Fifth Third Bank 2003 Annual Report Download - page 38

Notes to Consolidated Financial Statements
FIFTH THIRD BANCORP AND SUBSIDIARIES
36
20. 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) 2003 2002 2001
Other Service Charges and Fees:
Cardholder fees . . . . . . . . . . . . . $59 51 50
Consumer loan and lease fees . . . 65 70 59
Commercial banking revenue . . . 178 157 125
Bank owned life insurance
income . . . . . . . . . . . . . . . . . . 62 62 52
Insurance income. . . . . . . . . . . . 28 55 49
Gain on sale of branches. . . . . . . —743
Gain on sale of property and
casualty insurance
product lines. . . . . . . . . . . . . . —26 —
Other . . . . . . . . . . . . . . . . . . . . 189 152 164
Total Other Service Charges
and Fees . . . . . . . . . . . . . . . . . . $581 580 542
Other Operating Expenses:
Marketing and
communications . . . . . . . . . . . $99 96 102
Postal and courier . . . . . . . . . . . 49 48 50
Bankcard . . . . . . . . . . . . . . . . . . 169 142 103
Intangible and goodwill
amortization . . . . . . . . . . . . . . 40 37 71
Franchise and other taxes . . . . . . 33 24 18
Loan and lease . . . . . . . . . . . . . . 106 91 62
Printing and supplies . . . . . . . . . 35 37 40
Travel . . . . . . . . . . . . . . . . . . . . 35 38 34
Data processing and operations. . . 103 82 70
Other . . . . . . . . . . . . . . . . . . . . 276 291 210
Total Other Operating Expenses . . $945 886 760
21. Sales and Transfers of Loans
During 2003 and 2002, the Bancorp sold fixed and adjustable rate
residential mortgage loans in securitization transactions and in 2003
securitized and sold certain home equity lines of credit. In all those
sales, the Bancorp retained servicing responsibilities. In addition, the
Bancorp retained a residual interest during a 2003 securitization
transaction and an interest-only strip (IO strip) and a subordinated
interest in a 2002 securitization transaction. 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 trusts 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 sold financial assets. In 2003 and 2002, the
Bancorp recognized pretax gains of $340 million and $269 million,
respectively, on the sales of residential mortgage loans and home
equity lines of credit. Total proceeds from residential mortgage loan
and home equity line of credit sales in 2003 and 2002 were $16.0
billion and $9.9 billion, respectively.
Options are eligible for issuance under the Bancorp’s 1998 Long
Term Incentive Stock Plan to key employees and directors of the
Bancorp and its subsidiaries. Option grants are at fair market value at
the date of grant, have up to ten year terms and vest and become fully
exercisable at the end of three to four years of continued employment.
The Bancorp applies the provisions of APB Opinion No. 25 in
accounting for stock based compensation plans. Under APB Opinion
No. 25, because the exercise price of the Bancorp’s stock option
grants equals the market price of the underlying stock on the date of
the grant, no compensation cost is recognized. A summary of option
transactions during the years ended December 31:
2003 2002 2001
Average Average Average
Shares Option Shares Option Shares Option
(000’s) Price (000’s) Price (000’s) Price
Outstanding
beginning
of year . . . 39,030 $41.85 36,735 $36.27 33,034 $32.90
Exercised. . . (3,843) 27.25 (3,736) 30.73 (4,010) 31.39
Expired . . . . (958) 58.61 (533) 53.97 (565) 45.43
Granted . . . 6,498 51.88 6,564 67.68 8,276 51.94
Outstanding
end of
year . . . . . 40,727 $44.40 39,030 $41.85 36,735 $36.27
Exercisable
end of
year . . . . . 30,574 $40.46 29,935 $36.96 27,568 $32.59
At December 31, 2003, there were 17 million incentive options
and 23.7 million non-qualified options outstanding, and 1.9
million shares were available for granting additional options.
Options outstanding represent 7% of the Bancorp’s issued shares at
December 31, 2003.
Outstanding Stock Options Exercisable Options
Number of Weighted- Average Weighted-
Options at Average Remaining Number of Average
Exercise Price Lowest Highest Year End Exercise Contractual Options Exercise
per Share Price Price (000’s) Price Life (yrs) (000’s) Price
Under $11 $ 8.62 $10.88 814 $10.29 0.7 814 $10.29
$11-$25 11.06 24.90 6,458 18.66 2.8 6,458 18.66
$25-$40 25.22 39.96 5,383 36.16 4.4 5,363 36.16
$40-$55 40.17 54.99 21,019 48.38 7.0 14,268 46.97
Over $55 55.01 68.76 7,053 66.34 8.2 3,671 66.50
All Options $ 8.62 $68.76 40,727 $44.40 6.1 30,574 $40.46
The Bancorp sponsors a Stock Purchase Plan which allows
substantially all qualifying employees to purchase shares of the
Bancorp’s common stock at a ten percent discount from market
price. During the years ended December 31, 2003, 2002 and
2001, respectively, there were 194,133, 157,308 and 118,605
shares purchased by participants and the Bancorp recognized
compensation expense of $1 million in all three years related to the
discount from market price.