EX-99.1 3 dex991.htm PRESS RELEASE DATED AS OF JANUARY 15, 2004 Press release dated as of January 15, 2004

Exhibit 99.1

 

LOGO

 

News Release

 

CONTACT:    Neal E. Arnold, CFO (Analysts)   

FOR IMMEDIATE RELEASE

     (513) 579-4356   

January 15, 2004

     Bradley S. Adams, IR (Analysts)     
     (513) 534-0983     
     Roberta R. Jennings (Media)     
     (513) 579-4153     

 

FIFTH THIRD BANCORP REPORTS 11 PERCENT INCREASE IN  FOURTH QUARTER EARNINGS

 

Fifth Third Bancorp’s 2003 fourth quarter earnings per diluted share were $.80, an increase of 11 percent over $.72 per diluted share for the same period in 2002. Fourth quarter net income totaled $460,499,000, a nine percent increase over fourth quarter 2002’s net income of $423,372,000. Fourth quarter return on average assets (ROA) and return on average equity (ROE) were 2.02 percent and 21.3 percent, respectively, compared to 2.11 percent and 19.8 percent in 2002’s fourth quarter. Earnings per diluted share for the full year 2003 were $3.03, an increase of 10 percent over last year’s earnings of $2.76. ROA for the full year 2003 was 2.01 percent and ROE was 20.4 percent, compared to 2.18 percent and 19.9 percent, respectively, in 2002.

 

“I would like to thank all of our employees for their hard work in producing another good year for our shareholders,” stated George A. Schaefer, Jr., President and CEO of Fifth Third Bancorp. “While 2003 was certainly not an easy year, I believe we have accomplished a great deal. We were faced with the lowest level of interest rates in over 40 years, earning asset yields and margins declining to levels not seen since the 1970’s and business and economic stress in some segments of the economy that resulted in credit losses well in excess of our historical averages. Despite these factors, we were able to produce double-digit earnings growth driven by a focused loan and deposit sales effort and continued growth from our service businesses. We also invested significantly in strengthening your investment in Fifth Third for the years to come by adding new banking center locations in vibrant growth markets, increasing automation of processes, building a comprehensive risk management infrastructure and welcoming numerous talented and experienced bankers to the Fifth Third team.”

 

“Fifth Third continues to be defined by the same core operating principles that have served us well over the years. We believe a focused and energetic sales force, conservative risk profile, diversified business mix and a unique, decentralized affiliate banking model effectively position Fifth Third to continue to deliver consistent earnings growth. With the significant investments we have made in the expansion of our sales force, new banking centers and improvements in infrastructure, we enter 2004 with optimism and look forward to meeting the opportunities and challenges that lie ahead.”

 

Balance Sheet Trends

 

Loan and lease balances exhibited extremely strong growth with period end loans and leases increasing by $6.4 billion in 2003 on a full year basis, driven primarily by very strong results in consumer lending and continued growth in commercial loans and leases. On an average basis, total loans and leases increased by 15 percent over last year. Direct installment loan originations continued recent year trends and remained strong throughout 2003, totaling $1.6 billion in the fourth quarter and $7.4 billion for the full year compared to $1.7 billion in last year’s fourth quarter and $6.7 billion for the full year 2002, driving an increase in installment loan balances of 14 percent over the same quarter last year. Consumer loans and comparisons to prior periods are impacted by the securitization and sale of $903 million in home equity lines of credit in the third quarter of 2003 and the inclusion of $750 million in automotive loans in held for sale. These actions were taken to limit balance

sheet leverage due to the exceptionally strong demand experienced in these asset classes over recent periods relative to the entire loan and lease portfolio. Period end commercial loan and lease balances increased by 12 percent over the same quarter last year and by $950 million, or 14 percent on an annualized basis, from last quarter. Improving demand and customer additions in middle-market and small business commercial loan originations during the quarter were partially mitigated by modest year-end seasonal decreases in existing commercial line of credit utilization percentages across the footprint.

 

Significant numbers of commercial customer additions and net new retail checking account growth have resulted in very strong deposit growth trends for Fifth Third. Average demand deposit balances increased 18 percent and average interest checking balances grew nine percent compared to last year’s fourth quarter, and 17 percent and 15 percent on the full year, respectively. Compared to the third quarter of this year, average transaction account balances increased by eight percent on an annualized basis highlighted by 22 percent annualized growth in demand deposits and 13 percent annualized growth in interest checking balances. The level of savings, money market, and time deposit balances continued to moderate in the fourth quarter given the low level of interest rates. Fifth Third’s most recent consumer checking account campaign, The Fall Classic, concluded on December 15, 2003 at 155 percent of goal with $1.3 billion in new checking account balances. Fifth Third is continuing to devote significant marketing and sales focus on checking account growth in its retail and commercial franchises.

 

Compared to the fourth quarter of 2002, net interest income on a fully-taxable equivalent basis increased five percent despite a 26 basis point (bp) decrease in the net interest margin due to 13 percent growth in average earning assets. On a full year basis, the eight percent increase in net interest income over 2002 was primarily driven by 18 percent growth in average earning assets mitigated by a 34 bp reduction in the net interest margin as all asset classes experienced accelerated prepayment rates in 2003 due to the low interest rate environment. Sequentially, net interest income on a fully-taxable equivalent basis increased five percent on an annualized basis due to the positive impact of the recent slowing of prepayment speeds on the net interest margin and modest growth in the level of average earning assets. Fifth Third expects that margin and net interest income trends in coming periods will be dependent upon the magnitude of deposit growth in relation to balance sheet growth and the speed of interest rate changes in an improving economy.

 

Fifth Third repurchased approximately 4.7 million shares of its common stock for a total of approximately $271 million in the fourth quarter of 2003 and 11.5 million shares for a total of approximately $655 million in all of 2003. With increasing capital levels and greater stability in earning asset yields anticipated in 2004, Fifth Third continues to view share repurchases as an effective means of returning excess capital to shareholders. As of December 31, 2003, the remaining authority under the plan authorized by the Board of Directors in March 2003 is approximately 14.1 million shares.

 

Other Operating Income

 

Other Operating Income increased three percent over the same quarter last year and 14 percent on a full year basis with double-digit growth in major captions partially mitigated by significant decreases in the level of gains on sales of securities and loans.

 

Fifth Third Processing Solutions, our Electronic Payment Processing division, delivered a nine percent increase in revenues over the fourth quarter of last year, 12 percent on full year basis and 47 percent on a seasonally strong annualized sequential basis. Comparisons to 2002 prior periods are impacted by a slowdown in transaction volume growth rates on the existing customer base reflective of current economic conditions, sluggish growth in the retail sector of the economy and an $8 million fourth quarter revenue impact ($13 million full year 2003) associated with the recent MasterCard®/Visa® settlement. Revenue from Electronic Funds Transfer (EFT) was essentially flat compared to the same quarter last year and merchant processing increased 15 percent over the same quarter last year despite growth of only approximately six percent in transaction volumes from the existing merchant customer base. Along with the introduction of Fifth Third’s POS Check Services at

 

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Pearle Visions locations, significant new processing customers welcomed during the fourth quarter of 2003 include Sovereign Bancorp, AFFN (Armed Forces Financial Network), Steak n’ Shake, Limited TOO Brands, and Atwood’s Distributing. Additionally, Fifth Third received several major contract extensions including Saks Incorporated, Barnes and Noble, Bealls Incorporated and Fisher’s Foods. Fifth Third Processing Solutions now handles electronic processing for over 197,000 merchant locations and 1,500 financial institutions worldwide.

 

Successful sales of retail and commercial deposit accounts and corporate treasury management products fueled increases in deposit service revenues of 11 percent over the same quarter last year and 13 percent for the full year. The fourth quarter increase was highlighted by a nine percent increase in retail deposit based revenues and a 13 percent increase in commercial deposit based revenues over the same quarter last year on the strength of Fifth Third’s continuing focus on cross-sell initiatives, new customer relationships and the benefit of a lower interest rate environment.

 

Mortgage net service revenue totaled $57.2 million in the fourth quarter and $301.7 million on a full year 2003 basis compared to $66.7 million in 2002’s fourth quarter and $187.9 million in all of 2002. Inclusive of net realized securities gains/losses resulting from sales from a portfolio established to hedge against volatility related to the value of mortgage servicing rights, mortgage net service revenue was $304.5 million on a full year basis in 2003 and $221.4 million on a full year basis in 2002. Mortgage originations totaled $1.9 billion in the fourth quarter versus $4.9 billion last quarter and $4.3 billion in the fourth quarter of last year. The $17.6 million decrease in mortgage banking revenues relative to last quarter is primarily attributable to declines in the level of refinance activity as mortgage interest rates continued to increase from record lows. Fifth Third is aggressively reducing mortgage banking volume-related processing expenses as originations have slowed in recent periods. Fourth quarter mortgage net service revenue was comprised of $80.8 million in total mortgage banking fees and loan sales, less $12.7 million of losses and mark-to-market adjustments on both settled and outstanding free-standing derivative financial instruments and less $10.9 million in net valuation adjustments and amortization on mortgage servicing rights. The mark-to-market adjustments and settlement of free-standing derivative financial instruments and corresponding valuation adjustments resulted from the movement of interest rates during the quarter and the resulting impact of changing prepayment speeds on the mortgage servicing portfolio. The mortgage servicing asset, net of the valuation reserve, is $289.0 million at December 31, 2003, compared to $274.6 million last quarter and $263.5 million a year ago.

 

Investment Advisory revenues increased 14 percent over the same quarter last year and two percent on a full year basis. The increase in service revenue compared to the same quarter last year resulted primarily from strengthening sales results in Retirement Plan Services and improved institutional asset management revenues from better market performance. Fifth Third continues to focus its sales efforts on integrating services across business lines and working closely with retail and commercial team members to take advantage of a diverse and expanding customer base. Fifth Third Investment Advisors, among the largest money managers in the Midwest, has $35 billion in assets under management and $194 billion in assets under care.

 

Other service charges and fee revenue totaled $112.5 million in the fourth quarter and $581.4 million on a full year basis, compared to $164.0 million in the same quarter last year and $579.7 million in all of 2002. The decrease in revenue relative to the fourth quarter last year is primarily attributable to the previously disclosed fourth quarter 2002 pre-tax gain of approximately $26 million realized from the sale of the property and casualty insurance agency product line operations representing approximately $26 million in revenue on a full year 2002 basis. Sequential quarter comparisons are impacted by the previously disclosed third quarter 2003 $22 million gain from the securitization and sale of $903 million of home equity lines of credit and declines in both indirect consumer and commercial loan and lease fees. On a full year comparison basis, commercial banking revenues increased 13 percent, institutional fixed income trading and sales revenues increased 47 percent and cardholder fee revenue increased 15 percent.

 

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Operating Expenses

 

Operating expenses increased 12 percent over the fourth quarter last year and 10 percent on a full year basis with direct comparisons to prior periods impacted by the following factors: (i) the early implementation of FASB Interpretation No. 46 (FIN 46) in the third quarter of 2003 resulting in the recognition of depreciation expense captured as a component of operating expenses totaling $44.0 million in the fourth quarter and $93.5 million in all of 2003 on operating lease assets; (ii) an $82 million pre-tax charge realized in the third quarter of 2002 related to treasury clearing and other related settlement accounts; (iii) a $30.8 million pre-tax recovery of the above mentioned treasury charge realized as a credit to other operating expense in the second quarter of 2003; and (iv) a charge of $20.1 million related to the early retirement of approximately $200 million of Federal Home Loan Bank advances in the second quarter of 2003. Fifth Third’s efficiency ratio stands at 47.3 percent in the fourth quarter and 45.0 percent in 2003 compared to 44.0 percent in the fourth quarter last year and 44.9 percent in 2002.

 

Excluding the impact of the above mentioned factors, operating expenses increased by four percent over the same quarter last year and 11 percent on a full year basis; comparisons being provided to supplement an understanding of the fundamental trends in operating expenses. The increases over last year are primarily attributable to the implications of growth in all of our markets and increases in spending related to the expansion and improvement of our sales force, third-party consulting, continuing investment in support personnel, process improvement, technology and infrastructure to support recent and future growth and increasing insurance and other employee benefit expenses. Fifth Third has also invested significantly in the growth of its retail banking platform with the opening of 58 new banking centers since December of 2002. Near-term improvement continues to be expected from certain volume related expense items and efficiency initiatives related to non-risk management expenses. As part of our core emphasis on operating leverage, these initiatives include increasing levels of automation of processes, the rationalization and reduction of non-core businesses as they relate to our retail and middle market commercial customer base, returns on invested capital and related opportunities for continued growth in 2004 and years to come.

 

Credit Quality

 

Net charge-offs as a percentage of average loans and leases were 72 bp in the fourth quarter and 63 bp in all of 2003, compared to 59 bp last quarter and 43 bp in all of 2002. Nonperforming assets (NPA’s) were 61 bp of total loans and leases and other real estate owned at December 31, 2003, improved from 62 bp posted last quarter. Overall, the level of nonperforming loans and net charge-offs remain a small percentage of the total loan and lease portfolio. Net charge-offs were $95.0 million in the fourth quarter and $312.2 million in 2003, compared to $49.5 million in the same quarter last year and $186.8 million in all of 2002. Commercial loan and lease net charge-offs totaled $54.0 million in the fourth quarter with the increase relative to prior periods primarily due to the charge-off of two airline leases totaling approximately $18 million. The provision for loan and lease losses totaled $93.7 million in the fourth quarter and $399.4 million for the full year, compared to $72.1 million in the same quarter last year and $246.6 million in the full year 2002. Fifth Third expects near-term improvement in the level of commercial loan losses and nonperforming assets as the overall economy in the Bank’s Midwestern footprint continues to build upon recent positive momentum.

 

Corporate Trust Sale

 

On December 29, 2003, Fifth Third completed the sale of its corporate trust business which resulted in a $62 million pre-tax ($40 million after-tax) gain in the fourth quarter of 2003. Corporate trust services has been a relatively small contributor to both total revenues and earnings for Fifth Third in all periods. Fifth Third remains committed to offering trust services as part of our relationship based approach to commercial banking and will continue to be a part of a complete product set for our middle market commercial clients. The sale allows us to refine our focus and reinvest in our core businesses that provide the best return to our shareholders. As a result of this sale and cessation of any continuing involvement in the operations of the corporate trust business, the results

 

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of these operations and the corresponding gain are being reported as discontinued operations in the current and all prior periods. The following table summarizes the results of operations of this business.

 

($ millions)    4Q03
    3Q03
    2Q03
    1Q03
    4Q02
    3Q02
    2Q02
    1Q02

Total Revenues

    $ 3.3    $ 2.9    $ 3.2    $ 2.9    $ 3.2    $ 2.7    $ 2.9    $ 3.5

Total Expenses

      1.8      1.5      1.5      1.6      1.7      1.4      1.2      1.9

Pre-tax Income

      1.5      1.4      1.7      1.3      1.5      1.3      1.7      1.6

Taxes

      0.5      0.5      0.6      0.4      0.5      0.4      0.6      0.6

After-tax Income

    $ 1.0    $ 0.9    $ 1.1    $ 0.9    $ 1.0    $ 0.9    $ 1.1    $ 1.0

 

Conference Call

 

Fifth Third will host a conference call to discuss these fourth quarter financial results at 9:30 a.m. (Eastern Standard Time) today. Investors, analysts and other interested parties may dial into the conference call at 877-309-0967 for domestic access and 706-679-3977 for international access (password: Fifth Third). A replay of the conference call will be available until 11:59 p.m. January 22, 2004 by dialing 800-642-1687 for domestic access and 706-645-9291 for international access (passcode: 4784914#).

 

Corporate Profile

 

Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. The Company has $91 billion in assets, operates 17 affiliates with 960 full-service Banking Centers, including 133 Bank Mart® locations open seven days a week inside select grocery stores and 1,905 Jeanie® ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee and West Virginia. The financial strength of Fifth Third’s affiliate banks continues to be recognized by rating agencies with deposit ratings of AA- and Aa1 from Standard & Poor’s and Moody’s, respectively. Additionally, Fifth Third Bancorp continues to maintain the highest short-term ratings available at A-1+ and Prime-1 and is recognized by Moody’s with one of the highest senior debt ratings for any U.S. bank holding company of Aa2. Fifth Third operates four main businesses: Retail, Commercial, Investment Advisors and Fifth Third Processing Solutions. Investor information and press releases can be viewed at www.53.com. Fifth Third’s common stock is traded through the Nasdaq National Market System under the symbol “FITB.”

 

This release may contain forward-looking statements within the meaning of Sections 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and 21E of the Securities Exchange Act of 1934, as amended, and Rule 3b-6 promulgated thereunder, that involve inherent risks and uncertainties. This press release may contain certain forward-looking statements with respect to our financial condition, results of operations, plans, objectives, future performance and business including statements preceded by, followed by or that include the words or phrases such as “believes,” “expects,” “anticipates,” “plans,” “trend,” “objective,” “continue,” “remain,” “pattern” or similar expressions or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions. There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to: (1) competitive pressures among depository institutions increase significantly; (2) changes in the interest rate environment reduce interest margins; (3) prepayment speeds, loan sale volumes, charge-offs and loan loss provisions; (4) general economic conditions, either national or in the states in which we do business, are less favorable than expected; (5) political developments, wars or other hostilities may disrupt or increase volatility in securities markets or other economic conditions; (6) legislative or regulatory changes or actions adversely affect the businesses in which we are engaged; (7) changes and trends in the securities markets; (8) a delayed or incomplete resolution of regulatory issues; (9) the impact of reputational risk created by these developments on such matters as business generation and retention, funding and liquidity; and (10) the outcome of regulatory and legal proceedings. We undertake no obligation to release revisions to these forward-looking statements or reflect events or circumstances after the date of this release. Further information on other factors which could affect the financial results of Fifth Third are included in Fifth Third’s filings with the Securities and Exchange Commission. These documents are available free of charge at the Commission’s website at http://www.sec.gov and/or from Fifth Third.

 

# # #

 

5

FIFTH THIRD BANCORP AND SUBSIDIARIES

Quarterly Financial Review for December 31, 2003

Table of Contents

 

     Page

Earnings Review:

     

Financial Highlights

    7-8

Consolidated Statements of Income

    9-10

Consolidated Statements of Changes in Shareholders’ Equity

    11

Condensed Consolidated Quarterly Statements of Income (Taxable Equivalent)

    12

Other Operating Income and Operating Expenses

    13

Financial Condition:

     

Consolidated Balance Sheets

    14

Loans and Leases Serviced

    15

Consolidated Average Balance Sheets, Yields (Taxable Equivalent) and Rates

    16-17

Regulatory Capital

    18

Asset Quality

    19

 

6

FIFTH THIRD BANCORP AND SUBSIDIARIES

Financial Highlights

(unaudited)

 

     For the Three Months Ended
       
     December 31,
2003		     December 31,
2002		    Percent
Change		  

Earnings ($ in thousands, except per share)

                    

Net Interest Income (Taxable Equivalent)

    $ 744,582     708,621    5.1  

Net Income Available to Common Shareholders

      460,499     423,372    8.8  

Earnings Per Share:

                    

Basic

      0.81     0.73    11.0  

Diluted

      0.80     0.72    11.1  

Key Ratios (percent)

                    

Return on Average Assets (ROA)

      2.02 %   2.11    (4.3 )

Return on Average Equity (ROE)

      21.3     19.8    7.6  

Net Interest Margin (Taxable Equivalent)

      3.54     3.80    (6.8 )

Efficiency

      47.3     44.0    7.5  

Average Shareholders’ Equity to Average Assets

      9.46     10.63    (11.0 )

Risk-Based Capital (a):

                    

Tier 1 Capital

      10.99     11.70    (6.1 )

Total Capital

      13.44     13.51    (0.5 )

Tier 1 Leverage

      9.10     9.73    (6.5 )

Common Stock Data

                    

Cash Dividends Declared Per Share

    $ 0.29     0.26    11.5  

Book Value Per Share

      15.04     14.76    1.9  

Market Price Per Share:

                    

High

      60.01     66.47    (9.7 )

Low

      55.47     55.40    0.1  

End of Period

      59.10     58.55    0.9  

Price/Earnings Ratio (b)

      19.50     21.21    (8.1 )
     For the Twelve Months Ended
       
     December 31,
2003		     December 31,
2002		    Percent
Change		  

Earnings ($ in thousands, except per share)

                    

Net Interest Income (Taxable Equivalent)

    $ 2,944,300     2,738,195    7.5  

Net Income Available to Common Shareholders

      1,754,004     1,633,973    7.3  

Earnings Per Share:

                    

Basic

      3.07     2.82    8.9  

Diluted

      3.03     2.76    9.8  

Key Ratios (percent)

                    

Return on Average Assets (ROA)

      2.01 %   2.18    (7.8 )

Return on Average Equity (ROE)

      20.4     19.9    2.5  

Net Interest Margin (Taxable Equivalent)

      3.62     3.96    (8.6 )

Efficiency

      45.0     44.9    0.2  

Average Shareholders’ Equity to Average Assets

      9.85     10.93    (9.9 )

Common Stock Data

                    

Cash Dividends Declared Per Share

    $ 1.13     0.98    15.3  

Market Price Per Share:

                    

High

      62.15     69.70    (10.8 )

Low

      47.05     55.26    (14.9 )
(a) December 31, 2003 risk-based capital ratios are estimated.
(b) Based on the most recent twelve-month earnings per diluted share and end of period stock prices.

 

7

FIFTH THIRD BANCORP AND SUBSIDIARIES

Financial Highlights

(unaudited)

Values Per Share

 

     Book Value Per Share   

Market Price

Range Per Share

 
     March 31    June 30    September 30    December 31    Low    High

1998

    $ 8.87    $ 9.27    $ 9.43    $ 9.64    $ 31.67    $ 49.42

1999

      9.74      9.59      9.56      9.84      38.58      50.29

2000

      9.99      10.33      10.72      11.71      29.33      60.88

2001

      12.19      12.26      12.81      13.11      45.69      64.77

2002

      13.39      14.10      14.48      14.76      55.26      69.70

2003

      15.07      15.01      15.00      15.04      47.05   

 

62.15

Earnings Per Share, Basic
     For the Three Months Ended
     
     March 31    June 30    September 30    December 31    Year-to-Date

1998

    $ 0.38    $ 0.18    $ 0.45    $ 0.43    $1.44

1999

      0.45      0.45      0.45      0.33    1.68

2000

      0.47      0.44      0.55      0.56    2.02

2001

      0.52      0.22      0.48      0.67    1.90

2002

      0.67      0.69      0.72      0.73    2.82

2003

      0.73      0.76      0.77      0.81    3.07
Earnings Per Share, Diluted
     For the Three Months Ended
     
     March 31    June 30    September 30    December 31    Year-to-Date

1998

    $ 0.37    $ 0.18    $ 0.44    $ 0.43    $1.42

1999

      0.44      0.44      0.44      0.33    1.66

2000

      0.46      0.43      0.54      0.55    1.98

2001

      0.51      0.22      0.47      0.65    1.86

2002

      0.66      0.68      0.70      0.72    2.76

2003

      0.72      0.75      0.76      0.80    3.03

 

8

FIFTH THIRD BANCORP AND SUBSIDIARIES

Consolidated Statements of Income

(unaudited) ($ in thousands, except per share)

 

     For the Three Months Ended
  
     December 31,
2003		    December 31,
2002		  

Interest Income

              

Interest and Fees on Loans and Leases

    $ 668,479    705,913  

Interest on Securities:

              

Taxable

      306,560    307,021  

Exempt from Income Taxes

      12,604    13,682  

Total Interest on Securities

      319,164    320,703  

Interest on Other Short-Term Investments

      231    1,236  

Total Interest Income

      987,874    1,027,852  

Interest Expense

              

Interest on Deposits:

              

Interest Checking

      45,246    68,664  

Savings

      11,739    36,656  

Money Market

      7,594    4,607  

Other Time

      47,217    70,591  

Certificates-$100,000 and Over

      5,804    9,025  

Foreign Office

      14,310    9,118  

Total Interest on Deposits

      131,910    198,661  

Interest on Federal Funds Borrowed

      19,316    18,244  

Interest on Short-Term Bank Notes

      233    —    

Interest on Other Short-Term Borrowings

      14,410    16,241  

Interest on Long-Term Debt

      87,052    96,480  

Total Interest Expense

      252,921    329,626  

Net Interest Income

      734,953    698,226  

Provision for Credit Losses

      93,654    72,085  

Net Interest Income After Provision for Credit Losses

      641,299    626,141  

Other Operating Income

              

Electronic Payment Processing Income

      160,178    147,343  

Service Charges on Deposits

      124,838    112,646  

Mortgage Banking Net Revenue

      57,229    66,689  

Investment Advisory Income

      84,860    74,156  

Other Service Charges and Fees

      112,522    164,013  

Operating Lease Income

      57,900    —    

Securities Gains, Net

      1,815    14,731  

Securities Gains, Net - Non-Qualifying Hedges on Mortgage Servicing

      —      783  

Total Other Operating Income

      599,342    580,361  

Operating Expenses

              

Salaries, Wages and Incentives

      221,155    241,887  

Employee Benefits

      53,291    59,532  

Equipment Expenses

      20,911    19,860  

Net Occupancy Expenses

      46,552    36,671  

Operating Lease Expenses

      43,967    —    

Other Operating Expenses

      249,146    209,589  

Total Operating Expenses

      635,022    567,539  

Income from Continuing Operations Before Income Taxes and Minority Interest

      605,619    638,963  

Applicable Income Taxes

      185,936    206,953  

Income from Continuing Operations Before Minority Interest

      419,683    432,010  

Minority Interest, Net of Tax

      —      (9,400 )

Income from Continuing Operations

      419,683    422,610  

Income from Discontinued Operations, Net of Tax

      41,001    947  

Net Income

      460,684    423,557  

Dividend on Preferred Stock

      185    185  

Net Income Available to Common Shareholders

    $ 460,499    423,372  

Basic Earnings Per Share:

              

Income from Continuing Operations

    $ 0.74    0.73  

Income from Discontinued Operations

      0.07    —    

Net Income

    $ 0.81    0.73  

Diluted Earnings Per Share:

              

Income from Continuing Operations

    $ 0.73    0.72  

Income from Discontinued Operations

      0.07    —    

Net Income

    $ 0.80    0.72  

 

9

FIFTH THIRD BANCORP AND SUBSIDIARIES

Consolidated Statements of Income

(unaudited) ($ in thousands, except per share)

 

     For the Twelve Months Ended
  
     December 31,
2003		     December 31,
2002		  

Interest Income

               

Interest and Fees on Loans and Leases

    $ 2,711,271     2,810,102  

Interest on Securities:

               

Taxable

      1,226,166     1,257,579  

Exempt from Income Taxes

      50,658     55,897  

Total Interest on Securities

      1,276,824     1,313,476  

Interest on Other Short-Term Investments

      2,973     5,834  

Total Interest Income

      3,991,068     4,129,412  

Interest Expense

               

Interest on Deposits:

               

Interest Checking

      189,488     296,402  

Savings

      63,680     158,210  

Money Market

      32,097     27,376  

Other Time

      213,391     356,846  

Certificates - $100,000 and Over

      45,060     54,706  

Foreign Office

      43,800     34,546  

Total Interest on Deposits

      587,516     928,086  

Interest on Federal Funds Borrowed

      80,038     54,090  

Interest on Short-Term Bank Notes

      233     54  

Interest on Other Short-Term Borrowings

      55,055     67,000  

Interest on Long-Term Debt

      362,800     381,130  

Total Interest Expense

      1,085,642     1,430,360  

Net Interest Income

      2,905,426     2,699,052  

Provision for Credit Losses

      399,429     246,611  

Net Interest Income After Provision for Credit Losses

      2,505,997     2,452,441  

Other Operating Income

               

Electronic Payment Processing Income

      575,025     512,054  

Service Charges on Deposits

      485,116     431,076  

Mortgage Banking Net Revenue

      301,734     187,919  

Investment Advisory Income

      332,166     325,162  

Other Service Charges and Fees

      581,376     579,727  

Operating Lease Income

      123,709     —    

Securities Gains, Net

      80,893     113,579  

Securities Gains, Net - Non-Qualifying Hedges on Mortgage Servicing

      2,809     33,525  

Total Other Operating Income

      2,482,828     2,183,042  

Operating Expenses

               

Salaries, Wages and Incentives

      922,011     902,112  

Employee Benefits

      239,765     200,915  

Equipment Expenses

      82,010     79,344  

Net Occupancy Expenses

      159,064     142,310  

Operating Lease Expenses

      93,525     —    

Other Operating Expenses

      944,887     885,273  

Total Operating Expenses

      2,441,262     2,209,954  

Income from Continuing Operations Before Income Taxes, Minority Interest and Cumulative Effect

      2,547,563     2,425,529  

Applicable Income Taxes

      805,495     757,115  

Income from Continuing Operations Before Minority Interest and Cumulative Effect

      1,742,068     1,668,414  

Minority Interest, Net of Tax

      (20,458 )   (37,680 )

Income from Continuing Operations Before Cumulative Effect

      1,721,610     1,630,734  

Income from Discontinued Operations, Net of Tax

      43,896     3,979  

Income Before Cumulative Effect

      1,765,506     1,634,713  

Cumulative Effect of Change in Accounting Principle, Net of Tax

      (10,762 )   —    

Net Income

      1,754,744     1,634,713  

Dividend on Preferred Stock

      740     740  

Net Income Available to Common Shareholders

    $ 1,754,004     1,633,973  

Basic Earnings Per Share:

               

Income from Continuing Operations

    $ 3.01     2.81  

Income from Discontinued Operations

      0.08     0.01  

Cumulative Effect of Change in Accounting Principle, Net

      (0.02 )   —    

Net Income

    $ 3.07     2.82  

Diluted Earnings Per Share:

               

Income from Continuing Operations

    $ 2.97     2.75  

Income from Discontinued Operations

      0.08     0.01  

Cumulative Effect of Change in Accounting Principle, Net

      (0.02 )   —    

Net Income

    $ 3.03     2.76  

 

10

FIFTH THIRD BANCORP AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders’ Equity

(unaudited) ($ in thousands, except per share)

 

     For the Three Months Ended
  
    

December 31,

2003

    

December 31,

2002

  

Total Shareholders’ Equity, Beginning

    $ 8,553,786     8,375,738  

Net Income

      460,684     423,557  

Nonowner Changes in Equity, Net of Tax:

               

Change in Unrealized Gains and (Losses) on Securities Available-for-Sale and Qualifying Cash Flow Hedges

      (100,198 )   101,479  

Change in Additional Minimum Pension Liability

      (11,097 )   (52,235 )

Net Income and Nonowner Changes in Equity

      349,389     472,801  

Cash Dividends Declared:

               

Common Stock (2003 - $.29 per share and 2002 - $.26 per share)

      (164,392 )   (149,470 )

Preferred Stock

      (185 )   (185 )

Stock Options Exercised Including Treasury Shares Issued

      28,780     10,137  

Loans Repaid Related to Exercise of Stock Options, Net

      3,057     —    

Corporate Tax Benefit Related to Exercise of Non-Qualified Stock Options

      24,063     26,066  

Shares Purchased

      (270,716 )   (261,100 )

Other

      807     1,030  

Total Shareholders’ Equity, Ending

    $ 8,524,589     8,475,017  
     For the Twelve Months Ended
  
    

December 31,

2003

    

December 31,

2002

  

Total Shareholders’ Equity, Beginning

    $ 8,475,017     7,639,277  

Net Income

      1,754,744     1,634,713  

Nonowner Changes in Equity, Net of Tax:

               

Change in Unrealized Gains and (Losses) on Securities Available-for-Sale and Qualifying Cash Flow Hedges

      (478,606 )   413,414  

Change in Additional Minimum Pension Liability

      (11,097 )   (52,235 )

Net Income and Nonowner Changes in Equity

      1,265,041     1,995,892  

Cash Dividends Declared:

               

Common Stock (2003 - $1.13 per share and 2002 - $.98 per share)

      (644,838 )   (567,519 )

Preferred Stock

      (740 )   (740 )

Stock Options Exercised Including Treasury Shares Issued

      96,939     103,574  

Loans Issued Related to Exercise of Stock Options, Net

      (34,127 )   —    

Corporate Tax Benefit Related to Exercise of Non-Qualified Stock Options

      24,372     26,474  

Shares Purchased

      (654,850 )   (719,518 )

Other

      (2,225 )   (2,423 )

Total Shareholders’ Equity, Ending

    $ 8,524,589     8,475,017  

 

11

FIFTH THIRD BANCORP AND SUBSIDIARIES

Condensed Consolidated Quarterly Statements of Income (Taxable Equivalent)

(unaudited) ($ in thousands, except per share)

 

     For the Three Months Ended
  
    

December 31,

2003

   

September 30,

2003

    

June 30,

2003

    

March 31,

2003

    

December 31,

2002

  

Interest Income

    $ 987,874    982,978     1,019,918     1,000,298     1,027,852  

Taxable Equivalent Adjustment

      9,629    9,661     9,683     9,902     10,395  

Interest Income (Taxable Equivalent)

      997,503    992,639     1,029,601     1,010,200     1,038,247  

Interest Expense

      252,921    258,075     280,590     294,055     329,626  

Net Interest Income (Taxable Equivalent)

      744,582    734,564     749,011     716,145     708,621  

Provision for Credit Losses

      93,654    112,082     108,877     84,817     72,085  

Net Interest Income After Provision for Credit Losses (Taxable Equivalent)

      650,928    622,482     640,134     631,328     636,536  

Other Operating Income

      599,342    680,341     617,812     585,333     580,361  

Operating Expenses

      635,022    633,401     594,663     578,177     567,539  

Income from Continuing Operations Before Income Taxes, Minority Interest and Cumulative Effect (Taxable Equivalent)

      615,248    669,422     663,283     638,484     649,358  

Applicable Income Taxes

      185,936    212,563     206,834     200,162     206,953  

Taxable Equivalent Adjustment

      9,629    9,661     9,683     9,902     10,395  

Income from Continuing Operations Before Minority Interest and Cumulative Effect

      419,683    447,198     446,766     428,420     432,010  

Minority Interest, Net of Tax

      —      —       (10,229 )   (10,229 )   (9,400 )

Income from Continuing Operations Before Cumulative Effect

      419,683    447,198     436,537     418,191     422,610  

Income from Discontinued Operations, Net of Tax

      41,001    947     1,136     813     947  

Income Before Cumulative Effect

      460,684    448,145     437,673     419,004     423,557  

Cumulative Effect of Change in Accounting Principle, Net of Tax

      —      (10,762 )   —       —       —    

Net Income

      460,684    437,383     437,673     419,004     423,557  

Dividend on Preferred Stock

      185    185     185     185     185  

Net Income Available to Common Shareholders

    $ 460,499    437,198     437,488     418,819     423,372  

 

12

FIFTH THIRD BANCORP AND SUBSIDIARIES

Other Operating Income and Operating Expenses

(unaudited) ($ in thousands)

 

     For the Three Months Ended
    

December 31,

2003

   

September 30,

2003

   

June 30,

2003

   

March 31,

2003

   

December 31,

2002

Other Operating Income

                           

Electronic Payment Processing Income

    $ 160,178    143,210    141,501    130,138    147,343

Service Charges on Deposits

      124,838    125,130    120,826    114,322    112,646

Mortgage Banking Net Revenue

      57,229    74,830    92,826    76,849    66,689

Investment Advisory Income

      84,860    84,726    82,843    79,737    74,156

Other Service Charges and Fees

      112,522    171,328    139,163    158,363    164,013

Operating Lease Income

      57,900    65,809    —      —      —  

Securities Gains, Net

      1,815    15,308    38,860    24,909    14,731

Securities Gains, Net - Non-Qualifying Hedges on Mortgage Servicing

      —      —      1,793    1,015    783

Total Other Operating Income

      599,342    680,341    617,812    585,333    580,361

Operating Expenses

                           

Salaries, Wages and Incentives

      221,155    225,113    242,784    232,959    241,887

Employee Benefits

      53,291    61,087    64,737    60,650    59,532

Equipment Expenses

      20,911    21,046    20,341    19,712    19,860

Net Occupancy Expenses

      46,552    36,279    37,837    38,397    36,671

Operating Lease Expenses

      43,967    49,558    —      —      —  

Other Operating Expenses (a)

      249,146    240,318    228,964    226,459    209,589

Total Operating Expenses

    $ 635,022    633,401    594,663    578,177    567,539

Full-Time Equivalent Employees

      18,899    19,770    19,830    19,573    19,119

Banking Centers

      952    942    943    941    930
(a) Includes intangible amortization expense of $9.5 million, $9.5 million, $11.6 million, $9.3 million and $9.4 million for the three months ended December 31, 2003, September 30, 2003, June 30, 2003, March 31, 2003 and December 31, 2002, respectively.

 

13

FIFTH THIRD BANCORP AND SUBSIDIARIES

Consolidated Balance Sheets

(unaudited) ($ in thousands, except share data)

 

     As of
  
    

December 31,

2003

    

December 31,

2002

  

Assets

               

Cash and Due from Banks

    $ 2,359,371     1,890,809  

Securities Available-for-Sale (a)

      28,999,168     25,464,056  

Securities Held-to-Maturity (b)

      135,215     51,768  

Trading Securities

      55,393     18,286  

Other Short-Term Investments

      268,092     293,657  

Loans Held for Sale

      1,881,127     3,357,507  

Loans and Leases:

               

Commercial Loans

      14,209,129     12,742,832  

Construction Loans

      3,635,977     3,327,026  

Commercial Mortgage Loans

      6,893,742     5,885,544  

Commercial Lease Financing

      4,429,605     3,985,896  

Residential Mortgage Loans

      4,425,421     3,494,606  

Consumer Loans

      17,432,495     15,116,254  

Consumer Lease Financing

      2,708,511     2,637,926  

Unearned Income

      (1,427,027 )   (1,261,948 )

Total Loans and Leases

      52,307,853     45,928,136  

Reserve for Credit Losses

      (770,394 )   (683,193 )

Total Loans and Leases, net

      51,537,459     45,244,943  

Bank Premises and Equipment

      1,061,191     890,934  

Operating Lease Equipment

      766,762     —    

Accrued Income Receivable

      415,387     460,838  

Goodwill

      699,981     702,051  

Intangible Assets

      194,569     236,144  

Servicing Rights

      298,564     263,499  

Other Assets

      2,470,744     2,019,956  

Total Assets

    $ 91,143,023     80,894,448  

Liabilities

               

Deposits:

               

Demand

    $ 12,141,582     10,095,225  

Interest Checking

      19,757,044     17,878,326  

Savings

      7,375,486     10,055,639  

Money Market

      3,201,398     1,044,371  

Other Time

      6,685,935     8,179,520  

Certificates - $100,000 and Over

      1,370,717     1,180,765  

Foreign Office

      6,563,147     3,774,581  

Total Deposits

      57,095,309     52,208,427  

Federal Funds Borrowed

      6,928,505     4,748,568  

Short-Term Bank Notes

      500,000     —    

Other Short-Term Borrowings

      5,742,202     4,074,576  

Accrued Taxes, Interest and Expenses

      2,303,948     2,307,717  

Other Liabilities

      985,640     439,934  

Long-Term Debt

      9,062,830     8,178,704  

Total Liabilities

      82,618,434     71,957,926  

Minority Interest

      —       461,505  

Total Shareholders’ Equity (c)

      8,524,589     8,475,017  

Total Liabilities and Shareholders’ Equity

    $ 91,143,023     80,894,448  
(a) Amortized cost: December 31, 2003 - $29,075,805 and December 31, 2002 - $24,790,289
(b) Market values: December 31, 2003 - $135,215 and December 31, 2002 - $51,768
(c) Common Shares: Stated value $2.22 per share; authorized 1,300,000,000; outstanding December 31, 2003 - 566,685,301 (excluding 16,766,390 treasury shares) and December 31, 2002 - 574,355,247 (excluding 9,071,857 treasury shares).

 

14

FIFTH THIRD BANCORP AND SUBSIDIARIES

Loans and Leases Serviced

(unaudited) ($ in thousands)

 

     As of
    

December 31,

2003

   

September 30,

2003

   

June 30,

2003

   

March 31,

2003

   

December 31,

2002

Commercial

                           

Commercial Loans

    $ 14,209,122    13,824,371    14,014,541    13,380,264    12,742,725

Mortgage

      6,893,742    6,590,021    6,297,335    5,983,988    5,885,544

Construction

      3,301,082    3,143,315    3,052,459    3,064,878    3,009,113

Leases

      3,263,145    3,160,839    3,021,888    2,998,208    3,019,190

Subtotal

      27,667,091    26,718,546    26,386,223    25,427,338    24,656,572

Consumer

                           

Consumer Loans

      16,670,948    17,090,372    15,785,717    14,862,765    14,578,705

Mortgage & Construction

      4,760,317    4,820,026    4,054,287    3,966,160    3,812,518

Credit Card

      761,545    619,893    588,338    562,335    537,549

Leases

      2,447,952    2,557,602    2,541,934    2,448,098    2,342,792

Subtotal

      24,640,762    25,087,893    22,970,276    21,839,358    21,271,564

Total Loans and Leases

      52,307,853    51,806,439    49,356,499    47,266,696    45,928,136

Loans Held for Sale

      1,881,127    1,528,137    3,245,470    3,011,377    3,357,507

Operating Lease Equipment (a)

      766,762    899,348    —      —      —  

Loans and Leases Serviced for Others:

                           

Residential Mortgage (b)

      24,494,643    24,379,988    24,990,054    25,848,335    26,467,761

Commercial Mortgage (c)

      2,084,710    2,017,717    2,008,982    1,990,481    1,959,290

Commercial Loans (d)

      1,790,257    1,925,655    1,813,106    1,831,119    1,762,564

Consumer Loans (e)

      866,156    909,090    —      —      —  

Consumer Leases (a)

      —      —      1,127,470    1,309,487    1,475,219

Total Loans and Leases Serviced for Others

      29,235,766    29,232,450    29,939,612    30,979,422    31,664,834

Total Loans and Leases Serviced

    $ 84,191,508    83,466,374    82,541,581    81,257,495    80,950,477
(a) Prior to January 1, 2002, Fifth Third sold to and subsequently leased back from an unrelated asset-backed special purpose entity (SPE) certain consumer auto lease assets, subject to credit recourse and with servicing retained. Fifth Third adopted the provisions of FASB Interpretation No. 46 and consolidated this SPE effective July 1, 2003, as Fifth Third was deemed the primary beneficiary under the provisions of this Interpretation.
(b) Fifth Third sells certain residential mortgage loans, primarily conforming and fixed-rate in nature, and retains servicing responsibilities.
(c) Fifth Third sells certain commercial mortgage loans and retains servicing responsibilities.
(d) Fifth Third transfers, subject to credit recourse and with servicing retained, certain investment grade commercial loans to an unconsolidated qualified special purpose entity (QSPE), which is wholly-owned by an independent third party.
(e) Fifth Third sells certain consumer loans that are primarily variable rate in nature and retains servicing responsibilities.

 

15

FIFTH THIRD BANCORP AND SUBSIDIARIES

Consolidated Average Balance Sheets, Yields (Taxable Equivalent) and Rates

(unaudited) ($ in thousands)

 

    

For the Three Months Ended

  
 
     December 31, 2003     December 31, 2002  
    

Average

Balance

    

Average

Yield/Rate

    

Average

Balance

    

Average

Yield/Rate

  
 

Assets

                           

Interest-Earning Assets:

                           

Loans and Leases

    $ 53,886,159     4.94 %   48,478,420     5.81 %

Taxable Securities

      28,362,419     4.29     24,151,000     5.04  

Tax Exempt Securities

      1,026,499     7.41     1,071,417     7.63  

Other Short-Term Investments

      205,667     0.45     355,263     1.38  

Total Interest-Earning Assets

      83,480,744     4.74     74,056,100     5.56  

Cash and Due from Banks

      2,043,667           1,533,686        

Other Assets

      5,825,052           4,730,153        

Reserve for Credit Losses

      (771,129 )         (663,809 )      

Total Assets

    $ 90,578,334           79,656,130        

Liabilities

                           

Interest-Bearing Liabilities:

                           

Interest Checking

    $ 19,302,847     0.93 %   17,671,001     1.54 %

Savings

      7,699,512     0.60     10,479,879     1.39  

Money Market

      3,388,175     0.89     1,013,143     1.80  

Other Time

      6,728,502     2.78     8,392,695     3.34  

Certificates-$100,000 and Over

      1,527,837     1.51     1,346,626     2.66  

Foreign Office Deposits

      5,605,733     1.01     2,515,241     1.44  

Federal Funds Borrowed

      7,503,360     1.02     4,943,602     1.46  

Short-Term Bank Notes

      86,957     1.06     —       —    

Other Short-Term Borrowings

      6,664,002     0.86     3,966,693     1.62  

Long-Term Debt

      9,148,606     3.78     8,142,349     4.70  

Total Interest-Bearing Liabilities

      67,655,531     1.48     58,471,229     2.24  

Demand Deposits

      11,459,535           9,675,356        

Other Liabilities

      2,896,161           2,588,700        

Total Liabilities

      82,011,227           70,735,285        

Minority Interest

      —             456,535        

Shareholders’ Equity

      8,567,107           8,464,310        

Total Liabilities and Shareholders’ Equity

    $ 90,578,334           79,656,130        

Average Common Shares (in thousands):

                           

Outstanding

      568,104           576,471        

Diluted

      576,881           586,809        

Ratios (percent):

                           

Net Interest Margin (Taxable Equivalent)

            3.54 %         3.80 %

Net Interest Rate Spread (Taxable Equivalent)

            3.26 %         3.32 %

Interest-Bearing Liabilities to Interest-Earning Assets

            81.04 %         78.96 %

 

16

FIFTH THIRD BANCORP AND SUBSIDIARIES

Consolidated Average Balance Sheets, Yields (Taxable Equivalent) and Rates

(unaudited) ($ in thousands)

 

     For the Twelve Months Ended
  
    

December 31,

2003

    

December 31,

2002

  
    

Average

Balance

    

Average

Yield/Rate

    

Average

Balance

    

Average

Yield/Rate

  
 

Assets

                           

Interest-Earning Assets:

                           

Loans and Leases

    $ 52,413,721     5.20 %   45,538,622     6.20 %

Taxable Securities

      27,583,911     4.45     22,144,951     5.68  

Tax Exempt Securities

      1,056,342     7.26     1,101,334     7.40  

Other Short-Term Investments

      306,537     0.97     338,575     1.72  

Total Interest-Earning Assets

      81,360,511     4.95     69,123,482     6.03  

Cash and Due from Banks

      1,600,392           1,551,031        

Other Assets

      5,211,663           4,968,991        

Reserve for Credit Losses

      (729,568 )         (644,886 )      

Total Assets

    $ 87,442,998           74,998,618        

Liabilities

                           

Interest-Bearing Liabilities:

                           

Interest Checking

    $ 18,679,204     1.01 %   16,239,081     1.83 %

Savings

      8,019,808     0.79     9,464,772     1.67  

Money Market

      3,188,949     1.01     1,162,401     2.36  

Other Time

      7,167,421     2.98     9,402,798     3.80  

Certificates-$100,000 and Over

      3,089,987     1.46     1,689,641     3.24  

Foreign Office Deposits

      3,862,375     1.13     2,017,723     1.71  

Federal Funds Borrowed

      7,000,957     1.14     3,261,948     1.66  

Short-Term Bank Notes

      21,918     1.06     1,584     3.40  

Other Short-Term Borrowings

      5,350,047     1.03     3,926,780     1.71  

Long-Term Debt

      8,747,063     4.15     7,640,253     4.99  

Total Interest-Bearing Liabilities

      65,127,729     1.67     54,806,981     2.61  

Demand Deposits

      10,482,003           8,952,858        

Other Liabilities

      2,982,375           2,601,863        

Total Liabilities

      78,592,107           66,361,702        

Minority Interest

      233,882           440,075        

Shareholders’ Equity

      8,617,009           8,196,841        

Total Liabilities and Shareholders’ Equity

    $ 87,442,998           74,998,618        

Average Common Shares (in thousands):

                           

Outstanding

      571,590           580,327        

Diluted

      580,003           592,020        

Ratios (percent):

                           

Net Interest Margin (Taxable Equivalent)

            3.62 %         3.96 %

Net Interest Rate Spread (Taxable Equivalent)

            3.28 %         3.42 %

Interest-Bearing Liabilities to Interest-Earning Assets

            80.05 %         79.29 %

 

17

FIFTH THIRD BANCORP AND SUBSIDIARIES

Regulatory Capital

(unaudited) ($ in thousands)

 

    

December 31,

2003 (a)

    

September 30,

2003

    

June 30,

2003

    

March 31,

2003

    

December 31,

2002

  

Tier 1 Capital:

                                 

Shareholders’ Equity

    $ 8,524,589     8,553,786     8,554,234     8,663,744     8,475,017  

Goodwill and Certain Other Intangibles

      (894,550 )   (903,540 )   (912,531 )   (923,607 )   (932,646 )

Unrealized Losses/(Gains)

      57,369     (42,829 )   (288,328 )   (348,963 )   (421,237 )

Other

      473,890     472,519     556,967     546,319     535,118  

Total Tier 1 Capital

    $ 8,161,298     8,079,936     7,910,342     7,937,493     7,656,252  

Total Capital:

                                 

Tier 1 Capital

    $ 8,161,298     8,079,936     7,910,342     7,937,493     7,656,252  

Qualifying Reserves for Credit Losses

      787,143     788,381     755,103     708,122     691,567  

Qualifying Subordinated Notes

      1,036,779     1,056,981     991,441     491,655     496,427  

Total Risk-Based Capital

    $ 9,985,220     9,925,298     9,656,886     9,137,270     8,844,246  

Risk-Weighted Assets

      74,272,000     72,863,148     69,849,411     66,737,471     65,444,076  

Ratios (percent):

                                 

Average Shareholders’ Equity to Average Assets

      9.46 %   9.42     10.19     10.42     10.63  

Risk-Based Capital:

                                 

Tier 1 Capital

      10.99 %   11.09     11.32     11.89     11.70  

Total Capital

      13.44 %   13.62     13.83     13.69     13.51  

Tier 1 Leverage

      9.10 %   9.10     9.18     9.67     9.73  
(a) December 31, 2003 regulatory capital data and ratios are estimated.

 

18

FIFTH THIRD BANCORP AND SUBSIDIARIES

Asset Quality

(unaudited) ($ in thousands)

 

Summary of Credit Loss Experience    For the Three Months Ended
  
    

December 31,

2003

    

September 30,

2003

    

June 30,

2003

    

March 31,

2003

    

December 31,

2002

  

Losses Charged Off:

                                 

Commercial, Financial and Agricultural Loans

    $ (56,936 )   (39,385 )   (29,259 )   (27,140 )   (17,236 )

Real Estate - Commercial Mortgage Loans

      (1,678 )   (4,622 )   (1,218 )   (1,061 )   (5,591 )

Real Estate - Construction Loans

      (898 )   (2,162 )   (410 )   (198 )   (1,167 )

Real Estate - Residential Mortgage Loans

      (8,562 )   (3,266 )   (3,195 )   (8,806 )   (3,467 )

Consumer Loans

      (36,828 )   (33,560 )   (31,802 )   (33,266 )   (31,397 )

Lease Financing

      (8,828 )   (9,364 )   (25,721 )   (12,007 )   (11,038 )

Total Losses

      (113,730 )   (92,359 )   (91,605 )   (82,478 )   (69,896 )

Recoveries of Losses Previously Charged Off:

                                 

Commercial, Financial and Agricultural Loans

      5,355     4,111     2,379     4,489     3,736  

Real Estate - Commercial Mortgage Loans

      597     390     418     686     830  

Real Estate - Construction Loans

      44     231     33     176     237  

Real Estate - Residential Mortgage Loans

      20     134     11     2     1  

Consumer Loans

      10,867     10,037     8,393     10,159     12,501  

Lease Financing

      1,878     2,327     2,896     2,310     3,074  

Total Recoveries

      18,761     17,230     14,130     17,822     20,379  

Net Losses Charged Off:

                                 

Commercial, Financial and Agricultural Loans

      (51,581 )   (35,274 )   (26,880 )   (22,651 )   (13,500 )

Real Estate - Commercial Mortgage Loans

      (1,081 )   (4,232 )   (800 )   (375 )   (4,761 )

Real Estate - Construction Loans

      (854 )   (1,931 )   (377 )   (22 )   (930 )

Real Estate - Residential Mortgage Loans

      (8,542 )   (3,132 )   (3,184 )   (8,804 )   (3,466 )

Consumer Loans

      (25,961 )   (23,523 )   (23,409 )   (23,107 )   (18,896 )

Lease Financing

      (6,950 )   (7,037 )   (22,825 )   (9,697 )   (7,964 )

Total Net Losses Charged Off

    $ (94,969 )   (75,129 )   (77,475 )   (64,656 )   (49,517 )

Reserve for Credit Losses, Beginning

    $ 771,709     734,756     703,354     683,193     660,934  

Total Net Losses Charged Off

      (94,969 )   (75,129 )   (77,475 )   (64,656 )   (49,517 )

Provision Charged to Operations

      93,654     112,082     108,877     84,817     72,085  

Acquired Institutions and Other

      —       —       —       —       (309 )

Reserve for Credit Losses, Ending

    $ 770,394     771,709     734,756     703,354     683,193  
Nonperforming and Underperforming Assets                               
     As of
  
    

December 31,

2003

    

September 30,

2003

    

June 30,

2003

    

March 31,

2003

    

December 31,

2002

  

Nonaccrual Loans and Leases (a)

    $ 241,505     271,256     273,293     277,452     246,986  

Renegotiated Loans and Leases

      8,286     —       —       —       —    

Other Assets, Including Other Real Estate Owned

      68,540     52,053     33,212     29,221     25,618  

Total Nonperforming Assets

      318,331     323,309     306,505     306,673     272,604  

Ninety Days Past Due Loans and Leases (a)

      145,243     145,643     137,503     134,024     162,213  

Total Underperforming Assets

    $ 463,574     468,952     444,008     440,697     434,817  

Average Loans and Leases (b)

    $ 52,401,684     50,615,070     48,561,158     47,154,837     45,272,569  

Loans and Leases (b)

      52,307,853     51,806,439     49,356,499     47,266,696     45,928,136  

Ratios

                                 

Net Losses Charged Off as a Percent of Average Loans and Leases

      0.72 %   0.59     0.64     0.56     0.43  

Reserve as a Percent of Loans and Leases

      1.47 %   1.49     1.49     1.49     1.49  

Nonperforming Assets as a Percent of Loans, Leases and Other Assets, Including Other Real Estate Owned

      0.61 %   0.62     0.62     0.65     0.59  

Underperforming Assets as a Percent of Loans, Leases and Other Assets, Including Other Real Estate Owned

      0.89 %   0.90     0.90     0.93     0.95  
(a) Nonaccrual includes $23.6 million and Ninety Days Past Due includes $46.2 million of residential mortgage loans as of December 31, 2003.
(b) Excludes loans held for sale.

 

19