Fifth Third Bancorp (FITB)

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Eric Rothmann

www.zacks.com

With more than $100 billion in assets and just over 21,000 employees, Fifth Third Bancorp is one of the top 15 banks in the country on numerous metrics. The Cincinnati-based company operates 18 affiliates, with 1,167 branches and over 2,130 ATMs (on its proprietary Jeanie network) in the Midwest, Arizona, and Florida. FITB now classifies its services into five segments: Branch Banking, Consumer Lending, Commercial Banking, Investment Advisory Services, and Electronic Payment Processing. Branch Banking (36% of segment net revenues in 2006) provides deposit services, loans, and credit cards to retail consumers, while Consumer Lending (11%) includes mortgage and home equity lending and other indirect lending. Commercial Banking (31%) includes general banking, cash management, and financial services offered to businesses and government agencies. Investment Advisory Services (9%) consists of proprietary mutual funds, securities brokerage, and asset management services, while electronic funds transfer and merchant transaction processing services comprise the Electronic Payment Processing segment (14%). Non-interest income accounted for 46% of core net revenue in 2006.

As management has stated repeatedly, deposit growth is a top priority at Fifth Third. FITB's expansion strategy has a clear retail focus, involving a combination of de novo branching and acquisitions. De novo expansion continues, with FITB opening 31 net new locations in 2006 (and 63 in 2005). Acquisition activity remains slow, as sellers' expectations are high, but FITB continues to look at deals. In January 2005, FITB acquired First National Bankshares of Florida, adding nearly $4 billion in loans and deposits to its Florida franchise. The FLB deal greatly expanded FITB's presence in Florida, increasing its Florida franchise to nearly 100 full-service locations. On May 21, 2007, FITB announced that it has signed a definitive agreement to acquire R-G Crown Bank from R-G Financial Corp that operates 30 bank branches in the Sunshine State, as well as three in Augusta, Georgia. More recently, on August 16, 2007,Fifth Third Bancorp announced the acquisition of First Charter Corp., expanding its footprint in the North Carolina and Atlanta markets.

Real estate loans (including commercial and consumer, mortgage and construction) accounted for 49% of total loans outstanding at June 30, 2007, followed by commercial (34%), and consumer (16%). The securities portfolio represented 13% of average earning assets in 2Q07, continuing the effect of 4Q06 balance sheet restructuring, and we expect the run-off to continue, albeit slowly. Non-interest-bearing and other low-cost deposits funded 55.5% of average earning assets in the quarter, with time and foreign deposits and borrowings accounting for 22.1% and 20.4% of the funding, respectively. As of June 30, 2007, FITB had $77.4 billion in loans and leases, $69.2 billion in deposits and $101.4 billion in total assets.

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