total other service charges and fees ........................... $226,230 180,404 151,289 - ------------------------------------------------------------------------------- Other Operating Expenses: Marketing and communications ................... $ 46,997 42,078 37,797 Bankcard ........................... 47,125 34,501 26,206 Intangibles amortization ........... 27,392 24,965 23,105 Franchise taxes .................... 26,064 27,172 21,606 Loan and lease ..................... 24,343 17,136 18,696 Printing and supplies .............. 16,323 16,345 16,188 FDIC insurance ..................... 6,518 6,387 13,371 Other .............................. 95,940 93,011 73,128 - ------------------------------------------------------------------------------- Total other operating expenses ....... $290,702 261,595 230,097 - -------------------------------------------------------------------------------
NOTE 13-RETIREMENT AND BENEFIT PLANS A combined summary of the defined benefit retirement plans at and for the years ended December 31:
- -------------------------------------------------------------------------------- ($000's) 1998 1997 - ------------------------------------------------------------------------------- Change in benefit obligation: Projected benefit obligation at beginning of year .......................... $ 67,956 60,383 Service cost ............................... 2,617 3,387 Interest cost .............................. 4,666 4,560 Curtailment ................................ (17,571) -- Acquisition/divestiture .................... 18,605 -- Amendments ................................. 6,210 (521) Actuarial loss ............................. 9,774 9,382 Benefits paid .............................. (6,961) (9,235) - ------------------------------------------------------------------------------- Projected benefit obligation at end of year .................................. $ 85,296 67,956 - ------------------------------------------------------------------------------- Change in plan assets: Fair value of plan assets at beginning of year ......................... $ 97,333 74,496 Actual return on assets ................... 20,296 30,923 Employer contributions .................... 22,036 1,149 Benefits paid ............................. (6,961) (9,235) - ------------------------------------------------------------------------------- Fair value of plan assets at end of year ....... $ 132,704 97,333 - ------------------------------------------------------------------------------- Funded status .................................. $ 47,408 29,377 Unrecognized transition amount ................. (1,322) (1,706) Unrecognized actuarial gain .................... (26,055) (21,400) Unrecognized prior service cost ................ 5,867 644 - ------------------------------------------------------------------------------- Net amount recognized .......................... $ 25,898 6,915 - ------------------------------------------------------------------------------- Amounts recognized in the Consolidated Balance Sheets consist of: Prepaid benefit cost ........................... $ 35,903 16,174 Accrued benefit liability ...................... (10,005) (9,908) Intangible asset ............................... -- 649 - ------------------------------------------------------------------------------- Net amount recognized .......................... $ 25,898 6,915 - -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- ($000's) 1998 1997 1996 ================================================================================ Components of net periodic pension cost: Service cost .......................... $ 2,617 3,387 3,278 Interest cost ......................... 4,666 4,560 4,057 Curtailment ........................... (12,230) -- -- Expected return on assets ............. (8,740) (6,518) (6,136) Amortization and deferral of transition amount .............................. (384) (384) (384) Amortization of actuarial loss/(gain) . (1,266) 30 174 Amortization of unrecognized prior service cost ........................ 253 65 (99) - -------------------------------------------------------------------------------- Net periodic pension cost (benefit) ..... $(15,084) 1,140 890 ================================================================================
Plan assets consist primarily of common trust and mutual funds managed by Fifth Third Bank, listed stocks and U.S. bonds.
================================================================================ 1998 1997 1996 ================================================================================ Weighted-average assumptions: For disclosure: Discount rate ................................ 6.75% 7.25 7.75 Rate of compensation increase ................ 5.18 5.34 5.33 For measuring net periodic pension cost: Discount rate ................................ 7.25 7.75 7.25 Rate of compensation increase ................ 5.34 5.33 5.00 Expected return on plan assets ............... 9.00 9.00 9.00 - -------------------------------------------------------------------------------
During 1998, to emphasize 401(k) and employee matching, the Bancorp froze its defined benefit pension plan and all benefits earned to date became fully vested. For the Bancorp's nonqualified supplemental defined benefit plans with an accumulated benefit obligation exceeding assets, the total projected benefit obligation, accumulated benefit obligation and fair value of plan assets were $10,759,000, $8,302,000 and $0, respectively as of December 31, 1998 and $13,522,000, $6,670,000 and $0, respectively as of December 31, 1997. The Bancorp's profit sharing plan contribution was $25,033,000 for 1998, $25,638,000 for 1997 and $23,788,000 for 1996. NOTE 14-REGULATORY MATTERS The principal source of income and funds for the Bancorp (parent company) are dividends from its subsidiaries. During 1999, the amount of dividends the subsidiaries can pay to the Bancorp without prior approval of regulatory agencies is limited to their 1999 eligible net profits, as defined, and the adjusted retained 1998 and 1997 net income of the subsidiaries. The banks must maintain noninterest-bearing cash balances on reserve with the Federal Reserve Bank. In 1998 and 1997, the banks were required to maintain average reserve balances of $267,731,000 and $232,666,000, 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 shareholders' equity including capital-qualifying subordinated debt but 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%, 23 =============================================================================== 13 =============================================================================== FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS =============================================================================== respectively. The Bancorp and each of its subsidiaries had Tier 1, total capital and leverage ratios above the well-capitalized levels at December 31, 1998 and 1997. The risk-based capital ratios of certain affiliates have been computed on a pro forma basis to include inter-affiliate mergers which were approved by the appropriate regulatory agencies prior to year end and occurred in the following January. As of December 31, 1998, 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:
- ------------------------------------------------------------------------------- 1998 --------------------- ($000's) Amount Ratio - ------------------------------------------------------------------------------- Total Capital (to Risk-Weighted Assets): Fifth Third Bancorp (Consolidated) .................... $3,440,000 14.22% Fifth Third Bank, Cincinnati .......................... 1,221,000 10.71 Fifth Third Bank, Northwestern Ohio, N.A........ ...... 434,000 13.75 Fifth Third Bank, Kentucky, Inc. ...................... 199,000 14.59 Fifth Third Bank, Western Ohio ........................ 366,000 10.29 Fifth Third Bank, Central Ohio ........................ 303,000 12.04 Tier 1 Capital (to Risk-Weighted Assets): Fifth Third Bancorp (Consolidated) .................... 2,925,000 12.09 Fifth Third Bank, Cincinnati .......................... 787,000 6.90 Fifth Third Bank, Northwestern Ohio, N.A............... 299,000 9.46 Fifth Third Bank, Kentucky, Inc. ...................... 182,000 13.35 Fifth Third Bank, Western Ohio ........................ 302,000 8.49 Fifth Third Bank, Central Ohio ........................ 272,000 10.77 Tier 1 Leverage Capital (to Average Assets): Fifth Third Bancorp (Consolidated) .................... 2,925,000 10.39 Fifth Third Bank, Cincinnati .......................... 787,000 7.46 Fifth Third Bank, Northwestern Ohio,................... 299.000 5.95 Fifth Third Bank, Kentucky, Inc. ...................... 182,000 8.55 Fifth Third Bank, Western Ohio ........................ 302,000 6.39 Fifth Third Bank, Central Ohio ........................ 272,000 7.69 ===============================================================================
- ------------------------------------------------------------------------------- 1997 -------------------- ($000's) Amount Ratio - ------------------------------------------------------------------------------- Total Capital (to Risk-Weighted Assets): Fifth Third Bancorp (Consolidated) .................... $3,076,000 13.54% Fifth Third Bank, Cincinnati .......................... 1,084,000 13.80 Fifth Third Bank, Northwestern Ohio, N.A............... 411,000 12.12 Fifth Third Bank, Kentucky, Inc. ...................... 179,000 11.88 Fifth Third Bank, Western Ohio ........................ 378,000 12.00 Fifth Third Bank, Central Ohio ........................ 298,000 11.68 Tier 1 Capital (to Risk-Weighted Assets): Fifth Third Bancorp (Consolidated) .................... 2,541,000 11.19 Fifth Third Bank, Cincinnati .......................... 681,000 8.67 Fifth Third Bank, Northwestern Ohio, N.A............... 270,000 7.96 Fifth Third Bank, Kentucky, Inc. ...................... 160,000 10.63 Fifth Third Bank, Western Ohio ........................ 316,000 10.02 Fifth Third Bank, Central Ohio ........................ 266,000 10.43 Tier 1 Leverage Capital (to Average Assets): Fifth Third Bancorp (Consolidated) .................... 2,541,000 9.50 Fifth Third Bank, Cincinnati .......................... 681,000 7.64 Fifth Third Bank, Northwestern Ohio, N.A............... 270,000 5.47 Fifth Third Bank, Kentucky, Inc. ...................... 160,000 7.90 Fifth Third Bank, Western Ohio ........................ 316,000 5.80 Fifth Third Bank, Central Ohio ........................ 266,000 7.32 ================================================================================
NOTE 15-NONOWNER CHANGES IN EQUITY Reclassification adjustments, related tax effects allocated to nonowner changes in equity and accumulated nonowner changes in equity as of and for the years ended December 31:
- ------------------------------------------------------------------------------- ($000's) 1998 1997 1996 - ------------------------------------------------------------------------------- Reclassification adjustment, pretax: Change in unrealized gains arising during year ................... $(34,274) 128,528 (15,938) Reclassification adjustment for gains in net income ................... 9,843 5,802 6,182 - ------------------------------------------------------------------------------- Change in unrealized gains on securities available for sale ......... $(24,431) 134,330 (9,756) - ------------------------------------------------------------------------------- Related tax effects: Change in unrealized gains arising during year ................... $(12,100) 45,346 (5,744) Reclassification adjustment for gains in net income ................... 3,475 2,047 2,228 - ------------------------------------------------------------------------------- Change in unrealized gains on securities available for sale ......... $ (8,625) 47,393 (3,516) - ------------------------------------------------------------------------------- Reclassification adjustment, net of tax: Change in unrealized gains arising during year ................... $(22,174) 83,182 (10,194) Reclassification adjustment for gains in net income ................... 6,368 3,755 3,954 - ------------------------------------------------------------------------------- Change in unrealized gains on securities available for sale ......... $(15,806) 86,937 (6,240) - ------------------------------------------------------------------------------- Accumulated nonowner changes in equity: Beginning balance -- Unrealized gains on securities available for sale ......... $ 98,254 11,317 17,557 Current period change (15,806) 86,937 (6,240) - ------------------------------------------------------------------------------- Ending balance -- Unrealized gains on securities available for sale ......... $ 82,448 98,254 11,317 ================================================================================
NOTE 16-ACQUISITIONS
- --------------------------------------------------------------------------------- Consideration -------------------- Common Date Cash Shares Method of Completed ($000's) Issued Accounting - ---------------------------------------------------------------------------------- CitFed Bancorp, Inc. 6/26/1998 $ 51 13,222,869 Pooling Dayton, Ohio State Savings Company 6/19/1998 4 16,625,271 Pooling Columbus, Ohio The Ohio Company 6/12/1998 2 1,862,765 Purchase Columbus, Ohio W. Lyman Case 4/9/1998 15,000 -- Purchase and Company Columbus, Ohio Heartland Capital 11/24/1997 -- 351,004 Purchase Management, Inc. Indianapolis, Indiana Suburban 7/25/1997 11 870,218 Purchase Bancorporation, Inc. Cincinnati, Ohio Kentucky Enterprise 3/15/1996 36 3,884,142 Pooling Bancorp, Inc. Newport, Kentucky =================================================================================
In June 1998, the Bancorp acquired CitFed, a publicly-traded savings and loan holding company headquartered in Dayton, Ohio with $3.1 billion in assets, and State, 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-interests. Accordingly, the assets, liabilities and shareholders' equity of CitFed and State were recorded 24 14 =============================================================================== FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS =============================================================================== on the books of the Bancorp at their values as reported on the books of CitFed and State immediately prior to the consummation of the merger with the Bancorp. This presentation required the restatements of prior periods as if the companies had been combined for all years presented. The contributions of CitFed and State to consolidated net interest income, other operating income and net income for the periods prior to the mergers were as follows:
- -------------------------------------------------------------------------------- Three Months Ended March 31, Years Ended 1998 December 31, ($000's) (unaudited) 1997 1996 Net Interest Income - -------------------------------------------------------------------------------- Fifth Third Bancorp ............. $197,900 744,962 689,244 CitFed Bancorp, Inc. ............ 19,614 73,015 66,919 State Savings Company ........... 25,340 94,273 84,870 - -------------------------------------------------------------------------------- Combined ........................ $242,854 912,250 841,033 - -------------------------------------------------------------------------------- Other Operating Income - -------------------------------------------------------------------------------- Fifth Third Bancorp ............. $126,381 445,461 368,415 CitFed Bancorp, Inc. ............ 7,804 33,494 28,275 State Savings Company ........... 5,935 22,814 22,217 - -------------------------------------------------------------------------------- Combined ........................ $140,120 501,769 418,907 - -------------------------------------------------------------------------------- Net Income - -------------------------------------------------------------------------------- Fifth Third Bancorp ............. $108,981 401,237 335,059 CitFed Bancorp, Inc. ............ 7,803 26,568 15,162 State Savings Company ........... 7,447 33,053 32,123 - -------------------------------------------------------------------------------- Combined ........................ $124,231 460,858 382,344 - --------------------------------------------------------------------------------
The combined consolidated results of operations are not necessarily indicative of the results that would have occurred had the acquisitions been consummated in the past or which may be attained in the future. In the second quarter of 1998 as a direct result of the CitFed and State acquisitions, the Bancorp recorded merger-related costs of $106.4 million ($75.6 million after tax), of which $89.7 million was recorded as operating expense and $16.7 million was recorded as additional provision for credit losses. The charge to operating expenses consisted of employee benefit obligations, costs to eliminate duplicate facilities and equipment, contract terminations, conversion expenses and professional fees. The additional provision for credit losses conformed CitFed and State to the Bancorp's reserving and charge-off practices.
- -------------------------------------------------------------------------------- ($000's) 1998 - -------------------------------------------------------------------------------- Employee benefit obligations ................................ $49,179 Duplicate facilities and equipment .......................... 16,610 Conversion expenses and professional fees ......................................... 13,014 Contract termination costs .................................. 2,947 Other ....................................................... 7,951 - -------------------------------------------------------------------------------- Merger-related charge ....................................... $89,701 - --------------------------------------------------------------------------------
During 1998, merger-related costs incurred and charged against the accrual were $60.6 million. As of December 31, 1998, the merger-related reserve was $29.1 million, which is primarily associated with disposition of duplicate facilities and certain employee benefit obligations. On June 12, 1998, the Bancorp acquired The Ohio Company, a full-service broker-dealer for retail and institutional clients headquartered in Columbus, Ohio. On April 9, 1998, the Bancorp acquired W. Lyman Case & Company, a commercial mortgage banking firm based in Columbus, Ohio which originated more than $680 million in financing and equity transactions in 1998 and has a loan servicing portfolio of $2 billion. The transactions were accounted for as purchases. The financial results of The Ohio Company and W. Lyman Case & Company, included in the results of operations subsequent to the date of the acquisitions, were not material to the Bancorp's financial condition and operating results for the periods presented. The pro forma effect of acquisitions accounted for as purchases was not material. NOTE 17-EARNINGS PER SHARE Reconciliation of Earnings Per Share to Diluted Earnings Per Share for the Years Ended December 31:
- --------------------------------------------------------------------------------- 1998 ------------------------------------ Average Per-Share ($000's) Income Shares Amount - --------------------------------------------------------------------------------- EPS Income available to common shareholders ................ $476,128 265,338 $1.80 Effect of Dilutive Securities Stock Options ........................ 5,336 - --------------------------------------------------------------------------------- Diluted EPS Income available to common shareholders plus assumed conversions ........... $476,128 270,674 $1.76 - ---------------------------------------------------------------------------------
- --------------------------------------------------------------------------------- 1997 ------------------------------------ Average Per-Share ($000's) Income Shares Amount - --------------------------------------------------------------------------------- EPS Income available to common shareholders ................ $460,858 262,338 $1.76 Effect of Dilutive Securities Stock Options ........................ 4,342 - --------------------------------------------------------------------------------- Diluted EPS Income available to common shareholders plus assumed conversions ........... $460,858 266,680 $1.73 - ---------------------------------------------------------------------------------
- --------------------------------------------------------------------------------- 1996 ------------------------------------ Average Per-Share ($000's) Income Shares Amount - --------------------------------------------------------------------------------- EPS Income available to common shareholders ................ $382,344 263,523 $1.45 Effect of Dilutive Securities Stock Options ........................ 2,810 Interest on 4 1/4% convertible subordinated notes due 1998, net of applicable income taxes ....................... 1,637 3,111 - -------------------------------------------------------------------------------- Diluted EPS Income available to common shareholders plus assumed conversions ........... $383,981 269,444 $1.42 - --------------------------------------------------------------------------------
25 ================================================================================ 15 =============================================================================== FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS =============================================================================== NOTE 18-FAIR VALUE OF FINANCIAL INSTRUMENTS Carrying amounts and estimated fair values for financial instruments at December 31:
=============================================================================== 1998 ------------------------- Carrying Fair ($000's) Amount Value =============================================================================== FINANCIAL ASSETS Cash and due from banks ..................... $ 819,862 819,862 Securities available for sale ............... 8,334,625 8,334,625 Securities held to maturity ................. 86,013 86,015 Other short-term investments ................ 118,535 118,535 Loans held for sale ......................... 492,017 497,335 Loans, net .................................. 13,895,672 14,079,156 Accrued interest receivable ................. 282,551 282,551 FINANCIAL LIABILITIES Deposits .................................... 18,780,355 17,815,852 Federal funds borrowed ...................... 2,038,541 2,038,541 Other short-term borrowings ................. 1,655,386 1,655,386 Accrued interest payable .................... 80,929 80,929 Long-term debt .............................. 2,288,151 2,358,612 OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS Commitments to extend credit ................ 607 8,848 Letters of credit ........................... 2,936 12,946 Purchased options ........................... 3,660 3,670 Interest rate swap agreements ............... -- 34,065 Interest rate floors ........................ 3,629 3,684 Interest rate caps .......................... 170 6 Forward contracts: Commitments to sell loans ................. -- 795 Foreign exchange contracts: Commitments to purchase ................. -- 2,486 Commitments to sell ..................... -- (2,087) ===============================================================================
1997 --------------------------- Carrying Fair ($000's) Amount Value ================================================================================ FINANCIAL ASSETS Cash and due from banks ................... $ 777,378 777,378 Securities available for sale ............. 8,139,465 8,139,465 Securities held to maturity ............... 85,010 85,375 Other short-term investments .............. 180,425 180,425 Loans held for sale ....................... 263,772 265,113 Loans, net ................................ 14,006,741 14,098,628 Accrued interest receivable ............... 212,949 212,949 FINANCIAL LIABILITIES Deposits .................................... 19,019,896 19,034,149 Federal funds borrowed ...................... 1,278,573 1,278,573 Short-term bank notes ....................... 555,000 555,000 Other short-term borrowings ................. 1,817,358 1,817,358 Accrued interest payable .................... 83,900 83,900 Long-term debt .............................. 1,508,683 1,659,878 OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS Commitments to extend credit ................ 127 5,304 Letters of credit ........................... 3,225 9,777 Purchased options ........................... 2,185 2,185 Interest rate swap agreements ............... 1 18,849 Interest rate floors ........................ 1,482 1,503 Interest rate caps .......................... 527 159 Forward contracts: Commitments to sell loans ................. -- 608 Foreign exchange contracts: Commitments to purchase ................. -- (7,076) Commitments to sell ..................... -- 7,271 ================================================================================
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 a 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, accrued interest receivable, certain deposits (demand, interest checking, savings and money market), Federal funds borrowed, short-term bank notes, other short-term borrowings and accrued interest payable. 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. LOANS HELD FOR SALE-the fair value of loans held for sale is estimated based on outstanding commitments from investors or current investor yield requirements. 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-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. INTEREST RATE SWAP AGREEMENTS-fair value was based on the estimated amount the Bancorp would receive or pay to terminate the swap agreements, taking into account the current interest rates and the creditworthiness of the swap counterparties. The fair values represent an asset at December 31, 1998. PURCHASED OPTIONS AND INTEREST RATE FLOORS AND CAPS-fair values were based on the estimated amounts the Bancorp would receive from terminating the contracts at the reporting date. FOREIGN EXCHANGE CONTRACTS-fair values were based on quoted market prices of comparable instruments and represent a net asset to the Bancorp. 26 =============================================================================== 16 =============================================================================== 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 1998 1997 1996 - -------------------------------------------------------------------------------------- Income Dividends from Subsidiaries ........ $ 442,427 562,909 367,008 Interest on Loans to Subsidiaries ..................... 26,969 8,135 3,932 Securities Gains (Losses) .......... -- (248) 215 Other .............................. 1,644 2,805 2,381 ====================================================================================== Total Income ....................... 471,040 573,601 373,536 ====================================================================================== Expenses Interest ........................... 15,618 13,793 6,240 Other .............................. 25,201 11,622 5,438 Total Expenses ..................... 40,819 25,415 11,678 - -------------------------------------------------------------------------------------- Income Before Taxes and Change in Undistributed Earnings of Subsidiaries ......... 430,221 548,186 361,858 Applicable Income Tax Benefit ...... (2,879) (3,606) (1,428) ====================================================================================== Income Before Change in Undistributed Earnings of Subsidiaries ..................... 433,100 551,792 363,286 Increase (Decrease) in Undistributed Earnings of Subsidiaries ......... 43,028 (90,934) 19,058 - -------------------------------------------------------------------------------------- Net Income ......................... $ 476,128 460,858 382,344 ======================================================================================
================================================================================= Condensed Balance Sheets (Parent Company Only) December 31 1998 1997 ================================================================================= Assets Cash ........................................... $ 151 1,459 Interest-Bearing Deposits ...................... 11,860 70,085 Securities Available for Sale .................. -- 3,435 Loans to Subsidiaries .......................... 832,646 533,122 Investment in Subsidiaries ..................... 2,627,273 2,431,283 Goodwill ....................................... 9,874 10,629 Other Assets ................................... 6,495 18,252 - --------------------------------------------------------------------------------- Total Assets ................................... $3,488,299 3,068,265 ================================================================================= Liabilities Commercial Paper ............................... $ 45,995 28,314 Accrued Expenses and Other Liabilities ......... 63,782 40,794 Long-Term Debt ................................. 200,000 236,321 - --------------------------------------------------------------------------------- Total Liabilities .............................. 309,777 305,429 - --------------------------------------------------------------------------------- Shareholders' Equity ........................... 3,178,522 2,762,836 - --------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity ......................... $3,488,299 3,068,265 =================================================================================
================================================================================ Condensed Statements of Cash Flows (Parent Company Only) For the Years Ended December 31 1998 1997 1996 ================================================================================ OPERATING ACTIVITIES Net Income ........................... $ 476,128 460,858 382,344 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Amortization ..................... 755 949 1,931 Provision for Deferred Income Taxes ................... (3,226) 1,599 (169) Securities (Gains) Losses ........ -- 248 (215) Decrease (Increase) in Other Assets ................... 11,757 (5,868) (10,056) Increase (Decrease) in Accrued Expenses and Other Liabilities . 7,400 5,709 (3,416) Decrease (Increase) in Undistributed Earnings of Subsidiaries ................... (43,028) 90,934 (19,058) - --------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES ............... 449,786 554,429 351,361 - --------------------------------------------------------------------------------- Investing Activities Proceeds from Sales of Securities Available for Sale ...... 3,435 8,074 11,117 Net Decrease (Increase) in Interest-Bearing Deposits .......... 58,225 (37,898) (28,555) Decrease (Increase) in Loans to Subsidiaries .................... (299,524) (229,090) 73,027 Capital Contributions to Subsidiaries (80,067) (105,015) (266,775) - --------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES ............... (317,931) (363,929) (211,186) ================================================================================ FINANCING ACTIVITIES Increase (Decrease) in Other Short-Term Borrowings .............. 17,681 1,037 (40,285) Proceeds from Issuance of Long-Term Debt .................. -- 200,000 -- Repayment of Long-Term Debt .......... (36,321) (3,729) (230) Payment of Cash Dividends ............ (167,896) (133,857) (113,869) Purchases of Treasury Stock .......... (143,890) (276,307) (3,096) Exercise of Stock Options ............ 22,182 19,230 12,588 Proceeds from Sale of Common Stock ....................... 178,125 -- -- Other ................................ (3,044) 3,922 4,416 ================================================================================ NET CASH USED IN FINANCING ACTIVITIES ............... (133,163) (189,704) (140,476) ================================================================================ INCREASE (DECREASE) IN CASH .......... (1,308) 796 (301) CASH AT BEGINNING OF YEAR ............ 1,459 663 964 ================================================================================ CASH AT END OF YEAR .................. $ 151 1,459 663 ================================================================================
27 17 =============================================================================== FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS =============================================================================== NOTE 20-SEGMENTS The Bancorp's principal activities include Retail Banking, Commercial Banking, Investment Advisory Services and Data Processing. Retail Banking provides a full range of deposit products and consumer loans and leases. Commercial Banking offers services to business, government and professional customers. Investment Advisory Services provides a full range of investment alternatives for individuals, companies and not-for-profit organizations. Data Processing, through Midwest 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. Results of operations and selected financial information by operating segment for each of the three years ended December 31:
- ----------------------------------------------------------------------------------------------------------------------------------- INVESTMENT DATA GENERAL COMMERCIAL RETAIL ADVISORY PROCESS- ACQUIRED CORPORATE ELIMINA- ($000'S) BANKING BANKING SERVICES ING (a) ENTITIES AND OTHER TIONS (a) TOTAL - ----------------------------------------------------------------------------------------------------------------------------------- 1998 RESULTS OF OPERATIONS - ----------------------------------------------------------------------------------------------------------------------------------- Net Interest Income (Expense)....... $ 373,121 560,290 16,676 -- 68,402 (15,665) -- 1,002,824 Provision for Credit Losses......... 48,464 37,142 -- -- 23,565 -- -- 109,171 - ----------------------------------------------------------------------------------------------------------------------------------- Net Interest Income After Provision for Credit Losses................. 324,657 523,148 16,676 -- 44,837 (15,665) -- 893,653 Other Operating Income.............. 109,941 220,525 133,064 152,697 24,667 9,843 (14,543) 636,194 Merger-Related Charges.............. -- -- -- -- 89,701 -- -- 89,701 Operating Expenses.................. 175,280 350,644 66,148 83,414 52,933 -- (14,543) 713,876 =================================================================================================================================== Income Before Income Taxes.......... 259,318 393,029 83,592 69,283 (73,130) (5,822) -- 726,270 Applicable Income Taxes............. 89,314 135,367 28,791 22,863 (20,476) (5,717) -- 250,142 =================================================================================================================================== Net Income.......................... $ 170,004 257,662 54,801 46,420 (52,654) (105) -- 476,128 =================================================================================================================================== SELECTED FINANCIAL INFORMATION =================================================================================================================================== Identifiable Assets................. $7,713,305 16,925,852 374,716 86,888 -- 3,821,021 28,921,782 Capital Expenditures................ $ 6,110 49,650 977 7,849 3,209 -- 67,795 Depreciation and Amortization....... $ 972 24,518 1,358 5,231 3,391 -- 35,470 =================================================================================================================================== - ----------------------------------------------------------------------------------------------------------------------------------- 1997 RESULTS OF OPERATIONS - ----------------------------------------------------------------------------------------------------------------------------------- Net Interest Income................. $ 289,305 438,424 16,722 -- 167,288 511 -- 912,250 Provision for Credit Losses......... 15,814 64,254 -- -- 9,753 274 -- 90,095 =================================================================================================================================== Net Interest Income After Provision for Credit Losses................. 273,491 374,170 16,722 -- 157,535 237 -- 822,155 Other Operating Income.............. 83,925 152,532 90,169 120,011 56,308 6,329 (7,505) 501,769 Operating Expenses.................. 137,604 261,715 45,970 68,374 124,350 -- (7,505) 630,508 - ----------------------------------------------------------------------------------------------------------------------------------- Income Before Income Taxes.......... 219,812 264,987 60,921 51,637 89,493 6,566 -- 693,416 Applicable Income Taxes............. 73,769 88,931 20,445 17,040 29,872 2,501 -- 232,558 - ----------------------------------------------------------------------------------------------------------------------------------- Net Income.......................... $ 146,043 176,056 40,476 34,597 59,621 4,065 -- 460,858 =================================================================================================================================== SELECTED FINANCIAL INFORMATION =================================================================================================================================== Identifiable Assets................. $6,414,176 12,090,061 330,119 73,431 6,335,619 2,467,267 27,710,673 Capital Expenditures................ $ 3,368 34,089 1,652 3,490 18,127 -- 60,726 Depreciation and Amortization....... $ 663 19,630 1,075 2,638 7,463 -- 31,469 =================================================================================================================================== - ----------------------------------------------------------------------------------------------------------------------------------- 1996 RESULTS OF OPERATIONS =================================================================================================================================== Net Interest Income................. $ 274,543 387,117 13,599 -- 151,789 13,985 -- 841,033 Provision for Credit Losses......... 18,923 47,563 -- -- 4,368 (2,472) -- 68,382 - ----------------------------------------------------------------------------------------------------------------------------------- Net Interest Income After Provision for Credit Losses................. 255,620 339,554 13,599 -- 147,421 16,457 -- 772,651 Other Operating Income.............. 55,831 145,793 74,032 94,936 50,492 4,564 (6,741) 418,907 SAIFAssessment...................... -- -- -- -- 21,255 16,612 -- 37,867 Operating Expenses.................. 133,858 253,949 39,435 56,217 107,069 -- (6,741) 583,787 - ----------------------------------------------------------------------------------------------------------------------------------- Income Before Income Taxes.......... 177,593 231,398 48,196 38,719 69,589 4,409 -- 569,904 Applicable Income Taxes............. 58,659 76,431 15,919 12,777 22,304 1,470 -- 187,560 - ----------------------------------------------------------------------------------------------------------------------------------- Net Income.......................... $ 118,934 154,967 32,277 25,942 47,285 2,939 -- 382,344 =================================================================================================================================== SELECTED FINANCIAL INFORMATION =================================================================================================================================== Identifiable Assets ................ $5,856,505 11,559,492 308,445 62,447 5,527,599 2,762,109 26,076,597 Capital Expenditures................ $ 3,801 30,409 1,714 4,403 8,278 -- 48,605 Depreciation and Amortization....... $ 528 17,644 892 2,625 5,684 -- 27,373 ===================================================================================================================================
(a) Data processing service revenues provided to the banking segments by MPS are eliminated in the Consolidated Statements of Income. 28 18 =============================================================================== FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS =============================================================================== The financial information for each operating segment is reported on the basis used internally by the Bancorp's management to evaluate performance and allocate resources. 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 operating 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. During the second quarter of 1998, the Bancorp acquired CitFed and State. The operations of Citfed and State, primarily attracting deposits and originating residential and commercial real estate loans, were mainly retail in nature. Prior to acquisition, the Bancorp's management did not allocate resources to or assess the ongoing operating performance of the acquired entities. Therefore, financial information prior to acquisition is shown separately. Following acquisition, results of operations are included in the Bancorp's segment information. Capital expenditures consisted primarily of investments in data processing equipment, including new mainframe and network computer technology, software, operations equipment and the Retail Banking distribution network. Much of the Bancorp's efficiency is attributable to the fact each of the operating segments share the benefits of improvements in data processing technology and equipment improvements. Most of these capital expenditures were separated or divided among individual segments. The cost of centralized data processing and operations is allocated to each operating segment based on various measures of usage and the corresponding expense is included in the determination of segment operating results as disclosed on the previous page. INDEPENDENT AUDITORS' REPORT To the Shareholders 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, 1998 and 1997, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Companies at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Cincinnati, Ohio January 15, 1999 29 19 ================================================================================ FIFTH THIRD BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS =============================================================================== 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 Bancorp operates, prevailing interest rates, changes in government regulations and policies affecting financial services companies, credit quality and credit risk management, changes in the banking industry including the effects of consolidation resulting from possible mergers of financial institutions, acquisitions and integration of acquired businesses. 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. The data presented in the following pages should be read in conjunction with the audited Consolidated Financial Statements on pages 13 to 29 of this report. RESULTS OF OPERATIONS SUMMARY Net income advanced by 3.3% in 1998 and 20.5% in 1997. The Bancorp's net income to average assets, referred to as return on average assets (ROA), and return on average shareholders' equity (ROE) follow:
- ------------------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 =========================================================================================== Net income ($000's) .... $ 476,128 460,858 382,344 330,447 275,625 Earnings per share (a) . $ 1.80 1.76 1.45 1.31 1.12 Diluted earnings per share (a) ............ $ 1.76 1.73 1.42 1.27 1.08 ROA (b) ................ 1.93% 1.74 1.64 1.58 1.54 ROE (b) ................ 18.7% 18.4 17.4 17.0 16.9 Overhead ratio (b) ..... 42.3% 43.3 45.0 46.6 49.2 Originally reported (c): ROA .................. 1.93% 1.96 1.78 1.78 1.77 ROE .................. 18.7% 19.6 17.8 18.1 18.6 Overhead ratio (b) ... 42.3% 41.0 43.5 43.9 46.6 ============================================================================================
TABLE 1-CONSOLIDATED AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME For the Years Ended December 31 (Taxable Equivalent Basis)
- ------------------------------------------------------------------------------------------------------------------------------ 1998 1997 =================================== =================================== 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 $17,952,333 $1,494,945 8.33% $16,724,010 $1,402,087 8.38% Securities Taxable 8,282,131 547,435 6.61 7,622,291 523,231 6.86 Exempt from Income Taxes 261,224 17,804 6.82 276,058 20,730 7.51 Other Short-Term Investments 199,578 7,648 3.83 292,663 16,452 5.62 - ------------------------------------------------------------------------------------------------------------------------------ Total Interest-Earning Assets 26,695,266 2,067,832 7.75 24,915,022 1,962,500 7.88 ============================================================================================================================== Cash and Due from Banks 710,596 599,468 Other Assets 1,369,789 1,149,927 Reserve for Credit Losses (257,173) (237,159) - ------------------------------------------------------------------------------------------------------------------------------ Total Assets $28,518,478 $26,427,258 ============================================================================================================================== Liabilities Interest-Bearing Liabilities Interest Checking $ 2,777,460 65,940 2.37 $ 2,347,010 57,919 2.47 Savings 3,382,032 116,010 3.43 2,449,128 80,722 3.30 Money Market 1,085,910 33,845 3.12 1,969,670 74,621 3.79 Other Time Deposits 6,936,533 378,084 5.45 7,407,317 414,094 5.59 Certificates-$100,000 and Over 1,474,693 81,168 5.50 1,256,952 71,462 5.69 Foreign Office Deposits 232,381 12,708 5.47 401,741 22,212 5.53 Federal Funds Borrowed 2,208,493 115,940 5.25 1,464,945 81,196 5.54 Short-Term Bank Notes 461,795 26,033 5.64 658,140 36,852 5.60 Other Short-Term Borrowings 1,728,960 89,025 5.15 1,607,580 81,048 5.04 Long-Term Debt and Convertible Subordinated Notes 1,751,926 97,100 5.54 1,410,182 86,707 6.15 ============================================================================================================================== Total Interest-Bearing Liabilities 22,040,183 1,015,853 4.61 20,972,665 1,006,833 4.80 - ------------------------------------------------------------------------------------------------------------------------------ Demand Deposits 2,728,211 2,329,135 Other Liabilities 803,905 619,627 ============================================================================================================================== Total Liabilities 25,572,299 23,921,427 - ------------------------------------------------------------------------------------------------------------------------------ Shareholders' Equity 2,946,179 2,505,831 - ------------------------------------------------------------------------------------------------------------------------------ Total Liabilities and Shareholders' Equity $28,518,478 $26,427,258 ============================================================================================================================== Net Interest Income Margin on a Taxable Equivalent Basis $1,051,979 3.94% $ 955,667 3.84% ============================================================================================================================== Net Interest Rate Spread 3.14% 3.08% ============================================================================================================================== Interest-Bearing Liabilities to Interest-Earning Assets 82.56% 84.18% ==============================================================================================================================
31 ================================================================================ 20 ================================================================================ FIFTH THIRD BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS =============================================================================== (a) Per share amounts have been adjusted for the three-for-two stock splits effected in the form of stock dividends paid April 15, 1998, July 15, 1997 and January 12, 1996. (b) For comparability, certain financial ratios exclude the impact of 1998 merger-related items of $106.4 million pretax ($75.6 million after tax or $.28 per share) and the impact of the 1996 special SAIF assessment of $37.9 million pretax ($24.6 million after tax or $.09 per share). (c) Excludes the results of the Citfed Bancorp, Inc. and State Savings Company poolings prior to 1998. NET INTEREST INCOME Net interest income is the difference between interest income on earning assets such as loans, leases and securities, and interest expense paid on liabilities such as deposits and borrowings, and continues to be the Bancorp's largest revenue source. Net interest income is affected by the general level of interest rates, changes in interest rates and by changes in the amount and composition of interest-earning assets and interest-bearing liabilities. The relative performance of the lending and deposit-raising functions is frequently measured by two statistics--net interest margin and net interest rate spread. The net interest margin is determined by dividing fully-taxable equivalent net interest revenue by average earning assets. The net interest rate spread is the difference between the average fully-taxable equivalent yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities. The net interest margin is generally greater than the net interest rate spread due to the additional income earned on those assets funded by non-interest-bearing liabilities, or free funding, such as demand deposits and shareholders' 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 1994 through 1998, comparing interest revenue, average interest-bearing liabilities and average free funding outstanding. Each of these measures is reported on a fully-taxable equivalent basis. Nonaccrual loans and leases and loans held for sale have been included in the average loan and lease balances. Average outstanding securities balances are based upon amortized cost excluding any unrealized gains or losses on securities available for sale. Net interest income rose 10.1% to $1.1 billion in 1998 from $956 million in 1997. The improvement in 1998's net interest income was attributable to a higher level of average interest-earning assets, improvement in the funding mix and the favorable
- ------------------------------------------------------------------------------------------------------------------------------ 1996 1995 1994 ===================================== ======================================== ===================================== Average Average Average Average Average Average Out- Revenue/ Yield/ Out- Revenue/ Yield/ Out- Revenue/ Yield/ standing Cost Rate standing Cost Rate standing Cost Rate ============================================================================================================================== $15,699,665 $1,299,930 8.28% $14,021,458 $1,171,561 8.36% $12,349,791 $ 942,188 7.63% 6,916,744 466,685 6.75 5,041,021 332,242 6.59 3,973,669 242,491 6.10 436,477 31,708 7.26 471,338 34,248 7.27 359,830 24,568 6.83 246,877 12,820 5.19 214,239 13,182 6.15 229,563 10,730 4.67 - ------------------------------------------------------------------------------------------------------------------------------ 23,299,763 1,811,143 7.77 19,748,056 1,551,233 7.86 16,912,853 1,219,977 7.21 ============================================================================================================================== 589,368 614,961 592,644 1,087,111 698,831 583,356 (232,217) (212,564) (197,525) - ------------------------------------------------------------------------------------------------------------------------------ $24,744,025 $20,849,284 $17,891,328 ============================================================================================================================== $ 2,020,938 43,665 2.16 $ 1,691,474 34,486 2.04 $ 1,776,304 31,228 1.76 2,103,604 64,803 3.08 1,135,754 28,683 2.53 1,402,160 33,459 2.39 2,313,994 85,502 3.69 2,263,282 83,063 3.67 1,893,337 49,991 2.64 7,387,527 413,625 5.60 6,140,721 359,793 5.86 5,374,960 267,421 4.98 1,164,915 63,831 5.48 921,631 54,720 5.94 439,808 19,154 4.36 522,216 28,407 5.44 780,475 46,646 5.98 529,434 24,165 4.56 1,230,219 64,942 5.28 1,071,792 63,492 5.92 848,217 34,925 4.12 553,924 30,278 5.47 769,000 47,956 6.24 429,642 20,285 4.72 1,264,414 63,541 5.03 1,011,671 52,244 5.16 901,387 38,385 4.26 1,239,316 72,783 5.87 913,077 54,414 5.96 738,507 39,078 5.29 ============================================================================================================================== 19,801,067 931,377 4.70 16,698,877 825,497 4.94 14,333,756 558,091 3.89 - ------------------------------------------------------------------------------------------------------------------------------ 2,051,763 1,770,395 1,551,296 549,428 439,286 375,199 ============================================================================================================================== 22,402,258 18,908,558 16,260,251 - ------------------------------------------------------------------------------------------------------------------------------ 2,341,767 1,940,726 1,631,077 $24,744,025 $20,849,284 $17,891,328 ============================================================================================================================== $ 879,766 3.78% $ 725,736 3.67% $ 661,886 3.91% ============================================================================================================================== 3.07% 2.92% 3.32% ============================================================================================================================== 84.98% 84.56% 84.75% ====================================================================================================================================
31 =============================================================================== 21 ================================================================================ 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)
- --------------------------------------------------------------------------------------------------------------------------- 1998 Compared to 1997 1997 Compared to 1996 ==================================== ===================================== ($000's) Volume Yield/Rate Mix Total Volume Yield/Rate Mix Total - --------------------------------------------------------------------------------------------------------------------------- Increase (Decrease) in Interest Income Loans and Leases ........................ $102,933 $ (8,362) $(1,713) $ 92,858 $ 84,816 $15,700 $1,641 $102,157 Securities Taxable ............................... 45,265 (19,056) (2,005) 24,204 47,624 7,608 1,314 56,546 Exempt from Income Taxes .............. (1,114) (1,905) 93 (2,926) (11,646) 1,091 (423) (10,978) Other Short-Term Investments ............ (5,231) (5,239) 1,666 (8,804) 2,376 1,062 194 3,632 =========================================================================================================================== Total Interest Income Change .............. 141,853 (34,562) (1,959) 105,332 123,170 25,461 2,726 151,357 =========================================================================================================================== Increase (Decrease) in Interest Expense Interest Checking ....................... 10,632 (2,347) (264) 8,021 7,043 6,265 946 14,254 Savings ................................. 30,786 3,184 1,318 35,288 10,642 4,628 649 15,919 Money Market ............................ (33,495) (13,197) 5,916 (40,776) (12,706) 2,314 (489) (10,881) Other Time Deposits ..................... (26,317) (10,370) 677 (36,010) 1,108 (739) 100 469 Certificates-$100,000 and Over .......... 12,389 (2,388) (295) 9,706 5,044 2,446 141 7,631 Foreign Office Deposits ................. (9,366) (241) 103 (9,504) (6,554) 470 (111) (6,195) Federal Funds Borrowed .................. 41,193 (4,248) (2,201) 34,744 12,394 3,199 661 16,254 Short-Term Bank Notes ................... (10,995) 263 (87) (10,819) 5,701 720 153 6,574 Other Short-Term Borrowings ............. 6,118 1,768 91 7,977 17,261 126 120 17,507 Long-Term Debt and Convertible Subordinated Notes ..................... 21,017 (8,602) (2,022) 10,393 10,030 3,471 423 13,924 =========================================================================================================================== Total Interest Expense Change ............. 41,962 (36,178) 3,236 9,020 49,963 22,900 2,593 75,456 =========================================================================================================================== Increase (Decrease) in Net Interest Income on a Taxable Equivalent Basis .... $ 99,891 $ 1,616 $(5,195) 96,312 $ 73,207 $ 2,561 $ 133 75,901 =========================================================================================================================== Increase in Taxable Equivalent Adjustment ................... (5,738) (4,684) =========================================================================================================================== Net Interest Income Change ................ $ 90,574 $ 71,217 ===========================================================================================================================
repricing of interest-bearing liabilities. The net interest margin improved by 10 basis points (bps) to 3.94% in 1998 from 3.84% in 1997. The 1998 improvement follows a six bps improvement in 1997's net interest margin. Declining rates and mortgage asset refinancing reduced the yield on interest-earning assets by 13 bps to 7.75% in 1998. The average yield on loans and leases was down 5 bps, while the yield on securities was down 27 bps. Solid growth in interest-bearing transaction deposits and lower short-term borrowing costs reduced the cost of interest-bearing liabilities by 19 bps, in 1998, to 4.61% from 1997's 4.80%. The cost of borrowed funds, including federal funds borrowed, short-term bank notes, other short-term borrowings and long-term debt decreased by 23 bps to 5.33% in 1998, from 5.56% in 1997. The positive contribution of free funding to the net interest margin increased from 76 bps in 1997 to 80 bps in 1998, due primarily to more than 17% growth in non-interest-bearing demand deposits over 1997. Average interest-earning assets increased by 7.1% to $26.7 billion in 1998, an increase of nearly $1.8 billion from 1997. During 1997, average interest-earning assets grew 6.9% over 1996. The acquisition of CitFed and State, in addition to strong residential mortgage lending, led to the securitization of over $1 billion of residential mortgages during 1998, and the prepayment of over $474 million of higher-cost borrowings previously on the books of CitFed and State. The Bancorp continues to use loan securitizations and sales to manage the composition of the balance sheet and to improve balance sheet liquidity. Securitizations and sales permit the Bancorp to grow the origination and servicing functions and increase fee income without increasing balance sheet leverage. Sales and securitizations of loans totaled $4.3 billion in 1998 and $2.8 billion in 1997. Average interest-bearing liabilities grew to $22 billion during 1998, an increase of 5.1% over the $21 billion average in 1997. Core deposits (which excludes certificates of deposits greater than $100,000 and foreign office deposits) remain the Bancorp's most important and lowest cost source of funding. OPERATING INCOME The table at the top of the following page shows the components of other operating income for the five years ended December 31, 1998. Total other operating income, excluding securities gains, increased 26.3% in 1998 and was up 20.2% in 1997. There was strong growth across both traditional and non-banking business lines. Investment advisory income was $134.9 million in 1998, up from $93.6 million in 1997. The 44.2% advance in revenue was driven by robust growth in all product lines and The Ohio Company acquisition. Investment advisory fees, a portion of which are based on the market value of managed trust assets, benefited from asset growth of 33.6% in 1998. Successful new sales efforts and strength in equity markets led to 20.9% investment advisory revenue growth in 1997. Fifth Third is one of the leading money managers in the Midwest and as of December 31, 1998, had $148.4 billion in assets under care, a 24.8% increase over last year end, $18.1 billion in assets under management and $4.8 billion in its proprietary Fifth Third Funds. Service charges on deposits reached $127.1 million in 1998 and $109.5 million in 1997, increases of 16.1% and 14.3%, respectively. The growth in both years was fueled by an expanding retail delivery system and sales campaigns promoting checking and savings accounts. Commercial transaction account balances continued to grow and contributed to the increase in fee income. Data processing income was up 22.8% in 1998 and 27.6% in 1997. Merchant processing revenues, approximately 46% of total data processing revenues, increased 23.7% in 1998 and 44% in 1997, due entirely to new customers and resulting increases in merchant transaction volumes. Electronic Funds Transfer, the other portion of data processing income, increased 22% in 1998 and 16.4% in 1997, the result of success in attracting new customers, the growing use of our expanding ATM network and the increased popularity of debit cards. 32 =============================================================================== 22 ================================================================================ FIFTH THIRD BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ===============================================================================
- ---------------------------------------------------------------------------------------------------------- ($000's) 1998 1997 1996 1995 1994 ========================================================================================================== Investment advisory income .......... $134,872 93,557 77,404 64,497 57,063 Service charges on deposits ......... 127,095 109,500 95,837 75,785 68,106 Data processing income .............. 138,154 112,506 88,195 75,311 64,394 Other service charges and fees ...... 226,230 180,404 151,289 124,173 100,224 - ---------------------------------------------------------------------------------------------------------- Subtotal ............................ 626,351 495,967 412,725 339,766 289,787 Securities gains (losses) ........... 9,843 5,802 6,182 5,625 (5,173) Total ............................... $636,194 501,769 418,907 345,391 284,614 After-tax securities gains (losses) . $ 6,368 3,755 3,954 3,650 (3,365) ==========================================================================================================
Other service charges and fees climbed to $226.2 million in 1998, compared to $180.4 million in 1997. Mortgage banking revenue, commercial banking income, cardholder fees and consumer loan and lease fees represent the majority of other service charges and fees. Mortgage banking revenue topped $72.4 million in 1998, a 57.1% increase over 1997. Strong originations in 1998 boosted the increased level of mortgage banking activity. Sales and securitizations of residential mortgage loans approached $4.2 billion in 1998, up from $2.7 billion in 1997. Fifth Third's total loan servicing portfolio increased to $31.3 billion at year-end 1998, with $13.1 billion of loans serviced for other investors, compared to $27.5 billion with $9.9 billion serviced for others at the end of 1997. Commercial banking income rose 46.8% to $40.8 million in 1998, led by International department revenue and credit enhancement fees. Cardholder fees from our credit card portfolio provided $29.6 million and consumer loan and lease fees contributed $31.3 million to other service charges and fees. Other service charges and fees were $180.4 million in 1997, compared to $151.3 million in 1996, an increase of $29.1 million, or 19.2%. Commercial banking income of $27.8 million in 1997 represented an increase of 45% over 1996 and resulted from International department revenue and credit enhancement fee growth. Similar levels of mortgage-banking activity between years contributed revenue of $46.1 million in 1997, down slightly from $47.3 million in 1996. Consumer loan and lease fees of $26.7 million declined from 1996 due to lower originations and 1996 auto loan sales and securitizations. Our credit card portfolio contributed to an 11.1% increase in cardholder fees. OPERATING EXPENSES The Bancorp continues to lead the banking industry in driving its overhead ratio to record levels by consistently generating revenue at a rate faster than 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
- -------------------------------------------------------------------------------------------------------------- ($000's) 1998 1997 1996 1995 1994 ============================================================================================================== Salaries, wages and incentives ........ $286,274 242,972 225,052 193,015 181,558 Employee benefits ..................... 53,556 49,431 55,587 48,119 45,953 Equipment expenses .................... 32,588 27,980 27,087 23,511 22,588 Net occupancy expenses ................ 50,756 48,530 45,964 38,827 34,703 Other operating expenses .............. 290,702 261,595 230,097 196,092 180,921 ============================================================================================================== Total operating expenses .............. 713,876 630,508 583,787 499,564 465,723 ============================================================================================================== Merger-related charges ................ 89,701 -- -- -- -- SAIF assessment ....................... -- -- 37,867 -- -- - -------------------------------------------------------------------------------------------------------------- Total ................................. $803,577 630,508 621,654 499,564 465,723 ==============================================================================================================
$600 70 70% $500 60 60% $400 50 50% $300 40 40% $200 30 30% $100 (illegible) (illegible) (illegible) [GRAPH] [GRAPH] [GRAPH]
* For comparability, certain financial ratios and statistics exclude the impact of the 1998 merger-related items of $106.4 million pretax ($75.6 million after tax or $.28 per share) and the 1996 special SAIF assessment of $37.9 million pretax ($24.6 million after tax or $.09 per share). 33 =============================================================================== 23 ================================================================================ FIFTH THIRD BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS =============================================================================== below our peers, at 42.3% for 1998 and 43.3% in 1997 and under 50% since 1993. Total operating expenses increased 13.2% in 1998, excluding $89.7 million of merger-related charges and 8% in 1997 over 1996. Fifth Third's expense growth over 1997 was higher than customary as we used strong revenue growth to invest in technology upgrades and Year 2000 efforts. Salaries, wages and incentives comprised 47.6% and 46.4% of total operating expenses, excluding the 1998 merger-related charges, in 1998 and 1997, respectively. Compensation expense increased in 1998 as a result of more variable compensation for increased sales production, higher staffing costs related to computer programming, a tighter labor market and additional personnel to support sales and our volume-related businesses. The Bancorp's productivity ratios, which measure the degree of efficiency of our employees, have shown improvement since 1993. Net income per employee was $66,200 for 1998, compared to $37,600 for 1993, an increase of 76% as the chart on the previous page illustrates. Benefits expense was lowered in both 1998 and 1997. During 1998, to emphasize 401(k) and employee matching, the Bancorp froze its defined benefit pension plan and all benefits earned to date became fully vested. A curtailment gain was recognized as a reduction of employee benefits expense. Lower benefits expense in 1997 is primarily due to changes in our profit-sharing plan to incorporate new alternatives for employees such as flex dollars and 401(k) plan matching. Equipment and net occupancy expenses increased 8.9% in 1998 and 4.7% in 1997. The addition of nearly 400 ATMs and software and processing technology upgrades primarily led to the rise in equipment expense over 1997. Upgrades of equipment to support growth and processing technology and the addition of ATMs also contributed to the increase in 1997. Volume-related expenses of our processing and fee businesses, along with higher loan and lease processing costs from strong origination volumes, principally contributed to the 11.1% increase in 1998's other operating expenses. Other operating expenses increased to $261.6 million in 1997, up $31.5 million or 13.7% over 1996. Volume-related expenses of our card processing business accounted for $8.3 million or 26.3% of the increase. Franchise tax expense was up $5.6 million primarily as a result of growth in shareholders' equity. Marketing expense also increased over 1996 principally due to the continued promotion of the Bancorp's diversified loan, investment and deposit products. Additional recruiting and training costs were incurred in 1997 as we added more sales personnel. Operating expenses for 1998 include a one-time, merger-related pretax charge of $89.7 million resulting directly from the acquisitions of CitFed and State. The charge consists of employee benefit obligations, costs to eliminate duplicate facilities and equipment, contract terminations, conversion expenses and professional fees. FINANCIAL CONDITION LOANS AND LEASES The table below shows the history of commercial and consumer loans and leases by major category at December 31. On-balance-sheet loan and lease balances increased 4% and 9.1%, respectively, in 1998 and 1997. In both years, the growth in outstandings was affected considerably by sales and securitizations of residential and commercial loans, which allows the Bancorp to be selective in how much of the expanding origination volume is retained in the loan and lease portfolio. Although residential mortgage loan originations were $5.4 billion for 1998, the related loans decreased 11.2% because $4.2 billion of the respective origination volume was sold or securitized. Installment loan balances grew 14% during 1998 and 10.9% during 1997, the result of successful direct installment loan sales in the Bancorp's Banking Centers. Consumer leases grew 17.3%and 8% during 1998 and 1997, respectively, and represent 12.1% and 10.7% of total loans and leases at December 31, 1998 and 1997, respectively. Commercial loan and lease outstandings were up 8.3% in 1998 and 6.6% in 1997. Commercial leasing contributed increases of 20% and 27.1%, respectively, consisting largely of credits within our market areas of Ohio, Kentucky, Indiana and Arizona. Commercial mortgages represent 6.5% of our total loan and lease portfolio and include primarily financing of owner-occupied properties--loans on properties occupied by the principal borrower. To maintain balance sheet flexibility and to serve as a source of fee income, the Bancorp during 1998 and 1997 sold with servicing retained certain floating-rate commercial loans to a commercial paper funding corporation. The outstanding balances of these loans were $1.1 billion and $468.5 million at December 31, 1998 and 1997, respectively. In addition to the loan and lease porfolio discussed above, the Bancorp serviced loans for others of approximately $13.1 billion, $9.9 billion and $8.3 billion at December 31, 1998, 1997 and 1996, respectively.
LOAN AND LEASE PORTFOLIO - ----------------------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 ----------------- ----------------- ----------------- ----------------- --------------------- ($ in millions) Amount % Amount % Amount % Amount % Amount % =================================================================================================================================== Commercial: Commercial ............ $ 4,787 26.2% $ 4,330 24.6% $ 4,067 25.2% $ 3,642 24.4% $ 3,092 23.7% Mortgage .............. 1,179 6.5 1,274 7.3 1,297 8.1 1,318 8.8 1,286 9.9 Construction .......... 572 3.1 560 3.2 593 3.7 531 3.5 438 3.3 Leases ................ 1,402 7.7 1,168 6.6 919 5.7 696 4.7 479 3.7 =================================================================================================================================== Subtotal ................ 7,940 43.5 7,332 41.7 6,876 42.7 6,187 41.4 5,295 40.6 - ----------------------------------------------------------------------------------------------------------------------------------- Consumer: Installment ........... 3,084 16.9 2,706 15.4 2,441 15.2 2,884 19.3 2,248 17.3 Mortgage .............. 4,696 25.7 5,288 30.1 4,649 28.9 4,233 28.3 4,187 32.1 Credit Card ........... 337 1.8 363 2.1 395 2.4 350 2.3 297 2.3 Leases ................ 2,214 12.1 1,887 10.7 1,748 10.8 1,298 8.7 1,007 7.7 - ----------------------------------------------------------------------------------------------------------------------------------- Subtotal ................ 10,331 56.5 10,244 58.3 9,233 57.3 8,765 58.6 7,739 59.4 - ----------------------------------------------------------------------------------------------------------------------------------- Total ................... $18,271 100.0% $17,576 100.0% $16,109 100.0% $14,952 100.0% $13,034 100.0% ===================================================================================================================================
34 ============================================================================== 24 ================================================================================ 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) 1998 1997 1996 1995 1994 =========================================================================================================================== Balance at January 1.............................. $ 250,950 233,803 224,134 202,009 185,416 Provision for credit losses....................... 109,171 90,095 68,382 45,934 41,183 Losses charged off................................ (123,687) (101,517) (86,598) (46,846) (33,572) Recoveries of losses previously charged off....... 26,920 26,864 22,047 14,558 15,907 Letter of credit.................................. -- -- -- -- (7,800) Reserve of acquired institutions and other........ 3,506 1,705 5,838 8,479 875 =========================================================================================================================== Balance at December 31............................ $ 266,860 250,950 233,803 224,134 202,009 =========================================================================================================================== Loans and leases outstanding at December 31....... $17,779,023 $17,312,943 $16,034,523 $14,813,197 $12,992,774 Reserve as a percent of loans and leases outstanding..................................... 1.50% 1.45% 1.46% 1.51% 1.55% Average loans and leases.......................... $17,664,000 $16,583,000 $15,612,000 $13,929,000 $12,195,000 Net charge-offs as a percent of average loans and leases outstanding.................... .55% .45% .41% .23% .14% Reserve as a percent of total nonperforming assets 517.04% 318.95% 279.94% 248.70% 345.11% Reserve as a percent of total underperforming assets 203.95% 200.82% 192.32% 202.69% 281.46% ===========================================================================================================================
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 $22.1 million over 1997 due to higher losses on commercial loans. Net charge-offs as a percent of average loans and leases outstanding were .55%, .45% and .41% for 1998, 1997 and 1996, respectively. Although net charge-offs have risen in 1998, the net charge-off ratio remains near the Bancorp's historical 10-year average of .50%. The reserve for credit losses as a percentage of total loans and leases was 1.50% and 1.45% at December 31, 1998 and 1997, respectively. 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) 1998 1997 1996 ================================================================================ Nonaccrual loans and leases ............... $ 42,760 71,667 66,745 Renegotiated loans and leases ............. -- 128 1,121 Other real estate owned ................... 8,853 6,886 15,652 ================================================================================ Total nonperforming assets ................ 51,613 78,681 83,518 Ninety days past due loans and leases ..... 79,233 46,281 38,053 - -------------------------------------------------------------------------------- Total underperforming assets .............. $130,846 124,962 121,571 ================================================================================ Nonperforming assets as a percent of total loans, leases and other real estate owned ....................... .29% .45 .52 Underperforming assets as a percent of total loans, leases and other real estate owned ............. .74% .72 .76 ================================================================================
Nonperforming assets as a percentage of total loans, leases and other real estate owned was .29% at December 31, 1998, a decrease from .45% at December 31, 1997. Of the total underperforming assets at December 31, 1998, $53,653,000 are to borrowers or projects in the Cincinnati-Dayton market area, $7,614,000 in the Toledo market area, $36,719,000 in the Columbus market area, $751,000 in the Louisville market area, $11,248,000 in the Cleveland market area, $13,807,000 distributed in the market areas of our smaller affiliate banks and $7,054,000 outside of the Ohio-Kentucky-Indiana area. A decrease in residential mortgage loans was the primary reason for the decrease in nonaccrual loans and leases during 1998. At December 31, 1998, 1997 and 1996, nonaccrual loans and leases included residential mortgage loans of $11,381,000, $26,552,000 and $21,683,000, respectively, and commercial loans and leases of $22,337,000, $33,230,000 and $20,511,000, respectively. An increase in residential mortgage loans was the primary reason for the increase in loans and leases ninety days past due. At December 31, 1998, 1997, and 1996, loans and leases 90 days past due included residential mortgage loans of $34,424,000, $12,068,000 and $9,529,000, respectively, installment loans and consumer leases of $24,778,000, $15,871,000 and $15,195,000, respectively, and commercial loans and leases of $7,678,000, $10,710,000 and $8,092,000, respectively. At December 31, 1998, 1997 and 1996, credit card receivables of $6,872,000, $5,431,000 and $5,075,000, respectively, were ninety days past due. Of the total nonperforming assets at December 31, 1998, $9,741,000, or 18.9%, were related to commercial real estate. Nonaccrual commercial real estate loans were $8,169,000, an increase of 17% from 1997's $6,980,000. At December 31, 1998, there were no renegotiated loans. At December 31, 1998, other real estate owned included $2,570,000 of residential mortgage loans and $3,471,000 for a repossessed commercial lease asset. 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, FNMA and GNMA. 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 3.4 years based on current prepayment expectations. The Bancorp securitized $1.1 billion of fixed and adjustable-rate residential mortgages in both 1998 and 1997. These 35 ================================================================================ 25 ================================================================================ FIFTH THIRD BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ===============================================================================
SECURITIES PORTFOLIO AT DECEMBER 31 - --------------------------------------------------------------------------------------------------------------------------- ($000's) 1998 1997 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------------- Securities Available for Sale: U.S. Treasury .................................. $ 255,879 232,381 276,283 316,415 249,902 - --------------------------------------------------------------------------------------------------------------------------- U.S. Government agencies and corporations ...... 26,090 303,761 124,641 173,451 97,005 - --------------------------------------------------------------------------------------------------------------------------- States and political subdivisions .............. 191,335 194,153 296,847 300,787 -- - --------------------------------------------------------------------------------------------------------------------------- Agency mortgage-backed securities .............. 6,847,883 6,525,928 5,676,252 3,580,863 1,147,949 - --------------------------------------------------------------------------------------------------------------------------- Other bonds, notes and debentures .............. 746,010 608,986 891,751 861,990 34,085 - --------------------------------------------------------------------------------------------------------------------------- Other securities ............................... 267,428 274,256 134,581 57,888 6,572 - --------------------------------------------------------------------------------------------------------------------------- Securities Held to Maturity: U.S. Treasury .................................. -- -- -- -- 161,709 - --------------------------------------------------------------------------------------------------------------------------- U.S. Government agencies and corporations ...... -- -- 189,098 152,981 146,686 - --------------------------------------------------------------------------------------------------------------------------- States and political subdivisions .............. 55,210 41,982 150,432 168,242 464,613 - --------------------------------------------------------------------------------------------------------------------------- Agency mortgage-backed securities .............. -- 4,996 4,996 4,996 2,343,594 - --------------------------------------------------------------------------------------------------------------------------- Other bonds, notes and debentures .............. 1,660 1,535 1,805 1,505 193,545 - --------------------------------------------------------------------------------------------------------------------------- Other securities ............................... 29,143 36,497 80,111 64,180 79,445 - ---------------------------------------------------------------------------------------------------------------------------
MATURITIES OF SECURITIES AT DECEMBER 31, 1998 - ----------------------------------------------------------------------------------------------------------------------------------- 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 .............. $136,491 7.29% $ 116,825 6.66% $ 2,101 5.79% $ 462 8.63% $ 255,879 6.99% - ----------------------------------------------------------------------------------------------------------------------------------- U.S. Government agencies and corporations ......... 2,775 6.45 22,820 7.10 -- -- 495 8.54 26,090 7.06 - ----------------------------------------------------------------------------------------------------------------------------------- States and political subdivisions (a) ......... 13,500 8.24 122,898 7.57 42,066 7.77 12,871 7.67 191,335 7.67 - ----------------------------------------------------------------------------------------------------------------------------------- Agency mortgage- backed securities (b) .... 532,985 7.15 5,707,033 6.90 161,563 7.14 446,252 6.88 6,847,833 6.92 - ----------------------------------------------------------------------------------------------------------------------------------- Other bonds, notes and debentures (c) ........... 4,920 8.87 579,080 6.47 30,547 7.40 131,463 6.39 746,010 6.51 - ----------------------------------------------------------------------------------------------------------------------------------- Securities Held to Maturity: States and political subdivisions (a) ........ 36,748 4.62 13,774 5.16 2,770 5.40 1,918 5.80 55,210 4.83 - ----------------------------------------------------------------------------------------------------------------------------------- Other bonds, notes and debentures ............... 500 8.00 850 7.36 285 6.75 25 6.75 1,660 7.44 - -----------------------------------------------------------------------------------------------------------------------------------
Maturities of mortgage-backed securities were estimated based on historical and predicted prepayment trends. (a) taxable-equivalent yield using the statutory rate in effect. (b) included in agency mortgage-backed securities available for sale are floating-rate securities totalling $1,450,326,000. (c) included in other bonds, notes and debentures available for sale are floating-rate securities totalling $154,325,000. securitizations improve liquidity, reduce interest rate risk and the reserve for credit losses and preserve capital. Further securitizations in 1999 are expected. 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 are comprised of consumer certificates of deposit. Foreign office deposits are denominated in amounts greater than $100,000. The Bancorp's continued focus on Banking Center sales campaigns for transaction accounts throughout 1998 sustained strong growth in core deposits. Average demand, interest checking and saving balances rose 24.7% in 1998 and 15.4% in 1997. Our MaxSaver product contributed to the growth in savings balances, while the Platinum One and Business 53 products and promotional campaigns drove the increase in demand and interest checking. The Bancorp acquired deposits of $116.6 million from Bank One Corporation in 1998. During 1997, the Bancorp acquired deposits of $128.9 million from Great Lakes National Bank Ohio and $126.1 million of deposits through the acquisition of Suburban Bancorporation, Inc. DISTRIBUTION OF AVERAGE DEPOSITS
=============================================================================== 1998 1997 1996 1995 1994 =============================================================================== Demand .......... 14.7% 12.8 11.7 12.0 12.0 Interest checking. 14.9 12.9 11.5 11.5 13.7 Savings........... 18.2 13.5 12.0 7.7 10.8 Money market...... 5.8 10.9 13.2 15.4 14.6 Other time ....... 37.3 40.8 42.1 41.8 41.4 Certificates- $100,000 and over ....... 7.9 6.9 6.6 6.3 3.4 Foreign office ... 1.2 2.2 2.9 5.3 4.1 =============================================================================== Total ............ 100.0% 100.0 100.0 100.0 100.0 ===============================================================================
36 =============================================================================== 26 ================================================================================ FIFTH THIRD BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ===============================================================================
CHANGE IN AVERAGE DEPOSIT SOURCES - -------------------------------------------------------------------------------- ($000's) 1998 1997 1996 1995 1994 =============================================================================== Demand ............... $399,076 277,372 281,368 219,099 124,433 Interest checking..... 430,450 326,072 329,464 (84,830) 195,936 Savings .............. 932,904 345,524 967,850 (266,406) (50,482) Money market ......... (883,760) (344,324) 50,712 369,945 106,223 Other time ........... (470,784) 19,790 1,246,806 765,761 518,698 Certificates- $100,000 and over ........... 217,741 92,037 243,284 481,823 (70,407) Foreign office ....... (169,360) (120,475) (258,259) 251,041 287,189 - -------------------------------------------------------------------------------- Total change ......... $456,267 595,996 2,861,225 1,736,433 1,111,590 ===============================================================================
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. Average short-term borrowings as a percentage of average earning assets increased from 15% in 1997 to 16.5% in 1998. Although the Bancorp was successful in attracting transaction accounts in both 1998 and 1997, the overall funding mix shifted with short-term borrowings supporting a relatively higher proportion of earning assets. During 1998 and 1997, the Bancorp increased its reliance on short-term borrowings as loan and lease growth outpaced core deposit growth. As the following table of average short-term borrowings and average Federal funds loaned indicates, the Bancorp was a net borrower of funds of $4.3 billion in 1998, up from $3.6 billion in 1997:
AVERAGE SHORT-TERM BORROWINGS - -------------------------------------------------------------------------------- ($000's) 1998 1997 1996 1995 1994 - -------------------------------------------------------------------------------- Federal funds borrowed .......... $2,208,493 1,464,945 1,230,219 1,071,792 848,217 Short-term bank notes ........ 461,795 658,140 553,924 769,000 429,642 Other short-term borrowings ........ 1,728,960 1,607,580 1,264,414 1,011,671 901,387 - ---------------------------------------------------------------------------------- Total short-term borrowings ........ 4,399,248 3,730,665 3,048,557 2,852,463 2,179,246 Federal funds loaned 98,100 140,451 101,397 143,151 157,864 Net funds borrowed $4,301,148 3,590,214 2,947,160 2,709,312 2,021,382 - ----------------------------------------------------------------------------------
CAPITAL RESOURCES The Bancorp maintains a relatively high level of capital as a margin of safety for its depositors and shareholders. At December 31, 1998, shareholders' equity was $3.2 billion compared to $2.8 billion at December 31, 1997, an increase of $415.7 million, or 15%. This increase in capital resulted primarily from the retention of earnings and upward market adjustments on available-for-sale securities offset in part by dividend declarations and the repurchase of Fifth Third Bancorp common stock. The following table shows several capital and liquidity ratios for the last three years:
============================================================================ 1998 1997 1996 ============================================================================ Average shareholders' equity to Average assets ............... 10.33% 9.48 9.46 Average deposits .............. 15.83 13.80 13.33 Average loans and leases ...... 16.41 14.98 14.92 - ---------------------------------------------------------------------------
In mid-1997, the Bancorp completed the repurchase of $250 million of its common stock under a plan authorized in January 1997. In December 1996, the Bancorp approved the repurchase of common stock to fund employee stock option and dividend reinvestment plans. During 1997, the Bancorp approved the continued repurchase of up to 11.3 million shares under the December 1996 plan. Through the repurchase programs, the Bancorp during 1997 repurchased 7,787,140 shares of Fifth Third Bancorp common stock on the open market for $276.3 million, or an average purchase price of $35.48. In January 1998, the Bancorp's board of directors rescinded Fifth Third Bancorp's stock repurchase programs. No shares were purchased under these programs from June 1997 through May 1998. In May 1998, the Bancorp 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 Bancorp for general corporate purposes. The issuance of the shares also facilitated the Bancorp's ability to account for the acquisition of State Savings Company as a pooling-of-interests. 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 issued in The Ohio Company acquisition were repurchased in the open market for $98 million, or an average purchase price of $62.86 per share, and became available for reissuance in the Bancorp's stock option and dividend reinvestment plans. LIQUIDITY AND MARKET RISK The objective of the Bancorp's Asset/Liability management function is to maintain consistent growth in net interest income within the Bancorp's policy limits. This objective is accomplished through management of the Bancorp's balance sheet composition, liquidity, and interest rate risk exposures arising from changing economic conditions, interest rates and customer preferences. The goal of liquidity management is to provide adequate funds to meet changes in loan and lease demand or unexpected deposit withdrawals. This is accomplished by maintaining liquid assets in the form of investment securities, maintaining sufficient unused borrowing capacity in the national money markets and delivering consistent growth in core deposits. As of December 31, 1998, the Bancorp had approximately $3 billion in securities and other short-term investments maturing or repricing within one year. Additional asset-driven liquidity is provided by the remainder of the securities portfolio and securitizable loan and lease assets. These sources, in addition to the Bancorp's 10% average equity capital base, provide a stable funding base. In addition to core deposit funding, the Bancorp also accesses a variety of other short-term and long-term funding sources. The Bancorp also uses the Federal Home Loan Bank as a funding source, issuing notes payable through its FHLB member subsidiaries. The Bancorp also has significant unused funding capacity in the national money markets. The Bancorp's A1+/P-1 ratings on its commercial paper, along with an AA-/Aa2 ratings for long-term deposits at Fifth Third Bank, its lead bank, continue to be among the best in the industry. Six of the Bancorp's other subsidiaries, Fifth Third Bank, Northwestern Ohio, N.A.; Fifth Third Bank, Central Ohio; Fifth Third Bank, Western Ohio; Fifth Third Bank, Indiana; Fifth Third Bank, Northern Kentucky, Inc.; and Fifth Third Bank, Kentucky, Inc. maintain current deposit ratings of A1+/P-1 and AA-/Aa3 on their short-term and long-term deposits, respectively. These ratings, along with capital ratios significantly above the current 37 =============================================================================== 27 ================================================================================ FIFTH THIRD BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS =============================================================================== regulatory guidelines, provide the Bancorp with additional liquidity. Management does not rely on any one source of liquidity and manages availability in response to changing balance sheet needs. Management considers interest rate risk the Bancorp's most significant market risk. Interest rate risk is the exposure to adverse changes in net interest income due to changes in interest rates. Consistency of the Bancorp's net interest revenue is largely dependent upon the effective management of interest rate risk. The Bancorp employs a variety of measurement techniques to identify and manage its interest rate risk including the use of an earnings simulation model to analyze net interest income sensitivity to changing interest rates. The model is based on actual cash flows and repricing characteristics for on and off-balance sheet instruments and incorporates market-based assumptions regarding the effect of changing interest rates on the prepayment rates of certain assets and liabilities. The model also includes senior management projections for activity levels in each of the product lines offered by the Bancorp. Assumptions based on the historical behavior of deposit rates and balances in relation to changes in interest rates are also incorporated into the model. These assumptions are inherently uncertain, and as a result, the model cannot precisely measure net interest income or precisely predict the impact of fluctuations in interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies. The Bancorp's Asset/Liability Management Committee (ALCO), which includes senior management representatives and reports to the Board of Directors, monitors and manages interest rate risk within Board-approved policy limits. The Bancorp's current interest rate risk policy limits are determined by measuring the anticipated change in net interest income over a twelve and twenty-four month horizon assuming a 200 basis point immediate and sustained increase or decrease in all interest rates. Current policy limits this exposure to plus or minus 5% of net interest income for a twelve-month horizon and plus or minus 9% of net interest income over a twenty-four month horizon. The following table shows the Bancorp's estimated earnings sensitivity profile as of December 31, 1998:
- ------------------------------------------------------------ Change in Percentage Change in Interest Rates Net Interest Income (basis points) 12 Months 24 Months - ------------------------------------------------------------ +200 (1.61)% 7.77 % -200 4.26 % (6.08)% - ------------------------------------------------------------
Given an immediate and sustained 200 basis point increase in the yield curve used in the simulation model, it is estimated net interest income for the Bancorp would decrease by 1.61% over one year and increase by 7.77% over two years. A 200 basis point immediate and sustained decrease in interest rates would increase net interest income by 4.26% over one year and would decrease net interest income by an estimated 6.08% over two years. All of these estimated changes in net interest income are within the policy guidelines established by the Board of Directors. In order to reduce the exposure to interest rate fluctuations and to manage liquidity, the Bancorp has developed securitization and sale procedures for several types of interest-sensitive assets. All long-term, fixed-rate single family residential mortgage loans underwritten according to Federal Home Loan Mortgage Corporation or Federal National Mortgage Association guidelines are sold for cash upon origination. Periodically, additional assets such as adjustable-rate residential mortgages and certain short-term commercial loans are also securitized or sold. In 1998 and 1997, $4.2 billion and $2.7 billion, respectively, of fixed and adjustable-rate residential mortgages were securitized or sold. In addition in 1998 and 1997, certain primarily fixed-rate, short-term commercial loans were sold to a commercial paper funding conduit. Management focuses its efforts on consistent net interest revenue and net interest margin growth through each of the retail and wholesale business lines. The Bancorp does not currently engage in trading activities. YEAR 2000 As with other companies, many of the Bancorp's computer programs were originally designed to recognize calendar years by their last two digits. Calculations performed using these truncated fields may not work properly with dates from the Year 2000 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. The Bancorp's project includes both internal and external reviews. The Bancorp's internal efforts address information technology systems and computer chip embedded functions such as vaults, elevators, security systems, building heating and cooling and other operating facilities. External efforts address critical business partners including customers, vendors, service suppliers and utilities. The Bancorp's efforts are being conducted in accordance with Federal Financial Institutions Examination Council (FFIEC) guidelines. Senior management oversees the project and regularly reports to the Board of Directors. The project management process as required by the FFIEC involves five phases: awareness (recognizing the problems and developing resources to address them); assessment (determining the magnitude of the problem and assessing necessary effort); renovation (conducting enhancements to hardware and software and associated necessary changes); validation (testing and verifying changes); and implementation (certification and acceptance by the business users). Through this process, the Bancorp categorized systems according to the lost revenues or liability that would be incurred if the system failed. The Bancorp identified critical systems as those where failure would result in either at least $50,000 in losses per day or $1.5 million of total exposure. All five phases have been completed with respect to those systems determined to be critical. The awareness, assessment and renovation phases are complete with respect to the remaining systems and the validation and implementation phases are substantially complete for those remaining internal systems. The FFIEC guidelines require that these systems must be completed by June 30, 1999. The Bancorp expects to be completed with these remaining existing systems by March 31, 1999 and new systems will be certified as they are implemented. In 1999, the Bancorp will conduct internal integration testing and interface testing with critical business partners. Although this testing is not one of the five phases discussed above, the Bancorp is taking this step to help ensure its efforts are successful in addressing Year 2000 problems. Because the Year 2000 compliance effort is largely being completed by internal staff, the Bancorp does not expect to incur any significant costs with outside contractors relative to the completion of this task. The Bancorp anticipates a total compliance cost of under $10 million. All but an immaterial amount of these costs are internal costs related to the lost opportunity of allocating the time of the internal staff elsewhere. The estimated cost also includes all software, hardware and labor costs. The Bancorp presently believes with the planned modifications to existing systems and conversion to new systems, as discussed above, the remaining Year 2000 compliance issues will be resolved on a timely basis and any related costs will not 38 =============================================================================== 28 ================================================================================ FIFTH THIRD BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS =============================================================================== have a material impact on the operations, cash flows or financial condition of future periods. The risks associated with the Bancorp's Year 2000 compliance relate primarily to its relationship with critical business partners, which include customers, vendors, service suppliers and utilities and their ability to effectively address their own Year 2000 issues. Critical parties were designated using the same standard as used to identify critical systems. Each business line division within the Bancorp has initiated projects to assess the Year 2000 preparedness of individual customers and material relationships and the impact on the Bancorp in accordance with FFIEC guidelines. In reviewing customers and the impact their failure to address Year 2000 issues would have, materiality has been determined by analyzing loss to the Bancorp if the Year 2000 problem affects the customer's creditworthiness. Major risks associated with the Year 2000 issue as it applies to external parties include a shutdown of voice and data communication systems due to failure by systems, satellites or telephone companies; excessive cash withdrawal activities; ATM failures; cash courier delays or non-availability; problems with international accounts or offices, including inaccurate or delayed information or inaccessibility to data; and government facilities or utility companies not opening or operating. Major risks associated with internal systems include inability to properly process data and information; inability to complete transactions; failure of time locks and security systems; inability to meet customer demands for cash; and inability to process electronic transactions for the Bancorp and its customers. Contingency plans for critical business partners are being developed as their Year 2000 plans and procedures are analyzed. The Bancorp does not have a need for remedial contingency plans for its own systems because it has met and expects to continue to meet FFIEC deadlines. The Bancorp is preparing event contingency plans which address plans for handling the period before, during and after the changeover to the year 2000. These plans address system failures, third-party failures (in the nature of those noted above) and staffing needs during the period. All contingency plans must be complete by June 30, 1999, but the Bancorp believes it will be completed by March 31, 1999. The Federal Reserve, which is Fifth Third's primary bank regulator, includes a review of the risk assessments and contingency plans in its quarterly examinations of Fifth Third's Year 2000 preparedness. CONSOLIDATED SIX YEAR SUMMARY OF OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31 ($000's) 1998 1997 1996 1995 1994 1993 - -------------------------------------------------------------------------------------------------------------------------------- Interest Income---------------------------- $2,018,677 1,919,083 1,772,410 1,518,713 1,195,401 1,069,532 Interest Expense--------------------------- 1,015,853 1,006,833 931,377 825,497 558,091 472,380 - -------------------------------------------------------------------------------------------------------------------------------- Net Interest Income------------------------ 1,002,824 912,250 841,033 693,216 637,310 597,152 Provision for Credit Losses---------------- 109,171 90,095 68,382 45,934 41,183 61,990 - -------------------------------------------------------------------------------------------------------------------------------- Net Interest Income After Provision for Credit Losses-- 893,653 822,155 772,651 647,282 596,127 535,162 Other Operating Income--------------------- 636,194 501,769 418,907 345,391 284,614 267,502 Operating Expenses------------------------- 713,876 630,508 583,787 499,564 465,723 443,510 SAIF Assessment---------------------------- -- -- 37,867 -- -- -- Merger-Related Charges--------------------- 89,701 -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- Income Before Income Taxes----------------- 726,270 693,416 569,904 493,109 415,018 359,154 Applicable Income Taxes-------------------- 250,142 232,558 187,560 162,662 139,393 112,717 - -------------------------------------------------------------------------------------------------------------------------------- Net Income--------------------------------- $ 476,128 460,858 382,344 330,447 275,625 246,437 - -------------------------------------------------------------------------------------------------------------------------------- Earnings Per Share (a)--------------------- $ 1.80 1.76 1.45 1.31 1.12 1.02 Diluted Earnings Per Share (a)------------- $ 1.76 1.73 1.42 1.27 1.08 .98 - -------------------------------------------------------------------------------------------------------------------------------- Cash Dividends Declared Per Share (a)------ $ .71 .56 8/9 .48 8/9 .42 2/3 .35 5/9 .30 2/9
(a) Per share amounts have been adjusted for the three-for-two stock splits effected in the form of stock dividends paid April 15, 1998, July 15, 1997 and January 12, 1996. CONDENSED CONSOLIDATED BALANCE SHEET INFORMATION
- --------------------------------------------------------------------------------------------------------------------------- As of December 31 ($000's) 1998 1997 1996 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------------- Securities---------------------------- $ 8,420,638 8,224,475 7,826,797 5,683,298 4,925,105 3,917,540 Loans and Leases---------------------- 17,779,023 17,312,943 16,034,523 14,813,197 12,992,774 11,495,361 Loans Held for Sale------------------- 492,017 263,772 74,916 139,484 41,723 364,343 Assets-------------------------------- 28,921,782 27,710,673 26,076,597 22,110,700 19,399,912 17,070,942 Deposits------------------------------ 18,780,355 19,019,896 18,161,327 16,090,989 13,931,299 12,425,955 Short-Term Borrowings----------------- 3,693,927 3,650,931 3,581,173 2,064,095 2,703,054 1,762,390 Long-Term Debt and Convertible Subordinated Notes-- 2,288,151 1,508,683 1,199,101 1,364,438 665,791 961,059 Shareholders' Equity------------------ 3,178,522 2,762,836 2,561,335 2,102,738 1,727,115 1,586,266 - ---------------------------------------------------------------------------------------------------------------------------
SUMMARIZED QUARTERLY FINANCIAL INFORMATION
- --------------------------------------------------------------------------------------------------------------------------- 1998 1997 - --------------------------------------------------------------------------------------------------------------------------- Fourth Third Second First Fourth Third Second First (Unaudited)($000's) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter - --------------------------------------------------------------------------------------------------------------------------- Interest Income---------------- $496,464 502,095 513,374 506,744 493,554 484,360 474,590 466,579 Net Interest Income------------ 259,992 250,395 249,583 242,854 236,587 228,381 225,331 221,951 Provision for Credit Losses---- 26,335 15,234 44,774 22,828 30,805 18,929 21,013 19,348 Income Before Income Taxes----- 226,389 221,005 92,013 186,863 181,690 178,135 167,782 165,809 Net Income--------------------- 150,064 144,073 57,760 124,231 120,012 118,606 111,272 110,968 Earnings Per Share------------- .57 .54 .22 .47 .46 .45 .43 .42 Diluted Earnings Per Share----- .55 .53 .22 .46 .45 .45 .42 .41 - ---------------------------------------------------------------------------------------------------------------------------
39 29 - -------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------------------------------------------------- 1998 $17,952,333 $ 98,100 $101,478 $8,543,355 $26,695,266 $710,596 $1,369,789 $28,518,478 1997 16,724,010 140,451 152,212 7,898,349 24,915,022 599,468 1,149,927 26,427,258 1996 15,699,665 101,397 145,480 7,353,221 23,299,763 589,368 1,087,111 24,744,025 1995 14,021,458 143,151 71,088 5,512,359 19,748,056 614,961 698,831 20,849,284 1994 12,349,791 157,864 71,699 4,333,499 16,912,853 592,644 583,356 17,891,328 1993 11,095,382 113,259 97,130 3,591,147 14,896,918 550,750 576,727 15,850,052 1992 9,298,111 184,619 124,380 3,738,362 13,345,472 486,311 590,862 14,283,359 1991 8,383,985 345,587 153,148 3,453,688 12,336,408 433,856 530,251 13,178,764 1990 8,109,179 422,829 139,234 2,983,206 11,654,448 448,275 585,850 12,575,527 1989 7,910,295 334,634 169,909 2,545,182 10,960,020 431,213 575,946 11,857,356 - ---------------------------------------------------------------------------------------------------------------------------
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 - --------------------------------------------------------------------------------------------------------------------------------- 1998 $2,728,211 $2,777,460 $3,382,032 $1,085,910 $6,936,533 $1,474,693 $232,381 $18,617,220 $4,399,248 $23,016,468 1997 2,329,135 2,347,010 2,449,128 1,969,670 7,407,317 1,256,952 401,741 18,160,953 3,730,665 21,891,618 1996 2,051,763 2,020,938 2,103,604 2,313,994 7,387,527 1,164,915 522,216 17,564,957 3,048,557 20,613,514 1995 1,770,395 1,691,474 1,135,754 2,263,282 6,140,721 921,631 780,475 14,703,732 2,852,463 17,556,195 1994 1,551,296 1,776,304 1,402,160 1,893,337 5,374,960 439,808 529,434 12,967,299 2,179,246 15,146,545 1993 1,426,863 1,580,368 1,452,642 1,787,114 4,856,262 510,215 242,245 11,855,709 1,440,147 13,295,856 1992 1,216,999 1,334,540 1,267,195 1,727,550 4,751,733 570,147 48,200 10,916,364 1,253,075 12,169,439 1991 995,395 997,542 1,159,707 1,530,607 4,711,594 993,490 13,079 10,401,414 933,725 11,335,139 1990 899,091 890,994 1,031,552 1,459,964 4,711,419 1,122,645 2,313 10,117,978 712,675 10,830,653 1989 886,921 785,125 753,173 1,543,942 4,320,913 1,140,586 5,596 9,436,256 769,127 10,205,383 - ---------------------------------------------------------------------------------------------------------------------------------
INCOME ($000'S, EXCEPT PER SHARE)
- ----------------------------------------------------------------------------------------------------------------------------- Per Share (b) -------------------------------------------------------- Originally Reported --------------------------------- Other Dividend Interest Interest Operating Operating Net Diluted Dividends Diluted Payout Year Income Expense Income Expense Income Earnings Earnings Declared Earnings Earnings Ratio - ----------------------------------------------------------------------------------------------------------------------------- 1998 $2,018,677 $1,015,853 $636,194 $803,577 $476,128 $1.80 $1.76 $.71 $1.80 $1.76 40.3% 1997 1,919,083 1,006,833 501,769 630,508 460,858 1.76 1.73 .56 8/9 1.73 1.69 33.6 1996 1,772,410 931,377 418,907 621,654 382,344 1.45 1.42 .48 8/9 1.43 1.40 34.8 1995 1,518,713 825,497 345,391 499,564 330,447 1.31 1.27 .42 2/3 1.29 1.26 33.8 1994 1,195,401 558,091 284,614 465,723 275,625 1.12 1.08 .35 5/9 1.13 1.10 32.3 1993 1,069,532 472,380 267,502 443,510 246,437 1.02 .98 .30 2/9 .97 .95 31.8 1992 1,059,393 512,424 235,266 399,233 196,010 .83 .82 .26 2/3 .81 .81 33.0 1991 1,138,452 676,511 213,678 362,867 160,790 .68 .68 .23 1/9 .69 .69 33.6 1990 1,170,270 770,894 133,491 330,179 92,934 .41 .41 .20 1/7 .61 .61 33.2 1989 1,123,078 753,125 171,762 317,188 123,182 .55 .55 .17 7/9 .55 .55 32.4 - -----------------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS AT DECEMBER 31 ($000'S, EXCEPT SHARE INFORMATION)
- --------------------------------------------------------------------------------------------------------------------------- Shareholders' Equity ---------------------------------------------------------------------------------------- Accumulated Number of Nonowner Reserve Shares of Stock Common Capital Retained Changes in Treasury Per for Credit Year Outstanding (b) Stock Surplus Earnings Equity Stock Total Share (b) Losses - --------------------------------------------------------------------------------------------------------------------------- 1998 266,918,544 $592,559 495,067 2,066,407 $ 82,448 $ (57,959) $3,178,522 $11.91 $266,860 1997 262,614,641 583,005 481,036 1,785,121 98,254 (184,580) 2,762,836 10.52 250,950 1996 267,867,814 594,667 493,792 1,461,736 11,317 ( 177) 2,561,335 9.56 233,803 1995 255,433,570 567,063 320,078 1,198,040 17,557 -- 2,102,738 8.23 224,134 1994 247,724,070 549,947 263,175 967,545 (53,552) -- 1,727,115 6.97 202,009 1993 245,836,622 545,757 253,736 773,987 12,786 -- 1,586,266 6.45 185,416 1992 237,016,930 526,178 207,299 595,663 -- ( 404) 1,328,736 5.61 153,776 1991 235,472,477 522,749 194,485 458,258 -- ( 404) 1,175,088 4.99 121,256 1990 225,123,782 499,775 181,110 347,490 -- -- 1,028,375 4.57 112,040 1989 223,881,321 497,017 180,576 296,432 -- -- 974,025 4.35 103,883 - ---------------------------------------------------------------------------------------------------------------------------
(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 1998, 1997, 1996, 1992 and 1990. 40 30 DIRECTORS AND OFFICERS - -------------------------------------------------------------------------------- Fifth Third Bancorp Directors - -------------------------------------------------------------------------------- GEORGE A. SCHAEFER, JR., President & CEO Fifth Third Bancorp and Fifth Third Bank DARRYL F. ALLEN, Chairman, President & CEO Aeroquip-Vickers, Inc. JOHN F. BARRETT, President & CEO The Western & Southern Life Insurance Company GERALD V. DIRVIN, Former Executive Vice President The Procter & Gamble Company THOMAS B. DONNELL, Chairman Fifth Third Bank, Northwestern Ohio, National Association RICHARD T. FARMER, Chairman Cintas Corporation JOSEPH H. HEAD, JR., Chairman & Director Atkins & Pearce, Inc. JOAN R. HERSCHEDE, President & CEO The Frank Herschede Company ALLEN M. HILL, President & CEO DPL, Inc. WILLIAM G. KAGLER, Former Chairman of the Executive Committee of the Board of Directors Skyline Chili, Inc. JAMES D. KIGGEN, Chairman & Director Xtek, Inc. Chairman & Director Cincinnati Bell Inc. JERRY L. KIRBY Chairman Fifth Third Bank, Western Ohio MITCHEL D. LIVINGSTON, PH.D., Vice President for Student Affairs & Human Resources University of Cincinnati ROBERT B. MORGAN, President & CEO Cincinnati Financial Corporation DAVID E. REESE Chairman Fifth Third Bank, Southwest F.S.B. JAMES E. ROGERS, Vice Chairman, President & CEO Cinergy Corporation BRIAN H. ROWE, Chairman Emeritus GE Aircraft Engines DONALD B. SCHACKELFORD Chairman Fifth Third Bank, Central Ohio JOHN J. SCHIFF, JR., Former 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 Philip G. Barach Vincent H. Beckman J. Kenneth Blackwell Milton C. Boesel, Jr. Richard G. Brierley Clement L. Buenger Douglas G. Cowan Thomas L. Dahl Ronald A. Dauwe Nicholas M. Evans Louis R. Fiore John D. Geary Ivan W. Gorr Don R. Hinkley William A. Hopple, III Paul W. Huenefeld William J. Keating Charles L. McKelvy, Jr. Michael H. Norris David Pollak C. Wesley Rowles David B. Sharrock Stephen Stranahan N. Beverley Tucker, Jr. Richard E. Wagner FIFTH THIRD BANCORP OFFICERS - -------------------------------------------------------------------------------- GEORGE A. SCHAEFER, JR., President & CEO NEAL E. ARNOLD, Executive Vice President Treasurer, CFO MICHAEL D. BAKER, Executive Vice President P. MICHAEL BRUMM, Executive Vice President JAMES R. GAUNT, Executive Vice President JAMES J. HUDEPOHL, Executive Vice President MICHAEL K. KEATING, Executive Vice President, General Counsel, Secretary ROBERT J. KING, JR., Executive Vice President ROBERT P. NIEHAUS, Executive Vice President STEPHEN J. SCHRANTZ, Executive Vice President GERALD L. WISSEL, Executive Vice President, Auditor BARRY L. BOERSTLER, Senior Vice President ROGER W. DEAN, Senior Vice President, Controller PAUL L. REYNOLDS, Senior Vice President, Assistant Secretary REGINA G. LIVERS, Vice President, Community Affairs Officer AFFILIATE BANKS' CHAIRMEN, PRESIDENTS, CEOS - -------------------------------------------------------------------------------- SAMUEL G. BARNES, President & CEO Fifth Third Bank, Kentucky, Inc.- Lexington THOMAS B. DONNELL, Chairman ROBERT J. KING, JR., Vice Chairman DONALD H. KINCADE, President & CEO Fifth Third Bank, Northwestern Ohio, National Association Toledo, Ohio JERRY L. KIRBY, Chairman R. DANIEL SADLIER, President & CEO Fifth Third Bank, Western Ohio Dayton, Ohio JAMES R. GAUNT, President & CEO Fifth Third Bank, Kentucky, Inc.- Louisville STEWART M. GREENLEE, President & CEO Fifth Third Bank, Ohio Valley Hillsboro, Ohio COLLEEN M. KVETKO, President & CEO Fifth Third Bank, Florida Naples, Florida ROBERT J. KING, JR., President & CEO Fifth Third Bank, Northeastern Ohio Cleveland, Ohio DAVID E. REESE, Chairman WILLIAM A. ROBERT, President & CEO Fifth Third Bank, Southwest F.S.B. Scottsdale, Arizona DONALD B. SHACKELFORD, Chairman PATRICK J. FEHRING, JR., President & CEO Fifth Third Bank, Central Ohio Columbus, Ohio JAMES B. STURGES, Chairman MICHAEL J. ALLEY, President & CEO Fifth Third Bank, Indiana Indianapolis, Indiana WILLIAM J. WILLIAMS, Chairman BRADLEE F. STAMPER, President & CEO Fifth Third Bank, Northern Kentucky, Inc. Florence, Kentucky ROBERT L. ERNST, President Fifth Third Bank, Butler County (C)Fifth Third Bank 1999 Member F.D.I.C. - Federal Reserve System (R)Reg. U.S. Pat. & T.M. Office EX-21 4 EXHIBIT 21 1 EXHIBIT 21 ---------- FIFTH THIRD BANCORP SUBSIDIARIES
Jurisdiction of Name Incorporation - ---- ------------- Fifth Third Bank Ohio The Fifth Third Company Ohio The Fifth Third Leasing Company Ohio Fifth Third Auto Leasing Trust Delaware Fifth Third Securities, Inc. Ohio Midwest Payment Systems, Inc. Ohio Fifth Third International Company Kentucky Fifth Third Trade Services Limited Hong Kong Fifth Third/W. Lyman Case & Company Ohio Fifth Third Bank, Kentucky, Inc. Kentucky Fifth Third Bank, Northern Kentucky, Inc. Kentucky Fifth Third Bank, Central Ohio Ohio Fidelity Calvin Corporation Ohio American Home Foundation Ohio Fifth Third Bank, Northwestern Ohio, National Association Federal Fifth Third Mortgage Insurance/Reinsurance Company Vermont Fifth Third Insurance Agency, Inc. Ohio Fifth Third Bank, Ohio Valley Ohio Fifth Third Bank, Western Ohio Ohio Fifth Third Mortgage Company Ohio CF Property Management Company Ohio
2 Fifth Third Bank, Indiana Indiana Fifth Third Bank, Southwest, F.S.B. Federal Calvin Securities, Incorporated Arizona Fifth Third Bank, Florida Florida Fifth Third Community Development Company Ohio Fifth Third Investment Company Ohio Fountain Square Insurance Company Arizona Heartland Capital Management, Inc. Indiana Fifth Third/The Ohio Company Ohio State Savings Mortgage Company Ohio Calvin Hotel Co. 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, 33-60474, 33-55223, 33-555553, 333-58249, 333-48049 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, 333-58265, and 333-42379 on Form S-3 of our report dated January 15, 1999 incorporated by reference in this Annual Report on Form 10-K of Fifth Third Bancorp for the year ended December 31, 1998. February 12, 1999 Cincinnati, Ohio EX-27.1 6 EXHIBIT 27.1
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, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000035527 FIFTH THIRD BANCORP 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 819,862 118,535 0 0 8,334,625 86,013 86,015 17,779,023 266,860 28,921,782 18,780,355 3,693,927 980,827 2,288,151 0 0 592,559 2,585,963 28,921,782 1,451,573 559,456 7,648 2,018,677 687,755 1,015,853 1,002,824 109,171 9,843 803,577 726,270 476,128 0 0 476,128 1.80 1.76 3.94 42,760 79,233 0 46,742 250,950 123,687 26,920 266,860 266,860 0 0
EX-27.2 7 EXHIBIT 27.2
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIFTH THIRD BANCORP'S QUARTERLY REPORTS ON FORM 10-Q FOR THE QUARTERS ENDED MARCH 31, 1998, JUNE 30, 1998 AND SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000035527 FIFTH THIRD BANCORP 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 734,594 64,238 0 0 8,998,778 92,917 93,223 17,461,563 252,799 28,983,753 18,829,066 4,697,971 828,326 1,796,211 0 0 583,656 2,248,523 28,983,753 355,344 148,668 2,732 506,744 178,142 263,890 242,854 22,828 4,155 173,283 186,863 124,231 0 0 124,231 .47 .46 3.87 82,930 41,861 0 0 250,950 30,001 6,370 252,799 252,799 0 0 FINANCIAL DATA HAS BEEN RESTATED TO REFLECT THE SECOND QUARTER 1998 MERGERS WITH CITFED BANCORP, INC. AND STATE SAVINGS COMPANY.
EX-27.3 8 EXHIBIT 27.3
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIFTH THIRD BANCORP'S QUARTERLY REPORTS ON FORM 10-Q FOR THE QUARTERS ENDED MARCH 31, 1997, JUNE 30, 1997 AND SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000035527 FIFTH THIRD BANCORP 1,000 3-MOS 6-MOS 9-MOS DEC-31-1997 DEC-31-1997 DEC-31-1997 JAN-01-1997 JAN-01-1997 JAN-01-1997 MAR-31-1997 JUN-30-1997 SEP-30-1997 551,027 899,340 708,580 261,378 219,748 260,433 0 0 0 0 0 0 7,640,535 7,380,068 8,018,249 338,242 330,724 334,967 338,165 332,432 336,850 16,184,256 16,740,885 16,777,623 234,419 238,292 242,278 25,910,452 26,685,973 27,191,443 17,802,628 17,953,152 18,702,347 3,829,061 4,185,136 3,623,428 562,243 670,589 694,853 1,365,645 1,417,919 1,560,236 0 0 0 0 0 0 579,547 579,020 581,691 1,771,328 1,880,157 2,028,888 25,910,452 26,685,973 27,191,443 326,587 662,138 1,010,857 135,518 270,672 402,235 4,474 8,359 12,437 466,579 941,169 1,425,529 174,247 354,375 537,383 244,628 493,887 749,866 221,951 447,282 675,663 19,348 40,361 59,290 172 307 2,338 150,561 308,729 469,145 165,809 333,591 511,726 110,968 222,240 340,846 0 0 0 0 0 0 110,968 222,240 340,846 .42 .85 1.30 .41 .83 1.28 3.85 3.84 3.83 78,395 76,174 75,432 35,287 40,634 43,354 0 0 0 0 0 0 233,803 233,803 233,803 25,359 48,801 73,081 6,627 12,929 19,561 234,419 238,292 242,278 234,419 238,292 242,278 0 0 0 0 0 0 FINANCIAL DATA HAS BEEN RESTATED TO REFLECT THE SECOND QUARTER 1998 MERGERS WITH CITFED BANCORP, INC. AND STATE SAVINGS COMPANY.
EX-27.4 9 EXHIBIT 27.4
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIFTH THIRD BANCORP'S ANNUAL REPORT ON FORM 10-K FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000035527 FIFTH THIRD BANCORP 1,000 YEAR YEAR DEC-31-1997 DEC-31-1996 JAN-01-1997 JAN-01-1996 DEC-31-1997 DEC-31-1996 777,378 877,433 180,425 277,152 0 0 0 0 8,139,465 7,400,355 85,010 426,442 85,375 424,553 17,312,943 16,034,523 250,950 233,803 27,710,673 26,076,597 19,019,896 18,161,327 3,650,931 3,581,173 768,327 573,661 1,508,683 1,199,101 0 0 0 0 583,005 594,667 2,179,831 1,966,668 27,710,673 26,076,597 1,365,511 1,271,569 537,120 488,021 16,452 12,820 1,919,083 1,772,410 721,030 699,833 1,006,833 931,377 912,250 841,033 90,095 68,382 5,802 6,182 630,508 621,654 693,416 569,904 460,858 382,344 0 0 0 0 460,858 382,344 1.76 1.45 1.73 1.42 3.84 3.78 71,667 66,745 46,281 38,053 0 0 29,145 43,097 233,803 224,134 101,517 86,598 26,864 22,047 250,950 233,803 250,950 233,803 0 0 0 0 FINANCIAL DATA HAS BEEN RESTATED TO REFLECT THE SECOND QUARTER 1998 MERGERS WITH CITFED BANCORP, INC. AND STATE SAVINGS COMPANY.
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