-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Np2QJ963ibv7tu89jFvkYONJrBohNgwEbY3w6w/e31OGePZ4e+yqbMA0VdGJv+lx 0acG43PH7AQo6RghYVPTxg== 0000950152-00-004169.txt : 20000516 0000950152-00-004169.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950152-00-004169 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIFTH THIRD BANCORP CENTRAL INDEX KEY: 0000035527 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 310854434 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-08076 FILM NUMBER: 634768 BUSINESS ADDRESS: STREET 1: 38 FOUNTAIN SQ PLZ STREET 2: FIFTH THIRD CENTER CITY: CINCINNATI STATE: OH ZIP: 45263 BUSINESS PHONE: 5135795300 10-Q 1 FIFTH THIRD BANCORP 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended March 31, 2000 Commission File Number 0-8076 FIFTH THIRD BANCORP (Exact name of Registrant as specified in its charter) Ohio 31-0854434 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) Fifth Third Center Cincinnati, Ohio 45263 (Address of principal executive offices) Registrant's telephone number, including area code: (513) 579-5300 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No___ There were 309,765,919 shares of the Registrant's Common Stock, without par value, outstanding as of April 30, 2000. 2 FIFTH THIRD BANCORP INDEX Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets - March 31, 2000 and 1999 and December 31, 1999 3 Consolidated Statements of Income - Three Months Ended March 31, 2000 and 1999 4 Consolidated Statements of Cash Flows - Three Months Ended March 31, 2000 and 1999 5 Consolidated Statements of Changes in Shareholders' Equity - Three Months Ended March 31, 2000 and 1999 6 Notes to Consolidated Financial Statements 7 - 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 - 14 Item 3. Quantitative and Qualitative Disclosures About Market Risk 15 Part II. Other Information 16
2 3 FIFTH THIRD BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
======================================================================================================================== MARCH 31, December 31, March 31, ($000'S) 2000 1999 1999 ======================================================================================================================== ASSETS - ------------------------------------------------------------------------------------------------------------------------ Cash and Due from Banks $ 947,525 1,213,089 901,638 Securities Available for Sale(a) 14,875,146 12,687,529 12,353,721 Securities Held to Maturity(b) 139,192 129,142 124,282 Other Short-Term Investments 353,197 355,447 143,534 Loans Held for Sale 522,088 297,277 458,171 Loans and Leases Commercial Loans 6,624,190 6,206,712 5,712,747 Construction Loans 1,085,521 1,067,887 833,361 Commercial Mortgage Loans 2,506,964 2,651,378 2,221,944 Commercial Lease Financing 2,293,173 2,283,006 1,834,392 Residential Mortgage Loans 4,796,426 4,813,971 5,487,151 Consumer Loans 5,350,504 5,283,684 4,520,351 Consumer Lease Financing 3,674,307 3,579,600 2,772,445 Unearned Income (919,782) (922,618) (729,656) Reserve for Credit Losses (373,337) (366,640) (336,377) - ------------------------------------------------------------------------------------------------------------------------ Total Loans and Leases 25,037,966 24,596,980 22,316,358 Bank Premises and Equipment 489,918 481,531 453,133 Accrued Income Receivable 317,760 321,025 330,546 Other Assets 1,705,973 1,507,492 979,735 - ------------------------------------------------------------------------------------------------------------------------ TOTAL ASSETS $44,388,765 41,589,512 38,061,118 ======================================================================================================================== LIABILITIES - ------------------------------------------------------------------------------------------------------------------------ Deposits Demand $ 3,929,553 3,834,191 3,579,984 Interest Checking 4,369,433 4,176,537 3,628,988 Savings and Money Market 5,828,077 5,783,555 6,110,082 Time Deposits 14,858,634 12,289,277 11,349,261 - ------------------------------------------------------------------------------------------------------------------------ Total Deposits 28,985,697 26,083,560 24,668,315 Federal Funds Borrowed 5,279,410 2,971,855 2,333,692 Short-Term Bank Notes 15,000 1,317,400 615,200 Other Short-Term Borrowings 2,604,210 4,084,878 2,744,266 Accrued Taxes, Interest and Expenses 850,726 785,927 886,087 Other Liabilities 486,185 292,589 210,868 Long-Term Debt 1,842,986 1,803,772 2,542,160 Guaranteed Preferred Beneficial Interest in Convertible Subordinated Debentures 172,500 172,500 172,500 - ------------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES 40,236,714 37,512,481 34,173,088 - ------------------------------------------------------------------------------------------------------------------------ SHAREHOLDERS' EQUITY(c) - ------------------------------------------------------------------------------------------------------------------------ Common Stock(d) 687,489 685,728 672,222 Capital Surplus 926,276 911,224 656,247 Retained Earnings 2,836,473 2,704,595 2,507,406 Unrealized Gains (Losses) on Securities Available for Sale (298,187) (224,516) 81,455 Treasury Stock - - (29,300) - ------------------------------------------------------------------------------------------------------------------------ TOTAL SHAREHOLDERS' EQUITY 4,152,051 4,077,031 3,888,030 - ------------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $44,388,765 41,589,512 38,061,118 ========================================================================================================================
(a) Amortized cost: March 31, 2000 - $15,340,052, December 31, 1999 - $13,037,903 and March 31, 1999 - $12,243,194. (b) Market value: March 31, 2000 - $138,866, December 31, 1999 - $129,142 and March 31, 1999 - $121,948. (c) 500,000 shares of no par value preferred stock are authorized of which none have been issued. (d) Stated value $2.22 per share; authorized 650,000,000; outstanding at March 31, 2000 - 309,679,538, at December 31, 1999 - 308,886,592 and at March 31, 1999 - 302,803,022 (excludes 466,111 treasury shares). See Notes to Consolidated Financial Statements 3 4
FIFTH THIRD BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) ======================================================================================== THREE MONTHS ENDED MARCH 31, -------------------------- ($000'S) 2000 1999 ======================================================================================== INTEREST INCOME Interest and Fees on Loans and Leases $ 507,287 451,418 Interest on Securities Taxable 247,465 177,826 Exempt from Income Taxes 9,373 9,146 - ---------------------------------------------------------------------------------------- Total Interest on Securities 256,838 186,972 Interest on Other Short-Term Investments 3,055 2,416 - ---------------------------------------------------------------------------------------- Total Interest Income 767,180 640,806 - ---------------------------------------------------------------------------------------- INTEREST EXPENSE Interest on Deposits Interest Checking 23,986 16,650 Savings and Money Market 50,339 45,876 Time Deposits 171,018 138,507 - ---------------------------------------------------------------------------------------- Total Interest on Deposits 245,343 201,033 Interest on Federal Funds Borrowed 72,072 32,761 Interest on Short-Term Bank Notes 15,207 6,560 Interest on Other Short-Term Borrowings 37,538 29,940 Interest on Long-Term Debt and Notes 33,576 31,417 - ---------------------------------------------------------------------------------------- Total Interest Expense 403,736 301,711 - ---------------------------------------------------------------------------------------- NET INTEREST INCOME 363,444 339,095 Provision for Credit Losses 21,352 25,391 - ---------------------------------------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 342,092 313,704 OTHER OPERATING INCOME Investment Advisory Income 50,763 43,551 Service Charges on Deposits 47,655 39,497 Data Processing Income 50,920 38,396 Other Service Charges and Fees 90,303 83,518 Securities Gains 522 1,632 - ---------------------------------------------------------------------------------------- Total Other Operating Income 240,163 206,594 - ---------------------------------------------------------------------------------------- OPERATING EXPENSES Salaries, Wages and Incentives 109,929 101,183 Employee Benefits 25,681 22,974 Equipment Expenses 12,685 12,039 Net Occupancy Expenses 19,143 17,401 Other Operating Expenses 106,462 100,714 - ---------------------------------------------------------------------------------------- Total Operating Expenses 273,900 254,311 - ---------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 308,355 265,987 Applicable Income Taxes 101,986 89,645 - ---------------------------------------------------------------------------------------- NET INCOME $ 206,369 176,342 ======================================================================================== Per Share: Earnings $ 0.67 0.58 Diluted Earnings $ 0.66 0.57 Cash Dividends $ 0.24 0.20 ======================================================================================== Average Shares (000's): Outstanding 309,187 303,151 Diluted 316,415 312,172 ========================================================================================
See Notes to Consolidated Financial Statements 4 5
FIFTH THIRD BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) =========================================================================================================================== THREE MONTHS ENDED MARCH 31, ------------------------------- ($000'S) 2000 1999 =========================================================================================================================== OPERATING ACTIVITIES Net Income $ 206,369 176,342 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Provision for Credit Losses 21,352 25,391 Depreciation, Amortization and Accretion 27,969 30,720 Provision for Deferred Income Taxes 21,120 11,208 Realized Securities Gains (599) (2,457) Realized Securities Losses 78 825 Proceeds from Sales of Residential Mortgage Loans Held for Sale 677,962 1,047,633 Net Gains on Sales of Loans (2,137) (17,636) Increase in Residential Mortgage Loans Held for Sale (900,636) (901,252) Decrease in Accrued Income Receivable 3,265 13,273 Decrease (Increase) in Other Assets (100,571) 202,402 Increase in Accrued Taxes, Interest and Expenses 84,532 77,421 Decrease in Other Liabilities (60,455) (18,871) - --------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (21,751) 644,999 - --------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Proceeds from Sales of Securities Available for Sale 959,690 582,393 Proceeds from Calls, Paydowns and Maturities of Securities Available for Sale 350,130 1,038,481 Purchases of Securities Available for Sale (3,290,701) (2,648,141) Proceeds from Calls, Paydowns and Maturities of Securities Held to Maturity 7 5,589 Purchases of Securities Held to Maturity (10,057) (5,606) Decrease in Other Short-Term Investments 2,250 40,808 Increase in Loans and Leases (716,342) (400,477) Purchases of Bank Premises and Equipment (25,743) (17,722) Proceeds from Disposal of Bank Premises and Equipment 4,340 4,645 - --------------------------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (2,726,426) (1,400,030) - --------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Increase (Decrease) in Core Deposits 182,470 (657,488) Increase in CDs - $100,000 and Over, including Foreign 2,869,667 692,585 Increase in Federal Funds Borrowed 2,307,555 195,781 Increase (Decrease) in Short-Term Bank Notes (1,302,400) 607,200 Increase (Decrease) in Other Short-Term Borrowings (1,846,186) 367,437 Proceeds from Issuance of Long-Term Debt and Notes 751,706 32,209 Repayment of Long-Term Debt (422,016) (554,299) Payment of Cash Dividends (74,169) (62,495) Exercise of Stock Options 13,903 9,842 Other 2,083 (19,471) - --------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 2,482,613 611,301 - --------------------------------------------------------------------------------------------------------------------------- DECREASE IN CASH AND DUE FROM BANKS (265,564) (143,730) CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 1,213,089 1,045,368 - --------------------------------------------------------------------------------------------------------------------------- CASH AND DUE FROM BANKS AT END OF PERIOD $ 947,525 901,638 ===========================================================================================================================
See Notes to Consolidated Financial Statements 5 6
FIFTH THIRD BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) ========================================================================================================================= THREE MONTHS ENDED MARCH 31, -------------------------------- ($000'S) 2000 1999 ========================================================================================================================= BALANCE AT DECEMBER 31 $ 4,077,031 3,795,054 Net Income 206,369 176,342 Nonowner Changes in Equity, Net of Tax: Change in Unrealized Losses on Securities Available for Sale (73,671) (13,265) - ------------------------------------------------------------------------------------------------------------------------- Net Income and Nonowner Changes in Equity 132,698 163,077 Cash Dividends Declared: Fifth Third Bancorp (2000 - $.24 per share and 1999 - $.20 per share) (74,323) (53,475) Pooled Companies Prior to Acquisition - (10,084) Stock Options Exercised Including Treasury Shares Issued 13,903 9,842 Other 2,742 (16,384) - ------------------------------------------------------------------------------------------------------------------------- BALANCE AT MARCH 31 $ 4,152,051 3,888,030 =========================================================================================================================
See Notes to Consolidated Financial Statements 6 7 FINANCIAL INFORMATION ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. In the opinion of management, the unaudited Consolidated Financial Statements include all adjustments (which consist of normal recurring accruals) necessary, to present fairly the consolidated financial position as of March 31, 2000 and 1999, the results of operations for the three months ended March 31, 2000 and 1999 and the statements of cash flows for the three months ended March 31, 2000 and 1999. In accordance with generally accepted accounting principles for interim financial information, these statements do not include certain information and footnote disclosures required by generally accepted accounting principles for complete annual financial statements. Financial information as of December 31, 1999 has been derived from the audited Consolidated Financial Statements of Fifth Third Bancorp (the "Registrant"). The results of operations and statements of cash flows for the three months ended March 31, 2000 and 1999 are not necessarily indicative of the results to be expected for the full year. For further information, refer to the Consolidated Financial Statements and footnotes thereto for the year ended December 31, 1999, included in the Registrant's Annual Report on Form 10-K. 2. Financial data for the period ended March 31, 1999 has been restated to reflect the fourth quarter 1999 mergers with Peoples Bank Corporation of Indianapolis ("Peoples") and CNB Bancshares, Inc. ("CNB") both publicly-traded bank holding companies with $675 million and $7.9 billion in total assets, respectively. Both transactions were tax-free, stock-for-stock exchanges accounted for as pooling-of-interests. In connection with these acquisitions the Registrant issued approximately 3.4 million shares and 30.4 million shares of Fifth Third common stock for all the outstanding shares of Peoples and CNB, respectively. The contributions of Peoples and CNB to consolidated net interest income, other operating income and net income for the three month period ended March 31, 1999, prior to the mergers were as follows:
THREE MONTHS ENDED MARCH 31, 1999 - ------------------------------------------------------------------------------------------------------------------- PEOPLES BANK FIFTH CORPORATION CNB THIRD OF BANCSHARES, ($000'S) BANCORP INDIANAPOLIS INC. OTHER COMBINED - ------------------------------------------------------------------------------------------------------------------- Net Interest Income $270,194 $ 6,237 $ 60,122 $ 2,542 $339,095 Other Operating Income 174,966 1,788 29,807 33 206,594 Net Income 150,447 1,981 24,643 (729) 176,342 - -------------------------------------------------------------------------------------------------------------------
The combined results of operations are not necessarily indicative of the results that would have occurred had the acquisitions been consummated in the past or which might be attained in the future. As previously disclosed in the 1999 third quarter, the Registrant expects to incur additional merger-related costs during the second quarter of 2000 in connection with the integration of CNB. 7 8 ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. For the first three months of 2000, the Registrant paid $448,143,000 in interest and no Federal income taxes. For the same period in 1999, the Registrant paid $304,123,000 in interest and $8,571,000 in Federal income taxes. During the first three months of 2000 and 1999, the Registrant had noncash investing activities consisting of the securitization of $254,004,000 and $289,300,000 of residential mortgage loans, respectively. 4. In June 1998, the Financial Accounting Standards Board issued Statement of Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," effective for all fiscal periods beginning after June 15, 1999. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133," to amend SFAS No. 133 to be effective for all fiscal years beginning after June 15, 2000. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities, requiring recognition of all derivatives as either assets or liabilities in the statement of financial condition and measurement of those instruments at fair value. The adoption of SFAS No. 133 is not expected to have a material effect on the Registrant's consolidated statement of financial condition. 5. In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," the Registrant has determined its principal segments to be retail banking, commercial banking, investment advisory services and data processing. Retail banking provides a full range of deposit products and consumer loans and leases. Commercial banking offers services to business, government and professional customers. Investment advisory services provides a full range of investment alternatives for individuals, companies and not-for-profit organizations. Data processing, through Midwest Payment Systems ("MPS"), provides electronic funds transfer ("EFT") services, merchant transaction processing, operates the Registrant's Jeanie ATM network and provides other data processing services to affiliated and unaffiliated customers. General corporate and other includes the investment portfolio, certain non-deposit funding, unassigned equity, the net effect of funds transfer pricing and other items not allocated to operating segments. Total revenues exclude securities gains and losses. Results of operations and selected financial information by operating segment for the three months ended March 31, 2000 and 1999 are as follows: 8 9 ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED INVESTMENT GENERAL MARCH 31, COMMERCIAL RETAIL ADVISORY DATA ACQUIRED CORPORATE ($000'S) BANKING BANKING SERVICES PROCESSING (a) ENTITIES AND OTHER ELIMINATIONS (a) TOTAL - -------------------------------------------------------------------------------------------------------------------------------- 2000 Total Revenues $152,966 $298,290 $ 62,366 $ 54,348 $ -- $ 39,280 $ (4,165) $603,085 - -------------------------------------------------------------------------------------------------------------------------------- Net Income $ 61,364 $ 91,935 $ 18,853 $ 16,893 $ -- $ 17,324 $ -- $206,369 - -------------------------------------------------------------------------------------------------------------------------------- 1999 Total Revenues $113,505 $239,638 $ 50,111 $ 40,121 $100,156 $ 3,730 $ (3,204) $544,057 - -------------------------------------------------------------------------------------------------------------------------------- Net Income $ 47,284 $ 81,021 $ 15,617 $ 11,753 $ 25,895 $ (5,228) $ -- $176,342 - --------------------------------------------------------------------------------------------------------------------------------
(a) Data Processing services revenues provided to the banking segments by MPS are eliminated in the Consolidated Statements of Income. There were no material changes in the identifiable assets that were disclosed in the Registrant's December 31, 1999 Annual Report on Form 10-K. 6. The Registrant has elected to present the disclosures required by SFAS No. 130, "Reporting Comprehensive Income" in the Consolidated Statement of Changes in Shareholders' Equity on page 6. The caption "Net Income and Nonowner Changes in Equity," represents total comprehensive income as defined in the statement. Disclosure of the reclassification adjustments, related tax effects allocated to nonowner changes in equity and accumulated nonowner changes in equity for the three months are as follows:
THREE MONTHS ENDED MARCH 31, ($000'S) 2000 1999 - --------------------------------------------------------------------------------------------------------------------------- Reclassification Adjustments, Before Tax - --------------------------------------------------------------------------------------------------------------------------- Change in Unrealized Losses Arising During Period $(114,532) (22,040) Reclassification Adjustment for Gains Included in Net Income 522 1,632 - --------------------------------------------------------------------------------------------------------------------------- Net Unrealized Losses on Securities Available for Sale $(114,010) (20,408) - --------------------------------------------------------------------------------------------------------------------------- Related Tax Effects - --------------------------------------------------------------------------------------------------------------------------- Change in Unrealized Losses Arising During Period $ (40,522) (7,714) Reclassification Adjustment for Gains Included in Net Income 183 571 - --------------------------------------------------------------------------------------------------------------------------- Net Unrealized Losses on Securities Available for Sale $ (40,339) (7,143) - --------------------------------------------------------------------------------------------------------------------------- Reclassification Adjustments, Net of Tax - --------------------------------------------------------------------------------------------------------------------------- Change in Unrealized Losses Arising During Period $ (74,010) (14,326) Reclassification Adjustment for Gains Included in Net Income 339 1,061 - --------------------------------------------------------------------------------------------------------------------------- Net Unrealized Losses on Securities Available for Sale $ (73,671) (13,265) - --------------------------------------------------------------------------------------------------------------------------- Accumulated Nonowner Changes in Equity - --------------------------------------------------------------------------------------------------------------------------- Beginning Balance-Unrealized Holding Gains (Losses) on Securities Available for Sale $(224,516) 94,720 Current Period Change (73,671 (13,265) - --------------------------------------------------------------------------------------------------------------------------- Ending Balance-Unrealized Holding Gains (Losses) on Securities Available for Sale $(298,187) 81,455 - ---------------------------------------------------------------------------------------------------------------------------
9 10 ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. The reconciliation of earnings per share to diluted earnings per share follows:
THREE MONTHS ENDED MARCH 31, 2000 1999 - --------------------------------------------------------------------------------------------------------------------------- NET AVERAGE PER-SHARE NET AVERAGE PER-SHARE ($000'S) INCOME SHARES AMOUNT INCOME SHARES AMOUNT - --------------------------------------------------------------------------------------------------------------------------- EPS Income Available to Common Shareholders $ 206,369 309,187 $0.67 $176,342 303,151 $0.58 EFFECT OF DILUTIVE SECURITIES Stock Options 4,284 6,077 Interest on 6% Convertible Subordinated Debentures due 2028, Net of Applicable Income Taxes 1,640 2,944 1,640 2,944 - --------------------------------------------------------------------------------------------------------------------------- DILUTED EPS Income Available to Common Shareholders Plus Assumed Conversions $ 208,009 316,415 $0.66 $177,982 312,172 $0.57 - ---------------------------------------------------------------------------------------------------------------------------
10 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors which have affected the Registrant's financial condition and results of operations during the periods included in the Consolidated Financial Statements which are a part of this filing. This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended that involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those in the forward-looking statements. Those factors include the economic environment, competition, products and pricing in geographic and business areas in which the Registrant operates, prevailing interest rates, changes in government regulations and policies affecting financial services companies, credit quality and credit risk management, changes in the banking industry including the effects of consolidation resulting from possible mergers of financial institutions, acquisitions and integration of acquired businesses. The Registrant undertakes no obligation to release revisions to these forward-looking statements or reflect events or circumstances after the date of this report. RESULTS OF OPERATIONS Net income was $206.4 for the first three months of 2000, a 17 percent increase over last year's $176.3 million. Diluted earnings per share was $.66 for the first quarter, up 15.8 percent from $.57 for the same period last year. Net interest income on a fully taxable equivalent basis for the first quarter of 2000 was $385.5 million, an 8 percent increase over $356.8 million for the same period last year, resulting principally from a 16.3 percent growth in average interest-earning assets. Net interest margin declined 32 basis points ("bp") from 4.14 percent during first quarter 1999 to 3.82 percent in the first quarter 2000, reflecting a 125bp increase in the Federal Funds borrowing rate. The effect of this rate increase was offset by strong deposit growth, a focus on asset re-pricing and longer borrowing maturities. Credit quality improved overall due to continued management initiatives to proactively identify and resolve problem credits. The provision for credit losses was $21.4 million in the 2000 first quarter compared to $25.4 million in the same period last year. Net charge-offs declined 29.3 percent to $14.9 million from $21 million in the 1999 first quarter primarily due to a 12.4 percent improvement in loan and lease losses, coupled with a 31.6 percent increase in recoveries. Net charge-offs as a percent of average loans and leases outstanding declined 14bp to .24 percent from .38 percent in the same period last year. Nonperforming assets as a percentage of total loans, leases and other real estate owned was .32 percent at March 31, 2000, down 6bp from .38 percent at March 31, 1999. Underperforming assets were $160.8 million at March 31, 2000, or .63 percent of total loans and leases and other real estate owned, down 15bp from the $177.3 million, or .78 percent, at March 31, 1999. 11 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Registrant maintains a reserve to absorb probable loan and lease losses inherent in the portfolio. Credit losses are charged and recoveries are credited to the reserve. Provisions for credit losses are credited to the reserve in an amount that management considers necessary to maintain an appropriate level of reserves given the estimated losses in the portfolio. The reserve is based on ongoing quarterly assessments of the probable estimated losses inherent in the loan and lease portfolio. In determining the appropriate level of reserves, the Registrant estimates losses using a range derived from "base" and "conservative" estimates. The Registrant's methodology for assessing the appropriate reserve level consists of several key elements. Larger commercial loans that exhibit potential or observed credit weaknesses are subject to individual review. Where appropriate, reserves are allocated to individual loans based on management's estimate of the borrower's ability to repay the loan given the availability of collateral, other sources of cash flow and legal options available to the Registrant. Included in the review of individual loans are those that are impaired as provided in SFAS No. 114, "Accounting by Creditors for Impairment of a Loan." Any reserves for impaired loans are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or fair value of the underlying collateral. The Registrant evaluates the collectibility of both principal and interest when assessing the need for loss accrual. Historical loss rates are applied to other commercial loans not subject to specific reserve allocations. The loss rates are derived from a migration analysis, which computes the net charge-offs experience sustained on loans according to their internal risk grade. These grades encompass nine categories that define a borrower's ability to repay their loan obligations. Homogenous loans, such as consumer installment, residential mortgage loans and automobile leases are not individually risk graded. Reserves are established for each pool of loans based on the expected net-charge-offs for one year. Loss rates are based on the average net charge-off history by loan category. An unallocated reserve is maintained to recognize the imprecision in estimating and measuring loss when evaluating reserves for individual loans or pools of loans. Historical loss rates for commercial and consumer loans may be adjusted for significant factors that, in management's judgement, reflect the impact of any current conditions on loss recognition. Factors which management considers in the analysis include the effects of the national and local economies, trends in the nature and volume of loans (delinquencies, charge-offs, nonaccrual and problem loans), changes in the internal lending policies and credit standards, collection practices and examination results from bank regulatory agencies and the Registrant's internal credit examiners. 12 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Reserves on individual loans and historical loss rates are reviewed quarterly and adjusted as necessary based on changing borrower and/or collateral conditions and actual collection and charge-off experience. Total other operating income, excluding securities gains, increased 16.9 percent to $239.6 million in the first quarter of 2000 compared to $205 million in the first quarter of 1999, with data processing income increasing 32.6 percent to $50.9 million. Increases in electronic funds transfers ("EFT") and higher transaction volume from increased debit and ATM card usage, coupled with expansion of business-to-business e-commerce, contributed to the increase in data processing income. Investment advisory income increased 16.6 percent to $50.8 million in the first quarter of 2000 compared to $43.6 million in the 1999 period. This growth was attributable to double-digit increases in personal trust, employee benefits, corporate trust and brokerage revenue, coupled with new sales volume. Service charges on deposits increased 20.7 percent over the same period last year primarily due to the success of new account campaigns, while other service fee charges and fees grew 8.1 percent over the same quarter last year. The overhead ratio (operating expenses divided by the sum of taxable equivalent net interest income and other operating income) was 43.8 percent for the first quarter of 2000, down from 45.1 percent in the same period last year. The improvement in the 2000 overhead ratio was primarily due to increased revenues during the first quarter. Total operating expenses increased to $273.9 million in the 2000 first quarter, or 7.7 percent over the same period last year. Salaries, incentives and benefits increased 9.2 percent in the first quarter of 2000 primarily due to additional compensation incurred to support improved sales volume, coupled with an increase in the Registrant's profit sharing contribution. Net occupancy expense increased to $19.1 million during the first quarter primarily due to rent expense incurred, while total other operating expenses increased 5.7 percent, to $106.5 million, for the quarter. FINANCIAL CONDITION The Registrant's balance sheet remains strong with high-quality assets and solid capital levels. Total assets were $44.4 billion at March 31, 2000 compared to assets of $41.6 billion at December 31, 1999 and $38.1 billion at March 31, 1999, an increase of 6.7 percent and 16.6 percent, respectively. Return on average equity was 19.4 percent and return on average assets was 1.90 percent for the first quarter of 2000 compared to 19.0 percent and 1.91 percent, respectively, for the same quarter of last year. 13 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Net interest income growth continues to be fueled by improved interest-earning asset and deposit mix and interest-earning asset growth, partially offset by a decline in net interest margin. Interest-earning assets increased to $41.3 billion for the first quarter of 2000, an increase of $5.6 billion, or 15.6 percent, over the same period last year and $2.9 billion, or 7.5 percent, over 1999 year-end. Interest-earning assets increased primarily due to growth in securities available for sale, coupled with growth in commercial loans and leases and consumer loans and leases. Deposits grew to $29 billion at March 31, 2000, an increase of $4.3 billion, or 17.5 percent, over the same period last year and $2.9 billion, or 11.1 percent, over 1999 year-end. Deposit growth during the period is primarily attributable to the success of campaigns emphasizing customer deposit accounts. LIQUIDITY AND CAPITAL RESOURCES The maintenance of an adequate level of liquidity is necessary to ensure sufficient funds are available to meet customer loan demand and deposit withdrawals. The banking subsidiaries' liquidity sources consist of short-term marketable securities, maturing loans and federal funds loaned and selected securitizable loan assets. Liquidity has also been obtained through liabilities such as customer-related core deposits, funds borrowed, certificates of deposit and public funds deposits. At March 31, 2000, shareholders' equity was $4.152 billion compared to $3.888 billion at March 31, 1999, an increase of $264 million, or 6.8 percent. Shareholders' equity as a percentage of total assets as of March 31, 2000 was 9.35 percent. The Federal Reserve Board has adopted risk-based capital guidelines which assign risk weightings to assets and off-balance sheet items and also define and set minimum capital requirements (risk-based capital ratios). The guidelines also define "well-capitalized" ratios of Tier 1, total capital and leverage as 6 percent, 10 percent and 5 percent, respectively. The Registrant exceeded these "well-capitalized" ratios at March 31, 2000 and 1999. At March 31, 2000, the Registrant had a Tier 1 risk-based capital ratio of 13.05 percent, a total risk-based capital ratio of 14.89 percent and a leverage ratio of 10.06 percent. At March 31, 1999, the Registrant had a Tier 1 risk-based capital ratio of 12.56 percent, a total risk-based capital ratio of 14.51 percent and a leverage ratio of 10.04 percent. 14 15 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest rate risk management focuses on maintaining consistent growth in net interest income within Board-approved policy limits. The Registrant uses an earnings simulation model to analyze net interest income sensitivity to movements in interest rates. Given an immediate, sustained 200 basis point upward shock to the yield curve used in the simulation model, it is estimated net interest income for the Registrant would decrease by 7.70 percent over one year and decrease by 2.92 percent over two years. A 200 basis point immediate, sustained downward shock in the yield curve would increase net interest income by an estimated 4.10 percent over one year and decrease net interest income by an estimated 4.67 percent over two years. 15 16 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On March 21, 2000, the Registrant held its Annual Meeting of Stockholders for which the Board of Directors solicited proxies. At the Annual Meeting, the shareholders adopted all of the proposals stated in the Proxy Statement dated February 9, 2000, which is incorporated herein by reference. The proposals voted on and approved by the shareholders are as follows: 1. Election of eight (8) Class II Directors (John F. Barrett, Richard T. Farmer, Robert B. Morgan, Brian H. Rowe, George A. Schaefer, Jr., John J. Schiff, Jr., Donald B. Shackelford and Dudley S. Taft) to serve until the Annual Meeting of Shareholders in 2003. 2. Approval of the proposal to amend Article Fourth of the Amended Articles of Incorporation to Increase the authorized number of shares of Common Stock, without par value, from 500,000,000 shares to 650,000,000 shares by a vote of 258,878,074 for 6,139,516 against and 1,568,639 withheld. 3. Approval of the proposal to appoint the firm of Deloitte & Touche LLP to serve as independent auditors for the Registrant for the year 2000 by a vote of 263,406,981 for, 1,955,544 against and 1,223,704 withheld. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) List of Exhibits (3)(i) Amended Articles of Incorporation, as amended (3)(ii) Code of Regulation, as amended, incorporated by reference to Registrant Registration Statement, on Form S-4, Registration No. 33-63966 (27) Financial Data Schedules for the Three Months Ended March 31, 2000 (b) There were no Reports on Form 8-K filed during the first quarter of 2000. 16 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Fifth Third Bancorp ------------------- Registrant Date: May 15, 2000 /s/ Neal E. Arnold ------------------- Neal E. Arnold Executive Vice President and Chief Financial Officer 17 EX-3.I 2 EXHIBIT 3.I 1 Exhibit 3.i SECOND AMENDED ARTICLES OF INCORPORATION OF FIFTH THIRD BANCORP, AS AMENDED FIRST: The name of the corporation shall be FIFTH THIRD BANCORP. SECOND: The place in the State of Ohio where the principal office of the corporation is to be located is the City of Cincinnati, County of Hamilton. THIRD: The purpose for which the corporation is formed is to engage in any and/or all lawful acts or activities for which corporations may be formed under Section 1701.01 to 1701.98, inclusive, of the Ohio Revised Code, as amended. FOURTH: (A) The total authorized number of shares of the corporation is Six Hundred Fifty Million, Five Hundred Thousand (650,500,000) shares, which shall be classified as follows: 1) Six Hundred Fifty Million (650,000,000) shares of common stock, without par value. Each share of common stock shall entitle the holder thereof to one (1) vote on each matter properly submitted to the stockholders for their vote, consent, waiver, release or other action, subject to the provisions of the law with respect to cumulative voting. 2) Five Hundred Thousand (500,000) shares of preferred stock, without par value. (a) Each share of the preferred stock shall entitle the holder thereof to no voting rights, except as otherwise required by law. (b) The dividend rights of the preferred stock shall be non-cumulative, except as otherwise provided by the Board of Directors. (c) The Board of Directors shall have the right to adopt amendments to these Articles of Incorporation in respect of any unissued or treasury shares of the preferred stock and thereby fix or change: the division of such shares into series and the designation and authorized number of shares of each series; the dividend rate; whether dividend rights shall be cumulative or non-cumulative; the dates of payment of dividends and the dates from which they are cumulative; liquidation price; redemption rights and price; sinking fund requirements, conversion rights; and restrictions on the issuance of such shares or any series thereof; provided however, except for the foregoing variations which the Board of Directors are authorized to fix or change, all of the express terms of different series of such shares be identical. Upon the adoption of any amendment pursuant to the foregoing authority, a certificate signed by the president or a vice president and by a secretary or an assistant secretary, containing a copy of the resolutions adopting the amendment and a statement of the manner and basis of its adoption, shall be filed in the office of the Secretary of State of the State of Ohio, accompanied by the fees then required by law, before the corporation shall have the right to issue any such shares. 2 (B) The Board of Directors may, from time to time, determine the time when, the terms under which, and the considerations for which the corporation issues, disposes of, or receives subscriptions for its shares of any class or series thereof, including treasury shares. Payment for shares shall be made with money or other property of any description, or any interest therein, actually transferred to the corporation, or labor or services actually rendered to the corporation. FIFTH: The corporation, by its Board of Directors, may, subject to these Articles of Incorporation, purchase, repurchase, redeem or otherwise acquire the shares of any class issued by it, at such times and on such terms as they shall determine to be in the best interests of the corporation. All shares of the corporation purchased, redeemed or otherwise acquired, unless the Board of Directors or the laws of the State of Ohio specifically provide otherwise, shall be held as treasury shares. Provided, however, that this Article Fifth shall not create authority in the Board of Directors to cause an involuntary redemption of the shares of the common stock. SIXTH: The Board of Directors shall have the right, to the extent permitted by law: (i) to fix, determine and vary the amount of stated capital of the corporation; (ii) to determine whether any, and if any, what part of the surplus of the corporation, however created or arising, shall be used, disposed of or declared in dividends or paid to the stockholders; and (iii) without action by the stockholder, to use and apply the surplus of the corporation, or any part thereof, at any time or from time to time, in the purchase or acquisition of shares of any class, voting trust certificates for shares, bonds, debentures, notes, script, warrants, obligations, evidences of indebtedness, or other securities of the corporation, to such extent of in such amount, in such manner and upon such terms as the Board of Directors shall determine expedient. SEVENTH: No holder of any share or shares of any class issued by the corporation shall be entitled as such, as a matter of right, at any time, to subscribe for or purchase (i) shares of any class issued by the corporation, now or hereafter authorized, (ii) securities of the corporation convertible into or exchangeable for shares of any class issued by the corporation, now or hereafter authorized, or (iii) securities of the corporation to which shall be attached or appertain any rights or options, whether by the terms of such securities or in the contracts, warrants or other instruments (whether transferable or non-transferable or separable or inseparable from such securities) evidencing such rights or options, entitling the holders thereof to subscribe for or purchase shares of any class issued by the corporation, now or hereafter authorized; it being the intent and is the effect of this Article Seventh to fully eliminate any and all pre-emptive rights with respect to the shares of any class issued by the corporation, now or hereafter authorized. EIGHTH: These Amended Articles of Incorporation supersede and take the place of the existing Amended Articles of Incorporation. EX-27 3 EXHIBIT 27
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIFTH THIRD BANCORP'S QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 947,525 353,197 0 0 14,875,146 139,192 138,866 25,411,303 373,337 44,388,765 28,985,697 7,898,620 1,336,911 1,842,986 172,500 0 687,489 3,464,562 44,388,765 507,287 256,838 3,055 767,180 245,343 403,736 363,444 21,352 522 273,900 308,355 308,355 0 0 206,369 .67 .66 3.82 81,932 78,913 0 0 366,640 25,499 10,619 373,337 373,337 0 0
-----END PRIVACY-ENHANCED MESSAGE-----