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fifth third bancorp  Q3-02 fifth third bancorp Q3-02 Document Transcript

  • News Release CONTACT: Neal E. Arnold, CFO (Analysts) FOR IMMEDIATE RELEASE (513) 534-4356 October 15, 2002 Bradley S. Adams, IR (Analysts) (513) 534-0983 Roberta R. Jennings (Media) (513) 534-4153 FIFTH THIRD BANCORP REPORTS 15 PERCENT INCREASE IN THIRD QUARTER EARNINGS Fifth Third Bancorp’s operating earnings were $416,554,000 for the third quarter of 2002, up 15 percent, and $1,210,601,000 for the first nine months of 2002, up 20 percent, compared to $363,505,000 and $1,007,953,000 respectively, for the same periods in 2001. Operating earnings per diluted share were $.70 for the quarter, an increase of 13 percent over the $.62 posted in the same period in 2001. For the first nine months of 2002, operating earnings per diluted share were $2.04, an increase of 19 percent over last year’s $1.72. Operating earnings for the third quarter and first nine months of 2002 are equivalent to net income available to common shareholders. On an operating basis, return on average assets (ROA) was 2.18 percent and return on average equity (ROE) was 19.6 percent for the third quarter of 2002, compared to 2.04 percent and 19.7 percent, respectively, for the same quarter last year. The quarterly cash dividend of $.26 per common share represents a 30 percent increase over the same quarter last year and a 13 percent increase over last quarter, the 37th such increase in the Bancorp’s history. The average equity capital ratio was 11.11 percent for the quarter compared to 10.35 percent in 2001’s third quarter illustrating the continuing commitment to maintain a strong, flexible balance sheet. “We are pleased to announce solid financial results,” stated George A. Schaefer, Jr., President and CEO. “Earnings this quarter were driven by our success in expanding Retail and Commercial customer relationships, quality loan growth, and continued strength in all of our business lines. We have taken significant steps in recent periods to reinforce and maintain the recognized strength of our balance sheet while at the same time making the necessary investments in people, technology and facilities to ensure the future growth of the franchise. More specifically, we are devoting significant resources in the expansion and improvement of our sales force, Retail Banking platform and back-office systems in order to drive and support future earnings growth. We believe that we have an extremely solid foundation to sustain revenue growth and increase market share in all of our markets.” “Our outlook for the rest of the year and 2003 is very positive while we remain mindful and prepared for the challenges that continued economic softness and an uncertain rate environment could bring. A consistent risk profile, hard work, daily execution of the basics and one of the strongest balance sheets in the industry give us a great deal of flexibility to respond to changing conditions. Overall, customer additions and revenue momentum in our individual markets continue to be
  • as strong as at any time in our history and we intend to continue focusing on meeting the challenges provided by our competitors.” Operating earnings for the third quarter of 2001 exclude $84.1 million of after-tax nonrecurring merger charges, or $.14 per diluted share, associated with the merger and integration of Old Kent Financial Corporation. Operating earnings for the first nine months of 2001 exclude $293.6 million of after-tax nonrecurring merger charges, or $.50 per diluted share and an after-tax nonrecurring charge for an accounting principle change of $6.8 million, or $.01 per diluted share. Strong Deposit and Loan Growth Strong transaction deposit growth trends continued in the third quarter with 42 percent year-over-year growth in average transaction account balances and a 32 percent annualized sequential increase. Demand deposits continued to exhibit positive momentum based on the popularity of Totally Free Checking and sales success in Commercial with average demand deposits increasing 18 percent on an annualized basis from the second quarter. From last year’s third quarter, average demand deposit balances increased 20 percent and average interest checking balances grew 47 percent. Loan and lease demand improved this quarter with average total loans and leases increasing 12 percent on an annualized sequential basis driven by better than expected commercial loan originations and continued strength in direct installment loan sales. End of period total loan and lease balance comparisons are impacted by the previously announced sale, with servicing retained, of $341 million of residential mortgage loans in late September. Direct installment loans increased by 19 percent over the year-ago quarter with originations remaining strong at $1.72 billion, compared to $1.67 billion last quarter and $1.17 billion a year ago. Commercial period-end loan and lease balances increased by over $1 billion from second quarter levels, or 19 percent on an annualized basis, despite declines in mortgage and construction balances, on the strength of new customer additions and modest improvement in the level of economic activity in the bank’s customer base. Fifth Third is continuing to devote significant sales and marketing focus on driving high quality originations in coming periods. Compared to the third quarter of 2001, net interest income on a fully-taxable equivalent basis increased 11 percent due to an 11 bp increase in the net interest margin and eight percent growth in average earning assets. The increase in net interest income over the prior year was primarily driven by reductions in funding costs due to lower interest rates of all categories. Sequentially, net interest income on a fully-taxable equivalent basis was essentially flat, despite a three percent increase in average earning assets, due to a 16 bp decrease in the net interest margin. The average yield on earning assets decreased by 31 bp from last quarter primarily due to continued asset repricing in a lower rate environment and the sale and subsequent reinvestment of high coupon mortgage-backed securities in the third quarter. The sale of these securities, and $89 million in related gains, were executed in order to minimize risk related to the anticipated elevated level of prepayment speeds on high coupon mortgage-backed securities. Although the effects of this strategy contributed to the decrease in the net interest margin relative to last quarter, near and intermediate term net interest income performance trends will be stabilized given the resulting reduction in prepayment risk. Fifth Third expects margin and net interest income trends in coming periods will be dependent upon the magnitude of loan demand, the overall level of business activity in the Bank’s Midwestern footprint and the path of interest rates in the economy. 2
  • On July 12, 2002, Fifth Third realized a pre-tax gain of approximately $7 million from the sale of six branches in Southern Illinois encompassing approximately $200 million in deposits. Comparisons to last year’s third quarter are impacted by the sale of 11 branches in Arizona that resulted in an approximate $43 million pre-tax gain. Solid Business Line Performance Strong business line revenue growth trends continued in the third quarter with non-interest income up 22 percent over the same quarter last year excluding the impact of branch sales and non-mortgage related securities gains. Midwest Payment Systems, our Electronic Payment Processing subsidiary, delivered a 57 percent increase in revenues over third quarter last year, or 32 percent excluding the approximate $21 million revenue addition from the fourth quarter of 2001 purchase acquisition of Universal Companies (USB). Strong double-digit growth trends in electronic funds transfer (EFT) and merchant processing continued in the third quarter on the strength of a broadly diversified and largely non-cyclical customer base and the addition of several significant new relationships during the quarter. Third quarter transaction volumes increased 25 percent over the same quarter last year and 28 percent on an annualized basis from second quarter levels. Continued growth in the absolute number of deposit accounts and sales successes in treasury management services and Retail Banking fueled a 20 percent increase in deposit service revenues over the third quarter last year. Commercial deposit revenues increased 38 percent over last year’s third quarter on the strength of successful selling efforts and the benefit of a lower interest rate environment. Retail deposit revenues increased 10 percent over last year on the success of sales campaigns and direct marketing programs in generating new account relationships in all of our markets. Sequentially, total deposit revenues increased 29 percent on an annualized basis in the third quarter as the growth in the number of customer relationships has continued to be as strong as at any time in our history. Investment Advisory revenues increased nine percent over the same quarter last year despite poor equity market performance. Private Client and Retail brokerage revenues led the growth, with new product introductions and increased marketing producing strong momentum. Fifth Third remains committed to broadening sales efforts, and partnering with Retail and Commercial relationship managers in order to take advantage of historically good investment performance and an expanding customer base. Fifth Third Investment Advisors, among the largest money managers in the Midwest, has over $28 billion in assets under management and $179 billion in assets under care. Mortgage net service revenue in the third quarter totaled $43.2 million compared to $45.8 million last quarter and $41.6 million in 2001’s third quarter. Mortgage origination totaled $2.7 billion in the third quarter versus $2.0 billion last quarter and $2.0 billion of in-footprint origination in the third quarter of last year. Fifth Third expects the core contribution of mortgage banking to total revenues to continue to decline as originations begin to slow from recent levels but remains committed to offering residential mortgages as part of its full financial services product offering to customers within its geographic footprint. Third quarter mortgage net service revenue was comprised of $89.8 million in total mortgage banking fees, plus $10.2 million resulting from the servicing asset and corresponding gains recognized in the previously discussed mortgage loan sale, plus $33.8 million of gains on the sale of balance sheet securities from a portfolio established to hedge against volatility related to the value of mortgage servicing rights, plus $95.6 million of gains and mark-to-market adjustments on both settled and outstanding free-standing derivative financial instruments and less $186.2 million in net valuation adjustments and amortization on mortgage servicing rights. The sale of balance sheet securities, mark-to-market adjustments 3
  • on free-standing derivative financial instruments, corresponding valuation adjustments, and gains related to the loan sale resulted from movements in interest rates and the anticipated level of prepayment speeds on the mortgage servicing portfolio. Fifth Third’s mortgage servicing asset, net of the valuation reserve, is $254.3 million at September 30, 2002, compared to $414.5 million last quarter and $484.3 million a year ago. Other service charges and fees totaled $143.8 million, an increase of 13 percent over last year, excluding the impact of the $7 million and $43 million branch sale gains in the current and prior year’s third quarter, respectively. The growth is primarily due to increases across nearly all categories, including a 16 percent year-over-year increase in consumer loan and lease fees and a 19 percent increase in Commercial banking revenues which resulted primarily from a 16 percent increase in foreign exchange services and a 15 percent increase in total international revenues. Institutional fixed income trading and sales and insurance income also advanced 23 percent and 12 percent, respectively. Stable Credit Performance Credit quality metrics remained stable in the third quarter with the level of nonperforming assets and net charge-offs remaining a small percentage of the total loan and lease portfolio. Nonperforming assets (NPAs) stand at 56 bp of total loans and leases and other real estate owned at September 30, 2002, relatively consistent with the 53 bp posted last quarter and in line with previously announced expectations. The third quarter provision for loan and lease losses totaled $55.5 million with the credit loss reserve remaining steady at 1.50 percent of total loans and leases outstanding. Net charge-offs for the quarter were $43.6 million, compared to $43.4 million last quarter and $46.7 million in the third quarter of 2001. As a percentage of average loans and leases, third quarter net charge-offs were modestly improved at 39 bp, compared to 44 bp in 2001’s third quarter and 40 bp last quarter. Operating Expenses Operating expenses increased by 26 percent over last year’s third quarter, excluding merger related charges, and 19 percent sequentially, resulting in a 51.3 percent efficiency ratio versus 43.5 percent last quarter, excluding non-mortgage related securities gains. As previously announced in the third quarter, Fifth Third realized a pre-tax expense of approximately $82 million ($53 million after-tax) for certain charged-off treasury related aged receivable and in-transit reconciliation items. Fifth Third is devoting significant effort and resources in the continuation of the review of these items, including third party expertise, and any recovery will be recognized in the future if recoverability exists. Excluding the impact of the treasury related charged-off items and non-mortgage related securities gains, Fifth Third’s efficiency ratio was 44.5 percent in the third quarter with an overall increase in operating expenses of 10 percent year-over-year, excluding merger related charges in last year’s third quarter. Impact of New Accounting Standard Effective January 1, 2002, Fifth Third adopted Statement of Financial Accounting Standards (SFAS) No. 142 “Goodwill and Other Intangible Assets” with no resulting impairment. Upon implementation of SFAS No. 142, Fifth Third realized a reduction in operating expenses related to the amortization of goodwill. The following table is being provided in order to present analysts, investors and other interested parties an illustration of the impact as if the new accounting standard 4
  • was effective beginning January 1, 2001. In general, the pro forma impact of implementation on 2001 operating results would be an approximate $40 million reduction in previously reported annual operating expenses. 3Q-2001 3rd Quarter 3rd Quarter Pro forma Pro forma 2002 2001 Restated % Change Operating Earnings Per Diluted Share $0.70 $0.62 $0.63 11.1% Earnings Per Diluted Share $0.70 $0.47 $0.49 42.9% ROA, on an operating basis 2.18% 2.04% 2.09% 4.3% ROE, on an operating basis 19.6% 19.7% 20.1% (2.5%) Efficiency Ratio 51.3% 45.3% 44.4% 15.5% Conference Call Fifth Third will host a conference call to discuss these third quarter financial results at 8:00 a.m. (Eastern Time) today. Investors, analysts and other interested parties may dial into the conference call at 877-823-6611 for domestic access and 416- 640-4127 for international access (passcode: FITB). A replay of the conference call will be available until 5:00 p.m. October 22, 2002 by dialing 877-289-8525 for domestic access and 416-640-1917 for international access (passcode: 214249#). Corporate Profile Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. The Company has $78 billion in assets, operates 16 affiliates with 919 full-service Banking Centers, including 133 Bank Mart® locations open seven days a week inside select grocery stores and 1,876 Jeanie® ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee and West Virginia. The financial strength of Fifth Third’s affiliate banks continues to be recognized by rating agencies with deposit ratings of AA- and Aa1 from Standard & Poor’s and Moody’s, respectively. Additionally, Fifth Third Bancorp continues to maintain the highest short-term ratings available at A-1+ and Prime-1, and was recently recognized by Moody’s with one of the highest senior debt ratings for any U.S. bank holding company of Aa2. Fifth Third operates four main businesses: Retail, Commercial, Investment Advisors and Midwest Payment Systems, the Bank’s electronic payment processing subsidiary. Investor information and press releases can be viewed at www.53.com. The Company’s common stock is traded through the Nasdaq National Market System under the symbol “FITB.” **** This document contains forward-looking statements about Fifth Third Bancorp which we believe are within the meaning of the Private Securities Litigation Reform Act of 1995. This document contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of Fifth Third including statements preceded by, followed by or that include the words “believes,” “expects,” “anticipates” or similar expressions. These forward-looking statements involve certain risks and uncertainties. There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to: (1) competitive pressures among depository institutions increase significantly; (2) changes in the interest rate environment reduce interest margins; (3) prepayment speeds, loan sale volumes, charge-offs and loan loss provisions; (4) general economic conditions, either national or in the states in which Fifth Third does business, are less favorable than expected; (5) legislative or regulatory changes adversely affect the businesses in which Fifth Third is engaged; (6) changes in the securities markets. Further information on other factors which could affect the financial results of Fifth Third are included in Fifth Third’s filings with the Securities and Exchange Commission. These documents are available free of charge at the Commission’s website at http://www.sec.gov and/or from Fifth Third. ### 5
  • FIFTH THIRD BANCORP AND SUBSIDIARIES Quarterly Financial Review September 30, 2002 Table of Contents Page Earnings Review Financial Highlights 2 Consolidated Statements of Income 4 Consolidated Statements of Changes in Shareholders' Equity 6 Condensed Consolidated Quarterly Statements of Income 7 Other Operating Income and Operating Expenses 8 Financial Condition Consolidated Balance Sheets 9 Loan and Lease Portfolios 10 Consolidated Average Balance Sheets, Yields and Rates 11 Analysis of Risk-Based Capital 13 Asset Quality Summary of Credit Loss Experience 14 Underperforming Assets 15 1
  • FIFTH THIRD BANCORP AND SUBSIDIARIES Financial Highlights (unaudited) Three Months Ended September 30, September 30, Percent 2002 2001 Change Earnings ($000's except per share): Net Interest Income (FTE) $ 688,253 618,913 11.2 Operating Earnings (a) 416,554 363,505 14.6 Net Income Available to Common Shareholders 416,554 279,417 49.1 Earnings per Share 0.72 0.48 50.0 Earnings per Diluted Share 0.70 0.47 48.9 Operating Earnings per Diluted Share (a) 0.70 0.62 12.9 Key Ratios (percent): Return on Average Assets (a) 2.18 2.04 6.9 Return on Average Equity (a) 19.6 19.7 (0.5) Net Interest Margin 3.91 3.80 2.9 Efficiency Ratio, including Net Non-Qualifying Hedge Security Gains (a) (b) 51.3 45.3 13.2 Average Shareholders' Equity to Average Assets 11.11 10.35 7.3 Risk-Based Capital Ratios (c): Tier I 11.84 11.69 1.3 Total 13.74 13.93 (1.4) Common Stock Data: Cash Dividends Declared Per Share $ 0.26 0.20 30.0 Book Value Per Share 14.48 12.81 13.0 Market Price Per Share High 68.54 64.77 5.8 Low 55.26 50.69 9.0 End of Period 61.23 61.48 (0.4) Price/Earnings Ratio (d) 22.76 35.13 (35.2) Nine Months Ended September 30, September 30, Percent 2002 2001 Change Earnings ($000's except per share): Net Interest Income (FTE) $ 2,030,604 1,838,934 10.4 Operating Earnings (a) 1,210,601 1,007,953 20.1 Net Income Available to Common Shareholders 1,210,601 707,554 71.1 Earnings per Share 2.08 1.23 69.1 Earnings per Diluted Share 2.04 1.21 68.6 Operating Earnings per Diluted Share (a) 2.04 1.72 18.6 Key Ratios (percent): Return on Average Assets (a) 2.20 1.91 15.2 Return on Average Equity (a) 20.0 18.9 5.8 Net Interest Margin 4.02 3.79 6.1 Efficiency Ratio, including Net Non-Qualifying Hedge Security Losses (a) (b) 46.5 47.5 (2.1) Average Shareholders' Equity to Average Assets 11.04 10.10 9.3 Common Stock Data: Cash Dividends Declared Per Share $ 0.72 0.60 20.0 Market Price Per Share High 69.70 64.77 7.6 Low 55.26 45.69 20.9 2
  • FIFTH THIRD BANCORP AND SUBSIDIARIES Financial Highlights, continued (unaudited) Book Value and Market Price Range Per Share Market Price Book Value Per Share Range Per Share Mar. 31 Jun. 30 Sept. 30 Dec. 31 Low High 1997 $ 8.00 $ 8.38 $ 8.70 $ 9.00 $ 18.00 $ 37.11 1998 8.87 9.27 9.43 9.64 31.67 49.42 1999 9.74 9.59 9.56 9.84 38.58 50.29 2000 9.99 10.33 10.72 11.71 29.33 60.88 2001 12.19 12.26 12.81 13.11 45.69 64.77 2002 13.39 14.10 14.48 55.26 69.70 Earnings Per Share Quarter Ended Mar. 31 Jun. 30 Sept. 30 Dec. 31 Year-to-Date 1997 $ 0.33 $ 0.35 $ 0.36 $ 0.36 $ 1.39 1998 0.38 0.18 0.45 0.43 1.44 1999 0.45 0.45 0.45 0.33 1.68 2000 0.47 0.44 0.55 0.56 2.02 2001 0.52 0.22 0.48 0.67 1.90 2002 0.67 0.69 0.72 2.08 Earnings Per Diluted Share Quarter Ended Mar. 31 Jun. 30 Sept. 30 Dec. 31 Year-to-Date 1997 $ 0.32 $ 0.34 $ 0.36 $ 0.36 $ 1.37 1998 0.37 0.18 0.44 0.43 1.42 1999 0.44 0.44 0.44 0.33 1.66 2000 0.46 0.43 0.54 0.55 1.98 2001 0.51 0.22 0.47 0.65 1.86 2002 0.66 0.68 0.70 2.04 (a) For comparability, certain ratios and statistics exclude nonrecurring merger charges and a nonrecurring accounting principle change of $129.4 million pretax ($84.1 million after tax, or $.14 per diluted share) and $394.5 million pretax ($300.3 million after tax, or $.51 per diluted share) for the three and nine months ended September 30, 2001, respectively. (b) Includes $33.8 million and $32.7 million of net realized gains for the three and nine months ended September 30, 2002, respectively, and $69.7 million of net realized gains for the three and nine months ended September 30, 2001 on securities sales from the mortgage servicing rights non-qualifying hedging program. (c) September 30, 2002 ratios are estimated. (d) Based on the most recent twelve-month earnings per diluted share and end of period stock prices. 3
  • FIFTH THIRD BANCORP AND SUBSIDIARIES Consolidated Statements of Income (unaudited) ($000's) Three Months Ended September 30, September 30, 2002 2001 INTEREST INCOME Interest and Fees on Loans and Leases $ 702,948 819,889 Interest on Securities Taxable 318,238 317,249 Exempt from Income Taxes 14,080 16,167 Total Interest on Securities 332,318 333,416 Interest on Other Short-Term Investments 1,281 2,198 Total Interest Income 1,036,547 1,155,503 INTEREST EXPENSE Interest on Deposits Interest Checking 80,691 75,568 Savings and Money Market 51,729 51,206 Time Deposits, including Foreign 101,750 244,639 Total Interest on Deposits 234,170 371,413 Interest on Federal Funds Borrowed 12,018 29,941 Interest on Other Short-Term Borrowings 17,881 37,918 Interest on Long-Term Debt 94,805 108,276 Total Interest Expense 358,874 547,548 NET INTEREST INCOME 677,673 607,955 Provision for Credit Losses 55,524 47,509 NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 622,149 560,446 OTHER OPERATING INCOME Electronic Payment Processing Income 134,866 86,038 Service Charges on Deposits 113,770 94,629 Mortgage Banking Revenue, Including Net Non-Qualifying Hedge Security Gains (a) 43,184 41,626 Investment Advisory Income 82,723 75,902 Other Service Charges and Fees 143,767 163,927 Securities Gains 89,347 3,232 Total Other Operating Income 607,657 465,354 OPERATING EXPENSES Salaries, Wages & Incentives 219,465 210,271 Employee Benefits 47,581 38,948 Equipment Expenses 19,459 20,656 Net Occupancy Expenses 36,209 35,872 Other Operating Expenses 296,448 184,058 Merger-Related Charges - 129,366 Total Operating Expenses 619,162 619,171 INCOME BEFORE INCOME TAXES & MINORITY INTEREST 610,644 406,629 Applicable Income Taxes 184,483 127,027 INCOME BEFORE MINORITY INTEREST 426,161 279,602 Minority Interest, Net of Tax 9,422 - NET INCOME 416,739 279,602 Dividend on Preferred Stock 185 185 NET INCOME AVAILABLE TO COMMON SHAREHOLDERS (b) $ 416,554 279,417 Average Common Shares (000's): Outstanding 580,504 577,252 Diluted 592,024 593,762 4
  • FIFTH THIRD BANCORP AND SUBSIDIARIES Consolidated Statements of Income (unaudited) ($000's) Nine Months Ended September 30, September 30, 2002 2001 INTEREST INCOME Interest and Fees on Loans and Leases $ 2,104,189 2,678,859 Interest on Securities Taxable 950,558 904,520 Exempt from Income Taxes 42,215 50,930 Total Interest on Securities 992,773 955,450 Interest on Other Short-Term Investments 4,598 8,800 Total Interest Income 3,101,560 3,643,109 INTEREST EXPENSE Interest on Deposits Interest Checking 227,738 246,487 Savings and Money Market 144,323 167,147 Time Deposits, including Foreign 357,364 836,326 Total Interest on Deposits 729,425 1,249,960 Interest on Federal Funds Borrowed 34,816 139,972 Interest on Other Short-Term Borrowings 50,812 176,625 Interest on Long-Term Debt 284,651 272,476 Total Interest Expense 1,099,704 1,839,033 NET INTEREST INCOME 2,001,856 1,804,076 Provision for Credit Losses 174,526 139,066 Merger-Related Provision for Credit Losses - 35,437 NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 1,827,330 1,629,573 OTHER OPERATING INCOME Electronic Payment Processing Income 364,711 233,974 Service Charges on Deposits 318,430 264,329 Mortgage Banking Revenue, Including Net Non-Qualifying Hedge Security Gains (a) 153,972 155,248 Investment Advisory Income 259,130 233,426 Other Service Charges and Fees 415,714 406,040 Securities Gains 98,848 10,339 Total Other Operating Income 1,610,805 1,303,356 OPERATING EXPENSES Salaries, Wages & Incentives 662,207 629,700 Employee Benefits 141,908 115,765 Equipment Expenses 59,491 68,267 Net Occupancy Expenses 105,747 109,519 Other Operating Expenses 677,552 565,026 Merger-Related Charges - 348,595 Total Operating Expenses 1,646,905 1,836,872 INCOME BEFORE INCOME TAXES, MINORITY INTEREST & CUMULATIVE EFFECT 1,791,230 1,096,057 Applicable Income Taxes 551,794 381,167 INCOME BEFORE MINORITY INTEREST & CUMULATIVE EFFECT 1,239,436 714,890 Minority Interest, Net of Tax 28,280 - INCOME BEFORE CUMULATIVE EFFECT 1,211,156 714,890 Cumulative Effect of Change in Accounting Principle, Net of Tax - 6,781 NET INCOME 1,211,156 708,109 Dividend on Preferred Stock 555 555 NET INCOME AVAILABLE TO COMMON SHAREHOLDERS (b) $ 1,210,601 707,554 Average Common Shares (000's): Outstanding 581,626 574,349 Diluted 593,758 590,190 (a) Includes $33.8 million and $32.7 million of net realized gains for the three and nine months ended September 30, 2002, respectively, and $69.7 million of net realized gains for the three and nine months ended September 30, 2001 on securities sales from the mortgage servicing rights non-qualifying hedging program. (b) Net Income Available to Common Shareholders excluding nonrecurring items was $363,505 and $1,007,953 for the three and nine months ended September 30, 2001. 5
  • FIFTH THIRD BANCORP AND SUBSIDIARIES Consolidated Statements of Changes in Shareholders' Equity (unaudited) ($000's) Three Months Ended September 30, September 30, 2002 2001 BALANCE AT JUNE 30 $ 8,190,339 7,068,224 Net Income 416,739 279,602 Nonowner Changes in Equity, Net of Tax: Change in Unrealized Gains/(Losses) on Securities Available-for-Sale and Qualifying Cash Flow Hedges 95,221 153,024 Net Income and Nonowner Changes in Equity 511,960 432,626 Cash Dividends Declared: Fifth Third Bancorp: Common Stock (2002 - $.26 per share and 2001 - $.20 per share) (150,475) (115,881) Preferred Stock (185) (185) Pooled Companies Prior to Acquisition: Common Stock - - Preferred Stock - - Stock Options Exercised including Treasury Shares Issued 28,898 33,317 Shares Purchased (202,382) (14,696) Stock Issued in Acquisitions and Other (2,417) 2,257 BALANCE AT SEPTEMBER 30 $ 8,375,738 7,405,662 Nine Months Ended September 30, September 30, 2002 2001 BALANCE AT DECEMBER 31 $ 7,639,277 6,662,412 Net Income 1,211,156 708,109 Nonowner Changes in Equity, Net of Tax: Change in Unrealized Gains/(Losses) on Securities Available-for-Sale and Qualifying Cash Flow Hedges 311,935 209,933 Net Income and Nonowner Changes in Equity 1,523,091 918,042 Cash Dividends Declared: Fifth Third Bancorp: Common Stock (2002 - $.72 per share and 2001 - $.60 per share) (418,049) (325,572) Preferred Stock (555) (370) Pooled Companies Prior to Acquisition: Common Stock - (50,872) Preferred Stock - (185) Stock Options Exercised including Treasury Shares Issued 93,845 96,225 Shares Purchased (458,418) (14,696) Stock Issued in Acquisitions and Other (3,453) 120,678 BALANCE AT SEPTEMBER 30 $ 8,375,738 7,405,662 6
  • FIFTH THIRD BANCORP AND SUBSIDIARIES Condensed Consolidated Quarterly Statements of Income (unaudited) ($000's) Quarter Ended Sept. 30 Jun. 30 Mar. 31 Dec. 31 Sept. 30 2002 2002 2002 2001 2001 Interest Income $ 1,036,547 1,047,301 1,017,712 1,065,716 1,155,503 Taxable Equivalent Adjustment 10,580 10,052 8,116 10,663 10,958 Taxable Equivalent Interest Income 1,047,127 1,057,353 1,025,828 1,076,379 1,166,461 Interest Expense 358,874 369,285 371,545 436,734 547,548 Net Interest Income 688,253 688,068 654,283 639,645 618,913 Provision for Credit Losses 55,524 64,040 54,962 61,574 47,509 Net Interest Income After Provision for Credit Losses 632,729 624,028 599,321 578,071 571,404 Other Operating Income 607,657 506,872 496,275 494,155 465,354 Operating Expenses 619,162 519,875 507,868 504,538 489,805 Merger-Related Charges - - - - 129,366 Income Before Income Taxes & Minority Interest 621,224 611,025 587,728 567,688 417,587 Applicable Income Taxes 184,483 187,282 180,029 168,873 127,027 Taxable Equivalent Adjustment 10,580 10,052 8,116 10,663 10,958 Income Before Minority Interest 426,161 413,691 399,583 388,152 279,602 Minority Interest, Net of Tax 9,422 9,429 9,429 2,490 - Net Income 416,739 404,262 390,154 385,662 279,602 Dividend on Preferred Stock 185 185 185 185 185 Net Income Available to Common Shareholders $ 416,554 404,077 389,969 385,477 279,417 Earnings per Share $ 0.72 0.69 0.67 0.67 0.48 Earnings per Diluted Share 0.70 0.68 0.66 0.65 0.47 Operating Earnings per Diluted Share 0.70 0.68 0.66 0.65 0.62 Cash Dividends Declared $ 0.26 0.23 0.23 0.23 0.20 Average Common Shares (000's): Outstanding 580,504 581,814 582,583 577,939 577,252 Diluted 592,024 594,257 594,982 593,932 593,762 Net Interest Margin (percent) 3.91 4.07 4.10 3.94 3.80 7
  • FIFTH THIRD BANCORP AND SUBSIDIARIES Other Operating Income and Operating Expenses (unaudited) ($000's) Quarter Ended Sept. 30 Jun. 30 Mar. 31 Dec. 31 Sept. 30 2002 2002 2002 2001 2001 OTHER OPERATING INCOME: Electronic Payment Processing Income $ 134,866 121,787 108,058 113,522 86,038 Service Charges on Deposits 113,770 106,092 98,568 103,115 94,629 Mortgage Banking Revenue, Net of Hedge Security Gains and Losses (a) 43,184 45,810 64,978 50,381 41,626 Investment Advisory Income 82,723 91,959 84,447 73,087 75,902 Other Service Charges and Fees 143,767 141,023 130,924 136,183 163,927 Subtotal 518,310 506,671 486,975 476,288 462,122 Securities Gains 89,347 201 9,300 17,867 3,232 TOTAL OTHER OPERATING INCOME $ 607,657 506,872 496,275 494,155 465,354 OPERATING EXPENSES: Salaries, Incentives & Employee Benefits $ 267,046 269,497 267,573 248,189 249,219 Equipment Expenses 19,459 19,444 20,588 22,866 20,656 Net Occupancy Expenses 36,209 35,403 34,134 36,680 35,872 Other Operating Expenses 296,448 195,531 185,573 196,803 184,058 Merger-Related Charges - - - - 129,366 TOTAL OPERATING EXPENSES $ 619,162 519,875 507,868 504,538 619,171 Employees (FTE) 18,764 18,651 18,545 18,373 18,248 Banking Centers 919 921 927 933 941 (a) Includes $33.8 million, $35.7 million, ($36.7) million, $73.2 million and $69.7 million of net realized gains/(losses) for the three months ended September 30, 2002, June 30, 2002, March 31, 2002, December 31, 2001 and September 30, 2001, respectively, on securities sales from the mortgage servicing rights non-qualifying hedging program. 8
  • FIFTH THIRD BANCORP AND SUBSIDIARIES Consolidated Balance Sheets (unaudited) ($ in millions) Sept. 30, Sept. 30, 2002 2001 ASSETS Cash and Due from Banks $ 1,830 1,446 Securities Available-for-Sale (a) 24,402 20,952 Securities Held-to-Maturity (b) 21 17 Other Short-Term Investments 598 467 Loans Held for Sale 2,664 1,864 Loans and Leases Commercial Loans 12,427 10,683 Construction Loans 3,207 3,337 Commercial Mortgage Loans 5,659 6,249 Commercial Lease Financing 3,672 2,983 Residential Mortgage Loans 3,038 4,672 Consumer Loans 14,757 12,372 Consumer Lease Financing 2,485 1,813 Unearned Income (1,039) (873) Reserve for Credit Losses (661) (617) Total Loans and Leases 43,545 40,619 Bank Premises and Equipment 850 826 Accrued Income Receivable 524 594 Mortgage Servicing Rights 254 484 Other Assets 3,006 2,849 TOTAL ASSETS $ 77,694 70,118 LIABILITIES Deposits Interest Checking $ 17,208 11,437 Savings and Money Market 11,834 7,912 Consumer Time Deposits 8,616 13,142 Total Customer Deposits 37,658 32,491 Other Time Deposits, including Foreign 3,862 5,300 Demand 9,926 7,782 Total Deposits 51,446 45,573 Federal Funds Borrowed 3,009 2,246 Other Short-Term Borrowings 4,155 4,639 Accrued Taxes, Interest and Expenses 2,341 2,332 Other Liabilities 457 791 Long-Term Debt 7,458 6,958 Guaranteed Preferred Beneficial Interests in Convertible Subordinated Debentures - 173 TOTAL LIABILITIES 68,866 62,712 Minority Interest 452 - TOTAL SHAREHOLDERS' EQUITY (c) 8,376 7,406 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 77,694 70,118 (a) Amortized cost: September 30, 2002 - $23,876 and September 30, 2001 - $20,543. (b) Market values: September 30, 2002 - $21 and September 30, 2001 - $17. (c) Common Shares: Stated value $2.22 per share; authorized 1,300,000,000; outstanding September 30, 2002 - 578,525,454 (excluding 4,901,650 treasury shares) and September 30, 2001 - 577,918,732 (excluding 250,663 treasury shares). 9
  • FIFTH THIRD BANCORP AND SUBSIDIARIES Loan and Lease Portfolios (unaudited) ($ in millions) Sept. 30 Jun. 30 Mar. 31 Dec. 31 Sept. 30 2002 2002 2002 2001 2001 On-Balance Sheet: Commercial Loans & Leases Commercial (a) $ 12,427 11,521 10,937 10,808 10,646 Mortgage 5,659 5,759 5,917 6,085 6,249 Construction 2,930 3,008 3,083 3,103 3,118 Leases 2,918 2,582 2,521 2,487 2,338 Subtotal 23,934 22,870 22,458 22,483 22,351 Retail Loans & Leases Installment 14,277 13,503 12,521 12,117 11,971 Mortgage 3,316 4,449 4,745 4,758 4,891 Credit Card 479 488 446 448 401 Leases (c) 2,200 2,078 1,874 1,742 1,622 Subtotal 20,272 20,518 19,586 19,065 18,885 Total Loans & Leases Held for Investment 44,206 43,388 42,044 41,548 41,236 Loans Held for Sale 2,664 1,290 1,455 2,180 1,864 . Off-Balance Sheet (b): Residential Mortgage 29,044 30,529 30,968 31,598 34,299 Consumer Leases (c) 1,636 1,814 1,977 2,124 2,863 Commercial (a) 4,131 4,240 4,389 4,315 4,265 Total Off-Balance Sheet 34,811 36,583 37,334 38,037 41,427 Total Serviced $ 81,681 81,261 80,833 81,765 84,527 (a) Fifth Third transfers certain investment-grade commercial loans to an asset-backed commercial paper program. The outstanding balance of these loans was $1.9 billion at the end of 2002's third and second quarter and $2.1 billion at the end of 2002's first quarter, $2 billion at the end of 2001's fourth quarter and $1.9 billion at the end of 2001's third quarter. In addition, Fifth Third services various real estate loans originated and sold to investors. The outstanding balance of these was $2.2 billion at the end of 2002's third quarter and $2.3 billion at the end of 2002's second and first quarter and $2.4 billion, and $2.3 billion at the end of 2001's fourth and third quarters. (b) Includes loans which have been securitized or sold for which the Bancorp retains the servicing. (c) Fifth Third sold with servicing retained consumer auto lease assets of approximately $697 million in the third quarter of 2001. 10
  • FIFTH THIRD BANCORP AND SUBSIDIARIES Consolidated Average Balance Sheets, Yields and Rates Taxable Equivalent Basis (unaudited) ($ in millions) Three Months Ended September 30, 2002 2001 Average Average Average Yield/Rate Average Yield/Rate Balance (%) Balance (%) Assets: Interest-Earning Assets Loans and Leases $ 45,760 6.12 44,179 7.39 Securities Taxable 23,024 5.51 19,256 6.58 Tax Exempt 1,093 7.68 1,248 7.54 Total Interest-Earning Assets 69,877 5.95 64,683 7.15 Cash and Due from Banks 1,504 1,489 Other Assets 4,952 5,223 Reserve for Credit Losses (657) (629) Total Assets $ 75,676 70,766 Liabilities: Interest-Bearing Liabilities Interest Checking $ 17,057 1.88 11,585 2.59 Savings and Money Market 11,623 1.77 7,503 2.71 Time Deposits 8,966 3.63 13,448 5.37 Total Consumer Deposits 37,646 2.26 32,536 3.76 Other Time Deposits, including Foreign 3,401 2.31 5,607 5.09 Federal Funds Borrowed 2,680 1.78 3,491 3.40 Other Short-Term Borrowings 3,909 1.81 4,564 3.30 Long-Term Debt 7,462 5.04 7,000 6.14 Total Interest-Bearing Liabilities 55,098 2.58 53,198 4.08 Demand Deposits 9,026 7,510 Other Liabilities 2,697 2,732 Total Liabilities 66,821 63,440 Minority Interest 444 - Shareholders' Equity 8,411 7,326 Total Liabilities and Shareholders' Equity $ 75,676 70,766 Net Interest Income Margin on a Taxable Equivalent Basis 3.91 3.80 Net Interest Rate Spread 3.37 3.07 Interest-Bearing Liabilities to Interest-Earning Assets 78.85 82.24 11
  • FIFTH THIRD BANCORP AND SUBSIDIARIES Consolidated Average Balance Sheets, Yields and Rates Taxable Equivalent Basis (unaudited) ($ in millions) Nine Months Ended September 30, 2002 2001 Average Average Average Yield/Rate Average Yield/Rate Balance (%) Balance (%) Assets: Interest-Earning Assets Loans and Leases $ 44,548 6.35 45,472 7.91 Securities Taxable 21,802 5.86 18,191 6.71 Tax Exempt 1,111 7.32 1,285 7.80 Total Interest-Earning Assets 67,461 6.20 64,948 7.57 Cash and Due from Banks 1,557 1,414 Other Assets 5,050 4,870 Reserve for Credit Losses (639) (626) Total Assets $ 73,429 70,606 Liabilities: Interest-Bearing Liabilities Interest Checking $ 15,757 1.93 11,160 2.95 Savings and Money Market 10,335 1.87 7,233 3.09 Time Deposits 9,743 3.93 13,878 5.71 Total Consumer Deposits 35,835 2.46 32,271 4.17 Other Time Deposits, including Foreign 3,655 2.60 6,250 5.20 Federal Funds Borrowed 2,695 1.73 4,160 4.50 Other Short-Term Borrowings 3,916 1.74 5,232 4.51 Long-Term Debt 7,471 5.09 6,048 6.02 Total Interest-Bearing Liabilities 53,572 2.74 53,961 4.56 Demand Deposits 8,710 7,034 Other Liabilities 2,606 2,482 Total Liabilities 64,888 63,477 Minority Interest 434 - Shareholders' Equity 8,107 7,129 Total Liabilities and Shareholders' Equity $ 73,429 70,606 Net Interest Income Margin on a Taxable Equivalent Basis 4.02 3.79 Net Interest Rate Spread 3.46 3.01 Interest-Bearing Liabilities to Interest-Earning Assets 79.41 83.08 12
  • FIFTH THIRD BANCORP AND SUBSIDIARIES Analysis of Risk-Based Capital (unaudited) ($ in millions) Sept. 30 Jun. 30 Mar. 31 Dec. 31 Sept. 30 2002 2002 2002 2001 2001 Tier I Capital: Shareholders' Equity and Other $ 8,928 8,677 8,285 8,306 7,872 Less: Goodwill and Certain Other Intangibles (954) (936) (945) (950) (762) Adj: Unrealized Losses (Gains) (320) (225) 31 (8) (238) Total Tier I Capital 7,654 7,516 7,371 7,348 6,872 Total Risk-Based Capital: Tier I Capital 7,654 7,516 7,371 7,348 6,872 Qualifying Reserve for Credit Losses 668 661 629 624 617 Qualifying Subordinated Notes 560 798 816 599 702 Total Risk-Based Capital $ 8,882 8,975 8,816 8,571 8,191 Net Risk-Weighted Assets $ 64,664 61,263 59,253 59,491 58,803 Ratios: Average Shareholders' Equity to Average Assets 11.11% 10.92% 11.09% 10.80% 10.35% Risk-Based Ratios (a): Tier I 11.84% 12.27% 12.44% 12.35% 11.69% Total Risk-Based: Capital 13.74% 14.65% 14.88% 14.41% 13.93% Leverage Ratio 10.25% 10.35% 10.53% 10.52% 9.79% (a) September 30, 2002 regulatory capital data and risk-based capital ratios are estimated. Goodwill and Intangibles (unaudited) ($000's) As of and for the Quarter Ended Sept. 30 Jun. 30 Mar. 31 Dec. 31 Sept. 30 2002 2002 2002 2001 2001 Goodwill and Intangibles, Net $ 954,137 935,590 945,150 949,764 761,774 Goodwill and Intangibles Amortization Expense (b) 8,982 9,233 9,411 18,726 17,049 (b) Adoption on January 1, 2002 of Statement of Financial Accounting Standards No. 142 resulted in the elimination of goodwill amortization expense. 13
  • FIFTH THIRD BANCORP AND SUBSIDIARIES Summary of Credit Loss Experience (unaudited) ($000's) Quarter Ended Sept. 30 Jun. 30 Mar. 31 Dec. 31 Sept. 30 2002 2002 2002 2001 2001 Reserve for Credit Losses, Beg of Period $ 649,166 628,595 624,080 616,608 617,270 Losses Charged-Off: Construction and Commercial Loans (28,106) (27,496) (25,146) (31,354) (32,084) Mortgage Loans (2,844) (2,230) (1,223) (1,427) (1,287) Consumer Loans (25,583) (26,247) (32,033) (30,356) (20,743) Leases (10,107) (8,825) (12,777) (11,948) (16,887) Total Losses (66,640) (64,798) (71,179) (75,085) (71,001) Recoveries of Losses Previously Charged Off: Construction and Commercial Loans 8,994 6,981 5,814 7,930 13,105 Mortgage Loans 3 258 2 10 2 Consumer Loans 11,715 11,235 11,232 9,162 8,496 Leases 2,358 2,965 3,758 3,395 2,705 Total Recoveries 23,070 21,439 20,806 20,497 24,308 Net Losses Charged Off: Construction and Commercial Loans (19,112) (20,515) (19,332) (23,424) (18,979) Mortgage Loans (2,841) (1,972) (1,221) (1,417) (1,285) Consumer Loans (13,868) (15,012) (20,801) (21,194) (12,247) Leases (7,749) (5,860) (9,019) (8,553) (14,182) Total Net Losses (43,570) (43,359) (50,373) (54,588) (46,693) Acquired & Other (186) (110) (74) 486 (1,478) Operating Provision 55,524 64,040 54,962 61,574 47,509 Reserve for Credit Losses, End of Period $ 660,934 649,166 628,595 624,080 616,608 Loans and Leases Outstanding ($ in millions) $ 44,206 43,388 42,044 41,548 41,236 Average Loans & Leases Outstanding ($ in millions) (a) $ 44,174 42,983 41,640 41,271 41,995 Reserve as a Percent of Loans & Leases Outstanding 1.50 1.50 1.50 1.50 1.50 Net Charge-Offs as a Percent of Average Loans & Leases Outstanding 0.39 0.40 0.49 0.52 0.44 (a) Excludes average loans held for sale. 14
  • FIFTH THIRD BANCORP AND SUBSIDIARIES Underperforming Assets (unaudited) ($000's) Sept. 30 Jun. 30 Mar. 31 Dec. 31 Sept. 30 2002 2002 2002 2001 2001 Nonaccrual Loans and Leases 226,840 211,592 219,128 215,961 192,740 Renegotiated Loans and Leases - - - - 475 Other Real Estate Owned 21,028 19,498 21,168 19,142 17,285 Total Nonperforming Assets 247,868 231,090 240,296 235,103 210,500 Ninety Days Past Due Loans and Leases (a) 191,116 182,884 176,806 163,694 140,378 Total Underperforming Assets $ 438,984 413,974 417,102 398,797 350,878 Nonperforming Assets as a Percent of Loans, Leases and Other Real Estate Owned 0.56 0.53 0.57 0.57 0.51 Underperforming Assets as a Percent of Loans, Leases and Other Real Estate Owned 0.99 0.95 0.99 0.96 0.85 (a) Includes $54 million of residential mortgage loans in the third quarter of 2002. 15