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As filed with the Securities and Exchange Commission
On September 30, 1994
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)
Fifth Third Center, 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:
David M. Zuckerman, Esq. Terri Reyering Abare, Esq.
Dinsmore & Shohl Vorys, Sater, Seymour & Pease
1900 Chemed Center Suite 2100, Atrium Two
255 East Fifth Street 221 East Fourth Street
Cincinnati, Ohio 45202 Cincinnati, Ohio 45202
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.[ ]
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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, 425,000 $51.50 $21,887,500 $7,547.41
no par value
* Represents the maximum number of shares of Registrant's Common Stock
issuable to shareholders of Mutual Federal Savings Bank of Miamisburg, A Stock
Savings Bank, assuming that the Applicable Market Value Per Share of the
Registrant's Common Stock (as defined in the Affiliation Agreement described
herein) is $51.50.
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.
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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
9. Disclosure of Commission Position on Indemnification for Securities Act
Liabilities - Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants - Fifth Third Bancorp;
Selected Historical Financial Data of Fifth Third; Description of
Capital Stock
11. Incorporation of Certain Information by Reference - Incorporation of
Certain Documents by Reference; Available Information; Description of
Capital Stock
12. Information with Respect to S-2 or S-3 Registrants - Not Applicable
13. Incorporation of Certain Information by Reference - Not Applicable
14. Information With Respect to Registrants Other Than S-2 or S-3
Registrants - Not Applicable
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies - Not Applicable
16. Information with Respect to S-2 or S-3 Companies - Not Applicable
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17. Information with Respect to Companies Other Than S-2 or S-3 Companies -
Mutual Federal Savings Bank of Miamisburg; Selected Historical Data of
Mutual Federal; Description of Capital Stock; Management's Discussion
and Analysis of Mutual Federal's Financial Condition and Results of
Operations; Mutual Federal Financial Statements.
D. VOTING AND MANAGEMENT INFORMATION
18. 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; Mutual Federal Savings Bank of Miamisburg, A
Stock Savings Bank; Mutual Federal Board of Directors.
19. Information if Proxies, Consents or Authorizations Are Not To Be
Solicited or in an Exchange Offer - Not Applicable
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MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG,
A STOCK SAVINGS BANK
23 East Central Avenue
Miamisburg, Ohio 45342
_______________, 1994
Dear Shareholder:
On behalf of the Board of Directors, we cordially invite you to attend the
special meeting of shareholders (the "Special Meeting") of Mutual Federal
Savings Bank of Miamisburg, A Stock Savings Bank ("Mutual Federal"), which will
be held at 10:00 A.M., Eastern Standard Time, on _______ ____________, 1994, at
_________________________________________________________________________.
At the Special Meeting, shareholders will be asked to approve an Affiliation
Agreement dated as of May 9, 1994 between Fifth Third Bancorp ("Fifth Third")
and Mutual Federal (the "Affiliation Agreement") and a related Agreement of
Merger dated as of May 9, 1994 between Mutual Federal and The Fifth Third Bank,
Cincinnati, Ohio, a wholly owned subsidiary of Fifth Third and agreed to by
Fifth Third (the "Merger Agreement"). Pursuant to the Affiliation Agreement
and the Merger Agreement, Mutual Federal will merge into The Fifth Third Bank
(the "Merger"). At the time the Merger becomes effective, each share of common
stock, $1.00 par value per share, of Mutual Federal (the "Mutual Federal Common
Stock") will be converted by virtue of the Merger into that fraction of a share
of Fifth Third common stock ("Fifth Third Common Stock") determined by dividing
$30.00 by the Applicable Market Value Per Share of Fifth Third Common Stock,
expressed in decimal figures carried to five places. The "Applicable Market
Value Per Share of Fifth Third Common Stock" shall be the average of the per
share closing prices of Fifth Third Common Stock as reported on the NASDAQ
National Market System for the twenty trading days ending on the fifth trading
day prior to the time the Merger becomes effective. Only whole shares of Fifth
Third Common Stock will be issued. Any shareholder who would otherwise be
entitled to receive a fractional share will receive cash in lieu of such
fractional share based on the Applicable Market Value Per Share of Fifth Third
Common Stock. The proposed Merger is discussed in detail in the accompanying
Proxy Statement and Prospectus, as well as the Affiliation Agreement and the
Merger Agreement which are appended thereto as Annex A and Annex B,
respectively. We urge you to read the entire Proxy Statement and Prospectus.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND RECOMMENDS THAT
YOU VOTE "FOR" THE MERGER. THE AFFILIATION AGREEMENT AND THE MERGER AGREEMENT
MUST BE APPROVED BY THE AFFIRMATIVE VOTE OF TWO-THIRDS OF THE ISSUED AND
OUTSTANDING SHARES OF MUTUAL FEDERAL COMMON STOCK. AN ABSTENTION OR FAILURE TO
VOTE HAS THE SAME EFFECT AS A VOTE AGAINST THE PROPOSED MERGER. IT IS,
THEREFORE, IMPORTANT THAT YOU VOTE ON THE MERGER.
Your vote is very important, regardless of the number of shares you own.
Please sign and return the proxy card in the postage-paid return envelope
provided for your convenience. This will not prevent you from voting in
person, but will assure that your vote is counted if you are unable to attend
the Special Meeting.
Please vote and return your proxy today.
Sincerely,
Donald L. Koller
President and Chief Executive Officer
IMPORTANT: If your Mutual Federal shares are held in the name of a brokerage
firm or nominee, only they can execute a proxy on your behalf. To assure that
your shares are voted, we urge you to telephone today the individual
responsible for your account at your brokerage firm and obtain instructions on
how to direct him or her to execute a proxy.
If you have any questions or need any help in voting your shares, please
telephone ________________________________________ at Mutual Federal, (513)
866-______.
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MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG, A STOCK SAVINGS BANK
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On _______________, 1994
NOTICE IS HEREBY GIVEN that a special meeting of shareholders ("Special
Meeting") of Mutual Federal Savings Bank of Miamisburg, A Stock Savings Bank
("Mutual Federal") will be held on ____________________, 1994, at 10:00 A.M.,
Eastern Standard Time, at ___________________________
________________________________________________________________.
A Proxy Statement and Prospectus and Proxy Card for the Special Meeting are
enclosed herewith. The Special Meeting is for the purpose of considering and
voting upon the following matters:
A. A proposal to approve an Affiliation Agreement dated as of May 9, 1994
between Fifth Third Bancorp ("Fifth Third") and Mutual Federal (the
"Affiliation Agreement") and a related Agreement of Merger dated as of May 9,
1994 between Mutual Federal and The Fifth Third Bank, Cincinnati, Ohio, a
wholly owned subsidiary of Fifth Third and agreed to by Fifth Third (the
"Merger Agreement"). Pursuant to the Affiliation Agreement and the Merger
Agreement, Mutual Federal will merge into The Fifth Third Bank (the "Merger").
At the time the Merger becomes effective, each share of common stock, $1.00 par
value per share, of Mutual Federal (the "Mutual Federal Common Stock") will be
converted by virtue of the Merger into that fraction of a share of Fifth Third
common stock ("Fifth Third Common Stock") determined by dividing $30.00 by the
Applicable Market Value Per Share of Fifth Third Common Stock, expressed in
decimal figures carried to five places. The "Applicable Market Value Per Share
of Fifth Third Common Stock" shall be the average of the per share closing
prices of Fifth Third Common Stock as reported on the NASDAQ National Market
System for the twenty trading days ending on the fifth trading day prior to the
time the Merger becomes effective.
B. Such other business as may properly come before the Special 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 Bylaws of Mutual Federal, the Board of Directors has fixed
____________________, 1994 as the record date for the determination of
shareholders entitled to receive notice of, and to vote at, the Special Meeting
and any adjournments thereof. Only holders of record of Mutual Federal 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 TWO-THIRDS OF THE ISSUED AND OUTSTANDING SHARES OF
MUTUAL FEDERAL COMMON STOCK IS REQUIRED TO APPROVE THE AFFILIATION AGREEMENT
AND THE MERGER AGREEMENT. YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF
SHARES WHICH YOU OWN.
EACH SHAREHOLDER, WHETHER HE OR SHE 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 SHAREHOLDER MAY BE
REVOKED BEFORE IT IS EXERCISED BY SUBMITTING A LATER DATED PROXY, BY ATTENDING
THE SPECIAL MEETING AND VOTING IN PERSON OR BY GIVING NOTICE OF REVOCATION TO
MUTUAL FEDERAL IN A WRITING ADDRESSED TO AND RECEIVED BY THE SECRETARY OF
MUTUAL FEDERAL BEFORE THE SPECIAL MEETING.
By Order of the Board of Directors
Donald L. Koller, President and Chief Executive Officer
Miamisburg, Ohio
_______________, 1994
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MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG, FIFTH THIRD BANCORP
A STOCK SAVINGS BANK FIFTH THIRD CENTER
23 EAST CENTRAL AVENUE CINCINNATI, OHIO 45263
MIAMISBURG, OHIO 45342 (513) 579-5300
(513) 866-2436
PROXY STATEMENT AND PROSPECTUS
This Proxy Statement and Prospectus is being furnished to the shareholders of
Mutual Federal Savings Bank of Miamisburg, A Stock Savings Bank ("Mutual
Federal"), a federal savings bank, in connection with the solicitation of
proxies by the Board of Directors of Mutual Federal for use at a special
meeting of shareholders to be held on ____________________, 1994 (the "Special
Meeting").
At the Special Meeting, holders of shares of Mutual Federal's common stock,
$1.00 par value per share ("Mutual Federal Common Stock"), will be asked to
approve an Affiliation Agreement dated as of May 9, 1994 between Fifth Third
Bancorp ("Fifth Third") and Mutual Federal (the "Affiliation Agreement") and a
related Agreement of Merger dated as of May 9, 1994 between Mutual Federal and
The Fifth Third Bank, Cincinnati, Ohio, a wholly owned subsidiary of Fifth
Third and agreed to by Fifth Third (the "Merger Agreement"). Pursuant to the
Affiliation Agreement and the Merger Agreement, Mutual Federal will merge into
The Fifth Third Bank (the "Merger"). At the time the Merger becomes effective,
each share of Mutual Federal Common Stock will be converted by virtue of the
Merger into that fraction of a share of Fifth Third common stock, no par value
per share ("Fifth Third Common Stock") determined by dividing $30.00 by the
Applicable Market Value Per Share of Fifth Third Common Stock, expressed in
decimal figures carried to five places. The "Applicable Market Value Per Share
of Fifth Third Common Stock" shall be the average of the per share closing
prices of Fifth Third Common Stock as reported on the NASDAQ National Market
System for the twenty trading days ending on the fifth trading day prior to the
time the Merger becomes effective (the "Effective Time"). Only whole shares of
Fifth Third Common Stock will be issued in connection with the Merger. No
fractional shares will be issued. Any shareholder otherwise entitled to
receive a fractional share will receive cash in lieu thereof based upon the
Applicable Market 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 Mutual Federal's shareholders 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 OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE COMMISSION OR ANY STATE SECURITIES
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 ____________________, 1994.
i
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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, FIFTH
THIRD CENTER, CINCINNATI, OHIO 45263 (TELEPHONE NUMBER: (513) 579-5300) WITH
RESPECT TO DOCUMENTS CONCERNING FIFTH THIRD. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY ___________________,
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 Mutual Federal. 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.
Fifth Third Common Stock is traded in the over-the-counter market and quoted
on the NASDAQ National Market System. Documents filed by Fifth Third with the
Commission can also be inspected at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
Mutual Federal is also subject to the requirements of the Exchange Act.
However, as a federal savings bank, Mutual Federal files reports, proxy
statements, and other information under the Exchange Act with the Office of
Thrift Supervision (the "OTS"). Copies of such reports, proxy statements and
other information may be obtained, at prescribed rates, from the OTS by
addressing written requests for such copies to the Public Disclosure Office,
Office of Thrift Supervision, 1700 G Street, N.W., Washington, D.C. 20552, and
also may be inspected and copied at such location.
All information contained in this Proxy Statement and Prospectus with respect
to Mutual Federal was supplied by Mutual Federal and all information contained
or incorporated in this Proxy Statement and Prospectus with respect to Fifth
Third was supplied by Fifth Third.
Although neither Mutual Federal 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 Mutual Federal 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;
ii
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(c) Fifth Third's Proxy Statement dated February 10, 1994;
(d) Fifth Third's Quarterly Report on Form 10-Q for the period ended June 30,
1994;
(e) Fifth Third's Report on Form 8-K dated September 6, 1994.
(f) Fifth Third's Report on Form 11-K dated September 20, 1994.
In addition, all subsequent documents filed with the Commission by Fifth Third
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act 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.
[THE BALANCE OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK]
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<TABLE>
TABLE OF CONTENTS
<S> <C>
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . . . . . . ii
SUMMARY OF THE PROXY STATEMENT AND PROSPECTUS . . . . . . . . . . . . . . . . . . . . . . vi
SELECTED HISTORICAL FINANCIAL DATA OF FIFTH THIRD . . . . . . . . . . . . . . . . . . . . x
SELECTED HISTORICAL FINANCIAL DATA OF MUTUAL FEDERAL . . . . . . . . . . . . . . . . . . xiii
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
PURPOSES OF THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Proposal to Merge Mutual Federal into The Fifth Third Bank . . . . . . . . . . . . . . 1
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Vote Required; Shares Entitled to Vote . . . . . . . . . . . . . . . . . . . . . . . . 2
Voting and Revocation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
COMPARATIVE MARKET PRICE AND DIVIDEND DATA . . . . . . . . . . . . . . . . . . . . . . . 4
COMPARATIVE PER SHARE DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
TERMS AND CONDITIONS OF THE PROPOSED MERGER . . . . . . . . . . . . . . . . . . . . . . . 6
Background and Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . . . . . 6
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Conversion of Shares of Mutual Federal Common Stock . . . . . . . . . . . . . . . . . . 7
Exchange Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Stock Options and Stock Ownership Plan . . . . . . . . . . . . . . . . . . . . . . . . 8
No Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Rights of Dissenting Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Conduct Pending Merger; Representations and Warranties . . . . . . . . . . . . . . . . 10
Conditions to Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Amendment; Waiver; Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Effect on Mutual Federal Employees . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Interests of Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Opinion of McDonald & Company Securities, Inc. . . . . . . . . . . . . . . . . . . . . 13
Effects of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Transactions With Affiliated Persons . . . . . . . . . . . . . . . . . . . . . . . . . 14
CAPITAL REQUIREMENTS FOR FIFTH THIRD . . . . . . . . . . . . . . . . . . . . . . . . . . 14
RESALE OF FIFTH THIRD COMMON STOCK BY AFFILIATES . . . . . . . . . . . . . . . . . . . . 15
FIFTH THIRD BANCORP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Bank Holding Companies In General . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG, A STOCK SAVINGS BANK . . . . . . . . . . . . . 17
Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
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<TABLE>
<S> <C>
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
EFFECT OF GOVERNMENTAL POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
DESCRIPTION OF CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Rights Upon Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Indemnification and Personal Liability of Directors and Officers . . . . . . . . . . . . . . . . . . . 42
Shareholders' Meetings; Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Subscription, Conversion, Redemption Rights; Stock Nonassessable . . . . . . . . . . . . . . . . . . . 42
Change of Control Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
CERTAIN BENEFICIAL OWNERS OF FIFTH THIRD COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . 43
FIFTH THIRD MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
MUTUAL FEDERAL BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
MANAGEMENT'S DISCUSSION AND ANALYSIS OF MUTUAL FEDERAL'S
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . 50
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SHAREHOLDERS' PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
MUTUAL FEDERAL FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Annexes:
Annex A: Affiliation Agreement dated as of May 9, 1994 between Fifth Third Bancorp and Mutual Federal
Savings Bank of Miamisburg, A Stock Savings Bank (excluding exhibits)
Annex B: Agreement of Merger dated as of May 9, 1994 between The Fifth Third Bank and Mutual Federal
Savings Bank of Miamisburg, A Stock Savings Bank and agreed to by Fifth Third
Annex C: Fairness Opinion of McDonald & Company Securities, Inc.
Annex D: Title 12 CFR Section 552.14.
</TABLE>
v
<PAGE> 12
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 TRANSACTION:
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 June 30,
1994, Fifth Third's nine
subsidiary banks operated a
general banking business from
306 offices located throughout
Ohio, Indiana and Kentucky.
Fifth Third is also a
registered multi-savings and
loan holding company and
operates two
federally-chartered savings
banks. At June 30, 1994,
Fifth Third had consolidated
assets, deposits and
stockholders' equity of
approximately $12.8 billion,
$9.1 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 Fifth
Third Center, Cincinnati, Ohio
45263, and its telephone
number is (513) 579-5300.
MUTUAL FEDERAL: Mutual Federal is a federal
savings bank incorporated under
the laws of the United States.
Mutual Federal has three
offices in Montgomery County,
Ohio. At June 30, 1994, Mutual
Federal had total assets,
total deposits and
shareholders' equity of
approximately $83.1 million,
$68.0 million and $14.9
million, respectively. Mutual
Federal's voting stock is
traded over-the-counter and is
listed on the NASDAQ Small
Cap Market under the symbol
"MUFD." Mutual Federal's
principal executive offices are
located at 23 East Central
Avenue, Miamisburg, Ohio
45342, and its telephone number
is (513) 866-2436.
SPECIAL MEETING OF MUTUAL FEDERAL SHAREHOLDERS:
TIME AND DATE: 10:00 A.M., Eastern Standard
Time, on _________________, 1994
PLACE:
________________________________
________________________________
_________________ .
PURPOSE: To consider and vote upon the
Affiliation Agreement and the
Merger Agreement which provide
for the Merger of Mutual
Federal with and into The
Fifth Third Bank. Pursuant to
the Affiliation Agreement and
the Merger Agreement, Mutual
Federal's shareholders will
receive shares of Fifth Third
Common Stock in exchange for
shares of Mutual Federal
Common Stock. Copies of the
Affiliation Agreement and the
Merger Agreement are attached
hereto as Annex A and Annex B,
respectively, and are
incorporated herein by
reference. See "PURPOSES OF
THE SPECIAL MEETING -
Proposal to Merge Mutual
Federal Into The Fifth Third
Bank."
REQUIRED VOTE FOR THE MERGER, Approval of the Affiliation
THE AFFILIATION AGREEMENT AND Agreement and the Merger
THE MERGER AGREEMENT; RECORD Agreement requires the
DATE: affirmative vote of holders of
two-thirds of the 648,025 shares
of Mutual Federal Common
Stock outstanding as of
the close of business on
______________________________,
1994. An abstention or
failure to vote has the same
effect as voting against the
proposed Merger. Accordingly,
shareholders are urged to
sign and return their proxies.
See "PURPOSES OF THE SPECIAL
MEETING - Vote Required;
Shares Entitled to Vote" and "
- Voting and Revocation of
Proxies."
vi
<PAGE> 13
BENEFICIAL OWNERSHIP BY As of the close of business on
OFFICERS AND DIRECTORS: June 30, 1994, the executive of
ficers and directors of Mutual
Federal and their affiliates
beneficially owned 168,501.24
shares, or approximately
24.07%, of Mutual Federal
Common Stock. This figure
includes options for shares
of stock which were exercisable
on that date. See "PURPOSES
OF THE SPECIAL MEETING - Vote
Required; Shares Entitled to
Vote" and "MUTUAL FEDERAL
BOARD OF DIRECTORS."
RIGHTS OF DISSENTING Under federal regulations, the
SHAREHOLDERS: shareholders of Mutual Federal
will not have the right to
demand cash in lieu of Fifth
Third Common Stock if Mutual
Federal and Fifth Third
continue to maintain their
respective NASDAQ listings.
See "TERMS AND CONDITIONS OF
THE PROPOSED MERGER - Rights
of Dissenting Shareholders"
and Annex D.
TERMS OF THE MERGER:
CONVERSION OF MUTUAL FEDERAL Upon consummation of the
COMMON STOCK; STOCK Merger, each shareholder of
CONSIDERATION: Mutual Federal will receive,
for each share of Mutual
Federal Common Stock which
he or she holds at the
Effective Time of the Merger,
that fraction of a share of
Fifth Third Common Stock
determined by dividing $30.00
by the Applicable Market Value
Per Share of Fifth Third Common
Stock, expressed in decimal
figures carried to five
places. The "Applicable
Market Value Per Share of
Fifth Third Common Stock"
shall be the average of the
per share closing prices of
Fifth Third Common Stock as
reported on the NASDAQ National
Market System for the twenty
trading days ending on the
fifth trading day prior to
the time the Merger becomes
effective. See "TERMS AND
CONDITIONS OF THE PROPOSED
MERGER - Conversion of Shares
of Mutual Federal Common
Stock" and "- Exchange Ratio."
NO FRACTIONAL SHARES: No fractional shares will be
issued in connection with the
Merger. Mutual Federal
shareholders will receive cash
in lieu of any fractional
shares which they would
otherwise be entitled to
receive, based on the
Applicable Market Value Per
Share of Fifth Third Common
Stock as defined above. See
"TERMS AND CONDITIONS OF THE
PROPOSED MERGER - No Fractional
Shares."
CONDITIONS OF CLOSING: The Merger is subject to
several significant conditions,
including Mutual Federal
shareholder approval, and
approval by the Board of
Governors of the Federal
Reserve System, the Office of
Thrift Supervision and the
Ohio Division of Banks. See
"TERMS AND CONDITIONS OF THE
PROPOSED MERGER - Conditions to
Closing."
MERGER: Upon consummation of the
Merger, Mutual Federal will
merge with and into The Fifth
Third Bank and Mutual Federal
will cease to exist as a
separate entity. See "TERMS
AND CONDITIONS OF THE PROPOSED
MERGER - Effects of Merger."
EFFECTIVE TIME; RIGHT TO The Effective Time will,
TERMINATE: unless the parties agree
otherwise, occur as soon as
practicable after 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
January, 1995. Mutual Federal
and Fifth Third each will have
the right to terminate the
Affiliation Agreement if the
Effective Time does not occur
on or before February 28,
1995. See "TERMS AND
CONDITIONS OF THE PROPOSED
MERGER - Effective Time."
vii
<PAGE> 14
PROCEDURE FOR EXCHANGE OF Promptly after the Effective
SHARES: Time, Fifth Third will mail
to each shareholder of
Mutual Federal a form of
transmittal letter and
instructions for the
surrender of Mutual Federal
Common Stock certificates for
certificates representing the
shares of Fifth Third Common
Stock to which such
shareholder is entitled.
Certificates for shares of
Fifth Third Common Stock will
be issued to shareholders of
Mutual Federal only after
their certificates for Mutual
Federal Common Stock have
been surrendered in accordance
with such instructions.
See "TERMS AND CONDITIONS OF
THE PROPOSED MERGER - Exchange
of Certificates."
FEDERAL INCOME TAX The Merger is conditioned, in
CONSEQUENCES: 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 Mutual Federal's
shareholders upon the exchange
of their Mutual Federal
Common Stock for Fifth Third
Common Stock. See "TERMS AND
CONDITIONS OF THE PROPOSED
MERGER - Federal Income Tax
Consequences." SHAREHOLDERS
ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS AS TO THE
SPECIFIC CONSEQUENCES TO THEM
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."
INTERESTS OF CERTAIN PERSONS Fifth Third shall use its best
IN THE MERGER: efforts to employ at The
Fifth Third Bank or at a
Fifth Third subsidiary or
affiliate as many of the
employees of Mutual Federal as
possible. Each employee of
Mutual Federal 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 of
Fifth Third. Such employees
shall receive credit for their
period of service to Mutual
Federal for purposes of
determining participation and
vesting in all Fifth Third
employee benefit plans, except
for vesting in the Fifth Third
Master Retirement Plan and the
Fifth Third Master Profit
Sharing Plan, but not for
purposes of determining the
benefits accrued thereunder.
In addition, three directors
of Mutual Federal agreeable to
Fifth Third shall be appointed
by The Fifth Third Bank to
serve on an Advisory Committee
to The Fifth Third Bank for a
12-month period commencing on
the Effective Time. The
Advisory Committee's purpose
shall be to assist The Fifth
Third Bank in retaining and
developing business
relationships within the
Greater Dayton metropolitan
area. Each Advisory
Committee member shall be paid
$400.00 per month during such
12-month period for serving on
the Advisory Committee. It is
not anticipated that Fifth
Third will enter into
employment agreements with any
officers of Mutual Federal in
connection with the
transactions contemplated by
the Affiliation Agreement or
the Merger Agreement. The
officers and directors of
Mutual Federal will be
provided certain directors'
and officers' liability
insurance protection for three
years following the Effective
Time. See "TERMS AND
CONDITIONS OF THE PROPOSED
MERGER - Effect on Mutual
Federal Employees" and "-
Interests of Management."
viii
<PAGE> 15
BOARD RECOMMENDATION: The Board of Directors of
Mutual Federal believes that
Mutual Federal shareholders
will benefit from the Merger
and unanimously recommends
approval of the Merger. See
"PURPOSES OF THE SPECIAL
MEETING - Recommendation" and
"TERMS AND CONDITIONS OF THE
PROPOSED MERGER - Background
and Reasons for the Merger."
SECURITIES INVOLVED: For a comparative analysis of
Mutual Federal Common Stock
and Fifth Third Common Stock,
see "DESCRIPTION OF CAPITAL
STOCK."
COMPARATIVE MARKET PRICES: Fifth Third Common Stock and
Mutual Federal Common Stock are
traded on the NASDAQ National
Market System and NASDAQ
Small Cap Market,
respectively, under the
symbols "FITB" and "MUFD",
respectively. On May 9,
1994, 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
October ____, 1994, comparative
market prices of Mutual
Federal Common Stock and Fifth
Third Common Stock were as
follows:
Closing Sales Prices
May 9, 1994 October , 1994
----------- -----------------
Mutual Federal Common Stock $26.75 $____________
Fifth Third Common Stock $52.25 $____________
[THE BALANCE OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK]
ix
<PAGE> 16
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 and Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994, which are incorporated by reference in this
Proxy Statement and Prospectus and should be read in conjunction therewith.
See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
[THE BALANCE OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK]
x
<PAGE> 17
<TABLE>
<CAPTION>
Six Months Ended Years
June 30, Ended December 31,
--------------------- -----------------------
1994 1993 1993 1992
($000's except
per share amounts)
<S> <C> <C> <C> <C>
Summary of Operations:
Net interest income $236,186 $215,042 $436,389 $394,194
Provision for credit losses 14,863 27,325 44,487 65,315
Net interest income after
provision for credit losses 221,323 187,717 391,902 328,879
Other operating income 116,930 109,637 226,578 200,053
Operating expenses 169,717 158,400 323,387 289,276
Income before income taxes 168,536 138,954 295,093 239,656
Applicable income taxes 56,361 46,410 98,646 75,564
Net income 112,175 92,544 196,447 164,092
Common Share Data:
Primary net income per share $1.79 $1.52 $3.21 $2.73
Fully diluted net
income per share 1.79 1.52 3.21 2.73
Cash dividends declared
per share .58 .48 1.02 .90
Book value at period end 20.06 17.87 19.50 16.80
Average shares outstanding
(000's):
Primary 63,982 62,509 62,557 60,255
Fully Diluted 63,982 62,509 62,563 60,356
Financial Condition at
Period End:
Securities Available
for Sale (1) $1,040,322 $534,463 $815,986 --
Securities Held to
Maturity 1,548,023 1,313,672 1,487,322 $1,933,008
Loans and Leases 9,291,016 8,293,166 8,811,039 7,474,859
Assets 12,750,242 10,958,933 11,966,000 10,213,320
Deposits 9,094,141 8,155,143 8,628,498 7,531,946
Funds Borrowed 1,851,809 1,182,015 1,602,217 1,229,791
Long-Term Debt and Con-
vertible Subordinated
Notes 283,383 254,318 282,864 254,061
Stockholders' Equity 1,239,488 1,071,587 1,197,646 1,005,165
Ratios:
Profitability Ratios:
Return on average assets 1.82% 1.77% 1.80% 1.74%
Return on average stock-
holders' equity 18.3 17.9 18.2 17.3
Net interest margin 4.29 4.64 4.51 4.73
Overhead ratio (2) 46.6 47.4 47.3 47.3
Other operating income
to total income (3) 33.1 33.4 33.5 33.5
Capital Ratios:
Average stockholders' equity
to average assets 9.94% 9.91% 9.92% 10.07%
Tier 1 Capital to risk-
adjusted assets (4) 11.4 10.9 11.4 11.2
Total Capital to risk-
adjusted assets (4) 13.5 13.4 13.8 14.1
Leverage (5) 9.5 9.5 9.9 9.5
Credit Quality Ratios:
Reserve for credit losses
to nonperforming Assets 592.1% 429.3% 559.8% 214.5%
Reserve for credit losses
to loans and leases
outstanding 1.55 1.54 1.53 1.54
Net charge-offs to average
loans and leases outstanding .16 .37 .32 .68
Nonperforming assets to
loans, leases and other
real estate owned .26 .36 .27 .71
</TABLE>
xi
<PAGE> 18
<TABLE>
<CAPTION>
Years
Ended December 31,
----------------------------------
1991 1990 1989
($000's except
per share amounts)
<S> <C> <C> <C>
Summary of Operations:
Net interest income $332,221 $286,621 $268,703
Provision for credit losses 55,744 39,879 36,468
Net interest income after
provision for credit losses 276,477 246,742 232,235
Other operating income 171,911 144,865 124,851
Operating expenses 249,792 223,324 207,527
Income before income taxes 198,596 168,283 149,559
Applicable income taxes 60,446 47,872 41,241
Net income 138,150 120,411 108,318
Common Share Data:
Primary net income per share $2.32 $2.05 $1.85
Fully diluted net
income per share 2.31 2.04 1.85
Cash dividends declared
per share .78 .68 .60
Book value at period end 14.81 13.25 11.91
Average shares outstanding
(000's):
Primary 59,493 58,929 58,521
Fully Diluted 59,702 58,974 58,579
Financial Condition at
Period End:
Securities Available
for Sale (1) -- -- --
Securities Held to
Maturity $2,063,766 $1,354,966 $1,059,204
Loans and Leases 5,806,612 5,496,990 5,163,840
Assets 8,826,130 7,955,808 7,142,972
Deposits 6,687,262 6,385,221 5,783,527
Funds Borrowed 1,042,566 607,047 479,219
Long-Term Debt and Con-
vertible Subordinated
Notes 12,848 13,517 12,607
Stockholders' Equity 879,450 782,698 699,261
Ratios:
Profitability Ratios:
Return on average assets 1.68% 1.64% 1.62%
Return on average stock-
holders' equity 16.6 16.2 16.5
Net interest margin 4.58 4.53 4.70
Overhead ratio (2) 47.7 49.5 50.3
Other operating income
to total income (3) 33.6 33.6 31.6
Capital Ratios:
Average stockholders' equity
to average assets 10.11% 10.12% 9.83%
Tier 1 Capital to risk-
adjusted assets (4) 12.5 11.9 N/A
Total Capital to risk-
adjusted assets (4) 13.7 13.2 N/A
Leverage (5) 9.7 9.8 N/A
Credit Quality Ratios:
Reserve for credit losses
to nonperforming Assets 92.6% 90.7% 221.0%
Reserve for credit losses
to loans and leases
outstanding 1.56 1.55 1.55
Net charge-offs to average
loans and leases outstanding .90 .66 .52
Nonperforming assets to
loans, leases and other
real estate owned 1.67 1.70 .70
<FN>
(1) Amortized cost: June 30, 1994 - $1,086,077,000 and December 31, 1993 -
$797,170,000. Market value at June 30, 1993 - $560,151,000.
(2) Operating expenses divided by the sum of taxable equivalent net interest
income and other operating income.
(3) Other operating income excluding securities gains and losses as a percent
of net interest income and other operating income excluding securities
gains and losses.
(4) Under final year-end 1992 guidelines.
(5) Tier 1 capital (under final year-end 1992 rules) divided by average
quarterly assets.
</TABLE>
xii
<PAGE> 19
SELECTED HISTORICAL FINANCIAL DATA OF MUTUAL FEDERAL
The following table sets forth certain historical financial data concerning
Mutual Federal. This information is based on information contained in Mutual
Federal's 1994 Annual Report on Form 10-KSB and should be read in conjunction
therewith.
[THE BALANCE OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK]
xiii
<PAGE> 20
<TABLE>
<CAPTION>
At June 30,
-----------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
FINANCIAL CONDITION AND OTHER DATA: (In thousands)
<S> <C> <C> <C> <C> <C>
Total amount of:
Assets $83,310 $85,986 $82,516 $78,572 $74,703
Loans receivable - net 43,599 49,755 56,827 65,313 66,871
Mortgage-backed securities 14,420 14,603 2,414 1,739 -
Investment securities - available for sale 3,536 - - - -
Investment securities - held for sale - 4,073 - - -
Investment securities - held to maturity 17,744 12,788 18,532 6,728 3,637
Other interest-earning assets 1,859 2,628 2,251 2,639 1,498
Deposits 68,049 71,523 74,852 71,694 68,223
Obligation of ESOP 137 271 - - -
Shareholders' equity(1) 14,888 13,916 7,210 6,578 6,168
Year ended June 30,
------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
EARNINGS AND OTHER DATA: (In thousands, except per share data)
Total interest income $5,787 $6,579 $7,216 $7,143 $7,042
Total interest expense 2,670 3,362 4,441 4,941 5,105
------ ------ ------- ------- -------
Net interest income 3,117 3,217 2,775 2,202 1,937
Provision for loan losses 15 85 268 108 208
------- ------- ------- ------- -------
Net interest income after provision
for loan losses 3,102 3,132 2,507 2,094 1,729
Net gain on sale of investment securities 84 28 - 1 -
Other noninterest income 343 333 271 147 117
Noninterest expense 2,033 1,797 1,708 1,618 1,616
------ ------ ------- ------- -------
Income before income taxes and accounting
change 1,496 1,696 1,070 624 230
Provision for income tax 483 560 438 213 123
------ ------ ------- ------- -------
Income before accounting change 1,013 1,136 632 411 107
Cumulative effect on prior years of
change in accounting for income taxes 91 - - - -
------- -------- -------- -------- --------
Net income $1,104 $1,136 $ 632 $ 411 $ 107
====== ====== ======= ======= =======
Primary earnings per share(2) $1.63 $0.87 N/A N/A N/A
Fully diluted earnings per share(2) $1.61 $0.87
Book Value per share (Primary) $21.93 $21.47 N/A N/A N/A
Book Value per share (Fully Diluted) $21.75 $21.47 N/A N/A N/A
Dividends per share $0.575 $0.21 N/A N/A N/A
<FN>
- --------------------------------------
(1) Consists solely of retained earnings for the fiscal years ended June 30,
1992, 1991 and 1990.
(Footnotes continued on next page)
</TABLE>
xiv
<PAGE> 21
(2) For 1994, primary earnings per share is based on the weighted average
number of shares outstanding during the year and the assumed exercise of
dilutive stock options, less the number of treasury shares assumed to be
purchased from the proceeds using the average market price of Mutual
Federal Common Stock. Fully diluted earnings per share reflects the
additional dilution related to the stock options due to the use of the
market price at June 30, 1994. The primary and fully diluted weighted
average shares outstanding for the year ended June 30, 1994, were 679,021
and 684,540, respectively. Earnings per share for 1993 was computed by
dividing net income subsequent to Mutual Federal's conversion from mutual
to stock form (the "Conversion") by the weighted average number of shares
outstanding for the same period. Net income for the portion of the 1993
fiscal year subsequent to December 30, 1992, the effective date of the
Conversion, was $564,521, and the weighted average number of shares
outstanding was 648,025. The stock options granted as a part of the
Conversion were still subject to shareholder approval as of June 30, 1993.
Had these options been outstanding as of June 30, 1993, primary and fully
diluted earnings per share would have been $0.84. The earnings per share
calculation was not applicable to the fiscal years prior to the 1993 fiscal
year because Mutual Federal existed in the mutual form of organization
during such prior fiscal years.
[THE BALANCE OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK]
xv
<PAGE> 22
<TABLE>
<CAPTION>
At or for the year ended June 30,
----------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
SELECTED FINANCIAL RATIOS AND OTHER DATA:
<S> <C> <C> <C> <C> <C>
Performance ratios:
Return on average assets(1) 1.30% 1.33% 0.79% 0.54% 0.14%
Return on average shareholders' equity (2) 7.60 10.53 8.86 6.44 1.74
Interest rate spread(3):
Average during year 3.26 3.46 3.08 2.38 2.05
At end of year 2.84 2.93 2.86 2.17 1.92
Net interest margin(4) 3.81 3.91 3.53 2.94 2.61
Noninterest expense to average assets(5) 2.39 2.11 2.12 2.12 2.14
Asset quality ratios:
Nonperforming assets to total assets
at end of period(6) 0.43% 0.96% 0.55% 0.86% 0.47%
Allowance for losses on loans to
net loans outstanding at end of period 1.60 1.33 1.02 0.57 0.51
Allowance for losses on loans to
nonperforming loans 196.11 79.91 127.65 55.10 97.99
Capital ratios:
Shareholders' equity to total assets at
end of year(7) 17.87% 16.18% 8.74% 8.37% 8.26%
Average shareholders' equity to average
assets(8) 17.10 12.64 8.87 8.37 8.12
Average interest-earning assets
to average interest-bearing liabilities 1.17 1.11 1.08 1.08 1.08
Other data:
Number of full-service offices 3 3 3 3 3
<FN>
- -----------------------------
(1) Net income divided by average total assets.
(2) Net income divided by average shareholders' equity. Consists of net income
divided by average retained earnings for the fiscal years ended June 30,
1992, 1991 and 1990.
(3) Difference between rate earned on all interest-earning assets and rate paid
on all interest-bearing liabilities.
(4) Net interest income divided by average interest-earning assets.
(5) Noninterest expense divided by average total assets.
(6) Nonperforming assets consists of nonaccruing loans, accruing loans which
are past due 90 or more days and real estate owned.
(7) Consists of retained earnings to total assets for the fiscal years ended
June 30, 1992, 1991 and 1990.
(8) Consists of average retained earnings to average assets for the fiscal
years ended June 30, 1992, 1991 and 1990.
</TABLE>
xvi
<PAGE> 23
MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG,
A STOCK SAVINGS BANK
23 EAST CENTRAL AVENUE
MIAMISBURG, OHIO 45342
(513) 866-2436
AND
FIFTH THIRD BANCORP
FIFTH THIRD CENTER
CINCINNATI, OHIO 45263
(513) 579-5300
_______________________________________________
PROXY STATEMENT AND PROSPECTUS
_______________________________________________
GENERAL INFORMATION
This Proxy Statement and Prospectus is being furnished to the shareholders of
Mutual Federal Savings Bank of Miamisburg, a Stock Savings Bank ("Mutual
Federal") in connection with the solicitation by the Board of Directors of
Mutual Federal of proxies to be used at a special meeting of shareholders (the
"Special Meeting") to be held on ____________________, 1994, at 10:00 a.m.,
Eastern Standard Time, at _____________________
_____________________________________________, and at any adjournments thereof.
This Proxy Statement and Prospectus and the enclosed form of proxy are first
being sent to shareholders of Mutual Federal on or about ____________________,
1994.
PURPOSES OF THE SPECIAL MEETING
At the Special Meeting, shareholders of Mutual Federal will be asked to
approve an Affiliation Agreement dated as of May 9, 1994 between Fifth Third
Bancorp ("Fifth Third") and Mutual Federal (the "Affiliation Agreement") and a
related Agreement of Merger dated as of May 9, 1994 between Mutual Federal and
The Fifth Third Bank, Cincinnati, Ohio, a wholly owned subsidiary of Fifth
Third and agreed to by Fifth Third (the "Merger Agreement"). Pursuant to the
Affiliation Agreement and the Merger Agreement, Mutual Federal will merge into
The Fifth Third Bank (the "Merger"). See "TERMS AND CONDITIONS OF THE PROPOSED
MERGER" below.
PROPOSAL TO MERGE MUTUAL FEDERAL INTO THE FIFTH THIRD BANK
Pursuant to the Affiliation Agreement and the Merger Agreement, each
shareholder of Mutual Federal will receive for each share of Mutual Federal
common stock, $1.00 par value per share ("Mutual Federal Common Stock") which
such shareholder holds at the effective time of the Merger (the "Effective
Time"), that fraction of a share of Fifth Third common stock, no par value per
share ("Fifth Third Common Stock") determined by dividing $30.00 by the
Applicable Market Value Per Share of Fifth Third Common Stock, expressed in
decimal figures carried to five places (the "Exchange Ratio"). The "Applicable
Market Value Per Share of Fifth Third Common Stock" shall be the average of the
per share closing prices of Fifth Third Common Stock as reported on the NASDAQ
National Market System for the twenty trading days ending on the fifth trading
day prior to the Effective Time. See "TERMS AND CONDITIONS OF THE PROPOSED
MERGER - Exchange Ratio" below.
RECOMMENDATION
Mutual Federal's Board of Directors has unanimously approved the Affiliation
Agreement and the Merger Agreement and the transactions contemplated thereby
and recommends approval thereof by the shareholders of Mutual Federal. Mutual
Federal's Board of Directors believes that the terms of the Merger are fair to,
and in the best interests of, Mutual Federal and its shareholders.
1
<PAGE> 24
MUTUAL FEDERAL'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
APPROVAL OF THE AFFILIATION AGREEMENT AND THE 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 Mutual Federal 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 TWO-THIRDS OF THE OUTSTANDING SHARES OF
MUTUAL FEDERAL COMMON STOCK. Broker non-votes will not be treated as votes cast
and, therefore, will have the same effect as a vote against the proposal.
Holders of record of Mutual Federal Common Stock at the close of business on
____________________, 1994 (the "Record Date") are entitled to receive notice
of, and to vote at, the Special Meeting. At the close of business on the
Record Date, there were 648,025 shares of Mutual Federal Common Stock
outstanding. Each share of Mutual Federal Common Stock will be entitled to one
vote.
Persons and groups owning in excess of 5% of the outstanding shares of Mutual
Federal Common Stock are required to file certain reports regarding such
ownership with Mutual Federal and with the Office of Thrift Supervision (the
"OTS") in accordance with the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The information set forth below with respect to persons and
groups owning beneficially in excess of 5% of the outstanding shares of Mutual
Federal Common Stock is based on the reports filed by such beneficial owners.
As of June 30, 1994, management of Mutual Federal was not aware of any person
or group who beneficially owned more than 5% of the outstanding shares of
Mutual Federal 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 Mutual Federal Common Stock is converted into .58252 shares of
Fifth Third Common Stock.)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Name and Address of Beneficial No. of Shares Percent of Shares of Fifth Percent of
Owner Beneficially Outstanding Third to be Outstanding Fifth
Owned(1) Shares Owned(2) Third Shares (at
June 30, 1994)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jerome and Susan Davis 57,794.00(3) 8.92% 33,666 0.0005%
11 Baldwin Farms North
Greenwich, Connecticut 06831
Donald L. Koller 35,313.94(4) 5.33% 20,571 0.0003%
23 East Central Avenue
Miamisburg, Ohio 45342
All directors and executive 168,501.24(5) 24.07% 98,155 0.0016%
officers as a group (10 persons)
<FN>
(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, and shares held under currently exercisable
stock options.
(2) For purposes of this Proxy Statement and Prospectus, it has been assumed
that the Applicable Market Value Per Share of Fifth Third Common Stock will
be $51.50 and that each share of Mutual Federal Common Stock will be
converted into .58252 shares of Fifth Third Common Stock. See "Exchange
Ratio."
(3) Based on a Schedule 13D, as amended, filed by Jerome and Susan Davis with
the OTS.
(4) Includes 14,905 shares acquired or to be acquired pursuant to options
granted to Mr. Koller under the Mutual Federal 1992 Stock Option and
Incentive Plan and 4,074 shares awarded to Mr. Koller but not yet vested
under the Mutual Federal Recognition and Retention Plan and Trust
Agreement.
(5) Includes shares acquired or to be acquired pursuant to options granted
under the Mutual Federal 1992 Stock Option and Incentive Plan and shares
awarded under the Mutual Federal Recognition and Retention Plan and Trust
Agreement.
</TABLE>
2
<PAGE> 25
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 FOR the approval of the Affiliation
Agreement and the Merger Agreement, 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 it is exercised by submitting a
later dated proxy, by attending the Special Meeting and voting in person, or by
giving notice of revocation to Mutual Federal in a writing addressed to and
received by the Secretary of Mutual Federal before the Special Meeting. A
subsequently dated proxy will, if properly presented, revoke a prior proxy.
Any shareholder may attend the Special Meeting and vote in person whether or
not such shareholder has previously given a proxy.
SOLICITATION OF PROXIES
Following the mailing of proxy solicitation materials, directors, officers and
employees of Mutual Federal may solicit proxies by mail, telephone, telegraph
and personal interviews. Mutual Federal 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 materials to the beneficial owners of stock held
of record by such persons.
[THE BALANCE OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK]
3
<PAGE> 26
COMPARATIVE MARKET PRICE AND DIVIDEND DATA
Fifth Third Common Stock and Mutual Federal Common Stock are traded in the
over-the-counter market and quoted on the NASDAQ National Market System and
NASDAQ Small Cap Market, respectively. 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, the high and low closing sales prices
of Mutual Federal Common Stock and the dividends declared during each quarterly
period.
<TABLE>
<CAPTION>
Fifth Third Common Stock Mutual Federal Common Stock
--------------------------------------------------------------------------------
High Low Dividends High Low Dividends
Declared Declared
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1991:
First Calendar Quarter $28.00 $20.13 $0.18 N/A(1) N/A(1) N/A(1)
Second Calendar Quarter $35.13 $27.13 $0.20 N/A(1) N/A(1) N/A(1)
Third Calendar Quarter $40.38 $32.50 $0.20 N/A(1) N/A(1) N/A(1)
Fourth Calendar Quarter $45.38 $38.00 $0.20 N/A(1) N/A(1) N/A(1)
Year Ended December 31, 1992:
First Calendar Quarter $50.38 $43.00 $0.22 N/A(1) N/A(1) N/A(1)
Second Calendar Quarter $46.75 $40.13 $0.22 N/A(1) N/A(1) N/A(1)
Third Calendar Quarter $52.75 $40.75 $0.22 N/A(1) N/A(1) N/A(1)
Fourth Calendar Quarter $54.00 $46.75 $0.24 N/A(1) N/A(1) N/A(1)
Year Ended December 31, 1993:
First Calendar Quarter $55.13 $49.88 $0.24 $16.50 $12.75 $.0875
Second Calendar Quarter $58.50 $50.25 $0.24 $16.75 $16.25 $0.125
Third Calendar Quarter $54.63 $51.25 $0.27 $20.00 $17.00 $0.125
Fourth Calendar Quarter $54.00 $49.75 $0.27 $21.00 $18.25 $0.15
Year Ended December 31, 1994:
First Calendar Quarter $51.13 $45.13 $0.27 $24.00 $20.00 $0.15
Second Calendar Quarter $55.00 $46.75 $0.31 $28.00 $21.50 $0.15
<FN>
========================================================================================================================
(1) Mutual Federal converted from mutual to stock form effective December 30, 1992.
</TABLE>
4
<PAGE> 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 Mutual Federal.
The equivalent values of such information are based on an assumed Applicable
Market Value Per Share of Fifth Third Common Stock of $51.50 and an assumed
Exchange Ratio of .58252 shares of Fifth Third Common Stock for each share of
Mutual Federal Common Stock in connection with the Merger of Mutual Federal
with and into The Fifth Third Bank. Neither Mutual Federal 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.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Equivalent Share Basis - .58252
Mutual Shares of Fifth Third Common
For the Periods Ended: Fifth Third Federal Stock
- -------------------------------------------------------------------------------------------------------------------------
Primary Fully Diluted Actual Primary Fully Diluted
<S> <C> <C> <C> <C> <C>
NET INCOME PER SHARE FROM CONTINUING OPERATIONS
December 31, 1989 $1.85 $1.85 N/A(1) $1.08 $1.08
December 31, 1990 $2.05 $2.04 N/A(1) $1.19 $1.19
December 31, 1991 $2.32 $2.31 N/A(1) $1.35 $1.35
December 31, 1992 $2.73 $2.73 N/A(1) $1.59 $1.59
December 31, 1993 $3.21 $3.21 $1.93 $1.87 $1.87
DIVIDENDS DECLARED PER SHARE
December 31, 1989 $0.60 N/A(1) $0.35
December 31, 1990 $0.68 N/A(1) $0.40
December 31, 1991 $0.78 N/A(1) $0.45
December 31, 1992 $0.90 N/A(1) $0.52
December 31, 1993 $1.02 $0.4875 $0.59
BOOK VALUE PER SHARE
December 31, 1989 $11.91 N/A(1) $ 6.94
December 31, 1990 $13.25 N/A(1) $ 7.72
December 31, 1991 $14.81 N/A(1) $ 8.63
December 31, 1992 $16.80 N/A(1) $ 9.79
December 31, 1993 $19.50 $22.49 $11.36
June 30, 1994 $20.06 $25.00 $11.69
MARKET VALUE PER SHARE ON MAY 9, 1994 (2) $52.25 $26.75
<FN>
(1) Mutual Federal converted from mutual to stock form effective December 30, 1992.
(2) May 9, 1994 was the last day of trading preceding the public announcement of the Merger.
</TABLE>
5
<PAGE> 28
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 appended 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
Confronting a rising interest rate environment and the prospect of stagnant or
declining earnings, the Board of Directors of Mutual Federal met in January
1994 to assess Mutual Federal's future prospects. The Board considered the
recent problems that have confronted the thrift industry generally, including
increasing regulation, interest rate risks, the prospect of disproportionate
insurance premiums for thrift institutions relative to banks and the effects of
continuing consolidation in the industry. Although Mutual Federal is
well-capitalized and has been consistently profitable in recent years, the
Board could not ignore the uncertainty that continues to affect the
heavily-regulated thrift industry. The Board also considered the prevailing
market for thrift institutions in the mergers and acquisitions context,
recognizing that thrift stocks generally continued to draw attractive premiums
in merger and acquisition transactions.
In view of these various factors, the Board of Directors decided to consider a
sale of Mutual Federal. The Board concluded that it would be in the best
interests of Mutual Federal's shareholders to retain an investment banker to
assist Mutual Federal in identifying and evaluating merger and acquisition
opportunities. Based upon the expertise and experience of McDonald & Company
Securities, Inc. ("McDonald & Company") with financial institution mergers and
acquisitions, the Board of Directors decided to retain the services of McDonald
& Company.
In consultation with McDonald & Company, the directors evaluated whether the
timing was appropriate for a sale of Mutual Federal and ultimately concluded
that it was a prudent time to pursue the sale of Mutual Federal. With the help
of McDonald & Company, the directors initially identified a number of thrift
and bank holding companies that might have an interest in Mutual Federal.
After preliminary contact by McDonald & Company, the companies which expressed
an interest in Mutual Federal executed confidentiality agreements pursuant to
which they received certain financial information and other data relating to
Mutual Federal.
A date was established by Mutual Federal by which each of the interested
companies was to submit an indication of interest outlining the parameters for
a proposed acquisition of Mutual Federal. Mutual Federal received nine
indications of interest. The Board of Directors, with analysis prepared by
McDonald & Company, carefully evaluated the indications of interest submitted
by the prospective acquirors and decided to invite four prospective acquirors
to conduct a due diligence review of Mutual Federal.
At the conclusion of the due diligence process, each of the four remaining
prospective acquirors submitted a proposal outlining the terms and conditions
upon which it would undertake an acquisition of Mutual Federal. The directors
considered the merits of each offer, including the differences between a
transaction in which the consideration would be all cash, all stock or a
combination of cash and stock. With respect to each prospective acquiror
proposing a stock exchange, the directors considered such acquiror's historical
and prospective earnings, the pro forma financial impact and earnings per share
dilution, if any, of acquiring Mutual Federal, the acquiror's ability to
achieve cost savings through economies of scale and consolidation of
operations, the record of successfully consolidating institutions in prior
acquisitions, the pro forma impact on the shareholders of Mutual Federal with
respect to earnings and dividends per share, the liquidity of the acquiror's
stock, the benefits of a combination with a larger financial institution and
other relevant factors.
After thoroughly discussing and evaluating all of the relevant considerations,
the Board concluded that an exchange of stock with Fifth Third presented the
best opportunity for Mutual Federal's shareholders. An exchange of stock
offered the opportunity for Mutual Federal's shareholders to defer the income
tax consequences of the Merger.
In its exchange of stock proposal, Fifth Third proposed that the exchange
ratio to determine the number of shares of Fifth Third Common Stock to be
received in exchange for each share of Mutual Federal Common Stock would be
6
<PAGE> 29
fixed at the time a definitive agreement was signed. The directors carefully
considered the advantages and disadvantages of establishing an exchange ratio
at the time the merger agreement was executed. If a fixed exchange ratio were
agreed upon, the ultimate value of the Fifth Third Common Stock to be received
by Mutual Federal shareholders could fluctuate in the period between the
signing of the agreement and the consummation of the merger. After carefully
considering the risks attendant to a fixed exchange ratio, the directors agreed
that using a fixed value would be in the best interests of Mutual Federal's
shareholders, and Fifth Third agreed to structure the transaction accordingly.
Once the basic structure of the transaction had been agreed upon,
representatives of Mutual Federal and Fifth Third negotiated the terms and
conditions of the Affiliation Agreement and the Merger Agreement. After
receiving an oral opinion of McDonald & Company that, as of May 9, 1994, the
Exchange Ratio was fair to the holders of Mutual Federal Common Stock from a
financial point of view, the Affiliation Agreement and the Merger Agreement
were executed on May 9, 1994. See "Opinion of McDonald & Company."
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 needs of its customers, including those in Mutual Federal's
service area.
All of the members of Mutual Federal's Board of Directors have indicated their
intention to vote their shares of Mutual Federal Common Stock in favor of the
Merger. As of June 30, 1994, such individuals beneficially owned 125,151.94
shares, or approximately 18.3%, of the outstanding shares of Mutual Federal
Common Stock.
THE BOARD OF DIRECTORS OF MUTUAL FEDERAL HAS UNANIMOUSLY APPROVED THE MERGER
AND RECOMMENDS A VOTE IN FAVOR OF THE APPROVAL OF THE AFFILIATION AGREEMENT AND
THE MERGER AGREEMENT.
EFFECTIVE TIME
The Effective Time of the Merger will occur as soon as practicable after 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 January, 1995, although no
assurance can be given in this regard. Mutual Federal 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 February 28, 1995.
CONVERSION OF SHARES OF MUTUAL FEDERAL COMMON STOCK
Each share of Mutual Federal Common Stock (excluding treasury shares) which is
issued and outstanding immediately prior to the Effective Time will be
converted at the Effective Time into Fifth Third Common Stock and cash in lieu
of any fractional shares of Fifth Third Common Stock. See "Exchange Ratio"
below.
The Exchange Ratio shall be adjusted so as to give Mutual Federal shareholders
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 Time.
EXCHANGE RATIO
At the Effective Time of the Merger, each of the shares of Mutual Federal
Common Stock (excluding treasury shares) that are issued and outstanding
immediately prior to the Effective Time will be converted by virtue of the
Merger and without further action into that fraction of a share of Fifth Third
Common Stock determined by dividing $30.00 by the Applicable Market Value Per
Share of Fifth Third Common Stock, expressed in decimal figures carried to five
places. The "Applicable Market Value Per Share of Fifth Third Common Stock"
shall be the average of the per share closing prices of Fifth Third Common
Stock as reported on the NASDAQ National Market System for the twenty trading
days ending on the fifth trading day prior to the Effective Time.
7
<PAGE> 30
Certificates representing shares of Fifth Third Common Stock will be
distributed to Mutual Federal shareholders upon the surrender of their
certificates for shares of Mutual Federal Common Stock to Fifth Third.
STOCK OPTIONS AND STOCK OWNERSHIP PLAN
As of June 30, 1994, there were outstanding options to purchase 58,645 shares
of Mutual Federal Common Stock held by certain directors and officers of Mutual
Federal pursuant to the Mutual Federal 1992 Stock Option and Incentive Plan
(the "Option Plan"), all of which are presently exercisable.
Pursuant to the Affiliation Agreement, prior to the Effective Time all options
granted under the Option Plan shall be exercised and fully paid, and the Option
Plan shall be terminated. In the event, prior to the Effective Time, of any
reclassification, reorganization, recapitalization, stock dividend or
distribution, subdivision, combination or exchange of the outstanding shares of
Fifth Third Common Stock or in case of any consolidation or merger of Fifth
Third with or into any other corporation, or in the case of any sale or
transfer of all or substantially all of Fifth Third's assets, the rights of the
optionees under the Option Plan will be appropriately adjusted so that the
optionees will be in the same position as if their options had been exercised
immediately before such corporate action or transaction.
Mutual Federal currently has in place an Employee Stock Ownership Plan (the
"ESOP") that facilitates the purchase of Mutual Federal Common Stock by its
employees. Pursuant to the Affiliation Agreement, Mutual Federal agreed that
it would, prior to the Effective Time, take appropriate action to fully repay
the ESOP's existing loan, and terminate the ESOP.
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 shareholder of Mutual
Federal 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 the Applicable Market Value Per Share of Fifth Third
Common Stock. No such shareholder will be entitled to dividends, voting rights
or other rights in respect of any such fractional share.
EXCHANGE OF CERTIFICATES
After the Effective Time, holders of certificates previously representing
shares of Mutual Federal Common Stock will cease to have any rights as
shareholders of Mutual Federal and their sole rights will pertain to the shares
of Fifth Third Common Stock into which their shares of Mutual Federal Common
Stock will have been converted pursuant to the Merger Agreement. As soon as
practicable after the Effective Time, Fifth Third will send to each former
Mutual Federal shareholder a letter of transmittal for use in submitting to
Fifth Third (the "Exchange Agent") certificates (or with instructions for
handling lost Mutual Federal stock certificates) formerly representing shares
of Mutual Federal 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) which the former shareholders of
Mutual Federal are entitled to receive as a result of the Merger. Shareholders
who become holders of Fifth Third Common Stock in the Merger 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 they have surrendered and exchanged their certificates evidencing
ownership of shares of Mutual Federal 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 Mutual
Federal Common Stock, the Exchange Agent will forward to Mutual Federal
shareholders (i) certificates representing their 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). MUTUAL FEDERAL'S SHAREHOLDERS ARE REQUESTED NOT TO SUBMIT STOCK
CERTIFICATES UNTIL THEY HAVE RECEIVED WRITTEN INSTRUCTIONS TO DO SO.
At the Effective Time, the stock transfer books of Mutual Federal will be
closed and no transfer of Mutual Federal Common Stock will thereafter be made
on such books. If a certificate formerly representing shares of Mutual Federal
Common Stock is presented to Mutual Federal 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.
8
<PAGE> 31
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences of the Merger to Mutual Federal shareholders.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH BELOW NECESSARILY IS NOT SPECIFIC
TO THE SITUATION OF A PARTICULAR SHAREHOLDER AND IS INCLUDED FOR GENERAL
INFORMATION ONLY. EACH OF MUTUAL FEDERAL'S SHAREHOLDERS SHOULD CONSULT HIS OR
HER OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM OR
HER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER
TAX LAWS.
The federal income tax consequences to any of Mutual Federal's shareholders
depend upon (i) the form of consideration received in exchange for the shares
of Mutual Federal Common Stock actually owned by him or her, and (ii) in the
case of any of Mutual Federal's shareholders receiving cash, or a combination
of cash and Fifth Third Common Stock, the type of consideration received in
exchange for shares of Mutual Federal Common Stock deemed to be constructively
owned by him or her under Section 318(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), if any. Generally, under Section 318(a), a
shareholder 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 shareholder 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.
MUTUAL FEDERAL SHAREHOLDERS RECEIVING SOLELY FIFTH THIRD COMMON STOCK. A
Mutual Federal shareholder who receives solely Fifth Third Common Stock in
exchange for all shares of Mutual Federal Common Stock actually owned by him or
her 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 Mutual Federal Common Stock surrendered and, provided
the shares of Mutual Federal 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 Mutual
Federal Common Stock surrendered.
MUTUAL FEDERAL SHAREHOLDERS RECEIVING SOLELY CASH. Mutual Federal Common
Stock will be exchanged for cash only upon the exercise of dissenters' rights,
which are not expected to exist. Any shareholder who exercises dissenters'
rights, if any, should consult his or her own tax advisor as to the relevant
tax consequences.
CASH RECEIVED IN LIEU OF FRACTIONAL SHARES. No fractional shares of Fifth
Third Common Stock will be issued pursuant to the Merger Agreement. A
shareholder of Mutual Federal 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 shareholder may be affected by specific matters not common to
all shareholders, it is recommended that Mutual Federal shareholders consult
their personal tax advisors concerning the consequences of the Merger to them,
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.
9
<PAGE> 32
Under pooling of interests accounting, as of the Effective Time, the assets
and liabilities of Mutual Federal will be added to those of Fifth Third at
their recorded book values and the shareholders' equity account of Mutual
Federal will be included on Fifth Third's consolidated balance sheet.
RIGHTS OF DISSENTING SHAREHOLDERS
It is not anticipated that any of Mutual Federal's shareholders will have
dissenters' rights with respect to the Merger. Section 552.14 of Title 12 of
the Code of Federal Regulations ("CFR") establishes the rights of a shareholder
of a federal savings association which is involved in a merger or other
specified combination to demand payment of the fair or appraised value of his
or her stock. Such dissenters' rights are not available to a shareholder of an
association whose stock is listed on a national securities exchange or quoted
on NASDAQ in connection with a transaction in which such shareholders will be
receiving stock of another entity whose shares are listed on a national
securities exchange or quoted on NASDAQ on the date of the meeting at which the
combination is acted upon by the shareholders. The Mutual Federal Common Stock
and the Fifth Third Common Stock are presently quoted on NASDAQ. Assuming they
continue to be quoted on NASDAQ as of the date of the Special Meeting, Mutual
Federal shareholders will have no dissenters' rights with respect to the
Merger.
If dissenters' rights are available with respect to the Merger in the unlikely
event of the loss of the NASDAQ listing by Mutual Federal or Fifth Third, under
Title 12 CFR Section 552.14 of the regulations of the OTS, any shareholders of
Mutual Federal who wish to assert dissenters' rights must give written notice
(separate from any proxy or vote against the Affiliation Agreement and the
Merger Agreement) to Mutual Federal prior to voting on the Affiliation
Agreement and the Merger Agreement, identifying themselves and stating their
intention to demand appraisal of and payment for their shares of Mutual Federal
Common Stock, and must not vote in favor of the Affiliation Agreement and the
Merger Agreement. Failure either to vote against or abstain from voting on the
Affiliation Agreement and the Merger Agreement or to notify Mutual Federal in
writing prior to the vote will constitute a waiver of such shareholder's right
to dissent. A shareholder may not dissent as to fewer than all of the shares
owned by such shareholder.
In the unlikely event that dissenters' rights are applicable to the Merger,
any shareholder intending to dissent should consult carefully the text of Title
12 CFR Section 552.14 of the regulations of the OTS, which is set forth in
Annex D hereof. The foregoing description of a dissenting shareholder's rights
is qualified in its entirety by reference to Annex D.
CONDUCT PENDING MERGER; REPRESENTATIONS AND WARRANTIES
Mutual Federal has agreed, among other things, that prior to the Effective
Time it will carry on its business in the ordinary course. Mutual Federal has
agreed to give Fifth Third and Fifth Third's representatives reasonable access
during business hours to its facilities and personnel. Mutual Federal 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 structure;
issue any additional shares of Mutual Federal Common Stock, except upon
exercise of any presently outstanding stock options; issue any securities of
any kind; or make any material changes in its method of business operations.
Mutual Federal also has agreed not to make or become obligated to make any
capital expenditures in excess of $5,000, nor will it make or renew any
agreement for services to be provided to Mutual Federal 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, without Fifth Third's prior written consent. Mutual Federal 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 Mutual Federal
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, consistent
with past practices.
Fifth Third and Mutual Federal 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 Mutual Federal 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 or
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<PAGE> 33
warranties made by either Mutual Federal or Fifth Third will survive beyond the
Effective Time. Thereafter, neither Mutual Federal, Fifth Third, nor any
officer or director of either of them will have any liability or obligation
with respect to such representations or warranties, 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 the Merger Agreement must be approved by the
affirmative vote of two-thirds of the outstanding shares of Mutual Federal
Common Stock. The Merger must also be approved in writing by the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"), the OTS
and the Ohio Division of Banks and must comply with any applicable waiting
periods. No assurance can be given that the required governmental approvals
will be forthcoming.
The obligations of Mutual Federal 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 Mutual Federal's obligations to consummate the Merger are
further subject to various other conditions set forth in the Affiliation
Agreement, including, but not limited to, 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 the 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 the 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 Mutual Federal, Mutual Federal's performance of all of the
obligations required of it under the Affiliation Agreement and the Merger
Agreement, delivery by Mutual Federal's counsel of a certain legal opinion
addressed to Fifth Third, Mutual Federal's obligation to take the appropriate
actions to terminate its ESOP, Mutual Federal's obligation to take the
appropriate actions to terminate its Employment Agreements with each of its
four executive officers, and the aggregate amount of shareholders' equity of
Mutual Federal 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 accounting principles consistently applied,
being not less than $14,573,000 (its total shareholders' equity at December 31,
1993), less any adjustments made in anticipation of, or in connection with, the
Merger.
Mutual Federal'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 the Merger Agreement, delivery by Fifth
Third's counsel of a certain legal opinion addressed to Mutual Federal,
registration by Fifth Third of the shares of Fifth Third Common Stock to be
issued to Mutual Federal shareholders, and the receipt of a fairness opinion
from McDonald & Company dated as of the date of this Proxy Statement and
Prospectus.
AMENDMENT; WAIVER; TERMINATION
The Affiliation Agreement and the Merger Agreement may be amended, modified or
supplemented by the written agreement of each of the parties, upon the
authorization of each company's respective Board of Directors and without
further approval of Mutual Federal's shareholders, except that no amendment,
modification or supplement may be effected without Mutual Federal shareholder
approval if to do so would violate any applicable provisions of federal law.
The Affiliation Agreement and the 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 Mutual Federal or by Mutual Federal to Fifth Third
in the following instances: (1) by Fifth Third or Mutual Federal 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
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<PAGE> 34
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 Mutual Federal if the business or assets or
financial condition of the other party have materially and adversely changed
from that in existence at December 31, 1993; (3) by Fifth Third or Mutual
Federal if the Merger has not been consummated by February 28, 1995, 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; or (4) automatically if Mutual Federal
shareholders fail to approve the Affiliation Agreement and the Merger
Agreement.
EFFECT ON MUTUAL FEDERAL EMPLOYEES
Fifth Third intends but is not obligated to employ at The Fifth Third Bank or
at a Fifth Third subsidiary or affiliate as many of the employees of Mutual
Federal as possible. Each employee of Mutual Federal 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
Mutual Federal for purposes of determining participation and vesting in all
Fifth Third employee benefit plans, except for vesting in the Fifth Third
Master Retirement Plan and the Fifth Third Master Profit Sharing Plan, but not
for purposes of determining the benefits accrued thereunder.
Any employee 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 more than 50
miles from such employee's former location of employment or that such
employee's salary or responsibilities will be materially changed in any case
within six months after the Effective Time, shall be entitled to severance pay
equal to one week's pay for each year of service up to a maximum of twelve
week's pay, plus applicable COBRA benefits. 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
Prior to the Effective Time, Mutual Federal will terminate its Employment
Agreements with each of its four executive officers. It is not anticipated
that Fifth Third will enter into employment agreements with any of the officers
of Mutual Federal in connection with the transactions contemplated by the
Affiliation Agreement. However, three directors of Mutual Federal agreeable to
Fifth Third shall be appointed by The Fifth Third Bank to serve on an Advisory
Committee to The Fifth Third Bank for a 12-month period commencing on the
Effective Time. The Advisory Committee's purpose shall be to assist The Fifth
Third Bank in retaining and developing business relationships within the
Greater Dayton metropolitan area. Each Advisory Committee member shall be paid
$400.00 per month during such 12-month period for serving on the Advisory
Committee.
The Affiliation Agreement provides that all provisions for indemnification and
limitation of liability now existing in favor of the employees, agents,
directors or officers of Mutual Federal as provided by regulation or in its
Charter or Bylaws 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 three years
thereafter, or in the case of matters occurring prior to the Effective Time
which have not been resolved prior to the third anniversary of the Effective
Time, until such matters are finally resolved. Fifth Third shall also purchase
and keep in force for such three year period directors' and officers' liability
insurance to provide coverage for acts or omissions of the type and in the
amount currently covered by Mutual Federal's existing directors' and officers'
liability insurance for acts or omissions occurring on or prior to the
Effective Time, excluding claims pending or threatened against Mutual Federal.
In addition, for actions occurring after the Effective Time, Fifth Third shall
provide to the officers and directors of Mutual Federal who become officers and
directors of The Fifth Third Bank or any Fifth Third affiliate after
consummation of the Merger, the same directors' and officers' liability
insurance that is provided throughout the Fifth Third holding company system.
Fifth Third agrees that all rights to indemnification existing in favor of
officers and directors of Fifth Third affiliates shall be accorded to officers
and directors of Mutual Federal who become affiliated with The Fifth Third Bank
or any Fifth Third affiliate in such capacities after the Effective Time and
that such indemnification will relate to covered actions or inactions prior to,
as well as after, the Effective Time.
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<PAGE> 35
OPINION OF MCDONALD & COMPANY SECURITIES, INC.
Mutual Federal retained McDonald & Company as its financial advisor in
connection with the Merger, and requested that McDonald & Company render its
opinion with respect to the fairness of the Exchange Ratio, from a financial
point of view, to the holders of Mutual Federal Common Stock. At the meeting
of Mutual Federal's Board of Directors on May 9, 1994, the Affiliation
Agreement and the Merger Agreement were approved. At such meeting, McDonald &
Company rendered its oral opinion to the Mutual Federal Board to the effect
that, as of that date, the Exchange Ratio was fair, from a financial point of
view, to the holders of Mutual Federal Common Stock. In addition, McDonald &
Company has delivered its written opinion to Mutual Federal's Board of
Directors on the date of this Proxy Statement and Prospectus stating that, as
of the date of this Proxy Statement and Prospectus, the Exchange Ratio was
fair, from a financial point of view, to the holders of Mutual Federal Common
Stock.
THE FULL TEXT OF THE OPINION OF McDONALD & COMPANY, A COPY OF WHICH IS
ATTACHED AS ANNEX C TO THIS PROXY STATEMENT AND PROSPECTUS, INCLUDES CERTAIN
QUALIFICATIONS AND ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEWS UNDERTAKEN. THE SUMMARIES AND DESCRIPTIONS OF THE OPINION OF McDONALD
& COMPANY CONTAINED HEREIN ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE
FULL TEXT OF THE OPINION, AND IT IS RECOMMENDED THAT HOLDERS OF MUTUAL FEDERAL
COMMON STOCK READ SUCH OPINION IT ITS ENTIRETY. McDONALD & COMPANY'S OPINION
IS DIRECTED TO THE BOARD OF DIRECTORS OF MUTUAL FEDERAL ONLY AND ADDRESSES ONLY
THE EXCHANGE RATIO. SUCH OPINION SHOULD NOT BE CONSTRUED BY HOLDERS OF MUTUAL
FEDERAL COMMON STOCK AS A RECOMMENDATION OF THE MANNER IN WHICH SUCH HOLDERS
SHOULD VOTE ON THE AFFILIATION AGREEMENT OR THE MERGER AGREEMENT.
In arriving at its opinion, McDonald & Company reviewed, among other things,
the Affiliation Agreement, the Merger Agreement and certain related documents
(including all schedules and exhibits), certain publicly available information
relating to the business, financial condition and operations of Fifth Third and
Mutual Federal as well as certain other information furnished to it by Fifth
Third and Mutual Federal which is not publicly available, primarily financial
in nature, including financial forecasts and assumptions regarding estimated
cost savings resulting from the Merger and relating to the respective
businesses, earnings, assets and business prospects of Fifth Third and Mutual
Federal. McDonald & Company also held discussions with members of senior
management of Fifth Third and Mutual Federal concerning their respective
businesses, financial forecasts, assets and business prospects. McDonald &
Company reviewed certain publicly available information concerning the trading
of, and the trading market for, Fifth Third Common Stock and Mutual Federal
Common Stock and certain publicly available information concerning comparable
companies and transactions, all as more fully set forth in McDonald & Company's
opinion. McDonald & Company also took into account its assessment of general
economic, market and financial conditions.
McDonald & Company has not conducted a physical inspection of any of the
properties or assets of Fifth Third or Mutual Federal and has not made,
obtained or been furnished with any independent evaluation or appraisals of any
properties, assets or liabilities of Fifth Third or Mutual Federal. McDonald &
Company has assumed and relied upon the accuracy and completeness of the
financial and other information provided to it or publicly available, has
relied upon the representations and warranties of Fifth Third and Mutual
Federal made pursuant to the Affiliation Agreement and the Merger Agreement and
has not independently attempted to verify any of such information. McDonald &
Company also has assumed that the conditions to the Merger and covenants as set
forth in the Affiliation Agreement and the Merger Agreement would be satisfied
and that the Merger would be consummated on a timely basis in the manner
contemplated by the Affiliation Agreement and the Merger Agreement. No
limitations were imposed by Mutual Federal upon McDonald & Company or upon the
scope of its investigation, nor were any specific instructions given to
McDonald & Company in connection with its fairness opinion. McDonald & Company
did not determine or recommend the Exchange Ratio and did not address Mutual
Federal's business decision to effect the Merger or any other terms of the
Merger.
In connection with its opinion dated as of the date of this Proxy Statement
and Prospectus, McDonald & Company performed procedures to update certain of
their analyses and reviewed the assumptions on which such analyses were based
and the factors considered in connection therewith.
McDonald & Company was retained by Mutual Federal based upon, among other
things, McDonald & Company's experience and expertise in investment banking as
well as its familiarity with the business of Mutual Federal. McDonald &
Company, as part of its investment banking business, is customarily engaged in
the valuation of businesses
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<PAGE> 36
and securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes.
For McDonald & Company's financial advisory services in connection with the
Merger, including the rendering of its fairness opinion, McDonald & Company has
received fees of $50,000 from Mutual Federal, $15,000 of which was a retainer
and $35,000 of which was paid upon the signing of the Affiliation Agreement and
the Merger Agreement. Upon consummation of the Merger, McDonald & Company will
receive additional fees of approximately $230,000. Mutual Federal has also
agreed to reimburse McDonald & Company for its reasonable out-of-pocket
expenses and to indemnify McDonald & Company against certain liabilities,
including certain liabilities under the federal securities laws.
EFFECTS OF MERGER
Upon consummation of the Merger, Mutual Federal will merge with and into The
Fifth Third Bank and Mutual Federal will cease to exist as a separate entity.
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 who are in
office at the Effective Time, each of whom will continue to serve as directors
for the term for which such directors were elected, subject to its Code of
Regulations and in accordance with law. The officers of Fifth Third after the
Merger is consummated will be those officers of Fifth Third who are in office
at the Effective Time, subject to its Code of Regulations and in accordance
with law. In addition, three directors of Mutual Federal agreeable to Fifth
Third shall be appointed by The Fifth Third Bank to serve on an Advisory
Committee to The Fifth Third Bank for a 12-month period commencing on the
Effective Time. The Advisory Committee's purpose shall be to assist The Fifth
Third Bank in retaining and developing business relationships within the
Greater Dayton metropolitan area. Each Advisory Committee member shall be paid
$400.00 per month during such 12-month period for serving on the Advisory
Committee.
TRANSACTIONS WITH AFFILIATED PERSONS
Pursuant to the Affiliation Agreement, Mutual Federal shall enter into an
agreement with Midwest Payment Systems, Inc. ("MPS"), a subsidiary of The Fifth
Third Bank, to convert all of its electronic funds transfer related services to
MPS and the Jeanie(R) system. Such agreement shall be effective at or prior to
the Effective Time. Similarly, Mutual Federal shall enter into an agreement
with Fifth Third or an affiliate of Fifth Third which will provide for the
transfer to such entity of the performance of any and all data processing
services, including but not limited to item processing and application
processing. Such agreement shall be effective at the Effective Time.
CAPITAL REQUIREMENTS FOR FIFTH THIRD
The Federal Reserve Board, the Office of the Comptroller of the Currency, and
the Federal Deposit Insurance Corporation (the "FDIC") 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 shareholders' 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, a 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.
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<PAGE> 37
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 June
30, 1994, Fifth Third had a leverage ratio of 9.54%, its Tier 1 Risk-based
capital ratio was 11.39% and its total Risk-based capital ratio was 13.46%.
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 Mutual Federal shareholders who may be
deemed to be an "affiliate" of Fifth Third or Mutual Federal for purposes of
Rule 145 promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). Directors, executive officers or holders of 10% or more of
the outstanding shares of Mutual Federal Common Stock may be deemed to be
affiliates of Mutual Federal 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 Mutual Federal 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 and the rules and regulations promulgated thereunder. Generally, under
Rule 145(d), an affiliate of Mutual Federal 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 Mutual Federal 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 Mutual
Federal 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.
The foregoing is only a general statement of the restrictions on the
disposition of the shares of Fifth Third Common Stock to be issued in the
Merger. Accordingly, those shareholders of Mutual Federal who may be
affiliates of Mutual Federal 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
"Bank Holding Company Act"), and subject to regulation by the Federal Reserve
Board. As of June 30, 1994, Fifth Third, with its principal office located in
Cincinnati, was a multi-bank holding company that owned all of the outstanding
stock of five commercial banks with 251 offices in 31 counties in Ohio. Fifth
Third owns all of the outstanding capital stock of two commercial banks with 32
offices in
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seven counties in Kentucky. Fifth Third also owns all the outstanding capital
stock of two commercial banks which maintain 23 offices in six counties in
Indiana.
As of August 26, 1994, and as a result of the consummation of Fifth Third's
acquisition of The Cumberland Federal Bancorporation, Inc. and its subsidiary,
The Cumberland Federal Savings Bank, which transaction is described below,
Fifth Third is a multi-savings and loan holding company. As a savings and loan
holding company, Fifth Third is registered with and subject to regulation by
the OTS. Prior to the Cumberland transaction, Fifth Third was a unitary
savings and loan holding company which owned all of the outstanding stock of
one federally-chartered savings bank with one office in Naples, Florida.
On May 20, 1994, Fifth Third, through three of its affiliate banks, completed
the purchase of certain assets and the assumption of certain liabilities of
Citizens Federal Bank, a Federal Savings Bank, Miami, Florida ("Citizens").
The three affiliates acquired all of the assets and assumed all of the
liabilities of eight branches of Citizens. Seven of the eight branches are
being operated as full-service banking centers and one branch was closed.
On June 3, 1994, Fifth Third completed the acquisition of The National Bancorp
of Kentucky, Inc. Pursuant to that transaction, The National Bancorp of
Kentucky, Inc. was merged into Fifth Third, and The National Bancorp of
Kentucky, Inc.'s wholly owned subsidiaries, The First National Bank of
Falmouth, Falmouth, Kentucky ("FNB") and The National Bank of Cynthiana,
Cynthiana, Kentucky ("NBC"), became wholly owned subsidiaries of Fifth Third.
Simultaneous with the merger, FNB was merged with and into Fifth Third Bank of
Northern Kentucky, Inc. and NBC was merged with and into Fifth Third Bank of
Central Kentucky, Inc., n/k/a The Fifth Third Bank of Kentucky, Inc. The total
amount assumed by Fifth Third's subsidiaries was approximately $83.8 million in
deposits.
On August 26, 1994, Fifth Third consummated its acquisition of The Cumberland
Federal Bancorporation, Inc., a savings and loan holding company, and its
wholly owned subsidiary, The Cumberland Savings Bank ("Cumberland FSB").
Through a series of transactions, Fifth Third Bank of Kentucky, Inc., a
subsidiary of Fifth Third, purchased and assumed a majority of the assets and
liabilities of Cumberland FSB. The total amount of deposits assumed by Fifth
Third Bank of Kentucky, Inc. in such transaction was $829 million.
At June 30, 1994, Fifth Third, its affiliated banks and other subsidiaries had
consolidated total assets of $12.8 billion, consolidated total deposits of $9.1
billion and consolidated total stockholders' 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 FDIC through the
Bank Insurance Fund ("BIF"), and the savings bank affiliates have 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(R). The Jeanie(R) system participates in a shared ATM network called
"Money Station(R)," which includes several Ohio bank holding companies and over
1,000 ATM's. The "Money Station(R)" network participates in another shared ATM
network called "PLUS System(R)," which is a nationwide network with over 17,000
participating ATM's. The Fifth Third Bank, through its wholly-owned
subsidiary, MPS, 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 its
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."
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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 a bank holding company, Fifth Third is 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 Bank Holding Company 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 Bank Holding Company 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 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 FDIC 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
Ohio, by the Ohio Division of Banks, in the case of banks chartered in
Kentucky, by the Kentucky Department of Financial Institutions, and in the case
of banks chartered in Indiana, by the Indiana Department of Financial
Institutions.
MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG, A STOCK SAVINGS BANK
DESCRIPTION OF BUSINESS
Mutual Federal is a stock savings bank that has served the Miamisburg, Ohio
area for over one hundred years. Miamisburg is located approximately ten miles
south of Dayton and is the home of Mutual Federal's main office. Mutual
Federal also has two full service branch offices, one in Miamisburg and one in
neighboring Centerville.
Organized under Ohio law in 1880 as Mutual Building and Loan Company, Mutual
Federal converted to a federal mutual association in 1933, at which time its
name became Mutual Federal Savings and Loan Association. In 1991, Mutual
Federal adopted a federal savings bank charter and became known as Mutual
Federal Savings Bank of Miamisburg. Mutual Federal completed its conversion
from mutual to stock form (the "Conversion") in December 1992, at which time it
adopted its present name.
Mutual Federal is a member of the Federal Home Loan Bank (the "FHLB") of
Cincinnati and its deposits are insured up to applicable limits by the FDIC in
the SAIF. As a savings bank chartered under the laws of the United States,
Mutual Federal is subject to regulation, supervision and examination by the OTS
and the FDIC.
Mutual Federal is principally engaged in the business of making first mortgage
loans to finance the purchase, construction or improvement of residential real
estate. To a lesser extent, Mutual Federal also originates consumer
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loans, primarily passbook loans, home improvement loans and home equity lines
of credit. Loan funds are obtained primarily from savings deposits and loan
principal repayments. In addition to originating loans, Mutual Federal invests
in U.S. Government and agency obligations, mortgage-backed securities and other
investments permitted by applicable law.
Interest on loans and investments is Mutual Federal's primary source of
income. Mutual Federal's principal expense is interest paid on deposit
accounts. Operating results are dependent to a significant degree on the "net
interest" income of Mutual Federal, which is the difference between interest
income from loans and investments and interest expense on deposits and
borrowings. Like most thrift institutions, Mutual Federal's interest income
and interest expense are significantly affected by general economic conditions
and by the policies of various regulatory authorities.
LENDING ACTIVITIES
GENERAL. Mutual Federal's income consists primarily of interest income
generated by lending activities, including the origination of conventional
fixed-rate and variable-rate mortgage loans secured by first liens on
single-family homes located in Mutual Federal's primary market area. Mutual
Federal's primary market area is southern Montgomery County, Ohio, and
contiguous portions of Butler, Warren and Preble Counties. Mutual Federal does
not make loans insured by the Federal Housing Authority ("FHA loans") or loans
guaranteed by the Veterans Administration ("VA loans"). In addition to
mortgage lending, Mutual Federal makes consumer loans which include passbook,
home improvement loans and home equity lines of credit. In recent years,
Mutual Federal has not originated any loans secured by nonresidential real
estate, although its loan portfolio includes such loans that were originated in
prior years.
LOAN PORTFOLIO COMPOSITION AND ACTIVITY. The following table presents certain
information in respect of the composition of Mutual Federal's loan portfolio at
the dates indicated:
<TABLE>
<CAPTION>
At June 30,
------------------------------------------------------------------------
1994 1993 1992
------------------------------------------------------------------------
% of % of % of
total total total
Amount loans Amount loans Amount loans
-------- --------- -------- --------- -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Type of loan:
Real estate loans
One- to four-family $36,688 81.24% $42,605 83.57% $50,164 85.36%
Multi-family (over 4 units) 2,031 4.50 2,077 4.07 1,360 2.31
Construction 1,270 2.81 751 1.47 1,436 2.44
Nonresidential real estate 3,168 7.01 3,343 6.56 3,578 6.09
Consumer loans
Home equity 1,092 2.42 1,119 2.20 1,069 1.83
Home improvement 412 .91 461 0.91 342 0.58
Deposit account 405 .90 520 1.02 703 1.20
Other secured 49 .11 68 0.13 101 0.17
Unsecured 44 .10 35 0.07 11 0.02
------- ------- ------- ------- -------- -------
Total loans 45,159 100.00% 50,979 100.00% 58,764 100.00%
====== ====== ======
Less:
Loans in process 726 341 1,010
Deferred income 138 220 350
Allowance for losses on loans 696 663 577
------- -------- --------
Total loans - net $43,599 $49,755 $56,827
======= ======= =======
</TABLE>
18
<PAGE> 41
ONE- TO FOUR-FAMILY RESIDENTIAL REAL ESTATE LOANS. The primary lending
activity of Mutual Federal has been the origination of conventional loans
secured by first liens on single-family residences. Mutual Federal also
originates loans on two- to four-family dwellings and condominiums. Each of
such loans is secured by a mortgage on the underlying real estate and
improvements thereon, if any.
OTS regulations limit the amount which Mutual Federal may lend in relationship
to the appraised value of the underlying real estate at the time of loan
origination. In accordance with such regulations and law, Mutual Federal makes
loans on single-family residences up to 95% of the value of the real estate and
improvements (the "Loan-to-Value Ratio" or "LTV"). For loans with an LTV in
excess of 80%, the borrower is required to purchase private mortgage insurance.
Adjustable-rate mortgage loans ("ARMs") are offered by Mutual Federal for
terms of up to 30 years. The interest rate adjustment period on the ARMs
currently originated by Mutual Federal is one year. Prior to 1989, Mutual
Federal originated three-year ARMs. The maximum rate adjustment at each
adjustment date is usually 2% with a maximum adjustment of 5% over the term of
the loan for one-year ARMs and 2% and 6% for three-year ARMs. The interest
rate adjustments on ARMs presently originated by Mutual Federal are tied to
changes in the National Monthly Median Cost of Funds for all SAIF-insured
Institutions. Prior to 1991, Mutual Federal used the one-year Treasury rate as
the index on one-year ARMS.
Mutual Federal also offers fixed-rate mortgage loans for terms of up to 30
years. Due to the general long-term nature of an investment in fixed-rate
mortgage loans, such loans could have a negative effect upon Mutual Federal's
interest rate spread because such loans do not reprice as quickly as Mutual
Federal's cost of funds. To reduce the interest rate risk associated with
fixed rate loans, in 1990 Mutual Federal entered into agreements with
unaffiliated mortgage companies pursuant to which virtually all of the
fixed-rate loans presently originated by Mutual Federal having a term of more
than 10 years are purchased by such mortgage companies. See also "Loan
Originations, Purchases and Sales" below.
Mutual Federal's one- to four-family residential loan portfolio was
approximately $36.7 million at June 30, 1994 and represented 81.24% of total
loans. Adjustable-rate loans comprised approximately 53.04% of Mutual
Federal's total mortgage loans at June 30, 1994.
MULTI-FAMILY LOANS. At June 30, 1994, Mutual Federal's loan portfolio
included $2.0 million in multi-family loans, which represented 4.50% of total
loans. Multifamily loans are originated by Mutual Federal for terms of up to
30 years for adjustable-rate loans and 10 years for fixed-rate loans. A
majority of the multifamily loans in Mutual Federal's portfolio have adjustable
rates. All of the multifamily loans originated by Mutual Federal are secured
by properties located in Mutual Federal's primary market area.
CONSTRUCTION LOANS. Mutual Federal occasionally offers residential
construction loans to owner-occupants. Construction loans are offered with
adjustable rates of interest and for terms of up to 30 years. The borrower
pays interest only for up to eight months until construction is completed. At
June 30, 1994, Mutual Federal's construction loans totalled $1,270,000 and
represented 2.81% of total loans.
Construction loans generally involve greater underwriting and default risks
than do loans secured by mortgages on existing properties. Loan funds are
advanced upon the security of the project under construction, which is more
difficult to value before the completion of construction. Moreover, because of
the uncertainties inherent in estimating construction costs, it is relatively
difficult to evaluate accurately the total loan funds required to complete a
project and the related Loan-to-Value Ratios. In the event a default on a
construction loan occurs and foreclosure follows, Mutual Federal would have to
take control of the project and attempt either to arrange for completion of
construction or dispose of the unfinished project. The increased risks
inherent in construction lending are not significant to Mutual Federal because
construction loans comprise such a small percentage of Mutual Federal's loan
portfolio.
NONRESIDENTIAL REAL ESTATE LOANS. Prior to 1987, Mutual Federal originated
loans secured by nonresidential real estate consisting of office properties and
various retail and other income-producing properties. At June 30, 1994, such
19
<PAGE> 42
loans totalled $3.2 million and comprised approximately 7.01% of Mutual
Federal's total loans. Federal regulations limit the amount of nonresidential
mortgage loans which an association can make to 400% of total capital.
Nonresidential real estate lending is generally considered to involve a higher
degree of risk than residential lending due to the relatively larger loan
amounts and the effects of general economic conditions on the successful
operation of income-producing properties. Because of such risks, Mutual
Federal no longer originates nonresidential real estate loans. Nonresidential
real estate loans comprised $393,000, or 49.97%, of Mutual Federal's classified
assets at June 30, 1994. See also "Delinquent Loans, Nonperforming Assets and
Classified Assets" below.
CONSUMER LOANS. Mutual Federal makes various types of consumer loans to its
existing customers, including loans made to depositors on the security of their
savings deposits, home improvement loans, home equity lines of credit and
unsecured loans. At June 30, 1994, consumer loans totaled $2.0 million and
constituted 4.44% of Mutual Federal's total loans.
Consumer loans, other than passbook loans, may entail greater risk than do
residential mortgage loans. Consumer loan collections are dependent on the
borrower's continuing financial stability and are, therefore, more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy. The
risk of default on consumer loans increases during periods of recession, high
unemployment and other adverse economic conditions. Despite the increased
risks associated with consumer lending, consumer loans typically provide a
higher rate of return than real estate loans and have shorter terms to
maturity, thereby assisting Mutual Federal in managing the interest rate
sensitivity of its assets and liabilities.
Home improvement loans are offered at fixed rates of interest for terms of up
to 10 years. Home equity lines of credit have rates that adjust monthly based
on the composite prime rate of 75% of the thirty largest U.S. banks, as
reported by The Wall Street Journal. Such loans permit the borrower to draw
the principal for a term of up to ten years and to repay the loan during a
period of ten years thereafter. Lines of credit are secured by a mortgage on
the borrower's residence. The principal amount of the line of credit and all
other mortgages which have priority over Mutual Federal's mortgage cannot
exceed a 75% LTV. Unsecured personal loans are offered in amounts not to
exceed $5,000 for terms of up to three years.
LOAN SOLICITATION AND PROCESSING. Loan originations are developed from a
number of sources, including solicitations by Mutual Federal's staff,
continuing business with depositors and other borrowers, real estate agents and
walk-in customers.
Mortgage loan applications are taken by one of Mutual Federal's loan officers.
Mutual Federal obtains a credit report, verification of employment and other
documentation concerning the credit-worthiness of the borrower and an appraisal
of the fair market value of the real estate which will be given as security for
the loan. Appraisals are performed by a designated independent fee appraiser
approved by the Board of Directors. Upon the completion of the appraisal and
the receipt of all necessary information on the credit history and
credit-worthiness of the borrower, a decision is made to approve or disapprove
the loan. Mortgage loans for amounts up to $300,000 can be approved by the
Loan Committee of the Board of Directors. Loans for $300,000 or more must be
approved by the entire Board of Directors.
If a mortgage loan application is approved, a title insurance commitment is
obtained on the real estate which will secure the mortgage loan. Borrowers are
required to carry satisfactory fire and casualty insurance and flood insurance,
if applicable, and to name Mutual Federal as an insured mortgagee.
The procedure for approval of construction loans is the same as for
residential mortgage loans, except that the appraisal evaluates the building
plans, construction specifications and estimates of construction costs.
Consumer loans are underwritten on the basis of the borrower's credit history
and an analysis of the borrower's income and expenses, ability to repay the
loan and the value of the collateral, if any. Mutual Federal's executive
officers can approve consumer loans for principal amounts up to $30,000.
20
<PAGE> 43
LOAN ORIGINATIONS, PURCHASES AND SALES. During the past several years, Mutual
Federal has been actively originating new fixed-rate and adjustable-rate loans.
Mutual Federal generally retains all of the adjustable-rate mortgage loans it
originates.
Mutual Federal is a party to certain loan purchase agreements (the "Purchase
Agreements") with unaffiliated mortgage companies pursuant to which Mutual
Federal originates fixed-rate mortgage loans having terms of ten years or more
and seven-year balloon loans for immediate sale to such mortgage companies.
Such loans are originated by Mutual Federal on the basis of a binding
commitment from the purchaser to purchase the loan at a specified price
promptly after the loan is closed. Mutual Federal retains, and records as
other income, the difference between (i) the principal amount of the loan plus
loan origination fees or points charged by Mutual Federal to the borrower for
originating the loan and (ii) the amount agreed to be paid by the purchaser.
Such amount retained by Mutual Federal averages 1.25% of the principal amount
of the loan. Mutual Federal does not retain servicing on loans sold under the
Purchase Agreements.
Sales of loans under the Purchase Agreements are made with limited recourse
against Mutual Federal. The purchaser can require Mutual Federal to repurchase
a loan at any time if the loan fails to conform to any of the representations,
warranties or covenants contained in the Purchase Agreement. Such matters
relate generally to the compliance of the loan and the loan documentation with
various regulations and underwriting criteria and the enforceability of the
assignment. In addition, Mutual Federal is obligated to repurchase any loan if
the first three consecutive payments due under the terms of the loan become
delinquent. Mutual Federal has not been required to repurchase any of the
loans it has sold under the Purchase Agreements as of June 30, 1994.
Mutual Federal has engaged in the sale of loans under Purchase Agreements with
various mortgage companies since 1991 and expects to continue such arrangements
with one or more mortgage companies. Sales of fixed-rate loans through the
Purchase Agreements have assisted Mutual Federal in reducing its interest rate
risk and improving its liquidity. Income from sales of loans under the
Purchase Agreements has been a significant source of other income for Mutual
Federal in the past year due to the volume of refinancing activity as consumer
demand for fixed-rate loans has increased in the current interest rate
environment. There can be no assurance that loan sales will continue at the
rate experienced in the 1994 fiscal year.
[THE BALANCE OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK]
21
<PAGE> 44
The following table presents Mutual Federal's mortgage loan origination,
purchase and sale activity for the periods indicated:
<TABLE>
<CAPTION>
Year ended June 30,
---------------------------------------------------
1994 1993 1992
------------- ------------ ------------
(In thousands)
<S> <C> <C> <C>
Loans originated:
Adjustable rate:
Real estate:
One- to four-family(1) $4,293 $ 3,718 $ 5,844
Multifamily - - 384
Nonresidential real estate - - -
Consumer, home improvement and
home equity 363 558 1,288
------ -------- -------
Total adjustable-rate loans 4,656 4,276 7,516
------ -------- -------
Fixed rate:
Real estate:
One- to four-family:
Originated for portfolio 3,188 2,486 854
Originated for sale 13,851 12,865 9,972
Multi-family - - -
Nonresidential real estate - - -
Consumer, home improvement and
home equity 225 771 304
-------- -------- -------
Total fixed-rate loans 17,264 16,122 11,130
------- ------- -------
Total loans originated 21,920 20,398 18,646
------- ------- -------
Loans purchased - - -
-------- --------- ---------
Loans sold 13,851 12,865 9,972
------- ------- --------
Principal repayments(2) 13,889 15,318 16,651
------- ------- -------
Total decrease (5,820) (7,785) (7,977)
------- -------- -------
(Increase) decrease in other items - net(3) (336) 713 (509)
-------- -------- -------
Net decrease $ (6,156) $ (7,072) $(8,486)
- ----------------------------- ======== ======== =======
<FN>
(1) Includes construction loans.
(2) Includes advances drawn, repayments on lines of credit and transfers to
real estate owned.
(3) Consists of loans in process, deferred income and allowance for losses on
loans.
</TABLE>
Under OTS regulations, the aggregate amount of loans which Mutual Federal may
make to any one borrower (including related entities), with certain exceptions,
is limited in general to the greater of $500,000 or 15% of total capital. The
largest amount which Mutual Federal had outstanding to one borrower at June 30,
1994, is a loan which had an original principal amount of $560,000. Such loan
amount was less than 15% of total capital when originated.
22
<PAGE> 45
Mutual Federal purchases mortgage-backed securities insured or guaranteed by
government agencies in order to improve Mutual Federal's asset/liability
management and to profitably invest excess funds. See also "Investment
Activities" below.
LOAN ORIGINATION AND OTHER FEES. Mutual Federal realizes interest, point and
fee income from its lending activities and also realizes income from late
payment charges, application fees and fees for other miscellaneous services.
Interest rates charged on Mutual Federal's loans are affected primarily by
market and general economic conditions and such other factors as monetary
policies of the federal government, the general supply of money in the economy,
legislative tax policies, governmental budgetary matters and Mutual Federal's
cost of funds.
Loan origination fees and other fees are a volatile source of income, varying
with the volume of lending and economic conditions. All nonrefundable loan
origination fees and certain direct loan origination costs are deferred and
recognized as an adjustment to yield over the life of the related loan in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 91
promulgated by the Financial Accounting Standards Board ("FASB").
DELINQUENT LOANS, NONPERFORMING ASSETS AND CLASSIFIED ASSETS. Mutual Federal
attempts to minimize loan delinquencies through careful underwriting
procedures. When a loan becomes delinquent, Mutual Federal attempts to bring
the loan current through the assessment of late charges and adherence to its
established collection procedures. Generally, after a mortgage loan payment is
15 days delinquent or a consumer loan payment is 10 days delinquent, a late
charge of 5% of the amount of the payment is assessed and Mutual Federal will
contact the borrower to request payment. If a mortgage loan continues in a
delinquent status for 120 days or more, Mutual Federal generally will initiate
foreclosure proceedings.
Real estate acquired by Mutual Federal as a result of foreclosure or by deed
in lieu of foreclosure and real estate securing loans deemed to be foreclosed
in substance is classified as "real estate owned" until it is sold. When
property is so acquired, it is recorded at the lower of cost or the fair value
of the real estate at the date of acquisition, not to exceed net realizable
value. Periodically, real estate owned is reviewed to ensure that net
realizable value is not less than carrying value, and any subsequent allowance
resulting therefrom is charged to earnings as a provision for loss. All costs
incurred from the date of acquisition in preparing properties for their
intended use are capitalized.
The following table reflects the amount of loans in a delinquent or
nonperforming status as of the dates indicated:
<TABLE>
<CAPTION>
At June 30,
-----------------------------
1994 1993 1992
-------- -------- --------
(In thousands)
<S> <C> <C>
Loans delinquent for
30 to 59 days $206 $ 704 $ 685
60 to 89 days 41 8 119
90 or more days 355 829 452
---- ------- -------
Total delinquent loans $602 $1,541 $1,256
==== ====== ======
Ratio of total delinquent loans
to total net loans 1.38% 3.10% 2.21%
==== ==== ====
</TABLE>
All loans are reviewed on a regular basis and are placed on non-accrual status
when they are 90 days or more past due or earlier when, in the opinion of
management, the collection of additional interest is doubtful. Interest
accrued and unpaid at the time a loan is placed on non-accrual status is
charged against interest income. Subsequent payments are either applied to the
outstanding principal balance or recorded as interest income, depending on the
assessment of the ultimate collectibility of the loan.
23
<PAGE> 46
The following table sets forth information with respect to Mutual Federal's
nonperforming assets for the periods indicated:
<TABLE>
<CAPTION>
June 30,
--------------------------------------------------------
1994 1993 1992
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Non-accruing loans
One- to four-family $355 $451 $ 67
Multifamily - - -
Nonresidential real estate - 378 378
Construction - - -
Consumer - - 7
----- ------ -----
Total 355 829 452
Accruing loans delinquent more
than 90 days - - -
Other nonperforming assets - - -
----- ------ ------
Total nonperforming assets $355 $829 $452
==== ==== ====
Total nonperforming assets as a
percentage of total assets 0.43% 0.96% 0.55%
==== ==== ====
</TABLE>
Current OTS regulations require each savings association to classify its
assets on a regular basis. Under such regulations, problem assets are to be
classified as either (i) "substandard," (ii) "doubtful" or (iii) "loss."
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that the insured institution will sustain some loss if
the deficiencies are not corrected. Doubtful assets have the same weaknesses
as substandard assets with the additional characteristic that the weaknesses
make collection or liquidation in full highly questionable and improbable on
the basis of existing facts, conditions and value. Assets classified as "loss"
are considered uncollectible and of such little value that their treatment as
assets without the establishment of a specific reserve is unwarranted. The
regulations also have a "special mention" category for assets which do not
currently expose an association to a sufficient degree of risk to warrant
classification, but which possess credit deficiencies or potential weaknesses
deserving management's close attention.
<TABLE>
At June 30, 1994, the aggregate amounts of Mutual Federal's classified assets were as follows:
<CAPTION>
At June 30,
1994
--------------------
(In thousands)
Substandard $394
Doubtful -
Loss(1) 393
----
<S> <C>
Total classified assets $787
====
<FN>
_____________________________
(1) Assets classified as "loss" include $266,136 relating to two nonresidential real estate loans which are not included
in non-accruing loans or nonperforming loans. Notwithstanding the fact that such loans are accruing and are
</TABLE>
24
<PAGE> 47
performing in accordance with their terms, Mutual Federal considered it
prudent to establish a specific reserve with respect to such loans based on
the borrowers' past performance.
Mutual Federal also had $55,000 of loans designated as special mention at June
30, 1994.
Assets classified as substandard or doubtful require the association to
establish prudent general allowances for loan losses. If an asset, or portion
thereof, is classified as loss, the association must either establish specific
allowances for loan losses in the amount of 100% of the portion of the asset
classified loss, or charge off such amount.
Federal examiners are authorized to classify an association's assets. If an
association does not agree with an examiner's classification of an asset, it
may appeal this determination to the District Director of the OTS. As of the
date of its most recent examination, Mutual Federal had no disagreement with
the OTS as to asset classifications.
The following table sets forth an analysis of Mutual Federal's allowance for
losses on loans for the periods indicated:
<TABLE>
<CAPTION>
Year ended June 30,
------------------------------------------
1994 1993 1992
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of period $663 $577 $373
Charge-offs:
One- to four-family real estate 9 - -
Nonresidential real estate - - 65
Consumer - - -
----- ------ -----
Total charge-offs 9 - 65
----- ------ ----
Recoveries:
One- to four-family 27 - -
Consumer - 1 1
------ ----- -----
Total recoveries 27 1 1
----- ----- -----
Net charge offs (18) (1) 64
Provision for loss 15 85 268
---- ----- ----
Balance at end of period $696 $663 $577
==== ==== ====
Ratio of net charge-offs during the period
to average loans outstanding during the
period 0% 0% 0.10%
======== ======= =======
</TABLE>
25
<PAGE> 48
<TABLE>
The distribution of Mutual Federal's allowance for losses on loans at the dates indicated is summarized as follows:
<CAPTION>
June 30,
-------------------------------------------------------------------------------------
1994 1993 1992
--------------------------- ------------------------------------------------------
Percent Percent Percent
of loans of loans of loans
Allowance in each Allowance in each Allowance in each
for category for category for category
losses on to total losses on to total losses on to total
loans loans loans loans loans loans
----------- ----------- ---------- --------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate:
One- to four-family and
construction $ 52 84.1% $145 85.1% $ 60 87.8%
Multi-family and non-
residential real estate 393 11.5 314 10.6 310 8.4
Consumer 1 4.4 1 4.3 23 3.8
Unallocated 250 203 184
---- ----- ---- ----- ---- -----
Total $696 100.0% $663 100.0% $577 100.0%
==== ===== ==== ====== ==== =====
</TABLE>
INVESTMENT ACTIVITIES
OTS regulations require that Mutual Federal maintain a minimum amount of
liquid assets, which may be invested in United States Treasury obligations,
securities of various federal agencies, certificates of deposit at insured
banks, bankers' acceptances and federal funds. Mutual Federal is also
permitted to make investments in certain commercial paper, corporate debt
securities and certain mutual funds, as well as other investments permitted by
federal regulations. It has generally been Mutual Federal's policy in recent
periods to maintain liquid assets in excess of regulatory requirements in order
to shorten the maturities of its investment portfolio and improve the matching
of its short-term investments and interest rate sensitive savings deposit.
At June 30, 1994, Mutual Federal's investment portfolio consisted of
investments in U.S. Government and agency obligations, corporate debt
securities rated in one of the four highest rating categories by a nationally
recognized rating organization, state and municipal obligations and
mortgage-backed securities insured or guaranteed by the U.S. Government.
[THE BALANCE OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK]
26
<PAGE> 49
The following table sets forth the composition of Mutual Federal's
interest-bearing deposits and investment portfolio at the dates indicated:
<TABLE>
<CAPTION>
At June 30,
--------------------------------------------------------------------------
1994 1993 1992
------------------------ -------------------------------------------------
Book Percent Book Percent Book Percent
value of total value of total value of total
---------- ---------- ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits with
other financial institutions $1,199 100.0% $ 1,999 100.00% $ 1,649 100.00%
====== ===== ======= ====== ======= ======
Investment securities available for sale
or held for sale(1) $3,536 9.72% $ 4,073 12.69% $ - -%
Investment securities held to maturity:
U.S. Government securities and
agency obligations 9,851 27.09 12,248 38.17 16,327 75.77
Corporate obligations 500 1.38 500 1.56 2,150 9.98
State and municipal obligations 7,393 20.33 40 0.12 55 0.25
------ ------ -------- ------- -------- -------
Subtotal 17,744 48.80 12,788 39.85 18,532 86.00
------ ------ ------- ------- ------- ------
FHLB stock 660 1.82 629 1.96 602 2.79
-------- ------- -------- ------- -------- -------
Mortgage-backed securities
FNMA certificates 7,575 20.88 7,682 23.94 1,639 7.61
GNMA certificates 4,981 13.20 5,339 16.63
FHLMC certificates 1,864 5.13 1,582 4.93 775 3.60
------ ------ ------- ------- -------- -------
Subtotal 14,420 39.66 14,603 45.50 2,414 11.21
------ ----- ------- ------- -------- -------
Total investment
securities and FHLB stock $36,360 100.00% $32,093 100.00% $21,548 100.00%
======= ====== ======= ====== ======= ======
Average remaining life of
investment securities, excluding
FHLB stock and mortgage-
backed securities 5.61 years 3.35 years 3.67 years
<FN>
______________________________
(1) Consists solely of U.S. Government securities and agency obligations and agency obligations.
</TABLE>
27
<PAGE> 50
<TABLE>
The maturities of the investment portfolio, excluding FHLB stock and mortgage-backed securities, are indicated
in the following table:
<CAPTION>
At June 30, 1994
---------------------------------------------------------------------------
Less than 1 to 5 5 to 10 Over Total investment
1 year years years 10 years securities
---------- --------- --------- --------- -----------------------
Book Book Book Book Book Market
value value value value value value
---------- --------- --------- --------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Investment securities available for $1,007 $ 502 $2,027 $ - $3,530 $3,536
sale(1) ====== ====== ====== ======== ====== ======
Weighted average yield(2) 6.93% 7.03% 7.48% -% 7.26% - - - -
==== ==== ==== ====== ====
Investment securities held to maturity:
U.S. Government securities 502 6,839 2,510 - 9,851 9,583
and agency obligations
Corporate obligations 500 - - - 500 503
State and municipal obligations - - 5,159 2,234 7,393 6,731
------ ------- ------ ------ ------ ------
Total investment securities
held to maturity $1,002 $6,839 $7,669 $2,234 $17,744 $16,817
====== ====== ====== ====== ======= =======
Weighted average yield(1) 7.15% 6.30% 4.74% 4.50% 5.44% - - - --
- ----------------------------- ==== ==== ==== ==== ====
<FN>
(1) Consists solely of U.S. government securities and agency obligations.
(2) Yields on tax exempt obligations are not computed on a tax equivalent basis.
</TABLE>
DEPOSITS AND BORROWINGS
GENERAL. Deposits have traditionally been the primary source of Mutual
Federal's funds for use in lending and other investment activities. In
addition to deposits, Mutual Federal derives funds from interest payments and
principal repayments on loans and income on earning assets. Loan payments are
a relatively stable source of funds, while deposit inflows and outflows
fluctuate more in response to general interest rates and money market
conditions. Borrowings from the FHLB of Cincinnati are used on a short-term
basis to compensate for reductions in the availability of funds from other
sources or on a longer term basis for general business purposes.
DEPOSITS. Deposits are attracted principally from within Mutual Federal's
primary market area through the offering of a broad selection of deposit
instruments, including NOW accounts, money market deposit accounts, regular
passbook savings accounts, term certificate accounts and individual retirement
accounts. Interest rates paid, maturity terms, service fees and withdrawal
penalties for the various types of accounts are established weekly by Mutual
Federal's managing officer and chief financial officer, subject to review by
the Board of Directors, based on Mutual Federal's liquidity requirements,
growth goals and interest rates paid by competitors. Mutual Federal does not
use brokers to attract deposits. The amount of deposits from outside of Mutual
Federal's primary market area is insignificant.
28
<PAGE> 51
<TABLE>
Mutual Federal's deposits at June 30, 1994, 1993 and 1992 were represented by the various types of savings
programs described below:
<CAPTION>
At June 30,
-------------------------------------------------------------------------------
1994 1993 1992
--------------------------- -------------------------- -------------------------
Percent Percent Percent
of total of total of total
Amount deposits Amount deposits Amount deposits
------ -------- ------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Transaction accounts:
Passbook accounts $15,722 23.10% $17,247 24.12% $16,513 22.06%
NOW accounts 5,990 8.80 4,535 6.34 4,101 5.48
Money market deposit accounts 7,252 10.66 8,333 11.65 9,240 12.34
------- ----- -------- ------- -------- ------
Total transaction accounts 28,964 42.56 30,115 42.11 29,854 39.88
------- ----- -------- ------- -------- ------
Certificates of deposit:
2.00 - 2.99% 45 .07 237 0.33 - -
3.00 - 3.99% 13,018 19.13 13,177 18.42 828 1.10
4.00 - 4.99% 13,225 19.43 10,428 14.58 11,080 14.81
5.00 - 5.99% 9,526 14.00 8,883 12.42 7,817 10.44
6.00 - 6.99% 967 1.42 3,635 5.08 8,985 12.01
7.00 - 7.99% 1,028 1.51 1,886 2.64 9,402 12.56
8.00 - 8.99% 1,276 1.88 3,162 4.42 6,886 9.20
------- ------ -------- ------- -------- -------
Total certificates of deposit 39,085 57.44 41,408 57.89 44,998 60.12
------- ------ -------- ------- ------- ------
Total deposits $68,049 100.00% $71,523 100.00% $74,852 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
<TABLE>
The following table presents the amount and maturities of time deposits at June 30, 1994:
<CAPTION>
Amount Due
--------------------------------------------------------------
Over one Over two
Up to year to years to Over
Average weighted rate one year two years three years three years Total
- --------------------- -------- --------- ----------- ----------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
2.00 - 2.99% $ 45 $ - $ - $ - $ 45
3.00 - 3.99% 12,546 472 - - 13,018
4.00 - 4.99% 6,410 4,734 1,270 811 13,225
5.00 - 5.99% 3,248 866 551 4,861 9,526
6.00 - 6.99% 329 73 507 58 967
7.00 - 7.99% 672 244 97 15 1,028
8.00 - 8.99% 1,077 185 14 - 1,276
------- ------ ------- ------- ------
Total $24,327 $6,574 $2,439 $5,745 $39,085
======= ====== ====== ====== =======
</TABLE>
<TABLE>
The following table presents the amount of Mutual Federal's certificates of deposit and other time deposits of
$100,000 or more by the time remaining until maturity as of June 30, 1994:
<CAPTION>
Amount
Time remaining until maturity at June 30, 1994
----------------------------- -----------------------
(In thousands)
<S> <C>
3 months or less $ 504
Over 3 months to 6 months 658
Over 6 months to 12 months 328
Over 12 months 828
-----
Total $2,318
======
</TABLE>
29
<PAGE> 52
<TABLE>
The following table sets forth Mutual Federal's deposit account balance activity for the periods indicated:
<CAPTION>
Year ended June 30,
-----------------------------------------------------
1994 1993 1992
---------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Opening balance $71,523 $74,852 $71,694
Deposits 69,552 68,003 60,033
Withdrawals (75,691) (74,694) (61,325)
Interest credited 2,665 3,362 4,450
------- -------- --------
Ending balance $68,049 $71,523 $74,852
======= ======= =======
Net increase (decrease) in deposits $ (3,474) $(3,329) $ 3,158
======== ======= =======
Percent increase (decrease) (4.86%) (4.45%) 4.40%
===== ===== ====
</TABLE>
Deposit flows historically have been related to general economic conditions.
Mutual Federal has become increasingly subject to short-term fluctuations in
deposit flows as customers have become more interest-rate conscious. In the
current low interest rate environment, consumer preference has resulted in a
shift of funds out of longer term certificates of deposit and into short-term
certificate and passbook accounts. The ability of Mutual Federal to attract
and maintain savings deposits and Mutual Federal's cost of funds have been, and
will continue to be, significantly affected by money market conditions.
At June 30, 1994, Mutual Federal had total assets of $83.3 million, total
deposits of $43.6 million and total stockholders' equity of $14.9 million.
COMPETITION
Mutual Federal competes for deposits and loans with other savings
associations, savings banks, commercial banks, credit unions, mortgage
companies and the issuers of commercial paper and other securities, such as
shares in money market mutual funds. Mutual Federal considers its primary
deposit and lending market to consist of the southern part of Montgomery
County, Ohio, and contiguous areas in Butler, Greene, Warren and Preble
Counties. There are three other thrift institutions, several credit unions and
numerous commercial banks with offices in Mutual Federal's primary market area.
The primary factors in competing for deposits are interest rates and
convenience of office location. In making loans, Mutual Federal competes
primarily through the interest rates and loan fees it charges and through the
efficiency and quality of services it provides to borrowers. Competition is
affected by, among other things, the general availability of lendable funds,
general and local economic conditions, current interest rate levels and other
factors which are not readily predictable.
The number and size of financial institutions competing with Mutual Federal
is likely to increase as a result of continuing changes in federal and state
laws eliminating restrictions on interstate branching and interindustry
acquisitions. Such increased competition may have an adverse effect upon
Mutual Federal.
PERSONNEL
As of June 30, 1994, Mutual Federal had 21 full-time employees and 6
part-time employees. Mutual Federal believes that relations with its employees
are excellent. Mutual Federal offers health and life insurance benefits. None
of the employees of Mutual Federal are represented by a collective bargaining
unit.
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<PAGE> 53
PROPERTIES
Mutual Federal owns the real estate and improvements which comprise its main
office and its Centerville branch office, and leases the premises for its
Miamisburg branch office. Mutual Federal also owns furniture, fixtures and
various bookkeeping, accounting and data processing equipment. The net book
value of Mutual Federal's total investment in office furnishings and equipment
was $344,433 at June 30, 1994. See Note 4 of Notes to Mutual Federal's
Financial Statements contained in "MUTUAL FEDERAL FINANCIAL STATEMENTS" for
additional information.
<TABLE>
<CAPTION>
Owned Date Square Net
Location or leased acquired footage book value
- -------- --------- -------- ------- ----------
<S> <C> <C> <C> <C>
Main office:
23 East Central Avenue Owned 07/27/30 5,542 $ 31,577
Miamisburg, Ohio
Branch offices:
120 Alex Road Leased(1) 06/01/89 3,600 $ 33,757
Miamisburg, Ohio
232 North Main Street Owned 08/02/73 2,025 $110,311
Centerville, Ohio
<FN>
- -----------------------------
(1) The current lease term extends until August 1995, subject to renewal for two additional terms of five years each.
Projected rental payments through August 1995 total $46,900.
</TABLE>
REGULATION
GENERAL
As a savings bank organized under the laws of the United States, Mutual
Federal is subject to regulation, examination and oversight by the OTS. Mutual
Federal must file periodic reports with the OTS concerning its activities and
financial condition. Because Mutual Federal's deposits are insured by the
FDIC, Mutual Federal is subject to regulation and examination by the FDIC. In
addition, since it accepts federally insured deposits and offers transaction
accounts, Mutual Federal is subject to certain regulations issued by the
Federal Reserve Board. Mutual Federal is also a member of the FHLB of
Cincinnati. Federal regulators periodically conduct examinations to determine
whether Mutual Federal is in compliance with the various regulatory
requirements and is operating in a safe and sound manner.
OFFICE OF THRIFT SUPERVISION
GENERAL. The OTS is an office in the Department of the Treasury and is
subject to the general oversight of the Secretary of the Treasury. The
Director of the OTS is responsible for the regulation and supervision of all
savings associations, the deposits of which are insured by the FDIC in the
SAIF, and promulgates regulations governing the operation of savings
associations and regularly examines such institutions. It also promulgates
regulations that prescribe the permissible investments and activities of
federally chartered savings associations. This includes the type of lending
that such associations may engage in and the investments in real estate,
subsidiaries and corporate or government securities that such associations may
make. The OTS also may initiate enforcement actions against savings
associations and certain persons affiliated with them for violations of laws or
regulations or for engaging in unsafe or unsound practices. If the grounds
provided by law exist, the OTS may appoint a conservator or receiver for a
savings association.
Each savings association regulated by the OTS must undergo a full-scope,
on-site examination by the OTS at least (a) once every twelve months if the
insured institution has total assets of $100 million or more, or (b) once every
eighteen months if the institution has total assets of less than $100 million
and satisfies other specified criteria. The OTS imposes assessments on savings
associations based on their asset size to cover the cost of general supervision
and assesses fees to cover the cost of each examination.
OPERATING STANDARDS. Pursuant to the Federal Deposit Insurance Corporation
Improvement Act of 1991 (the "Improvement Act"), the OTS has proposed standards
for federally insured savings associations related to (a) internal controls,
information systems and internal audit systems; (b) loan documentation; (c)
credit underwriting; (d) interest rate exposure; (e) asset growth; and (f)
compensation, fees and benefits. Any past-employment compensation or benefit
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<PAGE> 54
arrangement that would provide any executive officer, employee, director or
principal shareholder with excessive compensation that could result in a
material financial loss to the institution is an unsafe and unsound practice.
In connection with issuing these proposed standards, the OTS has proposed
ratios establishing a maximum ratio of classified assets to capital and minimum
earnings sufficient to absorb losses without impairing capital. One such ratio
would limit classified assets to no more than 1% of capital plus reserves not
included in capital. The earnings ratio would require that associations meet
minimum capital requirements and would continue to meet such requirements if
the results of operations for the preceding four quarters were repeated in the
following four quarters. Savings associations that fail to meet these
standards or ratios would be given 30 days to submit an acceptable plan to meet
them or be subject to an order issued by the OTS. The effect of these
requirements on Mutual Federal cannot be ascertained until final regulations
are adopted.
The OTS requires all savings associations to adopt a written policy
addressing underwriting, documentation, approval and reporting standards and
portfolio diversification and administration requirements for real estate
loans. The policy must incorporate guidelines issued by the OTS and the other
banking agencies that suggest maximum loan-to-value ratios for real estate
loans, other than permanent financing on one-to-four family residences, and
provide limits and requirements on loans that exceed such limits. Mutual
Federal's real estate lending policy complies with the regulation.
REGULATORY CAPITAL REQUIREMENTS. Mutual Federal is required by OTS
regulations to meet certain minimum capital requirements. The following table
sets forth the amount and percentage level of regulatory capital of Mutual
Federal at June 30, 1994, and the amount by which it exceeds fully phased-in
requirements. Tangible and core capital are reflected as a percentage of
adjusted total assets. Risk-based (or total) capital, which consists of core
and supplementary capital, is reflected as a percentage of risk-weighted
assets.
<TABLE>
<CAPTION>
At June 30, 1994
----------------------------
Amount Percent
------ -------
(Dollars in thousands)
<S> <C> <C>
Tangible Capital $14,884 17.87%
Requirement 1,250 1.50
------- -----
Excess $13,634 16.37%
======= =====
Core Capital 14,884 17.87%
Requirement 2,499 3.00
-------- -----
Excess $12,385 14.87%
======= =====
Total Capital $15,186 48.20%
Risk-based Requirement 2,520 8.00
------- -----
Excess $12,666 40.20%
======= =====
</TABLE>
Current capital requirements call for tangible capital of 1.5% of adjusted
total assets, core capital (which for Mutual Federal consists solely of
tangible capital) of 3.0% of adjusted total assets and risk-based capital
(which for Mutual Federal consists of core capital and general valuation
allowances) of 8% of risk-weighted assets. The OTS has proposed to amend the
core capital requirement so that those associations that do not have the
highest examination rating and an acceptable level of risk will be required to
maintain core capital of from 4% to 5%, depending on the association's
examination rating and overall risk. Mutual Federal does not anticipate that
it will be adversely affected if the core capital requirement regulation is
amended as proposed.
The OTS has issued an interest rate risk component to the risk-based
requirement, which became effective on July 1, 1994. Savings associations must
measure the impact of an immediate 200 basis point change in interest rates on
the value of its portfolio, as determined under the methodology established by
the OTS. If the measured interest rate risk is above the level deemed normal
under the regulation, the association will have to deduct one-half of that
excess exposure from its total capital when determining its level of risk-based
capital. The interest rate risk component for any quarter will be based on
this calculation as of the end of the third preceding quarter. In general,
associations with less than $300 million in assets and a risk-based capital
ratio of greater than 12% will not be subject to this requirement. Mutual
Federal qualifies for this exception.
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<PAGE> 55
The OTS is also required to adjust the risk-based capital requirement to
take into account risks due to concentrations of credit and non-traditional
activities. The OTS is proposing to impose individualized higher capital
requirements on savings associations which have a high degree of exposure to
such risks on a case-by-case basis.
The OTS has adopted regulations governing prompt corrective action to
resolve the problems of capital deficient and otherwise troubled savings
associations. At each successively lower defined capital category, an
institution is subject to more restrictive and numerous mandatory or
discretionary regulatory actions or limits, and the OTS has less flexibility in
determining how to resolve the problems of the institution. The OTS has
defined these capital levels as follows: (1) well-capitalized associations
must have total risk-based capital of at least 10%, core risk-based capital
(consisting only of items that qualify for inclusion in core capital) of at
least 6% and core capital of at least 5%; (2) adequately capitalized
associations are those that meet the regulatory minimum of total risk-based
capital of 8%, core risk-based capital of 4% and core capital of 4% (except for
associations with the highest examination rating which will be permitted to
have only 3% core capital but are not well-capitalized); (3) undercapitalized
associations are those that do not meet regulatory limits, but that are not
significantly undercapitalized; (4) significantly undercapitalized associations
have total risk-based capital of 6%, core risk-based capital of 3% and core
capital of 3%; and (5) critically undercapitalized associations are those with
core capital of less than 2% of total assets. In addition, the OTS can
downgrade an association's designation notwithstanding its capital level, based
on less than satisfactory examination ratings in areas other than capital or,
after notice and an opportunity for hearing, if the institution is deemed to be
in an unsafe or unsound condition or to be engaging in an unsafe or unsound
practice. All undercapitalized associations must submit a capital restoration
plan to the OTS within 45 days after it becomes undercapitalized. Such
institutions will be subject to increased monitoring and asset growth
restrictions and will be required to obtain prior approval for acquisitions,
branching and engaging in new lines of business. Critically undercapitalized
institutions must be placed in conservatorship or receivership within 90 days
of reaching that capitalization level, except under limited circumstances.
Mutual Federal's capital at June 30, 1994 met the standards for a
well-capitalized institution.
Federal law prohibits an insured institution from making a capital
distribution to anyone or paying management fees to any person having control
of the institution if, after such distribution or payment, the institution
would be undercapitalized. In addition, each company controlling an
undercapitalized institution must guarantee that the institution will comply
with its capital plan until the institution has been adequately capitalized on
an average during each of four consecutive calendar quarters and must provide
adequate assurances of performance. The aggregate liability pursuant to such
guarantee is limited to the lesser of (a) an amount equal to 5% of the
institution's total assets at the time the institution became undercapitalized
or (b) the amount which is necessary to bring the institution into compliance
with all capital standards applicable to such institution at the time the
institution fails to comply with its capital restoration plan.
LIQUIDITY. OTS regulations require that savings associations maintain an
average daily balance of liquid assets (cash, certain time deposits, bankers'
acceptances and specified United States government, state or federal agency
obligations) equal to a monthly average of not less than a specified percentage
of its net withdrawable savings deposits plus borrowing payable in one year or
less. This liquidity requirement, which is currently 5%, may be changed from
time to time to any amount within the range of 4% to 10%, depending upon
economic conditions and the savings flow of member associations. Federal
regulations also require each member institution to maintain an average daily
balance of short-term liquid assets at a specified percentage, currently 1%, of
the total of its net withdrawable savings accounts and borrowing payable in one
year or less. Monetary penalties may be imposed upon member institutions
failing to meet liquidity requirements. The eligible liquidity of Mutual
Federal, as computed under current regulations, at June 30, 1994 was
approximately $12.5 million, or 18.84%, and exceeded the then applicable 5.0%
liquidity requirement by approximately $9.0 million, or 13.84%.
QUALIFIED THRIFT LENDER TEST. Savings associations are required to maintain
a specified level of investments in assets that are designated as qualifying
thrift investments. Such investments are generally related to domestic
residential real estate and manufactured housing and include stock issued by
any FHLB, the Federal Home Loan Mortgage Corporation or the Federal National
Mortgage Association. The Qualified Thrift Lender ("QTL") test, as amended by
the Improvement Act, requires that 65% of an institution's "portfolio assets"
(total assets less goodwill and other intangibles, property used to conduct
business and 20% of liquid assets) consist of qualified thrift investments on a
monthly average basis in 9 out of every 12 months. The OTS may grant
exceptions to the QTL test under certain circumstances. If a savings
associations fails to meet the QTL test, the association will be subject to
certain operating restrictions. A savings association that fails to meet the
QTL test will not be eligible for FHLB
33
<PAGE> 56
advances to the fullest possible extent. At June 30, 1994, Mutual Federal had
QTL investments equal to approximately 77.35% of its total portfolio assets.
LENDING LIMITS. OTS regulations generally limit the aggregate amount that a
savings association can lend to one borrower to an amount equal to 15% of the
association's unimpaired capital and surplus. A savings association may loan
to one borrower an additional amount not to exceed 10% of the association's
unimpaired capital and surplus if the additional amount is fully secured by
certain forms of "readily marketable collateral." Real estate is not
considered "readily marketable collateral." In applying these limits, the
regulations require that loans to certain related or affiliated borrowers be
aggregated. Two exceptions to these limits permit loans to one borrower of up
to $500,000 for any purpose and, subject to certain conditions including OTS
prior approval, loans to one borrower for the development of domestic
residential housing units in an amount up to the lesser of $30,000,000 or 30%
of the savings association's unimpaired capital and surplus. At June 30, 1993,
Mutual Federal was in compliance with the applicable lending limit.
TRANSACTIONS WITH INSIDERS AND AFFILIATES. Loans to insiders are also
subject to Sections 22(g) and (h) of the Federal Reserve Act, which place
restrictions on loans to executive officers, directors and principal
shareholders and their related interests. Generally, the aggregate amount of
such loans must not exceed the association's limit on loans to one borrower or
the association's unimpaired capital and surplus. Most loans to directors,
executive officers and principal shareholders must be approved in advance by a
majority of the "disinterested" members of the board of directors of the
association with any "interested" director not participating. All loans to
directors, executive officers and principal shareholders must be made on terms
substantially the same as offered in comparable transactions to the general
public. In addition, no loan may be made to an executive officer, except loans
for specifically authorized purposes, such as to finance the education of the
executive officer's children or to finance the purchase of the executive
officer's primary residence. Mutual Federal was in compliance with such
restrictions at June 30, 1994.
All transactions between savings associations and their affiliates must
comply with Sections 23A and 23B of the Federal Reserve Act pertaining to
transactions with affiliates. An affiliate of a savings association is any
company or entity that controls, is controlled by or is under common control
with the savings association. Generally, Sections 23A and 23B of the Federal
Reserve Act (i) limit the extent to which the savings institution or its
subsidiaries may engage in "covered transactions" with any one affiliate to an
amount equal to 10% of such institution's capital stock and surplus, and
contain an aggregate limit on all such transactions with all affiliates to an
amount equal to 20% of such capital stock and surplus, and (ii) require that
all such transactions be on terms substantially the same, or at least as
favorable to the institution or subsidiary, as those provided to a
non-affiliate. The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guarantee and other similar types of
transactions. In addition to the limits in Sections 23A and 23B, a savings
association may not make any loan or other extension of credit to an affiliate
unless the affiliate is engaged only in activities permissible for a bank
holding company and may not purchase or invest in securities of any affiliate
except shares of a subsidiary. Mutual Federal was in compliance with these
requirements and restrictions at June 30, 1994.
LIMITATIONS ON CAPITAL DISTRIBUTIONS. OTS regulations impose various
restrictions or requirements on the ability of associations to make capital
distributions, including dividend payments. An association is prohibited from
declaring or paying any dividends or from repurchasing any of its stock if, as
a result, the net worth of the association would be reduced below the amount
required to be maintained for the liquidation account established in connection
with its mutual to stock conversion. OTS regulations also establish a system
limiting capital distributions according to ratings of associations based on
their capital level and supervisory condition.
The first rating category is Tier 1, consisting of associations that, before
and after the proposed distribution, meet their fully phased-in capital
requirements. Associations in this category may make capital distributions
during any calendar year equal to the greater of 100% of net income, current
year-to-date, plus 50% of the amount by which the lesser of the association's
tangible, core or risk-based capital exceeds its fully phased-in capital
requirement for such capital component, as measured at the beginning of the
calendar year, or the amount authorized for a Tier 2 association. A Tier 1
association deemed to be in need of more than normal supervision by the OTS may
be downgraded to a Tier 2 or Tier 3 association. The second category, Tier 2,
consists of associations that before and after the proposed distribution meet
their current minimum, but not fully phased-in, capital requirements.
Associations in this category may make capital distributions of up to 75% of
net income over the most recent quarters. Tier 3 associations do not meet
current minimum capital requirements and must obtain OTS approval of any
capital
34
<PAGE> 57
distribution. Tier 2 associations that propose to make a capital distribution
in excess of the noted safe harbor level must also obtain OTS approval. Tier 2
associations proposed to make a capital distribution within the safe harbor
provisions and Tier 1 associations proposing to make any capital distribution
need only submit written notice to the OTS 30 days prior to such distribution.
At June 30, 1994, Mutual Federal met the requirement for a Tier 1 institution.
RESTRICTIONS ON ACQUISITION OF MUTUAL FEDERAL
FEDERAL DEPOSIT INSURANCE ACT. The Federal Deposit Insurance Act ("FDIA")
provides that no person, acting directly or indirectly or in concert with one
or more persons, shall acquire control of any insured savings association
unless 60 days' prior written notice has been given to the OTS, and the OTS has
not issued a notice disapproving the proposed acquisition. Control, for
purposes of the FDIA, means the power, directly or indirectly, to direct the
management or policies of an insured institution or to vote 25% or more of any
class of securities of such institution. This provision of the FDIA is
implemented by the OTS in accordance with the Regulations for Acquisition of
Control of an Insured Institution, 12 CFR Part 574 (the "Control Regulations").
Control, for purposes of the Control Regulations, exists in situations in which
the acquiring party has direct or indirect voting control of at least 25% of
the institution's voting shares or controls in any manner the election of a
majority of the directors of such institution or the Director of the OTS
determines that such person exercises a controlling influence over the
management or policies of such institution. In addition, control is presumed
to exist, subject to rebuttal, where the acquiring party (which includes a
group "acting in concert") has voting control of at least 10% of the
institution's voting stock and any of eight control factors specified in the
regulation exists. There are also rebuttable presumptions in the regulations
concerning whether a group "acting in concert" exists, including presumed
action in concert among members of an "immediate family."
CHANGE IN CONTROL OF CONVERTED ASSOCIATIONS. A regulation of the OTS
provides that, for a period of three years from the date of the completion of
the Conversion, no person shall, directly or indirectly, offer to acquire or
acquire beneficial ownership of more than 10% of any class of equity security
of Mutual Federal without the prior written approval of the OTS. Such
three-year restriction does not apply (i) to any offer with a view toward
public resale made exclusively to Mutual Federal or to any underwriter or
selling group acting on behalf of Mutual Federal, (ii) unless made applicable
by the OTS by prior written advice, to any offer or announcement of an offer
which, if consummated, would result in the acquisition by any person, together
with all other acquisitions by any such person of the same class of securities
during the preceding 12-month period, of not more than 1% of the class of
securities, or (iii) to any offer to acquire or the acquisition of beneficial
ownership of more than 10% of any class of equity security of Mutual Federal by
a corporation whose ownership is or will be substantially the same as the
ownership of Mutual Federal if made more than one year following the date of
the Conversion. The foregoing restriction does not apply to the acquisition of
Mutual Federal's capital stock by one or more tax-qualified employee stock
benefit plans, provided that the plan or plans do not have beneficial ownership
in the aggregate of more than 25% of any class of equity security of Mutual
Federal. Fifth Third Bancorp has applied for such approval in connection with
its proposed acquisition of Mutual Federal.
FEDERAL DEPOSIT INSURANCE CORPORATION
DEPOSIT INSURANCE. The FDIC is an independent federal agency that insures
the deposits, up to prescribed statutory limits, of federally insured banks and
thrifts and regulates the safety and soundness of the banking and thrift
industries. The Financial Institutions Reform, Recovery, and Enforcement Act
of 1989 ("FIRREA") established two separate insurance funds, the BIF for
commercial banks and state savings banks and the SAIF for savings associations,
to be maintained and administered by the FDIC. Upon the enactment of FIRREA,
Mutual Federal became a member of the SAIF and its deposit accounts became
insured by the FDIC, up to the prescribed limits. The FDIC has examination
authority over all insured depository institutions, including Mutual Federal,
and has authority to initiate enforcement actions against federally insured
savings associations if it does not believe the OTS has taken appropriate
action to safeguard the deposit insurance fund.
Depository institutions are generally prohibited from converting from one
insurance fund to the other until August 9, 1994, except with the prior
approval of the FDIC in certain limited cases, provided applicable exit and
entrance fees are paid. The insurance fund conversion provisions do not
prohibit a SAIF member from converting to a bank charter or merging with a bank
during the moratorium, as long as the resulting bank continues to pay the
35
<PAGE> 58
applicable insurance assessments to the SAIF during that period and certain
other conditions are met. Mutual Federal does not intend to convert to the BIF
or to a bank charter.
ASSESSMENTS. The FDIC is authorized to establish separate annual assessment
rates for deposit insurance for members of each of the BIF and the SAIF. The
FDIC may increase assessment rates for either fund if necessary to restore the
fund's ratio of reserves to insured deposits to its target level within a
reasonable time. Such rates must be announced by September 30 of the
succeeding calendar year. The FDIC has established a risk-based assessment
system for both SAIF and BIF members. Under this system, assessments are from
.23% to .31% of insured deposits of the institution, based on the risk the
institution poses to its deposit insurance fund. This risk level is determined
based on the institution's capital level and the FDIC's level of supervisory
concern about the institution.
The Resolution Trust Corporation has resolved savings associations that have
failed since the creation of the SAIF in 1989. In 1995, the SAIF will become
responsible for the resolution of savings associations that fail after that
date. The FDIC is required to maintain a certain level of reserves in the SAIF
fund. SAIF members are expected to experience higher assessments than BIF
members in the future and for an unknown period of time, until the SAIF is
adequately funded. By contrast, BIF members, which are mostly commercial
banks, will experience lower assessments. The FDIC has projected that the
average assessment for BIF members might be reduced to $.11 per $100 of
deposits or even lower, while the average assessment for SAIF members might
increase to at least $.35 per $100 of deposits.
FINANCIAL REPORTING. In accordance with the requirements of the Improvement
Act, the FDIC has proposed financial and regulatory reporting requirements for
institutions with assets of at least $500 million in assets. Such institutions
must submit an annual report to the FDIC and other appropriate state and
federal regulators, which contains audited statements by acceptable audit firms
and a management report on the institution's preparation of financial
statements, internal control systems and compliance with laws and regulations
relating to safety and soundness as designated by the FDIC. Such laws and
regulations are those governing affiliate transactions, insider loans and
dividend restrictions. FDIC guidelines contain procedures for ascertaining the
level of compliance in these areas. The annual report must also contain a
report of the independent auditor attesting to and reporting on the management
report. Institutions with assets of more than $3 billion must establish an
independent audit committee of their boards in accordance with regulatory
requirements and related guidelines.
FEDERAL RESERVE BOARD REGULATIONS
RESERVE REQUIREMENTS. Federal Reserve Board regulations require savings and
loan associations to maintain reserves against their transaction accounts
(primarily NOW accounts) and provide for maintenance of reserves against their
non-personal time deposits. Such regulations generally require that reserves
of 3% be maintained against deposits in transaction accounts up to $51.9
million (subject to an exemption up to $4.0 million), and that reserves of 10%
be maintained against that portion of total transaction accounts in excess of
$51.9 million. No reserves are currently required against non-personal time
deposits. These percentages are subject to adjustment by the Federal Reserve
Board. At June 30, 1994, Mutual Federal was in compliance with its reserve
requirements.
TRUTH IN SAVINGS. The Improvement Act 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 requiring specific disclosure
before an account is opened, in regularly provided statements and in
advertisements, announcements and solicitations initiated by a depository
institution. These regulations became effective June 21, 1993. The
regulations require detailed disclosure of deposit account yield information,
minimum balance requirements and fee impact on the yield and establish certain
recordkeeping requirements.
FEDERAL HOME LOAN BANKS
The twelve FHLBs, under the regulatory oversight of the Federal Housing
Financing Board, provide credit to their members in the form of advances.
Mutual Federal is a member of the FHLB of Cincinnati and must maintain an
investment in the capital stock of that FHLB in an amount equal to the greater
of 1% of the aggregate outstanding principal amount of Mutual Federal's
residential mortgage loans, home purchase contracts and similar obligations at
the beginning of each year, or 5% of its advances from the FHLB. Mutual
Federal is in compliance with this requirement with an investment in FHLB of
Cincinnati stock of $659,700 at June 30, 1994.
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<PAGE> 59
Each FHLB is required to establish standards of community investment or
service that its members must maintain for continued access to long-term
advances from the FHLBs. The standards take into account a member's
performance under the Community Reinvestment Act and its record of lending to
first-time home buyers. All long-term advances by each FHLB must be made only
to provide funds for residential housing finance. The FHLBs have established
an "Affordable Housing Program" to subsidize the interest rate of advances to
member associations engaged in lending for long-term, low- and moderate-income,
owner-occupied and affordable rental housing at subsidized rates. The FHLB of
Cincinnati reviews and accepts proposals for subsidies under that program twice
a year. Mutual Federal has not participated in this program.
TAXATION
FEDERAL TAXATION
Mutual Federal files its federal income tax returns on a fiscal year basis
using the accrual method of accounting. With certain exceptions, Mutual
Federal is subject to the federal tax laws and regulations which apply to
corporations generally. One such exception permits thrift institutions such as
Mutual Federal that meet certain definitional tests relating to the composition
of assets and other conditions prescribed by the Code, to establish a reserve
for bad debts and to make annual additions thereto which may, within specified
limits, be taken as a deduction in computing taxable income. For purposes of
the bad debt reserve deduction, loans are categorized as "qualifying real
property loans," which generally include loans secured by improved real estate,
and "nonqualifying loans," which include all other types of loans. The amount
of the bad debt reserve deduction for "nonqualifying loans" is computed under
the experience method. A thrift institution may elect annually to compute its
allowable addition to its bad debt reserves under either the experience method
or the percentage of taxable income method. For tax years 1993, 1992 and 1991,
Mutual Federal used the percentage of taxable income method because such method
provided a higher bad debt deduction than the experience method.
Under the experience method, the bad debt deduction for an addition to the
reserve for "qualifying real property loans" or "nonqualifying loans" is an
amount determined under a formula based generally upon a moving average of the
bad debts actually sustained by a thrift institution over a period of years.
The percentage of specially computed taxable income that is used to compute
the percentage bad debt deduction is 8%. The percentage bad debt deduction
thus computed is reduced by the amount permitted as a deduction for
nonqualifying loans under the experience method. The availability of the
percentage of taxable income method permits qualifying thrift institutions to
be taxed at a lower effective federal income tax rate than that applicable to
corporations generally. The effective maximum federal income tax rate
applicable to a qualifying thrift institution (exclusive of any minimum tax or
environmental tax), assuming the maximum percentage bad debt deduction, is
approximately 31.3%.
If less than 60% of the total dollar amount of an institution's assets
consist of specified assets (generally, loans secured by residential real
estate or deposits, educational loans, cash and certain governmental
obligations), such institution may not deduct any addition to a bad debt
reserve and generally must include reserves in excess of that allowable under
the experience method in income over a four-year period. At June 30, 1994, at
least 60% of Mutual Federal's total assets were specified assets. No
representation can be made as to whether Mutual Federal will meet the 60% test
for subsequent taxable years.
Under the percentage of taxable income method, the percentage bad debt
deduction cannot exceed the amount necessary to increase the balance in the
reserve for "qualifying real property loans" to an amount equal to 6% of such
loans outstanding at the end of the taxable year. Additionally, the total bad
debt deduction attributable to "qualifying real property loans" cannot exceed
the greater of (i) the amount deductible under the experience method or (ii)
the amount which when added to the bad debt deduction for "nonqualifying loans"
equals the amount by which 12% of the amount comprising savings accounts at
year-end exceeds the sum of surplus, undivided profits and reserves at the
beginning of the year. At June 30, 1994, the 6% and 12% limitations did not
restrict the percentage bad debt deduction available to Mutual Federal.
In addition to the regular income tax, corporations, including thrift
institutions such as Mutual Federal, generally are subject to a minimum tax.
An alternative minimum tax is imposed at a minimum tax rate of 20% on
alternative minimum taxable income (which is the sum of a corporation's regular
taxable income, with certain
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<PAGE> 60
adjustments, and tax preference items), less any available exemption. Such tax
preference items include (i) 100% of the excess of a thrift institution's
percentage bad debt deduction over the amount that would have been allowable
based on actual experience and (ii) interest on certain tax-exempt bonds issued
after August 7, 1986. In addition, 75% of the amount by which a corporation's
adjusted current earnings exceeds its alternative minimum taxable income,
computed without regard to this preference item and prior to reduction by net
operating losses, is included in alternative minimum taxable income. Net
operating losses can offset no more than 90% of alternative minimum taxable
income. The alternative minimum tax is imposed to the extent it exceeds the
corporation's regular income tax. Payments of alternative minimum tax may be
used as credits against regular tax liabilities in future years. In addition,
for taxable years after 1986 and before 1996, corporations, including thrift
institutions such as Mutual Federal, are also subject to an environmental tax
equal to 0.12% of the excess of alternative minimum taxable income for the
taxable year (determined without regard to net operating losses and the
deduction for the environmental tax) over $2.0 million.
To the extent earnings appropriated to a thrift institution's bad debt
reserves for qualifying real property loans and deducted for federal income tax
purposes exceed the allowable amount of such reserves computed under the
experience method, and to the extent of the institution's supplemental reserves
for losses on loans ("Excess"), such Excess may not, without adverse tax
consequences, be utilized for payment of cash dividends or other distributions
to a shareholder (including distributions in dissolution or liquidation) or for
any other purpose (except to absorb bad debt losses). Distribution of a cash
dividend by a thrift institution to a shareholder is treated as made: first,
out of the institution's current and post-1951 accumulated earnings and
profits; second, out of the Excess; and third, out of such other accounts as
may be proper. To the extent a distribution by Mutual Federal to its
shareholders is deemed paid out of its Excess under these rules, the Excess
would be reduced and Mutual Federal's gross income for tax purposes would be
increased by the amount which, when reduced by the income tax, if any,
attributable to the inclusion of such amount in its gross income, equals the
amount deemed paid out of the Excess. As of June 30, 1994, Mutual Federal's
Excess for tax purposes totaled approximately $2.7 million.
The tax returns of Mutual Federal have never been audited by the Internal
Revenue Service. In the opinion of management, any examination of open returns
would not result in a deficiency which could have a material adverse effect on
the financial condition of Mutual Federal. See Note 9 of Notes to Financial
Statements for additional information regarding income taxes of Mutual Federal.
FASB STATEMENT ON ACCOUNTING FOR INCOME TAXES
The FASB issued SFAS No. 96, "Accounting For Income Taxes," in December,
1987. Its effective date was delayed on two different occasions through
subsequent releases and has now been superseded by SFAS No. 109. SFAS No. 109
is effective for fiscal years beginning after December 15, 1992 and requires,
among other things, a change from the deferred method to the liability method
of accounting for deferred income taxes. Mutual Federal adopted SFAS No. 109
during the first quarter of the fiscal year ending June 30, 1994. The adoption
had a positive effect on earnings of approximately $90,768.
OHIO TAXATION
Mutual Federal is a "financial institution" for State of Ohio tax purposes.
As such, it is subject to the Ohio corporate franchise tax on "financial
institutions," which is imposed annually at a rate of 1.5% of Mutual Federal's
book net worth determined in accordance with generally accepted accounting
principles. As a "financial institution," Mutual Federal is not subject to any
tax based upon net income or net profits imposed by the State of Ohio.
ADDITIONAL SUPERVISION AND REGULATION
ACQUISITIONS OF SAVINGS ASSOCIATIONS BY HOLDING COMPANIES
Section 4(i) of the Bank Holding Company Act authorizes the Federal Reserve
Board to approve the application of a bank holding company to acquire any
savings association under Section 4(c)(8) of the Bank Holding Company Act. In
approving such an application, the Federal Reserve Board is precluded from
imposing any restrictions on transactions between the bank holding company and
the acquired savings association, except as required by Section 23A or 23B of
the Federal Reserve Act or any other applicable law.
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<PAGE> 61
Prior to August, 1994, Section 5(d) of the FDIA generally prohibited any
"conversion transaction" resulting in the transfer of deposit liabilities from
the SAIF to the BIF or vice versa, including: (a) the change of status of an
insured depository institution from one fund to the other; (b) the merger of a
BIF member with a SAIF member; (c) the assumption of any liability by a member
of one fund to pay any deposits of a member of the other fund; and (d) the
transfer of assets in consideration for the assumption of any portion of the
deposits of a member of one fund by a member of the other fund. There are a
number of exceptions to this moratorium, including the merger, consolidation or
transfer of a savings association subsidiary of a bank holding company with and
into any subsidiary bank which is a BIF member, provided that certain
conditions are met and that the merged entity continues to make payment of the
SAIF assessments on the portion of liabilities attributable to the merged
savings association. This exception to the moratorium is commonly referred to
as an "Oakar transaction" after the sponsor of the amendment that added the
provision to FIRREA.
SECURITIES EXCHANGE ACT OF 1934
Fifth Third and Mutual Federal are each subject to the provisions of the
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 and thrift holding companies such as Fifth
Third, are administered by the Securities and Exchange Commission. Such
provisions of the Exchange Act, as applied to federal savings banks such as
Mutual Federal, are administered by the OTS.
DIVIDENDS
For information regarding restrictions on the payment of dividends, see
"Description of Capital Stock - Dividends."
EFFECT OF GOVERNMENTAL POLICIES
The earnings of both Mutual Federal and of Fifth Third and its 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 Mutual Federal or Fifth Third and its
subsidiaries.
DESCRIPTION OF CAPITAL STOCK
Fifth Third is authorized to issue 100,000,000 shares of Fifth Third Common
Stock, no par value, and 500,000 shares of preferred stock, no par value
("Fifth Third Preferred Stock"). As of June 30, 1994, Fifth Third had
outstanding 61,802,948 shares of Fifth Third Common Stock and no shares of
Fifth Third Preferred Stock. Pursuant to Article Fourth of Fifth Third's
Second 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.
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<PAGE> 62
Mutual Federal is authorized to issue 2,000,000 shares of Mutual Federal
Common Stock, of which 648,025 shares were issued and outstanding, and options
to purchase a total of 58,645 shares were outstanding, as of June 30, 1994. In
addition, Mutual Federal is also authorized to issue 1,000,000 shares of
preferred stock, $1.00 par value ("Mutual Federal Preferred Stock"), none of
which are outstanding. The Board of Directors of Mutual Federal may, pursuant
to its Charter, (a) divide into one or more new series the authorized shares of
Mutual Federal 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, redemption rights (including sinking fund provisions),
liquidation preferences, conversion rights and voting rights.
Set forth below is a description of Fifth Third Common Stock and Mutual
Federal Common Stock. This description and analysis are brief summaries of
relevant provisions of the Articles of Incorporation of Fifth Third and the
Charter of Mutual Federal and are qualified in their entirety by reference to
such documents and to the parties' respective Codes of Regulations and Bylaws.
VOTING RIGHTS
Holders of both Fifth Third Common Stock and Mutual Federal 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 and the Charter and Bylaws of Mutual
Federal respectively provide for the division of their respective Boards of
Directors into three classes of approximately equal size. Directors of each
Board of Directors are elected for three-year terms, and the terms of office of
approximately one-third of the members of the classified Board of Directors
expire each year. This classification of Fifth Third's Board may make it more
difficult for a shareholder to acquire control of Fifth Third and remove
management by means of a hostile takeover.
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,
indicating 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 or she
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. Pursuant to the Mutual Federal Charter and Bylaws, shareholders of
Mutual Federal do not have the right to vote cumulatively in the election of
directors for a period of five years from the date of the consummation of the
Conversion of Mutual Federal from mutual to stock form, which was effective
December 30, 1992.
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 capital stock. Mutual Federal's Charter does not contain any
similar provision. Mutual Federal's Charter does require the affirmative vote
of the holders of a majority of the outstanding shares of each class entitled
to vote to amend such Charter. Any special meeting called to effectuate such
amendment may be called only upon the direction of Mutual Federal's Board of
Directors.
DIVIDENDS
Holders of Fifth Third Common Stock and Mutual Federal 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 available for payment of dividends
derive from amounts paid to it by its 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, the Federal Reserve Board, or the FDIC, as the case may be,
exceed the aggregate of such bank's net profits (as defined) and retained net
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<PAGE> 63
profits for the preceding two years. Under the law applicable to
federally-chartered savings associations, including Mutual Federal, the amount
of dividends which a savings association may make without the approval of the
OTS depends upon the amount of capital possessed by such savings association.
Savings associations, which have capital immediately prior to, and on a pro
forma basis after giving effect to, a proposed dividend that is equal to or
greater than the amount of their fully phased-in capital requirements, are
authorized to pay dividends during a calendar year up to one hundred percent of
their net income during the calendar year plus the amount that would reduce by
one-half their surplus capital. Some associations that have capital
immediately prior to, and on a pro forma basis after giving effect to, a
proposed dividend that is equal to or in excess of their minimum capital
requirement, but less than their fully phased-in capital requirements, may pay
dividends equal to 75% of net income during the most recent four quarters
(minus dividends previously paid over that period). Savings associations which
have capital immediately prior to, or on a pro forma basis after giving effect
to, a proposed dividend that is less than the amount of their minimum capital
requirements, are not authorized to pay any dividend unless such associations
receive prior approval from the OTS or unless such associations are operating
in compliance with an OTS approved capital plan and the dividend payment is
consistent with such capital plan.
In addition, under regulations of the OTS applicable to converted
associations, Mutual Federal is not permitted to pay a cash dividend on its
capital stock if its regulatory capital would, as a result of the payment of
such dividend, be reduced below the amount required for its liquidation account
(the account established for the purpose of granting a limited priority claim
on the assets of Mutual Federal in the event of a completed liquidation to
those members of Mutual Federal before the Conversion from a mutual federal
savings bank to a stock federal savings bank who maintain a savings account at
Mutual Federal after the Conversion).
The affiliates of Fifth Third include both state and nationally chartered
banks and two federally chartered savings banks. 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 OTS, 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. Neither Mutual Federal nor any 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 of the Currency 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 its affiliates, and Mutual Federal,
may pay.
PREEMPTIVE RIGHTS
The Charter of Mutual Federal provides that the holders of capital stock of
Mutual Federal are not entitled to preemptive rights with respect to any shares
or other securities of Mutual Federal which may be issued. Shareholders of
Fifth Third also have no preemptive rights.
RIGHTS UPON LIQUIDATION
In connection with Mutual Federal's Conversion from a federal mutual savings
bank to a federal stock savings bank, a special liquidation account was
established for certain eligible depositors of Mutual Federal as of the date
of the Conversion. If the event of complete liquidation of Mutual Federal,
each eligible savings account holder will be
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entitled to receive a liquidation distribution from the liquidation account in
the amount of the then current adjusted balance of deposit accounts held before
any liquidation distribution may be made with respect to common stock. An
eligible depositor's interest in the liquidation account shall not entitle the
depositor to any voting rights at meetings of Mutual Federal shareholders.
In the event of any liquidation, dissolution or winding up of Mutual
Federal, the holders of Mutual Federal's capital stock would be entitled to
receive, after payment or provision for payment of all debts and liabilities of
Mutual Federal (including all deposit accounts and accrued interest thereon)
and after distribution of the balance in the special liquidation account
established at the time Mutual Federal converted to stock form, all assets of
Mutual Federal available for distribution. In the event of liquidation,
dissolution or winding up of Mutual Federal, the holders of Mutual Federal
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 Mutual
Federal available for distribution. If Mutual Federal Preferred Stock is
issued, the holders thereof may have a priority over the holders of Mutual
Federal 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 or she may become involved by reason of his or her being
or having been a director or officer. Generally, Ohio law 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 or her conduct was unlawful, so long as no
judgment or other final adjudication adverse to such person establishes that
his or her acts or omissions (i) were in breach of his or her 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.
Neither the Charter nor the Bylaws of Mutual Federal provide for
indemnification of current or former directors, officers, employees or agents
by Mutual Federal. OTS regulations provide for the indemnification of Mutual
Federal's directors, officers and employees.
SHAREHOLDERS' MEETINGS; QUORUM
Special meetings of Fifth Third's shareholders may be called at any time by
the Board of Directors or by 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. Except as provided
below, special meetings of Mutual Federal's shareholders may be called at any
time by the Chairman of the Board, the President or a majority 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 10% of
all of the shares outstanding and entitled to vote at such meeting. Pursuant
to Mutual Federal's Charter, special meetings of the shareholders relating to
changes in control of Mutual Federal or amendments to its Charter shall be
called only upon the direction of its Board of Directors.
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 capital
stock voting at a meeting constitutes a quorum under the respective Code of
Regulations and Bylaws of each institution.
SUBSCRIPTION, CONVERSION, REDEMPTION RIGHTS; STOCK NONASSESSABLE
Neither Fifth Third Common Stock nor Mutual Federal Common Stock has
subscription or conversion rights, and there are no mandatory redemption
provisions applicable thereto.
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Shares of Fifth Third Common Stock issued to shareholders of Mutual Federal
pursuant to the Affiliation Agreement and the Merger Agreement will be validly
issued, fully paid and non-assessable, and will not, upon such issuance, be
subject to preemptive rights of any shareholder of Fifth Third.
CHANGE OF CONTROL PROVISIONS
Fifth Third's Articles of Incorporation and Code of Regulations and Mutual
Federal's Charter and Bylaws, respectively, 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. Mutual
Federal's Charter grants Mutual Federal's Board of Directors the authority to
issue 1,000,000 shares of Mutual Federal Preferred Stock and fix the
designations, powers, preferences and rights of such shares and the
qualifications, limitations, or restrictions applicable thereto.
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 and Mutual Federal's Code of Regulations and Bylaws respectively
provide for the election of directors on a classified basis.
The Ohio corporation statute also includes a provision which permits a
corporation's board of directors, when determining whether an acquisition
proposal or any other matter is in the best interest of the corporation, to
take into consideration the interests of the corporation's employees,
suppliers, creditors and customers, the economy of the state and the nation,
community and societal considerations and the long-term and short-term
interests of the corporation and its shareholders, including the possibility
that such interests may be best served by the continued independence of the
corporation.
CERTAIN BENEFICIAL OWNERS OF FIFTH THIRD COMMON 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 June 30, 1994:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Name and Address of Beneficial Owner Amount & Nature of Ownership Percent of Class
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cincinnati Financial Corporation 12,636,300(1) 20.45%
6200 South Gilmore
Fairfield, Ohio 45014
Fifth Third Bancorp Subsidiary Banks 5,731,514(2) 9.27%
Fifth Third Center
Cincinnati, Ohio 45263
Capital Growth Management 4,717,600(3) 7.63%
1 International Place
45th Floor
Boston, Massachusetts 02110
The Western-Southern Life Insurance Company 4,530,732(4) 7.33%
400 Broadway
Cincinnati, Ohio 45202
<FN>
(1) Cincinnati Financial Corporation owns 9,527,000 shares of Fifth Third Common Stock. Cincinnati
Insurance Company, a subsidiary of Cincinnati Financial Corporation, owns 2,695,000 shares. Cincinnati Casualty
</TABLE>
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<PAGE> 66
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 beneficially owns 12,965 shares. Also affiliated is a
trust in which John J. Schiff, Jr. and Thomas R. Schiff are trustees which
owns 15,187 shares.
(2) There are five wholly-owned bank subsidiaries of Fifth Third, which
are beneficial owners of 3,228,361 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 Fifth Third 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.
Fifth Third, its directors, executive officers and their affiliates owned no
shares of Mutual Federal Common Stock outstanding on June 30, 1994.
[THE BALANCE OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK]
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<TABLE>
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 June 30, 1994, are as follows:
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Shares of Fifth Third Common
Stock Beneficially Owned at
June 30, 1994(3)(6)
Name, Age and Principal Occupation During Past Five Director of Fifth Number of Percent of
Years; Other Directorships(1) Third Since(2) Shares Owned Class
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DIRECTORS
John F. Barrett, 44, President, Chief Operating Officer 1988 13,683 .0220
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.(4)
Milton C. Boesel, Jr., 65, Counsel, Ritter, Robinson, 1989 10,158 .0164
McReady & James, Attorneys at Law, Toledo, Ohio,
formerly Ritter, Boesel & Robinson.
Clement L. Buenger, 67, Director of Fifth Third and The 1971 275,100 .4430
Fifth Third Bank since April, 1989. Retired Chairman,
Fifth Third and The 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.
Nolan W. Carson, 69, Partner, Dinsmore & Shohl, 1982 30,905 .0498
Attorneys at Law and Counsel to Fifth Third.
Thomas L. Dahl, 48, Formerly President of The Drackett 1991 4,250 .0068
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.
Gerald V. Dirvin, 56, Director and Executive Vice 1989 7,850 .0126
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.
Thomas B. Donnell, 47, Chairman, The Fifth Third Bank of 1984 136,660 .2201
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.
Richard T. Farmer, 59, Chairman, Chief Executive Officer 1982 27,655 .0445
and Director, Cintas Corporation, a service company that
designs, manufactures and implements corporate identity
uniform programs. Director of Safety-Kleen Corp.
John D. Geary, 67, Retired as President, Midland 1977 20,288 .0327
Enterprises Inc., a company engaged in inland waterway
transportation in June, 1988.
Ivan W. Gorr, 64, Chairman and Chief Executive Officer 1991 4,852 .0078
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.
</TABLE>
45
<PAGE> 68
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Shares of Fifth Third Common
Stock Beneficially Owned at
June 30, 1994(3)(6)
Name, Age and Principal Occupation During Past Five Director of Fifth Number of Percent of
Years; Other Directorships(1) Third Since(2) Shares Owned Class
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Joseph H. Head, Jr., 61, Chairman, Chief Executive 1987 44,188 .0712
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.
Joan R. Herschede, 54, President and Chief Executive 1991 4,050 .0065
Officer of The Frank Herschede Company, retailer of
jewelry, china, crystal and silver.
William G. Kagler, 61, Chairman, Chief Executive Officer 1983 14,145 .0228
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.
William J. Keating, 66, Retired Chairman and Publisher, 1980 41,949 .0675
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.
James D. Kiggen, 61, Chairman, President, Chief 1982 22,937 .0369
Executive Officer and Director, Xtek, Inc., manufacturer
of hardened steel parts. Director of Cincinnati Bell,
Inc. and United States Playing Card Co.
Robert B. Morgan, 59, President, Chief Executive Officer 1986 12,965 .0209
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.(4)
Michael H. Norris, 57, President and Director, The 1985 14,587 .0235
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.
Brian H. Rowe, 62, Chairman, GE Aircraft Engines, 1980 13,873 .0223
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.
George A. Schaefer, Jr., 48, President and Chief 1988 193,947 .3123
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.
John J. Schiff, Jr., 50, Chairman and Director, John J. 1983 65,440 .1054
& 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.(4)
</TABLE>
46
<PAGE> 69
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Shares of Fifth Third Common
Stock Beneficially Owned at
June 30, 1994(3)(6)
Name, Age and Principal Occupation During Past Five Director of Fifth Number of Percent of
Years; Other Directorships(1) Third Since(2) Shares Owned Class
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dennis J. Sullivan, Jr., 61, Executive Counselor of Dan 1984 19,703 .0317
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.
Dudley S. Taft, 53, President and Director, Taft 1981 19,273 .0310
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.
EXECUTIVE OFFICERS
Neal E. Arnold, 33, Treasurer of Fifth Third and The ---- 2,613 .0042
Fifth Third Bank since October, 1990, and Senior Vice
President of The Fifth Third Bank since April, 1993.
Previously Mr. Arnold was Vice President of The Fifth
Third Bank since October, 1990. Formerly, Chief
Financial Officer and Senior Vice President of First
National Bank of Grand Forks, North Dakota.
Michael D. Baker, 43, Senior Vice President of Fifth ---- 41,814 .0673
Third since March, 1993. Senior Vice President of The
Fifth Third Bank since July, 1987.
P. Michael Brumm, 46, Senior Vice President and Chief ---- 47,994 .0773
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.
Roger W. Dean, 31, Controller of Fifth Third and Vice ---- 225 .0004
President of The Fifth Third Bank since June, 1993. Mr.
Dean was formerly with Deloitte & Touche LLP,
independent public accountants.
Michael K. Keating, 38, Senior Vice President and ---- 19,391 .0312
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.
George W. Landry, 53, Executive Vice President of Fifth ---- 86,396 .1391
Third and The Fifth Third Bank since November, 1989.
Previously Mr. Landry was Group Vice President of The
Fifth Third Bank.
Robert P. Niehaus, 47, Senior Vice President of Fifth ---- 54,437 .0877
Third since March, 1993, previously Vice President of
Fifth Third and Senior Vice President of The Fifth Third
Bank.
Stephen J. Schrantz, 45, Executive Vice President of ---- 54,276 .0874
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.
Gerald L. Wissel, 37, Auditor of Fifth Third and The ---- 6,812 .0110
Fifth Third Bank since March, 1990, and Senior Vice
President of The 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 LLP, independent public
accountants.
All Directors and Officers of Fifth Third as a Group (31 ---- 1,312,416 2.1133
persons)(5)
</TABLE>
47
<PAGE> 70
(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 COMMON 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 COMMON 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, 2,113; Mr. Baker, 11,813; Mr. Barrett,
7,125; Mr. Boesel, 7,125; Mr. Brumm, 11,563; 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, 9,000; Mr. W. Keating, 1,500; Mr. Kiggen, 12,188;
Mr. Landry, 29,750; Mr. Morgan, 12,188; Mr. Niehaus, 11,563; Mr.
Norris, 4,587; Mr. Rowe, 9,188; Mr. Schaefer, 79,376; Mr. Schiff,
3,750; Mr. Schrantz, 27,500; Mr. Sullivan, 1,500; Mr. Taft, 1,500;
and Mr. Wissel, 4,288.
[THE BALANCE OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK]
48
<PAGE> 71
<TABLE>
MUTUAL FEDERAL BOARD OF DIRECTORS
The names and ages of Mutual Federal's Directors, their current positions and certain other information,
together with their beneficial ownership of Mutual Federal Common Stock at June 30, 1994, are as follows:
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Name Age Principal Occupation Director Shares Common Percent
Since Stock of Class
Beneficially
Owned at June
30, 1994 (1)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Robert T. Bell 58 President of Bell Vault and 1991 19,384(2) 2.98%
Monument Company.
Lee D. Hieronymus 48 Captain with the Washington 1973 14,384(3) 2.21%
Township Fire Department and a
general partner in Hieronymus
Management Company.
James. L. Kuhlman 56 General Partner in Drs. Kuhlman 1985 19,384(4) 2.98%
and Flinn, Optometrists.
Alex Pragalos 64 President of Alex's, Inc. and 1982 19,384(5) 2.98%
Pragalos-Perkins, Inc.
Robert L. Sellers 60 Retired in 1990 after serving as 1987 19,858(6) 3.05%
managing partner of Kentner
Sellers CPA.
Glen W. Underwood 74 Chairman of the Board of Mutual 1974 16,884(7) 2.59%
Federal. Retired President of
SCM Allied Egry Business
Systems, Inc.
Donald L. Koller 46 President of Mutual Federal. 1994 35,313.94(8) 5.33%
=======================================================================================================================
<FN>
(1) As reported to Mutual Federal by the persons listed as of the date
stated. Includes shares held in the name of spouses, minor children, certain
relatives, trusts and estates to which beneficial ownership may be disclaimed.
(2) Includes 3,240 that may be acquired pursuant to options granted to
Mr. Bell under Mutual Federal's 1992 Stock Option and Incentive Plan (the
"Stock Option Plan") and 916 shares awarded to Mr. Bell but not yet vested
under Mutual Federal's Recognition and Retention Plan and Trust Agreement (the
"RRP").
(3) Includes 3,240 shares that may be acquired pursuant to options
granted to Mr. Hieronymus under the Stock Option Plan and 916 shares awarded to
Mr. Hieronymus but not yet vested under the RRP.
(4) Includes 3,240 shares that may be acquired pursuant to options
granted to Mr. Kuhlman under the Stock Option Plan and 916 shares awarded to
Mr. Kuhlman but not yet vested under the RRP.
(5) Includes 3,240 shares that may be acquired pursuant to options
granted to Mr. Pragalos under the Stock Option Plan and 916 shares awarded to
Mr. Pragalos but not yet vested under the RRP.
(6) Includes 3,240 shares that may be acquired pursuant to options
granted to Mr. Sellers under the Stock Option Plan and 916 shares awarded to
Mr. Sellers but not yet vested under the RRP.
(7) Includes 3,240 shares that may be acquired pursuant to options
granted to Mr. Underwood under the Stock Option Plan and 916 shares awarded to
Mr. Underwood but not yet vested under the RRP.
(8) Includes 14,905 shares that may be acquired pursuant to options
granted to Mr. Koller under the Stock Option Plan and 4,074 shares awarded to
Mr. Koller but not yet vested under the RRP.
</TABLE>
49
<PAGE> 72
MANAGEMENT'S DISCUSSION AND ANALYSIS OF MUTUAL FEDERAL'S
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
[THE BALANCE OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK]
50
<PAGE> 73
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Mutual Federal is a stock savings bank that has served the Miamisburg,
Ohio, area for over one hundred years. Miamisburg is located approximately ten
miles south of Dayton and is the home of Mutual Federal's main office. Mutual
Federal also has two full service branch offices, one in Miamisburg and one in
neighboring Centerville.
Organized under Ohio law in 1880 as Mutual Building and Loan Company,
Mutual Federal converted to a federal mutual association in 1933, at which time
its name became Mutual Federal Savings and Loan Association. In 1991, Mutual
Federal adopted a federal savings bank charter and became known as Mutual
Federal Savings Bank of Miamisburg. Mutual Federal completed its conversion
from mutual to stock form in December, 1992, at which time it adopted its
present name.
Mutual Federal is a member of the FHLB of Cincinnati and its deposits
are insured up to applicable limits by the FDIC. As a savings bank chartered
under the laws of the United States, Mutual Federal is subject to regulation,
supervision and examination by the OTS and the FDIC.
Mutual Federal is principally engaged in the business of making first
mortgage loans to finance the purchase, construction or improvement of
residential real estate. To a lesser extent, Mutual Federal also originates
consumer loans, primarily passbook loans, home improvement loans and home
equity lines of credit. Loan funds are obtained primarily from savings
deposits and loan repayments. In addition to originating loans, Mutual
Federal invests in U.S. Government and agency obligations, mortgage-backed
securities and other investments permitted by applicable law.
Mutual Federal's net income is primarily dependent upon its interest
rate spread, which is the difference between the average yield earned on loans
and investments and the average rate paid on deposits and borrowings and the
relative amounts of such assets and liabilities. The interest rate spread is
affected by a variety of regulatory, economic and competitive factors that
influence interest rates, loan demand and deposit flows. Mutual Federal's net
income is also affected by, among other things, fee income, gains on sales of
investment securities, provisions for loan losses, service charges, operating
expenses and income taxes.
51
<PAGE> 74
COMPARISON OF RESULTS OF OPERATIONS
GENERAL. Net income for the year ended June 30, 1994, was $1,104,000,
resulting in a return on average assets of 1.30% and a return on average
retained earnings of 7.60%. Net income for the years ended June 30, 1993, and
June 30, 1992, of $1,136,000 and $632,000, respectively, resulted in a return
on average assets of 1.33% and 0.79% and a return on average equity of 10.53%
and 8.86% for those years, respectively. The factors affecting results of
operations are discussed below.
NET INTEREST INCOME. Net interest income, which is the largest
component of the statement of income, is the difference between interest income
generated on interest-earning assets and the interest expense incurred on
interest-bearing liabilities. Net interest income is affected by the volumes,
interest rates and composition of interest-earning assets and interest-bearing
liabilities.
Interest income decreased approximately $99,000, or 3.1%, from the year
ended June 30, 1993, to the year ended June 30, 1994. The decline was primarily
attributable to changes in the balance sheet and decreased yields on earning
assets caused by the low interest rates throughout the fiscal year. Net loans
receivable declined by $6,156,000, or 12.4%, while lower yielding,
interest-bearing time deposits in other institutions, investment securities and
mortgage-backed securities rose by $3,936,000, or 12.3%, from June, 1993 to
June, 1994. This change is the result of a high number of refinancings by
borrowers seeking fixed interest rates in a lower interest rate environment.
To limit its interest rate risk exposure, Mutual Federal only originates one
year ARMS and seven and ten year fixed-rate loans for its portfolio. Mutual
Federal's primary loan demand in the current environment has been for longer
term fixed-rate mortgages. All of such loans originated by Mutual Federal were
sold to an unaffiliated mortgage loan correspondent.
Primarily as a result of the decrease in net loans receivable, interest
income on loans fell by $999,000, or 20.8%, from June 30, 1993, to June 30,
1994. This decrease was partially off-set by an increase in the interest income
on investments and other interest-earning assets which rose by $208,000, or
11.7%, for the same period. In addition, total interest expense declined by
$692,000, or 20.6%, compared with last year.
Interest income on investments was also reduced because of Mutual
Federal's decision to emphasize investments in tax-free municipal securities.
For the past fiscal year Mutual Federal no longer qualified for the percentage
of income thrift bad debt deduction on income taxes because of its high level
of capital in relation to deposits. Loss of this deduction raised Mutual
Federal's income tax obligation. To compensate Mutual Federal elected to
increase its investment in municipal securities.
Mutual Federal's net interest margin decreased from 3.91% at June 30,
1993, to 3.81% at June 30, 1994. The net interest margin is calculated by
dividing net interest income by average total assets. The average yield on
interest-earning assets decreased from 8.00% in 1993 to 7.07% in 1994, which
more than offset the decrease in the rates paid on liabilities which fell from
4.54% in 1993 to 3.81% in 1994. The ratio of average interest-earning assets
to average interest-bearing liabilities rose from 111% in 1993 to 117% in 1994
which also reduced the decline in interest income.
In the previous year, Mutual Federal's net interest margin increased
from 3.53% at June 30, 1992 to 3.91% at June 30, 1993. A decrease in rates
paid on deposits was the principal factor contributing to this increase. The
yield on earning assets decreased from 9.19% during 1992 to 8.00% during 1993.
ALLOWANCE AND PROVISION FOR LOAN LOSSES. The provision for loan losses
is based on management's regular review of the loan portfolio, which
considers factors such as past loss experience, prevailing general economic
conditions and considerations applicable to specific loans, such as the ability
52
<PAGE> 75
of the borrower to repay the loan and the estimated value of the underlying
collateral, and changes in the size and the growth of the loan portfolio
generally.
The allowance for loan losses increased by $33,000 from $663,000, or
1.33% of net loans, at June 30, 1993 to $696,000, or 1.60% of net loans, at
June 30, 1994. There were net recoveries on loans previously charged-off of
$17,000 in 1994. The level of nonperforming assets, defined as loans past due
90 days or more, loans for which the accrual of interest has been discontinued
and other real estate owned, decreased from $829,000, or 0.96% of total assets,
at June 30, 1993, to $355,000, or 0.43% of total assets, at June 30, 1994.
The primary reason for the decrease is the removal of several one-to-four
family loans from the nonperforming category. This occurred because loans were
brought current or paid-off. During the year ended June 30, 1993, the
allowance was increased by $86,000 through an $85,000 provision for losses on
loans and net recoveries of $1,000.
NON-INTEREST INCOME AND EXPENSE. Non-interest income for the year
ended June 30, 1994, was $427,000, which represented a $66,000 (18.3%) increase
over the 1993 amount of $361,000. The primary cause for this increase was an
$84,000 gain on the sale of investment securities compared to a $28,000 gain on
sale for 1993. In addition, agent fee income rose by $11,000 to $209,000 for
1994 as compared to $198,000 for 1993.
Mutual Federal is a party to agreements pursuant to which it originates
fixed-rate mortgage loans for immediate sale to unaffiliated mortgage
companies. The fees received by Mutual Federal are for originating these
loans. The increased fees in 1994 compared to 1993 are attributable to
increased loan originations resulting from enhanced marketing efforts by Mutual
Federal and an extraordinarily high level of refinancing activity. There can
be no assurance that similar levels of loan origination fee income will
continue in future periods. Indeed, because refinancing activity slowed after
January 1, 1994, agent fee income for the last six months of the 1994 fiscal
year was about 25% lower than for the same period in 1993. Non-interest income
increased by $89,000 from June 30, 1992, to June 30, 1993. The primary reason
for the increase was agent fees received in 1993 from enhanced marketing
efforts and an extraordinarily high level of refinancing activity caused by the
low interest rate environment.
Non-interest expenses increased 13.2% from $1,797,000 at June 30, 1993,
to $2,033,000 at June 30, 1994. The increase resulted from an increase in
salaries and employee benefits due to general wage increases and the additional
expense for the Mutual Federal ESOP and accruals for the Mutual Federal
Recognition and Retention Plan. Early in the 1994 fiscal year, Mutual Federal
used $70,000 of the proceeds from the gain on the sale of investment
securities to pre-pay the ESOP debt. This action accelerated the pay-off of
the ESOP debt which should benefit future earnings.
Despite the fact that Mutual Federal's deposits declined, Federal
deposit insurance expense increased due to the phase out of the secondary
reserve credit during 1994. Because of the conversion to a stock company,
shareholders' equity was higher at June 30, 1993, than a year earlier. Since
state franchise taxes for the last year were based upon shareholders' equity at
June 30, 1993, the franchise and other tax expense increased in the past fiscal
year. The other expense category rose because of $86,000 in expenses
associated with the Merger. Other expenses will continue to be higher than
normal as Mutual Federal accrues anticipated final expenses related to the
Merger. Non-interest expense increased by 5.2% from 1992 to 1993.
INCOME TAXES. The provision for income taxes totaled $483,000 in
fiscal 1994, $560,000 in fiscal 1993, and $438,000 in fiscal 1992, resulting in
an effective tax rate on income before taxes of 32.2%, 33.0% and 40.9%,
respectively. The volatility in the provision for income taxes is primarily
attributable to the change in net income before taxes, while the difference in
effective tax rate is primarily a result of the
53
<PAGE> 76
bad debt deduction and the addition of non-taxable municipal securities to the
investment portfolio in 1994. See Note 9 of the Notes to the Financial
Statements. For the year ended June 30, 1992, the financial statement
provision for loan losses was significantly higher than the bad debt deduction
allowed for tax purposes, thereby causing the effective tax rate to exceed the
34% statutory rate.
CHANGE IN ACCOUNTING FOR INCOME TAXES. Net income increased by $91,000
for the period ending June 30, 1994, as a result of the adoption of SFAS No.
109 effective July 1, 1993. The accounting statement requires, among other
things, a change from the deferred method to the liability method of accounting
for income taxes.
FINANCIAL CONDITION
Total assets of Mutual Federal decreased $2,676,000, or 3.1%, to
$83,310,000 at June 30, 1994, compared to $85,986,000 at June 30, 1993.
The composition of changes in the balance sheet are discussed below.
INTEREST-BEARING DEPOSITS, INVESTMENT SECURITIES AND MORTGAGE-BACKED
SECURITIES. Interest-bearing deposits, investment securities and
mortgage-backed securities increased from $33,463,000 at June 30, 1993, to
$36,899,000 at June 30, 1994, an increase of 10.3%. The largest component of
this increase was the $4,419,000 increase in investment securities primarily
caused by the decision to invest in municipal securities.
At June 30, 1994, U.S. Treasury and agency securities totaled
$13,386,000 and comprised 37.5% of the investment and mortgage-backed
securities portfolio. Mortgage-backed securities totaled $14,420,000, or 40.4%
of the investment portfolio; state and municipal obligations totaled
$7,394,000, or 20.7% of the investment portfolio and corporate bonds totaled
$500,000, or 1.4% of the investment portfolio. All mortgage-backed investments
held are insured or guaranteed by governmental agencies. Management's
investment strategy is to limit Mutual Federal's exposure to undue risks while
maintaining adequate liquidity should loan demand increase. Maintaining
adequate liquidity was the primary reason Mutual Federal classified $3,536,000
of investment securities as "available for sale" as of June 30, 1994.
LOANS RECEIVABLE. Net loans receivable decreased 12.4% from
$49,755,000 at June 30, 1993, to $43,599,000 at June 30, 1994. The majority of
this decline was in loans secured by one- to four-family residential real
estate located primarily in Mutual Federal's market areas in Montgomery County
and Southwestern Ohio. One- to four-family residential loans decreased 13.9%
from $42,605,000 at June 30, 1993, to $36,688,000 at June 30, 1994. This
decline is the result of an extremely high number of refinancings by borrowers
seeking fixed interest rates in the declining interest rate environment.
Because Mutual Federal does not want to expose itself to the interest rate risk
which exists with these low fixed interest rates, Mutual Federal is presently
not originating long term, fixed-rate loans for its portfolio. As a result,
some borrowers have chosen to refinance their mortgages with other financial
institutions who are offering fixed-rate loans. Through its agreements with
unaffiliated mortgage companies, however, Mutual Federal has been able to offer
fixed-rate mortgages, thereby continuing to serve the market without exposing
Mutual to the associated interest rate risks. During the year ended June 30,
1994, fixed-rate, one-to-four family residential mortgage loans totaling
$13,851,000 were originated and sold to unaffiliated mortgage companies.
Mutual Federal had no loans held for sale at June 30, 1994 or 1993.
Multifamily real estate loans, mostly secured by properties in
Montgomery County, decreased 2.2% in the last fiscal year. Nonresidential real
estate loans, also mostly in Montgomery County, decreased from $3,343,000 at
June 30, 1993, to $3,168,000 at June 30, 1994, a 5.2% decrease. This decrease
is a result of repayments and payoffs of existing loans. Mutual Federal has
not originated any
54
<PAGE> 77
new nonresidential real estate loans since 1987, at which time management
decided to discontinue the nonresidential real estate lending business due to
the risk associated with this type of credit.
Home equity and home improvement loans have decreased 4.9% from
$1,581,000 at June 30, 1993, to $1,504,000 at June 30, 1994. The decrease is
primarily the result of consumers consolidating mortgage related debts by
refinancing their first mortgage loans.
Consumer loans, consisting primarily of deposit loans, continues to be
an insignificant part of Mutual Federal's loan portfolio. Mutual Federal has
not been involved in the automobile lending business due to extreme competition
by lenders in Mutual Federal's market area and the risks involved with such
lending.
DEPOSITS. Total deposits decreased 4.9% to $68,049,000 at June 30,
1994, as compared to $71,523,000 at June 30, 1993. NOW accounts increased by
$1,455,000, or 32.1% during 1994. At the same time passbook savings accounts
decreased $1,525,000, or 8.8%, money market demand accounts declined by
$1,081,000, or 13.0%; while certificates of deposit declined by $2,323,000, or
5.6%. The decline in deposits reflects consumer reaction to a rising rate
environment, during the second half of the year, that caused the return on
other interest earning investments to rise more rapidly than deposit rates.
At June 30, 1994, 3.4% of total deposits were in denominations of
$100,000 or more. At June 30, 1993, such deposits were 3.2% of total deposits.
Although these deposits do not constitute a significant percentage of the total
portfolio, management considers them to be a valuable source of funds. Many of
these depositors are long time customers of Mutual Federal, and these accounts
are viewed by management to be a stable source of funds.
ASSET AND LIABILITY MANAGEMENT. A key component of successful asset
and liability management is the monitoring and management of interest rate
sensitivity, which is a function of the repricing and maturity of
interest-earning assets and interest-bearing liabilities. A financial
institution will have a negative interest rate sensitivity gap for a given
period if the amount of its interest-bearing liabilities maturing or otherwise
repricing within such period exceeds the amount of the interest-earning assets
maturing or otherwise repricing within the same period. In a rising interest
rate environment, an institution with a negative interest rate sensitivity gap
generally will experience greater increases in the cost of its liabilities than
in the yield on its assets. Conversely, in an environment of falling interest
rates, the cost of funds of an institution with a negative interest rate
sensitivity gap generally will decrease more rapidly than the yield on its
assets. Changes in interest rates generally will have the opposite effect on
an institution with a positive interest rate sensitivity gap. At June 30,
1994, Mutual Federal's total interest-bearing liabilities maturing or repricing
within one year exceeded total interest-earning assets maturing or repricing in
the same period by $18.7 million, representing a cumulative one-year gap of
negative 22.8%.
For this year's gap calculation Mutual Federal has changed its method.
Mutual Federal previously used decay rate assumptions published by the OTS to
spread the repricing period for passbook savings, NOW accounts and money market
deposit accounts over a period several years. Decay rate assumptions are no
longer published by the OTS. This year's gap calculation assumes that all
transaction account deposit categories will reprice within one year because
these deposits may be repriced in response to interest rate increases. Using
the previous method, at June 30, 1994, Mutual Federal's total interest-bearing
liabilities maturing or repricing within one year would have exceeded total
interest-earning assets maturing or repricing in the same period by $0.3
million, representing a cumulative one-year gap of negative 0.4%.
55
<PAGE> 78
In managing its asset liability mix, Mutual Federal, depending on the
relationship between long and short-term interest rates, market conditions and
consumer preference, from time to time may place somewhat greater emphasis on
maximizing its net interest margin than on better matching the interest rate
sensitivity of its assets and liabilities in an effort to achieve stable
long-term earnings. Management believes that the increased net income
resulting from a mismatch in the maturity of its asset and liability portfolios
can, during periods of declining or stable interest rates, provide high enough
returns to justify the increased exposure to sudden and unexpected increases in
interest rates which can result from such a mismatch. As a result, Mutual
Federal may be somewhat more exposed to rapid increases in interest rates than
other institutions which concentrate principally on matching the duration of
their assets and liabilities.
The following table sets forth the amounts of interest-earning assets
and interest-bearing liabilities outstanding at June 30, 1994, which are
scheduled to reprice or mature in each of the time periods shown. Except as
stated below, the amount of assets and liabilities shown which reprice or
mature during a particular period were determined in accordance with the
contractual terms of the asset or liability. The table does not necessarily
indicate the impact of general interest rate movements on Mutual Federal's net
interest income because the repricing of certain categories of assets and
liabilities is subject to competition and other factors beyond Mutual Federal's
control. As a result, certain assets and liabilities indicated as maturing or
otherwise repricing within a stated period may in fact mature or reprice at
different times and in different volumes.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
(Dollars in thousands)
Over one Over Over five Over ten
through three through through
One year three through ten twenty Over twenty
or less years five years years years years Total
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:(1)
Fixed-rate mortgage loans $ 1 ,546 $ 1,289 $ 898 $ 7,583 $5,401 $ 3,209 $19,926
Adjustable-rate mortgage loans 20,298 2,207 - - - - 22,505
Mortgage-backed securities 8,614 1,103 4,703 - - - 14,420
Consumer and other loans 1,144 205 166 459 28 - 2,002
Investment securities and other(2) 3,207 4,590 2,750 9,697 2,234 660 23,138
Total interest-earning assets 34,809 9,394 8,517 17,739 7,663 3,869 81,991
Less unearned discount (63) (2) (1) (8) (6) (58) (138)
Net interest-earning assets $ 34,746 $ 9,392 $ 8,516 $17,731 $7,657 $ 3,811 $81,853
Interest-bearing liabilities:
Passbook savings $ 15,722 $ - $ - $ - $ - $ - $15,722
NOW accounts 5,990 - - - - - 5,990
Money market deposit accounts 7,252 - - - - - 7,252
Certificates of deposit 24,327 9,013 5,732 13 - - 39,085
Obligation under ESOP 137 - - - - - 137
Total interest-bearing liabilities $ 53,428 $ 9,013 $ 5,732 $ 13 $ - $ - $68,186
Interest rate sensitivity gap $(18,682) $ 379 $ 2,784 $17,718 $7,657 $ 3,811 $13,667
Cumulative interest rate sensitivity
gap $(18,682) $(18,303) $(15,519) $ 2,199 $9,856 $13,667
Cumulative interest rate sensitivity
gap as a percent of total assets (22.82)% (22.36)% (18.96)% 2.69% 12.04% 16.70%
</TABLE>
56
<PAGE> 79
The adverse effect of rising interest rates on Mutual Federal's interest
income may be exacerbated by the fact that a portion of Mutual Federal's assets
subject to repricing are adjustable-rate loans originated prior to 1988, the
rates on which are tied to a cost of funds index plus a very small margin, and
in some cases even a negative margin. As a result of the inadequate margin, the
rates earned on such loans cannot be expected to increase in a rising interest
rate environment to rates approximating prevailing market rates. Although Mutual
Federal continues to use the cost of funds index, one- to four-family loans
originated in recent years utilize a margin of approximately 250 basis points
(2.5%), which will facilitate the repricing of such loans at higher rates of
interest than will be earned on the older adjustable rate mortgages.
AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID
The following table sets forth certain information relating to Mutual
Federal's average balance sheet information and reflects the average yield on
interest-earning assets and the average cost of interest-bearing liabilities for
the periods indicated. Such yields and costs are derived by dividing income or
expense by the average monthly balance of interest-earning assets or
interest-bearing liabilities, respectively, for the periods presented. Average
balances are derived from month-end balances, which include nonaccruing loans in
the loan portfolio net of the allowance for loss. Management does not believe
that the use of month-end balances instead of daily balances has caused any
material difference in the information presented.
[THE BALANCE OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK]
57
<PAGE> 80
<TABLE>
AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID (CONT'D)
<CAPTION>
-----------------------------------------------------------------------------------------
(Dollars in thousands)
-----------------------------------------------------------------------------------------
Year ended June 30,
-----------------------------------------------------------------------------------------
1994 1993 1992
------------------------- ------------------------- -------------------------
Average Interest Average Interest Average Interest
outstanding earned/ Yield/ outstanding earned/ Yield/ outstanding earned/ Yield/
balance paid rate balance paid rate balance paid rate
---------- ------- ---- -------- ----- ---- -------- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1) $46,559 $3,796 8.16% $52,855 $4,795 9.07% $61,801 $6,078 9.83%
Mortgage-backed securities 14,923 825 5.53 8,751 497 5.68 1,673 134 8.01
Investment securities (2) 18,327 1,071 5.84 17,537 1,153 6.57 12,503 901 7.21
Other interest-earning assets 1,397 64 4.58 2,510 107 4.27 1,933 70 3.62
FHLB stock 641 31 4.84 613 27 4.40 623 33 5.30
------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest-earning
assets 81,847 5,787 7.07 82,266 6,579 8.00 78,533 7,216 9.19
------ ---- ------ ---- ------ ----
Premises and equipment 367 422 458
Other assets 2,755 2,666 1,429
------- ------- -------
Total assets $84,969 $85,354 $80,420
======= ======= =======
Interest-bearing liabilities:
Passbook accounts $16,804 465 2.77 $17,832 622 3.49 $11,830 590 4.99
NOW accounts 5,004 77 1.54 4,354 103 2.37 3,856 141 3.66
Money market accounts 7,803 206 2.64 8,902 285 3.20 9,027 428 4.74
Certificates 40,338 1,909 4.73 42,817 2,342 5.47 47,943 3,282 6.85
Obligation of ESOP 187 13 6.95 153 10 6.54 - - -
------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest-bearing
liabilities 70,136 2,670 3.81 74,058 3,362 4.54 72,656 4,441 6.11
------ ---- ------ ---- ------ ----
Other liabilities 305 507 629
------- ------- -------
Total liabilities 70,441 74,565 73,285
Shareholders' equity 14,528 10,789 7,135
------- ------- -------
Total liabilities and
shareholders' equity $84,969 $85,354 $80,420
======= ======= =======
Net interest income $3,117 $3,217 $2,775
====== ====== ======
Interest rate spread 3.26% 3.46% 3.08%
==== ==== ====
Net interest earning assets $11,711 $ 8,208 $ 5,877
======= ======== =======
Net yield on average interest-
earning assets 3.81% 3.91% 3.53%
==== ==== ====
Average interest-earning assets
to average interest-bearing
liabilities 117% 111% 108%
====== ====== ======
<FN>
- ------------------------------
(1) Net of deferred loan fees, loan discounts, loans in process and loan loss reserves. For purposes of this schedule, nonaccrual
loans are included in loans. Fees collected on loans are included in interest on loans.
(2) Interest income is reported on a historical basis without tax-equivalent adjustment.
</TABLE>
58
<PAGE> 81
The following table sets forth the weighted average yields on Mutual
Federal's interest-earning assets, the weighted average interest rates paid on
interest-bearing liabilities and the interest rate spread between the weighted
average yields and rates at the dates indicated.
<TABLE>
<CAPTION>
----------------------------
At June 30,
----------------------------
1994 1993 1992
----------------------------
<S> <C> <C> <C>
Weighted-average yield on:
Loans receivable (1) 7.33% 7.98% 9.01%
Mortgage-backed securities 5.61 5.51 7.77
Investment securities available for sale 7.92 - -
Investment securities held to maturity 5.44 6.56 6.99
Other interest-earning assets 4.80 3.59 4.48
Combined weighted-average yield on
interest-earning assets 6.58 7.16 8.41
Weighted-average rate paid on:
Passbook accounts 2.64 3.22 4.50
NOW accounts 1.48 2.41 3.43
Money market accounts 2.72 2.93 4.12
Certificates of deposit 4.71 5.11 6.42
Obligation of ESOP 7.75 6.50 -
Combined weighted-average rate paid
on interest-bearing liabilities 3.74 4.23 5.55
Interest rate spread 2.84% 2.93% 2.86%
<FN>
(1) Non-accruing loans have been included in the table as having a yield of zero.
</TABLE>
59
<PAGE> 82
RATE/VOLUME ANALYSIS
The table below describes the extent to which changes in interest rates
and changes in volume of interest-earning assets and interest-bearing
liabilities have affected Mutual Federal's interest income and expense during
the periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (change in volume multiplied by prior year rate), (ii)
changes in rate (change in rate multiplied by prior year volume) and (iii) total
changes in rate and volume. The combined effects of changes in both volume and
rate, which cannot be separately identified, have been allocated proportionately
to the change due to volume and the change due to rate:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Year ended June 30,
1994 vs. 1993 1993 vs. 1992
------------------------------------------------------------------------------------------------
Increase Increase
(decrease) (decrease)
due to due to
------------------------------------------------------------------------------------------------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
(In
thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income attributable to:
Loans receivable $ (540) $ (459) $ (999) $ (835) $ (448) $ (1,283)
Mortgage-backed securities 342 (14) 328 413 (50) 363
Investment securities 50 (132) (82) 337 (85) 252
FHLB stock 1 3 4 (1) (5) (6)
Other interest-earning
assets (1) (50) 7 (43) 23 14 37
-------- -------- ---------- -------- ---------- ---------
Total interest income (197) (595) (792) (63) (574) (637)
-------- -------- ---------- -------- ---------- ---------
Interest expense attributable to:
Passbook accounts (34) (123) (157) 243 (211) 32
NOW accounts 14 (40) (26) 16 (54) (38)
Money market accounts (33) (46) (79) (6) (137) (143)
Certificates of deposit (130) (303) (433) (326) (614) (940)
Obligation of ESOP 2 1 3 10 - 10
-------- -------- ---------- -------- ---------- ---------
Total interest expense (181) (511) (692) (63) (1,016) (1,079)
-------- -------- ---------- -------- ---------- ---------
Increase (decrease) in
net interest income $ (16) $ (84) $ (100) $ - $ 442 $ 442
======== ======== ========== ======== ========== =========
</TABLE>
<TABLE>
<CAPTION> --------------------------------------------------
1992 vs. 1991
--------------------------------------------------
Increase
(decrease)
due to
--------------------------------------------------
Volume Rate Total
-------- ----------- ----------
<S> <C> <C> <C>
Interest income attributable to:
Loans receivable $ (445) $ (20) $ (465)
Mortgage-backed securities 117 - 117
Investment securities 498 (17) 481
FHLB stock (1) (11) (12)
Other interest-earning
assets (1) (13) (35) (48)
-------- ----------- ----------
Total interest income 156 (83) 73
-------- ----------- ----------
Interest expense attributable to:
Passbook accounts 167 (40) 127
NOW accounts 31 (43) (12)
Money market accounts 21 (86) (65)
Certificates of deposit (67) (483) (550)
Obligation of ESOP - - -
-------- ----------- ----------
Total interest expense 152 (652) (500)
-------- ----------- ----------
Increase (decrease) in
net interest income $ 4 $ 569 $ 573
======== =========== ==========
<FN>
- ---------------------------
(1) Includes interest-bearing deposits in other financial institutions and other interest-earning assets.
</TABLE>
60
<PAGE> 83
LIQUIDITY AND CAPITAL RESOURCES
Mutual Federal's liquidity, represented by cash equivalents, is a result
of its operating, investing and financing activities. These activities are
summarized below for the year ended June 30, 1994:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Net income $1,104
Adjustments to reconcile net income to net cash from
operating activities 455
------
Net cash from operating activities 1,559
Net cash from investing activities 2,224
Net cash from financing activities (3,835)
------
Net change in cash and cash equivalents (52)
Cash and cash equivalents at beginning of period 2,076
------
Cash and cash equivalents at end of period $2,024
======
</TABLE>
The adjustments to reconcile net income to net cash from operating
activities consist mainly of the provision for loan losses, changes in other
asset and liability accounts, depreciation, amortization and accretion,
dividends on FHLB stock and loss on sale of property and equipment. The most
significant components of the $2.2 million of net cash proceeds from investing
activities were sales and proceeds from maturities of investment and
mortgage-backed securities of $11.6 million and a net decrease in loans of $6.2
million which were offset by $15.9 million of investment and mortgage-backed
securities purchases. Mutual Federal's primary financing activity is accepting
deposits. The decline in deposits was the primary contributor to the $3.8
million in cash outflows from financing activities.
Mutual Federal's principal sources of funds are customer deposits, loan
repayments and other funds provided by operations. From time to time, Mutual
Federal also utilizes advances from the FHLB of Cincinnati. Mutual Federal
maintains its level of liquid assets based upon management's assessment of (i)
Mutual Federal's need for funds, (ii) expected deposit flows, (iii) the yields
available on short-term liquid assets and (iv) the objectives of Mutual
Federal's asset and liability management program. The OTS requires thrift
institutions to maintain minimum levels of liquid assets. OTS regulations
currently require Mutual Federal to maintain an average daily balance of liquid
assets equal to at least 5% of the sum of its average daily balance of net
withdrawable deposit accounts and borrowings payable in one year or less. At
June 30, 1994, Mutual Federal's regulatory liquidity ratio was 18.84%. At such
date, Mutual Federal had commitments to originate loans totaling $320,000 and no
commitments to purchase or sell loans. Mutual Federal considers its liquidity
and capital reserves sufficient to meet its outstanding short and long-term
needs. Mutual Federal expects to be able to fund or refinance, on a timely
basis, its material commitments and long-term liabilities. See Note 7 of the
Notes to Financial Statements.
Federally insured savings institutions, such as Mutual Federal, are
required to meet a 1.5% tangible capital requirement, a 3.0% leverage ratio (or
core capital) requirement and an 8.0% risk-based capital requirement. At June
30, 1994, Mutual Federal met these requirements with a tangible capital ratio of
17.87%, a core capital ratio of 17.87% and a risk-based capital ratio of 48.20%.
See Note 8 of the Notes to Financial Statements.
61
<PAGE> 84
ACCOUNTING STANDARDS
At June 30, 1994, Mutual Federal adopted SFAS No. 115 and accordingly
classified its securities into the categories discussed in Note 1 in the "Notes
to Financial Statements." Prior to this date, securities were reported at
amortized cost except for securities held for sale, which were reported at the
lower of cost or market. This reclassification increased equity by $3,460 at
June 30, 1994, the after-tax effect of the adjustment from amortized cost to
fair value for securities available for sale at that date.
Effective July 1, 1993, Mutual Federal adopted SFAS No. 109, "Accounting
for Income Taxes," which requires that Mutual Federal follow the liability
method in accounting for income taxes. The liability method provides that
deferred tax assets and liabilities are recorded based on the difference between
the tax basis of assets and liabilities and their carrying amounts for financial
reporting purposes. The effect on years prior to 1994 of changing to this
method was a $90,768 benefit and this amount is reflected in the statement of
income as the cumulative effect of change in accounting for income taxes. This
change had no significant effect on the provision for income taxes for 1994.
The FASB issued SFAS No. 114, "Accounting by Creditors for Impairment
of a Loan" in May, 1993, effective for fiscal years beginning after December
15, 1994. It requires that impaired loans that are within the scope of this
Statement be measured based upon the present value of expected future cash
flows discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair value of the loan
if the loan is collateral dependent. This statement is not expected to have a
material impact on Mutual Federal's financial statements.
The Accounting Standards Executive Committee issued Statement of
Position ("SOP") 93-6, "Employer's Accounting for Employee Stock Ownership
Plans" on November 22, 1993, for fiscal years beginning after December 15,
1993. Under SOP 93-6, when shares acquired by the plan after December 31,
1992, are allocated to employees, expense is recorded using fair value of the
shares. Currently, the cost of the shares is used to measure expense. Mutual
Federal's Employee Stock Ownership Plan acquired its shares on December 30,
1992. Therefore, the adoption of SOP 93-6 will have no effect.
The FASB issued SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," in December, 1990, effective for fiscal years
beginning after December 15, 1992. This changed the accounting for
postretirement benefits from recognizing costs as benefits are paid to accruing
costs during an employee's working career. Both the postretirement expense and
the liability will be computed based on an actuarial valuation. At the present
time, Mutual Federal provides no postretirement benefits subject to SFAS No.
106.
62
<PAGE> 85
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and results of operations in terms
of historical dollars without considering changes in the relative purchasing
power of money over time due to inflation. Unlike most industrial companies,
virtually all of the assets and liabilities of Mutual Federal are monetary in
nature. As a result, interest rates have a more significant impact on Mutual
Federal's performance than the effects of general levels of inflation. Interest
rates do not necessarily move in the same direction or in the same magnitude as
the prices of goods and services. In the current interest rate environment, the
liquidity, maturity structure and quality of Mutual Federal's assets and
liabilities are critical to the maintenance of acceptable performance levels.
63
<PAGE> 86
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
shareholders of Mutual Federal in connection with the Merger have been duly
authorized and, if issued pursuant to the Affiliation Agreement and the 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, Mutual Federal and the shareholders of Mutual Federal.
Nolan W. Carson, a partner in Dinsmore & Shohl, is a Director of Fifth
Third. As of ____________________________, 1994, partners of Dinsmore & Shohl
and attorneys employed by such firm beneficially owned ________________ 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 LLP, 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 Mutual Federal from Mutual
Federal's Annual Report on Form 10-KSB for the year ended June 30, 1994, have
been audited by Crowe, Chizek and Company, independent certified public
accountants, as stated in their report given upon their authority as experts in
accounting and auditing.
SHAREHOLDERS' PROPOSALS
If the Merger fails to be consummated, any shareholder proposal, in order to
be eligible for inclusion in the proxy materials for Mutual Federal's Annual
Meeting of Shareholders to be held in October, 1995, must be received by Mutual
Federal on or before May 22, 1994, at its principal executive offices, 23 East
Central Avenue, Miamisburg, Ohio 45342, Attn: Marjorie A. Brookhart,
Secretary. The Board of Directors will review any shareholder proposals that
are filed as required and will determine whether such proposals meet applicable
criteria for inclusion in its 1995 proxy statement for consideration at the
1995 Annual Meeting of Shareholders.
OTHER MATTERS
The Board of Directors of Mutual Federal 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.
[THE BALANCE OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK]
64
<PAGE> 87
MUTUAL FEDERAL FINANCIAL STATEMENTS
[THE BALANCE OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK]
65
<PAGE> 88
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Mutual Federal Savings Bank of Miamisburg, A Stock Savings Bank
Miamisburg, Ohio
We have audited the accompanying balance sheets of Mutual Federal Savings Bank
of Miamisburg, A Stock Savings Bank as of June 30, 1994 and 1993, and the
related statements of income, changes in shareholders' equity and cash flows
for each of the three years ended June 30, 1994. These financial statements
are the responsibility of the Bank's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These 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 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 financial statements referred to above present fairly, in
all material respects, the financial position of Mutual Federal Savings Bank of
Miamisburg, A Stock Savings Bank as of June 30, 1994 and 1993, and the results
of its operations and its cash flows for each of the three years ended June 30,
1994, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Bank changed its method
of accounting for certain investment securities and income taxes to comply with
new accounting guidance.
Crowe, Chizek and Company
Columbus, Ohio
July 29, 1994
<PAGE> 89
<TABLE>
MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG,
A STOCK SAVINGS BANK
BALANCE SHEETS
June 30, 1994 and 1993
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,024,253 $ 576,187
Federal Home Loan Bank overnight
deposits - interest bearing 1,000,000 1,500,000
----------- -----------
Cash and cash equivalents 2,024,253 2,076,187
Interest bearing time deposits in other financial
institutions 199,000 499,000
Investment securities available for sale (estimated
market value of $4,193,750 at 1993) (Note 2) 3,535,541 4,072,726
Investment securities (estimated market values of
$16,817,485 in 1994 and $13,276,487 in 1993) (Note 2) 17,744,089 12,787,847
Mortgage-backed securities (estimated market
value of $14,004,419 in 1994 and $14,918,200
in 1993) (Note 2) 14,420,370 14,602,982
Loans receivable - net (Note 3) 43,599,022 49,754,780
Office properties and equipment - net (Note 4) 344,433 388,974
Federal Home Loan Bank stock, at cost 659,700 628,600
Accrued interest receivable (Note 5) 583,574 660,295
Other assets 200,418 514,566
----------- -----------
Total assets $83,310,400 $85,985,957
=========== ===========
LIABILITIES
Deposits (Note 6) $68,049,251 $ 71,522,553
Other liabilities 236,492 276,706
Obligation of employee stock ownership plan (Note 10) 136,833 270,833
----------- -----------
Total liabilities 68,422,576 72,070,092
----------- -----------
Commitments and contingencies (Note 7)
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value, 1,000,000 shares
authorized, none outstanding
Common stock, $1.00 par value, 2,000,000 shares
authorized, 648,025 shares issued and
outstanding 648,025 648,025
Additional paid-in capital 5,540,340 5,529,695
Retained earnings (Note 9) 8,940,187 8,208,352
Obligation under employee stock ownership
plan (Note 10) (136,833) (270,833)
Unearned compensation (Note 11) (107,355) (199,374)
Unrealized gain on securities available for sale 3,460
----------- -----------
Total shareholders' equity (Note 8) 14,887,824 13,915,865
----------- -----------
Total liabilities and shareholders' equity $83,310,400 $85,985,957
=========== ===========
<FN>
- -------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE> 90
<TABLE>
MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG,
A STOCK SAVINGS BANK
STATEMENTS OF INCOME
Years ended June 30, 1994, 1993 and 1992
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Loans $ 3,795,680 $ 4,794,865 $ 6,078,293
Mortgage-backed securities 825,024 496,227 134,000
Investment securities 1,071,238 1,153,201 901,000
Other 95,478 134,304 102,623
------------- ------------ -------------
Total interest income 5,787,420 6,578,597 7,215,916
------------- ------------ -------------
INTEREST EXPENSE
Deposits (Note 6) 2,656,665 3,351,402 4,441,227
Other 12,977 10,215
------------- ------------ -------------
Total interest expense 2,669,642 3,361,617 4,441,227
------------- ------------ -------------
NET INTEREST INCOME 3,117,778 3,216,980 2,774,689
PROVISION FOR LOAN LOSSES (Note 3) 15,460 85,000 268,000
------------- ------------ -------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,102,318 3,131,980 2,506,689
------------- ------------ -------------
NONINTEREST INCOME
Agent fees 208,833 198,159 136,728
Service charges 82,240 87,618 88,842
Net gain on sale of investment securities 84,266 28,267 16
Other 51,581 46,606 45,709
------------- ------------ -------------
Total noninterest income 426,920 360,650 271,295
------------- ------------ -------------
NONINTEREST EXPENSE
Salaries and employee benefits 954,119 854,326 762,564
Occupancy and equipment 220,217 226,368 260,258
Federal deposit insurance premium 168,000 135,557 158,976
Franchise and other taxes 160,986 105,000 94,561
Data processing 62,783 74,329 67,005
Other 466,952 401,126 364,761
------------- ------------ -------------
Total noninterest expense 2,033,057 1,796,706 1,708,125
------------- ------------ -------------
INCOME BEFORE INCOME TAXES
AND ACCOUNTING CHANGE 1,496,181 1,695,924 1,069,859
PROVISION FOR INCOME TAX (Note 9) 482,500 560,000 438,085
------------- ------------ -------------
INCOME BEFORE ACCOUNTING CHANGE 1,013,681 1,135,924 631,774
Cumulative effect on prior years (to
June 30, 1993) of a change in
accounting for income taxes 90,768
------------- ------------ -------------
NET INCOME $ 1,104,449 $ 1,135,924 $ 631,774
============= ============ =============
<FN>
See accompanying notes to financial statements.
- -------------------------------------------------------------------------------------------------------------
(Continued)
</TABLE>
<PAGE> 91
<TABLE>
MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG,
A STOCK SAVINGS BANK
STATEMENTS OF INCOME (Continued)
Years ended June 30, 1994, 1993 and 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
EARNINGS PER COMMON SHARE (NOTE 1)
Primary earnings per share
Income before accounting change $ 1.49 $ .87
Cumulative effect of change in accounting
for income taxes .14
------- ------
Primary earnings per share $ 1.63 $ .87
======= ======
Fully diluted earnings per share
Income before accounting change $ 1.48 $ .87
Cumulative effect of change in accounting
for income taxes .13
------- ------
Fully diluted earnings per share $ 1.61 $ .87
======= ======
<FN>
- ---------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE> 92
<TABLE>
MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG,
A STOCK SAVINGS BANK
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended June 30, 1994, 1993 and 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Additional Obligation
Common Paid in Retained Under
Stock Capital Earnings ESOP
<S> <C> <C> <C> <C>
Balance at July 1, 1991 $ 6,578,360
Net income for the year ended June 30, 1992 631,774
----------- ------------- ------------- -------------
Balance at June 30, 1992 7,210,134
Sale of 648,025 shares of common stock,
net of conversion costs (Note 13) $ 648,025 $ 5,529,695
Obligation under employee stock ownership
plan (Note 10) $ (300,000)
Principal reduction on obligation under
employee stock ownership plan 29,167
Unearned compensation expense with respect
to recognition and retention plan (Note 11)
Compensation expense with respect
to recognition and retention plan
Net income for the year ended June 30, 1993 1,135,924
Cash dividends - $.21 per share (137,706)
----------- ------------- ------------- -------------
Balance at June 30, 1993 648,025 5,529,695 8,208,352 (270,833)
Principal reduction on obligation under
employee stock ownership plan 134,000
Compensation expense with respect
to recognition and retention plan
Tax benefit arising from stock issuance with
respect to recognition and retention plan 10,645
Net income for the year ended June 30, 1994 1,104,449
Cash dividends - $.575 per share (372,614)
Unrealized gain on securities available for sale
---------- ------------- ------------ ---------
Balance at June 30, 1994 $ 648,025 $ 5,540,340 $ 8,940,187 $(136,833)
========== ============= ============ =========
</TABLE>
<TABLE>
<CAPTION> Unrealized
Gain on
Securities Total
Unearned Available Shareholders'
Compensation for Sale Equity
<S> <C> <C> <C>
Balance at July 1, 1991 $ 6,578,360
Net income for the year ended June 30, 1992 631,774
----------- ------------- -------------
Balance at June 30, 1992 7,210,134
Sale of 648,025 shares of common stock,
net of conversion costs (Note 13) 6,177,720
Obligation under employee stock ownership
plan (Note 10) (300,000)
Principal reduction on obligation under
employee stock ownership plan 29,167
Unearned compensation expense with respect
to recognition and retention plan (Note 11) $ (258,992) (258,992)
Compensation expense with respect
to recognition and retention plan 59,618 59,618
Net income for the year ended June 30, 1993 1,135,924
Cash dividends - $.21 per share (137,706)
----------- ------------- -------------
Balance at June 30, 1993 (199,374) 13,915,865
Principal reduction on obligation under
employee stock ownership plan 134,000
Compensation expense with respect
to recognition and retention plan 92,019 92,019
Tax benefit arising from stock issuance with
respect to recognition and retention plan 10,645
Net income for the year ended June 30, 1994 1,104,449
Cash dividends - $.575 per share (372,614)
Unrealized gain on securities available for sale $ 3,460 3,460
----------- ------------- -------------
Balance at June 30, 1994 $ (107,355) $ 3,460 $ 14,887,824
=========== ============= =============
<FN>
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE> 93
<TABLE>
MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG,
A STOCK SAVINGS BANK
STATEMENTS OF CASH FLOWS
Years ended June 30, 1994, 1993 and 1992
==============================================================================================
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,104,449 $ 1,135,924 $ 631,774
Adjustments to reconcile net income
to net cash from operating activities
Depreciation 63,695 75,051 76,394
Provision for loan losses 15,460 85,000 268,000
Net amortization 132,404 132,718 38,167
Agent fees (208,833) (198,159) (136,728)
Proceeds from sale of loans 14,059,833 13,063,159 10,108,728
Loans originated for sale (13,851,000) (12,865,000) (9,972,000)
Net gain on sale of investment
securities (84,266) (28,267) (16)
Stock dividend on FHLB stock (31,100) (26,900) (32,900)
Loss on sale of properties and
equipment 23,698
Amortization of unearned compensation 92,019 59,618
Deferred taxes 48,863 32,918 67,841
Cumulative effect of accounting change (90,768)
Change in
Deferred loan fees (81,941) (130,359) (133,265)
Interest receivable 76,721 88,984 (168,689)
Other assets 314,148 (39,520) (210,708)
Income tax liability (45,287) (142,918) 161,342
Other liabilities 45,195 (67,370) (74,311)
------------ ------------ ------------
Net cash from operating
activities 1,559,592 1,174,879 647,327
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments and mortgage-backed
securities:
Purchases (15,927,714) (17,574,684) (14,322,313)
Proceeds from sales 2,660,469 2,513,389 501,609
Proceeds from maturities
and payments received 8,987,905 4,439,036 1,304,092
Proceeds from redemption of FHLB stock 70,200
Net decrease in time deposits in other
financial institutions 300,000 400,000 101,000
Net decrease in loans 6,222,239 7,117,705 8,351,286
Properties and equipment expenditures (19,154) (35,922) (108,600)
Proceeds from sale of properties and
equipment 3,400
------------ ------------ ------------
Net cash from investing activities 2,223,745 (3,140,476) (4,099,326)
------------ ------------ ------------
- ---------------------------------------------------------------------------------------------
(Continued)
</TABLE>
<PAGE> 94
<TABLE>
MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG,
A STOCK SAVINGS BANK
STATEMENTS OF CASH FLOWS (Continued)
Years ended June 30, 1994, 1993 and 1992
==============================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (3,473,302) (3,329,482) 3,158,095
Proceeds from stock subscriptions,
net of conversion costs 6,177,720
Purchase of company stock for recognition
and retention plan (258,992)
Tax benefit from recognition and
retention plan shares issued 10,645
Dividends paid (372,614) (137,706)
------------ ------------ ------------
Net cash from financing activities (3,835,271) 2,451,540 3,158,095
------------ ------------ ------------
Net change in cash and cash equivalents (51,934) 485,943 (293,904)
Cash and cash equivalents at beginning of
year 2,076,187 1,590,244 1,884,148
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,024,253 $ 2,076,187 $ 1,590,244
============ ============ ============
Supplemental disclosures of cash flow
information
Cash paid during the period for
Interest $ 2,669,642 $ 3,361,617 $ 4,441,227
Income taxes 469,000 670,000 196,801
Noncash financing activities
Obligation of employee stock
ownership plan 300,000
Principal reduction on obligation under
employee stock ownership plan 134,000 29,167
- -----------------------------------------------------------------------------------------------
(Continued)
</TABLE>
<PAGE> 95
MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG,
A STOCK SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
June 30, 1994, 1993 and 1992
- ------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT AND MORTGAGE-BACKED SECURITIES: At June 30, 1994, Mutual Federal
Savings Bank ("Bank") adopted Statement of Financial Accounting Standards
("SFAS") No. 115 and accordingly classified its securities into the categories
discussed below. Prior to this date, securities were reported at amortized
cost except for securities held for sale, which were reported at the lower of
cost or market. This reclassification increased equity by $3,460 at June 30,
1994, the after-tax effect of the adjustment from amortized cost to fair value
for securities available for sale at that date.
The Bank classifies securities into held to maturity, available for sale and
trading categories. Held-to-maturity securities are those which the Bank has
the positive intent to hold to maturity, and are reported at amortized cost.
Available-for-sale securities are reported at fair value, with unrealized gains
or losses included as a separate component of equity, net of tax. Trading
securities are bought principally for sale in the near term and are reported at
fair value with unrealized gain or losses included in earnings.
Realized gains or losses are determined based on the amortized cost of the
specific security sold. Interest and dividend income, adjusted by amortization
of purchase premium or discount, is included in earnings.
ALLOWANCE FOR LOSSES ON LOANS: Because some loans may not be repaid in full,
an allowance for losses on loans is maintained. Increases to the allowance are
recorded by a provision for loan losses charged to expense. Estimating the
risk of the loss and the amount of loss on any loan is necessarily subjective.
Accordingly, the allowance is maintained by management at a level considered
adequate to cover possible losses that are currently anticipated based on past
loss experience, general economic conditions, information about specific
borrower situations including their financial position and collateral values,
and other factors and estimates which are subject to change over time. While
management may periodically allocate portions of the allowance for specific
problem loan situations, the whole allowance is available for any loan
charge-offs that occur. A loan is charged-off against the allowance by
management when deemed uncollectible, although collection efforts continue and
future recoveries may occur.
- ------------------------------------------------------------------------------
(Continued)
<PAGE> 96
MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG,
A STOCK SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
June 30, 1994, 1993 and 1992
- ------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
REAL ESTATE OWNED: Real estate acquired through foreclosure or
deed-in-lieu-of-foreclosure is initially recorded at the lower of cost or fair
value, less estimated costs to sell. Any reduction from the carrying value of
the related loan to estimated fair value at the time the property is acquired
is accounted for as a loan charge-off. Any subsequent reductions in the
estimated fair value are reflected in a valuation allowance through a charge to
other real estate expense. Expenses incurred to carry other real estate are
charged to operations as incurred.
OFFICE PROPERTIES AND EQUIPMENT: Office properties and equipment are stated at
cost less accumulated depreciation. Depreciation is computed principally on
the straight-line method over the estimated useful lives of the respective
properties and equipment. Maintenance and repairs are charged to expense as
incurred and improvements are capitalized.
INTEREST INCOME ON LOANS: Interest income on loans is accrued over the term of
the loans based upon the principal outstanding except where serious doubt
exists as to the collectibility of a loan, in which case the accrual of
interest is discontinued.
LOAN ORIGINATION FEES: Loan fees, net of direct loan origination costs, are
deferred and recognized over the life of the loan as a yield adjustment.
AGENT FEES: The Bank is a party to an agreement in which it originates and
immediately sells fixed rate mortgages to an unaffiliated mortgage company.
The Bank does not retain any of the principal amounts nor does it service the
loans. Accordingly, fees received for originating the loans are recognized
currently. There were no loans held for sale at June 30, 1994 or 1993.
INCOME TAXES: Effective July 1, 1993, the Bank adopted SFAS No. 109,
"Accounting For Income Taxes," which requires that the Bank follow the
liability method in accounting for income taxes. The liability method provides
that deferred tax assets and liabilities are recorded based on the difference
between the tax basis of assets and liabilities and their carrying amounts for
financial reporting purposes.
The effect on years prior to 1994 of changing to this method was a $90,768
benefit and this amount is reflected in the statements of income as the
cumulative effect of a change in accounting for income taxes. This change had
no significant effect on the provision for income taxes for 1994.
- ------------------------------------------------------------------------------
(Continued)
<PAGE> 97
MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG,
A STOCK SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
June 30, 1994, 1993 and 1992
- ------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
CONCENTRATIONS OF CREDIT RISK: The Bank grants residential and consumer loans
to customers located in Montgomery County in southwestern Ohio. Prior to 1988,
the Bank also granted commercial real estate loans. Residential mortgage loans
and commercial real estate loans make up approximately 96% of the Bank's loan
portfolio and the remaining 4% is made up of consumer and other loans. The
Bank, in the normal course of business, has commitments to make loans which are
not reflected in the financial statements. A summary of these commitments is
disclosed in Note 7.
STATEMENT OF CASH FLOWS: Cash and cash equivalents include the Bank's cash on
hand, demand balances with banks and Federal Home Loan Bank overnight deposits.
The Bank reports net cash flows from customer loan transactions, deposit
transactions and deposits with other financial institutions.
EARNINGS PER COMMON SHARE: For 1994, primary earnings per share is based on
the weighted average number of shares outstanding during the year and the
assumed exercise of dilutive stock options less the number of treasury shares
assumed to be purchased from the proceeds using the average market price of the
Bank's common stock. Fully diluted earnings per share reflects the additional
dilution related to the stock options due to the use of the market price at
June 30, 1994. The primary and fully diluted weighted average shares
outstanding for the year ended June 30, 1994 were 679,021 and 684,540,
respectively.
Earnings per common share for 1993 was computed by dividing net income
subsequent to conversion by the weighted average number of shares outstanding
for the same period. Net income subsequent to the December 30, 1992 conversion
was $564,521. The weighted average number of shares outstanding was 648,025.
The stock options granted as a part of the mutual to stock conversion were
still subject to shareholder approval as of June 30, 1993. Had these options
been outstanding as of June 30, 1993, primary and fully diluted earnings per
share would have been $0.84.
RECLASSIFICATIONS: Certain reclassifications have been made to the 1993 and
1992 financial statements to be comparable to the 1994 presentation.
- ------------------------------------------------------------------------------
(Continued)
<PAGE> 98
MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG,
A STOCK SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
June 30, 1994, 1993 and 1992
- ------------------------------------------------------------------------------
NOTE 2 - INVESTMENT AND MORTGAGE-BACKED SECURITIES
The amortized cost and estimated market values of investment and
mortgage-backed securities at June 30 are as follows:
<TABLE>
<CAPTION>
1 9 9 4
-------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Investment securities
available for sale
U.S. Treasury securities $ 500,019 $ 6,311 $ 506,330
U.S. Agency securities 3,030,279 3,052 $ 4,120 3,029,211
------------ --------- --------- -----------
$ 3,530,298 $ 9,363 $ 4,120 $ 3,535,541
============ ========= ========= ===========
Investment securities
held to maturity
U.S. Treasury securities $ 1,526,446 $ 7,150 $ 1,251 $ 1,532,345
U.S. Agency securities 8,324,205 30,193 303,580 8,050,818
Corporate bonds 499,924 3,041 502,965
State and municipal
obligations 7,393,514 662,157 6,731,357
------------ --------- --------- -----------
$ 17,744,089 $ 40,384 $ 966,988 $16,817,485
============ ========= ========= ===========
Mortgage-backed securities
held to maturity $ 14,420,370 $ 42,774 $ 458,725 $14,004,419
============ ========= ========= ===========
</TABLE>
<TABLE>
<CAPTION>
1 9 9 3
-------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Investment securities
held for sale
U.S. Treasury securities $ 1,501,366 $ 20,507 $ 1,521,873
U.S. Agency securities 2,571,360 100,517 2,671,877
------------ --------- -----------
$ 4,072,726 $ 121,024 $ 4,193,750
============ ========= ===========
Investment securities
held to maturity
U.S. Treasury securities $ 3,043,252 $ 101,279 $ 3,144,531
U.S. Agency securities 9,204,889 389,977 $ 2,616 9,592,250
Corporate bonds 499,706 499,706
State and municipal
obligations 40,000 40,000
------------ ---------- --------- -----------
$ 12,787,847 $ 491,256 $ 2,616 $13,276,487
============ ========== ========= ===========
Mortgage-backed securities $ 14,602,982 $ 343,934 $ 28,716 $14,918,200
===================================================================================
(Continued)
</TABLE>
<PAGE> 99
MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG,
A STOCK SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
June 30, 1994, 1993 and 1992
- ------------------------------------------------------------------------------
NOTE 2 - INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
(Continued)
The amortized cost and estimated market value of investment securities
available for sale and held to maturity at June 30, 1994, by contractual
maturity, are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
------------ ------------
<S> <C> <C>
Investment securities
available for sale
Due in one year or less $ 1,000,189 $ 1,006,640
Due after one year through five years 499,628 502,030
Due after five years through ten years 2,030,481 2,026,871
------------ ------------
$ 3,530,298 $ 3,535,541
============ ============
Investment securities
held to maturity
Due in one year or less $ 1,001,613 $ 1,010,620
Due after one year through five years 6,838,774 6,788,898
Due after five years through ten years 7,669,726 7,003,161
Due after ten years 2,233,976 2,014,806
------------ ------------
$ 17,744,089 $ 16,817,485
============ ============
</TABLE>
Proceeds from sales of investment securities during 1994 were $2,660,469.
Gross gains of $84,266 were realized on those sales. Proceeds from sales of
investment securities during 1993 were $2,513,389. Gross gains of $34,852 and
gross losses of $6,585 were realized on those sales. Proceeds from sales of
investment securities during 1992 were $501,609. Gross gains of $16 were
realized on those sales.
At June 30, 1994, no investment securities were pledged to secure public
deposits or for other purposes as required or permitted by law.
- ------------------------------------------------------------------------------
(Continued)
<PAGE> 100
MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG,
A STOCK SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
June 30, 1994, 1993 and 1992
===============================================================================
NOTE 2 - INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
(Continued)
The carrying values and estimated market values of mortgage-backed securities
held to maturity at June 30 are as follows:
<TABLE>
<CAPTION>
1 9 9 4
-------
Estimated
Principal Unamortized Unearned Carrying Market
Balance Premiums Discounts Value Value
------------ ----------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
FNMA balloon $ 5,347,372 $ 18,845 $ 4,680 $ 5,361,537 $ 5,066,632
FHLMC balloon 440,128 2,522 442,650 405,468
FNMA ARM 2,201,374 14,250 1,646 2,213,978 2,235,537
FHLMC ARM 1,419,649 8,905 7,173 1,421,381 1,419,002
GNMA ARM 4,995,380 8,145 22,701 4,980,824 4,877,780
------------ -------- -------- ------------ ------------
$ 14,403,903 $ 52,667 $ 36,200 $ 14,420,370 $ 14,004,419
============ ======== ======== ============ ============
</TABLE>
<TABLE>
<CAPTION>
1 9 9 3
-------
Estimated
Principal Unamortized Unearned Carrying Market
Balance Premiums Discounts Value Value
------------ ----------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
FNMA balloon $ 4,227,987 $ 16,310 $ 5,119 $ 4,239,178 $ 4,337,420
FHLMC balloon 595,730 3,667 721 598,676 614,707
FNMA ARM 3,418,156 27,268 2,389 3,443,035 3,503,483
FHLMC ARM 967,461 15,987 983,448 954,732
GNMA ARM 5,355,622 9,975 26,952 5,338,645 5,507,858
------------ -------- -------- ------------ ------------
$ 14,564,956 $ 73,207 $ 35,181 $ 14,602,982 $ 14,918,200
============ ======== ======== ============ ============
<FN>
There were no sales of mortgage-backed securities during 1994, 1993 or 1992.
- -----------------------------------------------------------------------------------------------
(Continued)
</TABLE>
<PAGE> 101
MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG,
A STOCK SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
June 30, 1994, 1993 and 1992
===============================================================================
NOTE 3 - LOANS RECEIVABLE
Loans receivable at June 30 are summarized as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Residential real estate one-to-
four family first mortgage $ 36,688,025 $ 42,604,641
Multi-family real estate mortgage 2,030,755 2,076,584
Real estate construction 1,270,000 750,600
Commercial real estate 3,168,276 3,342,677
Home equity and home improvement 1,503,558 1,580,662
Consumer 498,284 623,082
------------ ------------
Total 45,158,898 50,978,246
Unearned and deferred income (138,198) (220,139)
Allowance for losses on loans (695,530) (662,787)
Loans in process (726,148) (340,540)
------------ ------------
$ 43,599,022 $ 49,754,780
============ ============
</TABLE>
The Bank has granted loans to officers and directors of the Bank. Loans to
such borrowers and to their immediate families are summarized below:
<TABLE>
<CAPTION>
<S> <C>
Aggregate balance - July 1, 1993 $ 232,392
New loans 85,000
Repayments (190,289)
Other changes 78,922
------------
Aggregate balance - June 30, 1994 $ 206,025
============
</TABLE>
Activity in the allowance for losses on loans is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period $ 662,787 $ 576,616 $ 372,583
Provision for losses 15,460 85,000 268,000
Recoveries 27,000 1,171 1,262
Loans charged-off (9,717) (65,229)
--------- --------- ---------
Balance at end of period $ 695,530 $ 662,787 $ 576,616
========= ========= =========
- ------------------------------------------------------------------------------
(Continued)
</TABLE>
<PAGE> 102
MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG,
A STOCK SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
June 30, 1994, 1993 and 1992
===============================================================================
NOTE 3 - LOANS RECEIVABLE (Continued)
Nonaccrual and renegotiated loans for which interest has been reduced totaled
$354,661, $829,410, and $452,226, at June 30, 1994, 1993 and 1992. Interest
income that would have been recorded under the original terms of such loans and
the interest income actually recognized for the years ended June 30 are
summarized below:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Interest income that would have
been recorded $ 42,784 $ 68,880 $ 27,937
Interest income recognized 27,729 3,156 5,473
--------- ---------- -----------
Interest income foregone $ 15,055 $ 65,724 $ 22,464
========= ========== ===========
</TABLE>
The Bank is not committed to lend additional funds to debtors whose loans have
been modified.
The Financial Accounting Standards Board issued SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" in May 1993, effective for fiscal years
beginning after December 15, 1994. It requires that impaired loans that are
within the scope of this Statement be measured based upon the present value of
expected future cash flows discounted at the loan's effective interest rate or,
as a practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. This statement is
not expected to have a material impact on the Bank's financial statements.
NOTE 4 - OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment at June 30 consisted of the following:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Land $ 80,000 $ 80,000
Buildings and improvements 323,945 323,945
Furniture and equipment 763,760 744,606
Leasehold improvements 207,965 207,965
---------- ----------
Total cost 1,375,670 1,356,516
Accumulated depreciation 1,031,237 967,542
---------- ----------
$ 344,433 $ 388,974
========== ==========
- ------------------------------------------------------------------------------
(Continued)
</TABLE>
<PAGE> 103
MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG,
A STOCK SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
June 30, 1994, 1993 and 1992
===============================================================================
NOTE 5 - ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consisted of the following at June 30:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Investment securities $ 297,028 $ 317,785
Mortgage-backed securities 67,755 67,630
Loans 218,791 274,880
---------- ----------
$ 583,574 $ 660,295
========== ==========
</TABLE>
NOTE 6 - DEPOSITS
A summary of deposits at June 30 is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Rate at
June 30, 1994 1993
1994 ---- ----
---- Amount % Amount %
------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
NOW accounts 1.48% $ 5,989,673 8.80% $ 4,534,689 6.34%
Money market demand
accounts 2.72 7,252,013 10.66 8,333,206 11.65
Passbook savings 2.64 15,722,314 23.10 17,246,800 24.12
------------ ------ ----------- ------
28,964,000 42.56 30,114,695 42.11
------------ ------ ----------- ------
Certificates of deposit:
2.00 to 2.99% 45,286 .07 237,452 .33
3.00 to 3.99% 13,017,699 19.13 13,176,608 18.42
4.00 to 4.99% 13,224,643 19.43 10,428,107 14.58
5.00 to 5.99% 9,526,112 14.00 8,882,912 12.42
6.00 to 6.99% 967,053 1.42 3,634,823 5.08
7.00 to 7.99% 1,028,421 1.51 1,886,017 2.64
8.00 to 8.99% 1,276,037 1.88 3,161,939 4.42
------------ ------ ----------- ------
4.71 39,085,251 57.44 41,407,858 57.89
------------ ------ ----------- ------
3.74 $ 68,049,251 100.00% $71,522,553 100.00%
============ ====== =========== ======
</TABLE>
The aggregate amount of short-term jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $2,318,000 and $2,297,000 at June
30, 1994 and 1993.
- ------------------------------------------------------------------------------
(Continued)
<PAGE> 104
MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG,
A STOCK SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
June 30, 1994, 1993 and 1992
===============================================================================
NOTE 6 - DEPOSITS (Continued)
At June 30, 1994, scheduled maturities of certificates of deposit are as
follows:
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999 Thereafter
---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
2.00 to 2.99% $ 45,286
3.00 to 3.99% 12,545,835 $ 471,864
4.00 to 4.99% 6,410,070 4,733,580 $ 1,269,753 $ 811,240
5.00 to 5.99% 3,247,864 866,074 550,644 $ 2,879,148 1,968,697 $ 13,685
6.00 to 6.99% 328,745 73,439 507,148 57,721
7.00 to 7.99% 671,863 243,786 97,469 15,303
8.00 to 8.99% 1,077,435 184,586 14,016
------------ ----------- ----------- ----------- ----------- --------
$ 24,327,098 $ 6,573,329 $ 2,439,030 $ 2,952,172 $ 2,779,937 $ 13,685
============ =========== =========== =========== =========== ========
</TABLE>
Interest expense on deposits for the years ended June 30 is summarized as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
NOW accounts $ 77,170 $ 103,059 $ 141,043
Money market demand accounts 206,295 285,236 427,529
Passbook savings 464,846 621,441 589,733
Certificates of deposit 1,908,354 2,341,666 3,282,922
----------- ----------- -----------
$ 2,656,665 $ 3,351,402 $ 4,441,227
=========== =========== ===========
</TABLE>
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to make loans. The Bank's exposure
to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to make loans is represented by the
contractual amount of those instruments. The Bank follows the same credit
policy to make such commitments as is followed for those loans recorded in the
financial statements.
As of June 30, 1994 and 1993, the Bank had commitments to make loans (at market
rates) approximating $319,900 and $620,200 ($238,400 with variable rates and
$81,500 with fixed rates at June 30, 1994 and $124,200 with variable rates and
$496,000 with fixed rates at June 30, 1993). Since loan commitments may expire
without being used, the amount does not necessarily represent future cash
commitments.
- ------------------------------------------------------------------------------
(Continued)
<PAGE> 105
MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG,
A STOCK SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
June 30, 1994, 1993 and 1992
- ------------------------------------------------------------------------------
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
The Bank sells loans to an unaffiliated mortgage company with limited recourse.
The Bank must repurchase any loan if it fails to meet any of the Bank's
representations, warranties or any other covenants as set forth in the mortgage
loan purchase agreement. In addition, if the first three consecutive payments
due under the terms of the note become delinquent on any of the loans sold by
the Bank, they are required to repurchase the loan. As of June 30, 1994 and
1993, loans totalling $6,171,900 and $5,862,300 had been originated and sold to
the unaffiliated mortgage company which had not been outstanding long enough to
have had their first three payments become due and therefore, were still
subject to the repurchase contingency. As of June 30, 1994, no loans had been
required to be repurchased by the Bank.
At June 30, 1994, the Bank was obligated under a noncancelable operating lease
for office space through August, 1995. The lease agreement contains two
renewal options for an additional period of five years each. Rent expense
under this operating lease, included in occupancy and equipment expense, was
$40,200 for each of the three years ended June 30, 1994, 1993 and 1992.
The projected minimum rental payments under the terms of the lease are as
follows for the fiscal years ending June 30:
1995 $ 40,200
1996 6,700
---------
$ 46,900
=========
NOTE 8 - CAPITAL REQUIREMENTS
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
(FIRREA) places regulatory and examination responsibility into the Office of
Thrift Supervision, and insurance of deposit accounts is placed with the
Federal Deposit Insurance Corporation (FDIC) which also has examination
authority. Savings institutions insured by the FDIC are required by FIRREA to
meet three regulatory capital requirements. If a requirement is not met,
regulatory authorities may take legal or administrative actions, including
restrictions on growth or operations or, in extreme cases, seizure.
- ------------------------------------------------------------------------------
(Continued)
<PAGE> 106
MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG,
A STOCK SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
June 30, 1994, 1993 and 1992
- ------------------------------------------------------------------------------
NOTE 8 - CAPITAL REQUIREMENTS (Continued)
Under these capital requirements, at June 30, 1994, the Bank had:
<TABLE>
<CAPTION>
Tangible Core Risk-Based
(In thousands) Capital Capital Capital
-------- ------- ----------
<S> <C> <C> <C>
GAAP capital $ 14,887 $ 14,887 $ 14,887
Additional capital items
Unrealized gain on
securities available
for sale (3) (3) (3)
General valuation allowance 302
---------- ---------- ----------
Regulatory capital -
computed 14,884 14,884 15,186
Minimum capital requirement 1,250 2,499 2,520
---------- ---------- ----------
Regulatory capital - excess $ 13,634 $ 12,385 $ 12,666
========== ========== ==========
Regulatory capital -
computed 17.87% 17.87% 48.20%
Minimum capital requirement 1.50 3.00 8.00
---------- ---------- ----------
Regulatory capital - excess 16.37% 14.87% 40.20%
========== ========== ==========
</TABLE>
FIRREA also includes restrictions on loans to one borrower, on certain types of
investments and loans, on loans to officers, directors, and principal
shareholders, on brokered deposits, and on transactions with affiliates.
NOTE 9 - INCOME TAXES
An analysis of the provision for income taxes is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Current $ 433,637 $ 527,082 $ 370,244
Deferred 48,863 32,918 67,841
----------- ----------- ----------
Total income taxes $ 482,500 $ 560,000 $ 438,085
=========== =========== ==========
</TABLE>
- ------------------------------------------------------------------------------
(Continued)
<PAGE> 107
MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG,
A STOCK SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
June 30, 1994, 1993 and 1992
- ------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES (Continued)
The sources of gross deferred tax assets and gross deferred tax liabilities are
as follows:
<TABLE>
<CAPTION>
1994
----
<S> <C>
Items giving rise to deferred tax assets:
Allowance for loan losses in excess of tax reserve $ 167,585
Recognition and retention plan 33,975
Deferred loan fees 46,987
----------
Total deferred tax assets 248,547
----------
Items giving rise to deferred tax liabilities:
Depreciation (9,798)
Unrealized gain on investment securities available
for sale (1,783)
FHLB stock dividend (116,232)
State franchise tax (34,240)
Investment accretion (432)
----------
Total deferred tax liabilities 162,485
Valuation allowance on deferred tax assets -
----------
Net deferred tax asset $ 86,062
==========
</TABLE>
The sources and related tax effects of the deferred income tax provision
(benefit) are as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Loan origination fees and costs $ 44,322 $ 46,806
Recognition and retention plan (18,768)
FHLB stock dividend 9,146 11,186
Depreciation 291 1,361
State franchise taxes 1,072 1,399
Other (3,145) 7,089
---------- ----------
$ 32,918 $ 67,841
========== ==========
</TABLE>
- ------------------------------------------------------------------------------
(Continued)
<PAGE> 108
MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG,
A STOCK SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
June 30, 1994, 1993 and 1992
- ------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES (Continued)
The difference between the financial statement provision and amounts computed
by using the statutory rate of 34% is reconciled as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Income tax computed at
the statutory rate $ 508,702 $ 576,614 $ 363,752
Tax effect of
Bad debt deduction (16,932) 58,924
Net gain on real estate
owned (1,032) (1,032)
Tax exempt interest income (55,322) (1,166) (1,483)
FHLB stock dividend (49) 10,928
Nondeductible professional
fees 29,189
Other (69) 2,565 6,996
---------- ---------- ----------
Total income taxes $ 482,500 $ 560,000 $ 438,085
========== ========== ==========
</TABLE>
Under the Internal Revenue Code, the Bank is permitted to determine taxable
income after deducting a provision for bad debts in excess of such provision
recorded in the financial statements. Accordingly, retained earnings at June
30, 1994 includes approximately $2,713,000 for which no provision for federal
income taxes has been made. The related amount of unrecognized deferred tax
liability was approximately $922,000 at June 30, 1994. If this portion of
retained earnings is used in the future for any purpose other than to absorb
bad debts, the amount used will be added to future taxable income.
NOTE 10 - EMPLOYEE STOCK OWNERSHIP PLAN
Mutual Federal has established an Employee Stock Ownership Plan ("ESOP") for
the benefit of employees age 18 or older who have completed at least one year
of service with Mutual Federal. To fund the plan, the ESOP borrowed $300,000
from another financial institution for the purpose of purchasing 30,000 shares
of stock at $10.00 per share. Principal payments on the loan are due in
monthly installments beginning December, 1992.
The future minimum annual principal payments of the ESOP obligation are as
follows:
Year ending
June 30,
--------
1995 $ 50,000
1996 50,000
1997 36,833
---------
$ 136,833
=========
- ------------------------------------------------------------------------------
(Continued)
<PAGE> 109
MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG,
A STOCK SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
June 30, 1994, 1993 and 1992
- ------------------------------------------------------------------------------
NOTE 10 - EMPLOYEE STOCK OWNERSHIP PLAN (Continued)
Interest is payable monthly during the term of the loan at 0.5% above the
lending bank's prime rate. The loan is collateralized by the shares of
Mutual's common stock purchased with the proceeds. As Mutual periodically
makes contributions to the ESOP to repay the loan, shares will be allocated
among participants on the basis of cash compensation other than bonuses.
Participants' benefits vest gradually over a two- to six-year period.
The Board of Directors passed a resolution to terminate the ESOP effective
January 31, 1995. A request for a determination letter to terminate the Plan
has been filed with the Internal Revenue Service. See Note 16.
The Accounting Standards Executive Committee issued Statement of Position
("SOP") 93-6, "Employers' Accounting for Employee Stock Ownership Plans" on
November 22, 1993 for fiscal years beginning after December 15, 1993. Under
SOP 93-6, when shares acquired by the plan after December 31, 1992 are
allocated to employees, expense is recorded using the fair value of the shares.
Currently, the cost of the shares is used to measure expense. The effect of
adopting SOP 93-6 will not impact the Bank as all shares in the plan were
acquired prior to December 31, 1992.
NOTE 11 - RECOGNITION AND RETENTION PLAN
Mutual Federal has adopted a Recognition and Retention Plan ("RRP") as a means
of providing directors and certain key employees of Mutual Federal with an
ownership interest in Mutual Federal in a manner designed to reward and retain
such directors and key employees. One-fifth of such shares will be earned and
nonforfeitable on the first five anniversaries of the effective date of the
plan, which is December 30, 1992.
Prior to conversion, Mutual contributed $258,992 to the RRP for the purpose of
purchasing common stock. On December 30, 1992 Mutual purchased 11,290 shares
of common stock at $10.00 per share. The remainder of the funds were used to
purchase 9,500 additional shares of the Bank's common stock at $15.375 per
share on January 7, 1993. Compensation expense related to the plan was $92,019
and $59,618 for the years ended June 30, 1994 and 1993, respectively.
NOTE 12 - PROFIT SHARING PLAN
Effective July 1, 1990, the Bank adopted a 401(k) profit sharing plan.
Employees are eligible to participate in the plan after they have completed one
year of service, are 18 years or older and work a minimum of 750 hours a year.
- ------------------------------------------------------------------------------
(Continued)
<PAGE> 110
MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG,
A STOCK SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
June 30, 1994, 1993 and 1992
- ------------------------------------------------------------------------------
NOTE 12 - PROFIT SHARING PLAN (Continued)
Effective July 1, 1993, the Bank amended the plan to suspend all contributions.
In conjunction with this amendment, all participants became fully vested in the
employer contributions on July 1, 1993 to comply with ERISA. Prior to the
amendment, employees were able to contribute a minimum of 2% of pay per year up
to a maximum of 10%. The Bank matched 50% of the employees' contribution of
the first 7% of the participant's compensation deferred under the plan.
Employees became vested in the employer contributions after six years. There
was no expense related to the plan for the year ended June 30, 1994. The
expense related to this plan was $15,932 and $13,589 for the years ended June
30, 1993 and 1992, respectively.
The Financial Accounting Standards Board issued SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," in December 1990
effective for fiscal years beginning after December 15, 1992. This changed the
current accounting for postretirement benefits from recognizing costs as
benefits are paid to accruing costs during an employee's working career. Both
the postretirement expense and the liability will be computed based on an
actuarial valuation. At the present time, the Bank provides no postretirement
benefits to its employees subject to the provisions of SFAS No 106.
NOTE 13 - STOCK OPTION AND INCENTIVE PLAN
At the time of conversion, the Bank's Board of Directors adopted a Stock Option
and Incentive Plan which was approved by shareholders on October 18, 1993. A
number of shares equal to ten percent of the common stock issued in connection
with the conversion was reserved for issuance by the Bank upon the exercise of
options to be granted to certain directors, officers and employees of the Bank
from time to time under the plan. The plan is administered by a committee of
directors of the Bank. The option exercise price shall be determined by the
committee at the time of grant but will not be less than the fair market value
of the common stock on the date of the grant. No stock options will be
exercisable after ten years from the date of grant.
In connection with the conversion, options to purchase 58,645 shares of common
stock at an exercise price of $10.00 were granted to officers and directors of
the Bank.
- ------------------------------------------------------------------------------
(Continued)
<PAGE> 111
MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG,
A STOCK SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
June 30, 1994, 1993 and 1992
- ------------------------------------------------------------------------------
NOTE 14 - EMPLOYMENT AGREEMENTS
The Bank has entered into Employment Agreements with certain officers effective
December 1, 1993 for a period of two years for a salary of not less than the
respective employee's current salary. The employment agreements may be
terminated by the Bank at any time. In the event an employment agreement is
terminated for any reason other than just cause, as defined in the agreement,
or is terminated within one year after any change in control of the Bank, the
employee will be entitled to receive a payment in an amount equal to the
employee's annual salary in effect at the time of the termination of the
agreement and the amount of salary to which the employee is entitled for the
remainder of the term of the agreement. The employee will also receive
continued health and life insurance and other benefits substantially equal to
those which the employee was receiving at the time the agreement is terminated
until the earliest to occur of the end of the term of the agreement, the date
upon which the employee becomes 65 years of age or, the date the employee
becomes employed by another employer.
NOTE 15 - CONSUMMATION OF THE CONVERSION TO A STOCK SAVINGS BANK
On September 18, 1992, the Board of Directors of the Bank unanimously adopted a
Plan of Conversion to convert from a federally chartered mutual savings bank to
a federally chartered stock savings bank. The conversion was consummated on
December 30, 1992 by amending the Bank's federal charter and the sale of common
stock in an amount equal to the market value of the Bank after giving effect to
the stock conversion. A subscription offering of the shares of the Bank's
common stock was offered in accordance with the Plan of Conversion. A total of
648,025 shares of the Bank's common stock were sold at $10.00 per share and net
proceeds from the sale were $6,177,720 after deducting the costs of the
conversion.
At the time of the conversion, the Bank established a liquidation account in an
amount of $7,471,135 which was equal to its total net worth as of the date of
the latest balance sheet appearing in the final prospectus. The liquidation
account will be maintained for the benefit of eligible depositors who continue
to maintain their accounts at the Bank after the conversion. The liquidation
account will be reduced annually to the extent that eligible depositors have
reduced their qualifying deposits. Subsequent increases will not restore an
eligible account holder's interest in the liquidation account. In the event of
a complete liquidation, each eligible depositor will be entitled to receive a
distribution from the liquidation account in an amount proportionate to the
current adjusted qualifying balance for accounts then held.
- ------------------------------------------------------------------------------
(Continued)
<PAGE> 112
MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG,
A STOCK SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
June 30, 1994, 1993 and 1992
- ------------------------------------------------------------------------------
NOTE 15 - CONSUMMATION OF THE CONVERSION TO A STOCK SAVINGS BANK
(Continued)
Under Office of Thrift Supervision (OTS) regulations, limitations have been
imposed on all "capital distributions", including cash dividends, by savings
institutions. The regulation established a three-tiered system of
restrictions, with the greatest flexibility afforded to thrifts which are both
well-capitalized and given favorable qualitative examination ratings by the
OTS. A Tier 1 association may make capital distributions up to 100% of its net
earnings to date during the calendar year in which the distribution is made,
plus the amount that would reduce by one-half its "surplus capital ratio" at
the beginning of the calendar year. The Bank is currently a Tier 1
institution. Other thrifts would be subject to more stringent procedural and
substantive requirements, the most restrictive being prior OTS approval of any
capital distribution.
NOTE 16 - PENDING MERGER
Pursuant to an agreement of merger dated May 9, 1994, the Bank will be acquired
by Fifth Third Bancorp. The merger is subject to regulatory and shareholder
approval. Fifth Third Bancorp will exchange stock worth $30.00 for each share
of the Bank's common stock. As a part of the merger:
1.) The Bank will terminate the Employee Stock Ownership Plan effective
January 31, 1995. The Bank will take actions necessary to make
contributions to the ESOP to repay the ESOP's existing loan prior to
the merger subject to the applicable requirements of ERISA and the
Internal Revenue Code. The ESOP will sell unallocated shares under the
ESOP and use the proceeds to repay the remaining balance of the ESOP to
the extent necessary to avoid contribution limitations being exceeded
(Note 10).
2.) All shares allocated to the participants in the Recognition and
Retention Plan will become fully vested (Note 11).
3.) The stock options are to be exercised and fully paid. There shall be no
outstanding options to purchase any shares of the Bank's common stock
and any option plan or arrangement effectively shall have been
terminated (Note 13).
4.) The Bank's Employment Agreements will be terminated prior to the merger.
The employees will be entitled to receive the payments more fully
described in Note 14.
- ------------------------------------------------------------------------------
(Continued)
<PAGE> 113
ANNEX A
<PAGE> 114
AFFILIATION AGREEMENT
This Affiliation Agreement ("Affiliation Agreement") dated as of May
9, 1994, 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 MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG, A STOCK SAVINGS BANK, a savings
bank organized and existing under the laws of the United States with its
principal office located in Miamisburg, Montgomery County, Ohio ("Seller").
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 Seller is a Federal savings
bank under the laws of the United States, and Fifth Third and Seller desire to
effect a forward triangular merger under the authority and provisions of the
corporation law of the State of Ohio and the laws of the United States pursuant
to which at the Effective Time (as herein defined in Section IX) Seller will be
merged with and into Fifth Third's lead bank, The Fifth Third Bank ("5/3
Bank"), with 5/3 Bank to be and become the surviving corporation; and
WHEREAS, under the terms of the Agreement of Merger ("Agreement of
Merger") between 5/3 Bank and Seller (and agreed to by Fifth Third) appended
hereto as Appendix A, the terms of which are incorporated into this Agreement
and made a part hereof, all of the issued and outstanding shares of the Common
Stock, $1.00 par value per share, of Seller which are issued and outstanding
(excluding any treasury shares) immediately prior to the Effective Time will at
the Effective Time be cancelled and extinguished and in substitution therefor
each of such Seller shares will, at the Effective Time, be converted into
shares of the Common Stock of Fifth Third, 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 Seller agree together as follows:
I. Obligations of Fifth Third and Seller 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 Ohio Division of Banks,
the Federal Deposit Insurance Corporation, the Office of Thrift Supervision 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 shall also prepare and
file at its expense (accounting, legal and associated expenses of Seller 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
Seller's shareholders 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.
A-1
<PAGE> 115
Seller agrees that it will, as promptly as practicable after request
and at its own expense, provide Fifth Third with all information and documents
concerning Seller as shall be required in connection with preparing such
applications, registration statements and other documents and in connection
with securing such approvals.
II. Representations and Warranties of Seller
----------------------------------------
Seller 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 a writing referring to this Section II and delivered by Seller to
Fifth Third prior to the execution of this Agreement by Fifth Third
("Disclosure Schedule"):
A. Seller (i) is duly chartered and validly existing as a Federal
savings bank under the laws of the United States; (ii) is duly authorized to
conduct the business in which it is engaged; (iii) has 2,000,000 shares, $1.00
par value per share, of Common Stock and 1,000,000 shares, $1.00 par value per
share, of preferred stock authorized pursuant to its Federal Stock Charter,
which are the total number of shares Seller is authorized to have outstanding;
and (iv) has no outstanding securities of any kind, nor any outstanding
options, warrants or other rights entitling another person to acquire any
securities of Seller of any kind, other than (a) 648,025 shares of its Common
Stock, $1.00 par value per share, ("Seller Common Stock") which presently are
authorized, duly issued and outstanding and (b) options to purchase a total of
58,645 shares of Seller Common Stock, which options were granted to and are
presently held by the officers and directors of Seller (the "Stock Options").
Seller has no direct or indirect subsidiaries.
B. Seller has furnished to Fifth Third its financial statements
as at June 30, 1991, 1992 and 1993 and for the years then ended, together with
the opinion of its independent certified public accountants associated
therewith. Such financial statements of Seller fairly present the financial
condition of Seller as of their respective dates and for the respective periods
covered thereby in conformity with generally accepted accounting principles,
consistently applied. There are no material liabilities, obligations or
indebtedness of Seller required to be disclosed in such financial statements
other than the liabilities, obligations or indebtedness disclosed in such
financial statements (including footnotes). Seller also has furnished its
unaudited financial statements as at September 30 and December 31, 1993, and
for the applicable periods (from June 30, 1993) then ended. Seller shall
furnish Fifth Third with its audited financial statements as at June 30, 1994
and for the fiscal year then ended, and its unaudited financial statements as
at March 31, 1994 and for the nine months then ended, September 30, 1994 and
for the three months then ended, and December 31, 1994 and for the six months
then ended, all duly certified by Seller's chief executive officer and chief
financial officer, as soon as such statements publicly are available, and shall
continue to furnish such financial information for subsequent monthly periods
to Fifth Third as soon as such becomes available until the Closing Date. The
unaudited financial statements do not include information or footnotes
necessary for a complete presentation of financial position, results of
operations and cash flows in conformity with generally accepted accounting
principles. However, all adjustments (consisting only of normal recurring
accruals) which, in the opinion of Seller, are necessary for a fair
presentation of the financial statements, have been included.
C. Seller has good title to all of the properties and assets
reflected in its financial statements as at December 31, 1993 and which are
still owned by it, and Seller has good title
A-2
<PAGE> 116
to all properties and assets acquired by it after such date and still owned by
it, subject to (i) any liens, encumbrances, easements, covenants and
restrictions, of record, that do not materially adversely impair the use of the
property in the manner in which it is currently being used, (ii) statutory
liens for taxes not yet due and payable and (iii) minor defects and
irregularities in title that do not materially adversely impair Seller's or any
Successor's use of the property.
D. Except for events relating to the business environment in
general: (i) since December 31, 1993, there have been no material adverse
changes in the financial condition, operations or business of Seller; (ii)
neither Seller's chief executive officer nor its chief financial officer
(collectively the "Executive Officers") is aware of any events which have
occurred since December 31, 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 Seller.
E. There are no actions, suits, proceedings, investigations or
assessments of any kind pending, or to the best knowledge of Seller's Executive
Officers, threatened against Seller which reasonably can be expected to result
in any material adverse change in the financial condition, operations or
business of Seller.
F. Except as set forth in the Disclosure Schedule, since December
31, 1993, Seller has been operated in the ordinary course of business, has not
made any material adverse changes in its capital or corporate structures, nor
any material changes in its methods of business operations and has not provided
any unusual or extraordinary increases in employee salaries or benefits. Since
December 31, 1993, Seller has not declared or paid any dividends nor made any
distributions of any other kind to its shareholders, except cash dividends on
shares of Seller Common Stock in amounts and at such times as is in accord with
its historical practice.
G. Seller timely has filed all Federal, state and local tax
returns required to be filed (after giving effect to all extensions) by it, and
has paid or provided for all tax liabilities shown to be due thereon or
assessed against it. All tax returns filed by Seller through the date hereof
constitute complete and accurate representations, in all material respects, of
the tax liabilities of Seller for such years and accurately set forth all
material 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.
H. Seller is not a party to (i) any written employment contracts
or written contracts of any other kind with any of its officers, directors or
employees except for employment agreements with Marjorie A. Brookhart, Donald
L. Koller, Terry M. Murray and Debra K. Shock 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 will expire or can be terminated by
Seller prior to the Closing Date or contracts, leases or agreements (excluding
contracts, leases and agreements pursuant to which credit has been extended by
Seller) which do not require the expenditure of more than $5,000.00 thereunder.
I. Since December 31, 1993, Seller has not incurred any unusual
or extraordinary loan losses which are material to Seller; and in light of
Seller's historical loan loss experience and
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its management's analysis of the quality and performance of its loan portfolio,
its reserve for loan losses is adequate based on current management's policies
and procedures.
J. Except for McDonald & Company, Securities, Inc., Seller (i)
has not, directly or indirectly, dealt with any broker or finder in connection
with this transaction and (ii) has not incurred or 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.
K. 1. The directors of Seller, 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 Seller's shareholders at the annual or a
special meeting of shareholders to be called for that purpose, all in
accordance with and as required by law and in accordance with the Federal Stock
Charter and Bylaws of Seller.
2. Seller 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 by Seller's board of
directors and, subject to the receipt of requisite regulatory approvals and the
approval of Seller's shareholders, will constitute valid and binding
obligations of Seller, 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, and (ii) the availability of certain remedies may be
precluded by general principles of equity.
3. 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, Seller's Federal Stock Charter or Bylaws or, to
the best knowledge of its 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 Seller is subject or bound;
(ii) to the best knowledge of Seller's Executive Officers, results in the
creation of or gives any person the right to create any lien, charge,
encumbrance, security agreement or any other rights of others or other adverse
interest upon any material right, property or asset belonging to Seller other
than such rights as may be given dissenting shareholders of Seller pursuant to
Federal law; (iii) terminates or gives any person the right to terminate,
amend, abandon, or refuse to perform any material agreement, arrangement or
commitment to which Seller is a party or by which Seller's rights, properties
or assets are subject or bound; or (iv) accelerates or modifies, or gives any
party thereto the right to accelerate or modify, the time within which, or the
terms according to which, Seller 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 which will expire or can be terminated by Seller
prior to the Closing Date or which do not require the expenditure of more than
$5,000 (but shall include all agreements, arrangements or commitments pursuant
to which credit has been extended by Seller).
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L. Complete and accurate copies of the Federal Stock Charter and
Bylaws of Seller in force as of the date hereof have been delivered to Fifth
Third.
M. To the best knowledge of the Executive Officers of Seller,
Seller has not knowingly engaged in any activity or knowingly omitted to take
any action which, in any material way, has resulted or could result in the
violation of 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
and similar disclosure laws and regulations, and equal employment and
employment discrimination laws and regulations) or any regulation, order,
injunction or decree of any court or governmental body, if such violation could
have a material adverse effect on Seller. To the best knowledge of Seller's
Executive Officers, Seller possesses all licenses, franchises, permits and
other governmental authorizations necessary for the continued conduct of its
business without material interference or interruption.
N. 1. To the best knowledge of the Executive Officers of
Seller, neither this Agreement nor the Agreement of Merger nor any report,
statement, list, certificate or other information furnished by Seller 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 (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 Seller 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. Seller has furnished (or shall furnish) to Fifth
Third or its agents true and complete copies (including all exhibits and all
documents incorporated by referenced) of the following documents as filed by
Seller with the Office of Thrift Supervision (the "OTS"):
(a) Seller's Annual Report on Form 10-KSB for
the fiscal year ended June 30, 1993;
(b) Seller's Quarterly Reports on Form 10-QSB
for the quarters ended September 30 and December 31, 1993 and March 31, 1994;
(c) Seller's Quarterly Reports on Form 10-QSB
for quarters ended after March 31, 1994 until Closing;
(d) Any Current Report on Form 8-K with respect
to any event occurring after December 31, 1993 and prior to the date of this
Agreement;
(e) any report filed by Seller to amend or
modify any of the reports described above; and
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(f) all proxy statements prepared in connection
with meetings of Seller's shareholders held subsequent to June 30, 1993.
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
OTS, (i) contain any untrue statement of a material fact, (ii) 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 (iii) omit any material exhibit required to be filed
therewith. Prior to the date hereof, no event has occurred subsequent to
December 31, 1993, which Seller is required to describe in a Current Report on
Form 8-K other than the Current Reports heretofore furnished by Seller to Fifth
Third. Seller timely shall furnish Fifth Third with copies of all reports
filed by Seller with the OTS subsequent to the date of this Agreement and until
the Closing Date.
O. (1) To the best knowledge of the Executive Officers of
Seller, there are no actions, proceedings or investigations pending before any
environmental regulatory body and no civil, criminal or administrative
proceedings, arbitrations or actions pending before any court, administrative
agency or arbitration panel, with respect to or threatened against or affecting
Seller in respect of any "facility" owned, leased or operated by Seller (but
EXCLUDING any "facility" as to which the sole interest of Seller is that of a
lienholder or mortgagee, but INCLUDING any "facility" to which legal and
equitable title has been taken by Seller pursuant to mortgage foreclosure or
similar proceedings and INCLUDING any "facility" in which Seller 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 Seller and/or require Seller to incur expenses
of more than $5,000 (whether or not covered by insurance) or (b) would
otherwise have a material adverse effect on Seller, nor, to the best knowledge
of the Executive Officers of Seller, 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 Seller is a plaintiff or complainant. To the best
knowledge of the Executive Officers of Seller, Seller is not liable in any
material respect under any applicable law for any release by Seller 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, to the best
knowledge of the Executive Officers of Seller, is Seller liable for any
material costs (as a result of the acts or omissions of Seller or, to the best
knowledge of the Executive Officers of Seller, 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 Seller to prevent or
minimize any actual or threatened release by Seller 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 in, and defined in, CERCLA; in
addition, toxic or hazardous substances, as used in this
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Paragraph O, shall mean any material or substance that is defined or classified
as a "hazardous substance" pursuant to Section 101 of CERCLA or Section 311 of
the Federal Water Pollution Control Act (33 U.S.C. Section 1321); a "hazardous
waste" pursuant to Section 1004 or Section 3001 of the Resource Conservation
and Recovery Act (42 U.S.C. Section Section 6803, 6921); a "toxic pollutant"
under Section 307(a)(1) of the Federal Water Pollution Control Act (33 U.S.C.
Section 1317(a)(1)); a "hazardous air pollutant" under Section 112 of the Clean
Air Act (42 U.S.C. Section 7412); a "pesticide" under Section 1 of the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 136); a "solid
waste" pursuant to Section 1004 of the Resource Conservation and Recovery Act
(42 U.S.C. Section 6903) and Section 3734.01 of Ohio's Solid and Hazardous
Wastes Laws (O.R.C. Section 3734.01); "petroleum" under Section 9001 of the
Resource Conservation and Recovery Act (42 U.S.C. Section 6991) and Section
3787.87 of Ohio's Petroleum Underground Storage Tank Laws (O.R.C. Section
3737.87); "industrial waste" or "other wastes" under Section 6111.01 of the
Ohio Water Pollution Control Act (O.R.C. Section 6111.01); or "medical wastes"
or "infectious wastes" pursuant to Section 3734.01 of Ohio's Solid and
Hazardous Wastes Laws (O.R.C. Section 3734.01); or a "hazardous material" under
the Hazardous Materials Transportation Uniform Safety Act of 1990 (49 U.S.C.
App. Section 1802(4)).
(2) To the best knowledge of the Executive Officers of
Seller, each "facility" owned, leased or operated by Seller (but EXCLUDING any
"facility" as to which the sole interest of Seller is that of a lienholder or
mortgagee, but INCLUDING any "facility" to which legal and equitable title has
been taken by Seller pursuant to mortgage foreclosure or similar proceedings
and INCLUDING any "facility" in which Seller 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.
(3) To the best knowledge of the Executive Officers of
Seller, and except as permitted by law, no solid or hazardous wastes,
pollutants, contaminants, hazardous substances or petroleum substances have
been discharged, disposed, released, placed or dumped onto or under any real
property owned, used or leased by Seller, or into the air or water on or
surrounding such real property, presently or previously owned, leased or used
by Seller. To the best knowledge of the Executive Officers of Seller, no PCB's
(polychlorinated byphenols), asbestos, or underground storage tanks were used
in the construction and operation of the real property presently or previously
owned, leased, or used by Seller, whether wholly or partially owned, except as
set forth in the Disclosure Schedule.
(4) Seller has not caused or contributed to off-site
treatment storage and/or disposal of hazardous waste and Seller has not
received any formal or informal notice from any governmental agency or public
or private entity that it is responsible or potentially responsible for
response costs with respect to a release or threat of a release of hazardous
substances, pollutants, or contaminants at any off-site location not owned or
operated by Seller.
(5) Seller shall permit Fifth Third and its employees,
agents or contractors upon reasonable prior notice access to all real property
that is presently owned, used or leased by Seller for the purpose of
conducting at Fifth Third's sole expense, a Phase I Environmental Site
Assessment in accordance with the standard practices adopted by The American
Society for
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Testing of Materials, and, as deemed necessary by Fifth Third, a Phase II
Environmental Site Assessment, the scope of which will be determined solely by
Fifth Third and its employees, contractors or agents. Subject to the
conditions set forth below, Seller grants to Fifth Third and its employees,
agents and contractors the right and permission at reasonable times prior to
Closing and upon reasonable notice to enter upon all real property that is
presently owned, used or leased by Seller to conduct a Phase I environmental
site assessment in accordance with the standard practices adopted by the
American Society for Testing of Materials as deemed necessary by Fifth Third
and, upon the consent of Seller, which shall not be unreasonably withheld, such
additional investigations and tests with respect to such properties as Fifth
Third chooses to conduct. All such Phase I environmental site assessments and
all additional investigations and tests (collectively "investigations") shall
be so conducted as not to unreasonably damage such properties. Fifth Third
indemnifies and holds harmless Seller from and against any and all losses,
claims, damages, expenses (including reasonable attorneys' and consultants'
fees), costs and liabilities caused by unreasonable damage from such
investigations. Fifth Third and its employees, agents and contractors shall
(i) keep and hold confidential all information obtained or developed during or
as a result of the investigations, (ii) submit copies of all said information
to Seller promptly upon receipt or generation by Fifth Third, and (iii) obtain
Seller's written consent before disseminating any of said information to
entities other than Fifth Third or Seller or their respective legal counsel,
except as otherwise required by applicable law, regulations or court order.
P. 1. BENEFIT PLANS. The Disclosure Schedule 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 presently
maintained by Seller for the benefit of employees, former employees or
directors of Seller and shall include (a) any qualified retirement plan such as
a pension, profit sharing or 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, Voluntary Employee Benefit Association, 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 noted
on the Disclosure Schedule, Seller 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
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(the "Code") (a "Qualified Benefit Plan"), except as noted on the Disclosure
Schedule: (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 taking into consideration all amendments to the Code through the date
hereof, 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, if
applicable, Section 4975(e)(7) of the Code for employee stock ownership plans)
and meets 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 and the requirements of the Pension Benefit Guaranty
Corporation ("PBGC") 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 noted in the Disclosure
Schedule: (a) such Welfare Benefit Plan, if intended to provide favorable tax
benefits to plan participants, has been in substantial compliance with 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 of Seller, 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 of Seller, threatened against any Benefit
Plan or against Seller 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 Seller or, if not, have
been disclosed on the Disclosure Schedule. For purposes hereof, the term
"Unfunded Liabilities" shall mean any amounts properly accrued to date under
generally accepted accounting principles in effect as of the date of this
Agreement (GAAP) or 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, and shall include but not be 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 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 date
of this Agreement.
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8. DEFINED BENEFIT PENSION PLAN LIABILITIES. Seller (or
any pension plan maintained by Seller) has not incurred any material liability
to the PBGC or the IRS with respect to any Benefit Plan which is a defined
benefit pension plan, except for the payment of PBGC premiums pursuant to
Section 4007 of ERISA, all of which if due prior to the date of this Agreement
have been fully paid. Neither Seller, nor any controlled group member of
Seller, has ever participated in, or incurred any liability under Sections
4201, 4063 or 4064 of ERISA for a complete or partial withdrawal from, a
multiple employer plan or a multiemployer plan (as defined in Section 3(37) of
ERISA).
9. INDEPENDENT TRUSTEE. To the best knowledge of the
Executive Officers of Seller, Seller (a) has 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
Seller, (b) has 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) has 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 Seller.
10. MATERIAL. For purposes of this Paragraph P 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 $5,000 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.
Q. The investment portfolio of Seller consists of securities in
marketable form. Except as set forth in the Disclosure Schedule, since
December 31, 1993, Seller has not 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
of Seller 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 Seller's investment portfolio.
R. There are no actions, suits, claims, proceedings,
investigations or assessments of any kind pending, or to the best knowledge of
Seller's Executive Officers, threatened against any of the directors or
officers of Seller in their capacities as such, and no director or officer of
Seller currently is being indemnified or seeking to be indemnified by Seller
pursuant to applicable law or Seller's Federal Stock Charter or Bylaws.
All representations, warranties and covenants contained in
this Section II shall expire at the Effective Time, and, thereafter, neither
Seller nor any officer or director of Seller 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 Seller that as of the date
hereof or as of the indicated date, as appropriate:
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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
Common Stock without par value ("Fifth Third Common Stock") and 500,000 shares
are Preferred Stock without par value. As of the close of business on April
30, 1994, 61,512,926 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 1/4% Convertible
Subordinated Notes due January 15, 1998 (the "Notes"). At April 30, 1994,
1,276,187 shares of Fifth Third Common Stock were reserved for issuance in
connection with outstanding options under its stock option plans and 966,598
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 in the aggregate.
C. All shares of Fifth Third Common Stock to be received by the
shareholders of Seller 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 Seller its Consolidated Financial
Statements as at December 31, 1991, December 31, 1992 and December 31, 1993 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 Seller its unaudited Consolidated Financial Statements as at
March 31, 1994 and for the three 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. Neither Fifth
Third nor any 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
Seller with its unaudited consolidated financial statements as at June 30, 1994
and for the six months then ended as soon as such statements publicly are
available, and shall continue to furnish such financial information for
subsequent calendar quarter periods to Seller as soon as such becomes publicly
available until the Closing Date.
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E. Except for events relating to the business environment in
general: (i) since December 31, 1993 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 December
31, 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 December 31, 1993, there have been no material changes in the
methods of business operations of Fifth Third and its subsidiaries.
F. 1. The Executive Committee of the Board of Directors of
Fifth Third, by resolution adopted by the members present at a meeting duly
called and held on April 13, 1994, at which meeting a quorum was at all times
present and acting, has approved the transactions, and the terms thereof,
contemplated by this Agreement and the Agreement of Merger. 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. No other
corporate approvals are required to be obtained by Fifth Third.
2. Fifth Third and 5/3 Bank have the corporate power and
authority to enter into this Agreement and the Agreement of Merger, as
applicable, and to carry out each of their obligations hereunder and
thereunder, as applicable, 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 and 5/3 Bank, as applicable, 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, 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 5/3 Bank's Articles of
Incorporation or Code of Regulations, in effect on the date hereof, as
applicable, or, to the best knowledge of Fifth Third's 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 and 5/3 Bank are 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 lien, charge, encumbrance, security agreement or any
other rights of others or other adverse interest upon any material right,
property or asset belonging to Fifth Third or 5/3 Bank or any of their
subsidiaries other than such rights as may be given the shareholders of Seller
pursuant to the provisions of applicable federal law governing the rights of
dissenting shareholders; (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 or 5/3 Bank is a party or by
which Fifth Third's or 5/3 Bank'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,
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Fifth Third or 5/3 Bank, as applicable, are 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 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 Seller.
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 knowingly engaged in any activity or omitted to take any
action which, in any material way, has resulted or could result in the
violation of any local, state or federal law or any regulation, order,
injunction or decree of any court or governmental body. 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. Fifth Third shall
comply, and as of the Closing Date (as hereinafter defined) Fifth Third shall
have complied, with all applicable laws, rules, and regulations in connection
with the registration and issuance of the shares of Fifth Third Common Stock in
connection with the merger contemplated hereby.
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 Seller 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 special meeting of shareholders of Seller 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 Seller 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
Securities and Exchange Commission (the "SEC"):
(a) Fifth Third's Annual Report on Form 10-K for
the year ended December 31, 1993;
(b) Fifth Third's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1994;
(c) any Current Report on Form 8-K with respect
to any event occurring after December 31, 1993 and prior to the date of this
Agreement;
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(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,
1993.
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, 1993 which Fifth Third is required to describe in a Current Report
on Form 8-K other than the Current Reports heretofore furnished by Fifth Third
to Seller. Fifth Third timely shall furnish Seller 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, 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 December 31, 1993, none of Fifth Third's banking
subsidiaries or 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, their consolidated reserves for loan losses are adequate.
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 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 Seller pursuant to
Paragraph D of Section III hereof.
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O. The investment portfolios of Fifth Third and its affiliates
consist of securities in marketable form. Since December 31, 1993, 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, warranties and covenants 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 Seller Between the Date of this Agreement and the
----------------------------------------------------------------
Effective Time
--------------
A. Seller, after consultation with Fifth Third, will take all
action necessary to call and hold its annual or a special meeting of its
shareholders for the purpose of approving 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. Subject only to (i) Seller's Board
of Directors' review of Fifth Third's registration statement to be filed with
the SEC described in this subparagraph and their reasonable satisfaction with
the information set forth therein and (ii) the exercise of their fiduciary
duties, the Board of Directors of Seller intends to inform the shareholders of
Seller in the proxy materials relating to the annual or special meeting that
all directors intend to vote all shares of Seller voting 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 other shareholders of Seller. Seller 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 Seller's shareholders
pursuant to the transactions contemplated by this Agreement and the Agreement
of Merger.
B. (i) The merger between Seller and Fifth Third is intended to
be structured to qualify for treatment under present accounting rules as a
pooling of interests and Seller agrees to take no action which would disqualify
this treatment under generally accepted accounting principles. Seller agrees
that on or before the Effective Time it will conform its valuation, collection
and credit policies, practices and procedures to those of 5/3 Bank, to the
extent permitted by law and consistent with the fiduciary duties of the
directors and other officers of Seller and at such times as reasonably shall be
requested by Fifth Third; provided, however, that Seller shall not be
obligated to make any such changes or adjustments until the following
conditions have been satisfied: (i) each of the conditions precedent to closing
specified in paragraphs 1., 2. and 4. of Section VI A. of this Agreement and
paragraphs 5. and 6. of Section VI B. of this Agreement shall have been
satisfied and (ii) Fifth Third shall certify to Seller in writing that, as of
the date as of which such request is being made, Fifth Third is aware of no
facts or circumstances which would permit Fifth Third to terminate this
Agreement pursuant to Section VIII of this Agreement. Fifth
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Third will direct 5/3 Bank to provide such assistance and direction to Seller
as is necessary in conforming to such policies, practices and procedures; and
(ii) from the date of this Agreement until the Effective Time, Seller will be
operated in the ordinary course of business, and will not, without the prior
written consent of Fifth Third, which consent shall not be unreasonably
withheld: make any material adverse changes in its capital or corporate
structures; issue any additional shares of its Common Stock except upon
exercise of presently outstanding Stock Options; issue any other equity
securities, or issue any long term debt or convertible or other securities of
any kind, or rights to acquire any of its securities, including without
limitation, any additional Stock Options; 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 $5,000; make,
enter into or renew any agreement for services to be provided to Seller 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 Seller historically
has done, provided this covenant shall only apply to Seller; and pay any stock
dividends or make any other distributions on its stock. Notwithstanding the
foregoing, Seller may (i) increase the amount of its quarterly cash dividend if
the Closing Date does not occur prior to February 1, 1995, and (ii) provide for
increases in employee salaries and benefits in the ordinary course of business,
consistent with past practices.
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. Seller agrees to permit Fifth Third, its officers, employees,
accountants, agents and attorneys, and Fifth Third agrees to permit Seller, its
officers, employees, accountants, agents and attorneys, to have reasonable
access during business hours to their respective books, records and properties
for the purpose of examining the financial condition, assets, liabilities,
legal compliance, affairs and the conduct of the business of Seller or Fifth
Third, as the case may be, prior to the Effective Time, and to permit one
another to undertake a complete investigation to confirm the accuracy of each
other's representations, warranties and covenants contained in Sections II and
III hereof; provided, however, that any such investigation by Fifth Third or
Seller shall not relieve Fifth Third or Seller from any responsibility or
liability for 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.
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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 shareholders of Seller shall have duly approved
this Agreement and the Agreement of Merger in accordance with and as required
by law and in accordance with its Federal Stock Charter and Bylaws.
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 Ohio Division of Banks,
the OTS and the Federal Deposit Insurance Corporation to the extent required,
including, without limitation, any approval, consent, clearance or waiver
required under 12 C.F.R. Section 563b.3(i)(3)(i).
3. Dinsmore & Shohl, counsel for Fifth Third, shall have
delivered an opinion as to certain federal tax aspects of the transaction
addressed to Seller 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 and no material action or proceeding shall have been threatened or
instituted before any court or government body or authority with respect to 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 Seller 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 Seller which
specifically refers to the condition or conditions being waived:
1. All of the representations and warranties of Seller
set forth in Section II of this Agreement shall be true and correct in all
material respects at and as of the respective dates set forth with respect to
each, 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 rather than on and as of the respective dates set
forth with respect to each and rather than as of the date of this Agreement.
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2. Seller 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.
3. Vorys, Sater, Seymour & Pease, counsel for Seller,
shall have delivered an opinion addressed to Fifth Third in substantially the
form appended hereto as Appendix C.
4. (a) Seller shall have taken, pursuant to a
written description and timetable provided to and approved by Fifth Third and
its counsel, all actions necessary to: (i) make contributions to the Mutual
Federal Savings Bank of Miamisburg Employee Stock Ownership Plan ("ESOP") to
fully repay the ESOP's existing loan prior to the Effective Time, all in
compliance with applicable requirements of ERISA and the Internal Revenue Code,
provided that, if such contributions would cause the Code Section 415 and 404
contribution limitations to be exceeded, the ESOP shall sell unallocated shares
under the ESOP, and use the proceeds to repay the remaining balance of the ESOP
loan, to the extent necessary to avoid exceeding such limitations; (ii) amend
the ESOP to the extent necessary to comply with the Tax Reform Act of 1986 and
subsequent legislation; (iii) terminate the ESOP on or before the Effective
Time; and (iv) submit the ESOP to the Internal Revenue Service for a
determination letter that the ESOP, as so amended and terminated, continues to
be a qualified retirement plan and employee stock ownership plan under Sections
401(a) and 4975(e)(7) of the Code. Distribution of the shares and any other
assets of the ESOP shall (i) not occur until after the receipt of the foregoing
IRS determination letter and (ii) occur prior to the Effective Time only with
the express written consent of Fifth Third, which shall not be unreasonably
withheld.
(b) Seller shall have provided to Fifth Third at least 60
days prior to the Effective Time any and all documentation Fifth Third shall
reasonably request in writing that there is no potential liability under
Seller's terminated defined benefit plan (Pension Plan for the Employees of
Mutual Federal Savings & Loan Association of Miamisburg).
(c) Seller shall have provided to Fifth Third at least 60
days prior to the Effective Time any and all substantiation Fifth Third shall
reasonably request in writing to determine that the requirements of Section 416
of the Code have been satisfied with respect to each qualified plan maintained
or ever maintained by Seller; and that the requirements of Sections 401(k) and
(m) of the Code have been satisfied by such plans as are subject to these
sections.
(d) With respect to Seller's 401(k) Plan (Mutual Federal
Savings Bank of Miamisburg Retirement Savings Plan) at least 60 days prior to
the Effective Time: (1) Seller shall have taken any and all actions necessary
to discontinue any ongoing obligation after the Effective Time to continue
contributions (including employee 401(k) contributions) to said plan; and (2)
Seller shall have provided to Fifth Third a copy of a favorable determination
letter from the IRS in which the IRS has determined that such plan satisfies
all qualification requirements (without caveat or qualification), including all
amendments to the Code through the date hereof. No distributions shall be made
from said plan without Fifth Third's consent.
5. Fifth Third's independent certified public
accountants shall have reviewed the unaudited financial statements of Seller as
at the end of the month immediately preceding the Effective Time, 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
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for such financial statements to (i) be in conformity with generally accepted
accounting principles, consistently applied, excluding the presentation of
footnotes, and (ii) present fairly the financial condition and results of
operations of Seller.
6. The Stock Options all shall have been exercised and
fully paid, there shall be no outstanding options to purchase any shares of
Seller Common Stock and any Seller stock option plan or arrangement effectively
shall have been terminated.
7. The receipt of a certificate from Seller, executed by
its chief executive officer and chief financial officer, dated the Closing
Date, certifying to their best knowledge that: (i) all of the representations
and warranties set forth in Section II were true and correct in all material
respects at and as of the respective dates set forth with respect to each; (ii)
all of such representations and warranties are also true and correct in all
material respects at and as of the Closing Date as if each such representation
and warranty was given on and as of the Closing Date; and (iii) Seller 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 Seller
Common Stock shall not exceed 706,670 shares.
9. Seller's employment agreements with Marjorie A.
Brookhart, Donald L. Koller, Terry M. Murray and Debra K. Shock each shall be
terminated by Seller not later than the Effective Time, each in accordance with
Section 4(a) of such employment agreements.
10. The aggregate amount of Shareholders' Equity
(including Common Stock, Additional Paid-In Capital and Retained Earnings and
excluding Treasury Stock) of Seller immediately prior to the Effective Time, as
shown by and reflected in its books and records of accounts in accordance with
generally accepted accounting principles, consistently applied, shall not be
less than $14,573,000.00, its total shareholders' equity as at December 31,
1993, with the exception of any adjustments required under the FAS 115 rules
and regulations or adjustments requested by Fifth Third that adversely impact
Shareholders' Equity as defined in this subparagraph.
C. Conditions to the Obligations of Seller:
----------------------------------------
The obligation of Seller 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 Seller 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 at and as of the respective dates set forth with respect
to each, 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 rather than on and as of the respective dates set forth with respect to
each and rather than as of the date of this Agreement, except that the
representations and warranties set forth in paragraph B of Section III of this
Agreement shall be true only at and as of the date stated.
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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.
3. Dinsmore & Shohl, counsel for Fifth Third, shall have
delivered an opinion addressed to Seller in substantially the form appended
hereto as Appendix D.
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 that: (i) all of the
representations and warranties set forth in Section III were true and correct
in all material respects at and as of the respective dates set forth with
respect to each; (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 as if such representations and warranties were given on
and as of the Closing Date; 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 the shares of Fifth
Third Common Stock to be issued to Seller's shareholders 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.
6. The receipt of a fairness opinion from McDonald &
Company, Securities Inc., dated as of a date reasonably prior and proximate to
the effective date of the registration statement described in Section 5
immediately preceding stating that the exchange ratio pursuant to this
Agreement and the Agreement of Merger is fair to Seller's shareholders from a
financial point of view.
VII. Additional Covenants
--------------------
A. Seller shall be merged with and into 5/3 Bank effective the
Effective Time. The parties hereto agree to cooperate with one another to
effect such merger. Three Directors of Seller agreeable to Fifth Third shall
be appointed by 5/3 Bank to an Advisory Committee for a 12-month period
beginning on the Closing Date. The Advisory Committee's purpose is to assist
5/3 Bank in retaining and developing business relationships within the Greater
Dayton metropolitan area including, without limitation, the communities of
Centerville, Dayton and Miamisburg. Each Advisory Committee member shall be
paid $400 per month during the 12-month period for service on the Advisory
Committee.
B. 1. It is Fifth Third's intention (but not obligation) to
employ in 5/3 Bank as many of Seller's employees as possible. Seller shall
cause its senior management to recommend to Fifth Third the employees it feels
should be hired by 5/3 Bank. Any hiring decisions are exclusively those of
Fifth Third and 5/3 Bank and shall be made in accordance with Fifth Third's and
5/3 Bank's standard employment criteria. Additional employment opportunities
with Fifth Third may be available at other locations with additional Fifth
Third affiliates. If so, Fifth Third will consider for employment at these
additional locations any other of Seller's employees who are willing to
consider employment at such other locations. Any hiring decisions are
exclusively
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those of Fifth Third and shall be made in accordance with its standard
employment criteria. Seller shall not hire any new employees from the date
hereof until the Closing Date without the prior consent of Fifth Third, which
consent shall not be unreasonably withheld.
2. All Seller employees hired by Fifth Third (or an
affiliate, including 5/3 Bank) shall receive the standard package of Fifth
Third employee benefits which are in place throughout the Fifth Third holding
company system. These benefits include group health and major medical
insurance, group life insurance, pension and profit sharing participation, free
checking and traveler's checks and other customary benefits. Seller's
employees hired by Fifth Third (or an affiliate, including 5/3 Bank) shall be
employed on an at will basis and shall be entitled to participate immediately
following the Closing Date 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 Seller for purposes of determining participation
and vesting in all Fifth Third employee benefit plans (except for vesting in
the Fifth Third Master Retirement Plan and the Fifth Third Master Profit
Sharing Plan) but not for purposes of determining the benefits accrued
thereunder. An employee's entitlement to benefits under such Fifth Third Plans
shall be subject to the Code Section 415 limits thereunder.
3. Any employee of Seller whose employment is terminated
by Seller or Fifth Third in connection with the merger or within six months
after the Closing Date shall be entitled to severance pay equal to one week's
pay for each year of service to Seller up to a maximum of twelve week's pay,
plus applicable COBRA benefits. Employees who leave of their own free will
shall not be entitled to any severance pay. Nothing contained in this
paragraph 3 shall be construed or interpreted to limit or modify in any way
Fifth Third's at will employment policy. Notwithstanding the foregoing, any
person who leaves the employ of Fifth Third due to a material change in his or
her compensation, responsibilities, the location of the facility to which he or
she may be transferred, provided it is in excess of 50 miles from the location
to which such employee had been assigned, or any other material terms and
conditions of his or her employment, within six months after the Closing Date,
shall be entitled to severance pay as though such person's employment had been
terminated in connection with the merger.
4. The employees of Seller retained by Fifth Third after
the Closing Date will be paid salaries by Fifth Third commensurate with the
salary levels of comparable Fifth Third employees, subject, on an ongoing
basis, to acceptable performance.
C. All provisions for indemnification and limitation of liability
now existing in favor of the employees, agents, directors or officers of Seller
as provided by regulation or in its charter or by-laws shall survive the
Effective Time, 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 three years thereafter, or in the case of
matters occurring prior to the Effective Time which have not been resolved
prior to the third anniversary of the Effective Time, until such matters are
finally resolved, except that Fifth Third waives any applicable OTS approval.
Fifth Third shall cause the insurance company that issued its current
directors' and officers' liability insurance policy to issue an endorsement to
such policy providing that all persons who were covered under similar policies
purchased by Seller immediately prior to the Closing Date shall be covered for
a period of three years after the Closing Date under Fifth Third's policy with
respect to acts or failures to act prior to the Closing Date, excluding pending
or threatened
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claims against Seller. In addition, for actions occurring after the Closing
Date, Fifth Third shall provide to the officers and directors of Seller who
remain affiliated in such capacities with Fifth Third or its affiliate after
the Closing Date, the same directors' and officers' liability insurance that is
provided to other directors and officers of Fifth Third and its affiliates.
Fifth Third agrees that all rights to indemnification existing in favor of
officers and directors of Fifth Third affiliates shall be accorded to the
officers and directors of Seller who remain affiliated in those capacities with
Fifth Third or its affiliate after the Closing Date and that such
indemnification will relate to actions or inactions prior to, as well as after,
the Closing Date. To the extent permitted by law, Fifth Third shall advance
expenses in connection with the foregoing indemnification.
D. Fifth Third will not disclose to others and will hold in
confidence any non-public, confidential information disclosed to it by Seller
concerning Seller. Seller 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 Seller or Fifth Third, as the case may
be, and shall not be used by Fifth Third or Seller, as the case may be, in any
way detrimental to Fifth Third or Seller.
E. All notices under this Agreement or under the Agreement of
Merger shall be in writing and shall be delivered in person or mailed by
certified mail, return receipt requested, with postage prepaid and addressed,
if to Seller to Donald L. Koller, President, Mutual Federal Savings Bank of
Miamisburg, A Stock Savings Bank, 120 South Alex Road, Miamisburg, Ohio 45342,
with a copy to Terri Reyering Abare, Esq., Vorys, Sater, Seymour & Pease, 2100
Atrium Two, 221 E. Fourth Street, Cincinnati, Ohio 45202; 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
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 Seller 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,
including, without limitation, that certain proposal letter from Fifth Third to
Seller dated April 22, 1994. 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, Seller shall
not, and shall not permit its representatives to, directly or indirectly,
subject to the exercise by the Directors of Seller 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 Seller is not
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 Seller (any such transaction being referred to
herein as an "Acquisition Transaction").
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Subject to the exercise by the Directors of Seller of their fiduciary duties,
Seller shall promptly 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 Seller 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. Effective on the Closing Date, but executed in advance of the
Closing Date, Seller shall deliver to Midwest Payment Systems, Inc. ("MPS") an
agreement to convert all electronic funds transfer ("EFT") related services and
the Jeanie system to MPS, which conversion shall be accomplished on or
immediately following the Closing Date. Such agreement shall state that it
shall terminate in the event there is no Closing. After the date hereof, at
Fifth Third's direction, Seller shall notify any and all vendors currently
providing such services of such conversion. Seller shall fully cooperate with
Fifth Third in the preparation for such conversion.
J. Effective on the Closing Date, but executed in advance of the
Closing Date, Seller shall deliver an agreement with Fifth Third or an
affiliate of Fifth Third which will provide for the transfer to any such entity
of the performance of any and all data processing services including, without
limitation, item processing and application processing, which services by any
such entity will begin on or immediately following the Closing Date. Such
agreement shall state that it shall terminate in the event there is no Closing.
After the date hereof, at Fifth Third's direction, Seller shall notify any and
all vendors currently providing such services of such transfer. Seller shall
fully cooperate with Fifth Third in the preparation for such transfer. In the
event that Fifth Third determines that a third party should provide such
services to Seller, Seller agrees to have such services provided after the
Closing Date by the third party recommended for such purpose by Fifth Third.
K. Fifth Third and Seller 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 Seller
agrees to cooperate with Fifth Third and Fifth Third agrees to cooperate with
Seller in all reasonable respects in securing such approvals.
L. Fifth Third and Seller 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
necessary.
M. 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,
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including, without limitation, fees, costs and expenses of its own financial
consultants, investment bankers, accountants and counsel.
N. 1. Between the date hereof and the Closing Date, Seller
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.
2. Between the date hereof and the Closing Date, Fifth
Third shall promptly advise Seller 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.
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 Seller or by Seller to Fifth Third in the following instances:
1. By Fifth Third or Seller, 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 herein and such
misrepresentation, breach or failure to comply has not been cured (if capable
of cure) within ten (10) days of notice, provided, the party in default shall
have no right to terminate for its own default.
2. By Fifth Third or Seller, if the business or assets
or financial condition of the other party shall have materially and adversely
changed from that in existence at December 31, 1993, except for events relating
to the business environment in general.
3. By Fifth Third or Seller, if the merger transaction
contemplated herein has not been consummated by February 28, 1995, 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.
B. If Seller's shareholders, 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 Paragraph D of
Section VII hereof, shall be void and of no further force or effect, and
neither party hereto not in material breach or default of its representations,
warranties and covenants hereunder 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.
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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 10:30
A.M. at the offices of Fifth Third in Cincinnati, Ohio on a date mutually
acceptable to Fifth Third and Seller. Pursuant to the filing of a
certificate/articles of merger (which shall be acceptable to Seller and Fifth
Third) with the Secretary of State of Ohio, the filing of articles of
combination with the OTS and any other filings required to be made with any
other federal agency 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 the Closing Date (the "Effective
Time").
X. Amendment
---------
This Agreement may be amended, modified or supplemented by the written
agreement of Seller and Fifth Third upon the authorization of each company's
respective Board of Directors and without further approval of Seller's
shareholders, except that no such amendment, modification or supplement may be
effected without Seller shareholder approval if to do so would violate any
applicable provisions of applicable federal 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 State of Ohio. 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,
interest 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 a merger
and the Fifth Third Common Stock shall thereafter continue to be publicly
traded and issuable to Seller's 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.
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IN WITNESS WHEREOF, the parties hereto have executed this Affiliation
Agreement as of the date hereinabove set forth.
FIFTH THIRD BANCORP
(SEAL) By: /S/ George A. Schaefer, Jr.
George A. Schaefer, Jr.
President and Chief Executive Officer
Attest: /S/ Michael K. Keating
Michael K. Keating
Secretary
MUTUAL FEDERAL SAVINGS BANK OF
MIAMISBURG, A STOCK SAVINGS BANK
(SEAL) By: /S/ Donald L. Koller
Donald L. Koller
President and Chief Executive Officer
Attest: /S/ Marjorie A. Brookhart
Marjorie A. Brookhart
Secretary
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ANNEX B
<PAGE> 141
AGREEMENT OF MERGER
OF
MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG,
A STOCK SAVINGS BANK
(A FEDERAL SAVINGS BANK)
INTO
THE FIFTH THIRD BANK
(AN OHIO CORPORATION)
UNDER THE NAME
THE FIFTH THIRD BANK
THIS AGREEMENT OF MERGER (the "Agreement of Merger") dated as of May
9, 1994, between MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG, A STOCK SAVINGS
BANK, Miamisburg, Montgomery County, Ohio, a federal savings bank (hereinafter
called "Seller"), and THE FIFTH THIRD BANK, Cincinnati, Hamilton County, Ohio,
an Ohio corporation (hereinafter sometimes called the "Surviving Corporation"
or "Fifth Third"), Seller and Fifth Third being hereinafter sometimes
collectively called "the Constituent Corporations", and agreed to by FIFTH
THIRD BANCORP, the parent of Fifth Third;
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 Seller merge into
Fifth Third pursuant to this Agreement and the applicable provisions of the
laws of the State of Ohio and the United States;
NOW, THEREFORE, the Constituent Corporations hereby agree each with
the other, in accordance with the applicable provisions of the laws of the
State of Ohio and the United States, that Seller 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 Seller is a Federal savings bank which
exists under the laws of the United States.
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ARTICLE II
THE MERGER
When the Merger shall have been approved by the Office of Thrift
Supervision (the "OTS"), all corporate approvals shall have been obtained, and
this Agreement shall have been filed and recorded along with other necessary
documents in accordance with the laws of the State of Ohio and the United
States, and the Merger becomes effective, the separate existence of Seller
shall cease and Seller 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 "The Fifth Third Bank".
ARTICLE III
ARTICLES OF INCORPORATION
The Articles of Incorporation 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 one-year term for which he
was elected, which ends December 31, 1995, 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.
The names and addresses of the Directors of the Surviving Corporation
shall be:
John F. Barrett William J. Keating
9300 Shawnee Run Road 2959 Alpine Terrace
Cincinnati, OH 45243 Cincinnati, OH 45208
Clement L. Buenger James D. Kiggen
1029 Catawba Valley Drive 947 Edwards Road
Cincinnati, OH 45226 Cincinnati, OH
Nolan W. Carson Robert B. Morgan
6755 Five Mile Road 8821 Cheviot Road
Cincinnati, OH 45230 Cincinnati, OH 45239
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Thomas L. Dahl Michael H. Norris
4495 Miami Road 3830 Oregonia Road
Cincinnati, OH 45243 Oregonia, OH 45054
Gerald V. Dirvin Brian H. Rowe
6335 Shawnee Pines Drive 900 Adams Crossing, Ste. 13200
Cincinnati, OH 45243 Cincinnati, OH 45202
Richard T. Farmer George A. Schaefer, Jr.
8525 Fox Cub Lane 3580 Bayard Drive
Cincinnati, OH 45243 Cincinnati, OH 45208
John D. Geary John J. Schiff, Jr.
2789 Starbuck Road 8720 Camargo Road
Wilmington, OH 45177 Cincinnati, OH 45243
Joan R. Herschede Dennis J. Sullivan, Jr.
1144 Edwards Road 415 Bond Place, #11C
Cincinnati, OH 45208 Cincinnati, OH 45206
Joseph H. Head, Jr. Dudley S. Taft
8855 Camargo Club Drive 8000 Spooky Hollow Road
Cincinnati, OH 45243 Cincinnati, OH 45242
William G. Kagler
11263 Snider Road
Cincinnati, OH 45242
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 agent for Seller, one of the Constituent Corporations, is
Donald L. Koller, 120 South Alex Road, Miamisburg, Montgomery County, Ohio
45342.
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ARTICLE VII
MODE OF EFFECTUATING CONVERSION OF SHARES
1. At the time the Merger becomes effective:
(a) All of the 32,000 shares of the Common Stock, $2,200 par
value per share, of Fifth Third 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.
(b) All of the shares of the Common Stock without par value of
Fifth Third Bancorp ("Fifth Third Common Stock") that are issued and
outstanding or held by Fifth Third Bancorp 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. 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 Bancorp, and any securities
outstanding at such time that are convertible into shares of the capital stock
of any class of Fifth Third Bancorp 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 Bancorp to which they are
entitled under the terms of the governing documents.
(c) Each of the shares of the Common Stock, $1.00 par value
per share, of Seller ("Seller 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 that
fraction of a share of Fifth Third Common Stock determined by dividing $30 by
the Applicable Market Value Per Share of Fifth Third Common Stock, expressed in
decimal figures carried to five places. The "Applicable Market Value Per Share
of Fifth Third Common Stock" shall be the average of the per share closing
prices of Fifth Third Common Stock as reported on the NASDAQ National Market
System for the twenty trading days ending on the fifth trading day prior to the
time the Merger becomes effective (the "Valuation Period").
2. At the time the Merger becomes effective, all of the shares of
Seller Common Stock, whether issued or unissued, will be cancelled and
extinguished and the holders of certificates for shares thereof shall cease to
have any rights as shareholders of Seller, except such rights, if any, as they
may be entitled to under the provisions of applicable Federal law 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, into which their Seller 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 Seller Common Stock, upon surrender
of the same duly transmitted to Fifth Third Bancorp (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
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Fifth Third Bancorp), 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 Seller 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 the
Applicable Market Value Per Share of Fifth Third Common Stock. Until so
surrendered, each outstanding certificate that prior to the time the Merger
becomes effective represented shares of Seller 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, dividends or distributions otherwise payable with respect to
shares of Fifth Third Common Stock into which Seller Common Stock shall have
been so converted shall be paid with respect to such shares only when the
certificate or certificates evidencing shares of Seller 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 Bancorp) 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 shall be adjusted so as to give Seller's
shareholders the economic benefit of any stock dividends, distributions or
combinations or subdivisions of Fifth Third Common Stock effected between the
date hereof 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 the United
States. Without limiting the generality of the foregoing, and subject thereto,
at the time the Merger becomes effective: the separate existence of Seller
shall cease; the Surviving Corporation shall possess all assets and property of
every description, and every interest therein, wherever located, of each of the
Constituent Corporations, and the rights, privileges, immunities, powers,
franchises and authority, of a public as well as of a private nature, of the
Surviving Corporation, 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 applicable Federal
law; 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
Seller 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 Seller and otherwise to carry out the purposes of
this Agreement.
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3. At the effective time, Fifth Third, as the Surviving Corporation,
shall assume and maintain the liquidation account established by Seller in
connection with its conversion from mutual to stock form, in accordance with 12
C.F.R. 563b.3(f). The existence of the liquidation account shall not operate
to restrict the use or application of any of the regulatory capital accounts of
Fifth Third, as the Surviving Corporation.
4. At the time the Merger becomes effective, the location of the
home office of the Surviving Corporation shall be Fifth Third Center,
Cincinnati, Ohio 45263 and such Surviving Corporation shall have 291
additional other offices.
5. Upon the consummation of the Merger, all savings accounts of the
Seller shall be and become savings accounts in the Surviving Corporation
without change in their respective contractual terms, maturity or withdrawal
value. Evidence of savings account ownership interest in the Surviving
Corporation shall be provided, if appropriate, by the Surviving Corporation to
each savings account holder of the Seller.
ARTICLE IX
REPRESENTATIONS AND AGREEMENTS OF SURVIVING CORPORATION
1. Fifth Third, the Surviving Corporation, agrees that it may be
served with process in Ohio in any proceeding for the enforcement of any
obligation of Seller, one of the Constituent Corporations, and in any
proceeding for the enforcement of the rights of a dissenting shareholder of
Seller against the Surviving Corporation.
2. Fifth Third, the Surviving Corporation, irrevocably appoints the
Secretary of State of Ohio as its agent to accept service of process in any
such proceeding referred to in paragraph 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 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 Seller, one of the Constituent
Corporations, the amount, if any, to which they shall be entitled under the
provisions of applicable Federal law 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 and the sole shareholder of Fifth
Third both duly have approved this Agreement of Merger. Fifth Third Bancorp
represents and warrants that the Executive Committee of the Board of Directors
of Fifth Third Bancorp 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 Bancorp. Pursuant to
Division (H) of Section 1701.78 of the Ohio Revised Code, the approval of this
Agreement of Merger by the
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Executive Committee of the Board of Directors of Fifth Third Bancorp shall
constitute adoption by Fifth Third Bancorp.
2. Seller, one of the Constituent Corporations, represents and
warrants that the directors of Seller 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 shareholders entitled to vote in respect thereof at
a meeting of shareholders held for such purpose. Notice of such meeting as
required by the provisions of applicable Federal law and the Bylaws of Seller
shall be duly given.
3. Seller, one of the Constituent Corporations, represents and
warrants that this Agreement of Merger is required to be approved by the
affirmative vote of the holders of two-thirds of the issued and outstanding
shares of Seller entitled to vote in respect thereof, in accordance with the
provisions of applicable Federal law and the Federal Stock Charter and Bylaws
of Seller.
4. This Agreement shall be filed and recorded along with a
Certificate/Articles of Merger and the Articles of Combination in accordance
with the requirements of the laws of the State of Ohio and the United States
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 Certificate/Articles of Merger) with the Secretary of State of Ohio and the
OTS. This Agreement shall not be filed with the Secretary of State of Ohio
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
dated May 9, 1994 by and between Seller and Fifth Third Bancorp (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 shareholders of Seller
have 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
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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 Bancorp shall not be deemed an assignment hereunder if Fifth Third
Bancorp is the surviving corporation in a merger and Bancorp Common Stock shall
thereafter continue to be publicly traded and issuable to Seller's 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.
THE FIFTH THIRD BANK
(SEAL) By: /S/ George A. Schaefer, Jr.
George A. Schaefer, Jr.
President and Chief Executive Officer
Attest: /S/ Michael K. Keating
Michael K. Keating
Secretary
MUTUAL FEDERAL SAVINGS BANK OF
MIAMISBURG, A STOCK SAVINGS BANK
(SEAL) By: /S/ Donald L. Koller
Donald L. Koller
President and Chief Executive Officer
Attest: /S/ Marjorie A. Brookhart
Marjorie A. Brookhart
Secretary
B-8
<PAGE> 149
AGREED TO:
FIFTH THIRD BANCORP
By: /S/ George A. Schaefer, Jr.
George A. Schaefer, Jr.
President and Chief Executive Officer
Attest: /S/ Michael K. Keating
Michael K. Keating
Secretary
B-9
<PAGE> 150
ANNEX C
<PAGE> 151
MCDONALD & COMPANY
SECURITIES, INC.
Member New York Stock Exchange
Suite 2100
800 Superior Avenue
Cleveland, Ohio 44114-2603
216-443-2300
May 9, 1994
Board of Directors
Mutual Federal Savings Bank of Miamisburg
120 South Alex Road
Miamisburg, OH 45342
Gentlemen:
You have requested our opinion with respect to the fairness, from a
financial point of view, as of the date hereof, to the holders of common stock,
par value $1.00 per share ("Mutual Federal Common"), of Mutual Federal Savings
Bank of Miamisburg ("Mutual Federal") of the exchange ratio (the "Exchange
Ratio") set forth in Article VII of the Agreement of Merger, dated as of May 9,
1994 (the "Merger Agreement") between Mutual Federal and Fifth Third Bancorp
("Fifth Third"), whereby issued and outstanding shares of Mutual Federal Common
would be exchanged for a specified number of shares of common stock, without
par value ("Fifth Third Common"), of Fifth Third.
The Merger Agreement provides for the merger (the "Merger") of Mutual
Federal with and into Fifth Third, pursuant to which, among other things, at
the effective time of the Merger (as defined in the Merger Agreement)
outstanding shares of Mutual Federal Common will be exchanged for shares of
Fifth Third Common at the Exchange Ratio. The terms and conditions of the
Merger are more fully set forth in the Merger Agreement and the Affiliation
Agreement between Mutual Federal and Fifth Third dated as of May 9, 1994 (the
"Affiliation Agreement").
McDonald & Company Securities, Inc., as part of its investment banking
business, is customarily engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
We have acted as Mutual Federal's financial advisor in connection with, and
have participated in certain of the negotiations leading to, the execution of
the Merger Agreement.
C-1
<PAGE> 152
Board of Directors
May 9, 1994
Page 2
In connection with rendering our opinion set forth herein, we have among
other things:
(i) Reviewed Mutual Federal's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1993, including the audited financial
statements contained therein, and audited financial statements of
Mutual Federal for the fiscal years ended June 30, 1992 and 1991,
as well as Mutual Federal's Quarterly Reports on Form 10-QSB for
the three months ended September 30, 1993, December 31, 1993 and
March 31, 1994;
(ii) Reviewed Fifth Third's Annual Reports to Shareholders and
Annual Reports on Form 10-K for each of the three years in
the three year period ended December 31, 1993 and Fifth
Third's Quarterly Reports on Form 10-Q for each of the three
month periods ended March 31, 1994 and June 30, 1994;
(iii) Reviewed certain other non-public information, primarily
financial in nature, relating to the respective businesses,
earnings, assets and prospects of Mutual Federal and Fifth Third
furnished to us and prepared by Mutual Federal and Fifth Third;
(iv) Participated in meetings and telephone conferences with members
of senior management of Mutual Federal and telephone conferences
with members of senior management of Fifth Third concerning the
financial condition, business, assets, financial forecasts and
prospects of the respective companies, as well as other matters
we believe relevant to our inquiry;
(v) Reviewed certain stock market information for Mutual Federal
Common and Fifth Third Common and compared it with similar
information for certain companies, the securities of which are
publicly traded;
(vi) Compared the results of operations and financial condition of
Mutual Federal with that of certain companies which we deemed to
be relevant for purposes of this opinion;
(vii) Reviewed the financial terms, to the extent publicly available,
of certain acquisition transactions which we deemed to be
relevant for purposes of this opinion;
(viii) Reviewed the Merger Agreement and Affiliation Agreement and their
respective schedules and exhibits and certain related documents;
and
(ix) Performed such other analyses as we have deemed appropriate.
In our review and analysis and in arriving at our opinion, we have assumed
and relied, without independent investigation or verification, upon the
accuracy and completeness of all of the financial and other information
reviewed by us and have relied upon the accuracy and completeness of the
representations and warranties of Mutual Federal and Fifth Third contained in
the Merger Agreement and Affiliation Agreement. We have not conducted a
physical inspection of any of the assets, properties or facilities of either
Mutual Federal or Fifth Third, nor have we made or obtained
C-2
<PAGE> 153
Board of Directors
May 9, 1994
Page 3
or been furnished with any independent evaluation or appraisal of any of such
assets, properties or facilities or any of the liabilities of either Mutual
Federal or Fifth Third. With respect to financial forecasts provided to us by
management of Mutual Federal and Fifth Third, we have assumed that such
forecasts have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of Mutual Federal
and Fifth Third as to the future performance of Mutual Federal and Fifth Third,
as the case may be. We express no view as to such financial forecasts or the
assumptions on which they are based. We have also assumed that all of the
conditions to the Merger and covenants, as set forth in the Merger Agreement
and the Affiliation Agreement, including the tax-free treatment of the Merger
to the holders of Mutual Federal Common, would be satisfied and that the Merger
would be consummated on a timely basis in the manner contemplated by the Merger
Agreement.
We will receive a fee for our services as financial advisor to Mutual
Federal, a significant portion of which is contingent upon closing of the
Merger.
In the ordinary course of our business, we may actively trade securities of
both Mutual Federal and Fifth Third for our own account and for the accounts of
customers and, accordingly, we may at any time hold a long or short position in
such securities.
This opinion is based on economic and market conditions and other
circumstances existing on, and information made available as of, the date
hereof. In addition, our opinion is, in any event, limited to the fairness, as
of the date hereof, from a financial point of view, of the Exchange Ratio and
does not address Mutual Federal's underlying business decision to effect the
Merger or any other terms of the Merger. This opinion does not represent our
opinion as to what the value of Mutual Federal Common or Fifth Third Common may
be at the effective time of the Merger.
This opinion has been prepared solely for the confidential use of the Board
of Directors and senior management of Mutual Federal and will not be
reproduced, summarized, described or referred to or given to any other person
without our prior written consent. Notwithstanding the foregoing, this opinion
may be included in a proxy statement to be mailed to the holders of Mutual
Federal Common in connection with the Merger, provided that this opinion will
be reproduced in such proxy statement in full, and any description of or
reference to us or our actions, or any summary of the opinion in such proxy
statement will be in a form acceptable to us and our counsel.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio pursuant to the Merger Agreement is fair to the
holders of Mutual Federal Common from a financial point of view.
Very truly yours,
McDONALD & COMPANY SECURITIES, INC.
C-3
<PAGE> 154
ANNEX D
<PAGE> 155
12 CFR Section 552.14 DISSENTER AND APPRAISAL RIGHTS.
(a) RIGHT TO DEMAND PAYMENT OF FAIR OR APPRAISED VALUE. Except as
provided in paragraph (b) of this section, any stockholder of a Federal stock
association combining in accordance with Section 552.13 of this part shall have
the right to demand payment of the fair or appraised value of his stock:
Provided, That such stockholder has not voted in favor of the combination and
complies with the provisions of paragraph (c) of this section.
(b) EXCEPTIONS. No stockholder required to accept only qualified
consideration for his or her stock shall have the right under this section to
demand payment of the stock's fair or appraised value, if such stock was listed
on a national securities exchange or quoted on the National Association of
Securities Dealers' Automated Quotation System ("NASDAQ") on the date of the
meeting at which the combination was acted upon or stockholder action is not
required for a combination made pursuant to Section 552.13(h)(2) of this part.
"Qualified consideration" means cash, shares of stock of any association or
corporation which at the effective date of the combination will be listed on a
national securities exchange or quoted on NASDAQ, or any combination of such
shares of stock and cash.
(c) PROCEDURE--(1) NOTICE. Each constituent Federal stock association
shall notify all stockholders entitled to rights under this section, not less
than twenty days prior to the meeting at which the combination agreement is to
be submitted for stockholder approval, of the right to demand payment of
appraised value of shares, and shall include in such notice a copy of this
section. Such written notice shall be mailed to stockholders of record and may
be part of management's proxy solicitation for such meeting.
(2) DEMAND FOR APPRAISAL AND PAYMENT. Each stockholder electing to make a
demand under this section shall deliver to the Federal stock association,
before voting on the combination, a writing identifying himself or herself and
stating his or her intention thereby to demand appraisal of and payment for his
or her shares. Such demand must be in addition to and separate from any proxy
or vote against the combination by the stockholder.
(3) NOTIFICATION OF EFFECTIVE DATE AND WRITTEN OFFER. Within ten days
after the effective date of the combination, the resulting association shall:
(i) Give written notice by mail to stockholders of constituent Federal
stock associations who have complied with the provisions of paragraph (c)(2) of
this section and have not voted in favor of the combination, of the effective
date of the combination;
(ii) Make a written offer to each stockholder to pay for dissenting
shares at a specified price deemed by the resulting association to be the fair
value thereof; and
(iii) Inform them that, within sixty days of such date, the respective
requirements of paragraphs (c)(5) and (c)(6) of this section (set out in the
notice) must be satisfied.
The notice and offer shall be accompanied by a balance sheet and statement of
income of the association the shares of which the dissenting stockholders
holds, for a fiscal year ending not more
D-1
<PAGE> 156
than sixteen months before the date of notice and offer, together with the
latest available interim financial statements.
(4) ACCEPTANCE OF OFFER. If within sixty days of the effective date of
the combination the fair value is agreed upon between the resulting association
and any stockholder who has complied with the provisions of paragraph (c)(2) of
this section, payment therefor shall be made within ninety days of the
effective date of the combination.
(5) PETITION TO BE FILED IF OFFER NOT ACCEPTED. If within sixty days of
the effective date of the combination the resulting association and any
stockholder who has complied with the provisions of paragraph (c)(2) of this
section do not agree as to the fair value, then any such stockholder may file a
petition with the Office, with a copy by registered or certified mail to the
resulting association, demanding a determination of the fair market value of
the stock of all such stockholders. A stockholder entitled to file a petition
under this section who fails to file such petition within sixty days of the
effective date of the combination shall be deemed to have accepted the terms
offered under the combination.
(6) STOCK CERTIFICATES TO BE NOTED. Within sixty days of the effective
date of the combination, each stockholder demanding appraisal and payment under
this section shall submit to the transfer agent his certificates of stock for
notation thereon that an appraisal and payment have been demanded with respect
to such stock and that appraisal proceedings are pending. Any stockholder who
fails to submit his or her stock certificates for such notation shall no longer
be entitled to appraisal rights under this section and shall be deemed to have
accepted the terms offered under the combination.
(7) WITHDRAWAL OF DEMAND. Notwithstanding the foregoing, at any time
within sixty days after the effective date of the combination, any stockholder
shall have the right to withdraw his or her demand for appraisal and to accept
the terms offered upon the combination.
(8) VALUATION AND PAYMENT. The Director shall, as he or she may elect,
either appoint one or more independent persons or direct appropriate staff of
the Office to appraise the shares to determine their fair market value, as of
the effective date of the combination, exclusive of any element of value
arising from the accomplishment or expectation of the combination. Appropriate
staff of the Office shall review and provide an opinion on appraisals prepared
by independent persons as to the suitability of the appraisal methodology and
the adequacy of the analysis and supportive data. The Director after
consideration of the appraisal report and the advice of the appropriate staff
shall, if he or she concurs in the valuation of the shares, direct payment by
the resulting association of the appraised fair market value of the shares,
upon surrender of the certificates representing such stock. Payment shall be
made, together with interest from the effective date of the combination, at a
rate deemed equitable by the Director.
(9) COSTS AND EXPENSES. The costs and expenses of any proceedings under
this section may be apportioned and assessed by the Director as he or she may
deem equitable against all or some of the parties. In making this
determination the Director shall consider whether any party has acted
arbitrarily, vexatiously, or not in good faith in respect to the rights
provided by this section.
(10) VOTING AND DISTRIBUTION. Any stockholder who has demanded
appraisal rights as provided in paragraph (c)(2) of this section shall
thereafter neither be entitled to vote such stock
D-2
<PAGE> 157
for any purpose nor be entitled to the payment of dividends or other
distributions on the stock (except dividends or other distribution payable to,
or a vote to be taken by stockholders of record at a date which is on or prior
to, the effective date of the combination): PROVIDED, That if any stockholder
becomes unentitled to appraisal and payment of appraised value with respect to
such stock and accepts or is deemed to have accepted the terms offered upon the
combination, such stockholder shall thereupon be entitled to vote and receive
the distributions described above.
(11) STATUS. Shares of the resulting association into which shares
of the stockholders demanding appraisal rights would have been converted or
exchanged, had they assented to the combination, shall have the status of
authorized and unissued shares of the resulting association.
D-3
<PAGE> 158
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 contendere 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 that 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 requires a
corporation to pay any expenses, including attorneys' 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 of Incorporation or Code of Regulations of Fifth
Third.
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, nonprofit or for profit, to the full extent
permitted by Ohio law. Fifth Third may indemnify assistant officers, employees
and others by action of the Board of Directors to the extent permitted by Ohio
law.
<PAGE> 159
Fifth Third 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
<TABLE>
<CAPTION>
Page Number in
Sequential
Document Exhibit Numbering System
-------- ------- ----------------
<S> <C> <C>
Affiliation Agreement dated as of May 9, 1994, by and 2
between Fifth Third Bancorp and Mutual Federal Savings
Bank of Miamisburg, A Stock Savings Bank (excluding
exhibits) and Agreement of Merger dated as of May 9,
1994, by and between The Fifth Third Bank and Mutual
Federal Savings Bank of Miamisburg, A Stock Savings Bank
and agreed to by Fifth Third Bancorp (set forth in Annex
A and Annex B to the Proxy Statement and Prospectus
included in this Registration Statement)
Seconded Amended Articles of Incorporation of Fifth Third 3.1 Incorporated by
Bancorp, as amended 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 5
the securities being issued
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 10.3 Incorporated by
for Non-Employee Directors Reference(4)
Fifth Third Bancorp Nonqualified Deferred Compensation 10.4 Incorporated by
Plan 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 Annual Report on Form 10-K for 13.2 Incorporated by
the year ended December 31, 1993 Reference
Fifth Third Bancorp Quarterly Report on Form 10-Q for the 13.3 Incorporated by
quarter ended June 30, 1994 Reference
Fifth Third Bancorp report on Form 8-K dated September 6, 13.4 Incorporated by
1994 Reference
</TABLE>
<PAGE> 160
<TABLE>
<S> <C> <C>
Subsidiaries of Fifth Third Bancorp 21 Incorporated by
Reference(7)
Consent of Deloitte & Touche LLP (with respect to Fifth 23.1
Third Bancorp)
Consent of Crowe, Chizek and Company (with respect to 23.2
Mutual Federal Savings Bank of Miamisburg, A Stock
Savings Bank)
Consent of McDonald & Company Securities, Inc. 23.3
Consent of Dinsmore & Shohl 23.4(8)
A power of attorney where various individuals authorize 24
the signing of their names to any and all amendments to
this Registration Statement and other documents submitted
in connection herewith is contained on the first page of
the signature pages following Part II of this
Registration Statement
Fairness Opinion of McDonald & Company Securities, Inc. 99.1
(set forth in Annex C to the Proxy Statement and
Prospectus included in this Registration Statement)
Form of Proxy Card 99.2
</TABLE>
(1) Filed with the Securities and Exchange Commission as an exhibit to a
Registration Statement on Form S-4, Registration No. 33-63966, which is
effective.
(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, 1993.
(8) The consent of counsel is contained in its opinion.
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
<PAGE> 161
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 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 Securities
Act of 1933 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
Securities Act of 1933 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.
<PAGE> 162
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 September 30, 1994.
FIFTH THIRD BANCORP
/S/ George A. Schaefer, Jr.
By: 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
and execute on behalf of the undersigned 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 connection with any such amendments, as fully to all
intents and purposes as he might or could do in person, and does hereby ratify
and confirm all that said attorney-in-fact 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 Chief September 30, 1994
George A. Schaefer, Jr. Executive Officer
/S/ P. Michael Brumm Senior Vice President September 30, 1994
P. Michael Brumm and Chief Financial
Officer
Directors of the Company:
/S/ John F. Barrett September 30, 1994
John F. Barrett
/S/ Milton C. Boesel, Jr. September 30, 1994
Milton C. Boesel, Jr.
<PAGE> 163
/S/ Clement L. Buenger September 30, 1994
Clement L. Buenger
/S/ Nolan W. Carson September 30, 1994
Nolan W. Carson
/S/ Thomas L. Dahl September 30, 1994
Thomas L. Dahl
/S/ Gerald V. Dirvin September 30, 1994
Gerald V. Dirvin
/S/ Thomas B. Donnell September 30, 1994
Thomas B. Donnell
_________________________________ ____________, 1994
Richard T. Farmer
/S/ John D. Geary September 30, 1994
John D. Geary
/S/ Ivan W. Gorr September 30, 1994
Ivan W. Gorr
/S/ Joseph H. Head, Jr. September 30, 1994
Joseph H. Head, Jr.
/S/ Joan R. Herschede September 30, 1994
Joan R. Herschede
/S/ William G. Kagler September 30, 1994
William G. Kagler
/S/ William J. Keating September 30, 1994
William J. Keating
/S/ James D. Kiggen September 30, 1994
James D. Kiggen
/S/ Robert B. Morgan September 30, 1994
Robert B. Morgan
/S/ Michael H. Norris September 30, 1994
Michael H. Norris
<PAGE> 164
/S/ Brian H. Rowe September 30, 1994
Brian H. Rowe
/S/ George A. Schaefer, Jr. September 30, 1994
George A. Schaefer, Jr.
/S/ John J. Schiff, Jr. September 30, 1994
John J. Schiff, Jr.
/S/ Dennis J. Sullivan, Jr. September 30, 1994
Dennis J. Sullivan, Jr.
______________________ ____________, 1994
Dudley S. Taft
<PAGE> 1
EXHIBIT 5
<PAGE> 2
[Form of Corporate Opinion of Dinsmore & Shohl]
___________, 1995
Mutual Federal Savings Bank of Miamisburg,
A Stock Savings Bank
120 South Alex
Miamisburg, Ohio 45342
Gentlemen:
We have acted as counsel to Fifth Third Bancorp and The Fifth Third Bank in
connection with the transactions provided for in the Affiliation Agreement
dated as of May 9, 1994 ("Affiliation Agreement") by and between Fifth Third
Bancorp ("Fifth Third") and Mutual Federal Savings Bank of Miamisburg, A Stock
Savings Bank ("Mutual Federal") and the Agreement of Merger dated May 9, 1994
by and between The Fifth Third Bank ("5/3 Bank") and Mutual Federal ("Agreement
of Merger") and agreed to by Fifth Third. 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; (c) the Articles of Incorporation of
5/3 Bank; (d) the Code of Regulations of 5/3 Bank; and (e) the record of all
actions taken by the [Executive Committee of the] Board of Directors of Fifth
Third and by the Board of Directors and sole shareholder of 5/3 Bank in
connection with any matters covered by this opinion.
We have made such examination of 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 Ohio. Accordingly, we express no opinion as to the
laws of any state or jurisdiction other than the United States of America and
the State of 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 consummate the transactions provided for in the
Affiliation Agreement and the Agreement of Merger.
2. 5/3 Bank is duly incorporated, validly existing and in good standing
as a banking corporation under the laws of Ohio, has all the requisite
corporate power and authority to conduct the commercial bank business in which
it is engaged and as now conducted by it and has all the requisite power and
authority to consummate the transactions provided for in the Affiliation
Agreement and the Agreement of Merger.
3. The Affiliation Agreement and the Agreement of Merger and the
transactions provided for therein have been duly approved by (i) the 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 and (ii) the
directors and sole shareholder of 5/3 Bank.
4. The Affiliation Agreement and the Agreement of Merger have been duly
executed and delivered by Fifth Third and 5/3 Bank and constitute valid and
binding obligations of Fifth Third and 5/3 Bank enforceable against each of
them in accordance with their respective terms, except to the extent that (i)
enforceability
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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 and (ii) the availability of
certain remedies may be precluded by general principles of equity.
5. 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 holders of the Common Stock of Mutual Federal as a result of the
merger of Mutual Federal with and into 5/3 Bank 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.
6. 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 shareholders of Mutual
Federal 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.
7. The Registration Statement and the proxy statement/prospectus included
therein at the time it became effective complied as to form with the Securities
Act of 1933, as amended, and the rules and regulations thereunder.
8. The execution, delivery and performance of the Affiliation Agreement
and the Agreement of Merger do not violate that certain federal regulation
restricting the acquisition of shares of federal savings associations, as set
forth in 12 C.F.R. Section 563b.3(i). All necessary approvals for the
transaction provided for in the Affiliation Agreement and the Agreement of
Merger have been obtained from the appropriate regulatory authorities.
We participated in the preparation of the Registration Statement and
nothing has come to our attention that would lead us to believe that at the
time the Registration Statement became effective and at the time of the special
meeting of shareholders of Mutual Federal called and held to approve the
Affiliation Agreement and the Agreement of Merger, it contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading. To the best of our
knowledge, it is not necessary as of the date hereof to supplement or amend the
Registration Statement or the proxy statement/prospectus included therein. In
making the statements in this paragraph and in rendering our opinion in
paragraph 7 above, we make no representation as to any financial statements or
other financial data of Fifth Third or Mutual Federal or any subsidiaries or
affiliates of either of them or as to any information concerning Mutual Federal
or any of its subsidiaries or affiliates.
We consent to the filing of this form of opinion as an exhibit to the
Registration Statement filed in connection with the merger.
Very truly yours,
DINSMORE & SHOHL
S. Richard Arnold
SRA/je
Enclosure
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EXHIBIT 8
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________________, 1995
Fifth Third Bancorp
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Mutual Federal Savings Bank of Miamisburg,
A Stock Savings Bank
120 South Alex
Miamisburg, Ohio 45342
Dear Sirs:
As counsel for Fifth Third Bancorp and The Fifth Third Bank, we have been
requested to render our opinion with respect to certain Federal income tax
consequences of the Affiliation Agreement dated May 9, 1994 between Fifth Third
Bancorp ("Fifth Third") and Mutual Federal Savings Bank of Miamisburg, A Stock
Savings Bank ("Mutual Federal") and the Agreement of Merger dated May 9, 1994
between The Fifth Third Bank and Mutual Federal and agreed to by Fifth Third
providing for the merger of Mutual Federal into The Fifth Third Bank.
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 The Fifth Third Bank and
Mutual Federal 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 Mutual Federal with and into The Fifth Third Bank will
constitute a reorganization within the meaning of Sections
368(a)(1)(A) and 368(a)(2)(D) of the Code and, for purposes thereof,
Fifth Third, The Fifth Third Bank and Mutual Federal each will 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 Mutual Federal as a consequence
of the merger;
3. No gain or loss will be recognized by The Fifth Third Bank on the
receipt by The Fifth Third Bank of substantially all the assets of
Mutual Federal and the assumption by The Fifth Third Bank of Mutual
Federal's liabilities;
4. No gain or loss will be recognized by the shareholders of Mutual
Federal who receive solely Fifth Third common stock in exchange for
shares of Mutual Federal common stock pursuant to the
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EXHIBIT 23.1
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INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Fifth Third Bancorp on Form S-4 of the report of Deloitte & Touche 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 Deloitte & Touche LLP under the heading "Experts" in the
Prospectus, which is part of this Registration Statement.
/S/ Deloitte & Touche LLP
September 28, 1994
Cincinnati, Ohio
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EXHIBIT 23.2
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CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
of Fifth Third Bancorp on Form S-4 of our report dated July 29, 1994, on our
audits of the financial statements of Mutual Federal Savings Bank of
Miamisburg, A Stock Savings Bank, as of June 30, 1994 and 1993, and for the
years ended June 30, 1994, 1993 and 1992, which report is included in the
Annual Report on Form 10-KSB of Mutual Federal Savings Bank of Miamisburg, A
Stock Savings Bank. We also consent to the reference made to us under the
caption "Experts."
/S/ Crowe, Chizek and Company
Columbus, Ohio
September 30, 1994
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EXHIBIT 23.3
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CONSENT OF MCDONALD & COMPANY SECURITIES, INC.
We consent to the inclusion in this Registration Statement on Form S-4 of
Fifth Third Bancorp of the form of our opinion set forth as Annex C to the
Proxy Statement and Prospectus, which is part of this Registration Statement,
and to the summarization thereof in the Proxy Statement and Prospectus under
the caption "Opinion of McDonald & Company Securities, Inc."
/S/ McDonald & Company Securities, Inc.
MCDONALD & COMPANY SECURITIES, INC.
CLEVELAND, OHIO
SEPTEMBER 30, 1994
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EXHIBIT 99.2
<PAGE> 2
[Proxy Card]
MUTUAL FEDERAL SAVINGS BANK OF MIAMISBURG, A STOCK SAVINGS BANK
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints ____________________, with full power to
act alone, with full power of substitution, to act as attorney and proxy for
the undersigned to represent me and to vote all shares of capital stock of
Mutual Federal Savings Bank of Miamisburg, A Stock Savings Bank ("Mutual
Federal") which the undersigned is entitled to vote at the Special Meeting of
Shareholders to be held at _________________________
___________________________, on ____________________, 1994 at 10:00 a.m. and at
any and all adjournments thereof, with all the powers the undersigned would
possess if personally present as specified on the reverse hereof.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED FOR THE PROPOSAL TO APPROVE THE AFFILIATION AGREEMENT
AND THE AGREEMENT OF MERGER. IF ANY OTHER BUSINESS IS PRESENTED AT SUCH
MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN THEIR BEST
JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER
BUSINESS TO BE PRESENTED AT THE MEETING.
THE PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
(Continued on reverse side)
<PAGE> 3
The Board of Directors recommends a vote "FOR."
1. Proposal to approve the Affiliation Agreement dated as of May 9, 1994,
between Fifth Third Bancorp and Mutual Federal and the Agreement of Merger
dated as of May 9, 1994, between The Fifth Third Bank and Mutual Federal
(copies of which are annexed to the accompanying Proxy Statement and Prospectus
as Annexes A and B, respectively) pursuant to which Mutual Federal shall merge
with and into The Fifth Third Bank.
FOR AGAINST ABSTAIN
2. Such other matters as may properly come before the meeting and any
adjournment or adjournments thereof, as they in their discretion may determine.
The Board of Directors is not aware of any such matters.
The undersigned acknowledges receipt from Mutual Federal, before the
execution of this Proxy, of notice of the Special Meeting and of the related
Proxy Statement and Prospectus.
Dated , 1994
Signature
Additional signature if held jointly
Please sign exactly as your name or
names appear to the left. When signing
as attorney, executor, administrator,
trustee or guardian, please give your
full title. If shares are held
jointly, each holder should sign.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE PAID ENVELOPE.
