In a transaction that was said to be in line with both companies' strategic goals, Cincinnati-based Fifth Third Bancorp has agreed to buy First Nationwide Bank's Ohio branch network for $129 million.

The purchase of 28 branches and $1.4 billion in deposits is expected to boost Fifth Third's earnings by reducing funding costs. The earnings boost is expected even though the purchase premium - 9.2% of the deposits - is relatively high in comparison to other deals.

The branch purchase also will nearly double the $17.2 billion-asset bank's branch network in and around Cleveland, helping management increase market share in an area where it wants to grow.

According to an investor note by Goldman, Sachs & Co., the branch acquisition will move Fifth Third from eighth to fifth in deposit share in Cleveland.

The sale is in keeping with First Nationwide's stated goal of abandoning previous owner Ford Motor Co.'s ambition to create a national thrift. Instead, Texas banker Gerald J. Ford, who teamed with New York investor Ronald O. Perelman to acquire First Nationwide last year, intends to expand in California.

"It fits in with our original strategy of divesting outside California and investing within the state," said First Nationwide president Carl B. Webb.

In addition to its Ohio network, $14.7 billion-asset First Nationwide has 49 branches in California, 26 in New York, 24 in Florida, 21 in Michigan, and four each in New Jersey and Texas.

The Ohio branch sale is expected to be completed in the first quarter, pending regulatory approval. The branches being sold are in Lake, Cuyahoga, Medina, and Lorain counties in northeastern Ohio.

Goldman Sachs expects the deal to boost Fifth Third's earnings by 20 cents per share annually. The boost will come from a 150 basis point improvement in funding costs, and nearly $1 million of annual cost savings.

Fifth Third executive vice president Robert P. Niehaus said the bank also hopes to grow revenues by selling a fuller range of services through the branches than the thrift now sells.

According to Montgomery Securities analyst Joseph A. Jolson in San Francisco, the median premium being paid for top-quality branches in areas of the country where demand is relatively high is 7% to 8% of the deposits acquired.

As a result, he said the 9.2% deposit premium is relatively expensive. But the price is good news for First Nationwide, since branches in California now are relatively cheap because of concerns about the economy. Mr. Jolson said that typical premiums for branch acquisitions in California are only about 4% to 4.5% of deposits.

Indeed, First Nationwide is paying a deposit premium of only 2.3%, or $250 million, for SFFed Corp., a San Francisco-based thrift with 35 branches and $4.1 billion of assets.

Mr. Webb said that First Nationwide expects to complete agreements to sell other branches outside California "before too long." He declined to be more specific. He added that First Nationwide is continuing to look for acquisitions in California, although no deals are imminent.

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