How profitable was Fifth Third in 2000 and how did that compare with 1999?

Net income was $863 million versus $668 million in 1999, a 29% increase. Excluding merger-related and special charges, operating earnings were $886 million, up 18%, and diluted operating EPS was $1.88 versus $1.61. Return on average equity was 20.0% and return on average assets was 1.98%, both excluding charges.

What is the Old Kent acquisition and what does it mean for shareholders?

Fifth Third agreed in November 2000 to acquire Old Kent Financial Corporation, a Grand Rapids, Michigan institution with about $23.8 billion in assets and $1.8 billion in equity. Old Kent holders receive 0.74 Fifth Third shares for each share, about 107 million shares in total. The deal is a tax-free pooling-of-interests expected to close in Q2 2001. Management says it is immediately accretive to EPS before cost savings, but shareholders face dilution in share count and integration execution risk.

Is Fifth Third's credit quality deteriorating?

Slightly. Nonperforming assets rose to 0.39% of loans, leases and OREO from 0.31% in 1999, and nonaccrual loans rose to $90.2 million from $66.8 million, driven by commercial loans. Net charge-offs fell to 0.30% of average loans from 0.36%, and the reserve covers 384% of nonperforming assets. Management expects credit losses to rise in 2001 from historically low levels.

Why did the net interest margin decline, and how did fee income offset it?

The net interest margin fell 22 basis points to 3.77% because the cost of interest-bearing liabilities rose 83 basis points, driven by faster repricing of borrowings and higher deposit rates. Non-interest income grew 15% to $1.01 billion, supported by data processing through Midwest Payment Systems (+34%), service charges on deposits (+24%), and investment advisory income (+9%). Mortgage banking income fell 18%.

How well capitalized is the company?

Fifth Third is well capitalized. At December 31, 2000, the consolidated Tier 1 risk-based capital ratio was 12.71%, the total risk-based capital ratio was 14.45%, and the leverage ratio was 10.48%. All subsidiary banks exceeded well-capitalized thresholds. Shareholders' equity of $4.9 billion represented 10.5% of assets, and book value per share was $10.50.

FITB 10-K FY2000 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 28, 2001. Cited figures are marked; the original filing is the authoritative source.

Fifth Third Bancorp (FITB) closed 2000 with record operating performance: operating earnings of $886 million^a (up 18%), net income of $863 million (up 29%), and operating EPS of $1.88 diluted (up 17%).

Return on average assets was 1.98% and return on average equity 20.0%, both excluding merger charges. Total assets reached $45.9 billion^b, deposits $30.9 billion, and shareholders' equity $4.9 billion. Growth was driven by fee income, which rose 15% to $1.01 billion, with data processing income up 34% and investment advisory income up 9%, and by a 3.8% net interest margin that compressed 22 basis points as borrowing costs rose.

The bank's credit quality weakened modestly but remains strong by industry standards. Nonperforming assets rose to 0.39%^c of loans and OREO from 0.31%, and the reserve for credit losses was 1.48% of loans, with net charge-offs at 0.30%. Management expects credit losses to rise in 2001 from historically low levels.

The efficiency ratio improved to 42.2%, and the company remained well capitalized, with a 10.48% leverage ratio. The central strategic event is the pending acquisition of Old Kent Financial Corporation, a $23.8 billion^d Michigan institution, in a stock-for-stock pooling-of-interests deal at 0.74 FITB shares per Old Kent share, expected to close in Q2 2001 and to add about 107 million shares. Fifth Third also completed the Capital Holdings acquisition in March 2001 and Ottawa Financial in December 2000.

Management characterized Old Kent as immediately accretive to EPS before cost savings. Investors should weigh the strong earnings momentum against integration risk and dilution from the large share issuance.

02—Key points

Key Highlights

Net income rose 29% to $863 million in 2000; operating earnings rose 18% to $886 million, and diluted EPS was $1.83 (operating $1.88).
Return on average assets of 1.98% and return on average equity of 20.0% (excluding merger charges), with an overhead ratio improved to 42.2%.
Total assets grew 10% to $45.9 billion; deposits rose 19% to $30.9 billion, and shareholders' equity rose 20% to $4.9 billion.
Non-interest (fee) income grew 15% to $1.01 billion, led by data processing (+34%) and service charges on deposits (+24%).
Net interest margin compressed 22 basis points to 3.77% as funding costs rose faster than asset yields.
Pending Old Kent merger (~$23.8B assets, ~107 million FITB shares) expected to close in Q2 2001 as a pooling-of-interests.
Credit quality softened modestly: nonperforming assets rose to 0.39% of loans and OREO, while the reserve for credit losses held at 1.48%.

03—Questions

Frequently Asked Questions

How profitable was Fifth Third in 2000 and how did that compare with 1999?
Net income was $863 million versus $668 million in 1999, a 29% increase. Excluding merger-related and special charges, operating earnings were $886 million, up 18%, and diluted operating EPS was $1.88 versus $1.61. Return on average equity was 20.0% and return on average assets was 1.98%, both excluding charges.
What is the Old Kent acquisition and what does it mean for shareholders?
Fifth Third agreed in November 2000 to acquire Old Kent Financial Corporation, a Grand Rapids, Michigan institution with about $23.8 billion in assets and $1.8 billion in equity. Old Kent holders receive 0.74 Fifth Third shares for each share, about 107 million shares in total. The deal is a tax-free pooling-of-interests expected to close in Q2 2001. Management says it is immediately accretive to EPS before cost savings, but shareholders face dilution in share count and integration execution risk.
Is Fifth Third's credit quality deteriorating?
Slightly. Nonperforming assets rose to 0.39% of loans, leases and OREO from 0.31% in 1999, and nonaccrual loans rose to $90.2 million from $66.8 million, driven by commercial loans. Net charge-offs fell to 0.30% of average loans from 0.36%, and the reserve covers 384% of nonperforming assets. Management expects credit losses to rise in 2001 from historically low levels.
Why did the net interest margin decline, and how did fee income offset it?
The net interest margin fell 22 basis points to 3.77% because the cost of interest-bearing liabilities rose 83 basis points, driven by faster repricing of borrowings and higher deposit rates. Non-interest income grew 15% to $1.01 billion, supported by data processing through Midwest Payment Systems (+34%), service charges on deposits (+24%), and investment advisory income (+9%). Mortgage banking income fell 18%.
How well capitalized is the company?
Fifth Third is well capitalized. At December 31, 2000, the consolidated Tier 1 risk-based capital ratio was 12.71%, the total risk-based capital ratio was 14.45%, and the leverage ratio was 10.48%. All subsidiary banks exceeded well-capitalized thresholds. Shareholders' equity of $4.9 billion represented 10.5% of assets, and book value per share was $10.50.

04—Continue

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