Friday, April 16, 2004

5/3 profits up 10% in quarter

By Jeff McKinney
The Cincinnati Enquirer

Double-digit loan growth, higher fee income and stable expenses helped the parent of Fifth Third Bank post a 10 percent gain in first-quarter profits.

The parent of Fifth Third Bank earned $430 million, or 75 cents a share, up from $389 million, or 67 cents a share, from a year ago.

The higher profits also came a week after federal and state banking regulators lifted their oversight of the Cincinnati banking giant, allowing Fifth Third to freely pursue acquisitions and erasing a dark cloud that hurt its stock, which closed Thursday at $53.47, down 89 cents.

George Schaefer, Fifth Third's president and chief executive officer, also said in an interview Thursday that an extra $70 million the bank will pay to complete its purchase of Tennessee-based Franklin Financial Corp. will be worth it to allow Fifth Third to expand its presence in the fast-growing Nashville area.

Wall Street analysts have estimated Fifth Third will pay about $310 million to buy Franklin Financial. That's up from the $240 million Fifth Third agreed to pay in July 2002, before its troubles with regulators began.

The cost of that acquisition - based on a stock exchange ratio - rose for Fifth Third the past two years until the bank completed the agreement with regulators to correct accounting errors found in its treasury operations in late 2002.

Schaefer defended the higher price, saying Franklin Financial has since grown in value with higher profits and larger assets and that Nashville is a fast-growing area with 1.3 million people.

With that deal, expected to be completed by July, Fifth Third will pick up a bank with nine branches and assets of $954 million.

"This is a favorable transaction and a small price to pay to get into that Nashville market," he said.

In terms of first-quarter profits, loan growth, higher fee income, good expense control and setting aside less money to cover bad loans helped boost Fifth Third's earnings.

Schaefer said total loans grew 14 percent from the same quarter a year ago. He said aggressive sales of its products, an improving economy and local decisions on loans at its banking affiliates helped fuel the growth.

Schaefer said income from Fifth Third's data-processing business grew by 14 percent from last year's first quarter, and its investment advisory business grew 17 percent. The bank's operating expenses were relatively flat from a year ago.

Fifth Third plans to open 75 branches this year in the five states where it operates, including some in Greater Cincinnati. Fifth Third now has 960 branches with assets of $94 billion.

Schaefer said one of the branches will be in the Jungle Jim's store in Fairfield, with possibly two more in Northern Kentucky. Branch expansion also is planned for Cleveland, Detroit and Sarasota, Fla., as well as other areas.


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