Fifth Third Bank 2005 Annual Report Download - page 84

ANNUAL REPORT ON FORM 10-K
Fifth Third Bancorp
82
PART I
ITEM 1. BUSINESS
General Information
Fifth Third Bancorp, an Ohio corporation organized in 1975, is a
bank holding company as defined by the Bank Holding Company
Act of 1956, as amended (the “BHCA”), and is registered as such
with the Board of Governors of the Federal Reserve System
(“FRB”). The Bancorp’s principal office is located in Cincinnati,
Ohio.
The Bancorp’s subsidiaries provide a wide range of financial
products and services to the retail, commercial, financial,
governmental, educational and medical sectors, including a wide
variety of checking, savings and money market accounts, and credit
products such as credit cards, installment loans, mortgage loans
and leasing. Each of the banking subsidiaries has deposit insurance
provided by the Federal Deposit Insurance Corporation (“FDIC”)
through the Bank Insurance Fund (“BIF”) and/or the Savings
Association Insurance Fund (“SAIF”). Refer to Exhibit 21 filed as
an attachment to this Annual Report on Form 10-K for a list of all
the subsidiaries of the Bancorp.
Additional information regarding the Bancorp’s businesses is
included in Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
Competition
The Bancorp competes for deposits, loans and other banking
services in its principal geographic markets as well as in selected
national markets as opportunities arise. In addition to the challenge
of attracting and retaining customers for traditional banking
services, the Bancorp’s competitors include securities dealers,
brokers, mortgage bankers, investment advisors and insurance
companies. These competitors, with focused products targeted at
highly profitable customer segments, compete across geographic
boundaries and provide customers increasing access to meaningful
alternatives to banking services in nearly all significant products.
The increasingly competitive environment is a result primarily of
changes in regulation, changes in technology, product delivery
systems and the accelerating pace of consolidation among financial
service providers. These competitive trends are likely to continue.
Acquisitions
The Bancorp’s strategy for growth includes strengthening its
presence in core markets, expanding into contiguous markets and
broadening its product offerings while taking into account the
integration and other risks of growth. The Bancorp evaluates
strategic acquisition opportunities and conducts due diligence
activities in connection with possible transactions. As a result,
discussions, and in some cases, negotiations may take place and
future acquisitions involving cash, debt or equity securities may
occur. These typically involve the payment of a premium over
book value and current market price, and therefore, some dilution
of book value and net income per share may occur with any future
transactions.
Additional information regarding acquisitions is included in
the Regulation and Supervision section in addition to Note 26 of
the Notes to Consolidated Financial Statements.
Regulation and Supervision
In addition to the generally applicable state and federal laws
governing businesses and employers, the Bancorp and its
subsidiary banks are subject to extensive regulation by federal and
state laws and regulations applicable to financial institutions and
their parent companies. Virtually all aspects of the business of the
Bancorp and its subsidiary banks are subject to specific
requirements or restrictions and general regulatory oversight. The
principal objectives of state and federal banking laws are the
maintenance of the safety and soundness of financial institutions
and the federal deposit insurance system and the protection of
consumers or classes of consumers, rather than the specific
protection of shareholders of a bank or the parent company of a
bank, such as the Bancorp. In addition, the supervision, regulation
and examination of the Bancorp and its subsidiaries by the bank
regulatory agencies is not intended for the protection of the
Bancorp’s security holders. To the extent the following material
describes statutory or regulatory provisions, it is qualified in its
entirety by reference to the particular statute or regulation.
The Bancorp is subject to regulation and supervision by the
FRB and the Ohio Division of Financial Institutions (the
“Division”). The Bancorp is required to file various reports with,
and is subject to examination by, the FRB and the Division. The
FRB has the authority to issue orders to bank holding companies
to cease and desist from unsound banking practices and violations
of conditions imposed by, or violations of agreements with, the
FRB. The FRB is also empowered to assess civil money penalties
against companies or individuals who violate the BHCA or orders
or regulations thereunder, to order termination of non-banking
activities of non-banking subsidiaries of bank holding companies,
and to order termination of ownership and control of a non-
banking subsidiary by a bank holding company.
The BHCA requires the prior approval of the FRB, for a bank
holding company to acquire substantially all the assets of a bank or
acquiring direct or indirect ownership or control of more than 5%
of any class of the voting shares of any bank, bank holding
company or savings association, or increasing any such non-
majority ownership or control of any bank, bank holding company
or savings association, or merging or consolidating with any bank
holding company.
The Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 generally authorizes bank holding companies to
acquire banks located in any state, subject to certain state-imposed
age and deposit concentration limits, and also generally authorizes
interstate bank holding company and bank mergers and to a lesser
extent, interstate branching.
The Gramm-Leach-Bliley Act of 1999 (“GLBA”) permits a
qualifying bank holding company to become a financial holding
company (“FHC”) and thereby to engage directly or indirectly in a
broader range of activities than had previously been permitted for a
bank holding company under the BHCA. Permitted activities
include securities underwriting and dealing, insurance underwriting
and brokerage, merchant banking and other activities that are
declared by the FRB, in cooperation with the Treasury
Department, to be “financial in nature or incidental thereto” or are
declared by the FRB unilaterally to be “complementary” to
financial activities. In addition, a FHC is allowed to conduct
permissible new financial activities or acquire permissible non-bank
financial companies with after-the-fact notice to the FRB. A bank
holding company may elect to become a FHC if each of its
subsidiary banks is “well capitalized,” is “well managed” and has at
least a “Satisfactory” rating under the Federal Community
Reinvestment Act (“CRA”). In 2000, the Bancorp elected and
qualified for FHC status under the GLBA.
Unless a bank holding company becomes a FHC under
GLBA, the BHCA also prohibits a bank holding company from
acquiring a direct or indirect interest in or control of more than 5%
of any class of the voting shares of a company that is not a bank or
a bank holding company and from engaging directly or indirectly in
activities other than those of banking, managing or controlling
banks or furnishing services to its subsidiary banks, except that it
may engage in and may own shares of companies engaged in
certain activities the FRB has determined to be so closely related to
banking or managing or controlling banks as to be proper incident
thereto.
The FRB has authority to prohibit bank holding companies
from paying dividends if such payment is deemed to be an unsafe
or unsound practice. The FRB has indicated generally that it may
be an unsafe or unsound practice for bank holding companies to