10-QPeriod: Q2 FY2003

FIFTH THIRD BANCORP Quarterly Report for Q2 Ended Jun 30, 2003

Filed August 8, 2003For Securities:FITBFITBOFITBPFITB-PIFITB-PMFITB-PAFITBIFITB-PK

Summary

Fifth Third Bancorp (FITB) reported solid financial performance for the second quarter and first half of 2003. Total assets grew to $88.3 billion as of June 30, 2003, an 18% increase year-over-year, driven by significant growth in both interest-earning assets and deposits. Net income for the second quarter rose 8% to $437.5 million, or $0.75 per diluted share, compared to the prior year period. For the first six months of 2003, net income increased to $856.3 million, or $1.47 per diluted share. The bank experienced robust growth in its Electronic Payment Processing and Mortgage Banking segments. While net interest income grew by 9% for both the quarter and year-to-date periods, the net interest margin compressed due to a lower interest rate environment. However, this was partially offset by a decrease in the cost of interest-bearing liabilities. The provision for credit losses increased due to loan growth and higher net charge-offs, particularly in commercial loans and leases, though the reserve for credit losses as a percentage of the total loan portfolio remained stable.

Key Highlights

  • 1Total assets reached $88.3 billion as of June 30, 2003, an 18% increase year-over-year.
  • 2Second quarter net income increased 8% to $437.5 million, or $0.75 per diluted share.
  • 3Year-to-date net income rose to $856.3 million, or $1.47 per diluted share.
  • 4Electronic Payment Processing and Mortgage Banking segments showed strong revenue growth.
  • 5Net interest income increased 9% for the quarter and year-to-date, despite a contracting net interest margin.
  • 6Provision for credit losses increased, driven by loan growth and higher net charge-offs, particularly in commercial loans and leases.
  • 7The bank maintained strong capital ratios, exceeding well-capitalized regulatory levels.

Frequently Asked Questions

Total assets increased by 18% year-over-year to $88.3 billion as of June 30, 2003, primarily driven by a significant increase in interest-earning assets, including a substantial growth in the securities portfolio and loans and leases, along with a 12% increase in total deposits.

Fifth Third Bancorp reported an 8% increase in net income for the second quarter of 2003, reaching $437.5 million, or $0.75 per diluted share, up from $404.1 million, or $0.68 per diluted share, in the same period of 2002. This growth was supported by increased net interest income and strong performance in other operating income, particularly from electronic payment processing and mortgage banking activities.

The bank's net interest margin compressed by 38 basis points to 3.69% in the second quarter of 2003 compared to the prior year's second quarter. This compression is attributed to the prevailing low interest rate environment and higher origination volumes at lower market rates. Management expects future net interest margin trends to depend on loan demand, interest rate changes, and margin and spread compression.

Fifth Third Bancorp is currently involved in eight putative class action lawsuits related to its integration of Old Kent Financial Corporation. Additionally, the bank entered into a Written Agreement with the Federal Reserve Bank of Cleveland and the State of Ohio in March 2003 to strengthen risk management and internal controls, which is ongoing. The SEC is also conducting an informal investigation into a past charge-off and financial control weaknesses.