By Jeff McKinney
The Cincinnati Enquirer

After being kept out of the acquisition game for a year, Fifth Third Bancorp now has the ability to buy other banks and add branches - though still only with regulators' blessings.

That was a key message from George Schaefer Jr., Fifth Third's president and chief executive officer, to shareholders at the Cincinnati banking giant's annual meeting Tuesday.

The news means the parent of Fifth Third Bank now can pursue deals - a key part of its long-term growth strategy - even though it remains under an agreement the bank signed a year ago with the Federal Reserve Bank of Cleveland and the Ohio Department of Commerce Division of Financial Institutions. The agreement called for Fifth Third to solve internal accounting errors and improve risk-management processes, and forced it to take a $54 million charge in 2002

"The question was can you do acquisitions with the agreement in place," Schaefer said after the meeting in reference to a shareholder's question. "Yes, we can, if we file an application and the regulators approve it."

Monday, Fifth Third said it had been notified by the Federal Reserve in Cleveland that it was in compliance with the Gramm-Leach Bliley Act, which essentially allows banks, brokerage firms and insurance companies to expand into each other's businesses.

Schaefer repeated Fifth Third's announcement Monday that it is a step closer to being free of the federal oversight and hopes to have it lifted "shortly."

Fifth Third had said it expected the order to be lifted by next Wednesday, the end of its first quarter.

In the meantime, Schaefer said Fifth Third would continue to focus on improving profits by cutting costs and opening new branches.

He also said Fifth Third would continue to focus on growing deposits and reported that the bank added $10 billion in deposits last year. He said he sees opportunity in others banks' mergers.

"The recent sale of Bank One, Provident Bank, Union Planters and several smaller institutions should help our deposit-gathering," he told investors. Most of those banks have branches in markets where Fifth Third operates, including Cincinnati, Chicago and Indianapolis.

After receiving the Fed's news Monday, Fifth Third filed an application with regulators to open 26 branches in cities including Chicago, Indianapolis, Columbus, Detroit and Cleveland. The bank also plans to file applications to open 14 more branches - including some in Greater Cincinnati - this year.But Schaefer also said Fifth Third does not plan to make more acquisitions right now, though the bank is continuing plans to complete its $240 million purchase of Franklin, Tennessee-based Franklin Financial Corp. It had filed an application last month to get regulatory approval to make that acquisition and hopes to complete it this summer.

Otherwise, Schaefer said, "we don't have anything specifically right now."

In addition, Fifth Third shareholders also approved the issuance of up 20 million shares of common stock as part of the company's incentive compensation plan. Its stock closed Tuesday at $55.85 a share, down 8 cents.

E-mail jmckinney@enquirer.com