38 Fountain Square Plaza
Each time we pass another milestone of consistent earnings growth, I am often asked 'how we do it' or 'how can we continue.' All I can say is that the only thing that has remained constant at Fifth Third over the past 25 years is our simple focus on a few basics--hard work, aggressive selling, teamwork, disciplined expense control and strong credit quality. Quite simply, our employees think like owners. They consistently find a way to 'out-hustle' the competition and execute better. Fifth Third is obviously much larger than 25 years ago, but we constantly strive to keep ourselves 'small' by pushing accountability farther down in the organization and giving more individual managers the opportunity to grow their own business' bottom line.--George A. Schaefer, Jr., President/CEO
Based in Cincinnati, Ohio, Fifth Third Bancorp is a holding company that operates 12 banking affiliates, managed autonomously, with more than 495 banking locations in Ohio, Kentucky, Indiana, Arizona, Florida, and Michigan. Fifth Third also services its customers through more than 100 Bank Mart locations, found in Kroger grocery stores and TOPS Friendly Markets, which provide banking services seven days a week with extended hours. Fifth Third offers retail banking services, including checking and savings accounts, residential mortgages, and consumer loans, as well as services for the commercial business customer, such as business loans, leasing services, and advisory assistance. Subsidiary Midwest Payment Systems provides credit card and transaction processing services to financial institutions across the nation. Fifth Third also offers brokerage and financial services and equipment leasing financing through subsidiaries Fifth Third Securities, Inc. and Fifth Third Leasing Company.
Pioneer of the National Banking System: 1860--1920
Fifth Third Bancorp traces its history to the mid-19th-century formulation of America's national banking system. Although national banks had existed in the United States since the late 18th century, a lack of consensus on the advantages of a national currency prevented the federal government from establishing a unified currency structure. Rampant inflation during the Civil War, however, prompted the 1863 ratification of the Federal Banking Act, thereby creating a uniform, government-backed national currency to replace the diverse currencies issued by state banks and other firms. That same year, a group of influential Cincinnati businessmen led by A.L. Mowry applied for and received one of the first national bank charters. Their institution, Cincinnati's Third National Bank, opened in a Masonic Temple later that year under a 20-year charter.
The firm that would become Fifth Third Bancorp evolved and grew through dozens of mergers over the ensuing decades. When the Third National Bank acquired the Bank of the Ohio Valley in 1871, the Cincinnati Enquirer hailed the union as 'one of the best managed banks in Ohio.' The superlative descriptions continued when Third National was recapitalized in 1882 at $1.6 million, the highest-asset bank in the state.
The Panic of 1907 brought a run on banks and the first substantial banking and currency reform since the Civil War. Fearful of widespread bank failures, the federal government ordered the consolidation of several big-city banks to shore up weaker institutions. As a result, Third National merged with Fifth National to form The Fifth Third National Bank of Cincinnati, with a capitalization of $2.5 million and $12.1 million in deposits, in 1908. Fifth Third's 1910 acquisition of two other local banks--American National Bank and S. Kuhn & Sons--increased its capital to $3 million.
The Federal Reserve Act of 1913 organized a regional system of 12 Federal Reserve banks that were capitalized with contributions from national banks in each region. The legislation required each national bank to deposit three percent of its capital and surplus into its regional Federal Reserve bank. These moves helped inspire confidence in the national banks, thus preventing panics and runs on banks. The Federal Reserve Act also gave the federal government more control over the United States' money supply, made commercial credit available, and discouraged venturesome banking practices. Although bankers initially resisted its creation, the Federal Reserve laid the groundwork for the country's modern banking system.
Branching Out: 1920s--40s
Another bank industry consolidation followed World War I. The 1919 affiliation with Union Savings Bank and Trust Company, a state-chartered bank, brought several changes to Fifth Third's operations. Affiliation with a state bank permitted Fifth Third to circumvent the stricture against national banks' establishment of branches. Before the end of the year, Fifth Third assumed control of the assets of several local banks, including Market National Bank, Security Savings Bank and Safe Deposit Company, Mohawk State Bank, and Walnut Hills Savings Bank. It operated these institutions as branch offices.
Although the 1920s were marked by increased governmental supervision and general economic prosperity, many U.S. banks remained weak. The situation gave Fifth Third the opportunity to continue to grow through the acquisition of four local banks. Fifth Third consolidated with the Union Trust Company to form the Fifth Third Union Trust Company in 1927. The advent of the Great Depression in 1929 intensified this activity somewhat, because Fifth Third was one of the stronger banks in the Cincinnati area. Fifth Third assumed control of three banks from 1930 to 1933.
The Great Depression also brought increased regulation of the banking industry, including expansion of the Federal Reserve Board's powers and the establishment of the Federal Deposit Insurance Corporation (FDIC). The economic crisis also spawned a plethora of federal and state legislation restricting interstate retail banking. Strong popular and governmental reaction to the Great Depression helped make banking one of the most regulated segments of U.S. industry (and inspired the Economist to call the American system 'one of the world's wackiest banking systems' in 1988). These barriers effectively restricted Fifth Third's growth through acquisition until after World War II.
Diversification into Personal and Commercial Banking: 1950s--70s
Distanced from the Great Depression by the trauma of global war, U.S. banks began to cautiously expand their operations to include a broader range of financial services, especially in the field of retail or personal banking, in the postwar era. Under the direction of G. Carlton Hill from 1955 to 1963, Fifth Third began to formulate its focus on retail or consumer banking. For example, the company established a travel department to issue travelers checks and plan tours. These activities intensified during the presidency of Bill Rowe, who was the son of 1930s-era Fifth Third leader John J. Rowe. Over the course of the 1960s, the bank instituted a program of internal expansion with an emphasis on convenience and personal service. Advertising featuring the company's 5/3 shield logo promoted Fifth Third's many suburban locations and extended hours. During the 1970s, the bank shifted its lending emphasis from commercial or business loans to consumer credit. In 1973, Fifth Third hired Johnny Bench, famed catcher for the Cincinnati Reds baseball team, as spokesman. It adopted the long-running slogan, 'The only bank you'll ever need' the same year.
'Back office' changes supported the bank's growth and profitability. Fifth Third, which had booted up its first computer in 1960, initiated home banking services and JEANIE automated teller machines (ATMs) in the 1970s. The institution's home banking system, which could be accessed via the average touchtone phone, was uniquely user-friendly. These electronic services formed the basis of what would become Fifth Third's Midwest Payment Services department. Later in the decade, the bank offered its automated services to other banks and corporate clients. By the early 1990s, Midwest Payment Services maintained automated teller machines and electronic cash registers for more than 1,000 clients. This lucrative business niche contributed one-third of the bank's annual income in the early 1990s.
The 1975 creation of a bank holding company, Fifth Third Bancorp, enabled the institution to sidestep some of the most rigorous state banking regulations. This new corporate entity was not technically a bank and thus was exempt from laws that prohibited cross-county branching. By 1976 Fifth Third included 37 banking offices.
Aggressive Growth and Increased Acquisitions: 1980s
The further liberalization of Ohio banking laws in the early 1980s expanded both the types of products banks were permitted to offer and the geographic reach they were allowed to attain. Strictures against growth outside the home bank's county were first to fall. Barriers to interstate branching continued to deteriorate in the early 1980s. In September 1985, federal and state banking regulations changed dramatically, freeing Ohio's banks to enter into agreements with banking organizations outside the state. Fifth Third became Ohio's first holding company to take advantage of the new legislation when it acquired American National Bank in Newport, Kentucky, just across the Ohio River, later that year. Fifth Third's roster of branches increased by 125 percent over the course of the 1980s, and it expanded its reach from a single Ohio county to an interstate bank.
Much of this vigorous growth was inspired by a new corporate leader, Clement L. Buenger, who took the helm of Fifth Third in 1981. Buenger, who was called 'one of the best acts in the business' in a 1991 Fortune article, brought his background in life insurance sales to the bank. The new president transformed the bank's corporate culture through innovative incentive programs and personal example. Whereas some Fifth Third offices were only open from 10:00 a.m. to 2:00 p.m., Buenger worked ten to 12-hour days and expected many of his managers to do the same. The president (who later became CEO and chairman) even made cold calls on prospective clients. One incentive program, the 'Shoe Leather Award,' evolved from his passion for earning new business. A new pair of designer shoes was awarded to each month's best cold caller. In fact, all employees could earn sales incentives: Fortune noted in 1991 that the bank 'already had several secretaries worth $500,000.'
Fifth Third's focus on consumer banking and safe lending helped the bank avoid the real estate loans, Third World debt, and leveraged buyout problems that troubled many financial institutions during the 1980s. The 'banking bust' that followed led Fortune to call the early 1990s 'the hardest times for bankers since the Great Depression' in November 1991.
George Schaefer, Jr., took Fifth Third's reins in 1989 at the age of 44. Schaefer was trained in engineering, but when a hoped for job designing a nuclear power plant fell through in 1969, he entered the bank's management trainee program. Some industry observers predicted that the new leader would be stymied, both by the shadow of his predecessor and by the difficult banking environment. But while literally hundreds of banks failed each year in the late 1980s and early 1990s, Fifth Third continued its outstanding performance and was even able to benefit from the misfortune of others by inexpensively acquiring dozens of new outlets. This allowed the bank to slowly expand its sphere of influence, yet maintain shareholder value.
Continued Growth in the Early 1990s
In 1992 Fifth Third proposed a merger with Star Banc Corp. that would have unified the two largest Cincinnati-based financial institutions. Star had not grown as fast as Fifth Third, but its recent record of continued growth made it an enticing acquisition target. The alliance was viewed by many analysts and investors as a good deal for both banks--Fifth Third made a generous offer of $42 per share, which amounted to more than twice Star's book value. But when CEO Schaefer prematurely publicized the heretofore private proposition, Star's longtime president, Oliver Waddell, balked, and the target's board unanimously rejected the offer.
Shunned by Star, Schaefer returned to Fifth Third's previous course of growth through relatively small acquisitions. Then, in 1994, the bank made two significant purchases: the 45-office Cumberland Federal Bancorporation in Kentucky, which had $1.1 billion in assets; and Falls Financial Inc. in northeastern Ohio, a company with $581 million in assets. The Cumberland acquisition became Fifth Third Bank of Kentucky, Louisville, and the Falls purchase was merged with Fifth Third Bank, Northeastern Ohio. According to the company's 1994 annual report, these two acquisitions contributed to the largest one-year increase in assets--22 percent--in the institution's history. The purchases also made Fifth Third the preeminent operator of supermarket bank locations in the United States, with 81 full-service locations.
Rapid Expansion Through Acquisitions in the Mid- to Late 1990s
Fifth Third moved aggressively through the second half of the decade, building upon its 20 consecutive years of increased earnings. To remain competitive and to assure continued growth and strong earnings, the company stepped up its acquisition efforts and began to pursue new businesses, including mortgage brokering and investment services, and new territories. In mid-1995, for instance, Fifth Third acquired Bank of Naples, Florida, and increased its assets in the Florida region, which Fifth Third first entered in 1989. Other acquisitions Fifth Third made in 1995 included Mutual Federal Savings Bank in Dayton, Ohio; Bank One Lebanon; PNC Bank's Dayton division; and seven offices of Bank One, Cincinnati. The PNC purchase, which included 12 offices, increased Fifth Third's banking centers in the Dayton area to 30, making it the fourth largest financial establishment in the region.
In the following years the firm continued to follow its strategy to increase market share in the Midwest by acquiring small businesses. Fifth Third made three acquisitions in 1996: the Ohio branch of 1st Nationwide Bank, the Ohio operations of First Chicago NBD Bank, and Kentucky Enterprise Bancorp, Inc., located in northern Kentucky. Four acquisitions were made the following year, all in Fifth Third's familiar Midwest region. In June, Fifth Third purchased Gateway Leasing Corporation for $2.2 million, and a month later it bought Suburban Bancorporation, Inc., a savings and loan holding company. Fifth Third also acquired Heartland Capital Management Inc., a money managing company in Indiana, and Great Lakes National Bank Ohio, with eight branches in Ohio, in 1997.
Fifth Third found substantial support from industry analysts, who regarded the company's stock as reliable and profitable. From 1993 to 1998, according to the Wall Street Journal, Fifth Third's annual revenue increased 15.9 percent, about three points better than the industry average. To continue its streak of increased earnings, Fifth Third in 1998 branched into new business arenas and made some major acquisitions. To start out 1998, Fifth Third announced it would acquire CitFed Bancorp Inc. of Dayton and its subsidiary Citizens Federal Bank FSB for $661 million in stock. CitFed had 35 offices in Ohio. The acquisition, completed in June, created the largest bank in Dayton and boosted its market share there to 28 percent. Fifth Third's market share in its hometown of Cincinnati was 22.7 percent.
Also at the beginning of 1998 Fifth Third announced plans to buy State Savings Co. of Columbus, which would create the fourth largest bank in Columbus, and The Ohio Company, a brokerage and investment management firm with 49 offices in Ohio and four additional states. Fifth Third expanded into another new business field when it acquired W. Lyman Case & Company, a commercial mortgage banking company with headquarters in Columbus. Also that year Fifth Third bought State Savings Company and its subsidiaries, State Savings Bank, Century Bank, and State Savings Bank, FSB, which provided Fifth Third access to a new territory--Arizona. Four offices of Bank One were acquired as well, boosting Fifth Third's presence in southern Ohio. Fifth Third celebrated its 25th consecutive year of increased revenues at the end of 1998 and had increased the number of its branches from 35 to 468.
The year 1999 showed no signs of slowdown for Fifth Third. CEO Schaefer revealed in the Cincinnati Business Courier that he planned to continue expanding through acquisitions. 'I see more opportunity for us now than at any point in the last 25 years,' said Schaefer. 'We continue to pick up market share in every market.' The company completed the acquisition of Enterprise Federal Bancorp Inc., one of the biggest thrifts in the Cincinnati area. The purchase, estimated at $96.4 million, provided Fifth Third with 11 additional branches in greater Cincinnati. Fifth Third also acquired Ashland Bankshares, Inc. and subsidiary Bank of Ashland, both based in Kentucky. The $80 million purchase gave Fifth Third four more branches, as well as $160 million in assets. Fifth Third also began to implement plans to expand further into Florida and acquired South Florida Bank Holding Corp. in June, adding another four branches to its Florida roster. Additional expansion into the Cleveland, Ohio, area came with the acquisition of Emerald Financial Corp. for $204 million. Fifth Third also acquired Cleveland-based Emerald Financial Corp. and its subsidiary, Strongsville Savings Bank.
Fifth Third further strengthened its commercial banking services by acquiring Vanguard Financial Corporation, a commercial mortgage banking firm, in July 1999. Fifth Third merged Vanguard with previously acquired W. Lyman Case and created Fifth Third Real Estate Capital Markets Company. Prior to the purchases, Fifth Third offered three-year commercial real estate financing, which meant loans had to be renegotiated every three years. With the acquisitions, however, Fifth Third was able to provide long-term financing, thus better serving the business client.
In mid-1999 Fifth Third made its largest acquisition to date when it announced it would purchase CNB Bancshares Inc., the biggest independent bank holding company in Indiana. The $2.4 billion purchase propelled Fifth Third deeper into Indiana and made Fifth Third the third largest bank in Indiana, as well as the 28th biggest bank in the nation. CNB was the parent company of Civitas Bank and had 145 banking offices and $7.2 billion in assets. The CNB purchase also provided Fifth Third with an entry into insurance sales. Fifth Third quickly followed up the CNB purchase with another significant acquisition. Increasing its presence in the Indianapolis area, Fifth Third bought Peoples Bank & Trust Co. for $228 million. The buy moved Fifth Third from sixth place to fourth in the Indianapolis market, with a market share of about seven percent. Peoples had nine Indianapolis offices.
As Fifth Third approached the 21st century, it appeared poised and ready for continued growth. CEO Schaefer told the Cincinnati Business Courier that Fifth Third was ready to undertake additional billion-dollar deals and move away from smaller, million-dollar acquisitions. After accomplishing 12 deals, amounting to nearly $5 billion in a mere 16 months, Fifth Third was certainly on a fast track. In 1999 Fifth Third received the top ranking from Salomon Smith Barney in its Top 50 Bank Annual for the eighth consecutive year. Banks were rated according to profitability, operating efficiency, asset quality, capital strength, and operating growth. Its Midwest Payment Systems data processing subsidiary saw net income increase 34 percent in 1998 over 1997, and in mid-1999 the subsidiary's profits were already up 37 percent from the previous year. Fifth Third's net income for the first half of 1999 was up 21 percent compared to the same period a year earlier. Reporter Geert De Lombaerde declared in the Cincinnati Business Courier, 'Fifth Third is in the midst of a metamorphosis. It is no longer primarily a commercial bank--40 percent of revenues comes from fees--or just a strong performer in the middle-of-the-road Midwest. It is on the cusp of becoming a sizable national player.'
Principal Subsidiaries: Fifth Third Securities, Inc.; Fifth Third Leasing Company; Midwest Payment Systems, Inc.; Heartland Capital Management Inc.; Fifth Third Bank; Fifth Third Bank, Indiana; Fifth Third Bank, Central Ohio; Fifth Third Bank, Northeastern Ohio; Fifth Third Bank, Northwestern Ohio; Fifth Third Bank, Western Ohio; Fifth Third Bank, Ohio Valley; Fifth Third Bank, Southwest, FSB; Fifth Third Bank, Butler County; Fifth Third Real Estate Capital Markets Company; Fifth Third Bank, Florida; Fifth Third Bank, Kentucky, Inc.; Fifth Third Bank, Northern Kentucky, Inc.; Fifth Third Bank of Central Kentucky, NA; Fifth Third Company; Fifth Third Trust Co. & Savings Bank, FSB; Fifth Third Community Development Company; Fifth Third Investment Company.
Principal Competitors: BANK ONE CORPORATION; Huntington Bancshares Incorporated; PNC Bank Corp.
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