The general of Fifth Third: CEO George Schaefer launched his Ohio bank into the company of giants by transforming his work force into an army of salespeople.

The chief thing to remember about commercial banking, says George Schaefer, CEO of Fifth Third Bancorp in Cincinnati, is that it's not exact]y rocket science. "It's several hundred years old," Schaefer says of the practice of accepting deposits and lending out money at interest. "The Northern Italians started it in 1400, and banking hasn't changed significantly since then. Sure, technology is better," Schaefer adds, "and now we do e-transactions and we use plastic instead of doubloons, but it's still the basic business."

Unlike in many other industries, argues Schaefer, where companies rely on product differentiation or superior technology to give them a decisive competitive advantage, one banking organization is pretty much like any other. "Our dollar bills are the same," he says. "This is not the drug industry. It's not Abercrombie & Fitch or The Gap [where styles or quality can change with the season]. The main difference between us and 225 different banks in Ohio, 125 to 150 thrifts and 670 credit unions is the human-service element. We focus on daily execution."

Indeed, while other superregional and money center banks like Citigroup, Bank of America and Bank One were sinking large amounts of money into R&D for whiz bang technology that they hoped would put them out in front, Fifth Third was sticking to its knitting. Schaefer believes now, as he did then, that it will be the bank's high-touch customer service, diligence and relentless effort--and not high-tech bells and whistles--that will enable it to best its rivals in the heartland states of Ohio, Kentucky, Indiana, Michigan and Illinois.

So far, that strategy has served Fifth Third well. The 12th-largest commercial bank in the U.S., it boasts a record of 29 consecutive years of earnings growth. And it continues to post impressive returns. In the second quarter of 2003, while other companies struggled not to lose money in the continuing economic slump, the bank's net income rose 8 percent, to $437.5 million, compared with the same quarter in 2002. According to SNL Financial, a Charlottesville, Va.-based research organization, Fifth Third's 2 percent return on assets in the second quarter placed it fourth-best among the top 25 U.S. banks and well above its peer group average of 1.53 percent. And its return on equity of 19.8 percent ranked it fifth in its peer group and easily outstripped the average of 15.95 percent. Schaefer credits the bank's work ethic for its success.

"Hustle" is the catchword he most often uses to define Fifth Third's strategy, and his rousing speeches to employees evoke comparisons to sports leaders such as Knute Rockne and Vince Lombardi.

The tradition did not begin with Schaefer, who has served as Fifth Third's CEO since 1990. A.G. Edwards analyst David George notes that Schaefer inherited the bank's longstanding culture of shoe-leather salesmanship and penny-pinching parsimony when he took the wheel 13 years ago. But under Schaefer's demanding stewardship--a West Point graduate, he earned a Bronze Star for valor in Vietnam--that culture has become more entrepreneurial. And Fifth Third has morphed through 54 acquisitions during Schaefer's tenure from a backwater regional Ohio bank into a Midwestern powerhouse with $88.3 billion in assets.

Along the way, Fifth Third has become, despite its dowdy name--the result of two long-ago mergers--a bank that is much admired by its peers, feared and respected by competitors and often imitated as well. In a 2001 interview, Julian Banton, president and COO of Birmingham-based SouthTrust Bank, said proudly, "We are the Fifth Third Bank of the South."

"There is no question that others try to emulate Fifth Third," says George of A.G. Edwards. But in a traditionally stodgy industry, few banking organizations have been able to purge as much bureaucracy as Fifth Third, with its decentralized structure of 17 affiliated financial institutions. Headquartered in such cities as Louisville, Cleveland, Grand Rapids and Chicago, each affiliate is autonomous, with its own board of directors, president and management team. "The advantage," says Schaefer, "is that if someone walks into a local bank in Cleveland of Louisville to talk about a business loan, that's handled locally. The loan officer doesn't have to come back to Cincinnati to get a decision."

But even as Schaefer gives the affiliates plenty of leeway, he keeps a close eye on the profit-and-loss figures of every branch and loan officer throughout the organization. As Amar Bhide wrote in a 1986 Harvard Business Review article that is required reading for Fifth Third management, "Good financial institution managers recognize the importance of profit measures and they are obsessed with establishing them."

Schaefer makes sure employees are obsessed with them as well. Indeed, what really separates the Cincinnati bank from the competition is its system of rewards, recognition and punishment. "If you perform at Fifth Third, you're rewarded very well," says Michael Abrams, portfolio manager of Cincinnati Financial, an insurance holding company and the largest outside owner, with 72.8 million shares--about 12 percent--of Fifth Third stock. "If not," he adds, "you more on."

It's fair to say not everyone is cut out for the demanding, high-intensity Fifth Third culture. The pressure to sell is intense. "Even our screensavers ask, 'What have YOU sold today?" reports Roberta Jennings, director of corporate communications. At the bank marts--Fifth Third branches located in Kroger supermarkets--bank employees roam the aisles urging shoppers who do not bank with Fifth Third to open a checking account. There are monthly "blitzes" in which teams of lenders cold-call businesses in strip malls and office buildings, importuning business people to transfer all of their banking business to Fifth Third. And there are the many "prospector meetings"--part pep rally, part revival meeting president over by CEO Schaefer--in which 100 of so bank employees crowd into meeting rooms at 7:30 in the morning and announce their best prospect and cross-selling opportunity.

All the while, Schaefer and his lieutenants are keeping score. "We rank each one of the 941 branches," the CEO says. "We look at who sells the most deposits, loans, annuities and so on. But half the people are always going to be below average and trying to move up the list. In the capitalist system, that generates creativity."

It also can generate turnover. Fifth Third declined to break out turnover figures, but at press time there were 1,100 openings at the institution, which currently employs 21,000. Jennings, though, insists that turnover rates at Fifth Third are not above average for the industry.

For those who can take the heat, Fifth Third offers high reward. In return for putting in long hours--one joke around the bank is that employees work only a half-day: from 7 a.m. to 7 p.m.--they are well compensated.

Incentives for the highly motivated

First, commissions are for everyone, because every employee is also part salesperson. Through a program called "Team Fifth Third," lower-level employees--clerical staff, bank tellers, receptionists and even security guards--can earn $25 or $50 a pop for referring customers for checking and savings accounts and other products.

The sales staff, branch managers and loan officers are able to enhance their take-home even further. A retail banking center manager like Steve Petitjean harvests rewards through a variety of sales contests, officer bonus compensation, stock options and profit sharing, which pays 14 percent over and above his salary. For finding a bank customer who ultimately parked $3.2 million with the bank's trust department, Petitjean received 10 percent of the first year's fee income, or more than $2,000. "In an ordinary year, I probably earn 50 percent over my salary if I make my goals," he says. But last year was exceptional: "I pretty much doubled my income."

In addition to dangling attractive rewards, Schaefer himself acts as a motivating force. He appears at prospectors' meetings and other solidarity-building events that the company sponsors, such as employee outings to baseball games or Kentucky racetracks. "He carries a lot of energy and a lot of personality," says H. Lytle Thomas, a vice president and the head of commercial lending at Fifth Third's affiliate bank in northern Kentucky. But he adds that a sense of esprit de corps already prevails at the bank. "It's fun to play for the winning team," he says. "I think that's a big motivator. When you're on top you work that much harder."

Not to mention when you're an owner. A whopping 85 percent of the employees in the company are shareholders. And top managers--some 460 employees--own at least a million dollars worth of Fifth Third stock, thanks to profit-sharing and bonuses, the 401(k) program and stock-purchase plans. That means that a super-majority of bank employees deeply believe that their economic fortunes are commensurate with Fifth Third's--making it all that more likely that a coworker just going through the motions will find his of her days numbered. "That's a big part of our culture here," says Bradley Adams, the director of investor relations.

A tight ship--and tighter purse strings

Schaefer believes in a healthy combination of competition and cooperation at the bank. He likes to challenge affiliate banks to compete with one another, but also insists that when a selling technique or successful strategy is winning over customers at a branch or at one of the affiliates, such "best practices" should be shared across the entire organization. For example, Fifth Third's northern Kentucky affiliate recently ranked at the top of four product and service categories--checking accounts, credit cards, home equity lines of credit and investments. "George challenged the other affiliates to call to see how we do cross-selling," says Timothy Rawe, president and CEO of Fifth Third Bank, Northern Kentucky.

Schaefer also strongly discourages anything that smacks of lavish spending, and he noticed recently when some employees van up monthly cell-phone bills of $600. In an industry where the efficiency ratio of large banks is typically in the 55 to 60 percent range and where 50 percent is regarded as good, Fifth Third's 43.37 percent efficiency ratio in the second quarter of 2003 made it the stingiest of the country's top 25 banks.

"We're pretty frugal," says Schaefer, who boasts that his own corporate office overlooking Fountain Square in downtown Cincinnati retains the same wood paneling and furniture it had back in 1968. If it weren't for water damage, he would still have the same carpet. "There are no company cars of drivers," he adds, "and I fly Delta Coach. That goes for the whole bank."

That careful approach to spending has enabled the bank to make money in good times and bad. And despite the intense pressure to succeed, the bank has avoided the ethical problems that have plagued the big New York banks. Fifth Third, which does not have a board chairman, was recently saluted by Institutional Shareholder Services, an investors' advocacy and research group, which ranked the bank in the top 1 percent of publicly-owned banks in its corporate governance ratings.

Long-haul shareholders such as Cincinnati Financial's Abrams expect more of the same. Despite harder economic times, the bank's credit quality has been good. It's no wonder shareholders don't want to see the 57-year-old Schaefer stepping down anytime soon. "If you see him," one institutional investor says, "ask him how his health is."

Breaking It Down

BOTTOM LINE EARNINGS DERIVED FROM:

Retail Banking               49%
Commercial Banking           30%
Electronic Payments          11%
Investment Advisers          10%

Source: Company reports

Note: Table made from pie chart.

Near the Top

The top 15 public banks, based on total assets.

                                                    06/03 Q
Rank                               Company     Total Assets

   1                       Citigroup, Inc.    1,187,035,000
   2               J.P. Morgan Chase & Co.      802,603,000
   3           Bank of America Corporation      769,179,000
   4                 Wells Fargo & Company      369,645,000
   5                  Wachovia Corporation      364,285,000
   6                  Bank One Corporation      299,463,000
   7     FleetBoston Financial Corporation      197,128,000
   8                          U.S. Bancorp      194,899,000
   9             National City Corporation      123,392,239
  10                  SunTrust Banks, Inc.      120,857,299
  11        Bank of New York Company, Inc.       99,604,000
  12                   Fifth Third Bancorp       88,264,838
  13                               KeyCorp       85,479,000
  14              State Street Corporation       83,102,000
  15                      BB&T Corporation       80,444,806