-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ltpmKSmf075HSNsnzn1UF7D5LeUNm2MICss+RJPp+YN2cZkyvyeMkGVvXAakj72S U2aGV1Zdr0GIEiRsbw0fyA== 0000906318-94-000003.txt : 19940404 0000906318-94-000003.hdr.sgml : 19940404 ACCESSION NUMBER: 0000906318-94-000003 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19940401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIFTH THIRD BANCORP CENTRAL INDEX KEY: 0000035527 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 310854434 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 33 SEC FILE NUMBER: 033-52949 FILM NUMBER: 94520047 BUSINESS ADDRESS: STREET 1: 38 FOUNTAIN SQ PLZ CITY: CINCINNATI STATE: OH ZIP: 45263 BUSINESS PHONE: 5135795300 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DINSMORE & SHOHL CENTRAL INDEX KEY: 0000906318 STANDARD INDUSTRIAL CLASSIFICATION: 0000 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 33 SEC FILE NUMBER: 033-52949-01 FILM NUMBER: 94520048 BUSINESS ADDRESS: STREET 1: 1900 CHEMED CENTER STREET 2: 255 EAST FIFTH ST. CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: 5139778315 S-4 1 REGISTRATION STATEMENT As filed with the Securities and Exchange Commission On Registration No. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 FIFTH THIRD BANCORP (Exact name of registrant as specified in its charter) Ohio 31-0854434 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6711 (Primary Standard Industrial Classification Code Number) 38 Fountain Square Plaza, Cincinnati, Ohio 45263 (513) 579-5300 (Address, including Zip Code, and telephone number, including area code, of registrant's principal executive offices) S. Richard Arnold, Esq. Dinsmore & Shohl 1900 Chemed Center, 255 East Fifth Street Cincinnati, Ohio 45202 (513) 977-8200 (Name, address, including Zip Code and telephone number, including area code, of agent for service) Copies to: Susan B. Zaunbrecher, Esq. Dinsmore & Shohl 1900 Chemed Center 255 East Fifth Street Cincinnati, Ohio 45202 Patrick W. Mattingly, Esq. Wyatt, Tarrant & Combs Citizens Plaza Louisville, KY 40202 Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.// CALCULATION OF REGISTRATION FEE
Title of Amount to be Proposed Proposed Amount of each class Registered* Maximum Maximum Registration of securities Offering Aggregate Fee to be Price Per Offering registered Unit Price** Common Stock, 254,092 $51.16 $12,999,346.72 $4,482.53 no par value * Represents the maximum number of shares of Registrant's Common Stock issuable to the sole stockholder of National Bancorp, assuming that the applicable market value per share of the Registrant's Common Stock (as defined in the Affiliation Agreement described herein) is $51.16. ** Based on the maximum aggregate offering price set forth in the Affiliation Agreement and Merger Agreement, each dated as of December 6, 1993 between National Bancorp and Fifth Third Bancorp.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. FIFTH THIRD BANCORP Cross Reference Sheet Required by Item 501(b) of Regulation S-K CAPTION - CAPTION IN PROSPECTUS A. INFORMATION ABOUT THE TRANSACTION 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus - Facing Page; Notice of Special Meeting 2. Inside Front and Outside Back Cover Pages of Prospectus - Available Information; Table of Contents 3. Risk Factors, Ratio of Earnings to Fixed Charges and Other Information - Summary of the Proxy Statement and Prospectus; General Information; Comparative Per Share Data 4. Terms of the Transaction - Summary of the Proxy Statement and Prospectus; Terms and Conditions of the Proposed Merger; Description of Capital Stock 5. Pro Forma Financial Information - Not Applicable 6. Material Contracts with the Company Being Acquired - Not Applicable 7. Additional Information Required for Reoffering by Persons and Parties Deemed to be Underwriters - Not Applicable 8. Interests of Named Experts and Counsel - Legal Matters, Experts 9. Disclosure of Commission Position on Indemnification for Securities Act Liabilities - Not Applicable B. INFORMATION ABOUT THE REGISTRANT 1. Information with Respect to S-3 Registrants - Fifth Third Bancorp; Selected Historical Financial Data of Fifth Third; Description of Capital Stock 2. Incorporation of Certain Information by Reference - Incorporation of Certain Documents by Reference; Available Information; Description of Capital Stock 3. Information with Respect to S-2 or S-3 Registrants - Not Applicable 4. Incorporation of Certain Information by Reference - Not Applicable 5. Information With Respect to Registrants Other Than S-3 or S-2 Registrants - Not Applicable C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED. 1. Information with Respect to S-3 Companies - Not Applicable 2. Information with Respect to S-2 or S-3 Companies - Not Applicable 3. Information with Respect to Companies Other Than S-2 or S-3 Companies - National Bancorp; Selected Historical Financial Data of National Bancorp; Description of Capital Stock, Business of National Bancorp of Kentucky, Inc., Management's Discussion and Analysis of The National Bancorp of Kentucky's Financial Condition and Results of Operations, National Bancorp Financial Statements. D. VOTING AND MANAGEMENT INFORMATION 1. Information if Proxies, Consents or Authorizations Are to Be Solicited - Summary of the Proxy Statement and Prospectus; Terms and Conditions of the Proposed Merger; General Information; Incorporation of Certain Documents by Reference; National Bancorp; National Bancorp Board of Directors 2. Information if Proxies, Consents or Authorizations Are Not To Be Solicited or in an Exchange Offer - Not Applicable THE NATIONAL BANCORP OF KENTUCKY, INC. NOTICE OF SPECIAL MEETING OF THE STOCKHOLDER To Be Held On April 15, 1994 NOTICE IS HEREBY GIVEN that the Special Meeting of the Stockholder ("Special Meeting") of The National Bancorp of Kentucky, Inc. ("National Bancorp") will be held on April 15, 1994, at 3:00 p.m. E.S.T, at 2560 Richmond Road, Lexington, Kentucky 40509. A Proxy Statement and Prospectus and Proxy Card for this Special Meeting are enclosed herewith. The Special Meeting is for the purpose of considering and voting upon the following matters: A. Approval of an Affiliation Agreement and Agreement of Merger both dated as of December 6, 1993 (the "Affiliation Agreement" and the "Merger Agreement", respectively), between National Bancorp and Fifth Third Bancorp ("Fifth Third"), which provide for the merger (the "Merger") of National Bancorp with and into Fifth Third. Pursuant to the Affiliation Agreement and Merger Agreement the sole stockholder of National Bancorp will be entitled to receive, for each share of National Bancorp's common stock ("National Bancorp Common Stock") which he holds on the effective date of the Merger (the "Effective Date") 2,540.924 shares of Fifth Third common stock ("Fifth Third Common Stock"). B. Such other business as may properly come before the meeting or any adjournments thereof. The Board of Directors is not aware of any other business to come before the Special Meeting. Pursuant to the By-Laws of National Bancorp, the Board of Directors has fixed March 1, 1994 as the record date for the determination of stockholders entitled to receive notice of and to vote at the Special Meeting. Only holders of record of National Bancorp Common Stock at the close of business on such date will be entitled to vote at the Special Meeting or any adjournments thereof. THE AFFIRMATIVE VOTE OF A MAJORITY OF THE ISSUED AND OUTSTANDING SHARES OF NATIONAL BANCORP COMMON STOCK IS REQUIRED TO APPROVE THE MERGER. YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES WHICH YOU OWN. THE STOCKHOLDER, WHETHER HE PLANS TO ATTEND THE SPECIAL MEETING, IS REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD WITHOUT DELAY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. ANY PROXY GIVEN BY A STOCKHOLDER MAY BE REVOKED BY SUBMITTING A DULY EXECUTED PROXY BEARING A LATER DATE. ANY STOCKHOLDER PRESENT AT THE SPECIAL MEETING MAY REVOKE HIS OR HER PROXY AND VOTE PERSONALLY ON EACH MATTER BROUGHT BEFORE THE SPECIAL MEETING. By Order of the Board of Directors Tracy W. Farmer, President March ___, 1994 Lexington, Kentucky THE NATIONAL BANCORP OF KENTUCKY, INC. 2560 Richmond Road Lexington, Kentucky 40509 (606) 269-0547 AND FIFTH THIRD BANCORP 38 Fountain Square Plaza Cincinnati, Ohio 45263 (513) 579-5300 PROXY STATEMENT AND PROSPECTUS Fifth Third Bancorp ("Fifth Third") hereby registers up to a total of 254,092 shares of its Common Stock, without par value ("Fifth Third Common Stock"), to be distributed to the sole stockholder of The National Bancorp of Kentucky, Inc. ("National Bancorp") in connection with the proposed merger of National Bancorp with and into Fifth Third. If the merger is approved by the sole stockholder of National Bancorp at a Special Meeting of the sole stockholder and all other conditions of the merger are satisfied, each outstanding common share of National Bancorp will be converted into 2,540.924 shares of Fifth Third Common Stock. This Proxy Statement and Prospectus (the "Proxy Statement and Prospectus") is being furnished to the sole stockholder of National Bancorp, a Kentucky corporation, in connection with the solicitation of proxies by the Board of Directors of National Bancorp for use at a Special Meeting of stockholders to be held on April 15, 1994 (the "Special Meeting"). At the Special Meeting, the holder of shares of National Bancorp's common stock, without par value ("National Bancorp Common Stock"), will be asked to approve an Affiliation Agreement and an Agreement of Merger, both dated as of December 6, 1993 (the "Affiliation Agreement" and the "Merger Agreement", respectively), between National Bancorp and Fifth Third, which together provide for the merger of National Bancorp with and into Fifth Third (the "Merger"). Pursuant to the Affiliation Agreement and Merger Agreement, the sole stockholder of National Bancorp will be entitled to receive for each share of National Bancorp Common Stock held by such stockholder at the effective time of the Merger (the "Effective Time"), 2,540.924 shares of Fifth Third Common Stock, which was determined by dividing $13,000,000 by 100 shares of National Bancorp Common Stock and then dividing the resulting quotient by $51.16250, the "Applicable Market Value Per Share of Fifth Third Common Stock". Only whole shares of Fifth Third Common Stock will be issued in connection with the Merger. No fractional shares will be issued. Stockholders entitled to receive fractional shares will receive cash in lieu thereof based upon the value per share of Fifth Third Common Stock determined as provided above. Under the rules and regulations of the Securities and Exchange Commission (the "Commission"), the solicitation of National Bancorp's sole stockholder to approve the Merger constitutes an offering of Fifth Third Common Stock to be issued in connection with the Merger. Accordingly, Fifth Third has filed with the Commission a Registration Statement under the Securities Act of 1933, as amended (the "Securities Act"), with respect to such offering, and this Proxy Statement and Prospectus does not contain all of the information set forth in such Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. This Proxy Statement and Prospectus shall not constitute a prospectus for public reoffering of the Fifth Third Common Stock issuable pursuant to the Merger. THE SECURITIES OF FIFTH THIRD BANCORP TO BE ISSUED IN THE MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT AND PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Proxy Statement and Prospectus is March ____, 1994. TABLE OF CONTENTS AVAILABLE INFORMATION INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE SUMMARY OF THE PROXY STATEMENT AND PROSPECTUS SELECTED HISTORICAL FINANCIAL DATA OF FIFTH THIRD SELECTED HISTORICAL FINANCIAL DATA OF NATIONAL BANCORP GENERAL INFORMATION PURPOSES OF THE SPECIAL MEETING Proposal to Merge National Bancorp into Fifth Third Vote Required; Shares Entitled to Vote Voting and Revocation of Proxies Solicitation of Proxies COMPARATIVE PER SHARE DATA TERMS AND CONDITIONS OF THE PROPOSED MERGER Background and Reasons for the Merger Recommendation Effective Time Conversion of Shares of National Bancorp Common Stock Merger Price Stock Options No Fractional Shares Exchange of Certificates Federal Income Tax Consequences Accounting Treatment Rights of Dissenting Shareholders Conduct Pending Merger; Representations and Warranties Conditions to Closing Amendment; Waiver; Termination Effect on FNB and NBC Employees Interests of Management Effects of Merger Transactions With Affiliated Persons CAPITAL REQUIREMENTS RESALE OF FIFTH THIRD COMMON STOCK BY AFFILIATES FIFTH THIRD BANCORP Description of Business Securities Exchange Act of 1934 NATIONAL BANCORP Description of Business Regulations Dividends Bank Holding Companies In General EFFECT OF GOVERNMENTAL POLICIES DESCRIPTION OF CAPITAL STOCK Voting Rights Dividends Preemptive Rights Rights Upon Liquidation Indemnification and Personal Liability of Directors and Officers Shareholders' Meetings; Quorum Subscription, Conversion, Redemption Rights; Stock Nonassessable Change of Control Provisions CERTAIN BENEFICIAL OWNERS OF FIFTH THIRD STOCK FIFTH THIRD MANAGEMENT NATIONAL BANCORP BOARD OF DIRECTORS BUSINESS OF THE NATIONAL BANCORP OF KENTUCKY, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE NATIONAL BANCORP OF KENTUCKY'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS LEGAL MATTERS EXPERTS OTHER MATTERS NATIONAL BANCORP FINANCIAL STATEMENTS Annexes: Annex A: Affiliation Agreement by and between Fifth Third and National Bancorp dated as of December 6, 1993 (excluding exhibits) Annex B: Agreement of Merger dated as of December 6, 1993 between Fifth Third and National Bancorp Annex C: Kentucky Revised Statutes Sections 271B.13-010 et seq., Statutory Rights of Dissenting shareholders AVAILABLE INFORMATION THIS PROXY STATEMENT AND PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SEE "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE". THESE DOCUMENTS (EXCLUDING EXHIBITS UNLESS SPECIFICALLY INCORPORATED THEREIN) ARE AVAILABLE WITHOUT CHARGE UPON WRITTEN OR ORAL REQUEST FROM MICHAEL K. KEATING, SECRETARY, FIFTH THIRD BANCORP, 38 FOUNTAIN SQUARE PLAZA, CINCINNATI, OHIO 45263 (TELEPHONE NUMBER: (513) 579-5300). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY MARCH 25, 1994. No person has been authorized to give any information or to make any representation in connection with this offering other than those contained in this Proxy Statement and Prospectus, and, if given or made, such information or representation must not be relied upon as having been authorized by Fifth Third or National Bancorp. This Proxy Statement and Prospectus shall not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction in which it would be unlawful to make such offer or solicitation. Neither the delivery of this Proxy Statement and Prospectus at any time, nor any offer or solicitation made hereunder, shall under any circumstances imply that the information set forth herein or incorporated herein is correct as of any time subsequent to its date. Fifth Third is subject to the information requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, files reports, proxy statements and other information with the Commission. Reports, proxy statements and other information filed by Fifth Third can be inspected and copied at Room 1024 of the Offices of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices in New York, (7 World Trade Center, 13th Floor, New York, New York 10048) and Chicago (Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511), and copies of such material can be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. All information contained in this Proxy Statement and Prospectus with respect to National Bancorp was supplied by National Bancorp and all information contained or incorporated in this Proxy Statement and Prospectus with respect to Fifth Third was supplied by Fifth Third. Although neither National Bancorp nor Fifth Third has any knowledge that would indicate that any statements or information relating to the other party contained herein is inaccurate or incomplete, neither National Bancorp nor Fifth Third can warrant the accuracy or completeness of such statements or information as they relate to the other party. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents are hereby incorporated into this Proxy Statement and Prospectus by reference. Fifth Third: (a) Fifth Third's Annual Report on Form 10-K for the year ended December 31, 1993; (b) Pages 15-36 of Fifth Third's 1993 Annual Report to Shareholders; (c) Fifth Third's Proxy Statement dated February 10, 1994. In addition, all subsequent documents filed with the Securities and Exchange Commission by Fifth Third pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, prior to the Effective Time are incorporated herein by reference. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Proxy Statement and Prospectus to the extent that a statement contained herein (or in any other subsequently filed document which also is deemed to be incorporated by reference herein) modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Proxy Statement and Prospectus. SUMMARY OF THE PROXY STATEMENT AND PROSPECTUS The following is a summary of certain information contained elsewhere in this Proxy Statement and Prospectus and the documents incorporated herein by reference. This summary is not intended to be a summary of all information relating to the Merger and is qualified in its entirety by reference to the more detailed information contained elsewhere in this Proxy Statement and Prospectus, including the Annexes hereto, and the documents incorporated by reference in this Proxy Statement and Prospectus. Parties to the Merger: Fifth Third: Fifth Third is a registered multi-bank holding company, incorporated under Ohio law, which conducts its principal activities through its banking and non-banking subsidiaries. As of December 31, 1993, Fifth Third's 9 subsidiary banks operated a general banking business from 288 offices located throughout Ohio, Indiana and Kentucky. Fifth Third is also a registered unitary savings and loan holding company and operates a federally chartered savings bank located in Naples, Florida. At December 31, 1993, Fifth Third had consolidated assets, deposits and shareholders' equity of $12.0 billion, $8.6 billion and $1.2 billion, respectively. Fifth Third's voting stock is traded over-the-counter and is listed on the NASDAQ National Market System under the symbol "FITB." Fifth Third's principal executive offices are located at 38 Fountain Square Plaza, Cincinnati, Ohio 45263, and its telephone number is (513) 579-5300. National Bancorp: National Bancorp is a registered multi-bank holding company, incorporated under Kentucky law, which conducts its principal activities through its two wholly owned national bank subsidiaries, The First National Bank of Falmouth, Falmouth, Kentucky ("FNB") and The National Bank of Cynthiana, Cynthiana, Kentucky ("NBC"). At December 31, 1993, on a consolidated basis National Bancorp had total assets, total deposits and stockholders' equity of $96.4 million, $83.4 million and $5.0 million, respectively. All of National Bancorp's voting stock is held by one individual, Tracy W. Farmer, a resident of Kentucky. National Bancorp's principal offices are located at 2560 Richmond Road, Lexington, Kentucky 40509, and its telephone number is (606) 269-0547. Special Meeting of National Bancorp's Sole Stockholder: Time and Date: 3:00 P.M. on April 15, 1994 Place: 2560 Richmond Road, Lexington, Kentucky 40509 Purpose: To consider and vote upon an Affiliation Agreement and Merger Agreement which provide for the Merger of National Bancorp with and into Fifth Third. Pursuant to the Affiliation Agreement and Merger Agreement, National Bancorp's sole stockholder will receive shares of Fifth Third's Common Stock in exchange for shares of National Bancorp's Common Stock. Copies of the Affiliation Agreement and Merger Agreement are attached hereto as Annex A and Annex B, respectively, and are incorporated herein by reference. Required Vote for the Merger, the Affiliation Agreement and the Merger Agreement; Record Date: Approval of the Merger, the Affiliation Agreement and the Agreement of Merger requires the affirmative vote of holders of a majority of the 100 shares of National Bancorp's Common Stock, no par value, outstanding as of the close of business on March 1, 1994. An abstention or failure to vote has the same effect as voting against the proposed Merger. Accordingly, stockholders are urged to sign and return their proxies. See "PURPOSES OF THE SPECIAL MEETING - Voting and Revocation of Proxies". Beneficial Ownership by Officers and Directors: As of the close of business on March 1, 1994, the President of National Bancorp beneficially owned 100 shares (100%) of the National Bancorp Common Stock. Rights of Dissenting Stockholders: Holders of National Bancorp Common Stock who do not vote in favor of the Merger are entitled to demand cash in lieu of Fifth Third Common Stock in the amount of the fair value of their shares determined in accordance with Kentucky law. See "TERMS AND CONDITIONS OF THE PROPOSED MERGER - Rights of Dissenting Shareholders" and Annex C. Terms of the Merger: Conversion of National Bancorp Common Stock; Stock Consideration: Upon consummation of the Merger, the sole stockholder of National Bancorp will be entitled to receive, for each share of National Bancorp Common Stock which he holds at the effective time of the Merger (the "Effective Time"), 2,540.924 shares of Fifth Third's common stock, no par value ("Fifth Third Common Stock"). See "TERMS AND CONDITIONS OF THE PROPOSED MERGER - Conversion of Shares of National Bancorp Common Stock" and "- Merger Price". No Fractional Shares: No fractional shares will be issued in connection with the Merger. The National Bancorp stockholder will receive cash in lieu of any fractional shares which he would otherwise be entitled to receive, based on the applicable value per share of such shares as defined above. Conditions of Closing: The Merger is subject to several significant conditions, including stockholder approval, approval by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Kentucky Department of Financial Institutions. See "TERMS AND CONDITIONS OF THE PROPOSED MERGER - Conditions to Closing". Merger: Upon consummation of the Merger, National Bancorp will merge with and into Fifth Third and National Bancorp will cease to exist as a separate entity. As a result of the Merger, FNB and NBC will become wholly owned subsidiaries of Fifth Third. Simultaneously with the Merger, FNB will be merged with and into The Fifth Third Bank of Northern Kentucky, Inc., Florence, Kentucky, a wholly owned subsidiary of Fifth Third, and NBC will be merged with and into The Fifth Third Bank of Central Kentucky, Inc., Lexington, Kentucky, and FNB and NBC will cease to exist as separate entities. Effective Time; Right to Terminate: The Effective Time will, unless the parties agree otherwise, occur on the last business day of the month in which all of the conditions precedent to the Closing, including receipt of all regulatory approvals and the expiration of any applicable waiting periods, have been fully met or effectively waived. The parties anticipate that the Merger will be consummated in late May, 1994 or shortly thereafter. National Bancorp and Fifth Third each will have the right to terminate the Affiliation Agreement if the Effective Time does not occur on or before September 30, 1994. See "TERMS AND CONDITIONS OF THE PROPOSED MERGER - Effective Time". Procedure for Exchange of Shares: Promptly after the Effective Time, Fifth Third will mail to the National Bancorp stockholder a form of transmittal letter and instructions for the surrender of National Bancorp Common Stock for the shares of Fifth Third Common Stock to which such stockholder is entitled. Certificates for shares of Fifth Third Common Stock will be issued to the National Bancorp stockholder only after his certificates for National Bancorp Common Stock have been surrendered in accordance with such instructions. See "TERMS AND CONDITIONS OF THE PROPOSED MERGER - Exchange of Certificates". Federal Income Tax Consequences: The Merger is conditioned, in part, upon receipt of an opinion of Fifth Third's counsel with respect to certain tax matters, including an opinion that no gain or loss (other than with respect to cash received in lieu of fractional shares, or cash received upon the exercise of dissenters' rights) will be recognized by National Bancorp's stockholder upon the exchange of his National Bancorp Common Stock for Fifth Third Common Stock. See "TERMS AND CONDITIONS OF THE PROPOSED MERGER - Federal Income Tax Consequences". THE STOCKHOLDER IS URGED TO CONSULT HIS OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO HIM OF THE MERGER UNDER FEDERAL, STATE, LOCAL AND ANY OTHER APPLICABLE TAX LAWS. Accounting: It is intended that the Merger will be accounted for by the pooling of interests method in accordance with generally accepted accounting principles. See "TERMS AND CONDITIONS OF THE PROPOSED MERGER - Accounting Treatment" and "- Conditions to Closing". Interests of Certain Persons in the Merger: Fifth Third shall use its best efforts to employ at Fifth Third or at a Fifth Third subsidiary or affiliate each of the employees of National Bancorp, FNB and NBC. Each employee of National Bancorp, FNB or NBC who becomes an employee of Fifth Third or its subsidiaries subsequent to the Merger will be entitled to participate in all employee benefit plans sponsored by Fifth Third or its subsidiaries on the same terms and to the same extent as similarly situated employees. Such employees shall receive credit for their period of service to National Bancorp for purposes of determining participation and vesting in all Fifth Third employee benefit plans (except for vesting in the Fifth Third Master Retirement Plan) but not for the purposes of determining the benefits accrued thereunder. The officers and directors of National Bancorp will also be provided certain directors and officers liability insurance protection for two (2) years following the Effective Time. See "TERMS AND CONDITIONS OF THE PROPOSED MERGER - Effect on FNB and NBC Employees" and "- Interests of Management". Board Recommendation: The Board of Directors of National Bancorp believes that the stockholder of National Bancorp will benefit from the Merger through an affiliation with Fifth Third and unanimously recommends approval of the Merger. Securities Involved: For a comparative analysis of the National Bancorp Common Stock and the Fifth Third Common Stock, see "DESCRIPTION OF CAPITAL STOCK". Comparative Market Prices: The Fifth Third Common Stock is traded on the National Association of Securities Dealers Automated Quotation ("NASDAQ") National Market System under the symbol FITB. The National Bancorp Common Stock is held by Tracy W. Farmer. On December 3, 1993, the business day immediately preceding the public announcement of the execution of the Affiliation Agreement and the Merger Agreement setting forth the terms of the Merger, and on March 1, 1994, the market price of the Fifth Third Common Stock was as follows: Closing Sales Prices December 3, 1993 March 1, 1994 Fifth Third Common Stock $50.25 $ SELECTED HISTORICAL FINANCIAL DATA OF FIFTH THIRD The following table sets forth certain historical financial data concerning Fifth Third. This information is based on information contained in Fifth Third's 1993 Annual Report on Form 10-K which is incorporated by reference in this Proxy Statement and Prospectus and should be read in conjunction therewith. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE".
Years Ended December 31, - ------------------------------------------------------------ 1993 1992 1991 1990 1989 ----------- ----------- - ----------- ----------- ----------- ($000's except per share amounts) Summary of Operations: Net interest income $436,389 $394,194 $332,221 $286,621 $268,703 Provision for credit losses 44,487 65,315 55,744 39,879 36,468 Net interest income after ----------- ----------- - ----------- ----------- ----------- provision for credit losses 391,902 328,879 276,477 246,742 232,235 Other operating income 226,578 200,053 171,911 144,865 124,851 Operating expenses 323,387 289,276 249,792 223,324 207,527 ----------- ----------- - ----------- ----------- ----------- Income before income taxes 295,093 239,656 198,596 168,283 149,559 Applicable income taxes 98,646 75,564 60,446 47,872 41,241 ----------- ----------- - ----------- ----------- ----------- Net income $196,447 $164,092 $138,150 $120,411 $108,318 =========== =========== =========== =========== =========== Common Share Data: Primary net income per share $3.21 $2.73 $2.32 $2.05 $1.85 Fully diluted net income per share 3.21 2.73 2.31 2.04 1.85 Cash dividends declared per share 1.02 .90 .78 .68 .60 Book value at period end 19.50 16.80 14.81 13.25 11.91 Average shares outstanding (000's): Primary 62,557 60,255 59,493 58,929 58,521 Fully Diluted 62,563 60,356 59,702 58,974 58,579 Financial Condition at Period End: Securities Available for Sale (at market) $815,986 -- -- -- -- Securities Held for Investment 1,487,322 $1,933,008 $2,063,766 $1,354,966 $1,059,204 Loans and Leases 8,811,039 7,474,859 5,806,612 5,496,990 5,163,840 Assets 11,966,000 10,213,320 8,826,130 7,955,808 7,142,972 Deposits 8,628,498 7,531,946 6,687,262 6,385,221 5,783,527 Funds Borrowed 1,602,217 1,229,791 1,042,566 607,047 479,219 Long-Term Debt and Convertible Subordinated Notes 282,864 254,061 12,848 13,517 12,607 Shareholders' Equity 1,197,646 1,005,165 879,450 782,698 699,261 Ratios: Profitability Ratios: Return on average assets 1.80% 1.74% 1.68% 1.64% 1.62% Return on average stockholders' equity 18.2 17.3 16.6 16.2 16.5 Net interest margin 4.51 4.73 4.58 4.53 4.70 Overhead ratio (1) 47.3 47.3 47.7 49.5 50.3 Other operating income to total income (2) 33.5 33.5 33.6 33.6 31.6 Capital Ratios: Average shareholders' equity to average assets 9.92 10.07 10.11 10.12 9.83 Tier 1 Capital to risk-adjusted assets (3) 11.4 11.2 12.5 11.9 N/A Total Capital to risk-adjusted assets (3) 13.8 14.1 13.7 13.2 N/A Leverage (4) 9.9 9.5 9.7 9.8 N/A Credit Quality Ratios: Reserve for credit losses to nonperforming assets 559.8 214.5 92.6 90.7 221.0 Reserve for credit losses to loans and leases outstanding 1.53 1.54 1.56 1.55 1.55 Net charge-offs to average loans and leases outstanding .32 .68 .90 .66 .52 Nonperforming assets to loans, leases and other real estate owned .27 .71 1.67 1.70 .70 - ------------------------------------------ (1) Operating expenses divided by the sum of taxable equivalent net interest income and other operating income. (2) Other operating income excluding securities gains and losses as a percent of net interest income and other operating income excluding securities gains and losses. (3) Under final year-end 1992 guidelines. (4) Tier 1 capital (under final year-end 1992 rules) divided by average quarterly assets.
SELECTED HISTORICAL FINANCIAL DATA OF NATIONAL BANCORP The following table sets forth certain historical financial data concerning National Bancorp. This information is based on information contained in National Bancorp's 1993 Annual Report to Shareholders.
At December 31 1993 1992 1991 1990 1989 (dollars in thousands) Total amount of: Assets 96,428 98,199 100,866 102,728 97,898 Loans receivable, net 49,864 40,344 44,104 48,557 64,279 Mortgage-backed 27,727 35,739 39,703 35,183 18,551 securities, net Investment securities 34,653 44,935 48,342 40,731 24,413 Investment-bearing 7,700 6,725 1,700 4,525 3,800 deposits in other financial institutions Deposit accounts 83,844 86,929 89,433 89,046 85,473 Advances from FHLB 0 0 0 0 0 Stockholders' equity 5,005 3,866 2,858 3,131 2,605 Number of: Real estate loans N/A N/A N/A N/A N/A outstanding Deposit accounts N/A N/A N/A N/A N/A Full service offices 5 5 5 5 5 open
Year Ended June 30 1993 1992 1991 1990 1989 Operations Data: Interest Income 6,720 7,656 9,058 9,650 9,352 Interest Expense 3,013 3,889 5,620 6,187 5,937 Net interest income 3,707 3,767 3,438 3,464 3,415 Provision for loan losses 85 244 313 310 211 Net interest income after 3,622 3,523 2,625 3,154 3,204 Other income 735 842 579 430 579 General, administrative an 2,859 2,878 3,652 2,891 2,555 Earnings before income tax 1,679 1,487 (448) 693 1,228 Federal income taxes 502 479 (208) 109 319 Net earnings 1,139 1,008 (240) 584 908 Primary earnings per share N/A N/A N/A N/A N/A Dividends per common share N/A N/A N/A N/A N/A Dividend payout ratio N/A N/A N/A N/A N/A
THE NATIONAL BANCORP OF KENTUCKY, INC. 2560 Richmond Road Lexington, Kentucky 40509 (606) 269-0547 AND FIFTH THIRD BANCORP 38 Fountain Square Plaza Cincinnati, Ohio 45263 (513) 579-5300 PROXY STATEMENT AND PROSPECTUS GENERAL INFORMATION This Proxy Statement and Prospectus is being furnished to the sole stockholder of The National Bancorp of Kentucky, Inc. ("National Bancorp") in connection with the solicitation by the Board of Directors of National Bancorp of proxies to be used at a Special Meeting of the stockholder (the "Special Meeting") to be held on April 15, 1994, at 3:00 at 2560 Richmond Road, Lexington, Kentucky 40509, and at any adjournments thereof. This Proxy Statement and Prospectus and the enclosed form of proxy are first being sent to the sole stockholder of National Bancorp on or about March ___, 1994. PURPOSES OF THE SPECIAL MEETING At the Special Meeting, the sole stockholder of National Bancorp will be asked to approve an Affiliation Agreement and an Agreement of Merger, both dated as of December 6, 1993 (the "Affiliation Agreement" and the "Merger Agreement", respectively), between National Bancorp and Fifth Third Bancorp ("Fifth Third"), which provide for the merger (the "Merger") of National Bancorp with and into Fifth Third (see "TERMS AND CONDITIONS OF THE PROPOSED MERGER" below). Proposal to Merge National Bancorp into Fifth Third Pursuant to the Affiliation Agreement and the Merger Agreement, the sole stockholder of National Bancorp will be entitled to receive, for each share of National Bancorp common stock, no par value ("National Bancorp Common Stock"), which such stockholder holds at the effective time of the Merger (the "Effective Time"), 2,540.924 shares of Fifth Third common stock, no par value ("Fifth Third Common Stock"). The number of shares of Fifth Third Common Stock to be issued to the sole stockholder of National Bancorp in this transaction will be determined by multiplying 2,540.924 by the total number of shares of National Bancorp Common Stock held by such stockholder as discussed below. See "TERMS AND CONDITIONS OF THE PROPOSED MERGER - Merger Price" below. NATIONAL BANCORP'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF THE AFFILIATION AGREEMENT AND MERGER AGREEMENT. Vote Required; Shares Entitled to Vote The presence in person or by proxy of the holders of a majority of the outstanding shares of National Bancorp Common Stock will constitute a quorum for the transaction of business at the Special Meeting. APPROVAL OF THE MERGER WILL REQUIRE THE AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING SHARES OF NATIONAL BANCORP COMMON STOCK. Holders of record of National Bancorp Common Stock at the close of business on March 1, 1994, (the "Record Date") are entitled to receive notice of, and to vote at, the Special Meeting. At the close of business on February 28, 1994, there were 100 shares of National Bancorp Common Stock outstanding. Each share of National Bancorp Common Stock will be entitled to one vote. Persons and groups owning in excess of 5% of the National Bancorp Common Stock are required to file certain reports regarding such ownership with National Bancorp and with the Securities and Exchange Commission, in accordance with the Securities Exchange Act of 1934. As of February 28, 1994, management of National Bancorp was not aware of any person or group who beneficially owned more than 5% of the outstanding shares of National Bancorp Common Stock except as listed below. Such table also shows the number of and percentage of outstanding shares of Fifth Third Common Stock each such beneficial owner will hold upon consummation of the Merger (assuming that each share of National Bancorp Common Stock is converted into 2,540.924 shares of Fifth Third Common Stock.)
Name and No. of Percent Shares Percent of Address of Shares of of Outstanding Beneficial Beneficially Outstanding Fifth Fifth Third Owner Owned Shares Third Shares to be Owned Tracy W. Farmer 100(1) 100% 254,092 .41% 2560 Richmond Rd Lexington, KY 40509 All directors and officers as a group (8 persons) 100 100% 254,092 .41% (1) Includes shares held directly, shares held by certain family members, with respect to which shares the respective persons may be deemed to have shared voting and investment powers. /TABLE Voting and Revocation of Proxies Shares represented by proxies properly signed and returned will be voted at the Special Meeting in accordance with the instructions thereon, unless revoked. If a proxy is signed and returned without voting instructions, the shares represented thereby will be voted IN FAVOR OF the Merger, and at the discretion of the proxy holders as to any other matters which may properly come before the Special Meeting. Each proxy may be revoked at any time before its exercise by giving written notice to the Secretary of the Meeting. A subsequently dated proxy will, if properly presented, revoke a prior proxy. Any stockholder may attend the Special Meeting and vote in person whether or not such stockholder has previously given a proxy. Solicitation of Proxies Following the mailing of proxy solicitation materials, directors, officers and employees of National Bancorp may solicit proxies by mail, telephone, telegraph and personal interviews. National Bancorp will bear the expense of proxy solicitation, including reimbursement of reasonable out-of-pocket expenses incurred by brokerage houses and other custodians, nominees and fiduciaries in forwarding proxy solicitation material to the beneficial owners of stock held of record by such persons. In addition, National Bancorp may retain professional proxy solicitors to aid in the solicitation of proxies and may pay reasonable compensation therefor. MARKET PRICE AND DIVIDEND DATA Fifth Third Common Stock is traded in the over-the-counter market and quoted on NASDAQ's National Market System. The following table sets forth (in per share amounts), for the quarterly periods indicated, the high and low closing sales prices of Fifth Third Common Stock and the dividends declared during each quarterly period.
Fifth Third Common Stock High Low Dividends Declared Year Ended December 31, 1991: First Calendar Quarter $28.00 $20.13 $0.18 Second Calendar Quarter $35.13 $27.13 $0.20 Third Calendar Quarter $40.38 $32.50 $0.20 Fourth Calendar Quarter $45.38 $38.00 $0.20 Year Ended December 31, 1992: First Calendar Quarter $50.38 $43.00 $0.22 Second Calendar Quarter $46.75 $40.13 $0.22 Third Calendar Quarter $52.75 $40.75 $0.22 Fourth Calendar Quarter $54.00 $46.75 $0.24 Year Ended December 31, 1993: First Calendar Quarter $55.13 $49.89 $0.24 Second Calendar Quarter $58.50 $50.25 $0.24 Third Calendar Quarter $54.63 $51.25 $0.27 Fourth Calendar Quarter $54.00 $49.75 $0.27
COMPARATIVE PER SHARE DATA The following table sets forth certain per-share information at the dates indicated and for the periods then ended of Fifth Third and National Bancorp. The equivalent values of such information are based on the exchange of 2,540.924 shares of Fifth Third Common Stock for the merger of National Bancorp with and into Fifth Third. Neither National Bancorp nor Fifth Third can give any assurances that the following table will accurately reflect figures and values applicable at the date of consummation of the merger transaction.
For the Periods Ended: Equivalent Share Basis - Fifth Third National 2540.924 Shares of Bancorp Fifth Third Common Stock Primary Fully Actual Primary Fully Diluted Diluted Net Income Per Share From Continuing Operations December 31, 1989 $1.85 $1.85 $4,700.71 December 31, 1990 $2.05 $2.04 $5,208.89 December 31, 1991 $2.32 $2.31 $5,894.94 December 31, 1992 $2.73 $2.73 $6,936.72 December 31, 1993 $3.21 $3.21 $8,156.37 Dividends Declared Per Share December 31, 1989 $0.60 December 31, 1990 $0.68 December 31, 1991 $0.78 December 31, 1992 $0.90 December 31, 1993 $1.02 Book Value Per Share December 31, 1989 $11.91 December 31, 1990 $13.25 December 31, 1991 $14.81 December 31, 1992 $16.80 December 31, 1993 $19.50 Market Value Per Share $50.25 on December 31 1993(1) (1) December 3 1993 was the last day of trading preceding the public announcement of the acquisition
TERMS AND CONDITIONS OF THE PROPOSED MERGER The following description contains, among other information, summaries of certain provisions of the Affiliation Agreement and the Merger Agreement and is qualified in its entirety by reference to the full text thereof, copies of which are reproduced as Annex A and Annex B, respectively, to this Proxy Statement and Prospectus and are incorporated herein by reference. Background and Reasons for the Merger In the fourth quarter of 1993, National Bancorp and Fifth Third entered into negotiations which on December 6, 1993 resulted in the execution of the definitive Affiliation Agreement and the Agreement of Merger whereby National Bancorp will be merged with and into Fifth Third. The Board of Directors of National Bancorp unanimously approved the Affiliation Agreement and the Merger Agreement on December 6, 1993. The Board of Directors of National Bancorp believes that the terms of the Merger are fair to the National Bancorp stockholder and that consummation of the Merger is in the best interests of National Bancorp, The First National Bank of Falmouth ("FNB") and The National Bank of Cynthiana ("NBC"). In reaching this business judgment, the Board considered, among other things, the Merger price as it relates to the market value, book value and earnings per share of National Bancorp Common Stock and Fifth Third Common Stock, information concerning the financial condition, results of operations and prospects of National Bancorp, FNB and NBC, the ability of the surviving entity to compete in FNB and NBC's existing markets, the anticipated tax-deferred nature of the Merger to the National Bancorp stockholder under the Internal Revenue Code of 1986, as amended (the "Code") (to the extent Fifth Third stock is received) and the financial terms of other recent acquisitions of bank holding companies and their subsidiary national banks. The Boards of Directors of National Bancorp, FNB and NBC believe that by virtue of the Merger, FNB and NBC will be able to compete more effectively in their market areas and to provide much broader services to its customers. Fifth Third's primary reason for consummating the Merger is to further a long-range commitment of realigning and expanding its branch system to better meet and satisfy the financial needs of the customers in the National Bancorp, FNB and NBC's service areas. In view of all the considerations described above, the Board of Directors of National Bancorp unanimously recommends that its stockholder vote FOR the Merger. For information regarding interests of directors and executive officers of National Bancorp, FNB and NBC in the Merger, see "National Bancorp Board of Directors" "Effect on FNB and NBC Employees" and "Interests of Management." Recommendation THE BOARD OF DIRECTORS OF NATIONAL BANCORP HAS UNANIMOUSLY APPROVED THE MERGER AND RECOMMENDS A VOTE IN FAVOR OF THE MERGER. Tracy W. Farmer, a member of National Bancorp's Board of Directors, beneficially owns 100 shares (or 100%) of the National Bancorp Common Stock outstanding. He has indicated his intention to vote all of his shares of National Bancorp Common Stock in favor of the Merger. Effective Time The Effective Time of the Merger will occur on the last business day of the month in which all conditions precedent contained in the Affiliation Agreement have been met or waived, including the expiration of all applicable waiting periods. It is anticipated that the Merger will be consummated in late May, 1994 or shortly thereafter, although no assurance can be given in this regard. National Bancorp and Fifth Third each will have the right, but not the obligation, to terminate the Affiliation Agreement if the Effective Time does not occur on or before September 30, 1994. Conversion of Shares of National Bancorp Common Stock At the Effective Time, any shares of National Bancorp Common Stock held in the treasury of National Bancorp will be cancelled and retired. No cash, securities or other consideration will be paid or delivered in exchange for any such treasury shares. 1,900 authorized but unissued shares existed as of the date of execution of the Affiliation Agreement. Each share of National Bancorp Common Stock which is issued and outstanding immediately prior to the Effective Time which is not then held in National Bancorp's treasury and which is not a dissenting share (as described below) will be converted at the Effective Time into a fraction of a share of Fifth Third Common Stock. See "Merger Price" herein. The exchange ratio set forth herein shall be adjusted so as to give National Bancorp stockholders the economic benefit of any stock dividends, reclassifications, recapitalizations, split-ups, exchanges of shares, distributions or combinations or subdivision of Fifth Third Common Stock effected between the date of the Affiliation Agreement and the Effective Date. Merger Price At the Effective Time of the Merger, each of the shares of National Bancorp Common Stock that are issued and outstanding immediately prior to the Effective Time will, when the Merger becomes effective, be converted by virtue of the Merger and without further action, into 2,540.924 shares of Fifth Third Common Stock. Such conversion ratio was determined by dividing $13,000,000 by 100 shares of National Bancorp Common Stock and then dividing the resulting quotient by $51.16250, the Applicable Market Value Per Share of Fifth Third Common Stock (as that term is defined in the Affiliation Agreement). The Fifth Third Common Stock will be distributed to National Bancorp's sole stockholder upon the surrender of his certificates for shares of National Bancorp Common Stock to Fifth Third. Stock Options Currently, there are no outstanding options to purchase any shares of National Bancorp Common Stock held by any party. No Fractional Shares Only whole shares of Fifth Third Common Stock will be issued in connection with the Merger. In lieu of fractional shares, each holder of shares of National Bancorp Common Stock otherwise entitled to a fractional share of Fifth Third Common Stock will be paid in cash in an amount equal to the amount of such fraction multiplied by $51.16250. No such holder will be entitled to dividends, voting rights or other rights in respect of any such fractional share. Exchange of Certificates After the Effective Time, the holder of certificates previously representing shares of National Bancorp Common Stock will cease to have any rights as a stockholder of National Bancorp and his sole rights will pertain to the shares of Fifth Third Common Stock into which his shares of National Bancorp Common Stock will have been converted pursuant to the Merger Agreement. As soon as practicable after the Effective Time, Fifth Third will send to the sole former National Bancorp stockholder a letter of transmittal for use in submitting to Fifth Third (the "Exchange Agent") certificates (or with instructions for handling lost National Bancorp stock certificates) formerly representing shares of National Bancorp Common Stock to be exchanged for certificates representing Fifth Third Common Stock (and, to the extent applicable, cash in lieu of fractional shares of Fifth Third Common Stock) to which the former National Bancorp stockholder is entitled to receive as a result of the Merger. If the sole stockholder of National Bancorp becomes a holder of Fifth Third Common Stock in the Merger, he will not be entitled to receive any dividends or other distributions which may be payable to holders of record of Fifth Third Common Stock following the Effective Time until he has surrendered and exchanged his certificates evidencing ownership of shares of National Bancorp Common Stock. Any dividends payable on Fifth Third Common Stock after the Effective Time will be paid to the Exchange Agent and, upon receipt of the certificates representing shares of National Bancorp Common Stock, the Exchange Agent will forward to the National Bancorp stockholder (i) certificates representing his shares of Fifth Third Common Stock, (ii) dividends declared thereon subsequent to the Effective Time (without interest) and (iii) the cash value of any fractional shares (without interest). NATIONAL BANCORP'S STOCKHOLDER IS REQUESTED NOT TO SUBMIT STOCK CERTIFICATES UNTIL HE HAS RECEIVED WRITTEN INSTRUCTIONS TO DO SO. At the Effective Time, the stock transfer books of National Bancorp will be closed and no transfer of the National Bancorp Common Stock will thereafter be made on such books, and, if a certificate formerly representing shares of National Bancorp Common Stock is presented to National Bancorp or Fifth Third, it will be forwarded to the Exchange Agent for cancellation and exchange for a certificate representing shares of Fifth Third Common Stock. Federal Income Tax Consequences The following discussion summarizes the material federal income tax consequences of the Merger to the sole shareholder of National Bancorp. THE FEDERAL INCOME TAX DISCUSSION SET FORTH BELOW NECESSARILY IS NOT SPECIFIC TO THE SITUATION OF A PARTICULAR STOCKHOLDER AND IS INCLUDED FOR GENERAL INFORMATION ONLY. NATIONAL BANCORP'S SOLE STOCKHOLDER SHOULD CONSULT HIS OWN TAX ADVISER AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS. The federal income tax consequences to the National Bancorp stockholder depend upon (i) the form of consideration received in exchange for the shares of National Bancorp Common Stock actually owned by him, and (ii) in the case of a National Bancorp stockholder receiving cash, or a combination of cash and Fifth Third Common Stock, the type of consideration received in exchange for shares of National Bancorp Common Stock deemed to be constructively owned by him under Section 318(a) of the Internal Revenue Code of 1986, as amended (the "Code"), if any. Generally, under Section 318(a), a stockholder is deemed to constructively own shares owned directly or indirectly by certain related individuals (including spouses, children, grandchildren and parents) or by certain related entities (including partnerships, trusts, estates, and corporations in which the stockholder owns, directly or indirectly, 50% or more in value of the stock). Under Section 318(a), if any person has an option to acquire stock, such stock is considered as owned by such person. National Bancorp stockholders Receiving Solely Fifth Third Common Stock. If the National Bancorp stockholder receives solely Fifth Third Common Stock in exchange for all shares of National Bancorp Common Stock actually owned by him, such stockholder will not recognize any gain or loss upon such exchange. The tax basis of the Fifth Third Common Stock received in such exchange will be equal to the basis of the shares of National Bancorp Common Stock surrendered and, provided the shares of National Bancorp Common Stock surrendered were held as capital assets at the time of such exchange, the holding period of the Fifth Third Common Stock received will include the holding period of the shares of National Bancorp Common Stock surrendered. National Bancorp stockholders Receiving Solely Cash. If all the shares of National Bancorp Common Stock actually owned and deemed to be constructively owned under Code Section 318(a) by the National Bancorp stockholder are exchanged solely for cash upon the exercise of dissenters' rights, such National Bancorp stockholder will recognize capital gain or loss (provided he held the shares actually owned by him as capital assets at the time of the exchange) measured by the difference between such stockholder's tax basis in the shares of National Bancorp Common Stock actually owned by him and the amount of cash received by him in exchange for such shares. If a National Bancorp stockholder exchanges all the shares of National Bancorp Common Stock actually owned by him solely for cash upon the exercise of dissenters' rights but shares of National Bancorp Common Stock constructively owned by him under Code Section 318(a) are exchanged in whole or in part for Fifth Third Common Stock, then the tax consequences to such stockholder will be determined under Code Section 302 which deals with redemptions. Section 302 contains three tests that are relevant in this context to determine whether a redemption is taxed as ordinary income or as a capital gain or loss (provided that the shares were held as capital assets at the time of the exchange). Under Section 302, a redemption, to the extent of available undistributed earnings and profits, is treated as a dividend resulting in ordinary income unless it (1) is "not essentially equivalent to a dividend"; (2) is "substantially disproportionate" with respect to the stockholder; or (3) completely terminates the stockholder's interest. If one of those tests is satisfied, capital gain or loss recognized will be measured by the difference between the amount of cash received by the stockholder in exchange for the shares of National Bancorp Common Stock actually owned by him and his tax basis in those shares. If none of the tests is satisfied, and assuming the cash distribution is not in excess of the current and accumulated earnings and profits of National Bancorp, the stockholder will be treated as having received dividend income equal to the amount of cash received (without deduction for such stockholder's tax basis in the National Bancorp shares). Whether the transaction will be "not essentially equivalent to a dividend" with respect to a National Bancorp stockholder depends upon the particular circumstances applicable to such stockholder, there being no precise mathematical formula whereby it is possible to assure satisfaction of this test. On the other hand, the "substantially disproportionate" test is a mathematical test. The transaction will be "substantially disproportionate" with respect to a National Bancorp stockholder if his percentage ownership of Fifth Third Common Stock after the Merger (considering shares actually and constructively owned) is less than 50% of all Fifth Third Common Stock and less than 80% of his hypothetical percentage ownership of the total number of shares of Fifth Third Common Stock immediately after the Merger if all of the National Bancorp Common Stock had been exchanged for Fifth Third Common Stock (considering shares actually and constructively owned). The third test is the complete termination of interest, which can only be satisfied if all the National Bancorp shares actually and constructively owned by the National Bancorp stockholder are exchanged solely for cash upon the exercise of dissenters' rights, except that Code Section 302 sets forth a procedure, which, under certain circumstances, allows a waiver of the constructive ownership rules as they apply to family members. Under the rules of Section 302, a National Bancorp stockholder who receives cash on exercise of dissenters' rights for any National Bancorp shares actually owned by him risks having such amounts treated as a dividend rather than as capital gains if any shares of National Bancorp Common Stock constructively owned by him or her are exchanged in whole or in part for Fifth Third Common Stock, the substantially disproportionate test is not met, and the stockholder cannot or does not waive constructive ownership of the shares held by others but which are attributed to him or her. Cash Received in Lieu of Fractional Shares. No fractional shares of Fifth Third Common Stock will be issued pursuant to the Merger Agreement. A National Bancorp stockholder who receives cash in lieu of a fractional share will be treated as having received such fractional share of Fifth Third Common Stock and then as having received such cash in redemption of such fractional share subject to the provisions of Section 302 of the Code. The circumstances under which cash is being issued in lieu of a fractional share interest appear to satisfy the Internal Revenue Service ruling guidelines under which the receipt of such cash will qualify for capital gain or loss treatment (provided such fractional interest is held as a capital asset at the time of such exchange). Because of the complexity of the tax laws, and because the tax consequences to any particular stockholder may be affected by specific matters not common to all stockholders, it is recommended that the National Bancorp stockholder consult his personal tax advisors concerning the consequences of the Merger to him, including the consequences of the application of state and local tax laws, if any. Accounting Treatment In accordance with generally accepted accounting principles, the Merger will be accounted for as a pooling of interests. Under pooling of interests accounting, as of the Effective Time, the assets and liabilities of National Bancorp will be added to those of Fifth Third at their recorded book values and the stockholders' equity account of National Bancorp will be included on Fifth Third's consolidated balance sheet. See "COMPARATIVE MARKET PRICE AND DIVIDEND DATA" and "COMPARATIVE PER SHARE DATA". Rights of Dissenting Shareholders The following is only a general summary of the provisions of the Kentucky Revised Statutes relating to dissenters' rights and should not be considered to be a comprehensive description. A copy of the Kentucky dissenters' rights statute (Kentucky Revised Statutes Sections 271B.13-010 et seq.) is appended hereto as Annex C as a complete description of the rights and obligations of National Bancorp and of any shareholder who desires to exercise dissenters' rights. EACH STEP MUST BE TAKEN IN STRICT COMPLIANCE WITH THE APPLICABLE PROVISIONS OF THE DISSENTERS' RIGHTS STATUTE IN ORDER FOR HOLDERS OF NATIONAL BANCORP COMMON STOCK TO PERFECT DISSENTERS' RIGHTS. A National Bancorp stockholder entitled to vote on the adoption of the Affiliation Agreement and the Merger Agreement may dissent from the Merger and obtain payment of the fair value of his shares in accordance with Sections 271B.13-010 et seq. of the Kentucky Revised Statutes. Any National Bancorp stockholder who desires to assert dissenters' rights must not vote his shares of National Bancorp Common Stock in favor of the proposed Merger and must deliver to National Bancorp before the vote is taken written notice of his intent to demand payment for his shares if the Merger is effectuated. If a stockholder does not initially satisfy these two requirements, he is not entitled to demand payment for the shares owned by him subsequent to the approval of the proposed Merger. If the shareholder delivers the notice to National Bancorp as required above, National Bancorp shall deliver to him a written dissenters' notice no later than ten (10 days) after the date on which the vote of the proposed merger was taken: (a) stating where the payment demand must be send and where and when certificates for certificated shares must be deposited; (b) stating the restrictions on transfer after the payment demand is received, if any, on holders of uncertificated shares; (c) supplying a form for demanding payment that includes the date of the first announcement to news media or to shareholders of the terms of the Merger and requiring that the person asserting dissenters' rights certify whether or not he acquired beneficial ownership of the shares before that date; (d) indicating a date by which National Bancorp must receive the payment demand, which date may not be fewer than thirty nor more than sixty days after the date the notice to be provided in this paragraph is delivered; and (e) providing a copy of Sections 271B.13-010 et seq. If the shareholder is sent a dissenter's notice as described in the immediately preceding paragraph, he shall demand payment, certify whether he acquired beneficial ownership of the shares before the date required to be set forth in the dissenter's notice and deposit his certificates in accordance with the terms of the notice. IF THE SHAREHOLDER DOES NOT DEMAND PAYMENT OR DEPOSIT HIS SHARE CERTIFICATES WHERE REQUIRED IN ACCORDANCE WITH THE TERMS SET FORTH IN THE DISSENTER'S NOTICE, HE SHALL NOT BE ENTITLED TO PAYMENT FOR HIS SHARES UNDER SECTIONS 271B.13-010 ET SEQ. Upon receipt of a payment demand, National Bancorp shall pay the shareholder who has taken all of the steps enumerated above the amount National Bancorp estimates to be the fair value of his shares, plus accrued interest. The payment shall be accompanied by: (1) National Bancorp's balance sheet as of the end of a fiscal year ending not more than sixteen (16) months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (2) a statement of National Bancorp's estimate of the fair value of the shares; (3) an explanation of how the interest was calculated; and (4) a statement of the dissenter's right to demand payment under Kentucky Revised Statutes 271B.13-280. The shareholder may notify National Bancorp in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate (less any payment already made to the shareholder) if: (a) the dissenter believes that the amount to be paid as set out in the preceding paragraph is less than the fair value of his shares or that the interest due is incorrectly calculated; (b) National Bancorp fails to make payment within sixty (60) days after the date set for demanding payment; or (c) National Bancorp, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within sixty (60) days after the date set for demanding payment. A DISSENTER WAIVES HIS RIGHT TO DEMAND PAYMENT AS DESCRIBED IN THIS PARAGRAPH UNLESS HE NOTIFIES NATIONAL BANCORP OF HIS DEMAND IN WRITING WITHIN THIRTY (30) DAYS AFTER NATIONAL BANCORP MADE OR OFFERED PAYMENT FOR HIS SHARES. If the dissenting shareholder and National Bancorp are unable to resolve the fair market value of and interest owed upon the shares, National Bancorp shall commence a proceeding within sixty (60) days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If National Bancorp does not commence the proceeding within the sixty (60) day period, it shall pay the dissenting shareholder the amount demanded. National Bancorp shall commence the proceeding in Fayette County, Kentucky. The court may appoint one (1) or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The dissenter shall be entitled to the same discovery rights as parties in other civil proceedings. The dissenter shall be entitled to judgment for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by National Bancorp. Conduct Pending Merger; Representations and Warranties National Bancorp has agreed, among other things, that prior to the Effective Time, it will carry on its business in the ordinary course. National Bancorp has agreed to give Fifth Third and Fifth Third's representatives reasonable access during business hours to its facilities and personnel. National Bancorp has further agreed that, without Fifth Third's prior written consent, it will not, among other things, make any changes in its capital or corporate structures; issue any additional shares of its Common Stock; issue any securities of any kind; or make any material changes in its method of business operations. National Bancorp also has agreed not to make or become obligated to make any capital expenditures in excess of $10,000, nor will it make or renew any agreement for services to be provided to National Bancorp, FNB or NBC or permit the automatic renewal of any such agreement, except any agreement for services having a term of not more than three months or requiring the expenditure of not more than $2,500. National Bancorp has also agreed not to declare or pay any cash dividends on its stock other than normal and customary cash dividends paid in amounts and at times National Bancorp historically has paid them; pay any stock dividends or make any other distributions on its stock and will not provide any increases in employee salaries or benefits other than in the ordinary course of business. Moreover, National Bancorp will not sell, dispose of or otherwise encumber any of the shares of the capital stock of FNB or NBC which are now owned by it. Fifth Third and National Bancorp have also made numerous representations and warranties to each other with respect to financial and other matters. These include, without limitation, representations and warranties to the effect that both Fifth Third and National Bancorp have the corporate power and authorization to enter into the proposed transaction, that each will have provided the other with financial statements and that Fifth Third has enough authorized Fifth Third Common Stock with which to accomplish the proposed transaction. No representations, warranties and covenants made by either National Bancorp or Fifth Third will survive beyond the Effective Time. Thereafter, neither National Bancorp, FNB or NBC nor any officer or director of either of them will have any liability or obligation with respect to such representations, warranties or covenants, with the exception of any misrepresentations, breaches of warranties or violations of covenants that were made with intent to defraud. Conditions to Closing The Affiliation Agreement and Merger Agreement must be approved by the affirmative vote of a majority of the outstanding shares of the National Bancorp Common Stock. The Merger must also be approved in writing by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Kentucky Department of Financial Institutions and must comply with any applicable waiting periods. No assurance can be given that the required governmental approvals will be forthcoming. The obligations of National Bancorp and Fifth Third to consummate the Merger are also subject to receipt of an opinion of counsel with respect to certain tax matters. See "Federal Income Tax Consequences" herein. Fifth Third's and National Bancorp's obligations to consummate the Merger are further subject to various other conditions set forth in the Affiliation Agreement, including, but not limited to, National Bancorp stockholder approval of the Affiliation Agreement and the Merger Agreement, the absence of any material adverse change in the affairs of National Bancorp or Fifth Third prior to the Effective Time; the continued truth and accuracy at the Effective Time of the representations and warranties made by National Bancorp and Fifth Third in the Affiliation Agreement; the receipt of all necessary governmental and regulatory approvals and the expiration of any applicable waiting periods, the absence at the Effective Time of any material actions, proceedings or investigations of any kind pending or threatened with respect to the transactions contemplated by the Affiliation Agreement and Merger Agreement, delivery by Fifth Third's counsel of an opinion as to certain federal tax aspects of the transaction and both institutions having performed all of the obligations required of them under the Affiliation Agreement and Merger Agreement. Fifth Third's obligation to consummate the Merger is further subject to conditions set forth in the Affiliation Agreement, including, but not limited to, the continuing truth and accuracy of all of the representations and warranties of National Bancorp, National Bancorp's performance of all of the obligations required of it under the Affiliation Agreement and Agreement of Merger, delivery by National Bancorp's counsel of a certain legal opinion addressed to Fifth Third, the aggregate amount of stockholder's equity of National Bancorp immediately prior to the Effective Time, as shown by and reflected on its books and records of accounts on a consolidated basis in accordance with generally accepted principles, consistently applied, shall not be less than $5,031,000 (its separate stockholder's equity at October 31, 1993). National Bancorp's obligation to consummate the Merger is further subject to conditions set forth in the Affiliation Agreement, including, but not limited to, the continuing truth and accuracy of Fifth Third's representations and warranties, Fifth Third's performance of all of the obligations required of it under the Affiliation Agreement and Agreement of Merger, delivery by Fifth Third's counsel of a certain legal opinion addressed to National Bancorp, Fifth Third shall have registered its shares of Fifth Third Common Stock to be issued to National Bancorp's sole stockholder. Amendment; Waiver; Termination The Affiliation Agreement and Merger Agreement may be amended, modified or supplemented by the written agreement of both parties, upon the authorization of each company's respective Board of Directors and without further approval of National Bancorp's stockholders, except that no amendment, modification or supplement may be effected without National Bancorp stockholder approval if to do so would violate any applicable provisions of Kentucky corporation law. The Affiliation Agreement and Merger Agreement may be terminated and the Merger abandoned at any time prior to the Effective Time by written notice delivered by Fifth Third to National Bancorp or by National Bancorp to Fifth Third in the following instances: (1) by Fifth Third or National Bancorp, if there has been a material misrepresentation, a material breach of warranty or a material failure to comply with any covenant on the part of the other party with respect to the representations, warranties and covenants set forth in the Affiliation Agreement and such misrepresentation, breach or failure to comply has not been cured within ten days of notice, provided the party in default has no right to terminate for its own default; (2) by Fifth Third or National Bancorp, if the business or assets or financial condition of the other party have materially and adversely changed from that in existence at September 30, 1993; (3) by Fifth Third or National Bancorp, if the Merger has not been consummated by September 30, 1994, provided the terminating party is not in material breach or default of any representation, warranty or covenant contained in the Affiliation Agreement on the date of such termination. (All capitalized terms set forth in this paragraph are defined in the Affiliation Agreement.) If the National Bancorp stockholder, acting at a meeting held for the purpose of voting upon the Affiliation Agreement and Merger Agreement, fails to approve the Affiliation Agreement and Merger Agreement in the manner required by law, then the Affiliation Agreement and Merger Agreement shall be deemed to be automatically terminated. Effect on FNB and NBC Employees Fifth Third shall use its best efforts to employ at Fifth Third or at a Fifth Third subsidiary or affiliate each of the employees of National Bancorp, FNB and NBC. Each employee of National Bancorp, FNB or NBC who becomes an employee of Fifth Third or its subsidiaries subsequent to the Merger will be entitled to participate in all employee benefit plans sponsored by Fifth Third or its subsidiaries on the same terms and to the same extent as similarly situated employees. Such employees shall receive credit for their period of service to National Bancorp, FNB or NBC for purposes of determining participation and vesting in all Fifth Third employee benefit plans (except for vesting in the Fifth Third Master Retirement Plan) but not for purposes of determining the benefits accrued thereunder. Prior to the Closing Date, as provided in the Affiliation Agreement, National Bancorp shall be permitted, consistent with past practices, to make bonus awards pursuant to its existing incentive bonus programs accruing for the period prior to the Closing Date. In the event that Fifth Third merges or consolidates any defined contribution plan maintained by or for National Bancorp or a National Bancorp subsidiary into a Fifth Third defined contribution plan, each employee of National Bancorp shall have an accrued benefit immediately after the Merger which is equal to or greater than the employee's accrued benefit immediately before the merger or consolidation. In the event that on or after the Effective Time, Fifth Third terminates any defined contribution plan maintained by or for National Bancorp or a National Bancorp subsidiary, each participating employee shall have the right or option either to receive a single lump-sum payment equal to the benefits to which he is entitled under the terminating plan, or to "roll over" such benefits to a defined contribution plan maintained by Fifth Third. Notwithstanding the foregoing, National Bancorp reserves the right to initiate before the Effective Time the termination of any defined contribution plan being maintained by National Bancorp or a National Bancorp subsidiary, provided that no such action will result in a material liability to the Pension Benefit Guaranty Corporation or the Internal Revenue Service. Prior to the Closing Date, except as otherwise expressly provided herein, National Bancorp shall be permitted, consistent with past practices, to make profit sharing contributions pursuant to its existing program accruing for the period prior to the Closing Date. Any employee (other than the officers who are parties to Termination Agreements as provided for in the Affiliation Agreement) whose employment is terminated by Fifth Third other than for cause or who voluntarily resigns after being notified by Fifth Third that, as a condition of employment, such employee must work at a location outside of the Cincinnati MSA or that such employee's salary will be decreased, in any case within six months after the Effective Time, shall be entitled to severance pay equal to, in the case of a salaried employee, other than an officer, one week's pay for each year of service up to a maximum of twelve week's pay, in the case of an officer, one week's pay for each year of service up to a maximum of twenty-four week's pay and, in the case of an hourly employee, one week's pay for each year of service up to a maximum of six week's pay, plus applicable COBRA benefits. Fifth Third, through its Human Resources Department, shall provide clerical and advisory services to such former National Bancorp officers who become eligible for severance as is reasonably requested in connection with an officers' search for new employment for a period of one year after the Effective Time. Nothing contained in the Affiliation Agreement shall be construed or interpreted to limit or modify in any way Fifth Third's at-will employment policy. Interests of Management Except as provided herein, it is not anticipated that Fifth Third will enter into employment agreements with any officers of National Bancorp in connection with the transactions contemplated by the Affiliation Agreement. All provisions for indemnification and limitation of liability now existing in favor of the employees, agents, Directors or officers of National Bancorp or any of its subsidiaries as provided by regulation or in their respective articles of incorporation or codes of regulations shall survive the Merger, shall be assumed by Fifth Third and shall continue in full force and effect with respect to acts or omissions occurring on or prior to the Effective Time for a period of two years thereafter, or in the case of matters occurring prior to the Effective Time which have not been resolved prior to the second anniversary of the Effective Time, until such matters are finally resolved. Fifth Third shall also purchase and keep in force for such two year period, directors' and officers' liability insurance to provide coverage for acts or omissions of the type and in the amount currently covered by National Bancorp's existing directors' and officers' liability insurance for acts or omissions occurring on or prior to the Effective Time, but only to the extent such insurance may be purchased or kept in full force on commercially reasonable terms taking into account the cost thereof and the benefits provided thereby. To the extent permitted by law, Fifth Third shall advance expenses in connection with the foregoing indemnification. Effects of Merger At the Effective Time, National Bancorp will merge with and into Fifth Third. The surviving bank holding company will be Fifth Third, which will continue to conduct its operations under the same name. Immediately following the Merger, it is anticipated that FNB will be merged with The Fifth Third Bank of Northern Kentucky, Inc., Florence, Kentucky ("Fifth Third Northern"), a Kentucky state-chartered banking subsidiary of Fifth Third, and NBC will be merged with and into The Fifth Third Bank of Central Kentucky, Inc., Cynthiana, Kentucky ("Fifth Third Central"), also a Kentucky state-chartered banking subsidiary of Fifth Third. Upon consummation of the Merger, FNB's main office and branch offices will become banking centers of Fifth Third Northern and NBC's main office and branch office will become banking centers of Fifth Third Central. Fifth Third, Fifth Third Northern and Fifth Third Central will each conduct business under its existing Articles of Incorporation. The Board of Directors of Fifth Third after the Merger is consummated will consist of all of the members of Fifth Third's Board of Directors, each of whom will continue to serve as directors for the term for which such directors were elected, subject to the Regulations of Fifth Third and in accordance with law. Pursuant to the Affiliation Agreement, the Board of Directors of Fifth Third Northern and Fifth Third Central also will remain the same. The officers of Fifth Third Northern and Fifth Third Central after the Merger is consummated will be those officers of Fifth Third Northern and Fifth Third Central who are in office at the Effective Time, subject to the By-Laws of Fifth Third Northern and Fifth Third Central and in accordance with law. Transactions With Affiliated Persons Pursuant to the Affiliation Agreement, Fifth Third may request that National Bancorp, FNB and NBC enter into an agreement with Midwest Payment Systems, Inc., a subsidiary of Fifth Third ("MPS") to convert all of its electronic funds transfer ("EFT") related services to MPS and the Jeanie (Registered) system. Such agreement will provide that MPS will be the exclusive provider of EFT-related services to National Bancorp and FNB and NBC for a period of five years. Fifth Third has agreed that it will pay all of the costs of National Bancorp's, FNB's or NBC's conversion to EFT or the Jeanie (Registered) system (including, without limitation, the cost of all card reissue, signage and penalties relating to terminating its current EFT relationships). Fifth Third has further agreed that the costs and fees to National Bancorp and FNB and NBC for the operation of the Jeanie (Registered) system will not exceed those charged by its current EFT service provider, subject to any increases in such costs and fees which would otherwise be permitted under their current EFT service agreements. CAPITAL REQUIREMENTS The Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation issued new guidelines to implement risk-based capital requirements for state member banks and bank holding companies in the first quarter of 1989. The guidelines established a systematic analytical framework that makes regulatory capital requirements more sensitive to differences in risk profiles among banking organizations, takes off-balance sheet exposures into explicit account in assessing capital adequacy, and minimizes disincentives to holding liquid, low-risk assets. The guidelines provided for phasing in risk-based capital standards through the end of 1992, at which time the standards became fully effective. At that time, banking organizations were required to have capital equivalent to 8 percent of assets, weighted by risk. Banking organizations must have at least 4 percent Tier 1 capital, which consists of core capital elements including common stockholder's equity, retained earnings, and perpetual preferred stock, to weighted risk assets. The other half of required capital (Tier 2), can include, among other supplementary capital elements, limited-life preferred stock and subordinated debt, and loan loss reserves up to certain limits. Under Federal Reserve Board policy, the holding company is expected to act as a source of financial strength to each subsidiary bank and to commit resources to support each of its subsidiaries. This support may be required at times when, absent such Board policy, the holding company may not find itself able to provide it. Fifth Third, and each of its subsidiary banks, is in compliance with both the current leverage ratios and the final risk-based capital standards. As of December 31, 1993, Fifth Third had a leverage ratio of 9.85%, the Tier 1 Risk-based capital ratio was 11.41% and the total Risk-based capital ratio was 13.82%. RESALE OF FIFTH THIRD COMMON STOCK BY AFFILIATES No restrictions on the sale, pledge, transfer or other disposition of the shares of Fifth Third Common Stock issued pursuant to the Merger will be imposed solely as a result of the Merger, other than restrictions on the transfer of such shares issued to any National Bancorp stockholder who may be deemed to be an "affiliate" of Fifth Third or National Bancorp for purposes of Rule 145 promulgated under the Securities Act of 1933, as amended. Directors, executive officers, or holders of 10% or more of the outstanding shares of National Bancorp Common Stock generally are deemed to be affiliates of National Bancorp for purposes of Rule 145. Affiliates may not sell, pledge, transfer or otherwise dispose of the shares of Fifth Third Common Stock issued to them in exchange for their shares of National Bancorp Common Stock, unless the requirements of Rule 145(d) are satisfied or the sale, pledge, transfer, or disposition is otherwise in compliance with the Securities Act of 1933 and the rules and regulations promulgated thereunder. Generally, under Rule 145(d) an affiliate of National Bancorp will be permitted to sell, pledge, transfer, or otherwise dispose of his or her shares of Fifth Third Common Stock received pursuant to the Merger if one of the following is satisfied: (1) The shares are sold in "brokers' transactions" or in transactions directly with a "market maker", the affiliate does not solicit or arrange for the solicitation of purchase orders or make any payments in connection with the sale to anyone other than the broker or market maker, and the number of shares sold, together with all other sales of Fifth Third Common Stock by such affiliate within the preceding three months, does not exceed one percent of the outstanding shares of Fifth Third Common Stock; or (2) The affiliate is not an affiliate of Fifth Third and has been the beneficial owner of the Fifth Third Common Stock for at least two years, and there is publicly available certain information regarding Fifth Third. In addition, shares of Fifth Third Common Stock issued to affiliates in the Merger may not be sold, pledged, transferred or otherwise disposed of until such time as financial results covering at least 30 days of combined operations of Fifth Third and National Bancorp have been published within the meaning of Section 201.01 of the Securities and Exchange Commission's Codification of Financial Reporting Policies. Share certificates for Fifth Third Common Stock issued to affiliates of National Bancorp will bear a legend as follows: The shares of stock evidenced by this certificate are subject to restrictions on transfer and may only be transferred after the Issuer has received an opinion from its counsel that the transfer will be in compliance with the requirements of Rule 145(d) promulgated under the Securities Act of 1933. The Issuer will mail a copy of Rule 145(d) to the shareholder without charge within five (5) days after written request therefor. As this is a general statement of the restrictions on the disposition of the shares of Fifth Third Common Stock to be issued in the Merger, those stockholders of National Bancorp who may be affiliates of National Bancorp should confer with legal counsel with respect to the resale restrictions. FIFTH THIRD BANCORP Description of Business Fifth Third is an Ohio corporation organized in 1975 as a bank holding company registered under the Bank Holding Company Act of 1956, as amended (the "Act"), and subject to regulation by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). Fifth Third, with its principal office located in Cincinnati, is a multi-bank holding company that owns all of the outstanding stock of five commercial banks with 243 offices in 30 counties in Ohio. Fifth Third owns all of the outstanding capital stock of two commercial banks with 24 offices in five counties in Kentucky. Fifth Third also owns all the outstanding capital stock of two commercial banks which maintain 21 offices in six counties in Indiana. Fifth Third is also a unitary savings and loan holding company. As such, Fifth Third is registered with and subject to regulation by the Office of Thrift Supervision ("OTS"). Fifth Third owns all of the outstanding stock of one federally-chartered savings bank with one office in Naples, Florida. Effective as of September 9, 1992, Fifth Third completed its purchase of First Federal Savings and Loan Association of Lima, Ohio. As a result of this transaction, The Fifth Third Bank of Western Ohio, N.A., a wholly-owned subsidiary of Fifth Third was merged with First Federal Savings and Loan Association of Lima. The six former offices of First Federal Savings and Loan Association of Lima were retained and are being operated as full-service banking centers of The Fifth Third Bank of Western Ohio. Effective as of January 22, 1993, Fifth Third completed the purchase of certain assets and the assumption of certain liabilities in connection with three branch offices of Home Savings of America, FSB ("Home Savings"). Three of Fifth Third's subsidiary banks, The Fifth Third Bank, Cincinnati, The Fifth Third Bank of Southern Ohio, and The Fifth Third Bank of Northwestern Ohio, N.A., each purchased the assets and assumed the liabilities associated with one of the purchased Home Savings branches. Upon consummation of this transaction each of the three Home Savings branches is being operated by one of the three Fifth Third subsidiaries set forth above. The total amount assumed by Fifth Third's subsidiaries was $53.5 million in deposits. Effective as of February 26, 1993, Fifth Third completed the purchase of certain assets and the assumption of certain liabilities in connection with six branch offices of The First National Bank, Dayton, Ohio. As a result of this transaction The Fifth Third Bank, Cincinnati, Ohio, a wholly-owned subsidiary of Fifth Third assumed $106.4 million in deposits. Upon consummation of the purchase and assumption, The Fifth Third Bank retained four of the former offices of The First National Bank as branches of The Fifth Third Bank while closing two former offices acquired from The First National Bank. On September 24, 1993, Fifth Third terminated its agreement to acquire Shelby County Bancorp, Shelbyville, Indiana, and its thrift subsidiary, Shelby County Savings Bank, because of certain environmental issues that were raised in connection with the St. Paul, Indiana branch office of Shelby County Savings Bank. On October 15, 1993, Fifth Third acquired five branches of World Savings and Loan Association ("World Savings") through two of its subsidiary banks. The Fifth Third Bank of Western Ohio acquired three branches of World Savings while The Fifth Third Bank of Northwestern Ohio acquired two branches. The total amount assumed by Fifth Third's subsidiaries was approximately $131 million in deposits. On December 23, 1993, Fifth Third completed the purchase of The TriState Bancorp, Cincinnati, Ohio, and its thrift subsidiary, First Financial Savings Association, F.A. As a result of this transaction, The Fifth Third Bank, Cincinnati, Ohio, a wholly owned subsidiary of Fifth Third, was merged with First Financial Savings Association, F.A. The six former offices of First Financial Savings Association, F.A. were retained and are being operated as full-service banking centers of The Fifth Third Bank. At December 31, 1993, Fifth Third, its affiliated banks and other subsidiaries had consolidated total assets of $12.0 billion, consolidated total deposits of $8.6 billion and consolidated total shareholders' equity of $1.2 billion. Fifth Third, through its subsidiaries, engages primarily in commercial, retail and trust banking, investment services and leasing activities and also provides credit life, accident and health insurance, discount brokerage services and property management for its properties. Fifth Third's affiliates provide a full 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 affiliates has deposit insurance provided by the Federal Deposit Insurance Corporation (the "FDIC") through the Bank Insurance Fund ("BIF") and the savings bank affiliate has deposit insurance provided by the FDIC through the Savings Association Insurance Fund ("SAIF"). Fifth Third, through its banking subsidiaries, operates for itself and other financial institutions a proprietary automated teller machine (ATM) network, Jeanie (Registered). The Jeanie (Registered) system participates in a shared ATM network called "Money Station (Registered)", which includes several Ohio bank holding companies and over 1,000 ATM's. The "Money Station (Registered)" network participates in another shared ATM network called "PLUS System (Registered)", which is a nationwide network with over 17,000 participating ATM's. The Fifth Third Bank through its wholly-owned subsidiary, Midwest Payment Systems, Inc., also provides electronic switch services for several regional banks and bank holding companies in Ohio, Kentucky and Illinois. Fifth Third is a corporate entity legally separate and distinct from the affiliates. The principal source of Fifth Third's income is dividends from its affiliates. There are certain regulatory restrictions as to the extent to which the affiliates can pay dividends or otherwise supply funds to Fifth Third. See "DESCRIPTION OF CAPITAL STOCK." Fifth Third's executive offices are located at 38 Fountain Square Plaza, Cincinnati, Ohio 45263, and its telephone number is (513) 579-5300. Securities Exchange Act of 1934 Fifth Third is subject to the provisions of the Securities Exchange Act of 1934 ("Exchange Act") regarding the filing of periodic reports, the solicitation of proxies, the disclosure of beneficial ownership of certain securities, short swing profits and the conduct of tender offers. Such provisions of the Exchange Act, as applied to bank holding companies such as Fifth Third, are administered by the Securities and Exchange Commission. NATIONAL BANCORP Description of Business National Bancorp is a Kentucky corporation organized in 1985 as a bank holding company within the meaning of the Act. As such, it is registered with the Federal Reserve Board. The Act, as administered by the Board of Governors, regulates the activities of bank holding companies including proposed acquisitions and equity investments. The Act, the Federal Reserve Act and the Federal Deposit Insurance Act also subject bank holding companies and their subsidiaries to certain restrictions on any extensions of credit by subsidiary banks to the bank holding company or any of its subsidiaries, or investments in the stock or other securities thereof, and on the taking of such stocks or securities as collateral for loans to any borrower. Further, under the Act and the regulations of the Board of Governors, a bank holding company and its subsidiaries are effectively prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, sale or lease of any property or furnishing of services. FNB and NBC are national banks subject to primary supervision, examination and regulation by the Comptroller of the Currency (the "OCC") under the National Bank Act. FNB and NBC are also members of the Federal Reserve System and are subject to the applicable provisions of the Federal Reserve Act and Regulations. Deposits of FNB and NBC are insured by the Federal Deposit Insurance Corporation (FDIC) to the maximum extent permitted by law. The OCC regularly examines the operations of FNB and NBC, including but not limited to capital adequacy, reserves, loans, investments and management practices. The OCC's enforcement authority includes the power to remove officers and directors and the authority to issue cease-and-desist orders to prevent a bank from engaging in unsafe or unsound practices or violating laws or regulations governing its business. In addition, FNB and NBC are required to furnish quarterly and annual reports to the FDIC. National Bancorp's executive offices are located at 2560 Richmond Road, Lexington, Kentucky 40509 (Telephone: (606) 269-0547). At December 31, 1993, National Bancorp and its subsidiaries had total assets of $96.4 million, total deposits of $83.4 million and total stockholder's equity of $5.0 million. Regulations The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") became effective December 19, 1991. FDICIA authorizes the FDIC to assess insured institutions for the cost of FDIC examinations and requires the OTS to assess federal associations for the costs of its examinations. FDICIA also requires the federal banking regulators to prescribe new standards relating to (a) internal controls, information systems and internal audit systems; (b) loan documentation; (c) credit underwriting; (d) asset growth; (e) interest rate exposure; and (f) compensation, fees, and benefits. The compensation standards must prohibit as an unsafe and unsound practice any employment contract, compensation or benefit agreement, fee arrangement, perquisite, stock option plan, post-employment benefit or other compensatory arrangement that would provide any executive officer, employee, director or principal stockholder with excessive compensation, fees or benefits or that could lead to material financial loss to the institution, although such standards generally do not apply to well capitalized institutions. In addition, legislation was recently adopted which limits the compensation standards to situations involving safety or soundness concerns or enforcement proceedings. FDICIA also required the federal banking agencies to develop jointly a method for insured depository institutions to provide supplemental disclosure of the estimated fair market value of assets and liabilities, to the extent feasible and practicable, in financial statements or reports required to be filed with the federal banking agencies. FDICIA also included the Truth in Savings Act, which requires the Federal Reserve Board to establish regulations providing for clear and uniform disclosure of the rates, fees and terms of deposit accounts. The Federal Reserve Board has adopted regulations, which became effective June 21, 1993, requiring a specific disclosure before an account is opened, in regularly provided statements and in advertisements, announcements and solicitations initiated by a depository institution. The regulations prescribe detailed disclosure of deposit account yield information, minimum balance requirements and fee impact on the yield. The regulations also establish certain recordkeeping requirements. In addition, within 18 months following the enactment of FDICIA, the federal banking agencies were required to revise their risk-based capital standards to take adequate account of interest-rate risk, concentration of credit risk, and the risks of nontraditional activities, and to reflect the actual performance and expected risk of multifamily mortgages. FDICIA requires the FDIC to issue regulations effective by no later than January 1, 1994, which establish a system for setting deposit insurance premiums based upon the risks a particular bank or savings association poses to the deposit insurance funds. In October, 1992, the FDIC adopted a final rule that implements a transitional risk-based assessment system whereby a base insurance premium will be adjusted according to the capital category and subcategory of an institution to one of three capital categories consisting of (1) well capitalized, (2) adequately capitalized, or (3) undercapitalized, and one of three subcategories consisting of (a) healthy, (b) supervisory concern, or (c) substantial supervisory concern. An institution's assessment rate will depend on the capital category and supervisory category to which it is assigned. Assessment rates will range from 23 basis points for an institution in the highest category (i.e., well capitalized and healthy) to 31 basis points for an institution in the lowest category (i.e., undercapitalized and substantial supervisory concern). The rule became effective January 1, 1993. The supervisory subgroup to which an institution is assigned by the FDIC is confidential and may not be disclosed. Until August 10, 1994, banks and savings associations are generally barred from switching insurance funds. There are limited exceptions, such as when a bank acquires a savings association in default or in danger of default, if the benefits to the SAIF or to the RTC equal or exceed the assessment income that will be lost during the moratorium. After August 9, 1994, any insured depository institution may switch insurance funds, but only after paying an exit fee to the old fund and an entrance fee to the new fund. The Comptroller of the Currency, effective December 31, 1990, adopted a new minimum leverage ratio of 3% Tier 1 capital-to-total assets for the highest rated national banks, with an additional requirement of 100 to 200 basis points for all other national banks. Federal Reserve System. Under Federal Reserve Board regulations, FNB and NBC are required to maintain reserves against their transaction accounts (primarily checking and NOW accounts) and non-personal money market deposit accounts. These regulations, as of September 30, 1992, generally require that reserves be maintained against transaction accounts in the amount of 3% of the total of such accounts up to $46.8 million (subject to adjustment by the Federal Reserve Board), plus 10% (subject to adjustment by the Federal Reserve Board between 8% and 14%) of the total in excess of $46.8 million. In addition, a reserve of 3% (subject to adjustment by the Federal Reserve Board between 0% and 9%) must be maintained on non-personal money market deposit accounts that have original maturities of less than one and one-half years. No reserve is required to be maintained on non-personal time deposits. Dividends For information regarding restrictions on the payment of dividends see "Description of Capital Stock - Dividends." Bank Holding Companies In General Bank holding companies and banks are extensively regulated under both federal and state law. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions. As bank holding companies, Fifth Third and National Bancorp are registered with and subject to regulation by the Federal Reserve Board. A bank holding company is required to file with the Federal Reserve Board an annual report and such additional information as the Federal Reserve Board may require pursuant to the Bank Holding Company Act. The Federal Reserve Board may also make examinations of a holding company and each of its subsidiaries. The Act requires each bank holding company to obtain the prior approval of the Federal Reserve Board before it may acquire substantially all of the assets of any bank, or before it may acquire ownership or control of any voting shares of any bank if, after such acquisition, it would own or control directly or indirectly, more than 5% of the voting shares of such bank. The Act also restricts the types of businesses and operations in which a bank holding company and its subsidiaries (other than bank subsidiaries) may engage. Generally, permissible activities are limited to banking and activities found by the Federal Reserve Board to be so closely related to banking as to be a proper incident thereto. The operations of the subsidiary banks of Fifth Third and National Bancorp are subject to requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be granted and the interest that may be charged thereon, and limitations on the types of investments that may be made and the types of services which may be offered. Various consumer laws and regulations also affect the operations of these banking subsidiaries. National banks are subject to the supervision of and are regularly examined by the Comptroller of the Currency. In addition, national banks may be members of the Federal Reserve System and their deposits are insured by the Federal Deposit Insurance Corporation and, as such, may be subject to regulation and examination by each agency. State chartered banking corporations are subject to federal and state regulation of their business and activities, including, in the case of banks chartered in Kentucky, by the Kentucky Department of Financial Institutions. EFFECT OF GOVERNMENTAL POLICIES The earnings of both National Bancorp's and Fifth Third's subsidiaries are affected not only by domestic and foreign economic conditions, but also by the monetary and fiscal policies of the United States and its agencies (particularly the Federal Reserve Board), foreign governments and other official agencies. The Federal Reserve Board can and does implement national monetary policy, such as the curbing of inflation and combating of recession, by its open market operations in United States Government securities, control of the discount rate applicable to borrowings and the establishment of reserve requirements against deposits and certain liabilities of depository institutions. The actions of the Federal Reserve Board influence the growth of bank loans, investments and deposits and also affect interest rates charged on loans or paid on deposits. The nature and impact of future changes in monetary and fiscal policies are not predictable. From time to time various proposals are made in the United States Congress and in state legislatures and before various regulatory authorities which would alter the powers or the existing regulatory framework for banks, bank holding companies, savings banks and other financial institutions. It is impossible to predict whether any of the proposals will be adopted and the impact, if any, of such adoption on the business of National Bancorp or of Fifth Third and the subsidiaries of each. DESCRIPTION OF CAPITAL STOCK Fifth Third is authorized to issue 100,000,000 shares of its Common Stock, no par value, and 500,000 shares of preferred stock, no par value ("Fifth Third Preferred Stock"). As of December 31, 1993, Fifth Third had outstanding 61,402,257 shares of Common Stock and no shares of Fifth Third Preferred Stock. Pursuant to Article Fourth of Fifth Third's Seconded Amended Articles of Incorporation, as amended, the Board of Directors of Fifth Third may, without further action of the shareholders, (a) divide into one or more new series the authorized shares of Fifth Third Preferred Stock which have not previously been designated, (b) fix the number of shares constituting any such new series and (c) fix the dividend rates, payment dates, whether dividend rights shall be cumulative or non-cumulative, conversion rights, redemption rights (including sinking fund provisions) and liquidation preferences. Except as otherwise provided by law, holders of any series of Fifth Third Preferred Stock shall not be entitled to vote on any matter. National Bancorp is authorized to issue 2,000 shares of National Bancorp Common Stock, $1.00 par value, of which 100 shares were issued and outstanding as of December 31, 1993. Currently, National Bancorp holds 1,900 shares of National Bancorp Common Stock as treasury shares. National Bancorp also is authorized to issue 100 shares of preferred stock, $1,000 par value, none of which are outstanding. Set forth below is a description of the Fifth Third Common Stock and the National Bancorp Common Stock. This description and analysis are brief summaries of relevant provisions of the Articles of Incorporation of Fifth Third and National Bancorp and are qualified in their entirety by reference to such documents and the parties' Codes of Regulations. Voting Rights Holders of both Fifth Third Common Stock and National Bancorp Common Stock are entitled to one vote per share on all matters submitted to a vote of shareholders. The Code of Regulations of Fifth Third provides for the division of its Board of Directors into three classes of approximately equal size. Directors are generally elected for three-year terms, and the terms of office of approximately one-third of the members of the Board of Directors expire each year. This classification of Fifth Third's Board may make it more difficult for a stockholder to acquire control of Fifth Third and remove management by means of a hostile takeover. The Articles of Incorporation of National Bancorp do not provide for a classified Board of Directors. Each of its Directors is elected annually. The holders of Fifth Third Common Stock have the right to vote cumulatively in the election of directors. Under applicable Ohio law, cumulative voting in the election of directors of a corporation will be permitted if (i) written notice is given by any shareholder of such corporation to the President, Vice President or the Secretary of such corporation not less than 48 hours before the time fixed for holding the meeting at which directors are to be elected that such shareholder desires that voting for the election of directors be cumulative and (ii) announcement of the giving of such notice is made upon the convening of the meeting by the meeting chairman or secretary or by or on behalf of the shareholder giving such notice. In such event, each shareholder will be entitled to cumulate such voting power as he possesses and to give one nominee as many votes as the number of directors to be elected multiplied by the number of his or her shares, or to distribute such votes on the same principle among two or more candidates, as each shareholder sees fit. Shareholders of National Bancorp also have the right to vote cumulatively in the election of directors as provided by the Kentucky Business Corporation Act. Fifth Third is only authorized to effect a merger, consolidation or sale of assets not in the regular course of business, to dissolve, or amend its Articles of Incorporation pursuant to authority given by persons holding two-thirds of its respective capital stock. National Bancorp's Articles of Incorporation do not contain any similar provision. Dividends Holders of Fifth Third and National Bancorp Common Stock are each entitled to dividends as and when declared by the respective Board of Directors of each institution out of funds legally available for the payment of dividends. Most of the revenues of Fifth Third and National Bancorp available for payment of dividends derive from amounts paid to each such corporation by its respective subsidiaries. Under applicable banking law, the total of all dividends declared in any calendar year by a national bank or a state-chartered bank may not, without the approval of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, or the Federal Deposit Insurance Corporation, as the case may be, exceed the aggregate of such bank's net profits (as defined) and retained net profits for the preceding two years. The affiliates of Fifth Third include both state and nationally chartered banks and one federally chartered savings bank. Under the applicable regulatory limitations, during the year 1994, the affiliates of Fifth Third could declare aggregate dividends limited to their 1994 eligible net profits and $154,963,000, the retained 1993 and 1992 net income, without the approval of their respective regulators. The Comptroller of the Currency, banking authorities of the States of Ohio, Indiana and Kentucky, and the Office of Thrift Supervision, the principal regulators of such affiliates, have the statutory authority to prohibit a depository institution under their supervision from engaging in what, in their opinion, constitutes an unsafe or unsound practice in conducting its banking or savings association business. The payment of dividends could, depending upon the financial condition of affiliates, be deemed to constitute such an unsafe or unsound practice. No affiliate of Fifth Third has ever been prohibited from declaring dividends or restricted in paying any dividends declared. If, in the opinion of the applicable regulatory authority, a depository institution under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which, depending on the financial condition of the depository institution, could include the payment of dividends), such authority may require, after notice and hearing, that such bank cease and desist from practice. The Federal Reserve Board has similar authority with respect to bank holding companies, and the OTS has similar authority with respect to savings and loan holding companies. In addition, the Federal Reserve Board, the Comptroller and the FDIC have issued policy statements which provide that insured banks and bank holding companies should generally only pay dividends out of current operating earnings. Finally, the regulatory authorities have established guidelines with respect to the maintenance of appropriate levels of capital by a bank, bank holding company, savings association or savings and loan holding company under their jurisdiction. Compliance with the standards set forth in such guidelines could limit the amount of dividends which Fifth Third and National Bancorp and their respective affiliates may pay. Preemptive Rights The Articles of Incorporation of National Bancorp provide that the holders of capital stock of National Bancorp are not entitled to preemptive rights to acquire additional shares of its common stock. Shareholders of Fifth Third also have no preemptive rights. Rights Upon Liquidation In the event of any liquidation, dissolution or winding up of FNB and NBC, National Bancorp, as holder of FNB's and NBC's capital stock, would be entitled to receive, after payment or provision for payment of all debts and liabilities of FNB and NBC (including all deposit accounts and accrued interest thereon), all assets of FNB and NBC available for distribution. In the event of liquidation, dissolution or winding up of National Bancorp, the holders of National Bancorp Common Stock would be entitled to receive, after payment or provision for payment of all of its debts and liabilities, all of the assets of National Bancorp available for distribution. If National Bancorp preferred stock is issued, the holders thereof will have a priority over the holders of National Bancorp Common Stock in the event of liquidation or dissolution. Indemnification and Personal Liability of Directors and Officers Fifth Third's Code of Regulations provides for the indemnification of each director and officer of the corporation, to the fullest extent permitted by Ohio law, against all expenses and liabilities reasonably incurred by or imposed on him or her in connection with any proceeding or threatened proceeding in which he may become involved by reason of his or her being or having been a director or officer. Generally, Ohio permits such indemnification provided that the person seeking to be indemnified has acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action, had no reasonable cause to believe his conduct was unlawful, so long as no judgment or other final adjudication adverse to such person establishes that his acts or omissions (i) were in breach of his duty of loyalty to the corporation or its shareholders, (ii) were not in good faith or involved a knowing violation of law, or (iii) resulted in his or her receipt of an improper personal benefit. The grant of indemnification in the context of a derivative or other comparable suit may have a circular effect, inasmuch as any damages recovered in such action will be offset by the cost of indemnification. The By-Laws of National Bancorp provide that National Bancorp may indemnify and may advance expenses to a director, officer, employee or agent in connection with the defense of any pending, threatened or completed action, suit or proceeding (whether civil or criminal, administrative or investigative) to which he is or may be made a party by reason of being or having been a director, officer, employee or agent of National Bancorp to the fullest extent that is expressly permitted or required by the Kentucky Business Corporation Act and all other applicable law. Shareholders' Meetings; Quorum Special meetings of Fifth Third's shareholders may be called at any time by the Board of Directors, or the shareholders of Fifth Third upon the written application of the holders of at least 25% of all Fifth Third capital stock entitled to vote on the matters to be considered at the meeting. Such applications must set forth the purpose of the meeting. Special meetings of National Bancorp's stockholders may be called by the President or by a majority of the members of the Board of Directors, and shall be called by the Chairman of the Board, the President or the Secretary upon the written request of the holders of not less than one-fifth (1/5) of all of the shares outstanding and entitled to vote at the meeting. A written request for a meeting from the stockholders must state the purpose or purposes of the meeting and must be delivered at the principal executive office of National Bancorp addressed to the President or the Secretary. The presence in person or by proxy of the holders of a majority of the aggregate number of the outstanding shares of any class or series of Fifth Third capital stock each voting at a meeting constitutes a quorum. Under the By-Laws of National Bancorp, a majority of the outstanding shares entitled to vote, represented in person or by proxy, constitutes a quorum at any meeting of shareholders. Subscription, Conversion, Redemption Rights; Stock Nonassessable Neither Fifth Third Common Stock nor National Bancorp Common Stock has subscription or conversion rights, and there are no mandatory redemption provisions applicable thereto. Shares of Fifth Third Common Stock issued to stockholders of National Bancorp pursuant to the Affiliation Agreement will be validly issued, fully paid and non-assessable. Change of Control Provisions Fifth Third's Articles of Incorporation and Code of Regulations contain various provisions which could make more difficult a change in control of each corporation or discourage a tender offer or other plan to restructure each corporation. Under Fifth Third's Articles of Incorporation, Fifth Third's Board of Directors has the authority to issue 500,000 shares of Preferred Stock and to fix the designations, powers, preferences and rights of such shares and the qualifications, limitations or restrictions applicable thereto. National Bancorp's Articles of Incorporation and By-Laws contain no similar provisions. Ohio corporation law also provides certain change of control protective provisions. Section 1701.831 of the Ohio Revised Code sets forth the procedures for the acquisition of a control share of an Ohio corporation which include the delivery of an acquiring person statement to the target corporation and the affirmative vote of a majority of the shares held by the shareholders of the target corporation prior to the acquisition of a control share, at a meeting held for the purpose of voting on such acquisition. Finally, Fifth Third's Code of Regulations provides for the election of directors on a classified basis. Neither the Articles of Incorporation nor the By-Laws of National Bancorp provide for a classified board. CERTAIN BENEFICIAL OWNERS OF FIFTH THIRD STOCK The following table shows those persons known to Fifth Third to be the beneficial owners of more than 5% of Fifth Third Common Stock at December 31, 1993:
Name and Address Amount and Percent of Class of Beneficial Nature of Owner Ownership Cincinnati Financial Corporation 6200 South Gilmore Fairfield, Ohio 45014 12,319,300(1) 19.96% Fifth Third Bancorp Subsidiary Banks 38 Fountain Square Plaza Cincinnati, Ohio 45263 5,637,959(2) 9.13% Capital Growth Management 1 International Place 45th Floor Boston, Massachusetts 02110 4,717,600(3) 7.64% The Western-Southern Life Insurance Company 400 Broadway Cincinnati, Ohio 45202 4,530,732(4) 7.34% (1) Cincinnati Financial Corporation owns 9,210,000 shares of Fifth Third Common Stock. Cincinnati Insurance Company, a subsidiary of Cincinnati Financial Corporation, owns 2,695,000 shares. Cincinnati Casualty Company, another subsidiary, owns 210,000 shares. Cincinnati Life Insurance Company, another subsidiary of Cincinnati Financial, owns 204,300 shares. In addition, Mr. John J. Schiff, Jr., a director of Fifth Third and Chairman and a director of Cincinnati Financial Corporation, individually beneficially owns 65,440 shares and Mr. Robert B. Morgan, a director of Fifth Third, who is President and a director of Cincinnati Financial Corporation and Cincinnati Insurance individually owns 12,695 shares. Also affiliated is a trust in which John J. Schiff, Jr. and Thomas R. Schiff are trustees which owns 4,500 shares. (2) There are five wholly-owned bank subsidiaries of Fifth Third, which are beneficial owners of 3,155,887 shares. The banks hold these shares in a fiduciary capacity under numerous trust relationships none of which relates to more than 5% of the shares, and have sole or shared voting power, and sole or shared investment decision over these shares. The banks also hold shares in a non-discretionary capacity, and disclaim any beneficial interest in all shares held in these capacities. (3) Capital Growth Management has informed Fifth Third that it is an investment advisor that may be deemed the beneficial owner of 4,717,600 shares of Common Stock. Capital Growth Management has sole power to vote or direct the voting of, and to dispose or direct the disposition of all shares. (4) The Western-Southern Life Insurance Co. owns 635,468 shares of Fifth Third Common Stock. Waslic Delaware Company, II, a subsidiary of The Western-Southern Life Insurance Co., owns 3,895,264 shares. In addition, Mr. John F. Barrett, a director, President and Chief Operating Officer of The Western-Southern Life Insurance Co., and a director of Fifth Third individually beneficially owns 13,683 shares. /TABLE Fifth Third, its directors, executive officers and their affiliates (collectively, the "Fifth Third Affiliates") owned no shares of the National Bancorp Common Stock outstanding on December 31, 1993. FIFTH THIRD MANAGEMENT The names and ages of the Directors and executive officers of Fifth Third, their current positions and offices held with Fifth Third, their business experience during the past five years and certain other information, together with their beneficial ownership of Fifth Third Common Stock at December 31, 1993 are as follows:
Name, Age and Principal Director Shares of Fifth Occupation During Past Five of Fifth Third Common Stock Years; Other Directorships(1) Third Beneficially Owned Since(2) at December 31, 1993(3)(6) Number of Percent Shares of Class Owned Directors John F. Barrett, 44, President, Chief Operating Officer and Director of The Western-Southern Life Insurance Co. since November, 1989. Formerly Executive Vice President and Chief Financial Officer, The Western-Southern Life Insurance Co. since May, 1987. Director of Cincinnati Bell Inc. 1988 13,683 .0222 Milton C. Boesel, Jr., 65, Counsel, Ritter, Robinson, McReady & James, Attorneys at Law, Toledo, Ohio, formerly Ritter, Boesel & Robinson 1989 10,158 .0165 Clement L. Buenger, 67, Director of Fifth Third and The Fifth Third Bank since April, 1989. Retired Chairman, Fifth Third and Fifth Third Bank as of March, 1993. Retired as CEO of Fifth Third and The Fifth Third Bank as of January, 1991. Previously President of Fifth Third and The Fifth Third Bank. Director of Cincinnati Gas & Electric Company. 1971 275,600 .4467 Nolan W. Carson, 69, Partner, Dinsmore & Shohl, Attorneys at Law and Counsel to Fifth Third. 1982 30,905 .0501 Thomas L. Dahl, 48, Formerly President of The Drackett Co., manufacturers of household cleaning products from April, 1990 to January, 1993. Previously Mr. Dahl was President, Branded Consumer Products of Weyerhauser Company since January, 1988. 1991 4,250 .0069 Gerald V. Dirvin, 56, Director and Executive Vice President of The Procter & Gamble Company, manufacturers of household and consumer products since January, 1990. Formerly Mr. Dirvin was Senior Vice President since January, 1989 and previously was a Group Vice President of The Procter & Gamble Company. Director of Cintas Corporation. 1989 7,850 .0127 Thomas B. Donnell, 47, Chairman, The Fifth Third Bank of Northwestern Ohio, N.A. (Toledo, Ohio), the resulting institution from the November 12, 1991 merger of The Fifth Third Bank of Northwestern Ohio, N.A. and The Fifth Third Bank of Toledo, N.A. Formerly President and Chief Executive Officer of The Fifth Third Bank of Northwestern Ohio, N.A. 1984 136,660 .2214 Richard T. Farmer, 59, Chairman, Chief Executive Officer and Director, Cintas Corporation, a service company that designs, manufactures and implements corporate identity uniform programs. Director of Safety-Kleen Corp. 1982 27,655 .0448 John D. Geary, 67, Retired as President, Midland Enterprises Inc., a company engaged in inland waterway transportation in June, 1988. 1977 20,288 .0329 Ivan W. Gorr, 64, Chairman and Chief Executive Officer of Cooper Tire & Rubber Company, a manufacturer of tires and rubber products, since November, 1989. Previously Mr. Gorr was President and Chief Operating Officer of Cooper Tire & Rubber Company. 1991 4,852 .0079 Joseph H. Head, Jr., 61, Chairman, Chief Executive Officer and Director, Atkins & Pearce, Inc., manufacturer of industrial textiles, since January, 1990. Previously, Mr. Head was a partner with Graydon, Head & Ritchey, Counsel to The Fifth Third Bank. Director of Baldwin Piano & Organ, Co. 1987 44,188 .0716 Joan R. Herschede, 54, President and Chief Executive Officer of The Frank Herschede Company, retailer of jewelry, china, crystal and silver. 1991 4,050 .0066 William G. Kagler, 61, Chairman, Chief Executive Officer and a Director of Skyline Chili, Inc., a restaurant chain and frozen food product manufacturer since November, 1992 and President of Kagler and Associates, Inc., a consulting firm serving the food industry. Previously Mr. Kagler was President, Chief Executive Officer and Director of Skyline Chili, Inc., since May 1989. Director of The Union Central Life Insurance Company, The Ryland Group, Inc., The Future Now Inc. and Advanced Promotion Technologies, Inc. 1983 14,145 .0229 William J. Keating, 66, Retired Chairman and Publisher, The Cincinnati Enquirer, a regional newspaper, since March, 1990. Previously Mr. Keating was President and Chief Executive Officer, Detroit Newspaper Agency. Director of The Midland Co. 1980 40,949 .0663 James D. Kiggen, 61, Chairman, President, Chief Executive Officer and Director, Xtek, Inc., manufacturer of hardened steel parts. Director of Cincinnati Bell, Inc. and United States Playing Card Co. 1982 22,819 .0370 Robert B. Morgan, 59, President, Chief Executive Officer and a Director of Cincinnati Financial Corporation and Cincinnati Insurance Company since April, 1991. Previously, Mr. Morgan was President and Director of Cincinnati Financial Corporation and Cincinnati Insurance Company. 1986 12,965 .0210 Michael H. Norris, 57, President and Director, The Deerfield Manufacturing Co., a fabricator of sheet metal stampings, deep drawn parts and assemblies. Mr. Norris is also a Group Vice President and Director of the Ralph J. Stolle Company. 1985 14,587 .0236 Brian H. Rowe, 62, Chairman, GE Aircraft Engines, General Electric Company since September, 1993. Previously Mr. Rowe was President and Chief Executive Officer of GE Aircraft Engines, General Electric Company since August 1991. Formerly Mr. Rowe was Senior Vice President of GE Aircraft Engines, General Electric Company. 1980 13,789 .0223 George A. Schaefer, Jr., 48, President and Chief Executive Officer of Fifth Third and The Fifth Third Bank since January, 1991. Previously Mr. Schaefer was President and Chief Operating Officer of Fifth Third and The Fifth Third Bank since April, 1989. Formerly Executive Vice President of Fifth Third and The Fifth Third Bank. 1988 193,947 .3142 John J. Schiff, Jr., 50, Chairman and Director, John J. & Thomas R. Schiff & Co., Inc., an insurance agency. Chairman and Director of Cincinnati Financial Corp. and Cincinnati Insurance Co. Director of Cincinnati Gas & Electric Company, Standard Register Co. and the Cincinnati Bengals. 1983 65,440 .1060 Stephen Stranahan, 59, Chairman and President of Intelco, Inc. (formerly known as Bay Enterprises, Inc.), an industrial air compressor services and electronic controls manufacturer. Director of RPM, Inc. 1989 12,677 .0205 Dennis J. Sullivan, Jr., 61, Executive Counselor of Dan Pinger Public Relations, Inc., an advertising agency, since February, 1993. Formerly Director, Executive Vice President and Chief Financial Officer, Cincinnati Bell, Inc. and Cincinnati Bell Telephone Company. Director of Community Mutual Insurance Company, Access Corporation and The Future Now, Inc. 1984 18,478 .0299 Dudley S. Taft, 53, President and Director, Taft Broadcasting Company, owner and operator of television broadcasting stations since October, 1987. Director of The Union Central Life Insurance Company, Cincinnati Gas & Electric Company, United States Playing Card Co., and The Future Now, Inc. 1981 19,273 .0312 Executive Officers Neal E. Arnold, 33, Treasurer of Fifth Third and Fifth Third Bank since October, 1990, and Senior Vice President of Fifth Third Bank since April, 1993. Previously Mr. Arnold was Vice President of Fifth Third Bank since October, 1990. Formerly, Chief Financial Officer and Senior Vice President of First National Bank of Grand Forks, North Dakota. ---- 2,613 .0042 Michael D. Baker, 43, Senior Vice President of Fifth Third since March, 1993. Senior Vice President of Fifth Third Bank since July, 1987. ---- 44,064 .0714 P. Michael Brumm, 46, Senior Vice President and Chief Financial Officer of Fifth Third and The Fifth Third Bank since June, 1990. Previously, Mr. Brumm was Treasurer of Fifth Third since 1985 and Senior Vice President of The Fifth Third Bank since 1987. ---- 48,418 .0784 Roger W. Dean, 31, Controller of Fifth Third and Vice President of Fifth Third Bank since June, 1993. Mr. Dean was formerly with Deloitte & Touche, independent public accountants. ---- 195 .0003 Michael K. Keating, 38, Senior Vice President and General Counsel of Fifth Third since March, 1993 and Senior Vice President and Counsel of The Fifth Third Bank since November, 1989, and Secretary of Fifth Third and The Fifth Third Bank since January, 1994. Previously, Mr. Keating was Vice President, Counsel and Assistant Secretary of The Fifth Third Bank and Counsel of Fifth Third. Mr. Keating is a son of Mr. William J. Keating, Director. ---- 19,351 .0313 George W. Landry, 53, Executive Vice President of Fifth Third and The Fifth Third Bank since November, 1989. Previously Mr. Landry was Group Vice President of The Fifth Third Bank. ---- 86,184 .1396 Robert P. Niehaus, 47, Senior Vice President of Fifth Third since March, 1993, previously Vice President of Fifth Third and Senior Vice President of The Fifth Third Bank. ---- 54,437 .0882 Stephen J. Schrantz, 45, Executive Vice President of Fifth Third and The Fifth Third Bank since November, 1989. Previously Mr. Schrantz was Senior Vice President of The Fifth Third Bank. Director, The Frank Herschede Company. ---- 54,276 .0879 Gerald L. Wissel, 37, Auditor of Fifth Third and The Fifth Third Bank since March, 1990, and Senior Vice President of Fifth Third Bank since November, 1991. Previously Mr. Wissel was Vice President of The Fifth Third Bank since March 1990. Mr. Wissel was formerly with Deloitte & Touche, independent public accountants. ---- 6,812 .0110 All Directors and Officers of Fifth Third as a Group (33 persons)(5) 1,327,068 2.1496 (1) Unless otherwise indicated, the director or officer has had the same principal occupation for the past five years. (2) On April 15, 1975, the Board of Directors of The Fifth Third Bank became the Board of Directors of Fifth Third pursuant to an Agreement and Plan of Reorganization under which Fifth Third acquired The Fifth Third Bank. Service on the Board of The Fifth Third Bank prior to April 15, 1975 is reflected in the dates shown above. (3) As reported to Fifth Third by the persons listed as of the date stated. Includes shares held in the name of spouses, minor children, certain relatives, trusts, estates and certain affiliated companies as to which beneficial ownership may be disclaimed. (4) Messrs. Morgan and Schiff, Jr. are officers and directors of Cincinnati Financial Corporation, and Mr. Barrett is an Officer and Director of The Western-Southern Life Insurance Company, whose holdings of Fifth Third shares with their affiliates are more fully set forth above under the caption "CERTAIN BENEFICIAL OWNERS OF FIFTH THIRD STOCK." (5) Shares of Fifth Third Common Stock held by The Fifth Third Bank in its fiduciary capacity, as set forth above under the caption "CERTAIN BENEFICIAL OWNERS OF FIFTH THIRD STOCK," are not included in these totals. (6) The amounts shown represent the total shares owned outright by such individuals together with shares which are issuable upon the exercise of all stock options which are currently exercisable. Specifically the following individuals have the right to acquire the shares indicated after their names, upon the exercise of such stock options; Mr. Arnold, 2113; Mr. Baker, 14,063; Mr. Barrett, 7,125; Mr. Boesel, 7,125; Mr. Brumm, 13,813; Mr. Buenger, 1,500; Mr. Carson, 7,125; Mr. Dahl, 2,500; Mr. Dean, 175; Mr. Dirvin, 7,125; Mr. Donnell, 3,880; Mr. Farmer, 7,125; Mr. Geary, 4,875; Mr. Gorr, 3,750; Mr. Head, 12,188; Ms. Herschede, 1,500; Mr. Kagler, 1,500; Mr. M. Keating, 12,376; Mr. W. Keating, 1,500; Mr. Kiggen, 12,188; Mr. Landry, 34,250; Mr. Morgan, 12,188; Mr. Niehaus, 13,813; Mr. Norris, 5,639; Mr. Rowe, 9,188; Mr. Schaefer, 85,169; Mr. Schiff, 3,750; Mr. Schrantz, 29,750; Mr. Stranahan, 7,125; Mr. Sullivan, 1,500; Mr. Taft, 1,500; and Mr. Wissel, 4,288. /TABLE NATIONAL BANCORP BOARD OF DIRECTORS The names and ages of the National Bancorp Board of Directors, their current positions and certain other information, together with their beneficial ownership of National Bancorp Common Stock at December 31, 1993 are as follows:
Name Age Principal Director Shares Percent Occupation Since Common of Stock Class Beneficially Owned at December 31, 1993(1) Tracy W. 55 Entrepreneur Farmer with ownership interest including car dealerships, restaurants and shopping centers. 1985 100 100% John E. 43 Vice Chairman Darnell of National Bancorp, Vice President of NBC and Chief Financial Officer of Farmer Enterprises. 1991 0 0 Todd Smith 38 Controller of NBC. 1985 0 0 Rhonda 43 Trust Officer Brown of NBC and Secretary of National Bancorp and NBC. 1985 0 0 /TABLE BUSINESS OF THE NATIONAL BANCORP OF KENTUCKY, INC. The National Bancorp of Kentucky, Inc. (NBK) was incorporated on June 12, 1985 and became a bank holding company under the BHC Act upon its acquisition of all of the outstanding capital stock of The National Bank of Cynthiana (NBC) and The First National Bank of Falmouth (FNBF). NBK engages in a wide range of commercial banking activities through both NBC and FNBF (collectively the "Banks"). NBC and FNBF have operated as commercial banks in Cynthiana and Falmouth, Kentucky since 1871 and 1921 respectively. NBC and FNBF engage in a wide range of commercial banking activities, including the acceptance of deposits for checking, savings, and time deposit accounts, making of secured and unsecured loans, rental of safe deposit boxes, financial counseling and trust. NBC and FNBF's lending services include the making of commercial, real estate, installment, agricultural and credit card loans and their operating revenues are derived primarily from interest and fees on domestic real estate, commercial, agricultural, and consumer loans, and on interest on securities of the United States government and agencies, states, and municipalities. At December 31, 1993, NBC had total assets of $64.7 million, total deposits of $55.5 million, and stockholders equity of $5.9 million. FNBF had total assets of $31.9 million, total deposits of $28.3 million, and stockholders equity of $3.4 million. NBC's market area includes Harrison County, Kentucky and the surrounding counties. FNBF's market area includes Pendleton County, Kentucky and the surrounding counties. NBC is the second largest of four financial institutions in Harrison County. FNBF is the largest of six financial institutions in Pendleton County. NBC and FNBF actively compete with other local and regional commercial banks and financial institutions for all types of deposits and loans, and to provide financial and other services. The Bank's competitors are not commercial banks. For example, with respect to certain banking services, the Banks compete with insurance companies, savings and loan associations, credit unions and other financial institutions and private concerns providing financial services such as savings and loan associations, finance companies, credit unions, certain governmental agencies, and with merchants who extend their own credit in selling to consumers and other customers. Many of the banks, financial institutions and other entities with which the Banks compete have capital and resources substantially in excess of the Banks. NBC has a trust department and at December 31, 1993, it managed trust accounts with a book value of approximately $2.9 million. NBC's principal office is located at 100 South Main Street in Cynthiana, Kentucky. NBC has one branch located at Route 27 South in Harrison Square, Cynthiana. NBC owns its principal office and leases its branch. FNBF's principal office is located at 216 Shelby Street in Falmouth, Kentucky. FNBF has two branches, one located on Route 27 North, Falmouth and the other also on Route 27 North in Butler, Kentucky. FNBF owns its principal office and Butler branch and leases its Falmouth branch. At December 31, 1993, NBC had 29 full-time and five part-time employees. FNBF had 19 full-time and two part-time employees at December 31, 1993. Management considers employee relations to be good. None of the Banks' employees are covered by a collective bargaining agreement. NBC and FNBF are national banks whose deposits are insured by the Federal Deposit Insurance Corporation, (FDIC). As such, NBC and FNBF are subject to extensive regulation by the Office of the Comptroller of the Currency (OCC). The lending, investments, and other activities are subject to federal and state laws and regulations and requirements of the OCC. The OCC regularly examines the Banks for compliance with federal and state laws, regulations and requirements. NBC and FNBF must file quarterly- basis reports with the OCC providing financial and other information. This supervision is intended for the protection of depositors. As a registered bank holding company under the BHC Act, NBK is subject to the supervision and examination of the Federal Reserve Board. NBK is subject to extensive federal laws, regulations and other Federal Reserve Board requirements which govern the operations of bank holding companies. The purpose of these extensive laws, regulations and requirements is primarily to encourage a bank holding company to serve as a source of strength for its bank subsidiaries. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE NATIONAL BANCORP OF KENTUCKY'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS For purposes of the following discussion, the term "Company" is used to refer to the consolidated financial statements of NBK and the Banks. The Company's service area is economically dependent on agriculture and it has a significant amount of loans directly related to agriculture. In addition, due to the Company's close proximity to other metropolitan areas, it has a significant amount of commercial real estate credits. The Company's net income is most directly related to the quality of its loan portfolio and by the spread between interest earned on assets and interest paid on liabilities. The primary sources of income for the Company are interest income from loans and investments and various service charges, fees and commissions. In 1992, the Company implemented several strategies to improve asset quality, profitability, and diversification. To accomplish these goals, management sought to improve its penetration in the real estate loan markets, and to continue increased credit analysis and more stringent credit policies. To enhance profits, management has sought to increase the volume and quality of loans and to reduce overhead. A significant increase in loan volume was generated in the local residential real estate market and in high quality participation loans purchased. This resulted in greater interest and loan fee income. Overhead has been reduced by controlling salaries and benefits and reducing those expenses sensitive to loan quality such as loan loss provisions, legal fees and OREO expense. This has been accomplished through quicker problem loan identification and quicker problem loan resolution. To improve investment diversification and reduce interest rate risk in a rising rate environment, management reversed the trend of greater dependence on long-term securities in favor of variable rate loans. Pricing strategies played a key role in the success of increasing loan volume. The purpose of the following discussion is to provide insight into the results of operations and financial condition of the Company for the indicated periods. Results of Operations for the years ended December 31, 1993, 1992 and 1991 A summary of the percentage increases and decreases in the components of net income for the last three years is shown in the table below:
Percentage of Increase (Decrease) 1993 1992 1991 vs vs vs 1992 1991 1990 Interest income (12.25) (15.47) (6.14) Interest expense (22.52) (30.80) (9.16) Net interest income ( 1.59) 9.57 ( .75) Provision for loan loss (65.16) (70.00) 162.26 Net interest income after provision for loan loss 2.80 34.20 (16.8) Non-interest income (12.71) (45.42) 34.65 Operating expenses 8.55 (21.22) (26.35) Net income 16.76 519.58 141.09
Net Income: Net income (loss) for 1993 was $1,177,000 (before cumulative effect of change in accounting principles more fully described under "Income Taxes" in 1993), compared with $1,008,000 in 1992 and $(240,000) in 1991. Net Interest Income and Net Interest Margin: Interest income decreased steadily through the indicated periods due primarily to decline in interest rates and to a lesser degree to volume and change in earning asset mix. Interest expense has also decreased from 1991 to 1993 due primarily to decline in interest rates. The difference between interest income and interest expense, or net interest income, is the principal indicator of profitability. it reflects the margin between interest earned on assets and interest incurred on liabilities. From 1991 to 1993, average interest earning assets declined from $95.4 million to $92.7 million, a decrease of $2.7 million or 2.83 percent. During this period, tax equivalent interest income increased $341,000 or 9.82 percent. This increase reflects the result of an increase in loans, which earn a high rate of interest than other earning assets.
For the Year Ended December 31 1993 1992 1991 (Dollars in Thousands) Interest income $ 6,813 $ 7,656 $ 9,058 Tax equivalent adjustment 13 21 34 Interest income (fully tax equivalent basis) 6,826 7,677 9,092 Interest expense 3,013 3,889 5,620 Net interest income (fully tax equivalent basis) $3,813 $3,788 $3,472 Average interest earning assets $92,698 $93,530 $95,424 Average interest bearing liability $79,267 $81,377 $84,292 Net interest margin 4.11% 4.05% 3.64% Average rate on interest earning assets 7.36% 8.21% 9.53% Average rate on interest bearing liabilities 3.80% 4.78% 6.67% Net interest spread 3.56% 3.43% 2.86%
Non-Interest Income: The following schedule provides a summary of the Company's non- interest income for the last three years:
For the Year Ended December 31 1993 1992 1991 (Dollars in Thousands) Service charges $306 $299 $302 Investment gains (losses) 179 251 17 Other Income 209 292 261 Total non-interest income $694 $842 $580
Sales and calls of investment securities have generated gains in each of the last three years, and such transactions are the primary reason for fluctuations in non-interest income. Other sources of non-interest income have also fluctuated in the three-year time horizon. Trust fees, which are included in other income, were $90,000 in 1991, $8,000 in 1992 and $48,000 in 1993. In addition, a one-time reimbursement for environmental clean-up of $132,000 is included in other income for the year ended December 31, 1992. Operating Expenses: The following schedule provides a summary of the Company's operating expenses for the last three years:
For the Year Ended December 31 1993 1992 1991 (Dollars in Thousands) Salaries and benefits $1,343 $1,336 $1,359 Expenses of premises and fixed assets 362 379 367 Other operating expenses 1,081 1,163 1,926 Total operating expenses $2,786 $2,878 $3,652
Salaries and benefits and expenses of premises and fixed assets have remained relatively unchanged during the three-year period. Other operating expenses have decreased by 40 percent from 1991 to 1992. In 1991, other operating expenses included $215,000 in expenses related to the settlement of litigation; $250,000 of loss recognized on the sale of other real estate owned; $215,000 in other real estate owned expenses; and $120,000 in legal fees incurred in connection with the above. Other operating expenses declined $81,000 or seven percent from 1992 to 1993 as legal and consulting fees declined by $133,000. Provision for Loan Losses: The allowance for loan losses is established through a provision for loan losses charged to expenses. Loans are charged against the allowance when management believes that the collectibility of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb possible losses on existing loans that may become uncollectible. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect borrower's ability to pay. The amount of the provision charged to expense was $814,000 in 1991, $244,000 in 1992, and $85,000 in 1993. The increase in loan loss expense in 1991 is directly related to management's strategy to emphasize more stringent credit policies and improve overall asset quality. In 1993, 73 percent of loans charged off were business loans and 27 percent were consumer loans. In 1992, 43 percent of the charged-off loans were agricultural, 30 percent were business, and 26 percent were consumer. In 1991, 72 percent of charged-off loans were business loans, 11 percent were real estate and 16 percent were consumer. See "Allowance for Loan Losses." Applicable Income Taxes: The effective tax rates of 30.8 percent if 1993, 32.2 percent in 1992 and (46.4) percent in 1991 differ from the statutory rate as follows:
For the Year Ended December 31 1993 1992 1991 (Dollars in Thousands) Tax as statutory rates $552 $505 $(153) Tax basis of assets over book basis (7) (5) (31) Tax-exempt interest (11) (18) (31) Amortization (19) (19) (19) Other, principally changes in prior year tax estimates (13) 16 26 $502 $479 $(208)
The Company adopted FAS 109 in 1993. The cumulative affect of the change in accounting for income taxes was a benefit of $17,000. Financial Condition as of December 31, 1993, 1992 and 1991 Investment Portfolio: The composition of the Company's investment portfolio at book value is as follows. A significant portion of the portfolio is comprised of mortgage-related securities. These securities differ from traditional debt securities in that they have uncertain maturity dates and are priced based upon estimated prepayment rates of the underlying mortgages. Management has estimated the average life of these securities to be three to four years. The continued decrease in the overall portfolio is a result of management's plans to increase the loan portfolio and the prepayment of mortgage-backed securities.
December 31 1993 1992 1991 (Dollars in Thousands) U.S. Treasury $ 6,161 $ 8,279 $ 7,152 U.S. Government agencies 6,984 12,046 11,644 States and political subdivisions 400 636 827 Agency mortgage-backed securities 20,742 23,694 28,059 Other mortgage-backed securities 183 279 660 $34,470 $44,934 $48,342
The maturity distribution of the securities portfolio at book value on December 31, 1993 and the related average yield follows. Yields on the municipal portfolio are on a tax-equivalent basis. Yields on mortgage-backed securities consider the estimated prepayments. All U.S. Government Agency securities are floating-rate investments.
Maturities In Years Under One One-Five Six-Ten Amount Yield Amount Yield Amount Yield Total Yield U.S. Treasury $4,114 6.67% $2,042 5.88% $6,158 4.40% U.S. Government Agency 2,984 3.44% 4,000 5.00% 6,984 4.32% States and Political 100 9.09% 300 9.08% 400 9.09% Subdivisions Mortgage-backed 20,928 6.79% 20,928 6.79% Securities Total 100 28,328 6,042 34,470 /TABLE The Company adopted FAS 115 "Accounting for Debt and Equity Securities" effective January 1, 1994. Investment securities with a book value of approximately $18,286,000 were classified as "available-for-sale". All other securities were classified as "hold-to-maturity". Had FAS 115 been implemented on December 31, 1993, investment securities would have been increased by approximately $532,000, other assets would have been reduced by $181,000 and stockholders' equity would have been increased by $351,000. Implementation of FAS 115 at December 31, 1993 would not have a significant impact on the results of the operations. Loan Portfolio: The following table shows the composition of the Company's loan portfolio:
December 31 1993 1992 1991 (Dollars in Thousands) Business $ 3,934 $ 4,071 $ 5,121 Agricultural 8,742 7,329 7,456 Commercial real estate 19,177 15,167 18,171 Residential real estate 14,424 10,581 8,117 Consumer 4,094 3,826 6,155 Total loans $50,371 $40,974 $45,020
As noted above, the loan portfolio declined from 1991 to 1992. A significant portion of this decline came in the consumer lending area. Consumer loans totaling approximately $1,318,000 at December 31, 1991 were sold in 1992 as a result of discussions with the Office of the Comptroller of the Currency. Other reductions in the consumer portfolio are the result of a soft loan demand and competition for consumer credits. The most significant increase in the loan portfolio in 1993 was commercial and residential real estate mortgages. Such loans increased 29.4 percent from 1992 to 1993. This increase reflects management's decision to initiate an adjustable-rate mortgage program, increased loan demand, and to aggressively market its real estate lending. The following table demonstrates the percentage of loans in each category to total outstanding loans.
December 31, 1993 1992 1991 (Dollars in Thousands) Business 7.81% 9.93% 11.37% Agricultural 17.35% 17.88% 16.56% Commercial real estate 38.07% 37.01% 40.36% Residential real estate 28.63% 25.82% 18.03% Consumer 8.14% 9.36% 13.68% Total loans 100.00% 100.00% 100.00%
Agriculture plays a significant role in the economy of the Company's service area. Agricultural credits above include loans secured by farmlands and loans to finance agricultural production. Management is cognizant of the current agricultural economy and continuously monitors and evaluates such credits. None of the Company's loans are foreign loans. Maturity Distribution of Loans: The following table shows the maturity distribution of the Company's business, agriculture and real estate loans that were outstanding on December 31, 1993.
Through One-Five Over Five One Year Years Years (Dollars in Thousands) Business $2,659 $1,850 $155 Agricultural 4,287 837 3,618 Real estate 8,627 6,417 18,573 Total $15,573 $9,104 $22,346
Interest Sensitivity: The following table shows the maturity distribution of the Company's business, agricultural and real estate loans that were outstanding on December 31, 1993. In this table, loans are grouped as either fixed rate loans or floating rate loans.
One-Five Over Five Years Years (Dollars in Thousands) Fixed rate loans $8,056 $7,975 Floating rate loans 1,048 14,371 Total $9,104 $22,346
All loans are categorized in both tables above according to the time they are due based on contract terms. Provision and Allowance for Loan Losses: The Company provides as an expense an amount which reflects expected credit losses. The provision is based upon management's evaluation of the outstanding credits, growth in the loan portfolio and prior loan loss experience. A detailed analysis of the Company's allowance for loan losses is shown below:
December 31, 1993 1992 1991 (Dollars in Thousands) Balance at beginning of period $630 $917 $468 Amounts charged off: Business 107 174 276 Agricultural 2 255 0 Commercial real estate 0 0 10 Residential real estate 0 6 42 Consumer 37 154 58 Total loans charged off $146 $589 $386 Recoveries on amounts previously charged off: Business $20 $18 $7 Agricultural 0 0 0 Commercial real estate 6 0 0 Residential real estate 5 4 6 Consumer 65 36 8 Total recoveries 96 58 21 Net chargeoffs 50 531 365 Provision charged (added) to operations 85 244 814 Balance at end of period $665 $630 $917
The following table provides an allocation of the allowance for loan losses for the periods indicated. The allocation represents the amount deemed to be reasonably necessary to provide for the possibility of losses in each category and is based upon the level of non-performing loans in each category:
December 31, 1993 1992 1991 (Dollars in Thousands) Business $187 $107 $356 Agricultural 308 324 391 Commercial real estate 119 142 104 Residential real estate 12 0 6 Consumer 39 57 60 Total loans $665 $630 $917
The ratio of loans in each category to total outstanding loans is as follows:
December 31, 1993 1992 1991 (Dollars in Thousands) Business 28.12% 16.98% 38.82% Agricultural 46.31% 51.42% 42.63% Commercial real estate 17.89 22.54% 11.34% Residential real estate 1.80% .65% Consumer 5.88% 9.06% 6.56% 100.00% 100.00% 100.00%
The table below presents historical statistics of the Company regarding loans (net of unearned discount), net charge-offs and the allowance for loan losses.
December 31, 1993 1992 1991 (Dollars in Thousands) Balances: Average total loans $46,068 $41,298 $47,224 Total loans $50,371 $40,974 $45,020 Net charge-offs $50 $531 $365 Allowance for loan losses $665 $630 $917 Provision for loan losses $85 $244 $814 Asset quality ratios: Net charge-offs to: Average total loans 0.11% 1.29% 0.77% Total loans 0.10% 1.30% 0.81% Allowance for loan losses 7.52% 84.29% 39.80% Allowance for loan losses to: Average total loans 1.44% 1.53% 1.94% Total loans 1.32% 1.54% 2.04% Provision for loan losses to: 0.18% 0.59% 1.72% Average total loans
Under-Performing Assets: Under-performing assets consist of: (1) nonaccrual loans on which the ultimate collectibility of the amount of interest is uncertain, (2) loans which have been renegotiated to provide for a reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower, (3) loans and leases past due ninety days or more as to principal or interest; (4) other real estate owned. The following table summarizes nonaccrual loans and the related reduction in interest income:
December 31, 1993 1992 1991 (Dollars in Thousands) Nonaccrual loans $208 $545 $129 Loans 90 days past due and accruing 12 43 312 Restructured loans 106 1,016 1,870 Other real estate 224 1,404 1,142 Total under-performing assets $550 $3,008 $3,453 Interest income that would have been recorded if nonaccrual loans and restructured loans were on a current basis in accordance with their original terms $19 $63 $50
The accrual of interest income is generally discontinued when a loan becomes ninety days past due as to principal or interest. When interest accruals are discontinued, interest credited to income in the current year is reversed, and interest accrued in the prior year is charged to the allowance for loan losses. Management may elect to continue the accrual of interest when the estimated net realizable value of collateral is sufficient to cover the principal balance and accrued interest. Generally, any payment received on non-accruing loans is applied first to outstanding loan amounts and next to the recovery of charged-off loan amounts. Any excess is treated as recovery of lost interest.
December 31, 1993 1992 1991 Nonperforming assets as a percentage of total loans and other real estate 1.09% 7.09% 7.48% Nonperforming assets as a percentage of total assets 0.57% 3.06% 3.42%
Deposits: The following is a distribution of average deposits with average rates of interest:
December 31, 1993 1992 1991 Non-Interest Bearing DDA $9,813 0.00% $10,227 0.00% $9,750 0.00% Interest Bearing Transaction Account 19,640 2.58% 18,201 3.18% 14,915 4.82% NNDA and Savings 8,037 2.85% 7,602 3.41% 6,868 5.04% Certificates of Deposit 44,609 4.38% 49,622 5.35% 54,598 7.24% Total Deposits $82,099 3.28% $85,652 4.08% $86,131 5.82% /TABLE At December 31, 1993, time deposits issued in the amount of $100,000 or more totaled $4,568,000. A maturity distribution of such deposits follows: Three months or less $1,025,000 Three through twelve months 2,600,000 Over twelve months 943,000 $4,568,000 Short-Term Borrowings: Securities sold under repurchase agreements and federal funds purchased mature in varying amounts generally within a twelve-month period. The following table shows information relating to federal funds purchased and securities sold under repurchase agreements.
December 31, 1993 1992 1991 (Dollars in Thousands) Amounts outstanding $2,721 $2,890 $4,763 Weighted average interest rate 3.14% 3.85% 6.85% Maximum amount outstanding at any month-end during period $4,771 $3,541 $5,526 Average amount outstanding during period $3,044 $3,333 $4,801 Weighted average interest rate during the period 4.53% 4.74% 7.03%
Other short-term borrowings include notes payable due annually to an unrelated bank. The following table shows information relating to this borrowing.
December 31, 1993 1992 1991 (Dollars in Thousands) Amounts outstanding $2.402 $2,452 $2,257 Weighted average interest rate 6.00% 6.00% 8.50% Maximum amount outstanding at any month-end during period $2,752 $2,752 $2,316 Average amount outstanding during period $2,664 $2,380 $2,271 Weighted average interest rate during the period 6.00% 6.60% 8.19%
Capital Resources: The Company's total capital at December 31, 1993 was $5,005,000 compared to $3,866,000 at December 31, 1992, an increase of $1,139,000 or 29.5 percent. This increase in capital resulted from the retention of earnings. The Federal Reserve Board requires bank holding companies maintain a minimum leverage ratio of 3.00 percent. The leverage ratio is defined as stockholder's equity less unrealized gains on sale of securities, goodwill and certain other intangibles divided by average quarterly assets. The Company's leverage ratio was 5.15 percent at December 31, 1993 and 3.96 percent at December 31, 1992. The Federal Reserve Board has adopted risk-based capital guidelines which assign risk weightings to assets and off balance sheet items. Tier 1 capital consists of common shareholders equity and Tier 2 capital consists of the allowance for loan losses. Under the final 1992 rules, all banks are required to have Tier 1 capital of 4.00 percent of risk-weighted assets and a minimum total capital of 8.00 percent of risk-weighted assets. The table below illustrates the Company's regulatory capital ratios computed using the final 1992 rules:
December 31, 1993 1992 1991 (Dollars in Thousands) Tier 1 Capital $ 5,005 $ 3,866 $ 2,857 Tier 2 Capital 615 630 625 Total qualifying capital $ 5,620 $ 4,496 $ 3,482 Risk adjusted total assets $49,166 $52,361 $50,054 Tier 1 risk-based capital ratio 10.17% 7.38% 5.71% Total risk-based capital ratio 11.43% 8.58% 6.96%
Each of the Banks' capital ratios exceed minimum requirements of the Office of the Comptroller of the Currency as calculated under the 1992 rules. Liquidity and Interest Rate Sensitivity: The objective of the Company's asset/liability management is to maintain consistent growth in net interest income. This objective is accomplished through flexible management of the Company's balance sheet liquidity and interest rate exposure due to changes in economic conditions and interest rate levels. The goal of liquidity management is to provide adequate funds to meet changes in loan demand and to fund withdrawal of deposits. At December 31, 1993, the Company had approximately $7,700,000 of federal funds sold compared to $6,725,000 at December 31, 1992. At December 31, 1993, the Company had $7,289,000 in certificates of deposit of $100,000 or more and other repurchase agreements compared to $8,862,000 at December 31, 1992. Average deposits other than certificates greater than $100,000 and other repurchase agreements were approximately 70 percent of average earning assets. The table which follows reflects the Company's interest rate sensitivity for the year ended December 31, 1993. Increasing interest rates would result in a lower net interest income within the twelve-month time period. Decreasing rates would result in higher net interest income within the twelve-month time period.
(In Thousands) 0-3 Months 3-12 Months 1-5 Years Over 5 Years Total Earning Assets: Investments $16,165 $4,543 $19,462 $2,000 $42,170 Total Loans 17,690 21,316 7,824 3,414 50,514 Total Earning Assets $34,125 $25,859 $27,286 $5,414 $92,684 Interest Bearing Liabilities: Interest Bearing Deposits and Other L $45,631 $21,200 $8,686 $75,517 Short-term Borrowing 2,402 2,402 Total Liabilities $45,631 $23,602 $8,686 $77,919 Discrete Gap ($11,506) $2,257 $18,600 $5,414 $14,765 Cumulative Gap ($9,249) $9,351 $14,765 /TABLE The following table presents various financial ratios for the Company:
December 31, 1993 1992 1991 Profitability Ratios: Rate of return on: 1.23% 1.06% (.25)% Average earning assets 1.18% 1.03% (.25)% Average total assets 25.03% 27.74% (2.89)% Average stockholders' equity Capital Ratios: Average stockholders' equity to average earnings' assets 4.91% 3.88% 3.22% Average stockholders' equity to average total assets 4.74% 3.75% 3.01% Dividend Payout Ratio 0 0 (13.68)%
Distribution of Assets, Liabilities and Stockholders' Equity: The tables captioned "Average Balances and Interest Rates" show, for each major category of interest earning assets and interest bearing liabilities, the average amount outstanding, the interest earned or paid on such amount and the average rate earned or paid for each of the years in the three-year period ended December 31, 1993. The tables also show the average rate earned on all interest earning assets, the average rate paid on all interest bearing liabilities, and the net interest margin (net interest income divided by total average interest earning assets) for each of the years in the three-year period ended December 31, 1993. Average balances are full-year daily averages balances. Nonaccrual loans outstanding were included in calculating the rate earned on loans. Total interest income includes the effects of tax equivalent adjustments using tax rates of 34 percent.
For the Years Ended December 31, 1993 1992 1991 --------------------------- - ---------------------------- --------------------------- Average Average Average Average Average Average Balance Interest Rate Balance Interest Rate Balance Interest Rate Earning Assets: U.S. Treasury and $44,183 $2,974 6.73% $48,410 $3,734 7.71% $42,966 $3,849 8.96% U.S. Govt Agency Obligations of States 403 37 9.18% 781 62 7.94% 1,257 108 8.59% and Political Subdivisions Other Investments 265 23 8.68% 417 37 8.87% 795 67 8.43% Federal Funds Sold 1,779 52 2.92% 2,624 90 3.43% 3,182 151 4.75% Total Loans 46,068 3,740 8.12% 41,298 3,753 9.09% 47,224 4,918 10.41% Total Earning Assets $92,698 $6,826 7.36% $93,530 $7,676 8.21% $95,424 $9,093 9.53% Less Allowance for (555) (660) (656) Loan Losses Non-Earning Assets: Cash and Due From 1,994 2,676 3,098 Banks Bank Premises and 645 749 831 Equipment Other Assets 1,192 1,486 1,646 Total Assets $95,974 $97,781 $100,343
For the Years Ended December 31, 1993 1992 1991 ---------------------------- - ----------------------------- -------------------------- Average Average Average Average Average Average Balance Interest Rate Balance Interest Rate Balance Interest Rate LIABILITIES AND STOCKHOLDERS' EQUITY Interest Bearing Liabilities Transaction Accts. $19,640 $507 2.58% $18,201 $579 3.18% $14,915 $719 4.82% Money Market Deposit 8,037 229 2.85% 7,602 259 3.41% 6,868 346 5.04% Accounts Certificates of 44,609 1,954 4.38% 49,622 2,655 5.35% 54,598 3,957 7.24% Deposit and Other Time Deposits Federal Funds Purch. 4,038 139 3.44% 3,088 156 5.05% 4,069 281 6.91% and Securities Sold Under Repurchase Agreements Other Borrowed Money 2,943 184 6.25% 2,824 240 8.50% 3,842 317 8.25% Total Interest Bearing $79,267 $3,013 3.80% $81,337 $3,889 4.78% $84,292 $5,620 7.67% Liabilities Non-Interest Bearing 9,813 10,227 9,750 Liabilities Other Liabilities 2,344 2,584 3,254 Stockholders' Equity 4,550 3,633 3,047 Total Liabilities and $95,974 $97,781 $100,343 Stockholders' Equity Net Interest Income $3,813 $3,787 $3,473 Net Interest Spread 3.56% 3.43% 2.86% Net Interest Margin 4.11% 4.05% 3.64%
Interest Differential: The changes in interest income and interest expense resulting from changes in volume and changes in rate for the years ended December 31, 1993 and 1992 are shown below. The change in interest due to both rate and volume has been allocated to change due to volume and change due to rate in proportion to the relationship of the absolute dollar amounts of the change in each. Total interest income includes the effects of tax equivalent adjustments using tax rates of 34 percent.
1993 Over/Under 1992 1992 Over/Under 19 Increase/Decrease Increase/Decrease Due to: Due to: --------------------------- -------------------- Total Net Total Net Change Rate Volume Change Rate Volume Increase/Decrease In: Interest Income: U.S. Treasury & U.S. ($760) ($433) ($327) ($115) ($604) $489 Government Agencies Obligations of State & (25) 5 (30) (46) (5) (41) Political Subdivisions Other Investments (14) (1) (13) (30) (5) (25) Federal Funds Sold (30) (4) (29) (61) (35) (26) Total Loans (13) (448) 435 (1,165) (546) (619) Total ($850) ($886) $36 ($1,417) ($1,195) ($222) Interest Expense: Interest Bearing ($72) ($118) $46 ($140) ($298) $158 Transaction Accounts Money Market Deposit (30) (45) 15 (87) (124) 37 Accounts Certificates of Deposit (701) (432) (269) (1,302) (938) (364) and Other Time Deposits Federal Funds Purchased & Securities Sold Under Repurchase Agreements (17) (65) 48 (125) (57) (68) Other Borrowed Money (56) (66) 10 (77) 7 (84) Total ($876) ($726) ($150) ($1,731) ($1,410) ($321) Increase/Decrease in $26 ($160) $186 $314 $215 $99 Interest Differential /TABLE LEGAL MATTERS Dinsmore & Shohl, Cincinnati, Ohio, counsel for Fifth Third, has rendered its opinion that the shares of Fifth Third Common Stock to be issued to the stockholders of National Bancorp in connection with the Merger have been duly authorized and, if issued pursuant to the Affiliation Agreement and Merger Agreement, will be validly issued, fully paid and non-assessable under the current laws of the State of Ohio. Such firm will also render its opinion with respect to certain federal income tax consequences of the Merger to Fifth Third, National Bancorp and the stockholder of National Bancorp. Nolan W. Carson, a partner in Dinsmore & Shohl, is a Director of Fifth Third. As of January 31, 1994, partners of Dinsmore & Shohl and attorneys employed by such firm beneficially owned 27,154 shares of Fifth Third Common Stock. EXPERTS The financial statements incorporated in this prospectus by reference from Fifth Third's Annual Report on Form 10-K for the year ended December 31, 1993 have been audited by Deloitte & Touche, independent auditors, as stated in their report, which is incorporated herein by reference (which report expresses an unqualified opinion and includes an explanatory paragraph relating to a change in the method of accounting for debt and equity securities) and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The consolidated financial statements of National Bancorp appearing in the 1993 Annual Report to Stockholders for the year ended December 31, 1993 have been audited by Clines & Satterly, P.S.C., independent certified public accountants, whose report is also incorporated by reference herein. Such financial statements have been incorporated herein in reliance upon such reports and upon the authority of said firms as experts in accounting and auditing. OTHER MATTERS The Board of Directors of National Bancorp knows of no other matters which may come before the Special Meeting. However, if any matters other than those set forth in the notice should be properly presented for action, including any adjournment of the Special Meeting, such matters will be handled in accordance with applicable legal requirements. INDEPENDENT AUDITORS' REPORT Board of Directors The National Bancorp of Kentucky, Inc. Lexington, Kentucky We have audited the accompanying consolidated balance sheets of The National Bancorp of Kentucky, Inc. and Subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibili- ty of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The National Bancorp of Kentucky, Inc. and Subsidiaries as of December 31, 1993 and 1992, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /S/ Clines & Satterly, P.S.C. Lexington, Kentucky February 15, 1994 THE NATIONAL BANCORP OF KENTUCKY, INC.
CONSOLIDATED BALANCE SHEETS December 31, 1993 and 1992 _______________ ASSETS 1993 1992 Cash and due from banks (Note 2) $ 2,345,999 $ 2,615,516 Federal funds sold 7,700,000 6,725,000 Investment securities, approximate market value of $35,491,415 (1992, $46,180,430) (Notes 1 and 3) 34,470,319 44,933,476 Loans, less allowance for loan losses of $664,809 (1992, $630,468) Notes 1, 4, and 12) 49,707,068 40,343,583 Interest receivable 851,843 1,109,023 Office buildings and equipment, net (Notes 1, 5, and 13) 574,682 715,133 Other assets (Note 6) 634,658 1,756,868 ___________ ___________ $96,284,569 $98,198,599
See notes to consolidated financial statements.
LIABILITIES AND 1993 1992 STOCKHOLDERS' EQUITY Liabilities: Deposits: Demand $10,899,348 $10,668,099 NOW accounts 19,829,170 20,309,372 Money market accounts 4,738,115 2,730,867 Savings accounts 5,343,323 4,933,317 Time, over $100,000 (Note 7) 4,568,220 6,110,495 Time, other 38,317,436 41,027,164 ------------ ----------- 83,695,612 85,779,314 Securities sold under repurchase agreements (Note 8) 2,721,064 2,890,400 Notes payable (Note 9) 2,402,159 2,752,159 Accrued interest and other liabilities 482,371 769,954 Capital lease obligation (Note 13) 214,356 321,951 Excess of net assets acquired over cost (Note 1) 1,763,494 1,818,877 ---------- ---------- Total liabilities 91,279,056 94,332,655 Commitments and contingent liabilities (Notes 11 and 13) Stockholders' equity: (Notes 9 and 15) Preferred stock, nonvoting, $1,000 par value, 100 shares authorized; 23 shares outstanding 23,000 23,000 Common stock, no par value, 2,000 shares authorized; 100 shares outstanding 1,426,336 1,426,336 Retained earnings 3,556,177 2,416,608 Total stockholders' equity 5,005,513 3,865,944 $96,284,569 $98,198,599
CONSOLIDATED STATEMENTS OF OPERATIONS for the years ended December 31, 1993 and 1992 __________ 1993 1992 Interest income: Interest and fees on loans $3,740,003 $3,752,535 Interest on investment securities: U.S. Government and agency securities 2,974,573 3,734,834 State and municipal securities 24,033 41,211 Other securities 23,719 36,780 Interest on Federal funds sold 52,054 90,642 6,814,382 7,656,002 Interest expense: Interest on deposits 2,689,871 3,490,499 Interest on securities sold under agreements to repurchase 137,846 157,512 Interest on computer lease 26,307 35,908 Interest on notes payable 159,337 157,141 Interest on subordinated notes payable 47,749 3,013,361 3,888,809 Net interest income 3,801,021 3,767,193 Provision for loan losses (Notes 1, 4, and 9) 85,000 244,460 Net interest income after provision for loan losses 3,716,021 3,522,733 Other income: Amortization 57,354 57,354 Fees, commissions and other income (Note 17) 105,082 226,336 Service charges 304,576 299,041 Trust department 47,910 8,489 Securities gains 179,054 250,702 693,976 841,922 Other expenses: Salaries 1,135,764 1,105,444 Employee benefits 206,674 230,825 Furniture, fixtures and occupancy (Notes 5 and 12) 362,140 379,323 Other operating expenses 1,080,995 1,162,320 2,785,573 2,877,912 Net income before taxes $1,624,424 $1,486,743 Applicable income taxes (Notes 1 and 10) 501,598 478,683 Net income before cumulative effect of change in accounting for income taxes 1,122,826 1,008,060 Cumulative effect (benefit) of change in accounting for income taxes (Note 10) (16,743) $1,139,569 $1,008,060
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY for the years ended December 31, 1993 and 1992 __________ Stock Preferred Common Retained Shs Par Shs Amount Earnings Total Balance, December 31, 1991 23 $23,000 100 $1,426,336 $1,408,548 $2,857,884 Net income __ _______ ___ __________ 1,008,060 1,008,060 Balance, December 31, 1992 23 23,000 100 1,426,336 2,416,608 3,865,944 Net income __ _______ ___ __________ 1,139,569 1,139,569 Balance, December 31, 1993 23 $23,000 100 $1,426,336 $3,556,177 $5,005,513
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended December 31, 1993 and 1992 __________ 1993 1992 Cash flows from operating activities: Interest received $ 7,402,536 $ 8,177,659 Fees and commissions received 539,324 649,085 Interest paid (3,125,015) ( 4,144,593) Cash paid to suppliers and employees (2,610,577) ( 2,876,285) Litigation claims paid (65,000) Income taxes paid (579,850) (248,000) Net cash provided by operating activities 1,626,418 1,492,866 Cash flows from investing activities: Proceeds from sale of other real estate 37,500 Proceeds from sales and maturities of investments securities 22,394,875 22,488,620 Loans made to customers and principal collected, net (8,329,349) 3,837,544 Capital expenditures (38,507) (103,597) Purchase of investment securities (12,134,775) (19,679,347) Purchase FHLB stock (130,300) Net cash provided by investing activities 1,799,444 6,543,220 Cash flows from financing activities: Net increase in demand deposits, NOW, money market and savings accounts 2,158,556 4,856,555 Net requirements from securities sold under repurchase agreements (169,336) (617,004) Net requirements from sales of certificates of deposit and payments for maturing certificates (4,252,004) (7,359,640) Principal payment capital lease obligation (107,595) (98,047) Proceeds, notes payable bank 745,267 Principal payments on notes payable and subordinated notes (350,000) (989,695) Net cash used by financing activities (2,720,379) (3,462,564) Net increase in cash and cash equivalents 705,483 4,573,522 Cash and cash equivalents, beginning of year 9,340,516 4,766,994 Cash and cash equivalents, end of year $10,045,999 $ 9,340,516
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended December 31, 1993 and 1992 __________ 1993 1992 Reconciliation of net income to cash provided by operating activities: Net income $ 1,139,569 $ 1,008,060 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 454,643 459,416 Provision for losses on other real estate 59,500 (51,960) Provision for possible loan losses 85,000 244,460 Gain on sale of investments (179,054) (250,702) Provision for deferred taxes 49,255 78,910 Decrease in interest receivable 257,176 204,015 Decrease (increase) in other assets 182,460 (77,956) Decrease in interest payable and accrued expenses (422,131) (139,428) Loss on sale of other real estate and assets 3,146 Provision for losses on repossessions 14,905 Net cash provided by operating activities $ 1,626,418 $ 1,492,866 Schedule of cash and cash equivalents: Cash and due from banks $ 2,345,999 $ 2,615,516 Federal funds sold 7,700,000 6,725,000 $10,045,999 $ 9,340,516
See notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting and Reporting Policies: The accounting and reporting policies of The National Bancorp of Kentucky, Inc. (Company) and its subsidiaries conform to generally accepted accounting principles and prevailing practices within the banking industry. The Company carries its assets and liabilities principally on the historical cost basis and follows the accrual basis of accounting. Basis of Presentation: The consolidated financial statements include the accounts of The National Bancorp of Kentucky, Inc. and its wholly-owned subsidiaries: The National Bank of Cynthiana (Bank) and The First National Bank of Falmouth (Bank). All significant intercompany balances and transactions have been eliminated. The excess of net assets acquired over cost, negative goodwill, has been reduced by $793,823 which is the amount of noncurrent assets at subsidiary acquisition date. The remaining amount of $2,210,446 is being amortized by the straight-line method over forty years. Assets held in an agency or fiduciary capacity are not assets of the Company and, accordingly, are not included in the accompanying financial statements. Investment Securities: Investment securities are those which management has the intent and ability to hold to maturity. Investment securities are stated at cost adjusted for the accretion of discounts and amortization of premiums computed by the effective-yield method. Gains and losses on disposition are based on the net proceeds and the adjusted carrying amount of the securities on the trade date using the specific-identification method. Loans and Allowance for Loan Losses: Loans are stated at the amount of unpaid principal reduced by unearned discount and an allowance for loan losses. Unearned discount on installment loans is recognized as income over the terms of the loans by the sum-of-the-years-digits method. Interest on other loans is calculated by using the simple-interest method on daily balances of the principal amount outstanding. The allowance for loan losses is established through a provision for loan losses charged to expenses. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb possible losses on existing loans that may become uncollectible based on prior loan loss experience. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect borrower's ability to pay. Accrual on interest is discontinued on a loan when management believes, after considering economic and business conditions and collection efforts, that the borrower's financial condition is such that collection of interest is doubtful. Depreciation Office buildings and equipment are stated at cost as adjusted for the excess of net assets acquired over cost, negative goodwill, less accumulated depreciation computed on the straightline and declining-balance methods over the estimated useful lives of the assets. Other Real Estate Owned Real estate acquired in settlement of loans is carried at the lower of cost or estimated fair market value; costs relating to holding these assets are expensed as incurred. Income Taxes The Company and its wholly-owned subsidiaries file a consolidated federal income tax return. A charge or credit is made by the Parent equivalent to the federal income taxes which would be provided if the Banks were filing separate returns. The Company adopted Statement of Financial Accounting Standards No. 109 prospectively in 1993. In accordance with this Statement, deferred federal income taxes are provided on certain transactions which are reported for financial statement purposes in different years than for income tax purposes, utilizing the liability method. The tax provision for December 31, 1992 is computed in accordance with APB No. 11. Off Balance Sheet Financial Instruments: In the ordinary course of business the Banks have entered into off balance sheet financial instruments consisting of commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable. 2. Restriction on Cash and Due from Banks: Bank regulatory authorities require the Banks to maintain average reserve balances relating to customer deposits. At December 31, 1993 those reserve balances were approximately $766,000. 3. Investment Securities: Carrying amounts and approximate market values of investment securities are summarized as follows:
Carrying Unrealized Unrealized Market Amount Gains Losses Value December 31, 1993: U.S. Treasury $ 6,161,051 $ 274,573 $ 6,435,624 Government agency 27,726,361 761,515 $ (33,851) 28,454,025 State and municipal securities 400,336 7,943 (726) 407,553 Other securities 182,571 11,642 194,213 $34,470,319 $1,055,673 $ (34,577) $35,491,415 Carrying Unrealized Unrealized Market Amount Gains Losses Value December 31, 1992: U.S. Treasury $ 8,279,113 $ 236,502 $ 8,515,615 Government agency 35,739,361 1,000,146 $ ( 7,485) 36,732,022 State and municipal securities 635,649 10,160 645,809 Other securities 279,353 7,631 286,984 $44,933,476 $1,254,439 $ ( 7,485) $46,180,430 Assets, principally securities, carried at approximately $13,649,000 at December 31, 1993 and $16,374,000 at December 31, 1992 were pledged to secure public deposits and for other purposes required or permitted by law. /TABLE Gross realized gains and losses on sales of securities were:
1993 1992 Gross realized gains: U.S. Treasury $179,054 $ 39,586 Government agency securities 211,116 $179,054 $250,702
The contractual maturities of investment securities at December 31, 1993 are presented below. Expected maturities will differ from contractual maturities because the issuers have the right to call or prepay obligations with or without call or prepayment penalties.
Carrying Market Amount Value Due in one year or less $ 100,024 $ 99,298 Due from one to five years 7,401,003 7,594,504 Due from five to ten years 6,042,530 6,114,275 13,543,557 13,808,077 Mortgaged backed securities 20,926,762 21,683,338 $ 34,470,319 $35,491,415
4. Loans: Major classifications of loans are as follows:
December 31, 1993 1992 Real estate $39,618,733 $31,343,020 Commercial 8,580,138 7,510,418 Installment 2,278,570 2,324,265 Other 142,503 65,722 50,619,944 41,243,425 Unearned discount (248,067) (269,374) 50,371,877 40,974,051 Allowance for loan losses (664,809) (630,468) Loans, net $49,707,068 $40,343,583
Nonaccrual and renegotiated loans at December 31, 1993 and 1992 were approximately $313,000 and $51,467,000, respectively. At December 31, 1993, there were no commitments to lend additional funds to borrowers whose loans were classified as nonaccrual or renegotiated. The Company recognizes loan fees on loans with a maturity of one year or less and fees totaling less than $500 when received. Loan fees on loans with a maturity of greater than one year are deferred and amortized over the life of the loan. Generally accepted accounting principles require the deferral and subsequent amortization of loan fees over the life of the loans. Loan fees recognized as income were $68,163 and $8,887 in 1993 and 1992, respectively. The Company's service area is based principally on an agrarian economy. Loans secured by farmlands and loans to finance agricultural production approximated $8,746,000 at December 31, 1993 and $7,329,000 at December 31, 1992. Management is cognizant of the depressed agricultural economy and continuously monitors and evaluates such credits. The reduction in interest income associated with nonaccrual and renegotiated loans is as follows:
December 31, 1993 1992 Income in accordance with original loan terms $ 32,211 $ 143,374 Income recognized (12,870) 79,400 Reduction in interest income $ 19,341 $ 63,974
Changes in the allowance account for loan losses are as follows:
December 31, 1993 1992 Balance, beginning of year $ 630,468 $ 916,938 Provisions charged to operations 85,000 244,460 Loans charged off (147,377) (586,043) Recoveries 96,718 55,113 Balance, end of year $ 664,809 $ 630,468
5. Office Buildings and Equipment: Major classifications of these assets are summarized as follows:
Life December 31, Years 1993 1992 Land $ 40,569 $ 40,569 Office buildings and improvements 20-50 258,866 230,863 Furniture and equipment 5-10 968,617 958,114 Leasehold improvements 5-10 79,139 79,139 1,347,191 1,308,685 772,509 (593,552) Accumulated depreciation $ 574,682 $ 715,133
Depreciation expense amounted to $177,571 and $167,990 for 1993 and 1992, respectively. Fixed assets have been reduced by negative goodwill recorded at the acquisition date of the Bank Subsidiaries. The reduction amounted to $793,823. In addition, related depreciation expense has been reduced by approximately $21,000 and $19,000 in 1993 and 1992, respectively. Furniture and equipment includes $530,000 of computer equipment held under capital lease agreements at December 31, 1993 and 1992. Amortization of capitalized leases of $106,000 per year is included in depreciation expense for the years ended December 31, 1993 and 1992. 6. Other Assets: The major classifications of other assets are as follows:
December 31, 1993 1992 Prepaid insurance and other expenses $ 114,620 $ 138,290 Other real estate acquired in settlement of debt, net 224,460 1,404,892 Deferred tax benefit 85,165 133,573 Organization and subsidiary acquisition cost 27,513 27,513 Federal Reserve Bank stock and other miscellaneous investments 52,600 52,600 Federal Home Loan Bank stock 130,300 $ 634,658 $1,756,868
Other real estate acquired in settlement of debt is stated at its estimated net realizable value. Other real estate owned includes certain loans made to facilitate the sale of assets acquired in lieu of or through foreclosure. Such loans are classified as other real estate until the borrower's investment in the property meets the Bank's minimum criteria. The amounts of such loans were $912,000 in 1992. Valuation allowances on other real estate owned were $46,311 and $133,811 at December 31, 1993 and 1992, respectively. Other real estate also includes in-substance foreclosures of $61,000 at December 31, 1992. 7. Time Deposits, Over $100,000: Certificates of deposit in amounts of $100,000 or more mature as follows, (in thousands):
December 31, 1993 1992 Three months or less $1,025 $1,920 Three through twelve months 2,600 2,548 Over twelve months 943 1,642 $4,568 $6,110
8. Securities Sold Under Repurchase Agreements: Securities sold under repurchase agreements mature as follows (in thousands):
December 31, 1993 1992 One day or less $1,677 $1,740 Three months or less 574 646 Three through twelve months 370 270 Over twelve months 100 234 $2,721 $2,890
9. Notes Payable: Notes payable to an unrelated bank:
December 31, 1993 1992 Due April 30, of each year renewable annually for a period not to exceed seven years. Interest is at prime (6.0 percent, 1993) and payable quarterly. All subsidiary bank stock is pledged as collateral. $2,402,159 $2,752,159
Scheduled payments are as follows: 1994 $ 350,000 1995 350,000 1996 350,000 1997 350,000 1998 350,000 Later years 652,159 $2,402,159
Among other provisions, Subsidiary Banks are required to maintain capital funds in the aggregate of $8,558,000 and adjusted capital funds in an aggregate amount equal to not less than eight percent of each Bank Subsidiary's total assets. Each Subsidiary Bank shall maintain at all times loan loss allowances equal to one percent of all the Bank's outstanding loans. The First National Bank of Falmouth did not meet the loan loss requirement of one percent. In accordance with the loan agreement, the Company can declare dividends only to reduce personal obligations of the majority stockholder of the Company to the unrelated lending bank above. 10. Income Taxes: Income tax expense consists of the following:
December 31, 1993 1992 Current $438,131 $399,773 Deferred 63,467 78,910 $501,598 $478,683
The provision for federal income taxes is less than that computed by applying the federal statutory rate of 34 percent in 1993 and 1992, as indicated in the following analysis:
December 31, 1993 1992 Tax based on statutory rate $552,304 $505,492 Effect of tax exempt income (10,892) (17,764) Effect of non-taxable amortization of negative goodwill (19,500) (19,500) Effect of different tax bases of fixed assets (7,286) ( 6,355) Other, principally adjustment to prior year tax estimates (13,028) (16,810) $501,598 $478,683
Temporary differences between the financial statement carrying amounts and tax basis of assets and liabilities that result in significant portions of the deferred tax liability at December 31, 1993 relate to the following:
1993 Allowance for loan loss $84,712 Accumulated depreciation (28,688) Deferred loan fees 24,113 Accumulated amortization 5,028 $85,165
The deferred tax asset is included in other assets. Deferred taxes were computed in accordance with Accounting Principles Board Opinion No. 11 at December 31, 1992. The deferred tax provision for the year ended December 31, 1992 relates to provision for loan loss and depreciation. On January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" prospectively. The cumulative effect of this accounting change on years prior to 1993 was a $16,743 increase in the Company's deferred tax asset. The increase resulted in an increase in net income for the year ended December 31, 1993 of $16,743. The effect of the change on 1993 income, excluding the cumulative effect upon adoption, was not significant to the financial statements. 11. Commitments and Contingent Liabilities: The Company's financial statements do not reflect various commitments and contingent liabilities which arise in the normal course of business and which involve elements of credit risk, interest rate risk, and liquidity risk. These commitments and contingent liabilities are commitments to extend credit and standby letters of credit. A summary of the Company's commitments and contingent liabilities at December 31, 1993 is as follows: Commitments to extend credit $4,854,790 Standby letters of credit 60,000
Commitments to extend credit and standby letters of credit all include exposure to some credit loss in the event of nonperformance of the customer. The Company's credit policies and procedures for credit commitments are the same as those for extension of credit that are recorded on the consolidated balance sheets. The amount of collateral obtained is based on management's credit evaluation of the customer. Collateral held varies, including tangible personal property and real property. Because these instruments, have fixed maturity dates, and because many expire without being drawn upon they do not represent any significant liquidity risk to the Company. The Company has not been required to perform on any financial guarantees during the past two years. The Company has not incurred any losses on its commitments in either 1993 or 1992. The National Bank of Cynthiana has been notified, as co-owner of a tract of real estate acquired in lieu of foreclosure, that water damage has been sustained by contiguous property owners as a result of a retaining wall on the Bank's property. The matter is under investigation and discovery proceedings have commenced. No provision has been made in the financial statements for this matter and the Company does not expect to incur a material loss as a result of the above. 12. Related-Party Transactions: At December 31, 1993, certain officers, directors, and companies in which they have significant ownership were indebted to the Banks in the aggregate amount of approximately $1,403,000. All such loans were made in the ordinary course of business. Commitments to extend credit to certain officers, directors and their related companies were $2,112,000 at December 31, 1993. The Company leases space for branch operations and loan production operations form its majority shareholder. Such rents for 1993 and 1992 were $39,000. 13. Lease Obligations. The Company leases real estate for its branch and loan production offices and various equipment under noncancellable agreements which require certain minimum rentals. The leases expire between August, 1994 and January, 1998. Certain leases contain various renewal options. The leases require the Company to pay insurance, maintenance and taxes. The National Bank of Cynthiana entered into a lease agreement for data processing equipment. The lease agreement requires the Bank to pay all insurance, maintenance and taxes on the equipment. There is no residual value at the end of the five-year lease term. The future minimum rental commitment as of December 31, 1993 under the leases is as follows:
Operating Leases Due To Related Capital Party Other Leases Due in the year ending December 31, 1994 $31,280 $30,125 $134,458 1995 21,000 17,893 100,843 1996 21,000 11,849 1997 12,250 11,400 1998 950 $85,530 $72,217 $235,301 Amount representing interest 20,945 $214,356
14. Dividends from Subsidiaries: The approval of the Comptroller of the Currency is required if the total of all dividends declared by a national bank in any calendar year exceeds the bank's net profits (as defined) for that year combined with its retained net profits for the preceding two calendar years. Under this formula, The First National Bank of Falmouth can declare dividends in 1993 without the approval of the Comptroller of the Currency of approximately $520,000 in addition to the net profits in 1994 up to the date of any such dividend declaration. In 1994, The National Bank of Cynthiana can declare dividends without such approval of approximately $870,000 in addition to the net profits in 1994 up to the date of any such dividend declaration. 15. Regulatory Matters: The Company's principal source of funds for debt service is dividends received from The National Bank of Cynthiana and the First National Bank of Falmouth. Each subsidiary bank is required to maintain minimum amounts of capital to total "risk weighted" assets as defined by banking regulators. At December 31, 1993, the Banks are required to have minimum Tier 1 capital and total capital ratios of 4.00 percent and 8.00 percent, respectively. The First National Bank of Falmouth's Tier 1 and total capital ratios were 23.47 percent and 24.13 percent, respectively. The National Bank of Cynthiana's Tier 1 and total capital ratios were 17.13 percent and 18.38 percent, respectively. Leverage ratios for The First National Bank of Falmouth and The National Bank of Cynthiana were 10.46 percent and 9.29 percent respectively at December 31, 1993. During The National Bank of Cynthiana's 1991 regulatory examination, regulators identified several transactions which they deemed to be violations of banking laws and regulations. One such issue related to the Bank's purchase of "dealer paper" from companies related to the Bank's majority shareholder. The regulators allege such purchases were at below market rates and therefore violate the transactions with affiliates regulations. As a result of these findings, The National Bank of Cynthiana entered into an agreement with the Office of the Comptroller of the Currency in 1992. Among other provisions, the Bank was required to form a compliance committee, adopt a written comprehensive conflict of interest policy, establish a comprehensive internal audit program and implement a program designed to eliminate criticized assets. In 1993, the Bank was found to be in compliance with the agreement and, accordingly, the agreement was terminated by the Office of the Comptroller of the Currency. 16. Parent Company Financial Statements: THE NATIONAL BANCORP OF KENTUCKY, INC. (PARENT ONLY) BALANCE SHEETS December 31, 1993 and 1992 __________
1993 1992 ASSETS Cash $ 104,034 $ 448 Notes receivable 23,000 23,000 Investment in subsidiaries: The First National Bank of Falmouth 3,339,713 3,065,301 The National Bank of Cynthiana 5,727,478 5,334,808 Other assets 41,649 194,077 $9,235,874 $8,617,634 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable and accrued expenses $ 64,708 $ 180,654 Notes payable - bank 2,402,159 2,752,159 Subordinated promissory notes Excess of net assets acquired over cost 1,763,494 1,818,877 4,230,361 4,751,690 Stockholders' Equity: Preferred stock 23,000 23,000 Common stock 1,426,336 1,426,336 Retained earnings 3,556,177 2,416,608 5,005,513 3,865,944 $9,235,874 $8,617,634
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS for the years ended December 31, 1993 and 1992 ___________ 1993 1992 Income: Dividends from subsidiary banks $ 525,000 $ 342,250 Amortization of negative goodwill 57,354 57,354 582,354 399,604 Expenses: Interest 159,337 204,890 Other 20,396 23,400 179,733 228,290 Income before tax benefit and equity in undistributed earnings of subsidiaries 402,621 171,314 Income tax benefit 71,836 71,790 Income before equity in undistributed earnings of subsidiaries 474,457 243,104 Equity in undistributed income of subsidiaries 665,112 764,956 Net income 1,139,569 1,008,060 Beginning retained earnings 2,416,608 1,408,548 Ending retained earnings $3,556,177 $2,416,608
STATEMENTS OF CASH FLOWS for the years ended December 31, 1993 and 1992 1993 1992 Cash flows from operating activities: Interest paid $ (167,423) $ (208,370) Cash paid for services and supplies (10,319) (28,582) Taxes recovered, net 106,328 138,933 Dividends - Subsidiaries 525,000 342,250 Net cash provided by operating activities 453,586 244,231 Cash flows from financing activities: Dividends paid Principal payments on subordinated notes (739,695) Principal payment on notes payable, bank (350,000) (250,000) Proceeds, notes payable bank 745,267 Net cash used by financing activities (350,000) (244,428) Net increase (decrease) in cash 103,586 (197) Cash, beginning of year 448 645 Cash, end of year $ 104,034 $ 448 Reconciliation: Net income $1,139,569 $1,008,060 Adjustments to reconcile net income to net cash provided by operations: Amortization (57,354) (57,354) Undistributed earnings of Subsidiaries (665,112) (764,956) Decrease (increase) in other assets 152,429 (62,973) (Decrease) increase in accrued expenses and other liabilities (115,946) 121,454 Net cash provided by operating activities $ 453,586 $ 244,231
17. Other Income: In 1992 fees, commissions and other income includes a one-time reimbursement of expenses relating to environmental clean-up of approximately $132,000. The expenditures related to a parcel of property included in the Bank's other real estate owned. 18. Employee Benefit Plan: The Company provides a 401(k) profit-sharing plan that covers substantially all employees. The plan provides for discretionary employer contributions. There were no employer contributions in 1993 or 1992. The National Bank of Cynthiana also maintains an unqualified defined benefit plan covering two former employees. The Bank has not provided accrued pension costs, or pension expense computed in accordance with generally accepted accounting principles. The Bank's policy is to fund and recognize this expense as payments are made to the recipients. Such amounts are immaterial to the financial statements. 19. Significant Group Concentrations of Credit Risk: Substantially all of the Company's business activity is with customers located within the state of Kentucky. A majority of loans are secured by residential or commercial real estate or other personal property. Approximately $5,315,000 of the Company's loans are on an unsecured basis. The concentrations of credit by type of loan are set forth in Note 4. The loans are expected to be repaid from cash flow or proceeds from the sale of selected assets of the borrowers. 20. Adoption FAS 115 "Accounting for Debt and Equity Securities": The Company adopted FAS 115 "Accounting for Debt and Equity Securities" effective January 1, 1994. Investment securities with a book value of approximately $18,286,000 were classified as "available-for-sale". All other securities were classified as "hold-to-maturity". Had FAS 115 been implemented on December 31, 1993, investment securities would have been increased by approximately $532,000, other assets would have been reduced by $181,000 and stockholders' equity would have been increased by $351,000. Implementation of FAS 115 at December 31, 1993 would not have a significant impact on the results of operations. 21. Reclassifications: Certain 1992 balance sheet and income statement accounts have been reclassified to conform with the 1993 presentation. The reclassifications have no effect on net income or retained earnings. 22. Merger Agreement: On December 6, 1993 the Board of Directors of the Company approved, in principle, a plan of merger between The National Bancorp of Kentucky, Inc. and Fifth Third Bancorp. Under the terms of this plan, Fifth Third Bancorp in exchange for shares of its common stock shall acquire all of the outstanding common stock of the Company. All preferred shares of the Company along with the related notes receivable shall be cancelled. Subject to regulatory approval, the exchange shall be effective on the last business day of the month in which all conditions precedent to closing as outlined in the Affiliations Agreement have been met or at such a later time as may be set out in the Affiliations Agreement. NATIONAL BANCORP OF KENTUCKY, INC. CONSOLIDATED BALANCE SHEET December 31, 1992 and 1991
1992 1991 ASSETS Cash and due from banks $2,615,520 $3,066,998 Federal funds sold $6,725,000 $1,700,000 Investment securities, approximate market value of $46,178,002, (1991, $50,258,585) (Notes 1 and 2) $44,933,476 $48,342,234 Loans, less allowance for loan losses of $630,468 (1991, $916,938) (Notes 1, 3 and 11) $40,343,583 $44,103,756 Interest receivable $1,109,091 $1,313,034 Office buildings and equipment, net (Notes 1, 4, and 10) $715,133 $782,771 Other assets (Note 5) $1,756,868 $1,556,910 -------------- ----------- $98,198,599 $100,865,703 ============== =========== See notes to financial statements /TABLE
CONSOLIDATED STATEMENT OF OPERATIONS for the years ended December 31, 1992 and 1991 1992 1991 Interest Income: Interest and fees on loans $3,752,535 $4,917,762 Interest on investment securities: U.S. Treasury securities and other U.S. government agencies $3,734,834 $3,848,903 Obligations of states and political subdivisions $41,211 $74,470 Other securities $36,780 $66,487 Interest on Federal funds sold $90,642 $150,195 ---------- ---------- $7,656,002 $9,057,817 ----------- ---------- Interest Expense: Interest on deposits $3,577,270 $5,197,633 Interest on Federal funds purchased, securities sold under agreements to repurchase and other borrowed funds $70,741 $105,568 Interest on notes payable $157,141 $186,320 Interest on subordinated notes payable $47,749 $85,529 ---------- ---------- $3,888,809 $5,619,642 ---------- ---------- Net interest income $3,767,193 $3,438,175 Provision for loan losses (Notes 1, 3 and 7) $244,460 $813,419 ----------- ---------- Net interest income after provision for loan losses $3,522,733 $2,624,756 Other Income: Amortization $57,354 $57,354 Fees, commissions and other income (Note 16) $226,336 $113,000 Service charges $229,041 $301,729 Trust department $8,489 $90,429 Securities gains and losses, net $250,702 $16,884 ---------- ---------- $841,922 $579,396 Other Expense: Salaries $1,105,444 $1,111,058 Employee benefits $230,825 $248,192 Furniture, fixtures and occupancy (Notes 4 and 11) $379,323 $367,381 Other operating expenses (Note 15) $1,162,320 $1,925,693 ---------- ---------- $2,877,912 $3,652,324 ---------- ---------- Net income (loss) before taxes $1,486,743 ($448,172) Applicable income taxes (benefit) (Notes 1 and 8) $478,683 ($208,247) --------- ----------- Net income (loss) $1,008,060 ($239,925) --------- ----------- LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Deposits Demand $10,668,099 $9,560,322 NOW accounts $20,309,372 $17,169,211 Money market accounts $2,730,867 $2,7138,820 Savings $4,933,317 $4,341,747 Time, over $100,000 (Note 6) $6,110,495 $6,782,527 Time, other $42,177,272 $48,864,879 ----------- ----------- $86,929,422 $89,432,506 Securities sold under repurchase agreements $1,740,292 $2,357,295 Notes payable $2,752,159 $2,256,893 Accrued interest and other liabilities $769,954 $925,202 Capital lease obligation (Note 10) $321,951 $419,997 Excess of net assets acquired over cost (Note 1) $1,818,877 $1,876,231 Total liabilities $94,332,655 $98,007,819 ----------- ----------- Commitments and contingent liabilities (Notes 8 and 10) Stockholder's equity: (Notes 7 and 13) Preferred stock, non-voting, $1000 par value, 100 shares authorized, 23 shares outstanding $23,000 $23,000 Common stock, no par value, 2,000 shares authorized and 100 shares outstanding $1,426,336 $1,426,336 Retained earnings $2,416,608 $1,408,548 ---------- ---------- Total stockholder's equity $3,865,944 $2,857,884 ---------- ---------- $98,198,599 $100,865,703 =========== ===========
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY for the years ended December 31, 1992 and 1991 Preferred Stk Common Stock Retained Shs Par Shs Amt Earnings Total Balance, December 31, 1990 23 $23,000 100 $1,426,336 $1,681,317 $3,310,653 Net loss (239,925) (239,925) Cash dividends ------ -------- -------- (32,844) (32,844) Balance, December 31, 1991 23 $23,000 100 $1,426,336 $1,408,548 $2,857,884 Net income $1,008060 $1,008,060 Balance, December 31, 1992 23 $23,000 100 $1,426,336 $2,416,608 $3,865,944 ====================================================
CONSOLIDATED STATEMENT OF CASH FLOWS for the years ended December 31, 1992 and 1991 1992 1991 Cash flows from operating activities: Interest received $8,177,659 $9,273,765 Fees and commissions received 649,085 565,374 Interest paid (4,144,593) (5,860,464) Cash paid to suppliers and employees (2,876,285) (2,801,551) Income taxes (paid) recovered (248,000) 74,999 Litigation claims paid (65,000) (150,000) Net cash provided by operating activities $1,492,866 $1,102,123 Cash flows from investing activities: Proceeds from sale of other real estate 937,112 Proceed from sales and maturity of investments securities 22,488,620 9,748,817 Purchase of investment securities (19,679,347) (17,579,906) Loans made to customers and principal collected, net 3,837,544 3,489,564 Capital expenditures (103,597) (57,621) Net cash provided by investing activities 6,543,220 (3,480,034) --------- ------- Cash flows from financing activities: Principal payment under capital lease obligation (98,047) (89,411) Net increase in demand deposits, NOW accounts, money market accounts and savings accounts 4,856,555 2,582,377 Net requirements from securities sold under repurchase agreements (617,004) (1,390,186) Net requirements from sales of certificates of deposit and payments for maturing certificates (7,359,640) (2,201,991) Dividends paid (32,844) Proceeds, notes payable bank 745,267 Principal payments on notes payable, and subordinated notes (989,695) (200,863) ----------- ----------- Net cash used by financing activities (3,462,564) (1,332,918) Net increase (decrease) in cash and cash equivalents 4,573,522 (3,710,829) Cash and cash equivalents, beginning of year 4,766,998 8,477,827 --------- ---------- Cash and cash equivalents, end of year $9,340,520 $4,766,998 ========== ==========
See notes to financial statements
CONSOLIDATED STATEMENT OF CASH FLOWS for the years ended December 31, 1992 and 1991 1992 1991 Reconciliation of net income (loss) to cash provided by operating activities: Net income (loss) $1,008,060 ($239,925) Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 459,416 308,238 (Decrease) increase in provision for losses on other real estate (51,960) 155,794 Provision for possible loan losses 244,460 813,419 Gain on sale of investments (250,702) (16,884) (Increase) decrease in other assets (77,956) 46,039 Decrease in interest receivable 204,015 66,531 Decrease in interest payable and accrued expenses (139,428) (97,037) Provision for deferred taxes (benefit) 78,114 (226,091) Loss on sale of other real estate 158,140 Provision for losses on repossessions 14,905 42,091 ---------- --------- $1,492,866 $1,102,123 ========== ========= Schedule of cash and cash equivalents: Cash and due from banks $2,615,520 $3,066,998 Federal funds sold 6,725,000 1,700,000 ----------- ----------- 7,128,713 3,229,660 =========== ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting and Reporting Policies: The accounting and reporting policies of The National Bank of Kentucky, Inc. and its Subsidiaries conform to generally accepted accounting principles and prevailing practices within the banking industry. The Company carries its assets and liabilities principally on the historical cost basis and follows the accrual basis of accounting. Basis of Presentation: The consolidated financial statements include the accounts of The National Bancorp of Kentucky, Inc. (Parent) and its wholly owned Subsidiaries: The National Bank of Cynthiana (Bank) and The First National Bank of Falmouth (Bank). All significant intercompany balances and transactions have been eliminated. The excess of net assets acquired over cost, negative goodwill, has been reduced by $793,823 which is the amount of noncurrent assets at subsidiary acquisition date. The remaining amount of $2,210,446 is being amortized by the straight-line method over forty years. Assets held in an agency or fiduciary capacity are not assets of the Company and, accordingly, are not included in the accompanying financial statements. Investment Securities: Investment securities are stated at cost adjusted for the accretion of discounts and amortization of premiums computed by the effective-yield method. Gains and losses on disposition are based on the net proceeds and the adjusted carrying amount of the securities on the trade date using the specific-identification method. Loans and Allowance for Loan Losses: Loans are stated at the amount of unpaid principal reduced by unearned discount and an allowance for loan losses. Unearned discount on installment loans is recognized as income over the terms of the loans by the sum-of-the-years-digits method. Interest on other loans is calculated by using the simple-interest method on daily balances of the principal amount outstanding. The allowance for loan losses is established through a provision for loan losses charged to expenses. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb possible losses on existing loans that may become uncollectible based on prior loan loss experience. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect borrower's ability to pay. Accrual on interest is discontinued on a loan when management believes, after considering economic and business conditions and collection efforts, that the borrower's financial condition is such that collection of interest is doubtful. Depreciation: Office buildings and equipment are stated at cost as adjusted for the excess of net assets acquired over cost, negative goodwill, less accumulated depreciation computed on the straight-line and declining-balance methods over the estimated useful lives of the assets. Income Taxes: The Company and its wholly-owned subsidiaries file a consolidated federal income tax return. A charge or credit is made by the Parent equivalent to the federal income taxes which would be provided if the Banks were filing separate returns. The Company has not implemented SFAS 109 in accounting for income taxes. The Company plans to adopt SFAS 109 in 1993. Management does not anticipate that such adoption will have a material impact on the Company's financial position and results of operations. There will be no cash flow impact from the implementation of SFAS 109. 2. Investment Securities: The carrying amounts and approximate market values of investment securities are summarized as follows:
December 31, 1992 December 31, 1991 Carrying Approximate Carrying Approximate Amount Market Value Amount Market Value U.S. Treasury securities $8,279,112 $8,515,615 $7,151,774 $7,379,978 Obligations of: Other U.S. government agencies 35,739,361 36,729,591 39,703,159 41,347,256 States and political 635,650 645,810 827,042 839,301 subdivisions Other securities 279,353 286,986 660,259 692,050 Total 44,933,476 46,178,002 48,342,234 50,258,585 /TABLE Investment securities with a carrying amount of approximately $18,725,000 and $22,897,000 at 1992 and 1991, respectively, were pledged to secure public deposits and for other purposes required or permitted by law. The following table shows the maturity distribution (based on carrying value) of the investment portfolio at December 31, 1992:
Maturity Distribution (in thousands) Within One One-five Five-ten After Total Year Years Years Ten Years U.S. Treasury securities $3,003 $4,166 $1,033 $77 $8,279 Obligations of: Other U.S. govt agencies 7,070 2,977 8,575 17,117 35,739 States and political subdiv 235 401 636 Other securities 279 279 Total $10,308 $7,544 $9,608 $17,473 $44,933
3. Loans: Major classifications of loans are as follows:
December 31, 1992 1991 Real estate loans $31,343,020 $30,954,654 Commercial 7,510,418 9,548,585 Installment 2,324,265 4,842,768 Other 65,722 279,790 ------------ ----------- 41,243,425 45,625,797 Unearned discount (269,374) (605,103) ------------ ----------- 40,974,051 45,020,694 Allowance for loan losses (630,468) (916,938) ------------ ----------- Loans, net $40,343,583 $44,103,756 =========== ===========
Nonaccrual loans at December 31, 1992 and 1991 were $545,235 and $129,000, respectively. At December 31, 1992, there were no commitments to lend additional funds to borrowers whose loans were classified as nonaccrual or renegotiated. The Company recognizes loan fees on loans with a maturity of one year or less when received. Loan fees on loans with a maturity of greater than one year are deferred and amortized over the life of the loan. Generally accepted accounting principles require the deferral and subsequent amortization of loan fees over the life of the loans. Loan fees recognized as income were $8,887 and $12,317 in 1992 and 1991, respectively. The Company's service area is based principally on an agrarian economy. Loans secured by farmlands and loans to finance agricultural production approximated $7,329,000 at December 31, 1992. Management is cognizant of the depressed agricultural economy and continuously monitors and evaluates such credits. Variable and fixed rate loans (in thousands) mature as follows:
Within One- After Total One Year Five Years Five Years Fixed rate $19,318 $3,436 $2,109 $24,863 Variable rate 15,182 1,198 16,380 ------- -------- -------- ------- $34,500 $4,634 $2,109 $41,243 ======= ====== ====== =======
The reduction in interest income associated with nonaccrual and renegotiated loans is as follows:
December 31, 1992 1991 Income in accordance with original loan terms $54,032 $62,062 Income recognized (12,191) ------- -------- Reduction in interest income $54,032 $49,871 ======= ========
Changes in the allowance account for loan losses are as follows:
December 31, 1992 1991 Balance, beginning of year $916,938 $468,012 Provision charged to operations 244,460 813,419 Loans charged off (586,043) (379,512) Recoveries 55,113 15,019 ---------- ---------- Balance, end of year $630,468 $916,938 ========== ==========
4. Office Buildings and Equipment: Major classifications of these assets are summarized as follows:
Life December 31, Years 1992 1991 Land $40,569 $40,569 Office buildings and improvements 20-50 $230,863 $230,863 Furniture and equipment 5-10 958,114 1,102,317 Leasehold improvements 5-10 79,139 79,139 ---------- --------- 1,308,685 1,452,888 Accumulated depreciation (593,552) (670,117) ----------- ----------- $715,133 $782,771 =========== ===========
Depreciation expense amounted to $167,990 and $154,502 for 1992 and 1991, respectively. Fixed assets have been reduced by negative goodwill recorded at the acquisition date of the Bank Subsidiaries. The reduction amounted to $793,823. In addition, related depreciation expense has been reduced by approximately $19,000 and $92,000 in 1992 and 1991, respectively. 5. Other Assets: The major classifications of other assets are as follows:
December 31, 1992 1991 Prepaid insurance and other expenses $138,290 $122,063 Other real estate acquired in settlement of debt, net 1,404,892 1,142,251 Deferred tax benefit 133,573 212,483 Organization and subsidiary acquisition cost 27,513 27,513 Federal Reserve Bank stock and other miscellaneous investments 52,600 52,600 --------- ---------- $1,756,868 $1,556,910 =========== ==========
Other real estate acquired in settlement of debt is stated at its estimated net realizable value. Other real estate owned includes certain loans made to facilitate the sale of assets acquired in lieu of or through foreclosure. Such loans are classified as other real estate until the borrower's investment in the property meets the Bank's minimum criteria. The amounts of such loans were $912,000 and $761,000 in 1991. Valuation allowances on other real estate owned were $133,811 and $185,771 at December 31, 1992 and 1991, respectively. Losses on the sale of other real estate, which are included in other operating expenses, amounted to $249,948 in 1991. Other real estate also includes in-substance foreclosures of $61,000 at December 31, 1992. 6. Time Deposits, Over $100,000: Certificates of deposit in amounts of $100,000 or more mature as follows (in thousands):
December 31, 1992 1991 Three months or less $1,920 $2,239 Three through twelve months $2,548 3,447 Over twelve months 1,642 1,097 --------- ---------- $6,110 $6,783 ======== ==========
7. Notes Payable: Notes payable to an unrelated bank:
December 31, 1992 1991 Due April 30 of each year renewable annually for a period not to exceed seven years. Interest is at prime (6.0 percent, 1992) and payable quarterly. All subsidiary bank stock is pledged as collateral. $2,752,159 $2,256,893 ========== ==========
Scheduled payments are as follows: 1993 $350,000 1994 350,000 1995 350,000 1996 350,000 1997 350,000 Later years 1,002,159 --------- $2,752,159 ==========
Among other provisions, Subsidiary Banks are required to maintain capital funds in the aggregate of $8,558,000 and adjusted capital funds in an aggregate amount equal to not less than eight percent of each Bank Subsidiary's total assets. Each Subsidiary Bank shall maintain at all times loan loss allowances equal to one percent of all the Bank's outstanding loans. The First National Bank of Falmouth did not meet the loan loss requirement of one percent. In accordance with the loan agreement, the Company can declare dividends only to reduce personal obligations of the majority stockholder of the Company to the unrelated lending bank above. Dividends to such stockholder totaled $32,844 in 1991. 8. Income Taxes: Total income tax differed from the amount computed by applying the federal income tax rate to pretax income as follows:
December 31, 1992 1991 Tax provision at statutory rates less surtax exemption $505,492 $(152,378) Excess tax basis of fixed assets over book basis (6,355) (31,265) Tax exempt interest from states and political subdivisions (17,764) (30,951) Amortization of excess of net assets acquired over cost (19,500) (19,500) Other 16,810 25,847 --------- ---------- $478,683 $(208,247) ======== ==========
The components of the provision for income taxes are:
December 31, 1992 1991 Current $399,773 $17,844 Deferred (benefit) 78,910 (226,091) --------- --------- $478,683 $(208,247) ======== ==========
Deferred income taxes result primarily from timing differences in recognition of revenue and expenses for financial accounting and tax purposes. These timing differences relate primarily to the provision for loan losses and depreciation. 9. Subordinated Promissory Notes:
December 31, 1992 1991 Subordinated promissory notes payable to former shareholders of The First National Bank of Falmouth, Subsidiary $739,695 --------- -------- $739,695 ========= ========
10. Commitments and Contingent Liabilities: In the normal course of business, there are outstanding various commitments and contingent liabilities, such as guarantees, commitments to extend credit, and legal claims, which are not reflected in the financial statements. There are none at December 31, 1991 which, in the opinion of management, will result in any significant losses. The Bank has been notified, as the co-owner of a tract of real estate acquired in lieu of foreclosure, that water damage has been sustained by contiguous property owners as a result of a retaining wall on the Bank's property. The matter is under investigation to determine damages and responsibility. No provision has been made in the financial statements for this matter and the Bank does not expect to incur a material loss as a result of the above. 11. Related-Party Transactions: At December 31, 1992, certain officers, directors, and companies in which they have significant ownership were indebted to the Banks in the aggregate amount of approximately $1,616,000. All such loans were made in the ordinary course of business. The Company leases space for branch operations and loan production operations from its majority shareholder. Such rents for 1992 and 1991 were $39,333, respectively. During 1991, The National Bank of Cynthiana purchased "dealer paper" from companies related to the Company's majority shareholder. The amount of loans outstanding resultant of these transactions were approximately $1,318,000 net of unearned interest at December 31, 1991. During 1992 such loans were sold to an unrelated bank at a profit of approximately $6,000. 12. Lease Obligations: The Company leases real estate for its branch and loan production offices and various equipment under noncancellable agreements which require certain minimum rentals. The leases expire between August, 1994 and July, 1997. Certain leases contain various renewal options. The leases require the Company to pay insurance, maintenance and taxes. The National Bank of Cynthiana (Subsidiary Bank) entered into a lease agreement for data processing equipment. The lease agreement requires the Bank to pay all insurance, maintenance and taxes on the equipment. There is no residual value at the end of the five- year lease term. The future minimum rental commitment as of December 31, 1992 under the leases is $545,296 which is due as follows:
Operating Leases Due to -------------------- Related Other Capital Party Leases --------------------------------- Due in the year ending December 31, 1993 $36,423 $30,125 $134,458 1994 31,280 30,125 134,458 1995 21,000 17,893 100,843 1996 21,000 11,849 1997 12,250 11,400 -------- 369,759 Amount representing interest 47,808 -------- -------- -------- $121,953 $101,392 $321,951 ======== ======== ========
13. Regulatory Matters: The approval of the Comptroller of the Currency is required if the total of all dividends declared by a national bank in any calendar year exceeds the bank's net profits (as defined) for that year combined with its retained net profits for the preceding two calendar years. Under this formula, the First National Bank of Falmouth can declare dividends in 1993 without the approval of the Comptroller of the Currency of approximately $269,000 in addition to the net profits in 1993 up to the date of any such dividend declaration. The National Bank of Cynthiana cannot declare dividends in 1993 without such approval until its 1993 profits exceed $129,000. Each subsidiary bank is required to maintain minimum amounts of capital to total "risk weighted" assets as defined by banking regulators. At December 31, 1992, the Banks are required to have minimum Tier 1 capital and total capital ratios of 4.0 percent and 8.0 percent, respectively. First National Bank of Falmouth's Tier 1 and total capital ratios were 20.7 percent and 21.4 percent, respectively. The National Bank of Cynthiana's Tier 1 and total capital ratios were 13.7 percent and 14.9 percent, respectively. Leverage ratios for the First National Bank of Falmouth and The National Bank of Cynthiana were 9.9 percent and 8.3 percent respectively at December 31, 1992. During The National Bank of Cynthiana's 1991 regulatory examination, regulators identified several transactions which they deemed to be violations of banking laws and regulations. One such issue related to the Bank's purchase of "dealer paper" from companies related to the Bank's majority shareholder. The regulators allege such purchases were at below market rates and, therefore, violate the transactions with affiliates regulations. Another transaction relates to the Bank's settlement of litigation (see Note 15) in which the Bank's Chairman and a loan officer were also named as defendants. In this case, the regulators claim the Bank improperly indemnified its Chairman and loan officer when paying the settlement amount. As a result of these findings, The National Bank of Cynthiana entered into an agreement with the Office of the Comptroller of the Currency on April 23, 1992. Among other provisions, the Bank is required to form a compliance committee, adopt a written comprehensive conflict of interest policy, establish a comprehensive internal audit program and implement a program designed to eliminate criticized assets. The agreement requires interim progress reporting to determine compliance with the agreement. 14. Parent Company Financial Statements: THE NATIONAL BANCORP OF KENTUCKY, INC. (PARENT ONLY) BALANCE SHEET December 31, 1992 and 1991
1992 1991 ASSETS Cash $448 $645 Notes receivable 23,000 23,000 Investment in subsidiaries: The First National Bank of Falmouth 3,065,301 2,792,715 The National Bank of Cynthiana 5,334,808 4,842,438 Other assets 194,077 131,104 ---------- ---------- $8,617,634 $7,789,902 ========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Accounts payable and accrued expenses $180,654 $59,199 Notes payable - bank 2,752,159 2,256,893 Subordinated promissory notes 739,695 Excess of net assets acquired over cost 1,818,877 1,876,231 --------- ---------- 4,751,690 4,932,018 --------- ---------- Stockholders' Equity: Preferred stock 23,000 23,000 Common stock 1,426,336 1,426,336 Retained earnings 2,416,608 1,408,548 ---------- ---------- 3,865,944 2,857,884 ---------- ---------- $8,617,634 $7,789,902 ========== ==========
STATEMENT OF OPERATIONS AND RETAINED EARNINGS for the years ended December 31, 1992 and 1991 1992 1991 Income: Dividends from subsidiary banks $342,250 $428,000 Amortization of negative goodwill 57,354 57,354 -------- -------- 399,604 485,354 -------- -------- Expenses: Interest 204,890 271,849 Other 23,400 14,498 -------- -------- 228,290 286,347 -------- -------- Income before tax benefit and equity in undistributed earnings of subsidiaries 171,314 199,007 Income tax benefit 71,790 74,089 -------- -------- Income before equity in undistributed earnings of subsidiaries 243,104 273,096 Equity in undistributed income (loss) of subsidiaries 764,956 (513,021) -------- --------- Net income (loss) 1,008,060 (239,925) Beginning balance, retained earnings 1,408,548 1,681,317 Dividends paid (32,844) --------- --------- Ending retained earnings $2,416,608 $1,408,548 ========== ==========
STATEMENT OF CASH FLOWS for the years ended December 31, 1992 and 1991 1992 1991 Cash flows from operating activities: Interest paid $(208,370) $(294,333) Cash paid for services and supplies (28,582) (9,457) Taxes recovered, net 138,933 108,664 Dividends - Subsidiaries 342,250 428,000 ---------- ---------- Net cash provided by operating activities 244,231 232,874 --------- ---------- Cash flows from financing activities: Dividends paid (32,844) Principal payments on subordinated notes (739,695) (140,863) Principal payment on notes payable, bank (250,000) (60,000) Proceeds, notes payable bank 745,267 --------- ---------- Net cash used by financing activities (244,428) (233,707) ---------- ----------- Net decrease in cash (197) (833) Cash, beginning of year 645 1,478 Cash, end of year $448 $645 ========== =========== Reconciliation: Net income (loss) $1,008,060 $(239,925) Adjustments to reconcile net income (loss) to net cash provided by operations: Amortization (57,354) (57,353) Undistributed (earnings) loss of Subsidiaries (764,956) 513,021 (Increase) decrease in other assets (62,973) 34,575 Increase (decrease) in accrued expenses and other liabilities 121,454 (17,444) ---------- --------- Net cash provided by operating activities $244,231 $232,874 ======== ========
15. Settlement of Litigation: For the year ended December 31, 1991, other operating expenses include charges of $215,000 resulting from the settlement of various lawsuits. 16. Other Income: Fees, commissions and other income includes a one-time reimbursement of expenses relating to environmental clean-up of approximately $132,000. The expenditures related to a parcel of property included in the Bank's other real estate owned. 14. Reclassifications: Certain items in the 1991 financial statements have been reclassified to conform with the 1992 presentation. The reclassifications have no effect on net income or retained earnings. ANNEX A AFFILIATION AGREEMENT BETWEEN FIFTH THIRD BANCORP AND THE NATIONAL BANCORP OF KENTUCKY, INC. DATED AS OF DECEMBER 6, 1993 TABLE OF CONTENTS Parties and Recitals I. Obligations of Fifth Third and National Bancorp to be Performed Prior to the Closing II. Representations and Warranties of National Bancorp III. Representations and Warranties of Fifth Third IV. Obligations of National Bancorp Between the Date of this Agreement and the Effective Time V. Cooperation and Other Obligations and Other Covenants VI. Conditions Precedent to Closing A. Conditions to the Obligations of Each of the Parties B. Conditions to the Obligations of Fifth Third C. Conditions to the Obligations of National Bancorp VII. Additional Covenants VIII. Termination IX. Closing and Effective Time X. Amendment XI. General XII. Counterparts Signatures APPENDICES Appendix A Agreement of Merger Appendix B Tax Opinion of Dinsmore & Shohl (form) Appendix C Opinion of Wyatt, Tarrant & Combs (form) Appendix D Noncompetition and Nondisturbance Agreement (form) Appendix E Corporate Opinion of Dinsmore & Shohl (form) SCHEDULES Schedule 1 Disclosure Schedule of National Bancorp AFFILIATION AGREEMENT This Affiliation Agreement ("Affiliation Agreement") dated as of December 6, 1993 is entered into by and between FIFTH THIRD BANCORP, a corporation organized and existing under the corporation laws of the State of Ohio with its principal office located in Cincinnati, Hamilton County, Ohio ("Fifth Third"), and THE NATIONAL BANCORP OF KENTUCKY, INC., a corporation organized and existing under the corporation laws of the State of Kentucky with its principal office located in Lexington, Fayette County, Kentucky ("National Bancorp"). W I T N E S S E T H: WHEREAS, Fifth Third is a registered bank holding company under the Bank Holding Company Act of 1956, as amended, and National Bancorp is a registered bank holding company under the Bank Holding Company Act of 1956, as amended, and Fifth Third and National Bancorp desire to effect a merger under the authority and provisions of the corporation laws of the State of Ohio and Kentucky pursuant to which at the Effective Time (as herein defined in Section IX) National Bancorp will be merged into Fifth Third, with Fifth Third to be and become the surviving corporation (the "Merger"); and WHEREAS, under the terms of the Agreement of Merger ("Agreement of Merger") between Fifth Third and National Bancorp appended hereto as Appendix A, the terms of which are incorporated into this Agreement and made a part hereof, each of the issued and outstanding shares of the Common Stock, without par value, of National Bancorp which are issued and outstanding (excluding any treasury shares and preferred shares) immediately prior to the Effective Time will at the Effective Time be cancelled and extinguished and in substitution therefor such National Bancorp shares will, at the Effective Time, be converted into shares of the Common Stock, without par value, of Fifth Third ("Fifth Third Common Stock"), all as more fully provided in this Agreement and in the Agreement of Merger. NOW, THEREFORE, in consideration of the mutual covenants herein contained, Fifth Third and National Bancorp, agree together as follows: I. Obligations of Fifth Third and National Bancorp to be Performed Prior to the Closing A. Fifth Third will, as promptly as practicable, prepare and cause to be filed at its expense such applications and other documents with the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Kentucky Department of Financial Institutions and any other governmental agencies as are required to secure the requisite approval of such agencies to the consummation of the transactions provided for in this Agreement and in the Agreement of Merger, and also shall prepare and file at its expense (accounting, legal, investment banking, financial consulting and associated expenses of National Bancorp and its affiliates excepted) any registration statements or other documents necessary to comply with all federal and state securities laws relating to the registration and issuance of the shares of Fifth Third Common Stock to the National Bancorp shareholder in this transaction, and any other laws applicable to the transactions provided for in this Agreement and the Agreement of Merger and use all reasonable efforts to secure such approvals. National Bancorp agrees that it will, as promptly as practicable after request and at its own expense, provide Fifth Third with all information and documents concerning National Bancorp and its wholly-owned subsidiaries, First National Bank of Falmouth ("FNB") and National Bank of Cynthiana ("NBC; FNB and NBC collectively referred to herein as the "Bank Subsidiaries"), as shall be required in connection with preparing such applications, registration statements and other documents and in connection with securing such approvals. Prior to filing any such applications, registration statements or other documents with the applicable governmental agency, Fifth Third shall provide, at least two days prior to the filing date, copies thereof to National Bancorp. Fifth Third agrees that it will, as promptly as practicable after request and at its own expense, provide National Bancorp with all information and documents concerning Fifth Third and its subsidiaries as shall be required in connection with preparing such applications, registration statements and other documents which are to be prepared and filed by National Bancorp and in connection with approvals required to be obtained by National Bancorp hereunder. Prior to filing any such applications, statements or other documents with the applicable governmental agency, National Bancorp shall provide, at least two days prior to the filing date, copies thereof to Fifth Third. II. Representations and Warranties of National Bancorp National Bancorp represents and warrants to Fifth Third that as of the date hereof or as of the indicated date, as appropriate, and except as otherwise disclosed in Schedule 1 hereto delivered by National Bancorp to Fifth Third prior to the execution of this Agreement by Fifth Third: A. National Bancorp (i) is duly incorporated, validly existing and in good standing as a corporation under the corporation laws of the State of Kentucky and is a registered bank holding company under the Bank Holding Company Act of 1956, as amended; (ii) is duly authorized to conduct the business in which it is engaged; (iii) has 2,000 shares, without par value, of Common Stock ("National Bancorp Common Stock") and 100 shares, $1,000 par value per share, of Preferred Stock ("National Bancorp Preferred Stock") authorized pursuant to its Articles of Incorporation, which are the total number of shares National Bancorp is authorized to have outstanding; (iv) has no outstanding securities of any kind, nor any outstanding options, warrants or other rights entitling another person to acquire any securities of National Bancorp of any kind, other than (a) 100 shares of National Bancorp Common Stock, which presently are authorized, duly issued and outstanding and fully paid and nonassessable, (b) zero shares of National Bancorp Common Stock which are issued but not outstanding and are held by National Bancorp as treasury shares and (c) 23 shares of National Bancorp Preferred Stock, which presently are authorized, duly issued and outstanding and fully paid and nonassessable; and (v) except as disclosed in Schedule 1, owns of record and beneficially free and clear of all liens and encumbrances, all of the 12,000 outstanding shares of the capital stock of FNB, $10 par value per share, and all of the 50,000 outstanding shares of the capital stock, $10 par value per share, of NBC. National Bancorp has no direct or indirect subsidiaries other than the Bank Subsidiaries. B. Each of the Bank Subsidiaries is duly incorporated, validly existing and in good standing as a national banking association under the laws of the United States and has all the requisite power and authority to conduct the banking business as now conducted by it; and neither FNB nor NBC has any outstanding securities of any kind, nor any outstanding options, warrants or other rights entitling another person to acquire any securities of FNB or NBC of any kind, other than 12,000 shares of the capital stock, $10 par value per share, of FNB and other than 50,000 shares of the capital stock, $10 par value per share, of NBC, all owned of record and beneficially by National Bancorp, except as disclosed in Schedule 1. C. National Bancorp has furnished to Fifth Third its audited, consolidated statements of financial condition, statements of earnings, statements of stockholders' equity and statements of cash flows as at December 31, 1990, 1991 and 1992 and for the years then ended, together with the opinions of its independent certified public accountants associated therewith. National Bancorp also has furnished to Fifth Third (i) its unaudited, separate statements of financial condition, statements of earnings, statements of stockholders' equity and statements of cash flows as at December 31, 1990, 1991 and 1992 and for the years then ended, and (ii) the unaudited, separate reports of condition and reports of income of each of FNB and NBC as at December 31, 1990, 1991 and 1992 and for the years then ended. National Bancorp also has furnished to Fifth Third (i) its unaudited, consolidated financial statements as at September 30, 1993, and for the nine months then ended, (ii) the unaudited, separate financial statements of National Bancorp as at September 30, 1993, and for the nine months then ended, and (iii) the unaudited, separate reports of condition and reports of income of each of FNB and NBC as at September 30, 1993, and for the nine months then ended. The unaudited, consolidated financial statements of National Bancorp as at September 30, 1993, and for the nine months then ended fairly present the consolidated financial condition of National Bancorp and the Bank Subsidiaries taken as a whole as of September 30, 1993 and for the nine-month period covered thereby in conformity with generally accepted accounting principles, consistently applied (except for the omission of notes to unaudited statements and year end adjustments to interim results). Such unaudited, separate financial statements of National Bancorp and unaudited, separate reports of condition and reports of income of the Bank Subsidiaries fairly present the financial condition of National Bancorp and the Bank Subsidiaries on a separate basis as of September 30, 1993 and for the nine-month period covered thereby in conformity with generally accepted accounting principles, consistently applied (except for the omission of notes to unaudited statements and year end adjustments to interim results). There are no material liabilities, obligations or indebtedness of National Bancorp or either of the Bank Subsidiaries required to be disclosed in the financial statements so furnished other than the liabilities, obligations or indebtedness disclosed in such financial statements (including footnotes). National Bancorp shall furnish Fifth Third with its audited, consolidated financial statements as at December 31, 1993 and for the year then ended together with the unaudited, separate financial statements of National Bancorp and unaudited, separate reports of condition and reports of income of each of the Bank Subsidiaries as at December 31, 1993 and for the year then ended, all duly certified by National Bancorp's chief executive officer and chief financial officer, as soon as such statements are publicly available, and shall continue to furnish such financial information for subsequent monthly periods to Fifth Third as soon as such becomes publicly available until the Closing Date. D. Except as disclosed in Schedule 1, National Bancorp and the Bank Subsidiaries each has good and marketable title to all of the material properties and assets reflected in its separate statements of condition as at September 30, 1993 and which are still owned by it and each has good and marketable title to all material properties and assets acquired by it after such date and still owned by it, subject to (i) any liens and encumbrances that do not materially adversely impair the use of the property, (ii) statutory liens for taxes not yet due and payable and (iii) minor defects and irregularities in title that do not materially adversely impair the use of the property. E. Except as disclosed in Schedule 1 and for events relating to the business environment in general: (i) since September 30, 1993, to the date hereof there have been no material adverse changes in the financial condition, operations or business of National Bancorp and the Bank Subsidiaries on a consolidated or separate basis; (ii) neither National Bancorp's chief executive officer, Tracy W. Farmer, nor its chief financial officer, Todd Smith, nor the chief executive officer of each of the Bank Subsidiaries, Tracy W. Farmer being the chief executive officer of FNB and Jim Richardson being the chief executive officer of NBC (collectively the "Executive Officers", in this case and all cases hereinafter in their capacity as such officers and not personally and, therefore, they shall have no personal liability whatsoever hereunder or arising herefrom absent, in the case of Tracy W. Farmer only, bad faith or fraudulent intent) is aware of any events which have occurred since September 30, 1993 or which are reasonably certain to occur in the future and which reasonably can be expected to result in any material adverse change in the financial condition, operations or business of National Bancorp and the Bank Subsidiaries on a consolidated or separate basis; and (iii) since September 30, 1993, to the date hereof there have been no material changes in the methods of business operations of National Bancorp and the Bank Subsidiaries. F. Except as disclosed in Schedule 1, there are no actions, suits, proceedings, investigations or assessments of any kind pending, or to the best knowledge of the Executive Officers, threatened against National Bancorp or the Bank Subsidiaries which reasonably can be expected to result in any material adverse change in the financial condition, operations or business of National Bancorp and the Bank Subsidiaries on a consolidated or separate basis. G. Except as disclosed in Schedule 1, since September 30, 1993, to the date hereof National Bancorp and the Bank Subsidiaries each has been operated in the ordinary course of business, has not made any changes in its respective capital or corporate structures, nor any material changes in its methods of business operations and has not provided any increases in employee salaries or benefits other than in the ordinary course of business. Since September 30, 1993, to the date hereof National Bancorp has not declared or paid any dividends nor made any distributions of any other kind to its shareholder, except cash dividends on shares of National Bancorp Common Stock in amounts and at such times as is in accord with its historical practice. H. Except as disclosed in Schedule 1, National Bancorp and the Bank Subsidiaries timely have filed all federal, state and local tax returns required to be filed (after giving effect to all extensions) by them, respectively, and have paid or provided for all tax liabilities shown to be due thereon or which have been assessed against them, respectively. All tax returns filed by National Bancorp or the Bank Subsidiaries through the date hereof constitute complete and accurate representations of the tax liabilities of National Bancorp or the Bank Subsidiaries for such years and accurately set forth all items (to the extent required to be included or reflected in such returns) relevant to its future tax liabilities, including the tax bases of its properties and assets in all material respects. I. Except as disclosed in Schedule 1, neither National Bancorp nor either of the Bank Subsidiaries is a party to (i) any written employment contracts or written contracts of any other kind with any of its officers, Directors or employees or (ii) any material contract, lease or agreement of any other kind which is not assignable as a result of the merger provided for herein without the consent of another party, except for contracts, leases or agreements which do not have terms extending beyond six months from the date of this Agreement or contracts, leases or agreements (excluding contracts, leases and agreements pursuant to which credit has been extended by the Bank Subsidiaries) which do not require the annual expenditure of more than $10,000.00 thereunder. Fifth Third acknowledges that NBC has an employment agreement with Jim Richardson and affirms that it will assume such contract and the obligations thereunder at the Effective Time. J. Except as disclosed in Schedule 1, since September 30, 1993, to the date hereof neither of the Bank Subsidiaries has incurred any unusual or extraordinary loan losses which are material to National Bancorp and the Bank Subsidiaries on a consolidated basis; to the best knowledge of the Executive Officers and in light of each of the Bank Subsidiaries' historical loan loss experience and its management's analysis of the quality and performance of its loan portfolio, as of September 30, 1993, its reserve for loan losses was adequate to absorb all known and reasonably anticipated losses as of such date. K. Except as disclosed in Schedule 1, neither National Bancorp nor either of the Bank Subsidiaries has, directly or indirectly, dealt with any broker or finder in connection with this transaction and neither has incurred or will incur any obligation for any broker's or finder's fee or commission in connection with the transactions provided for in this Agreement and the Agreement of Merger. L. 1. The Directors of National Bancorp, by resolution adopted by the unanimous vote of all Directors present at a meeting duly called and held in accordance with applicable law, have duly approved this Agreement and the Agreement of Merger, and have directed that this Agreement and the Agreement of Merger be submitted to a vote of National Bancorp's sole shareholder at the annual or a special meeting of the shareholder to be called for that purpose, all in accordance with and as required by law and in accordance with the Articles of Incorporation and Bylaws of National Bancorp. 2. National Bancorp has the corporate power and authority to enter into this Agreement and the Agreement of Merger and to carry out its obligations hereunder and thereunder subject to certain required regulatory and shareholder approvals. This Agreement and the Agreement of Merger, when executed and delivered, will have been duly authorized and will constitute valid and binding obligations of National Bancorp, enforceable in accordance with their respective terms, except to the extent that (i) enforceability thereof may be limited by insolvency, reorganization, liquidation, bankruptcy, readjustment of debt or other laws of general application relating to or affecting the enforcement of creditors' rights generally and (ii) the availability of certain remedies may be precluded by general principles of equity, subject, however, to the receipt of requisite regulatory approvals and the approval of National Bancorp's shareholders. 3. Except as disclosed in Schedule 1, neither the execution of this Agreement or the Agreement of Merger, nor the consummation of the transactions contemplated hereby and thereby, (i) conflicts with, results in a breach of, violates or constitutes a default under, National Bancorp's Articles of Incorporation or Bylaws or, to the best knowledge of the Executive Officers, any federal, state or local law, statute, ordinance, rule, regulation or court or administrative order, or any agreement, arrangement, or commitment, to which National Bancorp or either of the Bank Subsidiaries is subject or bound; (ii) to the best knowledge of the Executive Officers, results in the creation of or gives any person the right to create any material lien, charge, encumbrance, security agreement or any other material rights of others or other material adverse interest upon any material right, property or asset belonging to National Bancorp or either of the Bank Subsidiaries other than such rights as may be given dissenting shareholders of National Bancorp pursuant to KRS Sections 271B.13- 010 et. seq; (iii) except as disclosed in Schedule 1, terminates or gives any person the right to terminate, amend, abandon, or refuse to perform any material agreement, arrangement or commitment to which National Bancorp or either of the Bank Subsidiaries is a party or by which National Bancorp's or either of the Bank Subsidiaries' rights, properties or assets are subject or bound; or (iv) to the best knowledge of the Executive Officers, accelerates or modifies, or gives any party thereto the right to accelerate or modify, the time within which, or the terms according to which, National Bancorp or either of the Bank Subsidiaries is to perform any duties or obligations or receive any rights or benefits under any material agreements, arrangements or commitments. For purposes of subparagraphs (iii) and (iv) immediately preceding, material agreements, arrangements or commitments exclude agreements, arrangements or commitments having a term expiring less than six months from the date of this Agreement or which do not require the annual expenditure of more than $10,000 (but shall include all agreements, arrangements or commitments pursuant to which credit has been extended by either of the Bank Subsidiaries). M. Complete and accurate copies of (i) the Articles of Incorporation and Bylaws of National Bancorp and (ii) the Articles of Association and Bylaws of each of the Bank Subsidiaries in force as of the date hereof have been delivered to Fifth Third. N. To the best knowledge of the Executive Officers and except as disclosed in Schedule 1, neither National Bancorp nor either of the Bank Subsidiaries nor any employee, officer or Director of any of them has engaged in any activity or omitted to take any action which, in any material way, has resulted or could result in the knowing violation of (i) any local, state or federal law (including without limitation the Bank Secrecy Act, the Community Reinvestment Act, applicable consumer protection and disclosure laws and regulations, including without limitation, Truth in Lending, Truth in Savings and similar disclosure laws and regulations, and equal employment and employment discrimination laws and regulations) or (ii) any regulation, order, injunction or decree of any court or governmental body the violation of either of which could reasonably be expected to have a material adverse effect on the financial condition of National Bancorp and the Bank Subsidiaries taken as a whole. To the best knowledge of the Executive Officers and except as disclosed in Schedule 1, each of the Bank Subsidiaries possesses all licenses, franchises, permits and other governmental authorizations necessary for the continued conduct of its business without material interference or interruption. O. To the best knowledge of the Executive Officers and except as disclosed in Schedule 1, neither this Agreement nor the Agreement of Merger nor any report, statement, list, certificate or other information furnished by National Bancorp or either of the Bank Subsidiaries to Fifth Third or its agents in connection with this Agreement or any of the transactions contemplated hereby (including, without limitation, any information which has been or shall be supplied with respect to their business operations and financial condition for inclusion in the proxy statement/prospectus and registration statement relating to the merger) contains or shall contain (or, in the case of information relating to the proxy statement/prospectus, at the time it is mailed, in the case of the registration statement, at the time it becomes effective, and in the case of the proxy statement/prospectus and the registration statement, at the time the annual or special meeting of shareholders of National Bancorp is held to consider the adoption of this Agreement and the Agreement of Merger) an untrue statement of a material fact or omits or shall omit to state a material fact necessary to make the statements contained herein or therein, in light of the circumstances in which they are made, not misleading. P. To the best knowledge of the Executive Officers and except as disclosed in Schedule 1, there are no actions, proceedings or investigations pending before any environmental regulatory body, with respect to or threatened against or affecting National Bancorp or either of the Bank Subsidiaries in respect of any "facility" owned, leased or operated by any of them (but excluding any "facility" as to which the sole interest of National Bancorp or either of the Bank Subsidiaries is that of a lienholder or mortgagee, but including any "facility" to which title has been taken pursuant to mortgage foreclosure or similar proceedings and including any "facility" in which National Bancorp or either of the Bank Subsidiaries ever participated in the financial management of such facility to a degree sufficient to influence, or have the ability to influence, the facility's treatment of hazardous waste) under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), or under any Federal, state, local or municipal statute, ordinance or regulation in respect thereof, in connection with any release of any toxic or "hazardous substance", pollutant or contaminant into the "environment" which, if adversely determined, (a) would require the payment by National Bancorp or either of the Bank Subsidiaries and/or require National Bancorp or either of the Bank Subsidiaries to incur expenses of more than $10,000 (whether or not covered by insurance) or (b) would otherwise have a material adverse effect on National Bancorp or either of the Bank Subsidiaries, nor, to the best knowledge of the Executive Officers, is there any reasonable basis for the institution of any such actions or proceedings or investigations which is probable of assertion, nor are there any such actions or proceedings or investigations in which National Bancorp or either of the Bank Subsidiaries is a plaintiff or complainant. To the best knowledge of the Executive Officers, neither National Bancorp nor either of the Bank Subsidiaries is liable in any material respect under any applicable law for any release by National Bancorp or either of the Bank Subsidiaries or for any release by any other "person" of a hazardous substance caused by the spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing of hazardous wastes or other chemical substances, pollutants or contaminants into the environment, nor is National Bancorp or either of the Bank Subsidiaries liable for any material costs (as a result of the acts or omissions of National Bancorp or either of the Bank Subsidiaries or, to the best knowledge of the Executive Officers, as a result of the acts or omissions of any other "person") of any remedial action including, without limitation, costs arising out of security fencing, alternative water supplies, temporary evacuation and housing and other emergency assistance undertaken by any environmental regulatory body having jurisdiction over National Bancorp or either of the Bank Subsidiaries to prevent or minimize any actual or threatened release by National Bancorp or either of the Bank Subsidiaries of any hazardous wastes or other chemical substances, pollutants and contaminants into the environment which would endanger the public health or the environment. All terms contained in quotation marks in this paragraph and the paragraph immediately following shall have the meaning ascribed to such terms, and defined in, CERCLA. To the best knowledge of the Executive Officers and except as disclosed in Schedule 1, each "facility" owned, leased or operated by National Bancorp or either of the Bank Subsidiaries (but excluding any "facility" as to which the sole interest of National Bancorp or either of the Bank Subsidiaries is that of a lienholder or mortgagee, but including any "facility" to which title has been taken pursuant to mortgage foreclosure or similar proceedings and including any "facility" in which National Bancorp or either of the Bank Subsidiaries ever participated in the financial management of such facility to a degree sufficient to influence, or have the ability to influence, the facility's treatment of hazardous waste) is, in all material respects, in compliance with all applicable Federal, state, local or municipal statutes, ordinances, laws and regulations and all orders, rulings or other decisions of any court, administrative agency or other governmental authority relating to the protection of the environment, except to the extent a failure to comply would not have a material adverse effect on the business, operations and financial condition of National Bancorp and the Bank Subsidiaries taken as a whole. Q. 1. Benefit Plans. Schedule 1 lists the name and a short description of each Benefit Plan (as herein defined), together with an indication of its funding status (e.g., trust, insured or general company assets). For purposes hereof, the term "Benefit Plan" shall mean any plan, program, arrangement or system of employee or Director benefits maintained by National Bancorp or either of the Bank Subsidiaries for the benefit of employees, former employees or Directors of National Bancorp or either of the Bank Subsidiaries and shall include (a) any qualified retirement plan such as a pension, profit sharing, stock bonus plan or employee stock ownership plan, (b) any plan, program or arrangement providing deferred compensation, bonus deferral or incentive benefits, whether funded through trust or otherwise, and (c) any welfare plan, program or policy providing vacation, severance, salary continuation, supplemental unemployment, disability, life, health coverage, retiree health, VEBA, medical expense reimbursement or dependent care assistance benefits, in any such foregoing case without regard to whether the Benefit Plan constitutes an employee benefit plan under Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or the number of employees covered under such Benefit Plan. 2. Plan Documents, Reports and Filings. Except as disclosed on Schedule 1, National Bancorp or either of the Bank Subsidiaries has provided true, complete and correct copies of all plan documents, if any, comprising each Benefit Plan, together with, when applicable, (a) the most recent summary plan description, (b) the most recent actuarial and financial reports and the most recent annual reports filed with any governmental agency and (c) all Internal Revenue Service ("IRS") or other governmental agency rulings and determination letters and any open requests for IRS rulings or letters with respect to the Benefit Plans. 3. Qualified Retirement Plan Compliance. With respect to each Benefit Plan which is an employee pension benefit plan (as defined in Section 3(2) of ERISA) and which is intended to be qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code") (a "Qualified Benefit Plan"), except as disclosed on Schedule 1: (a) the IRS has issued a determination letter which determined that such Qualified Benefit Plan satisfied the requirements of Section 401(a) of the Code, and such determination letter has not been revoked or threatened to be revoked by the IRS; (b) such Qualified Benefit Plan is in material compliance with all qualification requirements of Section 401(a) of the Code and has met the requirements of Section 1140 of the Tax Reform Act of 1986 ("TRA 1986"); (c) such Qualified Benefit Plan is in substantial compliance with all applicable notice, reporting and disclosure requirements of ERISA and the Code; and (d) any previously terminated Qualified Benefit Plan was terminated in material compliance with the requirements of ERISA and the Code, has received a favorable IRS determination letter therefor and the liabilities of such Qualified Benefit Plan were fully satisfied. 4. Welfare Plan Compliance. With respect to each Benefit Plan which is an employee welfare benefit plan (as defined in Section 3(1) of ERISA) (a "Welfare Benefit Plan"), except as disclosed on Schedule 1: (a) such Welfare Benefit Plan, if intended to provide favorable tax benefits to plan participants, has been in substantial compliance with the Code provisions therefor; (b) such Welfare Benefit Plan has been operated in substantial compliance with all applicable notice, reporting and disclosure requirements of ERISA and the Code; and (c) such Welfare Benefit Plan, if a group health plan subject to Section 4980B of the Code (COBRA), has been operated in substantial compliance with such COBRA requirements. 5. Prohibited Transactions. To the best knowledge of the Executive Officers, no prohibited transaction under Section 406 of ERISA and not exempt under Section 408 of ERISA has occurred with respect to any Benefit Plan which would result, with respect to any person, in (a) the imposition, directly or indirectly, of a material excise tax under Section 4975 of the Code or (b) material fiduciary liability under Section 409 of ERISA. 6. Lawsuits or Claims. No material actions, suits or claims (other than routine claims for benefits) are pending or, to the best knowledge of the Executive Officers, threatened against any Benefit Plan or against National Bancorp or either of the Bank Subsidiaries with respect to any Benefit Plan. 7. Disclosure of Unfunded Liabilities. All material Unfunded Liabilities with respect to each Benefit Plan have been recorded and disclosed on the most recent financial statements of National Bancorp and the Bank Subsidiaries or, if not, have been disclosed in Schedule 1. For purposes hereof, the term "Unfunded Liabilities" shall mean any amounts properly accrued to date under (i) generally accepted accounting principles in effect as of the date of this Agreement (GAAP), or (ii) amounts not yet accrued for GAAP purposes but for which an obligation exists for payment in the future which is attributable to any Benefit Plan, including but not limited to (a) severance pay benefits, (b) deferred compensation or unpaid bonuses, (c) any liabilities on account of the change in control which will result from this Agreement, including any potential nondeductible payments or 20% excise tax under Section 4999 of the Code relating to excess parachute payments under Section 280G of the Code, (d) any unpaid pension contributions, authorized but unpaid profit sharing contributions or contributions under Section 401(k) and Section 401(m) of the Code, (e) retiree health benefit coverage and (f) unpaid premiums for contributions required under any group health plan to maintain such plan's coverage through the Effective Time. 8. Defined Benefit Pension Plan Liabilities. Except as disclosed on Schedule 1, neither National Bancorp, the Bank Subsidiaries nor any current or previous controlled group member of National Bancorp or the Bank Subsidiaries currently maintains or participates in, or has ever maintained or participated in a pension plan (whether a money purchase pension plan, money purchase pension or defined benefit plan) including a multiemployer plan (as defined in Section 3(37) of ERISA). 9. Independent Trustee. To the best knowledge of the Executive Officers, National Bancorp and the Bank Subsidiaries (a) have not incurred any asserted or unasserted material liability for breach of duties assumed in connection with acting as an independent trustee of any employee pension plan (as defined in Section 3(2) of ERISA) which is intended to be qualified under Section 401(a) of the Code and which is maintained by an employer unrelated in ownership to National Bancorp or either of the Bank Subsidiaries, (b) have not authorized nor knowingly participated in a material prohibited transaction under Section 406 of ERISA and not exempt under Section 408 of ERISA and (c) have not received notice of any material actions, suits or claims (other than routine claims for benefits) pending or threatened against the unrelated employer or against them. 10. Material. For purposes of this Paragraph Q as a whole, the term "material" in connection with a liability shall mean a liability or loss, taxes, penalties, interest and related legal fees in the total amount of $15,000 or more, with such determination being made on the basis of the aggregate affected participants of a Benefit Plan and not with respect to any single participant. R. Except as set forth on Schedule 1, the investment portfolios of National Bancorp and the Bank Subsidiaries consist of securities in marketable form. Except as disclosed in Schedule 1, since September 30, 1993 to the date hereof neither National Bancorp nor either of the Bank Subsidiaries has incurred any unusual or extraordinary losses in its investment portfolio, and, except for events relating to the business environment in general, including market fluctuations, the Executive Officers are not aware of any events which are reasonably certain to occur in the future and which reasonably can be expected to result in any material adverse change in the quality or performance of National Bancorp's and the Bank Subsidiaries' investment portfolio on a consolidated basis. S. Except as disclosed in Schedule 1, there are no actions, suits, claims, proceedings, investigations or assessments of any kind pending, or to the best knowledge of the Executive Officers, threatened against any of the Directors or officers of National Bancorp or the Bank Subsidiaries in their capacities as such, and no Director or officer of National Bancorp or the Bank Subsidiaries currently is being indemnified or seeking to be indemnified by either National Bancorp or the Bank Subsidiaries pursuant to applicable law or National Bancorp's Articles of Incorporation or Bylaws or either of the Bank Subsidiaries' Articles of Association or Bylaws. All representations and warranties contained in this Section II shall expire at the Effective Time, and, thereafter, neither National Bancorp, the Bank Subsidiaries nor Tracy W. Farmer, as an officer or Director of either of them, shall have any liability or obligation with respect thereto, except for any misrepresentations, breaches of warranties or violations of covenants that were made with intent to defraud. III. Representations and Warranties of Fifth Third Fifth Third represents and warrants to National Bancorp that as of the date hereof or as of the indicated date, as appropriate: A. Fifth Third is duly incorporated, validly existing and in good standing as a corporation under the corporation laws of the State of Ohio, is a registered bank holding company under the Bank Holding Company Act of 1956, as amended, and is duly authorized to conduct the business in which it is engaged. B. Pursuant to Fifth Third's Second Amended Articles of Incorporation, as amended, the total number of shares of capital stock it is authorized to have outstanding is 100,500,000 of which 100,000,000 shares are classified as Common Stock without par value ("Fifth Third Common Stock") and 500,000 shares are classified as Preferred Stock without par value. As of the close of business on October 31, 1993, 59,998,827 shares of Fifth Third Common Stock were issued and outstanding and no shares were held in its treasury. As of the date of this Agreement, no shares of its Preferred Stock have been issued. Fifth Third does not have outstanding any stock options, subscription rights, warrants or other securities entitling the holders to subscribe for or purchase any shares of its capital stock other than options granted and to be granted to employees and Directors under its stock option plans and $143,750,000 of 4.25% Convertible Subordinated Notes due January 15, 1998 (the "Notes"). At October 31, 1993, 1,443,002 shares of Fifth Third Common Stock were reserved for issuance in connection with outstanding options under its stock option plans and 945,382 shares were reserved for issuance under options to be granted in the future. The Notes are convertible at any time prior to maturity at the option of each holder thereof, unless previously redeemed, into shares of Fifth Third Common Stock at a conversion price of $63-5/8 per share of Fifth Third Common Stock (equivalent to a conversion rate of approximately 15.72 shares per $1,000 principal amount of the Notes), subject to adjustment for stock splits, stock dividends and similar stock distributions. If all of the Notes were converted, Fifth Third would issue a maximum of approximately 2,259,750 shares of Fifth Third Common Stock to the holders of the Notes. C. All shares of Fifth Third Common Stock to be received by the shareholder of National Bancorp as a result of the merger pursuant to the terms of this Agreement and the Agreement of Merger shall be, upon transfer or issuance, validly issued, fully paid and non-assessable, and will not, upon such transfer or issuance, be subject to the preemptive rights of any shareholder of Fifth Third. D. Fifth Third has furnished to National Bancorp its consolidated financial statements as at December 31, 1990, December 31, 1991 and December 31, 1992 and for the respective years then ended together with the opinions of its independent public accountants associated therewith. In addition, Fifth Third has furnished to National Bancorp its unaudited consolidated financial statements as at September 30, 1993 and for the nine months then ended. Such consolidated financial statements fairly present the consolidated financial condition of Fifth Third as of their respective dates and for the respective periods covered thereby in conformity with generally accepted accounting principles consistently followed throughout the periods covered thereby (except for the omission of notes to unaudited statements and yearend adjustments to interim results). Neither Fifth Third nor any significant subsidiaries of Fifth Third have any material liabilities, obligations or indebtedness required to be disclosed in such financial statements other than the liabilities, obligations and indebtedness disclosed in such financial statements (including footnotes). Fifth Third shall furnish National Bancorp with its audited consolidated financial statements as at December 31, 1993 and for the year then ended together with the opinion of its independent public accountants associated therewith as soon as such statements publicly are available, and shall continue to furnish unaudited consolidated financial information for subsequent calendar quarter periods to National Bancorp as soon as such becomes publicly available until the Closing Date. E. Except for events relating to the business environment in general: (i) since September 30, 1993, to the date hereof there have been no material adverse changes in the consolidated financial condition, operations or business of Fifth Third; (ii) the chief executive officer and the chief financial officer of Fifth Third are not aware of any events which have occurred since September 30, 1993 or which are reasonably certain to occur in the future and which reasonably can be expected to result in any material adverse change in the consolidated financial condition, operations or business of Fifth Third; and (iii) since September 30, 1993, to the date hereof there have been no material changes in the methods of business operations of Fifth Third and its subsidiaries. F. 1. The Board of Directors of Fifth Third has approved this Agreement and the Agreement of Merger, including reserving for issuance to the National Bancorp shareholder in accordance with this Agreement and the Agreement of Merger a sufficient number of shares of Fifth Third Common Stock. Approval and adoption of this Agreement and the Agreement of Merger by the shareholders of Fifth Third is not required under Ohio law or under the Second Amended Articles of Incorporation, as amended, or Code of Regulations of Fifth Third. 2. Fifth Third has the corporate power and authority to enter into this Agreement and the Agreement of Merger and to carry out its obligations hereunder and thereunder subject to certain required regulatory approvals. This Agreement and the Agreement of Merger when executed and delivered, will have been duly authorized and will constitute valid and binding obligations of Fifth Third, enforceable in accordance with their terms except to the extent that (i) enforceability thereof may be limited by insolvency, reorganization, liquidation, bankruptcy, readjustment of debt or other laws of general application relating to or affecting the enforcement of creditors' rights generally and (ii) the availability of certain remedies may be precluded by general principles of equity, subject, however, to the receipt of requisite regulatory approvals. 3. Neither the execution of this Agreement or the Agreement of Merger nor the consummation of the transactions contemplated hereby and thereby, does or will (i) conflict with, result in a breach of, violate or constitute a default, under Fifth Third's Second Amended Articles of Incorporation, as amended, or Code of Regulations or, to the best knowledge of its chief executive officer and chief financial officer, any federal, foreign, state or local law, statute, ordinance, rule, regulation or court or administrative order, or any agreement, arrangement, or commitment to which Fifth Third is subject or bound; (ii) to the best knowledge of the chief executive officer and chief financial officer of Fifth Third, result in the creation of or give any person the right to create any material lien, charge, encumbrance, security agreement or any other material rights of others or other material adverse interest upon any material right, property or asset belonging to Fifth Third or any of its subsidiaries other than such rights as may be given the shareholders of National Bancorp pursuant to the provisions of KRS Sections 271B.13-010 et. seq; (iii) terminate or give any person the right to terminate, amend, abandon, or refuse to perform any material agreement, arrangement or commitment to which Fifth Third is a party or by which Fifth Third's rights, properties or assets are subject or bound; or (iv) accelerate or modify, or give any party thereto the right to accelerate or modify, the time within which, or the terms according to which, Fifth Third is to perform any duties or obligations or receive any rights or benefits under any material agreements, arrangements or commitments. G. Complete and accurate copies of (i) the Second Amended Articles of Incorporation, as amended, and Code of Regulations of Fifth Third in force as of the date hereof have been delivered to National Bancorp. H. To the best knowledge of the chief executive officer and chief financial officer of Fifth Third, neither Fifth Third nor any of its subsidiaries has engaged in any activity or omitted to take any action which, in any material way, has resulted or could result in the knowing violation of (i) any local, state or federal law or (ii) any regulation, order, injunction or decree of any court or governmental body, the violation of either of which could reasonably be expected to have a material adverse effect on the financial condition of Fifth Third and its subsidiaries taken as a whole. To the best knowledge of the chief executive officer and chief financial officer of Fifth Third, Fifth Third and its subsidiaries possess all licenses, franchises, permits and other governmental authorizations necessary for the continued conduct of their businesses without material interference or interruption. I. 1. To the best knowledge of the chief executive officer and chief financial officer of Fifth Third, neither this Agreement or the Agreement of Merger nor any report, statement, list, certificate or other information furnished or to be furnished by Fifth Third to National Bancorp or its agents in connection with this Agreement or any of the transactions contemplated hereby (including, without limitation, any information which has been or shall be supplied with respect to its business operations and financial condition for inclusion in the proxy statement/prospectus and registration statement relating to the merger) contains or shall contain (in the case of information relating to the proxy statement/prospectus, at the time it is mailed, and, in the case of the registration statement, at the time it becomes effective and, in the case of the proxy statement/prospectus and the registration statement, at the time the annual or special meeting of shareholders of National Bancorp is held to consider the adoption of this Agreement and the Agreement of Merger) an untrue statement of a material fact or omits or shall omit to state a material fact necessary to make the statements contained herein or therein, in light of the circumstances in which they are made, not misleading. 2. Fifth Third has furnished to National Bancorp or its agents true and complete copies (including all exhibits and all documents incorporated by reference) of the following documents as filed by Fifth Third with the SEC: (a) Fifth Third's Annual Report on Form 10-K for the years ended December 31, 1990, 1991 and 1992; (b) Fifth Third's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1993, June 30, 1993 and September 30, 1993; (c) any Current Report on Form 8-K with respect to any event occurring after December 31, 1992 and prior to the date of this Agreement, of which there have been none through the date hereof; (d) any report filed by Fifth Third to amend or modify any of the reports described above; and (e) all proxy statements prepared in connection with meetings of Fifth Third's shareholders held subsequent to December 31, 1992. The information set forth in the documents described in this subsection 2 (including all exhibits thereto and all documents incorporated therein by reference) did not, as of the dates on which such reports were filed with the SEC, (a) contain any untrue statement of a material fact, (b) omit any material fact required to be stated therein or necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading, or (c) omit any material exhibit required to be filed therewith. Prior to the date hereof no event has occurred subsequent to December 31, 1992 which Fifth Third is required to describe in a Current Report on Form 8-K. Fifth Third timely shall furnish National Bancorp with copies of all reports filed by Fifth Third with the SEC subsequent to the date of this Agreement and until the Closing Date. J. There are no actions, suits, proceedings, investigations or assessments of any kind pending or, to the best knowledge of the chief executive officer and chief financial officer of Fifth Third, threatened against Fifth Third or any Fifth Third subsidiary, which reasonably can be expected to result in any material adverse change in the consolidated financial condition, operations or business of Fifth Third. K. Since September 30, 1993, to the date hereof none of Fifth Third's banking subsidiaries and thrift subsidiary has incurred any unusual or extraordinary loan losses which would be material to Fifth Third on a consolidated basis; and to the best knowledge and belief of the chief executive officer and chief financial officer of Fifth Third, and in the light of such banking subsidiaries' and thrift subsidiary's historical loan loss experience and their managements' analyses of the quality and performance of their respective loan portfolios, as of September 30, 1993 their consolidated reserves for loan losses are adequate to absorb all known and reasonably anticipated losses as of such date. L. Fifth Third and its subsidiaries have filed all federal, state and local tax returns required to be filed (after giving effect to all extensions) by them, respectively, and have paid or provided for all tax liabilities shown to be due thereon or which have been assessed against them, respectively. M. Fifth Third has not, directly or indirectly, dealt with any broker or finder in connection with this transaction and has not incurred and will not incur any obligation for any broker's or finder's fee or commission in connection with the transactions provided for in this Agreement and the Agreement of Merger. N. Fifth Third has no unfunded liabilities with respect to any Benefit Plan (as such term is defined in subparagraph Q.1. of Section II hereof, but applied to Fifth Third, its subsidiaries and affiliates) that are material, either individually or in the aggregate, to Fifth Third on a consolidated basis and that have not been recorded and disclosed as required by generally accepted accounting principles (GAAP) in the most recent year-end, audited financial statements of Fifth Third supplied to National Bancorp pursuant to Paragraph D of Section III hereof. O. The investment portfolios of Fifth Third and its subsidiaries and affiliates consist of securities in marketable form. Since September 30, 1993, to the date hereof Fifth Third and its affiliates, on a consolidated basis, have not incurred any unusual or extraordinary losses in their respective investment portfolios, and, except for events relating to the business environment in general, including market fluctuations, the management of Fifth Third is not aware of any events which are reasonably certain to occur in the future and which reasonably can be expected to result in any material adverse change in the quality or performance of the investment portfolios of Fifth Third and its affiliates on a consolidated basis. All representations and warranties contained in this Section III shall expire at the Effective Time, and, thereafter, neither Fifth Third nor any officer or Director of Fifth Third shall have any further liability or obligation with respect thereto, except for any misrepresentations, breaches of warranties or violations of covenants that were made with intent to defraud. IV. Obligations of National Bancorp Between the Date of this Agreement and the Effective Time A. National Bancorp, in consultation with Fifth Third, will take all action necessary to call and hold its annual or a special meeting of its shareholder within 45 days after the Fifth Third registration statement relating to this transaction has been declared effective by the SEC and under all applicable state securities laws for the purpose of approving and adopting this Agreement, the Agreement of Merger and any other documents or actions necessary to the consummation of the merger provided for herein pursuant to law. The Board of Directors of National Bancorp intends to inform the shareholder of National Bancorp in the proxy materials relating to the annual or special meeting that all Directors of National Bancorp intend to vote all shares of National Bancorp Common Stock which they own of record or have voting control over in favor of approving this Agreement, the Agreement of Merger and any such other necessary documents or actions, and all Directors will recommend approval of this Agreement and the Agreement of Merger to the sole shareholder of National Bancorp, subject only to such Directors' fiduciary obligations and their review of Fifth Third's registration statement to be filed with the SEC described in the next sentence and their reasonable satisfaction with the information set forth therein. National Bancorp shall cooperate with Fifth Third in the preparation of such proxy materials which shall be included and filed with, as a part of, Fifth Third's registration statement on Form S-4 (or any such other appropriate form) filed with the SEC for the registration of the shares of Fifth Third Common Stock to be issued to the National Bancorp shareholder pursuant to the transactions contemplated by this Agreement and the Agreement of Merger. B. (i) The merger between National Bancorp and Fifth Third is intended to be structured to qualify for treatment under present accounting rules as a pooling of interests and National Bancorp agrees to take no action which would disqualify this treatment under generally accepted accounting principles. Consistent with generally accepted accounting principles, National Bancorp agrees that on or before the Effective Time based on a review of the Bank Subsidiaries' loan losses, current classified assets and commercial, multi-family and residential mortgage loans, National Bancorp will work with Fifth Third with the goal of establishing collection procedures, internal valuation reviews, credit policies and practices and general valuation allowances which are consistent with the guidelines used within the Fifth Third holding company system. Fifth Third shall provide such assistance and direction to National Bancorp as is necessary in conforming to such policies, practices and procedures; and (ii) from the date of this Agreement until the Effective Time, National Bancorp and the Bank Subsidiaries each will be operated in the ordinary course of business, and neither of them will, without the prior written consent of Fifth Third, which consent shall not be unreasonably withheld: make any changes in its capital or corporate structures; issue any additional shares of its Common Stock; issue any other equity securities, or issue as borrower any long term debt or convertible or other securities of any kind, or rights to acquire any of its securities; make any material changes in its method of business operations; make, enter into any agreement to make, or become obligated to make, any capital expenditures in excess of $10,000; make, enter into or renew any agreement for services to be provided to National Bancorp or the Bank Subsidiaries or permit the automatic renewal of any such agreement, except any agreement for services having a term of not more than three months or requiring the expenditure of not more than $2,500 (for this purpose the phrase "permit the automatic renewal" includes the failure to send a notice of termination of such a contract if such failure would constitute a renewal); open for business any branch office which has been approved by the appropriate regulatory authorities but not yet opened or apply to the appropriate regulatory authorities to establish a new branch office or expand any existing branch office; acquire, become obligated to acquire, or enter into any agreement to acquire, any banking or non-banking company or any branch offices of any such companies; declare or pay any cash dividends on its stock other than normal and customary cash dividends paid in such amounts and at such times as National Bancorp historically has done on its Common Stock, provided this covenant shall only apply to National Bancorp; pay any stock dividends or make any other distributions on its stock other than cash dividends as described in the immediately preceding clause; and provide any increases in employee salaries or benefits other than in the ordinary course of business or as described in Schedule 1. National Bancorp agrees that it will not sell or otherwise dispose of or encumber any of the shares of the capital stock of the Bank Subsidiaries which are now owned by it. V. Cooperation and Other Obligations and Other Covenants A. Each of the parties hereto agrees to use its best efforts and to cooperate with the other party in all reasonable respects in order to carry out and consummate the transactions contemplated by this Agreement and the Agreement of Merger at the earliest practicable time including, without limitation, the filing of applications, notices and other documents with, and obtaining approval from, appropriate governmental regulatory agencies. B. National Bancorp agrees to permit Fifth Third, its officers, employees, accountants, agents and attorneys, and Fifth Third agrees to permit National Bancorp, its officers, employees, accountants, agents and attorneys, to have reasonable access during business hours to their respective books, records and properties, and those of the Bank Subsidiaries and The Fifth Third Bank as well, for the purpose of making a detailed examination, or updating and amplifying prior examinations, of the financial condition, assets, liabilities, legal compliance, affairs and the conduct of the business of National Bancorp and the Bank Subsidiaries or Fifth Third and The Fifth Third Bank, as the case may be, prior to the Effective Time, and also to permit the monitoring of the foregoing on an ongoing basis (such rights of examination and monitoring to be subject to the confidentiality obligations set forth in Paragraph VII.D. hereof); provided, however, that any such examination by Fifth Third or National Bancorp shall not mitigate in any way any material misrepresentation or material breach of warranty hereunder discovered in the course of or subsequent to such examination and prior to the Effective Time. VI. Conditions Precedent to Closing A. Conditions to the Obligations of Each of the Parties: The obligation of each of the parties hereto to consummate the transactions provided for herein and in the Agreement of Merger is subject to the fulfillment on or prior to the Effective Time of each of the following conditions: 1. The shareholder of National Bancorp shall have duly approved and adopted this Agreement and the Agreement of Merger in accordance with and as required by law and in accordance with its Articles of Incorporation and Bylaws, and all of the issued and outstanding shares of National Bancorp Preferred Stock shall be redeemed by National Bancorp immediately prior to Closing in exchange for cancellation of the promissory notes constituting the original consideration therefor. 2. All necessary governmental and regulatory orders, consents, clearances and approvals and requirements shall have been secured and satisfied for the consummation of such transactions, including without limitation, those of the Federal Reserve System, the Comptroller of the Currency, the Kentucky Department of Financial Institutions and the Federal Deposit Insurance Corporation to the extent required. 3. Dinsmore & Shohl, counsel for Fifth Third, or other counsel reasonably acceptable to Fifth Third and National Bancorp, shall have delivered an opinion as to certain federal tax aspects of the transaction addressed to National Bancorp and Tracy W. Farmer in substantially the form appended hereto as Appendix B. 4. Prior to or at the Effective Time, no material investigation by any state or federal agency shall have been threatened or instituted seeking to enjoin or prohibit, or enjoining or prohibiting, the transactions contemplated hereby and no material action or proceeding shall have been threatened or instituted before any court or government body or authority, seeking to enjoin or prohibit, or enjoining or prohibiting, the transactions contemplated hereby other than investigations, actions and proceedings which have been withdrawn prior to or at the Effective Time without material adverse effect to Fifth Third or National Bancorp and other than regularly-scheduled regulatory examinations. 5. Any waiting period mandated by law in respect of the final approval by any applicable Federal regulator(s) of the transaction contemplated herein shall have expired. B. Conditions to the Obligations of Fifth Third: The obligation of Fifth Third to consummate the transactions provided for herein and in the Agreement of Merger are subject to the fulfillment at or prior to the Effective Time of each of the following conditions unless waived by Fifth Third in a writing delivered to National Bancorp which specifically refers to the condition or conditions being waived: 1. All of the representations and warranties of National Bancorp set forth in Section II of this Agreement shall be true and correct in all material respects as of the date of this Agreement and at and as of the Closing Date (as hereinafter defined) as if each such representation and warranty was given on and as of the Closing Date, except (i) for any such representations and warranties made as of a specified date, which shall be true and correct in all material respects as of such date and (ii) for breaches of representations and warranties which would not have, or would not reasonably be expected to have, a material adverse effect on the business or operations of National Bancorp and the Bank Subsidiaries taken as a whole. 2. National Bancorp shall have performed all of the obligations required of it under the terms of this Agreement and the Agreement of Merger in all material respects, except for breaches of obligations which would not have, or would not reasonably be expected to have, any material adverse effect on the business or operations of National Bancorp and the Bank Subsidiaries taken as a whole. 3. Wyatt, Tarrant & Combs, counsel for National Bancorp and the Bank Subsidiaries, shall have delivered an opinion addressed to Fifth Third in substantially the form appended hereto as Appendix C. 4. All retirement plans of National Bancorp, FNB or NBC shall have received from the Internal Revenue Service a favorable determination of the qualified status of each such plan on or before the Closing Date, to the extent any such determinations already have not been received, and copies of such favorable determination letters shall be provided to Fifth Third on or before the Closing Date. 5. The aggregate amount of shareholders' equity (including Common Stock, Additional Paid-In Capital and Retained Earnings and excluding Treasury Stock) of National Bancorp and the Bank Subsidiaries immediately prior to the Effective Time, as shown by and reflected in its books and records of accounts on a consolidated basis in accordance with generally accepted principles, consistently applied, shall not be less than $9,160,000, its total shareholders' equity as at October 31, 1993. The separate shareholders' equity of National Bancorp immediately prior to the Effective Time, as shown by and reflected in its books and records of accounts on a separate basis in accordance with generally accepted accounting principles, consistently applied, shall not be less than $5,031,000, its separate shareholders' equity at October 31, 1993. 6. Fifth Third's independent certified public accountants shall have reviewed the unaudited consolidated financial statements of National Bancorp as at the end of the month immediately preceding the Effective Time, as well as the unaudited separate financial statements of each of the Bank Subsidiaries as of the same date, performed such other auditing procedures as may be requested by Fifth Third and reported that they are not aware of any material modifications that should be made in order for such financial statements to (i) be in conformity with generally accepted accounting principles, consistently applied, excluding the presentation of footnotes, and (ii) accurately state the financial condition and results of operations of National Bancorp and each of the Bank Subsidiaries, and such modifications, in either case, would have a material adverse effect on the financial condition of National Bancorp or either of the Bank Subsidiaries. 7. The receipt of a certificate from National Bancorp and each of the Bank Subsidiaries, executed by the chief executive officer and chief financial officer of National Bancorp and the chief executive officer of each of the Bank Subsidiaries, dated the Closing Date, certifying to their best knowledge and belief that: (i) all of the representations and warranties set forth in Section II hereof were true and correct when given in all material respects, except (y) for any such representations and warranties made as of a specified date, which shall be true and correct in all material respects as of such date and (z) for breaches of representations and warranties which would not have, or would not reasonably be expected to have, a material adverse effect on the business or operations of National Bancorp and the Bank Subsidiaries taken as a whole; (ii) all of such representations and warranties are also true and correct in all material respects at and as of the Closing Date, except for breaches of obligations which would not have, or would not reasonably be expected to have, any material adverse effect on the business or operations of National Bancorp and the Bank Subsidiaries taken as a whole; and (iii) it has met and fully complied in all material respects with all of the obligations required of it under the terms of this Agreement and the Agreement of Merger. 8. The total issued and outstanding shares of National Bancorp Common Stock shall not exceed 100 shares. 9. Fifth Third shall have received a letter from Deloitte & Touche, Fifth Third's independent public accountants, to the effect that the Merger will qualify for "pooling of interests" accounting treatment. 10. Tracy W. Farmer shall enter into a five year noncompetition and nondisclosure agreement with Fifth Third substantially in the form of agreement appended hereto as Appendix D. C. Conditions to the Obligations of National Bancorp: The obligation of National Bancorp to consummate the transactions provided for herein and in the Agreement of Merger is subject to the fulfillment at or prior to the Effective Time of each of the following conditions unless waived by National Bancorp in a writing delivered to Fifth Third which specifically refers to the condition or conditions being waived: 1. All of the representations and warranties of Fifth Third set forth in Section III of this Agreement shall be true and correct in all material respects as of the date of this Agreement and at and as of the Closing Date as if each such representation and warranty was given on and as of the Closing Date, except (i) for any such representations and warranties made as of a specified date, which shall be true and correct in all material respects as of such date and (ii) for breaches of representations and warranties which would not have, or would not reasonably be expected to have, a material adverse effect on the consolidated business or operations of Fifth Third. 2. Fifth Third shall have performed all of the obligations required of it under the terms of this Agreement and the Agreement of Merger in all material respects, except for breaches of obligations which would not have, or would not reasonably be expected to have, any material adverse effect on the consolidated business or operations of Fifth Third. 3. Dinsmore & Shohl, counsel for Fifth Third, shall have delivered an opinion addressed to National Bancorp and Tracy W. Farmer in substantially the form appended hereto as Appendix E. 4. The receipt of a certificate from Fifth Third, executed by its chief executive officer and chief financial officer, dated the Closing Date, certifying to their best knowledge and belief that: (i) all of the representations and warranties set forth in Section III were true and correct when given, except (y) for any such representations and warranties made as of a specified date, which shall be true and correct in all material respects as of such date and (z) for breaches of representations and warranties which would not have, or would not reasonably be expected to have, a material adverse effect on the consolidated business or operations of Fifth Third; (ii) all of such representations and warranties, with the exception of III.B., are also true and correct in all material respects at and as of the Closing Date, except for breaches of obligations which would not have, or would not reasonably be expected to have, any material adverse effect on the consolidated business or operations of Fifth Third; and (iii) Fifth Third has met and fully complied in all material respects with all of the obligations required of it under the terms of this Agreement and the Agreement of Merger. 5. Fifth Third shall have registered its shares of Common Stock to be issued to the National Bancorp shareholder hereunder and pursuant to the Agreement of Merger with the SEC pursuant to the Securities Act of 1933, as amended, and with all applicable state securities authorities. The registration statement with respect thereto shall have been declared effective by the SEC and all applicable state securities authorities and no stop order shall have been issued. The shares of Fifth Third Common Stock to be issued to the National Bancorp shareholder hereunder shall have been authorized for trading on the National Market System of the National Association of Securities Dealers upon official notice of issuance. VII. Additional Covenants A. It is the intent of the parties hereto that FNB shall be merged with and into The Fifth Third Bank of Northern Kentucky, Inc., Florence, Kentucky ("5/3 NK"), and NBC shall be merged with and into The Fifth Third Bank of Central Kentucky, Inc., Lexington, Kentucky ("5/3 Lexington"), both to be effective immediately after the Effective Time. The parties hereto agree to cooperate with one another to effect such mergers. Upon consummation of such mergers, the separate corporate existence of the Bank Subsidiaries shall cease by operation of law. B. 1. Fifth Third shall use its best efforts to employ at 5/3 NK or 5/3 Lexington or at Fifth Third or other Fifth Third subsidiaries or affiliates as many of the National Bancorp, FNB and NBC employees who desire employment within the Fifth Third holding company system as possible, to the extent of available positions and consistent with Fifth Third's standard staffing levels and personnel policies. Each employee of National Bancorp, FNB or NBC who becomes an employee of Fifth Third or any of its subsidiaries or affiliates at or immediately subsequent to the Merger shall be entitled to participate in all employee benefit plans sponsored by Fifth Third or its subsidiaries or affiliates on the same terms and to the same extent as similarly situated employees. Such employees shall receive credit for their period of service to National Bancorp, FNB and NBC for purposes of determining participation and vesting in all Fifth Third employee benefit plans (except for vesting in the Fifth Third Master Retirement Plan) but not for purposes of determining the benefits accrued thereunder. 2. Any employee who will not be hired by Fifth Third shall be terminated by National Bancorp immediately prior to the Effective Time shall be entitled to severance pay equal to, in the case of a salaried employee, one week's pay for each year of service up to a maximum of twelve week's pay, and, in the case of an hourly employee, one week's pay for each year of service up to a maximum of six week's pay, plus applicable COBRA benefits. Fifth Third shall provide sufficient notification to National Bancorp of those employees it will not be hiring in order that such employees by National Bancorp can be given appropriate notice of termination in advance of the effectiveness there of. Nothing contained in this Paragraph VII.B.2 shall be construed or interpreted to limit or modify in any way Fifth Third's at will employment policy. 3. The University of Kentucky basketball season tickets purchased by National Bancorp shall be assigned to Tracy W. Farmer for his own use at his own expense. C. All provisions for indemnification and limitation of liability now existing in favor of the employees, agents, Directors or officers of National Bancorp or any of its subsidiaries as provided by regulation or in their respective certificate or articles of incorporation or by-laws shall survive the Merger, shall be assumed by Fifth Third and shall continue in full force and effect with respect to acts or omissions occurring on or prior to the Effective Time for a period of two years thereafter, or in the case of matters occurring prior to the Effective Time which have not been resolved prior to the second anniversary of the Effective Time, until such matters are finally resolved. Fifth Third also shall purchase and keep in force for such two year period, directors' and officers' liability insurance to provide coverage for acts or omissions of the type and in the amount currently covered by National Bancorp's existing directors' and officers' liability insurance for acts or omissions occurring on or prior to the Effective Time. D. Fifth Third will not disclose to others and will hold in confidence any non-public, confidential information disclosed to it by National Bancorp concerning National Bancorp or the Bank Subsidiaries. National Bancorp will not disclose to others and will hold in confidence any non-public, confidential information disclosed to it concerning Fifth Third or any of its affiliates. In the event the Merger is not completed, all non-public financial statements, documents and materials, and all copies thereof, shall be returned to National Bancorp or Fifth Third, as the case may be, and shall not be used by Fifth Third or National Bancorp, as the case may be, in any way detrimental to National Bancorp or Fifth Third. E. All notices under this Agreement or under the Agreement of Merger shall be in writing and shall be sufficient in all respects if delivered in person or mailed by certified mail, return receipt requested, with postage prepaid and addressed, if to National Bancorp to Mr. Tracy W. Farmer, President and Chief Executive Officer, The National Bancorp of Kentucky, Inc., 2560 Richmond Road, Lexington, Kentucky 40509, with a copy to Stewart E. Conner, Esq., Wyatt, Tarrant & Combs, Citizens Plaza, Louisville, Kentucky 40202; if to Fifth Third, to Mr. George A. Schaefer, Jr., President and Chief Executive Officer, Fifth Third Bancorp, 38 Fountain Square Plaza, Cincinnati, Ohio 45263, with a copy to Paul L. Reynolds, Esq., Vice President and Counsel, Fifth Third Bancorp, Legal Division, 38 Fountain Square Plaza, 2nd Floor, Cincinnati, Ohio 45263 and another copy to S. Richard Arnold, Esq., Dinsmore & Shohl, 1900 Chemed Center, 255 E. Fifth Street, Cincinnati, Ohio 45202-3172. Such notices shall be deemed to be received when delivered in person or when deposited in the mail by certified mail, return receipt requested with postage prepaid. F. This Agreement and the Agreement of Merger (which together shall constitute a single agreement), together with the written instruments specifically referred to herein and such other written agreements delivered by Fifth Third or National Bancorp to each other pursuant hereto constitute the entire agreement between the parties with regard to the transactions contemplated herein and in the Agreement of Merger and supersede any prior agreements, whether oral or in writing, including that certain letter from Fifth Third to Mr. Tracy W. Farmer dated November 22, 1993. This Agreement and the Agreement of Merger may be hereafter amended only by a written instrument executed by each of the parties pursuant to Section X hereof. G. During the period from the date of this Agreement to the Effective Time, except with the prior approval of Fifth Third, National Bancorp shall not, and shall not permit its representatives to, directly or indirectly, subject to the exercise by the Directors of National Bancorp of their fiduciary duties, initiate, solicit, negotiate with, encourage discussions with, provide information to, or agree to a transaction with, any corporation, partnership, person or other entity or group concerning any merger in which neither National Bancorp nor either of the Bank Subsidiaries is the acquiror or any sale of substantial assets, sale of shares of capital stock (or securities convertible or exchangeable into or otherwise evidencing, or any agreement or instrument evidencing, the right to acquire capital stock) or similar transaction involving National Bancorp or the Bank Subsidiaries (any such transaction being referred to herein as an "Acquisition Transaction"). Subject to the exercise by the Directors of National Bancorp of their fiduciary duties, National Bancorp promptly shall communicate to Fifth Third the terms of any proposal which it may receive in respect of an Acquisition Transaction and any request by or indication of interest on the part of any third party with respect to initiation of any Acquisition Transaction or discussions with respect thereto. H. Fifth Third and National Bancorp shall each indemnify and hold the other harmless for any claim, liability or expense (including reasonable attorneys' fees) arising from a misstatement or omission in the applications submitted to regulatory agencies for approval of the transaction contemplated by this Agreement and the Agreement of Merger relating to the indemnifying party which is based or made in reliance upon any representation, warranty, or covenant of such party in this Agreement or any certification, document, or other information furnished or to be furnished by such party pursuant to this Agreement. From and after the Closing Date, this subsection shall be of no further force or effect. I. 1. Upon the request of Fifth Third and at the sole option of Fifth Third, National Bancorp and the Bank Subsidiaries shall execute and deliver to Midwest Payment Systems, Inc. ("MPS") an agreement to convert all electronic funds transfer ("EFT") related services to MPS and the Jeanie (Registered) system. Such Agreement shall provide that MPS will be the exclusive provider of such services to National Bancorp and the Bank Subsidiaries for a period of five (5) years from the date such agreements are executed. Fifth Third agrees that the cost of the conversion of National Bancorp or the Bank Subsidiaries to EFT provided by MPS and conversion to the Jeanie (Registered) system (including, without limitation, the cost of all card reissue, signage and penalties relating to terminating its current EFT relationships) will be paid by Fifth Third. Fifth Third further agrees that the costs and fees to National Bancorp and the Bank Subsidiaries for the Jeanie (Registered) service shall not exceed those charged by the current EFT service provider of National Bancorp and the Bank Subsidiaries, subject to any increases in such costs and fees which would otherwise be permitted under their current EFT processing agreements. In the event this Agreement is terminated pursuant to Section VIII hereof for any reason, and if, in such instance, National Bancorp desires to convert to another provider of EFT services, Fifth Third shall pay all costs and expenses associated with such conversion, provided, however, such costs and expenses are reasonable when compared to costs and expenses ordinarily charged in the EFT services industry. In no event shall National Bancorp or the Bank Subsidiaries be required to take any actions pursuant to this Paragraph I or otherwise under this Agreement or the Agreement of Merger that are contrary to any applicable law, regulation, rule or order or which constitute a breach of the fiduciary duties of the directors of National Bancorp or the Bank Subsidiaries. 2. Upon the request of Fifth Third and at the sole option of Fifth Third, National Bancorp and the Bank Subsidiaries will contract with Fifth Third or an affiliate of Fifth Third for the provision of any and all data processing services including, without limitation, item processing and application processing. Fifth Third agrees that Fifth Third will assume any and all expense related to the conversion to such Fifth Third services and that the costs and fees payable by National Bancorp and the Bank Subsidiaries for such services shall not exceed the costs and fees payable by National Bancorp and the Bank Subsidiaries under existing agreements for such services, subject to any increases in such cost and fees which would otherwise be permitted under their current agreements for such services. In the event that Fifth Third determines that a third party should provide such services to National Bancorp and the Bank Subsidiaries, National Bancorp and the Bank Subsidiaries agree to have such services provided by the third party recommended for such purpose by Fifth Third provided that the cost and fees for such services do not exceed those currently being paid, or which may otherwise be payable by National Bancorp and the Bank Subsidiaries under existing agreements. In the event this Agreement is terminated pursuant to Section VIII hereof for any reason, and if, in such instance, National Bancorp desires to convert to another provider of data processing services, Fifth Third shall pay all costs and expenses associated with such conversion, provided, however, such costs and expenses are reasonable when compared to costs and expenses ordinarily charged in the data processing industry. In no event shall National Bancorp or the Bank Subsidiaries be required to take any actions pursuant to this Paragraph I.2. or otherwise under this Agreement or the Agreement of Merger that are contrary to any applicable law, regulation, rule or order or which constitute a breach of the fiduciary duties of the directors of National Bancorp or the Bank Subsidiaries. J. Fifth Third and National Bancorp agree that each will use its best efforts to secure the regulatory approvals necessary to consummate the transactions contemplated herein at the earliest practicable time, and National Bancorp agrees to cooperate with Fifth Third and Fifth Third agrees to cooperate with National Bancorp in all reasonable respects in securing such approvals. K. Fifth Third and National Bancorp shall agree with each other as to the form and substance of any press release related to this Agreement and the Agreement of Merger or the transactions contemplated hereby and thereby, and shall consult with each other as to the form and substance of other public disclosures related thereto, provided, however, that nothing contained herein shall prohibit either party from making any disclosure which its counsel deems to be required by law. L. Each party hereto shall bear and pay all costs and expenses incurred by it in connection with the transactions contemplated by this Agreement and the Agreement of Merger, including, without limitation, fees, costs and expenses of its own financial consultants, investment bankers, accountants and counsel, without reduction or modification in the number of shares of Fifth Third Common Stock to be issued hereunder. M. 1. Between the date hereof and the Closing Date, National Bancorp shall promptly advise Fifth Third in writing of any fact that, if existing or known at the date hereof, would have been required to be set forth or disclosed in or pursuant to this Agreement or of any fact that, if existing or known at the date hereof, would have made any of the representations contained herein untrue to any material extent. 2. Between the date hereof and the Closing Date, Fifth Third shall promptly advise National Bancorp in writing of any fact that, if existing or known at the date hereof, would have been required to be set forth or disclosed in or pursuant to this Agreement or of any fact that, if existing or known at the date hereof, would have made any of the representations contained herein untrue to any material extent. N. Fifth Third shall pay-off at Closing up to $2,403,000 in principal amount of National Bancorp indebtedness to National City Bank, plus accrued interest, and, so long as no additional amount is due in order to satisfy in full such indebtedness, obtain all releases of liens, guaranties and the like securing such indebtedness. VIII. Termination A. This Agreement and the Agreement of Merger may be terminated at any time prior to the Effective Time by written notice delivered by Fifth Third to National Bancorp or by National Bancorp to Fifth Third in the following instances: 1. By Fifth Third or National Bancorp, if there has been a material misrepresentation, a material breach of warranty or a material failure to comply with any covenant on the part of any party with respect to the representations, warranties, and covenants set forth herein and such misrepresentation, breach or failure to comply has not been cured (if capable of cure) within ten (10) days after receipt of written notice, provided, the party in default shall have no right to terminate for its own default. 2. By Fifth Third or National Bancorp, if the business or assets or financial condition of the other party shall have materially and adversely changed from that in existence at September 30, 1993. 3. By Fifth Third or National Bancorp, if the merger transaction contemplated herein has not been consummated by September 30, 1994, provided the terminating party is not in material breach or default of any representation, warranty or covenant contained herein on the date of such termination. 4. By the mutual written consent of Fifth Third and National Bancorp. B. If the National Bancorp shareholder, acting at a meeting held for the purpose of voting upon this Agreement and the Agreement of Merger, fail to approve such agreements in the manner required by law, then this Agreement and the Agreement of Merger shall be deemed to be automatically terminated. C. Upon termination as provided in this Section, this Agreement and the Agreement of Merger, except for the provisions of Paragraphs D, I and K of Section VII hereof shall be void and of no further force or effect, and, except as provided in Paragraph I of Section VII hereof, neither party hereto shall have any liability of any kind to the other party including but not limited to liability for expenses incurred by the other party in connection with this transaction; provided that no such termination shall relieve National Bancorp from liability for any breach of Paragraph G of Section VII hereof. IX. Closing and Effective Time The consummation of the transactions contemplated by this Agreement and the Agreement of Merger shall take place at a closing to be held at 9:00 A.M. at the offices of Fifth Third in Cincinnati, Ohio on the last business day of the month in which all of the conditions precedent to closing set forth in Section VI hereof, including the 30-day waiting period required by any banking or bank holding company regulatory agency after its approval of the Merger is issued before the transaction may be consummated, have been fully met or effectively waived (the "Closing Date"). Pursuant to the filing of articles or a certificate of merger (which shall be acceptable to National Bancorp and Fifth Third) with the Secretaries of State of Ohio and Kentucky in accordance with law, this Agreement and the Agreement of Merger, the Merger provided for herein and in the Agreement of Merger shall become effective at the close of business on said day (the "Effective Time"). By mutual agreement of the parties, the closing may be held at any other time or place or on any other date and the effectiveness of the Merger (and the Effective Time) may be changed by such mutual agreement. X. Amendment This Agreement may be amended, modified or supplemented by the written agreement of National Bancorp and Fifth Third upon the authorization of each company's respective Board of Directors and without further approval of National Bancorp's shareholders, except that no such amendment, modification or supplement may be effected without National Bancorp shareholder approval if to do so would violate any applicable provisions of Ohio or Kentucky corporate law. XI. General This Agreement was made in the State of Ohio and shall be interpreted under the laws of the United States and the Commonwealth of Kentucky. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns but none of the provisions hereof shall inure to the benefit of any other person, firm or corporation whomsoever. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned or transferred by operation of law or otherwise by any party hereto without the prior written consent of the other party; provided, however, that the merger, consolidation or sale of all or substantially all of the assets of Fifth Third shall not be deemed an assignment hereunder if Fifth Third is the surviving corporation in such merger, consolidation or sale of all or substantially all of the assets of Fifth Third and its Common Stock shall thereafter continue to be publicly traded and issuable to National Bancorp shareholders pursuant to the terms of this Agreement and the Agreement of Merger. XII. Counterparts This Agreement may be executed in any number of counterparts, each of which shall be deemed an original for all purposes but such counterparts taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Affiliation Agreement as of the date hereinabove set forth. FIFTH THIRD BANCORP (SEAL) By: George A. Schaefer, Jr. President and Chief Executive Officer Attest: Michael K. Keating Assistant Secretary THE NATIONAL BANCORP OF KENTUCKY, INC. (SEAL) By: Tracy W. Farmer President and Chief Executive Officer Attest: Rhonda Brown Secretary AGREEMENT OF MERGER OF THE NATIONAL BANCORP OF KENTUCKY, INC. (a Kentucky Corporation) with and into FIFTH THIRD BANCORP (an Ohio Corporation) under the name FIFTH THIRD BANCORP Dated as of December 6, 1993 TABLE OF CONTENTS PARTIES AND RECITALS ARTICLE I JURISDICTIONS ARTICLE II THE MERGER ARTICLE III ARTICLES OF INCORPORATION ARTICLE IV DIRECTORS AND OFFICERS ARTICLE V REGULATIONS ARTICLE VI SERVICE OF PROCESS ARTICLE VII MODE OF EFFECTUATING CONVERSION OF SHARES ARTICLE VIII VESTING OF PROPERTIES AND OTHER MATTERS ARTICLE IX REPRESENTATIONS AND AGREEMENTS OF SURVIVING CORPORATION ARTICLE X APPROVAL AND ADOPTION BY DIRECTORS AND SHAREHOLDERS; EFFECTIVE TIME ARTICLE XI AMENDMENT; TERMINATION; ASSIGNMENT SIGNATURES AGREEMENT OF MERGER of THE NATIONAL BANCORP OF KENTUCKY, INC. (a Kentucky Corporation) with and into FIFTH THIRD BANCORP (an Ohio Corporation) under the name FIFTH THIRD BANCORP THIS AGREEMENT OF MERGER (the "Agreement of Merger") dated as of December 6, 1993, between THE NATIONAL BANCORP OF KENTUCKY, INC., Lexington, Fayette County, Kentucky, a Kentucky corporation (hereinafter called "National Bancorp"), and FIFTH THIRD BANCORP, Cincinnati, Hamilton County, Ohio, an Ohio corporation (hereinafter sometimes called the "Surviving Corporation" or "Fifth Third"), National Bancorp and Fifth Third being hereinafter sometimes collectively called "the Constituent Corporations"; W I T N E S S E T H: WHEREAS, the Constituent Corporations deem it advisable for their benefit respectively, and for the benefit of their respective shareholders, that National Bancorp merge into Fifth Third pursuant to this Agreement and the applicable provisions of the laws of the States of Ohio and Kentucky; NOW, THEREFORE, the Constituent Corporations hereby agree each with the other, in accordance with the applicable provisions of the laws of the States of Ohio and Kentucky, that National Bancorp shall merge into Fifth Third with Fifth Third as the Surviving Corporation and that the terms and conditions of such merger (the "Merger") hereby agreed upon and the mode of carrying the same into effect are and shall be as follows: ARTICLE I JURISDICTIONS The jurisdictions under the laws of which each of the Constituent Corporations exists are as follows: Fifth Third is a corporation which exists under the laws of the State of Ohio and National Bancorp is a corporation which exists under the laws of the State of Kentucky. ARTICLE II THE MERGER When this Agreement shall have been approved and adopted and shall have been filed and recorded along with other necessary documents in accordance with the laws of the States of Ohio and Kentucky, and the Merger becomes effective, the separate existence of National Bancorp shall cease and National Bancorp shall be merged into Fifth Third which will be the Surviving Corporation and which shall continue its corporate existence under the laws of the State of Ohio under the name "Fifth Third Bancorp". ARTICLE III ARTICLES OF INCORPORATION The Second Amended Articles of Incorporation, as amended, of Fifth Third of record with the Secretary of State of Ohio at the time the Merger becomes effective in accordance with the provisions of Section 4 of Article X hereof (which are incorporated by reference herein and made a part of this Agreement of Merger as though set out in full in the body hereof) shall be the Articles of Incorporation of the Surviving Corporation, until further amended as provided by law. ARTICLE IV DIRECTORS AND OFFICERS The Directors of Fifth Third who are in office at the time the Merger becomes effective shall be the directors of the Surviving Corporation, each of whom shall continue to serve as a Director for the term for which he was elected, subject to the Regulations of the Surviving Corporation and in accordance with law. The officers of Fifth Third who are in office at the time the Merger becomes effective shall be the officers of the Surviving Corporation, subject to the Regulations of the Surviving Corporation and in accordance with law. ARTICLE V REGULATIONS The Regulations of Fifth Third at the time the Merger becomes effective shall be the Regulations of the Surviving Corporation, until amended as provided therein and in accordance with law. ARTICLE VI SERVICE OF PROCESS The names and addresses of the statutory agents of each of the Constituent Corporations and the Surviving Corporation upon whom any process, notice or demand may be served are as follows: the statutory agent for Fifth Third, one of the Constituent Corporations and the Surviving Corporation, is George A. Schaefer, Jr., 38 Fountain Square Plaza, Cincinnati, Hamilton County, Ohio 45263; the statutory agent for National Bancorp, one of the Constituent Corporations, is Hall Kinney, 2560 Richmond Road, Lexington, Kentucky 40509. ARTICLE VII MODE OF EFFECTUATING CONVERSION OF SHARES 1. At the time the Merger becomes effective: (a) All of the shares of the Common Stock without par value of Fifth Third ("Fifth Third Common Stock") that are issued and outstanding or held by Fifth Third as treasury shares immediately prior to the time the Merger becomes effective will remain unchanged and will remain outstanding or as treasury shares, as the case may be, when the Merger becomes effective as shares of the Common Stock without par value of the Surviving Corporation. Any stock options, subscription rights, warrants or other securities outstanding immediately prior to the time the Merger becomes effective, entitling the holders to subscribe for or purchase any shares of the capital stock of any class of Fifth Third, and any securities outstanding at such time that are convertible into shares of the capital stock of any class of Fifth Third will remain unchanged and will remain outstanding when the Merger becomes effective with the holders thereof entitled to subscribe for, purchase or convert their securities into the number of shares of the class of capital stock of Fifth Third to which they are entitled under the terms of the governing documents. (b) Each of the shares of the Common Stock, without par value, of National Bancorp ("National Bancorp Common Stock") (not including shares held as treasury shares) that is issued and outstanding immediately prior to the time the Merger becomes effective will, when the Merger becomes effective, be converted by virtue of the Merger and without further action, into 2,540.924 shares of Fifth Third Common Stock. 2. At the time the Merger becomes effective, all of the shares of National Bancorp Common Stock, whether issued or unissued (including treasury shares), will be cancelled and extinguished and the holders of certificates for shares thereof shall cease to have any rights as shareholders of National Bancorp, except such rights, if any, as they may be entitled to under the provisions of KRS Sections 271B.13-010 et. seq with respect to the rights of dissenting shareholders, and, except as aforesaid, their sole rights as shareholders shall pertain to the Fifth Third Common Stock and cash in lieu of fractional shares, if any (as described in the immediately succeeding paragraph), into which their National Bancorp Common Stock shall have been converted by virtue of the Merger. 3. After the time the Merger becomes effective, each holder of a certificate or certificates for shares of National Bancorp Common Stock, upon surrender of the same duly transmitted to Fifth Third (or in lieu of surrendering such certificates in the case of lost, stolen, destroyed or mislaid certificates, upon execution of such documentation as may be reasonably required by Fifth Third), shall be entitled to receive in exchange therefor a certificate or certificates representing the number of whole shares of Fifth Third Common Stock into which such holder's shares of National Bancorp Common Stock shall have been converted by the Merger, plus a cash payment for any fraction of a share to which the holder is entitled, in lieu of such fraction of a share, equal in amount to the product resulting from multiplying such fraction by $51.163. Until so surrendered, each outstanding certificate that prior to the time the Merger becomes effective represented shares of National Bancorp Common Stock shall be deemed for all corporate purposes to evidence ownership of the number of full shares of Fifth Third Common Stock into which the same shall have been converted; provided, however, that dividends or distributions otherwise payable with respect to shares of Fifth Third Common Stock into which National Bancorp Common Stock shall have been so converted shall be paid with respect to such shares only when the certificate or certificates evidencing shares of National Bancorp Common Stock shall have been so surrendered (or in lieu of surrendering such certificates in the case of lost, stolen, destroyed or mislaid certificates, upon execution of such documentation as may be reasonably required by Fifth Third) and thereupon any such dividends and distributions shall be paid, without interest, to the holder entitled thereto subject however to the operation of any applicable escheat or similar laws relating to unclaimed funds. 4. The exchange ratio referred to in Section 1(b) of this Article VII shall be adjusted so as to give the National Bancorp shareholders the economic benefit of any stock dividends, reclassifications, recapitalizations, split-ups, exchanges of shares, distributions or combinations or subdivisions of Fifth Third Common Stock effected between the date of this Agreement and the time the Merger becomes effective. ARTICLE VIII VESTING OF PROPERTIES AND OTHER MATTERS 1. At the time the Merger becomes effective, the effect shall be as provided by the applicable provisions of the laws of Ohio and Kentucky. Without limiting the generality of the foregoing, and subject thereto, at the time the Merger becomes effective: the separate existence of National Bancorp shall cease; the Surviving Corporation shall possess all assets and property of every description, and every interest therein, wherever located, and the rights, privileges, immunities, powers, franchises and authority, of a public as well as of a private nature, of each of the Constituent Corporations, and all obligations owing by or due each of the Constituent Corporations, shall be vested in, and become the obligations of, the Surviving Corporation, without further act or deed, including without limitation any liability to dissenting shareholders under KRS Sections 271B.13-010 et. seq; and all rights of creditors of each Constituent Corporation shall be preserved unimpaired, and all liens upon the property of each of the Constituent Corporations shall be preserved unimpaired, on only the property affected by such liens immediately prior to the time the Merger becomes effective. 2. From time to time as and when requested by the Surviving Corporation, or by its successors or assigns, the officers and Directors of National Bancorp in office at the time the Merger becomes effective shall execute and deliver such instruments and shall take or cause to be taken such further or other action as shall be necessary in order to vest or perfect in the Surviving Corporation or to confirm of record or otherwise, title to, and possession of, all the assets, property, interests, rights, privileges, immunities, powers, franchises and authority of National Bancorp and otherwise to carry out the purposes of this Agreement. ARTICLE IX REPRESENTATIONS AND AGREEMENTS OF SURVIVING CORPORATION 1. Fifth Third, the Surviving Corporation, agrees that it may be served with process in Kentucky in any proceeding for the enforcement of any obligation of National Bancorp, one of the Constituent Corporations, and in any proceeding for the enforcement of the rights of a dissenting shareholder of National Bancorp against the Surviving Corporation. 2. Fifth Third, the Surviving Corporation, irrevocably appoints the Secretary of State of Kentucky as its agent to accept service of process in any such proceeding referred to in Section 1 of this Article IX. The address of Fifth Third to which a copy of such process should be mailed by the Secretary of State of Kentucky is set forth in Article VI of this Agreement. 3. Fifth Third, the Surviving Corporation, agrees that it will promptly pay to any dissenting shareholders of National Bancorp, one of the Constituent Corporations, the amount, if any, to which they shall be entitled under the provisions of KRS Sections 271B.13-010 et. seq with respect to the rights of dissenting shareholders. ARTICLE X APPROVAL AND ADOPTION BY DIRECTORS AND SHAREHOLDERS; EFFECTIVE TIME 1. Fifth Third, the Surviving Corporation, represents and warrants that the Board of Directors of Fifth Third duly has approved this Agreement of Merger; Division (D) of Section 1701.78 of the Ohio Revised Code does not require adoption of this Agreement of Merger by the shareholders of Fifth Third; and pursuant to Division (H) of Section 1701.78 of the Ohio Revised Code, the approval of this Agreement of Merger by the Directors of Fifth Third shall constitute adoption by Fifth Third. 2. National Bancorp, one of the Constituent Corporations, represents and warrants that the Directors of National Bancorp have by resolution adopted by them, approved this Agreement of Merger and directed that this Agreement of Merger be submitted to a vote of the shareholder entitled to vote in respect thereof at a meeting of the shareholder held for such purpose. Notice of such meeting as required by the provisions of the Kentucky corporate law and the Bylaws of National Bancorp shall be duly given. 3. National Bancorp, one of the Constituent Corporations, represents and warrants that this Agreement of Merger is required to be approved and adopted by the affirmative vote of the holders of a majority of the issued and outstanding shares of National Bancorp entitled to vote in respect thereof, in accordance with the provisions of the Kentucky corporate law and the Articles of Incorporation and Bylaws of National Bancorp. 4. This Agreement shall be filed and recorded along with Articles or a Certificate of Merger in accordance with the requirements of the laws of the States of Ohio and Kentucky and shall become effective at the close of business on the day this Agreement and other necessary documents are filed (unless another date is specified in the Articles or Certificate of Merger) with the Secretaries of State of Ohio and Kentucky. This Agreement shall not be filed with the Secretaries of State of Ohio and Kentucky until, but shall be filed promptly after, all of the conditions precedent to consummating the Merger as contained in Section VI of the Affiliation Agreement shall have been fully met or effectively waived, the filing of this Agreement of Merger being an acknowledgement that such conditions precedent have been fully met or effectively waived. ARTICLE XI AMENDMENT; TERMINATION; ASSIGNMENT 1. At any time prior to the time the Merger becomes effective, the Constituent Corporations may, from time to time, amend this Agreement of Merger by mutual agreement authorized by their respective Boards of Directors or Executive Committees (and whether before or after the shareholder of National Bancorp has approved and adopted this Agreement of Merger) to facilitate the performance thereof, to augment the intention of the parties in carrying out the transactions provided for herein, to clarify any ambiguities herein or to comply with any applicable regulation, order or requirement of any governmental authority; provided, however, that any such amendment shall be effected under, and strictly in accordance with, the provisions of Section X of the Affiliation Agreement. 2. This Agreement of Merger may be terminated by the parties hereto prior to the time it becomes effective under the circumstances provided in, and strictly in accordance with the provisions of, Section VIII of the Affiliation Agreement. 3. This Agreement of Merger and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns but none of the provisions hereof shall inure to the benefit of any other person, firm or corporation whomsoever. Neither this Agreement of Merger nor any of the rights, interests or obligations hereunder shall be assigned or transferred by operation of law or otherwise by either of the parties hereto without the prior written consent of the other party; provided, however, that the merger, consolidation or sale of all or substantially all of the assets of Fifth Third shall not be deemed an assignment hereunder if Fifth Third is the surviving corporation in such merger, consolidation or sale of all or substantially all of the assets of Fifth Third and its Common Stock shall thereafter continue to be publicly traded and issuable to National Bancorp shareholders pursuant to the terms of this Agreement of Merger and the Affiliation Agreement. 4. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original for all purposes but such counterparts taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. FIFTH THIRD BANCORP (SEAL) By: George A. Schaefer, Jr. President and Chief Executive Officer Attest: Michael K. Keating Assistant Secretary THE NATIONAL BANCORP OF KENTUCKY, INC. (SEAL) By: Tracy W. Farmer President and Chief Executive Officer Attest: Rhonda Brown Secretary ANNEX C KENTUCKY 1988 BUSINESS CORPORATION ACT Dissenters' Rights Right to Dissent and Obtain Payment for Shares 271B.13-010 DEFINITIONS. -- As used in this subtitle: (1) "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. (2) "Dissenter" means a shareholder who is entitled to dissent from corporate action under KRS 271B.13-020 and who exercises that right when and in the manner required by KRS 271B.13-200 to 271B.13-280. (3) "Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. In any transaction subject to the requirements of KRS 271B.12-210 or exempted by KRS 271B.12-220(2), "fair value" shall be at least an amount required to be paid under KRS 271B.12-220(2) in order to be exempt from the requirements of KRS 271B.12-210. (4) "Interest" means interest from the effective date of the corporate action until the date of payment, at the average rate currently paid by the corporation on its principal bank loans or, if none, at a rate that is fair and equitable under all the circumstances. (5) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. (6) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder. (7) "Shareholder" means the record shareholder or the beneficial shareholder. 271B.13-020 RIGHT TO DISSENT. -- (1) A shareholder shall be entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions: (a) Consummation of a plan of merger to which the corporation is a party: 1. If shareholder approval is required for the merger by KRS 271B.11-040 or the articles of incorporation and the shareholder is entitled to vote on the merger; or 2. If the corporation is a subsidiary that is merged with its parent under KRS 271B.11-040; (b) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; (c) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than in the usual and regular course of business, if the shareholder is entitled to vote on the sale or exchange, including a sale in dissolution, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one (1) year after the date of sale; (d) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it: 1. Alters or abolishes a preferential right of the shares to a distribution or in dissolution; 2. Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; 3. Excludes or limits the right of the shares to vote on any matter other than a limitation by dilution through issuance of shares or other securities with similar voting rights; or 4. Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under KRS 271B.6-040; (e) Any transaction subject to the requirements of KRS 271B.12-210 or exempted by KRS 271B.12-220(2); or (f) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. (2) A shareholder entitled to dissent and obtain payment for his shares under this chapter shall not challenge the corporate action creating his entitlement unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. 271B.13-030 DISSENT BY NOMINEE AND BENEFICIAL OWNERS. -- (1) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he shall dissent with respect to all shares beneficially owned by any one (1) person and notify the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection shall be determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders. (2) A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if: (a) He submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (b) He does so with respect to all shares of which he is the beneficial shareholder or over which he has power to direct the vote. Procedure for Exercise of Dissenters' Rights 271B.13-200 NOTICE OF DISSENTERS' RIGHTS. -- (1) If proposed corporate action creating dissenters' rights under KRS 271B.13-020 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this subtitle and the corporation shall undertake to provide a copy of this subtitle to any shareholder entitled to vote at the shareholders' meeting upon request of that shareholder. (2) If corporate action creating dissenters' rights under KRS 271B.13-020 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in KRS 271B.13-220. 271B.13-210 NOTICE OF INTENT TO DEMAND PAYMENT. -- (1) If proposed corporate action creating dissenters' rights under KRS 271B.13-020 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights: (a) Shall deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and (b) Shall not vote his shares in favor of the proposed action. (2) A shareholder who does not satisfy the requirements of subsection (1) of this section shall not be entitled to payment for his shares under this chapter. 271B.13-220 DISSENTERS' NOTICE. -- (1) If proposed corporate action creating dissenters' rights under KRS 271B.13-020 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of KRS 271B.13-210. (2) The dissenters' notice shall be sent no later than ten (10) days after the date the proposed corporate action was authorized by the shareholders, or, if no shareholder authorization was obtained, by the board of directors, and shall: (a) State where the payment demand must be sent and where and when certificates for certificated shares must be deposited; (b) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received; (c) Supply a form for demanding payment that includes the date of the first announcement to news media or to shareholders of the terms of the proposed corporate action and requires that the person asserting dissenters' rights certify whether or not he acquired beneficial ownership of the shares before that date; (d) Set a date by which the corporation must receive the payment demand, which date may not be fewer than thirty (30), nor more than sixty (60) days after the date the notice provided in subsection (1) of this section is delivered; and (e) Be accompanied by a copy of this subtitle. 271B.13-230 DUTY TO DEMAND PAYMENT. -- (1) A shareholder who is sent a dissenters' notice described in KRS 271B.13-220 shall demand payment, certify whether he acquired beneficial ownership of the shares before the date required to be set forth in the dissenters' notice pursuant to subsection (2)(c) of KRS 271B.13- 220, and deposit his certificates in accordance with the terms of the notice. (2) The shareholder who demands payment and deposits his share certificates under subsection (1) of this section shall retain all other rights of a shareholder until these rights are cancelled or modified by the taking of the proposed corporate action. (3) A shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, shall not be entitled to payment for his shares under this subtitle. 271B.13-240 SHARE RESTRICTIONS. -- (1) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under KRS 271B.13-260. (2) The person for whom dissenters' rights are asserted as to uncertificated shares shall retain all other rights of a shareholder until these rights are cancelled or modified by the taking of the proposed corporate action. 271B.13-250 PAYMENT. -- (1) Except as provided in KRS 271B.13-270, as soon as the proposed corporate action is taken, or upon receipt of a payment demand, the corporation shall pay each dissenter who complied with KRS 271B.13-230 the amount the corporation estimates to be the fair value of his shares, plus accrued interest. (2) The payment shall be accompanied by: (a) The corporation's balance sheet as of the end of a fiscal year ending not more than sixteen (16) months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (b) A statement of the corporation's estimate of the fair value of the shares; (c) An explanation of how the interest was calculated; and (d) A statement of the dissenter's right to demand payment under KRS 271B.13-280. 271B.13-270 FAILURE TO TAKE ACTION. -- (1) If the corporation does not take the proposed action within sixty (60) days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (2) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it shall send a new dissenters' notice under KRS 271B.13-220 and repeat the payment demand procedure. 271B.13-270 AFTER-ACQUIRED SHARES. -- (1) A corporation may elect to withhold payment required by KRS 271B.13-250 from a dissenter unless he was the beneficial owner of the shares before the date set forth in the dissenters' notice as the date of the first announcement to news media or to shareholders of the terms of the proposed corporate action. (2) To the extent the corporation elects to withhold payment under subsection (1) of this section, after taking the proposed corporate action, it shall estimate the fair value of the shares, plus accrued interest, and shall pay this amount to each dissenter who agrees to accept it in full satisfaction of his demand. The corporation shall send with its offer a statement of its estimate of the fair value of the shares, an explanation of how the interest was calculated, and a statement of the dissenters' right to demand payment under KRS 271B.13-280. 271B.13-290 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. -- (1) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate (less any payment under KRS 271B.13-250), or reject the corporation's offer under KRS 271B.13-270 and demand payment of the fair value of his shares and interest due, if: (a) The dissenter believes that the amount paid under KRS 271B.13-250 or offered under KRS 271B.13-270 is less than the fair value of his shares or that the interest due is incorrectly calculated; (b) The corporation fails to make payment under KRS 271B.13- 250 within sixty (60) days after the date set for demanding payment; or (c) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within sixty (60) days after the date set for demanding payment. (2) A dissenter waives his right to demand payment under this section unless he shall notify the corporation of his demand in writing under subsection (1) of this section within thirty (30) days after the corporation made or offered payment for his shares. Judicial Appraisal of Shares 271B.13-300 COURT ACTION. -- (1) If a demand for payment under KRS 271B.13-280 remains unsettled, the corporation shall commence a proceeding within sixty (60) days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the sixty (60) day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (2) The corporation shall commence the proceeding in the circuit court of the county where a corporation's principal office (or, if none in this state, its registered office) is located. If the corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (3) The corporation shall make all dissenters (whether or not residents of this state) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties shall be served with a copy of the petition. Nonresidents may be served by registered or certified mail or by publication as provided by law. (4) The jurisdiction of the court in which the proceeding is commenced under subsection (2) of this section shall be plenary and exclusive. The court may appoint one (1) or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The dissenters shall be entitled to the same discovery rights as parties in other civil proceedings. (5) Each dissenter made a party to the proceeding shall be entitled to judgment: (a) For the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation; or (b) For the fair value, plus accrued interest, of his after- acquired shares for which the corporation elected to withhold payment under KRS 271B.13-270. 271B.13-310 COURT COSTS AND COUNSEL FEES. -- (1) The court in an appraisal proceeding commenced under KRS 271B.13-300 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court. The court shall assess the costs against the corporation, except that the court may assess costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under KRS 271B.13-280. (2) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable: (a) Against the corporation and in favor of any or all dissenters, if the court finds the corporation did not substantially comply with the requirements of KRS 271B.13-200 to 271B.13-280; or (b) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this subtitle. (3) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. PART II INFORMATION NOT REQUIRED IN PROSPECTUS Indemnification of Directors and Officers Section 1701.13 of the Ohio Revised Code provides that a Corporation may indemnify or agree to indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, other than an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust or other enterprise against expenses, including attorneys' fees, judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendre or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and with respect to any criminal action or proceeding he had reasonable cause to believe that his conduct was unlawful. Section 1701.13 further specifies that a corporation may indemnify or agree to indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit partnership, joint venture, trust or other enterprise against expenses, including attorneys' fees actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue, or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless, and only to the extent that the court of common pleas, or the court in which such action or suit was brought, determines upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court of common pleas or such other court shall deem proper. In addition, Section 1701.13 of the Ohio Revised Code requires a corporation to pay any expenses, including attorney's fees, of a director in defending an action, suit or proceeding referred to above as they are incurred, in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of the director in which he agrees to both (i) repay such amount if it is proved by clear and convincing evidence that his action or failure to act involved an act or omission undertaken with deliberate intent to cause injury to the corporation or undertaken with reckless disregard for the best interests of the corporation and (ii) reasonably cooperate with the corporation concerning the action, suit or proceeding. The indemnification provided by Section 1701.13 shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under the articles or regulations of the Registrant. The Code of Regulations of Fifth Third provides that Fifth Third shall indemnify each director and each officer of Fifth Third, and each person employed by Fifth Third who serves at the written request of the President of Fifth Third as a director, trustee, officer, employee or agent of another corporation, domestic or foreign, non profit or for profit, to the full extent permitted by Ohio law. The Registrant may indemnify assistant officers, employees and others by action of the Board of Directors to the extent permitted by Ohio law. The Registrant carries directors' and officers' liability insurance coverage which insures its directors and officers and the directors and officers of its subsidiaries in certain circumstances. Exhibits and Financial Statement Schedules
Document Exhibit Page Number in Sequential Numbering System Affiliation Agreement and Agreement of Merger dated as of December 6, 1993, by and between Fifth Third and National (excluding exhibits) (set forth in Annex A and Annex B to the Proxy Statement and Prospectus included in this Registration Statement) 2 Seconded Amended Articles of Incorporation of Fifth Third Bancorp, as amended 3.1 Incorporated by Reference(1) Code of Regulations of Fifth Third Bancorp, as amended 3.2 Incorporated by Reference(1) Form of opinion of Dinsmore & Shohl as to the legality of the securities being issued 5 Form of opinion of Dinsmore & Shohl as to tax matters 8 Fifth Third Bancorp 1982 Stock Option Plan 10.1 Incorporated by Reference(2) Fifth Third Bancorp 1987 Stock Option Plan 10.2 Incorporated by Reference(3) Fifth Third Bancorp Unfunded Deferred Compensation Plan for Non-Employee Directors 10.3 Incorporated by Reference(4) Fifth Third Bancorp Nonqualified Deferred Compensation Plan 10.4 Incorporated by Reference(5) Fifth Third Bancorp 1990 Stock Option Plan 10.5 Incorporated by Reference(6) 1993 Annual Report to Shareholders of Fifth Third Bancorp 13.1 Incorporated by Reference Fifth Third Bancorp Quarterly Report on Form 10-K then ended at December 31, 1993 and for the year then ended 13.2 Incorporated by Reference Subsidiaries of Fifth Third Bancorp 22(6) Incorporated by Reference(7) Consent of Deloitte & Touche 23.1 Consent of Experts and Counsel 23.4(8) A power of attorney where various individuals authorize the signing of their names to any and all amendments to this Registration Statement and other documents submitted in connection therewith is contained on the first page of the Signature pages following Part II of this Registration Statement 25 (1) Filed with the Securities and Exchange Commission as an exhibit to a Registration Statement on Form S-4, Registration No. 33-63966. (2) Filed with the Securities and Exchange Commission as an exhibit to a Registration Statement on Form S-2, Registration No. 2-98550, which is effective. (3) Filed with the Securities and Exchange Commission as an exhibit to a Registration Statement on Form S-2, Registration No. 33-13252, which is effective. (4) Incorporated by reference to the Registrant's Annual Report on Form 10-K filed for fiscal year ended December 31, 1985. (5) Filed with the Securities and Exchange Commission as Exhibit 10.4 to a Registration Statement on Form S-4, Registration No. 33-21139, declared effective April 20, 1988. (6) Filed with the Securities and Exchange Commission as an exhibit to a Registration Statement on Form S-8, Registration No. 33-34075, which is effective. (7) Incorporated by reference to the Registrant's Annual Report on Form 10-K filed for fiscal year ended December 31, 1992. (8) The consents of counsel are contained in their opinions.
Undertakings (1)The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (2)The undersigned Registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is part of this registration statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form. (3)The Registrant undertakes that every prospectus (i) that is filed pursuant to paragraph (2) immediately preceding, or (ii) that purports to meet the requirements of section 10(a)(3) of the Securities Act of 1933 and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the Registration Statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offering therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (4)Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (5)The undersigned Registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. (6)The undersigned Registrant hereby undertakes to deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information. (7)The undersigned Registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form S-4 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Cincinnati, State of Ohio, on March 30, 1994. FIFTH THIRD BANCORP By:/S/ George A. Schaefer, Jr. George A. Schaefer, Jr. President and Chief Executive Officer KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints GEORGE A. SCHAEFER, JR. his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated. Principal Executive Officer: /S/ George A. Schaefer, Jr. President and March 30, 1994 George A. Schaefer, Jr. Chief Executive Officer /S/ P. Michael Brumm Senior Vice March 30, 1994 P. Michael Brumm President and Chief Financial Officer Directors of the Company: /S/ John F. Barrett March 30, 1994 John F. Barrett ________, 1994 J. Kenneth Blackwell ________, 1994 Milton C. Boesel, Jr. /S/ Clement L. Buenger March 30, 1994 Clement L. Buenger /S/ Nolan W. Carson March 30, 1994 Nolan W. Carson /S/ Thomas L. Dahl March 30, 1994 Thomas L. Dahl /S/ Gerald V. Dirvin March 30, 1994 Gerald V. Dirvin ________, 1994 Thomas B. Donnell /S/ Richard T. Farmer March 30, 1994 Richard T. Farmer /S/ John D. Geary March 30, 1994 John D. Geary March 30, 1994 Ivan W. Gorr /S/ Joseph H. Head, Jr. March 30, 1994 Joseph H. Head, Jr. /S/ Joan R. Herschede March 30, 1994 Joan R. Herschede /S/ William G. Kagler March 30, 1994 William G. Kagler /S/ William J. Keating March 30, 1994 William J. Keating /S/ James D. Kiggen March 30, 1994 James D. Kiggen /S/ Robert B. Morgan March 30, 1994 Robert B. Morgan /S/ Michael H. Norris March 30, 1994 Michael H. Norris ________, 1994 Brian H. Rowe /S/ George A. Schaefer, Jr. March 30, 1994 George A. Schaefer, Jr. /S/ John J. Schiff, Jr. March 30, 1994 John J. Schiff, Jr. ________, 1994 Stephen Stranahan /S/ Dennis J. Sullivan, Jr. March 30, 1994 Dennis J. Sullivan, Jr. /S/ Dudley S. Taft March 30, 1994 Dudley S. Taft EX-5 2 [Form of Corporate Opinion of Dinsmore & Shohl] , 1994 THE FOLLOWING OPINION IS INTENDED TO BE RENDERED UPON THE CLOSING OF THE TRANSACTION DESCRIBED THEREIN IN SUBSTANTIALLY THE FORM PRESENTED, ASSUMING NO CHANGES IN THE FACTS OR THE LAW UPON WHICH SUCH OPINION IS BASED, AND SUBJECT TO RECEIPT, REVIEW AND APPROVAL OF FINAL DOCUMENTS The National Bancorp of Kentucky, Inc. 2560 Richmond Road Lexington, Kentucky 40509 Mr. Tracy W. Farmer 2560 Richmond Road Lexington, Kentucky 40509 Gentlemen: We have acted as counsel to Fifth Third Bancorp in connection with the transactions provided for in the Affiliation Agreement dated as of December __, 1993 ("Affiliation Agreement") by and between Fifth Third Bancorp ("Fifth Third") and The National Bancorp of Kentucky, Inc. ("National Bancorp") and the Agreement of Merger dated as of December __, 1993 by and between Fifth Third and National Bancorp ("Agreement of Merger"). This opinion is rendered to you pursuant to paragraph 3 of Section VI.C. of the Affiliation Agreement. We have examined and are familiar with originals or copies, certified or otherwise, identified to our satisfaction, of such statutes, regulations, documents, corporate records, and certificates of public officials and corporate officers as we have deemed necessary for the purposes of this opinion, including but not limited to the following: (a) the Second Amended Articles of Incorporation of Fifth Third, as amended; (b) the Code of Regulations, as amended, of Fifth Third; and (c) the record of all actions taken by the Board of Directors of Fifth Third in connection with any matters covered by this opinion. We have made such examination of Kentucky, Ohio and Federal law as we deem relevant for the purposes of this opinion, but we have not made any review of the laws of any state other than Kentucky and Ohio. Accordingly, we express no opinion as to the laws of any state or jurisdiction other than the United States of America and the States of Kentucky and Ohio. Based upon and subject to the foregoing, we are of the opinion that: 1. Fifth Third is duly incorporated, validly existing and in good standing as a corporation under the laws of Ohio, and has all the requisite power and authority to enter into and consummate the transactions provided for in the Affiliation Agreement and the Agreement of Merger. 2. Fifth Third is a registered bank holding company under the Bank Holding Company Act of 1956, as amended, and it has all requisite corporate power and authority to conduct the business in which it is engaged and as now conducted. 3. The Affiliation Agreement and the Agreement of Merger and the transactions provided for therein have been duly approved by the Board of Directors of Fifth Third, and no action is required to be taken by the shareholders of Fifth Third to authorize, approve or adopt the Affiliation Agreement or the Agreement of Merger or the transactions provided for therein. 4. The Affiliation Agreement and the Agreement of Merger have been duly executed and delivered by Fifth Third and constitute valid and binding obligations of Fifth Third enforceable against Fifth Third in accordance with their respective terms, except to the extent that (i) enforceability thereof may be limited by bankruptcy, insolvency, moratorium, fraudulent conveyance or other laws relating to or from time to time affecting the enforcement of creditors' rights generally or the rights of creditors of bank holding companies, the accounts of whose subsidiaries are insured by the Federal Deposit Insurance Corporation and (ii) the availability of certain remedies may be precluded by general principles of equity. 5. The execution, delivery and performance of the Affiliation Agreement and the Agreement of Merger do not violate the Articles of Incorporation or Code of Regulations of Fifth Third. 6. Fifth Third has taken all necessary and required corporate action to authorize the issuance or transfer of the shares of its Common Stock to be received by the holder of the Common Stock of National Bancorp as a result of the merger of National Bancorp with and into Fifth Third and, when so issued or transferred, such shares will be legally and validly issued and outstanding, fully paid and nonassessable and will not upon such transfer or issuance be subject to the preemptive rights of any shareholder of Fifth Third, and such shares have been registered under the Securities Act of 1933, as amended. 7. The registration statement filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, Registration No. (the "Registration Statement"), by Fifth Third to register the shares of Common Stock of Fifth Third being offered to the shareholder of National Bancorp in the merger provided for in the Affiliation Agreement and the Agreement of Merger has been declared effective and no stop order has been issued and no proceeding for that purpose has been initiated or, to our best knowledge, contemplated or threatened by the Securities and Exchange Commission. 8. The Registration Statement and the proxy statement/ prospectus included therein at the time it became effective complied as to form with the requirements of the Securities Act of 1933, as amended, and the rules and regulations thereunder. 9. All necessary approvals for the transactions provided for in the Affiliation Agreement and the Agreement of Merger have been obtained from the appropriate regulatory authorities and are in full force and effect. Very truly yours, DINSMORE & SHOHL /S/ S. Richard Arnold S. Richard Arnold SRA/je Enclosure EX-8 3 _______________, 1994 THE FOLLOWING OPINION IS INTENDED TO BE RENDERED UPON THE CLOSING OF THE TRANSACTION DESCRIBED HEREIN IN SUBSTANTIALLY THE FORM PRESENTED, ASSUMING NO CHANGES IN THE FACTS OR THE LAW UPON WHICH SUCH OPINION IS BASED, AND SUBJECT TO RECEIPT, REVIEW AND APPROVAL OF FINAL DOCUMENTS Fifth Third Bancorp 38 Fountain Square Plaza Cincinnati, Ohio 45263 The National Bancorp of Kentucky, Inc. 2560 Richmond Road Lexington, Kentucky 40509 Mr Tracy W. Farmer 2560 Richmond Road Lexington, Kentucky 40509 Dear Sirs: As counsel for Fifth Third Bancorp, we have been requested to render our opinion with respect to certain Federal income tax consequences of the merger of The National Bancorp of Kentucky, Inc. ("National Bancorp") with and into Fifth Third Bancorp ("Fifth Third") as more fully described in the Affiliation Agreement dated as of December __, 1993 between Fifth Third and National Bancorp and the Agreement of Merger dated as of December __, 1993 between Fifth Third and National Bancorp. We have reviewed the terms of the proposed transaction as set forth in the Affiliation Agreement and the Agreement of Merger and have received representations from certain executive officers of Fifth Third and National Bancorp relating to various factual matters relevant to the opinions expressed herein. Our opinion is based on the Affiliation Agreement and the Agreement of Merger, the facts set forth in such representations and on our analysis of the applicable provisions of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations, Internal Revenue Service Rulings and judicial decisions interpreting the Code as in effect on the date hereof. We have not independently verified the factual matters set forth in the representations. Based upon and subject to the foregoing, our opinion is as follows: 1. The merger of National Bancorp with and into Fifth Third will constitute a reorganization within the meaning of Section 368(a)(1)(A) of the Code and, for purposes thereof, Fifth Third and National Bancorp will each qualify as a "party to a reorganization" within the meaning of Section 368(b) of the Code; 2. No gain or loss will be recognized by National Bancorp as a consequence of the merger; 3. No gain or loss will be recognized by Fifth Third on the receipt by Fifth Third of substantially all the assets of National Bancorp and the assumption by Fifth Third of National Bancorp's liabilities; 4. No gain or loss will be recognized by the sole shareholder of National Bancorp on the receipt of Fifth Third common stock in exchange for his shares of National Bancorp common stock pursuant to the Agreement of Merger (disregarding for this purpose any cash received for fractional share interests to which he may be entitled). Any consideration other than Fifth Third common stock (or cash in lieu of a fractional share of Fifth Third common stock) that is received by such sole shareholder in exchange for his shares of National Bancorp stock shall be subject to the tax treatment required under Section 356(a) of the Code; 5. The tax basis of the Fifth Third common stock including any fractional share received by the National Bancorp shareholder in the merger will be, in each instance, the same as the federal income tax basis of the National Bancorp common stock surrendered in exchange therefor decreased by the amount of any cash received in lieu of a fractional share interest and increased by the amount of cash received that was treated as a dividend (if any) and the amount of gain recognized on such exchange (if any); 6. The holding period of Fifth Third common stock (including any fractional share) received by the National Bancorp shareholder will include the period during which the National Bancorp common stock surrendered in exchange therefor was held, provided that the National Bancorp common stock was held as a capital asset by such shareholder on the date of the exchange; and 7. If the holder of National Bancorp common stock receives cash in lieu of a fractional share of Fifth Third common stock, he will be treated as having received such fractional share of Fifth Third common stock and then as having received such cash in redemption of such fractional share subject to the provisions of Section 302 of the Code. We consent to the filing of the form of this opinion as an exhibit to the Registration Statement filed in connection with the merger. Very truly yours, DINSMORE & SHOHL By: /S/ J. Michael Cooney J. Michael Cooney JMC/je EX-23.1 4 INDEPENDENT AUDITOR'S CONSENT We consent to the incorporation by reference in this Registration Statement of Fifth Third Bancorp on Form S-4 of our report dated January 14, 1994 (which expresses an unqualified opinion and includes an explanatory paragraph relating to a change in the method of accounting for debt and equity securities), incorporated by reference in the Annual Report on Form 10-K of Fifth Third Bancorp for the year ended December 31, 1993 and to the reference to us under the heading "Experts" in the Prospectus, which is part of this Registration Statement. /S/ Deloitte & Touche Cincinnati, Ohio March 25, 1994 EX-23.2 5 INDEPENDENT AUDITORS' CONSENT We consent to the inclusion in this Registration Statement of Fifth Third Bancorp on Form S-4 of our reports dated February 15, 1994 and February 12, 1993, and the reference to us made under the heading "Experts" in the Prospectus which is part of this Registration Statement. /S/ Clines & Satterly, P.S.C. Lexington, Kentucky March 29, 1993 -----END PRIVACY-ENHANCED MESSAGE-----