Form S-4 Registration Statement
Table of Contents

As filed with the Securities and Exchange Commission on September 24, 2004

Registration No. 333-            


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   6711   31-0854434

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

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)


Paul L. Reynolds, Esq.

Fifth Third Bancorp

38 Fountain Square Plaza

Cincinnati, Ohio 45263

(513)579-5300

(513)534-6757 (Fax)

(Name, address, including Zip Code and telephone number, including area code, of agent for service)


Copies of Communications to:

Richard G. Schmalzl, Esq.   Robert C. Schwartz, Esq.
Christine E. Oliver, Esq.   Smith, Gambrell & Russell, LLP
Graydon Head & Ritchey LLP   Suite 3100, Promenade II
1900 Fifth Third Center   1230 Peachtree Street, N.E.
511 Walnut Street   Atlanta, Georgia 30309
Cincinnati, Ohio 45202   (404) 815-3500
(513) 621-6464   (404) 815-3509 (Fax)
(513) 651-3836 (Fax)    

Approximate date of commencement of proposed sale of the securities to the public:    As soon as practicable after this registration statement becomes effective and upon the effective time of the merger of First National Bankshares of Florida, Inc. with and into Fifth Third Financial Corporation, a wholly owned subsidiary of the Registrant, pursuant to the agreement described in the enclosed proxy statement/prospectus included in Part I of this registration statement.

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.    ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the registration statement number of the earlier effective registration statement for the same offering.    ¨


CALCULATION OF REGISTRATION FEE


Title of Each Class of

Securities to be Registered

  

Amount to be

Registered(1)

  

Proposed Maximum

Offering Price Per Unit

   

Proposed Maximum

Aggregate Offering Price

    Amount of
Registration Fee

Common Stock, no par value

   38,500,000 shares    $ 24.15 (2)   $ 929,775,000 (2)   $ 117,802.49

(1) Represents the maximum number of shares of Registrant’s common stock that the Registrant expects would be issuable to shareholders of First National Bankshares of Florida, Inc. pursuant to the agreement, including shares issuable upon the exercise of outstanding stock options.
(2) Estimated solely for the purpose of computing the registration fee based upon $24.15, the average of the high and low prices of the common stock, no par value per share, of First National Bankshares of Florida, Inc. as reported on the New York Stock Exchange on September 21, 2004, in accordance with Rule 457(f)(1) of the General Rules and Regulations under the Securities Act of 1933.

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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SUBJECT TO COMPLETION, DATED SEPTEMBER 24, 2004

 


 

PROXY STATEMENT FOR FIRST NATIONAL BANKSHARES OF FLORIDA, INC.

SPECIAL MEETING

 


 

PROSPECTUS OF FIFTH THIRD BANCORP

 


 

First National Bankshares of Florida, Inc. and Fifth Third Bancorp have agreed that Fifth Third will acquire First National in a merger. If the merger is completed, each outstanding share of First National common stock will be exchanged for .5065 of a share of Fifth Third common stock. Cash will be paid in lieu of issuing fractional shares.

 

The merger cannot be completed unless the shareholders of First National approve the agreement and the plan of merger by the affirmative vote of a majority of the voting power of First National outstanding on October     , 2004. First National has scheduled a special meeting for its shareholders to vote on the agreement. The date, time and place of the special meeting are as follows: 5:00 p.m., local time, November 22, 2004, Naples Beach Hotel, 851 Gulf Shore Boulevard North, Naples, Florida 34102.

 

The board of directors of First National believes that the merger is in First National’s and your best interests.

 

Whether or not you plan to attend the special meeting, please take the time to vote by completing and mailing the enclosed proxy card to us. Your vote is very important.

 

First National common stock is traded on the New York Stock Exchange under the symbol “FLB.” Fifth Third common stock is traded on the Nasdaq National Market under the symbol “FITB.”

 


 

For a description of certain significant considerations in connection with the merger and related matters described in this document, see “ Risk Factors” beginning on page 12.

 


 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this document. Any representation to the contrary is a criminal offense.

 


 

The shares of Fifth Third common stock are not savings accounts, deposits or other obligations of any bank or savings association and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

 


 

The information in this document is not complete and may be changed. We may not issue these securities until the registration statement filed with the Securities and Exchange Commission is effective. This document is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 


 

The date of this proxy statement/prospectus is                     , 2004


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ADDITIONAL INFORMATION

 

This document incorporates important business and financial information about Fifth Third and First National from other documents that are not included in or delivered with this document. This information is available to you without charge upon your written or oral request. You can obtain the documents incorporated by reference in this document through the Securities and Exchange Commission website at http://www.sec.gov or by requesting them from Paul L. Reynolds, Secretary, Fifth Third Bancorp, Fifth Third Center, Cincinnati, Ohio 45263 (telephone number: (513) 579-5300), as relates to Fifth Third, and from Garrett S. Richter, Secretary, First National Bankshares of Florida, Inc., 2150 Goodlette Road North, Suite 800, Naples, Florida 34102 (telephone number (239) 262-7600) as relates to First National. In order to ensure timely delivery of the documents, any request should be made by November 15, 2004.


Table of Contents

TABLE OF CONTENTS

 

     Page

QUESTIONS AND ANSWERS ABOUT THE MERGER

   1

SUMMARY

   3

RISK FACTORS

   12

FORWARD-LOOKING STATEMENTS

   15

THE SPECIAL MEETING

   16

Purpose of the Meeting

   16

Voting and Revocability of Proxies

   16

Vote Required

   17

Solicitation of Proxies

   17

PROPOSAL—MERGER OF FIRST NATIONAL INTO FIFTH THIRD FINANCIAL CORPORATION

   18

Structure of the Merger

   18

Corporate Governance

   18

Merger Consideration

   18

No Fractional Shares

   18

Effective Time of the Merger

   18

Exchange of Certificates

   18

Background of the Merger

   19

Recommendation of the First National Board of Directors and Reasons for the Merger

   21

Opinion of First National’s Financial Advisor

   22

Material Federal Income Tax Consequences

   32

Accounting Treatment

   34

Resale of Fifth Third Common Stock by Affiliates

   34

No Dissenters’ or Appraisal Rights

   35

TERMS OF THE AGREEMENT

   36

Representations and Warranties

   36

Conduct Pending Merger

   37

Acquisition Proposals by Third Parties

   39

Conditions to Closing

   40

Termination

   41

Amendment

   42

Termination Fee

   42

Interests of First National’s Directors and Executive Officers in the Merger

   43

Effect on First National’s Employees

   46

FIFTH THIRD BANCORP

   48

Description of Business

   48

Additional Information

   48

FIRST NATIONAL

   49

Description of Business

   49

Additional Information

   49

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

   50

SELECTED HISTORICAL FINANCIAL DATA OF FIFTH THIRD

   59

SELECTED HISTORICAL FINANCIAL DATA OF FIRST NATIONAL

   61

DESCRIPTION OF CAPITAL STOCK AND COMPARATIVE RIGHTS OF SHAREHOLDERS

   63

Voting Rights

   63

Dividends

   64

Preemptive Rights

   65

Rights Upon Liquidation

   65

Constituency Clause

   65

 

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     Page

Indemnification and Personal Liability of Directors and Officers

   66

Shareholders’ Meetings; Quorum

   66

Removal of Directors

   66

Amendment to Charter Documents

   67

Vacancies on the Board of Directors

   68

Subscription, Conversion, Redemption Rights; Stock Nonassessable

   68

Approval of Mergers, Consolidations or Sale of Assets

   68

Change-of-Control Provisions

   68

REGULATION OF FINANCIAL INSTITUTIONS

   73

Holding Company Regulation

   73

Capital Requirements

   74

Ohio Law

   75

Regulation of Depository Institutions

   75

LEGAL AND TAX MATTERS

   76

EXPERTS

   76

WHERE YOU CAN FIND MORE INFORMATION

   77

 

ANNEXES:     
Annex A:    Amended and Restated Agreement and Plan of Merger dated as of September 22, 2004 by and among Fifth Third Bancorp, Fifth Third Financial Corporation and First National Bankshares of Florida, Inc. (excluding exhibits)
Annex B:    Fairness Opinion of SunTrust Robinson Humphrey

 

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QUESTIONS AND ANSWERS ABOUT THE MERGER

 

Q: Why do First National and Fifth Third want to merge?

 

A: The First National board of directors believes that you will benefit by becoming a shareholder of Fifth Third, which has a strong financial performance record. The First National board also believes that you will benefit from the opportunity for potential future appreciation of Fifth Third common stock. Fifth Third wants to better serve its customers in First National’s service areas and to expand Fifth Third’s presence in those markets.

 

Q: What will I receive for my First National shares?

 

A: You will receive .5065 of a share of Fifth Third common stock for each share of First National common stock that you own at the effective time of the merger. Fifth Third will not issue any fractional shares. Instead, you will receive cash in lieu of any fractional share owed to you in an amount equal to such fraction multiplied by the average closing price of Fifth Third common stock for the 10 consecutive trading days ending on the fifth trading day before the effective date of the merger. As of the close of business on October     , 2004, the market value of .5065 of a share of Fifth Third common stock was $            . The market value of the shares of Fifth Third common stock that you will receive in the merger will fluctuate both before and after the merger.

 

Each issued and outstanding share of Fifth Third common stock will remain issued and outstanding and will not be converted or exchanged in the merger.

 

Q: When do you expect the merger to be completed?

 

A: We anticipate completing the merger as soon as possible after the special shareholders’ meeting, assuming the required shareholder approval is obtained. The merger is also subject to the approval of banking regulatory authorities and the satisfaction of other closing conditions.
Q: When and where will the special meeting take place?

 

A: The special meeting will be held at 5:00 p.m., local time, on November 22, 2004 at the Naples Beach Hotel, located at 851 Gulf Shore Boulevard North, Naples, Florida 34102.

 

Q: What do I need to do now?

 

A: After reviewing this document, submit your proxy by executing and returning the enclosed proxy card. By submitting your proxy, you authorize the individuals named in the proxy to represent you and vote your shares at the special meeting in accordance with your instructions. These persons also may vote your shares to adjourn the special meeting from time to time and will be authorized to vote your shares at any adjournments of the meeting. Your proxy vote is important. Whether or not you plan to attend the special meeting, please submit your proxy promptly in the enclosed envelope.

 

Q: How will my shares be voted if I return a blank proxy card?

 

A: If you sign, date and send in your proxy card and do not indicate how you want to vote, your proxies will be counted as a vote in favor of approval of the agreement and plan of merger.

 

Q: What will be the effect if I do not vote and do not return a proxy card or attend the special meeting?

 

A: Your failure to vote will have the same effect as if you voted against the agreement and plan of merger.

 

Q: Can I vote my shares in person?

 

A: Yes, if you own your shares in your own name. You may attend the special meeting and vote your shares in person rather than signing and mailing your proxy card. However, to expedite the voting and tabulation process, we recommend that you sign, date and promptly mail the enclosed proxy card.

 

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Q: Can I change my mind and revoke my proxy?

 

A: Yes, you may revoke your proxy and change your vote at any time before the polls close at the special meeting by:

 

  signing another proxy with a later date;

 

  giving written notice of the revocation of your proxy to the Secretary of First National before the meeting; or

 

  voting in person at the special meeting.

 

Your latest dated proxy or vote will be counted.

 

Q: If my shares are held in “street name” by my broker, will my broker vote my shares for me?

 

A: Your broker will vote your shares only if you instruct your broker on how to vote. Your broker will send you directions on how you can instruct your broker to vote. Your broker cannot vote your shares without instructions from you. Accordingly, if you do not instruct your broker how to vote your shares, your shares will not be voted which will have the same effect as voting against the agreement and plan of merger.

 

Q: Should I send in my stock certificates now?

 

A: No. If the merger is completed, we will send you written instructions for exchanging your stock certificates.

 

Q: Who can answer my questions about the merger?

 

A: If you have more questions about the merger, please contact Kevin C. Hale, President and Chief Operating Officer, or Robert T. Reichert, Vice President and Chief Financial Officer, First National Bankshares of Florida, Inc., 2150 Goodlette Road North, Naples, Florida 34102, (800) 262-7600.

 

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SUMMARY

 

This summary highlights selected information from this document and may not contain all of the information that is important to you. To understand the merger fully and for a more complete description of the legal terms of the merger, you should read carefully this entire document, including the annexes, and the other documents we refer to. For more information about Fifth Third and First National, see “Where You Can Find More Information” (page 77).

The Companies

 

Fifth Third Bancorp

38 Fountain Square Plaza

Cincinnati, Ohio 45263

(513) 579-5300

 

Fifth Third is a registered financial holding company, incorporated under Ohio law, which conducts its principal activities through its banking and non-banking subsidiaries. Fifth Third’s subsidiary depository institutions operate a general banking business from over 1000 offices located throughout Ohio, Indiana, Kentucky, Illinois, Michigan, Florida, Tennessee and West Virginia. As of June 30, 2004 on a consolidated basis, Fifth Third had assets of approximately $95.6 billion, deposits of approximately $57.9 billion and shareholders’ equity of approximately $8.4 billion. Fifth Third common stock is traded on the Nasdaq National Market under the symbol “FITB.”

 

First National Bankshares of Florida, Inc.

2150 Goodlette Road North

Naples, Florida 34102

(800) 262-7600

 

First National is a registered financial holding company headquartered in Naples, Florida. First National provides a broad range of financial services to its customers through its banking, insurance agency and wealth management subsidiaries, which operate 59 full-service financial centers located throughout Southwest and Central Florida. As of June 30, 2004, First National had, on a consolidated basis, assets of approximately $4.1 billion, deposits of approximately $3.0 billion and shareholders’ equity of approximately $358 million. On September 3, 2004, First National completed its acquisition of Southern Community Bancorp which operates 18 full-service financial centers throughout south and central Florida. As of June 30, 2004, Southern Community Bancorp had $1.0 billion in consolidated assets and $877 million in deposits. First National common stock is traded on the New York Stock Exchange under the symbol “FLB.”

 

The Merger

 

Pursuant to the amended and restated agreement and plan of merger among First National, Fifth Third and Fifth Third Financial Corporation dated as of September 22, 2004, at the effective time of the merger, First National will merge with and into Fifth Third Financial Corporation, a wholly owned subsidiary of Fifth Third. Fifth Third will issue shares of its common stock to the existing shareholders of First National in exchange for their shares of First National common stock.

 

First National Shareholders Will Receive Fifth Third Stock in the Merger

 

If the merger is completed, you will have the right to receive .5065 of a share of Fifth Third common stock for each share of First National common stock that you own as of the effective time of the merger. Based on the $             closing price per share of Fifth Third common stock on October     , 2004, the value of .5065 of a share of Fifth Third common stock was $            .

 

The number of shares of Fifth Third common stock you will receive in the merger is subject to adjustments for reorganizations, recapitalizations, stock dividends and similar events before the merger is completed. Such adjustments will not alter the value of the exchange ratio, but the value of the shares of Fifth Third common stock to be issued in the merger will fluctuate from time to time.

 

Each share of Fifth Third common stock issued and outstanding prior to the merger will remain issued and outstanding and will not be converted or exchanged in the merger.

 

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No Fractional Shares will be Issued

 

Fifth Third will not issue any fractional shares. Instead, you will receive cash in lieu of any fractional share of Fifth Third common stock owed to you in an amount equal to such fraction multiplied by the average closing price of Fifth Third common stock for the 10 consecutive trading days ending on the fifth trading day before the date on which the merger occurs.

 

Tax Consequences of the Merger

 

The exchange of shares is expected to be tax-free to you for federal income tax purposes, except for taxes payable on any cash you receive in lieu of fractional shares. The expected material federal income tax consequences of this transaction are set out in greater detail on page 32.

 

Tax matters are very complicated and the tax consequences of the merger to you will depend on the facts of your own situation. You are urged to consult your tax advisor for a full understanding of the tax consequences of the merger to you.

 

Reasons for the Merger

 

The First National board believes that the terms of the agreement and plan of merger are fair to, and that the merger is in the best interests of, First National and its shareholders. In reaching its decision, the First National board considered the following factors, among others:

 

  the belief of the First National board that Fifth Third has offered a fair price to First National shareholders for their common stock and that the First National common stock would be exchanged on a tax-free basis (except with respect to cash received in lieu of fractional shares);

 

  the liquidity and dividend history of Fifth Third common stock;

 

  the potential benefits to be received by First National’s customers from the merger; and

 

  an evaluation of the long-term prospects of Fifth Third.

 

The First National board of directors believes that the financial services industry, including banking, is becoming increasingly competitive, and that the merger will enable First National’s customers to be better served and will provide First National’s shareholders with substantial benefits.

 

You can find a more detailed discussion of the background to the agreement and plan of merger and First National’s and Fifth Third’s reasons for the merger in this document under “Proposal—Merger of First National into Fifth Third Financial Corporation- Background of the Merger” beginning on page 19 and “—Recommendation of the First National Board of Directors and Reasons for the Merger” beginning on page 21.

 

Opinion of Financial Advisor

 

The First National board of directors has received the opinion of its financial advisor, SunTrust Robinson Humphrey that, as of August 1, 2004, the date that Fifth Third and First National first entered into the agreement and plan of merger, the merger consideration was fair to the holders of First National common stock from a financial point of view. We have attached a copy of this opinion to this document as Annex B. You should read this opinion completely to understand the assumptions made, matters considered and limitations of the review undertaken by SunTrust Robinson Humphrey in providing its opinion.

 

Recommendation to First National Shareholders

 

The First National board recommends that you vote FOR approval of the agreement and plan of merger.

 

The Special Meeting

 

A special meeting of the First National shareholders will be held at 5:00 p.m., local time, on November 22, 2004 at the Naples Beach Hotel located at 851 Gulf Shore Boulevard North, Naples, Florida 34102. Holders of First National common stock outstanding as of the close of business on October     , 2004 are entitled to vote at the special meeting and will be asked to consider and vote upon:

 

  approval of the agreement and plan of merger; and

 

  any other matters as are properly presented at the special meeting.

 

 

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As of the date of this document, the First National board does not know of any other matters that will be presented at the special meeting.

 

Votes Required

 

At the special meeting, the agreement and plan of merger must be approved by the affirmative vote of holders of a majority of the shares of First National outstanding at the close of business on October     , 2004.

 

Approval of the agreement and plan of merger will also authorize the First National board to exercise its discretion on whether to proceed with the merger in the event First National has the right to terminate the agreement and plan of merger. This determination may be made without notice to, or the resolicitation of proxies from, the First National shareholders.

 

Share Ownership of First National’s Management and Directors

 

On October     , 2004, the record date for the special meeting, directors and executive officers of First National and their affiliates were entitled to vote                      shares of First National common stock, or         % of the First National shares outstanding on that date.

 

Ownership of Fifth Third Following the Merger

 

Based on the number of shares of Fifth Third common stock and First National common stock and options to purchase First National common stock outstanding on the record date, Fifth Third would issue approximately 33.4 million shares of its common stock to First National shareholders in the merger. This would constitute approximately 5.6% of the outstanding stock of Fifth Third immediately after the merger.

 

Conditions to the Merger

 

Fifth Third and First National will complete the merger only if certain conditions are satisfied. These conditions include:

 

  approval of the agreement and plan of merger by First National’s shareholders;
  the receipt of certain regulatory approvals under banking laws and the expiration of any waiting periods; and

 

  the receipt by First National and Fifth Third of the opinion of Alston & Bird LLP that the merger will not cause Section 355(e) or (f) of the Internal Revenue Code to apply to the spin-off of First National from F.N.B. Corporation, which Code provisions, if applicable, could result in the spin-off being a taxable transaction to F.N.B. Corporation (and result in a liability to First National under a tax indemnification agreement).

 

Some of the conditions to the merger may be waived by the company entitled to assert the condition.

 

Right to Terminate

 

The boards of directors of Fifth Third and First National may jointly agree in writing to terminate the agreement and plan of merger without completing the merger. In addition, either company can individually terminate the agreement and plan of merger prior to the completion of the merger if:

 

  a governmental authority that must grant a regulatory approval denies approval of the merger (although this termination right is not available to a party whose failure to comply with the agreement and plan or merger resulted in those actions by a governmental authority);

 

  a governmental entity of competent jurisdiction issues a final nonappealable order enjoining or otherwise prohibiting the merger;

 

  the merger is not completed by July 31, 2005 (although this termination right is not available to a party whose failure to comply with the agreement and plan of merger resulted in the failure to complete the merger by that date);

 

  the other party is in breach of its representations, warranties, covenants or agreements set forth in the agreement and plan of merger and the breach rises to a level that would excuse the terminating party’s obligation to complete the merger and is either incurable or is not cured within 30 days;

 

 

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  First National’s shareholders do not approve the agreement and plan of merger; or

 

  other conditions to closing the merger have not been satisfied.

 

Fifth Third has the right to terminate the agreement and plan of merger if:

 

  the aggregate amount of First National’s consolidated shareholders’ equity immediately prior to the effective time is less than $550,000,000;

 

  if the board of directors of First National authorizes, recommends, proposes or publicly announces its intention to authorize, recommend or propose an acquisition proposal with any person other than Fifth Third; or

 

  if at any time prior to the effective time the total number of issued and outstanding shares of First National common stock and First National common stock issuable upon the exercise of outstanding options, subscriptions, warrants, calls, rights, commitments or agreements of similar character exceeds 68,500,000 shares and of such number the number of shares issuable upon the exercise of outstanding options, subscriptions, warrants, calls, rights, commitments or agreements of similar character exceeds 7,000,000.

 

First National may terminate the agreement and plan of merger, if its board of directors determines that an alternative acquisition proposal that it has received is superior to the terms of the merger with Fifth Third. See “Terms of the Agreement—Acquisition Proposals by Third Parties” and “—Termination.”

 

Termination Fee

 

First National must pay Fifth Third a termination fee of $50,000,000 on the business day following termination if the agreement and plan of merger is terminated in any of the following circumstances:

 

  by Fifth Third or First National because the First National shareholders did not vote in favor of the merger and, prior to the First National shareholders meeting, First National’s board of directors withdrew its recommendation or refused to recommend to the shareholders that they vote to approve the merger while there was a competing acquisition proposal that had not been withdrawn or rejected by the First National directors;

 

  by Fifth Third because of First National’s failure to call the First National shareholders meeting;

 

  by Fifth Third because of the First National board of directors’ recommendation of, or the announcement of the board’s intention to recommend, any alternative acquisition proposal; or

 

  by First National because of its board of directors’ recommendation to its shareholders to approve a superior acquisition proposal.

 

First National must pay a termination fee of $50,000,000 to Fifth Third within five business days of entering into a definitive agreement for an alternative acquisition or closing such alternative acquisition if, within 12 months of the termination of the agreement and plan of merger, First National completes or enters into an agreement to complete an acquisition with a third party, and (1) the agreement and plan of merger was terminated by either Fifth Third or First National because the First National shareholders did not vote in favor of the merger and, at the time of the shareholders meeting, an alternative acquisition proposal was disclosed and not withdrawn or (2) the agreement and plan of merger was terminated by Fifth Third because of a breach by First National of its covenants, agreements or any of its representations and warranties in the agreement and plan of merger, provided that, at the time of termination, Fifth Third was not in breach of any of its covenants, agreements or any of its representations and warranties in the agreement and plan of merger and, at the time of First National’s breach, either an alternative acquisition proposal had been publicly disclosed or a third party had approached the First National board of directors about an acquisition of First National.

 

The purpose of the termination fees is to encourage the commitment of First National to the merger, and to compensate Fifth Third if First National

 

 

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engages in certain conduct which would make the merger less likely to occur. The effect of the termination fee could be to discourage other companies from seeking to acquire or merge with First National prior to completion of the merger, and could cause First National to reject any acquisition proposal from a third party which does not take into account the termination fee.

 

In the event the agreement and plan of merger is terminated (1) by either party because of the other party’s breach of the agreement and plan of merger, (2) by Fifth Third if the First National board of directors recommends or announces its intentions to recommend an alternative acquisition proposal, (3) by First National if its board of director’s recommends to the shareholders to approve a superior acquisition proposal, or (4) by either Fifth Third or First National if the approval of the shareholders of First National required for completion of the merger has not been obtained under circumstances which trigger the payment of the termination fee by First National, then the non-terminating party shall immediately reimburse the terminating party for its reasonable out-of-pocket expenses relating to the merger in an amount not to exceed $3,000,000.

 

Interests of First National’s Directors and Executive Officers in the Merger

 

When considering the First National board’s recommendation that First National’s shareholders vote to approve the agreement and plan of merger, you should be aware that certain First National directors and executive officers have interests in the merger that are different from, or in addition to, yours.

 

The members of First National’s board of directors knew about and considered these additional interests when they adopted the agreement and plan of merger.

 

Fifth Third Employment Agreements. Pursuant to the terms of the agreement and plan of merger, Fifth Third, at or prior to the effective time of the merger, will enter into three-year employment agreements with Gary L. Tice, First National’s Chairman and Chief Executive Officer, Kevin C. Hale, First National’s President and Chief Operating Officer, Garrett S. Richter, First National’s Executive Vice President and Secretary and Michael Morris, President and Chief Executive Officer of First National Wealth Management Company.

 

It is expected that these agreements will employ Mr. Tice as the Chairman of Fifth Third Bank (Florida), Mr. Hale as the President and Chief Executive Officer of Fifth Third Bank (Florida), Mr. Richter as the Executive Vice President—Business Development of Fifth Third Bank (Florida), and Mr. Morris as the Executive Vice President—Investment Advisors of Fifth Third Bank (Florida). Each of the executives will receive an annual base salary and Messrs. Hale, Richter and Morris will also have the opportunity to earn annual incentive awards and receive grants of long-term incentives in the form of stock appreciation rights or performance units or a combination thereof. Salaries and incentive compensation may be adjusted upward annually in connection with their annual performance evaluations. The Fifth Third employment agreements with Messrs. Tice, Hale, Richter and Morris are not yet finalized and, accordingly, the salary and incentive compensation amounts have not yet been determined.

 

Change of Control Payments. Fifth Third will also enter into an agreement with each of Messrs. Tice, Hale, Richter, Morris, Coghill and Reichert regarding the change of control benefits payable to such executive as a result of the merger under their existing employment agreement and change of control agreement with First National. The agreement to be entered into with each such executive will amend those existing First National employment and change of control agreements in order to provide a definitive statement of the payments and benefits to be provided to the executive under those agreements as so amended. The new agreement with Fifth Third also will provide that the consummation of the merger triggers the obligation to provide those payments and benefits. The aggregate value of the benefits to be received by each such executive has not yet been determined.

 

 

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Officer Non-Compete Agreements. Each of Messrs. Tice, Hale, Richter and Morris will enter into a non-compete agreement with Fifth Third. Each non-compete agreement will provide that the executive will not compete with Fifth Third anywhere in the State of Florida during the term of his employment and for a period of one year thereafter. The agreement will also provide that the executive will not solicit employees or customers from Fifth Third during the term of his employment and for a period of one year thereafter. The consideration for entering into the non-compete agreements has not yet been determined.

 

Excess Parachute Payments. The Fifth Third employment agreements for Messrs. Hale, Richter and Morris and the agreements regarding change of control benefits between Fifth Third and Messrs. Tice, Hale and Richter will provide that in the event any of these individuals receive any payments pursuant to the terms of these agreements with Fifth Third that would be considered an “Excess Parachute Payment” pursuant to Section 280G of the Internal Revenue Code, then Fifth Third shall make additional gross up payments to such executive. The amount of the gross up payment will be equal to the amount of any excise tax payable by such individual under Section 4999 of the Code relating to his change of control or employment agreement payments, after deducting all state and federal income taxes incurred by him, including any taxes imposed upon the gross up payment.

 

Director Non-Compete Notices. Pursuant to the terms of the agreement and plan of merger, prior to the effective time of the merger, each member of the board of directors of First National must deliver to First National a Non-Compete Election Notice pursuant to the First National Directors Change of Control Agreement in which the director agrees that (1) for a period of 12 months after the merger he will not participate in any manner in an entity that is directly or indirectly in competition with First National or its successors in any county in which First National or any of its subsidiaries are currently conducting business and (2) that for a period of 24 months after the merger he will not solicit or induce any employee, agent or contractor of First National or any of its subsidiaries, in any county in which First National or any of its subsidiaries are currently conducting business, solicit customers of First National or its subsidiaries or solicit any entity to terminate its business relationship with First National or its subsidiaries. Upon receipt of the Non-Compete Election Notice, members of the board of directors who were directors as of the date of the agreement and plan of merger will receive a one-time payment equal to three times the sum of all retainer and meeting fees received by such director during the 12 month period ending on the effective date of the merger.

 

Stock Options and Restricted Stock. As of the effective date of the merger, unvested options to purchase First National common stock may become exercisable and all outstanding awards, options or other rights to purchase or acquire shares of First National common stock under any stock plan, agreement or arrangement, will be automatically converted into options to purchase Fifth Third common stock. In addition, all unvested shares of restricted First National common stock subject to forfeiture under the terms of First National’s restricted stock plan will automatically vest upon consummation of the merger.

 

Indemnification and Liability Insurance. Fifth Third will assume all permissible provisions for indemnification now existing in favor of the directors and officers of First National and its subsidiaries. Fifth Third also will purchase and keep in effect for a three-year period a policy of directors’ and officers’ liability insurance providing coverage for acts or omissions of the type currently covered by First National’s existing directors’ and officers’ liability insurance for acts or omissions occurring at or prior

 

 

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to the merger as long as such coverage is permissible under existing banking laws and may be obtained at no more than 150% of current premium on commercially reasonable terms.

 

Effect on First National’s Employees

 

Employment. Fifth Third will consider employing as many of the employees of First National and its subsidiaries who desire employment within the Fifth Third holding company system as possible, to the extent of available positions and consistent with Fifth Third’s standard staffing levels and personnel policies.

 

Fifth Third Employee Benefit Plans. Fifth Third will provide each of the full-time employees of First National and its subsidiaries who become employees of Fifth Third or its affiliates, as a group, with employee benefit plans that in the aggregate are of comparable value to the benefit plans maintained by Fifth Third for similarly situated employees of Fifth Third. Former First National employees will be given credit for prior service with First National and its subsidiaries (and their predecessor affiliates) for purposes of eligibility, vesting and accrual of benefits.

 

Severance. The agreement provides for the payment of severance amounts to employees of First National who do not have an employment or severance agreement under certain conditions upon termination of employment.

No Dissenters’ or Appraisal Rights

 

First National is a Florida corporation. Under Florida law, shareholders of First National will not have any right to dissent from the merger or obtain payments of the “fair value” of their shares as a result of, or in connection with, the merger. See “Proposal—Merger of First National into Fifth Third Financial Corporation—No Dissenters’ or Appraisal Rights.”

 

Accounting

 

Fifth Third will account for the merger as a purchase. Under the purchase method of accounting, all the assets acquired and liabilities assumed of the acquired company are recorded at their respective fair values, as of the effective date of the transaction. The amount, if any, by which the purchase price paid by Fifth Third exceeds the fair value of the net tangible and identifiable intangible assets acquired by Fifth Third in the transaction is recorded as goodwill. Fifth Third will include the revenues and expenses of First National in its consolidated financial statements from the date of the consummation of the merger.

 

Recent Developments

 

On September 3, 2004, First National completed its acquisition of Southern Community Bancorp, a bank holding company located in Orlando, Florida. Pursuant to the terms of the definitive agreement, First National exchanged 1.5047 shares of its common stock for each share of Southern Community Bancorp common stock in a tax-free merger of Southern Community Bancorp with and into First National.

 

 

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Comparative Market Prices and Dividends

 

Fifth Third common stock is traded on the Nasdaq National Market under the symbol “FITB” and First National common stock is traded on the New York Stock Exchange under the symbol “FLB.” On July 30, 2004, the business day immediately preceding the public announcement of the execution of the agreement setting forth the terms of the merger and on October    , 2004, the most recent practicable date prior to the printing of this document, the closing market prices of Fifth Third common stock and First National common stock and the equivalent price per share of First National common stock giving effect to the merger were as follows:

 

    

July 30,

2004


  

October     ,

2004


Fifth Third Common Stock

   $ 49.36    $             

First National Common Stock

   $ 17.79    $             

Equivalent Price Per Share of First National Common Stock

   $ 25.00    $             

 

The “Equivalent Price Per Share of First National Common Stock” at each specified date in the above table represents the closing price for a share of Fifth Third common stock on that date multiplied by the exchange ratio of .5065, which is the number of shares of Fifth Third common stock that a First National shareholder would receive for each share of First National common stock owned. See “Proposal—Merger of First National into Fifth Third Financial Corporation—Background of the Merger.” You should obtain current market quotations for shares of Fifth Third common stock and First National common stock prior to making any decisions with respect to the merger.

 

The following table sets forth (in per share amounts), for the calendar quarters indicated, the high and low sales prices and the cash dividends declared during each quarterly period.

 

     Fifth Third Common Stock

   First National Common Stock

     High

   Low

   Dividends
Declared


   High

   Low

   Dividends
Declared


2003:

                                         

First Quarter

   $ 62.15    $ 47.05    $ 0.260      N/A      N/A      N/A

Second Quarter

     60.49      47.24      0.290      N/A      N/A      N/A

Third Quarter

     59.44      52.50      0.290      N/A      N/A      N/A

Fourth Quarter

     60.01      55.47      0.290      N/A      N/A      N/A

2004

                                         

First Quarter

   $ 60.00    $ 53.27    $ 0.320    $ 19.47    $ 15.73    $ 0.068

Second Quarter

     57.00      51.13      0.320      19.90      16.45      0.068

Third Quarter

                                         

Fourth Quarter (through October     , 2004)

                                         

 

Comparative Per Share Data

 

The following table sets forth for Fifth Third common stock, First National common stock and Southern Community Bancorp common stock certain historical, pro forma and pro forma equivalent per share financial information. The pro forma and pro forma equivalent per share information gives effect to the merger as if the merger had been effective on the dates presented, in the case of the book value data, and as if the merger had been effective as of January 1, 2003, in the case of the earnings per share and the cash dividends declared per share data. The pro forma data in the tables assume that the merger is accounted for using the purchase method of accounting. The equivalent per share information is presented based on the exchange ratio of .5065 of a share a Fifth Third common stock for each share of First National common stock. See “Proposal—Merger of First National into Fifth Third Financial Corporation—Merger Consideration” for details regarding adjustments to the

 

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exchange ratio. This table should be read in conjunction with the historical and pro forma financial statements, including the notes thereto, of Fifth Third, which information is presented elsewhere in this document and incorporated by reference into this document. See “Where You Can Find More Information” on page 77.

 

The pro forma information, while helpful in illustrating the financial characteristics of the continuation of Fifth Third and First National under one set of assumptions, does not attempt to predict or suggest future results. The pro forma information also does not attempt to show how Fifth Third and First National would actually have performed had the companies been combined throughout these periods.

 

     Fifth Third

   

First

National


 

Southern

Community


 

Equivalent

Shares Basis -
.5065 of a

Share of Fifth

Third
Common
Stock(5)


     Historical

  Pro Forma

    Historical

  Historical

  Pro Forma

     Basic

  Diluted

  Basic

    Diluted

    Basic

  Diluted

  Basic

  Diluted

  Basic

  Diluted

EARNINGS PER SHARE FROM CONTINUING OPERATIONS

                                                                

Twelve Months Ended December 31, 2003:

   $ 2.85   $ 2.81   $ 2.76 (1)   $ 2.72 (2)   $ 0.67   $ 0.66   $ 0.88   $ 0.84   $ 1.40   $ 1.38

Six Months Ended June 30, 2004

   $ 1.56   $ 1.54   $ 1.52 (1)   $ 1.49 (2)   $ 0.45   $ 0.44   $ 0.52   $ 0.48   $ 0.77   $ 0.75

CASH DIVIDENDS

DECLARED PER SHARE

                                                                

Twelve Months Ended December 31, 2003:

   $ 1.13         $ 1.13 (3)             —             —           $ 0.57      

Six Months Ended June 30, 2004:

   $ 0.64         $ 0.64 (3)           $ 0.14           —           $ 0.32      

BOOK VALUE PER SHARE

                                                                

At December 31, 2003:

   $ 15.29                         $ 7.64         $ 9.52                  

At June 30, 2004:

   $ 14.97         $ 16.98 (4)           $ 7.54         $ 9.83         $ 8.60      

(1) The pro forma earnings per basic common share from continuing operations is computed by dividing pro forma income from continuing operations by the weighted average pro forma basic common shares of Fifth Third.
(2) The pro forma earnings per diluted common share from continuing operations is computed by dividing the total of pro forma income from continuing operations and the net income effect from dilutive securities by the weighted average pro forma diluted common shares of Fifth Third.
(3) Fifth Third pro forma cash dividends declared per share represent historical cash dividends declared per share by Fifth Third.
(4) The pro forma book value per share is computed by dividing the pro forma total shareholders’ equity of Fifth Third by total pro forma common shares of Fifth Third.
(5) First National equivalent pro forma per share amounts are computed by multiplying the Fifth Third pro forma amounts by the calculated exchange ratio of .5065 respectively.

 

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RISK FACTORS

 

In making your determination as to how to vote on the merger, you should consider the following factors:

 

Risks Relating to the Merger

 

The exchange ratio is fixed and will not be adjusted to reflect any changes in the market price of Fifth Third common stock.

 

You will receive as merger consideration .5065 shares of Fifth Third common stock for each share of First National common stock if the merger is completed. This exchange ratio is fixed and the agreement and plan of merger does not provide for any adjustment to the exchange ratio for changes in the stock price of either First National’s or Fifth Third’s stock. Changes in the price of Fifth Third common stock from the date of the agreement and plan of merger, from the date of this proxy statement/prospectus and from the date of the special meeting will affect the value of the merger consideration that you receive in the merger. Fifth Third’s stock price may increase or decrease before and after the merger due to a variety of factors, including, without limitation, general market and economic conditions, changes in Fifth Third’s businesses, operations and prospects and regulatory considerations. Many of these factors are beyond Fifth Third’s control.

 

The value of First National common stock may vary in the future.

 

If the merger is not completed, the value of First National common stock could increase or decrease in the future. Such value could be either higher or lower than the merger consideration being offered by Fifth Third in the merger.

 

The agreement and plan of merger limits First National’s ability to pursue alternatives to the merger.

 

The agreement and plan of merger contains terms and conditions that make it more difficult for First National to be sold to a party other than Fifth Third. These provisions impose restrictions that prevent First National from seeking another acquisition proposal and that, subject to certain exceptions, limit First National’s ability to discuss, facilitate or commit to competing third-party proposals to acquire all or a significant part of First National. See “Terms of the Agreement—Acquisition Proposals by Third Parties.”

 

Fifth Third required First National to agree to these provisions as a condition to Fifth Third’s willingness to enter into the agreement and plan of merger. These provisions, however, might discourage a third party that might have an interest in acquiring all or a significant part of First National from considering or proposing that acquisition even if it were prepared to pay consideration with a higher per share market price than the current proposed merger consideration, and the termination fee might result in a potential competing acquirer proposing to pay a lower per share price to acquire First National than it might otherwise have proposed to pay.

 

First National’s shareholders will not control Fifth Third’s future operations.

 

First National’s shareholders collectively own 100% of First National and, in the aggregate, have the absolute power to approve or reject any matters requiring the adoption or approval of shareholders under Florida law and First National’s charter. After the merger, First National’s shareholders in the aggregate will hold approximately 5.6% of the outstanding shares of Fifth Third common stock. Accordingly, even if all of the former First National shareholders voted in concert on all matters presented to Fifth Third’s shareholders from time to time, the former First National shareholders will not likely have a significant impact on whether future Fifth Third proposals are approved or rejected.

 

The directors and officers of First National will receive benefits in the merger in addition to the merger consideration received by all other First National shareholders.

 

Certain officers and directors of First National will receive, among other things, severance agreements, employment agreements, change of control payments, accelerated stock option vesting, and lapses of restrictions

 

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on restricted stock in connection with the merger. See “Terms of the Agreement—Interests of Certain Persons in the Merger.” Accordingly, First National’s directors and certain executive officers may have interests in the merger that are different from, or in addition to, yours.

 

The merger could adversely affect the tax consequences of First National’s January 1, 2004 spin-off from F.N.B. Corporation.

 

First National entered into a Tax Disaffiliation Agreement with F.N.B. Corporation in connection with the spin-off of First National from F.N.B. In that agreement, First National agreed to indemnify F.N.B. for all taxes and liabilities incurred as a result of any post-spin-off action or omission by First National contributing to an Internal Revenue Service determination that the spin-off was not tax-free. The Internal Revenue Service might determine that the spin-off was not tax-free, giving rise to First National’s indemnification obligation, if First National is involved in a change in control transaction during the four-year period beginning two years prior to the spin-off date that the Internal Revenue Service determines First National engaged in pursuant to the same plan or series of related transactions as the spin-off. Although Fifth Third and First National will obtain an opinion of Alston & Bird LLP that the merger will not cause Section 355 (e) or (f) of the Internal Revenue Code to apply, which Code provisions, if applicable, could cause the tax-free nature of the spin-off to F.N.B. to be lost, such tax opinion is not binding on the Internal Revenue Service and there can be no assurance that the Internal Revenue Service will not assert a contrary position. If adversely determined by the Internal Revenue Service, Fifth Third, as the surviving corporation in the merger, could be required to indemnify F.N.B. with a substantial payment that could have a material adverse effect on Fifth Third.

 

Shareholders of First National will suffer dilution of their ownership interests if the merger is delayed past August 1, 2005 or if the merger agreement is terminated.

 

If the merger is not completed by August 1, 2005 or if the merger agreement is terminated, then First National is obligated under the terms of its merger agreements with each of Southern Community Bancorp and First Bradenton Bank to issue additional shares of First National common stock to the persons who were shareholders of those entities at the time such entity was acquired by First National. The issuance of such additional shares would dilute the ownership interests of First National shareholders regardless of whether or not the merger is ultimately completed and would have the effect of making such acquisitions more expensive to First National. Although not contemplated at this time, Fifth Third and First National could mutually agree to extend the closing date for the merger to a date later than August 1, 2005, and such extension would not require a new vote of the First National shareholders under the terms of the merger agreement.

 

Post Merger Risks

 

Fifth Third’s future acquisitions will dilute your ownership of Fifth Third and may cause Fifth Third to become more susceptible to adverse economic events.

 

Future business acquisitions could be material to Fifth Third and it may issue additional shares of common stock to pay for those acquisitions, which would dilute your ownership interest. Acquisitions also could require Fifth Third to use substantial cash or other liquid assets or to incur debt. In those events, Fifth Third could become more susceptible to economic downturns and competitive pressures.

 

If Fifth Third does not adjust to rapid changes in the financial services industry, its financial performance may suffer.

 

Fifth Third’s ability to maintain its history of strong financial performance and return on investment to shareholders will depend in part on Fifth Third’s ability to expand its scope of available financial services as needed to meet the needs and demands of its customers. In addition to the challenge of attracting and retaining customers for traditional banking services, Fifth Third’s competitors now include securities dealers, brokers, mortgage bankers, investment advisors and finance and insurance companies who seek to offer one-stop financial

 

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services to their customers that may include services that banks have not been able or allowed to offer to their customers in the past. The increasingly competitive environment is a result primarily of changes in regulation, changes in technology and product delivery systems and the accelerating pace of consolidation among financial service providers.

 

Difficulties in combining the operations of acquired entities with Fifth Third’s own operations may prevent Fifth Third from achieving the expected benefits from its acquisitions.

 

Fifth Third may not be able to achieve fully the strategic objectives and operating efficiencies in all of its acquisitions, including First National. Inherent uncertainties exist in integrating the operations of an acquired company into Fifth Third. In addition, the markets and industries in which Fifth Third operates are highly competitive. Fifth Third also may lose key personnel, either from the acquired entities or from itself, as a result of acquisitions. These factors could contribute to Fifth Third not achieving the expected benefits from its acquisitions within the desired time frames, if at all.

 

Future results of the combined companies may differ materially from the pro forma financial information presented in this document.

 

Future results of the combined company may be materially different from those shown in the pro forma financial statements that only show a combination of our historical results. The pro forma financial information includes certain adjustments and merger related charges which represent management’s estimates based on current information and market conditions. Accordingly, the final adjustments and charges and results of operations may be materially different from the pro forma financial information presented in this document.

 

Future governmental regulation and legislation could limit Fifth Third’s future growth.

 

Fifth Third and its subsidiaries are subject to extensive state and federal regulation, supervision and legislation that govern almost all aspects of the operations of Fifth Third and its subsidiaries. These laws may change from time to time and are primarily intended for the protection of consumers, depositors and the deposit insurance funds. The impact of any changes to these laws may negatively impact Fifth Third’s ability to expand its services and to increase the value of its business. While we cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on Fifth Third, these changes could be materially adverse to Fifth Third’s shareholders.

 

Changes in interest rates could reduce Fifth Third’s income and cash flows.

 

Fifth Third’s income and cash flows depend to a great extent on the difference between the interest rates earned on interest-earning assets such as loans and investment securities, and the interest rates paid on interest-bearing liabilities such as deposits and borrowings. These rates are highly sensitive to many factors which are beyond Fifth Third’s control, including general economic conditions and the policies of various governmental and regulatory agencies, in particular, the Federal Reserve Board. Changes in monetary policy, including changes in interest rates, will influence the origination of loans, the purchase of investments, the generation of deposits and the rates received on loans and investment securities and paid on deposits. Fluctuations in these areas may adversely affect Fifth Third.

 

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FORWARD-LOOKING STATEMENTS

 

This document, including information incorporated by reference into this document, contains or may contain forward-looking statements about Fifth Third, First National and the combined company which we believe are within the meaning of the Private Securities Litigation Reform Act of 1995. This document contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of Fifth Third, including statements preceded by, followed by or that include the words “believes,” “expects,” “anticipates” or similar expressions. These forward-looking statements involve certain risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, those risks discussed above. Further information on other factors which could affect the financial results of Fifth Third after the merger are included in the SEC filings incorporated by reference into this document. See “Where You Can Find More Information” on page 77.

 

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THE SPECIAL MEETING

 

This document and the accompanying proxy card are being furnished to you in connection with the solicitation by the board of directors of First National of proxies to be used at the special meeting to be held at 5:00 p.m., local time, on November 22, 2004 at the Naples Beach Hotel located at 851 Gulf Shore Boulevard North, Naples, Florida 34102, and at any adjournments thereof. This document and the enclosed notice of First National’s special meeting and proxy card are first being sent to you on or about October     , 2004.

 

Purpose of the Meeting

 

The purpose of the special meeting of First National’s shareholders is to vote upon the approval of the agreement and plan of merger relating to the merger of First National with and into Fifth Third Financial Corporation, a wholly owned subsidiary of Fifth Third, and other transactions contemplated thereby. First National’s shareholders also may consider and vote upon such other matters as are properly brought before the special meeting, including a proposal to adjourn the special meeting to permit further solicitation of proxies by the First National board in the event that there are not sufficient votes to approve the agreement at the time of the special meeting. However, no proxy which is voted against the approval of the agreement and plan of merger will be voted in favor of adjournment to solicit further proxies for such proposal. As of the date of this document, the First National board knows of no business that will be presented for consideration at the special meeting, other than matters described in this document.

 

Voting and Revocability of Proxies

 

The First National board of directors has fixed the close of business on October     , 2004 as the record date for shareholders entitled to notice of and to vote at the special meeting. Only holders of record of First National common stock on that record date are entitled to notice of and to vote at the special meeting. Each share of First National common stock you own entitles you to one vote. On the record date,                      shares of First National common stock were outstanding and entitled to vote at the special meeting, held by approximately                      shareholders of record.

 

You may vote at the special meeting using one of the following methods:

 

  You May Vote by Mail. If you properly complete and sign the accompanying proxy card and return it in the enclosed envelope, it will be voted in accordance with your instructions. The enclosed envelope requires no additional postage if mailed in the United States.

 

  You May Vote in Person at the Meeting. If you plan to attend the special meeting and wish to vote in person, we will give you a ballot at the special meeting. However, if your shares are held in the name of your broker, bank or other nominee, you will need to obtain a proxy form from the institution that holds your shares indicating that you were the beneficial owner of First National common stock on October     , 2004, the record date for voting at the special meeting.

 

If you hold shares of First National common stock in “street name,” you must instruct your broker to vote your shares on the proposal to approve the agreement and plan of merger, following the directions provided to you by your broker. Your failure to instruct your broker to vote on the proposal to approve the agreement and plan of merger will be the equivalent of voting against the proposal.

 

Shareholders who execute proxies retain the right to revoke them at any time prior to their exercise. Unless revoked, the shares represented by proxies will be voted at the special meeting and all adjournments thereof. Proxies may be revoked by: (1) written notice to the Corporate Secretary of First National, 2150 Goodlette Road North, Naples, Florida 34102, before the special meeting, (2) filing a later dated proxy prior to a vote being taken on a particular proposal at the special meeting, or (3) attending the special meeting and voting in person.

 

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Proxies solicited by the First National board will be voted in accordance with the directions given on the proxy cards. If you sign and date your proxy card but do not indicate your vote on the proxy card, your proxy will be voted “FOR” approval of the agreement and plan of merger at the special meeting. The proxies confer discretionary authority on the persons named on the proxy cards to vote First National common stock with respect to matters incident to the conduct of the special meeting. If any other business is presented at the special meeting, proxies will be voted in accordance with the discretion of the proxy holders. Proxies marked as abstentions will have the same effect as a vote against the proposal to approve the agreement and plan of merger at the special meeting. If you do not return your proxy card, or vote at the special meeting, it will have the same effect as if you voted against the agreement and plan of merger.

 

Vote Required

 

The affirmative vote of the holders of a majority of the First National common stock outstanding is required to approve the agreement and plan of merger. The First National board of directors recommends that First National shareholders vote “FOR” approval of the agreement and plan of merger.

 

Because approval of the agreement and plan of merger requires the affirmative vote of the holders of a majority of the First National common stock outstanding, abstentions and failures to vote will have the same effect as votes against the proposal. Under National Association of Securities Dealers, Inc. conduct rules, your broker may not vote your shares on the First National proposal to approve the agreement and plan of merger without instructions from you. Without your voting instructions, a broker non-vote will occur. Broker non-votes have the same effect as votes against the proposal.

 

The affirmative vote of the holders of a majority of the shares of First National common stock present and voting on the matter may authorize the adjournment of the special meeting. No proxy that is voted against the proposal to approve the agreement and plan of merger will be voted in favor of adjournment to solicit further proxies for the proposal.

 

As of the record date, approximately                      shares of First National common stock (representing         % of the votes entitled to be cast at the special meeting) were beneficially held by directors and executive officers of First National. Subsidiaries of First National beneficially owned approximately                      shares (representing         % of the shares entitled to vote at the special meeting) of First National common stock in various fiduciary capacities as of the record date, of which those subsidiaries have sole or shared voting power.

 

Solicitation of Proxies

 

First National will pay all the costs of soliciting proxies, except that Fifth Third will share the expenses of printing and mailing this document. First National will reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy materials to the beneficial owners of common stock. In addition to solicitations by mail, directors, officers and employees of First National may solicit proxies personally or by telephone without additional compensation.

 

Do not send in any stock certificates with your proxy card. As soon as practicable after the completion of the merger, the exchange agent will mail transmittal forms with instructions for the surrender of stock certificates for First National common stock to former First National shareholders.

 

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PROPOSAL—MERGER OF FIRST NATIONAL INTO FIFTH THIRD FINANCIAL

CORPORATION

 

The following description summarizes all material terms of the agreement and plan of merger. We urge you to read the agreement and plan of merger, a copy of which is attached as Annex A to this document and is incorporated by reference into this document.

 

Structure of the Merger

 

Upon completion of the merger, First National will merge with and into Fifth Third Financial Corporation, a wholly owned subsidiary of Fifth Third, and First National will cease to exist as a separate entity.

 

Corporate Governance

 

After the merger is completed, the directors and officers of Fifth Third who were in office prior to the effective time of the merger will continue to serve as the directors and officers, respectively, of Fifth Third for the term for which they were elected, subject to Fifth Third’s code of regulations and in accordance with law.

 

Merger Consideration

 

Each share of First National common stock (excluding treasury shares) that is issued and outstanding immediately prior to the effective time of the merger will be canceled and converted, by virtue of the merger and without any further action, into the right to receive .5065 of a share of Fifth Third common stock.

 

This exchange ratio is subject to change if, prior to the effective time of the merger, the outstanding shares of Fifth Third common stock or First National common stock shall have been increased, decreased, changed into or exchanged for a different number or kind of shares or securities as a result of a reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split, or other similar change in capitalization. In this case, an appropriate and proportionate adjustment shall be made to the exchange ratio.

 

No Fractional Shares

 

Only whole shares of Fifth Third common stock will be issued in connection with the merger. In lieu of fractional shares, each holder of First National common stock otherwise entitled to a fractional share of Fifth Third common stock will be paid, without interest, an amount of cash equal to the amount of this fraction multiplied by the average of the closing prices of a share of Fifth Third common stock on the Nasdaq National Market for the 10 consecutive trading days ending on the fifth trading day before the effective time of the merger. No shareholder will be entitled to interest, dividends, voting rights or other rights in respect of any fractional share.

 

Effective Time of the Merger

 

Unless we agree otherwise, the effective time of the merger will occur on a day specified by the parties which is not more than five business days after all conditions contained in the agreement and plan of merger have been met or waived, including the expiration of all applicable regulatory waiting periods. It is anticipated that the effective time of the merger will occur in the first quarter of 2005, although no assurance can be given in this regard. First National and Fifth Third each will have the right, but not the obligation, to terminate the agreement and plan of merger if the merger does not occur on or before July 31, 2005, provided the terminating party is not in material breach or default of any representation, warranty or covenant contained in the agreement and plan of merger on the date of such termination.

 

Exchange of Certificates

 

After the effective time of the merger, you will cease to have any rights as a shareholder of First National, and your sole rights will pertain to the right to receive shares of Fifth Third common stock and cash in lieu of fractional shares, if any, into which your shares of First National common stock will have been converted by virtue of the merger.

 

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Within 15 business days after the effective time of the merger, Fifth Third will send to you a notice and letter of transmittal for use in submitting to Computershare Trust Company of New York, acting as exchange agent, certificates formerly representing shares of First National common stock to be exchanged for certificates representing shares of Fifth Third common stock (and, to the extent applicable, cash in lieu of fractional shares of Fifth Third common stock) which you are entitled to receive as a result of the merger. You will also receive instructions for handling share certificates which have been lost, stolen, destroyed or mislaid. You 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 of the merger until you have surrendered and exchanged your certificates (or, in the case of lost, stolen, destroyed or mislaid share certificates, such documentation as is required by Fifth Third) evidencing ownership of First National common stock. Any dividends payable on Fifth Third common stock after the effective time of the merger will be paid to the exchange agent and, upon receipt of the certificates (or, in the case of lost, stolen, destroyed or mislaid share certificates, such documentation as is required by Fifth Third) representing First National common stock, subject to any applicable escheat or similar laws relating to unclaimed funds, the exchange agent will forward to you (1) certificates representing your shares of Fifth Third common stock, (2) dividends declared thereon subsequent to the effective time of the merger, without interest, and (3) the cash value of any fractional shares, without interest. You should not submit share certificates until you have received written instructions to do so.

 

At the effective time of the merger, the stock transfer books of First National will be closed and no transfer of First National common stock will thereafter be made on First National’s stock transfer books. If a certificate formerly representing First National common stock is presented to First National 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.

 

Background of the Merger

 

First National became an independent public company on January 1, 2004 as a result of a pro rata distribution to shareholders declared by its former parent company, F.N.B. Corporation. One of the principal reasons for the spin-off by F.N.B. of First National was to create an expansion-oriented, growth-driven operation in Florida that would be expected to appeal to growth-oriented investors. First National started with a smaller management team and an environment more ideally suited to focus on a business in a single geographic market, rather than balancing the competing interests of two geographically and operationally distinct businesses as was the case when First National was a part of F.N.B. It was also thought that First National would be better situated to fund the implementation of its business strategy than if it remained part of F.N.B. Corporation. The spin-off of First National was not designed to facilitate the sale of First National, and following the spin-off First National’s board of directors established a policy that First National was not for sale. Accordingly, management of First National, under the direction of the board of directors, continued to pursue a growth strategy and, on March 22, 2004, announced the proposed acquisition of Southern Community Bancorp and on June 30, 2004, announced the proposed acquisition of First Bradenton Bank.

 

During the second quarter of 2004, management of First National became increasingly aware of institutional investors’ and industry analysts’ concern about the company’s capital position and the effect that the lack of tangible capital might have on the company’s ability to execute the growth plan approved by its board of directors. In June 2004, First National’s management, with the assistance of the company’s financial advisors, SunTrust Robinson Humphrey, began evaluating the alternatives of either raising a substantial amount of new equity capital, acquiring a financial institution with excess capital, or combining with a substantially larger strategic partner that could provide additional capital for growth in Florida.

 

In June 2004, a representative of Hovde Financial, LLC approached the company’s Chief Executive Officer, Gary Tice, with a recommendation that First National consider a strategic alliance with Fifth Third. After Mr. Tice declined to discuss this matter with the Hovde representative, the Hovde representative met with senior executives at Fifth Third on June 30, 2004 to discuss the possibility of a business combination of the two

 

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companies. Mark Graf, the Chief Financial Officer of Fifth Third, responded that Hovde had presented some intriguing ideas and indicated that any meeting between Fifth Third and First National should not take place until after the 4th of July weekend. On July 2, Hovde representatives informed Mr. Tice that representatives of Fifth Third would like to meet with him to discuss the possibility of a strategic alliance. Mr. Tice consulted with First National’s lead outside director, Charles Cricks, and with the company’s outside legal counsel, Smith, Gambrell & Russell, LLP, and financial advisors, SunTrust Robinson Humphrey, and determined that meeting to listen to a proposal from Fifth Third would be in the best interest of shareholders.

 

On July 13, 2004, Mr. Tice, George Schaefer, the Chief Executive Officer of Fifth Third, and Mr. Graf met over dinner. Their discussions principally revolved around business cultural issues that the parties believed would be crucial in evaluating whether a strategic alliance would be feasible. The three executives met a second time for breakfast the following morning to further discuss the possibility of a strategic alliance. At this meeting the Fifth Third executives indicated that Fifth Third would be willing to pay up to the equivalent of $25.00 per share for each share of First National’s stock. The meeting ended with Mr. Tice indicating that he would have to carefully evaluate this opportunity with First National’s advisors before responding. Mr. Tice consulted with Mr. Cricks and representatives of SunTrust Robinson Humphrey and Smith, Gambrell & Russell over the next several days. On July 16, Messrs. Tice and Cricks concluded that they should arrange to meet with each member of the company’s board of directors to discuss Fifth Third’s proposal. Meetings among Messrs. Tice and Cricks and the members of the company’s board of directors occurred from July 16 through July 18. While Mr. Tice and the members of the company’s board of directors were meeting and evaluating Fifth Third’s proposal, Mr. Tice authorized SunTrust Robinson Humphrey to negotiate more specific terms of the proposal to affiliate with Fifth Third. Mr. Tice was also negotiating with Fifth Third’s management regarding the structure of the combined company post-merger, responsibility of existing management, and related issues.

 

On Tuesday, July 27, Fifth Third management articulated the final terms of a proposed affiliation, including the exchange ratio and the post-merger management structure and business plan. Also on that day, Mr. Tice summarized these discussions in a telephone conference call with the company’s board of directors and representatives of SunTrust Robinson Humphrey and the company’s legal counsel. The board unanimously agreed to pursue this opportunity, and a special meeting of the board of directors was called for at 4:00 p.m., Sunday, August 1, 2004.

 

From July 27 to August 1, management of the two companies and their respective legal and financial advisors negotiated the terms of the proposed agreement and plan of merger. SunTrust Robinson Humphrey and management of First National also conducted due diligence with respect to Fifth Third and representatives of Fifth Third conducted due diligence of First National at First National’s offices in Naples, Florida.

 

The Fifth Third board of directors approved the agreement and plan of merger during a special meeting held on July 31, 2004.

 

On August 1, 2004, the First National board of directors held a special meeting. Management of First National updated the board on the successful completion of the due diligence review of Fifth Third and the negotiation of a definitive agreement and plan of merger. Representatives of Smith, Gambrell & Russell reviewed the proposed definitive agreement and plan of merger in detail. Representatives of SunTrust Robinson Humphrey reviewed with the board of directors of First National its financial analysis of the merger and delivered its oral opinion, which was subsequently confirmed in writing, that, as of the date of such opinion and based upon and subject to certain matters stated in such opinion, the 0.5065 shares of Fifth Third common stock to be exchanged for each share of First National common stock (other than certain shares specified in the agreement and plan of merger) was fair from a financial point of view to the holders of First National common stock. After lengthy discussion and deliberation, the board of directors approved the agreement and plan of merger, and authorized Mr. Tice to execute the agreement and plan of merger on behalf of First National, and to take such further action as necessary to consummate the merger, subject to the required regulatory and shareholder approvals.

 

Immediately following the conclusion of First National’s board meeting, the parties entered into the agreement and plan of merger.

 

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As of September 22, 2004, the parties entered into an amended and restated agreement and plan of merger to change the legal structure of the acquisition from a merger of First National with and into Fifth Third to a merger of First National with and into Fifth Third Financial Corporation, a wholly owned subsidiary of Fifth Third.

 

Recommendation of the First National Board of Directors and Reasons for the Merger

 

In evaluating and determining to approve the merger agreement, the First National board of directors, with the assistance of SunTrust Robinson Humphrey and outside legal counsel, considered a variety of factors and based their opinion as to the fairness of the transactions contemplated by the merger agreement primarily on the following factors:

 

  The financial terms of the merger, including the value of the consideration offered, the premium to book value paid, the ratio of Fifth Third’s offer price to First National’s earnings and the prices paid in comparable transactions in Florida and the Southeastern United States over the last few years.

 

  The future prospects of First National and possible alternatives to the proposed merger, including the prospects of continuing as an independent institution.

 

  The opinion of SunTrust Robinson Humphrey that the merger consideration is fair, from a financial point of view, to First National’s shareholders.

 

  Information with respect to the financial condition, results of operations, business and prospects of First National and the current industry, economic and market conditions, as well as the risks associated with achieving those prospects.

 

  The non-financial terms and structure of the merger agreement and the proposed merger, in particular, the fact that the merger would qualify as a tax-free reorganization to First National shareholders.

 

  The business and financial condition and earnings prospects of Fifth Third, the potential appreciation of Fifth Third common stock and the competence and experience of Fifth Third management.

 

  The social and economic effects of the merger on First National and its employees, depositors, loan and other customers, creditors and other constituencies of the communities in which First National is located. The First National board considered the number of employees expected to be retained by Fifth Third and the terms of the employee benefits they would receive, the terms of the severance arrangements for employees that are not retained by Fifth Third, and the commitment to customer quality and service that Fifth Third would provide to First National’s customers.

 

Each of the above factors supports, directly or indirectly, the determination of the First National board as to the fairness of the merger agreement and the related merger. This discussion of the information and factors considered by the First National board of directors in making its decision is not intended to be exhaustive, but does include all material factors considered by the First National board of directors. The First National board did not quantify or attempt to assign relative weights to the specific factors considered in reaching its determination; however, the First National board placed special emphasis on the consideration payable in the proposed merger and the receipt of a favorable fairness opinion from its financial advisor. For additional information regarding the fairness opinion, see “—Opinion of First National’s Financial Advisor.”

 

The board of directors of First National recommends that the holders of First National common stock vote “FOR” approval of the agreement and plan of merger and the plan of merger.

 

Fifth Third’s primary reason for entering into the merger is to further a long-range commitment of expanding its banking system to better meet and satisfy the needs of its customers, including those in First National’s service area. Fifth Third’s historic acquisition strategy has generally been to fill in its markets along the interstate highways in Ohio, Kentucky, Illinois, Indiana, Michigan, Tennessee and Florida. These acquisitions are designed to strengthen Fifth Third’s ability to compete in these markets by increasing its presence, consumer access and sales force.

 

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Opinion of First National’s Financial Advisor

 

First National has engaged SunTrust Robinson Humphrey as its financial advisor in connection with the merger. At the August 1, 2004 meeting of the First National board of directors, SunTrust Robinson Humphrey reviewed with the board its financial analysis of the merger and delivered its oral opinion, which was subsequently confirmed in writing, that, as of the date of such opinion and based upon and subject to certain matters set forth in the opinion, the 0.5065 shares of Fifth Third common stock to be exchanged for each share of First National common stock (other than certain shares specified in the agreement and plan of merger) was fair from a financial point of view to the holders of First National common stock.

 

The full text of the opinion of SunTrust Robinson Humphrey, which sets forth the assumptions made, matters considered and limitations on the review undertaken, is attached as Annex B and is incorporated by reference in this proxy statement-prospectus. The summary of the SunTrust Robinson Humphrey opinion below is qualified in its entirety by reference to the full text of the opinion. We urge you to read the opinion carefully and in its entirety.

 

SunTrust Robinson Humphrey’s opinion is directed to the board of directors of First National and relates only to the fairness from a financial point of view of the exchange ratio to the holders of First National common stock. SunTrust Robinson Humphrey’s opinion does not address any other aspect of the merger and does not constitute a recommendation to any shareholder as to how such shareholder should vote at the special meeting. It addresses the aggregate consideration to be received by the holders of First National common stock as a whole, without regard to size of holdings by individual shareholders, and does not address the particular situations of specific shareholders.

 

Material and Information Considered with Respect to the Merger

 

In arriving at its opinion, SunTrust Robinson Humphrey among other things:

 

  reviewed the July 30, 2004 draft of the agreement and plan of merger;

 

  reviewed certain publicly available business and historical financial information and other data relating to the business and financial prospects of First National and Fifth Third, including certain publicly available consensus financial forecasts and estimates relating to First National and Fifth Third that were reviewed and discussed with the management of First National and Fifth Third;

 

  reviewed internal financial and operating information with respect to the business, operations and prospects of First National furnished to SunTrust Robinson Humphrey by First National;

 

  reviewed the reported prices and trading activity of First National’s common stock and Fifth Third’s common stock, and compared those prices and activity with other publicly-traded companies that SunTrust Robinson Humphrey deemed relevant;

 

  compared the historical financial results, present financial condition and stock market data of First National and Fifth Third with those of publicly traded companies that SunTrust Robinson Humphrey deemed relevant;

 

  reviewed historical data relating to percentage premiums paid in acquisitions of publicly traded commercial banking companies since January 1, 2002;

 

  reviewed certain pro forma effects of the merger on Fifth Third’s financial statements and potential benefits of the merger and discussed these items with the management of First National and Fifth Third;

 

  compared the financial terms of the merger with the publicly available financial terms of certain other recent transactions that SunTrust Robinson Humphrey deemed relevant;

 

  conducted discussions with members of the management of First National and Fifth Third concerning their respective businesses, operations, assets, present condition and future prospects; and

 

  undertook such other studies, analyses and investigations, and considered such information, as SunTrust Robinson Humphrey deemed appropriate.

 

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SunTrust Robinson Humphrey assumed and relied upon, without independent verification, the accuracy and completeness of all of the financial and other information discussed with or reviewed by it in arriving at its opinion. With respect to the financial forecasts, estimates, pro forma effects and estimates of synergies and other potential benefits of the merger provided to or discussed with it, SunTrust Robinson Humphrey assumed, at the direction of the management of First National and without independent verification or investigation, that they have been reasonably prepared on bases reflecting the best currently available information, estimates and judgments of the management of First National and Fifth Third and are otherwise reasonable. SunTrust Robinson Humphrey also assumed with the approval of First National that the future financial results referred to in its opinion that were provided to it by First National and Fifth Third will be achieved, and that the synergies and other potential benefits of the merger will be realized, at the times and in the amounts estimated by the management of First National and Fifth Third.

 

In arriving at its opinion, SunTrust Robinson Humphrey did not conduct a physical inspection of the properties and facilities of First National. SunTrust Robinson Humphrey did not review individual credit files nor did it make any independent evaluation or appraisal of any of the assets or liabilities (including any contingent, derivative or off-balance-sheet assets or liabilities) of First National or Fifth Third or any of their respective subsidiaries, and SunTrust Robinson Humphrey was not furnished with any such evaluation or appraisal. SunTrust Robinson Humphrey is not an expert in the evaluation of loan and lease portfolios for purposes of assessing the adequacy of the allowances for losses with respect to such portfolios and, accordingly, SunTrust Robinson Humphrey assumed that First National’s and Fifth Third’s allowances for losses are in the aggregate adequate to cover those losses.

 

The SunTrust Robinson Humphrey opinion is necessarily based upon market, economic and other conditions as they existed on and could be evaluated as of, the date of its opinion. SunTrust Robinson Humphrey’s opinion does not address the relative merits of the merger as compared to other business strategies or transactions that might be available to First National or First National’s underlying business decision to effect the merger. SunTrust Robinson Humphrey was not asked to, nor did it, offer any opinion as to any terms or conditions of the agreement and plan of merger or the form of the merger (other than the exchange ratio). SunTrust Robinson Humphrey was not asked to solicit, nor did it solicit, any indications of interest from any third party with respect to the purchase of all or a part of First National’s business. The financial markets in general and the market for the common stock of First National and Fifth Third, in particular, are subject to volatility, and SunTrust Robinson Humphrey’s opinion did not address potential developments in the financial markets or what the value of Fifth Third common stock will be when issued pursuant to the agreement and plan of merger or the prices at which it will trade or otherwise be transferable at any time.

 

For purposes of its opinion, SunTrust Robinson Humphrey assumed that:

 

  the agreement and plan of merger does not differ in any respect from the draft it examined and that Fifth Third and First National will comply in all material respects with the terms of the agreement and plan of merger and the transaction will be consummated in accordance with its terms without waiver, modification or amendment of any material term, condition or agreement;

 

  the merger will be treated as a tax-free reorganization for federal income tax purposes;

 

  the merger will not adversely affect the tax-free nature or other tax consequences of First National’s spin-off from F.N.B. Corporation completed on January 1, 2004; and

 

  all material governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any adverse effect on First National or Fifth Third or on the expected benefits of the merger.

 

SunTrust Robinson Humphrey relied as to all legal matters relevant to rendering its opinion upon the advice of its counsel. Subsequent developments may affect SunTrust Robinson Humphrey’s opinion and SunTrust Robinson Humphrey does not have any obligation to update or revise its opinion.

 

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In preparing its opinion, SunTrust Robinson Humphrey performed a variety of financial and comparative analyses, a summary of which is described below. The summary is not a complete description of the analyses underlying SunTrust Robinson Humphrey’s opinion or the presentation made to First National’s board, but summarizes the material analyses performed and presented in connection with its opinion. The preparation of a fairness opinion is a complex analytic process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, is not readily susceptible to summary description. Accordingly, SunTrust Robinson Humphrey believes that its analyses must be considered as an integrated whole and that selecting portions of its analyses and factors, without considering all analyses and factors, or focusing on information in tabular format, could create a misleading or incomplete view of the processes underlying such analyses and SunTrust Robinson Humphrey’s opinion.

 

In performing its analyses, SunTrust Robinson Humphrey made numerous assumptions with respect to First National, Fifth Third, industry performance and general business, economic, market and financial conditions, many of which are beyond the control of First National and Fifth Third. The estimates contained in these analyses and the valuation ranges resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by such analyses. In addition, analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty.

 

SunTrust Robinson Humphrey’s opinion and analyses were only one of many factors considered by the First National board of directors in its evaluation of the merger and should not be viewed as determinative of the views of the First National board of directors or management of First National with respect to the merger or the consideration to be received by First National in the merger. The exchange ratio in the merger was determined on the basis of negotiations between First National and Fifth Third. In arriving at its opinion, SunTrust Robinson Humphrey did not attribute any particular weight to any analyses or factors considered by it and did not form an opinion as to whether any individual analysis or factor (positive or negative) supported or failed to support its opinion. Rather, SunTrust Robinson Humphrey arrived at its ultimate opinion based on the results of all analyses undertaken by it and assessed as a whole and believes that the totality of the factors considered and analysis it performed in connection with its opinion operated collectively to support its determination as to the fairness of the exchange ratio from a financial point of view. First National’s decision to enter into the merger was made solely by the First National board of directors and not as a result of a recommendation by SunTrust Robinson Humphrey.

 

The following is a summary of the material financial and comparative analyses presented by SunTrust Robinson Humphrey in connection with its opinion to the First National board of directors. The summary includes information presented in a tabular format. In order to understand fully the financial analyses, these tables must be read together with the accompanying text. The tables alone do not constitute a complete description of the financial analyses.

 

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Analysis of First National

 

Analysis of Selected Publicly-Traded Reference Companies.

 

SunTrust Robinson Humphrey reviewed and compared publicly available financial data, market information and trading multiples for First National with other selected publicly-traded reference companies that SunTrust Robinson Humphrey deemed relevant to First National. These companies consisted of three groups: (i) banks in the United States with between $3 billion and $5 billion in total assets, referred to as the U.S. peers; (ii) banks in the United States that the Towers Perrin Group, a human resources consulting firm engaged from time to time by First National to assist in its analysis of management compensation, had historically used when comparing First National to other publicly traded banks, referred to as the Towers Perrin peers; and (iii) banks and thrifts located in the State of Florida with greater than $1 billion in total assets, referred to as the Florida peers.

 

U.S. Peers

 

1st Source Coporation (SRCE)

Alabama National BanCorporation (ALAB)

AMCORE Financial, Inc. (AMFI)

BancFirst Corporation (BANF)

Community Bank System, Inc. (CBU)

Corus Bankshares, Inc. (CORS)

CVB Financial Corp. (CVBF)

East West Bancorp, Inc. (EWBC)

F.N.B. Corporation (FNB)

First Charter Corporation (FCTR)

First Financial Bancorp. (FFBC)

First Merchants Corporation (FRME)

Gold Banc Corporation (GLDB)

Hancock Holding Company (HBHC)

MB Financial, Inc. (MBFI)

National Penn Bancshares, Inc. (NPBC)

NBT Bancorp, Inc. (NBTB)

S&T Bancorp, Inc. (STBA)

Silicon Valley Banchsares (SIVB)

Sterling Banchsares, Inc. (SBIB)

Upqua Holdings Corporation (UMPQ)

United Community Banks, Inc. (UCBI)

WesBanco, Inc. (WSBC)

Westamerica Bancorporation (WABC)

 

Towers Perrin Peers

 

Alabama National BanCorporation (ALAB)

BancorpSouth, Inc. (BXS)

Capital City Bank Group, Inc. (CCBG)

Community Trust Bancorp, Inc. (CTBI)

First Charter Corporation (FCTR)

Hancock Holding Company (HBHC)

International Bancshares Corporation (IBOC)

Provident Bankshares Corporation (PBKS)

Republic Bancorp, Inc. (RBCAA)

Seacoast Banking Corporation of Florida (SBCF)

Simmons First National Corporation (SFNC)

South Financial Group, Inc. (The) (TSFG)

Southwest Bancorporation of Texas, Inc. (SWBT)

 

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United Community Banks, Inc. (UCBI)

Whitney Holding Corporation (WTNY)

 

Florida Peers

 

BankAtlantic Bancorp, Inc. (BBX)

BankUnited Financial Corporation (BKUNA)

Capital City Bank Group, Inc. (CCBG)

FFLC Bancorp, Inc. (FFLC)

Fidelity Bankshares, Inc. (FFFL)

Harbor Florida Bancshares, Inc. (HARB)

Seacoast Banking Corporation of Florida, Inc. (SBCF)

 

For the selected publicly-traded reference companies, SunTrust Robinson Humphrey analyzed, among other things, stock price as a multiple of projected calendar year 2004 and 2005 earnings per share, book value per share, tangible book value per share and assets to total market capitalization. All multiples were based on closing stock prices as of July 30, 2004. Projected earnings per share for the reference companies were based on First Call consensus estimates. First Call is an information provider that publishes a compilation of estimates of projected financial performance for publicly-traded companies produced by equity research analysts at leading investment banking firms. The following tables set forth the average and median multiples indicated by the market analysis of selected publicly-traded reference companies compared to First National multiples based on its closing stock price on July 30, 2004 of $17.79 per share and multiples based upon the implied merger price per share of $25.00:

 

           U.S. Peers            

    Towers Perrin Peers

    Florida Peers        

       
     FLB

    Average

    Median

    Average

    Median

    Average

    Median

    Merger

 

Calendar 2004E EPS

   19.8 x   17.1 x   16.3 x   16.1 x   16.2 x   18.1 x   17.9 x   27.8 x

Calendar 2005E EPS

   17.6     15.1     14.8     14.2     14.8     16.2     15.9     24.8  

Book Value Per Share

   2.4     2.4     2.2     2.2     2.1     2.3     2.5     2.6  

Tangible Book Value Per Share

   4.8     3.1     2.9     2.8     2.9     2.6     2.8     6.6  

Market Capitalization to:

                                                

Assets

   20.7 %   20.5 %   18.9 %   19.0 %   17.9 %   18.7 %   20.1 %   29.8 %

 

SunTrust Robinson Humphrey noted that none of the companies used in the market analysis of selected publicly-traded companies were identical to First National and that, accordingly, the analysis necessarily involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies reviewed and other factors that would affect the market values of the selected publicly-traded companies.

 

Analysis of Selected Merger and Acquisition Transactions

 

SunTrust Robinson Humphrey reviewed and analyzed the financial terms, to the extent publicly available and deemed relevant by SunTrust Robinson Humphrey, in (i) 19 selected completed and pending mergers and acquisitions involving banks in the State of Florida with total assets over $500 million that were announced between January 1, 1996 and July 30, 2004 and (ii) 27 selected completed and pending mergers and acquisitions involving banks in the United States with total assets between $2 billion and $10 billion that were announced between January 1, 2002 and July 30, 2004.

 

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Florida Transactions

 

Acquiror


  

Target


NationsBank Corp.

   Barnett Banks, Inc.

BB&T Corporation

   Republic Bancshares, Inc.

Mellon Bank Corporation

   United Bankshares, Inc.

Union Planters Corporation

   Republic Banking Corporation of Florida

Union Planters Corporation

   Capital Bancorp

Wachovia Corporation

   Republic Security Financial Corporation

First National Bankshares of Florida, Inc.

   Southern Community Bancorp

Wachovia Corporation

   1st United Bancorp

South Financial Group, Inc. (The)

   Florida Banks, Inc.

SouthTrust Corporation

   American Banks of Florida, Inc.

South Financial Group, Inc. (The)

   CNB Florida Bancshares, Inc.

F.N.B. Corp.

   Charter Banking Corp.

Royal Bank of Canada

   Admiralty Bancorp, Inc.

Union Planters Corporation

   Ready State Bank

Colonial BancGroup, Inc.

   P.C.B Bancorp, Inc.

Huntington Bancshares Incorporated

   Citi-Bancshares, Inc.

South Financial Group, Inc. (The)

   Gulf West Banks, Inc.

Alabama National BanCorporation

   Indian River Banking Company

BankAtlantic Bancorp, Inc.

   Bank of North America Bancorp, Incorporated

 

U.S. Transactions

 

Acquiror


  

Target


Independence Community Bank Corp.

   Staten Island Bancorp, Inc.

BNP Paribas Group

   Community First Bankshares, Inc.

Sovereign Bancorp, Inc.

   Waypoint Financial Corp.

Sovereign Bancorp, Inc.

   Seacoast Financial Services Corporation

Silver Acquisition Corp.

   Gold Banc Corporation, Inc.

North Fork Bancorporation, Inc.

   Trust Company of New Jersey (The)

Associated Banc-Corp

   First Federal Capital Corp

Wells Fargo & Company

   Pacific Northwest Bancorp

PNC Financial Services Group, Inc.

   United National Bancorp

International Bancshares Corporation

   Local Financial Corporation

General Electric Company

   Mill Creek Bank

Banknorth Group, Inc.

   American Financial Holdings, Inc.

BB&T Corporation

   Republic Bancshares, Inc.

Huntington Bancshares Incorporated

   Unizan Financial Corporation

Webster Financial Corporation

   FIRSTFED AMERICA BANCORP, INC.

Hibernia Corporation

   Coastal Bancorp, Inc.

First Niagara Financial Group, Inc.

   Hudson River Bancorp, Inc.

Commercial Capital Bancorp Inc.

   Hawthorne Financial Corporation

New Haven Savings Bank

   Connecticut Bancshares, Inc.

Cathay Bancorp, Inc.

   GBC Bancorp

National City Corporation

   Allegiant Bancorp, Inc.

MAF Bancorp, Inc.

   St. Francis Capital Corporation

Provident Financial Services, Inc.

   First Sentinel Bancorp, Inc.

Partners Trust Financial Group, Inc. (MHC)

   BSB Bancorp, Inc.

Mercantile Bankshares Corp.

   F&M Bancorp

Sky Financial Group Inc.

   Second Bancorp Incorporated

Marshall & Ilsley Corporation

   Mississippi Valley Bancshares, Inc.

 

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For the selected transactions, SunTrust Robinson Humphrey analyzed, among other things, acquisition price as a multiple of latest 12 months earnings per share, book value per share, tangible book value per share, total assets and premium to deposits. All multiples for the selected transactions were based on publicly available information at the time of announcement of the relevant transaction. The following tables set forth the average and median multiples indicated by this analysis compared to multiples based upon the implied merger price per share of $25.00:

 

     Florida Transactions

    U.S. Transactions

     
     Average

    Median

    Average

    Median

    Merger

Deal Value Per Share to:

                            

LTM EPS

   27.25 x   25.00 x   19.86 x   19.44 x   29.76

Book Value Per Share

   2.91     2.96     2.22     2.26     2.64

Tangible Book Value Per Share

   3.15     3.04     2.70     2.68     6.63

Total Deal Value to:

                            

Assets

   24.32 %   23.28 %   18.78 %   18.50 %   29.83

Franchise Premium:

                            

Core Deposits

   25.88 %   25.00 %   21.52 %   22.85 %   32.02

 

SunTrust Robinson Humphrey noted that no transaction considered in the analysis of selected merger and acquisition transactions is identical to the merger and may differ significantly from the merger based on, among other things, the size of the transactions, the structure of the transactions and the dates that the transactions were announced and consummated. All multiples for the selected transactions were based on public information available at the time of announcement of such transaction, without taking into account differing market and other conditions during the period during which the selected transactions occurred.

 

Premiums Paid Analysis

 

SunTrust Robinson Humphrey analyzed the transaction premiums paid in 64 merger and acquisition transactions involving publicly traded banks in the United States announced between January 1, 2002 and July 30, 2004, based on the target company’s stock price one day, one week and four weeks prior to public announcement of the transaction.

 

Acquiror


  

Target


Peoples Holding Company

   Heritage Financial Holding Corporation

Wachovia Corporation

   SouthTrust Corporation

National City Corporation

   Wayne Bancorp, Inc.

Southwest Bancorporation of Texas, Inc.

   Klein Bancshares, Incorporated

SunTrust Banks, Inc.

   National Commerce Financial Corporation

Royal Bank of Scotland Group, Plc

   Charter One Financial, Inc.

BNP Paribas Group

   USDB Bancorp

Central Pacific Financial Corp.

   CB Bancshares, Inc.

Omega Financial Corporation

   Sun Bancorp, Inc.

TierOne Corporation

   United Nebraska Financial Company

First National Bankshares of Florida, Inc.

   Southern Community Bancorp

South Financial Group, Inc. (The)

   Florida Banks, Inc.

BNP Paribas Group

   Community First Bankshares, Inc.

Umpqua Holdings Corporation

   Humboldt Bancorp

Investor Group

   Centennial Bank Holdings, Inc.

Eurobancshares, Inc.

   Bank & Trust of Puerto Rico

Silver Acquisition Corp.

   Gold Banc Corporation, Inc.

National City Corporation

   Provident Financial Group, Inc.

 

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Acquiror


  

Target


Huntington Bancshares Incorporated

   Unizan Financial Corporation

International Bancshares Corporation

   Local Financial Corporation

Regions Financial Corporation

   Union Planters Corporation

South Financial Group, Inc. (The)

   CNB Florida Bancshares, Inc.

J.P. Morgan Chase & Co.

   Bank One Corporation

Sky Financial Group Inc.

   Second Bancorp Incorporated

Colonial BancGroup, Inc.

   P.C.B. Bancorp, Inc.

Partners Trust Financial Group, Inc. (MHC)

   BSB Bancorp, Inc.

Hanmi Financial Corporation

   Pacific Union Bank

North Fork Bancorporation, Inc.

   Trust Company of New Jersey (The)

Susquehanna Bancshares, Inc.

   Patriot Bank Corp.

Banknorth Group, Inc.

   CCBT Financial Companies Inc.

BB&T Corporation

   Republic Bancshares, Inc.

National City Corporation

   Allegiant Bancorp, Inc.

First Place Financial Corp.

   Franklin Bancorp, Inc.

Provident Bankshares Corporation

   Southern Financial Bancorp, Inc.

Bank of America Corporation

   FleetBoston Financial Corporation

Alabama National BanCorporation

   Indian River Banking Company

Pacific Capital Bancorp

   Pacific Crest Capital, Inc.

UnionBanCal Corporation

   Business Bancorp

First Midwest Bancorp, Inc.

   CoVest Bancshares, Inc.

Fulton Financial Corporation

   Resource Bankshares Corporation

PNC Financial Services Group, Inc.

   United National Bancorp

Wells Fargo & Company

   Pacific Northwest Bancorp

South Financial Group, Inc. (The)

   MountainBank Financial Corporation

Cathay Bancorp, Inc.

   GBC Bancorp

United Bankshares, Inc.

   Sequoia Bancshares, Inc.

Mercantile Bankshares Corp.

   F&M Bancorp

KNBT Bancorp Inc.

   First Colonial Group, Inc.

General Electric Company

   Mill Creek Bank

BB&T Corporation

   First Virginia Banks, Inc.

Charter One Financial

   Advance Bancorp Inc.

Fulton Financial Corporation

   Premier Bancorp Inc.

Chittenden Corp.

   Granite State Bankshares, Inc.

M&T Bank Corporation

   Allfirst Financial, Inc.

Royal Bank of Canada

   Admiralty Bancorp, Inc.

UCBH Holdings, Inc.

   Bank of Canton of California

Rabobank Group

   VIB Corp.

Fifth Third Bancorp

   Franklin Financial Corporation

Umpqua Holdings Corp.

   Centennial Bancorp

Marshall & Ilsley Corporation

   Mississippi Valley Bancshares, Inc.

Sky Financial Group Inc.

   Three Rivers Bancorp, Inc.

First Community Bancorp

   First National Bank

Banknorth Group, Inc.

   Bancorp Connecticut, Inc.

South Financial Group, Inc. (The)

   Gulf West Banks, Inc.

Hawthorne Financial Corporation

   First Fidelity Bancorp, Inc.

 

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This analysis indicated the following premiums paid in the selected transactions:

 

     Purchase Price Premium
Prior to Announcement


 
     1 Day

    1 Week

    4 Weeks

 

Median Premium

   19.8 %   21.4 %   24.4 %

 

SunTrust Robinson Humphrey then applied the median multiples resulting from the analysis above to the relevant closing prices of First National’s common stock. This analysis yielded a range of implied equity values per share for First National of between $20.82 and $22.98.

 

Dividend Discount Analysis

 

SunTrust Robinson Humphrey performed a dividend discount analysis based upon projections provided by First National’s management for the fiscal years ending December 31, 2004 through 2008 to estimate the net present equity value per share of First National. SunTrust Robinson Humphrey discounted five years of estimated cash flows for First National, assuming a dividend rate sufficient to maintain a tangible equity capital ratio (defined as tangible equity divided by tangible assets) of 6.00% and using a range of discount rates from 11% to 13%. In order to derive the terminal value of First National’s earnings stream beyond 2008, SunTrust Robinson Humphrey assumed terminal value multiples of fiscal year 2008 earnings per share ranging from 18.0x to 20.0x. The present value of this terminal amount was then calculated based on the range of discount rates mentioned above. These rates and values were chosen to reflect different assumptions regarding the required rates of return of holders or prospective buyers of First National common stock. This analysis yielded a range of stand-alone values for First National common stock of between $14.43 and $17.55 per share, with an average value of $15.95 per share.

 

Contribution Analysis

 

SunTrust Robinson Humphrey reviewed the relative contribution that Fifth Third and First National would be making to the combined business in terms of net interest income, loan loss provision, non-interest income, non-interest expense, net income, total assets, net loans, total deposits, shareholders’ equity and tangible shareholders’ equity. SunTrust Robinson Humphrey analyzed relative contribution based on (i) for income statement items, the latest 12 months results for each company through June 30, 2004 and (ii) for balance sheet items, financial condition on June 30, 2004. The relative contribution of First National to the combined entity’s pro forma combined financial results ranged from a high of 6.1% (based on each company’s total deposits and shareholders’ equity as of June 30, 2004) to a low of 1.5% (based on each company’s loan loss provision for the latest 12 months ending June 30, 2004). First National’s shareholders are expected to receive approximately 5.6% ownership of the combined entity, based on the exchange ratio of 0.5065.

 

Analysis of Fifth Third

 

Analysis of Selected Publicly-Traded Reference Companies

 

SunTrust Robinson Humphrey reviewed and compared publicly available financial data, market information and trading multiples for Fifth Third with other selected publicly-traded reference companies that SunTrust Robinson Humphrey deemed similar to Fifth Third. These companies are:

 

KeyCorp (KEY)

National City Corporation (NCC)

PNC Financial Services Group, Inc. (PNC)

SunTrust Banks, Inc. (STI)

U.S. Bancorp (USB)

Wachovia Corporation (WB)

Wells Fargo & Company (WFC)

 

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For the selected publicly-traded reference companies, SunTrust Robinson Humphrey analyzed, among other things, stock price as a multiple of the latest 12 months earnings per share, projected calendar year 2004 and 2005 earnings per share, book value per share, tangible book value per share and assets as a percentage of total market capitalization. All multiples were based on closing stock prices as of July 30, 2004. Projected earnings per share for the reference companies were based on First Call consensus estimates. The following table sets forth the median multiples indicated by the market analysis of selected publicly-traded reference companies:

 

    

Fifth

Third


    Reference Companies

 
       Average

    Median

 

Market Price to:

                  

LTM EPS

   16.6 x   12.9 x   13.4 x

Calendar 2004E EPS

   15.4     12.3     12.7  

Calendar 2005E EPS

   13.7     11.6     11.7  

Book Value Per Share

   3.3     2.2     2.0  

Tangible Book Value Per Share

   3.8     2.8     2.7  

Market Capitalization to:

                  

Assets

   29.0 %   18.9 %   19.1 %

 

SunTrust Robinson Humphrey noted that none of the companies used in the market analysis of selected publicly-traded companies were identical to Fifth Third and that, accordingly, the analysis necessarily involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies reviewed and other factors that would affect the market values of the selected publicly-traded companies.

 

Dividend Discount Analysis

 

SunTrust Robinson Humphrey performed a dividend discount analysis based upon projections provided by First Call for the fiscal years ending December 31, 2004 and 2005 and based upon net income growth and asset growth of 13% and 8%, respectively, for the fiscal years ending December 31, 2006, 2007 and 2008 to estimate the net present equity value per share of Fifth Third. Net income growth for the years ending December 31, 2006, 2007 and 2008 was based upon consensus five year projected growth estimates for Fifth Third provided by First Call. SunTrust Robinson Humphrey discounted five years of estimated cash flows for Fifth Third, assuming a dividend payout rate of 40% on net income and using a range of discount rates from 10% to 12%. In order to derive the terminal value of Fifth Third’s earnings stream beyond 2008, SunTrust Robinson Humphrey assumed terminal value multiples of fiscal year 2008 earnings per share ranging from 15.0x to 17.0x. The present value of this terminal amount was then calculated based on the range of discount rates mentioned above. These rates and values were chosen to reflect different assumptions regarding the required rates of return of holders or prospective buyers of Fifth Third common stock. This analysis yielded a range of stand-alone values for Fifth Third common stock of between $52.50 and $64.10 per share, with an average value of $58.12 per share. SunTrust Robinson Humphrey noted as part of its analysis that Fifth Third’s closing stock price on July 30, 2004 was $49.36.

 

Other Factors and Analyses

 

SunTrust Robinson Humphrey took into consideration various other factors and analyses, including: historical market prices and trading volumes for each of First National’s and Fifth Third’s common stock; movements in the common stock of selected publicly-traded companies; movements in the S&P Bank Index; and analyses of the costs of equity of each of First National and Fifth Third.

 

Information Regarding SunTrust Robinson Humphrey

 

The First National board of directors selected SunTrust Robinson Humphrey to act as its financial advisor and render a fairness opinion regarding the merger because SunTrust Robinson Humphrey is a nationally

 

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recognized investment banking firm with substantial experience in transactions similar to the merger and because it is familiar with First National, its business and its industry. SunTrust Robinson Humphrey is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, leveraged buyouts, negotiated underwritings, secondary distributions of listed and unlisted securities and private placements.

 

Pursuant to a letter agreement dated July 31, 2004, First National paid SunTrust Robinson Humphrey an opinion fee of $1,500,000 upon the signing of the agreement and plan of merger. In addition, First National has agreed to pay SunTrust Robinson Humphrey a financial advisory fee at closing of the merger equal to 0.75% of the aggregate consideration to be received pursuant to the merger, less amounts previously received. Based on the current market price of Fifth Third common stock as of the date of this document, the additional fee payable to SunTrust Robinson Humphrey under the preceding formula would be $            . In addition, First National has agreed to reimburse SunTrust Robinson Humphrey for its reasonable out-of-pocket expenses and to indemnify SunTrust Robinson Humphrey and certain related persons against certain liabilities arising out of or in conjunction with its rendering of services under its engagement, including certain liabilities under the federal securities laws.

 

In the ordinary course of its business, SunTrust Robinson Humphrey and its affiliates may actively trade in the debt and equity securities of First National and Fifth Third for its own account and the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities. In addition, SunTrust Robinson Humphrey and its affiliates (including SunTrust Banks, Inc.) have other financing and business relationships with First National or Fifth Third in the ordinary course of business. SunTrust Robinson Humphrey and its affiliates (including SunTrust Banks, Inc.) provided certain investment banking and lending services to Southern Community Bancorp from time to time, including having acted as financial advisor in connection with its merger with and into First National, which was completed on September 3, 2004. Completion of the First National/Southern Community merger is a condition to completing the Fifth Third/First National merger.

 

Material Federal Income Tax Consequences

 

The following is a summary of the material anticipated federal income tax consequences of the merger to First National shareholders who hold their stock as a capital asset. The summary is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations thereunder, and published administrative rulings and court decisions in effect as of the date of this registration statement, all of which are subject to change at any time, possibly with retroactive effect.

 

This summary is not a complete description of all of the consequences of the merger and, in particular, may not address federal income tax consideration applicable to shareholders subject to special treatment under federal income tax law. For example, it may not apply to persons who are not U.S. persons for federal income tax purposes, financial institutions, dealers in securities, shareholders who receive their stock in consequence of the exercise of an employee stock option or right or other compensation, and persons who hold First National common stock as part of a hedge, straddle or conversion transaction. In addition, no information is provided herein with respect to the tax consequences of the merger under applicable state, local or foreign laws.

 

First National shareholders are urged to consult with their tax advisors regarding the tax consequences of the merger in their particular circumstances, as well as any tax consequences that may arise under the laws of any state, local or foreign taxing jurisdiction.

 

As a condition to the merger, Fifth Third will receive an opinion of Alston & Bird LLP, tax counsel to Fifth Third, and First National will receive an opinion of Smith, Gambrell & Russell LLP, addressing the federal income tax consequences of the merger. The opinions will be based on factors, assumptions and representations set forth in the opinions, including representations contained in letters and certificates from Fifth Third and First National to be delivered for purposes of the opinions. An opinion of counsel represents only counsel’s best legal

 

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judgment on the matters addressed in the opinion, and has no binding effect or official status of any kind, and no assurance can be given that contrary positions may not be taken by the Internal Revenue Service or a court considering the issues. Neither Fifth Third nor First National has requested or will request a ruling from the Internal Revenue Service with regard to any of the federal income tax consequences of the merger. Accordingly, there can be no assurance that the Internal Revenue Service will not challenge the conclusions reflected in such opinions or that a court will not sustain such challenge.

 

The respective obligations of First National and Fifth Third to consummate the merger are further conditioned upon receipt of the opinion of Alston & Bird LLP, to the effect that the merger will not cause Section 355(e) or (f) of the Internal Revenue Code to apply to the spin-off of First National from F.N.B. Corporation.

 

In the event that either First National or Fifth Third fails to receive such opinions because (a) the material federal income tax consequences to First National shareholders are different from those described above or (b) Sections 355(e) or (f) may be applicable to the spin-off, but First National or Fifth Third determines to waive their respective requirements for the receipt of the tax opinion, First National will resolicit the vote of the First National shareholders prior to proceeding with consummation of the merger.

 

Provided that the merger constitutes a reorganization within the meaning of Section 368(a) of the Internal Revenue Code, for federal income tax purposes:

 

  First National, Fifth Third and Fifth Third Financial will be parties to a reorganization within the meaning of Section 368(b) of the Internal Revenue Code,

 

  No gain or loss will be recognized by holders of First National common stock who exchange their First National common stock for Fifth Third common stock pursuant to the merger (except with respect to any cash received in lieu of a fractional share interest in Fifth Third common stock),

 

  The tax basis of the Fifth Third common stock received (including fractional shares deemed received and redeemed) by holders of First National common stock who exchange their First National common stock for Fifth Third common stock in the merger will be the same as the tax basis of the First National common stock surrendered in exchange for the Fifth Third common stock (reduced by an amount allocable to a fractional share interest in Fifth Third common stock deemed received and redeemed), and

 

  The holding period of the Fifth Third common stock received (including fractional shares deemed received and redeemed) by holders who exchange their First National common stock for Fifth Third common stock in the merger will be the same as the holding period of the First National common stock surrendered in exchange therefor, provided that such First National common stock is held as a capital asset at the effective time.

 

Based upon the current ruling position of the Internal Revenue Service, cash received by a First National shareholder in lieu of a fractional share interest in Fifth Third common stock will be treated as received in redemption of such fractional share interest, and a First National shareholder should generally recognize capital gain or loss for federal income tax purposes measured by the difference between the amount of cash received and the portion of the tax basis of the share of First National common stock allocable to such fractional share interest. Such gain or loss should be a long-term capital gain or loss if the holding period for such share of First National common stock is greater than one year at the effective time. In the case of individual First National shareholders, such capital gain will be taxed at a maximum rate of 15% if such First National shareholder’s holding period is more than one year.

 

Payments in respect of First National common stock may be subject to information reporting to the Internal Revenue Service and to a 28% backup withholding tax. Backup withholding will not apply, however, to a payment to a holder of First National common stock or other payee if such shareholder or payee completes and signs the substitute Form W-9 that will be included as part of the transmittal letter, or otherwise proves to the combined company and the exchange agent that such shareholder or payee is exempt from backup withholding.

 

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Accounting Treatment

 

Fifth Third will account for the merger as a purchase under United States generally accepted accounting principles. Under the purchase method of accounting, all the assets acquired and liabilities assumed of the acquired company are recorded at their respective fair values, as of the effective date of the transaction. The amount, if any, by which the purchase price paid by Fifth Third exceeds the fair value of the net tangible and identifiable intangible assets acquired by Fifth Third in the transaction is recorded as goodwill. After the merger, First National’s assets and liabilities and results of operations will be consolidated with Fifth Third’s assets and liabilities and results of operations.

 

Resale of Fifth Third Common Stock by Affiliates

 

The shares of Fifth Third common stock to be issued to shareholders of First National in connection with the merger have been registered under the Securities Act of 1933 and will be freely transferable under the Securities Act, except for shares issued to any shareholder who may be deemed to be an “affiliate” of First National or Fifth Third at the time of the special meeting. Generally, an affiliate includes a director, an executive officer or a 10% or more shareholder of First National or Fifth Third at the time of the special meeting.

 

Rule 145 under the Securities Act restricts the public sale of Fifth Third common stock received in the merger by affiliates. During the first year following the effective time of the merger, affiliates of First National who do not become affiliates of Fifth Third may publicly resell the Fifth Third common stock received by them in connection with the merger upon compliance with the following conditions of Rule 144:

 

  Fifth Third must have satisfied its reporting requirements under the Exchange Act for the 12 months preceding the proposed sale;

 

  the number of shares sold in any three-month period is limited to the greater of (1) one percent of Fifth Third’s shares outstanding, or (2) the average weekly trading volume during the four calendar weeks preceding the first sale; and

 

  the shares must be sold by a broker in a routine open market transaction that does not involve the solicitation of orders for purchase.

 

Shares of Fifth Third common stock sold by: (1) an affiliate’s spouse or relative living in the affiliate’s household, (2) any trust or estate in which the affiliate or person listed in (1) collectively owns 10% or more of the beneficial interest or of which any of these persons serves as trustee or executor, (3) any corporation in which the affiliate or any person specified in (1) beneficially owns at least 10% of an equity interest, (4) any person to whom the affiliate donated shares, or (5) any person who acquired the shares from the affiliate as a result of the affiliate defaulting on an obligation secured by a pledge of the shares, will be aggregated with the number of shares sold by the affiliate for purposes of determining whether the volume limitations of Rule 144 are exceeded.

 

After the first year following the completion of the merger, affiliates of First National who are not affiliates of Fifth Third may resell their shares publicly without regard to the volume limitation or manner of sale requirement so long as Fifth Third has satisfied its reporting requirements under the Exchange Act during the prior 12 month period. If Fifth Third has not satisfied its reporting requirements, affiliates may not publicly resell their shares of Fifth Third common stock received in the merger until two years have elapsed since completion of the merger. At that time, the shares may be sold without any restriction.

 

Sales and other dispositions of Fifth Third common stock by any affiliate of First National who becomes an affiliate of Fifth Third in connection with the merger, must be made in compliance with the requirements of Rule 144 set forth above until such person has not been an affiliate of Fifth Third for at least three months and a period of at least two years has elapsed since the date the shares were acquired in connection with the merger.

 

Even if the shares are sold, pledged or donated in compliance with Rule 145, the shares will remain subject to Rule 145 in the hands of the recipient until the restrictive period applicable to the affiliate transferor has expired.

 

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The agreement and plan of merger provides that First National will use its best efforts to cause each person who is deemed by First National to be an affiliate (for purposes of Rule 145) of First National to execute and deliver to Fifth Third a written agreement intended to ensure compliance with the Securities Act.

 

Fifth Third has also agreed, subject to certain conditions, to cause the Fifth Third board of directors to adopt a resolution providing that, to the extent that any directors and executive officers of First National who will become affiliates of Fifth Third would be deemed for purposes of Section 16(b) of the Securities Exchange Act of 1934, as amended, to have “acquired” shares and/or options to purchase shares of Fifth Third common stock as a result of the merger, such “acquisitions” are intended to be exempt from liability under Section 16(b) of the Exchange Act. The First National board of directors likewise expects to adopt a resolution providing that, to the extent that any directors and executive officers of First National would be deemed, for purposes of Section 16(b) of the Exchange Act, to have “sold” their First National common stock and options to purchase First National common stock as a result of the merger, such “sales” are intended to be exempt from liability under Section 16(b) of the Exchange Act.

 

No Dissenters’ or Appraisal Rights

 

Shareholders of a corporation that is proposing to merge or consolidate with another entity are sometimes entitled under relevant state laws to appraisal or dissenters’ rights in connection with the proposed transaction depending on the circumstances. These rights generally confer on shareholders who oppose a merger or the consideration to be received in a merger the right to receive, in lieu of the consideration being offered in the merger, the fair value for their shares as determined in a judicial appraisal proceeding.

 

First National shareholders are not entitled to appraisal or dissenters’ rights under Florida law in connection with the merger because the First National common stock was listed on the New York Stock Exchange on the record date for its special meeting of shareholders.

 

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TERMS OF THE AGREEMENT

 

Representations and Warranties

 

Fifth Third and First National have made numerous representations and warranties to each other relating to, among other things, the following:

 

  their incorporation, good standing, corporate power and similar corporate matters;

 

  their capitalization;

 

  their authorization, execution, delivery and performance and the enforceability of the agreement and plan of merger and the absence of violations;

 

  governmental and third party consents necessary to complete the merger;

 

  their financial statements;

 

  the absence of material changes since December 31, 2003;

 

  legal proceedings;

 

  tax matters;

 

  their SEC and other regulatory filings;

 

  compliance with laws and regulations;

 

  derivative transactions;

 

  environmental matters;

 

  tax treatment of the merger;

 

  internal controls; and

 

  compliance with laws and regulations.

 

Fifth Third has made representations and warranties to First National with respect to the validity of the shares of Fifth Third common stock to be issued in connection with the merger. First National also has made representations and warranties to Fifth Third with respect to employee benefits matters, material contracts, intellectual property, the inapplicability of state anti-takeover laws, and its investment advisor subsidiaries.

 

Most of the representations and warranties of the parties will be deemed to be true and correct unless the totality of facts, circumstances or events inconsistent with the representations or warranties has had or is reasonably likely to have a material adverse effect on the business, results of operations or financial condition of the party making the representations and warranties or on the ability of the party to complete the transactions contemplated by the agreement and plan of merger. In determining whether a material adverse effect has occurred or is reasonably likely, the parties will disregard any effects resulting from (A) changes in prevailing interest rates, currency exchange rates or other economic or monetary conditions in the United States or elsewhere, (B) changes in United States or foreign securities markets, including changes in price levels or trading volumes, (C) changes or events affecting the financial services industry generally and not specifically relating to Fifth Third or First National or their respective subsidiaries, as the case may be, (D) changes in generally accepted accounting principles or regulatory accounting requirements applicable to banks or savings associations and their holding companies generally, (E) changes in laws, rules or regulations of general applicability or interpretations thereof by any governmental entity, (F) actions or omissions of Fifth Third or First National taken with the prior written consent of the other, or (G) any outbreak of major hostilities in which the United States is involved or any act of terrorism within the United States or directed against its facilities or citizens wherever located. However, in no event will a change in the trading prices of a party’s capital stock, by itself, constitute a material adverse effect.

 

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Conduct Pending Merger

 

First National has agreed that, prior to the effective time of the merger, First National and its subsidiaries will be operated in the ordinary course of business and will give Fifth Third and Fifth Third’s representatives reasonable access during business hours to its books, records and properties. In addition, without Fifth Third’s prior written consent, neither First National nor its subsidiaries will, among other things:

 

  other than in the ordinary course of business consistent with past practice: (1) incur any indebtedness for borrowed money, (2) become responsible for the obligations of any other individual, corporation or other entity, or (3) make any loan or advance;

 

  adjust, split, combine or reclassify any of its capital stock;

 

  make, declare or pay any dividend, or make any other distribution on, or directly or indirectly redeem, purchase or otherwise acquire, any shares of its capital stock or any securities or obligations convertible into or exchangeable for any shares of its capital stock, except

 

  for regular quarterly cash dividends at a rate not in excess of $0.07 per share of First National common stock,

 

  dividends paid by any of the subsidiaries of First National to First National or to any of its wholly-owned subsidiaries,

 

  the acceptance of shares of First National’s common stock as payment of the exercise price of stock options or for withholding taxes incurred in connection with the exercise of First National’s, or the vesting of restricted stock or other First National stock-based awards, in accordance with past practice and the terms of the applicable award agreements, or

 

  the repurchase of shares of First National common stock in open-market transactions consistent with the past practice pursuant to any previously disclosed repurchase authorization granted to First National by its board of directors;

 

  grant any First National stock option or other First National stock-based awards or grant any individual, corporation or other entity any right to acquire any shares of its capital stock, other than grants to newly-hired or recently promoted employees of First National made in the ordinary course of business consistent with past practice under the First National stock option plans, provided that the aggregate total of all such grants does not exceed 50,000 shares and will not be granted to current executive officers of First National;

 

  issue, sell or otherwise permit to become outstanding, or dispose of or encumber or pledge, or authorize or propose the creation of, any additional shares of capital stock or permit any additional shares of its capital stock to become subject to grants, except pursuant to the exercise of First National stock options or the satisfaction of any First National stock-based awards or pursuant to the Southern Community Bancorp merger or the First Bradenton Bank merger;

 

  except for normal increases made in the ordinary course of business consistent with past practice, or as required by applicable law or an existing agreement, increase the wages, salaries, compensation, pension, or other fringe benefits or perquisites payable to any current or former officer, employee, or director of First National;

 

  pay any pension or retirement allowance not required by any existing plan or agreement or by applicable law;

 

  pay any bonus except in accordance with any executive incentive compensation plan that has been duly approved by the board of directors of First National prior to the date of the agreement and plan of merger;

 

  become a party to, amend or commit itself to, any pension, retirement, profit-sharing or welfare benefit plan or agreement or employment agreement with or for the benefit of any employee, other than as required by applicable law or an existing agreement;

 

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  except as automatically required under any existing plan, grant, or agreement, accelerate the vesting of, or the lapsing of restrictions with respect to, any First National stock options or other First National stock-based awards;

 

  except as required by the terms of the plans, make any contribution to the defined benefit plans maintained by First National or discretionary contributions to any benefit plans after the date of the agreement and plan of merger;

 

  take any action to amend the defined benefit plans which would reduce or restrict the availability of surplus (excess of plan assets over plan liabilities) under any defined benefit plan as defined in Section 414(j) of the Internal Revenue Code;

 

  sell, transfer, mortgage, encumber or otherwise dispose of any of its material properties or assets to any individual, corporation or other entity other than a First National subsidiary, or cancel, release or assign any material indebtedness other than in the ordinary course of business consistent with past practice or pursuant to contracts in force as of the date of the agreement and plan of merger;

 

  enter into any new line of business or make any material change in its lending, investment, underwriting, risk and asset liability management or other banking and operating policies, except as required by applicable law, regulation or policies imposed by any governmental entity;

 

  except for transactions in the ordinary course of business consistent with past practice, and except for the Southern Community Bancorp merger, the First Bradenton Bank merger and any potential transaction previously disclosed to Fifth Third, make any material investment either by purchase of stock or securities, contributions to capital, property transfers, or purchase of any property or assets of any other individual, corporation or other entity;

 

  knowingly take any action, or knowingly fail to take any action, which action or failure to act is reasonably likely to prevent the merger from qualifying as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code;

 

  amend its articles or certificate of incorporation or bylaws, or otherwise take any action to exempt any person or entity (other than Fifth Third or its subsidiaries) or any action taken by any person or entity from any takeover statute or similarly restrictive provisions of its organizational documents or terminate, amend or waive any provisions of any confidentiality or standstill agreements in place with any third parties;

 

  other than in prior consultation with Fifth Third, restructure or materially change its investment securities portfolio or its gap position, through purchases, sales or otherwise, or the manner in which the portfolio is classified or reported;

 

  settle any material claim, action or proceeding, except in the ordinary course of business consistent with past practice; or enter into, amend, terminate or cancel any material contract or financial instrument, except in the ordinary course of business consistent with past practice;

 

  take any action that is intended or is reasonably likely to result in any of its representations or warranties set forth in the agreement and plan of merger being or becoming untrue in any material respect at any time prior to the effective time, or in any of the closing conditions to the merger not being satisfied or in a violation of any provision of the agreement and plan of merger, except, in every case, as may be required by applicable law;

 

  implement or adopt any change in its tax accounting or financial accounting principles, practices, methods or tax strategies that are, or would become as a result of the change, reportable transactions within the meaning of Treasury Regulations Section 1.6011-4, or enter into any new strategies, other than as may be required by applicable law or regulation, GAAP or regulatory guidelines;

 

  take any action that would materially impede or delay the ability of the parties to obtain any necessary approvals of any regulatory agency or governmental entity required for the transactions contemplated by the agreement and plan of merger; or

 

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  agree to take, make any commitment to take, or adopt any resolutions of its board of directors in support of, any of the actions prohibited by the preceding bullet points.

 

Fifth Third has agreed that, without the prior written consent of First National, neither Fifth Third nor its subsidiaries will, among other things:

 

  other than for purposes of increasing the number of authorized shares of Fifth Third common stock, amend, repeal or otherwise modify any provision of the Fifth Third articles of incorporation or the code of regulations of Fifth Third in a manner that would adversely affect the economic benefits of the merger to the First National shareholders;

 

  knowingly take any action, or knowingly fail to take any action, which action or failure to act is reasonably likely to prevent the merger from qualifying as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code;

 

  take any action that would materially impede or delay the ability of the parties to obtain any necessary approvals of any regulatory agency or governmental entity required for the transactions contemplated by the agreement and plan of merger;

 

  take any action that is intended or is reasonably likely to result in any of its representations or warranties set forth in the agreement and plan of merger being or becoming untrue in any material respect at any time prior to the effective time, or in any of the closing conditions to the merger not being satisfied or in a violation of any provision of the agreement and plan of merger, except, in every case, as may be required by applicable law; or

 

  agree to take, make any commitment to take, or adopt any resolutions of its board of directors in support of, any of the actions prohibited by the preceding bullet points.

 

Acquisition Proposals by Third Parties

 

The agreement and plan of merger provides, subject to limited exceptions described below, that First National and its subsidiaries will not authorize its officers, directors, employees, or any investment banker, financial advisor, attorney, accountant or other representative retained by it or any of its subsidiaries to (i) solicit, initiate, or encourage any acquisition proposals (as described below); (ii) engage in discussions with third parties, or negotiations concerning, or provide any non-public information to any person or entity in connection with, any acquisition proposal; or (iii) agree to, approve, recommend or otherwise endorse or support any acquisition proposal.

 

For purposes of the agreement and plan of merger, the term “acquisition proposal” means any tender or exchange offer involving First National or any of its subsidiaries, any proposal for a merger, consolidation or other business combination involving First National or any of its subsidiaries (other than the Southern Community Bancorp merger and the First Bradenton Bank merger), any proposal or offer to acquire in any manner an interest in excess of 15% of the outstanding equity securities, or a substantial portion of the business or assets of, First National or any of its subsidiaries (other than assets or inventory in the ordinary course of business or assets held for sale), any proposal or offer with respect to any recapitalization or restructuring with respect to First National or any of its subsidiaries or any proposal or offer with respect to any other transaction similar to any of the foregoing with respect to First National or any of its subsidiaries other than pursuant to the merger.

 

The agreement and plan of merger permits First National to comply with Rule 14d-9(e) and Rule 14e-2(a) under the Securities Exchange Act of 1934 with regard to an acquisition proposal that First National may receive. In addition, if First National receives an unsolicited bona fide written acquisition proposal prior to the First National shareholders meeting, First National may engage in discussions and negotiations with or provide nonpublic information to the person making that acquisition proposal only if the board of directors determines in good faith, after receipt of advice from outside legal counsel, that the failure to engage in discussions with the third party concerning such acquisition proposal would likely cause the board of directors to breach its fiduciary duties to First National and its shareholders.

 

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First National, within 24 hours, must notify Fifth Third if First National furnishes non-public information to, or enters into discussions or negotiations with a third party regarding an acquisition proposal or if an acquisition proposal is made and will, at that time, notify Fifth Third of the identity of the offeror and the principal terms and conditions of any acquisition proposal made or any modification of such proposal. Moreover, First National, as promptly as practicable, will advise Fifth Third orally and in writing of any request for information which First National reasonably believes could lead to an acquisition proposal or of any acquisition proposal, and the material terms and conditions of such request, or inquiry, and First National will keep Fifth Third informed in all material respects of the status of any such request, acquisition proposal or inquiry.

 

If First National’s board of directors determines that an acquisition proposal is a superior proposal (as described below), First National’s board of directors may withdraw or adversely modify its approval or recommendation of the merger and recommend such superior proposal or terminate the agreement and plan of merger at any time after the second business day following delivery of written notice to Fifth Third advising Fifth Third that First National’s board of directors has received a superior proposal, identifying the third party and specifying the material terms and conditions of such superior proposal. However, First National may only take such action if an acquisition proposal that was a superior proposal continues to be a superior proposal after any improved proposal submitted by Fifth Third, considered in good faith by First National and with the advice of a nationally recognized financial advisor.

 

For purposes of the agreement and plan of merger, “superior proposal” means any bona fide, written acquisition proposal for consideration consisting of cash and/or securities, and otherwise on terms which First National’s board of directors determines are more favorable to First National’s shareholders from a financial point of view than the merger (or other revised proposal submitted by Fifth Third), after consultation with its outside legal counsel and a financial adviser and that the third party is reasonably likely to consummate the superior proposal on the terms proposed, that the third party’s offer is fully financed or reasonably capable of being fully financed, and is reasonably likely to receive all required governmental approvals on a timely basis. For purposes of the definition of “superior proposal,” all references to “15% or more” in the definition of “acquisition proposal” will be deemed to be a reference to “a majority” and “acquisition proposal” will only be deemed to refer to a transaction involving First National.

 

Conditions to Closing

 

The agreement and plan of merger must be approved by the affirmative vote of the holders of a majority of the outstanding shares of First National common stock. The merger also must be approved in writing by the Federal Reserve Board. Fifth Third and First National filed these applications in September 2004. No assurance can be given that the required governmental approvals will be forthcoming.

 

Fifth Third’s and First National’s obligations to complete the merger are subject to additional conditions set forth in the agreement and plan of merger. These include:

 

  approval of the agreement and plan of merger by First National’s shareholders;

 

  approval by NASDAQ of the listing of the shares of Fifth Third common stock to be issued in the merger, subject to official notice of issuance;

 

  receipt of all required regulatory approvals and expiration of all related statutory waiting periods;

 

  effectiveness of the registration statement, of which this proxy statement-prospectus constitutes a part, for the Fifth Third shares to be issued in the merger;

 

  absence of any judgment, order, injunction or decree of a court or agency of competent jurisdiction which prohibits completion of the merger;

 

  absence of any statute, rule, regulation, order, injunction or decree which prohibits or makes illegal completion of the merger;

 

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  the receipt by First National and Fifth Third of the opinion of Alston & Bird LLP or another nationally recognized tax advisor that the merger will not cause Sections 355 (e) or (f) of the Internal Revenue Code to apply to the spin-off of First National from F.N.B. Corporation, which Code provisions, if applicable, could result in the spin-off being a taxable transaction to F.N.B. Corporation (and result in a liability to First National under a tax indemnification agreement).

 

  accuracy of the other party’s representations and warranties contained in the agreement and plan of merger, except, in the case of most representations and warranties, in which the failure to be accurate would not be reasonably likely to have a material adverse effect on the party making the representations and warranties (See “Terms of the Agreement – Representations and Warranties”), and the performance by the other party of its obligations contained in the agreement and plan of merger in all material respects; and

 

  the receipt by each party of an opinion of its counsel, dated the closing date of the merger, substantially to the effect that the merger will be treated as a reorganization under Section 368(a) of the Internal Revenue Code (see “Proposal—Merger of First National into Fifth Third Financial Corporation—Material Federal Income Tax Consequences”).

 

Fifth Third’s obligation to complete the merger is further subject to conditions set forth in the agreement and plan of merger, including:

 

  the receipt by First National of a Non-Compete Election Notice from each member of its board of directors (see “—Interests of Certain Persons in the Merger”);

 

  the execution of employment agreements between Fifth Third and each of Gary L. Tice, Kevin C. Hale, Garrett S. Richter, and Michael Morris on terms satisfactory to Fifth Third and each of the foregoing individuals (see “—Interests of Certain Persons in the Merger”);

 

  the completion of First National’s acquisition of Southern Community Bancorp, which closed on September 3, 2004, and First Bradenton Bank; and

 

  the completion of Fifth Third’s due diligence review of First National’s tax returns and other tax-related documents and records.

 

Termination

 

The agreement and plan of merger may be terminated and the merger abandoned at any time prior to the effective time of the merger by written notice delivered by Fifth Third to First National or by First National to Fifth Third in the following instances:

 

  by mutual consent of Fifth Third and First National;

 

  by either Fifth Third or First National, if a governmental entity that must grant regulatory approval has denied approval of the merger and such denial has become final and nonappealable or if any governmental entity of competent jurisdiction has issued an order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the merger, and such order, decree, ruling or other action has become final and nonappealable, provided however, that no party may so terminate the agreement and plan of merger if the denial is a result of the failure of such party to comply with any provision of the agreement and plan of merger;

 

  by either Fifth Third or First National, if the merger has not been completed by July 31, 2005, provided however, that no party may so terminate the agreement and plan of merger if the failure of such party to comply with any provision of the agreement and plan of merger has caused the merger not to be completed;

 

 

by either Fifth Third or First National, if there has been a breach of any of the covenants or agreements or any of the representations or warranties of the other party in the agreement and plan of merger, which breach is not cured within 30 days following written notice to the party committing the breach, or which

 

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breach, by its nature, cannot be cured prior to the closing date of the merger, and which breach, individually or together with all other breaches, would, if occurring or continuing on the closing date, result in the failure of the condition relating to breaches of representations or warranties described under “—Conditions to Closing”;

 

  by Fifth Third, if the aggregate amount of First National’s consolidated shareholders’ equity immediately prior to the effective time is less than $550,000,000;

 

  by either Fifth Third or First National, if any approval of the shareholders of First National required for completion of the merger has not been obtained upon a vote taken at a duly held meeting of shareholders or at any adjournment or postponement of such meeting;

 

  by either Fifth Third or First National, if any of the conditions to consummate the merger cannot be satisfied by July 31, 2005, provided however, that the terminating party cannot be in breach of any representation or warranty contained in the agreement and plan of merger;

 

  by Fifth Third, if the board of directors of First National authorizes, recommends, proposes or publicly announces its intention to authorize, recommend or propose an acquisition proposal with any person other than Fifth Third;

 

  by First National, if the board of directors determines that an acquisition proposal is a superior proposal (see “—Acquisition Proposals by Third Parties”);

 

  by Fifth Third, if at any time prior to the effective time the total number of issued and outstanding shares of First National common stock and First National common stock issuable upon the exercise of outstanding options, subscriptions, warrants, calls, rights, commitments or agreements of similar character exceeds 68,500,000 shares and of such number the number of shares issuable upon the exercise of outstanding options, subscriptions, warrants, calls, rights, commitments or agreements of similar character exceeds 7,000,000.

 

Amendment

 

The agreement and plan of merger may be amended by the written agreement of each of the parties, upon the authorization of each company’s respective board of directors at any time before or after approval of the agreement and plan of merger by First National’s shareholders. Approval of any amendment by First National’s shareholders is not required unless this action would adversely change the consideration to be provided to First National’s shareholders pursuant to the agreement and plan of merger.

 

Termination Fee

 

First National must pay Fifth Third a termination fee of $50,000,000 on the business day following termination if the agreement and plan of merger is terminated in any of the following circumstances:

 

  by Fifth Third or First National because the First National shareholders did not vote in favor of the merger and, prior to the First National shareholders meeting, First National’s board of directors withdrew its recommendation or refused to recommend to the shareholders that they vote to approve the merger while there was a competing acquisition proposal that had not been withdrawn or rejected by the First National directors;

 

  by Fifth Third because of First National’s failure to call the First National shareholders meeting;

 

  by Fifth Third because of the First National board of directors’ recommendation of or the announcement of the board’s intention to recommend any alternative acquisition proposal; or

 

  by First National because of its board of directors’ recommendation to its shareholders to approve a superior acquisition proposal.

 

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First National must pay a termination fee of $50,000,000 to Fifth Third within five business days of entering into a definitive agreement for an alternative acquisition or closing such alternative acquisition if, within 12 months of the termination of the agreement and plan of merger, First National completes or enters into an agreement to complete an acquisition with a third party, and (1) the agreement and plan of merger was terminated by either Fifth Third or First National because the First National shareholders did not vote in favor of the merger and, at the time of the shareholders meeting, an alternative acquisition proposal was disclosed and not withdrawn or (2) the agreement and plan of merger was terminated by Fifth Third because of a breach by First National of its covenants, agreements or any of its representations and warranties in the agreement and plan of merger, provided that, at the time of termination, Fifth Third was not in breach of any of its covenants, agreements or any of its representations and warranties in the agreement and plan of merger and, at the time of First National’s breach, either an alternative acquisition proposal had been publicly disclosed or a third party had approached the First National board of directors about an acquisition of First National.

 

In the event the agreement and plan of merger is terminated (1) by either party because of the other party’s breach of the agreement and plan of merger, (2) by Fifth Third if the First National board of directors recommends or the announces its intentions to recommend an alternative acquisition proposal, (3) by First National if its board of directors recommends to the shareholders to approve a superior acquisition proposal, or (4) by either Fifth Third or First National if the approval of the shareholders of First National required for completion of the merger has not been obtained under circumstances which trigger the payment of the termination fee by First National, then the non-terminating party shall immediately reimburse the terminating party for its reasonable out-of-pocket expenses relating to the merger in an amount not to exceed $3,000,000.

 

Interests of First National’s Directors and Executive Officers in the Merger

 

Shares of First National common stock held by or for the benefit of directors and executive officers of First National will be canceled and converted into the right to receive shares of Fifth Third common stock on the same basis as shares held by you and the other shareholders of First National. In addition, directors and executive officers of First National have the following interests in the merger that are different from, or in addition to, those of you and the other shareholders of First National.

 

Fifth Third Employment Agreements. Pursuant to the terms of the agreement and plan of merger, Fifth Third, at or prior to the effective time of the merger, will enter into three-year employment agreements with Gary L. Tice, First National’s Chairman and Chief Executive Officer, Kevin C. Hale, First National’s President and Chief Operating Officer, Garrett S. Richter, First National’s Executive Vice President and Secretary and Michael Morris, President and Chief Executive Officer of First National Wealth Management Company.

 

It is expected that these agreements will employ Mr. Tice as the Chairman of Fifth Third Bank (Florida), Mr. Hale as the President and Chief Executive Officer of Fifth Third Bank (Florida), Mr. Richter as the Executive Vice President—Business Development of Fifth Third Bank (Florida), and Mr. Morris as the Executive Vice President—Investment Advisors of Fifth Third Bank (Florida). Each of the executives will receive an annual base salary and Messrs. Hale, Richter and Morris will also have the opportunity to earn annual incentive awards and receive grants of long-term incentives in the form of stock appreciation rights or performance units or a combination thereof. Salaries and incentive compensation may be adjusted upward annually in connection with their annual performance evaluations. The Fifth Third employment agreements with Messrs. Tice, Hale, Richter and Morris are not yet finalized and, accordingly, the salary and incentive compensation amounts have not yet been determined.

 

It is further expected that Messrs. Hale, Richter and Morris will be eligible to participate on a non-discriminatory basis in any 401(k), vacation, disability, life or medical insurance or other benefit plan adopted by Fifth Third or any affiliate to the extent such plan is made available to similarly situated employees of Fifth Third and if each is eligible to participate in such plan according to its terms. It is anticipated that each will also be eligible to participate in any benefit plan or program made available to senior management employees and/or

 

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directors of Fifth Third in accordance with the terms and conditions of those plans. In the event of death or total disability, it is expected that the right of each to receive his annual base salary will terminate at the end of the month during which his death or total disability occurs. Messrs. Tice, Hale, Richter or Morris or their respective estates would then be entitled to receive any compensation previously awarded to him that remains unpaid. Messrs. Hale, Richter and Morris or their respective estates would then be also entitled to receive a prorated portion of any incentive award that he had earned through the date of his death or total disability. If Fifth Third terminates Messrs. Tice, Hale, Richter or Morris’ employment for cause, it is anticipated that he would be entitled to his accrued but unpaid base salary but would forfeit all entitlements to unpaid annual base salary related benefits. However, Messrs. Hale, Richter or Morris would continue to receive retirement benefits according to the terms of any retirement plan in which he participates. If Fifth Third terminates Messrs Tice, Hale, Richter or Morris’ employment without cause or Messrs Tice, Hale, Richter or Morris terminates his employment for good reason, it is expected that he would be entitled to receive all payments for his annual base salary through the remainder of the original term of the agreement.

 

Agreements Regarding Change of Control Benefits. In conjunction with the employment agreements to be entered into between Fifth Third and each of Messrs. Tice, Hale, Richter and Morris, Fifth Third will also enter into an agreement with each of these First National executives regarding the change of control benefits payable to such executive as a result of the merger under their existing employment agreement and change of control agreement with First National. The agreement to be entered into with each such executive will amend those employment and change of control agreements in order to provide a definitive statement of the payments and benefits to be provided to the executive under those agreements as so amended. The new agreement with Fifth Third also will provide that the consummation of the merger triggers the obligation to provide those payments and benefits.

 

Pursuant to these new agreements, Fifth Third will agree that it will pay or cause to be paid to Messrs. Tice, Hale, Richter and Morris change of control benefits consistent with the requirements of their existing employment and change of control agreements, as so amended. Such payments will be calculated based upon the base salary, incentive bonus payments and retirement plan benefits currently payable to those executives, including benefits relating to the First National Basic Retirement Plan. Fifth Third also may agree to provide these executives with medical, long term disability insurance, medical insurance, life insurance and outplacement services. The amounts of such payments have not yet been finalized and agreed upon by Fifth Third and the executives.

 

First National also has existing employment and change of control agreements with each of C.C. Coghill and Robert T. Reichert. Under the terms of those agreements, each of Messrs. Coghill and Reichert will be entitled to similar change of control benefits as those to be paid to the above named executives. Fifth Third will enter into an agreement with each of Messrs. Coghill and Reichert in order to provide a definitive statement of the change of control benefits to be provided to them upon consummation of the merger and that their existing employment agreement and change of control agreement with First National will terminate at that time. The amounts of such payments have not yet been finalized and agreed upon by Fifth Third and these executives.

 

Officer Non-Compete Agreements. In conjunction with the employment agreements and the agreements regarding change of control benefits to be entered into between Fifth Third and each of Messrs. Tice, Hale, Richter and Morris, each of those individuals will also enter into a non-compete agreement with Fifth Third. Each non-compete agreement will provide that the executive will not compete with Fifth Third anywhere in the State of Florida during the term of his employment and for a period of one year thereafter. The agreement will

 

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also provide that the executive will not solicit employees or customers from Fifth Third during the term of his employment and for a period of one year thereafter. The consideration for entering into the non-compete agreements has not yet determined.

 

Excess Parachute Payments. The Fifth Third employment agreements for Messrs. Hale, Richter and Morris between Fifth Third and each of Messrs. Tice, Hale and Richter regarding change of control benefits will provide that in the event any of these individuals receive any payments pursuant to the terms of these agreements with Fifth Third that would be considered an “Excess Parachute Payment” pursuant to Section 280G of the Internal Revenue Code, then Fifth Third shall make additional gross up payments to such executive. The amount of the gross up payment will be equal to the amount of any excise tax payable by such individual under Section 4999 of the Code relating to his change of control or employment agreement payments, after deducting all state and federal income taxes incurred by him, including any taxes imposed upon the gross up payment. The agreements between Fifth Third and each of Messrs. Morris, Coghill and Reichert will provide what any payments made to them thereunder that trigger Section 280G tax liability will be reduced as needed so as to not trigger any such tax.

 

Director Non-Compete Notices. Pursuant to the terms of the agreement and plan of merger, prior to the effective time of the merger, each member of the board of directors of First National must deliver to First National a Non-Compete Election Notice pursuant to the First National Directors Change of Control Agreement in which the director agrees (1) that for a period of 12 months he will not participate in any manner in an entity that is directly or indirectly in competition with First National or its successors in any county in which First National or any of its subsidiaries are currently conducting business and (2) that for a period of 24 months he will not solicit or induce any employee, agent or contractor of First National or any of its subsidiaries, in any county in which First National or any of its subsidiaries are currently conducting business, solicit customers of First National or its subsidiaries or solicit any entity to terminate its business relationship with First National or its subsidiaries. Upon receipt of the Non-Compete Election Notice, members of the board of directors who were directors as of the date of the agreement and plan of merger will receive a one-time payment equal to three times the sum of all retainer and meeting fees received by such director during the 12 month period ending on the effective date of the merger.

 

Stock Options. First National has granted stock options to certain directors, executive officers and key employees under its Amended and Restated 2003 Incentive Plan. Prior to the consummation of the merger, First National’s board of directors may, in its sole discretion, accelerate the exercisability of any or all outstanding options under these plans, with such acceleration to be effective, if at all, immediately prior to the effective time of the merger. After completion of the merger, all outstanding options will be converted into options to purchase Fifth Third common stock. The number of shares subject to these options will be adjusted to allow the holder, upon exercise, to receive shares of Fifth Third common stock calculated by multiplying the exchange ratio by the number of shares of First National common stock subject to the options, and the exercise price of the First National stock options will be adjusted by dividing the exercise price per share by the exchange ratio.

 

The effect of the acceleration of the exercisability on the First National options held by the executive officers of First National, by all executive officers as a group and by all directors and executive officers as a group will be as follows:

 

Name


   Options Held

   Options Exercisable
as of the Special
Meeting Date


   Options Vesting as a
Result of the
Acceleration


Gary L. Tice

   960,665    677,429    283,236

Kevin C. Hale

   393,275    263,079    130,196

Garrett S. Richter

   353,154    269,431    83,723

C.C. Coghill

   280,398    212,052    68,346

Robert T. Reichert

   150,134    121,997    28,137
    
  
  

All executive officers

   2,137,626    1,543,988    593,638
    
  
  

Non-employee directors

   58,448    58,448    —  
    
  
  

Total

   2,196,074    1,602,436    593,638
    
  
  

 

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As soon as practicable after the effective time of the merger, Fifth Third will file a registration statement with the SEC to register the shares of Fifth Third common stock issuable pursuant to these options. Holders of these options may not exercise the options until this registration statement has become effective.

 

First National has issued restricted stock to certain directors, executive officers and key employees under its Amended and Restated 2003 Incentive Plan. After the completion of the merger, these shares will be exchanged for shares of Fifth Third common stock and all restrictions on these shares will lapse.

 

The effect of the lapse on the restricted stock held by the executive officers of First National, by all executive officers as a group and by all directors and executive officers as a group will be as follows:

 

Name


  

Shares of Previously

Restricted Stock

Becoming

Unrestricted After

the Effective Date

of the Merger


Gary L. Tice

   103,687

Kevin C. Hale

   31,106

Garrett S. Richter

   25,922

C.C. Coghill

   15,553

Robert T. Reichert

   15,553
    

All executive officers

   191,821

Non-employee directors

   13,825
    

Total

   205,646
    

 

Indemnification and Liability Insurance. Fifth Third will assume the permissible obligations of First National or any of its subsidiaries arising under applicable Florida and federal law and under First National’s or any subsidiary’s articles of incorporation, charter or bylaws, to indemnify each officer or director of First National or any of its subsidiaries against liabilities in connection with any claim arising out of the fact that such person is or was a director or officer of First National or any of its subsidiaries, if such claim pertains to any matter occurring prior to the effective time of the merger, regardless of whether such claim is asserted prior to, at or after the effective time of the merger. Fifth Third also shall purchase and keep in force for a three-year period, a policy of directors’ and officers’ liability insurance providing coverage for acts or omissions of the type currently covered by First National’s existing directors’ and officers’ liability insurance for acts or omissions occurring on or prior to the effective time of the merger, but only to the extent that this insurance may be permissible under existing banking laws and may be purchased or kept in full force on commercially reasonable terms. Fifth Third and First National have agreed that these costs shall be commercially reasonable so long as they do not exceed 150% of the annual costs currently paid for such coverage by First National. Fifth Third has agreed that all rights to indemnification existing in favor of officers and directors of Fifth Third affiliates shall be accorded to officers and directors of First National or any of its subsidiaries who become affiliated with any Fifth Third affiliate in such capacities after the effective time of the merger and that this indemnification will relate to covered actions or inactions only after the effective time of the merger. Fifth Third also will agree in its employment agreement with each of Messrs. Tice, Hale, Richter and Morris to indemnify him to the fullest extent permitted by law for serving as a director, officer, employee or agent of Fifth Third or of any entity for which the executives serves at the request of Fifth Third.

 

Effect on First National’s Employees

 

Employment. Fifth Third will consider employing as many of the employees of First National and its subsidiaries who desire employment within the Fifth Third holding company system as possible, to the extent of available positions and consistent with Fifth Third’s standard staffing levels and personnel policies.

 

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Fifth Third Employee Benefit Plans. Fifth Third will provide each of the full-time employees of First National and its subsidiaries who become employees of Fifth Third, as a group, with employee benefit plans that in the aggregate are of comparable value to the benefit plans maintained by Fifth Third for similarly-situated employees. Former First National employees will be given credit for service with First National and its subsidiaries for purposes of eligibility, vesting and accrual of benefits. No former First National employee will be entitled to participate in the Fifth Third Bancorp Master Retirement Plan (which has been frozen to new participants).

 

Severance. The agreement and plan of merger provides for the payment of severance amounts to employees of First National who do not have an employment, change in control or severance agreement under certain conditions upon termination of employment. For officers and exempt employees of First National, those amounts will be equal to two weeks of pay for each year of service (and a prorated amount for any partial year of service), with a minimum severance pay equal to four weeks pay. For all other employees, those amounts will be equal to one week of pay for each year of service (and a prorated amount for any partial year of service), with a minimum severance pay equal to two weeks pay.

 

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FIFTH THIRD BANCORP

 

Description of Business

 

Fifth Third, with its principal office located in Cincinnati, Ohio, is an Ohio corporation organized in 1975 as a bank holding company registered under the Bank Holding Company Act and subject to regulation by the Federal Reserve Board. Fifth Third has elected to become a financial holding company under that act. Fifth Third’s three wholly owned subsidiary depositary institutions have over 1000 offices in Ohio, Kentucky, Indiana, Illinois, Michigan, Florida, Tennessee and West Virginia. Those institutions are: Fifth Third Bank, Fifth Third Bank (Michigan) and Fifth Third Bank, National Association.

 

As of June 30, 2004, Fifth Third, its affiliated banks and other subsidiaries had consolidated total assets of approximately $95.6 billion, consolidated total deposits of approximately $57.9 billion and consolidated total shareholders’ equity of approximately $8.4 billion.

 

Fifth Third, through its subsidiaries, engages primarily in commercial and retail banking, electronic payment processing services and investment advisory services. Significant non-depository subsidiaries of Fifth Third include: The Fifth Third Company; Fifth Third Leasing Company; Fifth Third International Company; Fifth Third Holdings, LLC; Fifth Third Securities, Inc.; Fifth Third Real Estate Capital Markets Company; Fifth Third Mortgage Company; Fifth Third Mortgage Insurance Reinsurance Company; Fifth Third Insurance Agency, Inc.; Old Kent Investment Corporation; Home Equity of America, Inc.; Fifth Third Asset Management, Inc.; Old Kent Mortgage Services, Inc. and GNB Management, LLC. Fifth Third’s subsidiaries provide a wide 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 subsidiaries has deposit insurance provided by the Federal Deposit Insurance Corporation through the Bank Insurance Fund and/or the Savings Association Insurance Fund.

 

Fifth Third Processing Solutions, Fifth Third’s electronic payment processing division, operates for itself and other financial institutions, a proprietary automated teller machine (“ATM”) and Point of Sale (“POS”) network, Jeanie® and provides electronic fund transfers, ATM processing, electronic personal banking, merchant transaction processing, electronic bill payment and electronic benefit transfer services for thousands of regional banks, bank holding companies, service retailers and other financial institutions throughout the United States. Fifth Third’s banking subsidiaries participate in several regional shared ATM networks including “NYCE®,” “Pulse®,” and “Star®.” Fifth Third’s banking subsidiaries also participate in “Cirrus®,” and “Plus System®,” which are international ATM networks. Fifth Third handled approximately 9.0 billion ATM, POS and e-commerce transactions in 2003.

 

Fifth Third is a corporate entity legally separate and distinct from its subsidiaries. The principal source of Fifth Third’s income is dividends from its subsidiaries. There are certain regulatory restrictions as to the extent to which the subsidiaries can pay dividends or otherwise supply funds to Fifth Third. See “Description of Capital Stock and Comparative Rights of Shareholders—Dividends.”

 

Additional Information

 

For more detailed information about Fifth Third, reference is made to the Fifth Third Annual Report on Form 10-K for the year ended December 31, 2003, Quarterly Reports on Form 10-Q for the quarters ended March 31, 2004 and June 30, 2004, and Current Reports on Form 8-K filed with the SEC on January 15, 2004, February 19, 2004, March 10, 2004, March 22, 2004, April 7, 2004, April 14, 2004, April 15, 2004, June 8, 2004, June 15, 2004, July 15, 2004, August 2, 2004, August 3, 2004, September 10, 2004 and September 14, 2004 which are incorporated into this document by reference, except for information furnished in those filings, including but not limited to, Item 9 and 12 of the old Form 8-K and Items 2.02 and 7.01 of the current Form 8-K, which information is not deemed filed and is not incorporated by reference herein. See “Where You Can Find More Information.” More information about Fifth Third is also contained in its 2003 Annual Report to Shareholders which is available through Fifth Third’s website at http://www.53.com/investor/annual_report/index.htm.

 

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FIRST NATIONAL CORPORATION

 

Description of Business

 

First National was incorporated under the laws of the State of Florida on August 12, 2003 as a wholly owned subsidiary of F.N.B. Corporation. First National did not have any material assets or activities until it was spun off from F.N.B. on January 1, 2004. After the spin-off, First National became an independent public company, and is no longer affiliated with F.N.B.

 

At June 30, 2004, First National and its subsidiaries had consolidated total assets of approximately $4.1 billion, consolidated total deposits of approximately $3.0 billion and consolidated total shareholders’ equity of approximately $358 million. On September 3, 2004, First National completed its acquisition of Southern Community Bancorp which operates 18 full-service financial centers throughout south and central Florida. As of June 30, 2004, Southern Community Bancorp had $1.0 billion in consolidated assets and $877 million in deposits.

 

First National is a financial holding company under the Gramm-Leach-Bliley Act of 1999. First National owns and operates First National Bank of Florida, a national bank; First National Wealth Management Company, a nationally chartered trust company; and Roger Bouchard Insurance, Inc., an insurance agency.

 

First National Bank of Florida

 

First National Bank of Florida offers services traditionally offered by full-service commercial banks, including commercial and individual demand and time deposit accounts and commercial, mortgage and individual installment loans. In addition to traditional banking products, First National Bank of Florida offers various alternative investment products, including mutual funds and annuities.

 

First National Wealth Management Company

 

First National Wealth Management Company is a newly formed national trust company to which F.N.B. transferred all of the Florida operations of its First National Trust Company subsidiary. It provides a broad range of personal and corporate fiduciary services, including the administration of decedent and trust estates. As of June 30, 2004, the market value of corporate-wide trust assets under management totaled approximately $875 million.

 

Roger Bouchard Insurance, Inc.

 

Roger Bouchard Insurance, Inc., is a full-service insurance agency offering all lines of commercial and personal insurance through major carriers. At June 30, 2004, Roger Bouchard Insurance operated seven offices in Southwest and Central Florida.

 

Additional Information

 

For more detailed information about First National, reference is made to the First National Annual Report on Form 10-K for the year ended December 31, 2003 Quarterly Reports on Form 10-Q for the quarters ended March 31, 2004 and June 30, 2004, and Current Reports on Form 8-K filed with the SEC on January 6, 2004, January 21, 2004, March 26, 2004, April 15, 2004, July 2, 2004, July 16, 2004, August 3, 2004, August 19, 2004, August 27, 2004 and September 10, 2004, which are incorporated into this document by reference, except for information furnished in those filings, including but not limited to, Item 9 and 12 of the old Form 8-K and Items 2.02 and 7.01 of the current Form 8-K, which information is not deemed filed and is not incorporated by reference herein. See “Where You Can Find More Information.”

 

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

The following unaudited pro forma condensed combined financial information is based on the historical financial statements of First National, Southern Community and Fifth Third and has been prepared to illustrate the effects of the First National acquisition of Southern Community and the Fifth Third acquisition of First National.

 

The unaudited pro forma condensed combined balance sheet as of June 30, 2004 assumes that the mergers of Southern Community into First National and First National into Fifth Third, each accounted for as a purchase, had been consummated on June 30, 2004. The unaudited pro forma condensed combined statements of income for the year ended December 31, 2003 and six months ended June 30, 2004 give effect to the merger of Southern Community into First National and First National into Fifth Third as if the mergers had been effective at January 1, 2003.

 

The mergers will be accounted for utilizing the purchase method of accounting. Under the purchase method of accounting, all the assets acquired and liabilities assumed of the acquired companies are recorded at their respective fair values, as of the effective date of the transaction. The amount, if any, by which the purchase price paid by Fifth Third exceeds the fair value of the net tangible and identifiable intangible assets acquired by Fifth Third in the transaction will be recorded as goodwill.

 

The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and is not necessarily indicative of the financial position or operating results that would have occurred if the mergers had been consummated at the beginning of the period or as of the date for which the pro forma data are presented, nor is it necessarily indicative of future operating results or financial position of the combined company.

 

You should read the unaudited pro forma condensed combined financial information in conjunction with Fifth Third’s consolidated financial statements and notes thereto, which may be found its filings with the Securities and Exchange Commission and First National’s consolidated financial statements and notes thereto incorporated by reference in this document. See “Where you Can Find More Information” on page 77. You should also read the unaudited pro forma condensed combined financial information in conjunction with Southern Community’s consolidated financial statements and notes thereto contained in Southern Community’s Annual Report on Form 10-K for the year ended December 31, 2003 which financial statements and notes thereto are incorporated by reference in this document.

 

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FIFTH THIRD BANCORP AND SUBSIDIARIES

 

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

As of June 30, 2004

($000’s)

 

    Fifth Third
Bancorp and
Subsidiaries


    First National
Bankshares
of Florida


    Southern
Community
Bancorp


    Pro Forma
Adjustments


    Pro Forma
Combined


 

Assets

                                       

Cash and Due From Banks

  $ 2,357,814     $ 89,207     $ 13,624     $ —       $ 2,460,645  

Available-for-Sale Securities

    30,179,952       879,952       118,443       —         31,178,347  

Held-to-Maturity Securities

    211,919       —         —         —         211,919  

Trading Securities

    96,806       —         —         —         96,806  

Other Short-Term Investments

    257,900       1,013       18,484       —         277,397  

Loans Held for Sale

    577,154       12,827       —         —         589,981  

Loans and Leases, Net

    55,867,421       2,648,157       819,626       29,696 (2)     59,364,900  

Bank Premises and Equipment

    1,167,922       124,698       20,757       1,000 (2)     1,314,377  

Operating Lease Equipment

    525,330       —         —         —         525,330  

Accrued Interest Receivable

    397,122       12,954       3,567       —         413,643  

Goodwill

    978,975       173,950       971       1,233,190       2,387,086  

Servicing Rights

    358,490       —         —         —         358,490  

Intangible Assets

    163,534       10,048       —         77,223 (2)     250,805  

Other Assets

    2,473,200       134,513       14,478       —         2,622,191  
   


 


 


 


 


Total Assets

  $ 95,613,539     $ 4,087,319     $ 1,009,950     $ 1,341,109     $ 102,051,917  
   


 


 


 


 


Liabilities

                                       

Total Deposits

  $ 57,907,454     $ 2,977,611     $ 877,414     $ 8,559 (2)   $ 61,771,038  

Federal Funds Purchased

    3,851,019       43,200       —         —         3,894,219  

Short-Term Bank Notes

    1,275,000       —         —         —         1,275,000  

Other Short-Term Borrowings

    6,391,156       345,524       3,004       —         6,739,684  

Accrued Taxes, Interest and Expenses

    1,970,871       —         —         34,600       2,005,471  

Other Liabilities

    1,050,134       36,385       10,699       (54 )(2)     1,097,164  

Long-Term Debt

    14,775,201       326,196       47,000       4,896 (2)     15,153,293  
   


 


 


 


 


Total Liabilities

    87,220,835       3,728,916       938,117       48,001       91,935,869  
   


 


 


 


 


Shareholders’ Equity

                                       

Preferred Stock

    9,250       —         —         —         9,250  

Common Stock

    1,295,263       479       7,307       58,006 (2)     1,361,055  

Capital Surplus

    1,921,560       369,828       56,962       1,230,762 (2)     3,579,112  

Retained Earnings

    6,999,075       11,174       10,626       (21,800 )(2)     6,999,075  

Accumulated Nonowner Changes in Equity

    (554,144 )     (12,195 )     (3,062 )     15,257 (2)     (554,144 )

Treasury Stock

    (1,278,300 )     (6,865 )     —         6,865 (2)     (1,278,300 )

Unearned Compensation Related to Outstanding Restricted Stock Awards

    —         (4,018 )     —         4,018 (2)     —    
   


 


 


 


 


Total Shareholders’ Equity

    8,392,704       358,403       71,833       1,293,108       10,116,048  
   


 


 


 


 


Total Liabilities and Shareholders’ Equity

  $ 95,613,539     $ 4,087,319     $ 1,009,950     $ 1,341,109     $ 102,051,917  
   


 


 


 


 


 

See accompanying notes to unaudited pro forma condensed combined financial information.

 

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FIFTH THIRD BANCORP AND SUBSIDIARIES

 

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

For the Six Months Ended June 30, 2004

($000’s, except share and per share data)

 

     Fifth Third
Bancorp and
Subsidiaries


   First National
Bankshares of
Florida


   Southern
Community
Bancorp


   Pro Forma
Adjustments


    Pro Forma
Combined


Interest Income

   $ 1,990,255    $ 88,937    $ 26,502    $ (3,632 )(2)   $ 2,102,062

Interest Expense

     478,551      22,764      9,707      (1,866 )(2)     509,156
    

  

  

  


 

Net Interest Income

     1,511,704      66,173      16,795      (1,766 )     1,592,906

Provision for Credit Losses

     171,162      2,275      1,444      —         174,881
    

  

  

  


 

Net Interest Differential

     1,340,542      63,898      15,351      (1,766 )     1,418,025
    

  

  

  


 

Noninterest Income:

                                   

Service Charges on Deposits

     254,394      9,872      382      —         264,648

Electronic Payment Processing Revenue

     296,661      —        —        —         296,661

Investment Advisory Revenue

     189,771      3,991      —        —         193,762

Mortgage Banking Net Revenue

     104,687      1,786      —        —         106,473

Operating Lease Revenue

     95,174      —        —        —         95,174

Other Noninterest Income

     434,844      18,817      1,062      —         454,723
    

  

  

  


 

Total Noninterest Income

     1,375,531      34,466      1,444      —         1,411,441
    

  

  

  


 

Noninterest Expenses:

                                   

Salaries, Wages and Benefits

     640,698      39,351      6,052      —         686,101

Equipment and Occupancy Expenses

     131,741      10,744      2,165      50 (2)     144,700

Operating Lease Expenses

     70,002      —        —        —         70,002

Other Noninterest Expenses

     553,290      15,795      2,866      6,404 (2)     578,355
    

  

  

  


 

Total Noninterest Expenses

     1,395,731      65,890      11,083      6,454       1,479,158
    

  

  

  


 

Income Before Income Taxes

     1,320,342      32,474      5,712      (8,220 )     1,350,308

Applicable Income Taxes

     442,316      10,834      2,002      (2,877 )     452,275
    

  

  

  


 

Net Income

     878,026      21,640      3,710      (5,343 )     898,033

Dividends on Preferred Stock

     370      —        —        —         370
    

  

  

  


 

Net Income Available to Common Shareholders

   $ 877,656    $ 21,640    $ 3,710    $ (5,343 )   $ 897,663
    

  

  

  


 

Average Shares Outstanding (000’s):

                                   

Basic

     562,280      47,671      7,195              591,909

Diluted

     570,164      48,979      7,715              600,852

Earnings per Share

                                   

Basic

   $ 1.56    $ 0.45    $ 0.52            $ 1.52

Diluted

   $ 1.54    $ 0.44    $ 0.48            $ 1.49

 

See accompanying notes to unaudited pro forma condensed combined financial information.

 

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FIFTH THIRD BANCORP AND SUBSIDIARIES

 

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

For the Year Ended December 31, 2003

($000’s, except share and per share data)

 

     Fifth Third
Bancorp and
Subsidiaries


    First National
Bankshares of
Florida


   Southern
Community
Bancorp


   Pro Forma
Adjustments


    Pro Forma
Combined


 

Interest Income

   $ 3,991,068     $ 166,294    $ 44,262    $ (8,426 )(2)   $ 4,193,198  

Interest Expense

     1,085,642       42,846      17,474      (5,077 )(2)     1,140,885  
    


 

  

  


 


Net Interest Income

     2,905,426       123,448      26,788      (3,349 )     3,052,313  

Provision for Credit Losses

     399,429       7,184      3,206      —         409,819  
    


 

  

  


 


Net Interest Differential

     2,505,997       116,264      23,582      (3,349 )     2,642,494  
    


 

  

  


 


Noninterest Income:

                                      

Service Charges on Deposits

     485,116       18,115      811      —         504,042  

Electronic Payment Processing Revenue

     575,025       —        —        —         575,025  

Investment Advisory Revenue

     332,166       6,559      —        —         338,725  

Mortgage Banking Net Revenue

     301,734       5,590      —        —         307,324  

Operating Lease Revenue

     123,709       —        —        —         123,709  

Other Noninterest Income

     665,078       32,152      4,010      —         701,240  
    


 

  

  


 


Total Noninterest Income

     2,482,828       62,416      4,821      —         2,550,065  
    


 

  

  


 


Noninterest Expenses:

                                      

Salaries, Wages and Benefits

     1,270,738       76,652      9,732      —         1,357,122  

Equipment and Occupancy Expenses

     241,074       19,051      3,729      100 (2)     263,954  

Operating Lease Expenses

     93,525       —        —        —         93,525  

Other Noninterest Expenses

     944,887       34,595      5,441      14,369 (2)     999,292  
    


 

  

  


 


Total Noninterest Expenses

     2,550,224       130,298      18,902      14,469       2,713,893  
    


 

  

  


 


Income from Continuing Operations Before Income Taxes, Minority Interest

     2,438,601       48,382      9,501      (17,818 )     2,478,666  

Applicable Income Taxes

     786,691       16,631      3,380      (6,236 )     800,466  
    


 

  

  


 


Income from Continuing Operations Before Minority Interest

     1,651,910       31,751      6,121      (11,582 )     1,678,200  

Minority Interest, Net of Tax

     (20,458 )     —        —        —         (20,458 )
    


 

  

  


 


Income from Continuing Operations

     1,631,452       31,751      6,121      (11,582 )     1,657,742  

Dividends on Preferred Stock

     740       —        —        —         740  
    


 

  

  


 


Income from Continuing Operations Available to Common Shareholders

   $ 1,630,712     $ 31,751    $ 6,121    $ (11,582 )   $ 1,657,002  
    


 

  

  


 


Average Shares Outstanding (000’s):

                                      

Basic

     571,590       47,464      6,938              600,918  

Diluted

     580,003       48,383      7,262              610,044  

Earnings per Share:

                                      

Basic from continuing operations

   $ 2.85     $ 0.67    $ 0.88            $ 2.76  

Diluted from continuing operations

   $ 2.81     $ 0.66    $ 0.84            $ 2.72  

 

See accompanying notes to unaudited pro forma condensed combined financial information.

 

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Table of Contents

FIFTH THIRD BANCORP AND SUBSIDIARIES

 

NOTES TO THE UNAUDITED PRO FORMA

CONDENSED COMBINED FINANCIAL INFORMATION

($000’S, EXCEPT SHARE AND PER SHARE DATA)

 

Note 1 – Transaction

 

The merger of First National into Fifth Third Financial Corporation will be accounted for using the purchase method of accounting, and accordingly, the assets acquired and liabilities assumed of First National will be recorded at their respective fair values on the date the merger is completed. Each share of First National common stock that is issued and outstanding immediately prior to the effective time of the merger will be cancelled and converted, by virtue of the merger and without any further action, into .5065 shares of Fifth Third Bancorp (Fifth Third) Common Stock (or cash in lieu thereof for fractional shares, if any).

 

The unaudited pro forma financial information includes estimated adjustments to record certain assets acquired and liabilities assumed of First National at their respective fair values. The pro forma adjustments included herein are subject to updates as additional information becomes available and as additional analyses are performed.

 

The final allocation of the purchase price will be determined after the merger is completed and after completion of thorough analyses to determine the fair values of First National’s tangible and identifiable intangible assets and liabilities as of the date the merger is completed. Any change in the fair value of the net assets of First National will change the amount of the purchase price allocable to goodwill. Additionally, changes to First National’s shareholders’ equity, including net income from June 30, 2004 through the date the merger is completed, will also change the amount of goodwill recorded. The final adjustments may be materially different from the unaudited pro forma adjustments presented herein.

 

Note 2 – Pro Forma Adjustments

 

The pro forma adjustments reflect an exchange ratio of .5065 shares (assuming the merger closed on June 30, 2004) of Fifth Third common stock for every share of First National that was outstanding at June 30, 2004. Upon completion of the merger, outstanding options to acquire First National common stock will be exchanged for options to acquire Fifth Third common stock with the number of options and option price adjusted for the exchange ratio. First National stock options exchanged for Fifth Third stock options are considered part of the purchase price, and accordingly, the purchase price includes the fair value of exchanged First National stock options aggregating to $129,530. The fair value of stock options was determined using the market price of Fifth Third common stock at June 30, 2004.

 

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FIFTH THIRD BANCORP AND SUBSIDIARIES

 

NOTES TO THE UNAUDITED PRO FORMA

CONDENSED COMBINED FINANCIAL INFORMATION—(Continued)

($000’S, EXCEPT SHARE AND PER SHARE DATA)

 

The purchase accounting adjustments to record this merger used in the preparation of the unaudited pro forma condensed combined balance sheet are summarized below:

 

Outstanding shares of First National (pro forma) as of June 30, 2004

             58,510,969  

Exchange ratio of Fifth Third shares for First National

             0.5065  
            


Fifth Third shares to be issued

             29,635,806  

Market price of Fifth Third shares as of June 30, 2004

           $ 53.78  
            


Total market value of shares to be issued

             1,593,814  

Fair value of First National pro forma outstanding employee stock options

             129,530  
            


Total purchase price

             1,723,344  
            


First National’s pro forma carrying value of tangible net assets acquired

             250,975  
            


Pro forma excess purchase price over tangible net assets acquired

             1,472,369  

Estimated adjustments to reflect net assets acquired at fair market value:

                

Excess purchase price allocated to tangible assets and liabilities

             (14,506 )

Estimated core deposit intangible:

                

First National pro forma deposits

   $ 3,374,086          

Premium rate

     2.50 %     (84,352 )
    


 


Deferred Income Taxes:

                

Estimated core deposit and other intangibles

   $ 84,352          

Estimated excess purchase price allocated to tangible assets and liabilities

     14,506          
    


       
       98,858          

Income tax rate

     35.0 %     34,600  
    


 


Goodwill

           $ 1,408,111  
            


 

The pro forma excess purchase price over net assets for the Fifth Third/First National (FITB/FLB) transaction and the First National/Southern Community (FLB/SCB) transaction were calculated as follows:

 

     FLB/SCB

   FITB/FLB

Purchase Price

   $ 299,075    $ 1,723,344

Net Assets Acquired

     71,833      250,975
    

  

     $ 227,242    $ 1,472,369
    

  

 

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FIFTH THIRD BANCORP AND SUBSIDIARIES

 

NOTES TO THE UNAUDITED PRO FORMA

CONDENSED COMBINED FINANCIAL INFORMATION—(Continued)

($000’S, EXCEPT SHARE AND PER SHARE DATA)

 

The excess purchase price over the net assets was allocated to acquired assets and liabilities assumed as follows:

 

     As of June 30, 2004

 
     FLB/SCB

    FITB/FLB

    Elim (a)

    Total

 

Loans and Leases

   $ 7,189     $ 22,507     $ —       $ 29,696  

Bank Premises and Equipment

     1,000       —         —         1,000  

Intangible Assets

     14,575       84,352       (21,704 )     77,223  

Total Deposits

     (5,454 )     (3,105 )     —         (8,559 )

Accrued Taxes, Interest and Expenses

     (6,198 )     (34,600 )     6,198       (34,600 )

Other Liabilities

     —         —         54       54  

Long-Term Debt

     —         (4,896 )     —         (4,896 )

Goodwill

     216,130       1,408,111       (391,051 )     1,233,190  
    


 


 


 


     $ 227,242     $ 1,472,369     $ (406,503 )   $ 1,293,108  
    


 


 


 


 

(a) Represents the elimination of First National’s pro forma goodwill and intangible assets and related deferred taxes.

 

The excess purchase price allocated to tangible assets and liabilities will be amortized/ accreted into income over the life of the respective asset or liability.

 

The pro forma adjustments impacting shareholders’ equity are as follows:

 

     FLB/SCB

    FITB/FLB

    Combined

 

Shareholders’ Equity:

                      

Common Stock Adjustment

                      

Acquirer shares of common stock to be issued

           29,635,806          

Acquirer stated value

         $ 2.22          
          


       

Book value of common stock issued

           65,792     $ 65,792  

Less: Target common stock

   (7,307 )     (479 )     (7,786 )
          


 


Common Stock Adjustment

           65,313       58,006  
          


 


Capital Surplus Adjustment

                      

Acquirer common stock issued in excess of par

           1,528,022       1,528,022  

Fair Value of target outstanding employee stock options

           129,530       129,530  

Target paid in capital

   (56,962 )     (369,828 )     (426,790 )
          


 


Capital Surplus Adjustment

           1,287,724       1,230,762  
          


 


Elimination of retained earnings

   (10,626 )     (11,174 )     (21,800 )

Elimination of accumulated other comprehensive income

   3,062       12,195       15,257  

Elimination of treasury stock

           6,865       6,865  

Elimination of unearned compensation—Restricted Stock Awards

           4,018       4,018  
          


 


Shareholders’ Equity Adjustment

         $ 1,364,941     $ 1,293,108  
          


 


 

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FIFTH THIRD BANCORP AND SUBSIDIARIES

 

NOTES TO THE UNAUDITED PRO FORMA

CONDENSED COMBINED FINANCIAL INFORMATION—(Continued)

($000’S, EXCEPT SHARE AND PER SHARE DATA)

 

The pro forma adjustments impacting the statements of income are as follows:

 

     Six Months Ended June 30, 2004

 
     FLB/SCB

    FITB/FLB

    Eliminations (b)

    Total

 

Interest Income Adjustment

                                

Amortization of premium on loans and leases

   $ (1,435 )   $ (2,197 )   $ —       $ (3,632 )

Interest Expense Adjustment

                                

Amortization of premium on deposits

     (1,104 )     (424 )     —         (1,528 )

Amortization of premium long-term debt

             (582 )     —         (582 )

Trust preferred securities issued in FLB/SCB Transaction (c)

     244       —         —         244  
    


 


 


 


Total Interest Expense Adjustment

     (860 )     (1,006 )     —         (1,866 )

Equipment and Occupancy Expense Adjustment

                                

Depreciation of fair value adjustment to bank premises and equipment

     50                       50  

Other Noninterest Expense Adjustment

                                

Core deposit intangible amortization

     729       6,902       (1,227 )     6,404  
     Twelve Months Ended December 31, 2003

 
     FLB/SCB

    FITB/FLB

    Eliminations (b)

    Total

 

Interest Income Adjustment

                                

Amortization of premium on loans and leases

   $ (2,876 )   $ (5,550 )   $ —       $ (8,426 )

Interest Expense Adjustment

                                

Amortization of premium on deposits

     (2,208 )     (2,680 )     —         (4,888 )

Amortization of premium long-term debt

             (1,164 )     —         (1,164 )

Trust preferred securities issued in FLB/SCB Transaction (c)

     975       —         —         975  
    


 


 


 


Total Interest Expense Adjustment

     (1,233 )     (3,844 )     —         (5,077 )

Equipment and Occupancy Expense Adjustment

                                

Depreciation of fair value adjustment to bank premises and equipment

     100                       100  

Other Noninterest Expense Adjustment

                                

Core deposit intangible amortization

     1,458       15,337       (2,426 )     14,369  

 

(b) Represents the elimination of First National’s core deposit intangible amortization for acquisitions prior to Southern Community.

 

(c) On March 31, 2004, First National issued $25.0 million in trust preferred securities. The proceeds from the issuance of the trust preferred securities is being used to repurchase up to 1.1 million of First National’s common stock to offset the dilutive impact of the Southern Community Bancorp stock options that were assumed in that merger. The trust preferred securities bear interest at a rate equal to 3-month LIBOR plus 279 basis points and mature in 30 years. The impact of the trust preferred securities based on the interest rate in effect on March 31, 2004 of 3.90% is to increase interest expense $244 for the six months ended June 30, 2004 and $975 for the

 

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FIFTH THIRD BANCORP AND SUBSIDIARIES

 

NOTES TO THE UNAUDITED PRO FORMA

CONDENSED COMBINED FINANCIAL INFORMATION—(Continued)

($000’S, EXCEPT SHARE AND PER SHARE DATA)

 

year ended December 31, 2003. An increase in the interest rate on the trust preferred securities of 50 basis points would result in additional interest expense of $31 for the six month period ended June 30, 2004 and $125 for the year ended December 31, 2003.

 

Income tax expense for the above pro forma adjustments were provided using a 35% tax rate.

 

The expected life of the core deposit intangible has been estimated at 10 years and amortization is included in the pro forma condensed combined statements of income based on a sum-of-the-years digits amortization method.

 

The pro forma financial statements do not include any amount related to one-time combination costs, including acquisition-related, integration and restructuring charges estimated to be approximately $4 million for the First National/Southern Community transaction and $100 million for the Fifth Third/First National transaction. The charges will be recorded based on the nature and timing of actions to be taken with respect to both Fifth Third’s and First National’s operations, facilities and employees.

 

Note 3 – Goodwill

 

In accordance with Statement of Financial Accounting Standard No. 142, “Goodwill and Other Intangible Assets”, the goodwill of $1,408 million recognized as a result of this merger will not be amortized. However, as required by the standard, impairment of goodwill will be subject to an examination if certain indicators are encountered, in addition to the annual review.

 

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SELECTED HISTORICAL FINANCIAL DATA OF FIFTH THIRD

 

The following table sets forth certain historical financial data concerning Fifth Third for the five years ended December 31, 2003. This data is based on information contained in Fifth Third’s restated 2003 Annual Report included on Form 8-K filed on April 14, 2004 and on unaudited information contained in Fifth Third’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 filed on August 6, 2004, which are incorporated by reference into this document. The financial statements include all adjustments (which consist of normal recurring accruals) necessary to present fairly the condensed results of operations for the five years ended December 31, 2003. Financial data for all periods has been restated to reflect the 2004 adoption of Statement of Financial Accounting Standard No. 123 (“Accounting for Stock-Based Compensation”), the fourth quarter 1999 mergers with CNB Bancshares, Inc. and Peoples Bank Corporation of Indianapolis and the second quarter 2001 merger with Old Kent Financial Corporation. The mergers were accounted for as poolings-of-interest. All share and per share information has been retroactively adjusted to reflect the 3-for-2 stock splits affected in the form of stock dividends paid on July 14, 2000.

 

    June 30,

    December 31,

    2004

  2003

    2003

    2002

    2001(1)

    2000(2)

  1999(3)

Summary of Operations:

                                                 

Interest income

  $ 1,990,255   $ 2,020,216     $ 3,991,068     $ 4,129,412     $ 4,708,825     $ 4,947,372   $ 4,199,445

Interest expense

    478,551     574,645       1,085,642       1,430,360       2,278,295       2,697,348     2,025,665
   

 


 


 


 


 

 

Net interest income

    1,511,704     1,445,571       2,905,426       2,699,052       2,430,530       2,250,024     2,173,780

Provision for credit losses

    171,162     193,694       399,429       246,611       236,077       137,661     169,445
   

 


 


 


 


 

 

Net interest income after provision for credit losses

    1,340,542     1,251,877       2,505,997       2,452,441       2,194,453       2,112,363     2,004,335

Noninterest income

    1,375,531     1,203,145       2,482,828       2,183,042       1,787,683       1,475,679     1,334,599

Noninterest expenses

    1,395,731     1,235,172       2,550,224       2,337,054       2,452,337       2,027,381     1,987,280
   

 


 


 


 


 

 

Income from continuing operations before income taxes, minority interest and cumulative effect

    1,320,342     1,219,850       2,438,601       2,298,429       1,529,799       1,560,661     1,351,654

Applicable income taxes

    442,316     395,934       786,691       733,976       523,152       510,995     483,237
   

 


 


 


 


 

 

Income from continuing operations before minority interest and cumulative effect

    878,026     823,916       1,651,910       1,564,453       1,006,647       1,049,666     868,417

Minority interest, net of tax

    —       (20,458 )     (20,458 )     (37,680 )     (2,490 )     —       —  
   

 


 


 


 


 

 

Income from continuing operations before cumulative effect

    878,026     803,458       1,631,452       1,526,773       1,004,157       1,049,666     868,417

Income from discontinued operations, net of tax

    —       1,948       43,896       3,979       4,255       5,396     3,200
   

 


 


 


 


 

 

Income before cumulative effect

    878,026     805,406       1,675,348       1,530,752       1,008,412       1,055,062     871,617

Cumulative effect of a change in accounting principle, net of tax

    —       —         (10,762 )     —         (6,781 )     —       —  
   

 


 


 


 


 

 

Net income

    878,026     805,406       1,664,586       1,530,752       1,001,631       1,055,062     871,617

Dividends on preferred stock

    370     370       740       740       740       740     740
   

 


 


 


 


 

 

Net income available to common shareholders

  $ 877,656   $ 805,036     $ 1,663,846     $ 1,530,012     $ 1,000,891     $ 1,054,322   $ 870,877
   

 


 


 


 


 

 

Common Share Data:

                                                 

Earnings per share:

                                                 

Income from continuing operations

  $ 1.56   $ 1.40     $ 2.85     $ 2.63     $ 1.74     $ 1.85   $ 1.55

Income from discontinued operations, net

    —       —         .08       .01       .01       .01     —  

Cumulative effect of change in accounting principle, net

    —       —         (.02 )     —         (.01 )     —       —  
   

 


 


 


 


 

 

Net income available to common shareholders

  $ 1.56   $ 1.40     $ 2.91     $ 2.64     $ 1.74     $ 1.86   $ 1.55

Earnings per diluted share:

                                                 

Income from continuing operations

  $ 1.54   $ 1.38     $ 2.81     $ 2.58     $ 1.70     $ 1.82   $ 1.53

Income from discontinued operations, net

    —       —         .08       .01       .01       .01     —  

Cumulative effect of change in accounting principle, net

    —       —         (.02 )     —         (.01 )     —       —  
   

 


 


 


 


 

 

Net income available to common shareholders

  $ 1.54   $ 1.38     $ 2.87     $ 2.59     $ 1.70     $ 1.83   $ 1.53

Cash dividends declared per share

    .64     .55       1.13       .98       .83       .70     .59

Book value at period end

    14.97     15.25       15.29       14.98       13.31       11.83     9.91

Average shares outstanding

    562,280     574,126       571,590       580,327       575,254       565,686     562,041

Average diluted shares outstanding

    570,164     582,233       580,003       592,020       591,316       578,973     575,895

(1) Provision for credit losses and operating expenses for 2001 include $35.4 million and $348.6 million, respectively, of pre-tax merger charges ($293.6 million after tax, or $0.50 per diluted share).
(2) Provision for credit losses and operating expenses for 2000 include $12.0 million and $87.0 million, respectively, of pre-tax merger charges ($66.6 million after tax, or $0.12 per diluted share).
(3) Provision for credit losses and operating expenses for 1999 include $26.2 million and $108.1 million, respectively, of pre-tax merger charges ($101.4 million after tax, or $0.18 per diluted share).

 

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    June 30,

    December 31,

 
    2004

    2003

    2003

    2002

    2001(1)

    2000(2)

    1999(3)

 

Financial Condition at Period End:

                                                       

Securities

  $ 30,488,677     $ 29,206,838     $ 29,189,776     $ 25,534,110     $ 20,523,066     $ 19,581,366     $ 16,663,764  

Loans and leases

    56,679,241       49,356,499       52,307,853       45,928,136       41,547,892       42,530,390       38,836,589  

Assets

    95,613,539       88,302,911       91,181,096       80,932,521       71,064,413       69,671,011       62,156,688  

Deposits

    57,907,454       55,875,063       57,095,309       52,208,427       45,854,090       48,359,441       41,855,805  

Short-term borrowings

    11,517,175       11,527,487       13,170,707       8,823,145       7,452,730       6,344,964       10,095,747  

Long-term debt and convertible subordinated notes

    14,775,201       8,338,341       9,062,830       8,178,704       7,029,926       6,238,143       3,278,692  

Shareholders’ equity

    8,392,704       8,690,775       8,667,003       8,604,392       7,752,761       6,734,698       5,602,944  

Profitability Ratios:

                                                       

Return on average assets

    1.90 %     1.91 %     1.90 %     2.04 %     1.42 %     1.58 %     1.44 %

Return on average shareholders’ equity

    20.4 %     18.3 %     19.0 %     18.4 %     13.6 %     17.5 %     15.8 %

Net interest margin

    3.57 %     3.71 %     3.62 %     3.96 %     3.82 %     3.73 %     3.96 %

Efficiency ratio(4)

    48.0 %     46.3 %     47.0 %     47.5 %     57.5 %     53.7 %     56.0 %

Noninterest income to total income(5)

    47.6 %     45.4 %     46.1 %     44.7 %     42.4 %     39.6 %     38.0 %

Dividend payout

    41.6 %     39.9 %     39.4 %     37.8 %     48.8 %     41.7 %     45.5 %

Capital Ratios:

                                                       

Average shareholders’ equity to average assets

    9.32 %     10.45 %     10.01 %     11.08 %     10.40 %     9.06 %     9.12 %

Tier 1 risk-adjusted capital

    10.52 %     11.47 %     11.07 %     11.84 %     12.49 %     11.40 %     11.37 %

Total risk-adjusted capital

    12.75 %     13.97 %     13.51 %     13.65 %     14.55 %     13.50 %     13.21 %

Tier 1 leverage

    8.97 %     9.29 %     9.23 %     9.84 %     10.64 %     9.49 %     9.10 %

Ratio of Earnings to Fixed
Charges:(6)

                                                       

Including deposit interest

    3.71 x     3.10 x     3.22 x     2.59 x     1.67 x     1.58 x     1.66 x

Excluding deposit interest

    6.14 x     5.71 x     5.76 x     5.48 x     3.07 x     2.75 x     3.14 x

Ratio of Earnings to Fixed Charges and Preferred Stock Dividends:(6)

                                                       

Including deposit interest

    3.70 x     3.09 x     3.21 x     2.59 x     1.67 x     1.58 x     1.66 x

Excluding deposit interest

    6.11 x     5.69 x     5.75 x     5.47 x     3.06 x     2.75 x     3.13 x

Credit Quality Ratios:

                                                       

Reserve for credit losses to nonperforming assets

    286.87 %     239.72 %     242.01 %     250.62 %     265.45 %     303.85 %     370.86 %

Reserve for credit losses to loans and leases outstanding

    1.43 %     1.49 %     1.47 %     1.49 %     1.50 %     1.43 %     1.48 %

Net charge-offs to average loans and leases outstanding

    .48 %     .60 %     .63 %     .43 %     .54 %     .26 %     .39 %

Nonperforming assets to loans, leases and other real estate owned

    .50 %     .62 %     .61 %     .59 %     .57 %     .47 %     .40 %

(1) Provision for credit losses and operating expenses for 2001 include $35.4 million and $348.6 million, respectively, of pre-tax merger charges ($293.6 million after tax, or $0.50 per diluted share).
(2) Provision for credit losses and operating expenses for 2000 include $12.0 million and $87.0 million, respectively, of pre-tax merger charges ($66.6 million after tax, or $0.12 per diluted share).
(3) Provision for credit losses and operating expenses for 1999 include $26.2 million and $108.1 million, respectively, of pre-tax merger charges ($101.4 million after tax, or $0.18 per diluted share).
(4) Operating expenses divided by the sum of taxable-equivalent net interest income and other operating income.
(5) Other operating income as a percent of net interest income and other operating income.
(6) Earnings represent income before income taxes plus fixed charges. Fixed charges include interest expense and the proportion deemed representative of the interest factor of rental expense.

 

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SELECTED HISTORICAL FINANCIAL DATA OF FIRST NATIONAL

 

The following table sets forth certain historical financial data concerning First National for the five years ended December 31, 2003. This information is based on information contained in First National’s 2003 Annual Report on Form 10-K and on unaudited information contained in First National’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 filed on August 9, 2004, which are incorporated by reference in this document. The financial statements include all adjustments (which consist of normal recurring accruals) necessary to present fairly the condensed results of operations for the five years ended December 31, 2003.

 

     June 30,

   December 31,

     2004

   2003(1)

   2003(2)

   2002(3)

   2001(4)

   2000

   1999(5)

Summary of Operations:

                                                

Interest income

   $ 88,937    $ 81,858    $ 166,294    $ 150,931    $ 148,728    $ 150,196    $ 127,455

Interest expense

     22,764      22,047      42,846      47,299      65,316      74,606      55,896
    

  

  

  

  

  

  

Net interest income

     66,173      59,811      123,448      103,632      83,412      75,590      71,559

Provision for credit losses

     2,275      3,560      7,184      5,470      4,468      5,589      3,881
    

  

  

  

  

  

  

Net interest income after provision for credit losses

     63,898      56,251      116,264      98,162      78,944      70,001      67,678

Noninterest income

     34,466      32,627      62,416      54,728      47,980      36,281      35,140

Noninterest expenses

     65,890      59,781      130,298      104,441      93,588      75,964      79,778
    

  

  

  

  

  

  

Income before income taxes

     32,474      29,097      48,382      48,449      33,336      30,318      23,040

Applicable income taxes

     10,834      9,792      16,631      16,385      12,120      10,563      6,675
    

  

  

  

  

  

  

Net income

   $ 21,640    $ 19,305    $ 31,751    $ 32,064    $ 21,216    $ 19,755    $ 16,365
    

  

  

  

  

  

  

Common Share Data:

                                                

Earnings per share

   $ .45    $ .41    $ .67    $ .68    $ .46    $ .43    $ .35

Earnings per diluted share

     .44      .40      .66      .66      .45      .42      .34

Cash dividends declared per share

     .14      —        —        —        —        —        —  

Book value at period end

     7.54      8.96      7.64      5.62      3.93      3.50      3.22

Average shares outstanding

     47,671      47,436      47,460      47,390      45,749      46,186      46,314

Average diluted shares outstanding

     48,979      48,297      48,388      48,483      46,878      47,156      47,566

(1) Noninterest expenses for the six month period ended June 30, 2003 include $1.0 million of pre-tax merger charges ($.7 million after tax, or $.01 per diluted share).
(2) Noninterest expenses for 2003 include $1.2 million of pre-tax merger charges ($.8 million after tax, or $.03 per diluted share).
(3) Noninterest expenses for 2002 include $.4 million of pre-tax merger charges ($.3 million after tax, or $.01 per diluted share).
(4) Noninterest expenses for 2001 include $2.7 million of pre-tax merger charges ($1.9 million after tax, or $.06 per diluted share).
(5) Noninterest expenses for 1999 include $1.5 million of pre-tax merger charges ($1.2 million after tax, or $.03 per diluted share).

 

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    June 30,

    December 31,

 
    2004

    2003

    2003

    2002

    2001

    2000

    1999

 

Financial Condition at Period End:

                                                       

Securities

  $ 879,952     $ 822,582     $ 775,334     $ 385,269     $ 234,140     $ 265,861     $ 264,610  

Loans and leases

    2,677,862       2,296,770       2,449,382       1,960,895       1,704,831       1,594,729       1,439,260  

Assets

    4,087,319       3,668,719       3,751,136       2,735,204       2,202,004       2,125,737       1,936,455  

Deposits

    2,977,611       2,741,164       2,719,989       2,122,052       1,760,163       1,686,505       1,506,236  

Short-term borrowings

    388,724       260,988