-----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, ReBYQqQYSbXIiZouDEaL/eUAb69DLjIogLBovL9JQgbzGopAwOreKNYwrJ51fsOo 9vVZyqmVm5B7Tl6cs+I1Bg== 0000950152-01-001741.txt : 20010329 0000950152-01-001741.hdr.sgml : 20010329 ACCESSION NUMBER: 0000950152-01-001741 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010328 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-K SEC ACT: SEC FILE NUMBER: 000-08076 FILM NUMBER: 1582287 BUSINESS ADDRESS: STREET 1: 38 FOUNTAIN SQ PLZ STREET 2: FIFTH THIRD CENTER CITY: CINCINNATI STATE: OH ZIP: 45263 BUSINESS PHONE: 5135795300 10-K 1 l86643ae10-k.txt FIFTH THIRD BANCORP 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 Or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_______ to _______ Commission file number 0-8076 FIFTH THIRD BANCORP (Exact name of Registrant as specified in its charter) Ohio 31-0854434 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 38 Fountain Square Plaza Cincinnati, Ohio 45263 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (513) 579-5300 Securities registered pursuant to Section 12(g) of the Act: Common Stock Without Par Value Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: [ X ] No: [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The Aggregate Market Value of the Voting Stock held by non-affiliates of the Registrant was $19,791,796,937 as of February 28, 2001. (1) There were 466,650,349 shares of the Registrant's Common Stock, without par value, outstanding as of February 28, 2001. DOCUMENTS INCORPORATED BY REFERENCE 2000 Annual Report to Shareholders: Parts I, II and IV Proxy Statement for 2001 Annual Meeting of Shareholders: Parts III and IV (1) In calculating the market value of securities held by non-affiliates of Registrant as disclosed on the cover page of this Form 10-K, Registrant has treated as securities held by affiliates as of December 31, 2000, voting stock owned of record by its directors and principal executive officers, shareholders owning greater than 10% of the voting stock and voting stock held by Registrant's trust departments in a fiduciary capacity. 2 FIFTH THIRD BANCORP 2000 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PART I
Page Item 1. Business 3-21 Item 2. Properties 22 Item 3. Legal Proceedings 22 Item 4. Submission of Matters to a Vote of Security Holders 22 PART II Item 5. Market For Registrant's Common Equity and Related Shareholder Matters 23 Item 6. Selected Financial Data 23 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 23 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 23 Item 8. Financial Statements and Supplementary Data 23 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 23 PART III Item 10. Directors and Executive Officers of the Registrant 24-27 Item 11. Executive Compensation 27 Item 12. Security Ownership of Certain Beneficial Owners and Management 27 Item 13. Certain Relationships and Related Transactions 27 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 28-33
2 3 PART I ITEM 1. BUSINESS ORGANIZATION Fifth Third Bancorp (the "Registrant") is an Ohio corporation organized in 1975 and is a registered financial holding company and a bank holding company under the Bank Holding Company Act of 1956, as amended (the "BHCA"), and subject to regulation by the Federal Reserve Board ("FRB"). The Registrant, with its principal office located in Cincinnati, is a multi-bank holding company as defined in the BHCA and is registered as such with the Board of Governors of the Federal Reserve System. At December 31, 2000, the Registrant had 13 wholly-owned subsidiaries: Fifth Third Bank; Fifth Third Bank, Florida; Fifth Third Bank, Northern Kentucky, Inc.; Fifth Third Bank, Kentucky, Inc.; Fifth Third Bank, Indiana; Fifth Third Bank, Southwest, F.S.B.; Fifth Third Community Development Corporation; Fifth Third Insurance Services, Inc; CNB Capital Trust I; Fifth Third Investment Company; Fifth Third Securities; Fifth Third Real Estate Resources, Inc. and Heartland Capital Management, Inc. At December 31, 2000, the Registrant, its affiliated banks and other subsidiaries had consolidated total assets of approximately $45.9 billion, consolidated total deposits of approximately $30.9 billion and consolidated total shareholders' equity of approximately $4.9 billion. The Registrant, through its subsidiaries, engages primarily in commercial, retail and trust banking, data processing services, investment advisory services and leasing activities and also provides credit life, accident and health insurance, discount brokerage services, and property management for its properties. Significant subsidiaries of the Registrant's affiliate banks consist of The Fifth Third Company; The Fifth Third Leasing Company; Midwest Payment Systems, Inc. ("MPS"); Fifth Third International Company; Fifth Third Real Estate Capital Markets Co.; Fifth Third Mortgage Company; Fifth Third Real Estate Investment Trust, Inc.; Fifth Third Mortgage Insurance Reinsurance Company; and Fifth Third Insurance Agency. The Registrant's subsidiaries provide a full range of financial products and services to the retail, commercial, financial, governmental, educational and medical sectors, including a wide variety of checking, savings and money market accounts, and credit products such as credit cards, installment loans, mortgage loans and leasing. Each of the banking affiliates has deposit insurance provided by the Federal Deposit Insurance Corporation ("FDIC") through the Bank Insurance Fund ("BIF") and the Savings Association Insurance Fund ("SAIF"). The Registrant, through its MPS subsidiary, operates for itself and other financial institutions a proprietary automated teller machine ("ATM") network, Jeanie(R). The Jeanie(R) system participates in several regional shared ATM networks including "Money Station(R)," "Pulse(R)" and "Star(R)". These networks include approximately 3,200, 46,000 and 115,000 ATMs, respectively. The "Money Station(R)" network, in which the Registrant has a 20% ownership, participates in another shared ATM network called "PLUS System(R)," which is an international network including approximately 563,000 participating ATMs. MPS also provides electronic fund transfers, ATM processing, electronic personal banking, merchant transaction processing, electronic bill payment and electronic benefit transfer services for thousands of regional banks, 3 4 PART I ITEM 1. BUSINESS (CONTINUED) - ----------------------------- ORGANIZATION bank holding companies, service retailers and other financial institutions throughout the United States. Fifth Third International Company has a 99.9 percent-owned subsidiary: Fifth Third Trade Services Limited. Fifth Third Investment Company owns the remaining .01 percent. These subsidiaries provide foreign exchange trading, automated letters of credit and import/export services to commercial customers. The Fifth Third Leasing Company has a 100 percent-owned subsidiary: The Fifth Third Auto Leasing Trust, which provides indirect auto loans and leases to consumers. Additional information regarding the Registrant's businesses is included in the Management Editorial (pages 6 through 14) in the Registrant's 2000 Annual Report to Shareholders and is incorporated herein by reference and attached to this filing as Exhibit 13. ACQUISITIONS The Registrant is the result of mergers and acquisitions over the years involving financial institutions throughout Ohio, Indiana, Kentucky, Michigan, Illinois, Arizona and Florida. The Registrant is continually evaluating strategic acquisition opportunities and frequently conducts due diligence activities in connection with possible transactions. As a result, discussions, and in some cases, negotiations may take place and future acquisitions involving cash, debt or equity securities may occur. These typically involve the payment of a premium over book value, and therefore, some dilution of book value and net income per share may occur with any future transactions. The Registrant's strategy for growth includes strengthening its presence in core markets, expanding into contiguous markets and broadening its product offerings. Consistent with this strategy the Registrant engaged in the following acquisitions during 2000: On December 8, 2000, the Registrant acquired Ottawa Financial Corporation ("Ottawa"), a unitary savings and loan holding company based in Holland, Michigan which owns Ameribank, with total assets of approximately $1.1 billion, deposits of approximately $733 million and shareholders' equity of approximately $83 million. The Registrant exchanged 3,658,125 shares of Fifth Third Bancorp common stock for all outstanding shares of Ottawa. This transaction was accounted for as a purchase. On October 3, 2000, the Registrant announced a definitive agreement to acquire Resource Management, Inc. dba Maxus Investment Group ("Maxus") based in Cleveland, Ohio. Maxus, is a money management firm with approximately $1.4 billion in assets under management for personal, institutional and not-for-profit clients, which offers private portfolio management and investment advisor services for Maxus Mutual Funds. The transaction was completed on 4 5 PART I ITEM 1. BUSINESS (CONTINUED) - ----------------------------- ACQUISITIONS January 2, 2001 and was accounted for as a purchase. On October 25, 2000, the Registrant announced a definitive agreement to acquire Capital Holdings, Inc. ("Capital Holdings"), a publicly traded bank holding company located in Sylvania, Ohio which owns Capital Bank, N.A., with total assets of approximately $1.1 billion, deposits of approximately $871 million and shareholders' equity of approximately $101 million. In connection with the acquisition of Capital Holdings, shareholders of Capital Holdings received .638 of a share of Fifth Third Bancorp common stock for each outstanding share of Capital Holdings common stock. The Registrant exchanged approximately 4.51 million shares of Fifth Third Bancorp common stock for all outstanding shares of Capital Holdings. The transaction was completed on March 9, 2001 and was accounted for as a pooling-of-interests. On November 20, 2000, the Registrant announced a definitive agreement to acquire Old Kent Financial Corporation ("Old Kent"), a publicly traded financial holding company based in Grand Rapids, Michigan which owns Old Kent Bank and Old Kent National Association. As of December 31, 2000, Old Kent had total assets of approximately $23.8 billion, deposits of approximately $17.4 billion and shareholders' equity of approximately $1.8 billion. In connection with the acquisition of Old Kent, holders of Old Kent common stock will receive .74 of a share of Fifth Third Bancorp common stock for each outstanding share of Old Kent common stock. The Registrant expects to issue approximately 107.3 million shares of Fifth Third Bancorp common stock to shareholders of Old Kent. The merger, which is expected to be completed in the second quarter of 2001, will be a tax-free, stock-for-stock exchange accounted for as a pooling-of-interests. Additional information, with respect to acquisitions is included in Note 19 (pages 27 through 28) of the Notes to Consolidated Financial Statements in the Registrant's 2000 Annual Report to Shareholders, and is incorporated herein by reference and attached to this filing as Exhibit 13. 5 6 PART I ITEM 1. BUSINESS (CONTINUED) - ----------------------------- COMPETITION There are hundreds of commercial banks, savings and loans and other financial service providers in Ohio, Kentucky, Michigan, Illinois, Indiana, Arizona, Florida and nationally, which provide strong competition to the Registrant's banking subsidiaries. The Registrant competes for deposits, loans and other banking services in its principal geographic markets as well as in selected national markets as opportunities arise. In addition to the challenge of attracting and retaining customers for traditional banking services, the Registrant's competitors now include securities dealers, brokers, mortgage bankers, investment advisors and insurance companies who seek to offer one-stop financial services to their customers which include services that traditional banks have not been able or allowed to offer their customers in the past. Moreover, under the Gramm-Leach-Bliley Act of 1999 (the "GLBA"), effective March 11, 2000, securities firms, insurance companies and other financial services providers that elect to become financial holding companies may acquire banks and other financial institutions. The GLBA significantly changed the competitive environment in which the Registrant conducts business. See "Regulation and Supervision" below. The increasingly competitive environment is a result primarily of changes in regulation, changes in technology, product delivery systems and the accelerating pace of consolidation among financial service providers. These competitors with focused products targeted at highly profitable customer segments, compete across geographic boundaries and provide customers increasing access to meaningful alternatives to banking services in nearly all significant products. These competitive trends are likely to continue. The Registrant's ability to maintain its history of strong financial performance and return on investment to shareholders will depend in part on the Registrant's ability to expand its scope of available financial services as needed to meet the needs and demands of its customers. With respect to data processing services, the Bank's data processing subsidiary, MPS, competes with other electronic fund transfer ("EFT") service providers such as Concord EFS, Inc., Deluxe Corporation and Electronic Data Systems and other merchant processing providers such as First Data Corporation and National Processing, Inc. REGULATION AND SUPERVISION In addition to the generally applicable state and federal laws governing businesses and employers, the Registrant and its subsidiary state banks (the "State Banks") and federal savings bank subsidiary are further regulated by federal and state laws and regulations applicable to financial institutions and their parent companies. Virtually all aspects of the Registrant, the State Banks and the federal savings bank are subject to specific requirements or restrictions and general regulatory oversight. State and federal banking laws have as their principal objective either the maintenance of the safety and soundness of financial institutions and the federal deposit insurance system or the protection of consumers or classes of consumers, rather than the specific protection of stockholders of a bank or the parent company of a bank, such as the Registrant. In addition, the supervision, regulation and examination of the Registrant and its subsidiaries by the bank regulatory agencies is not intended for the protection of the Registrant's 6 7 PART I ITEM 1. BUSINESS (CONTINUED) - ----------------------------- REGULATION AND SUPERVISION security holders. To the extent the following material describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statute or regulation. THE REGISTRANT - -------------- General. The Registrant is a bank holding company registered under the BHCA. In 2000, the Registrant elected and qualified for financial holding company ("FHC") status under the Gramm-Leach-Bliley Act (as discussed below). The Registrant is subject to appropriate regulation and supervision by the FRB and the Ohio Division of Financial Institutions (the "Division"). The FRB, the Registrant's primary regulator, has the authority to issue orders to bank holding companies to cease and desist from unsound banking practices and violations of conditions imposed by, or violations of agreements with, the FRB. The FRB is also empowered to assess civil monetary penalties against companies or individuals who violate the BHCA or orders or regulations thereunder, to order termination of non-banking activities of non-banking subsidiaries of bank holding companies, and to order termination of ownership and control of a non-banking subsidiary by a bank holding company. The BHCA - Geographic Expansion. The BHCA prohibits a bank holding company, without prior approval of the FRB, from acquiring substantially all the assets of a bank or acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank, or increasing such ownership or control of any bank, or merging or consolidating with any bank holding company. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 generally authorizes bank holding companies to acquire banks located in any state, possibly subject to certain state-imposed age and deposit concentration limits, and also generally authorizes interstate mergers and to a lesser extent, interstate branching. The Gramm-Leach-Bliley Act - Broader Range of Financial Activities for Financial Holding Companies. The GLBA became law on November 12, 1999. The general effect of the GLBA is to establish a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms, and other financial service providers by revising and expanding the BHCA framework to permit a holding company system, such as the Registrant's, to engage in a full range of financial activities through a new entity known as a FHC. "Financial activities" is broadly defined to include not only banking, insurance, and securities activities, but also merchant banking and additional activities that the FRB, in consultation with the Secretary of the Treasury, determines to be financial in nature, incidental to such financial activities, or complementary activities that do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally. In sum, the GLBA permits bank holding companies, such as the Registrant, that qualify and elect 7 8 PART I ITEM 1. BUSINESS (CONTINUED) - ----------------------------- REGULATION AND SUPERVISION to be treated as a FHC to engage in a significantly broader range of financial activities than other registered bank holding companies that are not so treated. Generally, the GLBA and its implementing regulations: - - repeal historical restrictions on, and eliminate many federal and state law barriers to, affiliations among banks, securities firms, insurance companies, and other financial service providers; - - permit investment in non-financial enterprises, subject to significant operational, holding period and other restrictions; - - provide a uniform framework for the functional regulation of the activities of banks, savings institutions, and their holding companies by, effective May 12, 2000, eliminating the general exemptions banks have had from the securities laws and replacing them with specific exemptions; - - broaden the activities that may be conducted by national banks (and derivatively state banks), banking subsidiaries of bank holding companies, and their financial subsidiaries; - - require all financial institutions to provide notice of their privacy policies at specified times to their retail customers and consumers of their financial products or services, and permit retail customers and consumers, under certain circumstances, to prohibit financial institutions from sharing certain nonpublic personal information pertaining to them by opting out of such sharing; - - establish guidelines for safeguarding the security, confidentiality and integrity of customer information; - - adopt a number of provisions related to the capitalization, membership, corporate governance, and other measures designed to modernize the Federal Home Loan Bank system; - - modify the laws governing the implementation of the Community Reinvestment Act of 1977; and - - address a variety of other legal and regulatory issues affecting both day-to-day operations and long-term activities of financial institutions. 8 9 PART I ITEM 1. BUSINESS (CONTINUED) - ----------------------------- REGULATION AND SUPERVISION In order to elect to become a FHC and engage in the new activities, a bank holding company must meet certain tests and file an election form with the FRB. To qualify, all of a bank holding company's subsidiary banks must be well-capitalized (as discussed below under "The State Banks") and well-managed, as measured by regulatory guidelines. In addition, to engage in the new activities each of the bank holding company's banks must have been rated "satisfactory" or better in its most recent Federal Community Reinvestment Act evaluation. Furthermore, a bank holding company that elects to be treated as a FHC may face significant consequences if its banks fail to maintain the required capital and management ratings, including entering into an agreement with the FRB which imposes limitations on its operations and may even require divestitures. Capital Requirements. The FRB has adopted capital adequacy guidelines pursuant to which it assesses the adequacy of capital in examining and supervising a bank holding company and in analyzing applications to it under the BHCA. These capital adequacy guidelines generally require bank holding companies to maintain total capital equal to 8% of total risk-adjusted assets and off-balance sheet items (the "Total Risk-Based Capital Ratio"), with at least one-half of that amount consisting of Tier I or core capital and the remaining amount consisting of Tier II or supplementary capital. Tier I capital for bank holding companies generally consists of the sum of common stockholders' equity and perpetual preferred stock (subject in the case of the latter to limitations on the kind and amount of such stocks which may be included as Tier I capital), less goodwill. Tier II capital generally consists of hybrid capital instruments; perpetual preferred stock, which is not eligible to be included as Tier I capital; term subordinated debt and intermediate-term preferred stock; and, subject to limitations, general allowances for loan losses. Assets are adjusted under the risk-based guidelines to take into account different risk characteristics. In addition to the risk-based capital requirements, the FRB requires bank holding companies to maintain a minimum leverage capital ratio of Tier I capital (defined by reference to the risk-based capital guidelines) to total average assets (the "Leverage Ratio") of 3.0%. Total average assets for this purpose does not include goodwill and any other intangible assets and investments that the FRB determines should be deducted from Tier I capital. The FRB has announced that the 3.0% Leverage Ratio requirement is the minimum for the top-rated bank holding companies without any supervisory, financial or operational weaknesses or deficiencies or those, which are not experiencing or anticipating significant growth. The Registrant is currently in compliance with both the Total Risk-Based Capital Ratio and the Leverage Ratio requirements. As of December 31, 2000, the Registrant had a Tier I risk-based capital ratio and a Total Risk-Based Capital Ratio equal to 12.71% and 14.45%, respectively and a Leverage Ratio equal to 10.48%. 9 10 PART I ITEM 1. BUSINESS (CONTINUED) - ----------------------------- REGULATION AND SUPERVISION U.S. bank regulatory authorities and international bank supervisory organizations, principally the Basel Committee on Banking Supervision, have proposed for comment and are considering changes to the risk-based capital adequacy framework, which ultimately could affect the appropriate capital guidelines. Ohio Law. Ohio law does not require bank holding companies to register with the Division. As a general matter, the Division does not rule upon or regulate the activities in which bank holding companies or their nonbank subsidiaries engage. A bank holding company, however, may not acquire control of an Ohio bank through purchase, assignment, transfer, pledge, or other disposition of voting securities without the prior consent of the Division. In examining the Ohio banks of a bank holding company, the bank holding company itself is subject to review by the Division. The Division has the authority to issue orders to bank holding companies to cease and desist from unsound banking practices and violations of law and of conditions imposed by, or violations of agreements with, the Division in connection with the operation of Ohio banks. The Division is also empowered to assess civil monetary penalties against bank holding companies and banks engaging in unsafe or unsound practices. THE STATE BANKS - --------------- General. The State Banks are subject to extensive state regulation and examination by (i) the appropriate state banking agency in the particular state where each bank is chartered and (ii) the FRB. The federal and state laws and regulations which are applicable to banks regulate among other things, the scope of their business, their investments, their reserves against deposits, the timing of the availability of deposited funds and the nature and amount of and collateral for certain loans. Capital Requirements. The FRB has promulgated regulations and adopted a statement of policy regarding the capital adequacy of state-chartered banks, which, like the State Banks, are members of the Federal Reserve System. These requirements are substantially similar to those adopted by the FRB regarding bank holding companies, as described above. In addition, the federal banking agencies have promulgated substantially similar regulations to implement the system of prompt corrective action established by Section 38 of the Federal Deposit Insurance Act (the "FDIA"). Under the regulations, a bank generally shall be deemed to be (i) "well-capitalized" if it has Total Risk-Based Capital Ratio of 10.0% or more, has a Tier I risk-based capital ratio of 6.0% or more, has a Leverage Ratio of 5.0% or more and is not subject to any written capital order or directive; or (ii) "adequately capitalized" if it has a Total Risk-Based Capital Ratio of 8.0% or more, a Tier I risk-based capital ratio of 4.0% or more, and a Leverage Ratio of 4.0% or more (3.0% under certain circumstances) and does not meet the 10 11 PART I ITEM 1. BUSINESS (CONTINUED) - ----------------------------- REGULATION AND SUPERVISION definition of "well-capitalized." Banks rated less than adequately capitalized become subject to increased scrutiny, reporting and restrictions under the FDIA. As of December 31, 2000, each of the State Banks were deemed to be well-capitalized institutions for the above purposes. Community Reinvestment Act. The Federal Community Reinvestment Act ("CRA") requires the FRB and the respective state bank regulators of the State Banks to evaluate the performance of each of the State Banks in helping to meet the credit needs of the community. As a part of the CRA program, the State Banks are subject to periodic examinations by the FRB, and must maintain comprehensive records of their CRA activities for this purpose. Each of the State Banks has a CRA rating of satisfactory or higher. State Laws. The State Banks are subject to requirements and restrictions under applicable state law, particularly in the states in which they are chartered, including restrictions on the types and amounts of loans that may be granted and the interest that may be charged thereon, and limitations on the types of investments that may be made and the type of services which may be offered. Various state consumer laws and regulations also affect the operations of the State Banks. FEDERAL SAVINGS BANK - -------------------- The Registrant's federal savings bank subsidiary is primarily subject to regulation by the Office of Thrift Supervision (the "OTS"). The OTS is responsible for the administration and enforcement of the Home Owners' Loan Act of 1933 and applicable portions of the FDIA. The OTS is authorized to provide for the organization, incorporation, examination and regulation of federal savings banks. Under this authority, the OTS' functions include, but are not limited to, regulation of the corporate structure of federal savings banks, regulation of the distributions of earnings, regulation of lending and other investment powers, the regulation of mergers, conversions, and dissolutions involving federal savings banks, and the enforcement of laws, regulations or conditions, or conditions against federal savings banks. As the other federal regulators, the OTS has promulgated regulations and adopted a statement of policy regarding the capital adequacy of federal savings banks. These requirements are substantially similar to those adopted by the FRB regarding bank holding companies and state member banks as described above. As of December 31, 2000, the Registrant's federal savings bank was deemed to be well-capitalized. Pursuant to the CRA, the OTS evaluates the performance of the Registrant's federal savings bank in helping to meet the credit needs of the community. As a part of the CRA program, the federal savings bank is subject to periodic examinations by the OTS, and must maintain 11 12 PART I ITEM 1. BUSINESS (CONTINUED) - ----------------------------- REGULATION AND SUPERVISION comprehensive records of their CRA activities for this purpose. The federal savings bank has a CRA rating of satisfactory. ADDITIONAL INFORMATION - ---------------------- Additional information regarding regulatory matters is included in Note 16 (page 26) of the Notes to Consolidated Financial Statements in the Registrant's 2000 Annual Report to Shareholders, and is incorporated herein by reference and attached to this filing as Exhibit 13. EMPLOYEES As of December 31, 2000, there were no employees of the Registrant. Subsidiaries of the Registrant employed 12,246 employees - 2,258 were officers and 1,984 were part-time employees. There were 11,611 full-time equivalent employees as of December 31, 2000. STATISTICAL INFORMATION Pages 13 through 21 contain statistical information on the Registrant and its subsidiaries. Information about the Registrant's business segments is included in Note 23 (pages 31 through 32) of the Notes to Consolidated Financial Statements in the Registrant's 2000 Annual Report to Shareholders, and is incorporated herein by reference and attached to this filing as Exhibit 13. AVERAGE BALANCE SHEETS The average balance sheets for each of the last three fiscal years are incorporated herein by reference to Table 1 on page 34 of the Registrant's 2000 Annual Report to Shareholders attached to this filing as Exhibit 13. ANALYSIS OF NET INTEREST INCOME AND NET INTEREST INCOME CHANGES The analysis of net interest income and the analysis of net interest income changes are incorporated herein by reference to Table 1 and Table 2 and the related discussion on pages 34 through 36 of the Registrant's 2000 Annual Report to Shareholders attached to this filing as Exhibit 13. 12 13 PART I ITEM 1. BUSINESS (CONTINUED) - ----------------------------- INVESTMENT SECURITIES PORTFOLIO The investment securities portfolio as of December 31 for each of the last five years and the maturity distribution and weighted average yield of investment securities as of December 31, 2000, are incorporated herein by reference to the Securities Portfolio and Maturities of Securities tables on page 39 of the Registrant's 2000 Annual Report to Shareholders attached to this filing as Exhibit 13. The weighted average yields for the investment securities portfolio are yields to maturity, weighted by the par values of the investment securities. The weighted average yields on investment securities exempt from income taxes are computed on a taxable-equivalent basis. The taxable-equivalent yields are net after-tax yields to maturity divided by the complement of the full corporate tax rate (35 percent). In order to express yields on a taxable-equivalent basis, yields on obligations of states and political subdivisions (municipal securities) have been increased as follows: Under 1 year 3.07% 1 - 5 years 3.06% 6 - 10 years 2.59% Over 10 years 2.42% Total municipal securities 2.54% 13 14 TYPES OF LOANS AND LEASES A summary of loans and leases by major category for the last five fiscal years ended as of December 31 follows ($000's):
2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Commercial, financial and agricultural loans $ 6,643,908 6,206,712 5,558,578 5,751,656 5,173,420 Real estate - construction loans 1,483,768 1,067,887 826,289 723,809 742,674 Real estate - mortgage loans 7,020,578 7,465,349 7,884,032 8,336,299 8,019,065 Consumer loans 6,079,216 5,283,684 4,458,005 4,053,995 3,652,083 Lease financing 5,709,011 5,862,606 4,343,010 3,621,773 3,108,759 ---------------- --------------- -------------- -------------- ------------- Loans and leases, gross 26,936,481 25,886,238 23,069,914 22,487,532 20,696,001 Unearned income (983,680) (922,618) (713,390) (588,578) (488,121) Reserve for credit losses (383,495) (366,640) (331,621) (312,264) (284,284) ---------------- --------------- -------------- -------------- ------------- Loans and leases, net $25,569,306 24,596,980 22,024,903 21,586,690 19,923,596 ================ =============== ============== ============== ============= Loans held for sale $ 553,264 297,277 588,972 315,156 93,279 ================ =============== ============== ============== =============
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES The remaining maturities of the loan portfolio distributed to reflect cash flows (excluding residential mortgages, consumer loans and lease financing) at December 31, 2000, based on scheduled repayments and the sensitivity of loans to interest rate changes for loans due after one year was as follows ($000's):
Commercial, Financial and Real Estate Real Estate Agricultural Construction Commercial Loans Loans Loans Total ------------------------------------------------------------------- Due in one year or less $3,476,580 586,892 361,530 $ 4,425,002 Due after one year through five years 2,571,103 463,057 1,600,094 4,634,254 Due after five years 596,225 433,819 1,024,804 2,054,848 --------------- -------------- -------------- --------------- Total $6,643,908 1,483,768 2,986,428 $11,114,104 =============== ============== ============== =============== LOANS DUE AFTER ONE YEAR: Predetermined interest rate $2,109,377 210,209 1,552,263 $ 3,871,849 =============== ============== ============== =============== Floating or adjustable interest rate $1,057,951 686,667 1,072,635 $ 2,817,253 =============== ============== ============== ===============
14 15 RISK ELEMENTS Interest on loans is normally accrued at the rate agreed upon at the time each loan was negotiated. It is the Registrant's policy to discontinue accrual of interest on commercial, construction and mortgage loans when there is a clear indication that the borrower's cash flow may not be sufficient to meet payments as they become due. Loans, other than consumer loans, are placed on nonaccrual status when principal or interest is past due ninety days or more, unless the loan is well-secured and in the process of collection. The following table presents data concerning loans and leases at risk at December 31, ($000's):
2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Nonaccrual loans and leases $ 90,245 66,805 77,177 102,059 98,819 Loans and leases contractually past due 90 days or more as to principal, interest, or rental payments $ 87,088 68,233 87,002 55,779 48,060 Loans and leases renegotiated to provide a reduction or deferral of interest, principal or rental payments because of the financial position deterioration of the borrower $ - - 1,195 1,795 3,062
As of December 31, 2000, there were $1,175,000 of loans and leases currently performing in accordance with contractual terms where there are serious doubts as to the ability of the borrower to comply with such terms. For the years 2000, 1999 and 1998, interest income of $502,000, $839,000 and $2,343,000, respectively, was recorded on nonaccrual and renegotiated loans and leases. Additional interest income of $4,109,000, $5,447,000 and $6,063,000, respectively, would have been recorded if the nonaccrual and renegotiated loans and leases had been current in accordance with their original terms. 15 16 SUMMARY OF CREDIT LOSS EXPERIENCE A summary of the activity in the reserve for credit losses arising from provisions charged to operations, losses charged off and recoveries of losses previously charged off, was as follows ($000's):
2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Loans and leases outstanding at December 31 $ 25,952,801 24,963,620 22,356,524 21,898,954 20,207,880 ==================== =============== ================ =============== ================ Loans held for sale $ 553,264 297,277 588,972 315,156 93,279 ==================== =============== ================ =============== ================ Average loans and leases outstanding $ 26,416,491 24,382,553 22,542,611 21,129,681 19,632,693 ==================== =============== ================ =============== ================ Reserve for credit losses, January 1 $ 366,640 331,621 312,264 284,284 271,006 -------------------- --------------- ---------------- --------------- ---------------- Losses charged off: Commercial, financial and agricultural loans (25,570) (49,684) (44,526) (16,347) (16,826) Real estate - construction loans (2,131) (539) (953) (243) (147) Real estate - mortgage loans (4,650) (2,636) (9,795) (11,894) (9,005) Consumer loans (50,141) (64,176) (58,947) (70,188) (64,293) Lease financing (32,911) (37,233) (28,570) (23,034) (13,285) -------------------- --------------- ---------------- --------------- ---------------- Total losses (115,403) (154,268) (142,791) (121,706) (103,556) -------------------- --------------- ---------------- --------------- ---------------- Recoveries of losses previously charged off: Commercial, financial and agricultural loans 7,095 10,459 4,338 4,094 4,989 Real estate - construction loans 40 - 75 293 - Real estate - mortgage loans 2,983 678 2,893 2,392 3,545 Consumer loans 19,114 19,468 20,044 17,440 14,844 Lease financing 8,752 11,855 5,612 6,315 2,866 -------------------- --------------- ---------------- --------------- ---------------- Total recoveries 37,984 42,460 32,962 30,534 26,244 -------------------- --------------- ---------------- --------------- ---------------- Net losses charged off: Commercial, financial and agricultural loans (18,475) (39,225) (40,188) (12,253) (11,837) Real estate - construction loans (2,091) (539) (878) 50 (147) Real estate - mortgage loans (1,667) (1,958) (6,902) (9,502) (5,460) Consumer loans (31,027) (44,708) (38,903) (52,748) (49,449) Lease financing (24,159) (25,378) (22,958) (16,719) (10,419) -------------------- --------------- ---------------- --------------- ---------------- Total net losses charged off (77,419) (111,808) (109,829) (91,172) (77,312) -------------------- --------------- ---------------- --------------- ---------------- Reserve of acquired institutions and other 5,237 12,770 5,697 2,206 7,710 Provision charged to operations 89,037 134,057 123,489 116,946 82,880 Reserve for credit losses, -------------------- --------------- ---------------- --------------- ---------------- December 31 $ 383,495 366,640 331,621 312,264 284,284 ==================== =============== ================ =============== ================ Reserve as a percent of loans and leases outstanding 1.48% 1.47% 1.48% 1.43% 1.41%
16 17 SUMMARY OF CREDIT LOSS EXPERIENCE, CONTINUED
Allocation of reserve for credit losses, December 31: 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Commercial, financial and agricultural loans $ 170,221 143,676 83,264 117,569 124,563 Real estate - construction loans 11,039 8,895 5,001 7,454 2,373 Real estate - mortgage loans 13,440 13,214 1,750 2,110 2,360 Consumer loans 102,348 105,187 149,750 116,988 103,092 Lease financing 86,447 95,668 91,856 68,143 51,896 --------- ------- ------- ------- ------- Total reserve for credit losses $ 383,495 366,640 331,621 312,264 284,284 ========= ======= ======= ======= =======
The reserve for credit losses is an estimate and is available to absorb losses from any portion of the loan and lease portfolio. As of December 31, 2000, the reserve for credit losses was $383 million, or 1.48 percent of total loans. This compares to $367 million, or 1.47 percent of total loans, as of December 31, 1999. The increase in this ratio was due to additional provision for commercial loans during 2000 as exhibited by the increase of nonaccrual loans and leases from $66.8 million at December 31, 1999 to $90.2 million at December 31, 2000. Total underperforming assets also increased from $145.5 million, or .58% of total loans and leases outstanding and other real estate owned ("OREO") at December 31, 1999 to $187.1 million, or .72% of total loans and leases outstanding and OREO, at December 31, 2000. The allocation of the reserve for credit losses for commercial loans increased from $143.7 million, or 39% of the reserve for credit losses, at December 31, 1999 to $170.2 million, or 44% of the reserve for credit losses at December 31, 2000. The reserve for credit losses for consumer and lease financing loans declined from $200.9, or 55% of the reserve for credit losses at December 31, 1999 to $188.8 million, or 49% of the reserve for credit losses, at December 31, 2000. 17 18 SUMMARY OF CREDIT LOSS EXPERIENCE, CONTINUED The distribution of loans and leases by type and the ratio of net charge-offs to average loans and leases outstanding was as follows:
2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Percentage of loans and leases to total loans and leases at December 31: Commercial, financial and agricultural loans 24.7 24.0 24.1 25.6 25.0 Real estate - construction loans 5.5 4.1 3.6 3.2 3.6 Real estate - mortgage loans 26.0 28.8 34.2 37.1 38.8 Consumer loans 22.6 20.4 19.3 18.0 17.6 Lease financing 21.2 22.7 18.8 16.1 15.0 ----- ----- ----- ----- ----- Total 100.0 100.0 100.0 100.0 100.0 ===== ===== ===== ===== ===== Ratio of net charge-offs during year to average loans and leases outstanding during year: Commercial, financial and agricultural loans 0.29% 0.67% 0.71% 0.22% 0.24% Real estate - construction loans 0.16% 0.06% 0.11% (0.01%) 0.02% Real estate - mortgage loans 0.02% 0.03% 0.09% 0.12% 0.07% Consumer loans 0.67% 0.92% 0.91% 1.37% 1.28% Lease financing 0.50% 0.59% 0.68% 0.58% 0.45% Weighted Average Ratio 0.30% 0.36% 0.47% 0.43% 0.40%
18 19 RESERVE FOR CREDIT LOSSES The reserve for credit losses is maintained at a level management considers to be adequate to absorb probable loan and lease losses inherent in the portfolio, based on evaluations of the collectibility and historical loss experience of loans and leases. Credit losses are charged and recoveries are credited to the reserve. Provisions for credit losses are based on management's review of the historical credit loss experience and such factors which, in management's judgement, deserve consideration under existing economic conditions in estimating probable credit losses. 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 Statement of Financial Accounting Standards 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 a 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-off 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. 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. An unallocated reserve is maintained to recognize the imprecision in estimating and measuring loss when evaluating reserves for individual loans or pools of loans. 19 20 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. The Registrant's primary market area for lending is Ohio, Kentucky, Indiana, Florida, Michigan, Illinois and Arizona. When evaluating the adequacy of reserves, consideration is given to this regional geographic concentration and the closely-associated effect changing economic conditions has on the Registrant's customers. Based on the procedures discussed above, management is of the opinion the reserve of $383,495,000 was adequate, but not excessive, to absorb estimated credit losses associated with the loan and lease portfolio at December 31, 2000. MATURITY DISTRIBUTION OF DOMESTIC CERTIFICATES OF DEPOSIT OF $100,000 AND OVER AT DECEMBER 31, 2000 ($000'S) Three months or less $ 706,632 Over three months through six months 330,961 Over six months through twelve months 304,788 Over twelve months 134,833 ---------------- Total certificates - $100,000 and over $1,477,214 ================ Note: Foreign office deposits totaling $4,566,232 are denominated in amounts greater than $100,000. 20 21 RETURN ON EQUITY AND ASSETS
The following table presents certain operating ratios (as originally reported): 2000 (1) 1999 (2) 1998 (3) -------- -------- -------- Return on assets (a) 1.93% 1.68 1.51 Return on equity (b) 19.5% 16.9 15.4 Dividend payout ratio (c) 38.2% 41.0 39.8 Equity to assets ratio (d) 9.93% 9.95 9.80
(a) net income divided by average assets (b) net income divided by average equity (c) dividends declared per share divided by diluted earnings per share (d) average equity divided by average assets (1) Certain 2000 ratios and statistics include merger-related items and special charges of $33.5 million pretax ($23.1 million after tax, or $.05 per diluted share). For comparability, excluding the impact of these charges, return on average assets, return on average equity and the dividend payout ratio for 2000 would have been 1.98%, 20.0% and 37.2%, respectively. (2) Certain 1999 ratios and statistics include merger-related items of $108.4 million pretax ($83.8 million after tax, or $.18 per diluted share). For comparability, excluding the impact of these charges, return on average assets, return on average equity and the dividend payout ratio for 1999 would have been 1.89%, 19.0% and 36.5%, respectively. (3) Certain 1998 ratios and statistics include merger-related items of $138 million pretax ($98.7 million after tax, or $.21 per diluted share). For comparability, excluding the impact of these charges, return on average assets, return on average equity and the dividend payout ratio for 1998 would have been 1.78%, 18.2% and 33.8%, respectively. 21 22 PART I ITEM 2. PROPERTIES - ------------------- The Registrant's executive offices and the main office of the Fifth Third Bank are located on Fountain Square Plaza in downtown Cincinnati, Ohio, in a 32-story office tower, a 5-story office building with an attached parking garage and a separate 10-story office building known as the Fifth Third Center, the William S. Rowe Building and the 530 Building, respectively. One of the subsidiaries of the Registrant owns 100 percent of these buildings. At December 31, 2000, the Registrant, through its subsidiary banks, one located in Ohio, two in Kentucky, one in each of Arizona, Michigan and Florida, operated 668 banking centers, of which 391 were owned and 277 were leased. The properties owned are free from mortgages and encumbrances. Management's Editorial (pages 6 through 14) and Note 5 (page 22) of Notes to Consolidated Financial Statements of the Registrant's 2000 Annual Report to Shareholders is incorporated herein by reference and attached to this filing as Exhibit 13. ITEM 3. LEGAL PROCEEDINGS - -------------------------- The Registrant and its subsidiaries are not parties to any material legal proceedings other than ordinary routine litigation incidental to its business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ None. 22 23 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS - ----------------------------------------------------------------------------- The information required by this item is incorporated herein by reference to Financial Highlights (page 1) of Registrant's 2000 Annual Report to Shareholders attached to this filing as Exhibit 13. ITEM 6. SELECTED FINANCIAL DATA - -------------------------------- The information required by this item is incorporated herein by reference to Note 1 (pages 19 through 20) and Note 19 (pages 27 through 28) of Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations (page 42) of the Registrant's 2000 Annual Report to Shareholders attached to this filing as Exhibit 13. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------------------------------------------------------------------------------- OF OPERATIONS - ------------- The information required by this item is incorporated herein by reference to pages 34 through 42 of Registrant's 2000 Annual Report to Shareholders attached to this filing as Exhibit 13. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - -------------------------------------------------------------------- The information required by this item is incorporated herein by reference to pages 40 through 41 of the Registrant's 2000 Annual Report to Shareholders attached to this filing as Exhibit 13. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------- The information required by this item is incorporated herein by reference to pages 15 through 33 of the Registrant's 2000 Annual Report to Shareholders attached to this filing as Exhibit 13. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ----------------------------------------------------------------------- FINANCIAL DISCLOSURE - -------------------- None. 23 24 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------ EXECUTIVE OFFICERS OF THE REGISTRANT ------------------------------------ The names, ages and positions of the Executive Officers of the Registrant as of February 1, 2001 are listed below along with their business experience during the past 5 years. Officers are appointed annually by the Board of Directors at the meeting of Directors immediately following the Annual Meeting of Shareholders.
CURRENT POSITION AND NAME AND AGE BUSINESS EXPERIENCE DURING PAST 5 YEARS - ------------ --------------------------------------- George A. Schaefer, Jr., 55 PRESIDENT AND CEO. President and Chief Executive Officer of the Registrant and Fifth Third Bank. Neal E. Arnold, 41 EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER. Executive Vice President of the Registrant and Fifth Third Bank since December 1998. Chief Financial Officer of the Registrant and Fifth Third Bank since June 1997. Mr. Arnold has been the Treasurer of the Registrant and Fifth Third Bank. Previously, Mr. Arnold was Treasurer and Senior Vice President of Fifth Third Bank. Michael D. Baker, 50 EXECUTIVE VICE PRESIDENT. Executive Vice President of the Registrant and Fifth Third Bank since August 1995. Previously, Mr. Baker was Senior Vice President of the Registrant since March 1993, and of Fifth Third Bank. Barry L. Boerstler, 53 EXECUTIVE VICE PRESIDENT. Executive Vice President of the Registrant and Fifth Third Bank since September 1999. Mr. Boerstler was Senior Vice President of the Registrant since December 1997 and of Fifth Third Bank. Previously, Mr. Boerstler was a Vice President of Fifth Third Bank.
24 25 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED) - ------------------------------------------------------------------------
CURRENT POSITION AND NAME AND AGE BUSINESS EXPERIENCE DURING PAST 5 YEARS - ------------ --------------------------------------- James J. Hudepohl, 48 EXECUTIVE VICE PRESIDENT. Executive Vice President of the Registrant and Fifth Third Bank since January 1997. Previously, Mr. Hudepohl was Senior Vice President of Fifth Third Bank. Michael K. Keating, 45 EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY. Executive Vice President of the Registrant and Fifth Third Bank since August 1995 and Secretary of the Registrant and Fifth Third Bank since January 1994. Previously, Mr. Keating was Senior Vice President and General Counsel of the Registrant since March 1993, and Senior Vice President and Counsel of Fifth Third Bank. Robert P. Niehaus, 54 EXECUTIVE VICE PRESIDENT. Executive Vice President of the Registrant and Fifth Third Bank since August 1995. Previously, Mr. Niehaus was Senior Vice President of the Registrant since March 1993, and Senior Vice President of Fifth Third Bank. Stephen J. Schrantz, 51 EXECUTIVE VICE PRESIDENT. Executive Vice President of the Registrant and Fifth Third Bank. Gerald L. Wissel, 44 EXECUTIVE VICE PRESIDENT. Executive Vice President of Fifth Third Bank since January 1997. Auditor of the Registrant and Fifth Third Bank. Previously, Mr. Wissel was Senior Vice President of Fifth Third Bank.
25 26 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED) - ------------------------------------------------------------------------
CURRENT POSITION AND NAME AND AGE BUSINESS EXPERIENCE DURING PAST 5 YEARS - ------------ --------------------------------------- Robert J. King, Jr., 45 EXECUTIVE VICE PRESIDENT. Executive Vice President of the Registrant since June 1997. President and CEO of Fifth Third Bank (Northeastern Ohio). Previously, Mr. King was President and CEO of Fifth Third Bank, Northwestern Ohio, N.A. Mr. King was Senior Vice President of the Registrant since March 1995. James R. Gaunt, 55 EXECUTIVE VICE PRESIDENT. Executive Vice President of the Registrant since June 1997. Senior Vice President of the Registrant since March 1994, and President and CEO of Fifth Third Bank, Kentucky, Inc. since August 1994. Previously, Mr. Gaunt was Senior Vice President of the Registrant and Fifth Third Bank. Paul L. Reynolds, 39 EXECUTIVE VICE PRESIDENT, ASSISTANT SECRETARY. Executive Vice President of the Registrant since September 1999. Previously, Senior Vice President of the Registrant and Fifth Third Bank since March 1997. Assistant Secretary of the Registrant since March 1995, General Counsel and Assistant Secretary of Fifth Third Bank since January 1995. Roger W. Dean, 38 CONTROLLER. Senior Vice President of the Registrant and Fifth Third Bank since March 1997. Controller of the Registrant and Fifth Third Bank since June 1993. Previously, Mr. Dean was Vice President of the Registrant and Fifth Third Bank.
26 27 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED) - ------------------------------------------------------------------------ The information required by this item concerning Directors is incorporated herein by reference under the caption "ELECTION OF DIRECTORS" (pages 2 through 6) of the Registrant's Proxy Statement for the 2001 Annual Meeting of Shareholders. The information required by this item concerning Section 16 (a) Beneficial Ownership Reporting Compliance is incorporated herein by reference under the caption "SECTION 16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" (page 10) of the Registrant's Proxy Statement for the 2001 Annual Meeting of Shareholders. ITEM 11. EXECUTIVE COMPENSATION - -------------------------------- The information required by this item is incorporated herein by reference under the caption "EXECUTIVE COMPENSATION" (pages 8 through 14) of the Registrant's Proxy Statement for the 2001 Annual Meeting of Shareholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------------------------------------------------------------------------ The information required by this item is incorporated herein by reference under the captions "CERTAIN BENEFICIAL OWNERS, ELECTION OF DIRECTORS AND EXECUTIVE COMPENSATION" (pages 1 through 14) of the Registrant's Proxy Statement for the 2001 Annual Meeting of Shareholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- The information required by this item is incorporated herein by reference under the caption "CERTAIN TRANSACTIONS" (page 15) of the Registrant's Proxy Statement for the 2001 Annual Meeting of Shareholders. 27 28 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
a) Documents Filed as Part of the Report Page ---- 1. Index to Financial Statements Consolidated Statements of Income for the Years Ended December 31, 2000, 1999 and 1998 * Consolidated Balance Sheets as of December 31, 2000 and 1999 * Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 2000, 1999 and 1998 * Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 * Notes to Consolidated Financial Statements * * Incorporated by reference to pages 15 through 32 of the Registrant's 2000 Annual Report to Shareholders attached to this filing as Exhibit 13. 2. Financial Statement Schedules The schedules for the Registrant and its subsidiaries are omitted because of the absence of conditions under which they are required, or because the information is set forth in the consolidated financial statements or the notes thereto.
28 29 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - ------------------------------------------------------------------------- (CONTINUED) - ----------- 3. Exhibits Exhibit No. ----------- 3.1 Code of Regulations of Fifth Third Bancorp, as amended (a) 3.2 Second Amended Articles of Incorporation of Fifth Third Bancorp, as amended (b) 4(a) Junior Subordinated Indenture, dated as of March 20, 1997 between Fifth Third Bancorp and Wilmington Trust Company, as Debenture Trustee (c) 4(b) Certificate Representing the 8.136% Junior Subordinated Deferrable Interest Debentures, Series A, of Fifth Third Bancorp (c) 4(c) Amended and Restated Trust Agreement, dated as of March 20, 1997 of Fifth Third Capital Trust II, among Fifth Third Bancorp, as Depositor, Wilmington Trust Company, as Property Trustee, and the Administrative Trustees name therein (c) 4(d) Certificate Representing the 8.136% Capital Securities, Series A, of Fifth Third Capital Trust I (c) 4(e) Guarantee Agreement, dated as of March 20, 1997 between Fifth Third Bancorp, as Guarantor, and Wilmington Trust Company, as Guarantee Trustee (c) 4(f) Agreement as to Expense and Liabilities, dated as of March 20, 1997 between Fifth Third Bancorp, as the holder of the Common Securities of Fifth Third Capital Trust I and Fifth Third Capital Trust II (c) 10(a) Fifth Third Bancorp Unfunded Deferred Compensation Plan for Non-Employee Directors (d) * 10(b) Fifth Third Bancorp 1990 Stock Option Plan (e) * 29 30 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - ------------------------------------------------------------------------- (CONTINUED) - ----------- 3. Exhibits Exhibit No. ----------- 10(c) Fifth Third Bancorp 1987 Stock Option Plan (f) * 10(d) Indenture effective November 19, 1992 between Fifth Third Bancorp, Issuer and NBD Bank, N.A., Trustee (g) 10(e) Fifth Third Bancorp Amended and Restated Stock Incentive Plan for selected Executive Officers, Employees and Directors of The Cumberland Federal Bancorporation, Inc. (h) * 10(f) Fifth Third Bancorp Master Profit Sharing Plan (i) * 10(g) Fifth Third Bancorp Amended and Restated Stock Option and Incentive Plan for Selected Executive Officers, Employees and Directors of Falls Financial, Inc. (j) * 10(h) Fifth Third Bancorp Amended 1993 Stock Purchase Plan (k) * 10(i) Fifth Third Bancorp 1998 Long-Term Incentive Stock Plan (l) * 10(j) Fifth Third Bancorp Variable Compensation Plan (m) * 10(k) CitFed Bancorp, Inc. Amended and Restated 1991 Stock Option and Incentive Plan (n) * 10(l) Fifth Third Bancorp Non-qualified Deferred Compensation Plan (o) * 10(m) Emerald Financial Corp. 1994 Long-Term Incentive Plan and Emerald Financial Corp. 1998 Stock Option and Incentive Plan (p) * 10(n) CNB Bancshares, Inc. 1999 Stock Incentive Plan, 1995 Stock Incentive Plan, 1992 Stock Incentive Plan and Associate Stock Option Plan; King City Federal Savings Bank 1986 Stock Option and Incentive Plan; Indiana Bancshares, Inc. 1990 Stock Option Plan; National Bancorp Stock Option Plan; Indiana Federal Corporation 1986 Stock Option and Incentive Plan; and UF Bancorp, Inc. 1991 Stock Option and Incentive Plan (q) * 30 31 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - ------------------------------------------------------------------------- (CONTINUED) - ----------- 3. Exhibits Exhibit No. ----------- 10(o) Peoples Bank Corporation of Indianapolis 1998 Stock Option Plan; Peoples Bank Corporation of Indianapolis Stock Option Plan; Peoples Bank Corporation Indianapolis Directors Stock Option Plan (r) * 10(p) Ottawa Financial Corporation, 1995 Stock Option Plan and Incentive Plan (s) * 10(q) Fifth Third Direct (t) * 10(r) Capital Holdings, Inc. 1988 Incentive Stock Option Plan; 1996 Incentive Stock Option Plan; Non-Employee Director Stock Plan and 1999 Long-Term Incentive Plan (u) * 11 Computation of Consolidated Earnings Per Share for the Years Ended December 31, 2000, 1999, 1998, 1997 and 1996 13 Fifth Third Bancorp 2000 Annual Report to Shareholders 21 Fifth Third Bancorp Subsidiaries, as of December 31, 2000 23 Independent Auditors' Consent b) Reports on Form 8-K During the quarter ended December 31, 2000 the Registrant filed a Current Report on Form 8-K dated November 20, 2000, related to the Agreement and Plan of Merger dated November 20, 2000 between the Registrant and Old Kent Financial Corporation. - ---------------------------- * - Denotes management contract or compensatory plan or arrangement. 31 32 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - ------------------------------------------------------------------------- (CONTINUED) - ----------- (a) Incorporated by reference to Registrant's Registration Statement, on Form S-4, Registration No. 33-63966. (b) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000. (c) Incorporated by reference to Registrant's filing with the Securities and Exchange Commission on March 26, 1997, a Form 8-K Current Report. (d) Incorporated by reference to Registrant's Form 10-K Annual Report by reference to Form 10-K filed for fiscal year ended December 31, 1985. (e) Incorporated by reference to Registrant's filing with the Securities and Exchange Commission as an exhibit to a Registration Statement on Form S-8, Registration No. 33-34075. (f) Incorporated by reference to Registrant's filing with the Securities and Exchange Commission as an exhibit to a Registration Statement on Form S-8, Registration No. 33-13252. (g) Incorporated by reference to Registrant's filing with the Securities and Exchange Commission on November 18, 1992, a Form 8-K Current Report dated November 16, 1992 and as Exhibit 4.1 to a Registration Statement on Form S-3, Registration No. 33-54134. (h) Incorporated by reference to Registrant's filing with the Securities and Exchange Commission as an exhibit to a Registration Statement on Form S-8, Registration No. 33-55223. (i) Incorporated by reference to Registrant's filing with the Securities and Exchange Commission as an exhibit to a Registration Statement on Form S-8, Registration No. 33-55553. (j) Incorporated by reference to Registrant's filing with the Securities and Exchange Commission as an exhibit to a Registration Statement on Form S-8, Registration No. 33-61149. (k) Incorporated by reference to Registrant's filing with the Securities and Exchange Commission as Exhibit 10 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 1996. 32 33 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - ------------------------------------------------------------------------- (CONTINUED) - ----------- (l) Incorporated by reference to Registrant's filing with the Securities and Exchange Commission as an exhibit to a Registration Statement on Form S-8, Registration No. 333-58249. (m) Incorporated by reference to Registrant's Proxy Statement dated February 9, 1998. (n) Incorporated by reference to Registrant's filing with the Securities and Exchange Commission as an exhibit to a Registration Statement on Form S-8, Registration No. 333-48049 and by reference to CitFed Bancorp's Form 10-K for the fiscal year ended March 31, 1996. (o) Filed with the Securities and Exchange Commission as Exhibit 10.4 to a Registration Statement on Form S-4, Registration No. 33-21139. (p) Incorporated by reference to Registrant's filing with the Securities and Exchange Commission as an exhibit to a Registration Statement on Form S-4, Registration No. 333-77293 and by reference to Emerald Financial Corporation Form 10-K for the fiscal year ended March 31, 1999 and Form S-8 filed April 30, 1998. (q) Incorporated by reference to Registrant's filing with the Securities and Exchange Commission as an exhibit to a Registration Statement on Form S-4, Registration No. 333-84955 and by reference to CNB Bancshares Form 10-K, as amended, for the fiscal year ended December 31, 1998. (r) Incorporated by reference to Peoples Bank Corporation of Indianapolis filings with the Securities and Exchange Commission as an Exhibit to Form 10-K for each of the fiscal years ended December 31, 1999, December 31, 1995 and December 31, 1996, respectively. (s) Incorporated by reference to Ottawa Financial Corporation filing with the and Securities and Exchange Commission as an Exhibit to Form 10-K for the fiscal year ended December 31, 1994. (t) Incorporated by reference to Registrant's filing with the Securities and Exchange Commission as an exhibit to a Registration Statement on Form S-3, Registration No. 333-41164. (u) Incorporated by reference to Capital Holdings, Inc, filing with the Securities and Exchange as an Exhibit to Form 10-K for the fiscal year ended December 31, 1999. 33 34 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIFTH THIRD BANCORP (Registrant) /s/ George A. Schaefer, Jr. March 20, 2001 - ------------------------------- George A. Schaefer, Jr. President and CEO (Principal Executive Officer) Pursuant to requirements of the Securities Exchange Act of 1934, this report has been signed on March 20, 2001 by the following persons on behalf of the Registrant and in the capacities indicated. /s/ Neal E. Arnold /s/ Roger W. Dean /s/ James E. Rogers - ------------------------------- ----------------------------- ---------------------------------- Neal E. Arnold Roger W. Dean James E. Rogers Executive Vice President and CFO Controller Director (Principal Financial Officer) (Principal Accounting Officer) /s/ Darryl F. Allen /s/ Allen M. Hill /s/ Brain H. Rowe - ------------------------------- ----------------------------- ---------------------------------- Darryl F. Allen Allen M. Hill Brian H. Rowe Director Director Director /s/ John F. Barrett /s/ William G. Kagler /s/ George A. Schaefer, Jr. - ------------------------------- ----------------------------- ---------------------------------- John F. Barrett William G. Kagler George A. Schaefer, Jr. Director Director Director, President and CEO (Principal Executive Officer) /s/ Gerald V. Dirvin /s/ James D. Kiggen /s/ John J. Schiff, Jr. - ------------------------------- ----------------------------- ---------------------------------- Gerald V. Dirvin James D. Kiggen John J. Schiff, Jr. Director Director Director /s/ Thomas B. Donnell /s/ Robert L. Koch II - ------------------------------- ----------------------------- ---------------------------------- Thomas B. Donnell Robert L. Koch II Donald B. Shackelford Director Director Director /s/ Richard T. Farmer /s/ Mitchel D. Livingston, Ph.D. /s/ Dennis J. Sullivan, Jr. - ------------------------------- -------------------------------- ---------------------------------- Richard T. Farmer Mitchel D. Livingston, Ph.D. Dennis J. Sullivan, Jr. Director Director Director /s/ Joseph H. Head, Jr. /s/ Robert B. Morgan /s/ Dudley S. Taft - ------------------------------- ----------------------------- ---------------------------------- Joseph H. Head, Jr. Robert B. Morgan Dudley S. Taft Director Director Director
34 35 /s/ Joan R. Herschede /s/ David E. Reese - ------------------------------- ----------------------------- ---------------------------------- Joan R. Herschede David E. Reese Thomas W. Traylor Director Director Director
35 EX-11 2 l86643aex11.txt EXHIBIT 11 1 EXHIBIT 11 FIFTH THIRD BANCORP COMPUTATION OF CONSOLIDATED EARNINGS PER SHARE FOR THE YEARS ENDED DECEMBER 31 ($ and share data in thousands, except per share data)
2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- NET INCOME $ 862,885 668,229 546,512 529,379 442,876 ============ ============== =========== =========== =========== EARNINGS PER SHARE: WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (a) 463,846 459,179 452,002 446,796 448,762 ============ ============== =========== =========== =========== PER SHARE (NET INCOME DIVIDED BY THE WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING) $ 1.86 1.46 1.21 1.18 0.99 ============ ============== =========== =========== =========== EARNINGS PER DILUTED SHARE: NET INCOME $ 862,885 668,229 546,512 529,379 442,876 ADD - INTEREST ON 6% CONVERTIBLE SUBORDINATED NOTES DUE 2028, NET OF APPLICABLE INCOME TAXES 6,728 6,728 3,364 0 0 ------------ -------------- ----------- ----------- ----------- ADJUSTED NET INCOME $ 869,613 674,957 549,876 529,379 442,876 ============ ============== =========== =========== =========== ADJUSTED WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - AFTER GIVING EFFECT TO THE CONVERSION OF STOCK OPTIONS AND CONVERTIBLE SUBORDINATED NOTES (a) 475,978 471,856 463,127 454,241 458,640 ============ ============== =========== =========== =========== PER SHARE (ADJUSTED NET INCOME DIVIDED BY THE ADJUSTED WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING) $ 1.83 1.43 1.19 1.17 0.97 ============ ============== =========== =========== ===========
- --------------------------------------------------------- (a) Per share amounts and average shares outstanding have been adjusted for the three-for-two stock splits effected in the form of stock dividends paid July 14, 2000, April 15, 1998 and July 15, 1997. EX-13 3 l86643aex13.txt EXHIBIT 13 1 Exhibit 13 THE HARDEST WORKING BANK IN THE BUSINESS. [Several Background Photos of Fifth Third Bank Customers and Employees] [FIFTH THIRD BANK LOGO] 2000 annual report 2 INVESTOR INFORMATION [Photo] CORPORATE PROFILE Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. Fifth Third operates 14 affiliates in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida and Arizona, and provides a broad array of products and services through four primary businesses: Commercial Banking, Retail Banking, Investment Advisors and Midwest Payment Systems, the bank's data processing subsidiary. With $46 billion in assets, we are among the top 25 largest bank holding companies in the country and among the 10 largest in market capitalization. INVESTMENT QUALITIES If you had invested $1,000 in Fifth Third stock in 1980, it would have grown to $203,025 by December 31, 2000. Since 1980, Fifth Third Bancorp has: - Posted consecutive increased earnings per share and dividend growth - Increased earnings at an average rate of 16% - Outperformed the Standard & Poor's 500 16-fold - Grown one share of stock to nearly 77 shares due to 10 stock splits since 1983 TRANSFER AGENT/ SHAREHOLDER RELATIONS Fifth Third Bank Corporate Trust Services, Mail Drop 10AT66-3212 Fifth Third Center Cincinnati, Ohio 45263 (800) 837-2755 (513) 579-5320 (outside continental U.S.) 8 a.m. - 5 p.m. EST INVESTOR RELATIONS Neal E. Arnold, Executive Vice President & Chief Financial Officer (513) 579-4356 (513) 579-6246 (fax) PRESS RELEASES For faxed copies of current press releases, call (800) 758-5804, #281775 CORPORATE OFFICE Fifth Third Center Cincinnati, Ohio 45263 (513) 579-5300 WEBSITE www.53.com ---------- CONTENTS 2 President's Letter 6 Management Editorial 15 Consolidated Statements of Income 16 Consolidated Balance Sheets 17 Consolidated Statements of Changes in Shareholders' Equity 18 Consolidated Statements of Cash Flows 19 Notes to Consolidated Financial Statements 33 Independent Auditors' Report 34 Management's Discussion and Analysis of Financial Condition and Results of Operations 42 Consolidated Six Year Summary of Operations, Condensed Consolidated Balance Sheet Information and Summarized Quarterly Financial Information 43 Consolidated Ten Year Comparison 3 FINANCIAL HIGHLIGHTS 2000 1999 % Change - -------------------------------------------------------------------------------- EARNINGS AND DIVIDENDS ($ IN MILLIONS) Operating Earnings(a) $ 886 752 17.8 Net Income 863 668 29.2 Cash Dividends Declared 325 248 31.0 - -------------------------------------------------------------------------------- PER SHARE Diluted Operating Earnings(a) $ 1.88 1.61 16.8 Earnings 1.86 1.46 27.4 Diluted Earnings 1.83 1.43 28.0 Cash Dividends Declared .70 .58 2/3 19.3 Year-End Book Value 10.50 8.80 19.3 Year-End Market Price 59.75 48.92 22.1 - -------------------------------------------------------------------------------- AT YEAR END ($ IN MILLIONS) Assets $ 45,857 41,589 10.3 Loans and Leases 25,952 24,964 4.0 Deposits 30,948 26,083 18.7 Shareholders' Equity 4,891 4,077 20.0 Market Capitalization 27,823 22,666 22.8 - -------------------------------------------------------------------------------- KEY RATIOS Return on Average Assets(a) 1.98% 1.89 4.8 Return on Average Equity(a) 20.0 19.0 5.3 Overhead Ratio(a)(b) 42.2 44.1 (4.3) Net Interest Margin 3.77 3.99 (5.5) - -------------------------------------------------------------------------------- Number of Shares 465,651,949 463,329,888 0.5 Number of Shareholders 38,143 35,277 8.1 Number of Banking Locations 668 648 3.1 Number of Full-Time Equivalent Employees 11,611 11,692 (0.7) - -------------------------------------------------------------------------------- (a) For comparability, certain ratios and statistics exclude merger-related costs and special charges of $33.5 million pretax ($23.1 million after tax, or $.05 per diluted share) for 2000 and merger-related items of $108.4 million pretax ($83.8 million after tax, or $.18 per diluted share) for 1999. (b) Operating expenses divided by the sum of fully taxable equivalent net interest income and other operating income. FIFTH THIRD BANCORP SHAREHOLDER INFORMATION AND DEBT RATINGS - -------------------------------------------------------------------------------- STOCK DATA Dividends Paid Per Year Period High Low Share - -------------------------------------------------------------------------------- 2000 FOURTH QUARTER $60.88 $43.31 $.18 THIRD QUARTER 54.75 40.94 .18 SECOND QUARTER 48.00 37.75 .16 FIRST QUARTER 48.50 29.33 .16 - -------------------------------------------------------------------------------- 1999 Fourth Quarter $50.29 $38.58 $.16 Third Quarter 46.58 39.08 .13 1/3 Second Quarter 49.50 41.08 .13 1/3 First Quarter 50.29 41.58 .13 1/3 - -------------------------------------------------------------------------------- The common stock of Fifth Third Bancorp is traded in the over-the-counter market and is listed under the symbol "FITB" on the Nasdaq National Market. - -------------------------------------------------------------------------------- RATINGS MOODY'S STANDARD & POOR'S - -------------------------------------------------------------------------------- FIFTH THIRD BANCORP Commercial Paper Prime-1 A-1+ Senior Debt Aa3 AA- - -------------------------------------------------------------------------------- FIFTH THIRD BANK AND FIFTH THIRD BANKS OF INDIANA; KENTUCKY, INC. AND NORTHERN KENTUCKY Short-Term Deposit Prime-1 A-1+ Long-Term Deposit Aa2 AA- 1 4 WE ARE THE HARDEST WORKING BANK IN THE BUSINESS [Photo of George A. Schaefer, Jr. President & CEO] [Photo Fifth Third Bank computer menu] [Photo of Markets section in newspaper] Fifth Third began the new millennium with outstanding financial performance and built the foundation for continued success in the future. Operating earnings per diluted share rose 17% to $1.88, driven by operating earnings of $886 million, up 18% over 1999's $752 million. Return on average equity was 20.0% on an abundant capital base, and return on average assets was 1.98%. [Graph] 95 96 97 98 99 00 -- -- -- -- -- -- $28.3 $33.1 $35.2 $37.1 $41.6 $45.9 TOTAL ASSETS ($ IN BILLIONS) Five Year Compound Growth Rate: 10% [Graph] 95 96 97 98 99 00 -- -- -- -- -- -- $.88 $1.03 $1.17 $1.40 $1.61 $1.88 EARNINGS PER DILUTED SHARE Five Year Compound Growth Rate: 16% Excludes SAIF and Merger Charges 2 5 WORKING HARD TO DELIVER QUALITY GROWTH. DEAR SHAREHOLDERS AND FRIENDS: We are proud to deliver another year of quality growth for our shareholders, and we are grateful for your continued confidence. Fifth Third began the new millennium with outstanding financial performance and built the foundation for success in the future. Operating earnings per diluted share rose 17% to $1.88, driven by operating earnings of $886 million, up 18% over 1999's $752 million. Return on average equity was 20.0% on an abundant capital base, and return on average assets was 1.98%. Our overhead ratio further improved to 42.2% for 2000, returning us to our familiar position among the leaders in our industry and demonstrating the successful integration of the largest acquisition in our history. Financial results for 2000 were driven by solid revenue growth, improved efficiency and stellar credit quality. Of everything we accomplished this year, I'm most pleased with our successful selling efforts. Fee income grew by 15%, fueled by double-digit increases across nearly all businesses. Our Banking Centers achieved record levels of "same store sales" for loan and deposit products, commercial banking kicked off new deposit and treasury management sales programs and our investment advisory business increased its assets under management despite a difficult year in the markets. Data Processing and Retail Banking led the growth in fee revenue this year. Fifth Third worked hard on adding new checking and interest-bearing deposit account customers over the past couple of years, and we saw some of the payoff this year. In addition to providing stable and growing core funding, demand and interest checking account balances grew at a double-digit rate over 1999. These new relationships fueled 24% growth in service fees and represent an important platform for cross-selling other products. Similarly, our data processing business grew 34% by increasing both its customer base and transaction volumes. Midwest Payment Systems (MPS) expanded its merchant processing business through new customer relationships and higher volume, as credit and debit cards are increasingly becoming the preferred choice for handling traditional and e-commerce transactions. MPS' electronic funds transfer business also posted record growth rates on the strength of our reliable, efficient and completely scalable processing platform. With its current customer base, MPS expects to process over five billion ATM, point-of-sale and e-commerce transactions annually, a number that has more than doubled in the last three years. Our other businesses also had a great year. Commercial Banking revenues grew by 17% through aggressive sales of Corporate Treasury Management products and dramatic expansion of international services. During a tough year in terms of year-over-year performance for financial markets, our Investment Advisors group added significantly to its customer base and finished the year on a high note, as revenue accelerated in the fourth quarter to a 12% growth rate. Unlike most in our industry, Fifth Third manages growth through an organization structure that accentuates affiliate banks in each of our major metropolitan areas. Our emphasis is on local rather than central decision making and operating execution rather than deliberate planning. We will continue to operate your company in this same decentralized manner that pushes earnings and revenue growth accountability as far down in the organization as possible -- I recently referred to our approach as "racing to stay small." We trust capitalism inside the company and empower local managers to find the best way to produce 3 6 double-digit earnings growth in each and every market. Results are continually measured and reported, and managers understand that their wealth depends on growing their business. It is important for our shareholders to understand that we don't need to change this approach to sustain quality growth as we become larger -- in fact, we believe that our focus on keeping the company small and executing locally is even more important as we expand into new markets. It will also help you understand why our management team is so enthused about the opportunities that 2000's acquisitions present. Quite simply, we are adding new local affiliates in the same type of attractive Midwestern markets where our franchise has excelled. [Graph] 95 96 97 98 99 00 -- -- -- -- -- -- $6.10 $7.02 $7.52 $8.38 $8.80 $10.50 BOOK VALUE PER SHARE Five Year Compound Growth Rate: 11% In the first half of the year, we completed the successful integration and systems conversion of CNB Bancshares, Inc. It provides a great platform for growth in Indiana and the resulting new affiliate banks were producing "Fifth-Third-like" profitability just nine months after the merger. In the fourth quarter, we reached an agreement to merge with Old Kent Financial Corporation, a solid Midwestern bank with $23.8 billion in assets, over 300 offices in Michigan and Chicago and a track record of delivering 42 consecutive years of earnings growth. We view Old Kent as one of the true gems in the Midwest and believe the franchise represents the best opportunity we've seen to expand in the attractive markets of Detroit, Chicago, Grand Rapids and Traverse City. After the merger, Fifth Third will be number four in the state of Michigan with a nine percent share, and number five in the Chicago market with about $6 billion in deposits. Both positions reflect significant potential for growth in extremely fragmented markets populated by industries and competitors with which we are quite familiar. In fact, in these markets, only one in every 16 households is a Fifth Third customer. The Old Kent acquisition is complemented by our fourth quarter acquisition of Ottawa Financial Corporation and its subsidiary, AmeriBank, our January 2, 2001 acquisition of Maxus Investment Group and our pending acquisition of Capital Holdings, Inc., which is scheduled to close later this quarter. While we expect that our focus on the Old Kent merger will preclude further bank acquisitions for the next couple of years, we will still look for opportunities to continue to expand our investment advisory and data processing businesses. [Graph] 95 96 97 98 99 00 -- -- -- -- -- -- $0.28 $0.33 $0.38 $0.47 $0.59 $0.70 DIVIDENDS DECLARED PER SHARE Five Year Compound Growth Rate: 20% With the announcement of the Old Kent merger came questions about our ability to integrate such a large transaction while sustaining Fifth Third's growth rates. We have already selected the management teams and organizations to integrate and grow the newly created affiliates -- Western, Northern and Southeast Michigan and Chicago. In terms of integration, the financial objectives of this transaction are not dependent upon aggressive assumptions. We will make sure that we carve up the conversions and proceed in a manner that protects Old Kent's customer relationships and strengthens its support for its communities. We will also make sure we don't trade off a dollar of cost saves for two dollars of revenue growth - a mistake that has often been made with larger mergers in our industry. It's important Fifth Third will grow to fourth in Michigan and [Photo Old Kent Building] fifth in Chicago with the acquisition of Old Kent. [Photo of Skyline] 4 7 [Photo of George A. Schaefer, Jr.] "THE OLD KENT ACQUISITION PROVIDES THE MOST ATTRACTIVE, SINGLE OPPORTUNITY IN OUR HISTORY TO DUPLICATE THE LOCAL GROWTH SUCCESS THAT HAS FUELED OUR TRACK RECORD AS A GROWTH COMPANY." to note that Old Kent is immediately accretive to earnings per share before cost savings. At only 20% of Old Kent's overhead, the assumed synergies are conservative, identifiable and readily achievable. Further, these estimates are being spread over a three-year period -- not because we think it will take that long, but because we didn't want to be forced into bad decisions by overly aggressive projections. This past year was our 27th year of uninterrupted earnings increases, with the last 22 at a double-digit growth rate. We are even more excited about the prospects for revenue growth in 2001. Combined revenue growth will be derived from attractive new markets for Fifth Third products and sales campaign successes and by enriching Old Kent's fee mix by investing resources in those businesses that produce the greatest return. It's also worth noting that enormous opportunity still exists for revenue growth within our core footprint. Despite top-five rankings in all of our states, Fifth Third's share does not exceed 10 percent in any of these markets. The banking industry began 2000 with investor concerns about the effect of rising interest rates on net interest margins and less-than-successful results from a number of large mergers. As we begin 2001, the concerns are focused on credit quality and a slowing economy. In fact, the financial performance of many of the former leaders in our industry has certainly fueled pessimism about the future growth prospects of the banking industry. Like most, we expect that credit losses will rise in 2001 from their historically low levels of the past two years and that we could face a slower economic environment. However, over the past two years, we have overcome rising rates and net interest margin compression and delivered annual earnings growth of 16%. Fifth Third has always believed that one of the keys to consistent growth in all economic cycles is a strong, flexible balance sheet. In September, Moody's Investor Services further upgraded our debt ratings in recognition of that fact. At Fifth Third, we remain ever mindful of our obligation to provide consistent growth in any economic environment. Despite the general pessimism about our industry and the struggles of some of our competitors, our management team has never been more enthused about the future. We remain focused on executing better than anyone in each of our markets. The Old Kent acquisition provides the most attractive, single opportunity in our history to duplicate the local success that has fueled our track record as a growth company. Overall, we are one of the least leveraged companies in our industry, our P/E remains strong, our credit quality is manageable and we can finance growth with a cost advantage. Last year marked the passing of four friends: former Chairman, President & CEO Clem Buenger, and fellow Directors Emeriti Paul Huenefeld, Charles McKelvy, Jr. and Richard Wagner. We will miss their insight and guidance. We would also like to extend our appreciation for the guidance of Jerry Kirby and Alton Wendzel, who have announced their retirement from our Board. I would like to close by thanking our customers, employees, suppliers, members of our Boards and the communities in which we operate for their contributions to another successful year and their continued support and confidence. I look forward to the challenges that lie ahead in 2001. Sincerely, /s/ George A.Schaefer, Jr. George A.Schaefer, Jr. President & CEO January 2001 5 8 WE ARE RETAIL BANKING SOLUTIONS [Photo of Fifth Third Customers Jim & Delores Devillez] [Photo of - Evansville Community Development Vice President and Graphics Manager] [Photo of Employee and Fifth Third Bank Customer.] Fifth Third's purchase of CNB Bancshares vaulted Fifth Third to the third largest bank in Indiana. We welcomed over 500,000 new customers and employees, including Perdita Brown at the Emporia Banking Center (above, left) with Alberta Young. "I've been a customer for 30 years." Evansville Community Development Vice President Royce Sutton (above, right) reviews marketing material with Graphics Manager & Assistant Cashier Jeff Steckler. [Photo of hand] Pay bills, open accounts, manage your money, apply for loans or link up with your investments at www.53.com. Whether you are at home, at the office or on the road, Fifth Third's website gives you safe and secure "24-7" service. Over 300,000 customers find our website easy to navigate, convenient to use and a great way to save time...how about you? [Graph] 96 97 98 99 00 -- -- -- -- -- Revenue $547 $606 $778 $969 $1,265 Net Income $171 $192 $281 $334 $429 RETAIL ($ IN MILLIONS) 6 9 WORKING HARD TO DELIVER CONVENIENCE. [Photo of Fifth Third Bank Employees] Meet the team who works with Jim and Delores DeVillez: Senior Vice President Dwight Nestrick (center, seated); Mortgage Loan Originator Betsy Harris; Regional Manager Van Douglas; Eddyville Banking Center Manager Lilburn Denney; and Commercial Lender Drew Hulette. "People come here to enjoy time with their families," offers Jim DeVillez, "and the sunsets, too," chimes Jim's wife, Delores. Jim and Delores own and operate Moon Bay Harbor Resorts along two miles of Lake Barkley in Western Kentucky. Located in the "Land Between the Lakes" region, Moon Bay is just east of the Mississippi and offers all the amenities of a coastal condo, without the drive. "And, anytime you've got more water than land," explains Jim, "you're in good shape." Spoken like a true fisherman. "Most folks come here to boat, fish, enjoy water sports and relax. Our owners look to us to deliver worry-free weekends by tending to the details -- maintenance, upkeep and smart development plans that will enhance their vacation experience. "To ensure our success, we needed someone to handle our details, so we turned to Fifth Third Bank. We purchased the land in 1957, and we always knew it would make an ideal vacation resort. A few years after we began our 600-unit development, we shopped around for a better rate. We wanted a bank with vision, or more importantly, one that could share our vision. We needed someone who could fund a major development, but was just as good at handling our personal and business banking accounts. And, we wanted someone in the area, someone who was convenient." The DeVillezs bank at our Eddyville location, which is one of Evansville's 59 full-service Banking Centers. "We joined Fifth Third after they purchased Civitas, and the manager in Eddyville has over 30 years in the business. We like that." With 668 full-service Banking Centers, including 120 Bank Mart(R) locations open seven-days-a-week in area grocery stores, 1,386 Jeanie(R) Automated Teller Machines and both telephone and www.53.com banking options, we offer anytime, anywhere banking service to millions of customers. Our Call Center, comprised of Fifth Third employees in Cincinnati and Evansville, offers world-class (and toll-free!) service and sales, too. The center played a critical role this year in navigating us through Y2K and the smooth conversion of CNB Bancshares and its subsidiary, Civitas Bank. They fielded over 23 million calls, and generated $185 million in sales, a 28% increase over 1999. "We're now in the first phase of our development," reports Jim. "We're adding a swimming pool and increasing our 18-slip dock to accommodate 25 more boats. Fifth Third knew what we were trying to accomplish, and they made it really easy. They also have some of the most competitive and flexible mortgage loans available, so we refer buyers to Fifth Third for their condo loans, and insurance coverage, too." With one of the best efficiency ratios and strongest credit ratings in the industry, Fifth Third Bank works hard to share these savings with our customers in the form of competitive rates and creative financing solutions. From our interest-bearing Platinum(R) checking account, annuities and Totally Free checking, complete with a free gift, to mortgage, equity and installment loans for any need, we've got you covered. Because at Fifth Third Bank, we are working hard to be the only bank you'll ever need(R). 7 10 WE ARE COMMERCIAL BANKING SOLUTIONS [Photo of Part of a Toyota] [Photo of Toyota Emblem on car] [Background Photo Person Outside of Toyota Building] [Photo of Toyota Employee Working] [Photo of Euro & Yen Symbols] Fifth Third introduced one of the first Internet-based platforms for foreign exchange trading in the country in 2000 to offer corporate customers a software-free delivery channel for managing foreign exchange needs, real-time exchange rates on over 90 currencies, detailed FX reporting, easy payment execution and state-of-the-art security controls. Fifth Third Bank provides comprehensive commercial banking solutions to meet the needs of small, medium and large multinational corporations, government agencies, not-for-profit organizations and financial institutions. Fifth Third also has one of the largest foreign exchange trading desks in the United States. With international offices in Europe and Asia, Fifth Third offers an extensive network of correspondent banking relationships throughout the world. [Graph] 96 97 98 99 00 -- -- -- -- -- Revenue $270 $297 $378 $481 $642 Net Income $106 $124 $135 $195 $258 COMMERCIAL ($ IN MILLIONS) 8 11 WORKING HARD TO BUILD RELATIONSHIPS. [Photo of Fifth Third Bank Employees] Fifth Third Executive Vice President Steve Schrantz (center, clockwise) teams with Private Banking Managers Carrie Nevill and Nachi Ishige; International Banking Director Sheila Spradlin; and International Banking Officer Yumiko Kajihara. TOYOTA MOTOR CORPORATION, the world's third largest automaker, built more than one million cars in the U.S. and Canada last year. In 1996, the company established Toyota Motor Manufacturing North America, or TMMNA, in Northern Kentucky, to serve as their manufacturing headquarters -- and they began their relationship with Fifth Third. "With our manufacturing capacity growing so rapidly, it was evident that we needed to centralize our operations to do so efficiently," recalls Dennis Cuneo, Vice President, Corporate Affairs, TMMNA. "A single headquarters would allow us to house purchasing, manufacturing and production management, production engineering and accounting professionals under one roof. It would allow us to reach our goal and make us more efficient, which ultimately helps keep our products affordable." Toyota's efficiency bodes well for the economy and the community, too. "Our total investment in America has grown to nearly $13 billion. Additionally, we spent more than $11 billion last year with U.S. parts suppliers, whose business with us has resulted in more than 50,000 U.S. jobs." Thanks to its 1,400 dealers, Toyota has sold more than one million vehicles in each of the last 10 years. Their parts distribution center in Kentucky is the largest in the world, and they're expanding production at two North American manufacturing facilities. "With all of this growth," Cuneo reports, "we need financial partners who understand our business philosophy. Toyota is founded on a principal of ensuring quality in everything we do. We achieve this quality through continuous improvement, emphasizing the importance of understanding the individual steps and seeing the whole process -- and of course, we plan, plan, plan. "Fifth Third's philosophy of teamwork and maintaining high safety and soundness rankings complements our strategy, as does their geographic footprint. We needed a strong partner to handle our treasury investments, and one with international reach. Fifth Third is one of the few banks in the region with European and Asian offices. Toyota Tsusho, our commodity brokerage arm, enjoys Fifth Third's foreign exchange capabilities. "Their expansive product portfolio allows us to provide our Toyota employees with a strong package of financial services, and we like the personalized attention we get. Fifth Third's Lexington bank has a dedicated staff of bankers for our plant in Georgetown, and when our plant in Southwestern Indiana wanted to offer an on-site bank for its employees, Fifth Third was there." Fifth Third's success is built on the relationships we have with our clients. We deliver comprehensive capabilities that meet our clients' complex needs, and have earned a reputation for quality service and financial strength. Our capital strength is matched only by our industry expertise and advisory skills. It all adds up to one powerful partnership. Every day. 9 12 WE ARE INVESTMENT ADVISORS [Photo of Timothy Rub] [Photo of Statue] [Photo of Girl and Man] Fifth Third is a full-service money management firm, offering investments, brokerage, trust and private banking services, including underwriting and public financing services. We employ an investment philosophy of "consistent, quality growth" for our personal, corporate and not-for-profit clients. With $172 billion in assets under care and $22 billion under management, we are one of the largest and most successful money managers in the Midwest. [Photo] A leading provider of retirement plan services to over 1,100 companies, Fifth Third debuted retire.53.com this year. This interactive website gives participants the freedom to select and monitor their retirement investments online and make adjustments more frequently. [Graph] 96 97 98 99 00 -- -- -- -- -- Revenue $97 $115 $165 $209 $240 Net Income $33 $41 $50 $65 $75 INVESTMENT ADVISORS ($ IN MILLIONS) 10 13 WORKING HARD TO BUILD YOUR WEALTH. [Photo of Fifth Third Bank Employees] Executive Vice President Mike Keating (center, clockwise) Senior Vice Presidents Ron Stahl and Sandra Lobert, and Foundation & Endowment Services Manager Pat Ward help grow the Cincinnati Art Museum's valuable endowment dollars. IN 1880, Cincinnatian Elizabeth Williams Perry wrote, "the ladies are aware of the magnitude to inaugurate successfully a movement for a museum, with its masterpieces of fine and industrial art..." Perry convinced philanthropist Charles W. West to donate $150,000 toward the project, who in turn, challenged the city to match his gift. Within two weeks of West's challenge, $107,000 was raised, and one month later, his donation was surpassed! Today, the Cincinnati Art Museum boasts an extraordinarily rich collection of nearly 100,000 objects -- and an unwavering commitment to a community that championed its creation. Timothy Rub, Director of the Cincinnati Art Museum, notes: "While we've grown considerably since our founding, our mission remains fundamentally the same. We strive to provide opportunities for the enjoyment of the arts and lifelong learning by ensuring access, offering outreach programs and acquiring, managing and conserving a great cultural resource." Hundreds of thousands of visitors enjoy the Museum's renowned collection every year, which includes artifacts from Egypt and the Ancient Near East, Greece and Rome; Indian, Japanese and Chinese art; the arts of Africa and Native North America; and fine collections of furniture, glass, ceramics, silver, costumes and textiles. Nationally-recognized exhibitions, including Women in Ancient Egypt and Ansel Adams, thrill young and old alike. "One of the principal responsibilities of the Museum is the acquisition and care of significant works of art. These objects are held in trust for the benefit and enjoyment of the community in perpetuity," comments Rub. "We're fortunate. Greater Cincinnati is wonderfully philanthropic. Our quest to contribute to the creative life of the community by presenting and interpreting aesthetically and intellectually significant works of art has long been supported with generous gifts. "We need to invest these gifts responsibly to ensure that we can continue to enhance our collection. And we want a partner in this enterprise who understands our history, the potential for our future and the importance of our mission. So we chose Fifth Third to help manage our endowment. They bring a strong record of investment performance to our endowment. They enable us to realize our goals by structuring an aggressive asset allocation. And their talented and seasoned investment team is focused on finding quality companies with long-term, consistent profit and dividend growth." Fifth Third's Investment Advisors manages money for individuals, companies and not-for-profit organizations. Fifth Third is one of the largest money managers in the Midwest, with over $172 billion in assets under care of which it manages $22 billion. Its investment expertise is also demonstrated by the performance of our nationally recognized Fifth Third Funds(R) family of 16 stock, bond and money market mutual funds. Established in 1988, the Fifth Third Funds have grown from $100 million to $5.6 billion in assets today. Our QUALITY GROWTH, BALANCED, EQUITY INCOME and MID CAP FUNDS have all beaten the S&P 500 Index and Dow Jones Industrial Average, while the QUALITY GROWTH and BALANCED FUNDS received "A" rankings from The Wall Street Journal.(*) "We were founded as a community museum, and six generations have explored and learned to love the arts through our galleries," offers Rub. "We'll continue to ensure their investment by forming collaborative partnerships with schools and arts organizations around the world, and businesses, too. Like Fifth Third." 11 14 WE ARE MIDWEST PAYMENT SYSTEMS [Photo of Person Walking] [Photo of Nordstrom salesperson] [Photo] [Photo] Ranked #1 by PC Week magazine for our innovative e-commerce capabilities, MPS expects to process over five billion ATM and POS transactions annually for financial institutions and multi-location merchants around the world, like The Kroger Co., Circuit City, Office Depot, CompUSA and Barnes & Noble. Fifth Third Merchant Services processes over $50 billion in credit card sales annually, and today ranks sixth nationally in merchant processing. [Photo Nordstrom Credit Card] Midwest Payment Systems (MPS), the data processing subsidiary of Fifth Third Bank, provides electronic funds transfer, merchant processing and e-commerce processing solutions for over 85,000 retail locations and financial institutions worldwide. As business advisors, MPS designs solutions to increase our customers' success -- while decreasing their expenses. [Graph] 96 97 98 99 00 -- -- -- -- -- Revenue $94 $119 $151 $194 $259 Net Income $25 $33 $46 $62 $83 MPS ($ IN MILLIONS) 12 15 WORKING HARD TO DEVELOP DATA PROCESSING SOLUTIONS. [Photo Fifth Third Employees] MPS Executive Vice President Barry Boerstler (center) and his Nordstrom account team (clockwise): Vice President William Zembrodt; Associate Counsel Leigh-Anne Patton; Senior Account Manager Meggen Trimmer; Vice President John Romer; and National Sales Representative Scott Lewer. IN 1887, Swedish-born immigrant John W. Nordstrom landed in New York at age 16, with five dollars and no command of the English language. He spent the next 10 years logging and mining his way west, and in 1897, he headed to Alaska with the news of gold in the Klondike. Life wasn't much easier there. The labor was hard, but within two years, he earned $13,000 in a gold mine stake. He returned to Seattle where, together with Carl Wallin, he began a small shoe store in 1901 with a simple philosophy that has persevered for 100 years -- offer the customer the best possible service, selection, quality and value. The spirit of that small store lives today in Nordstrom, Inc., one of the nation's leading fashion specialty retailers. Nordstrom offers a large selection of quality apparel, shoes and accessories for men, women and children. As the company marks its 100th anniversary, the Nordstrom philosophy is no different today then when it was established at the turn of the century. The Seattle-based retailer posted more than $5.1 billion in sales last year and opened 16 new stores. "We're focused on listening very carefully to our customers and working hard to meet their needs," said Brooke White, Nordstrom spokesperson. "We seek to be everywhere our customers want us to be whether serving them in our stores, through our catalogs or online." White adds, "We believe working to meet customers' needs is what it's all about, and we look for that same commitment from our business partners. That's why we chose Midwest Payment Systems for our Visa(R), MasterCard(R) and Discover(R) credit card processing and daily wire transfer service. Additionally, their Internet-based imaging technology, Mvision(TM), gives us the ability to automate our back office credit card operations. With Mvision, we can scan receipts, handwritten notes or other documents into our system so we can respond to customers more quickly." Nordstrom joined over 4,000 new merchants in choosing Midwest Payment Systems (MPS) this year, and Fifth Third's data processing subsidiary now processes for 85,000 locations, including Athlete's Foot, Kinko's and The Finish Line. In fact, Visa has recognized MPS as having one of the best chargeback and copy request fulfillment rates in the business for five years running! Over 240 financial institutions are connected to MPS for ATM processing, debit card management and/or network gateway services, while over 50 have joined Jeanie(R), our proprietary ATM network available in 25 states. MPS, which now serves over 1,000 financial institutions, earned a #1 ranking for the second consecutive year by Faulkner & Gray for its combined credit and debit card volume. We made two strategic purchases in 2000: New York-based IDTI and its Cartel network, with 81 member financial institutions, and ACI, a Pennsylvania-based credit card transaction processor for 7,500 merchants. Both will allow us to continue our successful expansion in the northeastern U.S. MPS is committed to providing innovative products, such as the stored-value card program it launched for over 900 Sterling Jewelers stores. MPS' planned expansion of stored-value processing services includes offering gift cards, customer convenience and reward cards and payroll cards. Our investment in this technology, and other initiatives will ensure our success as we develop superior solutions for our merchant, EFT and e-commerce customers. Worldwide. 13 16 WE ARE WORKING HARD IN OUR COMMUNITIES [Photo of Mother and Son] [Photo of son] "MY FOUR-YEAR-OLD son, Devante, loved to ride his bicycle outside," offers Columbus resident Joyce Moss. "But the neighborhood around my apartment was becoming unsafe. I knew I needed to buy a house in a place where Devante could be free to be a kid!" She continues, "I never knew buying a house could be so simple! It took 30 days from the moment I first laid eyes on my home to the day we moved in. Fifth Third walked me through the process, provided training and financed my house without a down payment. Working with Fifth Third has just been wonderful." Fifth Third Bank, the leading home loan lender in Cincinnati, Ohio Valley, Western Ohio, Northwestern Ohio, Northern and Central Kentucky and Northern and Southern Indiana, offers a complete line of home mortgage options, like the 100% Purchase Loan, which enables buyers to overcome mortgage insurance and closing cost barriers to homeownership. We're also proud of our community development initiative, BLITZ, which is our three-year pledge to fund $9 billion in Building, Lending, Investments and Technology Zones throughout the markets we serve. In its first year, BLITZ made $3.2 billion available to low- and moderate-income consumers and small business owners. [Graph] 96 97 98 99 00 -- -- -- -- -- $2.4 $2.7 $3.3 $4.1 $4.8 UNITED WAY GIVING ($ IN MILLIONS) Includes employee and corporate contributions. BUILDING Fifth Third funded $93 million in building initiatives by offering a .50% reduction in loan commitment fees for developers undertaking community development projects, and created special loan financing for brownfield redevelopments. LENDING To help small business owners and low- and moderate-income consumers realize their full potential, we lent $3 billion in business, mortgage and installment loans. Small business owners received $2 billion in funds for expansion or start-up financing; homeowners benefited from a reduction in closing costs on "No Money Down" Good Neighbor(R) mortgage loans, and a .50% discount on interest rates for home improvement, auto loans and other consumer loans. INVESTMENTS Fifth Third leveraged its credit quality, capital strength, and sense of civic responsibility in making $54 million available in low-income housing tax credit and venture capital projects and charitable investments. In 1948, Fifth Third became one of the first financial institutions in the country to establish a permanently endowed foundation, and we provided $2.3 million through our Foundation during the first year of our BLITZ initiative for the betterment of low- and moderate-income communities. Thanks to the sound management of Fifth Third's investment professionals, the Foundation has grown to $43 million in assets, and since its inception, provided over $23 million to worthwhile projects. In 2000, we contributed $14 million throughout our Foundation and the charitable trusts for which we proudly serve as trustee. In addition, corporate and employee United Way contributions totaled $4.8 million. TECHNOLOGY ZONES As a leader in technology, Fifth Third wanted to lend its expertise to address the inequities in the access to technology among low-income and rural populations. We created 238 "Technology Zones" in community centers throughout our markets - Internet accessible computers and printers - to bridge the digital divide. More information about BLITZ is available at www.53.com. 14 17 FIFTH THIRD BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME - --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------- For the Years Ended December 31 ($ in millions, except per share data) 2000 1999 1998 - ----------------------------------------------------------------------------------------------------- INTEREST INCOME Interest and Fees on Loans and Leases .................................... $2,143 1,912 1,856 - ----------------------------------------------------------------------------------------------------- Interest on Securities Taxable ............................................................... 1,072 776 687 Exempt from Income Taxes .............................................. 37 38 32 - ----------------------------------------------------------------------------------------------------- Total Interest on Securities ............................................. 1,109 814 719 - ----------------------------------------------------------------------------------------------------- Interest on Other Short-Term Investments ................................. 11 12 10 - ----------------------------------------------------------------------------------------------------- Total Interest Income .................................................... 3,263 2,738 2,585 - ----------------------------------------------------------------------------------------------------- INTEREST EXPENSE Interest on Deposits Interest Checking ..................................................... 141 105 93 Savings ............................................................... 156 116 128 Money Market .......................................................... 37 49 54 Other Time ............................................................ 491 440 515 Certificates-$100,000 and Over ........................................ 80 104 105 Foreign Office ........................................................ 238 45 13 - ----------------------------------------------------------------------------------------------------- Total Interest on Deposits ............................................... 1,143 859 908 Interest on Federal Funds Borrowed ....................................... 263 172 122 Interest on Short-Term Bank Notes ........................................ 57 33 26 Interest on Other Short-Term Borrowings .................................. 148 133 120 Interest on Long-Term Debt and Notes ..................................... 182 136 140 - ----------------------------------------------------------------------------------------------------- Total Interest Expense ................................................... 1,793 1,333 1,316 - ----------------------------------------------------------------------------------------------------- NET INTEREST INCOME ...................................................... 1,470 1,405 1,269 Provision for Credit Losses .............................................. 89 134 123 - ----------------------------------------------------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES .................... 1,381 1,271 1,146 - ----------------------------------------------------------------------------------------------------- OTHER OPERATING INCOME Data Processing Income ................................................... 242 180 141 Service Charges on Deposits .............................................. 217 174 156 Investment Advisory Income ............................................... 200 184 151 Other Service Charges and Fees ........................................... 351 338 294 Securities Gains ......................................................... 3 1 12 - ----------------------------------------------------------------------------------------------------- Total Other Operating Income ............................................. 1,013 877 754 - ----------------------------------------------------------------------------------------------------- OPERATING EXPENSES Salaries, Wages and Incentives ........................................... 437 425 382 Employee Benefits ........................................................ 85 80 72 Equipment Expenses ....................................................... 50 49 45 Net Occupancy Expenses ................................................... 77 73 67 Other Operating Expenses ................................................. 436 413 379 Merger-Related and Special Charges ....................................... 34 82 121 - ----------------------------------------------------------------------------------------------------- Total Operating Expenses ................................................. 1,119 1,122 1,066 - ----------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES ............................................... 1,275 1,026 834 Applicable Income Taxes .................................................. 412 358 287 - ----------------------------------------------------------------------------------------------------- NET INCOME ............................................................... $ 863 668 547 - ----------------------------------------------------------------------------------------------------- EARNINGS PER SHARE ....................................................... $ 1.86 1.46 1.21 EARNINGS PER DILUTED SHARE ............................................... $ 1.83 1.43 1.19 - ----------------------------------------------------------------------------------------------------- CASH DIVIDENDS DECLARED PER SHARE ........................................ $ .70 .59 .47 - ----------------------------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements.
15 18 FIFTH THIRD BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------- December 31 ($ in millions) 2000 1999 - ------------------------------------------------------------------------------------------------------- ASSETS - ------------------------------------------------------------------------------------------------------- Cash and Due from Banks ........................................................ $ 985 1,213 Securities Available for Sale (amortized cost 2000-$15,562 and 1999-$13,038) ... 15,602 12,688 Securities Held to Maturity (fair value 2000-$27 and 1999-$129) ................ 27 129 Other Short-Term Investments ................................................... 198 355 Loans Held for Sale ............................................................ 553 297 Loans and Leases Commercial Loans ............................................................ 6,644 6,207 Construction Loans .......................................................... 1,484 1,068 Commercial Mortgage Loans ................................................... 2,986 2,651 Commercial Lease Financing .................................................. 2,752 2,283 Residential Mortgage Loans .................................................. 4,034 4,814 Consumer Loans .............................................................. 6,079 5,284 Consumer Lease Financing .................................................... 2,957 3,580 Unearned Income ............................................................. (984) (923) Reserve for Credit Losses ................................................... (383) (367) - ------------------------------------------------------------------------------------------------------- Total Loans and Leases ......................................................... 25,569 24,597 Bank Premises and Equipment .................................................... 521 482 Accrued Income Receivable ...................................................... 390 321 Other Assets ................................................................... 2,012 1,507 - ------------------------------------------------------------------------------------------------------- TOTAL ASSETS ................................................................... $ 45,857 41,589 - ------------------------------------------------------------------------------------------------------- LIABILITIES - ------------------------------------------------------------------------------------------------------- Deposits Demand ...................................................................... $ 4,705 3,834 Interest Checking ........................................................... 5,386 4,792 Savings ..................................................................... 4,565 4,167 Money Market ................................................................ 899 1,002 Other Time .................................................................. 9,350 8,846 Certificates-$100,000 and Over .............................................. 1,477 1,292 Foreign Office .............................................................. 4,566 2,150 - ------------------------------------------------------------------------------------------------------- Total Deposits ................................................................. 30,948 26,083 Federal Funds Borrowed ......................................................... 1,165 2,971 Short-Term Bank Notes .......................................................... -- 1,317 Other Short-Term Borrowings .................................................... 3,095 4,085 Accrued Taxes, Interest and Expenses ........................................... 1,375 786 Other Liabilities .............................................................. 349 293 Long-Term Debt ................................................................. 3,861 1,804 Guaranteed Preferred Beneficial Interests in Convertible Subordinated Debentures 173 173 - ------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES .............................................................. 40,966 37,512 - ------------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY (a) - ------------------------------------------------------------------------------------------------------- Common Stock (b) ............................................................... 1,034 1,029 Capital Surplus ................................................................ 593 573 Retained Earnings .............................................................. 3,242 2,704 Accumulated Nonowner Changes in Equity ......................................... 26 (225) Treasury Stock ................................................................. (1) -- Other .......................................................................... (3) (4) - ------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY ..................................................... 4,891 4,077 - ------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..................................... $ 45,857 41,589 - -------------------------------------------------------------------------------------------------------
(a) 500,000 shares of no par value preferred stock are authorized of which none have been issued. (b) Stated value $2.22 per share; authorized 650,000,000; outstanding at 2000 -- 465,651,949 (excludes 21,875 treasury shares) and 1999 -- 463,329,888. See Notes to Consolidated Financial Statements. 16 19 FIFTH THIRD BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - --------------------------------------------------------------------------------
ACCUMULATED NONOWNER COMMON CAPITAL RETAINED CHANGES TREASURY ($ in millions) STOCK SURPLUS EARNINGS IN EQUITY STOCK OTHER TOTAL - ----------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1997 .............. $ 991 502 1,944 105 (184) -- 3,358 Net Income and Nonowner Changes in Equity, Net of Tax: Net Income ................................ 547 547 Change in Unrealized Losses on Securities Available for Sale ..................... (11) (11) - ----------------------------------------------------------------------------------------------------------------------- Net Income and Nonowner Changes in Equity . 536 Cash Dividends Declared Fifth Third Bancorp at $.47 1/3 per share (187) (187) Pooled Companies Prior to Acquisition .. (32) (32) Shares Acquired for Treasury .............. (8) (135) (143) Earnings Adjustment of Pooled Entity (a) .. (8) (8) Stock Options Exercised, Including Treasury Shares Issued ....... 5 (39) 56 22 Corporate Tax Benefit Related to Exercise of Non-Qualified Stock Options ......... 4 4 Pooled Operations for the Year Ended December 31, 1998 ...................... 34 (60) (26) Stock Issued in Public Offering ........... 12 44 122 178 Stock Issued in Acquisitions and Other .... 6 4 83 93 - ----------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1998 .............. 1,006 549 2,204 94 (58) -- 3,795 Net Income and Nonowner Changes in Equity, Net of Tax: Net Income ................................ 668 668 Change in Unrealized Losses on Securities Available for Sale ..................... (319) (319) - ----------------------------------------------------------------------------------------------------------------------- Net Income and Nonowner Changes in Equity . 349 Cash Dividends Declared Fifth Third Bancorp at $.58 2/3 per share (248) (248) Pooled Companies Prior to Acquisition .. (37) (37) Stock Options Exercised, Including Treasury Shares Issued ....... 5 (25) 58 38 Corporate Tax Benefit Related to Exercise of Non-Qualified Stock Options ......... 15 15 Pooled Operations For the Year Ended December 31, 1999 ...................... (66) (66) Stock Issued in Acquisitions and Other .... 18 100 117 (4) 231 - ----------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1999 .............. 1,029 573 2,704 (225) -- (4) 4,077 Net Income and Nonowner Changes in Equity, Net of Tax: Net Income ................................ 863 863 Change in Unrealized Gains on Securities Available for Sale ..................... 251 251 - ----------------------------------------------------------------------------------------------------------------------- Net Income and Nonowner Changes in Equity . 1,114 Cash Dividends Declared Fifth Third Bancorp at $.70 per share .. (325) (325) Shares Acquired for Treasury .............. (181) (181) Stock Options Exercised ................... 4 35 39 Corporate Tax Benefit Related to Exercise of Non-Qualified Stock Options ......... 6 6 Stock Issued in Acquisitions and Other .... 1 (21) 180 1 161 - ----------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 2000 .............. $ 1,034 593 3,242 26 (1) (3) 4,891 - -----------------------------------------------------------------------------------------------------------------------
(a) The restatement of the CitFed Bancorp, Inc. (CitFed) merger was accomplished by combining CitFed's March 31, 1998 fiscal year financial information with the Bancorp's December 31, 1997 calendar year financial information. In 1998, CitFed's fiscal year was conformed to the Bancorp's calendar year. As a result of conforming fiscal periods, the Bancorp's Consolidated Statements of Income for the fourth quarter of 1997 and the first quarter of 1998 include CitFed's net income for the three months ended March 31, 1998 of $7.8 million. An adjustment to shareholders' equity removes the effect of including CitFed's financial results in both periods. See Notes to Consolidated Financial Statements. 17 20 FIFTH THIRD BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------- For the Years Ended December 31 ($ in millions) 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net Income ...................................................................... $ 863 668 547 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Provision for Credit Losses .................................................. 89 134 123 Depreciation, Amortization and Accretion ..................................... 112 104 118 Provision for Deferred Income Taxes .......................................... 320 255 81 Realized Securities Gains .................................................... (6) (12) (16) Realized Securities Losses ................................................... 3 11 4 Proceeds from Sales of Residential Mortgage Loans Held for Sale .............. 3,363 2,709 4,009 Net Gains on Sales of Loans .................................................. (39) (36) (46) Increase in Residential Mortgage Loans Held for Sale ......................... (3,580) (2,381) (4,171) Decrease (Increase) in Accrued Income Receivable ............................. (69) 25 (72) Increase in Other Assets ..................................................... (434) (229) (210) Increase (Decrease) in Accrued Taxes, Interest and Expenses .................. 130 (227) 144 Increase in Other Liabilities ................................................ 39 17 14 - ----------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES ....................................... 791 1,038 525 - ----------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Proceeds from Sales of Securities Available for Sale ............................ 6,398 3,934 3,098 Proceeds from Calls, Paydowns and Maturities of Securities Available for Sale ... 1,688 3,244 3,724 Purchases of Securities Available for Sale ...................................... (9,473) (6,891) (6,454) Proceeds from Calls, Paydowns and Maturities of Securities Held to Maturity ..... 26 48 78 Purchases of Securities Held to Maturity ........................................ (10) (55) (53) Decrease (Increase) in Other Short-Term Investments ............................. 157 (163) (75) Purchases of Loans in Acquisitions .............................................. -- -- (41) Increase in Loans and Leases .................................................... (1,380) (4,615) (1,519) Purchases of Bank Premises and Equipment ........................................ (101) (116) (82) Proceeds from Disposal of Bank Premises and Equipment ........................... 24 35 9 Net Cash Received in Acquisitions ............................................... 153 47 24 - ----------------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES ........................................... (2,518) (4,532) (1,291) - ----------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Purchases of Deposits ........................................................... -- 120 117 Increase (Decrease) in Core Deposits ............................................ 1,539 (86) 61 Increase (Decrease) in CDs-- $100,000 and Over, including Foreign Office ........ 2,601 1,328 (179) Increase (Decrease) in Federal Funds Borrowed ................................... (1,806) 833 802 Increase (Decrease) in Short-Term Bank Notes .................................... (1,317) 1,317 (555) Increase (Decrease) in Other Short-Term Borrowings .............................. (990) 1,706 (137) Proceeds from Issuance of Long-Term Debt ........................................ 3,947 1,570 2,676 Proceeds Pertaining to Guaranteed Preferred Beneficial Interests in Convertible Subordinated Debentures .......................................... -- -- 173 Repayment of Long-Term Debt ..................................................... (2,014) (2,830) (1,916) Payment of Cash Dividends ....................................................... (318) (269) (168) Exercise of Stock Options ....................................................... 45 53 27 Proceeds from Sale of Common Stock .............................................. -- -- 178 Purchases of Treasury Stock ..................................................... (181) -- (199) Other ........................................................................... (7) (80) (33) - ----------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES ....................................... 1,499 3,662 847 - ----------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH AND DUE FROM BANKS .................................. (228) 168 81 CASH AND DUE FROM BANKS AT BEGINNING OF YEAR .................................... 1,213 1,045 964 - ----------------------------------------------------------------------------------------------------------------- CASH AND DUE FROM BANKS AT END OF YEAR .......................................... $ 985 1,213 1,045 - -----------------------------------------------------------------------------------------------------------------
Note: The Bancorp paid Federal income taxes of $15 million, $141 million, and $174 million in 2000, 1999 and 1998, respectively. The Bancorp paid interest of $1,770 million, $1,302 million, and $1,319 million in 2000, 1999 and 1998, respectively. The Bancorp had noncash investing activities consisting of the securitization and transfer to securities of $1 billion, $2.1 billion and $1.6 billion of residential mortgage loans in 2000, 1999 and 1998, respectively. See Notes to Consolidated Financial Statements. 18 21 FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES NATURE OF OPERATIONS Fifth Third Bancorp (Bancorp), an Ohio corporation, conducts its principal activities through its banking and non-banking subsidiaries from 668 offices located throughout Ohio, Indiana, Kentucky, Michigan, Illinois, Arizona and Florida. Principal activities include commercial and retail banking, investment advisory services and data processing. BASIS OF PRESENTATION The Consolidated Financial Statements include the accounts of the Bancorp and its subsidiaries. All material intercompany transactions and balances have been eliminated. Certain prior period data has been reclassified to conform to current period presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. SECURITIES Securities are classified as held to maturity, available for sale or trading on the date of purchase. Only those securities classified as held to maturity, and which management has the intent and ability to hold to maturity, are reported at amortized cost. Available for sale and trading securities are reported at fair value with unrealized gains and losses, net of related deferred income taxes included in accumulated nonowner changes in equity or income, respectively. Realized securities gains or losses are reported in the Consolidated Statements of Income. The cost of securities sold is based on the specific identification method. LOANS AND LEASES Interest income on loans is based on the principal balance outstanding, with the exception of interest on discount basis loans, computed using a method which approximates the interest income. The accrual of interest income for commercial, construction and mortgage loans is discontinued when there is a clear indication the borrower's cash flow may not be sufficient to meet payments as they become due. Such loans are also placed on nonaccrual status when the principal or interest is past due ninety days or more, unless the loan is well secured and in the process of collection. When a loan is placed on nonaccrual status, all previously accrued and unpaid interest is charged against income. Loan and lease origination and commitment fees and certain direct loan origination costs are deferred and the net amount amortized over the estimated life of the related loans or commitments as a yield adjustment. Interest income on direct financing leases is recognized to achieve a constant periodic rate of return on the outstanding investment. Interest income on leveraged leases is recognized to achieve a constant rate of return on the outstanding investment in the lease, net of the related deferred income tax liability, in the years in which the net investment is positive. Residential mortgage loans held for sale are valued at the lower of aggregate cost or fair value. The Bancorp generally has commitments to sell residential mortgage loans held for sale in the secondary market. Gains or losses on sales are recognized in Other Service Charges and Fees upon delivery. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or the fair value of the underlying collateral. The Bancorp evaluates the collectibility of both the interest and principal when assessing the need for a loss accrual. RESERVE FOR CREDIT LOSSES The Bancorp 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 Bancorp estimates losses using a range derived from "base" and "conservative" estimates. The Bancorp'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 Bancorp. Included in the review of individual loans are those that are impaired as provided in Statement of Financial Accounting Standards (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 loans' effective interest rate or fair value of the underlying collateral. The Bancorp 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-off 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 Bancorp's internal credit examiners. 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. LOAN SALES When the Bancorp sells loans in securitizations, it retains one or more subordinated tranches, servicing rights and in some cases a cash reserve account, all of which are retained interests in the securitized loans. Gain or loss on sale of the loans depends in part on the previous carrying amount of the financial assets involved in the transfer, allocated between the assets sold and the retained interests based on their relative fair value at the date of transfer. To obtain fair values, quoted market prices are used if available. If quotes are not available for retained interests, the 19 22 FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Bancorp estimates fair value based on the present value of future expected cash flows estimated using management's best estimates of the key assumptions -- credit losses, prepayment speeds, forward yield curves and discount rates commensurate with the risks involved. Servicing rights resulting from loan sales are amortized in proportion to, and over the period of estimated net servicing revenues. Servicing rights are assessed for impairment periodically, based on fair value, with any impairment recognized through a valuation allowance. For purposes of measuring impairment, the rights are stratified based on interest rate and original maturity. Fees received for servicing mortgage loans owned by investors are based on a percentage of the outstanding monthly principal balance of such loans and are included in income as loan payments are received. Costs of servicing loans are charged to expense as incurred. BANK PREMISES AND EQUIPMENT Bank premises and equipment, including leasehold improvements, are stated at cost less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method based on estimated useful lives of the assets for book purposes, while accelerated depreciation is used for income tax purposes. Amortization of leasehold improvements is computed using the straight-line method over the lives of the related leases or useful lives of the related assets, whichever is shorter. Maintenance, repairs and minor improvements are charged to operating expenses as incurred. INTANGIBLE ASSETS Goodwill and other intangibles are amortized on a straight-line basis, generally over a period of up to 25 years. Intangible assets, net of accumulated amortization, included in Other Assets in the Consolidated Balance Sheets at December 31, 2000 and 1999 were $630.8 million and $544.6 million, respectively. Management reviews intangible assets for possible impairment if there is a significant event that detrimentally affects operations. Impairment is measured using estimates of the discounted future earnings potential of the entity or assets acquired. DERIVATIVE FINANCIAL INSTRUMENTS The Bancorp enters into foreign exchange forward contracts primarily to enable customers involved in international trade to hedge their exposure to foreign currency fluctuations. The Bancorp generally hedges its exposure to market rate fluctuations by entering into offsetting third-party forward contracts, which are predominantly settled daily. Unrealized gains and losses on forward contracts are insignificant and are recognized in Other Service Charges and Fees in the Consolidated Statements of Income when realized. The Bancorp has interest rate floors to hedge a portion of the value of mortgage servicing rights against changes in prepayment rates. Premiums are amortized over the life of the hedging instrument on a straight-line basis. The contracts are designated as hedges, with gains and losses recorded as basis adjustments to the mortgage servicing rights. The Bancorp has interest rate caps, floors and swaps to adjust the interest rate sensitivity of long-term, fixed-rate capital-qualifying securities and hedge the risk of future fluctuations in interest rates relating to hedging transactions effected for commercial clients. The unamortized cost of acquiring interest rate caps and floors is included in Other Assets in the Consolidated Balance Sheets and amortized over the term of the agreements as interest expense. Interest rate swaps are linked through designation with certain assets or liabilities of the Bancorp. Net interest income (expense) resulting from the differential between exchanging floating and fixed-rate interest payments is recorded on an accrual basis as an adjustment to the interest income (expense) of the associated asset or liability. Effective January 1, 2001, the Bancorp adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, which establishes accounting and reporting standards for derivative instruments and hedging activities and requires recognition of all derivatives as either assets or liabilities measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. Adoption of the standard did not have a material effect on the Bancorp. EARNINGS PER SHARE In accordance with SFAS No. 128, "Earnings Per Share," basic earnings per share are computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Earnings per diluted share are computed by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding during the period. Dilutive common stock equivalents represent the assumed conversion of convertible subordinated debentures and the exercise of stock options. STOCK SPLIT The Bancorp's board of directors approved a three-for-two stock split in June 2000. The additional shares resulting from the stock split were distributed on July 14, 2000 to shareholders of record as of June 30, 2000. The Consolidated Financial Statements, notes and other references to share and per share data have been retroactively restated for the stock split. OTHER SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" was issued in September 2000 and revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures. This statement supersedes SFAS No. 125, although it retains most of SFAS 125's provisions without modification. SFAS 140 is effective for transactions occurring after March 31, 2001 and is not expected to have a material effect on the Bancorp's Consolidated Financial Statements. Disclosures regarding securitizations are effective for all fiscal years ending after December 15, 2000 and are reflected in Note 18. Securities and other property held by Fifth Third Investment Advisors, a division of the Bancorp's banking subsidiaries, in a fiduciary or agency capacity are not included in the Consolidated Balance Sheets because such items are not assets of the subsidiaries. Investment advisory income in the Consolidated Statements of Income is recognized on the accrual basis. Treasury stock is carried at cost. 20 23 FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 2-SECURITIES Securities available for sale as of December 31:
- ----------------------------------------------------------------------- 2000 ---------------------------------------------- AMORTIZED UNREALIZED UNREALIZED FAIR ($ in millions) COST GAINS LOSSES VALUE - ----------------------------------------------------------------------- U.S. Government and agencies obligations ........ $ 940.4 5.7 (20.8) 925.3 Obligations of states and political subdivisions ....... 692.2 13.4 (3.9) 701.7 Agency mortgage- backed securities ......... 11,961.7 105.4 (57.5) 12,009.6 Other bonds, notes and debentures ......... 1,414.2 3.5 (23.5) 1,394.2 Other securities ..... 553.9 24.8 (7.9) 570.8 - ----------------------------------------------------------------------- Total securities ..... $15,562.4 152.8 (113.6) 15,601.6 - -----------------------------------------------------------------------
- ----------------------------------------------------------------------- 1999 ---------------------------------------------- Amortized Unrealized Unrealized Fair ($ in millions) Cost Gains Losses Value - ----------------------------------------------------------------------- U.S. Government and agencies obligations ........ $ 654.0 .4 (13.9) 640.5 Obligations of states and political subdivisions ....... 716.8 5.5 (22.7) 699.6 Agency mortgage- backed securities ......... 10,087.4 11.2 (311.8) 9,786.8 Other bonds, notes and debentures ......... 1,378.7 .4 (22.3) 1,356.8 Other securities ..... 200.9 13.0 (10.1) 203.8 - ----------------------------------------------------------------------- Total securities ..... $13,037.8 30.5 (380.8) 12,687.5 - -----------------------------------------------------------------------
Securities held to maturity as of December 31: - ----------------------------------------------------------------------- 2000 ---------------------------------------------- AMORTIZED UNREALIZED UNREALIZED FAIR ($ in millions) COST GAINS LOSSES VALUE - ----------------------------------------------------------------------- Obligations of states and political subdivisions ....... $ -- -- -- -- Other bonds, notes and debentures ......... -- -- Other securities ..... 26.9 -- -- 26.9 - ----------------------------------------------------------------------- Total securities ..... $ 26.9 -- -- 26.9 - -----------------------------------------------------------------------
- ----------------------------------------------------------------------- 1999 ---------------------------------------------- Amortized Unrealized Unrealized Fair ($ in millions) Cost Gains Losses Value - ----------------------------------------------------------------------- Obligations of states and political subdivisions ....... $ 117.1 -- -- 117.1 Other bonds, notes and debentures ......... 1.5 -- -- 1.5 Other securities ..... 10.5 -- -- 10.5 - ----------------------------------------------------------------------- Total securities ..... $ 129.1 -- -- 129.1 - -----------------------------------------------------------------------
The amortized cost and approximate fair value of securities at December 31, 2000, by contractual maturity, are shown in the following table. Actual maturities may differ from contractual maturities when there exists a right to call or prepay obligations with or without call or prepayment penalties.
- ------------------------------------------------------------------- AVAILABLE FOR SALE HELD TO MATURITY ------------------ ---------------- AMORTIZED FAIR AMORTIZED FAIR ($ in millions) COST VALUE COST VALUE - ------------------------------------------------------------------- Debt securities: Under 1 year .... $ 62.5 62.7 $ -- -- 1-5 years ....... 958.5 955.0 -- -- 6-10 years ...... 1,423.2 1,404.4 -- -- Over 10 years ... 602.6 599.1 -- -- Agency mortgage- backed securities 11,961.7 12,009.6 -- -- Other securities .. 553.9 570.8 26.9 26.9 - ------------------------------------------------------------------- Total securities .. $15,562.4 15,601.6 $ 26.9 26.9 - -------------------------------------------------------------------
At December 31, 2000 and 1999, securities with a book value of $7.2 billion and $7.7 billion, respectively, were pledged to secure short-term borrowings, public deposits, trust funds and for other purposes as required or permitted by law. Of the amount pledged by the Bancorp at December 31, 2000, $802.9 million represents encumbered securities for which the secured party has the right to repledge. NOTE 3-RESERVE FOR CREDIT LOSSES Transactions in the reserve for credit losses for the years ended December 31:
- ------------------------------------------------------------- ($ in millions) 2000 1999 1998 - ------------------------------------------------------------- Balance at January 1 ........... $366.6 331.6 312.2 Losses charged off ............. (115.4) (154.3) (142.8) Recoveries of losses previously charged off .................. 38.0 42.5 33.0 - ------------------------------------------------------------- Net charge-offs ................ (77.4) (111.8) (109.8) Provision charged to operations 89.0 134.0 123.5 Reserve of acquired institutions and other .................... 5.2 12.8 5.7 - ------------------------------------------------------------- Balance at December 31 ......... $383.4 366.6 331.6 - -------------------------------------------------------------
Impaired loan information, under SFAS No. 114, at December 31:
- --------------------------------------------------------- ($ in millions) 2000 1999 - --------------------------------------------------------- Impaired loans with a valuation reserve $ 41.0 22.9 Impaired loans with no valuation reserve 27.9 24.7 - --------------------------------------------------------- Total impaired loans ................... $ 68.9 47.6 - --------------------------------------------------------- Valuation reserve on impaired loans .... $ 17.9 9.4 - ---------------------------------------------------------
Average impaired loans, net of valuation reserves, were $62 million in 2000, $49.1 million in 1999 and $63.8 million in 1998. Cash basis interest income recognized on those loans during each of the years was immaterial. NOTE 4-LEASE FINANCING A summary of the gross investment in lease financing at December 31:
- --------------------------------------------- ($ in millions) 2000 1999 - --------------------------------------------- Direct financing leases $4,759.8 5,184.5 Leveraged leases ...... 949.2 678.0 - --------------------------------------------- Total lease financing . $5,709.0 5,862.5 - ---------------------------------------------
21 24 FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The components of the investment in lease financing at December 31:
- ---------------------------------------------------------------- ($ in millions) 2000 1999 - ---------------------------------------------------------------- Rentals receivable, net of principal and interest on nonrecourse debt .......... $3,496.3 3,453.3 Estimated residual value of leased assets 2,212.7 2,409.2 - ---------------------------------------------------------------- Gross investment in lease financing ..... 5,709.0 5,862.5 Unearned income ......................... (940.4) (875.7) - ---------------------------------------------------------------- Total net investment in lease financing . $4,768.6 4,986.8 - ----------------------------------------------------------------
At December 31, 2000, the minimum future lease payments receivable for each of the years 2001 through 2005 were $1,355 million, $1,346.4 million, $1,284.7 million, $953.1 million and $548.5 million, respectively. NOTE 5-BANK PREMISES AND EQUIPMENT A summary of bank premises and equipment at December 31:
- -------------------------------------------------------------------------- Estimated ($ in millions) Useful Life 2000 1999 - -------------------------------------------------------------------------- Land and improvements ......... $138.2 118.5 Buildings ..................... 18 to 50 yrs. 376.5 343.3 Equipment ..................... 3 to 20 yrs. 344.8 313.4 Leasehold improvements ........ 6 to 25 yrs. 82.8 79.0 Accumulated depreciation and amortization ............ (421.0) (372.7) - -------------------------------------------------------------------------- Total bank premises and equipment ................... $521.3 481.5 - --------------------------------------------------------------------------
Depreciation and amortization expense related to bank premises and equipment was $53.7 million in 2000, $52.9 million in 1999 and $46.5 million in 1998. Occupancy expense has been reduced by rental income from leased premises of $12.2 million in 2000, $10.6 million in 1999 and $9.7 million in 1998. The Bancorp's subsidiaries have entered into a number of noncancelable lease agreements with respect to bank premises and equipment. Equipment under noncancelable lease agreements was not material to the Bancorp. A summary of the minimum annual rental commitments under noncancelable lease agreements for land and buildings at December 31, 2000, exclusive of income taxes and other charges payable by the lessee:
- ---------------------------------------------------------- LAND AND ($ in millions) BUILDINGS - ---------------------------------------------------------- 2001 .......................... $ 25.1 2002 .......................... 22.4 2003 .......................... 18.2 2004 .......................... 14.6 2005 .......................... 12.1 2006 and subsequent years ..... 73.0 - ---------------------------------------------------------- Total ......................... $165.4 - ----------------------------------------------------------
Rental expense for cancelable and noncancelable leases was $33.9 million for 2000, $30.1 million for 1999 and $24.9 million for 1998. NOTE 6-MORTGAGE SERVICING RIGHTS Changes in capitalized mortgage servicing rights for the years ended December 31:
- ------------------------------------------------------------- ($ in millions) 2000 1999 - ------------------------------------------------------------- Balance, beginning of period ............ $ 98.9 81.2 Amount capitalized ...................... 66.6 45.3 Amortization ............................ (21.1) (18.5) Sales ................................... -- (18.3) Valuation allowance ..................... (9.4) 9.2 - ------------------------------------------------------------- Balance, end of period $135.0 98.9 - -------------------------------------------------------------
The fair value of capitalized mortgage servicing rights was $152.3 million at December 31, 2000 and $139.6 million at December 31, 1999. The Bancorp serviced $13 billion of residential mortgage loans for other investors at December 31, 2000 and $11.4 billion at December 31, 1999. NOTE 7-SHORT-TERM BORROWINGS A summary of short-term borrowings and rates at December 31:
- ---------------------------------------------------------------- ($ in millions) 2000 1999 1998 - ---------------------------------------------------------------- Federal funds borrowed: Balance ............... $ 1,164.5 2,971.9 2,137.9 Rate .................. 5.79% 5.71% 4.65% - ---------------------------------------------------------------- Short-term bank notes: Balance ............... $ -- 1,317.4 -- Rate .................. -- 5.98% -- - ---------------------------------------------------------------- Securities sold under agreements to repurchase: Balance ............... $ 3,058.8 3,761.4 2,275.3 Rate .................. 5.76% 5.08% 4.63% - ---------------------------------------------------------------- Other: Balance ............... $ 36.0 323.0 101.4 Rate .................. 6.00% 5.46% 4.27% - ---------------------------------------------------------------- Total short-term borrowings: Balance ............... $ 4,259.3 8,373.7 4,514.6 Rate .................. 5.77% 5.45% 4.63% - ---------------------------------------------------------------- Average outstanding ..... $ 7,935.4 6,964.6 5,105.5 Maximum month-end balance ............... $ 9,356.6 8,786.9 6,073.1 Weighted average interest rate ......... 5.91% 4.85% 5.26% - ----------------------------------------------------------------
At December 31, 1999, short-term senior notes were outstanding with maturities ranging from 30 days to one year, were obligations of four of the Bancorp's subsidiary banks and are included in the above table as short-term bank notes. In addition, medium-term senior notes and subordinated bank notes with maturities ranging from five years to 30 years can be issued by the four subsidiary banks, none of which were outstanding as of December 31, 2000 or 1999. At December 31, 2000, the Bancorp had issued $10.3 million in commercial paper, with unused lines of credit of $89.7 million available to support commercial paper transactions and other corporate requirements. 22 25 FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 8-LONG-TERM BORROWINGS A summary of long-term borrowings at December 31:
- ------------------------------------------------------ ($ in millions) 2000 1999 - ------------------------------------------------------ Bancorp: Capital Securities, 8.136%, due 2027 ............. $ 200.0 200.0 Subsidiaries: Subordinated notes, 6.75%, due 2005 .............. 248.5 248.1 Federal Home Loan Bank advances 3,093.6 1,163.8 Securities sold under agreements to repurchase ................ 304.9 129.5 Other .......................... 14.5 62.4 - ------------------------------------------------------ Total long-term borrowings ..... $3,861.5 1,803.8 - ------------------------------------------------------
In March 1997, Fifth Third Capital Trust 1 (FTCT1), a wholly-owned subsidiary of the Bancorp, issued $200 million 8.136% Capital Securities due in 2027. The Bancorp has fully and unconditionally guaranteed all of FTCT1's obligations under the Capital Securities. The Capital Securities qualify as Tier 1 capital for regulatory capital purposes. The 6.75% Subordinated Notes due in 2005 are unsecured obligations of a subsidiary bank. Interest is payable semiannually and the notes qualify as total capital for regulatory capital purposes. At December 31, 2000, Federal Home Loan Bank advances have rates ranging from 2.50% to 8.34%, with interest payable monthly. The advances were secured by certain mortgage loans and securities totaling $7.2 billion. The advances mature as follows: $7.4 million in 2001, $320.6 million in 2002, $52.9 million in 2003, $31.5 million in 2004, $901.6 million in 2005 and $1,779.6 million thereafter. At December 31, 2000, securities sold under agreements to repurchase have rates ranging from 3.00% to 6.51%, with interest payable monthly. The repurchase agreements mature as follows: $0 in 2001, $28.5 million in 2002, $0 in 2003, $25 million in 2004, $235.5 million in 2005 and $15.9 million thereafter. NOTE 9-GUARANTEED PREFERRED BENEFICIAL INTERESTS IN CONVERTIBLE SUBORDINATED DEBENTURES In connection with the merger of CNB Bancshares, Inc. (CNB), the Bancorp assumed $172.5 million of trust preferred securities through CNB Capital Trust I, a Delaware statutory business trust. The trust preferred securities have a liquidation amount of $25 per share with a cumulative annual distribution rate of 6.0%, or $.375 per share, payable quarterly, and maturing on June 30, 2028. The trust preferred securities are convertible at any time at the conversion ratio of .6401 shares of common stock of the Bancorp for each trust preferred security (equivalent to a conversion price of $39.056), subject to certain adjustments. The sole assets of CNB Capital Trust I are $177.8 million of convertible subordinated debentures of the Bancorp with the interest rate, maturity date and conversion rate substantially identical to those of the trust preferred securities. The back-up obligations of the Bancorp with respect to the trust preferred securities constitute, in the aggregate, a full and unconditional guarantee by the Bancorp of the obligations of CNB Capital Trust I under the trust preferred securities. The Bancorp may redeem the convertible subordinated debentures and thereby cause a redemption of the trust preferred securities in whole (or in part from time to time) on or after June 23, 2001, or in whole (but not in part) within 90 days following the occurrence and continuance of certain adverse federal income tax or capital treatment events. Costs associated with the issuance of the trust preferred securities totaling $4.8 million were capitalized and are being amortized through the maturity date of the securities. The unamortized balance is included in Other Assets in the Consolidated Balance Sheets. The Bancorp records distributions payable on the trust preferred securities as Other Operating Expenses in its Consolidated Statements of Income. NOTE 10-INCOME TAXES The Bancorp and its subsidiaries file a consolidated Federal income tax return. A summary of applicable income taxes included in the Consolidated Statements of Income at December 31:
- ------------------------------------------------------- ($ in millions) 2000 1999 1998 - ------------------------------------------------------- Current U.S. income taxes .. $ 79.3 87.6 194.2 State and local income taxes 13.1 15.9 11.9 - ------------------------------------------------------- Total ...................... 92.4 103.5 206.1 - ------------------------------------------------------- Deferred U.S. income taxes resulting from temporary differences .............. 319.9 254.5 81.0 - ------------------------------------------------------- Applicable income taxes .... $412.3 358.0 287.1 - -------------------------------------------------------
Deferred income taxes are included in the caption Accrued Taxes, Interest and Expenses in the Consolidated Balance Sheets and are comprised of the following temporary differences at December 31:
- -------------------------------------------------------------- ($ in millions) 2000 1999 - -------------------------------------------------------------- Lease financing ....................... $1,020.7 713.1 Reserve for credit losses ............. (131.2) (125.0) Bank premises and equipment ........... 16.9 18.6 Unrealized gains (losses) on securities available for sale .................. 13.3 (125.7) Other ................................. 64.1 43.4 - -------------------------------------------------------------- Total net deferred tax liability ...... $ 983.8 524.4 - --------------------------------------------------------------
A reconciliation between the statutory U.S. income tax rate and the Bancorp's effective tax rate for the years ended December 31:
- ------------------------------------------------------------------- 2000 1999 1998 - ------------------------------------------------------------------- Statutory tax rate ................ 35.0% 35.0% 35.0% Increase (Decrease) resulting from: Tax-exempt income ............... (2.3) (2.0) (2.3) Other-net ....................... (.4) 1.9 1.7 - ------------------------------------------------------------------- Effective tax rate ................ 32.3% 34.9% 34.4% - -------------------------------------------------------------------
Retained earnings at December 31, 2000 includes $141.2 million in allocations of earnings for bad debt deductions of former thrift subsidiaries for which no income tax has been provided. Under current tax law, if certain of the Bancorp's subsidiaries use these bad debt reserves for purposes other than to absorb bad debt losses, they will be subject to Federal income tax at the current corporate tax rate. NOTE 11-RELATED PARTY TRANSACTIONS At December 31, 2000 and 1999, certain directors, executive officers, principal holders of Bancorp common stock and associates of such persons were indebted to the banking subsidiaries in the aggregate amount, net of participations, of $177.4 million and $179.9 million, respectively. Such indebtedness was incurred in the ordinary course of business on substantially the same terms as those prevailing at the time of comparable transactions with unrelated parties. 23 26 FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 12-STOCK OPTIONS AND EMPLOYEE STOCK GRANT The Bancorp has historically emphasized employee stock ownership. Accordingly, the Bancorp encourages further ownership through granting stock options to approximately 21% of its employees. Share grants represented approximately 1.2%, 1.5% and 1.6% of average outstanding shares in 2000, 1999 and 1998, respectively. Options can be granted under the Bancorp's 1998 Stock Option Plan to key employees and directors of the Bancorp and its subsidiaries for up to 22.7 million shares of the Bancorp's common stock. Options granted generally have up to ten year terms and vest and become fully exercisable at the end of three years of continued employment. A summary of option transactions during the years ended December 31:
- -------------------------------------------------------------------------- 2000 1999 1998 AVERAGE Average Average SHARES OPTION Shares Option Shares Option (000'S) PRICE (000's) Price (000's) Price - -------------------------------------------------------------------------- Outstanding beginning of year . 25,959 $ 29.23 22,581 $ 22.01 18,815 $ 15.51 Exercised . (2,254) 19.29 (2,889) 14.24 (2,309) 11.78 Expired ... (750) 41.91 (402) 36.24 (654) 27.85 Granted ... 6,154 40.61 6,669 47.61 6,729 36.73 - -------------------------------------------------------------------------- Outstanding end of year .... 29,109 $ 31.84 25,959 $ 29.23 22,581 $ 22.01 - -------------------------------------------------------------------------- Exercisable end of year .... 21,030 $ 27.64 17,403 $ 23.39 14,079 $ 16.95 - --------------------------------------------------------------------------
As of December 31, 2000, options outstanding have exercise prices between $2.65 and $59.75 and a weighted average remaining contractual life of 7.0 years. The majority of options outstanding have exercise prices ranging from $10.32 to $59.75 with a weighted average remaining contractual life of 7.0 years. At December 31, 2000, there were 12.4 million incentive options and 16.7 million nonqualified options outstanding and 5.5 million shares were available for granting additional options. Options outstanding represent 6.3% of the Bancorp's issued shares at December 31, 2000. As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," the Bancorp has elected to disclose pro forma net income and earnings per share amounts as if the fair-value-based method had been applied in measuring compensation costs. The Bancorp's pro forma information for the years ended December 31:
- ------------------------------------------------------------------ 2000 1999 1998 - ------------------------------------------------------------------ Pro forma net income ($ in millions) $ 791.2 616.9 516.4 Pro forma earnings per share ....... $ 1.71 1.35 1.14 Pro forma earnings per diluted share $ 1.66 1.32 1.11 - ------------------------------------------------------------------
Compensation expense in the pro forma disclosures is not indicative of future amounts as options vest over several years and additional grants are generally made each year. The weighted average fair value of options granted was $15.84, $18.75 and $13.63 in 2000, 1999 and 1998, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for grants in 2000, 1999 and 1998: expected option lives of nine years for all three years; expected dividend yield of 1% for all three years; expected volatility of 27%, 25% and 25% and risk-free interest rates of 5.2%, 5.9% and 4.6%, respectively. On May 3, 1999, the Bancorp issued 129,563 shares of common stock under the 1998 Long-Term Incentive Plan. These shares were awarded to non-officer employees with three or more years of service. The market value of these shares on the date of grant was approximately $6.5 million. This award is being recognized as compensation expense over the two-year vesting period. The unamortized cost is reported as a reduction of shareholders' equity. NOTE 13-COMMITMENTS AND CONTINGENT LIABILITIES The Bancorp, in the normal course of business, is a party to financial instruments with off-balance-sheet risk to meet the financing needs of its customers in Ohio, Kentucky, Indiana, Michigan, Illinois, Arizona and Florida, and to minimize exposure to fluctuations in interest and foreign currency exchange rates. These financial instruments primarily include commitments to extend credit, standby and commercial letters of credit, foreign exchange contracts, interest rate swap agreements, interest rate floors and caps, purchased options and commitments to sell residential mortgage loans. These instruments involve, to varying degrees, elements of credit risk, counterparty risk and market risk in excess of the amounts recognized in the Consolidated Balance Sheets. The contract or notional amounts of these instruments reflect the extent of involvement the Bancorp has in particular classes of financial instruments. Creditworthiness for all instruments is evaluated on a case-by-case basis in accordance with the Bancorp credit policies. Collateral, if deemed necessary, is based on management's credit evaluation of the counterparty and may include business assets of commercial borrowers as well as personal property and real estate of individual borrowers and guarantors. A summary of significant commitments and other off-balance-sheet items at December 31:
- ----------------------------------------------------- Contract or Notional Amount --------------------- ($ in millions) 2000 1999 - ----------------------------------------------------- Commitments to extend credit $10,518.1 9,196.0 Letters of credit (including standby letters of credit) 1,819.3 1,458.0 Foreign exchange contracts: Commitments to purchase ... 513.4 289.2 Commitments to sell ....... 522.3 301.6 Interest rate swap agreements 417.3 1,014.9 Interest rate floors ........ 1,010.9 103.9 Interest rate caps .......... 11.9 11.9 Purchased options ........... -- 75.0 Commitments to sell residential mortgage loans 312.3 93.9 - -----------------------------------------------------
Commitments to extend credit are agreements to lend, generally having fixed expiration dates or other termination clauses that may require payment of a fee. Since many of the commitments to extend credit may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements. The Bancorp's exposure to credit risk in the event of nonperformance by the other party is the contract amount. Fixed-rate commitments are subject to market risk resulting from fluctuations in interest rates and the Bancorp's exposure is limited to the replacement value of those commitments. Standby and commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. At December 31, 2000, approximately $534.2 million of standby letters of credit will expire within one year, $820.9 million expire between one to five years and $444.2 million expire thereafter. At December 31, 2000, letters of credit of approximately $17.5 million were issued to commercial customers for a duration of one year or less to facilitate trade payments in domestic and foreign currency transactions. The amount of credit risk involved in issuing letters of credit in the event of 24 27 FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- nonperformance by the other party is the contract amount. Foreign exchange forward contracts are for future delivery or purchase of foreign currency at a specified price. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from any resultant exposure to movement in foreign currency exchange rates, limiting the Bancorp's exposure to the replacement value of the contracts rather than the notional principal or contract amounts. The Bancorp reduces its market risk for foreign exchange contracts by generally entering into offsetting third-party forward contracts. The foreign exchange contracts outstanding at December 31, 2000 primarily mature in one year or less. The Bancorp enters into forward contracts for future delivery of residential mortgage loans at a specified yield to reduce the interest rate risk associated with fixed-rate residential mortgages held for sale and commitments to fund residential mortgage loans. Credit risk arises from the possible inability of the other parties to comply with the contract terms. The majority of the Bancorp's contracts are with U.S. government-sponsored agencies (FNMA, FHLMC). At December 2000, the Bancorp had purchased interest rate floor agreements with a notional amount of $999 million, to hedge a portion of the value of mortgage servicing rights against changes in value with changing prepayment rates. The options have an original term of five years, with strike rates ranging from 5.875% to 6.875%. The Bancorp may receive a payment each quarter on the interest rate floor agreements if the reference index is below the strike rate established at the outset of each transaction. These contracts carry the risk of the counterparty's future ability to perform under the agreements. A market exposure limit is approved for counterparties, contracts are marked to market and exposures are collateralized in accordance with the Bancorp policy. These interest rate floor agreements replaced certain interest rate swap agreements in effect at December 31, 1999. In 1997, the Bancorp entered into an interest rate swap agreement with a notional principal amount of $200 million in connection with the issuance of $200 million of long-term, fixed-rate capital-qualifying securities. The Bancorp receives fixed-rate payments at 8.136% and pays a variable interest rate based upon the three-month London Interbank Offering Rate (LIBOR). In addition, the Bancorp has entered into an interest rate contract whereby the Bancorp will receive a fixed rate of interest of 5.01% and pay a variable rate of interest based on three-month LIBOR. At December 31, 2000, this swap had a notional value of $10 million and matures on January 16, 2001. As of December 31, 2000, the Bancorp had entered into interest rate swap agreements with commercial clients and an unconsolidated qualifying special-purpose entity with an aggregate notional principal amount of $49.3 million and $158 million, respectively. The agreements generally provide for the Bancorp to receive a fixed rate and pay a variable rate that resets periodically. The Bancorp has hedged its interest rate exposure on transactions with commercial clients by executing offsetting swap agreements with primary dealers. These transactions involve the exchange of fixed and floating interest rate payments without the exchange of the underlying principal amounts. Therefore, while notional principal amounts are typically used to express the volume of these transactions, they do not represent the much smaller amounts that are potentially subject to credit risk. Entering into interest rate swap agreements involves the risk of dealing with counterparties and their ability to meet the terms of the contract. The Bancorp controls the credit risk of these transactions through adherence to a derivative products policy, credit approval policies and monitoring procedures. The Bancorp sells, subject to recourse, certain commercial loans to an unconsolidated qualifying special-purpose entity. At December 31, 2000 and 1999, the outstanding balance of these loans was $1.9 billion and $1.4 billion, respectively. The Bancorp did not repurchase any of these loans during 2000 or 1999. There are claims pending against the Bancorp and its subsidiaries. Based on a review of such litigation with legal counsel, management believes any resulting liability would not have a material effect upon the Bancorp's consolidated financial position or results of operations. NOTE 14-OTHER SERVICE CHARGES AND FEES AND OTHER OPERATING EXPENSES The major components of other service charges and fees and other operating expenses for the years ended December 31:
- ---------------------------------------------------------- ($ in millions) 2000 1999 1998 - ---------------------------------------------------------- Other Service Charges and Fees: Cardholder fees ............. $ 33.7 33.8 30.9 Consumer loan and lease fees 44.4 43.0 34.9 Commercial banking .......... 74.0 63.1 43.9 Mortgage banking ............ 79.6 97.2 95.9 Bank Owned Life Insurance income .................... 30.8 7.7 4.1 Other ....................... 88.1 93.0 83.6 - ---------------------------------------------------------- Total other service charges and fees .................... $350.6 337.8 293.3 - ---------------------------------------------------------- Other Operating Expenses: Marketing and communications ............ $ 72.8 71.4 63.6 Bankcard .................... 71.4 55.1 44.6 Intangibles amortization .... 41.4 35.7 32.2 Franchise taxes ............. 25.1 25.6 27.3 Loan and lease .............. 28.9 32.3 26.2 Printing and supplies ....... 22.1 21.3 22.2 Other ....................... 174.1 171.5 162.4 - ---------------------------------------------------------- Total other operating expenses $435.8 412.9 378.5 - ----------------------------------------------------------
NOTE 15-RETIREMENT AND BENEFIT PLANS A combined summary of the defined benefit retirement plans at and for the years ended December 31:
- ----------------------------------------------------------------------- ($ in millions) 2000 1999 - ----------------------------------------------------------------------- Change in benefit obligation: Projected benefit obligation at beginning of year $125.6 139.6 Service cost ..................................... 1.3 4.5 Interest cost .................................... 8.1 8.1 Curtailment ...................................... (16.3) -- Termination benefit .............................. 1.8 -- Acquisition/divestiture .......................... 2.7 -- Amendments ....................................... .8 1.8 Actuarial loss (gain) ............................ 8.8 (11.7) Benefits paid .................................... (18.6) (16.7) - ----------------------------------------------------------------------- Projected benefit obligation at end of year ........ $114.2 125.6 - ----------------------------------------------------------------------- Change in plan assets: Fair value of plan assets at beginning of year ... $212.0 202.4 Actual return on assets .......................... 7.2 26.2 Contributions .................................... .2 .1 Acquired plan .................................... 5.8 -- Benefits paid .................................... (18.6) (16.7) - ----------------------------------------------------------------------- Fair value of plan assets at end of year ........... $206.6 212.0 - ----------------------------------------------------------------------- Funded status ...................................... $ 92.3 86.3 Unrecognized transition amount ..................... (1.8) (2.7) Unrecognized actuarial gain ........................ (31.9) (55.5) Unrecognized prior service cost .................... 5.6 6.0 - ----------------------------------------------------------------------- Net amount recognized .............................. $ 64.2 34.1 - ----------------------------------------------------------------------- Amounts recognized in the Consolidated Balance Sheets consist of: Prepaid benefit cost ............................... $ 77.8 45.8 Accrued benefit liability .......................... (13.6) (11.7) - ----------------------------------------------------------------------- Net amount recognized .............................. $ 64.2 34.1 - -----------------------------------------------------------------------
25 28 FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
- --------------------------------------------------------------------- ($ in millions) 2000 1999 1998 - --------------------------------------------------------------------- Components of net periodic pension benefit: Service cost ............................ $ 1.3 4.5 5.2 Interest cost ........................... 8.1 8.1 7.7 Curtailment ............................. (12.5) -- (12.2) Expected return on assets ............... (18.5) (15.8) (13.1) Amortization and deferral of transition amount ................................ (.7) (.7) (.6) Amortization of actuarial gain .......... (5.4) (2.9) (1.3) Amortization of unrecognized prior service cost .......................... .5 .5 .2 Settlement .............................. (1.4) -- -- Termination benefit ..................... 1.8 -- -- - --------------------------------------------------------------------- Net periodic pension benefit .............. $(26.8) (6.3) (14.1) - ---------------------------------------------------------------------
In connection with the merger of CNB, the CNB defined benefit pension plan was curtailed and the resulting curtailment gain was recorded against the merger charge in 2000. Recognition of the gain had no impact on operating earnings. Plan assets consist primarily of common trust and mutual funds managed by Fifth Third Bank, an affiliate of the Bancorp, listed stocks and U.S. bonds.
- -------------------------------------------------------------------------- 2000 1999 1998 - -------------------------------------------------------------------------- Weighted-average assumptions: For disclosure: Discount rate ........................ 7.75% 7.75% 6.83% Rate of compensation increase ........ 4.81 5.14 4.87 For measuring net periodic pension cost: Discount rate ........................ 7.75 6.83 7.22 Rate of compensation increase ........ 4.81 4.87 4.87 Expected return on plan assets ....... 9.30 9.31 9.30 - --------------------------------------------------------------------------
During 1998, to emphasize 401(k) and employer matching, the Bancorp froze its defined benefit pension plan and all benefits earned to date became fully vested. For the Bancorp's nonqualified supplemental defined benefit plans, with an accumulated benefit obligation exceeding assets, the total projected benefit obligation, accumulated benefit obligation and fair value of plan assets were $11.8 million, $10.4 million and $0, respectively as of December 31, 2000 and $14.7 million, $10.3 million and $0, respectively, as of December 31, 1999. The Bancorp's profit sharing plan contribution was $31.3 million for 2000, $25.2 million for 1999 and $25 million for 1998. NOTE 16-REGULATORY MATTERS The principal source of income and funds for the Bancorp (parent company) are dividends from its subsidiaries. During 2001, the amount of dividends the subsidiaries can pay to the Bancorp without prior approval of regulatory agencies is limited to their 2001 eligible net profits, as defined, and the adjusted retained 2000 and 1999 net income of the subsidiaries. The affiliate banks must maintain noninterest-bearing cash balances on reserve with the Federal Reserve Bank (FRB). In 2000 and 1999, the banks were required to maintain average reserve balances of $311.2 million and $328.5 million, respectively. The FRB adopted quantitative measures which assign risk weightings to assets and off-balance-sheet items and also define and set minimum regulatory capital requirements (risk-based capital ratios). All banks are required to have core capital (Tier 1) of at least 4% of risk-weighted assets, total capital of at least 8% of risk-weighted assets and a minimum Tier 1 leverage ratio of 3% of adjusted quarterly average assets. Tier 1 capital consists principally of shareholders' equity including capital-qualifying subordinated debt but excluding unrealized gains and losses on securities available for sale, less goodwill and certain other intangibles. Total capital consists of Tier 1 capital plus certain debt instruments and the reserve for credit losses, subject to limitation. Failure to meet certain capital requirements can initiate certain actions by regulators that, if undertaken, could have a direct material effect on the Consolidated Financial Statements of the Bancorp. The regulations also define well-capitalized levels of Tier 1, total capital and Tier 1 leverage as 6%, 10% and 5%, respectively. The Bancorp and each of its subsidiaries had Tier 1, total capital and leverage ratios above the well-capitalized levels at December 31, 2000 and 1999. During 2000, the Bancorp applied for and received approval from the appropriate regulatory agencies to consolidate its Ohio bank affiliates into one charter. The Ohio bank charter consolidation occurred on December 29, 2000 and is reflected in the table below. As of December 31, 2000, the most recent notification from the FRB categorized the Bancorp and each of its subsidiary banks as well-capitalized under the regulatory framework for prompt corrective action. Capital and risk-based capital and leverage ratios for the Bancorp and its significant subsidiaries at December 31:
- ------------------------------------------------------------------- 2000 -------------------- ($ in millions) AMOUNT RATIO - ------------------------------------------------------------------- TOTAL CAPITAL (TO RISK-WEIGHTED ASSETS): Fifth Third Bancorp (Consolidated) ....... $5,387.4 14.76% Fifth Third Bank ......................... 3,010.7 11.11 Fifth Third Bank, Indiana ................ 867.3 12.67 Fifth Third Bank, Kentucky, Inc. ......... 211.3 12.21 Fifth Third Bank, Northern Kentucky ...... 113.8 11.29 TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS): Fifth Third Bancorp (Consolidated) ....... 4,754.7 13.02 Fifth Third Bank ......................... 2,193.6 8.09 Fifth Third Bank, Indiana ................ 792.0 11.57 Fifth Third Bank, Kentucky, Inc. ......... 193.9 11.21 Fifth Third Bank, Northern Kentucky ...... 84.0 8.33 TIER 1 LEVERAGE CAPITAL (TO AVERAGE ASSETS): Fifth Third Bancorp (Consolidated) ....... 4,754.7 10.77 Fifth Third Bank ......................... 2,193.6 6.85 Fifth Third Bank, Indiana ................ 792.0 8.41 Fifth Third Bank, Kentucky, Inc. ......... 193.9 9.21 Fifth Third Bank, Northern Kentucky ...... 84.0 7.06 - ------------------------------------------------------------------- - ------------------------------------------------------------------- 1999 -------------------- ($ in millions) Amount Ratio - ------------------------------------------------------------------- TOTAL CAPITAL (TO RISK-WEIGHTED ASSETS): Fifth Third Bancorp (Consolidated) ....... $4,670.6 14.00% Fifth Third Bank ......................... 2,708.2 11.07 Fifth Third Bank, Indiana ................ 760.9 11.93 Fifth Third Bank, Kentucky, Inc. ......... 196.9 14.15 Fifth Third Bank, Northern Kentucky ...... 103.1 8.80 TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS): Fifth Third Bancorp (Consolidated) ....... 4,055.9 12.16 Fifth Third Bank ......................... 1,997.3 8.16 Fifth Third Bank, Indiana ................ 682.4 10.70 Fifth Third Bank, Kentucky, Inc. ......... 179.5 12.90 Fifth Third Bank, Northern Kentucky ...... 72.1 7.95 TIER 1 LEVERAGE CAPITAL (TO AVERAGE ASSETS): Fifth Third Bancorp (Consolidated) ....... 4,055.9 9.81 Fifth Third Bank ......................... 1,997.3 7.06 Fifth Third Bank, Indiana ................ 682.4 7.23 Fifth Third Bank, Kentucky, Inc. ......... 179.5 8.94 Fifth Third Bank, Northern Kentucky ...... 72.1 6.06 - -------------------------------------------------------------------
26 29 FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 17-NONOWNER CHANGES IN EQUITY Reclassification adjustments, related tax effects allocated to nonowner changes in equity and accumulated nonowner changes in equity as of and for the years ended December 31:
- --------------------------------------------------------------------- ($ in millions) 2000 1999 1998 - --------------------------------------------------------------------- Reclassification adjustment, pretax: Change in unrealized gains (losses) arising during year ................ $ 386.2 (497.7) (29.2) Reclassification adjustment for gains in net income ................ 3.3 .6 12.3 - --------------------------------------------------------------------- Change in unrealized gains (losses) on securities available for sale ... $ 389.5 (497.1) (16.9) - --------------------------------------------------------------------- Related tax effects: Change in unrealized gains (losses) arising during year ................ $ 138.0 (178.2) (10.4) Reclassification adjustment for gains in net income ................ 1.1 .2 4.4 - --------------------------------------------------------------------- Change in unrealized gains (losses) on securities available for sale ... $ 139.1 (178.0) (6.0) - --------------------------------------------------------------------- Reclassification adjustment, net of tax: Change in unrealized gains (losses) arising during year ................ $ 248.2 (319.5) (18.8) Reclassification adjustment for gains in net income ................ 2.2 .4 7.9 - --------------------------------------------------------------------- Change in unrealized gains (losses) on securities available for sale ... $ 250.4 (319.1) (10.9) - --------------------------------------------------------------------- Accumulated nonowner changes in equity: Beginning balance-- Unrealized gains (losses) on securities available for sale ...... $(224.5) 94.6 105.5 Current period change ................ 250.4 (319.1) (10.9) - --------------------------------------------------------------------- Ending balance-- Unrealized gains (losses) on securities available for sale ...... $ 25.9 (224.5) 94.6 - ---------------------------------------------------------------------
NOTE 18-SALES OF LOANS During 2000, the Bancorp sold fixed rate and adjustable residential mortgage loans in securitization transactions. In all those securitizations, the Bancorp retained servicing responsibilities. The Bancorp receives annual servicing fees at a percentage of the outstanding balance and rights to future cash flows arising after the investors in the securitization trust have received the return for which they contracted. The investors and the securitization trusts have no recourse to the Bancorp's other assets for failure of debtors to pay when due. The Bancorp's retained interests are subordinate to investor's interests. Their value is subject to credit, prepayment, and interest rate risks on the transferred financial assets. In 2000, the Bancorp recognized pretax losses of $23.1 million on the securitization of residential mortgage loans. Key economic assumptions used in measuring the retained interests at the date of securitization resulting from securitizations completed during 2000 were as follows:
- -------------------------------------------------------------- RESIDENTIAL MORTGAGE LOANS --------------------------- FIXED-RATE ADJUSTABLE - -------------------------------------------------------------- Prepayment speed ................ 23.51% 28.90% Weighted-average life (in years) 4.4 3.2 Expected credit losses .......... .02% .12% Residual cash flows discounted at 11.72% 12.21% - --------------------------------------------------------------
At December 31, 2000, key economic assumptions and the sensitivity of the current fair value of residual cash flows to immediate 10 percent and 20 percent adverse changes in those assumptions are as follows:
- --------------------------------------------------------------------------- RESIDENTIAL MORTGAGE LOANS ---------------------------- ($ in millions) FIXED-RATE ADJUSTABLE - --------------------------------------------------------------------------- Carrying amount/fair value of retained interests ..................... $ 28.9 40.9 Weighted-average life (in years) ......... 4.4 3.2 Prepayment speed assumption (annual rate) .......................... 23.51% 28.90% Impact on fair value of 10% adverse change $ 1.6 .8 Impact on fair value of 20% adverse change $ 3.0 1.4 Residual cash flows discount rate (annual) ............................... 11.72% 12.21% Impact on fair value of 10% adverse change $ .7 .3 Impact on fair value of 20% adverse change $ 1.3 .6 - ---------------------------------------------------------------------------
These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10 percent variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in the above table, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption; in reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments and increased credit losses), which might magnify or counteract the sensitivities. NOTE 19-ACQUISITIONS
- -------------------------------------------------------------------------------------------------- CONSIDERATION ----------------------------- COMMON DATE CASH SHARES METHOD OF COMPLETED ($000'S) ISSUED ACCOUNTING - ------------------------------------------------------------------------------------------------ Ottawa Financial ....... 12/8/00 $ 57 3,658,125 Purchase Corporation, Grand Rapids, Michigan Peoples Bank Corporation 11/19/99 -- 5,071,830 Pooling of Indianapolis Indianapolis, Indiana CNB Bancshares, Inc. ... 10/29/99 -- 45,556,118 Pooling Evansville, Indiana Emerald Financial Corp. 8/6/99 7 5,069,309 Pooling Strongsville, Ohio Vanguard Financial Co. . 7/9/99 85 108,123 Purchase Cincinnati, Ohio South Florida Bank ..... 6/11/99 17 663,840 Purchase Holding Corporation Ft. Myers, Florida Enterprise Federal ..... 5/14/99 17 2,514,894 Purchase Bancorp, Inc. ........ Cincinnati, Ohio Ashland Bankshares, Inc. 4/16/99 10 1,837,290 Purchase Ashland, Kentucky CitFed Bancorp, Inc. ... 6/26/98 51 19,834,304 Pooling Dayton, Ohio State Savings Company .. 6/19/98 4 24,937,907 Pooling Columbus, Ohio The Ohio Company ....... 6/12/98 2 2,794,148 Purchase Columbus, Ohio W. Lyman Case .......... 4/9/98 15,000 -- Purchase and Company Columbus, Ohio - ------------------------------------------------------------------------------------------------
27 30 FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The assets, liabilities and shareholders' equity of the pooled entities were recorded on the books of the Bancorp at their values as reported on the books of the pooled entities immediately prior to the consummation of the merger with the Bancorp. This presentation required the restatements of prior periods as if the companies had been combined for all years presented. In the fourth quarter of 2000, the Bancorp entered into merger agreements with Old Kent Financial Corporation, a publicly-traded financial holding company headquartered in Grand Rapids, Michigan with $23.8 billion in assets, and Capital Holdings, Inc., a publicly-traded bank holding company headquartered in Sylvania, Ohio with $1.1 billion in assets. These transactions are tax-free, stock-for-stock exchanges to be accounted for as poolings-of-interests. The Bancorp will exchange .74 shares of Fifth Third Bancorp common stock for all outstanding shares of Old Kent and .638 shares of Fifth Third Bancorp common stock for all outstanding shares of Capital Holdings. Both transactions are expected to be completed in early 2001 and are subject to approval by stockholders and appropriate regulatory agencies. In the fourth quarter of 1999 as a direct result of the Peoples and CNB acquisitions, the Bancorp recorded merger-related costs of $108.4 million ($83.8 million after tax), of which $82.1 million was recorded as operating expense and $26.3 million was recorded as additional provision for credit losses. The charge to operating expenses consisted of employee severance and benefit obligations, costs to eliminate duplicate facilities and equipment, contract terminations, conversion expenses and professional fees. The additional provision for credit losses was charged in connection with a change in the management of Peoples and CNB problem loans and to conform Peoples and CNB to the Bancorp's reserve and charge-off practices. In the second quarter of 2000, the Bancorp recorded merger-related and special charges of $33.5 million ($23.1 million after tax) related to the integration of CNB. Included in this charge is the recognition of a $10 million curtailment gain on CNB's defined benefit plan and the effect of restructuring certain investment securities. The merger-related and special charges consist of:
- --------------------------------------------------------------------- ($ in millions) 2000 1999 - --------------------------------------------------------------------- Employee severance and benefit obligations $(2.4) 28.6 Duplicate facilities and equipment ....... 4.1 14.4 Conversion expenses and professional fees ...................... 14.8 22.6 Contract termination costs ............... 3.5 4.5 Other .................................... 13.5 12.0 - --------------------------------------------------------------------- Merger-related and special charges ....... $33.5 82.1 - ---------------------------------------------------------------------
Summary of merger-related accrual activity at December 31:
- ----------------------------------------------------------------- ($ in millions) 2000 1999 - ----------------------------------------------------------------- Balance, January 1 ............... $ 33.8 31.6 Merger-related and special charges 33.5 82.1 Cash payments .................... (52.0) (57.3) Noncash writedowns ............... (2.3) (22.6) - ----------------------------------------------------------------- Balance, December 31 ............. $ 13.0 33.8 - -----------------------------------------------------------------
The pro forma effect and the financial results of Ottawa Financial Corporation included in the results of operations subsequent to the date of the acquisition were not material to the Bancorp's financial condition and operating results for the periods presented. NOTE 20-EARNINGS PER SHARE Reconciliation of Earnings Per Share to Earnings Per Diluted Share for the years ended December 31:
- -------------------------------------------------------------------- 2000 -------------------------------- ($ in millions, except AVERAGE PER-SHARE per share amounts) INCOME SHARES AMOUNT - -------------------------------------------------------------------- EPS Income available to common shareholders ............... $ 862.9 463,846 $ 1.86 EFFECT OF DILUTIVE SECURITIES Stock Options ....................... 7,716 Interest on 6% convertible subordinated debentures due 2028, net of applicable income taxes ...................... 6.7 4,416 - -------------------------------------------------------------------- DILUTED EPS Income available to common shareholders plus assumed conversions .......... $ 869.6 475,978 $ 1.83 - --------------------------------------------------------------------
- -------------------------------------------------------------------- 1999 -------------------------------- ($ in millions, except Average Per-Share per share amounts) Income Shares Amount - -------------------------------------------------------------------- EPS Income available to common shareholders ............... $ 668.2 459,179 $ 1.46 EFFECT OF DILUTIVE SECURITIES Stock Options ....................... 8,261 Interest on 6% convertible subordinated debentures due 2028, net of applicable income taxes ...................... 6.7 4,416 - -------------------------------------------------------------------- DILUTED EPS Income available to common shareholders plus assumed conversions .......... $ 674.9 471,856 $ 1.43 - -------------------------------------------------------------------- - -------------------------------------------------------------------- 1998 -------------------------------- ($ in millions, except Average Per-Share per share amounts) Income Shares Amount - -------------------------------------------------------------------- EPS Income available to common shareholders ............... $ 546.5 452,002 $ 1.21 EFFECT OF DILUTIVE SECURITIES Stock Options ....................... 8,917 Interest on 6% convertible subordinated debentures due 2028, net of applicable income taxes ...................... 3.3 2,208 - -------------------------------------------------------------------- DILUTED EPS Income available to common shareholders plus assumed conversions .......... $ 549.8 463,127 $ 1.19 - --------------------------------------------------------------------
Options to purchase 5.9 million shares were outstanding at December 31, 2000 and were not included in the computation of net income per diluted share because the exercise price of these options was greater than the average market price of the common shares, and therefore, the effect would be antidilutive. 28 31 FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 21-FAIR VALUE OF FINANCIAL INSTRUMENTS Carrying amounts and estimated fair values for financial instruments at December 31:
2000 ---------------------- CARRYING FAIR ($ in millions) AMOUNT VALUE - ------------------------------------------------------------------ FINANCIAL ASSETS Cash and due from banks ............... $ 984.7 984.7 Securities available for sale ......... 15,601.6 15,601.6 Securities held to maturity ........... 26.9 26.9 Other short-term investments .......... 198.0 198.0 Loans held for sale ................... 553.3 556.9 Loans, net ............................ 20,800.8 20,883.0 Accrued interest receivable ........... 390.0 390.0 FINANCIAL LIABILITIES Deposits .............................. 30,948.8 30,339.1 Federal funds borrowed ................ 1,164.5 1,164.5 Other short-term borrowings ........... 3,094.8 3,088.2 Accrued interest payable .............. 160.2 160.2 Long-term debt ........................ 3,861.5 3,972.6 Guaranteed preferred beneficial interests in convertible subordinated debentures .......................... 172.5 284.6 OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS Commitments to extend credit .......... 1.8 11.5 Letters of credit ..................... 2.9 18.6 Interest rate swap agreements ......... -- 17.4 Interest rate floors .................. 15.5 16.6 Interest rate caps .................... -- .1 Forward contracts: Commitments to sell loans ........... -- (3.1) Foreign exchange contracts: Commitments to purchase ........... -- 4.5 Commitments to sell ............... -- (1.2)
- ------------------------------------------------------------------ 1999 ---------------------- Carrying Fair ($ in millions) Amount Value - ------------------------------------------------------------------ FINANCIAL ASSETS Cash and due from banks ............... $ 1,213.1 1,213.1 Securities available for sale ......... 12,687.5 12,687.5 Securities held to maturity ........... 129.1 129.1 Other short-term investments .......... 355.4 355.4 Loans held for sale ................... 297.1 297.3 Loans, net ............................ 19,616.1 19,115.5 Accrued interest receivable ........... 321.0 321.0 FINANCIAL LIABILITIES Deposits .............................. 26,083.1 25,050.0 Federal funds borrowed ................ 2,971.9 2,995.0 Short-term bank notes ................. 1,317.4 1,317.4 Other short-term borrowings ........... 4,084.4 4,009.9 Accrued interest payable .............. 137.8 137.8 Long-term debt ........................ 1,803.8 1,821.2 Guaranteed preferred beneficial interests in convertible subordinated debentures .......................... 172.5 240.0 OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS Commitments to extend credit .......... .1 16.6 Letters of credit ..................... 3.3 15.9 Purchased options ..................... .7 .6 Interest rate swap agreements ......... -- 2.9 Interest rate floors .................. -- (.2) Interest rate caps .................... -- .4 Forward contracts: Commitments to sell loans ........... -- .5 Foreign exchange contracts: Commitments to purchase ........... -- 1.8 Commitments to sell ............... -- (3.2) - ------------------------------------------------------------------
Fair values for financial instruments were based on various assumptions and estimates as of a specific point in time, represent liquidation values and may vary significantly from amounts that will be realized in actual transactions. In addition, certain financial instruments and all non-financial instruments were excluded from the fair value disclosure requirements. Therefore, the fair values presented in the adjacent table should not be construed as the underlying value of the Bancorp. The following methods and assumptions were used in determining the fair value of selected financial instruments: SHORT-TERM FINANCIAL ASSETS AND LIABILITIES-for financial instruments with a short or no stated maturity, prevailing market rates and limited credit risk, carrying amounts approximate fair value. Those financial instruments include cash and due from banks, other short-term investments, accrued interest receivable, certain deposits (demand, interest checking, savings and money market), Federal funds borrowed, short-term bank notes, other short-term borrowings and accrued interest payable. SECURITIES, AVAILABLE FOR SALE AND HELD TO MATURITY-fair values were based on quoted market prices, dealer quotes and prices obtained from independent pricing services. LOANS-fair values were estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. LOANS HELD FOR SALE-the fair value of loans held for sale is estimated based on outstanding commitments from investors or current investor yield requirements. DEPOSITS-fair values for other time, certificates of deposit-$100,000 and over and foreign office were estimated using a discounted cash flow calculation that applies interest rates currently being offered for deposits of similar remaining maturities. LONG-TERM DEBT-fair value of long-term debt was based on quoted market prices, when available, and a discounted cash flow calculation using prevailing market rates for borrowings of similar terms. COMMITMENTS AND LETTERS OF CREDIT-fair values of loan commitments, letters of credit and commitments to sell loans, representing assets to the Bancorp, were based on fees currently charged to enter into similar agreements with similar maturities. INTEREST RATE SWAP AGREEMENTS-fair value was based on the estimated amount the Bancorp would receive or pay to terminate the swap agreements, taking into account the current interest rates and the creditworthiness of the swap counterparties. The fair values represent an asset at December 31, 2000. PURCHASED OPTIONS AND INTEREST RATE FLOORS AND CAPS-fair values were based on the estimated amounts the Bancorp would receive from terminating the contracts at the reporting date. FOREIGN EXCHANGE CONTRACTS-fair values were based on quoted market prices of comparable instruments and represent a net asset to the Bancorp. 29 32 FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 22-PARENT COMPANY FINANCIAL STATEMENTS The condensed financial statements of the Bancorp ($ in millions):
- ------------------------------------------------------------- CONDENSED STATEMENTS OF INCOME (PARENT COMPANY ONLY) For the Years Ended December 31 2000 1999 1998 - ------------------------------------------------------------- INCOME Dividends from Subsidiaries ..... $636.4 507.2 491.3 Interest on Loans to Subsidiaries .................. 40.8 34.9 27.0 Other ........................... .9 3.2 15.0 - ------------------------------------------------------------- TOTAL INCOME .................... 678.1 545.3 533.3 - ------------------------------------------------------------- EXPENSES Interest ........................ 19.7 23.8 22.6 Other ........................... 8.5 30.8 48.6 - ------------------------------------------------------------- TOTAL EXPENSES .................. 28.2 54.6 71.2 - ------------------------------------------------------------- INCOME BEFORE TAXES AND CHANGE IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES ...... 649.9 490.7 462.1 Applicable Income Taxes (Benefit) 2.7 (3.3) (6.3) - ------------------------------------------------------------- INCOME BEFORE CHANGE IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES .................. 647.2 494.0 468.4 Increase in Undistributed Earnings of Subsidiaries ...... 215.7 174.2 78.1 - ------------------------------------------------------------- NET INCOME ...................... $862.9 668.2 546.5 - -------------------------------------------------------------
- ---------------------------------------------------------------- CONDENSED BALANCE SHEETS (PARENT COMPANY ONLY) December 31 2000 1999 - ---------------------------------------------------------------- ASSETS Cash ................................... $ 6.7 .8 Interest-Bearing Deposits .............. 11.5 11.5 Securities Available for Sale .......... 1.1 .9 Loans to Subsidiaries .................. 1,236.6 1,107.8 Investment in Subsidiaries ............. 3,987.8 3,272.4 Goodwill ............................... 144.4 150.3 Other Assets ........................... 22.9 56.9 - ---------------------------------------------------------------- TOTAL ASSETS ........................... $ 5,411.0 4,600.6 - ---------------------------------------------------------------- LIABILITIES Commercial Paper ....................... $ 10.3 18.3 Accrued Expenses and Other Liabilities . 131.7 127.5 Long-Term Debt ......................... 200.0 200.0 Guaranteed Preferred Beneficial Interest in Convertible Subordinated Debentures 177.8 177.8 - ---------------------------------------------------------------- TOTAL LIABILITIES ...................... 519.8 523.6 - ---------------------------------------------------------------- SHAREHOLDERS' EQUITY ................... 4,891.2 4,077.0 - ---------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................. $ 5,411.0 4,600.6 - ----------------------------------------------------------------
- ----------------------------------------------------------------- CONDENSED STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY) For the Years Ended December 31 2000 1999 1998 - ------------------------------------------------------------------ OPERATING ACTIVITIES Net Income .......................... $862.9 668.2 546.5 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Amortization/Depreciation ....... 5.9 .8 1.3 Provision for Deferred Income Taxes .................. 2.3 1.6 (3.2) Decrease (Increase) in Other Assets .................... 29.1 (23.3) 9.1 Increase in Accrued Expenses and Other Liabilities ......... 7.0 58.6 2.3 Increase in Undistributed Earnings of Subsidiaries ...... (215.7) (174.2) ( 78.1) - ------------------------------------------------------------------ NET CASH PROVIDED BY OPERATING ACTIVITIES .............. 691.5 531.7 477.9 - ------------------------------------------------------------------ INVESTING ACTIVITIES Proceeds from Sales of Securities Available for Sale ..... -- 2.7 3.2 Net Decrease (Increase) in Interest-Bearing Deposits ......... -- 103.4 (37.0) Increase in Loans to Subsidiaries ................... (124.6) (274.4) (299.2) Capital Contributions to Subsidiaries (86.1) (13.4) (87.1) - ------------------------------------------------------------------ NET CASH USED IN INVESTING ACTIVITIES .............. (210.7) (181.7) (420.1) - ------------------------------------------------------------------ FINANCING ACTIVITIES Increase (Decrease) in Other Short-Term Borrowings ............. 8.0 (27.7) 17.7 Proceeds from Issuance of Long-Term Debt ................. -- -- 10.0 Repayment of Long-Term Debt ......... -- -- (82.3) Proceeds from Sale of Convertible Subordinated Debentures ........... -- -- 177.8 Payment of Cash Dividends ........... (317.5) (269.0) (167.9) Purchases of Treasury Stock ......... (180.9) -- (199.1) Exercise of Stock Options ........... 39.0 53.7 27.0 Proceeds from Sale of Common Stock ...................... -- -- 178.1 Other ............................... (23.5) (109.8) (30.3) - ------------------------------------------------------------------ NET CASH USED IN FINANCING ACTIVITIES .............. (474.9) (352.8) (69.0) - ------------------------------------------------------------------ INCREASE (DECREASE) IN CASH ......... 5.9 (2.8) (11.2) CASH AT BEGINNING OF YEAR ........... .8 3.6 14.8 - ------------------------------------------------------------------ CASH AT END OF YEAR ................. $ 6.7 .8 3.6 - ------------------------------------------------------------------
30 33 FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 23-SEGMENTS The Bancorp's principal activities include Retail Banking, Commercial Banking, Investment Advisory Services and Data Processing. Retail Banking provides a full range of deposit products and consumer loans and leases. Commercial Banking offers services to business, government and professional customers. Investment Advisory Services provides a full range of investment alternatives for individuals, companies and not-for-profit organizations. Data Processing, through Midwest Payment Systems (MPS), provides electronic funds transfer (EFT) services, merchant transaction processing, operates our Jeanie ATM network and provides other data processing services to affiliated and unaffiliated customers. General Corporate and Other includes the investment portfolio, certain non-deposit funding, unassigned equity, the net effect of funds transfer pricing and other items not allocated to operating segments. The financial information for each operating segment is reported on the basis used internally by the Bancorp's management to evaluate performance and allocate resources. The allocation has been consistently applied for all periods presented. Revenues from affiliated transactions, principally EFT data processing services from MPS to the banking segments, are charged generally at rates available to and transacted with unaffiliated customers. The measurement of the performance of the operating segments is based on the management structure of the Bancorp and is not necessarily comparable with similar information for any other financial institution. The information presented is also not necessarily indicative of the segments' financial condition and results of operations if they were independent entities. The Bancorp did not allocate resources or assess the ongoing operating performance of acquired entities prior to acquisition. Therefore, financial information prior to acquisition is shown separately as acquired entities. Following acquisition, results of operations are included in the Bancorp's segment information for the acquired entities. Results of operations and selected financial information by operating segment for each of the three years ended December 31:
- ----------------------------------------------------------------------------------------------------------------------------- INVESTMENT DATA GENERAL COMMERCIAL RETAIL ADVISORY PROCESS- ACQUIRED CORPORATE ELIMINA- ($ in millions) BANKING BANKING SERVICES ING (a) ENTITIES AND OTHER TIONS (a) TOTAL - --------------------------------------------------------------------------------------------------------------------------------- 2000 RESULTS OF OPERATIONS - --------------------------------------------------------------------------------------------------------------------------------- Net Interest Income (Expense) ..... $ 500.4 888.2 40.0 (2.9) -- 44.6 -- 1,470.3 Provision for Credit Losses ....... 39.5 47.7 1.8 -- -- -- -- 89.0 - --------------------------------------------------------------------------------------------------------------------------------- Net Interest Income (Expense) After Provision for Credit Losses ..... 460.9 840.5 38.2 (2.9) -- 44.6 -- 1,381.3 Other Operating Income ............ 141.2 376.9 200.2 261.8 -- 49.5 (20.2) 1,009.4 Merger-Related and Special Charges -- -- -- -- -- 33.5 -- 33.5 Operating Expenses ................ 221.3 583.8 127.8 135.7 -- 36.9 (20.2) 1,085.3 - --------------------------------------------------------------------------------------------------------------------------------- Income Before Income Taxes ........ 380.8 633.6 110.6 123.2 -- 23.7 -- 1,271.9 Applicable Income Taxes ........... 123.0 204.7 35.7 39.8 -- 8.0 -- 411.2 After Tax Securities Gains ........ -- -- -- -- -- 2.2 -- 2.2 - --------------------------------------------------------------------------------------------------------------------------------- Net Income ........................ $ 257.8 428.9 74.9 83.4 -- 17.9 -- 862.9 - --------------------------------------------------------------------------------------------------------------------------------- SELECTED FINANCIAL INFORMATION - --------------------------------------------------------------------------------------------------------------------------------- Identifiable Assets ............... $11,383.4 15,593.4 530.5 113.1 -- 18,236.5 -- 45,856.9 Capital Expenditures .............. $ 1.0 67.3 .1 32.9 -- -- -- 101.3 Depreciation and Amortization ..... $ .4 12.4 .3 1.3 -- 39.3 -- 53.7 - --------------------------------------------------------------------------------------------------------------------------------- 1999 RESULTS OF OPERATIONS - --------------------------------------------------------------------------------------------------------------------------------- Net Interest Income (Expense) ..... $ 367.6 677.8 35.5 (1.9) 280.8 44.8 -- 1,404.6 Provision for Credit Losses ....... 36.0 54.7 2.3 -- 41.0 -- -- 134.0 - --------------------------------------------------------------------------------------------------------------------------------- Net Interest Income (Expense) After Provision for Credit Losses ..... 331.6 623.1 33.2 (1.9) 239.8 44.8 -- 1,270.6 Other Operating Income ............ 113.6 291.0 173.9 196.0 121.6 (3.9) (15.2) 877.0 Merger-Related Charges ............ -- -- -- -- 82.1 -- -- 82.1 Operating Expenses ................ 150.0 407.6 108.0 100.1 240.6 48.8 (15.2) 1,039.9 - --------------------------------------------------------------------------------------------------------------------------------- Income Before Income Taxes ........ 295.2 506.5 99.1 94.0 38.7 (7.9) -- 1,025.6 Applicable Income Taxes ........... 100.4 172.3 33.7 32.0 25.0 (5.6) -- 357.8 After Tax Securities Gains (Losses) -- -- -- -- 1.3 (.9) -- .4 - --------------------------------------------------------------------------------------------------------------------------------- Net Income ........................ $ 194.8 334.2 65.4 62.0 15.0 (3.2) -- 668.2 - --------------------------------------------------------------------------------------------------------------------------------- SELECTED FINANCIAL INFORMATION - --------------------------------------------------------------------------------------------------------------------------------- Identifiable Assets ............... $ 8,869.3 13,438.7 436.4 93.5 7,514.4 11,237.2 -- 41,589.5 Capital Expenditures .............. $ .2 71.2 -- 15.1 26.1 3.7 -- 116.3 Depreciation and Amortization ..... $ .3 7.4 .4 1.1 18.4 25.3 -- 52.9 - ---------------------------------------------------------------------------------------------------------------------------------
(a) Data processing service revenues provided to the banking segments by MPS are eliminated in the Consolidated Statements of Income. 31 34 FIFTH THIRD BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------- INVESTMENT DATA GENERAL COMMERCIAL RETAIL ADVISORY PROCESS- ACQUIRED CORPORATE ELIMINA- ($ in millions) BANKING BANKING SERVICES ING (a) ENTITIES AND OTHER TIONS (a) TOTAL - ----------------------------------------------------------------------------------------------------------------------------- 1998 RESULTS OF OPERATIONS - ----------------------------------------------------------------------------------------------------------------------------- Net Interest Income (Expense) ..... $ 301.9 542.0 31.2 (1.3) 335.5 60.6 -- 1,269.9 Provision for Credit Losses ....... 54.0 30.7 .9 -- 37.9 -- -- 123.5 - ----------------------------------------------------------------------------------------------------------------------------- Net Interest Income (Expense) After Provision for Credit Losses ..... 247.9 511.3 30.3 (1.3) 297.6 60.6 -- 1,146.4 Other Operating Income ............ 76.2 236.0 133.3 152.7 139.5 18.0 (14.5) 741.2 Merger-Related Charges ............ -- -- -- -- 121.3 -- -- 121.3 Operating Expenses ................ 119.7 321.9 88.2 82.2 284.0 63.5 (14.5) 945.0 - ----------------------------------------------------------------------------------------------------------------------------- Income Before Income Taxes ........ 204.4 425.4 75.4 69.2 31.8 15.1 -- 821.3 Applicable Income Taxes ........... 69.5 144.6 25.6 23.6 15.6 3.8 -- 282.7 After Tax Securities Gains ........ -- -- -- -- 1.6 6.3 -- 7.9 - ----------------------------------------------------------------------------------------------------------------------------- Net Income ........................ $ 134.9 280.8 49.8 45.6 17.8 17.6 -- 546.5 - ----------------------------------------------------------------------------------------------------------------------------- SELECTED FINANCIAL INFORMATION - ----------------------------------------------------------------------------------------------------------------------------- Identifiable Assets ............... $7,713.3 11,515.0 374.7 86.8 8,170.7 9,231.8 -- 37,092.3 Capital Expenditures .............. $ 6.1 49.7 1.0 7.8 17.8 -- -- 82.4 Depreciation and Amortization ..... $ .3 5.9 .4 1.0 18.6 20.3 -- 46.5 - -----------------------------------------------------------------------------------------------------------------------------
(a) Data processing service revenues provided to the banking segments by MPS are eliminated in the Consolidated Statements of Income. 32 35 FIFTH THIRD BANCORP AND SUBSIDIARIES INDEPENDENT AUDITORS' REPORT - -------------------------------------------------------------------------------- INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors of Fifth Third Bancorp: We have audited the accompanying consolidated balance sheets of Fifth Third Bancorp and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Companies at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP Cincinnati, Ohio January 16, 2001 ================================================================================ FIFTH THIRD FUNDS(R) PERFORMANCE DISCLOSURE *The performance data quoted on page 11 of this report represent past performance and are not an indication of future results. Investments in the Fifth Third Funds are: NOT INSURED BY THE FDIC or any other government agency, are not deposits or obligations of, or guaranteed by, any bank, the distributor or any of their affiliates, and involve investment risks, including possible loss of the principal amount invested. Past performance is not a guarantee of future results. For more complete information about the funds including charges and expenses, contact Fifth Third at 800-654-5372 for a prospectus. Read it carefully before you invest or send money. BISYS Fund Services is the distributor for the funds. The Fifth Third Quality Growth, Balanced, Equity Income and Mid Cap Funds had one-year returns of -3.82%, 2.29%, 12.75% and 6.93%, respectively (institutional shares) for the period ending December 31, 2000. The S&P 500 and Dow Jones indices had one-year returns for 2000 of -9.10% and -4.71% for the same periods. The S&P 500 index is an unmanaged index, representative of large-company stocks. The Dow Jones Industrial Average is an unmanaged index, comprised of 30 individual stocks. An investor cannot invest directly in an index. The performance data quoted does not include reinvestment of dividends in which case the returns would have been higher. Rankings in the Wall Street Journal are based on categories of Lipper Analytical Services. The funds were ranked for their one-year investment performance for the period ending December 31, 2000. An "A" ranking from The Wall Street Journal signifies top twentieth percentile performance in its category. During the ranking periods, the funds waived their respective fees; without waiver, the rankings may have been lower. The Fifth Third Quality Growth Fund ranking is based on the Lipper Growth Fund Category. The fund was ranked 102 out of 519 growth funds for the one-year period ending December 31, 2000. The average annual return for the Quality Growth Fund for the one-, three-, five- and ten-year periods and since inception (November 20, 1992) as of December 31, 2000 was -3.82%, 15.74%, 20.54%, 17.02% and 16.59%, respectively. The Fifth Third Balanced Fund ranking is based on the Lipper Balanced Fund Category. The fund was ranked 44 out of 374 balanced funds for the three-year period ending December 31, 2000 and 28 out of 257 balanced funds for the five-year period ending December 31, 2000. The average annual return for the Balanced Fund for the one-, three-, five-, and ten-year periods and since inception (November 20, 1992) as of December 31, 2000 was 2.29%, 11.73%, 14.61%, 13.67% and 15.48%, respectively. 33 36 FIFTH THIRD BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ============================================================================== This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, that involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those in the forward-looking statements. Those factors include the economic environment, competition, products and pricing in geographic and business areas in which the Bancorp operates, prevailing interest rates, changes in government regulations and policies affecting financial services companies, credit quality and credit risk management, changes in the banking industry including the effects of consolidation resulting from possible mergers of financial institutions, acquisitions and integration of acquired businesses. Fifth Third Bancorp undertakes no obligation to release revisions to these forward-looking statements or reflect events or circumstances after the date of this report. The data presented in the following pages should be read in conjunction with the audited Consolidated Financial Statements on pages 15 to 33 of this report. TABLE 1-CONSOLIDATED AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME For the Years Ended December 31 (Taxable Equivalent Basis)
- ----------------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 -------------------------- --------------------------- ------------------------------------ Average Average Average Average Average Average Out- Revenue/ Yield/ Out- Revenue/ Yield/ Out- Revenue/ Yield/ ($ in millions) standing Cost Rate standing Cost Rate standing Cost Rate - ----------------------------------------------------------------------------------------------------------------------------------- ASSETS Interest-Earning Assets Loans and Leases ................ $26,416.5 $2,209.8 8.37% $24,382.6 $1,964.0 8.05% $22,542.6 $1,901.2 8.43% Securities Taxable ........................ 14,148.7 1,072.0 7.58 11,658.3 776.3 6.66 10,379.2 686.7 6.62 Exempt from Income Taxes ....... 701.0 63.7 9.08 775.7 59.7 7.70 673.2 48.8 7.25 Other Short-Term Investments .... 158.8 10.7 6.76 221.3 11.6 5.24 255.7 10.4 4.07 - ----------------------------------------------------------------------------------------------------------------------------------- Total Interest-Earning Assets ..... 41,425.0 3,356.2 8.10 37,037.9 2,811.6 7.59 33,850.7 2,647.1 7.82 - ----------------------------------------------------------------------------------------------------------------------------------- Cash and Due from Banks ........... 855.4 953.3 884.2 Other Assets ...................... 2,743.6 2,108.4 1,752.6 Reserve for Credit Losses ......... (375.6) (355.2) (319.9) - ----------------------------------------------------------------------------------------------------------------------------------- Total Assets ...................... $44,648.4 $39,744.4 $36,167.6 - ----------------------------------------------------------------------------------------------------------------------------------- LIABILITIES Interest-Bearing Liabilities Interest Checking ............... $ 4,873.0 $ 141.0 2.89% $ 4,377.9 $ 104.5 2.39% $ 3,738.6 $ 92.7 2.48% Savings ......................... 4,244.1 156.3 3.68 4,210.8 116.5 2.77 4,082.1 128.2 3.14 Money Market .................... 912.5 36.8 4.03 1,287.8 48.9 3.80 1,430.2 54.6 3.81 Other Time Deposits ............. 8,805.9 491.2 5.58 8,655.9 440.1 5.08 9,353.2 514.7 5.50 Certificates-$100,000 and Over .. 1,368.4 79.8 5.83 2,065.4 103.6 5.02 1,930.0 105.5 5.47 Foreign Office Deposits ......... 3,681.6 237.6 6.45 877.1 45.6 5.20 232.4 12.7 5.46 Federal Funds Borrowed .......... 4,226.6 262.8 6.22 3,424.7 172.1 5.03 2,314.4 121.7 5.26 Short-Term Bank Notes ........... 919.0 57.4 6.25 643.2 33.1 5.15 461.8 26.0 5.63 Other Short-Term Borrowings ..... 2,789.8 148.5 5.32 2,896.7 132.7 4.58 2,325.3 120.4 5.18 Long-Term Debt .................. 2,904.7 181.7 6.25 2,322.8 136.4 5.87 2,495.0 139.4 5.59 - ----------------------------------------------------------------------------------------------------------------------------------- Total Interest-Bearing Liabilities 34,725.6 1,793.1 5.16 30,762.3 1,333.5 4.33 28,363.0 1,315.9 4.64 - ----------------------------------------------------------------------------------------------------------------------------------- Demand Deposits ................... 4,002.0 3,716.0 3,308.7 Other Liabilities ................. 1,485.4 1,312.1 951.4 - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES ................. 40,213.0 35,790.4 32,623.1 - ----------------------------------------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY .............. 4,435.4 3,954.0 3,544.5 - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............ $44,648.4 $39,744.4 $36,167.6 - ----------------------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME MARGIN ON A TAXABLE EQUIVALENT BASIS ...... $1,563.1 3.77% $1,478.1 3.99% $1,331.2 3.93% - ----------------------------------------------------------------------------------------------------------------------------------- NET INTEREST RATE SPREAD .......... 2.94% 3.26% 3.18% - ----------------------------------------------------------------------------------------------------------------------------------- Interest-Bearing Liabilities to Interest-Earning Assets ...... 83.83% 83.06% 83.79% ==================================================================================================================================
34 37 FIFTH THIRD BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ==============================================================================
TABLE 2-ANALYSIS OF NET INTEREST INCOME CHANGES (TAXABLE EQUIVALENT BASIS) - ------------------------------------------------------------------------------------------------------------------- 2000 Compared to 1999 1999 Compared to 1998 ------------------------------------- ---------------------------------------- ($ in millions) Volume Yield/Rate Mix Total Volume Yield/Rate Mix Total - ------------------------------------------------------------------------------------------------------------------------------- Increase (Decrease) in Interest Income Loans and Leases ......................... $163.8 $ 75.7 $ 6.3 $245.8 155.2 (85.4) (7.0) 62.8 Securities Taxable ................................ 165.8 107.0 22.9 295.7 84.6 4.4 .5 89.5 Exempt from Income Taxes ............... (5.8) 10.8 (1.0) 4.0 7.4 3.0 .5 10.9 Other Short-Term Investments ............. (3.3) 3.3 (.9) (.9) (1.4) 3.0 (.4) 1.2 - -------------------------------------------------------------------------------------------------------------------------------- TOTAL INTEREST INCOME CHANGE ............... 320.5 196.8 27.3 544.6 245.8 (75.0) (6.4) 164.4 - -------------------------------------------------------------------------------------------------------------------------------- Increase (Decrease) in Interest Expense Interest Checking ........................ 11.8 22.2 2.5 36.5 15.8 (3.5) (.7) 11.6 Savings .................................. .9 38.6 .3 39.8 4.0 (15.3) (.5) (11.8) Money Market ............................. (14.2) 3.0 (.9) (12.1) (5.4) (.1) -- (5.5) Other Time Deposits ...................... 7.6 42.7 .8 51.1 (38.4) (39.1) 2.9 (74.6) Certificates-$100,000 and Over ........... (35.0) 16.9 (5.7) (23.8) 7.4 (8.7) (.6) (1.9) Foreign Office Deposits .................. 145.9 11.0 35.1 192.0 35.2 (.6) (1.7) 32.9 Federal Funds Borrowed ................... 40.2 40.9 9.6 90.7 58.4 (5.4) (2.6) 50.4 Short-Term Bank Notes .................... 14.2 7.1 3.0 24.3 10.2 (2.2) (.9) 7.1 Other Short-Term Borrowings .............. (4.9) 21.5 (.8) 15.8 29.6 (13.9) (3.4) 12.3 Long-Term Debt ........................... 34.2 8.9 2.2 45.3 (9.6) 6.9 (.5) (3.2) - ------------------------------------------------------------------------------------------------------------------------------- TOTAL INTEREST EXPENSE CHANGE .............. 200.7 212.8 46.1 459.6 107.2 (81.9) (8.0) 17.3 - ------------------------------------------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN NET INTEREST INCOME ON A TAXABLE EQUIVALENT BASIS ..... $119.8 $(16.0) $(18.8) $ 85.0 138.6 6.9 1.6 147.1 - ------------------------------------------------------------------------------------------------------------------------------- INCREASE IN TAXABLE EQUIVALENT ADJUSTMENT .................... (19.3) (12.4) - -------------------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME CHANGE ................. $ 65.7 134.7 - --------------------------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS SUMMARY Net income advanced by 29% in 2000 and 22% in 1999. The Bancorp's net income to average assets, referred to as return on average assets (ROA), and return on average shareholders' equity (ROE) follow:
- ------------------------------------------------------------------ 2000 1999 1998 1997 1996 - ------------------------------------------------------------------ Net income ($ in millions) $862.9 668.2 546.5 529.4 442.8 Earnings per share (a) $ 1.86 1.46 1.21 1.18 .99 Earnings per diluted share (a) $ 1.83 1.43 1.19 1.17 .97 ROA (b) 1.98% 1.89 1.78 1.57 1.52 ROE (b) 20.0% 19.0 18.2 17.2 16.3 Overhead ratio (b) 42.2% 44.1 45.3 46.8 48.3 - -------------------------------------------------------------------
(a) Per share amounts have been adjusted for the three-for-two stock splits effected in the form of stock dividends paid July 14, 2000, April 15, 1998 and July 15, 1997. (b) For comparability, certain financial ratios exclude the impact of 2000 merger-related and special charges of $33.5 million pretax ($23.1 million after tax, or $.05 per diluted share), 1999 merger-related items of $108.4 million pretax ($83.8 million after tax, or $.18 per diluted share), 1998 merger-related items of $138 million pretax ($98.7 million after tax, or $.21 per diluted share) and the impact of the 1996 special SAIF assessment of $49.6 million pretax ($31.3 million after tax, or $.07 per diluted share). NET INTEREST INCOME Net interest income is the difference between interest income on earning assets such as loans, leases and securities, and interest expense paid on liabilities such as deposits and borrowings, and continues to be the Bancorp's largest revenue source. Net interest income is affected by the general level of interest rates, changes in interest rates and by changes in the amount and composition of interest-earning assets and interest-bearing liabilities. The relative performance of the lending and deposit-raising functions is frequently measured by two statistics - net interest margin and net interest rate spread. The net interest margin is determined by dividing fully-taxable equivalent net interest revenue by average interest-earning assets. The net interest rate spread is the difference between the average fully-taxable equivalent yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities. The net interest margin is generally greater than the net interest rate spread due to the additional income earned on those assets funded by non-interest-bearing liabilities, or free funding, such as demand deposits and shareholders' equity. Table 1 on page 34, Consolidated Average Balance Sheets and Analysis of Net Interest Income, presents the net interest income, net interest margin, and net interest rate spread for the three years 1998 through 2000, comparing interest revenue, average interest-bearing liabilities and average free funding outstanding. Each of these measures is reported on a fully-taxable equivalent basis. Nonaccrual loans and leases and loans held for sale have been included in the average loans and lease balances. Average outstanding securities balances are based upon amortized cost excluding any unrealized gains or losses on securities available for sale. Net interest income rose 6% to $1.6 billion in 2000 from $1.5 billion in 1999. The improvement in 2000's net interest income was attributable to 12% growth in average interest-earning assets and a 22 basis points (bps) decline in net interest margin to 3.77% in 2000 from 3.99% in 1999. This decline in net interest margin in 2000 compares to a 6 bps improvement from 1998 to 1999. The yield on interest-earning assets improved 51 bps over 1999 as new loan growth at higher interest rates caused assets to reprice upward. The average yield on loans and leases was up 32 bps and the yield on taxable securities was up 92 bps. The positive effects of higher asset yields was offset by an 83 bps increase in the cost of interest-bearing liabilities resulting from faster repricing of borrowed funds and higher deposit rates to retain accounts. The cost of borrowed funds, including foreign office deposits, federal funds borrowed, short-term bank notes, other short-term borrowings and long-term debt increased by 100 bps in 2000, to 6.11%, from 5.11% in 1999. The positive contribution of free funding to the net interest margin was 83 bps in 2000 versus 73 bps in 1999. 35 38 FIFTH THIRD BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS =============================================================================
- ------------------------------------------------------------------------------------------------------- ($ in millions) 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------- Data processing income $ 241.6 180.8 140.9 112.5 88.9 Service charges on deposits 217.0 174.2 155.8 132.3 115.4 Investment advisory income 200.2 184.2 151.2 111.8 91.8 Other service charges and fees 350.6 337.8 293.3 225.3 188.7 - ------------------------------------------------------------------------------------------------------- Subtotal 1,009.4 877.0 741.2 581.9 484.8 - ------------------------------------------------------------------------------------------------------- Securities gains 3.3 .6 12.3 8.5 9.2 - ------------------------------------------------------------------------------------------------------- Total $1,012.7 877.6 753.5 590.4 494.0 - ------------------------------------------------------------------------------------------------------- After-tax securities gains $ 2.2 .4 7.9 5.5 5.8 - -------------------------------------------------------------------------------------------------------
Average interest-earning assets increased by 12% to $41.4 billion in 2000, an increase of $4.4 billion from 1999. During 1999, interest-earning assets grew by 9% over the prior year. In 2000, sales and securitizations of loans and leases totaled approximately $3.2 billion compared to $4.7 billion in 1999. The Bancorp continues to use loan securitizations and sales to manage the composition of the balance sheet and to improve balance sheet liquidity. Securitizations and sales permit the Bancorp to grow the origination and servicing functions and to increase fee income without increasing capital leverage. Average interest-bearing liabilities grew to $34.7 billion during 2000, an increase of 13% over the $30.8 billion average in 1999. Core deposits (which excludes certificates of deposit with balances greater than $100,000 and foreign office deposits) remain the Bancorp's most important and lowest cost source of funding. OPERATING INCOME The table at the top of this page shows the components of other operating income for the five years ended December 31. Total other operating income, excluding securities gains, increased 15% in 2000 and was up 18% in 1999, reflecting solid growth across both traditional and non-banking business lines. Data processing income was up 34% in 2000 and up 28% in 1999 due to higher electronic transfer volume from debit and ATM card usage, expansion of business-to-business e-commerce and new sales. Merchant processing revenues, approximately 43% of total data processing revenues, increased 32% this year and 23% in 1999 due to new customers and resulting increases in merchant transaction volumes. Electronic funds transfer, the other portion of data processing income, grew by 35% this year and 32% in 1999 fueled by higher debit and ATM card usage. MPS handled over 4.8 billion electronic transactions in 2000 and its world-class capabilities as a transaction processor position us well to take advantage of the opportunities of e-commerce. Service charges on deposits reached $217 million in 2000, an increase of 24% over 1999's $174.2 million. Service charges on deposits increased 12% in 1999. The growth in both years was fueled by the expansion of delivery systems and successful sales campaigns promoting checking and savings accounts. Retail service charges on deposits increased 34% while commercial service charges increased 7% in 2000. Investment advisory income was $200.2 million in 2000, up from $184.2 million in 1999. Fifth Third is one of the largest money managers in the Midwest and as of December 31, 2000,
- --------------------------------------------------------------------------------------------------------------- ($ in millions) 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------- Salaries, wages and incentives $ 437.3 425.3 382.2 335.1 309.5 Employee benefits 85.1 79.8 72.1 67.3 72.0 Equipment expenses 49.7 49.0 45.3 40.4 38.6 Net occupancy expenses 77.4 72.9 66.9 63.4 60.6 Other operating expenses 435.8 412.9 378.5 343.7 303.1 - --------------------------------------------------------------------------------------------------------------- Total operating expenses 1,085.3 1,039.9 945.0 849.9 783.8 - --------------------------------------------------------------------------------------------------------------- Merger-related and special charges 33.5 82.1 121.3 -- -- SAIF assessment -- -- -- -- 49.6 - --------------------------------------------------------------------------------------------------------------- Total $1,118.8 1,122.0 1,066.3 849.9 833.4 ===============================================================================================================
1995 1996 1997 1998 1999 2000 $ in millions [CHART] OTHER OPERATING INCOME $407.2 $494.0 $590.4 $753.5 $877.7 $1,012.7 FIVE YEAR GROWTH RATE 20% $ in thousands [CHART] OPERATING EARNINGS PER EMPLOYEE $ 38.1 $ 43.7 $ 47.1 $ 56.8 $ 64.3 $ 76.3 ($ in thousands) [CHART] OVERHEAD RATIO 50.1% 48.3% 46.8% 45.3% 44.1% 42.2%
* For comparability, certain financial ratios and statistics exclude the impact of the 2000 merger-related and special charges of $33.5 million pretax ($23.1 million after tax, or $.05 per diluted share), 1999 merger-related items of $108.4 million pretax ($83.8 million after tax, or $.18 per diluted share), 1998 merger-related items of $138 million pretax ($98.7 million after tax, or $.21 per diluted share) and the 1996 special SAIF assessment of $49.6 million pretax ($31.3 million after tax, or $.07 per diluted share). 36 39 FIFTH THIRD BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ============================================================================== had over $172 billion in assets under care, $22 billion in assets under management and $5.6 billion in its proprietary Fifth Third Funds. The increase in investment advisory income results from growth in all product lines, despite a difficult year in the markets. Corporate trust and institutional service fee income was up 13%, personal trust fee income grew by 6% and Fifth Third Securities contributed a 7% increase in fee income. Strong growth in all product lines and the addition of several new annuity products led to 22% investment advisory income growth in 1999. Other service charges and fees climbed to $350.6 million in 2000, an increase of 4% over 1999. Mortgage banking revenue, commercial banking income, cardholder fees and consumer loan and lease fees represent the majority of other service charges and fees. Mortgage banking revenue was $79.6 million in 2000, an 18% decrease from 1999. This decrease resulted from residential mortgage loan originations declining to $3.2 billion in 2000, or 33% from 1999, primarily due to changes in the interest rate environment, and gains on sales of residential mortgages, including the portion related to servicing rights, decreasing 6% from 1999. Sales and securitizations of residential mortgage loans were $2.2 billion in 2000, down from $4.7 billion in 1999. Fifth Third's total residential mortgage loan servicing portfolio was $17.1 billion at year-end 2000, with $13 billion of loans serviced for other investors, compared to $16.6 billion with $11.4 billion serviced for others at the end of 1999. Commercial banking revenue grew 17% to $74 million in 2000, led by international department revenue which included foreign currency exchange, letters of credit and trade financing. Origination and service fees related to the Real Estate Capital Markets group also contributed to this year's growth. Consumer loan and lease fees contributed $44.4 million, up 3%; cardholder fees from our credit card portfolio provided $33.7 million, relatively unchanged from 1999; and income from Bank Owned Life Insurance (BOLI) provided $30.8 million as a result of BOLI purchases in the fourth quarter of 1999. Commercial banking income of $63.1 million in 1999 represented an increase of 44% over 1998 and resulted primarily from growth in international department revenue and information technology products offered by our Corporate Treasury Management. Mortgage banking revenue increased 1% to $97.2 million, reflecting the combined effects of declining originations, a 23% increase in gains on sales of residential mortgages and secondary marketing activity during 1999. Consumer loan and lease fees increased 23% to $43 million, 1999 over 1998 on strong origination activity, and cardholder fees provided $33.8 million, up 9%. Other service charges and fees were $337.8 million in 1999, compared to $293.3 million in 1998, an increase of 15%. OPERATING EXPENSES The Bancorp continues to lead the banking industry in driving its overhead ratio to record levels by consistently generating revenue at a rate faster than expenses. The Bancorp's success in controlling operating expenses comes from efficient staffing, a constant focus on process improvement and centralization of various internal functions such as data processing, loan servicing and corporate overhead functions. Operating expense levels are often measured using an overhead ratio (operating expenses divided by the sum of taxable equivalent net interest income and other operating income). As the chart on page 36 illustrates, the Bancorp's ratio has remained well below our peers, at 42% for 2000 and 44% in 1999 and under 50% since 1996. Total operating expenses increased 4% in 2000 and 10% in 1999, excluding merger-related and special charges of $33.5 million and $82.1 million, respectively. Salaries, wages and incentives comprised 40% and 41% of total operating expenses, excluding merger-related and special charges, in 2000 and 1999, respectively. Compensation increased 3% in 2000 and 11% in 1999 as a result of more variable compensation for increased sales production, higher staffing costs related to computer programming, a tighter labor market, acquisitions and additional personnel to support sales and our volume-related business. The Bancorp's productivity ratios, which measure the degree of efficiency of our employees, have shown improvement since 1995. Operating earnings per employee were $76.3 thousand for 2000, compared to $38.1 thousand in 1995, an increase of 100% as the chart on page 36 illustrates. Employee benefits expense increased 7% in 2000 resulting primarily from the net effects of increased profit sharing expenses and increased benefits from retirement plans. Full-time-equivalent (FTE) employees were 11,611 at December 31, 2000, down from a peak of 11,963 at September 30, 1999. These levels compare to 11,692 at December 31, 1999 and 11,354 at December 31, 1998. Equipment expense increased only 1% in 2000, while the addition of ATMs and software and processing technology upgrades led to an increase of 8% in equipment expense in 1999. Net occupancy expenses increased 6% in 2000 and 9% in 1999. Contributing to net occupancy expense growth was the utilization of additional office rental space to support growth and repairs and maintenance expense to the existing branch network. Volume-related expenses of our processing and fee businesses principally contributed to the increase in 2000 other operating expenses, while volume-related expenses and higher loan and lease processing costs from strong origination volumes principally contributed to the increase in 1999. Other operating expenses increased to $435.8 million in 2000, up $22.9 million or 6% over LOAN AND LEASE PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------ 2000 1999 1998 1997 1996 ------------------ ----------------- ----------------- ------------------- -------------------- ($ in millions) Amount % Amount % Amount % Amount % Amount % - ------------------------------------------------------------------------------------------------------------------------ Commercial: Commercial $ 6,715.6 25.3% $ 6,288.0 24.9% $ 5,827.5 25.4% $ 5,718.4 25.7% $ 5,351.6 26.4% Mortgage 2,986.4 11.3 2,651.4 10.5 1,887.9 8.2 1,778.2 8.0 1,697.9 8.4 Construction 1,483.8 5.6 1,067.9 4.2 826.3 3.6 723.4 3.3 707.7 3.4 Leases 2,164.9 8.2 1,843.4 7.3 1,463.4 6.4 1,207.0 5.4 928.4 4.6 - ------------------------------------------------------------------------------------------------------------------------ Subtotal 13,350.7 50.4 11,850.7 46.9 10,005.1 43.6 9,427.0 42.4 8,685.6 42.8 - ------------------------------------------------------------------------------------------------------------------------ Consumer: Installment 5,727.3 21.6 4,987.3 19.7 4,179.4 18.2 3,681.3 16.6 3,311.4 16.3 Mortgage 4,463.7 16.8 4,967.3 19.7 6,201.4 27.0 6,848.9 30.8 6,119.8 30.2 Credit Card 362.7 1.4 318.0 1.3 344.7 1.5 369.8 1.7 436.3 2.1 Leases 2,601.7 9.8 3,137.4 12.4 2,214.8 9.7 1,887.0 8.5 1,748.0 8.6 - ----------------------------------------------------------------------------------------------------------------------- Subtotal 13,155.4 49.6 13,410.0 53.1 12,940.3 56.4 12,787.0 57.6 11,615.5 57.2 - ----------------------------------------------------------------------------------------------------------------------- Total $26,506.1 100.0% $25,260.7 100.0% $22,945.4 100.0% $22,214.0 100.0% $20,301.1 100.0% - -----------------------------------------------------------------------------------------------------------------------
37 40 FIFTH THIRD BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ============================================================================== 1999 and increased $34.4 million or 9% in 1999 over 1998. Loan and lease and bankcard expense increased $12.9 million or 15% in 2000 and $16.6 million or 23% in 1999. Marketing and communications expense increased $1.4 million to $72.8 million in 2000 and $7.8 million in 1999, primarily due to the continued promotion of the Bancorp's diversified loan, investment and deposit products. Operating expenses for 2000 and 1999 include pretax merger-related and special charges of $33.5 million and $82.1 million, respectively. For 2000, the merger charge relates to additional charges in connection with the integration of CNB Bancshares, Inc. For 1999, the merger charge relates directly to the acquisitions of CNB and Peoples Bank Corporation of Indianapolis. These charges consist primarily of employee benefit obligations, costs to eliminate duplicate facilities and equipment, contract terminations, conversion expenses, professional fees and special charges related to the restructuring of certain investment securities. See Note 19 of the Notes to Consolidated Financial Statements for additional discussion. FINANCIAL CONDITION LOANS AND LEASES The table on page 37 shows the history of commercial and consumer loans and leases by major category at December 31. On-balance-sheet loan and leases increased 5% and 10%, respectively, in 2000 and 1999. In both years, the growth in outstandings was affected considerably by sales and securitizations of residential and commercial loans, which allows the Bancorp to be selective in how much of the expanding origination volume is retained in the loan and lease portfolio. Although residential mortgage loan originations were $3.2 billion for 2000, the related loans decreased 10% because $2.2 billion of the respective origination volume was sold or securitized. Installment loan balances grew 15% during 2000 and 19% during 1999, as a result of successful direct installment loan sales in the Bancorp's Banking Centers. Consumer leases decreased 17% during 2000, reflecting the effect of selling, with servicing retained, $1 billion of leases during the year. Consumer leases increased 42% in 1999, and represent 10% and 12% of total loans and leases at December 31, 2000 and 1999, respectively. Commercial loan and lease outstandings were up 9% in 2000 and 12% in 1999. Commercial leasing contributed to increases of 17% and 26%, respectively, consisting largely of improvements within our market areas of Ohio, Kentucky, Indiana, Florida, Michigan, Illinois and Arizona. Commercial mortgages represent 11% of our total loan and lease portfolio and primarily include financing of owner-occupied properties--loans on properties occupied by the principal borrower. To maintain balance sheet flexibility and to serve as a source of fee income, the Bancorp, during 2000 and 1999 sold, with servicing retained, certain floating-rate commercial loans to a commercial paper funding corporation. The outstanding balances of these loans were $1.9 billion and $1.4 billion at December 31, 2000 and 1999, respectively. In addition to the loan and lease portfolio, the Bancorp serviced loans and leases for others of approximately $18 billion, $15.4 billion and $14.3 billion at December 31, 2000, 1999 and 1998, respectively. UNDERPERFORMING ASSETS Underperforming assets consist of (1) nonaccrual loans and leases on which the ultimate collectibility of the full amount of interest is uncertain, (2) loans and leases which have been renegotiated to provide for a reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower, (3) loans and leases past due 90 days or more as to principal or interest and (4) other real estate owned. A summary of underperforming assets at December 31 follows: - -------------------------------------------------------------------------------- ($ in millions) 2000 1999 1998 - -------------------------------------------------------------------------------- Nonaccrual loans and leases ................. $ 90.3 66.8 77.1 Renegotiated loans and leases ............... -- -- 1.2 Other real estate owned ..................... 9.7 10.5 12.6 - -------------------------------------------------------------------------------- Total nonperforming assets .................. 100.0 77.3 90.9 Ninety days past due loans and leases ....... 87.1 68.2 87.0 - -------------------------------------------------------------------------------- Total underperforming assets ................ $ 187.1 145.5 177.9 - -------------------------------------------------------------------------------- Nonperforming assets as a percent of total loans, leases and other real estate owned ......................... .39% .31 .41 Underperforming assets as a percent of total loans, leases and other real estate owned ............... .72% .58 .80 - -------------------------------------------------------------------------------- Nonperforming assets as a percentage of total loans, leases and other real estate owned was .39% at December 31, 2000, an increase from .31% at December 31, 1999. At December 31, 2000, 1999 and 1998, nonaccrual loans and leases included residential mortgage loans of $5.8 million, $18.6 million and $22.6 million, respectively; commercial loans and leases of $72.6 million, $39.1 million and $36.9 million, respectively; and commercial mortgages of $11.6 million, $8.5 million and $14.5 million, respectively. At December 31, 2000, 1999 and 1998, loans and leases 90 days past due included residential mortgage loans of $35 million, $35.9 million and $37.3 million, respectively; installment loans and consumer leases of $29.9 million, $9 million and $26.2 million, respectively; and commercial loans and leases of $16.7 million, $18.4 million and $16.6 million, respectively. At RESERVE FOR CREDIT LOSSES FIVE YEAR HISTORY
- --------------------------------------------------------------------------------------------------------------------------- ($ in millions) 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------- Balance at January 1 .................................... $ 366.6 331.6 312.2 284.3 271.0 Provision for credit losses ............................. 89.0 134.0 123.5 116.9 82.9 Losses charged off ...................................... (115.4) (154.3) (142.8) (121.7) (103.6) Recoveries of losses previously charged off ............. 38.0 42.5 33.0 30.5 26.3 Reserve of acquired institutions and other .............. 5.2 12.8 5.7 2.2 7.7 - --------------------------------------------------------------------------------------------------------------------------- Balance at December 31 .................................. $ 383.4 366.6 331.6 312.2 284.3 - --------------------------------------------------------------------------------------------------------------------------- Loans and leases outstanding at December 31 ............. $ 25,952.8 $ 24,963.6 $ 22,356.5 $ 21,898.9 $ 20,207.8 Reserve as a percent of loans and leases outstanding .... 1.48% 1.47% 1.48% 1.43% 1.41% Average loans and leases (a) ............................ $ 26,016.6 $ 23,840.4 $ 22,188.2 $ 20,972.4 $ 19,485.7 Net charge-offs as a percent of average loans and leases outstanding .................................... .30% .36% .47% .43% .40% Reserve as a percent of total nonperforming assets ...... 384% 474% 364% 265% 228% Reserve as a percent of total underperforming assets .... 205% 252% 186% 180% 165% - --------------------------------------------------------------------------------------------------------------------------- (a) Average loans and leases exclude loans held for sale.
38 41 FIFTH THIRD BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ============================================================================== December 31, 2000, 1999 and 1998, credit card receivables of $5.5 million, $4.9 million and $6.9 million, respectively, were 90 days past due. Of the total underperforming assets at December 31, 2000, $65 million are to borrowers or projects in the Cincinnati-Dayton market area, $70.3 million in the Indiana market area, $17.3 million in the Columbus market area, $7.3 million in the Louisville market area, $8.9 million in the Cleveland market area, $12.4 million distributed in the market areas of our smaller affiliates and $5.9 million outside of the Ohio-Kentucky-Indiana area. SECURITIES The investment portfolio shown below consists largely of fixed and floating-rate mortgage-related securities, predominantly underwritten to the standards of and guaranteed by the government-sponsored agencies of FHLMC, FNMA and GNMA. These securities differ from traditional debt securities primarily in that they have uncertain maturity dates and are priced based on estimated prepayment rates on the underlying mortgages. The estimated average life of the portfolio is 6.1 years based on current prepayment expectations. The Bancorp securitized $1 billion of fixed and adjustable-rate residential mortgages in 2000 and $2.1 billion in 1999. These securitizations improve liquidity, reduce interest rate risk and the reserve for credit losses and preserve capital. Further securitizations in 2001 are expected. PROVISION AND RESERVE FOR CREDIT LOSSES The Bancorp provides as an expense an amount for expected credit losses which is based on the growth of the loan and lease portfolio and on recent loss experience. The expected credit loss expense is included in the Consolidated Statements of Income in the caption Provision for Credit Losses. Actual losses on loans and leases are charged against the Reserve for Credit Losses on the Consolidated Balance Sheets through the provision for credit losses. The amount of loans and leases actually removed as assets from the Consolidated Balance Sheets is referred to as charge-offs and, after netting out recoveries on previously charged off assets, becomes net charge-offs. Net charge-offs decreased $34.4 million from 1999 due to lower charge-offs on commercial loans and leases and consumer loans and leases. Net charge-offs as a percent of average loans and
SECURITIES PORTFOLIO AT DECEMBER 31 - --------------------------------------------------------------------------------------------------------------------------- ($ in millions) 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------- Securities Available for Sale: U.S. Treasury.................................... $ 34.3 113.9 255.9 257.8 301.7 - -------------------------------------------------------------------------------------------------------------------------- U.S. Government agencies and corporations........ 891.0 526.6 54.6 659.2 538.5 - -------------------------------------------------------------------------------------------------------------------------- States and political subdivisions................ 701.7 699.6 703.9 352.0 410.6 - -------------------------------------------------------------------------------------------------------------------------- Agency mortgage-backed securities................ 12,009.6 9,786.8 9,002.0 7,979.6 7,072.2 - -------------------------------------------------------------------------------------------------------------------------- Other bonds, notes and debentures................ 1,394.2 1,356.8 788.5 621.7 931.3 - -------------------------------------------------------------------------------------------------------------------------- Other securities................................. 570.8 203.8 379.0 344.7 202.5 - -------------------------------------------------------------------------------------------------------------------------- Securities Held to Maturity: U.S. Treasury.................................... -- -- -- -- 3.0 - -------------------------------------------------------------------------------------------------------------------------- U.S. Government agencies and corporations........ -- -- -- -- 189.1 - -------------------------------------------------------------------------------------------------------------------------- States and political subdivisions................ -- 117.1 86.0 179.5 290.6 - -------------------------------------------------------------------------------------------------------------------------- Agency mortgage-backed securities................ -- -- -- 98.4 121.4 - -------------------------------------------------------------------------------------------------------------------------- Other bonds, notes and debentures................ -- 1.5 1.7 1.5 1.8 - -------------------------------------------------------------------------------------------------------------------------- Other securities................................. 26.9 10.5 34.2 36.5 82.9 - -------------------------------------------------------------------------------------------------------------------------- MATURITIES OF SECURITIES AT DECEMBER 31, 2000 - ----------------------------------------------------------------------------------------------------------------------------------- Maturity 1-5 Year 6-10 Year Over 10 Under 1 Year Maturity Maturity Year Maturity Total -------------- ---------------- ---------------- ----------------- --------------- ($ in millions) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield - ----------------------------------------------------------------------------------------------------------------------------------- Securities Available for Sale: U.S. Treasury ..................... $ 2.0 5.65% $ 32.1 5.24% $ -- --% $ .2 8.63% $ 34.3 5.27% - ----------------------------------------------------------------------------------------------------------------------------------- U.S. Government agencies and corporations ................ 3.7 5.86 23.7 6.08 848.7 7.23 14.9 6.34 891.0 7.15 - ----------------------------------------------------------------------------------------------------------------------------------- States and political subdivisions (a) ................ 41.9 9.59 165.7 8.41 219.3 7.77 274.8 7.68 701.7 7.86 - ----------------------------------------------------------------------------------------------------------------------------------- Agency mortgage- backed securities (b) ........... 153.4 6.88 7,767.9 6.63 2,119.6 6.81 1,968.7 7.09 2,009.6 6.79 - ----------------------------------------------------------------------------------------------------------------------------------- Other bonds, notes and debentures (c) .................. 15.1 6.93 733.5 6.78 336.4 7.20 309.2 6.91 1,394.2 6.88 - -----------------------------------------------------------------------------------------------------------------------------------
Maturities of mortgage-backed securities were estimated based on historical and predicted prepayment trends. (a) taxable-equivalent yield using the statutory rate in effect. (b) included in agency mortgage-backed securities available for sale are floating-rate securities totaling $1.5 billion. (c) included in other bonds, notes and debentures available for sale are floating-rate securities totaling $.7 million. 39 42 FIFTH THIRD BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ============================================================================== leases outstanding were .30%, .36% and .47% for 2000, 1999 and 1998, respectively. The reserve for credit losses as a percentage of total loans and leases was 1.48% and 1.47% at December 31, 2000 and 1999, respectively. The table on page 38 presents credit loss data for the most recent five-year period. DEPOSITS Interest-earning assets are funded primarily by core deposits. The accompanying tables show the relative composition of the Bancorp's average deposits and the change in average deposit sources during the last five years. Other time deposits are comprised of consumer certificates of deposit. Foreign office deposits are denominated in amounts greater than $100,000. The Bancorp's continued focus on Banking Center sales campaigns for transaction accounts throughout 2000 sustained strong growth in core deposits. Average demand, interest checking and saving balances rose 7% in 2000 and 11% in 1999. Our MaxSaver product contributed to the growth in savings balances, while the Platinum One, Totally Free Checking and Business 53 products and other promotional campaigns drove the increase in demand and interest checking. In 1998, the Bancorp acquired deposits of $116.6 million from Bank One Corporation.
DISTRIBUTION OF AVERAGE DEPOSITS - ---------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------- Demand .......... 14.4% 14.8 13.7 12.2 11.3 Interest checking 17.4 17.4 15.6 13.5 12.2 Savings ......... 15.2 16.7 16.9 13.0 12.0 Money market .... 3.3 5.1 5.9 10.4 12.4 Other time ...... 31.6 34.3 38.9 42.5 43.4 Certificates- $ 100,000 and over ...... 4.9 8.2 8.0 6.7 6.4 Foreign office .. 13.2 3.5 1.0 1.7 2.3 - ---------------------------------------------------------------------------------------- Total 100.0% 100.0 100.0 100.0 100.0 - ---------------------------------------------------------------------------------------- CHANGE IN AVERAGE DEPOSIT SOURCES - ---------------------------------------------------------------------------------------- ($ in millions) 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------- Demand .......... $ 286.0 407.3 475.7 293.4 316.5 Interest checking 495.1 639.3 582.4 420.7 438.8 Savings ......... 33.3 128.7 1,058.8 326.7 1,017.5 Money market .... (375.3) (142.4) (1,001.8) (346.6) 96.4 Other time ...... 150.0 (697.3) (559.3) 172.1 1,499.6 Certificates- $ 100,000 and over ...... (697.0) 135.4 369.6 115.8 336.7 Foreign office .. 2,804.5 644.7 (169.3) (120.5) (258.3) - ---------------------------------------------------------------------------------------- Total change .... $ 2,696.6 1,115.7 756.1 861.6 3,447.2 - ----------------------------------------------------------------------------------------
SHORT-TERM BORROWINGS Short-term borrowings consist primarily of short-term excess funds from correspondent banks, securities sold under agreements to repurchase, short-term bank notes and commercial paper issuances. Short-term borrowings primarily fund short-term, rate-sensitive earning-asset growth. Average short-term borrowings as a percentage of average interest-earning assets remained constant at 19% in both 2000 and 1999, reflecting the Bancorp's success in attracting deposit accounts and utilizing them to fund a relatively higher proportion of interest-earning assets. However, during 2000 and 1999, the Bancorp increased its reliance on short-term borrowings as loan and lease growth outpaced core deposit growth. As the following table of average short-term borrowings and average Federal funds loaned indicates, the Bancorp was a net borrower of $7.8 billion in 2000, up from $6.8 billion in 1999. AVERAGE SHORT-TERM BORROWINGS
- ------------------------------------------------------------------------------------ ($ in millions) 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------ Federal funds borrowed ............. $ 4,226.6 3,424.7 2,314.4 1,535.9 1,295.1 Short-term bank notes ........... 919.0 643.2 461.8 658.1 553.9 Other short-term borrowings ........... 2,789.8 2,896.7 2,325.3 2,287.6 1,728.2 - ------------------------------------------------------------------------------------ Total short-term borrowings ........... 7,935.4 6,964.6 5,101.5 4,481.6 3,577.2 - ------------------------------------------------------------------------------------ Federal funds loaned ............... 93.7 130.6 140.8 183.7 170.7 - ------------------------------------------------------------------------------------ Net funds borrowed ........... $ 7,841.7 6,834.0 4,960.7 4,297.9 3,406.5 - ------------------------------------------------------------------------------------
CAPITAL RESOURCES The Bancorp maintains a relatively high level of capital as a margin of safety for its depositors and shareholders. At December 31, 2000, shareholders' equity was $4.9 billion compared to $4.1 billion at December 31, 1999, an increase of $814 million, or 20%. The following table shows several capital and liquidity ratios for the last three years: - -------------------------------------------------------------------------------- 2000 1999 1998 - -------------------------------------------------------------------------------- Average shareholders' equity to Average assets ................. 9.93% 9.95 9.80 Average deposits ............... 15.90% 15.69 14.72 Average loans and leases ....... 16.79% 16.22 15.72 - -------------------------------------------------------------------------------- LIQUIDITY AND MARKET RISK The objective of the Bancorp's Asset/Liability management function is to maintain consistent growth in net interest income within the Bancorp's policy limits. This objective is accomplished through management of the Bancorp's balance sheet composition, liquidity, and interest rate risk exposures arising from changing economic conditions, interest rates and customer preferences. The goal of liquidity management is to provide adequate funds to meet changes in loan and lease demand or unexpected deposit withdrawals. This is accomplished by maintaining liquid assets in the form of investment securities, maintaining sufficient unused borrowing capacity in the national money markets and delivering consistent growth in core deposits. As of December 31, 2000, the Bancorp had approximately $2.9 billion in securities and other short-term investments maturing or repricing within one year. Additional asset-driven liquidity is provided by the remainder of the securities portfolio and securitizable loan and lease assets. These sources, in addition to the Bancorp's 10% average equity capital base, provide a stable funding base. In addition to core deposit funding, the Bancorp also accesses a variety of other short-term and long-term funding sources. The Bancorp also uses the Federal Home Loan Bank (FHLB)as a funding source, issuing notes payable through its FHLB member subsidiaries. The Bancorp also has significant unused funding capacity in the national money markets. The Bancorp's A-1+/Prime-1 ratings on its commercial paper and AA-/Aa3 ratings for its senior debt, along with the AA-/Aa2 long-term deposit ratings of Fifth Third Bank; Fifth Third Bank, Indiana; Fifth Third Bank, Kentucky, Inc.; and Fifth Third Bank, Northern Kentucky, continue to be among the best in the industry. The continued confidence of the rating agencies has been demonstrated recently by the third quarter 2000 upgrade by Moody's Investors Service of 40 43 FIFTH THIRD BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ============================================================================== the Bancorp's senior debt rating and the affirmation of our ratings by all major rating agencies following the announcement of the Old Kent transaction. These ratings, along with capital ratios significantly above regulatory guidelines, provide the Bancorp with additional liquidity. Management does not rely on any one source of liquidity and manages availability in response to changing balance sheet needs. Management considers interest rate risk the Bancorp's most significant market risk. Interest rate risk is the exposure to adverse changes in net interest income due to changes in interest rates. Consistency of the Bancorp's net interest revenue is largely dependent upon the effective management of interest rate risk. The Bancorp employs a variety of measurement techniques to identify and manage its interest rate risk including the use of an earnings simulation model to analyze net interest income sensitivity to changing interest rates. The model is based on actual cash flows and repricing characteristics for on and off-balance sheet instruments and incorporates market-based assumptions regarding the effect of changing interest rates on the prepayment rates of certain assets and liabilities. The model also includes senior management projections for activity levels in each of the product lines offered by the Bancorp. Assumptions based on the historical behavior of deposit rates and balances in relation to changes in interest rates are also incorporated into the model. These assumptions are inherently uncertain, and as a result, the model cannot precisely measure net interest income or precisely predict the impact of fluctuations in interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies. The Bancorp's Asset/Liability Management Committee (ALCO), which includes senior management representatives and reports to the Board of Directors, monitors and manages interest rate risk within Board-approved policy limits. The Bancorp's current interest rate risk policy limits are determined by measuring the anticipated change in net interest income over a 12- and 24-month horizon assuming a 200 basis point immediate and sustained increase or decrease in all interest rates. Current policy limits this exposure to plus or minus 5% of net interest income for a 12-month horizon and plus or minus 9% of net interest income over a 24-month horizon. The following table shows the Bancorp's estimated earnings sensitivity profile as of December 31, 2000: - -------------------------------------------------------------------------------- Change in Percentage Change in Interest Rates Net Interest Income (basis points) 12 Months 24 Months - -------------------------------------------------------------------------------- +200 --% 1.4% -200 (3.7)% (7.5)% - -------------------------------------------------------------------------------- Given an immediate and sustained 200 basis point increase in the yield curve used in the simulation model, it is estimated net interest income for the Bancorp would increase by less than .1% over one year and increase by 1.4% over two years. A 200 basis point immediate and sustained decrease in interest rates would decrease net interest income by 3.7% over one year and an estimated 7.5% over two years. All of these estimated changes in net interest income are within the policy guidelines established by the Board of Directors. In order to reduce the exposure to interest rate fluctuations and to manage liquidity, the Bancorp has developed securitization and sale procedures for several types of interest-sensitive assets. All long-term, fixed-rate single family residential mortgage loans underwritten according to Federal Home Loan Mortgage Corporation or Federal National Mortgage Association guidelines are sold for cash upon origination. Periodically, additional assets such as adjustable-rate residential mortgages, certain consumer leases and certain short-term commercial loans are also securitized or sold. In 2000 and 1999, $3.2 billion and $4.7 billion, respectively, of fixed and adjustable-rate residential mortgages and consumer leases were securitized or sold. In addition, in 2000 and 1999, certain primarily fixed-rate, short-term commercial loans were sold to a commercial paper funding conduit. Management focuses its efforts on consistent net interest revenue and net interest margin growth through each of the retail and wholesale business lines. 41 44 FIFTH THIRD BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ==============================================================================
CONSOLIDATED SIX YEAR SUMMARY OF OPERATIONS - ------------------------------------------------------------------------------------------------------------------------------------ For the Years Ended December 31 ($ in millions, except per share data) 2000 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Interest Income .......................................... $3,263.4 2,738.1 2,585.8 2,477.6 2,272.0 1,949.9 Interest Expense ......................................... 1,793.1 1,333.5 1,315.9 1,304.1 1,189.3 1,045.4 - ------------------------------------------------------------------------------------------------------------------------------------ Net Interest Income ...................................... 1,470.3 1,404.6 1,269.9 1,173.5 1,082.7 904.5 Provision for Credit Losses .............................. 89.0 134.0 123.5 116.9 82.9 54.8 - ------------------------------------------------------------------------------------------------------------------------------------ Net Interest Income After Provision for Credit Losses .... 1,381.3 1,270.6 1,146.4 1,056.6 999.8 849.7 Other Operating Income ................................... 1,012.7 877.6 753.5 590.4 494.0 407.2 Operating Expenses ....................................... 1,085.3 1,039.9 945.0 849.9 783.8 675.4 SAIF Assessment .......................................... -- -- -- -- 49.6 -- Merger-Related and Special Charges ....................... 33.5 82.1 121.3 -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Income Before Income Taxes ............................... 1,275.2 1,026.2 833.6 797.1 660.4 581.5 Applicable Income Taxes .................................. 412.3 358.0 287.1 267.7 217.6 192.5 - ------------------------------------------------------------------------------------------------------------------------------------ Net Income ............................................... $ 862.9 668.2 546.5 529.4 442.8 389.0 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings Per Share (a) ................................... $ 1.86 1.46 1.21 1.18 .99 .91 Earnings Per Diluted Share (a) ........................... $ 1.83 1.43 1.19 1.17 .97 .88 - ------------------------------------------------------------------------------------------------------------------------------------ Cash Dividends Declared Per Share (a) .................... $ .70 .58 2/3 .47 1/3 .37 9/10 .32 4/7 .28 4/9 - ------------------------------------------------------------------------------------------------------------------------------------ CONDENSED CONSOLIDATED BALANCE SHEET INFORMATION - ------------------------------------------------------------------------------------------------------------------------------------ As of December 31 ($ in millions) 2000 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Securities ............................................... $ 15,628.5 12,816.6 11,305.8 10,530.9 10,145.6 7,476.2 Loans and Leases ......................................... 25,952.8 24,963.6 22,356.5 21,898.9 20,207.8 18,422.7 Loans Held for Sale ...................................... 553.3 297.1 588.9 315.1 93.3 390.9 Assets ................................................... 45,856.9 41,589.5 37,092.3 35,180.2 33,135.1 28,302.0 Deposits ................................................. 30,948.8 26,083.1 24,495.8 24,289.6 23,306.0 20,825.6 Short-Term Borrowings .................................... 4,259.3 8,373.7 4,514.6 4,391.3 4,263.3 2,474.0 Long-Term Debt and Convertible Subordinated Debentures ... 4,034.0 1,976.3 3,236.1 2,305.3 1,795.1 1,781.7 Shareholders' Equity ..................................... 4,891.2 4,077.0 3,795.1 3,358.5 3,135.4 2,658.6 - ------------------------------------------------------------------------------------------------------------------------------------ SUMMARIZED QUARTERLY FINANCIAL INFORMATION - ------------------------------------------------------------------------------------------------------------------------- 2000 1999 ----------------------------------------------------------------------------------------- (Unaudited) ($ in millions, Fourth Third Second First Fourth Third Second First except per share data) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter - -------------------------------------------------------------------------------------------------------------------------- Interest Income ................ $836.0 842.3 817.9 767.2 725.9 702.9 668.6 640.7 Net Interest Income ............ 371.2 371.0 364.7 363.4 355.9 357.3 352.3 339.1 Provision for Credit Losses .... 23.1 18.2 26.3 21.4 43.7 29.6 35.3 25.4 Income Before Income Taxes ..... 345.7 337.9 283.2 308.4 195.1 293.2 272.0 265.9 Net Income ..................... 236.4 228.0 192.1 206.4 116.3 195.4 180.2 176.3 Earnings Per Share (a) ......... .51 .49 .41 .45 .25 .42 .40 .39 Earnings Per Diluted Share (a) . .50 .48 .41 .44 .25 .42 .39 .38 - --------------------------------------------------------------------------------------------------------------------------
(a) Per share amounts have been adjusted for the three-for-two stock splits effected in the form of stock dividends paid July 14, 2000, April 15, 1998, July 15, 1997 and January 12, 1996. 42 45 FIFTH THIRD BANCORP AND SUBSIDIARIES CONSOLIDATED TEN YEAR COMPARISON
=========================================================================================================================== AVERAGE ASSETS ($ IN MILLIONS) - --------------------------------------------------------------------------------------------------------------------------- Interest-Earning Assets - ----------------------------------------------------------------------------------- Federal Interest-Bearing Cash and Total Loans and Funds Deposits Due from Other Average Year Leases Loaned (a) in Banks (a) Securities Total Banks Assets Assets - --------------------------------------------------------------------------------------------------------------------------- 2000 $26,416.5 $ 93.7 $ 65.1 $14,849.7 $41,425.0 $855.4 $2,743.6 $44,648.4 1999 24,382.6 130.6 90.7 12,434.0 37,037.9 953.3 2,108.4 39,744.4 1998 22,542.6 140.8 114.9 11,052.4 33,850.7 884.2 1,752.6 36,167.6 1997 21,129.8 183.7 162.5 10,269.7 31,745.7 727.9 1,495.2 33,676.5 1996 19,632.7 170.7 162.9 9,469.3 29,435.6 744.7 1,380.7 31,280.5 1995 17,641.4 193.6 87.8 7,103.7 25,026.5 767.4 949.4 26,485.5 1994 15,466.7 211.3 97.4 5,843.2 21,618.6 747.3 798.5 22,925.6 1993 13,974.2 175.7 178.4 5,002.5 19,330.8 709.0 783.1 20,609.7 1992 12,028.6 331.0 186.7 4,974.7 17,521.0 630.3 789.8 18,770.7 1991 11,128.9 502.1 223.0 4,562.3 16,416.3 574.5 739.9 17,582.8 - --------------------------------------------------------------------------------------------------------------------------- AVERAGE DEPOSITS AND SHORT-TERM BORROWINGS ($ IN MILLIONS) - --------------------------------------------------------------------------------------------------------------------------- Deposits ---------------------------------------------------------------------------------------- Certificates- Short- Interest Money Other $100,000 Foreign Term Year Demand Checking Savings Market Time and Over Office Total Borrowings Total - --------------------------------------------------------------------------------------------------------------------------- 2000 $4,002.0 $4,873.0 $4,244.1 $ 912.5 $8,805.9 $1,368.4 $3,681.6 $27,887.5 $7,935.4 $35,822.9 1999 3,716.0 4,377.9 4,210.8 1,287.8 8,655.9 2,065.4 877.1 25,190.9 6,964.6 32,155.5 1998 3,308.7 3,738.6 4,082.1 1,430.2 9,353.2 1,930.0 232.4 24,075.2 5,101.5 29,176.7 1997 2,833.0 3,156.2 3,023.3 2,432.0 9,912.5 1,560.4 401.7 23,319.1 4,481.6 27,800.7 1996 2,539.6 2,735.5 2,696.6 2,778.6 9,740.4 1,444.6 522.2 22,457.5 3,577.2 26,034.7 1995 2,223.1 2,296.7 1,679.1 2,682.2 8,240.8 1,107.9 780.5 19,010.3 3,258.1 22,268.4 1994 1,952.2 2,368.5 2,008.9 2,372.4 7,173.9 628.6 529.4 17,033.9 2,519.2 19,553.1 1993 1,801.0 2,118.2 2,038.3 2,243.3 6,616.2 710.4 242.3 15,769.7 1,611.5 17,381.2 1992 1,532.7 1,809.6 1,702.0 2,214.2 6,598.2 753.8 48.2 14,658.7 1,397.7 16,056.4 1991 1,288.2 1,398.9 1,523.3 1,970.3 6,694.7 1,196.1 13.1 14,084.6 1,065.1 15,149.7 - --------------------------------------------------------------------------------------------------------------------------- INCOME ($ IN MILLIONS, EXCEPT PER SHARE DATA) - --------------------------------------------------------------------------------------------------------------------------- Per Share (b) ------------------------------------------------------ Originally Reported ------------------------------- Other Dividend Interest Interest Operating Operating Net Diluted Dividends Diluted Payout Year Income Expense Income Expense Income Earnings Earnings Declared Earnings Earnings Ratio - --------------------------------------------------------------------------------------------------------------------------- 2000 $3,263.4 $1,793.1 $1,012.7 $1,118.8 $862.9 $1.86 $1.83 $.70 $1.86 $1.83 38.2% 1999 2,738.1 1,333.5 877.6 1,122.0 668.2 1.46 1.43 .58 2/3 1.46 1.43 40.9 1998 2,585.8 1,315.9 753.5 1,066.3 546.5 1.21 1.19 .47 1/3 1.20 1.17 40.3 1997 2,477.6 1,304.1 590.4 849.9 529.4 1.18 1.17 .37 9/10 1.15 1.13 33.6 1996 2,272.0 1,189.3 494.0 833.4 442.8 .99 .97 .32 4/7 .95 .93 34.9 1995 1,949.9 1,045.4 407.2 675.4 389.0 .91 .88 .28 4/9 .86 .84 33.8 1994 1,544.4 720.3 345.6 630.0 325.7 .77 .75 .23 7/10 .75 .73 32.3 1993 1,408.3 634.1 325.7 594.9 299.8 .73 .71 .20 1/7 .65 .63 31.8 1992 1,412.9 700.6 286.6 538.0 239.8 .60 .59 .17 7/9 .54 .54 33.0 1991 1,529.7 917.4 254.6 492.2 190.0 .47 .47 .15 2/5 .46 .46 33.5 - --------------------------------------------------------------------------------------------------------------------------- MISCELLANEOUS AT DECEMBER 31 ($ IN MILLIONS, EXCEPT PER SHARE DATA) - ---------------------------------------------------------------------------------------------------------------------------- Shareholders' Equity ----------------------------------------------------------------------------------------- Accumulated Number of Nonowner Reserve Shares of Stock Common Capital Retained Changes in Treasury Per for Credit Year Outstanding (b) Stock Surplus Earnings Equity Stock Total Share (b) Losses - ---------------------------------------------------------------------------------------------------------------------------- 2000(c) 465,651,949 $1,033.7 $593.5 $3,241.9 $ 25.9 $ (1.1) $4,891.2 $10.50 $383.4 1999(c) 463,329,888 1,028.6 573.2 2,704.0 (224.5) -- 4,077.0 8.80 366.6 1998 453,096,554 1,005.9 548.4 2,204.2 94.6 (58.0) 3,795.1 8.38 331.6 1997 446,640,699 991.5 501.6 1,944.4 105.6 (184.6) 3,358.5 7.52 312.2 1996 454,520,459 1,009.0 489.8 1,626.2 10.6 (.2) 3,135.4 7.02 284.3 1995 435,869,093 967.6 316.8 1,350.4 23.8 -- 2,658.6 6.10 271.0 1994 424,304,843 942.0 206.5 1,098.1 (66.9) -- 2,179.7 5.14 245.9 1993 421,473,671 935.7 130.1 936.9 20.0 -- 2,022.7 4.80 223.5 1992 408,244,133 906.3 63.7 748.9 -- (.4) 1,718.5 4.21 190.3 1991 405,927,453 901.2 -- 620.2 -- (.4) 1,521.0 3.75 150.9 - ----------------------------------------------------------------------------------------------------------------------------
(a) Federal funds loaned and interest-bearing deposits in banks are combined in other short-term investments in the Consolidated Financial Statements. (b) Number of shares outstanding and per share data have been adjusted for stock splits in 2000, 1998, 1997, 1996 and 1992. (c) Excludes the unamortized portion of the 1999 non-officer employee stock grant totaling $2.7 million in 2000 and $4.3 million in 1999. 43 46 DIRECTORS & OFFICERS
Fifth Third Bancorp Directors ------------------------------------------------------------------------------------------------------- GEORGE A. SCHAEFER, JR., THOMAS B. DONNELL, WILLIAM G. KAGLER, DAVID E. REESE, President & CEO Chairman Emeritus Former Chairman of the Chairman Fifth Third Bancorp and Fifth Third Bank, Executive Committee of the Fifth Third Bank, Fifth Third Bank Northwestern Ohio Board of Directors Southwest F.S.B. Skyline Chili, Inc. DARRYL F. ALLEN, RICHARD T. FARMER, JAMES E. ROGERS, Retired Chairman Chairman JAMES D. KIGGEN, Chairman, President & CEO President & CEO Cintas Corporation Chairman Cinergy Corporation Aeroquip-Vickers, Inc. BroadWing, Inc. JOSEPH H. HEAD, JR., BRIAN H. ROWE, JOHN F. BARRETT, Chairman ROBERT L. KOCH II, Chairman Emeritus President & CEO Atkins & Pearce, Inc. President & CEO GE Aircraft Engines The Western & Southern Koch Enterprises, Inc. Life Insurance Company JOAN R. HERSCHEDE, JOHN J. SCHIFF, JR., President & CEO MITCHEL D. LIVINGSTON, PH.D., Chairman, President & CEO GERALD V. DIRVIN, The Frank Herschede Vice President for Student Cincinnati Financial Corporation Former Executive Vice President Company Affairs & Human Resources The Procter & Gamble Company University of Cincinnati DONALD B. SHACKELFORD, ALLEN M. HILL, Chairman President & CEO ROBERT B. MORGAN, Fifth Third Bank, DPL, Inc. Executive Counselor Central Ohio Cincinnati Financial Corporation DENNIS J. SULLIVAN, JR., President & CEO Gaylord Entertainment DUDLEY S. TAFT, President Taft Broadcasting Company THOMAS W. TRAYLOR, Chairman & CEO Traylor Bros., Inc. Directors Emeriti ----------------------------------------------------------------------------------------------------------------- Neil A. Armstrong Richard G. Brierley Louis R. Fiore William J. Keating Stephen Stranahan Philip G. Barach Douglas G. Cowan John D. Geary Jerry L. Kirby N. Beverley Tucker, Jr. Vincent H. Beckman Thomas L. Dahl Ivan W. Gorr Michael H. Norris Alton C. Wendzel J. Kenneth Blackwell Ronald A. Dauwe Don R. Hinkley C. Wesley Rowles Milton C. Boesel,Jr. Nicholas M. Evans William A. Hopple III David B. Sharrock Fifth Third Bancorp Officers ------------------------------------------------------------------------------------------------------- GEORGE A. SCHAEFER, JR., BARRY L. BOERSTLER, MICHAEL K. KEATING, PAUL L. REYNOLDS, President & CEO Executive Vice President Executive Vice President, Executive Vice President, General Counsel, Secretary Assistant Secretary NEAL E. ARNOLD, Executive Vice President, JAMES R. GAUNT, ROBERT J. KING, JR., STEPHEN J. SCHRANTZ, CFO Executive Vice President Executive Vice President Executive Vice President MICHAEL D. BAKER, JAMES J. HUDEPOHL, ROBERT P. NIEHAUS, GERALD L. WISSEL, Executive Vice President Executive Vice President Executive Vice President Executive Vice President, Auditor ROGER W. DEAN, Senior Vice President, Controller Affiliate Presidents and CEOs ----------------------------------------------------------------------------------------------------- ROBERT A. SULLIVAN PATRICK J. FEHRING, JR. SAMUEL G. BARNES BRADLEE F. STAMPER COLLEEN M. KVETKO Fifth Third Bank Fifth Third Bank Fifth Third Bank, Fifth Third Bank, Fifth Third Bank, (Northwestern Ohio) (Central Ohio) Kentucky, Inc. Indiana (Northern) Florida (Lexington) R. DANIEL SADLIER ROBERT J. KING, JR. MICHAEL J. ALLEY WILLIAM A. ROBERT Fifth Third Bank Fifth Third Bank JAMES R. GAUNT Fifth Third Bank, Fifth Third Bank, (Western Ohio) (Northeastern Ohio) Fifth Third Bank, Indiana (Central) Southwest F.S.B. Kentucky, Inc. (Arizona) STEWART M. GREENLEE TIMOTHY P. RAWE (Louisville) Fifth Third Bank Fifth Third Bank, (Ohio Valley) Northern Kentucky JOHN N. DANIEL Fifth Third Bank, Indiana (Southern) Affiliate Chairmen ----------------------------------------------------------------------------------------------------------------- THOMAS B. DONNELL DONALD B. SHACKELFORD JERRY L. KIRBY JAMES B. STURGES DAVID E. REESE Chairman Emeritus Third Bank Fifth Third Bank Fifth Third Bank, Fifth Third Bank, (Central Ohio) (Western Ohio) Indiana (Central) Southwest F.S.B. JOHN S. SZUCH (Arizona) Chairman WILLIAM A. STINNETT III H. LEE COOPER Fifth Third Bank Fifth Third Bank Fifth Third Bank, ROBERT L. ERNST (Northwestern Ohio) (Ohio Valley) Indiana (Southern) Fifth Third Bank (Butler County) (C)Fifth Third Bank 2001 Member F.D.I.C. - Federal Reserve System (R)Reg. U.S. Pat. & T.M. Office
44 47 REMEMBERING [Photo of Clem Buenger] Clement L. Buenger April 1926- March 2000 Leader, mentor, advocate, advisor, friend Clement L. Buenger left an indelible mark on Fifth Third. As Fifth Third's President & CEO from 1979-89 and Chairman from 1989-93, Buenger led with a simple philosophy: "Work a little harder and sell a little harder than your competition and you'll succeed." This counsel built Fifth Third into one of the most respected financial institutions in the country. Born in 1926, Clem Buenger grew up in Ft. Thomas, Kentucky. He served as a radioman in World War II from 1944-46 and then returned to Cincinnati to earn a business degree from Xavier University. After 23 years in the insurance industry -- 16 at an insurance arm of Cincinnati-based grocer, The Kroger Co. -- Clem joined Fifth Third in 1969. He brought with him the ethics of both grocers and insurance representatives...hard work and long hours. He introduced a new sales-oriented aggressiveness and was a standout from his earliest days at Fifth Third because he did something simple but unique: He got out from behind his desk and called on clients, rather than waiting for them to find him. He also orchestrated the Bank's first sales "blitz," where managers gather to call on area businesses. The term has become a part of Fifth Third's sales culture and vocabulary. Customers and shareholders can thank Clem for his stance on "banker's hours" - he didn't like them. A salesperson by trade, Clem knew that longer hours would increase access and productivity, and allow his bankers to win the business. He instituted a system of sales incentives and rewards. One lasting example is the monthly Shoe Leather Award, a pair of expensive new shoes for the employee with the most sales calls. Today, when analysts talk about the value of Fifth Third stock, they often cite the company's work ethic as the foundation of its strength. During the 1980s, when many banks were faltering in the face of stiff competition from unregulated industries, Buenger was a pioneer in developing strategies that fueled Fifth Third's growth and profitability. He set Fifth Third apart from other banks by implementing an aggressive sales culture, hard work ethic and installing Bank Mart(R) locations inside area grocery stores. Under Clem's leadership, Fifth Third's assets grew from $1.1 billion to $12 billion, net income increased from $15.5 million to $196.4 million and market value soared from $97 million to $3.3 billion. "Clem was the hardest working man I have ever met," recalls Fifth Third President & CEO George A. Schaefer, Jr. "When he wasn't working in the bank, he was working in the community. He was a leader, mentor, advocate, advisor and friend, and I consider myself fortunate to have worked with him." When it came to community service, Clem applied the same qualities that propelled him to the top of his profession, and his commitment was extraordinary. He led the Cincinnati Business Committee Task Force on Public Schools to help pull the system from the brink of bankruptcy. The "Buenger Commission" study initiated changes for better education because, according to Clem,"...out of the schools will flow the people who will lead this city." [Photo of Clem and Ann Buenger and Xavier President] In 1989, the Buengers established a scholarship foundation at Xavier, and in 1992, donated $1 million to the University. Clem and Ann Buenger and Xavier President Fr. James Hoff dedicated a new residence hall in 1994. He and his wife, Ann, were committed to improving the lives of children through education. He was a founding board member of INROADS, a job-training program which partners African-American student interns with local businesses. He also built the endowment of the Fund for Independent Schools of Cincinnati (FISC) to provide academic scholarships for African-American youths to attend Cincinnati's leading independent high schools. Clem Buenger was a man of boundless energy. We are forever grateful for his guidance, inspiration, friendship and generosity. 48 www.53.com [Photo of Web Page] EX-21 4 l86643aex21.txt EXHIBIT 21 1 EXHIBIT 21 ---------- FIFTH THIRD BANCORP SUBSIDIARIES AS OF DECEMBER 31, 2000
Jurisdiction of Name Incorporation - ---- ------------- Fifth Third Bank Ohio The Fifth Third Company Ohio The Fifth Third Leasing Company Ohio The Fifth Third Auto Leasing Trust Delaware Midwest Payment Systems, Inc. Ohio Midwest Payment Systems East, Inc. New York Fifth Third International Company Kentucky Fifth Third Trade Services Limited Hong Kong Fidelity Calvin Corporation Ohio American Home Foundation Ohio Fifth Third Real Estate Capital Markets Company Ohio Fifth Third Holdings, LLC Illinois Fifth Third Mortgage Insurance Reinsurance Company Vermont Fifth Third Mortgage Company Ohio Fifth Third Real Estate Investment Trust, Inc. Maryland C.F. Property Management Company Ohio Fifth Third Insurance Agency, Inc. Ohio Fifth Third Bank, Kentucky, Inc. Kentucky Fifth Third Bank, Northern Kentucky, Inc. Kentucky
2 EXHIBIT 21 ---------- FIFTH THIRD BANCORP SUBSIDIARIES AS OF DECEMBER 31, 2000
Jurisdiction of Name Incorporation - ---- ------------- Fifth Third Bank, Indiana Michigan Home Equity of America Ohio Community Financial Services, Incorporated Indiana Pedcor Investments 1994 XX LP Indiana Fifth Third Bank, Southwest, F.S.B. Federal Calvin Securities, Inc. Arizona Fifth Third Bank, Florida Florida Fifth Third Insurance Services, Inc. Indiana CNB Capital Trust I Indiana Fifth Third Securities, Inc. Ohio Fifth Third Community Development Corporation Indiana Fifth Third Investment Company Ohio Fountain Square Insurance Company Arizona Heartland Capital Management, Inc. Indiana Fifth Third Real Estate Resources, Inc. Ohio
EX-23 5 l86643aex23.txt EXHIBIT 23 1 Exhibit 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 33-34075, 33-13252, 33-60474, 33-55223, 33-55553, 333-58249, 333-48049, 33-61149, 333-77293, 333-84955, 333-47428, 333-53434, 333-52188 and 333-84911 of Fifth Third Bancorp on Form S-8 and in Registration Statement No. 333-52182 on Form S-4 and No. 33-54134, 333-58265, 333-42379, 333-80919, 333-86645, 333-56450, 33-34798, 333-53826 and 333-41164 on Form S-3 of our report dated January 16, 2001 incorporated by reference in this Annual Report on Form 10-K of Fifth Third Bancorp for the year ended December 31, 2000. /s/ Deloitte & Touche LLP Cincinnati, Ohio March 28, 2001 -----END PRIVACY-ENHANCED MESSAGE-----