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 $203,025 by December 31, 2000.
Since 1980, Fifth Third Bancorp has:
- Posted consecutive increased earnings per share
and dividend growth
- Increased earnings at an average rate of 16%
- Outperformed the Standard & Poor's 500 16-fold
- Grown one share of stock to nearly 77 shares due to 10 stock splits
since 1983
TRANSFER AGENT/
SHAREHOLDER RELATIONS
Fifth Third Bank
Corporate Trust Services,
Mail Drop 10AT66-3212
Fifth Third Center
Cincinnati, Ohio 45263
(800) 837-2755
(513) 579-5320 (outside continental U.S.)
8 a.m. - 5 p.m. EST
INVESTOR RELATIONS
Neal E. Arnold,
Executive Vice President &
Chief Financial Officer
(513) 579-4356 (513) 579-6246 (fax)
PRESS RELEASES
For faxed copies of
current press releases,
call (800) 758-5804,
#281775
CORPORATE OFFICE
Fifth Third Center
Cincinnati, Ohio 45263
(513) 579-5300
WEBSITE
www.53.com
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CONTENTS
2 President's Letter
6 Management Editorial
15 Consolidated Statements
of Income
16 Consolidated Balance Sheets
17 Consolidated Statements
of Changes in Shareholders' Equity
18 Consolidated Statements
of Cash Flows
19 Notes to Consolidated
Financial Statements
33 Independent Auditors' Report
34 Management's Discussion and
Analysis of Financial Condition
and Results of Operations
42 Consolidated Six Year Summary
of Operations, Condensed Consolidated
Balance Sheet Information
and Summarized Quarterly
Financial Information
43 Consolidated Ten Year Comparison
3
FINANCIAL HIGHLIGHTS
2000 1999 % Change
- --------------------------------------------------------------------------------
EARNINGS AND DIVIDENDS ($ 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.
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