(MONEY Magazine) – When George Schaefer Jr. took command of Fifth Third Bancorp back in 1990, the Cincinnati-based bank had $8 billion in assets. Today, Fifth Third has $70 billion, making it the 15th largest bank in the country. And it hasn't sacrificed profits for growth: Fifth Third boasts 23 consecutive years of double-digit earnings gains. Under Schaefer, shares have soared 1,530%, crushing the average bank stock as well as Standard & Poor's 500-stock index.

Schaefer, a tall, steel-eyed West Point grad who was awarded a Bronze Star for valor in Vietnam, joined Fifth Third in 1971 as a management trainee. (The unusual name stretches back to 1908, when Cincinnati's Fifth and Third national banks merged.) This no-nonsense Cincy native--once described in Institutional Investor as a "numbers-crunching, penny-pinching workaholic"--has instilled an intensely sales-oriented culture that runs from the teller to the branch manager to the highest ranks of corporate banking. All this plus a cost-consciousness that has the CEO traveling Delta coach. Schaefer recently spent some time discussing his strategy and tactics with MONEY senior writer Pablo Galarza.

Q. You make running a bank look easy.

A. Banking is not a complicated business. We buy money at 3% to 4% and we sell it at 8%. That's been going on since the Italians figured this out around 600 years ago.

Q. So what sets Fifth Third apart?

A. We recognize that our product--the dollar bill--is the same as everyone else's. So we are in the service business. On the retail side, people deal with us for good service and convenience. On the commercial side, we have excellent relationships and great products. It's also about safety and soundness in the markets in which we operate. We have the highest credit ratings and highest debt ratings as measured by Moody's, Fitch and S&P.

Q. That's what makes you so successful?

A. There are a couple of key points to consider. First, you've got to work hard--20 years ago, bankers didn't; today you definitely better. Second: Sell, sell, sell. You have to find the customers. Third, we are frugal. There's no company car, no corporate aircraft. It sets the tone that we are here for our shareholder. We pay good salaries and bonuses, but real wealth for our employees comes as a stockholder. We let them buy stock at a 10% discount to the share price. We want them to think they're owners first and employees second, so that the branch manager is acting like he actually owns the bank.

Q. Let's get into specifics. Where does your revenue come from?

A. Two-thirds of our revenue comes from the spread business--taking in deposits and making loans. Half of our spread business is retail and half is commercial. We make more money from commercial banking when rates are high, because most of our loans are based on the prime rate. And we make more from retail banking--like mortgage lending, credit cards and auto loans--when rates are low. We keep the mix at fifty-fifty because we don't know which way rates are going.

Q. Where does the rest come from?

A. We're also in two fee-based businesses--asset management and transaction processing. We have $188 billion in assets under our care. Then there's processing: We settle and process 6.6 billion electronic transactions a year; we get about a penny for each one of them--that's $66 million. We process sales transactions for Federated Department Stores, which owns Bloomingdale's and Macy's, and for Kroger, the largest supermarket chain in the country. We run every one of American Express' ATMs outside the U.S. And we run ATMs on military bases for the armed forces.

Q. You run a decentralized outfit, yet are known as a ferociously hands-on manager. How does that work?

A. We have a presence in 16 markets, with 950 branches across six states. Each market has its own board of directors and president. I figure that if you are from Cincinnati you wouldn't understand the market in Louisville as well as you would if you were based there. So our people in Louisville--the commercial lending guy, the asset management head, the branch manager--all report to the head of the region, who in turn reports to me. And I keep score real well. I know the best and worst. We hold everyone accountable. Every branch manager, from the Sears Tower to Cleveland, has stock options and bonuses tied to profit-and-loss performance. We rank them every week for loans, deposits, investment advisory sales, mortgage sales, credit-card sales, annuity sales, and we hold them accountable. We follow the rankings very closely, looking to spot trends, identify laggards. They're measured on geographic areas as well as against each other. We pay for performance. Some bankers play golf, some play tennis; our people like to play banking.

Q. You bought Old Kent for $5.5 billion last year--the bank's biggest acquisition ever. Why did you buy it?

A. It's a very well-run Midwest financial institution with a 40-plus-year history of record earnings growth. They're in very desirable markets that we wanted to be in, such as Chicago, Western Michigan and Detroit.

Q. Do you think you can run Old Kent more efficiently than it's being run now?

A. Old Kent's net income per employee was $30,000 to $33,000; at Fifth Third we will bring that number up to $90,000-plus. Because we have the accounting and back-office stuff done, we can eliminate its back-office support and bring in a lot of sales people to sell all of these products. So we reduce expenses and jack up sales.

Q. In this era of the financial services agglomeration, do you need to diversify?

A. We have four very balanced businesses. That works well for us. Since we have small share--just 6% to 7% of all deposits--in the six states we serve, we are going to stay focused on those four businesses. There's more opportunity for our businesses in our backyard--and we haven't even entered the other 44 states.