EX-99.1 2 dex991.htm PRESS RELEASE DATED JANUARY 18, 2007 Press release dated January 18, 2007

Exhibit 99.1

LOGO

 

          News Release
CONTACT:    Jeff Richardson (Analysts)    FOR IMMEDIATE RELEASE
   (513) 534-0983    January 18, 2007
   Jim Eglseder (Analysts)   
   (513) 534-8424   
   Debra DeCourcy, APR (Media)   
   (513) 534-4153   

******* 1.17.07 10am DRAFT *******

FIFTH THIRD BANCORP REPORTS 2006 EARNINGS OF $2.13

PER DILUTED SHARE

Fifth Third Bancorp today reported 2006 earnings of $1.2 billion, or $2.13 per diluted share, compared with $1.5 billion or $2.77 per diluted share in 2005. Fourth quarter 2006 earnings were $66 million, or $0.12 per diluted share, compared with $377 million or $0.68 per diluted share in the third quarter of 2006 and $332 million or $0.60 per diluted share for the same period in 2005.

Fourth quarter and full year results were negatively affected by the balance sheet actions announced in November that were taken to improve our asset/liability profile and reduce leverage. These actions resulted in an aggregate pre-tax loss of $454 million. More detail regarding these actions is provided below.

“Fourth quarter results reflect an improved net interest margin and solid performance in many of our businesses,” said George A. Schaefer, Jr., Chairman and CEO of Fifth Third Bancorp. “While the actions undertaken this quarter to improve our balance sheet position significantly reduced 2006 bottom line results, this was the right thing to do for our company. Core deposit growth was solid and noninterest income trends were within our expectations. Expense growth was modest, particularly given the effect of expenses related to the balance sheet actions, and credit costs were in line with our expectations for the quarter. We continue to believe that credit cost trends should remain manageable but increases are likely, reflecting a beginning of a turn in the credit cycle.

We are optimistic about our outlook for 2007. In addition to continued momentum in loan and deposit growth, we built 83 new banking center locations in 2006 including 51 de novos, and continued to invest significantly in information technology and in expanding our sales force. Our tangible capital levels are among the very strongest in the industry. We have a terrific management team that is committed to the long-term interests of the Company, to building shareholder value, and to taking the actions necessary to produce strong, sustainable long-term growth. ”

Balance Sheet Actions and Trends

On November 20, 2006, Fifth Third Bancorp’s Board of Directors approved certain actions to improve our asset/liability profile. These actions were intended to reduce the size of our available-for-sale securities portfolio to a size that was more consistent with our liquidity, collateral and interest rate risk management requirements; improve the composition of our balance sheet with a lower concentration in fixed-rate assets; lower wholesale borrowings to reduce leverage; and better position the company for an uncertain economic and interest rate environment.

These actions included: (i) sales of $11.3 billion in available-for-sale securities, with a weighted-average yield of approximately 4.30%; (ii) reinvestment of approximately $2.8 billion in available-for-sale securities that are more efficient when used as collateral; (iii) repayment of $8.5 billion in wholesale borrowings at a weighted average rate paid of 5.30%; and (iv) the termination of approximately $1.1 billion of repurchase and reverse repurchase agreements. At the time, these actions were expected to result in an aggregate pre-tax loss of approximately $500 million. Following the execution of these actions, actual pre-tax losses were $454 million consisting of $398 million in losses on the sale of securities; $17 million in losses on derivatives related to the securities sold, recorded as other noninterest income; and $39 million in charges related to the termination of financing agreements, recorded in other noninterest expense. The reduction in reported earnings for the year resulted in the lowering of year-to-date tax provision, which produced a negative effective tax rate for the quarter.

The taxable securities portfolio at year-end 2006 was characterized by the following statistics: $11.3 billion; weighted average yield of 4.80%; weighted average life of 4.3 years; duration of 3.4 years. Net unrealized losses for the available-for-sale securities portfolio were $183 million.

In December 2006, we issued $500 million of ten-year fixed-rate subordinated debt and $250 million ten-year floating rate subordinated debt. The fixed rate issue was priced to yield 5.50% and subsequently swapped to floating. The floating rate issue was priced at three month Libor plus 42 bps. This issue contributed approximately 73 bps to our year-end total capital ratio.

We adopted SFAS No. 158 in the fourth quarter of 2006. This new accounting standard required companies to report the funding status of its defined benefit plan as an asset or liability and recognize unamortized gains and losses as a component of equity. The adoption of this statement decreased Fifth Third’s shareholder’s equity by approximately $60 million, reducing the tangible equity ratio by approximately 6 bps.

Average loan and lease balances grew two percent sequentially and seven percent over fourth quarter last year. Commercial loans and leases grew two percent sequentially and eight percent compared with the year ago quarter and consumer loans and leases grew two percent sequentially and five percent compared with the year ago quarter. Excluding anticipated run-off in the consumer lease portfolio totaling $540 million, consumer loans and leases grew seven percent versus last year.

Average core deposits increased one percent sequentially on growth in demand deposits, money market and savings deposits as well as retail CDs. Compared with the fourth quarter last year, average core deposits rose three percent on growth in savings, retail CDs and money market accounts.

During the quarter, we repurchased 2.0 million shares at a total cost of $81 million. Our current remaining share repurchase authorization is 15.8 million shares.

 

2

Net Interest Income

Net interest income of $744 million on a taxable equivalent basis increased three percent from last quarter. The increase was primarily driven by the sale of available-for-sale securities and repayment of wholesale borrowings, a position that was being carried at a negative spread. Solid trends in loan growth and yields and greater stability in deposit pricing costs also contributed to the growth. The net interest margin increased 17 bps, reflecting the improvement in net interest income coupled with the reduction in earning assets resulting from the sale of securities. The margin result exceeded our original expectations due to better execution on the sales of securities, stronger than expected core deposit growth in the fourth quarter and improved loan yields. Competition for deposits stabilized in some of our markets and the mix shift within our core deposit products slowed relative to prior periods, although balance rollovers within term deposit categories caused some upward pressure on product line composite rates paid.

Net interest income increased one percent compared with the fourth quarter 2005, reflecting a two percent decline in earning assets and a five bps improvement of the net interest margin.

Noninterest Income

Noninterest income of $219 million was $443 million lower than the third quarter of 2006 and $417 million lower than a year ago. Fourth quarter net securities losses and losses on related derivatives of $411 million drove the comparisons. Otherwise, strong performance in electronic payment processing was mitigated by a drop in deposit service charges, lower mortgage banking revenue and lower other noninterest income.

Electronic payment processing (EPP) revenue of $232 million increased six percent sequentially largely reflecting strong growth in the merchant business, solid growth in card revenue, and seasonal increases in the level of retail sales activity. EPP revenue increased 14 percent over the same quarter last year on double-digit growth in merchant processing and card interchange, though growth was mitigated by the effects of slower consumer spending over the course of 2006. We remain confident in the growth outlook for our processing business, as national merchant contract additions announced throughout 2006 continue to be realized and as transaction volumes increase with the continued shift by consumers toward electronic forms of payment.

Deposit service revenue of $122 million declined nine percent compared with last quarter and eight percent versus the same quarter last year. Retail deposit revenue dropped by 13 percent sequentially, reflecting significantly lower consumer NSF fees, while commercial deposit revenue decreased by three percent on growth in compensating balances which increased our payments of earnings credits to customers. Retail deposit service revenue is expected to rebound in the first quarter, although this effect will be mitigated by normal first quarter seasonality.

Investment advisory revenue of $90 million increased two percent versus third quarter, largely the result of growth in our private client group and mutual fund fees. Compared with the same quarter last year, revenue increased four percent. Year-over-year results were driven by strong growth in the private client group and moderate growth in the retail securities and institutional businesses, partially offset by lower mutual fund fees reflecting the ongoing effect of open architecture on proprietary fund sales.

 

3

Corporate banking revenue of $82 million increased four percent sequentially, primarily related to higher foreign exchange revenue and lease syndication fees. Results decreased 11 percent from the fourth quarter of 2005. Year-over-year comparisons reflect unusually strong fourth quarter 2005 lease syndication fees, as well as lower letter of credit and customer interest rate derivative income.

Mortgage banking net revenue totaled $30 million, compared with $36 million last quarter and $42 million in the prior year quarter. Fourth quarter origination fees and gains on loan sales were $23 million, compared with $21 million in the third quarter and $33 million in fourth quarter 2005. Net servicing revenue totaled $7 million in the fourth quarter, compared with $15 million last quarter and $9 million in fourth quarter 2005. The decline in net servicing revenue related to MSR valuation was partially offset by $3 million in gains on non-qualifying MSR hedges described below. Fourth quarter 2006 net servicing revenue included $31 million in gross servicing fees offset by $19 million in amortization and $5 million in net MSR valuation adjustment. Mortgage originations of $2.3 billion were consistent with $2.3 billion in third quarter 2006 and $2.5 billion in fourth quarter 2005. The mortgage servicing asset, net of the valuation reserve, was $519 million at quarter end on a servicing portfolio of $28.7 billion.

Other noninterest income totaled $58 million in the fourth quarter, compared with $87 million last quarter and $77 million in the same quarter last year. Fourth quarter results included a loss of $17 million on derivatives related to securities sold as part of our fourth quarter balance sheet actions. Sequential comparisons also reflect $11 million in gains related to the third quarter sales of three Indiana branches and a small out-of-footprint credit card portfolio.

Net securities losses totaled $395 million in the fourth quarter. We had $398 million of losses related to our fourth quarter balance sheet actions and $3 million of gains on non-qualifying hedges on mortgage servicing rights. Net securities gains were $19 million last quarter and $1 million in the same quarter last year.

Noninterest Expense

Total noninterest expense of $798 million increased four percent from third quarter 2006 levels and by five percent over the same quarter last year. Comparisons were affected by a $39 million charge in the fourth quarter associated with the termination of financing agreements as part of our balance sheet actions as well as an $11 million charge for the early retirement of debt in the third quarter. Sequential comparisons also reflect $8 million of pension settlement expenses incurred in the third quarter. Fourth quarter 2005 expenses included approximately $9 million in fraud-related expenses and approximately $10 million in tax-related expense.

Excluding the above-mentioned items, noninterest expense increased one percent sequentially, driven by higher processing volume-related expenses, and increased two percent versus last year. The annual increase reflected higher personnel expense and de novo-related occupancy expense.

Credit Quality

Net charge-offs as a percentage of average loans and leases were 52 bps in the fourth quarter, compared with 43 bps last quarter and 67 bps in the fourth quarter of 2005. Net charge-offs were $97 million in the fourth quarter, compared with

 

4

$79 million last quarter and $117 million in the same quarter last year. The commercial and consumer net charge-off ratios were 42 bps and 64 bps, respectively. Gross charge-offs were 63 bps of loans and leases. Fourth quarter 2006 charge-offs included $9 million related to two large commercial credits, which drove the $11 million increase in commercial charge-offs. Higher indirect consumer losses were responsible for the $7 million increase in consumer charge-offs. Fourth quarter 2005 charge-offs included approximately $27 million in losses related to commercial airline bankruptcies and higher consumer loan and lease losses related to consumer bankruptcy filings in anticipation of federal bankruptcy reform legislation.

Provision for loan and lease losses totaled $107 million in the fourth quarter compared with $87 million last quarter and $134 million in the same quarter last year.

Nonperforming assets (NPAs) at quarter end were $455 million, or 61 bps of total loans and leases and other real estate owned, up from 56 bps last quarter and 52 bps in the fourth quarter a year ago. The sequential increase of $44 million was balanced between consumer and commercial NPAs. Consumer NPA growth was evenly split between indirect consumer and mortgage loans. The increase in commercial NPAs largely occurred in the real estate and construction portfolios. There were no significant geographic concentrations, but NPA growth was highest in eastern Michigan and northeastern Ohio due to the location of the largest NPAs inflows. About half of the commercial NPA increase was experienced in the small business and business banking portfolio. The allowance for loan and lease losses represented 1.04 percent of total loans and leases outstanding as of quarter end, consistent with 1.04 percent last quarter and 1.06 percent in the same quarter last year.

Outlook

The following outlook represents currently expected full year growth rates compared with full year 2006 results. Our outlook is based on current expectations as of the date of this release for results within our businesses; prevailing views related to economic growth, inflation, unemployment and other economic factors; and market forward interest rate expectations. These expectations are inherently subject to risks and uncertainties. There are a number of factors that could cause results to differ materially from historical performance and these expectations. We undertake no obligation to update these expectations after the date of this release. Please refer to the cautionary statement at the end of this release for more information.

 

Category

   

Growth, percentage, or bps range

Net interest income

    High single digits

Net interest margin

    3.35-3.45%

Noninterest income*

    High single digits

Noninterest expense**

    Mid single digits

Loans

    High single digits

Core deposits

    Mid single digits

Net charge-offs

    Low-mid 50 bps range

Effective tax rate [non-tax equivalent]

    29-30%

Tangible equity/tangible asset ratio

    2007 target >7%

 

* comparison with the prior year excludes $415 million of losses recorded in noninterest income related to fourth quarter 2006 balance sheet actions

 

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** comparison with the prior year excludes $50 million of charges: $11 million in third quarter 2006 related to the early retirement of debt, and $39 million in fourth quarter 2006 related to termination of financing agreements

Conference Call

Fifth Third will host a conference call to discuss these financial results at 9:00 a.m. (Eastern 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 for approximately seven days by dialing 800-642-1687 for domestic access and 706-645-9291 for international access (passcode: 4115845#).

Corporate Profile

Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. The Company has $100.7 billion in assets, operates 19 affiliates with 1,150 full-service Banking Centers, including 111 Bank Mart® locations open seven days a week inside select grocery stores and 2,096 Jeanie® ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Pennsylvania and Missouri. Fifth Third operates five main businesses: Commercial Banking, Branch Banking, Consumer Lending, Investment Advisors and Fifth Third Processing Solutions. Fifth Third is among the largest money managers in the Midwest and, as of December 31, 2006, has $220 billion in assets under care, of which it managed $34 billion for individuals, corporations and not-for-profit organizations. Investor information and press releases can be viewed at www.53.com. Fifth Third’s common stock is traded through the NASDAQ® National Global Select Market System under the symbol “FITB.”

This report may contain forward-looking statements about the Registrant and/or the company as combined with acquired entities 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 report may contain certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Registrant and/or the combined company including statements preceded by, followed by or that include the words or phrases such as “believes,” “expects,” “anticipates,” “plans,” “trend,” “objective,” “continue,” “remain” 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 may reduce interest margins; (3) prepayment speeds, loan origination and sale volumes, charge-offs and loan loss provisions are inherently uncertain; (4) general economic conditions, either national or in the states in which the Registrant, one or more acquired entities and/or the combined company 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) changes and trends in the securities markets; (7) legislative or regulatory changes or actions, or significant litigation, adversely affect the Registrant, one or more acquired entities and/or the combined company or the businesses in which the Registrant, one or more acquired entities and/or the combined company are engaged; (8) difficulties in combining the operations of acquired entities; (9) our ability to maintain favorable ratings from rating agencies; and (10) the impact of reputational risk created by the developments discussed above on such matters as business generation and retention, funding and liquidity. Additional information concerning factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements is available in the Bancorp's Annual Report on Form 10-K for the year ended December 31, 2005, filed with the United States Securities and Exchange Commission (SEC). Copies of this filing are available at no cost on the SEC's Web site at www.sec.gov or on the Registrant's Web site at www.53.com. The Registrant undertakes no obligation to release revisions to these forward-looking statements or reflect events or circumstances after the date of this report.

# # #

 

6

LOGO

FIFTH THIRD BANCORP AND SUBSIDIARIES

Quarterly Financial Review for December 31, 2006

Table of Contents

 

Financial Highlights

    8-9

Consolidated Statements of Income

    10

Consolidated Statements of Income (Taxable Equivalent)

    11

Consolidated Balance Sheets

    12-13

Consolidated Statements of Changes in Shareholders’ Equity

    14

Average Balance Sheet and Yield Analysis

    15-17

Summary of Loans and Leases

    18

Regulatory Capital

    19

Asset Quality

    20

 

7

Fifth Third Bancorp and Subsidiaries

Financial Highlights

$ in millions, except per share data

(unaudited)

 

     For the Three Months Ended     % Change     Year to Date    

% Change

Yr/Yr

  
     December
2006		     September
2006		     December
2005		     Yr/Yr     Seq     December
2006		     December
2005		    

Income Statement Data

                 

Net interest income (a)

    $ 744     $ 719     $ 735     1 %   3 %   $ 2,899     $ 2,996     (3 )%

Noninterest income

      219       662       636     (66 )%   (67 )%     2,153       2,500     (14 )%

Total revenue (a)

      963       1,381       1,371     (30 )%   (30 )%     5,052       5,496     (8 )%

Provision for loan and lease losses

      107       87       134     (20 )%   23 %     343       330     4 %

Noninterest expense

      798       767       763     5 %   4 %     3,057       2,927     4 %

Net income

      66       377       332     (80 )%   (83 )%     1,188       1,549     (23 )%

Common Share Data

                 

Earnings per share, basic

    $ 0.12     $ 0.68     $ 0.60     (80 )%   (82 )%   $ 2.14     $ 2.79     (23 )%

Earnings per share, diluted

      0.12       0.68       0.60     (80 )%   (82 )%     2.13       2.77     (23 )%

Cash dividends per common share

      0.40       0.40       0.38     5 %   —         1.59       1.46     9 %

Book value per share

      18.02       17.96       17.00     6 %   —         18.02       17.00     6 %

Dividend payout ratio

      333.3 %     58.8 %     63.3 %   427 %   467 %     74.6 %     52.7 %   42 %

Market price per share:

                 

High

    $ 41.57     $ 40.18     $ 42.50     (2 )%   3 %   $ 41.57     $ 48.12     (14 )%

Low

      37.75       35.95       35.04     8 %   5 %     35.86       35.04     2 %

End of period

      40.93       38.08       37.72     9 %   7 %     40.93       37.72     9 %

Common shares outstanding (in thousands)

      556,253       558,066       555,623     —       —         556,253       555,623     —    

Average common shares outstanding (in thousands):

                 

Basic

      554,978       555,565       553,591     —       —         554,983       554,411     —    

Diluted

      557,654       557,949       556,322     —       —         557,494       558,443     —    

Market capitalization

    $ 22,767     $ 21,251     $ 20,958     9 %   7 %   $ 22,767     $ 20,958     9 %

Price/earnings ratio (b)

      19.13       14.53       13.57     41 %   32 %     19.13       13.57     41 %

Financial Ratios

                 

Return on average assets

      0.25 %     1.41 %     1.27 %   (80 )%   (82 )%     1.13 %     1.50 %   (25 )%

Return on average equity

      2.6 %     15.1 %     13.9 %   (81 )%   (83 )%     12.1 %     16.6 %   (27 )%

Noninterest income as a percent of total revenue

      23 %     48 %     46 %   (50 )%   (52 )%     43 %     45 %   (4 )%

Average equity as a percent of average assets

      9.70 %     9.33 %     9.12 %   6 %   4 %     9.32 %     9.06 %   3 %

Tangible equity

      7.79 %     7.40 %     6.87 %   13 %   5 %     7.79 %     6.87 %   13 %

Net interest margin (a)

      3.16 %     2.99 %     3.11 %   2 %   6 %     3.06 %     3.23 %   (5 )%

Efficiency (a)

      82.9 %     55.5 %     55.6 %   49 %   49 %     60.5 %     53.2 %   14 %

Effective tax rate

      (27.0 )%     27.6 %     28.9 %   NM     NM       27.1 %     29.9 %   (9 )%

Credit Quality

                 

Net losses charged off

    $ 97     $ 79     $ 117     (17 )%   23 %   $ 316     $ 299     6 %

Net losses charged off as a percent of average loans and leases

      0.52 %     0.43 %     0.67 %   (22 )%   21 %     0.44 %     0.45 %   (2 )%

Allowance for loan and lease losses as a percent of loans and leases

      1.04 %     1.04 %     1.06 %   (2 )%   —         1.04 %     1.06 %   (2 )%

Allowance for credit losses as a percent of loans and leases

      1.14 %     1.14 %     1.16 %   (2 )%   —         1.14 %     1.16 %   (2 )%

Nonperforming assets as a percent of loans, leases and other assets, including other real estate owned

      0.61 %     0.56 %     0.52 %   17 %   9 %     0.61 %     0.52 %   17 %

Average Balances

                 

Loans and leases, including held for sale

    $ 75,262     $ 73,938     $ 70,489     7 %   2 %   $ 73,493     $ 67,737     8 %

Total securities and other short-term investments

      18,262       21,582       23,274     (22 )%   (15 )%     21,288       24,999     (15 )%

Total assets

      104,602       105,868       103,988     1 %   (1 )%     105,238       102,876     2 %

Transaction deposits

      49,010       48,543       48,937     —       1 %     48,946       47,929     2 %

Core deposits

      60,001       59,337       58,080     3 %   1 %     59,446       56,420     5 %

Wholesale funding

      30,650       33,040       33,192     (8 )%   (7 )%     32,423       33,863     (4 )%

Shareholders’ equity

      10,150       9,878       9,480     7 %   3 %     9,811       9,317     5 %

Regulatory Capital Ratios (c)

                 

Tier I capital

      8.36 %     8.64 %     8.35 %   —       (3 )%     8.36 %     8.35 %   —    

Total risk-based capital

      11.04 %     10.61 %     10.42 %   6 %   4 %     11.04 %     10.42 %   6 %

Tier I leverage

      8.44 %     8.52 %     8.08 %   4 %   (1 )%     8.44 %     8.08 %   4 %

Operations

                 

Banking centers

      1,150       1,145       1,119     3 %   —         1,150       1,119     3 %

ATMs

      2,096       2,114       2,024     4 %   (1 )%     2,096       2,024     4 %

Full-time equivalent employees

      21,362       21,301       21,681     (1 )%   —         21,362       21,681     (1 )%
(a) Presented on a fully taxable equivalent basis
(b) Based on the most recent twelve-month diluted earnings per share and end of period stock prices
(c) Current period regulatory capital ratios are estimates

 

8

Fifth Third Bancorp and Subsidiaries

Financial Highlights

$ in millions, except per share data

(unaudited)

 

     For the Three Months Ended  
     December
2006		     September
2006		    

June

2006

     March
2006		     December
2005		  

Income Statement Data

           

Net interest income (a)

    $ 744     $ 719     $ 716     $ 718     $ 735  

Noninterest income

      219       662       655       617       636  

Total revenue (a)

      963       1,381       1,371       1,335       1,371  

Provision for loan and lease losses

      107       87       71       78       134  

Noninterest expense

      798       767       759       731       763  

Net income

      66       377       382       363       332  

Common Share Data

           

Earnings per share, basic

    $ 0.12     $ 0.68     $ 0.69     $ 0.66     $ 0.60  

Earnings per share, diluted

      0.12       0.68       0.69       0.65       0.60  

Cash dividends per common share

      0.40       0.40       0.40       0.38       0.38  

Book value per share

      18.02       17.96       17.13       17.01       17.00  

Dividend payout ratio

      333.3 %     58.8 %     58.0 %     58.5 %     63.3 %

Market price per share:

           

High

    $ 41.57     $ 40.18     $ 41.02     $ 41.43     $ 42.50  

Low

      37.75       35.95       35.86       36.30       35.04  

End of period

      40.93       38.08       36.95       39.36       37.72  

Common shares outstanding (in thousands)

      556,253       558,066       557,894       556,501       555,623  

Average common shares outstanding (in thousands):

           

Basic

      554,978       555,565       554,978       554,398       553,591  

Diluted

      557,654       557,949       557,489       556,869       556,322  

Market capitalization

    $ 22,767     $ 21,251     $ 20,614     $ 21,904     $ 20,958  

Price/earnings ratio (b)

      19.13       14.53       13.94       14.52       13.57  

Financial Ratios

           

Return on average assets

      0.25 %     1.41 %     1.45 %     1.41 %     1.27 %

Return on average equity

      2.6 %     15.1 %     16.0 %     15.3 %     13.9 %

Noninterest income as a percent of total revenue

      23 %     48 %     48 %     46 %     46 %

Average equity as a percent of average assets

      9.70 %     9.33 %     9.09 %     9.17 %     9.12 %

Tangible equity

      7.79 %     7.40 %     6.92 %     6.90 %     6.87 %

Net interest margin (a)

      3.16 %     2.99 %     3.01 %     3.08 %     3.11 %

Efficiency (a)

      82.9 %     55.5 %     55.3 %     54.7 %     55.6 %

Effective tax rate

      (27.0 )%     27.6 %     28.5 %     30.7 %     28.9 %

Credit Quality

           

Net losses charged off

    $ 97     $ 79     $ 67     $ 73     $ 117  

Net losses charged off as a percent of average loans and leases

      0.52 %     0.43 %     0.37 %     0.42 %     0.67 %

Allowance for loan and lease losses as a percent of loans and leases

      1.04 %     1.04 %     1.04 %     1.05 %     1.06 %

Allowance for credit losses as a percent of loans and leases

      1.14 %     1.14 %     1.14 %     1.14 %     1.16 %

Nonperforming assets as a percent of loans, leases and other assets, including other real estate owned

      0.61 %     0.56 %     0.49 %     0.51 %     0.52 %

Average Balances

           

Loans and leases, including held for sale

    $ 75,262     $ 73,938     $ 73,093     $ 71,634     $ 70,489  

Total securities and other short-term investments

      18,262       21,582       22,439       22,917       23,274  

Total assets

      104,602       105,868       105,741       104,736       103,988  

Transaction deposits

      49,010       48,543       49,282       48,951       48,937  

Core deposits

      60,001       59,337       59,731       58,700       58,080  

Wholesale funding

      30,650       33,040       32,903       33,123       33,192  

Shareholders’ equity

      10,150       9,878       9,607       9,601       9,480  

Regulatory Capital Ratios (c)

           

Tier I capital

      8.36 %     8.64 %     8.56 %     8.56 %     8.35 %

Total risk-based capital

      11.04 %     10.61 %     10.50 %     10.56 %     10.42 %

Tier I leverage

      8.44 %     8.52 %     8.38 %     8.24 %     8.08 %

Operations

           

Banking centers

      1,150       1,145       1,138       1,132       1,119  

ATMs

      2,096       2,114       2,034       2,025       2,024  

Full-time equivalent employees

      21,362       21,301       21,230       21,497       21,681  
(a) Presented on a fully taxable equivalent basis
(b) Based on the most recent twelve-month diluted earnings per share and end of period stock prices
(c) Current period regulatory capital ratios are estimates

 

9

Fifth Third Bancorp and Subsidiaries

Consolidated Statements of Income

$ in millions

(unaudited)

 

     For the Three Months Ended    % Change     Year to Date   

% Change

Yr/Yr

  
     December
2006		     September
2006		    December
2005		    Yr/Yr     Seq     December
2006		     December
2005		   

Interest Income

                    

Interest and fees on loans and leases

    $ 1,332     $ 1,294    $ 1,098    21 %   3 %   $ 5,000     $ 3,918    28 %

Interest on securities:

                    

Taxable

      192       231      243    (21 )%   (17 )%     904       1,032    (12 )%

Exempt from income taxes

      7       7      9    (20 )%   (3 )%     30       39    (24 )%
                                                       

Total interest on securities

      199       238      252    (21 )%   (16 )%     934       1,071    (13 )%

Interest on other short-term investments

      14       2      2    538 %   519 %     21       6    275 %
                                                       

Total interest income

      1,545       1,534      1,352    14 %   1 %     5,955       4,995    19 %

Interest Expense

                    

Interest on deposits:

                    

Interest checking

      96       102      94    1 %   (6 )%     398       314    27 %

Savings

      105       95      67    56 %   10 %     363       176    106 %

Money market

      73       69      50    46 %   6 %     261       140    86 %

Other time

      122       116      81    51 %   4 %     433       263    65 %

Certificates - $100,000 and over

      88       81      40    118 %   8 %     278       129    116 %

Foreign office

      34       47      37    (7 )%   (27 )%     177       126    40 %
                                                       

Total interest on deposits

      518       510      369    41 %   2 %     1,910       1,148    66 %

Interest on federal funds purchased

      48       61      49    —       (21 )%     208       138    51 %

Interest on short-term bank notes

      —         —        —      NM     NM       —         6    (100 )%

Interest on other short-term borrowings

      52       45      36    43 %   15 %     194       138    40 %

Interest on long-term debt

      189       205      170    11 %   (8 )%     770       600    28 %
                                                       

Total interest expense

      807       821      624    29 %   (2 )%     3,082       2,030    52 %
                                                       

Net Interest Income

      738       713      728    1 %   4 %     2,873       2,965    (3 )%

Provision for loan and lease losses

      107       87      134    (20 )%   23 %     343       330    4 %
                                                       

Net interest income after provision for loan and lease losses

      631       626      594    6 %   1 %     2,530       2,635    (4 )%

Noninterest Income

                    

Electronic payment processing revenue

      232       218      204    14 %   6 %     857       748    15 %

Service charges on deposits

      122       134      133    (8 )%   (9 )%     517       522    (1 )%

Mortgage banking net revenue

      30       36      42    (28 )%   (17 )%     155       174    (11 )%

Investment advisory revenue

      90       89      87    4 %   2 %     367       358    2 %

Corporate banking revenue

      82       79      92    (11 )%   4 %     318       299    7 %

Other noninterest income

      58       87      77    (24 )%   (33 )%     300       360    (17 )%

Securities gains (losses), net

      (398 )     19      1    NM     NM       (364 )     39    NM  

Securities gains, net - non-qualifying hedges on mortgage servicing rights

      3       —        —      NM     NM       3       —      NM  
                                                       

Total noninterest income

      219       662      636    (66 )%   (67 )%     2,153       2,500    (14 )%

Noninterest Expense

                    

Salaries, wages and incentives

      300       288      287    4 %   4 %     1,174       1,133    4 %

Employee benefits

      61       74      65    (5 )%   (17 )%     292       283    3 %

Equipment expense

      32       34      29    13 %   (5 )%     122       105    17 %

Net occupancy expense

      65       63      59    10 %   3 %     245       221    11 %

Other noninterest expense

      340       308      323    5 %   10 %     1,223       1,185    3 %
                                                       

Total noninterest expense

      798       767      763    5 %   4 %     3,056       2,927    4 %

Income before income taxes and cumulative effect

      52       521      467    (89 )%   (90 )%     1,627       2,208    (26 )%

Applicable income taxes

      (14 )     144      135    NM     NM       443       659    (33 )%
                                                       

Income before cumulative effect

      66       377      332    (80 )%   (82 )%     1,184       1,549    (24 )%

Cumulative effect of change in accounting principle, net of tax (b)

      —         —        —      NM     NM       4       —      NM  
                                                       

Net income

    $ 66     $ 377    $ 332    (80 )%   (83 )%   $ 1,188     $ 1,549    (23 )%
                                                       

Net income available to common shareholders (a)

    $ 66     $ 377    $ 332    (80 )%   (83 )%   $ 1,188     $ 1,548    (23 )%
                                                       
(a) Dividends on preferred stock are $.185 million for all quarters presented
(b) Reflects a benefit of $3.5 million (net of $1.7 million of tax) for the adoption of SFAS No. 123(R) as of January 1, 2006 due to the recognition of an estimate of forfeiture experience to be realized for all stock-based awards

 

10

Fifth Third Bancorp and Subsidiaries

Consolidated Statements of Income (Taxable Equivalent)

$ in millions

(unaudited)

 

     For the Three Months Ended
     December
2006		     September
2006		    June
2006		    March
2006		    December
2005

Interest Income

              

Interest and fees on loans and leases

    $ 1,332     $ 1,294    $ 1,227    $ 1,146    $ 1,098

Interest on securities:

              

Taxable

      192       231      239      242      243

Exempt from income taxes

      7       7      8      8      9
                                   

Total interest on securities

      199       238      247      250      252

Interest on other short-term investments

      14       2      3      2      2
                                   

Total interest income

      1,545       1,534      1,477      1,398      1,352

Taxable equivalent adjustment

      6       6      6      7      7
                                   

Total interest income (taxable equivalent)

      1,551       1,540      1,483      1,405      1,359

Interest Expense

              

Interest on deposits:

              

Interest checking

      96       102      102      99      94

Savings

      105       95      87      76      67

Money market

      73       69      64      55      50

Other time

      122       116      105      89      81

Certificates - $100,000 and over

      88       81      61      48      40

Foreign office

      34       47      52      44      37
                                   

Total interest on deposits

      518       510      471      411      369

Interest on federal funds purchased

      48       61      48      51      49

Interest on short-term bank notes

      —         —        —        —        —  

Interest on other short-term borrowings

      52       45      52      44      36

Interest on long-term debt

      189       205      196      181      170
                                   

Total interest expense

      807       821      767      687      624
                                   

Net interest income (taxable equivalent)

      744       719      716      718      735

Provision for loan and lease losses

      107       87      71      78      134
                                   

Net interest income (taxable equivalent) after provision for loan and lease losses

      637       632      645      640      601

Noninterest Income

              

Electronic payment processing revenue

      232       218      211      196      204

Service charges on deposits

      122       134      135      126      133

Mortgage banking net revenue

      30       36      41      47      42

Investment advisory revenue

      90       89      96      91      87

Corporate banking revenue

      82       79      82      76      92

Other noninterest income

      58       87      76      80      77

Securities gains (losses), net

      (398 )     19      14      1      1

Securities gains, net - non-qualifying hedges on mortgage servicing rights

      3       —        —        —        —  
                                   

Total noninterest income

      219       662      655      617      636

Noninterest Expense

              

Salaries, wages and incentives

      300       288      303      284      287

Employee benefits

      61       74      69      87      65

Equipment expense

      32       34      29      27      29

Net occupancy expense

      65       63      59      58      59

Other noninterest expense

      340       308      299      275      323
                                   

Total noninterest expense

      798       767      759      731      763
                                   

Income before income taxes and cumulative effect (taxable equivalent)

      58       527      541      526      474

Taxable equivalent adjustment

      6       6      6      7      7
                                   

Income before income taxes and cumulative effect

      52       521      535      519      467

Applicable income taxes

      (14 )     144      153      160      135
                                   

Income before cumulative effect

      66       377      382      359      332

Cumulative effect of change in accounting principle, net of tax (b)

      —         —        —        4      —  
                                   

Net income

    $ 66     $ 377    $ 382    $ 363    $ 332
                                   

Net income available to common shareholders (a)

    $ 66     $ 377    $ 382    $ 363    $ 332
                                   
(a) Dividends on preferred stock are $.185 million for all quarters presented
(b) Reflects a benefit of $3.5 million (net of $1.7 million of tax) for the adoption of SFAS No. 123(R) as of January 1, 2006 due to the recognition of an estimate of forfeiture experience to be realized for all stock-based awards

 

11

Fifth Third Bancorp and Subsidiaries

Consolidated Balance Sheets

$ in millions, except per share data

(unaudited)

 

     As of     % Change  
     December
2006		     September
2006		     December
2005		     Yr/Yr     Seq  

Assets

           

Cash and due from banks

    $ 2,737     $ 2,399     $ 3,078     (11 )%   14 %

Available-for-sale and other securities (a)

      11,053       19,514       21,924     (50 )%   (43 )%

Held-to-maturity securities (b)

      356       359       389     (8 )%   (1 )%

Trading securities

      187       164       117     59 %   14 %

Other short-term investments

      809       125       158     411 %   547 %

Loans held for sale

      1,150       872       1,304     (12 )%   32 %

Portfolio loans and leases:

           

Commercial loans

      20,725       21,150       19,174     8 %   (2 )%

Construction loans

      6,847       6,597       7,037     (3 )%   4 %

Commercial mortgage loans

      10,405       9,879       9,188     13 %   5 %

Commercial lease financing

      4,984       4,895       4,852     3 %   2 %

Residential mortgage loans

      8,151       8,093       7,152     14 %   1 %

Consumer loans

      23,311       22,834       22,084     6 %   2 %

Consumer lease financing

      1,176       1,287       1,751     (33 )%   (9 )%

Unearned income

      (1,246 )     (1,255 )     (1,313 )   (5 )%   (1 )%
                                    

Portfolio loans and leases

      74,353       73,480       69,925     6 %   1 %

Allowance for loan and lease losses

      (771 )     (761 )     (744 )   4 %   1 %
                                    

Portfolio loans and leases, net

      73,582       72,719       69,181     6 %   1 %

Bank premises and equipment

      1,940       1,902       1,726     12 %   2 %

Operating lease equipment

      202       142       143     41 %   42 %

Goodwill

      2,193       2,193       2,169     1 %   —    

Intangible assets

      166       175       208     (20 )%   (5 )%

Servicing rights

      524       504       441     19 %   4 %

Other assets

      5,770       4,760       4,387     32 %   21 %
                                    

Total assets

    $ 100,669     $ 105,828     $ 105,225     (4 )%   (5 )%
                                    

Liabilities

           

Deposits:

           

Demand

    $ 14,331     $ 13,883     $ 14,609     (2 )%   3 %

Interest checking

      15,993       15,855       18,282     (13 )%   1 %

Savings

      13,181       12,392       11,276     17 %   6 %

Money market

      6,584       6,462       6,129     7 %   2 %

Other time

      10,987       10,818       9,313     18 %   2 %

Certificates - $100,000 and over

      6,628       6,871       4,343     53 %   (4 )%

Foreign office

      1,676       2,362       3,482     (52 )%   (29 )%
                                    

Total deposits

      69,380       68,643       67,434     3 %   1 %

Federal funds purchased

      1,421       5,434       5,323     (73 )%   (74 )%

Short-term bank notes

      —         —         —       NM     NM  

Other short-term borrowings

      2,796       3,833       4,246     (34 )%   (27 )%

Accrued taxes, interest and expenses

      2,283       2,156       2,142     7 %   6 %

Other liabilities

      2,209       1,570       1,407     57 %   41 %

Long-term debt

      12,558       14,170       15,227     (18 )%   (11 )%
                                    

Total liabilities

      90,647       95,806       95,779     (5 )%   (5 )%

Total shareholders’ equity (c)

      10,022       10,022       9,446     6 %   —    
                                    

Total liabilities and shareholders’ equity

    $ 100,669     $ 105,828     $ 105,225     (4 )%   (5 )%
                                    

(a) Amortized cost

    $ 11,236     $ 20,103     $ 22,533     (50 )%   (44 )%

(b) Market values

      356       359       389     (8 )%   (1 )%

(c) Common shares, stated value $2.22 per share (in thousands):

           

Authorized

      1,300,000       1,300,000       1,300,000     —       —    

Outstanding, excluding treasury

      556,253       558,066       555,623     —       —    

Treasury

      27,174       25,361       27,804     (2 )%   7 %

 

12

Fifth Third Bancorp and Subsidiaries

Consolidated Balance Sheets

$ in millions, except per share data

(unaudited)

 

     As of  
     December
2006		     September
2006		    

June

2006

    

March

2006

     December
2005		  

Assets

           

Cash and due from banks

    $ 2,737     $ 2,399     $ 2,670     $ 2,494     $ 3,078  

Available-for-sale and other securities (a)

      11,053       19,514       20,345       21,276       21,924  

Held-to-maturity securities (b)

      356       359       358       365       389  

Trading securities

      187       164       173       156       117  

Other short-term investments

      809       125       207       159       158  

Loans held for sale

      1,150       872       931       744       1,304  

Portfolio loans and leases:

           

Commercial loans

      20,725       21,150       20,618       19,878       19,174  

Construction loans

      6,847       6,597       6,698       6,600       7,037  

Commercial mortgage loans

      10,405       9,879       9,792       9,861       9,188  

Commercial lease financing

      4,984       4,895       4,899       4,911       4,852  

Residential mortgage loans

      8,151       8,093       7,875       7,708       7,152  

Consumer loans

      23,311       22,834       22,556       22,210       22,084  

Consumer lease financing

      1,176       1,287       1,420       1,577       1,751  

Unearned income

      (1,246 )     (1,255 )     (1,281 )     (1,323 )     (1,313 )
                                        

Portfolio loans and leases

      74,353       73,480       72,577       71,422       69,925  

Allowance for loan and lease losses

      (771 )     (761 )     (753 )     (749 )     (744 )
                                        

Portfolio loans and leases, net

      73,582       72,719       71,824       70,673       69,181  

Bank premises and equipment

      1,940       1,902       1,853       1,798       1,726  

Operating lease equipment

      202       142       150       137       143  

Goodwill

      2,193       2,193       2,194       2,194       2,169  

Intangible assets

      166       175       185       189       208  

Servicing rights

      524       504       489       468       441  

Other assets

      5,770       4,760       4,732       4,391       4,387  
                                        

Total assets

    $ 100,669     $ 105,828     $ 106,111     $ 105,044     $ 105,225  
                                        

Liabilities

           

Deposits:

           

Demand

    $ 14,331     $ 13,883     $ 14,078     $ 14,134     $ 14,609  

Interest checking

      15,993       15,855       16,788       17,511       18,282  

Savings

      13,181       12,392       12,061       11,902       11,276  

Money market

      6,584       6,462       6,505       6,399       6,129  

Other time

      10,987       10,818       10,627       10,105       9,313  

Certificates - $100,000 and over

      6,628       6,871       5,691       5,085       4,343  

Foreign office

      1,676       2,362       4,773       3,874       3,482  
                                        

Total deposits

      69,380       68,643       70,523       69,010       67,434  

Federal funds purchased

      1,421       5,434       2,493       3,715       5,323  

Short-term bank notes

      —         —         —         —         —    

Other short-term borrowings

      2,796       3,833       5,275       4,472       4,246  

Accrued taxes, interest and expenses

      2,283       2,156       1,995       2,169       2,142  

Other liabilities

      2,209       1,570       1,767       1,463       1,407  

Long-term debt

      12,558       14,170       14,502       14,746       15,227  
                                        

Total liabilities

      90,647       95,806       96,555       95,575       95,779  

Total shareholders’ equity (c)

      10,022       10,022       9,556       9,469       9,446  
                                        

Total liabilities and shareholders’ equity

    $ 100,669     $ 105,828     $ 106,111     $ 105,044     $ 105,225  
                                        

(a) Amortized cost

    $ 11,236     $ 20,103     $ 21,376     $ 22,127     $ 22,533  

(b) Market values

      356       359       358       365       389  

(c) Common shares, stated value $2.22 per share (in thousands):

           

Authorized

      1,300,000       1,300,000       1,300,000       1,300,000       1,300,000  

Outstanding, excluding treasury

      556,253       558,066       557,894       556,501       555,623  

Treasury

      27,174       25,361       25,533       26,926       27,804  

 

13

Fifth Third Bancorp and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

$ in millions

(unaudited)

 

     For the Three Months Ended     Year to Date  
     December
2006		     December
2005		     December
2006		     December
2005		  

Total shareholders’ equity, beginning

    $ 10,022     $ 9,385     $ 9,446     $ 8,924  

Net income

      66       332       1,188       1,549  

Other comprehensive income, net of tax:

         

Change in unrealized gains and (losses):

         

Available-for-sale securities

      263       (99 )     276       (323 )

Qualifying cash flow hedges

      4       4       12       20  

Change in additional pension liability

      (54 )     (1 )     (54 )     59  
                                

Comprehensive income

      279       236       1,422       1,305  

Cash dividends declared:

         

Common stock

      (222 )     (211 )     (880 )     (810 )

Preferred stock (a)

      —         —         (1 )     (1 )

Stock-based awards exercised, including treasury shares issued

      5       30       35       85  

Stock-based compensation expense

      16       12       71       65  

Loans repaid (issued) related to exercise of stock-based awards, net

      1       3       8       11  

Change in corporate tax benefit related to stock-based compensation

      1       (9 )     (1 )     6  

Shares acquired for treasury

      (81 )     (1 )     (82 )     (1,649 )

Shares issued in business combination

      —         —         —         1,509  

Other

      1       1       4       1  
                                

Total shareholders’ equity, ending

    $ 10,022     $ 9,446     $ 10,022     $ 9,446  
                                
(a) Dividends on preferred stock are $.185 million for all quarters presented

 

14

Fifth Third Bancorp and Subsidiaries

Average Balance Sheet and Yield Analysis

$ in millions, except share data

(unaudited)

 

     For the Three Months Ended     % Change  
     December
2006		     September
2006		     December
2005		     Yr/Yr     Seq  

Assets

           

Interest-earning assets:

           

Loans and leases

    $ 75,262     $ 73,938     $ 70,489     7 %   2 %

Taxable securities

      16,685       20,836       22,376     (25 )%   (20 )%

Tax exempt securities

      568       587       698     (19 )%   (3 )%

Other short-term investments

      1,009       159       200     406 %   533 %
                                    

Total interest-earning assets

      93,524       95,520       93,763     —       (2 )%

Cash and due from banks

      2,398       2,355       2,847     (16 )%   2 %

Other assets

      9,440       8,745       8,105     16 %   8 %

Allowance for loan and lease losses

      (760 )     (752 )     (727 )   5 %   1 %
                                    

Total assets

    $ 104,602     $ 105,868     $ 103,988     1 %   (1 )%
                                    

Liabilities

           

Interest-bearing liabilities:

           

Interest checking

    $ 15,744     $ 16,251     $ 17,828     (12 )%   (3 )%

Savings

      12,812       12,279       11,036     16 %   4 %

Money market

      6,572       6,371       5,974     10 %   3 %

Other time

      10,991       10,794       9,143     20 %   2 %

Certificates - $100,000 and over

      6,750       6,415       4,354     55 %   5 %

Foreign office

      2,758       3,668       3,703     (26 )%   (25 )%

Federal funds purchased

      3,615       4,546       4,771     (24 )%   (20 )%

Short-term bank notes

      —         —         —       NM     NM  

Other short-term borrowings

      4,468       4,056       4,408     1 %   10 %

Long-term debt

      13,059       14,355       15,956     (18 )%   (9 )%
                                    

Total interest-bearing liabilities

      76,769       78,735       77,173     (1 )%   (2 )%

Demand deposits

      13,882       13,642       14,099     (2 )%   2 %

Other liabilities

      3,801       3,613       3,236     17 %   5 %
                                    

Total liabilities

      94,452       95,990       94,508     —       (2 )%

Shareholders’ equity

      10,150       9,878       9,480     7 %   3 %
                                    

Total liabilities and shareholders’ equity

    $ 104,602     $ 105,868     $ 103,988     1 %   (1 )%
                                    

Average common shares outstanding (in thousands):

           

Basic

      554,978       555,565       553,591     —       —    

Diluted

      557,654       557,949       556,322     —       —    
                                    

Yield Analysis

           

Interest-earning assets:

           

Loans and leases

      7.03 %     6.96 %     6.20 %    

Taxable securities

      4.57 %     4.39 %     4.31 %    

Tax exempt securities

      7.30 %     7.29 %     7.51 %    

Other short-term investments

      5.56 %     5.69 %     4.41 %    
                            

Total interest-earning assets

      6.58 %     6.40 %     5.75 %    

Interest-bearing liabilities:

           

Interest checking

      2.41 %     2.49 %     2.10 %    

Savings

      3.24 %     3.08 %     2.41 %    

Money market

      4.40 %     4.30 %     3.32 %    

Other time

      4.46 %     4.24 %     3.50 %    

Certificates - $100,000 and over

      5.15 %     5.03 %     3.66 %    

Foreign office

      4.91 %     5.05 %     3.92 %    

Federal funds purchased

      5.31 %     5.33 %     4.04 %    

Short-term bank notes

      —         —         —        

Other short-term borrowings

      4.61 %     4.42 %     3.27 %    

Long-term debt

      5.70 %     5.66 %     4.25 %    
                            

Total interest-bearing liabilities

      4.17 %     4.14 %     3.21 %    

Ratios:

           

Net interest margin (taxable equivalent)

      3.16 %     2.99 %     3.11 %    

Net interest rate spread (taxable equivalent)

      2.41 %     2.26 %     2.54 %    

Interest-bearing liabilities to interest-earning assets

      82.08 %     82.43 %     82.31 %    

 

15

Fifth Third Bancorp and Subsidiaries

Average Balance Sheet and Yield Analysis

$ in millions, except share data

(unaudited)

 

     Year to Date    

% Change

Yr/Yr

  
     December
2006		     December
2005		    

Assets

       

Interest-earning assets:

       

Loans and leases

    $ 73,493     $ 67,737     8 %

Taxable securities

      20,306       24,017     (15 )%

Tax exempt securities

      604       789     (23 )%

Other short-term investments

      378       193     96 %
                      

Total interest-earning assets

      94,781       92,736     2 %

Cash and due from banks

      2,495       2,758     (10 )%

Other assets

      8,713       8,102     8 %

Allowance for loan and lease losses

      (751 )     (720 )   4 %
                      

Total assets

    $ 105,238     $ 102,876     2 %
                      

Liabilities

       

Interest-bearing liabilities:

       

Interest checking

    $ 16,650     $ 18,884     (12 )%

Savings

      12,189       10,007     22 %

Money market

      6,366       5,170     23 %

Other time

      10,500       8,491     24 %

Certificates - $100,000 and over

      5,795       4,001     45 %

Foreign office

      3,711       3,967     (6 )%

Federal funds purchased

      4,148       4,225     (2 )%

Short-term bank notes

      —         248     (100 )%

Other short-term borrowings

      4,522       5,038     (10 )%

Long-term debt

      14,247       16,384     (13 )%
                      

Total interest-bearing liabilities

      78,128       76,415     2 %

Demand deposits

      13,741       13,868     (1 )%

Other liabilities

      3,558       3,276     9 %
                      

Total liabilities

      95,427       93,559     2 %

Shareholders’ equity

      9,811       9,317     5 %
                      

Total liabilities and shareholders’ equity

    $ 105,238     $ 102,876     2 %
                      

Average common shares outstanding (in thousands):

       

Basic

      554,983       554,411     —    

Diluted

      557,494       558,443     —    
                      

Yield Analysis

       

Interest-earning assets:

       

Loans and leases

      6.82 %     5.80 %  

Taxable securities

      4.45 %     4.30 %  

Tax exempt securities

      7.38 %     7.39 %  

Other short-term investments

      5.52 %     2.89 %  
                  

Total interest-earning assets

      6.31 %     5.42 %  

Interest-bearing liabilities:

       

Interest checking

      2.39 %     1.66 %  

Savings

      2.98 %     1.76 %  

Money market

      4.10 %     2.71 %  

Other time

      4.12 %     3.09 %  

Certificates - $100,000 and over

      4.80 %     3.22 %  

Foreign office

      4.76 %     3.17 %  

Federal funds purchased

      5.02 %     3.26 %  

Short-term bank notes

      —         2.60 %  

Other short-term borrowings

      4.28 %     2.74 %  

Long-term debt

      5.40 %     3.66 %  
                  

Total interest-bearing liabilities

      3.94 %     2.66 %  

Ratios:

       

Net interest margin (taxable equivalent)

      3.06 %     3.23 %  

Net interest rate spread (taxable equivalent)

      2.37 %     2.76 %  

Interest-bearing liabilities to interest-earning assets

      82.43 %     82.40 %  

 

16

Fifth Third Bancorp and Subsidiaries

Average Balance Sheet and Yield Analysis

$ in millions, except share data

(unaudited)

 

     For the Three Months Ended  
     December
2006		     September
2006		    

June

2006

     March
2006		     December
2005		  

Assets

           

Interest-earning assets:

           

Loans and leases

    $ 75,262     $ 73,938     $ 73,093     $ 71,634     $ 70,489  

Taxable securities

      16,685       20,836       21,642       22,116       22,376  

Tax exempt securities

      568       587       616       644       698  

Other short-term investments

      1,009       159       181       157       200  
                                        

Total interest-earning assets

      93,524       95,520       95,532       94,551       93,763  

Cash and due from banks

      2,398       2,355       2,564       2,668       2,847  

Other assets

      9,440       8,745       8,393       8,261       8,105  

Allowance for loan and lease losses

      (760 )     (752 )     (748 )     (744 )     (727 )
                                        

Total assets

    $ 104,602     $ 105,868     $ 105,741     $ 104,736     $ 103,988  
                                        

Liabilities

           

Interest-bearing liabilities:

           

Interest checking

    $ 15,744     $ 16,251     $ 17,025     $ 17,603     $ 17,828  

Savings

      12,812       12,279       12,064       11,588       11,036  

Money market

      6,572       6,371       6,429       6,086       5,974  

Other time

      10,991       10,794       10,449       9,749       9,143  

Certificates - $100,000 and over

      6,750       6,415       5,316       4,670       4,354  

Foreign office

      2,758       3,668       4,382       4,050       3,703  

Federal funds purchased

      3,615       4,546       3,886       4,553       4,771  

Short-term bank notes

      —         —         —         —         —    

Other short-term borrowings

      4,468       4,056       4,854       4,718       4,408  

Long-term debt

      13,059       14,355       14,465       15,132       15,956  
                                        

Total interest-bearing liabilities

      76,769       78,735       78,870       78,149       77,173  

Demand deposits

      13,882       13,642       13,764       13,674       14,099  

Other liabilities

      3,801       3,613       3,500       3,312       3,236  
                                        

Total liabilities

      94,452       95,990       96,134       95,135       94,508  

Shareholders’ equity

      10,150       9,878       9,607       9,601       9,480  
                                        

Total liabilities and shareholders’ equity

    $ 104,602     $ 105,868     $ 105,741     $ 104,736     $ 103,988  
                                        

Average common shares outstanding (in thousands):

           

Basic

      554,978       555,565       554,978       554,398       553,591  

Diluted

      557,654       557,949       557,489       556,869       556,322  
                                        

Yield Analysis

           

Interest-earning assets:

           

Loans and leases

      7.03 %     6.96 %     6.75 %     6.51 %     6.20 %

Taxable securities

      4.57 %     4.39 %     4.43 %     4.44 %     4.31 %

Tax exempt securities

      7.30 %     7.29 %     7.33 %     7.59 %     7.51 %

Other short-term investments

      5.56 %     5.69 %     5.60 %     4.98 %     4.41 %
                                        

Total interest-earning assets

      6.58 %     6.40 %     6.23 %     6.03 %     5.75 %

Interest-bearing liabilities:

           

Interest checking

      2.41 %     2.49 %     2.39 %     2.28 %     2.10 %

Savings

      3.24 %     3.08 %     2.90 %     2.67 %     2.41 %

Money market

      4.40 %     4.30 %     4.01 %     3.64 %     3.32 %

Other time

      4.46 %     4.24 %     4.00 %     3.74 %     3.50 %

Certificates - $100,000 and over

      5.15 %     5.03 %     4.64 %     4.15 %     3.66 %

Foreign office

      4.91 %     5.05 %     4.77 %     4.39 %     3.92 %

Federal funds purchased

      5.31 %     5.33 %     4.97 %     4.50 %     4.04 %

Short-term bank notes

      —         —         —         —         —    

Other short-term borrowings

      4.61 %     4.42 %     4.31 %     3.82 %     3.27 %

Long-term debt

      5.70 %     5.66 %     5.45 %     4.85 %     4.25 %
                                        

Total interest-bearing liabilities

      4.17 %     4.14 %     3.90 %     3.57 %     3.21 %

Ratios:

           

Net interest margin (taxable equivalent)

      3.16 %     2.99 %     3.01 %     3.08 %     3.11 %

Net interest rate spread (taxable equivalent)

      2.41 %     2.26 %     2.33 %     2.46 %     2.54 %

Interest-bearing liabilities to interest-earning assets

      82.08 %     82.43 %     82.56 %     82.65 %     82.31 %

 

17

Fifth Third Bancorp and Subsidiaries

Summary of Loans and Leases

$ in millions

(unaudited)

 

     For the Three Months Ended
     December
2006		    September
2006		   

June

2006

    March
2006		    December
2005

Average Loans and Leases (including unearned income)

               

Commercial:

               

Commercial loans

    $ 21,108    $ 20,769    $ 20,239    $ 19,461    $ 18,909

Commercial mortgage

      9,929      9,833      9,980      9,441      9,159

Commercial construction

      6,099      5,913      5,840      6,211      6,051

Commercial leases

      3,762      3,740      3,729      3,686      3,611
                                  

Subtotal - commercial

      40,898      40,255      39,788      38,799      37,730

Consumer:

               

Residential mortgage

      9,334      8,967      8,756      8,351      8,444

Residential construction

      704      733      735      706      673

Credit card

      1,035      979      897      855      825

Home equity

      12,435      12,366      12,193      12,072      11,884

Other consumer loans

      9,714      9,384      9,340      9,311      9,251

Consumer leases

      1,142      1,254      1,384      1,540      1,682
                                  

Subtotal - consumer

      34,364      33,683      33,305      32,835      32,759
                                  

Total average loans and leases

    $ 75,262    $ 73,938    $ 73,093    $ 71,634    $ 70,489
                                  

End of Period Loans and Leases Serviced

               

Commercial:

               

Commercial loans

    $ 20,725    $ 21,150    $ 20,618    $ 19,878    $ 19,174

Commercial mortgage

      10,405      9,879      9,792      9,861      9,188

Commercial construction

      6,168      5,879      5,950      5,883      6,342

Commercial leases

      3,841      3,751      3,740      3,726      3,695
                                  

Subtotal - commercial

      41,139      40,659      40,100      39,348      38,399

Consumer:

               

Residential mortgage

      8,151      8,093      7,875      7,708      7,152

Residential construction

      679      718      748      717      695

Credit card

      1,110      986      945      851      866

Home equity

      12,364      12,429      12,277      12,087      12,000

Other consumer loans

      9,837      9,420      9,334      9,272      9,218

Consumer leases

      1,073      1,175      1,298      1,439      1,595
                                  

Subtotal - consumer

      33,214      32,821      32,477      32,074      31,526
                                  

Total portfolio loans and leases

      74,353      73,480      72,577      71,422      69,925

Loans held for sale

      1,150      872      931      744      1,304

Operating lease equipment

      202      142      150      137      143

Loans and Leases Serviced for Others:

               

Residential mortgage (a)

      28,688      27,823      27,057      26,399      25,669

Commercial mortgage (b)

      769      756      890      2,183      2,126

Commercial loans (c)

      3,390      3,404      3,332      3,182      2,744

Commercial leases (b)

      263      256      258      271      264

Consumer loans (d)

      520      596      677      774      871
                                  

Total loans and leases serviced for others

      33,630      32,835      32,214      32,809      31,674
                                  

Total loans and leases serviced

    $ 109,335    $ 107,329    $ 105,872    $ 105,112    $ 103,046
                                  
(a) Fifth Third sells certain residential mortgage loans, primarily conforming and fixed-rate in nature and retains servicing responsibilities
(b) Fifth Third sells certain commercial mortgage loans and commercial leases and retains servicing responsibilities
(c) Fifth Third transfers, subject to credit recourse and with servicing retained, certain primarily investment grade commercial loans to an unconsolidated qualified special purpose entity, which is wholly-owned by an independent third party
(d) Fifth Third sells certain consumer loans and retains servicing responsibilities

 

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Fifth Third Bancorp and Subsidiaries

Regulatory Capital (a)

$ in millions

(unaudited)

 

     As of  
     December
2006		     September
2006		    

June

2006

     March
2006		     December
2005		  

Tier I capital:

           

Shareholders’ equity

    $ 10,022     $ 10,022     $ 9,556     $ 9,469     $ 9,446  

Goodwill and certain other intangibles

      (2,339 )     (2,345 )     (2,351 )     (2,357 )     (2,377 )

Unrealized (gains) losses

      176       385       674       561       405  

Other

      763       748       781       761       735  
                                        

Total tier I capital

    $ 8,622     $ 8,810     $ 8,660     $ 8,434     $ 8,209  
                                        

Total risk-based capital:

           

Tier I capital

    $ 8,622     $ 8,810     $ 8,660     $ 8,434     $ 8,209  

Qualifying allowance for credit losses

      867       857       849       840       838  

Qualifying subordinated notes

      1,893       1,150       1,108       1,126       1,193  
                                        

Total risk-based capital

    $ 11,382     $ 10,817     $ 10,617     $ 10,400     $ 10,240  
                                        

Risk-weighted assets

    $ 103,124     $ 101,940     $ 101,126     $ 98,511     $ 98,293  

Ratios:

           

Average shareholders’ equity to average assets

      9.70 %     9.33 %     9.09 %     9.17 %     9.12 %

Regulatory capital:

           

Tier I capital

      8.36 %     8.64 %     8.56 %     8.56 %     8.35 %

Total risk-based capital

      11.04 %     10.61 %     10.50 %     10.56 %     10.42 %

Tier I leverage

      8.44 %     8.52 %     8.38 %     8.24 %     8.08 %
(a) Current period regulatory capital data and ratios are estimated

 

19

Fifth Third Bancorp and Subsidiaries

Asset Quality

$ in millions

(unaudited)

 

     For the Three Months Ended  
     December
2006		     September
2006		     June
2006		     March
2006		     December
2005		  

Summary of Credit Loss Experience

           

Losses charged off:

           

Commercial loans

    $ (37 )   $ (29 )   $ (31 )   $ (35 )   $ (35 )

Commercial mortgage loans

      (11 )     (8 )     (5 )     (2 )     (3 )

Construction loans

      (4 )     (1 )     (3 )     —         (3 )

Residential mortgage loans

      (7 )     (5 )     (6 )     (4 )     (5 )

Consumer loans

      (55 )     (50 )     (46 )     (50 )     (58 )

Commercial lease financing

      (1 )     —         (2 )     (1 )     (28 )

Consumer lease financing

      (3 )     (3 )     (3 )     (4 )     (5 )
                                        

Total losses

      (118 )     (96 )     (96 )     (96 )     (137 )

Recoveries of losses previously charged off:

           

Commercial loans

      8       4       9       3       10  

Commercial mortgage loans

      —         1       1       —         1  

Construction loans

      —         —         —         —         —    

Residential mortgage loans

      —         —         —         —         —    

Consumer loans

      11       10       16       15       8  

Commercial lease financing

      1       1       1       2       —    

Consumer lease financing

      1       1       2       3       1  
                                        

Total recoveries

      21       17       29       23       20  

Net losses charged off:

           

Commercial loans

      (29 )     (25 )     (22 )     (32 )     (25 )

Commercial mortgage loans

      (11 )     (7 )     (4 )     (2 )     (2 )

Construction loans

      (4 )     (1 )     (3 )     —         (3 )

Residential mortgage loans

      (7 )     (5 )     (6 )     (4 )     (5 )

Consumer loans

      (44 )     (40 )     (30 )     (35 )     (50 )

Commercial lease financing

      —         1       (1 )     1       (28 )

Consumer lease financing

      (2 )     (2 )     (1 )     (1 )     (4 )
                                        

Total net losses charged off

    $ (97 )   $ (79 )   $ (67 )   $ (73 )   $ (117 )
                                        

Allowance for loan and lease losses, beginning

    $ 761     $ 753     $ 749     $ 744     $ 727  

Total net losses charged off

      (97 )     (79 )     (67 )     (73 )     (117 )

Provision for loan and lease losses

      107       87       71       78       134  
                                        

Allowance for loan and lease losses, ending

    $ 771     $ 761     $ 753     $ 749     $ 744  

Reserve for unfunded commitments, beginning

    $ 76     $ 74     $ 69     $ 70     $ 69  

Provision for unfunded commitments

      —         2       5       (1 )     1  

Acquisitions

      —         —         —         —         —    
                                        

Reserve for unfunded commitments, ending

    $ 76     $ 76     $ 74     $ 69     $ 70  
                                        

Components of allowance for credit losses:

           

Allowance for loan and lease losses

    $ 771     $ 761     $ 753     $ 749     $ 744  

Reserve for unfunded commitments

      76       76       74       69       70  
                                        

Total allowance for credit losses

    $ 847     $ 837     $ 827     $ 818     $ 814  
                                        

Nonperforming Assets and Delinquent Loans

           

Nonaccrual loans and leases (a)

    $ 352     $ 320     $ 281     $ 291     $ 294  

Renegotiated loans and leases

      —         —         —         —         —    

Other assets, including other real estate owned

      103       91       77       73       67  
                                        

Total nonperforming assets

    $ 455     $ 411     $ 358     $ 364     $ 361  
                                        

Ninety days past due loans and leases (a)

    $ 210     $ 196     $ 191     $ 160     $ 155  
                                        

Ratios

           

Net losses charged off as a percent of average loans and leases

      0.52 %     0.43 %     0.37 %     0.42 %     0.67 %

Allowance for loan and lease losses as a percent of loans and leases

      1.04 %     1.04 %     1.04 %     1.05 %     1.06 %

Allowance for credit losses as a percent of loans and leases

      1.14 %     1.14 %     1.14 %     1.14 %     1.16 %

Nonperforming assets as a percent of loans, leases and other assets, including other real estate owned

      0.61 %     0.56 %     0.49 %     0.51 %     0.52 %
(a) Nonaccrual includes $33 million and Ninety Days Past Due includes $56 million of residential mortgage loans as of December 31, 2006.

 

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