<PAGE> 1
As filed with the Securities and Exchange Commission on August 1, 1997
Registration No. 333-29649
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
OHIO STATE FINANCIAL SERVICES, INC.
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Ohio 6036 31-1529204
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(State or other jurisdiction (Primary Standard Industrial (I.R.S. employer
of incorporation or organization) Classification Code Number) identification number)
</TABLE>
435 MAIN STREET
BRIDGEPORT, OHIO 43912
(614) 635-0764
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(Address, including Zip Code, and telephone number, including
area code, of registrant's principal executive offices)
JON W. LETZKUS
OHIO STATE FINANCIAL SERVICES, INC.
435 MAIN STREET
BRIDGEPORT, OHIO 43912
(614) 635-0764
---------------------------------------------------------
(Name, address, including Zip Code, and telephone number,
including area code, of agent for service)
With copies to:
Terri R. Abare
Kathleen M. Molinsky
Vorys, Sater, Seymour and Pease
Atrium Two, 221 East Fourth Street
Cincinnati, Ohio 45202
(513) 723-4000
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after the Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 of the Securities
Act of 1933, check the following box: [X]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Title of each class Proposed maximum Proposed maximum
of securities to be Amount to be offering price aggregate offering Amount of
registered registered per share price(1) registration fee
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Common shares,
without par value 892,687 $10.00 $8,926,870 $2,706
===============================================================================================================================
<FN>
(1) Estimated solely for the purpose of calculating the registration fee.
</TABLE>
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
CROSS REFERENCE SHEET
Showing the location in the Prospectus of the Items of Form S-1
<TABLE>
<CAPTION>
Form S-1 Item and Caption Prospectus Heading
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<S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus........... Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus.................................... Cover Page, Back Cover Page
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges..................... PROSPECTUS SUMMARY; RISK FACTORS
4. Use of Proceeds...................................... USE OF PROCEEDS
5. Determination of Offering Price...................... Cover Page; THE CONVERSION - Price and Number of
Common Shares to be Sold
6. Dilution............................................. Not Applicable
7. Selling Security Holders............................. Not Applicable
8. Plan of Distribution................................. Cover Page; THE CONVERSION - General;
- Subscription Offering;
- Community Offering;
- Plan of Distribution
9. Description of Securities to be Registered........... DESCRIPTION OF AUTHORIZED SHARES
10. Interest of Names Experts and Counsel................ Not Applicable
11. Information with Respect to the Registrant
(a) Description of Business......................... THE BUSINESS OF THE ASSOCIATION
(b) Description of Property......................... THE BUSINESS OF THE ASSOCIATION - Properties
(c) Legal Proceedings............................... THE BUSINESS OF THE ASSOCIATION - Legal Proceedings
(d) Market Price and Dividends...................... Cover Page; MARKET FOR COMMON SHARES; DIVIDEND POLICY
(e) Financial Statements............................ FINANCIAL STATEMENTS
(f) Selected Financial Data......................... SELECTED FINANCIAL INFORMATION AND OTHER DATA
(g) Supplementary Financial Information............. Not Applicable
(h) Management's Discussion and Analysis of
Financial Condition and Results of Operations. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(i) Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure.................................... Not Applicable
(j) Directors and Executive Officers................ MANAGEMENT
(k) Executive Compensation.......................... MANAGEMENT - Compensation; and - Stock Benefit Plans
(l) Security Ownership of Certain Beneficial
Owners and Management......................... THE CONVERSION - Shares to be Purchased by Management
Pursuant to Subscription Rights
</TABLE>
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<TABLE>
<CAPTION>
Form S-1 Item and Caption Prospectus Heading
- ------------------------- ------------------
<S> <C> <C>
(m) Certain Relationships and Related
Transactions.................................. Not Applicable
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities..... Not Applicable
</TABLE>
<PAGE> 4
PROSPECTUS SUPPLEMENT
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OHIO STATE FINANCIAL SERVICES, INC.
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION EMPLOYEE
SAVINGS & PROFIT SHARING PLAN
This Prospectus Supplement relates to the offer and sale to
participants (the "Participants") in the Bridgeport Savings and Loan Association
Employees' Savings & Profit Sharing Plan and Trust of participation interests
and common shares, without par value, of Ohio State Financial Services, Inc.
(the "Common Shares"), as set forth herein.
In connection with the proposed conversion of Bridgeport Savings and Loan
Association (the "Association" or the "Employer") from a mutual savings and loan
association to a stock savings and loan association incorporated under Ohio law
(the "Conversion"), Ohio State Financial Services, Inc., the proposed holding
company for the Association (the "Holding Company"), has been formed. The Board
of Directors of the Association has adopted the Bridgeport Savings and Loan
Association Employees' Savings & Profit Sharing Plan and Trust (the "Plan" or
the "401(k) Plan") which permits the investment of Plan assets in Common Shares.
The Plan will permit Participants to direct the trustee of the Plan (the
"Trustees") to purchase Common Shares with amounts in the Plan attributable to
such Participants. This Prospectus Supplement relates to the initial election of
a Participant to direct the purchase of Common Shares in connection with the
Conversion and also to elections to purchase Common Shares after the Conversion.
The Prospectus of the Holding Company dated _________________, 1997
(the "Prospectus"), which is attached to this Prospectus Supplement, includes
detailed information regarding the Conversion, the Common Shares and the
financial condition, results of operation and business of the Association and
the Holding Company. This Prospectus Supplement, which provides detailed
information regarding the Plan, should be read only in conjunction with the
Prospectus. Terms not otherwise defined in this Prospectus Supplement are
defined in the Plan or the Prospectus.
A Participant's eligibility to purchase Common Shares in connection
with the Conversion is subject to the Participant's general eligibility to
purchase Common Shares in the Conversion and the minimum and maximum purchase
limitations set forth in the Plan of Conversion. See "THE CONVERSION -
Subscription Offering; Community Offering; and - Limitations on Purchases of
Common Shares" in the Prospectus.
AN INVESTMENT IN THE COMMON SHARES INVOLVES CERTAIN RISKS. FOR A
DISCUSSION OF SUCH RISKS AND OTHER FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS, SEE "RISK FACTORS" BEGINNING ON PAGE 8 OF THE
PROSPECTUS.
<PAGE> 5
THESE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC"), THE OFFICE OF THRIFT
SUPERVISION (THE "OTS"), THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE "FDIC"),
THE DIVISION OF FINANCIAL INSTITUTIONS OF THE DEPARTMENT OF COMMERCE OF THE
STATE OF OHIO (THE "DIVISION"), OR THE SECURITIES COMMISSION OF ANY STATE, NOR
HAS THE SEC, THE OTS, THE FDIC, THE DIVISION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus Supplement is _________ 1997.
<PAGE> 6
No person has been authorized to give any information or to make any
representations other than as contained in the Prospectus or this Prospectus
Supplement, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Holding Company, the Association
or the Plan. This Prospectus Supplement does not constitute an offer to sell, or
the solicitation of an offer to buy, any securities, to any person in any
jurisdiction in which such offer or solicitation is not authorized or in which
the person making such offer or solicitation is not qualified to do so or to any
person to whom delivery of this Prospectus would be unlawful. Neither the
delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein or incorporated by reference is correct as of any
time subsequent to the date hereof. This Prospectus Supplement should be read
only in conjunction with the Prospectus that is attached hereto and should be
retained for future reference.
<PAGE> 7
TABLE OF CONTENTS
THE OFFERING 1
Securities Offered 1
Election to Purchase Common Shares in the Conversion 1
Value of Participation Interests 1
Method of Directing Transfer 1
Time for Directing Transfer 2
Irrevocability of Transfer Direction 2
Direction to Purchase Common Shares After the Conversion 2
Purchase Price of Common Shares 2
Nature of a Participant's Interest in the Common Shares 3
Voting and Tender Rights of Common Shares 3
DESCRIPTION OF THE PLAN 3
Introduction 3
Eligibility and Participation 4
Contributions Under the Plan 4
Limitations on Contributions 5
Investment of Contributions 6
Benefits Under the Plan 10
Administration of the Plan 12
Reports to Plan Participants 13
Plan Administrator 13
Amendment and Termination 13
Merger, Consolidation or Transfer 13
Federal Income Tax Consequences 13
ERISA and Other Qualifications 16
Restrictions on Resale 16
SEC Reporting and Short-Swing Profit Liability 17
LEGAL OPINIONS 18
INVESTMENT FORM 19
<PAGE> 8
THE OFFERING
SECURITIES OFFERED
The securities offered hereby are participation interests in the Plan
and up to _________ Common Shares, at the purchase price of $10.00 per Common
Share, which may be acquired by the Plan for the accounts of employees of the
Association participating in the Plan. The Holding Company is the issuer of the
Common Shares. Only employees of the Association may participate in the Plan.
Information regarding the Plan is contained in this Prospectus Supplement and
information with regard to the Conversion and the financial condition, results
of operations and business of the Association and the Holding Company is
contained in the attached Prospectus. The address of the principal office of the
Association is 435 Main Street, Bridgeport, Ohio 43912. The Association's
telephone number is (614) 635-0764.
ELECTION TO PURCHASE COMMON SHARES IN THE CONVERSION
In connection with the Conversion, the Association has adopted the Plan
which permits each Participant to direct the trustee of the Plan (the "Trustee")
to transfer all or part of the funds which represent his or her beneficial
interest in the assets of the Plan to an employer stock fund (the "Employer
Stock Fund") and to use such funds to purchase Common Shares. Amounts
transferred will include salary deferral contributions, Association matching
contributions and rollover contributions, if any. The Employer Stock Fund will
consist of investments in the Common Shares made on or after the effective date
of the Conversion. Funds not transferred to the Employer Stock Fund will remain
in the other investment funds of the Plan as directed by the Participant. A
Participant's ability to transfer funds to the Employer Stock Fund in the
Conversion is subject to the Participant's general eligibility to purchase
Common Shares in the Conversion. For information as to the ability of
Participants to purchase Common Shares in the Conversion, see "THE CONVERSION -
Subscription Offering; and Community Offering" in the attached Prospectus.
VALUE OF PARTICIPATION INTERESTS
The assets of the Plan will be valued on an ongoing basis and each
Participant will be informed of the value of his or her beneficial interest in
the Plan on a quarterly basis. This value represents the market value of past
contributions to the Plan by the Association and by the Participants and
earnings thereon, less previous withdrawals.
METHOD OF DIRECTING TRANSFER
The last page of this Prospectus Supplement is an investment form to
direct a transfer to the Employer Stock Fund (the "Investment Form"). If a
Participant wishes to transfer all or part of his or her beneficial interest in
the assets of the Plan to the Employer Stock Fund to purchase Common Shares in
the Conversion, he or she should indicate that election in Part C of the
Investment Form. If a Participant does not wish to make such an election, he or
she does not need to take any action.
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TIME FOR DIRECTING TRANSFER
The deadline for submitting a direction to transfer amounts to the
Employer Stock Fund in order to purchase Common Shares issued in connection with
the Conversion is ______________, 1997. The Investment Form should be returned
to ________________ by noon, Bridgeport, Ohio Time, on such date.
IRREVOCABILITY OF TRANSFER DIRECTION
A Participant's direction to transfer amounts credited to such
Participant's account in the Plan to the Employer Stock Fund in order to
purchase Common Shares in connection with the Conversion shall be irrevocable.
Participants, however, will be able to direct the reinvestment of their accounts
under the Plan ("401(k) Accounts") after the Conversion as explained below.
DIRECTION TO PURCHASE COMMON SHARES AFTER THE CONVERSION
After the Conversion, a Participant will be able to direct that a
certain percentage of such Participant's interests in the trust assets (the
"Trust") be transferred to the Employer Stock Fund and invested in Common
Shares, or to the other investment funds available under the Plan.
Alternatively, a Participant may direct that a certain percentage of such
Participant's interest in the Employer Stock Fund be transferred from the
Employer Stock Fund to the other investment funds available under the Plan.
Participants will be permitted to direct that future contributions made to the
Plan by or on their behalf be invested in Common Shares. Following the initial
election, the allocation of a Participant's interest in the Employer Stock Fund
may be changed by the Participant, with each change generally becoming effective
on the last business day coinciding with or next following the day the Plan
Administrator receives a written notice for such change. Special restrictions
apply to transfers directed by those Participants who are executive officers,
directors and principal shareholders of the Holding Company who are subject to
the provisions of Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). See "Restrictions on Resale" and "THE CONVERSION -
Restrictions on Transferability of Common Shares by Directors and Officers" in
the Prospectus.
PURCHASE PRICE OF COMMON SHARES
The funds transferred to the Employer Stock Fund for the purchase of
Common Shares in the Conversion will be used by the Trustee to purchase Common
Shares. The price paid for such Common Shares purchased in the Conversion will
be $10.00 per share, the same price paid by all other persons who purchase
Common Shares in the Conversion.
Any Common Shares purchased by the Trustee after the Conversion will be
acquired in open market transactions. The prices paid by the Trustee for Common
Shares purchased in the open market will not exceed "adequate consideration" as
defined in Section 3(18) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA").
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NATURE OF A PARTICIPANT'S INTEREST IN THE COMMON SHARES
The Common Shares will be held in the name of the Trustee for the Plan,
as trustee. Each Participant has an allocable interest in the investment funds
of the Plan but not in any particular assets of the Plan. Accordingly, a
specific number of Common Shares will not be directly attributable to the
account of any Participant. Net earnings or losses will be allocated to the
Account of a Participant based on the particular investment designations of the
Participants. Therefore, a Participant's Account earnings should not be affected
by the investment designations (including investments in Common Shares) of other
Participants.
VOTING AND TENDER RIGHTS OF COMMON SHARES
The Trustee generally will exercise voting and tender rights
attributable to all Common Shares held by the Trust as directed by the
Administrator of the Plan.
DESCRIPTION OF THE PLAN
INTRODUCTION
The Association adopted the Plan effective August 1, 1997, as an
amendment and restatement of the Association's prior retirement plan. The Plan
is a profit sharing plan with a cash or deferred arrangement established in
accordance with the requirements under Section 401(a) and Section 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code").
The Association intends that the Plan, in operation, will comply with
the requirements under Section 401(a) and Section 401(k) of the Code. The
Association will adopt any amendments to the Plan that may be necessary to
ensure the qualified status of the Plan under the Code and applicable U.S.
Treasury regulations. The Association will submit the Plan to the IRS for a
determination that the Plan, as amended, is qualified under Section 401(a) of
the Code and that it satisfies the requirements for a qualified cash or deferred
arrangement under Section 401(k) of the Code.
The Plan is an "individual account plan" other than a "money purchase
pension plan" within the meaning of ERISA. As such, the Plan is subject to all
of the provisions of Title I (Protection of Employee Benefit Rights) and Title
II (Amendments to the Internal Revenue Code Relating to Retirement Plans) of
ERISA, except the funding requirements contained in Part 3 of Title l of ERISA
which by their terms do not apply to an individual account plan (other than a
money purchase pension plan). The Plan is not subject to Title IV (Plan
Termination Insurance) of ERISA. Neither the funding requirements contained in
Part 3 of Title I of ERISA nor the plan termination insurance provisions
contained in Title IV of ERISA will be extended to Participants or beneficiaries
under the Plan.
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL
RESTRICTIONS ON THE RIGHT OF A PLAN PARTICIPANT TO
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<PAGE> 11
WITHDRAW AMOUNTS HELD FOR HIS BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S
TERMINATION OF EMPLOYMENT WITH THE ASSOCIATION. A SUBSTANTIAL FEDERAL TAX
PENALTY MAY ALSO BE IMPOSED ON WITHDRAWALS MADE PRIOR TO THE PARTICIPANT'S
ATTAINMENT OF AGE 59 1/2, UNLESS A PARTICIPANT RETIRES AS PERMITTED UNDER THE
PLAN REGARDLESS OF WHETHER SUCH A WITHDRAWAL OCCURS DURING HIS EMPLOYMENT WITH
THE ASSOCIATION OR AFTER TERMINATION OF EMPLOYMENT.
The following statements are summaries of certain material provisions
of the Plan. They are not complete and are qualified in their entirety by the
full text of the Plan, which has been filed as an exhibit to the registration
statement of the Holding Company filed with the SEC. Copies of the Plan are
available to all employees by filing a request with the Plan Administrator. Each
employee is urged to read carefully the full text of the Plan.
ELIGIBILITY AND PARTICIPATION
Any employee of the Association is eligible to participate in the Plan
and will become a Participant in the Plan on the first day of the month
immediately following the completion of a minimum of 1,000 hours of service with
the Association within a twelve consecutive month period of employment with the
Association. The Plan fiscal year is the calendar year (the "Plan Year").
Directors who are not employees of the Association are not eligible to
participate in the Plan.
As of _____________, 1997, there were approximately __ employees
eligible to participate in the Plan, and approximately __ employees had elected
to contribute to the Plan.
CONTRIBUTIONS UNDER THE PLAN
Participant Contributions. Each Participant in the Plan is permitted to
elect to reduce such Participant's Compensation (hereinafter defined) pursuant
to a salary reduction agreement by an amount not less than 1% nor more than 15%
and have that amount contributed to the Plan on such Participant's behalf
("Deferred Compensation"). Such amounts are credited to the Participant's 401(k)
Account. For purposes of the Plan, "Compensation" means a Participant's regular
basic salary ("Basic Salary"). The annual compensation of each Participant taken
into account under the Plan is limited to $150,000 (adjusted for cost of living
as permitted by the Code). A Participant may elect as of the first day of any
month to modify the amount contributed to the Plan under such Participant's
salary reduction agreement. Deferred Compensation contributions are generally
transferred by the Association to the Trustee of the Plan monthly.
Employer Contributions. The Association currently makes no
contributions to the Plan.
Rollover Amount from Other Plans. An employee who has received a
distribution from another plan qualified under Section 401(a) of the Code may,
in accordance with Section 402(c) of the Code and procedures approved at the
discretion of the Trustee, transfer the distribution
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<PAGE> 12
received from the other plan to the Trustee. Any amounts rolled over from
another plan will be contributed to the employee's "Rollover Account."
LIMITATIONS ON CONTRIBUTIONS
Limitations on Annual Additions and Benefits. Pursuant to the
requirements of the Code, the Plan provides that the amount of annual additions
allocated to each Participant's 401(k) Account during any Plan Year may not
exceed the lesser of 25% of the Participant's "Section 415 Compensation" for the
Plan Year or $30,000 (adjusted for increases in the cost of living as permitted
by the Code). Annual additions are the employer contributions, employee
contributions and forfeitures credited to the account of the employee for the
Plan Year. A Participant's "Section 415 Compensation" is a Participant's
compensation from the Association, excluding any amount contributed to the Plan
under a compensation reduction agreement or any employer contribution to the
Plan or to any other plan of deferred compensation or any distributions from a
plan of deferred compensation. In addition, annual additions shall be limited to
the extent necessary to prevent the limitations for the combined plans of the
Association from being exceeded. To the extent that these limitations would be
exceeded by reason of excess annual additions to the Plan with respect to a
Participant, such excess will be disposed of in accordance with procedures set
forth in the Plan.
However, if the annual addition limitations are exceeded with respect
to a Participant in both the Plan and the defined benefit pension plan and
employee stock ownership plan maintained by the Association, the Participant's
annual additions under the Plan will be reduced.
Limitation on 401(k) Plan Contributions. The annual amount of deferred
compensation of a Participant (when aggregated with any elective deferrals of
the Participant under any other employer plan, a simplified employee pension
plan or a tax deferred annuity) may not exceed $9,500, adjusted for increases in
the cost of living as permitted by the Code. Contributions in excess of this
limitation ("Excess Deferrals") will be included in the Participant's gross
income for federal income tax purposes in the year they are made. In addition,
any such Excess Deferral will again be subject to federal income tax when
distributed by the Plan to the Participant, unless the Excess Deferral (together
with any income allocable thereto) is distributed to the Participant not later
than the first April 15th following the close of the taxable year in which the
Excess Deferral is made. Any income on the Excess Deferral that is distributed
not later than such date shall be treated, for federal income tax purposes, as
earned and received by the Participant in the taxable year in which the Excess
Deferral is made.
Limitation on Plan Contributions for Highly Compensated Employees.
Section 401(k) of the Code limits the amount of deferred compensation
contributed to the Plan in any Plan Year on behalf of Highly Compensated
Employees (hereinafter defined) in relation to the amount of deferred
compensation contributed by or on behalf of all other employees eligible to
participate in the Plan. Specifically, the actual deferral percentage for a plan
year (i.e., the average of the ratios, calculated separately for each eligible
employee in each group, by dividing the amount of Deferred Compensation credited
to the 401(k) Account of such eligible employee by such eligible employees
compensation for the Plan Year) of the Highly Compensated
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<PAGE> 13
Employees may not exceed the greater of (a) 125% of the actual deferral
percentage of all other eligible employees, or (b) the lesser of (i) 200% of the
actual deferral percentage of all other eligible employees, or (ii) the actual
deferral percentage of all other eligible employees plus two percentage points.
In general, a Highly Compensated Employee includes any employee who,
during the Plan Year or the preceding Plan Year, (1) was at any time a 5% owner
(i.e., owns directly or indirectly more than 5% of the shares of the Employer or
shares possessing more than 5% of the total combined voting power of all stock
of the Employer) or (2) received compensation from the Employer in excess of
$80,000 for the prior Plan Year (as adjusted periodically under applicable Code
provisions).
In order to prevent the disqualification of the Plan, any amounts
contributed by Highly Compensated Employees that exceed the average deferral
limitation in any Plan Year ("Excess Contributions"), together with any income
allocable thereto, must be distributed to such Highly Compensated Employees
before the close of the following Plan Year. However, the Association will be
subject to a 10% excise tax on any Excess Contributions unless such Excess
Contributions, together with any income allocable thereto, either are
recharacterized or are distributed before the close of the first two and a half
months following the Plan Year to which such Excess Contributions related.
Top-Heavy Plan Requirements. If for any Plan Year the Plan is a
Top-Heavy Plan (hereinafter defined), then (i) the Association may be required
to make certain minimum contributions to the Plan on behalf of Non-Key Employees
(hereinafter defined), and (ii) certain additional restrictions would apply with
respect to the combination of annual additions to the Plan and projected annual
benefits under any defined benefit plan or employee stock ownership plan
maintained by the Association.
In general, the Plan will be regarded as a "Top-Heavy Plan" for any
Plan Year if, as of the last day of the preceding Plan Year, the aggregate
balance of the Accounts of Participants who are Key Employees exceeds 60% of the
aggregate balance of the Accounts of all Participants. "Key Employees" generally
include any employee who, at any time during the Plan Year or any of the four
preceding Plan Years, is (l) an officer of the Association having annual
compensation in excess of $60,000 (for 1997) who is in an administrative or
policy-making capacity, (2) one of the ten employees having annual compensation
in excess of $30,000 and owning, directly or indirectly, the largest interests
in the Employer; (3) a 5% owner of the Employer, (i.e., owns directly or
indirectly more than 5% of the shares of the Employer, or shares possessing more
than 5% of the total combined voting power of all stock of the Employer or (4) a
1% owner of the Employer having annual compensation in excess of $150,000.
INVESTMENT OF CONTRIBUTIONS
All amounts credited to Participants' Accounts under the Plan are held
in the Trust which is administered by the Trustee. The Trustee is appointed by
the Association's Board of Directors. The Plan provides that a Participant may
direct the Trustee to invest all or a portion of his
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<PAGE> 14
Accounts in various managed investment portfolios, described below. A
Participant may elect to change his investment directions regarding both past
contributions and for more additions to the Participant's accounts invested in
these investment alternatives. These elections generally become effective on the
business day following the day the Plan Administrator receives the Participant's
written notice of the elections. Any amounts credited to a Participant's
Accounts for which investment directions are not given will be invested by the
Trustee in the Money Market Fund.
Under the Plan, prior to the effective date of the Conversion, the
401(k) Account of a Participant held in the Trust will be invested by the
Trustee at the direction of the Participant in the following managed portfolios:
S&P 500 Stock Fund A passively managed, diversified equity
portfolio with the objective of simulating
the performance of the Standard & Poor's
Composite Index of 500 stocks, managed by
Barclays Global Investors. An investment in
the S&P Stock Fund provides an opportunity
for investment growth generally consistent
with that of widely traded common stocks,
but with a corresponding risk of decline in
value.
Stable Value Fund A portfolio of fixed-income
contracts managed by Barclays Global
Investors with the objective of maximizing
income at minimum risk of capital.
Contributions are invested in fixed-income
instruments including, but not limited to,
group annuity contracts issued by insurance
companies.
S&P MidCap Stock Fund A passively managed, diversified portfolio
of stocks with the objective of replicating
the performance of the Standard & Poor's
MidCap Index, managed by Barclays Global
Investors. An investment in the S&P MidCap
Fund provides an investment return generally
consistent with that of smaller to medium
sized company stocks, with an above average
potential for increase or decrease in value.
Money Market Fund A portfolio of investments in
short-term instruments issued by banks,
corporations and the U.S. Government and its
agencies managed by Barclays Global
Investors, with the objective of maximizing
income at minimum risk of capital.
Government Bond Fund A portfolio of high quality U.S.
Treasury, agency, corporate and
asset/mortgage-backed securities managed by
Barclays Global Investors, with the
objective of replicating the total
performance of' the long-term government
bond fund.
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<PAGE> 15
Effective upon the Conversion, a Participant may invest all or a
portion of his Accounts in the portfolios described above and in the funds,
described below:
Ohio State Financial
Service, Inc. Stock Fund Employer Stock Fund which invests in common
shares, without par value, of Ohio State
Financial Services, Inc., the holding
company of the Employer, an Ohio savings and
loan association.
International Stock Fund A passively managed international equity
portfolio with the objective of simulating
the performance of the Morgan Stanley
Capital International "EAFE" Index, managed
by Barclays Global Investors. An investment
in the International Stock Fund provides an
opportunity for diversification and
stability to an all-U.S. portfolio, but the
return on the fund may be affected by
changes in the value of the U.S. dollar.
Income Plus Asset
Allocation Fund A fund which invests the bulk of its
portfolio in guaranteed investment contracts
to generate a steady rate of return at
minimum risk of capital, while offering some
potential for growth through investment in
U.S. and international stock index funds.
The fund is managed by Barclays Global
Investors.
Growth & Income Asset
Allocation Fund The objective of this fund is to pursue
long-term appreciation and short-term
stability by dividing its portfolio almost
equally between stocks and fixed-income
investments. The fund is managed by Barclays
Global Investors.
Growth Asset
Allocation Fund A portfolio of U.S. and international stocks
with the objective of pursuing long-term
growth managed by Barclays Global Investors.
A Participant may elect (in increments of 1%), to have both past and
future contributions and additions to the Participant's 401(k) Account invested
either in the Employer Stock Fund or in such other managed portfolios listed
above. These elections will generally be effective the business day coinciding
with or next following the day of the plan administrator's receipt of such
investment directions. Any amounts credited to a Participant's 401(k) Accounts
for which investment directions are not given will be invested in a mutual fund.
Because investment allocations only are required to be made in increments of 1%,
Participants can invest their 401(k) Accounts in each of the six available
investment funds. Lack of diversification with respect to the investment of a
Participant's 401(k) Account is not a significant risk given the six investment
-8-
<PAGE> 16
options available to Participants and the ability of Participants to make
investment designations daily.
The net gain (or loss) in the 401(k) Accounts from investments other
than the Employer Stock Fund (including interest payments, dividends, realized
and unrealized gains and losses on securities, and expenses paid from the Trust)
are determined monthly during the Plan Year. Net gain (or loss) in the 401(k)
Account from investments (including interest, dividends, realized and unrealized
gain and expenses paid) from the Employer Stock Fund will be determined weekly.
For purposes of such allocations, all assets of the Trust are valued at their
fair market value.
A. Funds under the Plan Prior to the Conversion.
Prior to the Conversion, contributions under the Plan were invested in
the five funds listed below. The annual percentage of returns on these funds,
calculated prior to any fees being charged to the portfolio for 1995 and 1996
was:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C> <C>
A. S&P 500 Stock Fund 37.0% 21.7%
B. Stable Value Fund 6.8 6.5
C. S&P MidCap Fund 30.1 18.5
D. Money Market Fund 5.9 5.3
E. Government Bond Fund 18.1 1.9
</TABLE>
B. New Funds Under the Plan After the Conversion
After the Conversion, the following four funds will be additional
investment alternatives for Participants, in addition to the Employer Stock
Fund. The annual percentage of returns on these funds, calculated prior to any
fees being charged to the portfolio for 1996 and 1995 was:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
A. International Stock Fund 15.0% 10.6%
B. Income Plus Asset Allocation Fund 10.8 7.3
C. Growth & Income Asset Allocation Fund 18.3 9.0
D. Growth Asset Allocation Fund 27.7 11.8
</TABLE>
C. The Employer Stock Fund.
The Employer Stock Fund will consist of investments in Common Shares
made on and after the effective date of the Conversion. Any cash dividends paid
on Common Shares held in
-9-
<PAGE> 17
the Employer Stock Fund will be credited to a cash dividend subaccount for each
Participant investing in the Employer Stock Fund. The Trustee will, to the
extent practicable, use all amounts held by it in the Employer Stock Fund
(except the amounts credited to cash dividend subaccounts) to purchase Common
Shares. It is expected that all purchases will be made at prevailing market
prices. Under certain circumstances, the Trustee may be required to limit the
daily volume of shares purchased. Pending investment in Common Shares, assets
held in the Employer Stock Fund will be placed in bank deposits and other
short-term investments.
When Common Shares are purchased or sold, the cost or net proceeds will
be charged or credited to the 401(k) Accounts of Participants affected by the
purchase or sale. The Association expects to pay any brokerage commissions,
transfer fees and other expenses incurred in the sale and purchase of Common
Shares for the Employer Stock Fund. A Participant's 401(k) Account will be
adjusted to reflect changes in the value of Common Shares resulting from stock
dividends, stock splits and similar changes.
To the extent dividends are not paid on Common Shares held in the
Employer Stock Fund, the return on any investment in the Employer Stock Fund
will consist only of the market value appreciation of the Common Shares
subsequent to their purchase. Following the Conversion, the Board of Directors
of the Holding Company may consider a policy of paying dividends on the Common
Shares, however, no decision has been made by the Board of Directors of the
Holding Company regarding the amount or timing of dividends, if any. See
"DIVIDEND POLICY" in the Prospectus.
As of the date of this Prospectus Supplement, with the exception of 100
Common Shares issued to the President of the Holding Company for incorporation
purposes, none of the Common Shares have been issued or are outstanding and
there is no established market for the Common Shares. Accordingly, there is no
record of the historical performance of the Employer Stock Fund.
Investments in the Employer Stock Fund may involve certain special
risks associated with investments in Common Shares of the Holding Company. For a
discussion of these risk factors, see "RISK FACTORS" beginning on page 8 in the
Prospectus.
BENEFITS UNDER THE PLAN
Vesting. A Participant has at all times a fully vested, nonforfeitable
interest in all of' his 401(k) Account and Rollover Account and the earnings
thereon under the Plan.
WITHDRAWALS AND DISTRIBUTIONS FROM THE PLAN
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS ON
THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS BENEFIT UNDER
THE PLAN PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59 1/2 UNLESS A
PARTICIPANT RETIRES
-10-
<PAGE> 18
AS PERMITTED UNDER THE PLAN REGARDLESS OF WHETHER SUCH A WITHDRAWAL OCCURS
DURING HIS EMPLOYMENT WITH THE ASSOCIATION.
Withdrawals Prior to Termination of Employment. In certain
circumstances, a Participant may make a withdrawal from his 401(k) Accounts
under the Plan pursuant to the hardship distribution rules under the Plan. These
rules are intended to insure that Participants have a true financial need before
a withdrawal may be made. A Participant may make a withdrawal from his 401(k)
Account after the age of 59 1/2, after 60 months of participation, or after 2
years after the Contributions are made on behalf of the Participant. A
Participant may not, however, make a withdrawal from his 401(k) of Deferred
Compensation and the earnings thereon, which have been invested in Employee
Stock.
Loans to Participants. The Plan allows Participants to borrow from the
Plan an amount not less than $1,000 which is secured by 50% of the Participant's
401(k) Account and Rollover Account. Notwithstanding the foregoing, a
Participant may not borrow any amounts to the extent such funds are invested in
Employee Stock. Each loan has a term of between 12 and 60 months and is repaid
through monthly payroll deductions. Notwithstanding the foregoing, if the
purpose of the loan is the purchase of a primary residence, the term of the loan
may be no more than 180 months. The interest rate charged for each loan is
established as of the loan date and is Barron's Prime Rate plus 1%, as published
on the last Saturday of the preceding month, or such other rate as may be
required by applicable law and determined by reference to the prevailing
interest rates charged by commercial lenders under similar circumstances. If a
Participant fails to make a monthly installment payment when due, he will be
deemed to have received a distribution of the outstanding balance of the loan.
If such default occurs after the first 12 monthly payments of the loan have been
satisfied, the Participant may pay the outstanding balance, including accrued
interest, within 60 days of the due date of the missed monthly payment, in which
case no distribution will be deemed to have occurred.
Distribution Upon Retirement, Disability or Termination of Employment.
Payment of benefits to a Participant who retires, incurs a disability, or
otherwise terminates employment, generally shall be made in a lump sum cash
payment. At the request of the Participant, the distribution may include an
in-kind distribution of Common Shares of the Holding Company credited to the
Participant's Account. A Participant whose total vested account balance equals
or exceeds $500 at the time of termination, may elect, in lieu of a lump sum
payment, to be paid in annual installments over a period of 2 years, 10 years,
15 years or 20 years, with the right to take a lump sum distribution of the
vested balance at any time during such period. Benefit payments ordinarily shall
be made not later than 60 days following the end of the Plan Year in which
occurs the later of the Participant's (i) termination of employment; (ii)
attainment of age 65; or (iii) 10th anniversary of commencement of participation
in the Plan; but in no event later than the April 1, following the calendar year
in which the Participant attains age 70 1/2. However, if the vested portion of
the Participant's Account balances exceeds $3,500, no distribution shall be made
from the Plan prior to the Participant's attaining age 65 unless the Participant
consents to an earlier distribution. Special restrictions apply to the
distribution of Common Shares of the Holding Company to those Participants who
are executive officers, directors and principal
-11-
<PAGE> 19
shareholders of the Holding Company who are subject to the provisions of Section
16(b) of the Exchange Act.
Distribution upon Death. A Participant who dies prior to the benefit
commencement date or retirement, disability or termination of employment, and
who has a surviving spouse shall have his benefits paid to the surviving spouse
in a lump sum by the end of the Plan year following the date of his death, or if
the Participant elects, the surviving spouse shall receive five annual
installments. Notwithstanding the foregoing, if the payment of the Participant's
benefit had commenced before his death, such payments will continue in
accordance with the distribution method in effect at death. With respect to an
unmarried Participant, and in the case of a married Participant with spousal
consent to the designation of another beneficiary, payment of benefits to the
beneficiary of a deceased Participant shall be made in the form of a lump-sum
payment in cash or in Common Shares, or, if the payment of his benefit had
commenced before his death, in accordance with the distribution method in effect
at death.
Nonalienation of Benefits. Except with respect to federal income tax
withholding and as provided with respect to a qualified domestic relations order
(as defined in the Code), benefits payable under the Plan shall not be subject
in any manner to anticipation, alienation, sale, transfer, assignment,
bankruptcy, pledge, encumbrance, attachment charge, garnishment, execution, or
levy of any kind, either voluntary or involuntary, and any attempt to
anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or
otherwise dispose of any rights to benefits payable under the Plan shall be
void.
ADMINISTRATION OF THE PLAN
Trustees. The Trustee with respect to the Plan is the named fiduciary
of the Plan for purposes of Section 402 of ERISA. The current trustee of the
Plan is the Board of Directors of the Association. Effective 30 days after the
Conversion, the Trustee of the Plan will be the Bank of New York.
Pursuant to the terms of the Plan, the Trustee receives and holds
contributions to the Plan in trust and has exclusive authority and discretion to
manage and control the assets of the Plan pursuant to the terms of the Plan and
to manage, invest and reinvest the Trust assets and income therefrom. The
Trustee has the authority to invest and reinvest the Trust assets and may sell
or otherwise dispose of Trust investments at any time and may hold trust funds
uninvested. The Trustee has authority to invest the assets of the Trust in "any
type of property, investment or security" as defined under ERISA.
The Trustee has full power to vote any corporate securities in the
Trust in person or by proxy, provided, however, that the Plan Administrator
shall direct the Trustee as to voting and tendering of all Common Shares held in
the Employer Stock Fund.
The Trustee is entitled to reasonable compensation for its services and
is also entitled to reimbursement for expenses properly and actually incurred in
the administration of the Trust.
-12-
<PAGE> 20
The expenses of the Trustee and the compensation of the persons so employed is
paid out of the Trust except to the extent such expenses and compensation are
paid by the Association.
The Trustee must render at least annual reports to the Association and
to the Participants in such form and containing information that the Trustee
deems necessary.
REPORTS TO PLAN PARTICIPANTS
The Administrator will furnish to each Participant a statement at least
quarterly showing (i) the balance in the Participant's Account as of the end of
that period, (ii) the amount of contributions allocated to such Participant's
Account for that period, and (iii) the adjustments to such Participant's Account
to reflect earnings or losses (if any).
PLAN ADMINISTRATOR
Pursuant to the terms of the Plan, the Plan Administrator is the Board
of Directors of the Association. The Administrator is responsible for the
administration of the Plan, interpretation of the provisions of the Plan,
prescribing procedures for filing applications for benefits, preparation and
distribution of information explaining the Plan, maintenance of plan records,
books of account and all other data necessary for the proper administration of
the Plan, and preparation and filing of all returns and reports relating to the
Plan which are required to be filed with the U.S. Department of Labor and the
IRS, and for all disclosures required to be made to Participants, beneficiaries
and others under Sections 104 and 105 of ERISA.
AMENDMENT AND TERMINATION
The Association may terminate the Plan at any time. If the Plan is
terminated in whole or in part, then regardless of other provisions in the Plan,
each employee who ceases to be a Participant shall have a fully vested interest
in his Account. The Association reserves the right to make, from time to time,
any amendment or amendments to the Plan which do not cause any part of the Trust
to be used for, or diverted to, any purpose other than the exclusive benefit of
the Participants or their beneficiaries.
MERGER, CONSOLIDATION OR TRANSFER
In the event of the merger or consolidation of the Plan with another
plan, or the transfer of the Trust to another plan, the Plan requires that each
Participant (if either the Plan or the other plan had then terminated) receive a
benefit immediately after the merger, consolidation or transfer which is equal
to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation or transfer (if the Plan or the
other plan had then terminated).
-13-
<PAGE> 21
FEDERAL INCOME TAX CONSEQUENCES
The following is only a brief summary of the material federal income
tax aspects of the Plan which are of general application under the Code and is
not intended to be a complete or definitive description of the federal income
tax consequences of participating in or receiving distributions from the Plan.
The summary is necessarily general in nature and does not purport to be
complete. Moreover, statutory provisions are subject to change, as are their
interpretations, and their application may vary in individual circumstances.
Finally, the consequences under applicable state and local income tax laws may
not be the same as under the federal income tax laws.
PARTICIPANTS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING
DISTRIBUTIONS FROM THE PLAN.
The Plan will be submitted to the IRS for a determination that it is
qualified under Section 401(a) and 401(k) of the Code, and that the related
Trust is exempt from tax under Section 501(a) of the Code. A plan that is
"qualified" under these sections of the Code is afforded special tax treatment
which include the following: (l) the sponsoring employer is allowed an immediate
tax deduction for the amount contributed to the Plan each year: (2) participants
pay no current income tax on amounts contributed by the employer on their
behalf: and (3) earnings of the Plan are tax-exempt thereby permitting the
tax-free accumulation of income and gains on investments. The Plan will be
administered to comply in operation with the requirements of the Code as of the
applicable effective date of any change in the law.
Assuming that the Plan is administered in accordance with the
requirements of the Code and that the IRS issues a favorable determination as
described in the preceding paragraph, participation in the Plan under existing
federal income tax laws will have the following effects;
(a) Amounts contributed to a Participant's 401(k) Account and the
investment earnings on this Account are not includable in a
Participant's federal taxable income until such contributions
or earnings are actually distributed or withdrawn from the
Plan. Special tax treatment may apply to the taxable portion
of any distribution that includes Common Shares or qualifies
as a Lump Sum Distribution (hereinafter defined).
(b) Income earned on assets held by the Trust will not be taxable
to the Trust.
Lump Sum Distribution. A distribution from the Plan to a Participant or
the beneficiary of a Participant will qualify as a "Lump Sum Distribution" if it
is made: (i) within a single taxable year of the Participant or beneficiary;
(ii) on account of the Participant's death or separation from service, or after
the Participant attains age 59 1/2; and (iii) consists of the balance to the
credit of the Participant under the Plan and all other profit-sharing plans, if
any, maintained by the Association. The portion of any Lump Sum Distribution
that is required to be included in the Participant's or beneficiary's taxable
income for federal income tax purposes (the "total
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<PAGE> 22
taxable amount") consists of the entire amount of such Lump Sum Distribution
less the amount of after-tax contributions, if any, made by the Participant to
any other profit-sharing plans maintained by the Association which is included
in such distribution.
Averaging Rules. The portion of the total taxable amount of a Lump Sum
Distribution (the "ordinary income portion") will be taxable generally as
ordinary income for federal income tax purposes. However, a Participant who has
completed at least five years of participation in the Plan before the taxable
year in which the distribution is made, or a beneficiary who receives a Lump Sum
Distribution on account of the Participant's death (regardless of the period of
the Participant's participation in the Plan or any other profit-sharing plan
maintained by the Employer), may elect for distributions made prior to January
1, 2000, to have the ordinary income portion of such Lump Sum Distribution taxed
according to a special averaging rule ("five-year averaging"). The election of
the special averaging rules may apply only to one Lump Sum Distribution received
by the Participant or beneficiary, provided such amount is received on or after
the Participant turns 59 1/2 and the recipient elects to have any other Lump Sum
Distribution from a qualified plan received in the same taxable year taxed under
the special averaging rule. Under a special grandfather rule, individuals who
turned 50 by 1986 may elect to have their Lump Sum Distribution taxed under
either the five-year averaging rule or under the prior law ten-year averaging
rule. Such individuals also may elect to have that portion of the Lump Sum
Distribution attributable to the Participant's pre-1974 participation in the
Plan taxed at a flat 20% rate as gain from the sale of a capital asset.
Common Shares Included in Lump Sum Distribution. If a Lump Sum
Distribution includes Common Shares, the distribution generally will be taxed in
the manner described above, except that the total taxable amount will be reduced
by the amount of any net unrealized appreciation with respect to such Common
Shares, i.e., the excess of the value of such Common Shares at the time of the
distribution over its cost to the Plan. The tax basis of such Common Shares to
the Participant or beneficiary for purposes of computing gain or loss on its
subsequent sale will be the value of the Common Shares at the time of
distribution less the amount of net unrealized appreciation. Any gain on a
subsequent sale or other taxable disposition of such Common Shares to the extent
of the amount of net unrealized appreciation at the time of distribution will be
considered long-term capital gain regardless of the holding period of such
Common Shares. Any gain on a subsequent sale or other taxable disposition of the
Common Shares in excess of the amount of net unrealized appreciation at the time
of distribution will be considered either short-term capital gain or long-term
capital gain depending upon the length of the holding period of the Common
Shares. The recipient of a distribution may elect to include the amount of any
net unrealized appreciation in the total taxable amount of such distribution to
the extent allowed by the regulations to be issued by the IRS.
Distributions: Rollovers and Direct Transfers to Another Qualified Plan
or to an IRA. Virtually all distributions from the Plan may be rolled over to
another qualified plan or to an IRA without regard to whether the distribution
is a Lump Sum Distribution or a Partial Distribution. Participants have the
right to elect to have the Trustee transfer all or any portion of an "eligible
rollover distribution" directly to another plan qualified under Section 401(a)
of the Code or to an IRA. If the Participant does not elect to have an "eligible
rollover distribution"
-15-
<PAGE> 23
transferred directly to another qualified plan or to an IRA, the distribution
will be subject to a mandatory federal withholding tax equal to 20% of the
taxable distribution. An "eligible rollover distribution" means any amount
distributed from the Plan except: (l) a distribution that is (a) one of a series
of substantially equal periodic payments made (not less frequently than
annually) over the Participant's life or the joint life of the Participant and
the Participant's designated beneficiary, or (b) for a specified period of ten
years or more; (2) any amount that is required to be distributed under the
minimum distribution rules; and (3) any other distributions excepted under
applicable federal law. The tax law change described above did not modify the
special tax treatment of Lump Sum Distributions that are not rolled over or
transferred i.e., forward averaging, capital gains tax treatment and the
nonrecognition of net unrealized appreciation discussed earlier.
Additional Tax on Early Distributions. A Participant who receives a
distribution from the Plan prior to attaining age 59 1/2 will be subject to an
additional income tax equal to 10% of the taxable amount of the distribution.
The 10% additional income tax will not apply, however, to the extent the
distribution is rolled over into an IRA or another qualified plan or the
distribution is (i) made to a beneficiary (or to the estate of a Participant) on
or after the death of the Participant, (ii) attributable to the Participant
being disabled within the meaning of Section 72(m)(7) of the Code, (iii) part of
a series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the Participant or the joint
lives (or joint life expectancies) of the Participant and his beneficiary; (iv)
made to the Participant after separation from service after attainment of age
55; (v) made to pay medical expenses to the extent deductible for federal income
tax purposes; (vi) pursuant to a qualified domestic relations order; or (vii)
made to effect the distribution of excess contributions or excess deferrals.
ERISA AND OTHER QUALIFICATIONS
As noted above, the Plan is subject to certain provisions of ERISA and
will be submitted to the IRS for a determination that the Plan is qualified
under Section 401(a) of the Code.
THE FOREGOING IS ONLY A BRIEF SUMMARY OF THE MATERIAL FEDERAL INCOME TAX ASPECTS
OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT INTENDED
TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN.
ACCORDINGLY, EACH PARTICIPANT IS URGED TO CONSULT A TAX ADVISOR CONCERNING THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING
DISTRIBUTIONS FROM THE PLAN.
RESTRICTIONS ON RESALE
Common Shares received by executive officers of the Holding Company
under the Plan will be subject to the restriction that such shares may not be
sold for a period of one year following completion of the Conversion, except in
the event of the death of the shareholder. Any
-16-
<PAGE> 24
shares issued as a stock dividend, stock split or otherwise in respect of
restricted shares will be subject to the same restrictions.
Subject to certain exceptions, for a period of three years following
the Conversion, no director or officer of the Holding Company or the
Association, or any of their Associates, may purchase any common shares of the
Holding Company without the prior written approval of the OTS, except through a
broker-dealer registered with the SEC. This restriction will not apply, however,
to negotiated transactions involving more than 1% of a class of outstanding
common shares of the Holding Company or shares acquired by any stock benefit
plan of the Holding Company or the Association.
The Common Shares, like the stock of most public companies, are subject
to the registration requirements of the Act. Accordingly, the Common Shares may
be offered and sold only in compliance with such registration requirements or
pursuant to an applicable exemption from registration. Common Shares received in
the Conversion under the Plan by persons who are not "affiliates" of the Holding
Company may be resold without registration. Common Shares received under the
Plan by affiliates of the Holding Company will be subject to resale
restrictions. An "affiliate" of the Holding Company, for purposes of Rule 144,
is a person who directly, or indirectly through one or more intermediaries,
controls, or is controlled by or is under common control with, the Holding
Company. Rule 144 generally requires that there be publicly available certain
information concerning the Holding Company and that sales subject to Rule 144 be
made in routine brokerage transactions or through a market maker. If the
conditions of Rule 144 are satisfied, each affiliate (or group of persons acting
in concert with one or more affiliates) is generally entitled to sell in the
public market, without registration, in any three-month period, a number of
shares which does not exceed the greater of (i) 1% of the number of outstanding
shares of the Holding Company or (ii) if the shares are admitted to trading on a
national securities exchange or reported through the automated quotation system
of a registered securities association, such as The Nasdaq SmallCap Market, the
average weekly reported volume of trading during the four weeks preceding the
sale.
SEC REPORTING AND SHORT-SWING PROFIT LIABILITY
Section 16 of the Exchange Act imposes reporting and liability
requirements on executive officers, directors and persons beneficially owning
more than ten percent of public companies such as the Holding Company. Section
16(a) of the Exchange Act requires the filing of reports of beneficial
ownership. Within ten days of becoming a person subject to the reporting
requirements of Section 16(a), a Form 3 reporting initial beneficial ownership
must be filed with the SEC. Certain changes in beneficial ownership, such as
purchases, sales, gifts and participation in savings and retirement plans must
be reported periodically, either on a Form 4 within ten days after the end of
the month in which a change occurs, or annually on a Form 5 within 45 days after
the close of the Holding Company's fiscal year. Participation in the Employer
Stock Fund of the Plan by executive officers, directors and persons beneficially
owning more than ten percent of Common Stock of the Holding Company must be
reported to the SEC annually on a Form 5 by such individuals.
-17-
<PAGE> 25
In addition to the reporting requirements described above, Section
16(b) of the Exchange Act provides for the recovery by the Holding Company of
profits realized by any officer, director or any person beneficially owning more
than ten percent of the Holding Company's Common Shares ("Section 16(b)
Persons") resulting from the purchase and sale or sale and purchase of the
Holding Company's Common Shares within any six-month period.
The SEC has adopted rules that provides exemption from the profit
recovery provisions of Section 16(b) for Participant-directed employer security
transactions within an employee benefit plan, such as the Plan, provided certain
requirements are met. These requirements generally involve restrictions upon the
timing of elections to acquire or dispose of employer Securities for the
accounts of Section 16(b) Persons.
Except for distributions of Common Shares due to death, disability,
retirement, termination of employment or under a qualified domestic relations
order under the Plan, Section 16( b) Persons are required to hold Common Shares
distributed from the Plan for six months following such distribution and are
prohibited from directing additional purchases of units within the Employer
Stock Fund for six months after receiving such a distribution. Finally, the Plan
provides that Section 16(b) Persons who terminate their participation in the
Plan may not rejoin the Plan for six months following the date of their
termination. These Plan restrictions conform with the rules issued by the SEC to
exempt transactions in the Plan from becoming subject to the profit-recovery
rules of Section 16(b) of the Exchange Act.
LEGAL OPINIONS
Certain legal matters pertaining to the Common Shares are being passed
upon for the Holding Company by Vorys, Sater, Seymour and Pease, Cincinnati,
Ohio.
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<PAGE> 26
ENROLLMENT APPLICATION
EMPLOYEE MUST COMPLETE SECTIONS A, B, C AND REVERSE SIDE
<TABLE>
<CAPTION>
A. EMPLOYEE DATA (Please Type or Print Clearly):
<S> <C> <C>
1. Social Security Number ____ ____ ____-____ ____-____ ____ ____ ____
2. Name
-------------------------------------------------------------------------------
Last First Middle Initial
3. Current Address
---------------------------------------------------------------------
Street City State Zip Code
4. Birth Date _____ - _____ - 19_____
MM DD YY
TO BE COMPLETED BY BRIDGEPORT SAVINGS
[ ] Male [ ] Female AND LOAN ASSOCIATION'S AUTHORIZED
REPRESENTATIVE:
5. Check appropriate boxes: [ ] Single [ ] Married
PARTICIPATION DATE _____ -01-19___
B. EMPLOYEE CONTRIBUTIONS: MM YY
I elect to contribute the following percentage of my monthly SERVICE DATE ______-______-19___
Plan salary and authorize such contributions to be deducted MM DD YY
from my salary:
ANNUAL GROSS SALARY $______________
% of pre-tax deferrals _____%
_____5% STOCK OWNER
MUST BE A WHOLE PERCENTAGE AND MAY NOT EXCEED 15%.
_____ OFFICER
C. INVESTMENT INSTRUCTIONS: (Note: If no direction is made,
all contributions will be invested in the MONEY MARKET FUND.)
I direct that all contributions made on my behalf be invested in whole percentages as follows:
S&P 500 Stock Fund _____%
Stable Value Fund _____%
S&P MidCap Stock Fund _____%
Money Market Fund* _____%
Government Bond Fund _____%
International Stock Fund _____%
Income Plus Asset Allocation Fund _____%
Growth & Income Asset Allocation Fund _____%
Growth Asset Allocation Fund _____%
Ohio State Financial Services, Inc. Stock Fund _____%
-------------------
100%
*Amounts invested in the Stable Value Fund may not be transferred directly to this Fund.
- ----------------------------------------------------------------------------------------------------------------------------------
D. BRIDGEPORT SAVINGS AND LOAN ASSOCIATION MUST COMPLETE THE FOLLOWING:
I hereby direct PSI to enroll the above member in Bridgeport Savings and
Loan Association Employees' Savings & Profit Sharing Plan and Trust based
on the information contained herein.
- -------------------------------------------------------------------------------------- ------------------
Signature of Bridgeport Savings and Loan Association's Authorized Representative Date
(continued on reverse side)
- ----------------------------------------------------------------------------------------------------------------------------------
Pentegra Services, Inc. - 108 Corporate Park Drive - White Plains NY 10604 - 914-694-1300 - 800-872-3473 - FAX 914-694-6429
</TABLE>
<PAGE> 27
DESIGNATION OF BENEFICIARY
I hereby request that any benefit under the Bridgeport Savings and Loan
Association Employees' Savings & Profit Sharing Plan and Trust which becomes
payable in the event of my death be paid as set forth in the option(s) completed
below. This request supersedes any previous designation of a beneficiary that I
may have made.
<TABLE>
<S> <C> <C> <C>
1. SPOUSE -
PRIMARY TO _____________________________________, ______________________________, ______________________
BENEFICIARY Name Relationship Social Security No.
NOTE FOR MARRIED PARTICIPANTS: FEDERAL LEGISLATION REQUIRES THAT YOUR
SPOUSE BE NAMED BENEFICIARY FOR YOUR ACCOUNT UNLESS A SIGNED WAIVER IS
PROVIDED BY YOU AND YOUR SPOUSE. (SEE YOUR PLAN ADMINISTRATOR FOR DETAILS
AND COMPLETE WAIVER SECTION BELOW.)
2. OTHER To the following named person(s) as are living at my death:
PRIMARY
BENEFICIARIES
_________________________________________, _________________________, _______%, ________________________
Name and Address Relationship Social Security No.
_________________________________________, _________________________, _______%, ________________________
Name and Address Relationship Social Security No.
If not living at my death, to the following named persons as
are living at my death:
3. CONTINGENT BENEFICIARIES
_________________________________________, _________________________, _______%, ________________________
Name and Address Relationship Social Security No.
_________________________________________, _________________________, _______%, ________________________
Name and Address Relationship Social Security No.
_________________________________________, _________________________, _______%, ________________________
Name and Address Relationship Social Security No.
4. ESTATE OF INSURED To the executors or administrators of my estate, as named below or in my will in effect at the time of my
death.
_________________________________________ ____________________________________________
Name Address
____________________________________________ ____________________________________ __________________________
Signature of Employee Signature of Witness Date
</TABLE>
WAIVER TO BE COMPLETED BY SPOUSE IF EMPLOYEE ELECTS OTHER THAN 1 ABOVE
I, the undersigned, am the employee's spouse and agree to the designation of the
above-named primary and contingent beneficiary(ies). I understand that any death
benefit payable under the Bridgeport Savings and Loan Association Employees'
Savings & Profit Sharing Plan and Trust shall be paid in accordance with the
above designations.
-----------------------------------
Signature of Spouse
State of: ss:
----------------------------------
County of:
---------------------------------
On this ___ day of _____________, 19 __ personally appeared before me the said
named , to me known and known to me to be the person described in and who
executed the foregoing instrument, and he(she) acknowledged that he(she)
executed the same.
(Seal)_____________________ (Notary Public)
My commission expires _______________
STAMP OR SEAL REQUIRED
<PAGE> 28
PROSPECTUS
OHIO STATE FINANCIAL SERVICES, INC.
(PROPOSED HOLDING COMPANY FOR BRIDGEPORT SAVINGS AND LOAN ASSOCIATION)
BRIDGEPORT, OHIO
UP TO 776,250 COMMON SHARES, $10 PURCHASE PRICE PER SHARE
Ohio State Financial Services, Inc., an Ohio corporation (the "Holding
Company"), is hereby offering for sale up to 776,250 common shares, without par
value (the "Common Shares"), in connection with its acquisition of all of the
capital stock to be issued by Bridgeport Savings and Loan Association, an Ohio
mutual savings and loan association located in Bridgeport, Ohio (the
"Association"), upon the conversion of the Association from a mutual savings and
loan association to a permanent capital stock savings and loan association
incorporated under Ohio law (the "Conversion"). The consummation of the
Conversion and the sale of the Common Shares are subject to the approval of the
Association's Plan of Conversion (the "Plan") and the adoption of amended
articles of incorporation and an amended constitution by the members of the
Association at a Special Meeting of Members of the Association to be held at
____, Bridgeport, Ohio Time, on ________, 1997 at ______________________________
(the "Special Meeting").
Based on an independent appraisal of the pro forma market value of the
Association, as converted, as of June 6, 1997, the aggregate purchase price of
the Common Shares offered in connection with the Conversion ranges from a
minimum of $5,737,500 to a maximum of $7,762,500 (the "Valuation Range"),
resulting in a range of 573,750 to 776,250 Common Shares at $10 per share. See
"THE CONVERSION - Pricing and Number of Common Shares to be Sold." Applicable
regulations permit the Holding Company to offer additional Common Shares in an
amount not to exceed 15% above the maximum of the Valuation Range, which would
permit the issuance of up to 892,687 Common Shares with an aggregate purchase
price of $8,926,870. The actual number of Common Shares to be sold in connection
with the Conversion will be based upon the final valuation of the Association,
as determined by the independent appraiser upon the completion of this offering.
(Continued on next page)
AN INVESTMENT IN THE COMMON SHARES OFFERED HEREBY INVOLVES CERTAIN
RISKS. FOR A DISCUSSION OF SUCH RISKS AND OTHER FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS, SEE "RISK FACTORS" BEGINNING ON PAGE 8 OF
THIS PROSPECTUS.
THE COMMON SHARES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC"), THE OFFICE OF THRIFT
SUPERVISION (THE "OTS"), THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE "FDIC"),
THE DIVISION OF FINANCIAL INSTITUTIONS OF THE DEPARTMENT OF COMMERCE OF THE
STATE OF OHIO (THE "DIVISION"), OR THE SECURITIES COMMISSION OF ANY STATE, NOR
HAS THE SEC, THE OTS, THE FDIC, THE DIVISION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE COMMON SHARES BEING OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
SAVINGS DEPOSITS AND ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY.
FOR INFORMATION ON HOW TO SUBSCRIBE, PLEASE CALL THE CONVERSION
INFORMATION CENTER AT (614) 635-1632 OR (614) 635-1633.
<TABLE>
<CAPTION>
====================================================================================================================================
Subscription Estimated Expenses and Estimated Net
Price Underwriting Commissions (1) Proceeds
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share Minimum $10.00 $.62 $9.38
Per share Mid-point $10.00 $.54 $9.46
Per share Maximum $10.00 $.49 $9.51
Per share Maximum, as adjusted (2) $10.00 $.44 $9.56
Total Minimum $5,737,500 $352,930 $5,384,570
Total Mid-point $6,750,000 $366,900 $6,383,100
Total Maximum $7,762,500 $380,870 $7,381,630
Total Maximum, as adjusted (2) $8,926,870 $396,940 $8,529,930
====================================================================================================================================
<FN>
(1) Expenses of the Conversion payable by the Association and the Holding
Company include legal, accounting, appraisal, printing, mailing and
miscellaneous expenses. Such expenses also include sales commissions,
estimated to be between $68,000 and $112,000, and reimbursable expenses
payable to Charles Webb & Company, a division of Keefe, Bruyette &
Woods, Inc. ("Webb"). Such sales commissions may be deemed to be
underwriting fees, although Webb will solicit subscriptions for the
Common Shares on a "best efforts" basis only and has no obligation to
purchase any of the Common Shares. See "THE CONVERSION - Plan of
Distribution." Actual expenses may vary from the estimates.
(2) Gives effect to the increase in the number of Common Shares sold in
connection with the Conversion of up to 15% above the maximum of the
Valuation Range. Such shares may be sold without the resolicitation of
persons who subscribe for Common Shares in the Subscription Offering
and the Community Offering. See "THE CONVERSION - Pricing and Number of
Common Shares to be Sold."
</TABLE>
The date of this Prospectus is __________, 1997.
CHARLES WEBB & COMPANY
A Division of Keefe, Bruyette & Woods, Inc.
<PAGE> 29
In accordance with the Plan, nontransferable subscription rights to
purchase Common Shares at a price of $10 per share are offered hereby in a
subscription offering (the "Subscription Offering"), subject to the rights and
restrictions established by the Plan, to (a) each account holder who, at the
close of business on December 31, 1995 (the "Eligibility Record Date"), had one
or more deposit accounts with deposit balances, in the aggregate, of $50 or more
(a "Qualifying Deposit") with the Association (the "Eligible Account Holders"),
(b) the Employee Stock Ownership Plan (the "ESOP"), (c) each account holder who,
at the close of business on _______, 1997 (the "Supplemental Eligibility Record
Date"), had a Qualifying Deposit with the Association (the "Supplemental
Eligible Account Holders"), and (d) members of the Association eligible to vote
at the Special Meeting ("Other Eligible Members"). ALL SUBSCRIPTION RIGHTS TO
PURCHASE COMMON SHARES IN THE SUBSCRIPTION OFFERING ARE NONTRANSFERABLE AND WILL
EXPIRE AT NOON, BRIDGEPORT, OHIO TIME, ON ________, 1997 (THE "SUBSCRIPTION
EXPIRATION DATE"), UNLESS EXTENDED BY THE ASSOCIATION AND THE HOLDING COMPANY
FOR UP TO 45 DAYS TO _____, 1997. Persons found to be transferring subscription
rights will be subject to forfeiture of such rights and possible further
penalties imposed by the OTS. See "THE CONVERSION - Subscription Offering."
To the extent that all of the Common Shares are not subscribed for in
the Subscription Offering, the remaining Common Shares may be offered to the
general public in a direct community offering in which preference will be given
to natural persons residing in Belmont County, Ohio (the "Community Offering").
See "THE CONVERSION - Community Offering."
The minimum number of Common Shares any person may purchase in the
Offering is 25. Except for the ESOP, which may purchase up to 10% of the total
Common Shares sold in the Offering, no person, together with his or her
Associates (hereinafter defined on page 2) and other persons Acting in Concert
(hereinafter defined on page 2) with him or her, may purchase more than 14,000
Common Shares in the Offering. In connection with the exercise of subscription
rights arising from a deposit account in which two or more persons have an
interest, the aggregate maximum number of Common Shares which the persons having
an interest in such account may purchase is 14,000 Common Shares. Subject to OTS
regulations, the maximum purchase limitation may be increased or decreased after
the commencement of the Offering in the sole discretion of the Boards of
Directors of the Holding Company and the Association. If the maximum purchase
limitation is increased to more than 14,000 Common Shares, persons who have
subscribed for 14,000 Common Shares will be given the opportunity to increase
their subscriptions. See "THE CONVERSION - Limitations on Purchase of Common
Shares."
Common Shares may be subscribed for in the Offering only by returning
the accompanying stock order form and certification form (the "Stock Order
Form"), along with full payment of the purchase price per share for all Common
Shares for which a subscription is made, so that it is received by the
Association no later than noon, Bridgeport, Ohio Time, on ________, 1997.
Payment for Common Shares may be made (i) in cash, if delivered in person; (ii)
by check, bank draft, or money order made payable to the Association; or (iii)
by authorization of withdrawal from deposit accounts in the Association (other
than non-self-directed IRAs). See "THE CONVERSION - Use of Order Forms; and
Payment for Common Shares."
THE CONVERSION OF THE ASSOCIATION FROM A MUTUAL SAVINGS AND LOAN
ASSOCIATION TO A PERMANENT CAPITAL STOCK SAVINGS AND LOAN ASSOCIATION IS
CONTINGENT UPON (I) THE APPROVAL OF THE PLAN AND THE ADOPTION OF THE AMENDED
ARTICLES OF INCORPORATION AND THE AMENDED CONSTITUTION BY THE ASSOCIATION'S
VOTING MEMBERS, (II) THE SALE OF THE REQUISITE NUMBER OF COMMON SHARES AND (III)
CERTAIN OTHER FACTORS. SEE "THE CONVERSION."
-ii-
<PAGE> 30
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
MAIN OFFICE:
435 MAIN STREET
BRIDGEPORT, OHIO 43912
FULL SERVICE BRANCH:
4000 CENTRAL AVENUE
SHADYSIDE, OHIO 43943
[MAP OF THE STATES OF OHIO AND WEST VIRGINIA WITH AN OUTLINE OF BELMONT AND
MARSHALL COUNTIES IN OHIO, AND INDICATING THE LOCATION OF COLUMBUS, OHIO AND
CHARLESTON, WEST VIRGINIA. ABOVE THE MAP OF OHIO AND WEST VIRGINIA IS AN
ENLARGEMENT OF BELMONT AND MARSHALL COUNTIES SHOWING THE LOCATION OF THE
ASSOCIATION WITHIN THE COUNTIES.]
-iii-
<PAGE> 31
PROSPECTUS SUMMARY
The following information is not complete and is qualified in its
entirety by the detailed information and the financial statements and
accompanying notes appearing elsewhere in this Prospectus.
OHIO STATE FINANCIAL SERVICES, INC.
The Holding Company was incorporated under Ohio law in March 1997 for
the purpose of purchasing all of the capital stock of the Association to be
issued in connection with the Conversion. The Holding Company has not conducted
and will not conduct any business before the completion of the Conversion, other
than business related to the Conversion. Upon the consummation of the
Conversion, the Holding Company will be a unitary savings and loan holding
company, the principal assets of which initially will be the capital stock of
the Association, the investments made with the net proceeds retained from the
sale of Common Shares in connection with the Conversion and a loan to be made by
the Holding Company to the ESOP to facilitate the ESOP's purchase of Common
Shares in the Conversion. See "USE OF PROCEEDS."
The office of the Holding Company is located at 435 Main Street,
Bridgeport, Ohio 43912, and its telephone number is (614) 635-0764.
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
The Association is a mutual savings and loan association organized
under Ohio law in 1893. As an Ohio savings and loan association, the Association
is subject to supervision and regulation by the OTS and the Division. The
Association is a member of the Federal Home Loan Bank (the "FHLB") of
Cincinnati, and the deposit accounts of the Association are insured up to
applicable limits by the FDIC in the Savings Association Insurance Fund (the
"SAIF"). See "REGULATION."
The Association conducts business from its main office located in
Bridgeport, Ohio, and one full-service branch office located in Shadyside, Ohio.
The principal business of the Association is the origination of permanent
mortgage loans secured by first mortgages on one- to four-family residential
real estate located in the Association's primary market area which consists of
Belmont County, Ohio, and Ohio and Marshall Counties, West Virginia. The
Association also originates a limited number of loans for the construction of
one- to four-family residences and permanent mortgage loans secured by
multi-family and nonresidential real estate in its market area. In addition to
real estate lending, the Association originates secured and unsecured consumer
loans. See "THE BUSINESS OF THE ASSOCIATION - Lending Activities." For liquidity
and interest rate risk management purposes, the Association invests in
interest-bearing deposits in other financial institutions, U.S. Government and
agency obligations and mortgage-backed securities. See "THE BUSINESS OF THE
ASSOCIATION - Investment Activities." Funds for lending and other investment
activities are obtained primarily from savings deposits, which are insured up to
applicable limits by the FDIC, principal repayments on loans and maturities of
investment securities. See "THE BUSINESS OF THE ASSOCIATION - Deposits and
Borrowings."
The main office of the Association is located at 435 Main Street,
Bridgeport, Ohio 43912, and its telephone number is (614) 635-0764.
THE CONVERSION
GENERAL. The Boards of Directors of the Holding Company and the
Association have unanimously approved the Plan, which they believe to be in the
best interests of the members of the Association. The Plan provides for the
conversion of the Association from a mutual savings and loan association to a
permanent capital stock savings and loan association incorporated under the laws
of the State of Ohio. The OTS and the Division have approved the Plan, subject
to the approval of the Plan by the Association's voting members at the Special
Meeting, and to the satisfaction of certain other conditions. See "THE
CONVERSION - Termination of the Plan."
The principal factors considered by the Association's Board of
Directors in reaching the decision to pursue a mutual-to-stock conversion were
the numerous competitive advantages which the stock form of organization offers,
including growth opportunities, employee retention, and increased capital
levels. See "THE CONVERSION - Reasons for the Conversion." The Association has
operated as an independent community oriented savings association since 1893. It
is the intention of the Association to continue to operate as an independent
community oriented savings association following the Conversion.
-1-
<PAGE> 32
THE SUBSCRIPTION OFFERING AND THE COMMUNITY OFFERING. Pursuant to the
Plan, subscription rights to purchase Common Shares at a price of $10 per share
are hereby offered to (a) Eligible Account Holders, (b) the ESOP, (c)
Supplemental Eligible Account Holders and (d) Other Eligible Members in the
Subscription Offering. See "THE CONVERSION Subscription Offering."
To the extent Common Shares remain available after the satisfaction of
all subscriptions received in the Subscription Offering, the Holding Company may
offer Common Shares in the Community Offering, subject to certain limitations.
Preference will be given in the Community Offering to natural persons residing
in Belmont County, Ohio. The Boards of Directors of the Holding Company and the
Association have the right to reject, in whole or in part, any order for Common
Shares submitted in the Community Offering. See "THE CONVERSION - Community
Offering."
The Plan authorizes the Boards of Directors of the Holding Company and
the Association to establish limits on the amount of Common Shares which may be
purchased by various categories of persons. The minimum number of Common Shares
any person may purchase in the Offering is 25. Pursuant to the Plan, the Boards
of Directors have set the additional limitation that no person, together with
his or her Associates and other persons Acting in Concert with him or her, may
purchase more than 14,000 Common Shares in connection with the Offering. Such
limitations do not apply to the ESOP, which intends to purchase up to 8% of the
Common Shares sold in the Offering. Subject to applicable regulations, the
purchase limitation may be increased or decreased after the commencement of the
Offering in the sole discretion of the Boards of Directors. See "THE CONVERSION
- - Limitations on Purchases of Common Shares."
"Acting in Concert" is defined as "knowing participation in a joint
activity or independent conscious parallel action towards a common goal" or "a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose." Persons shall be presumed to be Acting in Concert
with each other if: (i) they are purchasing Common Shares in the Conversion and
are (a) executive officers, directors, partners, trustees, or any one who
performs, or whose nominee or representative performs, a similar policy making
function at a company (other than the Association or the Holding Company) or
principal business units or subsidiaries of a company, or (b) any person who
directly or indirectly owns or controls 10% or more of the stock of a company
(other than the Association or the Holding Company); or (ii) one person provides
credit to the other for the purchase of Common Shares or is instrumental in
obtaining that credit. In addition, if a person is presumed to be Acting in
Concert with another person, then the person is also presumed to be Acting in
Concert with anyone else who is, or is presumed to be, Acting in Concert with
that other person.
For purposes of the Plan, (i) the directors of the Association are not
deemed to be Acting in Concert solely by reason of their membership on the Board
of Directors of the Association, and (ii) an associate of a person (an
"Associate") is: (a) any corporation or organization (other than the
Association) of which such person is an officer, partner or, directly or
indirectly, the beneficial owner of 10% or more of any class of equity
securities; (b) any trust or other estate in which such person has a substantial
beneficial interest or as to which such person serves as trustee or in a similar
fiduciary capacity; and (c) any relative or spouse of such person, or relative
of such spouse, who either has the same home as such person or who is a director
or officer of the Association. Executive officers and directors of the
Association and their Associates may not purchase, in the aggregate, more than
35% of the total number of Common Shares sold in the Conversion. Shares acquired
by the ESOP will not, pursuant to regulations governing the Conversion, be
aggregated with the shares purchased by the directors, officers and employees of
the Association.
In addition to the purchase limitations established by the Plan, OTS
regulations impose restrictions on certain acquisitions of more than 10% of the
outstanding shares of the Association by any person or company, individually or
Acting in Concert with others. See "RESTRICTIONS ON ACQUISITION OF THE HOLDING
COMPANY AND THE ASSOCIATION." The sale of Common Shares pursuant to
subscriptions received in the Offering will be subject to the approval of the
Plan by the voting members of the Association at the Special Meeting, to the
final valuation of the Association, as determined by the independent appraiser
upon the completion of the Offering, and to certain other conditions. See "THE
CONVERSION Subscription Offering; - Community Offering; and - Pricing and Number
of Common Shares to be Sold."
The Subscription Offering will terminate and subscription rights will
expire if not exercised by noon, Bridgeport, Ohio Time, on ___________________,
1997. The Community Offering will be terminated on or before ______________,
1997, unless extended. Any extension of the Community Offering beyond
___________, 1997, will require the consent of the OTS and the Division, and
persons who have subscribed for Common Shares in the Offering will be given the
right to affirm, increase, decrease or rescind their subscriptions for Common
Shares. Persons who do not affirmatively elect to continue their subscription or
who elect to rescind their subscriptions during any such extension will have all
of their funds
-2-
<PAGE> 33
promptly refunded with interest. Persons who elect to decrease their
subscriptions will have the appropriate portion of their funds promptly refunded
with interest. See "THE CONVERSION - Pricing and Number of Common Shares to be
Sold."
NON-TRANSFERABILITY OF SUBSCRIPTION RIGHTS. OTS and Ohio regulations
provide that subscription rights are non-transferable. OTS regulations
specifically prohibit any person from transferring or entering into any
agreement or understanding before the completion of the Conversion to transfer
the ownership of the subscription rights issued in the Conversion or the shares
to be issued upon the exercise of such subscription rights. Persons attempting
to violate such provision may lose their rights to purchase Common Shares in the
Conversion and may be subject to penalties imposed by the OTS. Each person
exercising subscription rights will be required to certify that his or her
purchase of Common Shares is solely for the subscriber's own account and that
there is no agreement or understanding regarding the sale or transfer of such
Common Shares.
PRICING OF THE COMMON SHARES. RP Financial, LC. ("RP Financial"), a
firm experienced in valuing thrift institutions, has prepared an independent
valuation of the estimated pro forma market value of the Association, as
converted. RP Financial's valuation of the estimated pro forma market value of
the Association, as converted, is $6,750,000 as of June 6, 1997 (the "Pro Forma
Value"). Based on the Pro Forma Value of the Association, the Valuation Range
established in accordance with the Plan is $5,737,500 to $7,762,500. The Holding
Company will issue the Common Shares at a fixed price of $10 per share. The
number of Common Shares to be issued will be determined by dividing the price
per share into the aggregate pro forma value of the Association at the close of
the Offering.
If, due to changing market conditions, the final valuation is less than
$5,737,500 or more than $8,926,870, subscribers will be given notice of such
final valuation and the right to affirm, increase, decrease or rescind their
subscriptions. Any person who does not affirmatively elect to continue his
subscription or elects to rescind his subscription before the date specified in
the notice will have all of his funds promptly refunded with interest. Any
person who elects to decrease his subscription will have the appropriate portion
of his funds promptly refunded with interest. See "THE CONVERSION - Pricing and
Number of Common Shares to be Sold."
USE OF PROCEEDS. The Holding Company will retain up to 50% of the net
proceeds from the sale of the Common Shares, or approximately $4.3 million at
the maximum, as adjusted, of the Valuation Range. Such proceeds will be used by
the Holding Company to make a loan to the ESOP to acquire Common Shares in the
Offering, and for general corporate purposes. See "USE OF PROCEEDS."
The remainder of the net proceeds received from the sale of the Common
Shares, approximately $3.6 million at the maximum, as adjusted, of the Valuation
Range, will be invested by the Holding Company in the capital stock to be issued
by the Association to the Holding Company as a result of the Conversion and will
increase the regulatory capital of the Association. The Association anticipates
that the net proceeds will initially be invested in short-term investments with
maturities of one year or less and utilized, as opportunities arise, to
originate loans and to purchase loan participations within Ohio. See "USE OF
PROCEEDS."
TAX CONSEQUENCES
The consummation of the Conversion is expressly conditioned upon the
receipt by the Holding Company and the Association of a private letter ruling
from the Internal Revenue Service (the "IRS") or an opinion of counsel to the
effect that, for federal income tax purposes, the Conversion will constitute a
tax-free reorganization as defined in Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). The Holding Company and the Association
intend to proceed with the Conversion based upon an opinion received from Vorys,
Sater, Seymour and Pease that states, in part, that (1) no gain or loss will be
recognized by the Association in connection with the Conversion or the receipt
from the Holding Company of proceeds from the sale of the Common Shares, (2)
assuming that the subscription rights received by deposit account holders in
connection with the Conversion have no ascertainable fair market value, no gain
or loss will be recognized to the deposit account holders of the Association
upon issuance to them of subscription rights or interests in the Liquidation
Account (hereinafter defined) and (3) no taxable income will be realized by
deposit account holders as a result of their exercise of such subscription
rights. Although the IRS could challenge the assumption that the subscription
rights have no ascertainable fair market value, the Holding Company and the
Association have received an opinion from RP Financial supporting such
assumption. See "THE CONVERSION - Principal Effects of the Conversion -- Tax
Consequences."
-3-
<PAGE> 34
MARKET FOR THE COMMON SHARES
There is presently no market for the Common Shares. No assurance can be
given that an active or liquid market for the Common Shares will develop after
the completion of the Conversion or, if such a market does develop, that it will
continue. Investors should consider, therefore, the potentially illiquid and
long-term nature of an investment in the Common Shares. See "RISK FACTORS -
Limited Market for the Common Shares."
The Holding Company has received conditional approval from the Nasdaq
SmallCap Market ("Nasdaq SmallCap") to have the Common Shares quoted on Nasdaq
SmallCap under the symbol "OSFS" upon the completion of the Conversion, subject
to certain conditions which the Association and the Holding Company believe will
be satisfied, although no assurance can be provided that the conditions will be
met. One of the conditions to the Nasdaq SmallCap listing is the commitment of
at least two brokerage firms to make a market in the Common Shares. Keefe,
Bruyette & Woods, Inc. ("KBW") has informed the Holding Company that it intends
to make a market in the Common Shares, but it has no obligation to do so.
If the Common Shares are not listed on the Nasdaq SmallCap, they will
be traded in the over-the-counter market and will be quoted through brokers
participating on the National Daily Quotation Service (the "NDQS").
DIVIDEND POLICY
The declaration and payment of dividends or other capital distributions
by the Holding Company will be subject to the discretion of the Board of
Directors of the Holding Company, to the earnings and financial condition of the
Holding Company and the Association and to general economic conditions. If the
Board of Directors of the Holding Company determines in the exercise of its
discretion that the net income, capital and financial condition of the Holding
Company and the general economy justify the declaration and payment of dividends
by the Holding Company, dividends may be paid on the Common Shares. No assurance
can be given, however, that dividends will be paid or, if paid, will continue in
the future. The Holding Company will not undertake an extraordinary tax-free
return of capital to its shareholders during the first year following the
completion of the Conversion. See "DIVIDEND POLICY" and "REGULATION - Office of
Thrift Supervision -- Limitations on Capital Distributions."
BENEFITS OF THE CONVERSION TO DIRECTORS, OFFICERS AND EMPLOYEES OF THE HOLDING
COMPANY AND THE ASSOCIATION
GENERAL. Among the factors considered by the Board of Directors of the
Association in making the decision to pursue the Conversion is the ability of
the Holding Company and the Association to utilize various types of stock
benefit plans to attract and retain qualified directors and employees. See "THE
CONVERSION - Reasons for the Conversion."
EMPLOYEE STOCK OWNERSHIP PLAN. In connection with the Conversion, the
Holding Company has established the ESOP, which intends to use a loan from the
Holding Company to purchase 8% of the Common Shares issued in the Conversion.
The loan will have a term of up to ten years and an interest rate equal to the
applicable federal rate, Currently __%. All full-time employees of the Holding
Company and the Association who meet certain age and years of service criteria
will be eligible to participate in the ESOP. See "MANAGEMENT - Stock Benefit
Plans -- Employee Stock Ownership Plan."
STOCK OPTION PLAN. After the completion of the Conversion, the Holding
Company intends to establish a stock option and incentive plan (the "Stock
Option Plan"). The Board of Directors of the Holding Company anticipates that a
number of shares equal to 10% of the Common Shares sold in the Offering will be
reserved for issuance to directors, officers and employees of the Holding
Company and the Association upon the exercise of options granted under the Stock
Option Plan. The Stock Option Plan will be administered by a committee comprised
of three directors (the "Stock Option Committee"). Persons eligible for awards
under the Stock Option Plan will consist of directors, officers and key
employees of the Holding Company or the Association who hold positions with
significant responsibilities or whose performance or potential contribution, in
the judgment of the Stock Option Committee, will contribute to the future
success of the Holding Company or the Association. The Stock Option Committee
will consider the position, duties and responsibilities of the directors,
officers and key employees of the Holding Company and the Association, the value
of their services to the Holding Company and the Association and any other
factors the Stock Option Committee may deem relevant.
Under OTS regulations, no stock options may be awarded during the first
year after the completion of the Conversion unless the Stock Option Plan is
approved by the shareholders of the Holding Company at an annual or a special
-4-
<PAGE> 35
meeting of shareholders held not less than six months following the completion
of the Conversion. If the Stock Option Plan is approved by the Holding Company
shareholders at such meeting and implemented during the first year after the
completion of the Conversion, the following restrictions will apply: (i) the
number of shares which may be subject to options awarded under the Stock Option
Plan to directors who are not full-time employees of the Holding Company may not
exceed 5% per person and 30% in the aggregate of the available shares; (ii) the
number of shares which may be subject to options awarded under the Stock Option
Plan to any individual who is a full-time employee of the Holding Company or its
subsidiaries may not exceed 25% of the available shares; (iii) stock options
must be awarded with an exercise price at least equal to the fair market value
of the common shares of the Holding Company at the time of the award; and (iv)
stock options will become exercisable at the rate of one-fifth per year
commencing no earlier than one year from the date the Stock Option Plan is
approved by the shareholders, subject to acceleration of vesting only in the
event of the death or disability of a participant. The ultimate value of any
option granted at fair market value will depend on future appreciation in the
fair market value of the shares to which the option relates. No decision has
been made as to anticipated awards under the Stock Option Plan. See "MANAGEMENT
- - Stock Benefit Plans -- Stock Option Plan."
RECOGNITION AND RETENTION PLAN AND TRUST. The Holding Company intends
to establish the Recognition and Retention Plan (the "RRP") after the completion
of the Conversion and anticipates that a number of shares equal to 4% of the
Common Shares sold in connection with the Conversion will be purchased by, or
issued to, the RRP. See "RISK FACTORS - Potential Impact of Benefit Plans on Net
Earnings and Shareholders' Equity" for a discussion of the possible dilutive
effects of the RRP. Shares held in the RRP will be available for awards to
directors, officers and employees of the Holding Company and the Association.
The RRP will be administered by a committee comprised of three directors who are
not employees of the Holding Company (the "RRP Committee"). In selecting the
directors, officers and employees to whom awards will be granted and the number
of shares covered by such awards, the RRP Committee will consider the position,
duties and responsibilities of such persons, the value of their services to the
Holding Company and the Association and any other factors the RRP Committee may
deem relevant. No determination has been made with respect to RRP awards.
Under OTS regulations, no RRP shares may be awarded during the first
year after the completion of the Conversion unless the RRP is approved by the
shareholders of the Holding Company at an annual meeting or a special meeting of
shareholders held not less than six months following the completion of the
Conversion. If the RRP is approved by the Holding Company shareholders at such
meeting and implemented during the first year after the completion of the
Conversion, the following restrictions will apply: (i) the number of shares
which may be subject to awards under the RRP to directors who are not full-time
employees of the Holding Company or its subsidiaries may not exceed 5% per
person and 30% in the aggregate of the available shares; (ii) the number of
shares which may be subject to awards under the RRP to any individual who is a
full-time employee of the Holding Company or its subsidiaries may not exceed 25%
of the available shares; and (iii) RRP awards will be earned at the rate of
one-fifth per year commencing no earlier than one year from the date of the
award subject to acceleration of vesting only in the event of the death or the
disability of the participant. See "MANAGEMENT - Stock Benefit Plans --
Recognition and Retention Plan and Trust."
EMPLOYMENT AGREEMENT. In connection with the Conversion, the
Association will enter into an employment agreement with Jon W. Letzkus, the
President and Managing Officer of the Association. The employment contract will
provide for a term of one year with an annual salary of not less than $78,500.
The employment agreement will also provide for severance payments in the event
the agreement is terminated prior to the expiration of its term upon a change in
control of the Association or for any reason other than just cause, as defined
therein. The payment that would have been made to Mr. Letzkus, assuming
termination of his employment agreement at March 31, 1997, following a change in
control of the Association, would have been approximately $157,000. See
"MANAGEMENT - Employment Agreement."
INVESTMENT RISKS
An investment in the Common Shares involves certain risks. Special
attention should be given to the matters discussed under "RISK FACTORS -
Interest Rate Risk; - Anticipated Reduced Return on Equity; - Market Area; -
Limited Market for the Common Shares; - Price of the Common Shares upon Resale;
- - Legislation and Regulation Which May Adversely Affect Earnings and Operations;
- - Potential Impact of Benefit Plans on Net Earnings and Shareholders' Equity; -
Anti-Takeover Provisions Which May Discourage Sales of Common Shares for Premium
Prices."
-5-
<PAGE> 36
SELECTED FINANCIAL INFORMATION AND OTHER DATA
The following tables set forth certain information concerning the
financial condition, earnings and other data regarding the Association at the
dates and for the periods indicated. Such information should be read in
conjunction with the financial statements and notes thereto appearing elsewhere
herein. In the opinion of management, financial information at March 31, 1997
and 1996, and for the three months then ended reflect all adjustments
(consisting only of normal recurring accruals) which are necessary to present
fairly the results for such periods.
<TABLE>
<CAPTION>
SELECTED FINANCIAL CONDITION At March 31, Year ended December 31,
AND OTHER DATA: ------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------ ------ ------ ------ ------- ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Total amount of:
Assets $34,564 $34,747 $33,929 $34,553 $33,699 $35,319 $37,164
Cash and cash equivalents 2,613 1,979 2,436 1,177 1,624 6,539 8,077
Investment securities 5,342 5,313 4,936 5,505 7,062 4,078 2,471
Mortgage-backed securities 939 1,157 984 1,191 1,522 2,263 3,882
Loans receivable, net 25,017 25,604 24,892 25,972 22,783 21,645 21,864
Deposits 29,425 29,827 28,791 29,615 29,198 31,158 33,319
Retained earnings 4,860 4,654 4,770 4,558 4,197 3,841 3,521
Number of full-service offices 2 2 2 2 2 2 2
SUMMARY OF EARNINGS: Three months ended
March 31, Year ended December 31,
------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------ ------ ------ ------ ------- ------ ------
(In thousands)
Interest income $614 $638 $2,515 $2,478 $2,298 $2,486 $2,866
Interest expense 287 289 1,158 1,108 982 1,184 1,611
----- ----- ------- ------ ------- ------- -------
Net interest income 327 349 1,357 1,370 1,316 1,302 1,255
Provision for loan losses - - - - 17 54 4
----- ----- ------- ------ ------- ------- -------
Net interest income after
provision for loan losses 327 349 1,357 1,370 1,299 1,248 1,251
Other income 9 13 45 42 78 30 25
General, administrative and
other expense (1) 201 217 1,083 865 848 765 807
----- ----- ------- ------ ------- ------- -------
Net income before provision
for income taxes 135 145 319 547 529 513 469
Provision for income taxes 45 49 107 186 174 150 172
Cumulative effect of change in
accounting principle - - - - - 43 -
----- ----- ------- ------ ------- ------- -------
Net income $ 90 $ 96 $ 212 $ 361 $ 355 $ 320 $ 297
===== ===== ======= ====== ======= ======= =======
- ------------------------------
<FN>
(1) Includes a non-recurring pre-tax expense of $190,000 for the year ended
December 31, 1996, for a special one-time assessment to recapitalize
the SAIF.
</TABLE>
-6-
<PAGE> 37
<TABLE>
<CAPTION>
SELECTED FINANCIAL RATIOS: At or for the three
months ended
March 31, At or for the year ended December 31,
---------------------- ---------------------------------------------------
1997(1) 1996(1) 1996 1995 1994 1993 1992
-------- --------- -------- ------- -------- ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Performance ratios:
Return on average assets (2) 1.04% 1.11% 0.62% 1.06% 1.04% 0.88% 0.78%
Return on average equity (2) 7.44 8.33 4.53 8.25 8.87 8.71 8.83
Interest rate spread 3.47 3.76 3.62 3.76 3.66 3.42 3.10
Net interest margin 3.94 4.19 4.08 4.17 3.97 3.71 3.40
Non-interest expense to
average assets (2) 2.34 2.52 3.15 2.54 2.47 2.11 2.11
Efficiency ratio (3) 59.75 60.03 77.27 61.28 60.83 57.42 63.02
Net interest income to
operating expenses 162.79 160.54 125.27 158.36 155.09 170.23 155.62
Average interest-earning
assets to average
interest-bearing
liabilities 113.78 112.60 113.28 112.04 110.59 108.55 106.91
Capital ratios:
Average equity to average
assets 14.01 13.34 13.64 12.87 11.69 10.12 8.79
Equity to assets, end of
period 14.06 13.40 14.06 13.19 12.45 10.88 9.47
Asset quality ratios and other
data:
Nonperforming assets to
average assets (4) 0.62 0.01 0.20 0.02 0.02 0.48 0.17
Nonperforming assets to
total assets (4) 0.62 0.01 0.50 0.02 0.02 0.50 0.17
Nonperforming loans to
total loans 0.85 0.02 0.28 0.02 0.03 0.76 0.26
Allowance for loans losses
to gross loans 0.57 0.56 0.57 0.55 0.62 0.67 0.44
Allowance for loans losses
to nonperforming loans 66.82 2860.00 207.25 2383.33 2042.86 87.88 168.42
Net (charge-offs) recoveries
to average loans - - - - (0.08) (0.02) 0.01
Amount of nonperforming loans $200 $5 $168 $6 $7 $165 $57
Amount of nonperforming
assets $217 $5 $168 $6 $7 $176 $64
- ------------------------------
<FN>
(1) Ratios for three month periods are stated on an annualized basis. Such
ratios and results are not necessarily indicative of results that may
be expected for the full year.
(2) Includes a nonrecurring pre-tax expense of $190,000 for the year ended
December 31, 1996, for a special one-time assessment to recapitalize
the SAIF.
(3) Non-interest expenses as a percentage of net interest income plus
non-interest income.
(4) Nonperforming assets include non-accrual loans, accruing loans more
than 90 days past due and real estate acquired in settlement of loans.
</TABLE>
-7-
<PAGE> 38
RISK FACTORS
INVESTMENT IN THE COMMON SHARES INVOLVES CERTAIN RISKS. BEFORE
INVESTING, PROSPECTIVE PURCHASERS SHOULD CONSIDER CAREFULLY THE FOLLOWING
MATTERS.
INTEREST RATE RISK
The Association's operating results are dependent to a significant
degree on its net interest income, which is the difference between interest
income from loans and investments and interest expense on deposits and
borrowings. Like most thrift institutions, the Association's interest income and
interest expense change as interest rates fluctuate and assets and liabilities
reprice. Interest rates generally may change because of general economic
conditions, the policies of various regulatory authorities and other factors
beyond the Association's control. The interest rates on specific assets and
liabilities of the Association will change or "reprice" in accordance with the
contractual terms of the asset or liability instrument and in accordance with
customer reaction to general economic trends. See "THE BUSINESS OF THE
ASSOCIATION - Lending Activities; and - Deposits and Borrowings."
At March 31, 1997, $20.8 million, or 83.9%, of the Association's loans
contractually due after March 31, 1998, had fixed rates of interest. The
majority of such loans, however, were secured by one- to four-family residences
with terms of fifteen years. The Association also manages its interest rate risk
by maintaining capital well in excess of regulatory requirements and by
maintaining a high level of liquidity through investments in short-term
instruments with maturities of five years or less. See "THE BUSINESS OF THE
ASSOCIATION - Investment Activities." For the quarter ended March 31, 1997, the
Association's tangible capital was 14.1% of total assets and its liquidity ratio
was 25.32%. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Liquidity and Capital Resources."
In a period of rising interest rates, the interest income earned on the
Association's assets may not increase as rapidly as the interest expense paid on
the Association's liabilities. As a result, the earnings of the Association may
be adversely affected. The degree to which such earnings will be adversely
affected depends upon the rapidity and extent of the increase in interest rates.
In addition, rising interest rates could negatively affect the Association's
earnings due to diminished loan demand. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Asset and Liability
Management."
ANTICIPATED REDUCED RETURN ON EQUITY
For the last five years, the Association's return on equity has ranged
from a high of 8.87% for 1994 to a low of 4.53% for 1996, with a median of
8.71%. Excluding the effect of the one-time special assessment to recapitalize
the SAIF, the return on equity would have been 7.18% for the year ended December
31, 1996. For the three months ended March 31, 1997, the Association's return on
equity was 7.44%. The increased capital resulting from the Conversion is
expected to reduce the Association's return on equity for a prolonged period
after the Conversion, which may adversely affect the market value of the Common
Shares. Initially, the Conversion proceeds will be invested in short-term
investments which generally have lower yields than loans and longer term
investment securities, which could also adversely affect the return on equity.
See "USE OF PROCEEDS."
RECENT DECLINE IN MARKET AREA ECONOMY
The Association's primary market area has been adversely affected by
the decline in coal mining, steel manufacturing and related industries which
have traditionally been the primary employers in the area. During the period
from 1990 to 1996, the median household income in Belmont County, Ohio declined
to $21,703, while the median household incomes of the United States and Ohio
increased during the same period to $34,530 and $32,102, respectively. The
strike of steel workers at Wheeling-Pittsburgh Steel, which began on October 1,
1996, has further depressed the local economy. In February 1997, the
unemployment rate for Belmont County was 9.0%, significantly higher than the
comparative U.S. and Ohio rates of 5.7% and 5.9%, respectively. As a result of
the downturn in the economy and the prolonged strike, the Association has
recently experienced an increase in delinquent one- to four-family mortgage
loans. See "THE BUSINESS OF THE ASSOCIATION - Lending Activities --Delinquent
Loans, Nonperforming Assets and Classified Assets." Although the Association has
historically had low levels of nonperforming assets, a continuation of the
current economic conditions or a further deterioration of the economy in the
Association's market area could cause nonperforming assets to increase and net
income to decrease in the future.
-8-
<PAGE> 39
COMPETITION IN MARKET AREA
The Association faces strong competition for deposits and loans from
branches of two large independent commercial banks located in Bridgeport and one
branch of a super-regional commercial bank in Shadyside, Ohio. In addition,
competing financial institutions exist in surrounding communities located in the
Association's market area. The Association is at a competitive disadvantage due
to its small size which results in limited marketing capability and restricted
ability to take advantage of technological advancements. The Association's
market penetration in Belmont County is 12.2% of thrift deposits and 3.1% of all
financial institution deposits at June 30, 1997.
LIMITED MARKET FOR THE COMMON SHARES
There is presently no market for the Common Shares. No assurance can be
given that an active or liquid market for the Common Shares will develop after
the completion of the Conversion or, if such a market does develop, that it will
continue. Investors should consider, therefore, the potentially illiquid and
long-term nature of an investment in the Common Shares.
The Holding Company has received conditional approval from Nasdaq
SmallCap to have the Common Shares quoted on Nasdaq SmallCap under the symbol
"OSFS" upon the completion of the Conversion, subject to certain conditions
which the Holding Company and the Association believe will be satisfied,
although no assurance can be provided that the conditions will be met. One of
the conditions of the Nasdaq SmallCap listing is the commitment of at least two
brokerage firms to make a market in the Common Shares. KBW has informed the
Holding Company that it intends to make a market in the Common Shares, but it
has no obligation to do so.
If the Common Shares are not listed on the Nasdaq SmallCap, the Holding
Company expects that the Common Shares will be traded in the over-the-counter
market and will be quoted through brokers participating on the NDQS.
UNCERTAINTY OF PRICE OF THE COMMON SHARES UPON RESALE
The aggregate offering price of the Common Shares is based upon an
independent appraisal of the Association. The appraisal is not a recommendation
as to the advisability of purchasing Common Shares, nor does it represent RP
Financial's opinion as to the price at which the Common Shares may trade. See
"THE CONVERSION - Pricing and Number of Common Shares to be Sold." There can be
no assurance that the Common Shares may later be resold at the price at which
they are purchased in connection with the Conversion.
LEGISLATION AND REGULATION WHICH MAY ADVERSELY AFFECT EARNINGS AND OPERATIONS
The Association is subject to extensive regulation by the OTS, the
Division and the FDIC and is periodically examined by such regulatory agencies
to test compliance with various regulatory requirements. The Holding Company
will also be subject to regulation and examination by the OTS. Such supervision
and regulation of the Association and the Holding Company are primarily for the
protection of the federal deposit insurance fund and not for the maximization of
shareholder value and may affect the ability of the Holding Company to engage in
various business activities. The assessments, filing fees, deposit insurance
premiums and other costs associated with reports, examinations and other
regulatory matters are significant and may have an adverse effect on the Holding
Company's net earnings. See "REGULATION."
Congress is considering legislation to eliminate the federal savings
and loan charter and the separate federal regulation of savings and loan
associations. Pursuant to such legislation, Congress may develop a common
charter for all financial institutions, eliminate the OTS and regulate the
Association under federal law as a bank or require it to change its charter,
which would likely change the type of activities in which the Association may
engage and would probably subject the Association to more regulation by the
FDIC. In addition, the Holding Company might become subject to different holding
company regulations, including separate capital requirements and limitations on
activities. Although the Holding Company cannot predict when or whether Congress
may actually pass legislation regarding the Holding Company's and the
Association's regulatory requirements or charter, it is not anticipated that the
current activities of the Holding Company or the Association will be materially
affected by such legislation.
-9-
<PAGE> 40
POTENTIAL IMPACT OF BENEFIT PLANS ON NET EARNINGS AND SHAREHOLDERS' EQUITY
In connection with the Conversion, the Holding Company has established
the ESOP which intends to use a loan from the Holding Company to purchase 8% of
the Common Shares issued in connection with the Conversion. All full-time
employees of the Holding Company and the Association who meet certain age and
years of service criteria will be eligible to participate in the ESOP.
Statement of Position ("SOP") No. 93-6, "Employers' Accounting for
Employee Stock Ownership Plans," published by the American Institute of
Certified Public Accountants (the "AICPA"), requires an employer to record
compensation expense in an amount equal to the fair value of shares committed to
be released to employees from an employee stock ownership plan. See "PRO FORMA
DATA" for pro forma information regarding the effects of SOP 93-6 on net
earnings and shareholders' equity. If the Common Shares acquired by the ESOP
appreciate in value over time, the Holding Company may incur increased
compensation expense relating to the ESOP which would adversely affected the
Holding Company's net earnings.
The ESOP may purchase Common Shares on the open market or may purchase
authorized but unissued shares from the Holding Company. If the ESOP purchases
authorized but unissued shares from the Holding Company, such purchases could
have a dilutive effect on the interests of the Holding Company's shareholders.
The shares acquired by the ESOP in the Conversion will be purchased
with the proceeds of a loan from the Holding Company to the ESOP. The ESOP loan
will be repaid through cash contributions to the ESOP from the Association and
the use of dividends paid on the Common Shares, if any. The Association
currently anticipates that the ESOP loan will be repaid over a period of ten
years. The amount of cash or other assets that can be contributed to the ESOP
each year is limited by certain IRS regulations. The Association intends to make
the maximum contribution to the ESOP permitted by such regulations, which could
result in repayment of the ESOP loan in fewer than ten years. A shorter
repayment period could result in increased compensation expense during the years
in which payments are made on the ESOP loan which would adversely impact the
Holding Company's earnings.
Following the consummation of the Conversion, the Holding Company
intends to adopt the Stock Option Plan and the RRP. The shares issued to
participants under the RRP could be newly issued shares or shares purchased in
the market. In the event the shares issued under the RRP consist of newly issued
common shares, the interests of existing shareholders will be diluted. Shares
issued pursuant to the exercise of options under the Stock Option Plan will be
authorized but unissued shares, unless the Holding Company has treasury shares
at the time of exercise and elects to use the treasury shares. At the midpoint
of the estimated Valuation Range, if all shares under these plans were newly
issued and the exercise price for the option shares were equal to the $10 per
share purchase price in the Conversion, the pro forma book value per share of
the outstanding common shares at March 31, 1997, would decrease from $15.46 to
$14.79. See "PRO FORMA DATA" and MANAGEMENT - Stock Benefit Plans."
ANTI-TAKEOVER PROVISIONS WHICH MAY DISCOURAGE SALES OF COMMON SHARES FOR PREMIUM
PRICES
The Articles of Incorporation and Code of Regulations of the Holding
Company and the Amended Articles of Incorporation of the Association contain
certain provisions that could deter or prohibit non-negotiated changes in the
control of the Holding Company and the Association. Such provisions include (1)
a restriction on the direct or indirect acquisition of more than 10% of the
outstanding shares of the Association by any person during the five-year period
following the effective date of the Conversion, (2) the ability to issue
additional common shares without shareholder approval, and (3) the requirement
of a 75% supermajority voting requirement for the approval of certain matters,
including mergers, acquisitions of a majority of the shares of the Holding
Company or the transfer of substantially all of the assets of the Holding
Company, if the Board of Directors recommends against the approval of any such
matter. See "DESCRIPTION OF AUTHORIZED SHARES" and "RESTRICTIONS ON ACQUISITION
OF THE HOLDING COMPANY AND THE ASSOCIATION."
Officers and directors of the Holding Company and their Associates are
expected to purchase approximately 7.81% of the shares issued in connection with
the Conversion, assuming the sale of 675,000 Common Shares. In addition,
officers of the Holding Company will be able to vote shares allocated to their
accounts under the ESOP, which intends to purchase approximately 8% of the
shares issued in connection with the Conversion. The ESOP trustee must vote
shares allocated under the ESOP as directed by the participants to whom the
shares are allocated and will vote unallocated shares in its sole discretion.
The RRP trustees, who will be three directors of the Association, will vote
shares awarded but not distributed under the RRP in their discretion. In view of
the various provisions of the Articles of Incorporation and the stock benefit
-10-
<PAGE> 41
plans of the Holding Company and the Association, the ESOP trustee, the RRP
Committee and the directors and officers of the Holding Company and the
Association will have a significant influence over the vote on any takeover
attempt or proxy contest and may be able to defeat such a proposal. The Boards
of Directors of the Holding Company and the Association believe that such
provisions will be in the best interests of shareholders by encouraging
prospective acquirors to negotiate a proposed acquisition with the directors.
Such provisions could, however, adversely affect the market value of the Common
Shares or restrict or eliminate the opportunity for shareholders to sell their
shares for premium prices.
Federal law and Ohio law also restrict the acquisition of control of
the Holding Company and the Association, and regulations of the OTS restrict the
ability of any person to acquire the beneficial ownership of more than 10% of
any class of voting equity security of the Association or the Holding Company.
Any or all of these provisions may facilitate the perpetuation of current
management and discourage proxy contests or takeover attempts not first
negotiated with the Board of Directors. See "RESTRICTIONS ON ACQUISITION OF THE
HOLDING COMPANY AND THE ASSOCIATION."
USE OF PROCEEDS
The following table presents the estimated gross and net proceeds from
the sale of the Common Shares, based on the Valuation Range:
<TABLE>
<CAPTION>
Minimum Mid-point Maximum Maximum, as adjusted
------- --------- ------- --------------------
<S> <C> <C> <C> <C>
Gross proceeds $5,737,500 $6,750,000 $7,762,500 $8,926,870
Less estimated expenses 352,930 366,900 380,870 396,940
---------- ---------- ---------- ----------
Total net proceeds $5,384,570 $6,383,100 $7,381,630 $8,529,930
========== ========== ========== ==========
</TABLE>
The net proceeds from the sale of the Common Shares may vary depending
upon financial and market conditions at the time of the completion of the
Offering. See "THE CONVERSION - Pricing and Number of Common Shares to be Sold."
The expenses detailed above are estimated. Actual expenses may be more than or
less than estimated. See "THE CONVERSION Plan of Distribution."
The Holding Company will retain up to 50% of the net proceeds from the
sale of the Common Shares, or approximately $4.3 million at the maximum, as
adjusted, of the Valuation Range. Such proceeds will be used to lend up to eight
percent of the proceeds of the Offering to the ESOP to acquire Common Shares in
the Offering with the balance of the proceeds initially invested in short-term
investments or deposits with staggered maturities ranging up to three years. The
loan to the ESOP will have a term of up to ten years and an interest rate equal
to the applicable federal rate, currently __%. Ultimately the proceeds will be
used for general corporate purposes, which may include payments of dividends,
repurchases of Common Shares and funding of the RRP. See "THE CONVERSION -
Restrictions on Repurchase of Common Shares." OTS regulations generally prohibit
stock repurchases in the first year following the completion of the Conversion,
without prior approval of the OTS.
The remainder of the net proceeds received from the sale of the Common
Shares, approximately $3.6 million at the maximum, as adjusted, of the Valuation
Range, will be invested by the Holding Company in the capital stock to be issued
by the Association to the Holding Company as a result of the Conversion and will
increase the regulatory capital of the Association and will permit the
Association to expand its lending and investment activities and to enhance
customer services. The Association anticipates that such net proceeds will
initially be invested in short-term investments with maturities of one year or
less and utilized, as opportunities arise, to originate loans and to purchase
loan participations within Ohio.
MARKET FOR COMMON SHARES
There is currently no market for the Common Shares. No assurance can be
given that an active or liquid market for the Common Shares will develop after
the completion of the Conversion or, if such a market does develop, that it will
continue. Investors should consider, therefore, the potentially illiquid and
long-term nature of an investment in the Common Shares.
-11-
<PAGE> 42
A public trading market for the stock of any issuer, including the
Holding Company, depends upon the presence of both willing buyers and willing
sellers at any given time. The Holding Company has received conditional approval
from the Nasdaq SmallCap to have the Common Shares quoted under the symbol
"OSFS" upon completion of the Conversion, subject to certain conditions which
the Association and the Holding Company believe will be satisfied, although no
assurance can be provided that the conditions will be met. One of the conditions
to the Nasdaq SmallCap listing is the commitment of at least two brokerage firms
to make a market in the Common Shares. KBW has informed the Holding Company that
it intends to make a market in the Common Shares, but it has no obligation to do
so.
If the Common Shares are not listed on the Nasdaq SmallCap, the Holding
Company expects that the Common Shares will be traded in the over-the-counter
market and will be quoted through brokers participating on the NDQS.
The appraisal of the pro forma market value of the Association, as
converted, is not a recommendation as to the advisability of purchasing Common
Shares, nor does it represent RP Financial's opinion as to the price at which
the Common Shares may trade. There can be no assurance that the Common Shares
may later be resold at the price at which they are purchased in connection with
the Conversion. See "RISK FACTORS - Limited Market for the Common Shares."
DIVIDEND POLICY
The declaration and payment of dividends by the Holding Company will be
subject to the discretion of the Board of Directors of the Holding Company, to
the earnings and financial condition of the Holding Company and to general
economic conditions. If the Board of Directors of the Holding Company determines
in the exercise of its discretion that the net income, capital, and consolidated
financial condition of the Holding Company and the general economy justify the
declaration and payment of dividends by the Holding Company, the Board of
Directors of the Holding Company may authorize the payment of dividends on the
Common Shares, subject to the limitation under Ohio law that a corporation may
pay dividends only out of surplus. There can be no assurance that dividends will
be paid on the Common Shares or, if paid, that such dividends will continue to
be paid in the future. In addition, the Holding Company will not take any action
that would further the payment of a tax-free return of capital to its
shareholders during the first year following the completion of the Conversion.
Other than earnings on the investment of the proceeds retained by the
Holding Company and interest earned on the loan to the ESOP, the principal
source of income of the Holding Company will be dividends periodically declared
and paid by the Board of Directors of the Association on the common shares of
the Association held by the Holding Company. The declaration and payment of
dividends by the Association to the Holding Company will be subject to the
discretion of the Board of Directors of the Association, to the earnings and
financial condition of the Association, to general economic conditions and to
federal and state restrictions on the payment of dividends by thrift
institutions. Under regulations of the OTS applicable to converted associations,
the Association will not be permitted to pay a cash dividend on its capital
stock after the Conversion if its regulatory capital would, as a result of the
payment of such dividend, be reduced below the amount required for the
Liquidation Account or the applicable regulatory capital requirement prescribed
by the OTS. See "THE CONVERSION - Principal Effects of the Conversion --
Liquidation Account" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Liquidity and Capital Resources." The
Association may not pay a dividend unless such dividend also complies with an
OTS regulation limiting capital distributions by savings and loan associations.
Capital distributions, for purposes of such regulation, include, without
limitation, payments of cash dividends, repurchases, and certain other
acquisitions by an association of its shares and payments to stockholders of
another association in an acquisition of such other association. See "REGULATION
- - Office of Thrift Supervision -- Limitations on Capital Distributions."
-12-
<PAGE> 43
REGULATORY CAPITAL COMPLIANCE
The following table sets forth the historical and pro forma regulatory
capital of the Association at March 31, 1997, based on the receipt of 50% of the
net proceeds for the number of Common Shares indicated. Estimated expenses used
in determining the net proceeds are $352,930, $366,900, $380,870 and $396,940,
at the minimum, mid-point, maximum and maximum, as adjusted, respectively, of
the Valuation Range.
<TABLE>
<CAPTION>
Pro forma capital at March 31, 1997, assuming the sale of:
-----------------------------------------------------------------------------
573,750 675,000 776,250 892,687
Common Shares Common Shares Common Shares Common Shares
Historical at (offering price (offering price (offering price (offering price
March 31, 1997 of $10 per share) of $10 per share) of $10 per share) of $10 per share)
-------------- ------------------- ------------------- ------------------ ------------------
Amount Percent (1) Amount Percent(1) Amount Percent(1) Amount Percent(1) Amount Percent(1)
------ ----------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital under
generally accepted
accounting principles,
before adjustments $4,860 14.1% $6,864 18.5% $7,242 19.3% $7,619 20.1% $8,054 20.9%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
Tangible capital:
Capital level $4,860 14.1% $6,864 18.5% $7,242 19.3 $7,619 20.1% $8,054 20.9%
Requirement 518 1.5 555 1.5 562 1.5 569 1.5 577 1.5
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Excess $4,342 12.6% $6,309 17.0% $6,680 17.8% $7,050 18.6% $7,477 19.4%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
Core capital:
Capital level $4,860 14.1% $6,864 18.5 $7,242 19.3% $7,619 20.1% $8,054 20.9%
Requirement 1,037 3.0 1111 3.0 1,125 3.0 1,138 3.0 1,154 3.0%
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess $3,823 11.1% $5,753 15.5% $6,117 16.3% $6,481 17.1% $6,900 17.9%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
Risk-based capital:(2)
Capital level $4,995 29.8% $6,999 38.9% $7,377 40.5% $7,754 42.0% $8,189 43.7%
Requirement 1,342 8.0 1,441 8.0 1,459 8.0 1,477 8.0% 1,498 8.0%
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess $3,653 21.8% $5,558 30.9% $5,918 32.5% $6,277 34.0% $6,691 35.7%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
- -------------------------------
<FN>
(1) Generally accepted accounting principles, adjusted, or risk-weighted
assets, as appropriate.
(2) Proposed regulations of the OTS could increase the core capital
requirement to a ratio between 4% and 5%, based upon an association's
regulatory examination rating. Risk-based capital includes tangible
capital plus $135,000 of the Association's allowance for loan losses.
Risk-weighted assets at March 31, 1997 totalled approximately $16.8
million. Net proceeds available for investment by the Association are
assumed to be invested in interest earning assets that have a 50%
risk-weighting.
</TABLE>
-13-
<PAGE> 44
CAPITALIZATION
Set forth below is the historical capitalization of the Association at
March 31, 1997, and the pro forma consolidated capitalization of the Holding
Company as adjusted to give effect to the sale of Common Shares based on the
Valuation Range and estimated expenses. See "USE OF PROCEEDS" and "THE
CONVERSION - Pricing and Number of Common Shares to be Sold."
<TABLE>
<CAPTION>
Pro forma capitalization of the Holding Company
at March 31, 1997, assuming the sale of:
---------------------------------------------------------------
573,750 675,000 776,250 892,687
Historical Common Common Common Common
capitalization Shares Shares Shares Shares
of the (Offering (Offering (Offering (Offering
Association at price of price of price of price of
March 31, 1997 $10 per share) $10 per share) $10 per share) $10 per share)
-------------- -------------- -------------- -------------- --------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Deposits (1) $ 29,425 $ 29,425 $ 29,425 $ 29,425 $ 29,425
======== ======== ======== ======== ========
Borrowings $ - $ - $ - $ - $ -
======== ======== ======== ======== ========
Capital and retained earnings:
Common Shares, no par value per
share: authorized - 3,000,000
shares; assumed outstanding - $ - $ - $ - $ - $ -
as shown (2)
Additional paid-in capital - 5,385 6,383 7,382 8,530
Less Common Shares acquired by
the ESOP (3) - (459) (540) (621) (714)
Less Common Shares acquired by
the RRP (4) - (230) (270) (311) (357)
Retained earnings, net,
substantially restricted (5) 4,860 4,860 4,860 4,860 4,860
-------- -------- -------- -------- --------
Total capital and retained earnings $ 4,860 $ 9,556 $ 10,433 $ 11,310 $ 12,319
======== ======== ======== ======== ========
- ------------------------------------
<FN>
(1) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Common Shares in the Conversion. Any such
withdrawals will reduce pro forma deposits by the amount of such
withdrawals.
(2) The number of Common Shares to be issued will be determined on the
basis of the final valuation of the Association. See "THE CONVERSION -
Pricing and Number of Common Shares to be Sold." Common Shares assumed
outstanding does not reflect the issuance of any common shares which
may be reserved for issuance under the Stock Option Plan. See
"MANAGEMENT - Stock Benefit Plans -- Stock Option Plan." Reflects
receipt of the proceeds from the sale of the Common Shares, net of
estimated expenses which include estimated sales commissions payable to
Webb.
(3) Assumes that 8% of the Common Shares sold in connection with the
Conversion will be acquired by the ESOP with funds borrowed by the ESOP
from the Holding Company for a term of ten years at a rate of 10%. The
ESOP loan will be secured solely by the Common Shares purchased by the
ESOP. The Association has agreed, however, to use its best efforts to
fund the ESOP based on future earnings, which best efforts funding will
reduce the Association's total capital and retained earnings, as
reflected in the table. If the ESOP purchases authorized but unissued
shares from the Holding Company, such purchases would have a dilutive
effect of approximately 7.4% on the voting interests of the Holding
Company's shareholders. See "MANAGEMENT - Stock Benefit Plans."
(4) Assumes that 4% of the Common Shares will be acquired in the open
market by the RRP after the Conversion at a price of $10 per share.
There can be no assurance that the RRP will be implemented, that a
sufficient number of shares will be available for purchase by the RRP,
or that shares could be purchased at a price of $10 per share. A higher
price per share, assuming the purchase of the entire 4% of the shares,
would reduce retained earnings. The RRP may purchase shares in the open
market or may purchase authorized but unissued shares from the Holding
Company. If authorized but unissued shares are purchased, the voting
interests of existing shareholders would be diluted approximately 3.9%.
See "MANAGEMENT - Stock Benefit Plans -- Recognition and Retention Plan
and Trust."
(5) Retained earnings include restricted and unrestricted retained
earnings. See "THE CONVERSION - Principal Effects of the Conversion --
Liquidation Account" for information concerning the liquidation account
to be established in connection with the Conversion and "TAXATION -
Federal Taxation" for information concerning restricted retained
earnings for federal tax purposes.
</TABLE>
-14-
<PAGE> 45
PRO FORMA DATA
Set forth below are the pro forma consolidated net earnings of the
Holding Company for the three months ended March 31, 1997, and for the year
ended December 31, 1996, and the pro forma consolidated shareholders' equity of
the Holding Company at March 31, 1997 and December 31, 1996, along with the
related pro forma earnings per share amounts, giving effect to the sale of the
Common Shares. The computations are based on the assumed issuance of 573,750
Common Shares (minimum of the Valuation Range), 675,000 Common Shares (mid-point
of the Valuation Range), 776,250 Common Shares (maximum of the Valuation Range)
and 892,687 Common Shares (15% above the maximum of the Valuation Range). See
"THE CONVERSION - Pricing and Number of Common Shares to be Sold." The pro forma
data is based on the following assumptions: (i) the sale of the Common Shares
occurred at the beginning of the period and yielded the net proceeds indicated;
(ii) such net proceeds were invested at the beginning of the period to yield
annualized after-tax net returns of 3.96%; and (iii) no withdrawals from
existing deposit accounts were made to purchase the Common Shares. The assumed
returns are based on the one-year U.S. Treasury bill yield of 6.00% in effect at
March 31, 1997. This rate was used as an alternative to the arithmetic average
of the Association's interest-earning assets and interest-bearing deposits. In
calculating pro forma net earnings, a statutory federal income tax rate of 34%
has been assumed for all periods. In the opinion of management, the assumed
after-tax yield does not differ materially from the estimated after-tax yield
which will be obtained on the initial investment of the cash proceeds in
short-term, interest-bearing deposits and is viewed as being more relevant in
the current low interest rate environment than the use of an arithmetic average
of the fiscal year 1996 weighted average yield on interest-earning assets and
weighted average rates paid on deposits during such period. Actual yields may
differ, however, from the assumed returns. The pro forma consolidated net
earnings amounts derived from the assumptions set forth herein should not be
considered indicative of the actual results of operations of the Holding Company
that would have been attained for any period if the Conversion had been actually
consummated at the beginning of such period.
As the table demonstrates, pro forma consolidated earnings per share
and pro forma consolidated shareholders' equity per share decrease as the amount
of Common Shares sold moves from the minimum of the Valuation Range to the
adjusted maximum of the Valuation Range. In addition, the offering price as a
multiple of pro forma earnings per share and as a percent of pro forma
shareholders' equity per share increases as the amount of Common Shares sold
moves from the minimum of the Valuation Range to the adjusted maximum of the
Valuation Range.
THE PRO FORMA DATA AND ACCOMPANYING NOTES SHOULD BE READ IN CONJUNCTION
WITH THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE HEREIN. NO
ASSURANCE CAN BE PROVIDED THAT THE YIELDS WILL BE ACHIEVED ON THE INVESTMENT OF
THE CONVERSION PROCEEDS. THE PRO FORMA DATA DOES NOT PURPORT TO REPRESENT WHAT
THE HOLDING COMPANY'S FINANCIAL POSITION OR RESULTS OF OPERATIONS ACTUALLY WOULD
HAVE BEEN HAD THE AFOREMENTIONED TRANSACTIONS BEEN COMPLETED AS OF THE DATE OR
AT THE BEGINNING OF THE PERIODS INDICATED, OR TO PROJECT THE HOLDING COMPANY'S
FINANCIAL POSITION OR RESULTS OF OPERATIONS AT ANY FUTURE DATE OR FOR ANY FUTURE
PERIOD.
-15-
<PAGE> 46
<TABLE>
<CAPTION>
At or for the three months ended March 31, 1997, assuming the sale of:
---------------------------------------------------------------------------
573,750 675,000 776,250 892,687
Common Shares Common Shares Common Shares Common Shares
(Offering price of (Offering price of (Offering price of (Offering price of
$10 per share) $10 per share) $10 per share) $10 per share)
----------------- ------------------ ------------------ ------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds $ 5,738 $ 6,750 $ 7,763 $ 8,927
Estimated expenses (353) (367) (381) (397)
--------- --------- --------- ---------
Estimated net proceeds 5,385 6,383 7,382 8,530
Less Common Shares acquired by the ESOP (1) (459) (540) (621) (714)
Less Common Shares acquired by the RRP (2) (230) (270) (311) (357)
--------- --------- --------- ---------
Net cash proceeds $ 4,696 $ 5,573 $ 6,450 $ 7,459
========= ========= ========= =========
Net earnings:
Historical $ 90 $ 90 $ 90 $ 90
Pro forma income on net proceeds 46 55 64 74
Pro forma adjustment for the ESOP(1) (8) (9) (10) (12)
Pro forma adjustment for the RRP (2) (8) (9) (10) (12)
Pro forma adjustment for Ohio
franchise tax (3) (8) (10) (11) (13)
--------- --------- --------- ---------
Pro forma net earnings $ 113 $ 118 $ 122 $ 127
========= ========= ========= =========
Earnings per share:
Historical $ 0.17 $ 0.14 $ 0.12 $ 0.11
Pro forma income on net proceeds 0.09 0.09 0.09 0.09
Pro forma adjustment for the ESOP (0.01) (0.01) (0.01) (0.01)
(1)
Pro forma adjustment for the RRP (2) (0.01) (0.01) (0.01) (0.01)
Pro forma adjustment for Ohio
franchise tax (3) (0.02) (0.02) (0.02) (0.02)
--------- --------- --------- ---------
Pro forma net earnings per share $ 0.21 $ 0.19 $ 0.17 $ 0.15
========= ========= ========= =========
Number of shares used in calculating
earnings per share 532,440 626,400 720,360 828,414
Shareholders' equity (book value): (4)
Historical $ 4,860 $ 4,860 $ 4,860 $ 4,860
Estimated net proceeds from the
sale of Common Shares 5,385 6,383 7,382 8,530
Less unearned ESOP shares (1) (459) (540) (621) (714)
Less unearned RRP shares (2) (230) (270) (311) (357)
--------- --------- --------- ---------
Pro forma shareholders' equity $ 9,556 $ 10,433 $ 11,310 $ 12,319
========= ========= ========= =========
Per share shareholders' equity:
Historical $ 8.47 $ 7.20 $ 6.26 $ 5.44
Estimated net proceeds 9.38 9.46 9.51 9.56
Less unearned ESOP shares (1) (0.80) (0.80) (0.80) (0.80)
Less unearned RRP shares (2) (0.40) (0.40) (0.40) (0.40)
--------- --------- ---------
Pro forma shareholders' equity per share (3) $ 16.66 $ 15.46 $ 14.57 $ 13.80
========= ========= ========= =========
Ratio of offering price to pro forma
shareholders' equity per share (5) 60.04% 64.70% 68.63% 72.47%
========= ========= ========= =========
Offering price as a multiple of pro
forma earnings per share (5)(6) 11.90 13.16 14.71 16.67
========= ========= ========= =========
</TABLE>
- ------------------------------------
(Footnotes on page 18)
-16-
<PAGE> 47
<TABLE>
<CAPTION>
At or for the year ended December 31, 1996, assuming the sale of:
---------------------------------------------------------------------------
573,750 675,000 776,250 892,687
Common Shares Common Shares Common Shares Common Shares
(Offering price of (Offering price of (Offering price of (Offering price of
$10 per share) $10 per share) $10 per share) $10 per share)
------------------ ----------------- ----------------- -----------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds $ 5,738 $ 6,750 $ 7,763 $ 8,927
Estimated expenses (353) (367) (381) (397)
--------- --------- --------- ---------
Estimated net proceeds 5,385 6,383 7,382 8,530
Less Common Shares acquired by the ESOP (1) 459 540 621 714
Less Common Shares acquired by the RRP (2) 230 270 311 357
--------- --------- --------- ---------
Net cash proceeds $ 4,696 $ 5,573 $ 6,450 $ 7,459
========= ========= ========= =========
Net earnings:
Historical $ 212 $ 212 $ 212 $ 212
Pro forma income on net proceeds 186 221 255 295
Pro forma adjustment for the ESOP (1) (30) (36) (41) (47)
Pro forma adjustment for the RRP (2) (30) (36) (41) (47)
Pro forma adjustment for Ohio
franchise tax (3) (32) (39) (45) (52)
--------- --------- --------- ---------
Pro forma net earnings $ 305 $ 323 $ 341 $ 362
========= ========= ========= =========
Earnings per share:
Historical $ 0.40 $ 0.34 $ 0.29 $ 0.26
Pro forma income on net proceeds 0.35 0.35 0.35 0.36
Pro forma adjustment for the ESOP(1) (0.06) (0.06) (0.06) (0.06)
Pro forma adjustment for the RRP (2) (0.06) (0.06) (0.06) (0.06)
Pro forma adjustment for Ohio
franchise tax (3) (0.06) (0.06) (0.06) (0.06)
--------- --------- --------- ---------
Pro forma net earnings per share $ 0.57 $ 0.52 $ 0.47 $ 0.44
========= ========= ========= =========
Number of shares used in calculating
earnings per share 532,440 626,400 720,360 828,414
Shareholders' equity (book value): (4)
Historical $ 4,770 $ 4,770 $ 4,770 $ 4,770
Estimated net proceeds from the
sale of Common Shares 5,385 6,383 7,382 8,530
Less unearned ESOP shares (1) (459) (540) (621) (714)
Less unearned RRP shares (2) (230) (270) (311) (357)
--------- --------- --------- ---------
Pro forma shareholders' equity $ 9,466 $ 10,343 $ 11,220 $ 12,229
========= ========= ========= =========
Per share shareholders' equity:
Historical $ 8.31 $ 7.07 $ 6.14 $ 5.34
Estimated net proceeds 9.38 9.48 9.51 9.56
Less unearned ESOP shares (1) (0.80) (0.80) (0.80) (0.80)
Less unearned RRP shares (2) (0.40) (0.40) (0.40) (0.40)
--------- --------- --------- ---------
Pro forma shareholders' equity per share $ 16.50 $ 15.32 $ 14.45 $ 13.70
========= ========= ========= =========
Ratio of offering price to pro forma
shareholders' equity per share (5) 60.61% 65.26% 69.18% 73.00%
========= ========= ========= =========
Offering price as a multiple of pro
forma earnings per share (5)(6) 17.54 19.23 21.28 22.72
========= ========= ========= =========
</TABLE>
- ------------------------------------
(Footnotes on next page)
-17-
<PAGE> 48
(1) Assumes 8.0% of the shares sold in the Conversion are purchased by the
ESOP under all circumstances, and that the funds used to purchase such
shares are borrowed from the Company. The approximate amount expected
to be borrowed by the ESOP is not reflected as a liability, but is
reflected as a reduction of capital. The Association intends to make
annual contributions to the ESOP over a ten year period in an amount at
least equal to the principal and interest requirement of the debt. The
pro forma net income assumes that: (i) 4,590, 5,400, 6,210, and 7,141
shares at the minimum, mid-point, maximum, and maximum, as adjusted, of
the Valuation Range, respectively, were committed to be released during
the period at an average fair value of $10.00 per share in accordance
with SOP 93-6 of the AICPA; (ii) the effective tax rate was 34% for
such period; and (iii) only the ESOP shares committed to be released
were considered outstanding for purposes of the per share net earnings.
The pro forma shareholders' equity per share calculation assumes all
ESOP shares were outstanding, regardless of whether such shares would
have been released. Because the Company will loan the funds to ESOP
necessary to purchase the Common Shares, only principal payments on the
ESOP loan are reflected as employee compensation and benefits expense.
As a result, to the extent the value of the Common Shares appreciates
over time, compensation expense related to the ESOP will increase. For
purposes of the preceding tables, it was assumed that a ratable portion
(1/10th) of the shares purchased in the Conversion by the ESOP were
committed to be released during the periods ended March 31, 1997 and
December 31, 1996. See Note 6 below. See "MANAGEMENT - Stock Benefit
Plans -- Employee Stock Ownership Plan."
(2) Assumes that 4% of the Common Shares sold in connection with the
Conversion will be purchased by the RRP after the Conversion at a price
of $10 per share and that one-fifth of the purchase price of the RRP
shares will be expensed in each of the first five years after the
Conversion. If the RRP is implemented in the first year after the
completion of the Conversion, it will be subject to various OTS
requirements, including the requirement that the RRP be approved by the
shareholders of the Holding Company. There can be no assurance that the
RRP will be approved by the shareholders, that a sufficient number of
shares will be available for purchase by the RRP or that the shares
could be purchased at $10 per share. A higher per share price, assuming
the purchase of the entire 4% of the shares, would reduce pro forma net
earnings and pro forma shareholders' equity. If an insufficient number
of shares is available in the open market to fund the RRP at the
desired level, the Holding Company may issue additional authorized
shares. The issuance of authorized but unissued shares in an amount
equal to 4% of the Common Shares issued in the Conversion would result
in a 3.9% dilution in existing shareholders' voting interests. See
"MANAGEMENT - Stock Benefit Plans -- Recognition and Retention Plan and
Trust."
(3) The pro forma Ohio franchise tax adjustment assumes an amount equal to
50% of the net proceeds from the Offering is allocated to the
Association and taxed at an Ohio franchise tax rate of 1.5%, and an
amount equal to 50% of the net proceeds from the Offering is allocated
to the Company and taxed at an Ohio franchise tax rate of .596%. The
resulting combined Ohio franchise tax has been reduced by the federal
tax benefit at a rate of 34.0%.
(4) Consolidated shareholders' equity represents the excess of the carrying
value of the assets of the Company over its liabilities. The
calculations are based upon the number of shares issued in the
Conversion, without giving effect to SOP 93-6. The amounts shown do not
reflect the federal income tax consequences of the potential
restoration to income of the tax bad debt reserves for income tax
purposes, which would be required in the event of liquidation. The
amounts shown also do not reflect the amounts required to be
distributed in the event of liquidation to Eligible Account Holders and
Supplemental Eligible Account Holders from the Liquidation Account
(hereinafter defined) which will be established upon the consummation
of the Conversion. Pro forma shareholders' equity information is not
intended to represent the fair market value of the Common Shares, the
current value of the Association's assets or liabilities, or the
amounts, if any, that would be available for distribution to
shareholders in the event of liquidation. Such pro forma data may be
materially affected by a change in the number of Common Shares to be
sold in the Conversion and by other factors. See "TAXATION - Federal
Taxation."
(5) Assumes that following the consummation of the Conversion, the Holding
Company will adopt the Stock Option Plan and that such plan will be
considered and voted upon at a meeting of the Holding Company's
shareholders to be held no earlier than six months after the
Conversion. Under the Stock Option Plan, employees and directors could
be granted options to purchase an aggregate amount of common shares
equal up to 10% of the Common Shares issued in the Conversion at an
exercise price equal to the market price of the common shares on the
date of grant. In the event the shares issued under the Stock Option
Plan are exercised, the interests of existing shareholders would be
diluted. See "MANAGEMENT - Stock Benefit Plans --Stock Option Plan."
(6) Pro forma net income per share calculations include the number of
shares assumed to be sold in the Conversion and, in accordance with SOP
93-6, exclude ESOP shares which would not have been released during the
period. Accordingly, for the three months ended March 31, 1997, and for
the year ended December 31, 1996, 41,310, 48,600, 55,890, and 64,274
shares have been subtracted from the shares assumed to be sold at the
minimum, mid-point, maximum, and maximum, as adjusted, of the Valuation
Range, respectively, and 532,440, 626,400, 720,360, and 828,414 shares
are assumed to be outstanding at the minimum, mid-point, maximum, and
maximum, as adjusted, of the Valuation Range, respectively. See Note 1
above.
-18-
<PAGE> 49
SUMMARY STATEMENTS OF EARNINGS
The following summary sets forth information concerning the Association
for the periods indicated. Such information should be read in conjunction with
the financial statements and notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
Three months ended March 31, Year ended December 31,
--------------------------- --------------------------------
1997 1996 1996 1995 1994
-------- -------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Interest and dividend income:
Loans $ 489 $ 511 $2,000 $1,909 $1,663
Mortgage-backed securities 23 28 102 119 160
Investment securities,
interest-bearing deposits and other 102 99 413 450 474
------ ------ ------ ------ ------
Total interest and dividend income 614 638 2,515 2,478 2,297
Interest expense:
Deposits 286 289 1,158 1,107 982
FHLB advances 1 - - 1 -
------ ------ ------ ------ ------
Total interest expense 287 289 1,158 1,108 982
------ ------ ------ ------ ------
Net interest income before provision
for losses on loans 327 349 1,357 1,370 1,315
Provision for loan losses - - - - 16
------ ------ ------ ------ ------
Net interest income after provision
for loan losses 327 349 1,357 1,370 1,299
Other income 9 13 45 42 79
General, administrative and other
expense (1) 201 217 1,084 866 849
------ ------ ------ ------ ------
Earnings before income taxes 135 145 318 546 529
Federal income taxes 45 49 106 185 174
------ ------ ------ ------ ------
Net earnings $ 90 $ 96 $ 212 $ 361 $ 355
====== ====== ====== ====== ======
- ----------------------------
<FN>
(1) Includes a nonrecurring pre-tax expense of $190,000 for the year ended
December 31, 1996, for a special one-time assessment to recapitalize
the SAIF.
</TABLE>
-19-
<PAGE> 50
RECENT DEVELOPMENTS
The following tables set forth selected financial condition data for
the Association at June 30, 1997, and December 31, 1996, and selected earnings
data for the Association for the three months and six months ended June 30, 1997
and 1996. Financial data as of and for the three and six months ended June 30,
1997, are unaudited. In the opinion of management, all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation of the results
for the unaudited periods have been made. The results of operations presented
below are not necessarily indicative of the results that may be expected for any
other period. This information should be read in conjunction with the financial
statements and notes thereto included herein.
<TABLE>
<CAPTION>
At June 30, At December 31,
SELECTED FINANCIAL CONDITION AND OTHER DATA: 1997 1996
------- -------
(Dollars in thousands)
<S> <C> <C>
Total amount of :
Assets $34,264 $33,929
Cash and cash equivalents 2,493 2,436
Investment securities 5,454 4,936
Mortgage-backed securities 921 984
Loans receivable, net 24,660 24,892
Deposits 28,955 28,791
Retained earnings 4,952 4,770
Number of full-service offices 2 2
</TABLE>
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
SUMMARY OF EARNINGS: 1997 1996 1997 1996
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Interest income $ 616 $ 633 $1,230 $1,271
Interest expense 292 291 579 580
------ ------ ------ ------
Net interest income 324 342 651 691
Provision for loan losses - - - -
------ ------ ------ ------
Net interest income after provision
for loan losses 324 342 651 691
Other income 18 12 27 25
General, administrative and other
expense 203 226 403 443
------ ------ ------ ------
Net income before provision for
income taxes 139 128 275 273
Provision for income taxes 47 42 93 91
------ ------ ------ ------
Net income $ 92 $ 86 $ 182 $ 182
====== ====== ====== ======
</TABLE>
-20-
<PAGE> 51
<TABLE>
<CAPTION>
At or for the three months ended At or for the six months ended
June 30, June 30,
----------------------------------- -----------------------------------
SELECTED FINANCIAL RATIOS: 1997 (1) 1996 (1) 1997 (1) 1996 (1)
--------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
Performance Ratios:
Return on average assets 1.08% 0.99% 1.06% 1.05%
Return on average equity 7.54 7.34 7.49 7.84
Interest rate spread 3.44 3.64 3.45 3.70
Net interest margin 3.93 4.09 3.94 4.14
Non-interest expense to average
assets 2.37 2.61 2.35 2.57
Efficiency ratio (2) 59.24 63.75 59.49 61.85
Net interest income to operating
expenses: 159.86 151.40 161.32 155.93
Average interest-earning assets to
average interest-bearing
liabilities 113.78 112.60 113.28 112.04
Capital ratios:
Average equity to average assets 14.30 13.54 14.17 13.45
Equity to assets, end of period 14.46 13.67 14.46 13.67
Asset quality ratios:
Nonperforming assets to average
assets (3) 0.47 0.11 0.47 0.11
Nonperforming assets to total
assets 0.47 0.11 0.47 0.11
Nonperforming loans to total loans
0.65 0.15 0.65 0.15
Allowance for loan losses to gross
loans 0.57 0.56 0.57 0.56
Allowance for loan losses to
nonperforming loans 87.56 386.49 87.56 386.49
Net (charge-offs) recoveries to
average loans (0.01) - (0.01) -
- -----------------------------
<FN>
(1) Ratios for interim periods are stated on an annualized basis. Such
ratios and results are not necessarily indicative of results that may
be expected for the full year.
(Footnotes continued on next page.)
(2) Non-interest expenses as a percentage of net interest income plus
non-interest income.
(3) Nonperforming assets include non-accrual loans, accruing loans more
than 90 days past due and real estate acquired in settlement of loans.
Nonperforming assets were $161,000 and $37,000 at June 30, 1997 and
1996, respectively.
</TABLE>
The following table summarizes the Association's regulatory capital
requirements and actual capital at June 30, 1997:
<TABLE>
<CAPTION>
Excess of actual capital Applicable
Actual capital Current requirement over current requirement asset total
------------------ ------------------- ------------------------ -----------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in thousands)
June 30, 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Tangible capital $5,085 14.8% $ 514 1.5% $4,571 13.3% $34,264
Core capital 5,085 14.8 1,028 3.0 4,057 11.8 34,264
Risk-based capital 5,085 30.5 1,334 8.0 3,751 22.5 16,670
</TABLE>
-21-
<PAGE> 52
ANALYSIS OF FINANCIAL CONDITION
Total assets increased $335,000, or 1.0%, to $34.3 million at June 30,
1997, from $33.9 million at December 31, 1996. The increase was due primarily to
growth in investment securities of $518,000, or 10.5%, which was offset by a
$286,000 decrease in net loans, primarily attributable to prepayments of loan
participations.
Total deposits increased $164,000 during the same period, primarily due
to an increase of $307,000, or 2.1%, in the Association's certificates of
deposit accounts, which was partially offset by a decrease in regular savings
and demand deposit accounts.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND
1996
Net income increased $6,000, or 7.0%, to $92,000 for the three months
ended June 30, 1997, as compared to $86,000 for the same period in 1996. The
increase in net income was primarily due to a $23,000 reduction in noninterest
expenses, which was partially offset by an $18,000 decrease in net interest
income.
Net interest income decreased $18,000, or 5.3%, from $342,000 for the
three months ended June 30, 1996, to $324,000 for the three months ended June
30, 1997. The decrease was primarily due to a $442,000, or 1.7%, decrease in the
average balance of loans outstanding during the three months ended June 30,
1997, compared to the same period in 1996. The Association's net interest margin
declined 16 basis points to 3.93% for the three months ended June 30, 1997,
compared to 4.09% for the 1996 period.
Total interest and dividend income decreased $17,000 for the three
months ended June 30, 1997, compared to the same period in 1996. Interest income
on loans decreased $10,000, or 2.2%, to $488,000 for the three months ended June
30, 1997, compared to $498,000 for the 1996 period, primarily as a result of
prepayments of approximately $300,000 of loan participations during the 1997
period. A reduction in the yield on investments of 33 basis points from 6.56% in
the 1996 period, to 6.23% in the 1997 period contributed to a decrease in
interest income on investments of $7,000, or 5.1%, to $129,000 for the three
months ended June 30, 1997, compared to $136,000 for the 1996 period.
Total interest expense remained constant between the two periods, with
only a $1,000 increase from the 1996 period to the 1997 period. The
Association's cost of funds increased from 3.92% for the three months ended June
30, 1996, to 4.02% for the 1997 period, but average outstanding deposits
declined $646,000, or 2.2%.
There were no provisions for losses on loans for the three months ended
June 30, 1997 and 1996. Management judges the adequacy of the allowance for loan
losses and any additions to it based on a level which is deemed adequate to
absorb credit losses inherent in the loan portfolio. The amount of the allowance
is based on management's evaluation of the collectibility of the loan portfolio,
including the nature of the portfolio, credit concentrations, trends in
historical loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the estimated value
of any underlying collateral, and current economic conditions. Based on
management's evaluation, the amount of the allowance was deemed adequate with no
additional provision necessary.
Noninterest income totaled $18,000 for the three months ended June 30,
1997, an increase of $6,000, or 50%, from $12,000 for the 1996 period, as the
result of a gain on the sale of assets.
Noninterest expenses decreased $23,000, or 10.0%, from $226,000 for the
three months ended June 30, 1996 to $203,000 for the 1997 period. The decrease
in noninterest expenses was primarily attributable to a $13,000, or 65%,
decrease in the Association's federal deposit insurance premium for the 1997
period, due to a reduction in the Association's premium rate from $.23 per $100
of deposits to $.065 per $100 of deposits. Other reductions resulted from cost
controls instituted by management.
The provision for income taxes totaled $47,000 for the three months
ended June 30, 1997, an increase of $5,000, or 11.9%, from the $42,000 provision
in the comparable 1996 period, due to an increase in net income before taxes.
-22-
<PAGE> 53
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Net income remained constant at $182,000 for the six months ended June
30, 1997 and 1996. A decrease in net interest income of $40,000 was offset by a
reduction in noninterest expense of $40,000 for the six months ended June 30,
1997, compared to the six months ended June 30, 1996.
Net interest income decreased $40,000, or 5.8%, from $691,000 for the
six months ended June 30, 1996, to $651,000 for the same period in 1997. The
decrease was primarily due to a decline of $32,000 in interest income on loans
and a $9,000 decrease in interest income on investments.
Interest income decreased $41,000, or 3.2%, for the six months ended
June 30, 1997 compared to the 1996 period, primarily due to a decline in the
average balance of loans outstanding of $555,000, or 2.2%, during the six months
ended June 30, 1997, compared to the same period in 1996. The Association's net
interest margin declined 20 basis points to 3.94% for the 1997 period from 4.14%
in the 1996 period.
Total interest expense remained constant between the six month periods
ended June 30, 1997 and 1996, with only a $1,000 decrease from the 1996 period
to the 1997 period The decrease in interest expense resulted from a decrease of
$577,000 in the average balance of deposits outstanding which was offset by a 7
basis point increase in the Association's cost of funds from 3.92% to 3.99%.
There were no provisions for losses on loans during the six month
periods ended June 30, 1997 and 1996. Management judges the adequacy of the
allowance for loan losses and any additions to it based on a level which is
adequate to absorb credit losses inherent in the loan portfolio. The amount of
the allowance is based on management's evaluation of the collectibility of the
loan portfolio, including the nature of the portfolio, credit concentrations,
trends in historical loss experience, known and inherent risks in the portfolio,
adverse situations that may affect the borrower's ability to repay, the
estimated value of any underlying collateral, and current economic conditions.
Based on management's evaluation, the amount of the allowance was deemed
adequate with no additional provision necessary.
Noninterest income for the six months ended June 30, 1997, increased
$2,000 to $27,000 from the 1996 period, primarily due to a gain on the sale of
assets which was partially offset by a non-recurring income item in the 1996
period. The non-recurring item for the 1996 period involved an adjustment on the
principal balance of mortgage-backed securities carried over from prior years.
Noninterest expenses decreased $40,000, or 9%, from $443,000 for the
six months ended June 30, 1996, to $403,000 for the 1997 period. The decline was
primarily attributable to a $28,000, or 71%, reduction in the Association's
federal deposit insurance premium in the 1997 period, due to a reduction in the
Association's premium rate from $.23 per $100 of deposits to $.065 per $100 of
deposits. Other reductions in the 1997 period resulted from cost controls
instituted by management.
The provision for income taxes for the six months ended June 30, 1997,
decreased $2,000, or 2.2%, to $91,000, as a result of a decrease in net income
before income taxes.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Association is a community-oriented financial institution which is
primarily engaged in the business of attracting savings deposits from the
general public and investing such funds in mortgage loans secured by one- to
four-family residential real estate located in the Association's primary market
area. To a much lesser extent, the Association also originates loans for the
construction or improvement of one- to four-family residential real estate,
loans secured by multi-family residential real estate (over four units), and
nonresidential real estate and consumer loans, and invests in U.S. Government
and agency obligations, interest-bearing deposits in other financial
institutions, mortgage backed securities, and other investments permitted by
law.
-23-
<PAGE> 54
The Association's results of operations are primarily dependent on its
net interest income, which is the difference between the interest income earned
on its assets, primarily loans and investments, and the interest expense on its
liabilities, primarily customer deposits. Net interest income may be affected
significantly by general economic and competitive conditions and policies of
regulatory agencies, particularly those with respect to market interest rates.
The Association primarily originates fixed rate loans with terms up to 15 years
and attempts to maintain sufficient capital and other liquid assets to manage
interest rate risk. The results of operations are also significantly influenced
by the level of non-interest expenses, such as employee salaries and benefits,
non-interest income, such as loan fees and service charges, and the
Association's provision for losses on loans.
ANALYSIS OF FINANCIAL CONDITION
The Association's assets totaled $34.6 million at March 31, 1997, an
increase of $635,000, or 1.9%, from $33.9 million at December 31, 1996.
Increases occurred in all asset categories except mortgage-backed securities,
which declined negligibly. Assets totaled $33.9 million at December 31, 1996, a
decrease of $625,000, or 1.8%, from $34.6 million at December 31, 1995. A
decrease in loans receivable was the primary reason for the decline in total
assets.
Between December 31, 1996, and March 31, 1997, loans receivable
increased $125,000, or 0.5%, to $25.0 million. Loans receivable decreased $1.1
million, or 4.2%, from December 31, 1995, to December 31, 1996, primarily as a
result of the prepayment of approximately $820,000 of loan participations.
Proceeds were kept in cash and cash equivalents for liquidity purposes and in
anticipation of future loan demand.
Investment securities declined due to scheduled maturities from $5.7
million at December 31, 1995, to $5.1 million at December 31, 1996, a decrease
of $575,000, or 10.1%, and remained relatively unchanged at March 31, 1997. Cash
and cash equivalents increased $1.3 million, or 106.9%, to $2.4 million at
December 31, 1996, compared to $1.2 million at December 31, 1995, and increased
moderately to $2.6 million at March 31, 1997, as a result of management's
decision to increase liquidity in anticipation of future loan demand.
Total deposits increased $634,000, or 2.2%, to $29.4 million at March
31, 1997, from $28.8 million at December 31, 1996. Total deposits had declined
$824,000, or 2.8%, between December 31, 1995 and 1996. There were no outstanding
borrowings from the FHLB of Cincinnati at March 3l, 1997, or December 31, 1996
and 1995.
Total equity increased $90,000 between December 31, 1996, and March 31,
1997, as a result of net income for the three month period. Total equity at
March 31, 1997, was $4.9 million, or 14.1% of total assets. The Association's
equity increased to $4.8 million at December 31, 1996, from $4.6 million at
December 31, 1995. This represented an increase of $212,000, or 4.7%, which
resulted from net income for the year ended December 31, 1996.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND
1996
GENERAL. The Association's net income totaled $90,000 for the three
months ended March 31, 1997, a decrease of $6,000, or 6.8%, from $96,000 in net
income for the same period in 1996. The decrease in net income was the result of
a $22,000 reduction in net interest income, which was partially offset by a
$17,000 reduction in non-interest expense.
NET INTEREST INCOME. Total interest and dividend income for the three
months ended March 31, 1997, decreased $24,000, or 3.7%, compared to the same
period in 1996, while interest expense decreased $2,000, or .5%, resulting in a
decrease in net interest income of $22,000, or 6.4%, to approximately $327,000.
The principal factors in the reduction were a 29 basis point decline in the
Association's interest rate spread from 3.76% to 3.47% and a decrease in the
average balances of loans, mortgage-backed securities and investment securities.
Interest income on loans decreased $21,000, or 4.2%, to $489,000 for
the three months ended March 31, 1997, compared to $510,000 for the 1996 period.
The decrease resulted primarily from the prepayment of $820,000 of loan
participations, a decrease in the average balance of loans outstanding during
the 1997 period to $25.1 million, from $25.7 million in the 1996 period, and a
14 basis point decline in the yield on loans. Interest income on mortgage-backed
securities decreased $5,000, or 18.3%, for the three months ended March 31,
1997, compared to the same period in 1996, as a result of a decline in the
average outstanding balance from $1.2 million to $959,000. A reduction of
$370,000 in the average outstanding balance of investment securities from $4.5
million to $4.1 million, combined with a reduction in the yield on investment
securities of 49 basis points, also contributed to the reduction in interest
income. The declines in interest income on loans mortgage-backed securities and
investment securities were partially offset by a $14,000 increase in income from
-24-
<PAGE> 55
interest-earning deposits in banks. Although the average balance of
interest-earning deposits increased to $3.0 million in the 1997 period from $1.9
million in the 1996 period, the average yield of 5.34% in the 1997 period was
less than the yields on investment securities or mortgage-backed securities, as
management chose to increase the Association's liquidity in anticipation of
future loan demand.
Total interest expense remained constant between the two periods, with
only a $1,000 decrease from the 1996 period to the 1997 period. The
Association's cost of funds increased to 3.95% in the 1997 period from 3.91% in
the 1996 period, but average outstanding deposits declined $466,000, or 1.6%.
PROVISION FOR LOSSES ON LOANS. There were no provisions for losses on
loans for the three months ended March 31, 1997 and 1996. Management judges the
adequacy of the allowance for loan losses and any additions to it based on a
level which is deemed adequate to absorb credit losses inherent in the loan
portfolio. The amount of the allowance is based on management's evaluation of
the collectibility of the loan portfolio, including the composition of the
portfolio, credit concentrations, trends in historical loss experience, known
and inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying collateral,
and current economic conditions. Based on management's evaluation, the amount of
the allowance was deemed adequate with no additional provision necessary.
NON-INTEREST INCOME. Non-interest income totaled $9,000 for the three
months ended March 31, 1997, a decrease of $4,000, or 30.3%, from $13,000 for
the 1996 period, due primarily to a non-recurring income item in the 1996
period. The non-recurring item for the 1996 period involved an adjustment in the
principal balance of mortgage-backed securities carried over from prior years.
NON-INTEREST EXPENSES. Non-interest expenses decreased $17,000, or
7.7%, to $201,000 for the three months ended March 31, 1997, compared to
$217,000 in the 1996 period. The decline was primarily attributable to a
$15,000, or 76.8%, reduction in the Association's federal deposit insurance
premium for the 1997 period, due to a reduction in the Association's premium
rate from $.23 per $100 of deposits to $.065 per $100 of deposits. The largest
component of non-interest expenses, salaries and benefits, increased $4,000, or
3.8%, to $91,000 for the three months ended March 31, 1997. This increase was
primarily due to merit salary increases for the Association's staff. The
Association expects that compensation and benefits may increase following the
Conversion in the event of the adoption and implementation of additional
employee and director benefit plans, including the ESOP. The Holding Company
also expects to incur increased costs associated with being a public company.
See "PRO FORMA DATA" and "RISK FACTORS - Potential Impact of Benefit Plans on
Net Earnings and Shareholders' Equity."
PROVISION FOR INCOME TAXES. The provision for income taxes totaled
$46,000 for the three months ended March 31, 1997, a decrease of $3,000, or
6.1%, from the $49,000 provision in the comparable 1996 period, due to the
decrease in net income before taxes.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
GENERAL. Net income for the year ended December 31, 1996, decreased
$149,000, or 41.2%, to $212,000 from $361,000 for 1995. The decrease resulted
primarily from a decrease of $13,000 in net interest income and an increase of
$218,000, or 25.2%, in non-interest expenses due largely to a $190,000
non-recurring special assessment for the recapitalization of the SAIF, which
were partially offset by an increase of $3,000 in non-interest income and a
decrease in the provision for income taxes of $79,000. Excluding the one-time
SAIF special assessment, pre-tax income decreased $38,000, or 6.9%, to $509,000
in 1996.
NET INTEREST INCOME. Total interest and dividend income for the year
ended December 31, 1996, was $2.5 million, an increase of $36,000, or 1.4%, from
1995. The increase was primarily due to an increase in interest on loans of
$91,000, or 4.7%, due to a $987,000 increase in the average balance of loans
outstanding year to year and a six basis point increase in the yield on loans,
which more than offset declines in income from all other asset categories.
Interest income on mortgage-backed securities for the year ended December 31,
1996, decreased $17,000, or 14.4%, due to a $205,000 decline in the average
outstanding balance which offset a nine basis point increase in the yield.
Interest earned on interest-bearing deposits decreased $6,000 or 4.0%, due
primarily to a decrease of $196,000 in the average balance outstanding, which
was offset somewhat by an 18 basis point increase in yield. Income on investment
securities decreased by $30,000 due to a 38 basis point decline in yield and a
$209,000 decline in the average balance outstanding.
-25-
<PAGE> 56
Total interest expense increased $50,000, or 4.5%, to $1.2 million in
1996. The increase was primarily attributable to a 17 basis point increase in
the cost of funds from 3.78% to 3.95%, as the average balance of deposits
outstanding increased only $33,000 to $29.3 million in 1996. The increase in the
cost of funds was the result of higher rates offered by competing institutions
in the Association's market area.
PROVISION FOR LOAN LOSSES. There were no provisions for losses on loans
for the years ended December 31, 1996 and 1995. Management judges the adequacy
of the allowance for loan losses and any additions to it based on a level which
is deemed adequate to absorb credit losses inherent in the loan portfolio. The
amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, known and inherent
risks in the portfolio, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying collateral, and current
economic conditions. Based on management's evaluation, the amount of the
allowance was deemed adequate with no additional provision necessary.
NON-INTEREST INCOME. Non-interest income for the year ended December
31, 1996, increased $3,000, or 7.7%, to $45,000.
NON-INTEREST EXPENSES. Non-interest expenses totaled $1.1 million for
the year ended December 31, 1996, an increase of $218,000, or 25.2%, compared to
1995. The increase resulted primarily from a $191,000 increase in federal
deposit insurance premiums due to a $190,000 non-recurring special assessment
recorded at September 30, 1996, to recapitalize the SAIF, and a $13,000 increase
in depreciation expense due to equipment purchases in late 1995 and 1996.
PROVISION FOR INCOME TAXES. The provision for income taxes for the year
ended December 31, 1996, decreased $79,000, or 42.7%, to $106,000, as a result
of a decrease in net income before income taxes compared to 1995.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
GENERAL. Net income for the year ended December 31, 1995, increased
$6,000, or 1.6%, to $361,000. The increase was a result of an increase in net
interest income of $55,000, or 4.2%, and a decrease in the provision for losses
on loans of $17,000, which were partially offset by a decrease in non-interest
income of $37,000, or 47.2%, and an increase of $17,000, or 2.0%, in
non-interest expenses.
NET INTEREST INCOME. Total interest and dividend income was $2.5
million for the year ended December 31, 1995, an increase of $180,000, or 7.9%,
from 1994. The increase was primarily attributable to a $246,000, or 14.8%,
increase in interest income on loans, which was partially offset by a decline of
$40,000 in interest on mortgage-backed securities and a decline of $28,000 in
interest on interest-bearing deposits and investment securities. The increase in
interest income on loans was primarily the result of a $2.5 million increase in
the average outstanding loan balance, coupled with an increase in yield on loans
from 7.62% in 1994 to 7.86% in 1995. The increase in the average outstanding
loan balance resulted from an increased demand for the Association's loan
products in 1995, primarily fixed-rate conventional mortgage loans and
automobile loans. The increased yield was the result of higher rates charged to
borrowers in the rising interest rate environment in 1995. The increased loan
demand was funded primarily through reductions in the Association's
mortgage-backed securities from $1.7 million to $1.3 million and
interest-bearing deposits in other institutions from $5.5 million in 1994, to
$2.8 million in 1995. The lower average balances account for the decline in
income in these two asset groups.
Total interest expense increased $126,000, or 12.9%, to $1.1 million in
1995, due to an increase in the average cost of funds from 3.28% in 1994 to
3.78% in 1995. This increase was partially offset by a reduction in the average
outstanding balance of deposits from $30.0 million in 1994 to $29.3 million in
1995. The average cost of funds increased as market rates increased during 1995
and the Association decided to offer higher rates to attract and retain
certificates of deposit.
PROVISION FOR LOSSES ON LOANS. There was no provision for losses on
loans during the year ended December 31, 1995, a decrease of $17,000 from 1994,
due to the absence of charge-offs during 1995. Management judges the adequacy of
the allowance for loan losses and any additions to it based on a level which is
deemed adequate to absorb credit losses inherent in the loan portfolio. The
amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, known and inherent
risks in the portfolio, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying collateral, and current
economic conditions. Based on management's evaluation, the amount of the
allowance was deemed adequate with no additional provision necessary. In 1994,
the
-26-
<PAGE> 57
Association added $17,000 to the allowance for loan losses to replenish the
allowance due to net charge-offs of approximately $18,000.
NON-INTEREST INCOME. Non-interest income for the year ended December
31, 1995, declined $37,000, or 47.2%, to $42,000, primarily due to a
non-recurring gain on sale of repossessed real estate of $32,000 in 1994.
NON-INTEREST EXPENSES. Non-interest expenses for the year ended
December 31, 1995, increased $17,000, or 2.0%, to $865,000, due to a $25,000, or
7.7%, increase in salaries and benefits as the result of merit increases and an
increase in pension expense of approximately $13,000. These increases were
partially offset by a $7,000 decline in expenses related to real estate acquired
in foreclosure.
PROVISION FOR INCOME TAXES. The provision for income taxes increased
$11,000, or 6.5%, for the year ended December 31, 1995, primarily as the result
of higher pre-tax income in 1995.
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<PAGE> 58
YIELDS EARNED AND RATES PAID. The following table sets forth certain
average balance sheet information, including the average yield on
interest-earning assets and the average cost of interest-bearing liabilities for
the years indicated. Such yields and costs are derived by dividing income or
expense by the average monthly balance of interest-earning assets or
interest-bearing liabilities, respectively, for the years presented. Average
balances are derived from month end balances.
<TABLE>
<CAPTION>
Three months ended March 31,
---------------------------------------------------------------------------
1997 1996
----------------------------------- ------------------------------------
Average Interest Average Average Interest Average
outstanding earned/ yield/ outstanding earned/ yield/
balance paid rate(1) balance paid rate
------- ---- ------- ------- ---- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits $ 2,997 $ 40 5.34% $ 1,863 $ 26 5.58%
Investment securities (2) 4,138 62 5.99 4,508 73 6.48
Mortgage-backed securities 959 23 9.59 1,171 28 9.56
Loans receivable (3) 25,068 489 7.80 25,744 511 7.94
------- ---------- ---------- ------- ------- ----------
Total interest-earning assets 33,162 614 7.41 33,286 638 7.67
Non-interest-earning assets 1,177 1,218
------- -------
Total assets $34,339 $34,504
======= =======
Interest-bearing liabilities:
NOW and money market accounts $ 4,272 27 2.53% $ 5,449 36 2.64%
Regular savings accounts 9,937 72 2.90 9,581 70 2.92
Certificates of deposit 14,886 188 5.05 14,531 183 5.04
------- ---------- ---------- ------- ------- ----------
Total deposits 29,095 287 3.95 29,561 289 3.91
FHLB advances (4) 50 - - - - -
------- ---------- ---------- ------- ------- ----------
Total interest-bearing liabilities 29,145 287 3.94 29,561 289 3.91
Non-interest-bearing liabilities 381 339
------- -------
Total liabilities 29,526 29,900
Retained earnings 4,813 4,604
------- -------
Total liabilities and
retained earnings $34,339 $34,504
======= =======
Net interest income $ 327 $ 349
======= =======
Interest rate spread 3.47% 3.76%
===== ==========
Net interest margin 3.94% 4.19%
===== ==========
Average interest-earning assets to
average interest-bearing liabilities 113.78% 112.60%
====== ==========
<CAPTION>
Year ended December 31,
------------------------------------------------------------------------
1996 1995
---------------------------------- ----------------------------------
Average Interest Average Average Interest Average
outstanding earned/ yield/ outstanding earned/ yield/
balance paid rate balance paid rate
------- ---- ------- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits $ 2,592 $ 144 5.56% $ 2,788 $ 150 5.38%
Investment securities (2) 4,274 269 6.29 4,483 299 6.67
Mortgage-backed securities 1,091 102 9.35 1,296 120 9.26
Loans receivable (3) 25,267 2,000 7.92 24,280 1,909 7.86
------- ------- ---------- ------- ------- ----------
Total interest-earning
assets 33,224 2,515 7.57 32,847 2,478 7.54
Non-interest-earning assets 1,186 1,161
------- -------
Total assets $34,410 $34,008
======= =======
Interest-bearing liabilities:
NOW and money market accounts $ 4,910 127 2.59% $ 6,226 176 2.83%
Regular savings accounts 9,807 297 3.00 9,687 291 3.00
Certificates of deposit 14,611 734 5.03 13,382 640 4.78
------- ------- ---------- ------- ------- ----------
Total deposits 29,328 1,158 3.95 29,295 1,107 3.78
FHLB advances (4) - - - 23 1 4.35
------- ------- ---------- ------- ------- ----------
Total interest-bearing
liabilities 29,328 1,158 3.95 29,318 1,108 3.78
------- ---------- ------- ------- ----------
Non-interest-bearing
liabilities 389 313
------- -------
Total liabilities 29,717 29,631
Retained earnings 4,693 4,377
------- -------
Total liabilities and
retained earnings $34,410 $34,008
======= =======
Net interest income 1,357 $ 1,370
====== =======
Interest rate spread 3.62% 3.76%
======= =======
Net interest margin 4.08% 4.17%
======= =======
Average interest-earning
assets to average interest-
bearing liabilities 113.28% 112.04%
======= =======
<CAPTION>
Year ended December 31,
--------------------------------------
1994
------------------------------------
Average Interest Average
outstanding earned/ yield/
balance paid rate
------- ---- -------
<S> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits $ 5,509 $ 204 3.70%
Investment securities (2) 4,041 271 6.71
Mortgage-backed securities 1,740 160 9.20
Loans receivable (3) 21,827 1,663 7.62
------- ------- ----------
Total interest-earning
assets 33,117 2,298 6.94
Non-interest-earning assets 1,165
-------
Total assets $34,282
=======
Interest-bearing liabilities:
NOW and money market accounts $ 8,082 226 2.80%
Regular savings accounts 10,584 320 3.02
Certificates of deposit 11,280 436 3.87
------- ------- ----------
Total deposits 29,946 982 3.28
FHLB advances (4) - - -
------- ------- ----------
Total interest-bearing
liabilities 29,946 982 3.28
------- ------- ----------
Non-interest-bearing
liabilities 328
-------
Total liabilities 30,274
Retained earnings 4,008
-------
Total liabilities and
retained earnings $34,282
=======
Net interest income $ 1,316
=======
Interest rate spread 3.66%
==========
Net interest margin 3.97%
==========
Average interest-earning
assets to average interest-
bearing liabilities 110.59%
==========
- -------------------
<FN>
(1) Annualized.
(2) Includes dividends on FHLB stock.
(3) Includes nonperforming loans
(4) Interest paid on FHLB advances for the quarter ended March 31, 1997,
was less than $1,000.
</TABLE>
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<PAGE> 59
The following table sets forth, at the dates indicated, the weighted
average yields earned on the Association's interest-earning assets, the weighted
average interest rates paid on interest-bearing liabilities and the interest
rate spread between the weighted average yields and rates at the dates
presented.
<TABLE>
<CAPTION>
At March 31, At December 31,
1997 1996
---------- ---------------
<S> <C> <C>
Weighted average yield on loans 7.79% 7.77%
Weighted average yield on investment securities
portfolio 5.94 5.96
Weighted average yield on mortgage-backed
securities 9.56 9.56
Weighted average yield on interest-bearing
deposits 5.53 5.52
Weighted average yield on all interest-earning
assets 7.42 7.37
Weighted average rate paid on deposits 4.00 3.99
Weighted average rate paid on
FHLB advances - -
Weighted average rate paid on all
interest-bearing liabilities 4.00 3.99
Interest rate spread 3.42 3.38
</TABLE>
The table below describes the extent to which changes in interest rates
and changes in volume of interest-earning assets and interest-bearing
liabilities have affected the Association's interest income and interest expense
during the periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (change in volume multiplied by prior period rate), (ii)
changes in rate (change in rate multiplied by prior period volume) and (iii)
total changes in rate and volume. The combined effects of changes in both volume
and rate, which cannot be separately identified, have been attributed to the
mix:
<TABLE>
<CAPTION>
Three months ended March 31 Year ended December 31,
----------------------------------- -----------------------------------------------------------------
1997 vs. 1996 1996 vs. 1995 1995 vs. 1994
----------------------------------- --------------------------------- ------------------------------
Increase Increase Increase
(decrease) due to Total (decrease) due to Total (decrease) due to Total
----------------------- increase ---------------------- increase ---------------------- increase
Volume Rate Mix (decrease) Volume Rate Mix (decrease) Volume Rate Mix (decrease)
------ ---- --- ---------- ------ ---- --- ---------- ------ ---- --- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income
attributable to:
Interest-bearing
deposits................. $ 16 $ (1) $ (3) $ 12 $ (11) $ 5 $-- $ (6) $(101) $ 93 $ (46) $ (54)
Investment securities .. (6) (6) 2 (10) (14) (17) 1 (30) 30 2 (3) 28
Mortgage-backed
securities .......... (5) -- -- (5) (19) 1 -- (18) (41) 1 -- (40)
Loans receivable ....... (13) (9) 1 (21) 78 15 (1) 91 187 52 7 246
----- ----- ----- ----- ----- ----- --- ----- ----- ----- ----- -----
Total interest income (9) (16) -- (24) 34 4 -- 38 75 148 (42) 181
Interest-bearing
liabilities
Deposits ............... (5) 3 -- (2) 1 50 -- 51 (21) 150 (3) 125
FHLB advances .......... -- -- -- -- (1) -- -- (1) 1 -- -- 1
----- ----- ----- ----- ----- ----- --- ----- ----- ----- ----- -----
Total interest expense (5) 3 -- (2) -- 50 -- 50 (20) 150 (3) 126
----- ----- ----- ----- ----- ----- --- ----- ----- ----- ----- -----
Increase (decrease) in net
interest income ......... $ (4) $(19) $-- $ (22) $ 34 $ (46) $-- $ (12) $ 95 $ (2) $ (39) $ 54
===== ===== ===== ===== ===== ===== === ===== ===== ===== ===== =====
</TABLE>
ASSET AND LIABILITY MANAGEMENT
The Association, like other financial institutions, is subject to
interest rate risk to the extent that its interest-earning assets reprice
differently than its interest-bearing liabilities. Interest rate risk is defined
as the sensitivity of an institution's earnings and net asset values to changes
in interest rates. As part of its effort to monitor and manage the interest rate
risk of the Association, the Board of Directors has adopted an interest rate
risk policy which sets exposure limits for the Association,
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<PAGE> 60
specifies certain transactions that the Association may not engage in without
prior Board authorization and provides for quarterly review by the Board of
Directors of various interest rate risk reports.
One of the methods utilized by the Association to monitor interest rate
risk is the rate shock risk estimates contained in the quarterly rate shock risk
reports prepared by an outside consulting firm that specializes in interest rate
risk assessments. The reports assess the Association's interest rate risk based
on the percent and dollar changes in the Association's net portfolio value
("NPV") projected over permanent and instantaneous parallel shifts in interest
rates. The rate shock methodology attempts to quantify interest rate risk as the
change in the Association's NPV which would result from a theoretical change in
current interest rates. The management and the Board of Directors of the
Association attempt to maintain the projected change in NPV within limits
established by the Board of Directors.
Presented below, as of March 31, 1997, is an analysis of the
Association's interest rate risk as measured by changes in NPV for instantaneous
and parallel shifts of 100 basis points in market interest rates, assuming rates
would stay constant over a twelve-month period. The table also contains the
policy limits set by the Board of Directors of the Association as the maximum
change in NPV that the Board of Directors deems advisable in the event of
various changes in interest rates. Such limits have been established with
consideration of the dollar impact of various rate changes and the Association's
strong capital position.
<TABLE>
<CAPTION>
March 31, 1997
Change in interest rate Board limit ----------------------------------------------------
(basis points) % Change in NPV $ Change in NPV % Change in NPV
----------------------- --------------- --------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
+400 (50)% $(2,159) (51)%
+300 (38) (1,702) (40)
+200 (25) (1,176) (28)
+100 (15) (609) (14)
0 0 0 0
-100 15 538 13
-200 25 794 19
-300 38 839 20
-400 50 1,547 36
</TABLE>
As illustrated by the table, NPV is more sensitive to rising rates than
declining rates. The difference in sensitivity occurs principally because, as
rates rise, borrowers do not prepay fixed-rate loans as quickly as they do when
interest rates are declining. In a rising interest rate environment, because the
Association has a significant amount of fixed-rate loans in its loan portfolio,
the amount of interest the Association would receive on its loans would increase
relatively slowly as the loans are slowly prepaid and new loans are made at
higher rates. Moreover, the interest the Association would pay on its deposits
would increase rapidly because the Association's deposits generally have shorter
periods to reprice. Rising interest rates could also negatively affect the
Association's earnings due to diminished loan demand.
The Board of Directors and management of the Association believe that
certain factors afford the Association the ability to operate successfully
despite its exposure to interest rate risk. Though the Association originates
predominantly fixed-rate loans, such loans are typically secured by residential
real estate and for terms of 15 years. See "THE BUSINESS OF THE ASSOCIATION -
Lending Activities." The Association also manages its interest rate risk by
maintaining capital well in excess of regulatory requirements and by maintaining
a high level of investments in short-term instruments with maturities of five
years or less. See "THE BUSINESS OF THE ASSOCIATION - Investment Activities."
For the quarter ended March 31, 1997, the Association's tangible capital was
14.1% of total assets and its liquidity ratio was 25.32%. See "Liquidity and
Capital Resources."
As with any method of measuring interest rate risk, certain
shortcomings are inherent in the NPV approach. For example, although certain
assets and liabilities may have similar maturities or periods of repricing, they
may react in different degrees to changes in market interest rates. Also, the
interest rates on certain types of assets and liabilities may fluctuate in
advance of changes in market interest rates, while interest rates on other types
may lag behind changes in market rates. Further, in the event of a change in
interest rates, expected rates of prepayment on loans and mortgage-backed
securities and early withdrawal levels from certificates of deposit would likely
deviate significantly from those assumed in making the risk calculations.
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<PAGE> 61
LIQUIDITY AND CAPITAL RESOURCES
The Association's principal sources of funds are deposits, loan and
mortgage-backed securities repayments, maturities of securities and other funds
provided by operations. The Association also has the ability to borrow from the
FHLB of Cincinnati. See "REGULATION - Federal Home Loan Bank." While scheduled
loan repayments and maturing investments are relatively predictable, deposit
flows and early loan and mortgage-backed security prepayments are influenced to
a greater degree by interest rates, general economic conditions and competition.
The Association maintains investments in liquid assets based upon management's
assessment of (i) the need for funds, (ii) expected deposit flows, (iii) the
yields available on short-term liquid assets and (iv) the objectives of the
Association's asset and liability management program.
During 1996, the primary source of the Association's cash flow was loan
repayments, net of new loans made, of $1.1 million and principal reductions on
mortgage-backed securities and maturities of investment securities of $607,000.
These cash inflows were partially offset by a net decrease in deposits of
$824,000. During 1995, maturities of time deposits with other banks provided the
primary source of cash inflows. These maturities amounted to $2.3 million. The
Association purchased an additional $700,000 of time deposits during 1995. The
net inflow from the time deposit activity, along with cash flows from operations
of $414,000 and a net increase in deposits of $417,000, was used primarily to
fund net loan growth of $3.2 million. During 1994, cash and cash equivalents
declined $4.9 million. This cash was deployed primarily in $3.0 million of
investment securities, a $300,000 increase, net of maturities, of
interest-bearing time deposits and used to fund a net increase in loans of $1.3
million. Funds provided by operating activities were approximately $217,000,
$414,000, and $342,000 for the years ended December 31, 1996, 1995, and 1994,
respectively. For the three months ended March 31, 1997, the primary source of
funds was a net increase in deposits of approximately $634,000. This cash was
primarily deployed in investments in time deposits in other financial
institutions of $400,000, net of $100,000 in maturities, and used to fund a net
increase in loans of $142,000. The Association monitors liquidity based on
prepayments and scheduled principal payments on loans which provide funds for
net loan originations and purchases of investment securities. For the three
months ended March 31, 1997, loan principal payments totaled $1.0 million and,
for the year ended December 31, 1996, loan principal payments totaled $5.8
million.
Certificates of deposit scheduled to mature during the twelve months
ending March 31, 1998, total $11.6 million. The Association may renew these
certificates, attract new replacement deposits, or replace such funds with
borrowings. Management believes, based on past experience, that the Association
will retain much of the deposits or replace them with new deposits.
The Association is subject to federal regulations that impose certain
minimum capital requirements. At March 31, 1997, the Association exceeded those
capital requirements. See "REGULATORY CAPITAL COMPLIANCE."
Liquidity may be adversely affected by, among other things, unexpected
deposit outflows, excessive interest rates paid by competitors, regulatory
changes, and similar matters. Management monitors projected liquidity needs and
determines the level desirable based, in part, on the Association's commitments
to make loans and management's assessment of the Association's ability to
generate funds.
OTS regulations presently require the Association to maintain an
average daily balance of liquid assets, which may include, but are not limited
to, investments in U.S. Treasury and federal agency obligations and other
investments having maturities of five years or less, in an amount equal to 5% of
the sum of the Association's average daily balance of net withdrawable deposit
accounts and borrowings payable in one year or less. The liquidity requirement,
which may be changed from time to time by the OTS to reflect changing economic
conditions, is intended to provide a source of relatively liquid funds upon
which the Association may rely if necessary to fund loan originations, deposit
withdrawals or other short-term funding needs. At March 31, 1997, the
Association's regulatory liquidity ratio was 25.32%. At such date, the
Association had commitments to originate loans and loans in process totaling
$178,000 and no commitments to purchase or sell loans. The Association considers
its liquidity and capital resources sufficient to meet its outstanding
short-term and long-term needs. See Note 6 to Consolidated Financial Statements.
-31-
<PAGE> 62
The Association's liquidity, primarily represented by cash and cash
equivalents, is a result of the funds used in or provided by the Association's
operating, investing and financing activities. These activities are summarized
below for the three months ended March 31, 1997, and for the years ended
December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Year ended December 31,
Three months ended -------------------------------
March 31, 1997 1996 1995 1994
------------------ ------ ------ ----
(In thousands)
<S> <C> <C> <C> <C>
Net income $ 90 $ 212 $ 361 $ 355
Adjustments to reconcile net income
to net cash from operating activities 24 5 53 (13)
----- ------ ------- -------
Net cash from operating activities 114 217 414 342
Net cash provided by (used in)
investment activities (497) 1,860 (1,272) (3,315)
Net cash provided by (used in)
financing activities 560 (818) 411 (1,942)
------- ------ ------- ------
Net change in cash and cash
equivalents 177 1,259 (447) (4,915)
Cash and cash equivalents at
beginning of period 2,436 1,177 1,624 6,539
------ ------- ------- -------
Cash and cash equivalents at
end of period $2,613 $2,436 $1,177 $1,624
====== ====== ====== ======
</TABLE>
The Association is required by applicable law and regulations to meet
certain minimum capital standards, which include a tangible capital requirement,
a core capital requirement or leverage ratio and a risk-based capital
requirement. See "REGULATION - Office of Thrift Supervision -- Regulatory
Capital Requirements." The Association exceeded all of its regulatory capital
requirements at March 31, 1997.
OTS regulations require a savings and loan association to maintain core
capital of at least 3% of the association's total assets. "Core capital" is
comprised of common shareholders' equity (including retained earnings),
noncumulative preferred stock and related surplus, minority interests in
consolidated subsidiaries, certain nonwithdrawable accounts, pledged deposits of
mutual associations and intangible assets, primarily certain purchased mortgage
servicing rights. The OTS has proposed to increase the core capital requirement
to 4% and 5%, except for those associations with the highest examination rating
and acceptable levels of risk. See "REGULATION - Office of Thrift Supervision --
Regulatory Capital Requirements."
The tangible capital requirement requires a savings and loan
association to maintain "tangible capital" of not less than 1.5% of the
association's adjusted total assets. Tangible capital is defined in OTS
regulations as core capital minus any intangible assets.
OTS regulations require that a savings and loan association maintain
"risk-based capital" in an amount not less than 8% of its risk-weighted assets.
Risk-based capital is defined as core capital plus certain additional items of
capital, which in the case of the Association includes $135,000 of the
Association's allowance for loan losses.
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<PAGE> 63
The following table summarizes the Association's regulatory capital
requirements and actual capital at March 31, 1997:
<TABLE>
<CAPTION>
Excess of actual
capital over current
Actual capital Current requirement requirement Applicable asset total
------------------ ------------------- --------------------- -----------------------
March 31, 1997 Amount Percent Amount Percent Amount Percent
- -------------- ------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Tangible capital $4,860 14.1% $ 518 1.5% $4,342 12.6% $34,564
Core capital 4,860 14.1 1,037 3.0 3,823 11.1 34,564
Risk-based capital 4,995 29.8 1,342 8.0 3,653 21.8 16,776
</TABLE>
For information concerning the Association's regulatory capital on a
pro forma basis after the Conversion, see "REGULATORY CAPITAL COMPLIANCE."
IMPACT OF RECENT ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and displaying
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. SFAS No. 130 requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements and requires
that an enterprise (a) classify items of other comprehensive income by their
nature in a financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of the statement of financial position. Under
existing accounting standards, other comprehensive income shall be classified
separately into foreign currency items, minimum pension liability adjustments,
and unrealized gains and losses on certain investments in debt and equity
securities. The provisions of SFAS No. 130 are effective for fiscal years
beginning after December 15, 1997. Management does not believe the adoption of
SFAS No. 130 will have a material impact on the disclosure requirements of the
Holding Company.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share,"
which establishes standards for computing and presenting earnings per share
("EPS") by entities with publicly held common stock or potential common stock.
SFAS No. 128 simplifies the standards for computing earnings per share
previously found in Accounting Principles Board ("APB") Opinion No. 15,
"Earnings Per Share." Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to APB Opinion No. 15. SFAS No. 128
supersedes APB Opinion No. 15 and is effective for financial statements issued
for periods ending after December 15, 1997, including interim periods.
Management does not believe the adoption of SFAS No. 128 will have a material
impact on the disclosure requirements of the Holding Company.
In February 1997, the FASB issued SFAS No. 129, which incorporates the
disclosure requirements of APB Opinion No. 15, and makes them applicable to all
public and nonpublic entities that have issued securities addressed by SFAS No.
129. APB Opinion No. 15 requires disclosure of descriptive information about
securities that is not necessarily related to the computation of EPS. SFAS No.
129 continues the previous requirements to disclose certain information about an
entity's capital structure found in APB Opinions No. 19, "Omnibus Opinion -
1966," and No. 15, and SFAS No. 47, "Disclosure of Long-Term Obligations," for
entities that were subject to the requirements of those standards. SFAS No. 129
eliminates the exemption of nonpublic entities from certain disclosure
requirements of APB Opinion No. 15 as provided by SFAS No. 21, "Suspension of
the Reporting of Earnings per Share, and Segment Information by Nonpublic
Enterprises." SFAS No. 129 supersedes specific disclosure requirements of APB
Opinions Nos. 10 and 15 and SFAS No. 47 and consolidates them in SFAS No. 129
for ease of retrieval and for greater visibility to nonpublic entities. SFAS No.
129 is effective for financial statements for periods ending after December 15,
1997. The Association has not previously issued any common shares and
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<PAGE> 64
SFAS No. 129 will be adopted by the Holding Company in the initial period after
December 15, 1997. Management believes the adoption of SFAS No. 129 will not
have a material impact on the disclosure requirements of the Holding Company.
In December 1996, the FASB issued SFAS No. 126 which amends SFAS No.
107, "Disclosures About Fair Value of Financial Instruments," to make the
disclosures about fair value of financial instruments prescribed in SFAS No. 107
optional for nonpublic entities with total assets less than $100 million on the
date of the financial statement. SFAS No. 126 also requires that the entity has
not held or issued any derivative financial instruments, as defined in SFAS No.
119, "Disclosure About Derivative Financial Instruments and Fair Value of
Financial Instruments," other than loan commitments, during the reporting
periods.
In June 1996, the FASB issued SFAS No. 125, which is effective, on a
prospective basis, for fiscal years beginning after December 31, 1996. SFAS No.
125 provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishment of liabilities based on consistent
application of a financial-components approach that focuses on control. SFAS No.
125 extends the "available for sale" and "trading" approach of SFAS No. 115 to
non-security financial assets that can be contractually prepaid or otherwise
settled in such a way that the holder of the asset would not recover
substantially all of its recorded investment. In addition, SFAS No. 125 amends
SFAS No. 115 to prevent a security from being classified as held-to-maturity if
the security can be prepaid or settled in such a manner that the holder of the
security would not recover substantially all of its recorded investment. The
extension of the SFAS No. 115 approach to certain non-security financial assets
and the amendment to SFAS No. 115 are effective for financial assets held on or
acquired after January 1, 1997. Effective January 1,1997, SFAS No. 125
superseded SFAS No. 122, which is discussed above. Management has not yet
determined the effect, if any, SFAS No. 125 will have on the Holding Company's
financial statements.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and notes thereto included herein
have been prepared in accordance with generally accepted accounting principles
("GAAP"). GAAP requires the Association to measure financial position and
operating results in terms of historical dollars. Changes in the relative value
of money due to inflation or recession are generally not considered.
In management's opinion, changes in interest rates affect the financial
condition of a financial institution to a far greater degree than changes in the
inflation rate. While interest rates are greatly influenced by changes in the
inflation rate, they do not change at the same rate or in the same magnitude as
the inflation rate. Rather, interest rate volatility is based on changes in the
expected rate of inflation, as well as on changes in monetary and fiscal
policies.
THE BUSINESS OF THE ASSOCIATION
GENERAL
The Association is a mutual savings and loan association which was
organized under Ohio law in 1893 as "The Bridgeport Building & Loan Society." In
1964, the Association adopted its present name. As an Ohio savings and loan
association, the Association is subject to supervision and regulation by the
OTS, the Division and the FDIC. The Association is a member of the FHLB of
Cincinnati, and the deposits of the Association are insured up to applicable
limits by the FDIC in the SAIF. See "REGULATION."
The Association conducts business from its main office located in
Bridgeport, Ohio, and one full-service branch located in Shadyside, Ohio. The
principal business of the Association is the origination of permanent mortgage
loans on one- to four-family residential real estate located in the
Association's primary market area, which consists of Belmont County, Ohio, and
Ohio and Marshall Counties, West Virginia. The Association also originates a
limited number of loans for the construction of one- to four-family residences
and permanent mortgage loans secured by nonresidential real estate in its market
area. In addition to real estate lending the Association originates secured and
unsecured consumer loans. See "Lending Activities." For liquidity and interest
rate risk management purposes, the Association invests in interest-bearing
deposits in other financial institutions, U.S. Government and agency obligations
and mortgage-backed securities. See "Investment Activities." Funds for lending
and other investment activities are obtained primarily from savings deposits,
which are insured up to applicable limits by the FDIC, principal repayments of
loans and maturities of investment securities. See "Deposits and Borrowings."
-34-
<PAGE> 65
Interest on loans and investments is the Association's primary source
of income. The Association's principal expense is interest paid on deposit
accounts. Operating results are dependent to a significant degree on the net
interest income of the Association, which is the difference between interest
income earned on loans, mortgage-backed securities and other investments and
interest paid on deposits. Like most thrift institutions, the Association's
interest income and interest expense are significantly affected by general
economic conditions and by the policies of various regulatory authorities. See
"RISK FACTORS - Interest Rate Risk" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Asset and Liability Management."
MARKET AREA
The Association operates two full service offices located in Belmont
County, Ohio. The main office is located in Bridgeport, Ohio, which is
approximately 65 miles southwest of Pittsburgh, Pennsylvania, and approximately
one mile west of Wheeling, West Virginia. A full service branch office is
located in Shadyside, Ohio, which is approximately eight miles south of
Bridgeport. The Association's primary market area for lending and deposits
consists of Belmont County, Ohio, and Ohio and Marshall Counties, West Virginia.
Historically dominated by coal mining and steel-related industries, Belmont
County experienced a decline in employment opportunities in such industries
during the 1980s, with employment growth primarily occurring in lower paying
service jobs. In addition, a major area employer, Wheeling-Pittsburgh Steel is
currently the object of a work stoppage by its union employees. The strike began
on October 1, 1996, and it is not known how long it will continue. It is
believed that the prolonged strike has begun to adversely affect the
Association's earnings. See "Delinquent Loans, Nonperforming Assets and
Classified Assets." Major employers in the Association's market area presently
include Wheeling Hospital, Consolidation Coal, the Bayer Corporation, and the
Kroger Co.
Belmont County's population, approximately 70,000, has declined
slightly since 1990, while the same period was characterized by 1.1% growth in
the national population and 0.5% growth in the population of Ohio. In 1996, the
per capita income level in Belmont County was $10,976, compared to $15,376 for
Ohio and $16,405 for the nation. The median household income in Belmont County
was $21,703 in 1996, compared to $32,102 and $34,530 in Ohio and the United
States, respectively. Unemployment in Belmont County is approximately 9.0%,
compared to 5.9% in Ohio and 5.7% in the United States.
The Association faces competition from branches of two larger
independent commercial banks located in Bridgeport and branches of two larger
independent commercial banks and one branch of a super-regional commercial bank
in Shadyside. In addition, competing financial institutions exist in surrounding
communities located in the Association's market area. The Association's market
penetration in Belmont County is 12.2% of savings association deposits and 3.1%
of all financial institution deposits at June 30, 1996. See "RISK FACTORS -
Competition in Market Area."
LENDING ACTIVITIES
GENERAL. The Association's principal lending activity is the
origination of conventional fixed-rate real estate loans secured by one- to
four-family residences located in the Association's primary market area. Though
the Association currently originates loans for its portfolio and not with the
intention of selling such loans in the secondary market, fixed-rate loans are
generally underwritten according to secondary market guidelines. In addition to
real estate lending, the Association originates consumer loans, including loans
secured by deposit accounts, automobile loans, and unsecured loans.
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<PAGE> 66
LOAN PORTFOLIO COMPOSITION. The following table presents certain
information in respect of the composition of the Association's loan portfolio at
the dates indicated:
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------
At March 31, 1997 1996 1995 1994
---------------------- --------------------- --------------------- ---------------------
Percent of Percent of Percent of Percent of
Amount total loans Amount total loans Amount total loans Amount total loans
------ ----------- ------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family $20,691 81.96% $20,605 81.97% $21,086 79.54% $18,802 80.47%
Multifamily 48 0.19 51 0.20 557 2.10 589 2.52
Nonresidential 418 1.66 460 1.83 1,064 4.01 1,062 4.54
Land 79 0.31 86 0.34 5 0.02 6 0.03
Construction 124 0.49 124 0.49 469 1.77 776 3.32
Consumer loans:
Automobiles 1,821 7.21 1,931 7.68 1,752 6.61 1,166 4.99
Savings accounts 310 1.23 265 1.06 244 0.92 252 1.08
Other 1,653 6.55 1,511 6.01 1,201 4.53 685 2.93
Commercial loans 101 0.40 105 0.42 132 0.50 27 0.12
------ ------ ------- ------ ------ ------ ------- --------
Total loans 25,245 100.0% 25,138 100.00% 26,510 100.00% 23,365 100.00%
====== ====== ====== ======
Less:
Loans in process 36 51 328 378
Deferred loan fees 49 52 67 61
Allowance for loan
losses 143 143 143 143
------- ------- ------- -------
Total loans, net $25,017 $24,892 $25,972 $22,783
======= ======= ======= =======
</TABLE>
LOAN MATURITY. The following table sets forth certain information as of
March 31, 1997, regarding the dollar amount of loans maturing in the
Association's portfolio based on their contractual terms to maturity. Demand
loans and other loans having no stated schedule of repayments or no stated
maturity are reported as due in one year or less. Mortgage loans originated by
the Association in its portfolio generally include due-on-sale clauses that
provide the Association with the contractual right to deem the loan immediately
due and payable in the event the borrower transfers the ownership of the
property without the Association's consent.
The table does not include the effects of possible prepayments or scheduled
repayments.
<TABLE>
<CAPTION>
During the Due 1-3 Due 3-5 Due 5-10 Due 10-20 Due over
year ending years years years years 20 years
March 31, after after after after after
1998 3/31/98 3/31/98 3/31/98 3/31/98 3/31/98 Total
----------- ------- ------- --------- --------- -------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family - $234 $ 168 $1,745 $13,975 $4,569 $20,691
Multifamily - - - 48 - - 48
Nonresidential - - 45 193 180 - 418
Land - 79 - - - - 79
Construction - - - - 124 - 124
Consumer loans 357 642 1,535 1,217 33 0 3,784
Commercial loans 46 3 52 - - - 101
----- ------- -------- --------- ----------- ---------- ----------
Total $403 $958 $1,800 $3,203 $14,312 $4,569 $25,245
==== ==== ====== ====== ======= ====== =======
</TABLE>
<PAGE> 67
The following table sets forth the dollar amounts of all loans
contractually due after March 31, 1998, and shows the amount of such loans which
have predetermined interest rates and which have floating or adjustable interest
rates:
<TABLE>
<CAPTION>
Fixed Adjustable
rates rates Total
----- ----- -----
(In thousands)
<S> <C> <C> <C>
Real estate loans:
One- to four-family $16,687 $4,004 $20,691
Multifamily 48 - 48
Nonresidential 418 - 418
Land 79 - 79
Construction 124 - 124
Consumer loans 3,427 - 3,427
Commercial loans 55 - 55
------- ------ -------
Total $20,838 $4,004 $24,842
======= ====== =======
</TABLE>
LOANS SECURED BY ONE- TO FOUR-FAMILY REAL ESTATE. The principal lending
activity of the Association is the origination of conventional loans secured by
first mortgages on one- to four-family residences, primarily single-family
residences, located within the Association's primary market area. At March 31,
1997, the Association's one- to four-family residential real estate loans
totaled approximately $20.7 million, or 82.0% of total loans.
OTS regulations and Ohio law limit the amount which the Association may
lend in relationship to the appraised value of the real estate and improvements
which will secure the loan at the time of loan origination. In accordance with
such regulations, the Association makes fixed-rate loans on one- to four-family
residences of up to 80% of the value of the real estate and improvements thereon
(the "LTV").
The Association currently offers fixed-rate loans with terms of up to
25 years, though most loans are originated with terms of 15 years. The
Association does offer adjustable-rate mortgage loans ("ARMs") for terms of up
to 25 years, but has originated very few ARMs since 1990. The maximum interest
rate adjustment period on the ARMs is five years, but can be any number of years
less than five. The interest rate adjustments on ARMs presently offered by the
Association are indexed to the quarterly National Average Cost of Funds to
SAIF-Insured Institutions. Rate adjustments are computed by adding a stated
margin, typically 2%, to the index, with a maximum adjustment of 5% over the
term of the loan.
The Association has purchased interests in loans from other Ohio
financial institutions at times when there was low loan demand in the
Association's primary market area. Such purchases consist of fixed-rate loans
which meet the Association's underwriting standards. The Association's loan
portfolio includes two participation interests in several single-family loans
secured by properties located in Columbus, Ohio. At March 31, 1997, the
outstanding balance of participation loans purchased, which is included in the
one- to four-family loans, was $5.4 million, or 21.2% of the Association's total
loan portfolio.
LOANS SECURED BY MULTIFAMILY RESIDENCES. The Association originates a
limited number of loans secured by multifamily properties, which contain more
than four units. Multifamily loans are offered with fixed rates of interest for
terms of up to 25 years and have LTVs of up to 75%.
Multifamily lending is generally considered to involve a higher degree
of risk than one- to four-family residential lending because the borrower
typically depends upon income generated by the project to cover operating
expenses and debt service. The profitability of a project can be affected by
economic conditions, government policies and other factors beyond the control of
the borrower. The Association attempts to reduce the risk associated with
multifamily lending by evaluating the creditworthiness of the borrower and the
projected income from the project and by obtaining personal guarantees on loans
made to corporations and partnerships. The Association requires borrowers to
agree to submit financial statements annually to enable the Association to
monitor the loan and requires an assignment of rents.
At March 31, 1997, loans secured by multifamily properties totaled
approximately $48,000, or .19% of total loans.
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<PAGE> 68
NONRESIDENTIAL REAL ESTATE. The Association also originates a limited
number of loans for the purchase of nonresidential real estate. The
Association's nonresidential real estate loans have fixed rates, terms of up to
25 years and LTVs of up to 80%. Among the properties securing nonresidential
real estate loans are a church and a used car lot, which are located in the
Association's primary market area.
Nonresidential real estate lending is generally considered to involve a
higher degree of risk than residential lending due to the relatively larger loan
amounts and the effects of general economic conditions on the successful
operation of income-producing properties. The Association has endeavored to
reduce such risk by evaluating the credit history of the borrower, the location
of the real estate, the financial condition of the borrower, the quality and
characteristics of the income stream generated by the property and the
appraisals supporting the property's valuation.
At March 31, 1997, approximately $418,000, or 1.66% of the
Association's total loans, were secured by mortgages on nonresidential real
estate.
LAND LOANS. The Association also originates a limited number of loans
secured by single-family land lots. The Association's land loans are generally
three year amortizing loans and require an LTV of 75% or less. At March 31,
1997, approximately $79,000, or .31% of the Association's total loans, were
secured by land loans made to individuals intending to construct and occupy
single family residences on the properties.
CONSTRUCTION LOANS. The Association originates a limited number of
loans for the construction of single-family residential real estate.
Construction loans are structured as permanent loans with fixed rates of
interest and terms of up to 25 years. During the first six months, while the
residence is being constructed, the borrower is required to pay interest only.
Construction loans have LTVs of up to 80%, with the value of the land counting
as part of the owner's equity. At March 31, 1997, the Association had
approximately $124,000, or 0.5% of its total loans, invested in construction
loans, which represented one loan in process from 1995 due to the halt of
construction. During the three months ended March 31, 1997, and the year ended
December 31, 1996, the Association did not originate any construction loans.
CONSUMER LOANS. The Association originates various types of consumer
loans, including home improvement loans, loans secured by savings accounts and
motor vehicles and unsecured loans. Consumer loans are made at fixed rates of
interest. Consumer loans secured by a deposit or savings account are made at an
interest rate that is 2% above the rate paid on the underlying deposit account.
Automobile loans are originated with terms of up to six years for new
automobiles and up to three years for used automobiles. All automobile loans are
originated directly by the Association.
The Association also makes closed-end home equity loans in an amount
which, when added to the prior indebtedness secured by the real estate, does not
exceed 80% of the estimated value of the real estate. Home equity loans are
secured by real estate. The Association does not offer home equity loans with a
line of credit feature.
Consumer loans may entail greater credit risk than do residential
mortgage loans. The risk of default on consumer loans increases during periods
of recession, high unemployment, and other adverse economic conditions. Although
the Association has not had significant delinquencies on consumer loans, no
assurance can be provided that delinquencies will not increase.
At March 31, 1997, the Association had approximately $3.8 million, or
15.0% of its total loans, invested in consumer loans.
COMMERCIAL LOANS. The Association has occasionally made commercial
loans to businesses in its primary market area. At March 31, 1997, the
Association had approximately $101,000, or .4% of total loans, invested in six
commercial loans. All of the loans were made to local businesses and are secured
by company vehicles. The Association does not currently originate commercial
loans.
LOAN SOLICITATION AND PROCESSING. Loan originations are generally
obtained from existing customers and members of the local community and from
referrals from real estate brokers, lawyers, accountants, and current and former
customers. The Association also advertises in the local print media and
periodically advertises on radio and television.
In underwriting real estate loans, the Association typically obtains a
credit report, verification of employment and other documentation concerning the
creditworthiness of the borrower. An appraisal of the fair market value of the
real estate that will be given as security for the loan is prepared by a
certified fee appraiser approved by the Board of Directors. Upon
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<PAGE> 69
the completion of the appraisal and the receipt of information on the credit
history of the borrower, the application for a loan is submitted for review in
accordance with the Association's underwriting guidelines which are established
annually by the Board of Directors. The President of the Association has
authority to approve loans of less than $100,000. Loans for amounts greater than
$100,000 must be approved by the full Board of Directors of the Association,
which meets twice a month.
Borrowers are required to carry satisfactory fire and casualty
insurance and flood insurance, if applicable, and to name the Association as an
insured mortgagee. The Association obtains an attorney's opinion of title.
The procedure for approval of construction loans is the same as for
permanent real estate loans, except that an appraiser evaluates the building
plans, construction specifications, and estimates of construction costs. The
Association also evaluates the feasibility of the proposed construction project
and the experience and record of the builder. Once approved, the construction
loan is disbursed in installments based upon periodic inspections of
construction progress.
Consumer loans are underwritten on the basis of the borrower's credit
history and an analysis of the borrower's income and expenses, ability to repay
the loan, and the value of the collateral, if any. The President of the
Association has authority to approve secured consumer loans of up to $50,000,
and unsecured consumer loans of up to $25,000. The Assistant Vice President and
the Loan Manager of the Association each have the authority to approve
applications for secured consumer loans up to $25,000 and for unsecured loans up
to $10,000 and $2,000, respectively
LOAN ORIGINATIONS AND PARTICIPATIONS. Currently, the Association is
originating fixed-rate loans for its portfolio and not with the intention of
selling such loans in the secondary market. The Association occasionally
purchases participation interests in fixed-rate loans originated by other
financial institutions which meet the Association's underwriting standards.
Typically the Association purchases a 90% interest in the loan, with the seller
retaining a 10% interest and the servicing of the loan. At March 31, 1997, the
outstanding balance of participation loans purchased, which is included in the
one- to four-family loans, was $5.4 million, or 21.2% of the Association's total
loan portfolio. See "Loans Secured by One- to Four-Family Real Estate."
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<PAGE> 70
The following table presents the Association's total loan origination,
participation and repayment activity for the periods indicated:
<TABLE>
<CAPTION>
Three months ended
March 31, Year ended December 31,
------------------- -----------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Total gross loans receivable at
beginning of period $25,138 $26,510 $26,510 $23,365 $21,815
Loans originated:
Real estate:
One- to four-family 632 174 1,562 1,752 664
Multifamily - - - - -
Land - - 90 - -
Nonresidential - - 163 83 275
Construction - - - 507 831
Consumer 512 341 2,136 2,355 1,474
Commercial - - 8 121 27
------- ------- ------- ------- -------
Total loans originated 1,144 515 3,959 4,818 3,271
Loan participations:
One- to four-family - - 431 1,543 416
Loan principal repayments (1,023) (1,079) (5,762) (3,216) (1,949)
Charge-offs - - - - (18)
Foreclosures (14) - - - (170)
------- ------- ------- ------- -------
Net loan activity 107 (564) (1,372) 3,145 1,550
------- ------- ------- ------- -------
Total gross loans receivable at
end of period $25,245 $25,946 $25,138 $26,510 $23,365
======= ======= ======= ======= =======
</TABLE>
The Association issues written commitments to prospective borrowers on
all approved mortgage loans which expire within 30 days of the date of issuance
and charges an application fee. In some instances, commitments may be renewed or
extended. At March 31, 1997, the Association had $142,000 of outstanding
commitments to originate loans and $36,000 in undisbursed funds related to
construction loans. Management believes that less than 1% of loan commitments
expire without being funded.
LOANS TO ONE BORROWER LIMITS. OTS regulations generally limit the
aggregate amount that a savings association may lend to any one borrower to an
amount equal to 15% of the association's unimpaired capital and unimpaired
surplus (the "Lending Limit Capital"). A savings association may lend to one
borrower an additional amount not to exceed 10% of the association's Lending
Limit Capital if the additional amount is fully secured by certain forms of
"readily marketable collateral." Real estate is not considered "readily
marketable collateral." In applying this limit, the regulations require that
loans to certain related or affiliated borrowers be aggregated. An exception to
this limit permits loans of any type to one borrower of up to $500,000.
Based on such limits, the Association was able to lend approximately
$729,000 to one borrower at March 31, 1997. The maximum amount that the
Association will lend to one borrower, however, is $500,000. The largest amount
the Association had outstanding to one borrower at March 31, 1997, was $190,000,
which consisted of two loans, each secured by a residential property. At March
31, 1997, both loans were performing in accordance with their terms.
LOAN ORIGINATION AND OTHER FEES. The Association realizes loan
origination fees and other fee income from its lending activities. In addition,
the Association realizes income from late payment charges, application fees, and
fees for other miscellaneous services.
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<PAGE> 71
Loan origination fees and other fees are a volatile source of income,
varying with the volume of lending, loan repayments, and general economic
conditions. All nonrefundable loan origination fees and certain direct loan
origination costs are deferred and recognized in accordance with SFAS No. 91 as
an adjustment to yield over the life of the related loan.
DELINQUENT LOANS, NONPERFORMING ASSETS AND CLASSIFIED ASSETS. The
Association attempts to maintain a high level of asset quality through sound
underwriting policies and efficient collection practices.
To discourage late payments, the Association charges a late fee of 5%
of the payment amount after 15 days for loans originated since January 1, 1990.
When a loan is 30 days past due, the borrower is sent a delinquency notice. When
a loan is 31 to 60 days delinquent, the Association sends to the borrower
another delinquency notice and a personalized letter and one of the
Association's loan personnel will telephone the borrower. When a loan becomes 60
days delinquent, additional contacts are made and the loan is generally referred
to an attorney for foreclosure, unless a repayment schedule has been
established.
Loans are reviewed on a monthly basis and are placed on nonaccrual
status when collection in full is considered doubtful by management. Generally,
loans past due 90 days or more as to principal or interest are placed on
nonaccrual status. Interest accrued and unpaid at the time a loan is placed on
nonaccrual status is charged against interest income. Subsequent cash payments
are generally applied to interest income unless, in the opinion of management,
the collection of principal and interest is doubtful. In those cases, subsequent
cash payments would be applied to principal.
The following table reflects the amount of loans in a delinquent status
as of the dates indicated:
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------------
At March 31, 1997 1996 1995 1994
------------------------- ----------------------- ----------------------- -------------------------
Percent Percent Percent Percent
of total of total of total of total
Number Amount loans Number Amount loans Number Amount loans Number Amount loans
------ ------ ----- ------ ------ ----- ------ ------ ----- ------ ------ -----
(Dollars in thousands)
Loans delinquent for:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
30 - 59 days - $ - -% 7 $174 0.69% 4 $135 0.51% 6 $136 0.59%
60 - 89 days 9 131 0.52 3 94 0.37 1 9 0.03 - - -
90 days and over 7 200 0.79 2 69 0.27 1 6 0.02 1 6 0.03
-- ----- ---- -- ------ ---- - ------ ---- - ------- ----
Total delinquent
loans 16 $331 1.31% 12 $337 1.34% 6 $150 0.57% 7 $142 0.61%
== ==== ==== == ==== ==== = ==== ==== = ==== ====
</TABLE>
Nonperforming assets include nonaccruing loans, accruing loans which
are delinquent 90 days or more, real estate acquired by foreclosure or by
deed-in-lieu thereof, in-substance foreclosures and repossessed assets.
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<PAGE> 72
The following table sets forth information with respect to the accrual
and nonaccrual status of the Association's loans and other nonperforming assets
at the dates indicated:
<TABLE>
<CAPTION>
At March 31, At December 31,
------------------- --------------------------------
1997 1996 1996 1995 1994
---- ------ ---- ----- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a nonaccrual basis:
Real estate 180 - 51 - -
Consumer 20 5 18 6 7
---- ------ ----- ------ ------
Total nonaccrual loans 200 5 69 6 7
Total nonperforming loans 200 5 69 6 7
Real estate owned 17 - - - -
---- ------ ----- ------ ------
Total nonperforming assets $217 $ 5 $ 69 $ 6 $ 7
==== ====== ===== ====== ======
Allowance for loan losses $143 $143 $143 $143 $143
==== ==== ==== ==== ====
Nonperforming assets as a percent of
total assets 0.62% 0.01% 0.20% 0.02% 0.02%
Nonperforming loans as a percent of
total loans 0.85% 0.02% 0.28% 0.02% 0.03%
Allowance for loan losses as a
percent of nonperforming loans 66.82% 2,860.00% 207.25% 2,383.33% 2,042.86%
</TABLE>
For the three months ended March 31, 1997, approximately $2,200 would
have been recorded had such nonaccruing loans been accruing pursuant to
contractual terms. During such period, interest collected on such loans and
included in net income was approximately $62.
Real estate acquired in settlement of loans is classified separately on
the balance sheet at the lower of the recorded investment in the property or its
fair value minus estimated costs of sale. Prior to foreclosure, the loan is
written down to the value of the underlying collateral by a charge to the
allowance for loan losses, if necessary. Any subsequent write-downs are charged
against operating expenses. Operating expenses of such properties, net of
related income or loss on disposition, are included in other expenses. At March
31, 1997, the carrying value of real estate acquired in settlement of loans was
$17,620.
The Association classifies its assets on a regular basis in accordance
with federal regulations. Problem assets are classified as "substandard,"
"doubtful" or "loss." "Substandard" assets have one or more defined weaknesses
and are characterized by the distinct possibility that the Association will
sustain some loss if the deficiencies are not corrected. "Doubtful" assets have
the same weaknesses as "substandard" assets, with the additional characteristics
that (i) the weaknesses make collection or liquidation in full, on the basis of
currently existing facts, conditions and values, questionable and (ii) there is
a high possibility of loss. An asset classified "loss" is considered
uncollectible and of such little value that its continuance as an asset of the
Association is not warranted. In addition, federal regulations also contain a
"special mention" category, consisting of assets which do not currently expose
an institution to a different degree of risk to warrant classification but which
possess credit deficiencies or potential weaknesses deserving management's close
attention.
As a result of the work stoppage at the Wheeling-Pittsburgh Steel,
which began on October 1, 1996, the Association has recently experienced an
increase in delinquent loans secured by one- to four-family residences. At this
time it is not known how long the strike will continue. It is believed that the
prolonged strike has begun to increase the amount of nonperforming assets in the
Association's loan portfolio and adversely effect the Association's earnings.
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<PAGE> 73
The aggregate amounts of the Association's classified assets at the
dates indicated were as follows:
<TABLE>
<CAPTION>
At March 31, At December 31,
---------------------- ----------------------------------
1997 1996 1996 1995 1994
------ ----- ----- ------ ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Classified assets:
Substandard $ - $ 5 $ - $6 $7
Doubtful 96 5 132 - -
Loss - - - - -
----- ----- ------- --- ---
Total classified assets $96 $10 $132 $6 $7
=== === ==== == ==
</TABLE>
The Association establishes a general allowance for loan losses for any
loan classified as substandard or doubtful. If an asset, or portion thereof, is
classified as loss, the Association establishes a specific allowance for loss in
the amount of 100% of the portion of the asset classified loss or charges off
the portion of any real estate loan deemed to be uncollectible. See "Allowance
for Loan Losses."
The Association analyzes each classified asset on a monthly basis to
determine whether changes in the classifications are appropriate under the
circumstances. Such analysis focuses on a variety of factors, including the
amount of any delinquency and the reasons for the delinquency, if any, the use
of the real estate securing the loan, the status of the borrower, and the
appraised value of the real estate. As such factors change, the classification
of the asset will change accordingly. At March 31, 1997, the Association had
classified $243,000 of assets as special mention, $96,000 of assets as doubtful
and no assets as either substandard or loss.
ALLOWANCE FOR LOAN LOSSES. Management reviews on a quarterly basis the
allowance for loan losses as it relates to a number of relevant factors,
including, but not limited to, growth and changes in the composition of the loan
portfolio, trends in the level of delinquent and problem loans, current and
anticipated economic conditions in the primary lending area, past loss
experience, and possible losses arising from specific problem assets.
While management believes that it uses the best information available
to determine the allowance for loan losses, unforeseen market conditions could
result in adjustments and net income could be significantly affected if
circumstances differ substantially from the assumptions used in making the final
determination. In addition, the Association's determination as to the amount of
its allowance for loan losses in subject to review by the OTS, as part of its
examination process, which may result in the establishment of an additional
allowance based upon the judgment of the OTS after a review of the information
available at the time of the OTS examination.
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<PAGE> 74
The following table sets forth an analysis of the Association's
allowance for loan losses for the periods indicated:
<TABLE>
<CAPTION>
Three months ended
March 31, Year ended December 31,
----------------------- --------------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $143 $143 $143 $143 $145
Charge-offs - - - - (18)
Recoveries - - - - -
---- ---- ---- ---- ----
Net (charge-offs) recoveries - - - - (18)
Provision for losses on loans - - - - 16
---- ---- ---- ---- ----
Balance at end of period $143 $143 $143 $143 $143
==== ==== ==== ==== ====
Ratio of net (charge-offs) recoveries
to average loans outstanding
during the period N/A N/A N/A N/A (0.08)%
Ratio of allowance for loan losses
to total loans 0.57% 0.56% 0.57% 0.55% 0.63%
</TABLE>
The following table sets forth the allocation of the allowance for loan
losses by category. The allocations are based on management's assessment of the
risk characteristics of each of the components of the total loan portfolio and
is subject to changes as and when the risk factors of each such component
changes. The allocation is not indicative of either the specific amounts or the
loan categories in which future charge-offs may be taken, nor should it be taken
as an indicator of future loss trends. The allocation of the allowance to each
category is not necessarily indicative of future loss in any particular category
and does not restrict the use of the allowance to absorb losses in any category.
<TABLE>
<CAPTION>
At March 31, At December 31,
----------------------- ------------------------------------------------------------------------------
1997 1996 1995 1994
----------------------- ------------------------- ----------------------- ------------------------
Percent of Percent of Percent of Percent of
loans in each loans in each loans in each loans in each
category category category category
Amount to total loans Amount to total loans Amount to total loans Amount to total loans
------ -------------- ------ -------------- ------ -------------- ------ --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate:
One- to $116 81.96% $115 81.97% $117 79.54% $119 80.47%
four-family
Multifamily - 0.19 - 0.20 3 2.10 4 2.52
Nonresidential 2 1.66 3 1.83 6 4.01 7 4.55
Construction - 0.49 - 0.49 - 1.77 - 3.32
Land - 0.31 - 0.34 - 0.02 - 0.03
Consumer 25 14.99 25 14.75 17 12.06 13 9.00
Commercial - 0.40 - 0.42 - 0.50 - 0.12
---- ----- ---- ----- ---- ----- ---- -----
Total $143 100.00% $143 100.00% $143 100.00% $143 100.00%
==== ====== ==== ====== ==== ====== ==== ======
</TABLE>
INVESTMENT ACTIVITIES
GENERAL. Federal regulation and Ohio law permit the Association to
invest in various types of investment securities, including interest-bearing
deposits in other financial institutions, U.S. Treasury and agency obligations,
mortgage-backed securities, and certain other specified investments. The Board
of Directors of the Association has adopted an investment policy which
authorizes management to make investments in U.S. Treasury obligations, U.S.
Government and agency securities, municipal obligations, mortgage-backed
securities, deposits in the FHLB, certificates of deposit in federally-insured
financial institutions, and federal funds at commercial banks. The Association's
investment policy is designed primarily to provide and maintain liquidity within
regulatory guidelines, to maintain a balance of high quality investments to
minimize risk, and to maximize return without sacrificing liquidity and safety.
See "REGULATION" and
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<PAGE> 75
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Analysis of Financial Condition; - Liquidity and Capital
Resources."
The Association's securities available for sale and investment
securities held to maturity at March 31, 1997, did not contain securities of any
issuer with an aggregate book value in excess of 10% of the Association's
equity, excluding those issued by the U. S. Government or its agencies. As of
March 31, 1997, the Association's investment portfolio was comprised of FHLB
stock, U.S. Government and agency securities, mortgage-backed securities, and
stock of a service provider, with an aggregate market value of $5.1 million.
At March 31, 1997, the Association held mortgage-backed securities in
its held to maturity investment portfolio with an amortized cost of $939,000.
The average yield on mortgage-backed securities at March 31, 1997, was 9.56%.
The Association's mortgage-backed securities at March 31, 1997, were all issued
by the Government National Mortgage Association (the "GNMA") or the Federal
National Mortgage Association (the "FNMA"), representing participation interests
in direct pass-through pools of long-term mortgage loans originated and serviced
by the issuers of the securities. Expected maturities will differ from
contractual maturities due to scheduled repayments and because borrowers may
have the right to call or prepay obligations with or without prepayment
penalties.
The following table sets forth the composition of the Association's
interest-bearing deposits and investment securities portfolio, including those
designated as available for sale, at the dates indicated:
<TABLE>
<CAPTION>
At March 31, At December 31,
------------------------ ------------------------------------------------------
1997 1996 1995
------------------------ ---------------------- --------------------------
Carrying Fair Carrying Fair Carrying Fair
value value value value value value
-------- ------ -------- ----- -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits $2,085 $2,085 $1,985 $1,985 $ 625 $ 625
Interest-bearing time deposits 1,200 1,200 800 800 1,000 1,000
Investment securities:
Held to maturity:
U.S. Government and
federal agencies 3,798 3,792 3,797 3,811 4,187 4,237
Mortgage-backed
securities 939 1,009 984 1,063 1,190 1,281
Available for sale:
FHLB stock 330 330 324 324 303 303
Intrieve Inc. stock 15 15 15 15 15 15
------ ------ ------ ------ ------ ------
Total $8,367 $8,431 $7,905 $7,998 $7,320 $7,461
====== ====== ====== ====== ====== ======
</TABLE>
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<PAGE> 76
The maturities of the Association's interest-bearing deposits and
investment securities (excluding mortgage-backed securities) at March 31, 1997,
are indicated in the following table:
<TABLE>
<CAPTION>
At March 31, 1997
---------------------------------------------------------------------------------------------------
After one through After five After ten
One year or less five years through ten years years Total
------------------ ------------------- ------------------ ---------------- -----------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Weighted
value yield value yield value yield value yield value average-yield
----- ----- ----- ----- ----- ----- ----- ----- ----- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits $2,085 5.51% $ -- -% -- --% -- --% $2,085 5.51%
Interest-bearing time deposits 1,100 5.51 100 6.15 -- -- -- -- 1,200 5.58
Investment securities:
U.S. Government and
federal agencies 2,498 5.87 1,300 5.91 -- -- -- -- 3,798 5.88
Intrieve Inc stock 15 -- -- -- -- -- -- -- 15 --
FHLB stock 330 6.90 -- -- -- -- -- -- 330 6.90
------ ------ ------ ------
Total $6,028 5.74% $1,400 5.93% $ 0 --% $-- --% $7,428 5.78%
====== ====== ====== === ======
</TABLE>
The maturities of the Association's interest-bearing deposits and
investment securities (excluding mortgage-backed securities) at December 31,
1996, are indicated in the following table:
<TABLE>
<CAPTION>
At December 31, 1996
---------------------------------------------------------------------------------------------------
After one through After five After ten
One year or less five years through ten years years Total
------------------ ------------------- ------------------ ---------------- -----------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Weighted
value yield value yield value yield value yield value average-yield
----- ----- ----- ----- ----- ----- ----- ----- ----- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits $1,985 5.49% $ -- -% $ -- -% $ -- -% $1,985 5.49%
Interest-bearing time deposits 700 5.53 100 6.15 -- -- -- -- 800 5.61
Investment securities:
U.S. Government and
federal agencies 500 5.35 $3,297 5.97 -- -- -- -- 3,797 5.89
Intrieve Inc. 15 -- -- -- -- -- -- -- 15 --
stock
FHLB stock 324 7.04 -- -- -- -- -- -- 324 7.04
------ ------ -- ---- ------
Total $3,524 5.60% $3,397 5.97% $- -% $ -- --% $6,921 5.78%
====== ====== == ==== ======
</TABLE>
The maturities of the Association's mortgage-backed securities
portfolio are indicated in the following tables:
<TABLE>
<CAPTION>
At March 31, 1997
--------------------------------------------------------------------------------------------------------
After one through After five After ten
One year or less five years through ten years years Total
------------------ ------------------- ------------------ ---------------- ----------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Market
value yield value yield value yield value yield value Yield Value
----- ----- ----- ----- ----- ----- ----- ----- ----- ------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0 -% $12 9.50% $24 11.55% $903 9.51% $939 9.56% $1,009
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1996
--------------------------------------------------------------------------------------------------------
After one through After five After ten
One year or less five years through ten years years Total
------------------ ------------------- ------------------ ---------------- ----------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Market
value yield value yield value yield value yield value Yield Value
----- ----- ----- ----- ----- ----- ----- ----- ----- ------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0 -% $12 9.50% $16 11.55% $956 9.51% $984 9.56% $1,063
</TABLE>
-46-
<PAGE> 77
DEPOSITS AND BORROWINGS
GENERAL. Deposits have traditionally been the primary source of the
Association's funds for use in lending and other investment activities. In
addition to deposits, the Association derives funds from interest payments and
principal repayments on loans and income on earning assets. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." Loan
payments are a relatively stable source of funds, while deposit inflows and
outflows fluctuate in response to general interest rates and money market
conditions. The Association may also borrow funds from the FHLB as a source of
funds.
DEPOSITS. Deposits are attracted principally from within the
Association's market area through the offering of a selection of deposit
instruments, including regular passbook savings accounts, NOW accounts, money
market accounts, and certificates of deposit. Interest rates paid, maturity
terms, service fees, and withdrawal penalties for the various types of accounts
are monitored weekly by the President and reviewed monthly by the Board of
Directors of the Association. The Association does not use brokers to attract
deposits. The amount of deposits from outside the Association's market area is
not significant.
The following table sets forth the dollar amount of deposits in the
various types of accounts offered by the Association at the dates indicated:
<TABLE>
<CAPTION>
At March 31, At December 31,
--------------------- -----------------------------------------------
1997 1996 1995
--------------------- ----------------------- --------------------
Percent Percent Percent
of total of total of total
Amount deposits Amount deposits Amount deposits
------ -------- ------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Transaction accounts:
Regular savings
accounts (1) $10,066 34.20% $ 9,923 34.50% $ 9,565 32.30%
NOW and Super NOW
accounts (2) 1,152 3.92 979 3.40 1,057 3.60
Money market accounts (3) 3,086 10.49 3,290 11.40 4,567 15.40
------- ------ ------- ------ -------- -------
Total transaction
accounts 14,304 48.61 14,192 49.30 15,189 51.30
Certificates of deposit
3.00% or less 21 0.07 - - - -
3.01 - 5.00% 6,620 21.57 6,837 23.75 7,978 26.94
5.01 - 7.00% 8,479 29.75 7,762 26.95 6,177 20.85
7.01 - 9.00% - - - - 271 0.91
------- ------ -------- ------ --------- -------
Total certificates of
deposit (4) 15,120 51.39 14,599 50.70 14,426 48.70
------- ------ ------- ------ -------- -----
Total deposits $29,424 100.00% $28,791 100.00% $29,615 100.00%
======= ====== ======= ====== ======= ======
<FN>
- -----------------------------
(1) The weighted average rate on passbook savings accounts was 3.00% at
March 31, 1997, and December 31, 1996 and 1995, respectively.
(2) The weighted average rate on NOW and Super NOW accounts was 1.75%, at
March 31, 1997, and December 31, 1996 and 1995, respectively.
(3) The weighted average rate on money market accounts was 2.75%, 2.75% and
2.95% at March 31, 1997, and December 31, 1996 and 1995, respectively.
(4) The weighted average rate on all certificates of deposit was 5.10%,
5.09% and 5.04% at March 31, 1997, and December 31, 1996 and 1995,
respectively.
</TABLE>
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<PAGE> 78
The following table shows rate and maturity information for the
Association's certificates of deposit at March 31, 1997:
<TABLE>
<CAPTION>
Amount Due
---------------------------------------------------------------
Over Over
Up to 1 year to 2 years to Over
Rate one year 2 years 3 years 3 years Total
---- -------- ----------- ----------- -------- -----
(In thousands)
<C> <C> <C> <C> <C> <C>
3.00% or less $ 4 $ - $ - $ 17 $ 21
3.01% to 5.00% 4,928 1,328 216 148 6,620
5.01% to 7.00% 6,633 1,275 158 413 8,479
-------- ------- ----- ----- ---------
Total certificates of
deposit $11,565 $2,603 $374 $578 $15,120
======= ====== ==== ==== =======
</TABLE>
At March 31, 1997, approximately $11.6 million of the Association's
certificates of deposit mature within one year. Based on past experience and the
Association's prevailing pricing strategies, management believes that a
substantial percentage of such certificates will be renewed with the Association
at maturity. If, however, the Association is unable to renew the maturing
certificates for any reason, borrowings of up to $6.5 million are available from
the FHLB of Cincinnati. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Liquidity and Capital Resources."
The following table presents the amount of the Association's
certificates of deposit of $100,000 or more by the time remaining until maturity
at March 31, 1997:
<TABLE>
<CAPTION>
Maturity Amount
-------- ------
(In thousands)
<S> <C>
Three months or less $ 911
Over 3 months to 6 months 725
Over 6 months to 12 months 2,684
Over 12 months 768
-------
Total $5,088
======
</TABLE>
All of the above certificates of deposit are held by long-time
depositors at the Association and management believes that a substantial
percentage of such certificates will be renewed with the Association at
maturity.
The following table sets forth the Association's deposit account
balance activity for the periods indicated:
<TABLE>
<CAPTION>
Three months ended March 31, Year ended December 31,
---------------------------- -----------------------
1997 1996 1996 1995
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Beginning balance $ 28,791 $ 29,615 $ 29,615 $ 29,198
Net increase(decrease) before
interest credited 348 (68) (1,972) (686)
Interest credited 286 280 1,148 1,103
-------- -------- -------- --------
Ending balance $ 29,425 $ 29,827 $ 28,791 $ 29,615
======== ======== ======== ========
Net increase (decrease) $ 634 $ 212 $ (824) $ 417
======== ======== ======== ========
</TABLE>
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<PAGE> 79
BORROWINGS. The FHLB system functions as a central reserve bank
providing credit for its member institutions and certain other financial
institutions. See "REGULATION - Federal Home Loan Banks." As a member in good
standing of the FHLB of Cincinnati, the Association is authorized to apply for
advances from the FHLB of Cincinnati, provided certain standards of
creditworthiness have been met. Under current regulations, an association must
meet certain qualifications to be eligible for FHLB advances. The extent to
which an association is eligible for such advances will depend upon whether it
meets the Qualified Thrift Lender (the "QTL") test. See "REGULATION - Office of
Thrift Supervision -- Qualified Thrift Lender Test." If an association meets the
QTL test, the association will be eligible for 100% of the advances it would
otherwise be eligible to receive. If an association does not meet the QTL test,
the association will be eligible for such advances only to the extent it holds
specified QTL test assets. At March 31, 1997, the Association was in compliance
with the QTL test. At March 31, 1997, and during the years ended December 31,
1996 and 1994 the Association did not utilize FHLB advances. For the year ended
December 31, 1995, the average outstanding balance of FHLB advances was $23,000.
For the three months ended March 31, 1997, the Association's average outstanding
balance of FHLB advances was $50,000.
COMPETITION
The Association faces competition for deposits and loans from branches
of two large independent commercial banks located in Bridgeport and branches of
two larger independent commercial banks and one branch of a super-regional
commercial bank in Shadyside. In addition, competing financial institutions
exist in surrounding communities located in the Association's market area. The
primary factors in competition for deposits are customer service and convenience
of office location. The Association competes for loan originations primarily
through the interest rates and loan fees it charges and through the efficiency
and quality of services it provides to borrowers. Competition is intense and is
affected by, among other things, the general availability of lendable funds,
general and local economic conditions, current interest rate levels and other
factors which are not readily predictable. The Association does not offer all of
the products and services offered by some of its competitors, particularly
commercial banks.
SUBSIDIARY ACTIVITY
At March 31, 1997, the Association had one wholly-owned subsidiary,
Trailway Financial, Inc. ("Trailway"). Trailway was formed to acquire stock in
Intrieve, Inc., the Association's data processing servicing company. The
Association's investment in its subsidiary totaled $20,000 at March 31, 1997.
Under current regulations, the Association is no longer required to hold the
Intrieve, Inc. stock in a separate subsidiary and has decided to dissolve
Trailway.
PROPERTIES
The following table sets forth certain information at March 31, 1997,
regarding the properties on which the main office and the branch office of the
Association are located:
<TABLE>
<CAPTION>
Owned or Date Square Net book
Location leased acquired footage value Deposits
- -------- ------ -------- ------- ----- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
435 Main Street Owned 1964 4,744 $109,286 $21,624
Bridgeport, Ohio 43912
4000 Central Avenue Owned 1979 2,197 $289,304 $7,801
Shadyside, Ohio 43943
</TABLE>
The Association owns all of its electronic data processing equipment.
Such equipment includes several personal computers which are fully depreciated.
EMPLOYEES
At March 31, 1997, the Association had 12 full-time employees and one
part-time employee. The Association believes that relations with its employees
are excellent. The Association offers health, life and disability benefits to
all employees and has a defined benefit pension plan and a 401(k) plan for its
eligible full-time employees. None of the employees of the Association is
represented by a collective bargaining unit.
-49-
<PAGE> 80
LEGAL PROCEEDINGS
The Association is not presently involved in any material legal
proceedings. From time to time, the Association is a party to legal proceedings
incidental to its business to enforce its security interest in collateral
pledged to secure loans made by the Association.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
THE HOLDING COMPANY. The Board of Directors of the Holding Company
consists of five members. All of the directors of the Holding Company were
initially elected to the Board of Directors in 1997. Each director is elected
for a one-year term and until his or her successor is elected or until his or
her earlier resignation, removal from office or death. The following persons are
officers of the Holding Company: Jon W. Letzkus, President; Marianne A. Doyle,
Vice President; Michael P. Eddy, Treasurer and Chief Financial Officer; and
Sherri Yarbrough, Secretary.
THE ASSOCIATION. The Amended Constitution of the Association provides
for a Board of Directors consisting of not less than five directors. The Board
of Directors of the Association currently consists of five directors. Each
director serves for a one-year term. The Board of Directors met 26 times during
the fiscal year ended December 31, 1996, for regular and special meetings. No
director attended fewer than 75% of the aggregate of such meetings and all
meetings of the committees of which such director was a member.
The following table presents certain information with respect to the
present directors of the Association, each of whom is also a director of the
Holding Company, and the executive officers of the Association:
<TABLE>
<CAPTION>
Year of
Position(s) with commencement Term
Name Age(1) the Association of directorship expires
- ---- ------ --------------- --------------- -------
<S> <C> <C> <C> <C>
John O. Costine 72 Director 1975 1998
Anton M. Godez 71 Director 1990 1999
Jon W. Letzkus 53 Director, President and
Managing Officer 1989 1999
William E. Reline 67 Director 1992 1998
Manuel C. Thomas 74 Director and Chairman 1985 1997
Darlene V. Bennington 57 Treasurer and Secretary - -
Marianne Doyle 37 Assistant Vice President - -
Michael P. Eddy 37 Comptroller - -
Sherri Yarbrough 29 Loan Manager -
<FN>
- ----------------------------
(1) As of March 31, 1997.
</TABLE>
JOHN O. COSTINE is a partner in the Costine Law Firm, a general
partnership, located in St. Clairsville, Ohio and has practiced law since 1950.
ANTON M. GODEZ has served as the President of the General Welding
Supply Company located in Martins Ferry, Ohio, since 1950.
JON W. LETZKUS is the President of both the Holding Company and the
Association and is the designated Managing Officer of the Association. Mr.
Letzkus joined the Association in September 1980 as a vice president. Mr.
Letzkus has served as the President of the Association since 1989.
WILLIAM E. RELINE retired from Cooper Industries, a mining equipment
manufacturing company, in 1989, and has been a consultant to Wheeling Machine
Products since 1996.
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<PAGE> 81
MANUEL C. THOMAS is an officer of M. C. Thomas Insurance Agency, Inc.
where he has been employed since 1954.
DARLENE V. BENNINGTON has served as the Secretary of the Association
since 1996 and as the Treasurer of the Association since 1991. Ms. Bennington
has been employed by the Association since 1980.
MARIANNE DOYLE has served the Association as the Assistant Vice
President since 1994 and as a loan officer since 1985.
MICHAEL P. EDDY has served since 1985 as the Comptroller of the
Association and from 1985 to 1994 he also served as the Secretary of the
Association.
SHERRI YARBROUGH has served the Association as a loan officer and as
the Office Manager since 1990.
COMMITTEES OF DIRECTORS
The full Board of Directors of the Association serves as the
Compensation Committee. The function of the Compensation Committee is to
determine compensation for the Association's employees and to make decisions
regarding employee benefits and related matters. Mr. Letzkus does not
participate in discussions regarding his salary. The Compensation Committee met
four times during the year ended December 31, 1996.
The Board of Directors of the Holding Company does not currently have
any committees, but will establish an Audit Committee upon the completion of the
Conversion.
COMPENSATION
Each director of the Association who is not a full-time employee of the
Association currently receives a fee of $225 per meeting of the full Board of
Directors attended with three paid absences. Director compensation is determined
annually by the entire Board of Directors. During the year ended December 31,
1996, the Association paid a total of $22,725 in directors' fees. Following the
consummation of the Conversion, each director of the Holding Company will
receive a fee of $250 per quarterly meeting of the full Board of Directors
attended.
During the fiscal year ended December 31, 1996, no executive officer of
the Association received annual compensation in an amount equal to or greater
than $100,000. The following table presents certain information regarding the
annual compensation received by Mr. Letzkus during such period:
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Name and Principal Position Year Salary ($) Bonus
- --------------------------- ---- ------ -----
<S> <C> <C> <C>
Jon W. Letzkus, President 1996 $70,000 $6,024
</TABLE>
DEFINED BENEFIT PLAN
The Association maintains a tax-qualified non-contributory defined
benefit plan (the "Pension Plan") covering employees age 21 or older. Benefits
received under the Pension Plan are based on years of service to the Association
and average annual compensation for the five highest consecutive years of
salary. The Pension Plan permits early retirement after age 45 at a reduced
benefit level. Employees are not vested in their benefits under the Pension Plan
until they have worked for the Association for five years, at which time they
are 100% vested. The Association's expenses for contributions to the Pension
Plan for the three months ended March 31, 1997, and for the years ended December
31, 1996 and 1995, were $3,418, $10,899 and $21,561, respectively.
-51-
<PAGE> 82
The following table indicates the annual retirement benefit that would
be payable under the Pension Plan upon retirement at age 65 to a participant
electing to receive his retirement benefit in the standard form of benefit:
<TABLE>
<CAPTION>
Average Compensation Years of Credited Service
(Highest 5 years) 5 10 15 20 25 30 35
------ ------------------ ------- -------- ------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 20,000 $ 1,600 $ 3,300 $ 4,900 $ 6,500 $ 8,200 $ 9,800 $11,400
30,000 2,600 5,300 7,900 10,500 13,200 15,800 18,400
40,000 3,600 7,300 10,900 14,500 18,200 21,800 25,400
50,000 4,600 9,300 13,900 18,500 23,200 27,800 32,400
75,000 7,100 14,300 21,400 28,500 35,700 42,800 49,900
100,000 9,600 19,300 28,900 38,500 48,200 57,800 67,400
</TABLE>
Mr. Letzkus has 16 years of credited service under the Pension Plan.
Annual compensation, for purposes of the Pension Plan, consists of the
participant's base salary as of January 1 and bonus and overtime pay for the
prior year. The base salary and bonus for Mr. Letzkus for 1996 are reported
above in the Summary Compensation Table.
Benefits under the Pension Plan are computed based on the straight life
annuity method, but provide for a modified death benefit.
401(K) FINANCIAL INSTITUTION THRIFT PLAN
The Association maintains a profit sharing/401(k) plan (the "401(k)
Plan") for all of its employees who have completed 12 months of continuous
employment with the Association. Pursuant to the 401(k) Plan, participants may
elect to contribute up to 15% of their annual compensation on a tax-deferred
basis. In addition, in its sole discretion, the Association may make annual
profit sharing contributions to the 401(k) Plan for the benefit of employee
participants in an amount not exceeding 6% of the total compensation paid to
such employee participants for the year in question. Effective April 1995, the
Association suspended making profit sharing contributions. The Association's
401(k) Plan expenses, including employer contributions, if any, for the three
months ended March 31, 1997, and for the years ended December 31, 1996 and 1995,
were $360, $940 and $3,542, respectively.
In connection with the Conversion, the Board of Directors of the
Association has amended the 401(k) Plan to allow participants to invest in the
Common Shares through the 401(k) Plan.
STOCK BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN. The Holding Company intends to establish
the ESOP for the benefit of employees of the Holding Company and its
subsidiaries, including the Association, who are age 21 or older and who have
completed at least one year of service with the Holding Company and its
subsidiaries. The Board of Directors of the Holding Company believes that the
ESOP will be in the best interests of the Holding Company and its shareholders.
The ESOP trust intends to borrow funds from the Holding Company with
which to acquire up to 8% of the Common Shares sold in connection with the
Conversion. Such loan will be secured by the Common Shares purchased with the
proceeds from the loan and will be repaid by the ESOP over a period of
approximately ten years with discretionary contributions to the ESOP and
earnings on ESOP assets. The interest rate paid on the loan will be the
applicable federal rate, currently __%. Common Shares purchased with such loan
proceeds will be held in a suspense account for allocation among ESOP
participants as the loan is repaid.
The amount of cash or other assets that can be contributed to the ESOP
each year is limited by certain IRS regulations. The Association intends to make
the maximum contribution to the ESOP permitted by such regulations, which could
result in repayment of the ESOP loan in fewer than ten years. A shorter
repayment period could result in increased compensation expense during the years
in which payments are made on the ESOP loan. See "PRO FORMA DATA."
Contributions to the ESOP and shares released from the suspense account
will be allocated pro rata to participants on the basis of compensation. Except
for participants who retire, become disabled, or die during the plan year, all
other
-52-
<PAGE> 83
participants must have completed at least 1,000 hours of service and be
employed on the last day of the plan year in order to receive an allocation.
Benefits become vested after five years of service. Vesting will be accelerated
upon retirement at or after age 65, death, disability, termination of the ESOP,
or change in control of the Holding Company or the Association. Shares allocated
to the account of a participant whose employment by the Association terminates
prior to such participant having satisfied the vesting requirement will be
forfeited. Forfeitures will be reallocated among remaining participating
employees. Benefits may be paid either in the Holding Company common shares or
in cash. Benefits may be payable upon retirement, death, disability, or
separation from service. Benefits payable under the ESOP cannot be estimated.
A committee appointed by the Board of Directors of the Holding Company
will administer the ESOP. The Common Shares and other ESOP funds will be held by
a trustee selected and appointed by the Holding Company (the "ESOP Trustee").
The ESOP Committee may instruct the ESOP Trustee regarding investments of funds
contributed to the ESOP. The ESOP Trustee must vote all common shares of the
Holding Company held in the ESOP that are allocated to the accounts of ESOP
participants in accordance with the instructions of such participants. Common
shares held by the ESOP that are not allocated to participants' accounts and
allocated shares for which voting instructions are not received will be voted by
the ESOP Trustee in its sole discretion.
The tax-qualified status of the ESOP and its purchase of the Common
Shares of the Holding Company are subject to the subsequent approval of the
Commissioner of the IRS (the "Commissioner"). The Holding Company will submit to
the Commissioner an application for approval of the ESOP. Although no assurances
can be given, the Holding Company expects that the ESOP will be approved by the
Commissioner.
STOCK OPTION PLAN. After the completion of the Conversion, the Board of
Directors of the Holding Company intends to adopt the Stock Option Plan, subject
to approval by the shareholders of the Holding Company. The purposes of the
Stock Option Plan include retaining and providing incentives to the directors,
officers, and employees of the Holding Company and its subsidiaries by
facilitating their purchase of a stock interest in the Holding Company.
Options granted to the officers and employees under the Stock Option
Plan may be "incentive stock options" within the meaning of Section 422 of the
Code ("ISOs"). Options granted under the Stock Option Plan to directors who are
not full-time employees of the Holding Company or the Association will not
qualify under the Code and thus will not be ISOs ("Non-qualified Options").
Although any eligible director, officer, or employee of the Holding Company or
the Association may receive Non-qualified Options, it is anticipated that the
non-employee directors will receive Non-qualified Options and other eligible
participants will receive ISOs.
The option exercise price will be determined by the Stock Option
Committee at the time of grant; provided, however, that the exercise price for
an ISO, or for any option if the Stock Option Plan is implemented by the Holding
Company during the first year following completion of the Conversion, must not
be less than 100% of the fair market value of the shares on the date of the
grant. No stock option will be exercisable after the expiration of ten years
from the date of grant, except that in the case of an ISO granted to an employee
who owns more than 10% of the Holding Company's outstanding common shares at the
time such ISO is granted under the Stock Option Plan, the exercise price of the
ISO may not be less than 110% of the fair market value of the shares on the date
of the grant and the ISO may not be exercisable after the expiration of five
years from the date of grant.
An option recipient cannot transfer or assign an option other than by
will, in accordance with the laws of descent and distribution. "Termination for
cause," as defined in the Stock Option Plan, will result in the termination of
any outstanding options.
The Holding Company will receive no monetary consideration for the
granting of options under the Stock Option Plan. Upon the exercise of options,
the Holding Company will receive a payment of cash, common shares of the Holding
Company, or a combination of cash and common shares from option recipients in
exchange for shares issued.
A number of shares equal to 10% of the Common Shares sold in the
Offering is expected to be reserved for issuance by the Holding Company upon the
exercise of options to be granted to certain directors, officers, and employees
of the Holding Company and its subsidiaries from time to time under the Stock
Option Plan. No determination has been made regarding the recipients of awards
under the Stock Option Plan or the number of shares to be awarded to individual
recipients. The Stock Option Committee may grant options under the Stock Option
Plan to the directors, officers, and employees of the Holding Company and the
Association at such times as they deem most beneficial to the Holding Company on
the basis of the individual participant's responsibility, tenure, and future
potential.
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Under OTS regulations, no stock options may be awarded during the first
year after the completion of the Conversion unless the Stock Option Plan is
approved by the shareholders of the Holding Company at an annual or a special
meeting of shareholders held not less than six months following the completion
of the Conversion. If the Stock Option Plan is approved by the Holding Company
shareholders at such meeting and implemented during the first year after the
completion of the Conversion, the following restrictions will apply: (i) the
number of shares which may be subject to options awarded under the Stock Option
Plan to directors who are not full-time employees of the Holding Company may not
exceed 5% per person and 30% in the aggregate of the available shares; (ii) the
number of shares which may be subject to options awarded under the Stock Option
Plan to any individual who is a full-time employee of the Holding Company or its
subsidiaries may not exceed 25% of the available shares; (iii) stock options
must be awarded with an exercise price at least equal to the fair market value
of the common shares of the Holding Company at the time of the award; and (iv)
stock options will become exercisable at the rate of one-fifth per year
commencing no earlier than one year from the date of the award, subject to
acceleration of vesting only in the event of the death or disability of a
participant. The ultimate value of any option granted at fair market value will
depend on future appreciation in the fair market value of the shares to which
the option relates. No decision has been made as to anticipated awards under the
Stock Option Plan. See "MANAGEMENT - Stock Benefit Plans -- Stock Option Plan."
RECOGNITION AND RETENTION PLAN AND TRUST. After the completion of the
Conversion, the Association intends to adopt the RRP. The purpose of the RRP is
to provide directors, officers, and certain key employees of the Association
with an ownership interest in the Association in a manner designed to compensate
such directors, officers, and key employees for services to the Association. The
Association expects to contribute sufficient funds to enable the RRP to purchase
up to 4% of the Common Shares sold in the Offering.
The RRP Committee will administer the RRP and determine the number of
shares to be granted to eligible participants. Each participant granted shares
under the RRP will be entitled to the benefit of any dividends or other
distributions paid on such shares prior to the shares being earned, although
dividends or other distributions on shares held in the RRP Trust will not be
distributed to the participant until the shares are distributed to the
participant. Compensation expense in the amount of the fair market value of the
RRP shares will be recognized as the shares are earned.
No determination has been made regarding recipients of RRP awards or
the number of shares to be awarded to individual recipients. Under OTS
regulations, no RRP shares may be awarded during the first year after the
completion of the Conversion unless the RRP is approved by the shareholders of
the Holding Company at an annual meeting or a special meeting of shareholders
held not less than six months following the completion of the Conversion. If the
RRP is approved by the Holding Company shareholders at such meeting and
implemented during the first year after the completion of the Conversion, the
following restrictions will apply: (i) the number of shares which may be subject
to awards under the RRP to directors who are not full-time employees of the
Holding Company or its subsidiaries may not exceed 5% per person and 30% in the
aggregate of the available shares; (ii) the number of shares which may be
subject to awards under the RRP to any individual who is a full-time employee of
the Holding Company or its subsidiaries may not exceed 25% of the available
shares; and (iii) RRP awards will be earned at the rate of one-fifth per year
commencing no earlier than one year from the date of the award subject to
acceleration of vesting only in the event of the death or the disability of the
participant. See "MANAGEMENT - Stock Benefit Plans -- Recognition and Retention
Plan and Trust."
EMPLOYMENT AGREEMENT
The Association currently has no employment agreements with any of its
officers. The Association intends to enter into an employment agreement with Jon
W. Letzkus (the "Employment Agreement"). The Employment Agreement will provide
for a term of one year and a salary of not less than $78,500 and performance
reviews by the Board of Directors not less often than annually at which time the
Employment Agreement may be extended for a period of one year. The Employment
Agreement will also provide for the inclusion of Mr. Letzkus in any formally
established employee benefit, bonus, pension, and profit-sharing plans for which
senior management personnel are eligible and for vacation and sick leave in
accordance with the Association's prevailing policies.
The Employment Agreement will be terminable by the Association at any
time. In the event of termination by the Association for "just cause," as
defined in the Employment Agreement, Mr. Letzkus will have no right to receive
any compensation or other benefits for any period after such termination. In the
event of termination by the Association other than for just cause, at the end of
the term of the Employment Agreement or in connection with a "change of
control," as defined in the Employment Agreement, Mr. Letzkus will be entitled
to a continuation of salary payments for a period of time
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equal to the term of the Employment Agreement and a continuation of benefits
substantially equal to those being provided at the date of termination of
employment until the earliest to occur of the end of the term of the Employment
Agreement or the date on which Mr. Letzkus becomes employed full-time by another
employer.
The Employment Agreement also will contain provisions with respect to
the occurrence within one year of a "change of control" of (1) the termination
of employment of Mr. Letzkus for any reason other than just cause, retirement,
or termination at the end of the term of the agreement, or (2) a constructive
termination resulting from change in the capacity or circumstances in which Mr.
Letzkus is employed or a material reduction in his responsibilities, authority,
compensation, or other benefits provided under the Employment Agreement without
Mr. Letzkus' written consent. In the event of any such occurrence, Mr. Letzkus
will be entitled to payment of an amount equal to two times Mr. Letzkus' annual
compensation immediately preceding the termination of his employment. In
addition, Mr. Letzkus will be entitled to continued coverage under all benefit
plans until the earliest of the end of the term of the Employment Agreement or
the date on which he is included in another employer's benefit plans as a
full-time employee. The maximum which Mr. Letzkus may receive, however, is
limited to an amount which will not result in the imposition of a penalty tax
pursuant to Section 280G(b)(3) of the Code. "Control," as defined in the
Employment Agreement, generally refers to the acquisition by any person or
entity of the ownership or power to vote 10% or more of the voting stock of the
Association or the Holding Company, the control of the election of a majority of
the directors of the Association or the Holding Company, or the exercise of a
controlling influence over the management or policies of the Association or the
Holding Company.
The aggregate payments that would have been made to Mr. Letzkus,
assuming his termination at March 31, 1997, following a change of control, would
have been approximately $157,000.
CERTAIN TRANSACTIONS WITH THE ASSOCIATION
In accordance with the OTS regulations, the Association makes loans to
executive officers and directors of the Association in the ordinary course of
business and on the same terms and conditions, including interest rates and
collateral, as those of comparable loans to other persons. All outstanding loans
to executive officers and directors comply with such policy, do not involve more
than the normal risk of collectibility or present other unfavorable features and
are current in their payments. Loans to officers and directors and executive
officers of the Association and their related interests totaled $67,000 at March
31, 1997.
REGULATION
GENERAL
As a savings and loan association incorporated under the laws of Ohio,
the Association is subject to regulation, examination and oversight by the OTS
and the Superintendent of the Division (the "Ohio Superintendent"). Because the
Association's deposits are insured by the FDIC, the Association also is subject
to general oversight by the FDIC. The Association must file periodic reports
with the OTS, the Ohio Superintendent, and the FDIC concerning its activities
and financial condition. Examinations are conducted periodically by federal and
state regulators to determine whether the Association is in compliance with
various regulatory requirements and is operating in a safe and sound manner. The
Association is a member of the FHLB of Cincinnati.
The Holding Company will be a savings and loan holding company within
the meaning of the Home Owners Loan Act, as amended (the "HOLA"). Consequently,
the Holding Company will be subject to regulation, examination, and oversight by
the OTS and will be required to submit periodic reports thereto. Because the
Holding Company and the Association are corporations organized under Ohio law,
they are also subject to the provisions of the Ohio Revised Code applicable to
corporations generally.
Congress is considering legislation to eliminate the federal savings
and loan charter and the separate federal regulation of savings and loan
associations and the Department of the Treasury is preparing a report for
Congress on the development of a common charter for all financial institutions.
Pursuant to such legislation, Congress may eliminate the OTS and the Association
may be regulated under federal law as a bank or be required to change its
charter. Such change in regulation or charter would likely change the range of
activities in which the Association may engage and would probably subject the
Association to more regulation by the FDIC. In addition, the Holding Company
might become subject to
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different holding company regulations, including separate capital requirements.
At this time, the Holding Company cannot predict when or whether Congress may
actually pass legislation regarding the Holding Company's and the Association's
regulatory requirements or charter. Although such legislation may change the
activities in which either the Holding Company and the Association may engage,
it is not anticipated that the current activities of the Holding Company or the
Association will be materially affected by those activity limits.
OHIO SAVINGS AND LOAN LAW
The Ohio Superintendent is responsible for the regulation and
supervision of Ohio savings and loan associations in accordance with the laws of
the State of Ohio. Ohio law prescribes the permissible investments and
activities of Ohio savings and loan associations, including the types of lending
that such associations may engage in and the investments in real estate,
subsidiaries, and corporate or government securities that such associations may
make. The ability of Ohio associations to engage in these state-authorized
investments and activities is subject to oversight and approval by the FDIC, if
such investments or activities are not permissible for a federally chartered
savings and loan association.
The Ohio Superintendent also has approval authority over any mergers
involving or acquisitions of control of Ohio savings and loan associations. The
Ohio Superintendent may initiate certain supervisory measures or formal
enforcement actions against Ohio associations. Ultimately, if the grounds
provided by law exist, the Ohio Superintendent may place an Ohio association in
conservatorship or receivership.
The Ohio Superintendent conducts regular examinations of the
Association approximately once a year. Such examinations are usually conducted
jointly with one or both federal regulators. The Ohio Superintendent imposes
assessments on Ohio associations based on their asset size to cover the cost of
supervision and examination.
OFFICE OF THRIFT SUPERVISION
GENERAL. The OTS is an office in the Department of the Treasury and is
responsible for the regulation and supervision of all federally chartered
savings and loan associations and all other savings and loan associations the
deposits of which are insured by the FDIC. The OTS issues regulations governing
the operation of savings and loan associations, regularly examines such
associations and imposes assessments on savings associations based on their
asset size to cover the costs of this supervision and examination. The OTS also
may initiate enforcement actions against savings and loan associations and
certain persons affiliated with them for violations of laws or regulations or
for engaging in unsafe or unsound practices. If the grounds provided by law
exist, the OTS may appoint a conservator or receiver for a savings and loan
association.
Savings associations are subject to regulatory oversight under various
consumer protection and fair lending laws. These laws govern, among other
things, truth-in-lending disclosures, equal credit opportunity, fair credit
reporting and community reinvestment. Failure to abide by federal laws and
regulations governing community reinvestment could limit the ability of an
association to open a new branch or engage in a merger. Community reinvestment
regulations evaluate how well and to what extent an institution lends and
invests in its designated service area, with particular emphasis on low- to
moderate-income communities and borrowers in that area. The Association has
received an "outstanding" examination rating under those regulations.
REGULATORY CAPITAL REQUIREMENTS. The Association is required by OTS
regulations to meet certain minimum capital requirements. For information
regarding the Association's regulatory capital at March 31, 1997, and pro forma
regulatory capital after giving effect to the Conversion, see "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Liquidity and Capital Resources" and "REGULATORY CAPITAL COMPLIANCE."
Current capital requirements call for tangible capital of 1.5% of
adjusted total assets, core capital (which for the Association consists solely
of tangible capital) of 3.0% of adjusted total assets and risk-based capital
(which for the Association consists of core capital and general valuation
allowances) of 8.0% of risk-weighted assets (assets, including certain
off-balance sheet items, are weighted at percentage levels ranging from 0% to
100% depending on the relative risk).
The OTS has proposed to amend the core capital requirement so that
those associations that do not have the highest examination rating and an
acceptable level of risk will be required to maintain core capital of from 4% to
5%, depending on
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the Association's examination rating and overall risk. The Association does not
anticipate that it will be adversely affected if the core capital requirement
regulation is amended as proposed.
The OTS has adopted an interest rate risk component to the risk-based
capital requirement, though the implementation of that component has been
delayed. Pursuant to that requirement a savings association would have to
measure the effect of an immediate 200 basis point change in interest rates on
the value of its portfolio as determined under the methodology of the OTS. If
the measured interest rate risk is above the level deemed normal under the
regulation, the Association will be required to deduct one-half of such excess
exposure from its total capital when determining its risk-based capital. In
general, an association with less than $300 million in assets and a risk-based
capital ratio in excess of 12% will not be subject to the interest rate risk
component, and the association qualifies for such exemption. Pending
implementation of the interest rate risk component, the OTS has the authority to
impose a higher individualized capital requirement on any savings association it
deems to have excess interest rate risk. The OTS also may adjust the risk-based
capital requirement on an individualized basis to take into account risks due to
concentrations of credit and non-traditional activities. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Asset
and Liability Management."
The OTS has adopted regulations governing prompt corrective action to
resolve the problems of capital deficient and otherwise troubled savings and
loan associations. At each successively lower defined capital category, an
association is subject to more restrictive and numerous mandatory or
discretionary regulatory actions or limits, and the OTS has less flexibility in
determining how to resolve the problems of the institution. The OTS has defined
these capital levels as follows: (i) well-capitalized associations must have
total risk-based capital of at least 10%, core risk-based capital (consisting
only of items that qualify for inclusion in core capital) of at least 6% and
core capital of at least 5%; (ii) adequately capitalized associations are those
that meet the regulatory minimum of total risk-based capital of 8%, core
risk-based capital of 4%, and core capital of 4% (except for associations
receiving the highest examination rating, in which case the level is 3%) but are
not well-capitalized; (iii) undercapitalized associations are those that do not
meet regulatory limits, but that are not significantly undercapitalized; (iv)
significantly undercapitalized associations have total risk-based capital of
less than 6%, core risk-based capital of less than 3% or core capital of less
than 3%; and (v) critically undercapitalized associations are those with core
capital of less than 2% of total assets. In addition, the OTS generally can
downgrade an association's capital category, notwithstanding its capital level,
if, after notice and opportunity for hearing, the association is deemed to be
engaging in an unsafe or unsound practice because it has not corrected
deficiencies that resulted in it receiving a less than satisfactory examination
rating on matters other than capital or it is deemed to be in an unsafe or
unsound condition. An undercapitalized association must submit a capital
restoration plan to the OTS within 45 days after it becomes undercapitalized.
Undercapitalized associations will be subject to increased monitoring and asset
growth restrictions and will be required to obtain prior approval for
acquisitions, branching and engaging in new lines of business. Critically
undercapitalized institutions must be placed in conservatorship or receivership
within 90 days of reaching that capitalization level, except under limited
circumstances. The Association's capital at March 31, 1997, meets the standards
for a well-capitalized institution.
Federal law prohibits a savings and loan association from making a
capital distribution to anyone or paying management fees to any person having
control of the association if, after such distribution or payment, the
association would be undercapitalized. In addition, each company controlling an
undercapitalized association must guarantee that the association will comply
with its capital plan until the association has been adequately capitalized on
an average during each of four preceding calendar quarters and must provide
adequate assurances of performance. The aggregate liability pursuant to such
guarantee is limited to the lesser of (i) an amount equal to 5% of the
association's total assets at the time the association became undercapitalized
or (ii) the amount that is necessary to bring the association into compliance
with all capital standards applicable to such association at the time the
association fails to comply with its capital restoration plan.
LIQUIDITY. OTS regulations require that savings associations maintain
an average daily balance of liquid assets (cash, certain time deposits,
association's acceptances, and specified United States government, state or
federal agency obligations) equal to a monthly average of not less than 5% of
its net withdrawable savings deposits plus borrowings payable in one year or
less. Federal regulations also require each member institution to maintain an
average daily balance of short-term liquid assets of not less than 1% of the
total of its net withdrawable savings accounts and borrowings payable in one
year or less. Monetary penalties may be imposed upon member institutions failing
to meet liquidity requirements. The eligible liquidity of the Association at
March 31, 1997, was approximately $7.3 million, or 25%, which exceeded the 5%
liquidity requirement by approximately $5.9 million. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Liquidity and Capital Resources."
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QUALIFIED THRIFT LENDER TEST. Savings associations are required to meet
the QTL test. Prior to September 30, 1996, the QTL test required savings
associations to maintain a specified level of investments in assets that are
designated as qualifying thrift investments ("QTI"), which are generally related
to domestic residential real estate and manufactured housing and include stock
issued by any FHLB, the FHLMC or the FNMA. Under this test 65% of an
institution's "portfolio assets" (total assets less goodwill and other
intangibles, property used to conduct business, and 20% of liquid assets) must
consist of QTI on a monthly average basis in 9 out of every 12 months. Congress
created a second QTL test, effective September 30, 1996, pursuant to which a
savings association may also qualify as a QTL thrift if at least 60% of the
institution's assets (on a tax basis) consist of specified assets (generally
loans secured by residential real estate or deposits, educational loans, cash,
and certain governmental obligations). The OTS may grant exceptions to the QTL
test under certain circumstances. If a savings association fails to meet the QTL
test, the association and its holding company become subject to certain
operating and regulatory restrictions. A savings association that fails to meet
the QTL test will not be eligible for new FHLB advances. At March 31, 1997, the
Association met the QTL test.
LENDING LIMIT. OTS regulations generally limit the aggregate amount
that a savings association can lend to one borrower or group of related
borrowers to an amount equal to 15% of the association's Lending Limit Capital.
A savings association may lend to one borrower an additional amount not to
exceed 10% of the association's Lending Limit Capital, if the additional amount
is fully secured by certain forms of "readily marketable collateral." Real
estate is not considered "readily marketable collateral." Certain types of loans
are not subject to this limit. In applying this limit, the regulations require
that loans to certain related borrowers be aggregated. An exception to this
limit permits loans of any type to one borrower up to $500,000.
Based on such limits, the Association was able to lend approximately
$729,000 to one borrower at March 31, 1997. The maximum amount that the
Association will lend to one Borrower, however, is $500,000. See "THE BUSINESS
OF THE ASSOCIATION - Lending Activities -- Loan Originations, Purchases and
Sales."
TRANSACTIONS WITH INSIDERS AND AFFILIATES. Loans to executive officers,
directors, and principal shareholders and their related interests must conform
to the lending limit on loans to one borrower, and the total of such loans to
executive officers, directors, principal shareholders, and their related
interests cannot exceed the association's Lending Limit Capital (or 200% of
Lending Limit Capital for qualifying institutions with less than $100 million in
assets). Most loans to directors, executive officers, and principal shareholders
must be approved in advance by a majority of the "disinterested" members of the
board of directors of the association with any "interested" director not
participating. All loans to directors, executive officers, and principal
shareholders must be made on terms substantially the same as offered in
comparable transactions with the general public or as offered to all employees
in a company-wide benefit program, and loans to executive officers are subject
to additional limitations. The Association was in compliance with such
restrictions at March 31, 1997.
All transactions between savings associations and their affiliates must
comply with Sections 23A and 23B of the Federal Reserve Act (the "FRA"). An
affiliate of a savings association is any company or entity that controls, is
controlled by or is under common control with, the savings association. The
Holding Company will be an affiliate of the Association. Generally, Sections 23A
and 23B of the FRA (i) limit the extent to which a savings association or its
subsidiaries may engage in "covered transactions" with any one affiliate to an
amount equal to 10% of such institution's capital stock and surplus, (ii) limit
the aggregate of all such transactions with all affiliates to an amount equal to
20% of such capital stock and surplus, and (iii) require that all such
transactions be on terms substantially the same, or at least as favorable to the
association, as those provided in transactions with a non-affiliate. The term
"covered transaction" includes the making of loans, purchase of assets, issuance
of a guarantee, and other similar types of transactions. In addition to the
limits in Sections 23A and 23B, a savings association may not make any loan or
other extension of credit to an affiliate unless the affiliate is engaged only
in activities permissible for a bank holding company and may not purchase or
invest in securities of any affiliate except shares of a subsidiary. The
Association was in compliance with these requirements and restrictions at March
31, 1997.
LIMITATIONS ON CAPITAL DISTRIBUTIONS. The OTS imposes various
restrictions or requirements on the ability of associations to make capital
distributions, according to ratings of associations based on their capital level
and supervisory condition. Capital distributions, for purposes of such
regulation, include, without limitation, payments of cash dividends,
repurchases, and certain other acquisitions by an association of its shares and
payments to stockholders of another association in an acquisition of such other
association.
For purposes of the capital distribution regulations, each institution
is categorized in one of three tiers. Tier 1 consists of associations that,
before and after the proposed capital distribution, meet their fully phased-in
capital requirement. Associations in this category may make capital
distributions during any calendar year equal to the greater of 100% of their
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net income, current year-to-date, plus 50% of the amount by which the lesser of
such association's tangible, core or risk-based capital exceeds its fully
phased-in capital requirement for such capital component, as measured at the
beginning of the calendar year, or the amount authorized for a tier 2
association. Tier 2 consists of associations that, before and after the proposed
capital distribution, meet their current minimum, but not fully phased-in
capital requirement. Associations in this category may make capital
distributions up to 75% of their net income over the most recent four quarters.
Tier 3 associations do not meet their current minimum capital requirement and
must obtain OTS approval of any capital distribution. A tier 1 association
deemed to be in need of more than normal supervision by the OTS may be
downgraded to a tier 2 or tier 3 association.
The Association meets the requirements for a tier 1 association and has
not been notified of any need for more than normal supervision. The Association
will also be prohibited from declaring or paying any dividends or from
repurchasing any of its stock if, as a result, the net worth of the Association
would be reduced below the amount required to be maintained for the liquidation
account established in connection with the Conversion. In addition, as a
subsidiary of the Holding Company, the Association will also be required to give
the OTS 30 days' notice prior to declaring any dividend on its stock. The OTS
may object to the dividend during that 30-day period based on safety and
soundness concerns. Moreover, the OTS may prohibit any capital distribution
otherwise permitted by regulation if the OTS determines that such distribution
would constitute an unsafe or unsound practice.
In December 1994, the OTS issued a proposal to amend the capital
distributions limits. Under that proposal, associations not owned by a holding
company with an examination rating of 1 or 2 could make a capital distribution
without notice to the OTS, if they remain adequately capitalized, as described
above, after the distribution is made. Any other association seeking to make a
capital distribution that would not cause the association to fall below the
capital levels to qualify as adequately capitalized or better, would have to
provide notice to the OTS. Except under limited circumstances and with OTS
approval, no capital distributions would be permitted if it caused the
association to become undercapitalized.
HOLDING COMPANY REGULATION. After the Conversion, the Holding Company
will be a savings and loan holding company within the meaning of the HOLA. As
such, the Holding Company will register with the OTS and will be subject to OTS
regulations, examination, supervision, and reporting requirements.
The HOLA generally prohibits a savings and loan holding company from
controlling any other savings and loan association or savings and loan holding
company, without prior approval of the OTS, or from acquiring or retaining more
than 5% of the voting shares of a savings and loan association or holding
company thereof, which is not a subsidiary. Under certain circumstances, a
savings and loan holding company is permitted to acquire, with the approval of
the OTS, up to 15% of the previously unissued voting shares of an
undercapitalized savings and loan association for cash without such savings and
loan association's being deemed to be controlled by such holding company. Except
with the prior approval of the OTS, no director or officer of a savings and loan
holding company or person owning or controlling by proxy or otherwise more than
25% of such company's stock may also acquire control of any savings institution,
other than a subsidiary institution, or any other savings and loan holding
company.
The Holding Company will be a unitary savings and loan holding company.
Under current law, there are generally no restrictions on the activities of
unitary savings and loan holding companies and such companies are the only
financial institution holding companies which may engage in commercial,
securities, and insurance activities without limitation. Congress is considering
legislation which may limit the Holding Company's ability to engage in these
activities and the Holding Company cannot predict if and in what form these
proposals might become law. However, such limits would not impact the Holding
Company's initial activity of holding stock of the Association. The broad
latitude under current law can be restricted if the OTS determines that there is
reasonable cause to believe that the continuation by a savings and loan holding
company of an activity constitutes a serious risk to the financial safety,
soundness, or stability of its subsidiary savings and loan association. The OTS
may impose such restrictions as deemed necessary to address such risk, including
limiting (i) payment of dividends by the savings and loan association; (ii)
transactions between the savings and loan association and its affiliates; and
(iii) any activities of the savings and loan association that might create a
serious risk that the liabilities of the holding company and its affiliates may
be imposed on the savings and loan association. Notwithstanding the foregoing
rules as to permissible business activities of a unitary savings and loan
holding company, if the savings and loan association subsidiary of a holding
company fails to meet the QTL, then such unitary holding company would become
subject to the activities restrictions applicable to multiple holding companies.
At March 31, 1997, the Association met the QTL. See "Qualified Thrift Lender
Test."
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If the Holding Company were to acquire control of another savings
institution, other than through a merger or other business combination with the
Association, the Holding Company would become a multiple savings and loan
holding company. Unless the acquisition is an emergency thrift acquisition and
each subsidiary savings and loan association meets the QTL, the activities of
the Holding Company and any of its subsidiaries (other than the Association or
other subsidiary savings and loan associations) would thereafter be subject to
activity restrictions. The HOLA provides that, among other things, no multiple
savings and loan holding company or subsidiary thereof that is not a savings
institution shall commence or continue for a limited period of time after
becoming a multiple savings and loan holding company or subsidiary thereof, any
business activity other than (i) furnishing or performing management services
for a subsidiary savings institution; (ii) conducting an insurance agency or
escrow business; (iii) holding, managing or liquidating assets owned by or
acquired from a subsidiary savings institution; (iv) holding or managing
properties used or occupied by a subsidiary savings institution; (v) acting as
trustee under deeds of trust; (vi) those activities previously directly
authorized by federal regulation as of March 5, 1987, to be engaged in by
multiple holding companies; or (vii) those activities authorized by the FRB as
permissible for bank holding companies, unless the OTS by regulation prohibits
or limits such activities for savings and loan holding companies, and which have
been approved by the OTS prior to being engaged in by a multiple holding
company.
The OTS may approve an acquisition resulting in the formation of a
multiple savings and loan holding company that controls savings and loan
associations in more than one state only if the multiple savings and loan
holding company involved controls a savings and loan association that operated a
home or branch office in the state of the association to be acquired as of March
5, 1987, or if the laws of the state in which the institution to be acquired is
located specifically permit institutions to be acquired by state-chartered
institutions or savings and loan holding companies located in the state where
the acquiring entity is located (or by a holding company that controls such
state-chartered savings institutions). As under prior law, the OTS may approve
an acquisition resulting in a multiple savings and loan holding company
controlling savings and loan associations in more than one state in the case of
certain emergency thrift acquisitions. Bank holding companies have had more
expansive authority to make interstate acquisitions than savings and loan
holding companies since August 1995.
FDIC REGULATIONS
DEPOSIT INSURANCE. The FDIC is an independent federal agency that
insures the deposits, up to prescribed statutory limits, of federally insured
banks and thrifts and safeguards the safety and soundness of the banking and
thrift industries. The FDIC administers two separate insurance funds, the Bank
Insurance Fund (the "BIF") for commercial banks and state savings banks and the
SAIF for savings associations. The FDIC is required to maintain designated
levels of reserves in each fund. The Association is a member of the SAIF and its
deposit accounts are insured by the FDIC up to the prescribed limits. The FDIC
has examination authority over all insured depository institutions, including
the Association, and has authority to initiate enforcement actions against
federally insured savings associations if the FDIC does not believe the OTS has
taken appropriate action to safeguard safety and soundness and the deposit
insurance fund.
The FDIC is required to maintain designated levels of reserves in each
fund. The FDIC may increase assessment rates for either fund if necessary to
restore the fund's ratio of reserves to insured deposits to its target level
within a reasonable time and may decrease such rates if such target level has
been met. The FDIC has established a risk-based assessment system for both SAIF
and BIF members. Under this system, assessments vary based on the risk the
institution poses to its deposit insurance fund. The risk level is determined
based on the institution's capital level and the FDIC's level of supervisory
concern about the institution.
Because of the differing reserve levels of the funds, deposit insurance
assessments paid by healthy savings associations were reduced significantly
below the level paid by healthy savings associations effective in mid-1995.
Assessments paid by healthy savings associations exceeded those paid by healthy
commercial banks by approximately $.19 per $100 in deposits in late 1995. Such
excess equaled approximately $.23 per $100 in deposits beginning in 1996. This
premium disparity had a negative competitive impact on the Association and other
institutions in the SAIF.
Federal legislation, which was effective September 30, 1996, provided
for the recapitalization of the SAIF by means of a special assessment of $.657
per $100 of SAIF deposits held at March 31, 1995, in order to increase SAIF
reserves to the level required by law. Certain banks holding SAIF deposits are
required to pay the same special assessment on 80% of deposits at March 31,
1995. In addition, the cost of prior thrift failures, which had previously been
paid only by SAIF members, will also be paid by BIF members. As a result, BIF
assessments for healthy banks in 1997 will be $.013 per $100 in deposits, and
SAIF assessments for healthy institutions in 1997 will be $.064 per $100 in
deposits.
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The Association had $29.1 million in deposits at March 31, 1995. The
Association paid a special assessment of $190,000 in November 1996, which was
accounted for and recorded as of September 30, 1996. This assessment is
tax-deductible but has reduced earnings for the year ended December 31, 1996.
FRB REGULATIONS
FRB regulations currently require savings associations to maintain
reserves of 3% of net transaction accounts (primarily NOW accounts) up to $49.3
million (subject to an exemption of up to $4.4 million), and of 10% of net
transaction accounts over $49.3 million. At March 31, 1997, the Association was
in compliance with this reserve requirement.
FEDERAL HOME LOAN BANKS
The FHLBs provide credit to their members in the form of advances. See
"THE BUSINESS OF THE ASSOCIATION - Deposits and Borrowings." The Association is
a member of the FHLB of Cincinnati and must maintain an investment in the
capital stock of the FHLB of Cincinnati in an amount equal to the greater of 1%
of the aggregate outstanding principal amount of the Association's residential
mortgage loans, home purchase contracts, and similar obligations at the
beginning of each year, and 5% of its advances from the FHLB. The Association is
in compliance with this requirement with an investment in stock of the FHLB of
Cincinnati of $329,800 at March 31, 1997.
Upon the origination or renewal of a loan or advance, the FHLB of
Cincinnati is required by law to obtain and maintain a security interest in
collateral in one or more of the following categories: fully disbursed, whole
first mortgage loans on improved residential property or securities representing
a whole interest in such loans; securities issued, insured or guaranteed by the
U.S. Government or an agency thereof; deposits in any FHLB; or other real estate
related collateral (up to 30% of the member association's capital) acceptable to
the applicable FHLB, if such collateral has a readily ascertainable value and
the FHLB can perfect its security interest in the collateral.
Each FHLB is required to establish standards of community investment or
service that its members must maintain for continued access to long-term
advances from the FHLBs. The standards take into account a member's performance
under the Community Reinvestment Act and its record of lending to first-time
home buyers.
All long-term advances by each FHLB must be made only to provide funds for
residential housing finance.
TAXATION
FEDERAL TAXATION
The Holding Company and the Association are each subject to the federal
tax laws and regulations which apply to corporations generally. In addition to
the regular income tax, the Holding Company and the Association are subject to a
minimum tax. An alternative minimum tax is imposed at a minimum tax rate of 20%
on "alternative minimum taxable income" (which is the sum of a corporation's
regular taxable income, with certain adjustments, and tax preference items),
less any available exemption. Such tax preference items include interest on
certain tax-exempt bonds issued after August 7, 1986. In addition, 75% of the
amount by which a corporation's "adjusted current earnings" exceeds its
alternative minimum taxable income computed without regard to this preference
item and prior to reduction by net operating losses, is included in alternative
minimum taxable income. Net operating losses can offset no more than 90% of
alternative minimum taxable income. The alternative minimum tax is imposed to
the extent it exceeds the corporation's regular income tax. Payments of
alternative minimum tax may be used as credits against regular tax liabilities
in future years. In addition, for taxable years after 1986 and before 1996, the
Association is also subject to an environmental tax equal to 0.12% of the excess
of alternative minimum taxable income for the taxable year (determined without
regard to net operating losses and the deduction for the environmental tax) over
$2.0 million.
Prior to the enactment of the Small Business Jobs Protection Act (the
"Act"), which was signed into law on August 21, 1996, certain thrift
institutions, including the Association, were allowed deductions for bad debts
under methods more favorable than those granted to other taxpayers. Qualified
thrift institutions could compute deductions for bad debts using either the
specific charge off method of Section 166 of the Code, or one of the two reserve
methods of Section 593 of the Code. The reserve methods under Section 593 of the
Code permitted a thrift institution annually to elect to deduct bad debts under
either (i) the "percentage of taxable income" method applicable only to thrift
institutions, or (ii) the "experience" method that also was available to small
banks. Under the "percentage of taxable income" method, a thrift institution
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generally was allowed a deduction for an addition to its bad debt reserve equal
to 8% of its taxable income (determined without regard to this deduction and
with additional adjustments). Under the experience method, a thrift institution
was generally allowed a deduction for an addition to its bad debt reserve equal
to the greater of (i) an amount based on its actual average experience for
losses in the current and five preceding taxable years, or (ii) an amount
necessary to restore the reserve to its balance as of the close of the base
year. A thrift institution could elect annually to compute its allowable
addition to bad debt reserves for qualifying loans either under the experience
method or the percentage of taxable income method. For tax years 1995, 1994 and
1993, the Association used the percentage of taxable income method because such
method provided a higher bad debt deduction than the experience method.
The Act eliminated the percentage of taxable income reserve method of
accounting for bad debts by thrift institutions, effective for taxable years
beginning after 1995. Thrift institutions that would be treated as small banks
are allowed to utilize the experience method applicable to such institutions,
while thrift institutions that are treated as large banks are required to use
only the specific charge off method.
A thrift institution required to change its method of computing
reserves for bad debt will treat such change as a change in the method of
accounting, initiated by the taxpayer, and having been made with the consent of
the Secretary of the Treasury. Section 481(a) of the Code requires certain
amounts to be recaptured with respect to such change. Generally, the amounts to
be recaptured will be determined solely with respect to the "applicable excess
reserves" of the taxpayer. The amount of the applicable excess reserves will be
taken into account ratably over a six-taxable year period, beginning with the
first taxable year beginning after 1995, subject to the residential loan
requirement described below. In the case of a thrift institution that becomes a
large bank, the amount of the institution's applicable excess reserves generally
is the excess of (i) the balances of its reserve for losses on qualifying real
property loans (generally loans secured by improved real estate) and its reserve
for losses on nonqualifying loans (all other types of loans) as of the close of
its last taxable year beginning before January 1, 1996, over (ii) the balances
of such reserves as of the close of its last taxable year beginning before
January 1, 1988 (i.e., the "pre-1988 reserves"). In the case of a thrift
institution that becomes a small bank, the amount of the institution's
applicable excess reserves generally is the excess of (i) the balances of its
reserve for losses on qualifying real property loans and its reserve for losses
on nonqualifying loans as of the close of its last taxable year beginning before
January 1, 1996, over (ii) the greater of the balance of (a) its pre-1988
reserves or (b) what the thrift's reserves would have been at the close of its
last year beginning before January 1, 1996, had the thrift always used the
experience method.
For taxable years that begin after December 31, 1995, and before
January 1, 1998, if a thrift meets the residential loan requirement for a tax
year, the recapture of the applicable excess reserves otherwise required to be
taken into account as a Code Section 481(a) adjustment for the year will be
suspended. A thrift meets the residential loan requirement if, for the tax year,
the principal amount of residential loans made by the thrift during the year is
not less then its base amount. The "base amount" generally is the average of the
principal amounts of the residential loans made by the thrift during the six
most recent tax years beginning before January 1, 1996. A residential loan is a
loan as described in Section 7701(a)(19)(C)(v) (generally a loan secured by
residential real and church property and certain mobile homes), but only to the
extent that the loan is made to the owner of the property.
The balance of the pre-1988 reserves is subject to the provisions of
Section 593(e) as modified by the Act which require recapture in the case of
certain excessive distributions to shareholders. The pre-1988 reserves may not
be utilized for payment of cash dividends or other distributions to a
shareholder (including distributions in dissolution or liquidation) or for any
other purpose (excess to absorb bad debt losses). Distribution of a cash
dividend by a thrift institution to a shareholder is treated as made: first, out
of the institution's post-1951 accumulated earnings and profits; second, out of
the pre-1988 reserves; and third, out of such other accounts as may be proper.
To the extent a distribution by the Association to the Holding Company is deemed
paid out of its pre-1988 reserves under these rules, the pre-1988 reserves would
be reduced and the Association's gross income for tax purposes would be
increased by the amount which, when reduced by the income tax, if any,
attributable to the inclusion of such amount in its gross income, equals the
amount deemed paid out of the pre-1988 reserves. As of March 31, 1997, the
Association's pre-1988 reserves for tax purposes totaled approximately $800,000.
The Association believes it had approximately $4.0 million of accumulated
earnings and profits for tax purposes as of March 31, 1997, which would be
available for dividend distributions, provided regulatory restrictions
applicable to the payment of dividends are met. See "REGULATION - Federal
Regulations -- Limitations on Capital Distributions." No representation can be
made as to whether the Association will have current or accumulated earnings and
profits in subsequent years.
The tax returns of the Association have been audited or closed without
audit through fiscal year 1992. In the opinion of management, any examination of
open returns would not result in a deficiency which could have a material
adverse effect on the financial condition of the Association.
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OHIO TAXATION
The Holding Company is subject to the Ohio corporation franchise tax,
which, as applied to the Holding Company, is a tax measured by both net earnings
and net worth. The rate of tax is the greater of (i) 5.1% on the first $50,000
of computed Ohio taxable income and 8.9% of computed Ohio taxable income in
excess of $50,000 and (ii) 0.582% times taxable net worth.
In computing its tax under the net worth method, the Holding Company
may exclude 100% of its investment in the capital stock of the Association after
the Conversion, as reflected on the balance sheet of the Holding Company, as
long as it owns at least 25% of the issued and outstanding capital stock of the
Association. The calculation of the exclusion from net worth is based on the
ratio of the excludable investment (net of any appreciation or goodwill included
in such investment) to total assets multiplied by the net value of the stock. As
a holding company, the Holding Company may be entitled to various other
deductions in computing taxable net worth that are not generally available to
operating companies.
A special litter tax is also applicable to all corporations, including
the Holding Company, subject to the Ohio corporation franchise tax other than
"financial institutions." If the franchise tax is paid on the net income basis,
the litter tax is equal to .11% of the first $50,000 of computed Ohio taxable
income and .22% of computed Ohio taxable income in excess of $50,000. If the
franchise tax is paid on the net worth basis, the litter tax is equal to .014%
times taxable net worth.
The Association is a "financial institution" for State of Ohio tax
purposes. As such, it is subject to the Ohio corporate franchise tax on
"financial institutions," which is imposed annually at a rate of 1.5% of the
Association's book net worth determined in accordance with GAAP. As a "financial
institution," the Association is not subject to any tax based upon net income or
net profits imposed by the State of Ohio.
THE CONVERSION
THE OTS AND THE DIVISION HAVE APPROVED THE PLAN, SUBJECT TO THE
APPROVAL OF THE PLAN BY THE MEMBERS OF THE ASSOCIATION ENTITLED TO VOTE ON THE
PLAN AND SUBJECT TO THE SATISFACTION OF CERTAIN OTHER CONDITIONS IMPOSED BY THE
OTS AND THE DIVISION. OTS AND DIVISION APPROVAL DOES NOT CONSTITUTE A
RECOMMENDATION OR ENDORSEMENT OF THE PLAN.
GENERAL
On March 24, 1997, the Board of Directors of the Association
unanimously adopted the Plan and recommended that the voting members of the
Association approve the Plan at the Special Meeting. During and upon completion
of the Conversion, the Association will continue to provide the services
presently offered to depositors and borrowers, will maintain its existing
offices, and will retain its existing management and employees.
Based on the current Valuation Range, between 573,750 and 776,250
Common Shares are expected to be offered in the Subscription Offering and the
Community Offering at a price of $10 per share. Applicable regulations permit
the Holding Company to offer additional Common Shares in an amount not to exceed
15% above the maximum of the Valuation Range, which would permit the issuance of
up to 892,687 Common Shares with an aggregate purchase price of $8,926,870.
Federal regulations require, with certain exceptions, that shares offered in
connection with the Conversion must be sold up to at least the minimum point of
the Valuation Range in order for the Conversion to become effective. The actual
number of Common Shares sold in connection with the Conversion will be
determined upon completion of the Offering based on the final valuation of the
Association, as converted. See "Pricing and Number of Common Shares to be Sold."
The Common Shares will be offered in the Subscription Offering to the
ESOP and certain present and former depositors of the Association. Any Common
Shares not subscribed for in the Subscription Offering will be offered to the
general public in the Community Offering in a manner which will seek to achieve
the widest distribution of the Common Shares, but which will give preference to
natural persons residing in Belmont County, Ohio. Under OTS regulations, the
Community Offering must be completed within 45 days after completion of the
Subscription Offering, unless such period is extended by the Association with
the approval of the OTS and the Division. If the Community Offering is
determined not to
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be feasible, an occurrence that is not currently anticipated, the Boards of
Directors of the Holding Company and the Association will consult with the OTS
and the Division to determine an appropriate alternative method of selling
unsubscribed Common Shares up to the minimum of the Valuation Range. No
alternative sales methods are currently planned.
OTS and Ohio regulations require the completion of the Conversion
within 24 months after the date of the approval of the Plan by the voting
members of the Association. The commencement and completion of the Conversion
will be subject to market conditions and other factors beyond the Association's
control. Due to changing economic and market conditions, no assurance can be
given as to the length of time that will be required to complete the sale of the
Common Shares. If delays are experienced, significant changes may occur in the
estimated pro forma market value of the Association. In such circumstances, the
Association may also incur substantial additional printing, legal and accounting
expenses in completing the Conversion. In the event the Conversion is not
successfully completed, the Association will be required to charge all
Conversion expenses against current earnings.
REASONS FOR THE CONVERSION
The principal factors considered by the Association's Board of
Directors in reaching the decision to pursue a mutual-to-stock conversion were
the numerous competitive advantages which the stock form of organization offers,
including growth opportunities, employee retention, and increased capital
levels.
If the Association is to continue to grow and prosper, the mutual form
of organization is the least desirable form from a competitive standpoint. The
opportunities for a mutual to expand through mutual-to-mutual mergers or
acquisitions are limited. Although the Association does not have any specific
acquisitions planned at this time, the Conversion will position the Association
to take advantage of any acquisition opportunities which may present themselves.
Because a conversion to stock form is a time-consuming and complex process, the
Association cannot wait until an acquisition is imminent to embark on the
conversion process.
As an increasing number of the Association's competitors convert to
stock form and acquire the ability to use stock-based compensation programs, the
Association, in mutual form, would be at a disadvantage when it comes to
attracting and retaining qualified management. The Association believes that the
ESOP, the Stock Option Plan and the RRP are important tools in achieving such
goals, even though the Association will be required to wait until after the
Conversion to implement the Stock Option Plan and the RRP. See "MANAGEMENT -
Stock Benefit Plans."
PRINCIPAL EFFECTS OF THE CONVERSION
VOTING RIGHTS. Deposit holders who are members of the Association in
its mutual form will have no voting rights in the Association as converted and
will not participate, therefore, in the election of directors or otherwise
control the Association's affairs. Voting rights in the Holding Company will be
held exclusively by its shareholders, and voting rights in the Association will
be held exclusively by the Holding Company as the sole shareholder of the
Association. Each holder of the Holding Company's common shares will be entitled
to one vote for each share owned on any matter to be considered by the Holding
Company's shareholders. See "DESCRIPTION OF AUTHORIZED SHARES."
DEPOSIT ACCOUNTS AND LOANS. Deposit accounts in the Association, as
converted, will be equivalent in amount, interest rate and other terms to the
present deposit accounts in the Association, and the existing FDIC insurance on
such accounts will not be affected by the Conversion. The Conversion will not
affect the terms of loan accounts or the rights and obligations of borrowers
under their individual contractual arrangements with the Association.
TAX CONSEQUENCES. The consummation of the Conversion is expressly
conditioned on receipt by the Association of a private letter ruling from the
IRS or an opinion of counsel to the effect that the Conversion will constitute a
tax-free reorganization as defined in Section 368(a) of the Code. The
Association intends to proceed with the Conversion based upon an opinion
received from its special counsel, Vorys, Sater, Seymour and Pease, to the
following effect:
(1) The Conversion constitutes a reorganization within the
meaning of Section 368(a)(1)(F) of the Code, and no gain or loss will
be recognized by the Association in its mutual form or in its stock
form as a result of
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the Conversion. The Association in its mutual form and the Association
in its stock form will each be a "party to a reorganization" within the
meaning of Section 368(b) of the Code;
(2) No gain or loss will be recognized by the Association upon
the receipt of money from the Holding Company in exchange for the
capital stock of the Association, as converted;
(3) The assets of the Association will have the same basis in
its hands immediately after the Conversion as they had in its hands
immediately prior to the Conversion, and the holding period of the
assets of the Association after the Conversion will include the period
during which the assets were held by the Association before the
Conversion;
(4) No gain or loss will be recognized by the deposit account
holders of the Association upon the issuance to them, in exchange for
their respective withdrawable deposit accounts in the Association
immediately prior to the Conversion, of withdrawable deposit accounts
in the Association immediately after the Conversion, in the same dollar
amount as their withdrawable deposit accounts in the Association
immediately prior to the Conversion, plus, in the case of Eligible
Account Holders and Supplemental Eligible Account Holders, the
interests in the Liquidation Account of the Association, as described
below;
(5) The basis of the withdrawable deposit accounts in the
Association held by its deposit account holders immediately after the
Conversion will be the same as the basis of their deposit accounts in
the Association immediately prior to the Conversion. The basis of the
interests in the Liquidation Account received by the Eligible Account
Holders and Supplemental Eligible Account Holders will be zero. The
basis of the nontransferable subscription rights received by Eligible
Account Holders, Supplemental Eligible Account Holders and Other
Eligible Members will be zero (assuming that at distribution such
rights have no ascertainable fair market value);
(6) No gain or loss will be recognized by Eligible Account
Holders, Supplemental Eligible Account Holders or Other Eligible
Members upon the distribution to them of nontransferable subscription
rights to purchase Common Shares (assuming that at distribution such
rights have no ascertainable fair market value), and no taxable income
will be realized by such Eligible Account Holders, Supplemental
Eligible Account Holders or Other Eligible Members as a result of their
exercise of such nontransferable subscription rights;
(7) The basis of the Common Shares purchased by members of the
Association pursuant to the exercise of subscription rights will be the
purchase price thereof (assuming that such rights have no ascertainable
fair market value and that the purchase price is not less than the fair
market value of the shares on the date of such exercise), and the
holding period of such shares will commence on the date of such
exercise. The basis of the Common Shares purchased other than by the
exercise of subscription rights will be the purchase price thereof
(assuming in the case of the other subscribers that the opportunity to
buy in the Subscription Offering has no ascertainable fair market
value), and the holding period of such shares will commence on the day
after the date of the purchase;
(8) For purposes of Section 381 of the Code, the Association
will be treated as if there had been no reorganization. The taxable
year of the Association will not end on the effective date of the
Conversion. Immediately after the Conversion, the Association in its
stock form will succeed to and take into account the tax attributes of
the Association in its mutual form immediately prior to the Conversion,
including the Association's earnings and profits or deficit in earnings
and profits;
(9) The bad debt reserves of the Association in its mutual
form immediately prior to the Conversion will not be required to be
restored to the gross income of the Association in its stock form as a
result of the Conversion and immediately after the Conversion such bad
debt reserves will have the same character in the hands of the
Association in its stock form as they would have had if there had been
no Conversion. The Association in its stock form will succeed to and
take into account the dollar amounts of those accounts of the
Association in its mutual form which represent bad debt reserves in
respect of which the Association in its mutual form has taken a bad
debt deduction for taxable years ending on or before the Conversion;
and
(10) Regardless of book entries made for the creation of the
Liquidation Account, the Conversion will not diminish the accumulated
earnings and profits of the Association available for the subsequent
distribution of dividends within the meaning of Section 316 of the
Code. The creation of the Liquidation Account on the records
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of the Association will have no effect on its taxable income,
deductions for additions to reserves for bad debts under Section 593 of
the Code or distributions to stockholders under Section 593(e) of the
Code.
For Ohio tax purposes, the tax consequences of the Conversion
will be as follows:
(1) The Association is a "financial institution" for State of
Ohio tax purposes, and the Conversion will not change such status;
(2) The Association is subject to the Ohio corporate franchise
tax on "financial institutions," which is imposed annually at a rate of
1.5% of the Association's equity capital determined in accordance with
GAAP, and the Conversion will not change such status;
(3) As a "financial institution," the Association is not
subject to any tax based upon net income or net profit imposed by the
State of Ohio, and the Conversion will not change such status;
(4) The Conversion will not be a taxable transaction to the
Association in its mutual or stock form for purposes of the Ohio
corporate franchise tax. As a consequence of the Conversion, however,
the annual Ohio corporate franchise tax liability of the Association
will increase if the taxable net worth of the Association (i.e., book
net worth computed in accordance with GAAP at the close of the
Association's taxable year for federal income tax purposes) increases
thereby; and
(5) The Conversion will not be a taxable transaction to any
deposit account holder or borrower member of the Association in its
mutual or stock form for purposes of the Ohio corporate franchise tax
and the Ohio personal income tax.
The Association has received an opinion from RP Financial to the effect
that the subscription rights have no ascertainable fair market value because the
rights are received by specified persons at no cost, may not be transferred and
are of short duration. The IRS could challenge the assumption that the
subscription rights have no ascertainable fair market value.
Each Eligible Account Holder, Supplemental Eligible Account Holder and
Other Eligible Member is urged to consult his or her own tax advisor with
respect to the affect of such tax consequences on his or her own particular
facts and circumstances.
LIQUIDATION ACCOUNT. In the unlikely event of a complete liquidation of
the Association in its present mutual form, each depositor in the Association
would receive a pro rata share of any assets of the Association remaining after
payment of the claims of all creditors, including the claims of all depositors
to the withdrawable value of their deposit accounts. A depositor's pro rata
share of such remaining assets would be the same proportion of such assets as
the value of such depositor's accounts bears to the total aggregate value of all
deposits in the Association at the time of liquidation.
In the event of a complete liquidation of the Association in its stock
form after the Conversion, each depositor would have a claim of the same general
priority as the claims of all other general creditors of the Association. Except
as described below, each depositor's claim would be solely in the amount of the
balance in such depositor's account plus accrued interest. The depositor would
have no interest in the assets of the Association above that amount. Such assets
would be distributed to the Holding Company as the sole shareholder of the
Association.
For the purpose of granting a limited priority claim to the assets of
the Association in the event of a complete liquidation thereof to Eligible
Account Holders and Supplemental Eligible Account Holders who continue to
maintain deposit accounts at the Association after the Conversion, the
Association will, at the time of Conversion, establish a liquidation account in
an amount equal to the retained earnings of the Association as of March 31, 1997
(the "Liquidation Account"). The Liquidation Account will not operate to
restrict the use or application of any of the regulatory capital of the
Association.
Each Eligible Account Holder and Supplemental Eligible Account Holder
will have a separate inchoate interest (the "Subaccount") in a portion of the
Liquidation Account for Qualifying Deposits held on the Eligibility Record Date
or the Supplemental Eligibility Record Date.
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The balance of each initial Subaccount shall be an amount determined by
multiplying the amount in the Liquidation Account by a fraction, the numerator
of which is the closing balance in the account holder's account as of the close
of business on the Eligibility Record Date or the Supplemental Eligibility
Record Date, as the case may be, and the denominator of which is the total
amount of all Qualifying Deposits of Eligible Account Holders and Supplemental
Eligible Account Holders on the corresponding record date. The balance of each
Subaccount may be decreased but will never be increased. If, at the close of
business on the last day of each fiscal year of the Holding Company subsequent
to the respective record dates, the balance in the deposit account to which a
Subaccount relates is less than the lesser of (i) the deposit balance in such
deposit account at the close of business on the last day of any other annual
closing date subsequent to the Eligibility Record Date or the Supplemental
Eligibility Record Date, or (ii) the amount of the Qualifying Deposit as of the
Eligibility Record Date or the Supplemental Eligibility Record Date, the balance
of the Subaccount for such deposit account shall be adjusted proportionately to
the reduction in such deposit account balance. In the event of any such downward
adjustment, such Subaccount balance shall not be subsequently increased
notwithstanding any increase in the deposit balance of the related deposit
account. If any deposit account is closed, its related Subaccount shall be
reduced to zero upon such closing.
In the event of a complete liquidation of the converted Association
(and only in such event), each Eligible Account Holder and Supplemental Eligible
Account Holder shall receive from the Liquidation Account a distribution equal
to the current balance in each of such account holder's Subaccounts before any
liquidation distribution may be made to the Holding Company as the sole
shareholder of the Association. Any assets remaining after satisfaction of such
liquidation rights and the claims of the Association's creditors would be
distributed to the Holding Company as the sole shareholder of the Association.
No merger, consolidation, purchase of bulk assets or similar combination or
transaction with another financial institution, the deposits of which are
insured by the FDIC, will be deemed to be a complete liquidation for this
purpose and, in any such transaction, the Liquidation Account shall be assumed
by the surviving institution.
COMMON SHARES. SHARES ISSUED UNDER THE PLAN CANNOT AND WILL NOT BE
INSURED BY THE FDIC. For a description of the characteristics of the Common
Shares, see "DESCRIPTION OF AUTHORIZED SHARES."
INTERPRETATION AND AMENDMENT OF THE PLAN
To the extent permitted by law, all interpretations of the Plan by the
Boards of Directors of the Holding Company and the Association will be final.
The Plan may be amended by the Boards of Directors of the Holding Company and
the Association at any time with the concurrence of the OTS and the Division. If
the Association and the Holding Company determine, upon advice of counsel and
after consultation with the OTS and the Division, that any such amendment is
material, subscribers will be notified of the amendment and will be provided the
opportunity to affirm, increase, decrease or cancel their subscriptions. Any
person who does not affirmatively elect to continue his subscription or elects
to rescind his subscription before the date specified in the notice will have
all of his funds promptly refunded with interest. Any person who elects to
decrease his subscription will have the appropriate portion of his funds
promptly refunded with interest.
CONDITIONS AND TERMINATION
The completion of the Conversion requires the approval of the Plan and
the adoption of the Amended Articles of Incorporation and the Amended
Constitution by the voting members of the Association at the Special Meeting and
the completion of the sale of the requisite amount of Common Shares within 24
months following the date of such approval. If these conditions are not
satisfied, the Plan will automatically terminate and the Association will
continue its business in the mutual form of organization. The Plan may be
voluntarily terminated by the Board of Directors at any time before the Special
Meeting and at any time thereafter with the approval of the OTS and the
Division.
SUBSCRIPTION OFFERING
THE SUBSCRIPTION OFFERING WILL EXPIRE AT NOON, BRIDGEPORT, OHIO TIME,
ON _______, 1997. SUBSCRIPTION RIGHTS NOT EXERCISED BEFORE NOON, BRIDGEPORT,
OHIO TIME, ON _____________, 1997, WILL BE VOID, WHETHER OR NOT THE ASSOCIATION
HAS BEEN ABLE TO LOCATE EACH PERSON ENTITLED TO SUCH SUBSCRIPTION RIGHTS.
Nontransferable subscription rights to purchase Common Shares are being
issued at no cost to all eligible persons and entities in accordance with the
preference categories established by the Plan, as described below. EACH
SUBSCRIPTION RIGHT MAY BE EXERCISED ONLY BY THE PERSON TO WHOM IT IS ISSUED AND
ONLY FOR HIS OR HER OWN ACCOUNT
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AND THAT HE OR SHE HAS NO AGREEMENT OR UNDERSTANDING WITH ANY OTHER PERSON FOR
THE SALE OR TRANSFER OF THE COMMON SHARES. ANY PERSON WHO ATTEMPTS TO TRANSFER
HIS OR HER SUBSCRIPTION RIGHTS MAY BE SUBJECT TO PENALTIES AND SANCTIONS,
INCLUDING LOSS OF THE SUBSCRIPTION RIGHTS.
The number of Common Shares which a person who has subscription rights
may purchase will be determined, in part, by the total number of Common Shares
to be issued and the availability of Common Shares for purchase under the
preference categories set forth in the Plan and certain other limitations. See
"Limitations on Purchases of Common Shares." The sale of any Common Shares
pursuant to subscriptions received is contingent upon approval of the Plan by
the voting members of the Association at the Special Meeting.
The preference categories and preliminary purchase limitations which
have been established by the Plan, in accordance with applicable regulations,
for the allocation of Common Shares are as follows:
(a) Each Eligible Account Holder shall receive, without
payment therefor, a nontransferable right to purchase up to 14,000
Common Shares in the Subscription Offering, subject to the overall
purchase limitations set forth in Section 10 of the Plan and subject to
adjustment by the Board of Directors of the Holding Company and the
Association as set forth in Section 10 of the Plan. If the exercise of
subscription rights by Eligible Account Holders results in an
over-subscription, Common Shares will be allocated among subscribing
Eligible Account Holders in a manner which will, to the extent
possible, make the total allocation of each subscriber equal 100 shares
or the amount subscribed for, whichever is less. Any Common Shares
remaining after such allocation has been made will be allocated among
the subscribing Eligible Account Holders whose subscriptions remain
unfilled in the proportion which the amount of their respective
Qualifying Deposits on the Eligibility Record Date bears to the total
Qualifying Deposits of all Eligible Account Holders on such date.
Notwithstanding the foregoing, Common Shares in excess of 776,250, the
maximum of the Valuation Range, may be sold to the ESOP before fully
satisfying the subscriptions of Eligible Account Holders. No fractional
shares will be issued. For purposes of this paragraph (a), increases in
the Qualifying Deposits of directors and executive officers of the
Association during the twelve months preceding the Eligibility Record
Date shall not be considered.
(b) The ESOP shall receive, without payment therefor, a
nontransferable right to purchase in the Subscription Offering an
aggregate amount of up to 10% of the Common Shares sold in the
Conversion, provided that shares remain available after satisfying the
subscription rights of Eligible Account Holders up to the maximum of
the Valuation Range pursuant to paragraph (a) above. Although the Plan
and OTS regulations permit the ESOP to purchase up to 10% of the Common
Shares, the Holding Company anticipates that the ESOP will purchase 8%
of the Common Shares. If the ESOP is unable to purchase all or part of
the Common Shares for which it subscribes, the ESOP may purchase Common
Shares on the open market or may purchase authorized but unissued
Common Shares. If the ESOP purchases authorized but unissued Common
Shares, such purchases could have a dilutive effect on the interests of
the Holding Company's shareholders. See "RISK FACTORS - Potential
Impact of Benefit Plans on Net Earnings and Shareholders' Equity."
(c) Provided that shares remain available after satisfying the
subscription rights of Eligible Account Holders and the ESOP pursuant
to paragraphs (a) and (b) above each Supplemental Eligible Account
Holder will receive, without payment therefor, a nontransferable right
to purchase up to 14,000 Common Shares, subject to the overall purchase
limitations set forth in Section 10 of the Plan and subject to
adjustment by the Board of Directors of the Holding Company and the
Association as set forth in Section 10 of the Plan. If the exercise of
subscription rights by Supplemental Eligible Account Holders results in
an oversubscription, Common Shares will be allocated among subscribing
Supplemental Eligible Account Holders in a manner which will, to the
extent possible, make the total allocation of each subscriber equal 100
shares or the amount subscribed for, whichever is less. Any Common
Shares remaining after such allocation has been made will be allocated
among the subscribing Supplemental Eligible Account Holders whose
subscriptions remain unfilled in the proportion which the amount of
their respective Qualifying Deposits on the Supplemental Eligibility
Record Date bears to the total Qualifying Deposits of all Supplemental
Eligible Account Holders on such date. No fractional shares will be
issued.
(d) Provided that shares remain available after satisfying the
subscription rights of Eligible Account Holders, the ESOP and
Supplemental Eligible Account Holders pursuant to paragraphs (a), (b)
and (c) above, each Other Eligible Member, other than an Eligible
Account Holder or Supplemental Eligible Account Holder, shall receive,
without payment therefor, a nontransferable right to purchase up to
14,000 Common Shares in the Community Offering, subject to adjustment
by the Boards of Directors of the Association and the Holding
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Company. In the event of an oversubscription by Other Eligible Members,
the available Common Shares will be allocated among subscribing Other
Eligible Members in the same proportion that their subscriptions bear
to the total amount of subscriptions by all Other Eligible Members;
provided, however, that, to the extent sufficient Common Shares are
available, each subscribing Other Eligible Member shall receive 25
Common Shares before the remaining available Common Shares are
allocated.
The Board of Directors may reject any one or more subscriptions if,
based upon the Board of Directors' interpretation of applicable regulations,
such subscriber is not entitled to the shares for which he or she has subscribed
or if the sale of shares subscribed for would be in violation of any applicable
statutes, regulations, or rules.
The Association will make reasonable efforts to comply with the
securities laws of all states in the United States in which persons having
subscription rights reside. However, no such person will be offered or receive
any Common Shares under the Plan who resides in a foreign country or in a state
of the United States with respect to which each of the following apply: (i) a
small number of persons otherwise eligible to subscribe for shares under the
Plan resides in such country or state; (ii) under the securities laws of such
country or state, the granting of subscription rights or the offer or sale of
Common Shares to such persons would require the Holding Company or its officers
or directors to register as a broker or dealer or to register or otherwise
qualify its securities for sale in such country or state; and (iii) such
registration or qualification would be impracticable for reasons of cost or
otherwise.
The term "resident," as used herein with respect to the Subscription
Offering, means any person who, on the date of submission of a Stock Order Form,
maintained a bona fide residence within a jurisdiction in which the Common
Shares are being offered for sale. If a person is a business entity, the
person's residence shall be the location of the principal place of business. If
the person is a personal benefit plan, the residence of the beneficiary shall be
the residence of the plan. In the case of all other benefit plans, the residence
of the trustee shall be the residence of the plan. In all cases, the
determination of a subscriber's residency shall be in the sole discretion of the
Association and the Holding Company.
COMMUNITY OFFERING
To the extent Common Shares remain available after the satisfaction of
all subscriptions received in the Subscription Offering, the Association is
hereby offering Common Shares in the Community Offering subject to the
limitations set forth below. If subscriptions are received in the Subscription
Offering for up to 892,687 Common Shares, Common Shares may not be available in
the Community Offering. All sales of the Common Shares in the Community Offering
will be at the same price per share as in the Subscription Offering.
THE COMMUNITY OFFERING WILL BE TERMINATED ON OR BEFORE ______, 1997,
UNLESS EXTENDED BY THE ASSOCIATION AND THE HOLDING COMPANY WITH THE APPROVAL OF
THE OTS AND THE DIVISION, IF NECESSARY. IN ACCORDANCE WITH THE PLAN, THE
OFFERING MAY NOT BE EXTENDED BEYOND _________, 1999.
In the event shares are available for the Community Offering, each
person, together with any Associate or groups Acting in Concert, may purchase in
the Community Offering up to 14,000 Common Shares. If an insufficient number of
Common Shares is available to fill all of the orders received in the Community
Offering, the available Common Shares will be allocated in a manner to be
determined by the Boards of Directors of the Holding Company and the
Association, subject to the following:
(i) Preference will be given to natural persons who are
residents of Belmont County, Ohio, the county in which the offices of
the Association are located;
(ii) Orders received in the Community Offering will first be
filled up to 2% of the total number of Common Shares offered, with any
remaining shares allocated on an equal number of shares per order basis
until all orders have been filled; and
(iii) The right of any person to purchase Common Shares in the
Community Offering is subject to the right of the Holding Company and
the Association to accept or reject such purchases in whole or in part.
The term "resident," as used herein with respect to the Community
Offering, means any natural person who, on the date of submission of a Stock
Order Form, maintains a bona fide residence within, as appropriate, Belmont
County, Ohio, or a jurisdiction in which the Common Shares are being offered for
sale.
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LIMITATIONS ON PURCHASES OF COMMON SHARES
The Plan provides for certain additional limitations to be placed upon
the purchase of Common Shares. To the extent Common Shares are available, the
minimum number of Common Shares that may be purchased by any party is 25, or
$250. No fractional shares will be issued. Purchases in the Offering are further
subject to the limitation that no person, together with his or her Associates
and other persons Acting in Concert with him or her, may purchase more than
14,000 Common Shares in the Offering. In connection with the exercise of
subscription rights arising from a deposit account in which two or more persons
have an interest, the aggregate maximum number of Common Shares which the
persons having an interest in such account may purchase is 14,000 Common Shares
in the Offering. Such limitations do not apply to the ESOP. Subject to
applicable regulations, the purchase limitation may be increased or decreased
after the commencement of the Offering by the Boards of Directors.
Purchases of Common Shares in the Offering are also subject to the
change in control regulations which restrict direct and indirect purchases of
10% or more of the stock of any savings association by any person or group of
persons acting in concert, under certain circumstances. See "RESTRICTIONS ON
ACQUISITION OF THE HOLDING COMPANY AND THE ASSOCIATION AND RELATED ANTI-TAKEOVER
PROVISIONS - Federal Law and Regulation."
After the Conversion, Common Shares, except for Common Shares purchased
by affiliates of the Holding Company and the Association, will be freely
transferable, subject to OTS and Division regulations.
PLAN OF DISTRIBUTION
The offering of the Common Shares is made only pursuant to this
Prospectus, which is available at the offices of the Association. See
"ADDITIONAL INFORMATION." Officers and directors of the Association will be
available to answer questions about the Conversion and may also hold
informational meetings for interested persons. Such officers and directors will
not be permitted to make statements about the Holding Company or the Association
unless such information is also set forth in this Prospectus, nor will they
render investment advice. The Holding Company will rely on Rule 3a4-1 under the
Securities Exchange Act of 1934 (the "Exchange Act"), and sales of Common Shares
will be conducted within the requirements of Rule 3a4-1, which will permit
officers, directors and employees of the Holding Company and the Association to
participate in the sale of Common Shares. No officer, director or employee of
the Holding Company or the Association will be compensated in connection with
his participation by the payment of commissions or other remuneration based
either directly or indirectly on the transactions in the Common Shares.
To assist the Holding Company and the Association in marketing the
Common Shares, the Holding Company and the Association have retained Webb, a
broker-dealer registered with the SEC and a member of the National Association
of Securities Dealers, Inc. ("NASD"). Webb will assist the Association in (i)
training and educating the Association's employees regarding the mechanics and
regulatory requirements of the conversion process; (ii) conducting information
meetings for subscribers and other potential purchasers; and (iii) keeping
records of all stock subscriptions. For providing these services, the
Association has agreed to pay Webb (a) a management fee of $25,000, all of which
has been paid, and (b) a marketing fee of 1.5% of the aggregate dollar amount of
Common Shares sold in the Subscription Offering and the Community Offering,
excluding shares sold by Selected Brokers, if any, and shares purchased by the
ESOP and directors, officers, and employees of the Association and members of
their immediate families.
The Association has also agreed to reimburse Webb for its reasonable
legal fees and disbursements. The Association and the Holding Company have also
agreed to indemnify Webb, under certain circumstances, against liabilities and
expenses (including legal fees) arising out of or based upon untrue statements
or omissions contained in the materials used in the Offering or in various
documents submitted to regulatory authorities in respect of the Conversion,
including liabilities under the Securities Act of 1933, as amended (the "Act"),
unless such untrue statement or omission, or alleged untrue statement or
omission, was made in reliance upon certain information furnished to the
Association by Webb expressly for use in the Summary Proxy Statement or this
Prospectus.
SELECTED BROKERS
If Common Shares remain available after the satisfaction of all
subscriptions received in the Subscription Offering, Webb may enter into an
agreement with other NASD member firms ("Selected Brokers") to assist in the
sale of Common Shares in the Community Offering. If Selected Brokers are used,
Webb will receive commissions of no more than 5.5% of
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the aggregate purchase price of the Common Shares sold in the Community Offering
by the Selected Brokers, and Webb will pay to the Selected Brokers a portion of
the 5.5% commission pursuant to selected dealer agreements. During the Community
Offering, Selected Brokers may only solicit indications of interest from their
customers to place orders with the Association as of a certain date (the "Order
Date") for the purchase of Common Shares. When and if the Association believes
that enough indications of interest and orders have been received in the
Community Offering to consummate the Conversion, Webb will request, as of the
Order Date, Selected Brokers to submit orders to purchase shares for which they
have previously received indications of interest from the customers. Selected
Brokers will send confirmations of the orders to such customers on the next
business day after the Order Date. Selected Brokers will debit the accounts of
their customers on the date which will be three business days from the Order
Date (the "Settlement Date"). On the Settlement Date, funds received by Selected
Brokers will be remitted to the Association. It is anticipated that the
Conversion will be consummated on the Settlement Date. However, if consummation
is delayed after payment has been received by the Association from Selected
Brokers, funds will earn interest at the passbook rate, currently an annual
percentage yield of ____%, until the completion of the offering. Funds will be
returned promptly in the event the Conversion is not consummated.
EFFECT OF EXTENSION OF COMMUNITY OFFERING
If the Community Offering extends beyond ______________, 1997, persons
who have subscribed for Common Shares in the Subscription Offering or in the
Community Offering will receive a written notice that prior to a date specified
in the notice, they have the right to affirm, increase, decrease or rescind
their subscriptions for Common Shares. Persons who do not affirmatively elect to
continue their subscription or who elect to rescind their subscriptions during
any such extension will have all of their funds promptly refunded with interest.
Persons who elect to decrease their subscriptions will have the appropriate
portion of their funds promptly refunded with interest.
USE OF STOCK ORDER FORMS
Subscriptions for Common Shares in the Subscription Offering and in the
Community Offering may be made only by completing and submitting a Stock Order
Form. Any person who desires to subscribe for Common Shares in the Subscription
Offering must do so by delivering to the Association by mail or in person, prior
to noon Bridgeport, Ohio Time, on __________, 1997, a properly executed and
completed Stock Order Form, together with full payment of the subscription price
of $10 for each Common Share for which subscription is made. ANY STOCK ORDER
FORM WHICH IS NOT RECEIVED BY THE ASSOCIATION PRIOR TO NOON, BRIDGEPORT, OHIO
TIME, ON _________, 1997, OR FOR WHICH FULL PAYMENT HAS NOT BEEN RECEIVED BY THE
ASSOCIATION PRIOR TO SUCH TIME, WILL NOT BE ACCEPTED. PHOTOCOPIES, TELECOPIES OR
OTHER REPRODUCTIONS OF STOCK ORDER FORMS WILL NOT BE ACCEPTED. See "ADDITIONAL
INFORMATION."
AN EXECUTED STOCK ORDER FORM, ONCE RECEIVED BY THE HOLDING COMPANY, MAY
NOT BE MODIFIED, AMENDED OR RESCINDED WITHOUT THE CONSENT OF THE HOLDING
COMPANY, UNLESS (I) THE COMMUNITY OFFERING IS NOT COMPLETED BY ___________,
1997, OR (II) THE FINAL VALUATION OF THE ASSOCIATION, AS CONVERTED, IS LESS THAN
$5,737,500 OR MORE THAN $8,926,870. IF EITHER OF THOSE EVENTS OCCUR, PERSONS WHO
HAVE SUBSCRIBED FOR COMMON SHARES IN THE SUBSCRIPTION OFFERING OR ORDERED COMMON
SHARES IN THE COMMUNITY OFFERING WILL RECEIVE WRITTEN NOTICE THAT THEY HAVE A
RIGHT TO AFFIRM, INCREASE, DECREASE OR RESCIND THEIR SUBSCRIPTIONS OR ORDERS
PRIOR TO A DATE SPECIFIED IN THE NOTICE. ANY PERSON WHO DOES NOT AFFIRMATIVELY
ELECT TO CONTINUE HIS SUBSCRIPTION OR ELECTS TO RESCIND HIS SUBSCRIPTION DURING
ANY SUCH EXTENSION WILL HAVE ALL OF HIS FUNDS PROMPTLY REFUNDED WITH INTEREST.
ANY PERSON WHO ELECTS TO DECREASE HIS SUBSCRIPTION DURING ANY SUCH EXTENSION
WILL HAVE THE APPROPRIATE PORTION OF HIS FUNDS PROMPTLY REFUNDED WITH INTEREST.
IN ADDITION, IF THE MAXIMUM PURCHASE LIMITATION IS INCREASED TO MORE THAN 14,000
COMMON SHARES, PERSONS WHO HAVE SUBSCRIBED FOR 14,000 COMMON SHARES WILL BE
GIVEN THE OPPORTUNITY TO INCREASE THEIR SUBSCRIPTIONS.
PAYMENT FOR COMMON SHARES
Payment of the subscription price for all Common Shares for which
subscription is made must accompany a completed Stock Order Form in order for
subscriptions or orders to be valid. Payment for Common Shares may be made (i)
in cash, if delivered in person; (ii) by check, bank draft, or money order made
payable to the Association; or (iii) by authorization of withdrawal from deposit
accounts in the Association (other than non-self-directed IRAs). The Association
cannot lend money or otherwise extend credit to any person to purchase Common
Shares.
Payments made in cash or by check, bank draft, or money order will be
placed in a segregated savings account insured by the FDIC up to applicable
limits until the Conversion is completed or terminated. Interest will be paid by
the Association on such account at the then current passbook savings account
rate, which is currently __% with an annual
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percentage yield of ___%, from the date payment is received until the Conversion
is completed or terminated. Payments made by check will not be deemed to have
been received until such check has cleared for payment.
Instructions for authorizing withdrawals from deposit accounts,
including certificates of deposit, are provided in the Stock Order Form. Once a
withdrawal has been authorized, none of the designated withdrawal amount may be
used by a subscriber for any purpose other than to purchase Common Shares,
unless the Conversion is terminated. All sums authorized for withdrawal will
continue to earn interest at the contract rate for such account or certificate
until the completion or termination of the Conversion. Interest penalties for
early withdrawal applicable to certificate accounts will be waived in the case
of withdrawals authorized for the purchase of Common Shares. If a partial
withdrawal from a certificate account results in a balance less than the
applicable minimum balance requirement, the certificate will be canceled and the
remaining balance will earn interest at the Association's passbook rate
subsequent to the withdrawal.
In order to utilize funds in an IRA maintained at the Association, the
funds must be transferred to a self-directed IRA that permits the funds to be
invested in stock. There will be no early withdrawal or IRS penalties for such
transfer. The beneficial owner of the IRA must direct the trustee of the account
to use funds from such account to purchase Common Shares in connection with the
Conversion. THIS CANNOT BE DONE THROUGH THE MAIL. Persons who are interested in
utilizing IRAs at the Association to subscribe for Common Shares should contact
the Conversion Information Center at (614) 635-1632 or (614) 635-1633 for
instructions and assistance.
Subscriptions will not be filled by the Association until subscriptions
have been received in the Offering for up to 573,750 Common Shares, the minimum
point of the Valuation Range. If the Conversion is terminated, all funds
delivered to the Association for the purchase of Common Shares will be returned
with interest, and all charges to deposit accounts will be rescinded. If
subscriptions are received for at least 573,750 Common Shares, subscribers and
other purchasers will be notified by mail, promptly upon completion of the sale
of the Common Shares, of the number of shares for which their subscriptions have
been accepted. The funds on deposit with the Association for the purchase of
Common Shares will be withdrawn and paid to the Holding Company in exchange for
the Common Shares. Certificates representing Common Shares will be delivered
promptly thereafter. The Common Shares will not be insured by the FDIC.
If the ESOP subscribes for Common Shares in the Subscription Offering,
the ESOP will not be required to pay for the shares subscribed for at the time
it subscribes but may pay for such Common Shares upon consummation of the
Conversion.
SHARES TO BE PURCHASED BY MANAGEMENT PURSUANT TO SUBSCRIPTION RIGHTS
The following table sets forth certain information regarding the
subscription rights intended to be exercised by the directors and executive
officers of the Association and the Holding Company and their Associates and
persons with whom they may be deemed to be Acting in Concert:
<TABLE>
<CAPTION>
Name Total shares (1) Percent of total offering (2) Aggregate purchase price (1)
- ---- ------------ ------------------------- ------------------------
<S> <C> <C> <C>
John O. Costine 2,000 0.30% $ 20,000
Anton M. Godez 14,000 2.07 140,000
Jon W. Letzkus 14,000 2.07 140,000
Manuel C. Thomas 14,000 2.07 140,000
William E. Reline 5,000 0.74 50,000
All directors and executive
officers as a group (9 persons) 52,700 7.81 $527,000
<FN>
- -----------------------------
(1) Includes intended purchases by Associates of directors and executive
officers, to the extent known.
(2) Assumes that 675,000 Common Shares, the mid-point of the Valuation
Range, will be sold in connection with the Conversion at $10 per share
and that a sufficient number of Common Shares will be available to
satisfy the intended purchases by directors and executive officers. See
"Pricing and Number of Common Shares to be Sold."
</TABLE>
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All purchases by executive officers and directors of the Association
are being made for investment purposes only and with no present intent to
resell.
PRICING AND NUMBER OF COMMON SHARES TO BE SOLD
The aggregate offering price of the Common Shares will be based on the
pro forma market value of the shares as determined by an independent appraisal
of the Association. RP Financial, a firm which evaluates and appraises financial
institutions, was retained by the Association to prepare an appraisal of the
estimated pro forma market value of the Association as converted. RP Financial
will receive a fee of $12,500 for its appraisal and one update. Such amount does
not include out-of-pocket expenses of up to $1,250.
RP Financial was selected by the Board of Directors of the Association
because RP Financial has extensive experience in the valuation of thrift
institutions, particularly in the mutual-to-stock conversion context. The Board
of Directors reviewed the credentials of RP Financial's appraisal personnel and
obtained references and recommendations from other companies which have engaged
RP Financial. RP Financial is certified by the OTS as a mutual-to-stock
conversion appraiser. The Association and RP Financial have no relationships
which would affect RP Financial's independence.
The appraisal was prepared by RP Financial in reliance upon the
information contained herein. RP Financial also considered the following
factors, among others: the economic and demographic conditions in the
Association's existing market area; the quality and depth of the Association's
management and personnel; certain historical financial and other information
relating to the Association; a comparative evaluation of the operating and
financial statistics of the Association with those of other thrift institutions;
the aggregate size of the Offering; the impact of the Conversion on the
Association's regulatory capital and earnings potential; the trading market for
stock of comparable thrift institutions and thrift holding companies; and
general conditions in the markets for such stocks. The Boards of Directors of
the Holding Company and the Association reviewed and deemed appropriate the
assumptions and methodology used by RP Financial in preparing the appraisal.
The Pro Forma Value of the Association, as converted, determined by RP
Financial, is $6,750,000 as of June 6, 1997. The Valuation Range established in
accordance with the Plan is $5,737,500 to $7,762,500, which, based upon a per
share offering price of $10, will result in the sale of between 573,750 and
776,250 Common Shares. Applicable regulations permit the Holding Company to
offer additional Common Shares in an amount not to exceed 15% above the maximum
of the Valuation Range, which would permit the issuance of up to 892,687 Common
Shares. The total number of Common Shares sold in the Conversion will be based
on the Valuation Range. Pro forma shareholders' equity per share and pro forma
earnings per share decrease moving from the low end to the high end of the
Valuation Range. See "PRO FORMA DATA."
If, due to changing market conditions, the final valuation is less than
$5,737,500 or more than $8,926,870, subscribers will be given the right to
affirm, increase, decrease or rescind their subscriptions. Any person who does
not affirmatively elect to continue his subscription or elects to rescind his
subscription before the date specified in the notice will have all of his funds
promptly refunded with interest. Any person who elects to decrease his
subscription will have the appropriate portion of his funds promptly refunded
with interest.
THE APPRAISAL BY RP FINANCIAL IS NOT INTENDED, AND MUST NOT BE
CONSTRUED, AS A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING
COMMON SHARES OR VOTING TO APPROVE THE CONVERSION. IN PREPARING THE VALUATION,
RP FINANCIAL HAS RELIED UPON AND ASSUMED THE ACCURACY AND COMPLETENESS OF THE
AUDITED FINANCIAL STATEMENTS AND STATISTICAL INFORMATION PROVIDED BY THE
ASSOCIATION. RP FINANCIAL DID NOT INDEPENDENTLY VERIFY THE FINANCIAL STATEMENTS
AND OTHER INFORMATION PROVIDED BY THE ASSOCIATION, NOR DID RP FINANCIAL VALUE
INDEPENDENTLY THE ASSETS OR LIABILITIES OF THE ASSOCIATION OR THE HOLDING
COMPANY. THE VALUATION CONSIDERS THE ASSOCIATION ONLY AS A GOING CONCERN AND
SHOULD NOT BE CONSIDERED AS AN INDICATION OF THE LIQUIDATION VALUE OF THE
ASSOCIATION. MOREOVER, BECAUSE SUCH VALUATION IS NECESSARILY BASED UPON
ESTIMATES AND PROJECTIONS OF A NUMBER OF MATTERS, ALL OF WHICH ARE SUBJECT TO
CHANGE FROM TIME TO TIME, NO ASSURANCE CAN BE GIVEN THAT PERSONS PURCHASING
COMMON SHARES WILL THEREAFTER BE ABLE TO SELL SUCH SHARES AT THE CONVERSION
PURCHASE PRICE.
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A copy of the complete appraisal is on file and open for inspection at
the offices of the OTS, 1700 G Street, N.W., Washington, D.C. 20552; at the
Central Regional Office of the OTS, 200 West Madison Street, Suite 1300,
Chicago, Illinois 60606; at the offices of the Division, 77 S. High Street,
Columbus, Ohio 43215; and at the offices of the Association.
RESTRICTIONS ON REPURCHASE OF COMMON SHARES
OTS regulations generally prohibit the Holding Company from
repurchasing any of its capital stock for three years following the date of
completion of the Conversion, except as part of an open-market stock repurchase
program during the second and third years following the Conversion involving no
more than 5% of the outstanding capital stock during a twelve-month period. In
addition, after such a repurchase, the Association's regulatory capital must
equal or exceed all regulatory capital requirements. Before the commencement of
a repurchase program, the Holding Company must provide notice to the OTS, and
the OTS may disapprove the program if the OTS determines that it would adversely
affect the financial condition of the Association or if it determines that there
is no valid business purpose for such repurchase. Such repurchase restrictions
would not prohibit the ESOP or the RRP from purchasing Common Shares during the
first year following the Conversion.
Ohio regulations prohibit the Holding Company from repurchasing shares
during the first year after the Conversion if the effect thereof would cause the
Association not to meet its capital requirements.
RESTRICTIONS ON TRANSFER OF COMMON SHARES BY DIRECTORS AND OFFICERS
Common Shares purchased by directors and executive officers of the
Holding Company will be subject to the restriction that such shares may not be
sold for a period of one year following completion of the Conversion, except in
the event of the death of the shareholder. The certificates evidencing Common
Shares issued by the Holding Company to directors and executive officers will
bear a legend giving appropriate notice of the restriction imposed upon them. In
addition, the Holding Company will give appropriate instructions to the transfer
agent (if any) for the Holding Company's common shares in respect of the
applicable restriction on transfer of any restricted shares. Any shares issued
as a stock dividend, stock split or otherwise in respect of restricted shares
will be subject to the same restrictions.
Subject to certain exceptions, for a period of three years following
the Conversion, no director or officer of the Holding Company or the
Association, or any of their Associates, may purchase any common shares of the
Holding Company without the prior written approval of the OTS, except through a
broker-dealer registered with the SEC. This restriction will not apply, however,
to negotiated transactions involving more than 1% of a class of outstanding
common shares of the Holding Company or shares acquired by any stock benefit
plan of the Holding Company or the Association.
The Common Shares, like the stock of most public companies, are subject
to the registration requirements of the Act. Accordingly, the Common Shares may
be offered and sold only in compliance with such registration requirements or
pursuant to an applicable exemption from registration. Common Shares received in
the Conversion by persons who are not "affiliates" of the Holding Company may be
resold without registration. Common Shares received by affiliates of the Holding
Company will be subject to resale restrictions. An "affiliate" of the Holding
Company, for purposes of Rule 144, is a person who directly, or indirectly
through one or more intermediaries, controls, or is controlled by or is under
common control with, the Holding Company. Rule 144 generally requires that there
be publicly available certain information concerning the Holding Company and
that sales subject to Rule 144 be made in routine brokerage transactions or
through a market maker. If the conditions of Rule 144 are satisfied, each
affiliate (or group of persons acting in concert with one or more affiliates) is
generally entitled to sell in the public market, without registration, in any
three-month period, a number of shares which does not exceed the greater of (i)
1% of the number of outstanding shares of the Holding Company or (ii) if the
shares are admitted to trading on a national securities exchange or reported
through the automated quotation system of a registered securities association,
such as Nasdaq SmallCap, the average weekly reported volume of trading during
the four weeks preceding the sale.
RIGHTS OF REVIEW
Any person aggrieved by a final action of the OTS which approves, with
or without conditions, or disapproves the Plan may obtain review of such action
by filing in the Court of Appeals of the United States for the circuit in which
the principal office or residence of such person is located or in the United
States Court of Appeals for the District of Columbia, a written petition praying
that the final action of the OTS be modified, terminated, or set aside. Such
petition must be filed within 30 days after the date of mailing of proxy
materials to the voting members of the Association or within 30 days after the
date of publication in the Federal Register of notice of approval of the Plan by
the OTS, whichever is later.
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<PAGE> 105
RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY AND THE ASSOCIATION
AND RELATED ANTI-TAKEOVER PROVISIONS
GENERAL
Federal law and regulations, Ohio law, the Articles of Incorporation
and Code of Regulations of the Holding Company, the Amended Articles of
Incorporation and Amended Constitution of the Association, and certain employee
benefit plans to be adopted by the Holding Company and the Association contain
certain provisions which may deter or prohibit a change of control of the
Holding Company and the Association. Such provisions are intended to encourage
any acquiror to negotiate the terms of an acquisition with the Board of
Directors of the Holding Company, thereby reducing the vulnerability of the
Holding Company to takeover attempts and certain other transactions which have
not been negotiated with and approved by the Board of Directors.
Anti-takeover devices and provisions may, however, have the effect of
discouraging sudden and other hostile takeover attempts which are not approved
by the Board of Directors, even under circumstances in which shareholders may
deem such takeovers to be in their best interests or in which shareholders may
receive a substantial premium for their shares over then current market prices.
As a result, shareholders who might desire to participate in such a transaction
may not have an opportunity to participate by virtue of such devices and
provisions. Such provisions may also benefit management by discouraging changes
of control in which incumbent management would be removed from office. The
following is a summary of certain provisions of such laws, regulations and
documents.
FEDERAL LAW AND REGULATION
FEDERAL DEPOSIT INSURANCE ACT. The Federal Deposit Insurance Act (the
"FDIA") provides that no person, acting directly or indirectly or in concert
with one or more persons, shall acquire control of any insured savings
association or holding company unless 60 days' prior written notice has been
given to the OTS, and the OTS has not issued a notice disapproving the proposed
acquisition. Control, for purposes of the FDIA, means the power, directly or
indirectly, to direct the management or policies of an insured institution or to
vote 25% or more of any class of securities of such institution. This provision
of the FDIA is implemented by the OTS in accordance with the Regulations for
Acquisition of Control of an Insured Institution, 12 C.F.R. Part 574 (the
"Control Regulations"). Control, for purposes of the Control Regulations, exists
in situations in which the acquiring party has direct or indirect voting control
of at least 25% of the institution's voting shares or controls in any manner the
election of a majority of the directors of such institution or the Director of
the OTS determines that such person exercises a controlling influence over the
management or policies of such institution. In addition, control is presumed to
exist, subject to rebuttal, if the acquiring party (which includes a group
"acting in concert") has voting control of at least 10% of the institution's
voting stock and any of eight control factors specified in the Control
Regulations exists. There are also rebuttable presumptions in the Control
Regulations concerning whether a group "acting in concert" exists, including
presumed action in concert among members of an "immediate family." The Control
Regulations apply to acquisitions of Common Shares in connection with the
Conversion and to acquisitions after the Conversion.
CHANGE IN CONTROL OF CONVERTED ASSOCIATIONS. A regulation of the OTS
provides that, for a period of three years after the date of the completion of
the Conversion, no person shall, directly or indirectly, offer to acquire or
acquire beneficial ownership of more than 10% of any class of equity security of
the Holding Company or the Association without the prior written approval of the
OTS. In addition to the actual ownership of more than 10% of a class of equity
securities, a person shall be deemed to have acquired beneficial ownership of
more than 10% of the equity securities of the Holding Company or the Association
if the person holds any combination of stock and revocable and/or irrevocable
proxies of the Holding Company under circumstances that give rise to a
conclusive control determination or rebuttable control determination under the
Control Regulations. Such circumstances include (i) holding any combination of
voting shares and revocable and/or irrevocable proxies representing more than
25% of any class of voting stock of the Holding Company enabling the acquirer
(a) to elect one-third or more of the directors, (b) to cause the Holding
Company or the Association's shareholders to approve the acquisition or
corporate reorganization of the Holding Company, or (c) to exert a controlling
influence on a material aspect of the business operations of the Holding Company
or the Association, and (ii) acquiring any combination of voting shares and
irrevocable proxies representing more than 25% of any class of voting shares.
Such three-year restriction does not apply (i) to any offer with a view
toward public resale made exclusively to the Holding Company or the
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<PAGE> 106
Association or any underwriter or selling group acting on behalf of the Holding
Company or the Association, (ii) unless made applicable by the OTS by prior
written advice, to any offer or announcement of an offer which, if consummated,
would result in the acquisition by any person, together with all other
acquisitions by any such person of the same class of securities during the
preceding 12-month period, of not more than 1% of the class of securities, or
(iii) to any offer to acquire or the acquisition of beneficial ownership of more
than 10% of any class of equity security of the Holding Company or the
Association by a corporation whose ownership is or will be substantially the
same as the ownership of the Holding Company or the Association if made more
than one year following the date of the Conversion. The foregoing restriction
does not apply to the acquisition of the capital stock of the Holding Company or
the Association by one or more tax-qualified employee stock benefit plans,
provided that the plan or plans do not have the beneficial ownership in the
aggregate of more than 25% of any class of equity security of the Holding
Company or the Association.
HOLDING COMPANY RESTRICTIONS. Federal law generally prohibits a savings
and loan holding company, without prior approval of the Director of the OTS,
from (i) acquiring control of any other savings association or savings and loan
holding company, (ii) acquiring substantially all of the assets of a savings
association or holding company thereof, or (iii) acquiring or retaining more
than 5% of the voting shares of a savings association or holding company thereof
which is not a subsidiary.
Under certain circumstances, a savings and loan holding company is
permitted to acquire, with the approval of the Director of the OTS, up to 15% of
the previously unissued voting shares of an undercapitalized savings association
for cash without such savings association being deemed to be controlled by the
Holding Company. Except with the prior approval of the Director of the OTS, no
director or officer of the savings and loan holding company or person owning or
controlling by proxy or otherwise more than 25% of such company's voting shares
may acquire control of any savings institution, other than a subsidiary
institution or any other savings and loan holding company.
OHIO LAW
MERGER MORATORIUM STATUTE. Ohio has a merger moratorium statute
regulating certain takeover bids affecting certain public corporations which
have significant ties to Ohio. The statute prohibits, with some exceptions, any
merger, combination or consolidation and any of certain other sales, leases,
distributions, dividends, exchanges, mortgages or transfers between such an Ohio
corporation and any person who has the right to exercise, alone or with others,
10% or more of the voting power of such corporation (an "Interested
Shareholder") for three years following the date on which such person first
becomes an Interested Shareholder. Such a business combination is permitted only
if, prior to the time such person first becomes an Interested Shareholder, the
Board of Directors of the issuing corporation has approved the purchase of
shares which resulted in such person first becoming an Interested Shareholder.
After the initial three-year moratorium, such a business combination
may not occur unless (1) one of the exceptions referred to above applies, (2)
the holders of at least two-thirds of the voting shares, and of at least a
majority of the voting shares not beneficially owned by the Interested
Shareholder, approve the business combination at a meeting called for such
purpose, or (3) the business combination meets certain statutory criteria
designed to ensure that the issuing public corporation's remaining shareholders
receive fair consideration for their shares.
An Ohio corporation, under certain circumstances, may "opt out" of the
statute by specifically providing in its articles of incorporation that the
statute does not apply to any business combination of such corporation. The
statute still prohibits for 12 months, however, any business combination that
would have been prohibited but for the adoption of such an opt-out amendment.
The statute also provides that it will continue to apply to any business
combination between a person who became an Interested Shareholder prior to the
adoption of such an amendment as if the amendment had not been adopted. The
Articles of Incorporation of the Holding Company do not opt out of the
protection afforded by Chapter 1704.
CONTROL SHARE ACQUISITION STATUTE. Section 1701.831 of the Ohio Revised
Code (the "Control Share Acquisition Statute") requires that certain
acquisitions of voting securities which would result in the acquiring
shareholder owning 20%, 33-1/3% or 50% of the outstanding voting securities of
the Holding Company (a "Control Share Acquisition") must be approved in advance
by the holders of at least a majority of the outstanding voting shares
represented at a meeting at which a quorum is present and a majority of the
portion of the outstanding voting shares represented at such a meeting,
excluding the voting shares owned by the acquiring shareholder. The Control
Share Acquisition Statute was intended, in part, to protect shareholders of Ohio
corporations from coercive tender offers.
TAKEOVER BID STATUTE. Ohio law also contains a statute regulating
takeover bids for any Ohio corporation. Such statute provides that no offeror
may make a takeover bid unless (i) at least 20 days prior thereto the offeror
announces
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<PAGE> 107
publicly the terms of the proposed takeover bid and files with the
Ohio Division of Securities (the "Securities Division") and provides the target
company with certain information in respect of the offeror, his ownership of the
company's shares and his plans for the company, and (ii) within ten days
following such filing either (a) no hearing is required by the Securities
Division, (b) a hearing is requested by the target company within such time but
the Securities Division finds no cause for hearing exists, or (c) a hearing is
ordered and upon such hearing the Securities Division adjudicates that the
offeror proposes to make full, fair and effective disclosure to offerees of all
information material to a decision to accept or reject the offer.
The takeover bid statute also states that no offeror shall make a
takeover bid if he owns 5% or more of the issued and outstanding equity
securities of any class of the target company, any of which were purchased
within one year before the proposed takeover bid, and the offeror, before making
any such purchase, failed to announce his intention to gain control of the
target company or otherwise failed to make full and fair disclosure of such
intention to the persons from whom he acquired such securities. The United
States District Court for the Southern District of Ohio has determined that the
Ohio takeover bid statute is preempted by federal regulation.
ARTICLES OF INCORPORATION OF THE HOLDING COMPANY
ABILITY OF THE BOARD OF DIRECTORS TO ISSUE ADDITIONAL SHARES. The
Articles of Incorporation of the Holding Company permit the Board of Directors
of the Holding Company to issue additional common shares. The ability of the
Board of Directors to issue such additional shares may create impediments to
gaining, or otherwise discourage persons from attempting to gain, control of the
Holding Company.
MATTERS REQUIRING ENLARGED SHAREHOLDER VOTE. Article Sixth of the
Articles of Incorporation of the Holding Company provides that, in the event the
Board of Directors recommends against the approval of any of the following
matters, the holders of at least 75% of the voting shares of the Holding Company
are required to approve any such matters:
(1) A proposed amendment to the Articles of Incorporation of the
Holding Company;
(2) A proposed Amendment to the Code of Regulations of the Holding
Company;
(3) A proposal to change the number of directors by action of the
shareholders;
(4) An agreement of merger or consolidation providing for the
proposed merger or consolidation of the Holding Company with
or into one or more other corporations;
(5) A proposed combination or majority share acquisition involving
the issuance of shares of the Holding Company and requiring
shareholder approval;
(6) A proposal to sell, exchange, transfer or otherwise dispose of
all, or substantially all, of the assets, with or without the
goodwill, of the Holding Company; or
(7) A proposed dissolution of the Holding Company.
ELIMINATION OF CUMULATIVE VOTING. Section 1701.55 of the Ohio Revised
Code provides in substance and effect that shareholders of a for profit
corporation which is not a savings and loan association and which is
incorporated under Ohio law must initially be granted the right to cumulate
votes in the election of directors. The right to cumulate votes in the election
of directors will exist at a meeting of shareholders if notice in writing is
given by any shareholder to the President, a Vice President or the Secretary of
an Ohio corporation, not less than 48 hours before a meeting at which directors
are to be elected, that the shareholder desires that the voting for the election
of directors shall be cumulative and if an announcement of the giving of such
notice is made upon the convening of such meeting by the Chairman or Secretary
or by or on behalf of the shareholder giving such notice. If cumulative voting
is invoked, each shareholder would have a number of votes equal to the number of
directors to be elected, multiplied by the number of shares owned by him, and
would be entitled to distribute his votes among the candidates as he sees fit.
Section 1701.69 of the Ohio Revised Code provides that an Ohio
corporation may eliminate cumulative voting in the election of directors after
the expiration of 90 days after the date of initial incorporation by filing with
the Ohio Secretary of State an amendment to the articles of incorporation
eliminating cumulative voting. The Articles of Incorporation of the Holding
Company have been amended to eliminate cumulative voting. The elimination of
cumulative voting may make it
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<PAGE> 108
more difficult for shareholders to elect as directors persons whose election is
not supported by the Board of Directors of the Holding Company.
EMPLOYEE BENEFIT PLANS
The Stock Option Plan, the ESOP and the RRP also may be deemed to have
certain anti-takeover effects. See "DESCRIPTION OF AUTHORIZED SHARES" and
"MANAGEMENT - Employee Stock Ownership Plan; - Stock Option Plan; and -
Recognition and Retention Plan and Trust."
DESCRIPTION OF AUTHORIZED SHARES
GENERAL
The Articles of Incorporation of the Holding Company authorize the
issuance of 3,000,000 common shares, without par value. Upon receipt by the
Holding Company of the purchase price therefor and subsequent issuance thereof,
each Common Share issued in the Conversion will be fully paid and nonassessable.
Notwithstanding the foregoing, until payments are received by the Holding
Company from the ESOP in accordance with the terms of a loan agreement to be
entered into by and between the Holding Company and the ESOP, Common Shares
issued to the ESOP for which payment in money has not been received will not be
fully paid and non-assessable. The Common Shares will represent nonwithdrawable
capital and will not and cannot be insured by the FDIC. Each Common Share will
have the same relative rights and will be identical in all respects to every
other Common Share.
The following is a summary description of the rights of the common
shares of the Holding Company, including the material express terms of such
shares as set forth in the Holding Company's Articles of Incorporation.
LIQUIDATION RIGHTS
In the event of the complete liquidation or dissolution of the Holding
Company, the holders of the Common Shares will be entitled to receive all assets
of the Holding Company available for distribution, in cash or in kind, after
payment or provision for payment of (i) all debts and liabilities of the Holding
Company, (ii) any accrued dividend claims, and (iii) any interests in the
Liquidation Account payable as a result of a liquidation of the Association. See
"THE CONVERSION Liquidation Account."
VOTING RIGHTS
The holders of the Common Shares will possess exclusive voting rights
in the Holding Company. Each holder of Common Shares will be entitled to one
vote for each share held of record on all matters submitted to a vote of holders
of common shares. See "RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY AND
THE ASSOCIATION - Articles of Incorporation of the Holding Company --
Elimination of Cumulative Voting."
DIVIDENDS
The holders of the Common Shares will be entitled to the payment of
dividends when, as and if declared by the Board of Directors and paid out of
funds, if any, available under applicable laws and regulations for the payment
of dividends. The payment of dividends is subject to federal and state statutory
and regulatory restrictions. See "DIVIDEND POLICY," "REGULATION - Office of
Thrift Supervision -- Limitations on Capital Distributions" and "TAXATION -
Federal Taxation" for a description of restrictions on the payment of cash
dividends.
PREEMPTIVE RIGHTS
After the consummation of the Conversion, no shareholder of the Holding
Company will have, as a matter of right, the preemptive right to purchase or
subscribe for shares of any class, now or hereafter authorized, or to purchase
or subscribe for securities or other obligations convertible into or
exchangeable for such shares or which by warrants or otherwise entitle the
holders thereof to subscribe for or purchase any such share.
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<PAGE> 109
RESTRICTIONS ON ALIENABILITY
See "THE CONVERSION - Restrictions on Repurchase of Common Shares" for
a description of the limitations on the repurchase of stock by the Holding
Company; "THE CONVERSION - Restrictions on Transfer of Common Shares by
Directors and Officers" for a description of certain restrictions on the
transferability of Common Shares purchased by officers and directors; and
"RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY AND THE ASSOCIATION AND
RELATED ANTI-TAKEOVER PROVISIONS" for information regarding regulatory
restrictions on acquiring Common Shares.
REGISTRATION REQUIREMENTS
The Holding Company will register its common shares pursuant to Section
12(g) of the Exchange Act prior to or promptly upon the completion of the
Conversion and will not deregister such shares for a period of three years
following the completion of the Conversion. Upon such registration, the proxy
and tender offer rules, insider trading restrictions, annual and periodic
reporting and other requirements of the Exchange Act will apply to the Holding
Company.
LEGAL MATTERS
Certain legal matters pertaining to the Common Shares and the federal
and Ohio tax consequences of the Conversion are being passed upon for the
Holding Company and the Association by Vorys, Sater, Seymour and Pease,
Cincinnati, Ohio. Certain legal matters are being passed upon for Webb by its
counsel, Silver, Freedman & Taff, L.L.P., Washington, D.C.
EXPERTS
RP Financial has consented to the publication herein of the summary of
its letter to the Association setting forth its opinion as to the estimated pro
forma market value of the Association as converted and to the use of its name
and statements with respect to it appearing herein.
The consolidated financial statements of the Association as of December
31, 1996, and for each of the three years in the period ended December 31, 1996,
have been included herein in reliance upon the report of S. R. Snodgrass, A.C.,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of such firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a Registration Statement on
Form S-1 (File No. 333-29649) under the Act with respect to the Common Shares
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the SEC. Such information may be
inspected at the public reference facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies may be obtained from the SEC at
prescribed rates.
The Association has filed an Application for Conversion (the
"Application") with the OTS and the Division. This Prospectus omits certain
information contained in the Application. The Application may be inspected at
the offices of the OTS, 1700 G Street, N.W., Washington, D.C. 20552; at the
Central Regional Office of the OTS, 200 West Madison, Suite 1300, Chicago,
Illinois 60606; and at the offices of the Division, 77 S. High Street, Columbus,
Ohio 43215.
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<PAGE> 110
<TABLE>
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
DECEMBER 31, 1996 AND 1995
Page
Number
------
<S> <C>
Independent Auditor's Report F-2
Financial Statements
Consolidated Statements of Financial Condition F-3
(As of March 31, 1997 (unaudited) and December 31, 1996 and 1995)
Consolidated Statements of Operations F-5
(For the three months ended March 31, 1997 and 1996 (unaudited) and
the three years ended December 31, 1996, 1995 and 1994)
Consolidated Statements of Changes in Equity F-6
(For the three months ended March 31, 1997 (unaudited) and
the three years ended December 31, 1996, 1995 and 1994)
Consolidated Statements of Cash Flows F-7
(For the three months ended March 31, 1997 and 1996 (unaudited) and
the three years ended December 31, 1996, 1995 and 1994)
Notes to the Consolidated Financial Statements F-8
</TABLE>
All schedules (other than financial data schedules) are omitted because the
required information is either not applicable or is included in the consolidated
financial statements or related notes.
Separate financial statements for Ohio State Financial Services, Inc. (the
"Company") have not been included because the Company will not engage in
material transactions until after the Conversion. The Company, which has been
inactive to date, has no significant assets, liabilities, revenues, expenses or
contingent liabilities .
The Company intends to establish a stock option and incentive plan (the "Stock
Option Plan") after the completion of the Conversion. The Board of Directors of
the Company anticipates that a number of shares equal to 10% of the common
shares sold in the Offering will be reserved for issuance to directors,
officers, and employees of the Company and the Bridgeport Savings and Loan
Association (the "Association") upon the exercise of options granted under the
Stock Option Plan.
The Company also intends to establish the Recognition and Retention Plan (the
"RRP") after the completion of the Conversion and anticipates that a number of
shares equal to 4% of the common shares sold in the Offering will be purchased
by, or issued to, the RRP. Shares held in the RRP will be available for awards
to directors, officers, and employees of the Company and Association.
F-1
<PAGE> 111
INDEPENDENT AUDITOR'S REPORT
----------------------------
Board of Directors
Bridgeport Savings and Loan Association
We have audited the consolidated statements of financial condition of Bridgeport
Savings and Loan Association and subsidiary as of December 31, 1996 and 1995,
and the related consolidated statements of operations, retained earnings, and
cash flows for each of the three years ended December 31, 1996. These financial
statements are the responsibility of the association's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bridgeport Savings
and Loan Association and subsidiary as of December 31, 1996 and 1995, and the
results of their operations and cash flows for each of the three years ended
December 31, 1996, in conformity with generally accepted accounting principles.
S.R. Snodgrass, A.C.
Wheeling, West Virginia
January 7, 1997, except for Note 14
which is March 26, 1997
F-2
<PAGE> 112
<TABLE>
<CAPTION>
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31,
March 31, ------------------------------
ASSETS 1997 1996 1995
----------- ---------- ---------
(Unaudited)
<S> <C> <C> <C>
Cash and cash equivalents (including interest
bearing deposits of $2,085,393 at 3/31/97;
$1,985,410 at 12/31/96; and $625,487
at 12/31/95) $ 2,613,211 $2,435,662 $1,177,023
Interest bearing time deposits 1,200,000 800,000 1,000,000
Investment securities:
Available for sale (at market value) 344,800 339,300 317,700
Held to maturity (market value of $4,800,924 4,736,455 4,781,206 5,377,567
at 3/31/97; $4,873,596 at 12/31/96; and $5,517,935
at 12/31/95)
Loans receivable, net 25,016,835 24,892,321 25,972,213
Real estate acquired in settlement of loans, net of 17,620 - -
allowances of $-0- at 3/31/97, 12/31/96 and 12/31/95
Office properties and equipment, at cost, less accumulated 462,045 471,672 514,602
depreciation of $732,538 at 3/31/97; $722,911 at
12/31/96; and $652,686 at 12/31/95
Accrued interest receivable, loans and investments (net of 120,755 134,340 151,812
reserve for uncollected interest of $3,985 at 3/31/97;
$1,802 at 12/31/96; and $1,019 at 12/31/95)
Prepaid federal income tax 7,619 45,825 14,585
Prepaid expenses and other assets 45,055 28,328 27,749
----------- ----------- -----------
TOTAL ASSETS $34,564,395 $33,928,654 $34,553,251
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 113
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (CONTINUED)
<TABLE>
<CAPTION>
December 31,
March 31, ------------------------------
1997 1996 1995
--------- ------ ------
(Unaudited)
<S> <C> <C> <C>
LIABILITIES AND RETAINED EARNINGS
NOW and Money Market withdrawal accounts $ 4,238,092 $ 4,268,930 $ 5,624,033
Savings accounts 25,186,609 24,522,191 23,990,762
------------ ------------ ------------
Total deposits 29,424,701 28,791,121 29,614,795
Advances by borrowers for taxes and insurance 81,210 154,245 148,735
Accrued interest payable on savings 9,625 9,071 29,041
Deferred federal income taxes 63,005 55,508 43,813
Other liabilities 126,009 148,366 158,886
------------ ------------ ------------
Total liabilities 29,704,550 29,158,311 29,995,270
Commitments and contingencies (Note 9)
Retained earnings-substantially restricted 4,859,845 4,770,343 4,557,981
------------ ------------ ------------
TOTAL LIABILITIES AND
RETAINED EARNINGS $34,564,395 $33,928,654 $34,553,251
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 114
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Year Ended December 31,
March 31, December 31,
------------------------- ----------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
INTEREST AND DIVIDEND INCOME
<S> <C> <C> <C> <C> <C>
Loans - taxable $ 489,363 $ 510,830 $2,000,015 $1,909,388 $1,663,222
Mortgage-backed certificates - taxable 22,523 27,554 102,351 119,631 160,246
Interest-bearing deposits and
investment securities - taxable 96,531 94,041 390,802 429,689 458,467
Dividends on Federal Home Loan Bank stock 5,598 5,268 21,746 19,785 15,649
---------- ---------- ---------- ---------- ----------
Total interest and dividend income 614,015 637,693 2,514,914 2,478,493 2,297,584
---------- ---------- ---------- ---------- ----------
INTEREST EXPENSE
Savings deposits 286,720 288,603 1,157,860 1,107,184 982,148
Federal Home Loan Bank advances 505 -- -- 1,172 --
---------- ---------- ---------- ---------- ----------
Total interest expense 287,225 288,603 1,157,860 1,108,356 982,148
---------- ---------- ---------- ---------- ----------
Net interest income 326,790 349,090 1,357,054 1,370,137 1,315,436
PROVISION FOR LOSSES ON LOANS -- -- -- -- 16,669
Net interest income after provision
for loan losses 326,790 349,090 1,357,054 1,370,137 1,298,767
---------- ---------- ---------- ---------- ----------
NONINTEREST INCOME
Service charges 2,104 2,394 16,313 18,973 24,184
Gains on sale of other real estate -- -- -- -- 32,105
Other income and fees 7,052 10,743 28,658 22,765 22,694
---------- ---------- ---------- ---------- ----------
Total noninterest income 9,156 13,137 44,971 41,738 78,983
---------- ---------- ---------- ---------- ----------
NONINTEREST EXPENSES
General and administrative:
Salaries and benefits 90,818 87,476 349,554 351,608 326,553
Occupancy expense 14,647 13,585 59,245 56,750 62,744
Furniture and equipment expense 8,964 13,070 65,632 54,729 51,660
Machine rental and service bureau 12,464 15,834 55,489 49,211 48,151
expense
Stationery printing and office expenses 10,125 6,822 29,022 23,832 25,190
Advertising and public relations 7,719 4,733 32,204 37,686 35,940
Franchise, payroll and other taxes 23,811 24,973 91,559 90,991 89,364
Federal insurance premium 4,621 19,950 270,218 78,913 82,873
Legal and accounting fees 5,287 7,454 29,217 24,272 21,943
Expenses for real estate acquired -- -- -- -- 7,482
Other operating expenses 22,285 23,507 101,180 97,212 96,265
---------- ---------- ---------- ---------- ----------
Total noninterest expense 200,741 217,404 1,083,320 865,204 848,165
---------- ---------- ---------- ---------- ----------
Income before income taxes 135,205 144,823 318,705 546,671 529,585
PROVISION FOR INCOME TAXES 45,703 48,893 106,343 185,438 174,127
---------- ---------- ---------- ---------- ----------
Net income $ 89,502 $ 95,930 $ 212,362 $ 361,233 $ 355,458
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 115
<TABLE>
<CAPTION>
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
<S> <C>
BALANCE, DECEMBER 31, 1993 $3,841,290
Net income for the year ended December 31, 1994 355,458
----------
BALANCE, DECEMBER 31, 1994 4,196,748
Net income for the year ended December 31, 1995 361,233
----------
BALANCE, DECEMBER 31, 1995 4,557,981
Net income for the year ended December 31, 1996 212,362
----------
BALANCE, DECEMBER 31, 1996 4,770,343
Net income for the three months ended March 31, 1997
(unaudited) 89,502
----------
BALANCE, MARCH 31, 1997 (UNAUDITED) $4,859,845
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 116
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
--------------------- ------------------------------------
1997 1996 1996 1995 1994
----- ------ ----- ------ ------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C> <C>
Net income $ 89,502 $ 95,930 $ 212,362 $ 361,233 $ 355,458
Adjustments:
Depreciation 9,627 15,559 70,225 57,139 52,750
Gain on real estate owned -- -- -- -- (32,105)
Provision for loan losses -- -- -- -- 16,669
Deferred federal income tax 7,497 -- 11,695 (6,001) (23,406)
Accretion of investment security discounts (870) (3,935) (10,714) (23,942) (14,243)
Federal Home Loan Bank stock dividend (5,500) (5,200) (21,600) (19,600) (15,400)
Accrued interest receivable 13,585 17,678 17,472 (11,032) 6,714
Prepaid expenses 21,479 (7,866) (31,819) (32,393) 6,024
Accrued interest payable 554 (16,197) (19,970) 6,117 9,386
Accrued federal income taxes -- 34,307 -- -- (15,069)
Other liabilities (22,357) (33,514) (10,520) 82,146 (4,941)
----------- ----------- ----------- ----------- -----------
Net cash provided by operating activities 113,517 96,762 217,131 413,667 341,837
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities of time deposits 100,000 500,000 1,600,000 2,300,000 500,000
Purchases of time deposits (500,000) (300,000) (1,400,000) (700,000) (800,000)
Proceeds from maturities of U.S. Government
and agencies obligations -- -- 400,000 -- 300,000
Purchases of investment securities -- -- -- -- (2,959,375)
Proceeds from redemptions of mortgage-backed
certificates 45,621 34,028 207,075 332,936 744,688
Net change in loans (excluding participations
purchased) (142,134) 368,199 1,510,892 (1,646,330) (856,035)
Participation loans purchased -- -- (431,000) (1,543,000) (416,000)
Acquisition of office properties and equipment -- (10,979) (27,295) (14,999) (42,268)
Disposition of real estate owned -- -- -- -- 214,133
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities (496,513) 591,248 1,859,672 (1,271,393) (3,314,857)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Change in deposits, net 633,580 211,763 (823,674) 416,756 (1,960,377)
Change in mortgage escrow funds, net (73,035) (98,161) 5,510 (6,086) 18,851
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities 560,545 113,602 (818,164) 410,670 (1,941,526)
----------- ----------- ----------- ----------- -----------
Change in cash and cash equivalents 177,549 801,612 1,258,639 (447,056) (4,914,546)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,435,662 1,177,023 1,177,023 1,624,079 6,538,625
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,613,211 $ 1,978,635 $ 2,435,662 $ 1,177,023 $ 1,624,079
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE> 117
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, DECEMBER 31, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist the
reader in understanding and evaluating the consolidated financial statements
of Bridgeport Savings and Loan Association and Subsidiary. The accounting
and reporting policies of the association conform to generally accepted
accounting principles and to general practice within the savings and loan
industry. The following is a description of the more significant of those
policies.
The consolidated statements of financial condition as of March 31, 1997, and
the consolidated statements of operations, changes in equity, and cash flows
for the three-month periods ended March 31, 1997 and 1996, are unaudited.
However, in the opinion of management, these financial statements include
all material adjustments necessary for the fair presentation of the
association's financial position, consisting solely of normal and recurring
adjustments.
NATURE OF OPERATIONS - Bridgeport Savings and Loan Association provides
banking services to customers through its Bridgeport and Shadyside offices.
The association's subsidiary, Trailways Financial, Inc., conducted no
operations for the periods ended March 31, 1997, and December 31, 1996, 1995
and 1994.
USE OF ESTIMATES - The financial statements have been prepared in conformity
with generally accepted accounting principles and, as such, include amounts
based on informed estimates and judgments of management with consideration
given to materiality. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of the association and its wholly-owned subsidiary, Trailways
Financial, Inc. All significant intercompany accounts and transactions have
been eliminated in consolidation.
RECLASSIFICATION - Certain amounts for the years ended December 31, 1996,
1995, and 1994, have been reclassified to conform with the current period's
presentation.
OFFICE PROPERTIES AND EQUIPMENT - Land is carried at cost; buildings and
equipment are stated at cost, less accumulated depreciation. Maintenance,
repairs, and minor improvements are charged to operating expenses as
incurred. Major improvements and betterments are capitalized.
Depreciation is computed on the straight-line method for financial reporting
purposes over the following estimated useful lives:
Building and improvements 10 - 50 years
Furniture, fixtures and equipment 5 - 50 years
Automobiles 5 years
F-8
<PAGE> 118
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REAL ESTATE - Real estate acquired in the settlement of loans is carried at
the lower of the recorded investment in the property or its fair value
minus estimated costs of sale.
LOAN FEES, DISCOUNTS, AND PREMIUMS - Bridgeport Savings and Loan Association
accounts for loan fees in conformity with requirements of the Statement of
Financial Accounting Standards No. 91. Accordingly, loan origination and
commitment fees and certain direct loan origination costs are deferred, and
the net amount amortized over the contractual lives of the related loans or
commitments as an adjustment of the related loan's yield using the interest
method.
LOANS RECEIVABLE - Loans receivable are stated at their unpaid principal
balance, net of the allowance for loan losses. Interest on loans is credited
to income as earned and is accrued only if it is considered collectible. An
allowance for uncollected interest on mortgage loans is provided for all
accrued interest on loans which are delinquent 90 days or more, resulting in
interest previously accrued on those loans being reversed from income, and
thereafter, interest is recognized only to the extent of payments received.
Loans are returned to accrual status when less than 90 days delinquent and
when, in management's judgment, collection is probable.
Effective January 1, 1995, the association adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan" and Statement of Financial Accounting Standards No. 118, "Accounting
by Creditors for Impairment of a Loan-Income Recognition and Disclosures"
(FAS 114 and 118). Impaired loans as defined by FAS 114 and 118 exclude
certain consumer loans and residential real estate loans. Loan impairment is
measured based on the present value of expected cash flows discounted at the
loan's effective interest rate or at the fair value of the collateral if the
loan is collateral dependent. Since the adoption of FAS 114 and 118, the
association had no loans which management has determined to be impaired.
F-9
<PAGE> 119
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is maintained at a
level which, in management's judgment, is adequate to absorb credit losses
inherent in the loan portfolio. The amount of the allowance is based on
management's evaluation of the collectibility of the loan portfolio,
including the nature of the portfolio, credit concentrations, trends in
historical loss experience, specific impaired loans, and economic
conditions. Allowances for impaired loans are generally determined based on
collateral values or the present value of estimated cash flows. The
allowance is increased by a provision for loan losses, which is charged to
expense and reduced by charge-offs, net of recoveries. Changes in the
allowance relating to impaired loans are charged or credited to the
provision for loan losses. Because of uncertainties inherent in the
estimation process, management's estimate of credit losses inherent in the
loan portfolio and the related allowance may change in the near term.
INVESTMENT SECURITIES - Effective January 1, 1994, the association adopted
the provisions of Statement of Financial Accounting Standards (FAS) No. 115
"Accounting for Certain Investments in Debt and Equity Securities." Under
FAS No. 115, investment securities in the portfolio are classified as either
available for sale or held to maturity. The association does not currently
conduct short term purchase and sale transactions of investment securities
which would be classified as trading securities.
The initial determination of investments classified as available for sale
was based principally on the association's asset/liability position and
potential liquidity needs. These securities are available for sale at any
time based upon management's assessment of changes in economic or financial
market conditions, interest rate or prepayment risk, liquidity
considerations, and other factors. Securities classified as available for
sale are carried at market value. Unrealized holding gains and losses, net
of tax, on available-for-sale securities are reported as a net amount in a
separate component of equity until realized. No unrealized gain or loss is
applicable to the association's equity securities due to the restricted
nature of the securities.
All remaining securities in the investment portfolio are classified as held
to maturity. The association purchases these securities with the intent and
the ability to hold until their maturity. Securities classified as held to
maturity are carried at cost, adjusted for amortization of premiums and
accretion of discounts.
F-10
<PAGE> 120
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES - In February 1992, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." FAS No. 109 requires a change from the deferred method of
accounting for income taxes of APB Opinion 11 to the asset and liability
method of accounting for income taxes. Under the asset and liability method
of FAS No. 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under
FAS No. 109, the effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
RETIREMENT PLAN AND 401(K) THRIFT PLAN - The retirement plan is a
noncontributory plan for all eligible employees and is funded through the
Savings and Loan Retirement Fund. The plan covers and enrolls as active
members all employees who are expected to complete 1,000 hours of service in
twelve consecutive months and have attained age twenty-one. Contributions
for past service are being amortized to expense over a ten-year period.
Because the plan is a multi-employer plan, plan information for the
Association is not determinable.
The thrift plan is a contributory plan for all eligible employees. Employer
contributions and related administrative fees are expensed in the year
incurred. The plan is for all employees who have completed twelve months of
continuous employment.
F-11
<PAGE> 121
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - INVESTMENTS
The carrying amounts and fair values of the association's investment
securities at March 31, 1997, and December 31, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
March 31, 1997 (unaudited)
-------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Securities Available for Sale:
Federal Home Loan Bank stock (restricted) $ 329,800 $ -- $ -- $ 329,800
Intrieve Incorporated 15,000 -- -- 15,000
---------- ---------- ---------- ----------
Total available for sale 344,800 -- -- 344,800
---------- ---------- ---------- ----------
Securities to be Held to Maturity:
U. S. Government and federal agencies 3,797,677 21,619 27,096 3,792,200
Mortgage-backed securities 938,778 69,946 -- 1,008,724
---------- ---------- ---------- ----------
Total held to maturity 4,736,455 91,565 27,096 4,800,924
---------- ---------- ---------- ----------
Total $5,081,255 $ 91,565 $ 27,096 $5,145,724
========== ========== ========== ==========
<CAPTION>
December 31, 1996
--------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Securities Available for Sale:
Federal Home Loan Bank stock (restricted) $ 324,300 $ -- $ -- $ 324,300
Intrieve Incorporated 15,000 -- -- 15,000
---------- ---------- ---------- ----------
Total available for sale 339,300 -- -- 339,300
---------- ---------- ---------- ----------
Securities to be Held to Maturity:
U. S. Government and federal agencies 3,797,043 31,468 17,883 3,810,628
Mortgage-backed securities 984,163 78,805 -- 1,062,968
---------- ---------- ---------- ----------
Total held to maturity 4,781,206 110,273 17,883 4,873,596
---------- ---------- ---------- ----------
Total $5,120,506 $ 110,273 $ 17,883 $5,212,896
========== ========== ========== ==========
<CAPTION>
December 31, 1995
-------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Securities Available for Sale:
Federal Home Loan Bank stock (restricted) $ 302,700 $ -- $ -- $ 302,700
Intrieve Incorporated 15,000 -- -- 15,000
---------- ---------- ---------- ----------
Total available for sale 317,700 -- -- 317,700
---------- ---------- ---------- ----------
Securities to be Held to Maturity:
U. S. Government and federal agencies 4,186,947 68,508 18,536 4,236,919
Mortgage-backed securities 1,190,620 90,396 -- 1,281,016
---------- ---------- ---------- ----------
Total held to maturity 5,377,567 158,904 18,536 5,517,935
---------- ---------- ---------- ----------
Total $5,695,267 $ 158,904 $ 18,536 $5,835,635
========== ========== ========== ==========
</TABLE>
F-12
<PAGE> 122
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - INVESTMENTS (CONTINUED)
The book value and fair value of investment securities at March 31, 1997,
and December 31, 1996 and 1995, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
<TABLE>
<CAPTION>
March 31, 1997 (Unaudited)
------------------------------------------------------
Securities to be held Securities
to maturity available for sale
------------------------- ------------------------
Amortized Amortized
Cost Fair Value Cost Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $2,497,677 $2,494,140 $ -- $ --
Due from one year through five years 1,300,000 1,298,060 -- --
Equity securities -- -- 344,800 344,800
Mortgage-backed securities 938,778 1,008,724 -- --
---------- ---------- ---------- ----------
Total $4,736,455 $4,800,924 $ 344,800 $ 344,800
========== ========== ========== ==========
<CAPTION>
December 31, 1996
-------------------------------------------------------
Securities to be held Securities
to maturity available for sale
------------------------- -------------------------
Amortized Amortized
Cost Fair Value Cost Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ 500,000 $ 498,905 $ -- $ --
Due from one year through five years 3,297,043 3,311,723 -- --
Equity securities -- -- 339,300 339,300
Mortgage-backed securities 984,163 1,062,968 -- --
---------- ---------- ---------- ----------
Total $4,781,206 $4,873,596 $ 339,300 $ 399,300
========== ========== ========== ==========
<CAPTION>
December 31, 1995
--------------------------------------------------------
Securities to be held Securities
to maturity available for sale
-------------------------- --------------------------
Amortized Amortized
Cost Fair Value Cost Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ 399,437 $ 404,500 $ -- $ --
Due from one year through five years 3,787,510 3,832,419 -- --
Equity securities -- -- 317,700 317,700
Mortgage-backed securities 1,190,620 1,281,016 -- --
---------- ---------- ---------- ----------
Total $5,377,567 $5,517,935 $ 317,700 $ 317,700
========== ========== ========== ==========
</TABLE>
F-13
<PAGE> 123
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - LOANS RECEIVABLE
Loans receivable consisted of the following:
<TABLE>
<CAPTION>
December 31,
March 31, --------------------------
1997 1996 1995
---------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
Mortgage loans:
Construction $ 123,700 $ 123,700 $ 469,000
1-4 family 20,690,739 20,605,236 21,086,654
Multi-family 48,192 51,162 555,925
Commercial 417,503 459,924 1,064,142
Land 78,926 86,225 4,756
----------- ----------- -----------
21,359,060 21,326,247 23,180,477
----------- ----------- -----------
Consumer Loans:
Share loans 310,298 264,620 243,833
Other consumer loans 3,474,741 3,441,738 2,953,265
----------- ----------- -----------
3,785,039 3,706,358 3,197,098
----------- ----------- -----------
Commercial loans: 100,620 105,264 132,187
----------- ----------- -----------
Total 25,244,719 25,137,869 26,509,762
----------- ----------- -----------
Less:
Loans in process 35,556 50,649 327,704
Allowance for loan losses 143,000 143,000 143,000
Deferred loan fees 49,328 51,899 66,845
----------- ----------- -----------
227,884 245,548 537,549
----------- ----------- -----------
Loans receivable, net $25,016,835 $24,892,321 $25,972,213
=========== =========== ===========
</TABLE>
The weighted average interest rate of the association's loans was 7.79% at
March 31, 1997, 7.77% at December 31, 1996, and 7.80% at December 31, 1995.
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, December 31,
------------------------ -------------------------------------
1997 1996 1997 1995 1994
--------- --------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $ 143,000 $ 143,000 $ 143,000 $ 143,000 $ 145,000
Provision charged to income -- -- -- -- 16,030
Charge-offs (18,030)
--------- --------- --------- --------- ---------
Balance, end of period $ 143,000 $ 143,000 $ 143,000 $ 143,000 $ 143,000
========= ========= ========= ========= =========
</TABLE>
F-14
<PAGE> 124
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
March 31, ----------------------------
1997 1996 1995
----------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
Land $ 137,638 $ 137,63 $ 137,638
Office buildings and improvements 603,462 603,462 603,462
Furniture, fixtures and equipment 437,920 437,920 437,920
Automobile 15,563 15,563 15,563
---------- ---------- ----------
Total 1,194,583 1,194,583 1,167,288
Less accumulated depreciation 732,538 722,911 652,686
---------- ---------- ----------
Net office properties and equipment $ 462,045 $ 471,672 $ 514,602
========== ========== ==========
</TABLE>
Depreciation charged to operations was $9,627 and $15,559 for the three
months ended March 31, 1997 and 1996, respectively, and $70,225, $57,139,
and $52,750 for the years ended December 31, 1996, 1995, and 1994.
NOTE 5 - DEPOSIT ANALYSIS
The association's deposits by type are summarized as follows:
<TABLE>
<CAPTION>
December 31,
March 31, --------------------------------------------------------
1997 1996 1995
------------------------ ------------------------ ---------------------------
Amount Percent Amount Percent Amount Percent
----------- ----------- ----------- -------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
NOW and Super NOW
accounts $ 1,152,292 3.92% $ 979,111 3.40% $ 1,057,241 3.60%
Money Market 3,085,800 10.49 3,289,819 11.40 4,566,792 15.40
Regular Savings 10,066,363 34.20 9,922,705 34.50 9,565,207 32.30
Certificates of Deposit 15,120,246 51.39 14,599,486 50.70 14,425,555 48.70
----------- ----------- ----------- -------- ----------- -----------
Total $29,424,701 100.00% $28,791,121 100.00% $29,614,795 100.00%
=========== =========== =========== ======== =========== ===========
</TABLE>
Scheduled maturities of certificates of deposit are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
------------- ----------- ------------
(Unaudited)
<S> <C> <C> <C>
Within three months $ 3,389,637 $ 3,211,395 $ 3,703,319
Three to six months 3,403,546 2,979,206 2,969,854
Six to twelve months 4,771,507 4,327,338 3,287,769
One to two years 2,603,000 2,524,351 3,207,795
Two to three years 374,962 914,494 670,123
Three to four years 304,478 260,688 586,695
Four to six years 273,116 382,014 -
------------ ----------- -----------
Total $15,120,246 $14,599,486 $14,425,555
=========== =========== ===========
</TABLE>
F-15
<PAGE> 125
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - DEPOSIT ANALYSIS (CONTINUED)
The aggregate amount of certificates of deposit with a minimum denomination
of $100,000 was $5,087,497 at March 31, 1997, $3,921,617 at December 31,
1996, and $3,882,753 at December 31, 1995. Deposits in excess of $100,000
are not federally insured.
Interest expense by deposit category is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
---------------------- ----------------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
NOW and Super NOW Accounts $ 4,830 $ 4,402 $ 17,552 $ 17,970 $ 17,301
Money Market 21,595 31,175 108,629 157,789 208,373
Regular Savings 73,890 71,711 296,929 291,351 319,839
Certificates of Deposit 186,405 181,315 734,750 640,074 436,635
--------- -------- ---------- --------- ---------
Total $286,720 $288,603 $1,157,860 $1,107,184 $982,148
======== ======== ========== ========== ========
</TABLE>
NOTE 6 - REGULATORY MATTERS
The association is subject to various regulatory capital requirements
administered by its primary federal regulator, the Office of Thrift
Supervision. Failure to meet the minimum regulatory capital requirements can
initiate certain mandatory, and possible additional discretionary actions by
regulators, that if undertaken, could have a direct material affect on the
association's financial statements. Under the regulatory capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
association must meet specific capital guidelines involving quantitative
measures of the association's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The association's capital amounts and classification under the prompt
corrective action guidelines are also subject to qualitative judgment by the
regulators about components, risk weighting, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the association to maintain minimum amounts and ratios of tangible
capital, tangible equity, core capital (Tier 1), leverage capital, and
risk-based capital.
As of March 31, 1997, the most recent notification from the OTS categorized
the association as "well capitalized" under the regulatory framework for
prompt corrective action. To be categorized as "well capitalized" the
association must maintain minimum total risk-based, core (Tier 1), leverage,
and tangible ratios set forth in the table below. There are no conditions or
events since that notification that management believes have changed the
institution's category.
F-16
<PAGE> 126
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - REGULATORY MATTERS (CONTINUED)
The association's actual capital amounts and ratios are also presented
in the table. Risk-based capital includes tangible capital plus
$135,000 of the Association's allowance for loan losses.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------- ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(In thousands) (In thousands) (In thousands)
As of March 31,1997 (unaudited):
<S> <C> <C> <C> <C> <C> <C>
Total risk-based capital $4,995 29.77% $1,342 8.0% $1,678 10.0%
(To risk weighted assets)
Core (Tier 1) capital 4,860 28.97 671 4.0 1,007 6.0
(To total assets)
Core (Tier 1) capital 4,860 14.07 1,037 3.0 1,728 5.0
(To total assets)
Tangible capital 4,860 14.07 518 1.5 Not Defined
(To total assets)
</TABLE>
NOTE 7 - FEDERAL INCOME TAX
The association and subsidiary file a consolidated federal income tax
return. The association was permitted until 1996 a special bad debts
deduction limited generally in the current year to 8 percent of otherwise
taxable income and subject to certain limitations based on aggregate loans
and savings account balances at the end of the year. In 1996, the bad debt
reserve method for thrifts was repealed and in the future bad debts for
federal income taxes will be determined based primarily on the experience
method. If the amounts that qualify as deductions for federal income tax
purposes are later used for purposes other than for bad debt losses, they
will be subject to federal income tax at the then corporate rate. Retained
income at March 31, 1997, December 31, 1996 and 1995, included approximately
$832,500 for which federal income tax has not been provided.
The provisions for Federal income taxes consist of:
<TABLE>
<CAPTION>
Three Month Ended Year Ended
March 31, December 31,
-------------------------- ----------------------------------------
1997 1996 1996 1995 1994
-------- ---------- -------- --------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Current $38,206 $48,893 $94,648 $191,439 $197,533
Deferred 7,497 - 11,695 (6,001) (23,406)
------- ------- -------- -------- --------
Total $45,703 $48,893 $106,343 $185,438 $174,127
======= ======= ======== ======== ========
</TABLE>
F-17
<PAGE> 127
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - FEDERAL INCOME TAX (CONTINUED)
The following temporary differences gave rise to the deferred tax liability:
<TABLE>
<CAPTION>
December 31,
March 31, ------------------------
1997 1996 1995
--------- --------- ---------
(Unaudited)
<S> <C> <C> <C>
Income and expense recognized in the financial
statements on the accrual basis, but on the cash
basis for tax purposes $ 10,729 $ 4,956 $ (5,071)
Depreciation 1,520 1,520 7,020
FHLB stock dividend (include. redemptions) 84,230 82,360 68,509
Difference in bad debt deduction (27,477) (26,365) (21,914)
Others (5,997) (6,963) (4,731)
-------- -------- --------
Total $ 63,005 $ 55,508 $ 43,813
======== ======== ========
</TABLE>
A reconciliation between the amount of reported income tax expense and the
amount computed by applying the Federal income tax rate to income before
income taxes is as follows:
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, December 31,
-------------------- --------------------------------
1997 1996 1996 1995 1994
-------- -------- --------- -------- ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Tax at statutory rate (34%) $45,970 $49,240 $108,360 $185,868 $180,059
Increase (decrease) in taxes
resulting from:
Nontaxable income and others (267) (347) (2,017) (430) (4,932)
------- ------- -------- -------- --------
Total $45,703 $48,893 $106,343 $185,438 $174,127
======= ======= ======== ======== ========
Effective rate 33.8% 33.8% 33.4% 33.9% 32.9%
</TABLE>
NOTE 8 - RETIREMENT PLAN AND 401(K) THRIFT PLAN
The association has a noncontributory retirement plan for all eligible
employees. The contribution for past service cost paid is being amortized to
expense over a ten-year period. The pension expense for the years ended
December 31, 1996, 1995 and 1994 was $10,899, $21,561, and $-0-,
respectively. Pension expense for the three months ended March 31, 1997 and
1996, amounted to $3,418 and $-0-, respectively.
F-18
<PAGE> 128
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - RETIREMENT PLAN AND 401(K) THRIFT PLAN (CONTINUED)
The association adopted a resolution to participate in the Financial
Institutions Thrift Plan, which qualifies under Section 401(k) of the
Internal Revenue Code. The commencement date of the plan was January 1,
1987. The plan is for all eligible employees and allows the association to
match employee contributions to a maximum of 6% of their compensation. The
employer's matching funds are based upon the following schedule: 50% of the
members' contributions during their second and third years of employment,
75% during the fourth and fifth years of employment, and 100% upon
completion of their fifth year of service. The association suspended
matching contributions effective April, 1995. The association's plan
expenses for the years ended December 31, 1996, 1995 and 1994, amounted to
$940, $3,542, and $12,433 respectively. Plan expenses for the three months
ended March 31, 1997 and 1996, amounted to $360 and $235, respectively. Plan
expense amounts include any employer's matching contributions.
NOTE 9 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
Bridgeport Savings and Loan Association is a party to financial instruments
with off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These instruments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in the
statement of financial condition. The contract amounts of these instruments
reflect the extent of involvement the institution has in particular classes
of financial instruments. The institution uses the same credit policies in
making commitments and conditional obligations as it does for
on-balance-sheet instruments.
The following represents financial instruments whose contract amounts
represent credit risk:
<TABLE>
<CAPTION>
December 31,
March 31, -------------------
1997 1996 1995
----------- ---- ----
(Unaudited)
<S> <C> <C> <C>
Loans in process $35,556 $50,649 $326,704
Commitments to originate loans 142,000 - -
</TABLE>
F-19
<PAGE> 129
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
(CONTINUED)
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. The institution evaluates each
customer's credit worthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the institution upon extension
of credit, is based on management's credit evaluation of the counterparty.
Collateral held consists primarily of single-family residences. Commitments
to originate loans at March 31, 1997, consisted of fixed-rate mortgage loans
of $122,000 at 8.125% and $20,000 at 7.50%.
Concentration of Credit Risk
----------------------------
The mortgage-backed securities held by Bridgeport Savings and Loan
Association consist of FHLMC and GNMA pass-through securities which are
directly or inherently backed by the full faith and credit of the United
States Government.
Bridgeport Savings and Loan Association's real estate loans and loan
commitments are primarily for properties located throughout Eastern Ohio and
Northern West Virginia. Repayment of these loans is in part dependent upon
the economic conditions in this region. Bridgeport Savings and Loan
Association evaluates each customer's creditworthiness on a case-by-case
basis. Bridgeport Savings and Loan Association requires collateral on all
real estate exposure which consists primarily of residential properties.
The association also has concentration of credit risk exposure in cash. The
association places its cash with high credit quality financial institutions.
At times, such investments may be in excess of the FDIC insurance limit. The
association had total deposits with financial institutions of $279,894,
$279,117, and $145,039 in excess of FDIC limits as of March 31, 1997, and
December 31, 1996 and 1995, respectively.
NOTE 10 - RELATED PARTY TRANSACTIONS
Directors and officers of the association and its wholly-owned subsidiary
were customers of, and had other transactions with the association in the
ordinary course of business during the years ended December 31, 1996 and
1995, and for the three months ended March 31, 1997.
F-20
<PAGE> 130
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - RELATED PARTY TRANSACTIONS (CONTINUED)
Loans and commitments included in such transactions were made with
substantially the same terms and collateral as those prevailing at the time
for comparable transactions with other persons. Loans to directors and
officers did not involve more than the normal risk of collectibility, or
present other unfavorable features. The loans to directors and officers at
March 31, 1997, December 31, 1996 and 1995, were not material in the
aggregate amount.
NOTE 11 - CASH FLOWS INFORMATION
Cash equivalents include amounts due from banks and Federal Home Loan Bank
overnight accounts and term deposits with original maturities of ninety days
or less.
In addition, the institution made federal income tax payments of $141,000
during the year 1996, $200,000 during the year 1995, and $214,113 during the
year 1994; no amount was paid for the periods ending March 31, 1997 and
1996. The institution paid $1,177,830 in interest expense during 1996,
$1,102,239 during 1995, and $972,762 during 1994; $286,671 and $304,801 was
paid for the periods ending March 31, 1997 and 1996, respectively.
For the period ending March 31, 1997, loans in the amounts of $17,620 were
transferred from loans receivable to real estate acquired in settlement of
loans.
NOTE 12 - DEPOSIT INSURANCE
Saving Association Insurance Fund member institutions were assessed a
one-time deposit insurance premium to recapitalize the Fund. The assessment
totaled approximately $190,300 and was recorded in the year ended December
31, 1996. The premium was based on deposits as of March 31, 1995. As a
result of the assessment, the association's deposit premium insurance rate
was reduced from $.23 to .065 per $100 of deposits.
F-21
<PAGE> 131
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments", requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In
that regard, the derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized
in immediate settlements of the instruments. Statement 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. In addition, the value of long-term relationships with
depositors and other customers are not reflected. The value of these items
is significant. Accordingly, the aggregate fair value amounts presented do
not represent the underlying value of the corporation.
The following methods and assumptions were used in estimating fair value of
financial instruments as disclosed herein:
CASH AND CASH EQUIVALENTS: For those short-term instruments, the carrying
amount is a reasonable estimate of fair value.
TIME DEPOSITS: For those short-term instruments, the carrying amount is a
reasonable estimate of fair value.
INVESTMENT SECURITIES AND SECURITIES HELD FOR SALE: For debt securities and
marketable equity securities held for investment purposes and for sale, fair
values are based on quoted market prices or dealer quotes. If a quoted
market price is not available, fair value is estimated using quoted market
prices for similar securities.
LOANS: For certain homogeneous categories of loans, such as some residential
mortgages, fair value is estimated using the quoted market prices for
securities backed by similar loans. The fair value of other types of loans
is estimated by discounting the future cash flows using the current rates at
which similar loans would be made to borrowers with similar credit ratings
and for the same remaining maturities.
DEPOSIT LIABILITIES: The fair value of demand deposits, savings accounts,
and certain money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of deposit is
estimated using the rates currently offered for deposits of similar
remaining maturities.
F-22
<PAGE> 132
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair values of the corporation's financial instruments are as
follows:
<TABLE>
<CAPTION>
March 31, 1997
-----------------------------------
Carrying Estimated
Amount Fair Value
-------- ------------
(Unaudited)
<S> <C> <C>
Financial Assets:
Cash and cash equivalents $ 2,613,211 $ 2,613,211
Interest bearing time deposits 1,200,000 1,200,000
Securities available for sale 344,800 344,800
Securities held to maturity 4,736,000 4,800,924
Loans, net 25,017,000 24,441,442
Financial Liabilities:
Deposits 29,425,000 29,506,781
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------
Carrying Estimated
Amount Fair Value
-------- -----------
<S> <C> <C>
Financial Assets:
Cash and cash equivalents $ 2,435,662 $ 2,435,662
Interest bearing time deposits 800,000 800,000
Securities available for sale 339,000 339,000
Securities held to maturity 4,781,000 4,874,000
Loans, net 24,892,000 24,442,543
Financial Liabilities:
Deposits 28,791,000 28,880,000
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
-----------------------------------
Carrying Estimated
Amount Fair Value
-------- --------------
<S> <C> <C>
Financial Assets:
Cash and cash equivalents $ 1,177,023 $ 1,177,023
Interest bearing time deposits 1,000,000 1,000,000
Securities available for sale 318,000 318,000
Securities held to maturity 5,378,000 5,518,000
Loans, net 25,972,000 25,048,000
Financial Liabilities:
Deposits 29,615,000 29,662,000
</TABLE>
F-23
<PAGE> 133
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 - CONVERSION AND REORGANIZATION
On March 24, 1997, the Board of Directors of the association, subject to
regulatory approval, adopted the Plan of Conversion pursuant to which the
association proposed to convert from a mutual savings and loan association
incorporated under Ohio law to a permanent capital stock savings and loan
association incorporated under Ohio law and concurrently form a Holding
Company. The conversion is expected to be accomplished through amendment of
the association's charter and the sale of the holding company's common stock
in an amount equal to the pro forma market value of the association after
giving effect of the conversion. A subscription offering of the sale of the
common stock will be offered initially to the association's depositors and
Tax-Qualified Employee Stock Benefit Plans. Any shares of the common stock
not sold in the subscription offering will be offered for sale to the
general public in the association's market area.
Conversion costs will be deferred and deducted from the proceeds of the
shares sold in the conversion. At March 31, 1997, the association had not
incurred any conversion costs. In the event that the conversion is not
completed, any deferred conversion costs will be charged to operations.
In accordance with regulations, at the time that the association converts
from a mutual savings association to a stock savings institution, a portion
of retained earnings will be restricted by establishing a liquidation
account. The liquidation account will be maintained for the benefit of
eligible account holders who continue to maintain their accounts at the
association after the conversion. The liquidation account will be reduced
annually to the extent that eligible account holders have reduced their
qualifying deposits. Subsequent increases will not restore an eligible
account holder's interest in the liquidation account. In the event of a
complete liquidation of the association, each account holder will be
entitled to receive a distribution from the liquidation account in an amount
proportionate to the current adjusted qualifying balances of accounts then
held. The association may not pay dividends if those dividends would reduce
equity capital below required liquidation account amount.
F-24
<PAGE> 134
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 - CONSOLIDATED SUBSIDIARY
The following condensed statements summarize the financial position and
operating results of the association's wholly-owned subsidiary:
TRAILWAYS FINANCIAL, INC.
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
March 31, ----------------------
1997 1996 1995
--------- --------- ---------
(Unaudited)
ASSETS
<S> <C> <C> <C>
Cash $ 2,851 $ 2,875 $ 2,899
Due from parent corporation 433 433 433
Investments 15,000 15,000 15,000
------ ------- --------
Total assets $18,284 $18,308 $18,332
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities $ - $ - $ -
Stockholders' equity 18,284 18,308 18,332
------- ------- -------
Total liabilities and
stockholders' equity $18,284 $18,308 $18,332
======= ======= =======
</TABLE>
TRAILWAYS FINANCIAL, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, December 31,
-------------------- ----------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Income:
Interest $ 21 $ 21 $ 86 $ 86 $ 87
Expenses:
Taxes 45 80 110 110 110
---- ----- ---- ---- ----
Net loss $(24) ($59) $(24) $(24) $(23)
===== ==== ==== ==== ====
</TABLE>
F-25
<PAGE> 135
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN AS CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE HOLDING COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, ANY SECURITY, OTHER THAN THE
COMMON SHARES OFFERED HEREBY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM DELIVERY OF
THIS PROSPECTUS WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS TO ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUMMARY..............................................1
SELECTED FINANCIAL INFORMATION AND OTHER DATA...................6
RISK FACTORS....................................................8
USE OF PROCEEDS................................................11
MARKET FOR COMMON SHARES.......................................11
DIVIDEND POLICY................................................12
REGULATORY CAPITAL COMPLIANCE..................................13
CAPITALIZATION.................................................14
PRO FORMA DATA.................................................15
SUMMARY STATEMENTS OF EARNINGS.................................19
RECENT DEVELOPMENTS............................................20
MANAGEMENT'S DISCUSSION AND ANALYSIS...........................23
THE BUSINESS OF THE ASSOCIATION................................34
MANAGEMENT.....................................................50
REGULATION.....................................................55
TAXATION.......................................................61
THE CONVERSION.................................................63
RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY AND THE
ASSOCIATION AND RELATED ANTI-TAKEOVER PROVISIONS...............75
DESCRIPTION OF AUTHORIZED SHARES...............................78
REGISTRATION REQUIREMENTS......................................79
LEGAL MATTERS..................................................79
EXPERTS........................................................79
ADDITIONAL INFORMATION.........................................79
FINANCIAL STATEMENTS......................................F-1
UNTIL 25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS OBLIGATION IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
Up to 776,250 Common Shares
OHIO STATE FINANCIAL SERVICES, INC.
-----------
PROSPECTUS
----------
CHARLES WEBB & COMPANY
A Division of Keefe, Bruyette & Woods, Inc.
_________ , 1997
<PAGE> 136
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
- -------- -------------------------------------------
* Legal Fees....................................$ 80,000
* Postage.......................................$ 10,000
* Printing and EDGARIZING.......................$ 35,000
* Appraisal Fees and Expenses...................$ 16,500
* Accounting Fees and Expenses..................$ 50,000
* Blue sky filing fees and expenses.............$ 10,000
* Federal filing fees...........................$ 15,000
* Conversion Agent Fees.........................$ 6,500
* Other Expenses................................$ 17,000
** Underwriting Fees and Expenses................$140,870
Total estimated expenses..................$380,870
========
- -----------------------------
* Estimated.
** To assist the Holding Company and the Association in marketing the
Common Shares, the Holding Company and the Association have retained
Charles Webb & Company ("Webb"), a division of Keefe, Bryette & Woods,
Inc. Webb is a broker-dealer registered with the SEC and a member of
the NASD.
For its services, Webb has received a management fee of $25,000 and
will receive a marketing fee of 1.5% of the aggregate purchase price of
the Common Shares sold other than (i) Common Shares purchased by the
directors, officers and employees of the Association and the Holding
Company and members of their immediate families, (ii) Common Shares
purchased by the ESOP, Stock Option Plan or RRP, and (iii) Common
Shares sold by Selected Brokers (hereinafter defined).
Depending on market conditions, the Common Shares, if any, not
initially subscribed for in the Subscription Offering or the Community
Offering may be offered for sale to the general public on a best
efforts basis in a syndicated community offering by a selling group of
broker-dealers ("Selected Brokers") to be formed by Webb. If Selected
Brokers are employed, the Selected Brokers will be paid a commission
not to exceed 5.5% of the aggregate purchase price received for Common
Shares sold by such Selected Brokers.
The estimated underwriting fees are based on the following assumptions:
(i) 776,250 Common Shares will be sold in the Offering; (ii)
approximately 55,000 Common Shares sold in the Offering will be
purchased by directors, officers and employees of the Association and
the Holding Company and the members of their immediate families; (iii)
62,100 Common Shares sold in the Offering will be purchased by the
ESOP; and (iv) 659,150 Common Shares sold in the Offering will be sold
in the Subscription Offering with sales commissions of 1.5% of the
aggregate dollar amount of such Common Shares.
The Association will also reimburse Webb for all reasonable fees and
expenses of its legal counsel.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
- -------- ------------------------------------------
(a) OHIO REVISED CODE
Division (E) of Section 1701.13 of the Ohio Revised Code
governs indemnification by a corporation and provides as follows:
(E)(1) A corporation may indemnify or agree to indemnify any
person who was or is a party or is threatened to be made a party, to any
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, other than an action by or in the
right of the corporation, by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer,
II-1
<PAGE> 137
employee, or agent of another corporation, domestic or foreign, nonprofit or for
profit, partnership, joint venture, trust, or other enterprise, against
expenses, including attorney's fees, judgments, fines, and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, or conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any person
who was or is a party or is threatened to be made a party, to any threatened,
pending, or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a director, trustee, officer, employee or
agent of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, against expenses,
including attorney's fees, actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any of the following:
(a) Any claim, issue, or matter as to which such person is
adjudged to be liable for negligence or misconduct in the performance
of his duty to the corporation unless, and only to the extent that
the court of common pleas or the court in which such action or suit
was brought determines upon application that, despite the
adjudication of liability, but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity
for such expenses as the court of common pleas or such other court
shall deem proper;
(b) Any action or suit in which the only liability asserted
against a director is pursuant to section 1701.95 of the Revised
Code.
(3) To the extent that a director, trustee, officer, employee, or
agent has been successful on the merits or otherwise in defense of any action,
suit, or proceeding referred to in divisions (E)(1) and (2) of this section, or
in defense of any claim, issue, or matter therein, he shall be indemnified
against expenses, including attorney's fees, actually and reasonably incurred by
him in connection with the action, suit, or proceeding.
(4) Any indemnification under divisions (E)(1) and (2) of this
section, unless ordered by a court, shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, trustee, officer, employee, or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in divisions
(E)(1) and (2) of this section. Such determination shall be made as follows:
(a) By a majority vote of a quorum consisting of directors of
the indemnifying corporation who were not and are not parties to or
threatened with any such action, suit, or proceeding;
(b) If the quorum described in division (E)(4)(a) of this
section is not obtainable or if a majority vote of a quorum of
disinterested directors so directs, in a written opinion by
independent legal counsel other than an attorney, or a firm having
associated with it an attorney, who has been retained by or who has
performed services for the corporation or any person to be
indemnified within the past five years;
(c) By the shareholders; or
(d) By the court of common pleas or the court in which such
action, suit, or proceeding was brought.
Any determination made by the disinterested directors under
division (E)(4)(a) or by independent legal Counsel under division (E)(4)(b) of
this section shall be promptly communicated to the person who threatened or
brought the action or suit by or in the right of the corporation under division
(E)(2) of this section, and within ten days after receipt of such notification,
such person shall have the right to petition the court of common pleas or the
court in which action or suit was brought to review the reasonableness of such
determination.
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<PAGE> 138
(5)(a) Unless at the time of a director's act or omission that is
the subject of an action, suit, or proceeding referred to in divisions (E)(1)
and (2) of this section, the articles or the regulations of a corporation state
by specific reference to this division that the provisions of this division do
not apply to the corporation and unless the only liability asserted against a
director in an action, suit, or proceeding referred to in divisions (E)(1) and
(2) of this section is pursuant to section 1701.95 of the Revised Code,
expenses, including attorney's fees, incurred by a director in defending the
action, suit, or proceeding shall be paid by the corporation as they are
incurred, in advance of the final disposition of the action, suit, or proceeding
upon receipt of an undertaking by or on behalf of the director in which he
agrees to do both of the following:
(i) Repay such amount if it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or
failure to act involved an act or omission undertaken with deliberate
intent to cause injury to the corporation or undertaken with reckless
disregard for the best interests of the corporation;
(ii) Reasonably cooperate with the corporation concerning the
action, suit, or proceeding.
(b) Expenses, including attorney's fees, incurred by a director,
trustee, officer, employee, or agent in defending any action, suit, or
proceeding referred to in divisions (E)(1) and (2) of this section, may be paid
by the corporation as they are incurred, in advance of the final disposition of
the action, suit, or proceeding as authorized by the directors in the specific
case upon receipt of an undertaking by or on behalf of the director, trustee,
officer, employee, or agent to repay such amount, if it ultimately is determined
that he is not entitled to be indemnified by the corporation.
(6) The indemnification authorized by this section shall not be
exclusive of, and shall be in addition to, any other rights granted to those
seeking indemnification under the articles of the regulations or any agreement,
vote of shareholders or disinterested directors, or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
(7) A corporation may purchase and maintain insurance or furnish
similar protection, including but not limited to trust funds, letters of credit,
or self-insurance, on behalf of or for any person who is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation, domestic or foreign, nonprofit or profit, partnership,
joint venture, trust, or other enterprise, against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the corporation would have the power to indemnify
him against such liability under this section. Insurance may be purchased from
or maintained with a person in which the corporation has a financial interest.
(8) The authority of a corporation to indemnify persons pursuant
to divisions (E)(1) and (2) of this section does not limit the payment of
expenses as they are incurred, indemnification, insurance, or other protection
that may be provided pursuant to divisions (E)(5), (6), and (7) of this section.
Divisions (E)(1) and (2) of this section do not create any obligation to repay
or return payments made by the corporation pursuant to division (E)(5), (6), or
(7).
(9) As used in this division, references to "corporation" includes
all constituent corporations in a consolidation or merger and the new or
surviving corporation, so that any person who is or was a director, officer,
employee, or agent of such a constituent corporation, or is or was serving at
the request of such constituent corporation as a director, trustee, officer,
employee, or agent of another corporation, domestic or foreign, nonprofit or for
profit, partnership, joint venture, trust, or other enterprise, shall stand in
the same position under this section with respect to the new or surviving
corporation as he would if he had served the new or surviving corporation in the
same capacity.
The Association may authorize payment of reasonable costs and
expenses, including reasonable attorney's fees arising from the defense or
settlement of any Action, to any director, officer or employee if a majority of
the directors of the Association conclude that such person may become entitled
to indemnification. The directors of the Association may impose conditions on
such payment, and, before making an advance payment, the Association shall
obtain an agreement from such person that the Association will be repaid if the
person on whose behalf payment is made is later determined not to be entitled to
such indemnification.
The Association currently maintains a directors' and officers'
liability policy providing for insurance of directors and officers for liability
incurred in connection with performance of their duties as directors and
officers. Such policy does not, however, provide insurance for losses resulting
from willful or criminal misconduct.
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<PAGE> 139
(b) THE HOLDING COMPANY'S CODE OF REGULATIONS
Article Five of The Holding Company's Code of Regulations
provides for the indemnification of officers and directors as follows:
SECTION 5.01. MANDATORY INDEMNIFICATION. The corporation shall
indemnify any officer or director of the corporation who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including, without limitation, any action threatened or instituted by or in the
right of the corporation), by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee or agent of
another corporation (domestic or foreign, nonprofit or for profit), partnership,
joint venture, trust or other enterprise, against expenses (including, without
limitation, attorneys' fees, filing fees, court reporters' fees and transcript
costs), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and with respect to any criminal action
or proceeding, he had no reasonable cause to believe his conduct was unlawful. A
person claiming indemnification under this Section 5.01 shall be presumed, in
respect of any act or omission giving rise to such claim for indemnification, to
have acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and with respect to any
criminal matter, to have had no reasonable cause to believe his conduct was
unlawful, and the termination of any action, suit or proceeding by judgment,
order, settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, rebut such presumption.
SECTION 5.02. COURT-APPROVED INDEMNIFICATION. Anything
contained in the Regulations or elsewhere to the contrary notwithstanding:
(A) the corporation shall not indemnify any
officer or director of the corporation who was a party to any completed action
or suit instituted by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, trustee, officer, employee or agent of another
corporation (domestic or foreign, nonprofit or for profit), partnership, joint
venture, trust or other enterprise, in respect of any claim, issue or matter
asserted in such action or suit as to which he shall have been adjudged to be
liable for acting with reckless disregard for the best interests of the
corporation or misconduct (other than negligence) in the performance of his duty
to the corporation unless and only to the extent that the Court of Common Pleas
of Belmont County, Ohio, or the court in which such action or suit was brought
shall determine upon application that, despite such adjudication of liability,
and in view of all the circumstances of the case, he is fairly and reasonably
entitled to such indemnity as such Court of Common Pleas or such other court
shall deem proper; and
(B) the corporation shall promptly make any such
unpaid indemnification as is determined by a court to be proper as contemplated
by this Section 5.02.
SECTION 5.03. INDEMNIFICATION FOR EXPENSES. Anything contained
in the Regulations or elsewhere to the contrary notwithstanding, to the extent
that an officer or director of the corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in Section
5.01, or in defense of any claim, issue or matter therein, he shall be promptly
indemnified by the corporation against expenses (including, without limitation,
attorneys' fees, filing fees, court reporters' fees and transcript costs)
actually and reasonably incurred by him in connection therewith.
SECTION 5.04 DETERMINATION REQUIRED. Any indemnification
required under Section 5.01 and not precluded under Section 5.02 shall be made
by the corporation only upon a determination that such indemnification of the
officer or director is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 5.01. Such determination may
be made only (A) by a majority vote of a quorum consisting of directors of the
corporation who were not and are not parties to, or threatened with, any such
action, suit or proceeding, or (B) if such a quorum is not obtainable or if a
majority of a quorum of disinterested directors so directs, in a written opinion
by independent legal counsel other than an attorney, or a firm having associated
with it an attorney, who has been retained by or who has performed services for
the corporation, or any person to be indemnified, within the past five years, or
(C) by the shareholders, or (D) by the Court of Common Pleas of Belmont County,
Ohio, or (if the corporation is a party thereto) the court in which such action,
suit or proceeding was brought, if any; any such determination may be made by a
court under division (D) of this Section 5.04 at any time including, without
limitation, any time before, during or after the time when any such
determination may be requested of, be under consideration by or have been denied
or disregarded by the disinterested directors under division (A) or by
independent legal counsel under division (B) or by the shareholders under
division (C) of this Section 5.04; and no failure for any reason to make any
such determination, and no decision for any reason to deny any such
determination, by the disinterested directors under division (A) or by
independent
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<PAGE> 140
legal counsel under division (B) or by shareholders under division (C) of this
Section 5.04 shall be evidence in rebuttal of the presumption recited in Section
5.01. Any determination made by the disinterested directors under division (A)
or by independent legal counsel under division (B) of this Section 5.04 to make
indemnification in respect of any claim, issue or matter asserted in an action
or suit threatened or brought by or in the right of the corporation shall be
promptly communicated to the person who threatened or brought such action or
suit, and within ten (10) days after receipt of such notification such person
shall have the right to petition the Court of Common Pleas of Belmont County,
Ohio, or the court in which such action or suit was brought, if any, to review
the reasonableness of such determination.
SECTION 5.05. ADVANCES FOR EXPENSES. Expenses (including,
without limitation, attorneys' fees, filing fees, court reporters' fees and
transcript costs) incurred in defending any action, suit or proceeding referred
to in Section 5.01 shall be paid by the corporation in advance of the final
disposition of such action, suit or proceeding to or on behalf of the officer or
director promptly as such expenses are incurred by him, but only if such officer
or director shall first agree, in writing, to repay all amounts so paid in
respect of any claim, issue or other matter asserted in such action, suit or
proceeding in defense of which he shall not have been successful on the merits
or otherwise:
(A) if it shall ultimately be determined as
provided in Section 5.04 that he is not entitled to be indemnified by the
corporation as provided under Section 5.01; or
(B) if, in respect of any claim, issue or other
matter asserted by or in the right of the corporation in such action or suit, he
shall have been adjudged to be liable for acting with reckless disregard for the
best interests of the corporation or misconduct (other than negligence) in the
performance of his duty to the corporation, unless and only to the extent that
the Court of Common Pleas of Belmont County, Ohio, or the court in which such
action or suit was brought shall determine upon application that, despite such
adjudication of liability, and in view of all the circumstances, he is fairly
and reasonably entitled to all or part of such indemnification.
SECTION 5.06. ARTICLE FIVE NOT EXCLUSIVE. The indemnification
provided by this Article Five shall not be deemed exclusive of any other rights
to which any person seeking indemnification may be entitled under the Articles
or the Regulations or any agreement, vote of shareholders or disinterested
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be an officer or director of the corporation and shall
inure to the benefit of the heirs, executors, and administrators of such a
person.
SECTION 5.07. INSURANCE. The corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, trustee, officer, employee, or agent of another
corporation (domestic or foreign, nonprofit or for profit), partnership, joint
venture, trust or other enterprise, against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the obligation or the power to
indemnify him against such liability under the provisions of this Article Five.
SECTION 5.08. CERTAIN DEFINITIONS. For purposes of this
Article Five, and as examples and not by way of limitation:
(A) A person claiming indemnification under this
Article 5 shall be deemed to have been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Section 5.01, or in
defense of any claim, issue or other matter therein, if such action, suit or
proceeding shall be terminated as to such person, with or without prejudice,
without the entry of a judgment or order against him, without a conviction of
him, without the imposition of a fine upon him and without his payment or
agreement to pay any amount in settlement thereof (whether or not any such
termination is based upon a judicial or other determination of the lack of merit
of the claims made against him or otherwise results in a vindication of him);
and
(B) References to an "other enterprise" shall
include employee benefit plans; references to a "fine" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the best
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<PAGE> 141
interests of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the corporation" within the meaning of that term as used in this Article Five.
SECTION 5.09. VENUE. Any action, suit or proceeding to
determine a claim for indemnification under this Article Five may be maintained
by the person claiming such indemnification, or by the corporation, in the Court
of Common Pleas of Belmont County, Ohio. The corporation and (by claiming such
indemnification) each such person consent to the exercise of jurisdiction over
its or his person by the Court of Common Pleas of Belmont County, Ohio, in any
such action, suit or proceeding.
(c) INDEMNIFICATION AGREEMENTS
(i) AGREEMENT WITH RP FINANCIAL, LC.
The Association has agreed to indemnify RP Financial, LC. ("RP
Financial"), the firm retained by the Association to provide the appraisal of
the pro forma market value of the Association as converted, in connection with
certain matters related to the appraisal. The Association will indemnify RP
Financial, its affiliates and the respective directors, officers, agents and
employees of RP Financial for certain costs and expenses, including reasonable
legal fees, in connection with claims or litigation arising out of any untrue
statement or alleged untrue statement of a material fact contained in the
financial statements or other information supplied to RP Financial by the
Association or by an omission or alleged omission by the Association to state a
material fact in the information so provided, except where RP Financial has been
negligent or at fault.
(ii) AGREEMENT WITH WEBB
The Association has agreed to indemnify and hold harmless
Webb. In general, the agreement with Webb (the "Agency Agreement") provides that
the Association will indemnify and hold harmless Webb's directors, officers,
employees, agents and any controlling person against any and all loss,
liability, claim, damage or expense (including the fees and disbursements of
counsel reasonably incurred) arising out of any untrue statement, or alleged
untrue statement, of a material fact contained in the Summary Proxy Statement or
the Prospectus, any application to regulatory authorities, any "blue sky"
application, or any other related document prepared or executed by or on behalf
of the Association with its consent in connection with, or in contemplation of,
the transactions contemplated by the Agency Agreement, or any omission therefrom
of a material fact required to be stated therein, unless such untrue statement
or omission, or alleged untrue statement or omission, was made in reliance upon,
and in conformity with, written information regarding Webb furnished to the
Association by Webb expressly for use in the Summary Proxy Statement or the
Prospectus.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
- -------- ----------------------------------------
No securities of the Holding Company have been sold by the Holding
Company without registration pursuant to the Act, except as follows:
On March 26, 1997, in connection with the incorporation of the
Holding Company, 100 common shares, without par value, of the Holding Company
(the "Securities") were sold for an aggregate purchase price of $100 pursuant to
Section 4(2) of the Act in a transaction not involving any public offering. The
Securities were sold to Jon W. Letzkus, the President of the Holding Company,
who had access to all material information about the Holding Company. The
Securities were offered without the use of any form of general solicitation or
advertising. No underwriter was involved in the transaction, and no commission,
discount or other remuneration was paid or given in connection with the sale of
the Securities. Under the terms of the Subscription Agreement between the
Holding Company and Mr. Letzkus, the Securities will be repurchased by the
Holding Company for $100 on the effective date of the Conversion.
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<PAGE> 142
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
- -------- -------------------------------------------
(a) EXHIBITS
The exhibits filed as a part of this Registration Statement
are as follows:
*1.1 Engagement letter with Charles Webb & Company
*1.2 Form of Agency Agreement with Charles Webb & Company
*2 Plan of Conversion
*3.1 Articles of Incorporation of Ohio State Financial Services,
Inc.
*3.2 Code of Regulations of Ohio State Financial Services, Inc.
3.3 Certificate of Amendment to Articles of Incorporation of Ohio
State Financial Services, Inc.
*5 Opinion of Vorys, Sater, Seymour and Pease regarding legality
of securities being registered
*8 Opinion of Vorys, Sater, Seymour and Pease regarding tax
matters
*10.1 Ohio State Financial Services, Inc. 1998 Stock Option and
Incentive Plan (proposed)
*10.2 Bridgeport Savings and Loan Association Recognition and
Retention Plan and Trust Agreement (proposed)
*10.3 Ohio State Financial Services, Inc. Employee Stock Ownership
Plan and Trust (proposed)
*10.4 Pentegra Services Inc. Employees' Savings & Profit Sharing Plan
Basic Plan Document and Adoption Agreement
10.5 Employment Agreement between Bridgeport Savings and Loan
Association and Jon W. Letzkus (proposed)
10.6 Form of Promissory Note from Ohio State Financial Services,
Inc. Employee Stock Ownership Plan
10.7 Form of Stock Pledge Agreement between Ohio State Financial
Services, Inc. and Ohio State
Financial Services, Inc.
23.1 Consent of S.R. Snodgrass, A.C.
*23.2 Consent of RP Financial, LC.
*23.3 Consent of Vorys, Sater, Seymour and Pease
*27 Financial Data Schedule
99.1 Summary Proxy Statement (Revised)
*99.2 Order Form and Form of Certification
*99.3 Form of Proxy
*99.4 Solicitation and Marketing Material
*99.5 Appraisal Agreement between Bridgeport Savings and Loan
Association and RP Financial, LC.
*99.6 Appraisal Report prepared by RP Financial, LC.
- -----------------------------------
*Previously filed
(b) FINANCIAL STATEMENT SCHEDULES:
No financial statement schedules are filed because the
required information is not applicable or is included in the consolidated
financial statements or related notes.
ITEM 17. UNDERTAKINGS.
- -------- -------------
(a) The undersigned, the Holding Company, hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement;
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<PAGE> 143
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information
in the Registration Statement.
(2) That, for the purpose of determining any liability under
the Act, each such post-effective amendment shall be deemed to be a
new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(b) Insofar as indemnification for liabilities arising under
the Act may be permitted to directors, officers and controlling persons of the
Holding Company, pursuant to the foregoing provisions or otherwise, the Holding
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act, and is therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Holding
Company of expenses incurred or paid by a director, officer or controlling
person of the Holding Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Holding Company will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
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<PAGE> 144
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Pre-Effective Amendment No. 1 to the
Registration Statement on Form S-1 to be signed on its behalf by the
undersigned, duly authorized to do so, in the City of Bridgeport, State of Ohio,
on July 29, 1997.
OHIO STATE FINANCIAL SERVICES, INC.
By: /s/ Jon W. Letzkus
---------------------------------
Jon W. Letzkus
its President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed below by the following
persons in the capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John O. Costine Director July 29, 1997
- --------------------------
John O. Costine
/s/ Michael P. Eddy Principal Financial Officer July 29, 1997
- -------------------------- and Treasurer
Michael P. Eddy
/s/ Anton M. Godez Director July 29, 1997
- --------------------------
Anton M. Godez
/s/ Jon W. Letzkus President July 29, 1997
- -------------------------- Principal Executive Officer
Jon W. Letzkus and Director
/s/ William E. Reline Director July 29, 1997
- --------------------------
William E. Reline
/s/ Manuel C. Thomas Director July 29, 1997
- --------------------------
Manuel C. Thomas
</TABLE>
II-9
<PAGE> 1
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
OHIO STATE FINANCIAL SERVICES, INC.
The undersigned, desiring to form a corporation for profit under Chapter
1701 of the Ohio Revised Code, does hereby certify:
FIRST: The name of the corporation shall be Ohio State Financial Services,
Inc.
SECOND: The place in Ohio where the principal office of the corporation is
to be located is the City of Bridgeport, County of Belmont.
THIRD: The purpose for which the corporation is formed is to engage in any
lawful act or activity for which corporations may be formed under Section
1701.01 to 1701.98, inclusive, of the Ohio Revised Code.
FOURTH: The authorized shares of the corporation shall be eight hundred and
fifty (850) common shares, each without par value. The directors of the
corporation may adopt an amendment to the Articles of Incorporation of the
corporation in respect of any unissued or treasury shares of any class and
thereby fix or change: the division of such shares into series and the
designation and authorized number of each series; the dividend rate; the dates
of payment of dividends and the dates from which they are cumulative; the
liquidation price; the redemption rights and price; the sinking fund
requirements; the conversion rights; and the restrictions on the issuance of
shares of any class or series.
FIFTH: (A) The board of directors of the corporation shall have the power
to cause the corporation from time to time and at any time to purchase, hold,
sell, transfer or otherwise deal with (i) shares of any class or series issued
by it, (ii) any security or other obligation of the corporation which may confer
upon the holder thereof the right to convert the same into shares of any class
or series authorized by the articles of the corporation, and (iii) any security
or other obligation which may confer upon the holder thereof the right to
purchase shares of any class or series authorized by the Articles of
Incorporation of the corporation.
(B) The corporation shall have the right to repurchase, if and when any
shareholder desires to sell, or on the happening of any event is required to
sell, shares of any class or series issued by the corporation.
<PAGE> 2
(C) The authority granted in this Article Fifth shall not limit the plenary
authority of the directors to purchase, hold, sell, transfer or otherwise deal
with shares of any class or series, securities or other obligations issued by
the corporation or authorized by the Articles of Incorporation of the
corporation.
SIXTH: Notwithstanding any provision of the Ohio Revised Code requiring for
any purpose the vote, consent, waiver or release of the holders of shares of the
corporation entitling them to exercise any proportion of the voting power of the
corporation or of any class or classes thereof, such action, unless expressly
otherwise provided by statute, may be taken by the vote, consent, waiver or
release of the holders of shares entitling them to exercise not less than a
majority of the voting power of the corporation or of such class or classes;
provided, however, that if the board of directors of the corporation shall
recommend against the approval of any of the following matters, the affirmative
vote of the holders of shares entitling them to exercise not less than
seventy-five percent (75%) of the voting power of any class or classes of shares
of the corporation which entitle the holders thereof to vote in respect of any
such matter as a class shall be required to adopt:
(A) A proposed amendment to the Articles of Incorporation of the
corporation;
(B) A proposed amendment to the Code of Regulations of the corporation;
(C) A proposal to change the number of directors by action of the
shareholders;
(D) An agreement of merger or consolidation providing for the proposed
merger or consolidation of the corporation with or into one or more
other corporations;
(E) A proposed combination or majority share acquisition involving the
issuance of shares of the corporation and requiring shareholder
approval;
(F) A proposal to sell, exchange, transfer or otherwise dispose of all, or
substantially all, of the assets, with or without the goodwill, of the
corporation; or
(G) A proposed dissolution of the corporation.
SEVENTH: No shareholder of the corporation shall have, as a matter of
right, the pre-emptive right to purchase or subscribe for shares of any class,
now or hereafter authorized, or to purchase or subscribe for securities or other
obligations convertible into or exchangeable for such shares or which by
warrants or otherwise entitle the holders thereof to subscribe for or purchase
any such shares.
<PAGE> 3
IN WITNESS WHEREOF, I have hereunto signed my name this 24th day of March,
1997.
/s/ Jon W. Letzkus
----------------------------------------
Jon W. Letzkus, Incorporator
<PAGE> 1
Exhibit 3.3
[THE SEAL OF THE SECRETARY OF STATE OF OHIO]
Prescribed by
BOB TAFT, Secretary of State
30 East Broad Street, 14th Floor
Columbus, Ohio 43266-0418
Form SH-AMD (January 1991)
Charter No. 972662
Approved CR
Date 7-1-97
Fee $10,050.00
CERTIFICATE OF AMENDMENT
By Shareholders to the Articles of Incorporation of
Ohio State Financial Services, Inc.
- --------------------------------------------------------------------------------
(Name of Corporation)
Jon W. Letzkus , who is:
- ---------------------
[ ] Chairman of the Board [X] President [ ] Vice President (check one)
and
Sherri Yarbrough , who is: [X] Secretary [ ] Assistant Secretary (Check One)
- ---------------------
of the above name Ohio corporation for profit do hereby certify that: (check the
appropriate box and complete the appropriate statements)
[ ] a meeting of the shareholders was duly called for the purpose of adopting
this amendment and held on , 19 at which meeting a quorum of the
shareholders was present in person or by proxy, and by the affirmative vote
of the holders of shares entitling them to exercise % of the voting power
of the corporation.
[X] in a writing signed by all of the shareholders who would be entitled to
notice of a meeting held for that purpose, the following resolutions to
amend the articles were adopted:
SEE EXHIBIT A ATTACHED HERETO.
IN WITNESS WHEREOF, the above named officers, acting for and on the behalf
of the corporation, have hereto subscribed their names this 30th day of June,
1997.
By /s/Jon W. Letzkus
----------------------------------------
(President)
By /s/ Sherri Yarbrough
----------------------------------------
(Secretary)
NOTE: Ohio law does not permit one officer to sign in two capacities. Two
separate signatures are required, even if this necessitates the election of a
second officer before the filing can be made.
<PAGE> 2
EXHIBIT A
RESOLVED, that the Articles of Incorporation of Ohio State Financial Services,
Inc. be amended by deleting Article FOURTH in its entirety and
substituting therefor the following new Article FOURTH:
FOURTH: The authorized shares of the corporation shall be three
million (3,000,000), all of which shall be common shares, each
without par value. The directors of the corporation may adopt an
amendment to the Articles of Incorporation in respect of any
unissued or treasury shares of any class and thereby fix or
change: the division of such shares into series and the
designation and authorized number of each series; the dividend
rate; the dates of payment of dividends and the dates from which
they are cumulative; the liquidation price; the redemption rights
and price; the sinking fund requirements; the conversion rights;
and the restrictions on the issuance of shares of any class or
series.
FURTHER RESOLVED, that the Articles of Incorporation of Ohio State
Financial Services, Inc. be amended by adding thereto the following
Article EIGHTH:
EIGHTH: No shareholder of the corporation shall have the right to
vote cumulatively in the election of directors.
<PAGE> 1
Exhibit 10.5
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (hereinafter referred to as this "AGREEMENT"), is
entered into this 1st day of September, 1997, by and between the Bridgeport
Savings and Loan Association, a savings and loan association incorporated under
Ohio law (hereinafter referred to as the "EMPLOYER"), and Jon W. Letzkus, an
individual (hereinafter referred to as the "EMPLOYEE");
WITNESSETH:
WHEREAS, the EMPLOYEE is currently employed as the President and Managing
Officer of the EMPLOYER;
WHEREAS, as a result of the skill, knowledge and experience of the
EMPLOYEE, the Board of Directors of the EMPLOYER desires to retain the services
of the EMPLOYEE as the President and Managing Officer of the EMPLOYER;
WHEREAS, the EMPLOYEE desires to continue to serve as the President and
Managing Officer of the EMPLOYER; and
WHEREAS, the EMPLOYEE and the EMPLOYER desire to enter into this AGREEMENT
to set forth the terms and conditions of the employment relationship between the
EMPLOYER and the EMPLOYEE;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the EMPLOYER and the EMPLOYEE hereby agree as follows:
1. EMPLOYMENT AND TERM.
(a) TERM. Upon the terms and subject to the conditions of this AGREEMENT,
the EMPLOYER hereby employs the EMPLOYEE, and the EMPLOYEE hereby accepts
employment, as the President and Managing Officer of the EMPLOYER. The term of
this AGREEMENT shall commence on the date hereof and shall end on August 31,
1998 unless extended by the EMPLOYER with the consent of the EMPLOYEE as
provided in subsection (b) of this Section 1 (hereinafter referred to, together
with such extensions, as the "TERM").
(b) EXTENSION. On or before each anniversary of the date of this AGREEMENT,
the Board of Directors of the EMPLOYER shall review this AGREEMENT, document its
justification and approval of this AGREEMENT in the board minutes, and the TERM
shall be extended for a one-year period beyond the then effective expiration
date, provided the Board of Directors determines that this AGREEMENT should be
extended. Any such extension shall be subject to the written consent of the
EMPLOYEE.
2. DUTIES OF THE EMPLOYEE.
<PAGE> 2
(a) GENERAL DUTIES AND RESPONSIBILITIES. The EMPLOYEE shall serve as the
President and Managing Officer of the EMPLOYER. Subject to the direction of the
Board of Directors of the EMPLOYER, the EMPLOYEE shall have responsibility for
the general management and control of the business and affairs of the EMPLOYER
and shall perform all duties and shall have all powers which are commonly
incident to the office of President and Managing Officer or which, consistent
therewith, are delegated to him by the Board of Directors. Such duties shall
include, but not be limited to, (i) managing the day-to-day operations of the
EMPLOYER, (ii) managing the efforts of the EMPLOYER to comply with applicable
laws and regulations, (iii) marketing of the EMPLOYER and its services, (iv)
supervising other employees of the EMPLOYER, (v) providing prompt and accurate
reports to the Board of Directors of the EMPLOYER regarding the affairs and
conditions of the EMPLOYER, and (vi) making recommendations to the Board of
Directors of the EMPLOYER concerning the strategies, capital structure, tactics,
and general operations of the EMPLOYER.
(b) DEVOTION OF ENTIRE TIME TO THE BUSINESS OF THE EMPLOYER. The EMPLOYEE
shall devote his entire productive time, ability and attention during normal
business hours throughout the TERM to the faithful performance of his duties
under this AGREEMENT. The EMPLOYEE shall not directly or indirectly render any
services of a business, commercial or professional nature to any person or
organization other than the EMPLOYER and its sole shareholder, Ohio State
Financial Services Corporation (hereinafter referred to as the "HOLDING
COMPANY") without the prior written consent of the Board of Directors of the
EMPLOYER; provided, however, that the EMPLOYEE shall not be precluded from (i)
vacations and other leave time in accordance with Section 3(d) hereof; (ii)
reasonable participation in community, civic, charitable or similar
organizations; or (iii) the pursuit of personal investments which do not
interfere or conflict with the performance of the EMPLOYEE's duties to the
EMPLOYER. Nothing in this section shall limit the EMPLOYEE's right to invest in
securities of any business that does not provide services or products of the
type or competing with those provided by the EMPLOYER or its subsidiaries or
affiliates.
3. COMPENSATION, BENEFITS AND REIMBURSEMENTS.
(a) SALARY. The EMPLOYEE shall receive during the TERM an annual salary
payable in equal installments not less often than monthly. The amount of such
annual salary shall be $78,500 until changed by the Board of Directors of the
EMPLOYER in accordance with Section 3(b) of this AGREEMENT.
(b) ANNUAL SALARY REVIEW. On or before each anniversary of the date of this
AGREEMENT, the annual salary of the EMPLOYEE shall be reviewed by the Board of
Directors of the EMPLOYER and shall be set at an amount not less than $78,500,
based upon the EMPLOYEE's individual performance and the overall profitability
and financial condition of the EMPLOYER (hereinafter referred to as the "ANNUAL
REVIEW"). The results of the ANNUAL REVIEW shall be reflected in the minutes of
the Board of Directors of the EMPLOYER.
2
<PAGE> 3
(c) EMPLOYEE BENEFIT PROGRAM. During the TERM, the EMPLOYEE shall be
entitled to participate in all formally established employee benefit, bonus,
pension and profit-sharing plans and similar programs that are maintained by the
EMPLOYER from time to time, and all employee benefit plans or programs hereafter
adopted in writing by the Board of Directors of the EMPLOYER, for which senior
management personnel are eligible, including any employee stock ownership plan,
stock option plan or other stock benefit plan (hereinafter collectively referred
to as the "BENEFIT PLANS") in accordance with the terms and conditions of such
BENEFIT PLANS, including but not limited to satisfaction of any participation or
vesting requirements. Notwithstanding any statement to the contrary contained
elsewhere in this AGREEMENT, the EMPLOYER may discontinue or terminate at any
time any such BENEFIT PLANS, now existing or hereafter adopted, to the extent
permitted by the terms of such plans and shall not be required to compensate the
EMPLOYEE for such discontinuance or termination.
(d) VACATION AND SICK LEAVE. The EMPLOYEE shall be entitled, without loss
of pay, to be absent voluntarily from the performance of his duties under this
AGREEMENT, in accordance with the policies periodically established by the Board
of Directors of the EMPLOYER for senior management officials of the EMPLOYER.
The EMPLOYEE shall not be entitled to receive any additional compensation from
the EMPLOYER in the event of his failure to take the full allotment of vacation
time in any calendar year. The EMPLOYEE shall be entitled to annual sick leave
as established by the Board of Directors of the EMPLOYER for senior management
officials of the EMPLOYER. In the event that any sick leave time shall not have
been used during any calendar year, such leave shall accrue to subsequent
calendar years, only to the extent authorized by the Board of Directors of the
EMPLOYER. Upon termination of employment, the EMPLOYEE shall not be entitled to
receive any additional compensation from the EMPLOYER for unused sick leave.
4. TERMINATION OF EMPLOYMENT.
(a) GENERAL. In addition to the termination of the employment of the
EMPLOYEE upon the expiration of the TERM, the employment of the EMPLOYEE shall
terminate at any other time during the TERM (i) at the option of the EMPLOYER
upon the delivery of written notice by the EMPLOYER of employment termination to
the EMPLOYEE or (ii) at the option of the EMPLOYEE upon delivery by the EMPLOYEE
of written notice of termination to the EMPLOYER if, in connection with, or
within one year after a CHANGE IN CONTROL (hereinafter defined), the present
capacity or circumstances in which the EMPLOYEE is employed are materially
adversely changed (including, but not limited to, a material reduction in
responsibilities or authority, or the assignment of duties or responsibilities
substantially inconsistent with those normally associated with the EMPLOYEE'S
position described in Section 2(a) of this AGREEMENT or the requirement that the
EMPLOYEE perform his principal executive functions more than thirty-five (35)
miles from his primary office as of the date of the commencement of the TERM of
this AGREEMENT) before expiration of the TERM, or the EMPLOYEE'S compensation or
other benefits provided under this AGREEMENT are materially reduced, unless such
material benefit reductions are part of an institution-wide reduction.. The
following subparagraphs (A), (B) and (C) of this Section 4(a) shall govern the
obligations of the
3
<PAGE> 4
EMPLOYER to the EMPLOYEE upon the occurrence of the events described in such
subparagraphs:
(A) TERMINATION FOR JUST CAUSE. In the event that the EMPLOYER terminates
the employment of the EMPLOYEE during the TERM because of the EMPLOYEE's
personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure or refusal to perform the duties
and responsibilities assigned in this AGREEMENT, willful violation of any law,
rule, regulation or final cease-and-desist order (other than traffic violations
or similar offenses), conviction of a felony or for fraud or embezzlement, or
material breach of any provision of this AGREEMENT (hereinafter collectively
referred to as "JUST CAUSE"), the EMPLOYEE shall not receive, and shall have no
right to receive, any compensation or other benefits for any period after such
termination.
(B) TERMINATION AFTER CHANGE OF CONTROL. In the event that, the employment
of the EMPLOYEE is terminated for any reason other than JUST CAUSE or is
terminated by the EMPLOYEE in accordance with Section 4(a)(ii) of this
Agreement, then the following shall occur:
(I) The EMPLOYER shall promptly pay to the EMPLOYEE or to his
beneficiaries, dependents or estate an amount equal to the product of two,
multiplied by the greater of the annual salary set forth in Section 3(a) of this
AGREEMENT or the annual salary payable to the EMPLOYEE as a result of any ANNUAL
REVIEW;
(II) The EMPLOYEE, his dependents, beneficiaries and estate shall
continue to be covered at the EMPLOYER's expense under all health, life,
disability and other welfare benefit plans of the EMPLOYER in which the EMPLOYEE
was a participant prior to the effective date of the termination of his
employment as if the EMPLOYEE were still employed under this AGREEMENT until the
earliest of the expiration of two years from the effective date of the
termination of employment or the date on which the EMPLOYEE is included in
another employer's benefit plans as a full-time employee; and
(III) The EMPLOYEE shall not be required to mitigate the amount of any
payment provided for in this AGREEMENT by seeking other employment or otherwise,
nor shall any amounts received from other employment or otherwise by the
EMPLOYEE offset in any manner the obligations of the EMPLOYER hereunder, except
as specifically stated in subparagraph (II).
In the event that payments pursuant to this subsection (ii) would result in
the imposition of a penalty tax pursuant to Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder
(hereinafter collectively referred to as "SECTION 280G"), such payments shall be
reduced to the maximum amount which may be paid under SECTION 280G without
exceeding such limits. Payments pursuant to this subsection also may not exceed
the limit set forth in Regulatory Bulletin 27a of the Office of Thrift
Supervision (hereinafter referred to as the "OTS").
4
<PAGE> 5
(C) TERMINATION WITHOUT CHANGE OF CONTROL. In the event that the employment
of the EMPLOYEE is terminated before the expiration of the TERM other than (A)
for JUST CAUSE or (B) in connection with or within one year after a CHANGE OF
CONTROL, then the following shall occur:
(I) The EMPLOYER shall be obligated to continue to pay on a monthly
basis to the EMPLOYEE, his designated beneficiaries or his estate, his annual
salary provided pursuant to Section 3(a) or (b) of this AGREEMENT until the
expiration of the TERM;
(II) The EMPLOYER shall continue to provide to the EMPLOYEE, at the
EMPLOYER's expense, health, life, disability, and other welfare benefits
substantially equal to those being provided to the EMPLOYEE at the date of
termination of his employment until the earliest to occur of the expiration of
the TERM or the date on which the EMPLOYEE is included in another employer's
benefit plans as a full-time employee; and
(III) The EMPLOYEE shall not be required to mitigate the amount of any
payment provided for in this AGREEMENT by seeking other employment or otherwise,
nor shall any amounts received from other employment or otherwise by the
EMPLOYEE offset in any manner the obligations of the EMPLOYER hereunder, except
as specifically stated in subparagraph (II).
In the event that payments pursuant to this subsection (iii) would result
in the imposition of a penalty tax pursuant to SECTION 280G, such payments shall
be reduced to the maximum amount which may be paid under SECTION 280G without
exceeding those limits. Payments pursuant to this subsection also may not exceed
the limit set forth in Regulatory Bulletin 27a of the OTS.
(b) DEATH OF THE EMPLOYEE. The TERM automatically terminates upon the death
of the EMPLOYEE. In the event of such death, the EMPLOYEE's estate shall be
entitled to receive the compensation due the EMPLOYEE through the last day of
the calendar month in which the death occurred, except as otherwise specified
herein.
(c) "GOLDEN PARACHUTE" PROVISION. Any payments made to the EMPLOYEE
pursuant to this AGREEMENT or otherwise are subject to and conditioned upon
their compliance with 12 U.S.C. ss.1828(k) and any regulations promulgated
thereunder.
(d) DEFINITION OF "CHANGE OF CONTROL". A "CHANGE OF CONTROL" shall mean any
one of the following events; (i) the acquisition of ownership or power to vote
more than 25% of the voting stock of the EMPLOYER or the HOLDING COMPANY; (ii)
the acquisition of the ability to control the election of a majority of the
directors of the EMPLOYER or the HOLDING COMPANY; (iii) during any period of up
to two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the EMPLOYER or the HOLDING COMPANY cease
for any reason to constitute at least two-thirds thereof; provided, however,
that any individual whose election or nomination for election as a member of the
Board of Directors of the EMPLOYER or the HOLDING COMPANY was approved by a vote
of at least two-thirds of the directors then in office shall be considered to
5
<PAGE> 6
have continued to be a member of the Board of Directors of the EMPLOYER or the
HOLDING COMPANY; or (iv) the acquisition by any person or entity of "conclusive
control" of the EMPLOYER within the meaning of 12 C.F.R. ss.574.4(a), or the
acquisition by any person or entity of "rebuttable control" within the meaning
of 12 C.F.R. ss.574.4(b) that has not been rebutted in accordance with 12 C.F.R.
ss.574.4(c). For purposes of this paragraph, the term "person" refers to an
individual or corporation, partnership, trust, association, or other
organization, but does not include the EMPLOYEE and any person or persons with
whom the EMPLOYEE is "acting in concert" within the meaning of 12 C.F.R. Part
574.
5. SPECIAL REGULATORY EVENTS. Notwithstanding Section 4 of this AGREEMENT, the
obligations of the EMPLOYER to the EMPLOYEE shall be as follows in the event of
the following circumstances:
(a) If the EMPLOYEE is suspended and/or temporarily prohibited from
participating in the conduct of the EMPLOYER's affairs by a notice served under
section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (hereinafter
referred to as the "FDIA"), the EMPLOYER's obligations under this AGREEMENT
shall be suspended as of the date of service of such notice, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
EMPLOYER shall pay the EMPLOYEE all or part of the compensation withheld while
the obligations in this AGREEMENT were suspended and reinstate, in whole or in
part, any of the obligations that were suspended;
(b) If the EMPLOYEE is removed and/or permanently prohibited from
participating in the conduct of the EMPLOYER's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA, all obligations of the EMPLOYER under
this AGREEMENT shall terminate as of the effective date of such order; provided,
however, that vested rights of the EMPLOYEE shall not be affected by such
termination;
(c) If the EMPLOYER is in default, as defined in section 3(x)(1) of the
FDIA, all obligations under this AGREEMENT shall terminate as of the date of
default; provided, however, that vested rights of the EMPLOYEE shall not be
affected;
(d) All obligations under this AGREEMENT shall be terminated, except to the
extent of a determination that the continuation of this AGREEMENT is necessary
for the continued operation of the EMPLOYER, (i) by the Director of the OTS, or
his or her designee at the time that the Federal Deposit Insurance Corporation
enters into an agreement to provide assistance to or on behalf of the EMPLOYER
under the authority contained in Section 13(c) of the FDIA or (ii) by the
Director of the OTS, or his or her designee, at any time the Director of the OTS
approves a supervisory merger to resolve problems related to the operation of
the EMPLOYER or when the EMPLOYER is determined by the Director of the OTS to be
in an unsafe or unsound condition; provided, however that no vested rights of
the EMPLOYEE shall not be affected by any such termination; and
6
<PAGE> 7
(e) The provisions of this Section 5 are governed by the requirements of 12
C.F.R. Section 563b.39(b) and in the event that any statements in this Section 5
are inconsistent with 12 C.F.R. Section 563b.39(b), the provisions of 12 C.F.R.
Section 563b.39(b) shall be controlling.
6. CONSOLIDATION, MERGER OR SALE OF ASSETS. Nothing in this AGREEMENT shall
preclude the EMPLOYER or the HOLDING COMPANY from consolidating with, merging
into, or transferring all, or substantially all, of their assets to another
corporation that assumes all of their obligations and undertakings hereunder.
Upon such a consolidation, merger or transfer of assets, the term "EMPLOYER" as
used herein, shall mean such other corporation or entity, and this AGREEMENT
shall continue in full force and effect.
7. CONFIDENTIAL INFORMATION. The EMPLOYEE acknowledges that during his
employment he will learn and have access to confidential information regarding
the EMPLOYER and its customers and businesses. The EMPLOYEE agrees and covenants
not to disclose or use for his own benefit, or the benefit of any other person
or entity, any confidential information, unless or until the EMPLOYER consents
to such disclosure or use or such information is otherwise legally in the public
domain. The EMPLOYEE shall not knowingly disclose or reveal to any unauthorized
person any confidential information relating to the EMPLOYER, its subsidiaries,
or affiliates, or to any of the businesses operated by them, and the EMPLOYEE
confirms that such information constitutes the exclusive property of the
EMPLOYER. The EMPLOYEE shall not otherwise knowingly act or conduct himself (a)
to the material detriment of the EMPLOYER, its subsidiaries, or affiliates, or
(b) in a manner which is inimical or contrary to the interests of the EMPLOYER.
8. NON-ASSIGNABILITY. Neither this AGREEMENT nor any right or interest hereunder
shall be assignable by the EMPLOYEE, his beneficiaries or legal representatives
without the EMPLOYER's prior written consent; provided, however, that nothing in
this Section 8 shall preclude (a) the EMPLOYEE from designating a beneficiary to
receive any benefits payable hereunder upon his death, or (b) the executors,
administrators, or other legal representatives of the EMPLOYEE or his estate
from assigning any rights hereunder to the person or persons entitled thereto.
9. NO ATTACHMENT. Except as required by law, no right to receive payment under
this AGREEMENT shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge or hypothecation or to execution,
attachment, levy, or similar process of assignment by operation of law, and any
attempt, voluntary or involuntary, to effect any such action shall be null, void
and of no effect.
10. BINDING AGREEMENT. This AGREEMENT shall be binding upon, and inure to the
benefit of, the EMPLOYEE and the EMPLOYER and their respective permitted
successors and assigns.
11. AMENDMENT OF AGREEMENT. This AGREEMENT may not be modified or amended,
except by an instrument in writing signed by the parties hereto.
7
<PAGE> 8
12. WAIVER. No term or condition of this AGREEMENT shall be deemed to have been
waived, nor shall there be an estoppel against the enforcement of any provision
of this AGREEMENT, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver,
unless specifically stated therein, and each waiver shall operate only as to the
specific term or condition waived and shall not constitute a waiver of such term
or condition for the future or as to any act other than the act specifically
waived.
13. SEVERABILITY. If, for any reason, any provision of this AGREEMENT is held
invalid, such invalidity shall not affect the other provisions of this AGREEMENT
not held so invalid, and each such other provision shall, to the full extent
consistent with applicable law, continue in full force and effect. If this
AGREEMENT is held invalid or cannot be enforced, then any prior AGREEMENT
between the EMPLOYER (or any predecessor thereof) and the EMPLOYEE shall be
deemed reinstated to the full extent permitted by law, as if this AGREEMENT had
not been executed.
14. HEADINGS. The headings of the paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this AGREEMENT.
15. GOVERNING LAW. This AGREEMENT has been executed and delivered in the State
of Ohio and its validity, interpretation, performance, and enforcement shall be
governed by the laws of the State of Ohio, except to the extent that federal law
is governing.
16. EFFECT OF PRIOR AGREEMENTS. This AGREEMENT contains the entire understanding
between the parties hereto and supersedes any prior employment agreement between
the EMPLOYER or any predecessor of the EMPLOYER and the EMPLOYEE.
17. NOTICES. Any notice or other communication required or permitted pursuant to
this AGREEMENT shall be deemed delivered if such notice or communication is in
writing and is delivered personally or by facsimile transmission or is deposited
in the United States mail, postage prepaid, addressed as follows:
If to the EMPLOYER:
Bridgeport Savings and Loan Association
435 Main Street
Bridgeport, Ohio 43912
8
<PAGE> 9
with copies to:
Terri Reyering Abare, Esq.
Vorys, Sater, Seymour and Pease
Atrium Two, Suite 2100
221 East Fourth Street
Cincinnati, Ohio 45202
If to the EMPLOYEE:
Mr. Jon W. Letzkus
117 Euclid Avenue
Wheeling, WV 26003
IN WITNESS WHEREOF, the EMPLOYER has caused this AGREEMENT to be executed
by its duly authorized officer, and the EMPLOYEE has signed this AGREEMENT, each
as of the day and year first above written.
Attest: Bridgeport Savings and Loan Association
By:
- --------------------------------- -------------------------------------
its
----------------------------------
Attest:
- --------------------------------- ----------------------------------------
Jon W. Letzkus
9
<PAGE> 1
Exhibit 10.6
PROMISSORY NOTE
---------------
$714,150 _______________, 1997
FOR VALUE RECEIVED, the OHIO STATE FINANCIAL SERVICES, INC. EMPLOYEE STOCK
OWNERSHIP PLAN ("Borrower") promises to pay to the order of OHIO STATE FINANCIAL
SERVICES, INC. ("Lender"), in accordance with the terms hereof, the principal
sum of Seven Hundred Fourteen Thousand One Hundred Fifty Dollars ($714,150)
together with interest thereon from and after the date hereof at the rate of
_____ and _____ hundredths percent (____%) per annum.
Said principal and interest shall be due and payable as follows:
(i) principal shall be due and payable in ten equal annual installments of
Seventy-One Thousand Four Hundred Fifteen Dollars ($71,415) each, commencing on
December 31, 1997, and continuing on the same date of each of the next nine
calendar years thereafter; and
(ii) accrued interest shall be due and payable in full on the due date of
each principal installment hereunder.
Borrower may at any time prepay the indebtedness evidenced hereby;
provided, however, that (i) notwithstanding anything contained herein to the
contrary, the aggregate amount of payments made hereunder in any plan year of
the Borrower shall in no event exceed the maximum amount permitted under 26
C.F.R. Sec. 54.4975-7(b)(5); and (ii) no prepayment shall excuse Borrower from
making principal and interest payments subsequently scheduled hereunder.
Borrower shall use the proceeds of the loan evidenced by this Note solely
for the purpose of acquiring common shares of the Lender that constitute
"qualifying employer securities" as defined in 26 C.F.R. Section 54.4975-12.
Borrower shall be in default hereunder and an event of default (an "Event
of Default") shall be deemed to have occurred if (i) Borrower fails to make any
installment of principal or interest when due and payable hereunder and such
failure continues unremedied for a period of 10 days after written notice of
such default has been delivered by Lender to Borrower, or (ii) an Event of
Default occurs under the Pledge Agreement (as hereinafter defined).
Upon the occurrence of an Event of Default hereunder, Lender may then or at
any time thereafter during the continuance of the event of default, at its
option, exercise any of the rights or remedies available to it under applicable
law, this Note or the Pledge Agreement; provided, however, that Lender shall not
be entitled to exercise any right or remedy that would cause the loan evidenced
by this Note to become a "non-exempt loan" as defined in 26 C.F.R. Section
54.4975-7(b)(1).
<PAGE> 2
This Note is secured by an ESOP Stock Pledge Agreement of even date
herewith between the Lender and the Borrower (the "Pledge Agreement").
Notwithstanding anything contained herein to the contrary, this Note and the
loan evidenced hereby are non-recourse to the Borrower. The Borrower shall not
be personally liable for the payment of any sums due under this Note, and
liability for payment of any such sums shall not be enforceable against any
property of the Borrower, other than the Collateral (as defined in the Pledge
Agreement), and the Lender's recourse against Borrower shall be limited to such
Collateral. This limitation of liability, however, shall not prejudice the right
of the Lender to enforce the pledge and security interest granted with respect
to the Collateral under the Pledge Agreement.
No delay or omission by the Lender in exercising any right or remedy shall
be a waiver of such right or remedy or any other rights or remedies, or of any
event of default. A waiver of a right or remedy or of an event of default on one
occasion shall not be construed as a bar or waiver on any other occasion. If any
provision of this Note is held invalid, such provision will be ineffective to
the extent of such invalidity, without invalidating the remainder of such
provision or the other provisions of this Note.
Presentment for payment, demand for payment, notice of default or dishonor,
protest, notice of protest and all other demands and notices in connection with
the delivery, acceptance, performance, default, endorsement and enforcement of
this Note, except for notices expressly provided for in this Note, are hereby
waived.
This Note shall be governed by and construed in accordance with the laws of
the State of Ohio.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as of
the date first above written.
OHIO STATE FINANCIAL SERVICES, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
By: FIRST BANKER TRUST COMPANY,
N.A., TRUSTEE
By:
-------------------------------------
Carmen Walch
Its: Trust Officer
-2-
<PAGE> 1
Exhibit 10.7
ESOP STOCK PLEDGE AGREEMENT
---------------------------
This Stock Pledge Agreement, dated as of _____________ 1997, is between the
OHIO STATE FINANCIAL SERVICES, INC. EMPLOYEE STOCK OWNERSHIP PLAN TRUST, by
FIRST BANKERS TRUST COMPANY, N.A., its trustee ("Pledgor"), and OHIO STATE
FINANCIAL SERVICES, INC., an Ohio corporation ("Pledgee").
W I T N E S S E T H:
WHEREAS, Pledgor is purchasing 71,415 common shares of Pledgee (the
"Securities");
WHEREAS, contemporaneously with the execution of this Agreement, Pledgor is
issuing to Pledgee a $714,150 promissory note (the "Note"), the proceeds of
which will be used to purchase the Securities; and
WHEREAS, Pledgee is unwilling to make the loan evidenced by the Note unless
this Agreement is executed and delivered by Pledgor;
NOW, THEREFORE, in consideration of the premises and to induce Pledgee to
make the loan evidenced by the Note, it is agreed as follows:
1. PLEDGE. Pledgor pledges, mortgages, assigns, transfers, delivers,
deposits, sets over and confirms as a first priority pledge to Pledgee and its
successors and assigns, with the right to vote as hereinafter provided, all of
the Securities as collateral security for payment and performance by Pledgor of
the obligations of Pledgor to Pledgee, including, without limitation, the Note
(collectively, the "Obligations"). Promptly after the Securities are purchased
by Pledgor, Pledgor shall instruct Pledgee's transfer agent to record the pledge
of the Securities in the stock transfer records of Pledgee and to provide
certification of such to Pledgee. Each common share of Pledgee purchased with
the proceeds of the Note shall automatically become subject to the pledge and
security interest of this Agreement at the time Pledgor obtains rights in such
share, without any further action by any person.
2. REPRESENTATION AND WARRANTIES. Pledgor represents and warrants to
Pledgee that:
(a) As of the date hereof, Pledgor is, or upon Pledgor's purchase of
the Securities Pledgor will be, the sole holder of record of the Securities,
free and clear of any security interest, pledge, or other lien or encumbrance
(collectively, "Lien") thereon or affecting the title thereto;
(b) None of the Securities has been issued or transferred in violation
of the securities registration, securities disclosure or similar laws of any
jurisdiction to which such issuance or transfer may be subject;
<PAGE> 2
(c) There are no existing options, warrants, calls or commitments of
any character whatsoever relating to the Securities; and
(d) Pledgor has obtained all permits, consents, approvals,
authorizations or other orders of any person, corporation, partnership, trust,
governmental entity, or other entity required for the execution and delivery of
this Agreement or the delivery of the Securities to Pledgee as provided herein.
The representations and warranties set forth in this Section 2 shall
survive the execution and delivery of this Agreement.
3. PLEDGOR RIGHTS. Unless and until an Event of Default (hereinafter
defined) shall have occurred and be continuing:
(a) Pledgor shall have the right, from time to time, to vote and give
consents with respect to the Securities for all purposes not inconsistent with
the provisions of this Agreement; provided, however, that no vote shall be cast,
and no consent shall be given or action taken, which would have the effect of
impairing the position or interest of Pledgee in respect of the Securities
without the prior written consent of Pledgee, which will not be unreasonably
withheld, or unless the Note will be paid in full in connection with the
transaction for which Pledgor is voting; and
(b) (i) Pledgor shall be entitled, from time to time, to collect and
receive for its own use all cash dividends (except cash dividends in total or
partial liquidation) paid on the Securities; provided, however, that until
actually paid all rights to such dividends shall remain subject to the Lien of
this Agreement; and
(ii) all dividends (other than such cash dividends as are
permitted to be paid to Pledgor by clause (i) above) and all other distributions
in respect of any of the Securities, whenever paid or made, shall, in the case
of dividends or other distributions in the form of stock or any other security
of Pledgee, be delivered to Pledgee and held by Pledgee subject to the Lien
created by this Agreement and shall be then deemed "Securities" for the purposes
of this Agreement, and, in all other cases, shall be held by Pledgor subject to
the Lien created by this Agreement.
4. COVENANTS. Pledgor covenants and agrees that until payment in full of
all of the Obligations:
(a) Without the prior written consent of Pledgee, Pledgor will not
sell, assign, transfer, mortgage, pledge or otherwise encumber any of Pledgor's
rights in or to the Securities or any unpaid dividends or other distributions or
payments with respect thereto or grant a Lien in any thereof.
-2-
<PAGE> 3
(b) Pledgor, at Pledgor's expense, will obtain, execute, acknowledge
and deliver all such instruments and take all such action necessary (or as
Pledgee from time to time may request) in order to ensure Pledgee shall have and
retain the benefits of the first priority Lien in and the security intended to
be created by this Agreement.
(c) Pledgor will not change its Plan Year (as defined in the plan
documents governing Pledgor) unless required to do so by law or by order of a
government agency.
5. EVENTS OF DEFAULT. The following shall each constitute an "Event of
Default" under this Agreement:
(a) The occurrence of an event of default under the terms of the Note;
or
(b) Failure by Pledgor to observe and perform any covenant, condition,
or agreement on Pledgor's part to be observed or performed under this Agreement;
or
(c) Failure of any representation or warranty of Pledgor contained in
this Agreement to be true when given.
6. REMEDIES. (a) Subject to the final paragraph of this Section 6, upon the
occurrence of an Event of Default, then or at any time after such occurrence,
and in addition to the rights and remedies of Pledgee pursuant to the terms and
provisions of the Note, Pledgee (personally or through an agent) is hereby
authorized and empowered at its election to transfer and register in its name or
in the name of its nominee the whole or any part of the Securities and to sell
in one or more sales after 7 days' notice (which notice Pledgor agrees is
commercially reasonable) but without any previous notice or advertisement the
whole or any part of the Securities and to otherwise act with respect to the
Securities as though Pledgee was the outright owner thereof, Pledgor hereby
irrevocably constituting and appointing Pledgee as the proxy and
attorney-in-fact of Pledgor, with full power of substitution to do so; provided,
however, Pledgee shall not have any duty to exercise any such right or to
preserve the same and shall not be liable for any failure to do so or for any
delay in doing so. Any sale may be either for cash or upon credit or for future
delivery at such price as Pledgee may deem fair, and Pledgee may be the
purchaser of the whole or any part of the Securities so sold and hold the same
thereafter in its own right free from any claim of Pledgor or any right of
redemption. Each sale shall be made to the highest bidder, but Pledgee reserves
the right to reject any and all bids at such sale which, in its sole discretion,
it shall deem inadequate. Demands of performance, except as otherwise herein
specifically provided for, notices of sale, advertisements and the presence of
property at sale are hereby waived and any sale hereunder may be conducted by an
auctioneer or any officer or agent of Pledgee.
(b) If, at the original time or times appointed for the sale of the
whole or any part of the Securities, the highest bid, if there be but one sale,
shall be inadequate to discharge in full all of the Obligations, or if the
Securities be offered for sale in lots, if at any of
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<PAGE> 4
such sales, the highest bid for the lot offered for sale would indicate to
Pledgee, in its discretion, the unlikelihood of the proceeds of the sales of all
of the Securities being sufficient to discharge all the Obligations, Pledgee
may, on one or more occasions, postpone any of said sales by public announcement
at the time of sale or the time of previous postponement of sale, and no other
notice of such postponement or postponements of sale need be given, any other
notice being hereby waived; provided, however, that any sale or sales made after
such postponement shall be after 7 days' notice to Pledgor.
(c) In the event of any sale(s) hereunder, Pledgee shall, after
deducting all costs or expenses of every kind (including, to the full extent
permitted by law, attorney's fees and disbursements) for care, safekeeping,
collection, sale, delivery or otherwise, apply the residue of the proceeds of
the sale(s) to the payment or reduction, either in whole or in part, of the
Obligations, returning the surplus, if any, to Pledgor.
(d) If, at any time when Pledgee shall determine to exercise its right
to sell the whole or any part of the Securities hereunder, such Securities or
the part thereof to be sold shall not be effectively registered, for any reason
whatsoever, under the Securities Act of 1933, as then in effect (or any similar
statute then in effect) (the "Securities Act"), Pledgee may, in its discretion
(subject only to applicable requirements of law), sell such Securities or part
thereof by private sale in such manner and under such circumstances as Pledgee
may deem necessary or advisable, but subject to the other requirements of this
Section 6, and shall not be required to effect such registration or to cause the
same to be effected. Without limiting the generality of the foregoing, in any
such event Pledgee in its discretion (a) may proceed to make such private sale
notwithstanding that a registration statement for the purpose of registering
such Securities or part thereof could be or shall have been filed under said
Securities Act (or similar statute), (b) may approach and negotiate with a
single possible purchaser to effect such sale, and (c) may restrict such sale to
a purchaser who will represent and agree that such purchaser is purchasing for
its own account, for investment and not with a view to the distribution or sale
of such Securities or part thereof. In addition to a private sale as provided
above in this Section 6, if any of the Securities shall not be freely
distributable to the public without registration under the Securities Act (or a
similar statute) at the time of any proposed sale pursuant to this Section 6,
then Pledgee shall not be required to effect such registration or cause the same
to be effected but, in its discretion (subject only to applicable requirements
of law), may require that any sale hereunder (including a sale at auction) be
conducted subject to restrictions (i) as to the financial sophistication and
ability of any person permitted to bid or purchase at sale, (ii) as to the
content of legends to be placed upon any certificates representing the
Securities sold in such sale, including restrictions on future transfer thereof,
(iii) as to the representations required to be made by each person bidding or
purchasing at such sale relating to that person's access to financial
information about Pledgor and such person's intentions as to the holding of the
Securities so sold for investment, for its own account, and not with a view to
the distribution thereof, and (iv) as to such other matters as Pledgee may, in
its discretion, deem necessary or appropriate in order that such sale
(notwithstanding any failure so to register) may be effected in compliance with
laws affecting the enforcement of creditors' rights and the Securities Act and
all applicable state or other jurisdictions' securities laws.
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<PAGE> 5
(e) Pledgor acknowledges that: (a) any sale under the circumstances
described in this Section 6 shall be deemed to have been held in a manner which
is commercially reasonable, and (b) notwithstanding the legal availability of a
private sale or a sale subject to restrictions of the character described above,
Pledgee may, in its discretion, elect to register under the Securities Act (or
any applicable state securities laws) in accordance with its rights under this
Section 6.
(f) Pledgor agrees that it will not at any time plead, claim or take
the benefit of any appraisal, valuation, stay, extension, moratorium or
redemption law now or hereafter in force in order to prevent or delay the
enforcement of this Agreement, or the absolute sale of the whole or any part of
the Securities or the possession thereof by any purchaser at any sale hereunder,
and Pledgor waives the benefit of all such laws to the extent it lawfully may do
so. Pledgor agrees that it will not interfere with any right, power and remedy
of Pledgee provided for in this Agreement or now or hereafter existing at law or
in equity or by statute or otherwise, or the exercise or beginning of the
exercise by Pledgee of any one or more of such rights, powers or remedies. No
failure or delay on the part of Pledgee to exercise any such right, power or
remedy and no notice or demand which may be given to or made upon Pledgor by
Pledgee with respect to any such remedies shall operate as a waiver hereof, or
limit or impair Pledgee's right to take any action or to exercise any power or
remedy hereunder, without notice or demand, or prejudice its rights as against
Pledgor in any respect.
(g) Notwithstanding anything else set forth in this Agreement, Pledgee
agrees not to exercise any remedies, including acceleration, to the extent that
any applicable law, including, without limitation, ERISA, the Internal Revenue
Code of 1986, as amended, Section 54.4975-7(b)(6) of the Regulations of the
Department of the Treasury, or any other applicable law or regulations, will be
violated by the exercise of such remedy.
7. EXTENT OF OBLIGATIONS. Pledgor hereby agrees that from time to time,
without notice or demand and without affecting or impairing in any way the
rights of Pledgee with respect to the Security or the obligations of Pledgor
hereunder, Pledgee may: (a) exchange, enforce, waive, release, apply and direct
the order or manner of sale of any and all collateral for the Obligations,
including, without limitation, the Securities, as Pledgee, in its sole
discretion, may determine, and/or (b) release or substitute any one or more
endorsers or guarantors. Pledgor hereby waives notice of acceptance of this
Agreement, and also presentment, demand, protest and notice of dishonor of any
and all of the Obligations, and promptness in commencing suit against any party
thereto or liable thereon, and in giving notice to or of making any claim or
demand hereunder upon Pledgor. No act or omission of any kind on Pledgee's part
in the premises shall in any event affect or impair this Agreement.
8. RELEASE OF PLEDGED STOCK. On December 31st of each year during the term
of this Agreement, a number of shares of the Securities calculated as set forth
below shall be automatically released from the pledge of this Agreement, and
shall thereupon no longer be considered to be collateral for the Note. The
number of shares to be released on each such date shall equal the number of
shares held on such date that are subject to the pledge of this Agreement
immediately before such release, multiplied by a fraction. The numerator of the
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<PAGE> 6
fraction is the amount of principal and interest paid on the Note for the year
ended on such date. The denominator of the fraction is the sum of the numerator
plus the principal and interest to be paid on the Note for all future years,
determined without taking into account any possible extensions or renewal
periods. For this purpose, the interest to be paid in future years shall be
computed on each date on which Securities are to be released hereunder by using
the interest rate in effect under the Note on such date.
9. WAIVER. No delay on Pledgee's part in exercising any power of sale,
Lien, option or other right hereunder, and no notice or demand which may be
given to or made upon Pledgor by Pledgee with respect to any power of sale,
Lien, option or other right hereunder, shall constitute a waiver thereof, or
limit or impair Pledgee's right to take any action or to exercise any power of
sale, Lien, option, or any other right hereunder, without notice or demand, or
prejudice Pledgee's rights as against Pledgor in any respect.
10. ASSIGNMENT. Pledgee may assign or transfer all or any portion of the
Obligations. This Agreement shall be binding upon Pledgor and Pledgor's heirs
and assigns, and shall inure to the benefit of, and be enforceable by, Pledgee
and its successors, transferees and assigns.
11. AMENDMENT. None of the terms or provisions of this Agreement may be
waived, altered, modified or amended except in a writing duly signed for and on
behalf of Pledgee and Pledgor.
12. NOTICES. Any notices under or pursuant to this Agreement shall be
deemed duly sent when delivered by hand or when mailed by registered or
certified mail, return receipt requested, addressed as follows:
(a) Ohio State Financial Services, Inc.
435 Main Street
Bridgeport, Ohio 43912
Attn: Jon W. Letzkus
(b) Ohio State Financial Services, Inc.
Employee Stock Ownership Plan
435 Main Street
Bridgeport, Ohio 43912
Attn: ESOP Administrator
with a copy to:
First Bankers Trust Company, N.A.
Broadway at 12th Street
P.O. Box 3566
Quincy, Illinois 62305-3566
Attn: Carmen Walch
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<PAGE> 7
Either party may change such address by sending notice of the change to the
other party.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, which shall, collectively and separately, constitute one
agreement.
14. GOVERNING LAW; JURISDICTION. All acts and transactions hereunder and
the rights and obligations of the parties hereto shall be governed, construed
and interpreted in accordance with the domestic laws of the State of Ohio.
Pledgor agrees that the state and federal courts in Belmont County, Ohio, or any
other court in which Pledgee initiates proceedings have exclusive jurisdiction
over all matters arising out of this Agreement, and that service of process in
any such proceeding shall be effective if mailed to Pledgor at its address
described in Section 9 of this Agreement. PLEDGEE AND PLEDGOR HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, the parties hereto have caused this ESOP Stock Pledge
Agreement to be duly executed as of the date first above written.
OHIO STATE FINANCIAL SERVICES, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
By: FIRST BANKER TRUST COMPANY,
N.A., TRUSTEE
By:
-------------------------------------
Carmen Walch
Its: Trust Officer
OHIO STATE FINANCIAL SERVICES, INC.
By:
-------------------------------------
Jon W. Letzkus
Its: President
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<PAGE> 8
STATE OF ILLINOIS )
) SS:
COUNTY OF ADAMS )
On the _____ day of _______________, 1997, before me personally came Carmen
Walch, to me known, who, being by me duly sworn, did depose and say that she is
the Trust Officer of First Bankers Trust Company, N.A., the corporation
described in and which executed the ESOP Stock Pledge Agreement as trustee; and
that she signed her name hereto by order of the board of directors of said
corporation.
----------------------------------------
Notary Public
STATE OF OHIO )
) SS:
COUNTY OF BELMONT )
On the _____ day of ________________, 1997, before me personally came Jon
W. Letzkus, to me known, who, being by me duly sworn, did depose and say that he
is the President of Ohio State Financial Services, Inc., the corporation
described in and which executed the ESOP Stock Pledge Agreement; and that he
signed his name hereto by order of the board of directors of said corporation.
----------------------------------------
Notary Public
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<PAGE> 1
Exhibit 23.1
[SNODGRASS LETTERHEAD]
Board of Directors
Bridgeport Savings and Loan Association
435 Main Street
Bridgeport, Ohio 43912
INDEPENDENT AUDITOR'S CONSENT
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 7, 1997, except for Note 14, which is March 26,
1997, on the consolidated financial statements of Bridgeport Savings and Loan
Association, to the Registration Statement (Form S-1), Application for
Conversion (Form AC), and related Prospectus, and any amendments thereto, of
Ohio State Financial Services, Inc.
/s/ S.R. Snodgrass, A.C.
Wheeling, West Virginia
July 31, 1997
<PAGE> 1
Exhibit 99.1
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
435 MAIN STREET
BRIDGEPORT, OHIO 43912
(614) 635-0764
NOTICE OF SPECIAL MEETING OF MEMBERS
Notice is hereby given that a Special Meeting of Members of Bridgeport
Savings and Loan Association (the "Association") will be held at
_____________________________________, on ____________, 1997, at ____ _.m.,
local time (the "Special Meeting"), for the following purposes, all of which are
more completely set forth in the accompanying Summary Proxy Statement:
1. To consider and act upon a resolution to approve the Plan of
Conversion (the "Plan"), a copy of which is attached to the Summary Proxy
Statement as Exhibit A, pursuant to which the Association would convert
from a mutual savings and loan association incorporated under the laws of
the State of Ohio to a permanent capital stock savings and loan association
incorporated under the laws of the State of Ohio (the "Conversion") and
become a wholly-owned subsidiary of Ohio State Financial Services, Inc., an
Ohio corporation organized for the purpose of acquiring all of the capital
stock to be issued by the Association in the Conversion;
2. To consider and act upon a resolution to adopt the Amended Articles
of Incorporation of the Association, a copy of which is attached to the
Plan as Exhibit I;
3. To consider and act upon a resolution to adopt the Amended
Constitution of the Association, a copy of which is attached to the Plan as
Exhibit II; and
4. To transact such other business as may properly come before the
Special Meeting and any adjournments thereof.
Only those members of the Association who have a savings deposit at the
Association at the close of business on _______________, 1997, are members of
the Association entitled to notice of and to vote at the Special Meeting and any
adjournments thereof. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING,
WE URGE YOU TO CONSIDER THE ACCOMPANYING SUMMARY PROXY STATEMENT CAREFULLY, TO
COMPLETE THE ENCLOSED PROXY CARD(S) AND TO RETURN THE COMPLETED PROXY CARD(S) TO
THE ASSOCIATION IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE AS SOON AS POSSIBLE
TO ASSURE THAT YOUR VOTE(S) WILL BE COUNTED.
Bridgeport, Ohio By Order of the Board of Directors
_________, 1997
Jon W. Letzkus,
President
<PAGE> 2
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
435 MAIN STREET
BRIDGEPORT, OHIO 43912
(614) 635-0764
SUMMARY PROXY STATEMENT
INTRODUCTION
The enclosed proxy (the "Proxy") is being solicited by the Board of
Directors of Bridgeport Savings and Loan Association (the "Association") for use
at a Special Meeting of Members of the Association to be held at
__________________________________________________________, Ohio, on
____________, 1997, at ____ __.m., local time, and at any adjournments thereof
(the "Special Meeting"). The Special Meeting is being held for the following
purposes:
1. To consider and act upon a resolution to approve the Plan of
Conversion (the "Plan"), a copy of which is attached hereto as Exhibit A,
pursuant to which the Association would convert from a mutual savings and
loan association incorporated under the laws of the State of Ohio to a
permanent capital stock savings and loan association incorporated under the
laws of the State of Ohio (the "Conversion") and become a wholly-owned
subsidiary of Ohio State Financial Services, Inc. (the "Holding Company"),
an Ohio corporation organized for the purpose of acquiring all of the
capital stock to be issued by the Association in the Conversion;
2. To consider and act upon a resolution to adopt the Amended Articles
of Incorporation of the Association (the "Amended Articles"), a copy of
which is attached to the Plan as Exhibit I;
3. To consider and act upon a resolution to adopt the Amended
Constitution of the Association (the "Amended Constitution"), a copy of
which is attached to the Plan as Exhibit II; and
4. To transact such other business as may properly come before the
Special Meeting.
The Board of Directors of the Association has unanimously adopted the Plan.
The Plan has also been approved by the Office of Thrift Supervision (the "OTS")
and the Ohio Department of Commerce, Division of Financial Institutions (the
"Division"), subject to the approval of the Plan by the members of the
Association at the Special Meeting and the satisfaction of certain other
conditions.
The approval of the Plan will have the effect of (i) terminating the voting
rights of the present members of the Association and (ii) modifying, and
eventually eliminating, their right to receive any surplus in the event of a
complete liquidation of the Association. Except for certain rights in the
special liquidation account established by the Plan (the "Liquidation Account"),
such voting and liquidation rights after the Conversion will vest exclusively in
the holders of the common shares of the Holding Company. See "THE CONVERSION -
Principal Effects of the Conversion."
During and upon the completion of the Conversion, the Association will
continue to provide services to depositors and borrowers pursuant to its current
policies, at its existing offices. In addition, the Association will continue to
be a member of the Federal Home Loan Bank (the "FHLB") of Cincinnati and savings
accounts at the Association will continue to be insured up to applicable limits
by the Federal Deposit Insurance Corporation (the "FDIC") in the Savings
Association Insurance Fund (the "SAIF").
This Summary Proxy Statement is dated ____________, 1997, and is first
being mailed to members of the Association, together with the Prospectus of the
Holding Company dated _____________, 1997 (the "Prospectus"), for the common
shares of the Holding Company to be issued in connection with the Conversion
(the "Common Shares").
1
<PAGE> 3
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
All depositors at the Association having a savings account of record with
the Association on _________, 1997 (the "Voting Record Date"), are members of
the Association eligible to vote at the Special Meeting and at any adjournments
thereof ("Voting Members"). Voting Members who are depositors will be entitled
to cast one vote for each $100, and a proportionate fractional vote for an
amount of less than $100, of the withdrawable value of their savings accounts on
the Voting Record Date. No Voting Member may cast more than 1,000 votes.
A savings account in which one or more persons has an interest shall be
deemed to be held by only one Voting Member for the purpose of voting at the
Special Meeting. Any questions as to the eligibility of a member to vote, the
number of votes allocated to each Voting Member or any other matter relating to
voting will be resolved at the time of the Special Meeting by reference to the
records of the Association.
The Association records disclose that, as of the Voting Record Date, there
were __________ votes entitled to be cast at the Special Meeting, a majority of
which are required to approve the Plan. A vote of three-fifths of the votes cast
in person or by proxy at the Special Meeting is required to adopt the Amended
Articles and the Amended Constitution of the Association.
PROXIES
Voting Members may vote in person or by proxy at the Special Meeting. For
Voting Members wishing to vote in person, ballots will be distributed at the
Special Meeting. For Voting Members wishing to vote by proxy at the Special
Meeting, the enclosed Proxy may be completed and given in accordance with this
Summary Proxy Statement. Any other proxy held by the Association will not be
used by the Association for the Special Meeting.
A Proxy will be voted in the manner indicated thereon or, in the absence of
specific instructions, will be voted FOR the approval of the Plan, FOR the
adoption of the Amended Articles and FOR the adoption of the Amended
Constitution. Without affecting any vote previously taken, a Voting Member may
revoke a Proxy at any time before such proxy is exercised by executing and
delivering a later dated proxy or by giving the Association notice of revocation
in writing or in open meeting at the Special Meeting. Attendance at the Special
Meeting will not, of itself, revoke a Proxy.
Proxies may be solicited by the directors, officers and employees of the
Association in person or by telephone, telegraph or mail, for use only at the
Special Meeting and any adjournments thereof and will not be used for any other
meeting. The cost of soliciting Proxies will be borne by the Association.
MANAGEMENT'S RECOMMENDATIONS AND REASONS FOR CONVERSION
THE BOARD OF DIRECTORS RECOMMENDS THAT MEMBERS VOTE FOR THE APPROVAL OF THE
PLAN AND THE ADOPTION OF THE AMENDED ARTICLES AND THE AMENDED CONSTITUTION OF
THE ASSOCIATION.
The principal factors considered by the Association's Board of Directors in
reaching the decision to pursue a mutual-to-stock conversion were the numerous
competitive advantages which the stock form of organization offers, including
growth opportunities, employee retention, and increased capital levels.
If the Association is to continue to grow and prosper, the mutual form of
organization is the least desirable form from a competitive standpoint. The
opportunities for a mutual savings and loan association to expand through
mutual-to-mutual mergers or acquisitions are limited. Although the Association
does not have any specific acquisitions planned at this time, the Conversion
will position the Association to take advantage of any acquisition opportunities
which may present themselves. Because a conversion to stock form is a
time-consuming and complex process, the Association cannot wait until a
prospective acquisition arises to embark on the conversion process.
2
<PAGE> 4
As an increasing number of the Association's competitors convert to stock
form and acquire the ability to use stock-based compensation programs, the
Association, in mutual form, would be at a disadvantage when it comes to
attracting and retaining qualified management. The Association believes that the
employee stock ownership plan (the "ESOP"), the stock option plan (the "Stock
Option Plan") and the recognition and retention plan (the "RRP") are important
tools in achieving such goals, even though the Association will be required to
wait until at least six months after the Conversion to implement the Stock
Option Plan and the RRP. See "MANAGEMENT - Stock Benefit Plans" in the
Prospectus.
THE BUSINESS OF THE HOLDING COMPANY
The Holding Company was incorporated under Ohio law in March 1997 for the
purpose of purchasing all of the capital stock of the Association to be issued
in connection with the Conversion. The Holding Company has not conducted and
will not conduct any business before the completion of the Conversion, other
than business related to the Conversion. Upon the consummation of the
Conversion, the Holding Company will be a unitary savings and loan holding
company, the principal assets of which initially will be the capital stock of
the Association, the investments made with the net proceeds retained from the
sale of Common Shares in connection with the Conversion and a loan to be made by
the Holding Company to the ESOP to facilitate the ESOP's purchase of Common
Shares in the Conversion. See "USE OF PROCEEDS."
The office of the Holding Company is located at 435 Main Street,
Bridgeport, Ohio 43912, and its telephone number is (614) 635-0764.
THE BUSINESS OF THE ASSOCIATION
The Association is a mutual savings and loan association organized under
Ohio law in 1893. As an Ohio savings and loan association, the Association is
subject to supervision and regulation by the OTS and the Division. The
Association is a member of the FHLB of Cincinnati, and the deposit accounts of
the Association are insured up to applicable limits by the FDIC in the SAIF. See
"REGULATION" in the Prospectus.
The Association conducts business from its main office located in
Bridgeport, Ohio, and one full-service branch office located in Shadyside, Ohio.
The principal business of the Association is the origination of permanent
mortgage loans secured by first mortgages on one- to four-family residential
real estate located in the Association's primary market area which consists of
Belmont County, Ohio, and Ohio and Marshall Counties, West Virginia. The
Association also originates a limited number of loans for the construction of
one- to four-family residences and permanent mortgage loans secured by
multifamily and nonresidential real estate in its market area. In addition to
real estate lending, the Association originates secured and unsecured consumer
loans. See "THE BUSINESS OF THE ASSOCIATION - Lending Activities" in the
Prospectus. For liquidity and interest rate risk management purposes, the
Association invests in interest-bearing deposits in other financial
institutions, U.S. Government and agency obligations and mortgage-backed
securities. See "THE BUSINESS OF THE ASSOCIATION - Investment Activities" in the
Prospectus. Funds for lending and other investment activities are obtained
primarily from savings deposits, which are insured up to applicable limits by
the FDIC, and principal repayments on loans and maturities of investment
securities. See "THE BUSINESS OF THE ASSOCIATION - Deposits and Borrowings" in
the Prospectus.
The main office of the Association is located at 435 Main Street,
Bridgeport, Ohio 43912, and its telephone number is (614) 635-0764.
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THE CONVERSION
THE OTS AND THE DIVISION HAVE APPROVED THE PLAN, SUBJECT TO THE APPROVAL OF
THE PLAN BY THE MEMBERS OF THE ASSOCIATION ENTITLED TO VOTE ON THE PLAN AND
SUBJECT TO THE SATISFACTION OF CERTAIN OTHER CONDITIONS IMPOSED BY THE OTS AND
THE DIVISION. OTS AND DIVISION APPROVAL DOES NOT CONSTITUTE A RECOMMENDATION OR
ENDORSEMENT OF THE PLAN.
GENERAL
On March 24, 1997, the Board of Directors of the Association unanimously
adopted the Plan and recommended that the Voting Members of the Association
approve the Plan at the Special Meeting. During and upon completion of the
Conversion, the Association will continue to provide the services presently
offered to depositors and borrowers, will maintain its existing offices and will
retain its existing management and employees.
Based on an independent appraisal of the pro forma market value of the
Association, as converted, as of June 6, 1997, the aggregate purchase price of
the Common Shares to be offered in a subscription offering (the "Subscription
Offering") and a community offering (the "Community Offering") ranges from a
minimum of $5,737,500 to a maximum of $7,762,500 (the "Valuation Range"),
resulting in a range of 573,750 to 776,250 Common Shares at $10 per share.
Applicable regulations permit the Holding Company to offer additional Common
Shares in an amount not to exceed 15% above the maximum of the Valuation Range,
which would permit the issuance of up to 892,687 Common Shares with an aggregate
purchase price of $8,926,870. Federal regulations require, with certain
exceptions, that shares offered in connection with the Conversion must be sold
up to at least the minimum point of the Valuation Range in order for the
Conversion to become effective. The actual number of shares sold in connection
with the Conversion will be determined upon completion of the Subscription
Offering and the Community Offering (collectively, the "Offering") based on the
final valuation of the Association, as converted. See "Pricing and Number of
Common Shares to be Sold."
The Common Shares will be offered in the Subscription Offering, subject to
the rights and restrictions established by the Plan, to (a) eligible depositors
of the Association as of December 31, 1995 (the "Eligibility Record Date") who
had deposit accounts with balances, in the aggregate, of $50 or more (a
"Qualifying Deposit"), (b) the ESOP, (c) eligible depositors of the Association
who had Qualifying Deposits as of June 30, 1997 (the "Supplemental Eligibility
Record Date"), and (d) members of the Association eligible to vote at the
Special Meeting ("Other Eligible Members").
Any Common Shares not subscribed for in the Subscription Offering will be
offered to the general public in the Community Offering in a manner which will
seek to achieve the widest distribution of the Common Shares, but which will
give preference to natural persons residing in Belmont County, Ohio. Under OTS
regulations, the Community Offering must be completed within 45 days after
completion of the Subscription Offering, unless such period is extended by the
Association with the approval of the OTS and the Division. If the Community
Offering is determined not to be feasible, an occurrence that is not currently
anticipated, the Boards of Directors of the Holding Company and the Association
will consult with the OTS and the Division to determine an appropriate
alternative method of selling unsubscribed Common Shares up to the minimum of
the Valuation Range. No alternative sales methods are currently planned.
The minimum number of Common Shares any person may purchase in the Offering
is 25. Except for the ESOP, which may purchase up to 10% of the total Common
Shares sold in the Offering, no person, together with his or her Associates
(hereinafter defined) and other persons Acting in Concert (hereinafter defined)
with him or her, may purchase more than 14,000 Common Shares in the Offering. In
connection with the exercise of subscription rights arising from a deposit
account in which two or more persons have an interest, the aggregate maximum
number of Common Shares which the persons having an interest in such account may
purchase is 14,000 Common Shares. Subject to OTS regulations, the maximum
purchase limitation may be increased or decreased after the commencement of the
Offering in the sole discretion of the Boards of Directors of the Holding
Company and the Association. If the maximum purchase limitation is increased to
more than 14,000 Common Shares, persons who have subscribed for 14,000 Common
Shares will be given the opportunity to increase their subscriptions. See "THE
CONVERSION - Use of Order Forms; and Payment for Common Shares."
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<PAGE> 6
OTS and Ohio regulations require the completion of the Conversion within 24
months after the date of the approval of the Plan by the Voting Members of the
Association. The commencement and completion of the Conversion will be subject
to market conditions and other factors beyond the Association's control. Due to
changing economic and market conditions, no assurance can be given as to the
length of time that will be required to complete the sale of the Common Shares.
If delays are experienced, significant changes may occur in the estimated pro
forma market value of the Association. In such circumstances, the Association
may also incur substantial additional printing, legal and accounting expenses in
completing the Conversion. In the event the Conversion is not successfully
completed, the Association will be required to charge all Conversion expenses
against current earnings. PRINCIPAL EFFECTS OF THE CONVERSION
VOTING RIGHTS. Savings account holders who are members of the Association
in its mutual form will have no voting rights in the Association as converted
and will not participate, therefore, in the election of directors or otherwise
control the Association's affairs. Voting rights in the Holding Company will be
held exclusively by its shareholders and voting rights in the Association will
be held exclusively by the Holding Company as the sole shareholder of the
Association. Each holder of the Holding Company's common shares will be entitled
to one vote for each share owned on any matter to be considered by the Holding
Company's shareholders. See "DESCRIPTION OF AUTHORIZED SHARES."
SAVINGS ACCOUNTS AND LOANS. Savings accounts in the Association, as
converted, will be equivalent in amount, interest rate and other terms to the
present savings accounts in the Association, and the existing FDIC insurance on
such accounts will not be affected by the Conversion. The Conversion will not
affect the terms of loan accounts or the rights and obligations of borrowers
under their individual contractual arrangements with the Association.
TAX CONSEQUENCES. The consummation of the Conversion is expressly
conditioned on receipt by the Association of a private letter ruling from the
Internal Revenue Service (the "IRS") or an opinion of counsel to the effect that
the Conversion will constitute a tax-free reorganization as defined in Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). The
Association intends to proceed with the Conversion based upon an opinion
received from its special counsel, Vorys, Sater, Seymour and Pease, to the
following effect:
(1) The Conversion constitutes a reorganization within the meaning of
Section 368(a)(1)(F) of the Code, and no gain or loss will be recognized by
the Association in its mutual form or in its stock form as a result of the
Conversion. The Association in its mutual form and the Association in its
stock form will each be a "party to a reorganization" within the meaning of
Section 368(b) of the Code;
(2) No gain or loss will be recognized by the Association upon the
receipt of money from the Holding Company in exchange for the capital stock
of the Association, as converted;
(3) The assets of the Association will have the same basis in its
hands immediately after the Conversion as they had in its hands immediately
prior to the Conversion and the holding period of the assets of the
Association after the Conversion will include the period during which the
assets were held by the Association before the Conversion;
(4) No gain or loss will be recognized by the deposit account holders
of the Association upon the issuance to them, in exchange for their
respective withdrawable deposit accounts in the Association immediately
prior to the Conversion, of withdrawable deposit accounts in the
Association immediately after the Conversion, in the same dollar amount as
their withdrawable deposit accounts in the Association immediately prior to
the Conversion, plus, in the case of eligible depositors of the Association
as of the Eligibility Record Date who had Qualifying Deposits ("Eligible
Account Holders") and eligible depositors of the Association as of the
Supplemental Eligibility Record Date who had Qualifying Deposits
("Supplemental Eligible Account Holders"), the interests in the Liquidation
Account of the Association, as described below;
(5) The basis of the withdrawable deposit accounts in the Association
held by its deposit account holders immediately after the Conversion will
be the same as the basis of their deposit accounts in the Association
immediately prior to the Conversion. The basis of the interests in the
Liquidation Account received by the Eligible
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<PAGE> 7
Account Holders and Supplemental Eligible Account Holders will be zero. The
basis of the nontransferable subscription rights received by Eligible
Account Holders, Supplemental Eligible Account Holders and Other Eligible
Members will be zero (assuming that at distribution such rights have no
ascertainable fair market value);
(6) No gain or loss will be recognized by Eligible Account Holders,
Supplemental Eligible Account Holders or Other Eligible Members upon the
distribution to them of nontransferable subscription rights to purchase
Common Shares (assuming that at distribution such rights have no
ascertainable fair market value), and no taxable income will be realized by
such Eligible Account Holders, Supplemental Eligible Account Holders or
Other Eligible Members as a result of their exercise of such
nontransferable subscription rights;
(7) The basis of the Common Shares purchased by members of the
Association pursuant to the exercise of subscription rights will be the
purchase price thereof (assuming that such rights have no ascertainable
fair market value and that the purchase price is not less than the fair
market value of the shares on the date of such exercise), and the holding
period of such shares will commence on the date of such exercise. The basis
of the Common Shares purchased other than by the exercise of subscription
rights will be the purchase price thereof (assuming in the case of the
other subscribers that the opportunity to buy in the Subscription Offering
has no ascertainable fair market value) and the holding period of such
shares will commence on the day after the date of the purchase;
(8) For purposes of Section 381 of the Code, the Association will be
treated as if there had been no reorganization. The taxable year of the
Association will not end on the effective date of the Conversion.
Immediately after the Conversion, the Association in its stock form will
succeed to and take into account the tax attributes of the Association in
its mutual form immediately prior to the Conversion, including the
Association's earnings and profits or deficit in earnings and profits;
(9) The bad debt reserves of the Association in its mutual form
immediately prior to the Conversion will not be required to be restored to
the gross income of the Association in its stock form as a result of the
Conversion and immediately after the Conversion such bad debt reserves will
have the same character in the hands of the Association in its stock form
as they would have had if there had been no Conversion. The Association in
its stock form will succeed to and take into account the dollar amounts of
those accounts of the Association in its mutual form which represent bad
debt reserves in respect of which the Association in its mutual form has
taken a bad debt deduction for taxable years ending on or before the
Conversion; and
(10) Regardless of book entries made for the creation of the
Liquidation Account, the Conversion will not diminish the accumulated
earnings and profits of the Association available for the subsequent
distribution of dividends within the meaning of Section 316 of the Code.
The creation of the Liquidation Account on the records of the Association
will have no effect on its taxable income, deductions for additions to
reserves for bad debts under Section 593 of the Code or distributions to
stockholders under Section 593(e) of the Code.
For Ohio tax purposes, the tax consequences of the Conversion will be as
follows:
(1) The Association is a "financial institution" for State of Ohio tax
purposes, and the Conversion will not change such status;
(2) The Association is subject to the Ohio corporate franchise tax on
"financial institutions," which is imposed annually at a rate of 1.5% of
the Association's equity capital determined in accordance with generally
accepted accounting principles ("GAAP"), and the Conversion will not change
such status;
(3) As a "financial institution," the Association is not subject to
any tax based upon net income or net profit imposed by the State of Ohio,
and the Conversion will not change such status;
(4) The Conversion will not be a taxable transaction to the
Association in its mutual or stock form for purposes of the Ohio corporate
franchise tax. As a consequence of the Conversion, however, the annual Ohio
corporate franchise tax liability of the Association will increase if the
taxable net worth of the Association (i.e.,
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<PAGE> 8
book net worth computed in accordance with GAAP at the close of the
Association's taxable year for federal income tax purposes) increases
thereby; and
(5) The Conversion will not be a taxable transaction to any deposit
account holder member of the Association in its mutual or stock form for
purposes of the Ohio corporate franchise tax and the Ohio personal income
tax.
The Association has received an opinion from RP Financial, LC. ("RP
Financial"), a firm which evaluates and appraises financial institutions, to the
effect that the subscription rights have no ascertainable fair market value
because the rights are received by specified persons at no cost, may not be
transferred and are of short duration. The IRS could challenge the assumption
that the subscription rights have no ascertainable fair market value.
LIQUIDATION ACCOUNT. In the unlikely event of a complete liquidation of the
Association in its present mutual form, each depositor in the Association would
receive a pro rata share of any assets of the Association remaining after
payment of the claims of all creditors, including the claims of all depositors
to the withdrawable value of their savings accounts. A depositor's pro rata
share of such remaining assets would be the same proportion of such assets as
the value of such depositor's savings deposits bears to the total aggregate
value of all savings deposits in the Association at the time of liquidation.
In the event of a complete liquidation of the Association in its stock form
after the Conversion, each savings depositor would have a claim of the same
general priority as the claims of all other general creditors of the
Association. Except as described below, each depositor's claim would be solely
in the amount of the balance in such depositor's savings account plus accrued
interest. The depositor would have no interest in the assets of the Association
above that amount. Such assets would be distributed to the Holding Company as
the sole shareholder of the Association.
For the purpose of granting a limited priority claim to the assets of the
Association in the event of a complete liquidation thereof to Eligible Account
Holders and Supplemental Eligible Account Holders who continue to maintain
savings accounts at the Association after the Conversion, the Association will,
at the time of the Conversion, establish the Liquidation Account in an amount
equal to the retained earnings of the Association as of March 31, 1997. The
Liquidation Account will not operate to restrict the use or application of any
of the regulatory capital of the Association.
Each Eligible Account Holder and Supplemental Eligible Account Holder will
have a separate inchoate interest (the "Subaccount") in a portion of the
Liquidation Account for Qualifying Deposits held on the Eligibility Record Date
or the Supplemental Eligibility Record Date.
The balance of each initial Subaccount shall be an amount determined by
multiplying the amount in the Liquidation Account by a fraction, the numerator
of which is the closing balance in the account holder's account as of the close
of business on the Eligibility Record Date or the Supplemental Eligibility
Record Date, as the case may be, and the denominator of which is the total
amount of all Qualifying Deposits of Eligible Account Holders and Supplemental
Eligible Account Holders on the corresponding record date. The balance of each
Subaccount may be decreased but will never be increased. If, at the close of
business on the last day of any fiscal year subsequent to the respective record
dates, the balance in the savings account to which a Subaccount relates is less
than the lesser of (i) the deposit balance in such savings account at the close
of business on any other annual closing date subsequent to the Eligibility
Record Date or Supplemental Eligibility Record Date, or (ii) the amount of the
Qualifying Deposit as of the Eligibility Record Date or Supplemental Eligibility
Record Date, the balance of the Subaccount for such savings account shall be
adjusted proportionately to the reduction in such savings account balance. In
the event of any such downward adjustment, such Subaccount balance shall not be
subsequently increased notwithstanding any increase in the deposit balance of
the related savings account. If any savings account is closed, its related
Subaccount shall be reduced to zero upon such closing.
In the event of a complete liquidation of the converted Association (and
only in such event), each Eligible Account Holder and Supplemental Eligible
Account Holder shall receive from the Liquidation Account a distribution equal
to the current balance in each of such account holder's Subaccounts before any
liquidation distribution may be made to the Holding Company as the sole
shareholder of the Association. Any assets remaining after satisfaction of such
liquidation
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<PAGE> 9
rights and the claims of the Association's creditors would be distributed to the
Holding Company as the sole shareholder of the Association. No merger,
consolidation, purchase of bulk assets or similar combination or transaction
with another financial institution, the deposits of which are insured by the
FDIC, will be deemed to be a complete liquidation for this purpose and, in any
such transaction, the Liquidation Account shall be assumed by the surviving
institution.
COMMON SHARES. SHARES ISSUED UNDER THE PLAN CANNOT AND WILL NOT BE INSURED
BY THE FDIC. For a description of the characteristics of the Common Shares, see
"DESCRIPTION OF AUTHORIZED SHARES."
INTERPRETATION AND AMENDMENT OF THE PLAN
To the extent permitted by law, all interpretations of the Plan by the
Boards of Directors of the Holding Company and the Association will be final.
The Plan may be amended by the Boards of Directors of the Holding Company and
the Association at any time with the concurrence of the OTS and the Division. If
the Association and the Holding Company determine, upon advice of counsel and
after consultation with the OTS and the Division, that any such amendment is
material, subscribers will be notified of the amendment and will be provided the
opportunity to affirm, increase, decrease or cancel their subscriptions. Any
person who does not affirmatively elect to continue his subscription or elects
to rescind his subscription before the date specified in the notice will have
all of his funds promptly refunded with interest. Any person who elects to
decrease his subscription will have the appropriate portion of his funds
promptly refunded with interest.
CONDITIONS AND TERMINATION
The completion of the Conversion requires the approval of the Plan and the
adoption of the Amended Articles of Incorporation and Amended Constitution by
the Voting Members of the Association at the Special Meeting and the completion
of the sale of the Common Shares within 24 months following the date of such
approval. If these conditions are not satisfied, the Plan will automatically
terminate and the Association will continue its business in the mutual form of
organization. The Plan may be voluntarily terminated by the Board of Directors
at any time before the Special Meeting and at any time thereafter with the
approval of the OTS and the Division.
SUBSCRIPTION OFFERING
THE SUBSCRIPTION OFFERING WILL EXPIRE AT NOON, BRIDGEPORT, OHIO TIME, ON
____________, 1997. SUBSCRIPTION RIGHTS NOT EXERCISED BEFORE NOON, BRIDGEPORT,
OHIO TIME, ON ____________, 1997, WILL BE VOID, WHETHER OR NOT THE ASSOCIATION
HAS BEEN ABLE TO LOCATE THE PERSONS ENTITLED TO SUCH SUBSCRIPTION RIGHTS.
Nontransferable subscription rights to purchase Common Shares are being
issued at no cost to all eligible persons and entities in accordance with the
preference categories established by the Plan, as described below. Each
subscription right may be exercised only by the person to whom it is issued and
only for his or her own account. EACH PERSON SUBSCRIBING FOR COMMON SHARES MUST
REPRESENT TO THE ASSOCIATION THAT HE OR SHE IS PURCHASING THE COMMON SHARES FOR
HIS OR HER OWN ACCOUNT AND THAT HE OR SHE HAS NO AGREEMENT OR UNDERSTANDING WITH
ANY OTHER PERSON FOR THE SALE OR TRANSFER OF THE COMMON SHARES. ANY PERSON WHO
ATTEMPTS TO TRANSFER HIS OR HER SUBSCRIPTION RIGHTS MAY BE SUBJECT TO PENALTIES
AND SANCTIONS, INCLUDING LOSS OF THE SUBSCRIPTION RIGHTS.
The number of Common Shares which a person who has subscription rights may
purchase will be determined, in part, by the total number of Common Shares to be
issued and the availability of Common Shares for purchase under the preference
categories set forth in the Plan and certain other limitations. See "Limitations
on Purchases of Common Shares." The sale of any Common Shares pursuant to
subscriptions received is contingent upon approval of the Plan by the Voting
Members of the Association at the Special Meeting.
The preference categories and preliminary purchase limitations which have
been established by the Plan, in accordance with applicable regulations, for the
allocation of Common Shares are as follows:
(a) Each Eligible Account Holder shall receive, without payment
therefor, a nontransferable right to purchase up to 14,000 Common Shares in
the Subscription Offering. If the exercise of subscription
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<PAGE> 10
rights by Eligible Account Holders results in an over-subscription, Common
Shares will be allocated among subscribing Eligible Account Holders in a
manner which will, to the extent possible, make the total allocation of
each subscriber equal 100 shares or the amount subscribed for, whichever is
less. Any Common Shares remaining after such allocation has been made will
be allocated among the subscribing Eligible Account Holders whose
subscriptions remain unfilled in the proportion which the amount of their
respective Qualifying Deposits on the Eligibility Record Date bears to the
total Qualifying Deposits of all Eligible Account Holders on such date.
Notwithstanding the foregoing, Common Shares in excess of 776,250, the
maximum of the Valuation Range, may be sold to the ESOP before fully
satisfying the subscriptions of Eligible Account Holders. No fractional
shares will be issued. For purposes of this paragraph (a), increases in the
Qualifying Deposits of directors and executive officers of the Association
during the twelve months preceding the Eligibility Record Date shall not be
considered.
(b) The ESOP shall receive, without payment therefor, a
nontransferable right to purchase in the Subscription Offering an aggregate
amount of up to 10% of the Common Shares sold in the Conversion, provided
that shares remain available after satisfying the subscription rights of
Eligible Account Holders up to the maximum of the Valuation Range pursuant
to paragraph (a) above. Although the Plan and OTS regulations permit the
ESOP to purchase up to 10% of the Common Shares, the Holding Company
anticipates that the ESOP will purchase 8% of the Common Shares. If the
ESOP is unable to purchase all or part of the Common Shares for which it
subscribes, the ESOP may purchase Common Shares on the open market or may
purchase authorized but unissued Common Shares. If the ESOP purchases
authorized but unissued Common Shares, such purchases could have a dilutive
effect on the interests of the Holding Company's shareholders. See "RISK
FACTORS - Potential Impact of Benefit Plans on Net Earnings and
Shareholders' Equity" in the Prospectus.
(c) Provided that shares remain available after satisfying the
subscription rights of Eligible Account Holders and the ESOP pursuant to
paragraphs (a) and (b) above, each Supplemental Eligible Account Holder
will receive, without payment therefor, a nontransferable right to purchase
up to 14,000 Common Shares. If the exercise of subscription rights by
Supplemental Eligible Account Holders results in an oversubscription,
Common Shares will be allocated among subscribing Supplemental Eligible
Account Holders in a manner which will, to the extent possible, make the
total allocation of each subscriber equal 100 shares or the amount
subscribed for, whichever is less. Any Common Shares remaining after such
allocation has been made will be allocated among the subscribing
Supplemental Eligible Account Holders whose subscriptions remain unfilled
in the proportion which the amount of their respective Qualifying Deposits
on the Supplemental Eligibility Record Date bears to the total Qualifying
Deposits of all Supplemental Eligible Account Holders on such date. No
fractional shares will be issued.
(d) Provided that shares remain available after satisfying the
subscription rights of Eligible Account Holders, the ESOP and Supplemental
Eligible Account Holders pursuant to paragraphs (a), (b) and (c) above,
each Other Eligible Member, other than an Eligible Account Holder or
Supplemental Eligible Account Holder, shall receive, without payment
therefor, a nontransferable right to purchase 14,000 Common Shares. In the
event of an oversubscription by Other Eligible Members, the available
Common Shares will be allocated among subscribing Other Eligible Members in
the same proportion that their subscriptions bear to the total amount of
subscriptions by all Other Eligible Members; provided, however, that, to
the extent sufficient Common Shares are available, each subscribing Other
Eligible Member shall receive 25 Common Shares before the remaining
available Common Shares are allocated.
The Board of Directors may reject any one or more subscriptions if, based
upon the Board of Directors' interpretation of applicable regulations, such
subscriber is not entitled to the shares for which he or she has subscribed or
if the sale of shares subscribed for would be in violation of any applicable
statutes, regulations, or rules.
The Association will make reasonable efforts to comply with the securities
laws of all states in the United States in which persons having subscription
rights reside. However, no such person will be offered or receive any Common
Shares under the Plan who resides in a foreign country or in a state of the
United States with respect to which each of the following apply: (i) a small
number of persons otherwise eligible to subscribe for shares under the Plan
resides in such country or state; (ii) under the securities laws of such country
or state, the granting of subscription rights or the offer or sale of Common
Shares to such persons would require the Holding Company or its officers or
directors to register as a broker or dealer or to
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register or otherwise qualify its securities for sale in such country or state;
and (iii) such registration or qualification would be impracticable for reasons
of cost or otherwise.
The term "resident," as used herein with respect to the Subscription
Offering, means any person who, on the date of submission of the stock order and
certification form accompanying the Prospectus (the "Stock Order Form"),
maintained a bona fide residence within a jurisdiction in which the Common
Shares are being offered for sale. If a person is a business entity, the
person's residence shall be the location of the principal place of business. If
the person is a personal benefit plan, the residence of the beneficiary shall be
the residence of the plan. In the case of all other benefit plans, the residence
of the trustee shall be the residence of the plan. In all cases, the
determination of a subscriber's residency shall be in the sole discretion of the
Association and the Holding Company.
COMMUNITY OFFERING
To the extent Common Shares remain available after the satisfaction of all
subscriptions received in the Subscription Offering, the Association is hereby
offering Common Shares in the Community Offering subject to the limitations set
forth below. If subscriptions are received in the Subscription Offering for up
to 892,687 Common Shares, Common Shares may not be available in the Community
Offering. All sales of the Common Shares in the Community Offering will be at
the same price per share as in the Subscription Offering.
THE COMMUNITY OFFERING WILL BE TERMINATED ON OR BEFORE ______, 1997, UNLESS
EXTENDED BY THE ASSOCIATION AND THE HOLDING COMPANY WITH THE APPROVAL OF THE OTS
AND THE DIVISION, IF NECESSARY. IN ACCORDANCE WITH THE PLAN, THE OFFERING MAY
NOT BE EXTENDED BEYOND _________, 1999.
In the event shares are available for the Community Offering, each person,
together with any Associate or groups Acting in Concert, may purchase in the
Community Offering up to 14,000 Common Shares. If an insufficient number of
Common Shares is available to fill all of the orders received in the Community
Offering, the available Common Shares will be allocated in a manner to be
determined by the Boards of Directors of the Holding Company and the
Association, subject to the following:
(i) Preference will be given to natural persons who are residents of
Belmont County, Ohio, the county in which the offices of the Association
are located;
(ii) Orders received in the Community Offering will first be filled up
to 2% of the total number of Common Shares offered, with any remaining
shares allocated on an equal number of shares per order basis until all
orders have been filled; and
(iii) The right of any person to purchase Common Shares in the
Community Offering is subject to the right of the Holding Company and the
Association to accept or reject such purchases in whole or in part.
The term "resident," as used herein with respect to the Community Offering,
means any natural person who, on the date of submission of a Stock Order Form,
maintains a bona fide residence within, as appropriate, Belmont County, Ohio, or
a jurisdiction in which the Common Shares are being offered for sale.
LIMITATIONS ON PURCHASES OF COMMON SHARES
The Plan provides for certain additional limitations to be placed upon the
purchase of Common Shares. To the extent Common Shares are available, the
minimum number of Common Shares that may be purchased by any party is 25, or
$250. No fractional shares will be issued. Purchases in the Offering are further
subject to the limitation that no person, together with his or her Associates
and other persons Acting in Concert with him or her, may purchase more than
14,000 Common Shares in the Offering. In connection with the exercise of
subscription rights arising from a deposit account in which two or more persons
have an interest, the aggregate maximum number of Common Shares which the
persons having an interest in such account may purchase is 14,000 Common Shares
in the Offering. Such limitations do not apply to the ESOP. Subject to
applicable regulations, the purchase limitation may be increased or decreased
after the commencement of the Offering by the Boards of Directors.
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"Acting in Concert" is defined as "knowing participation in a joint
activity or independent conscious parallel action towards a common goal" or "a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose." Persons shall be presumed to be Acting in Concert
with each other if: (i) they are purchasing Common Shares in the Conversion and
are (a) executive officers, directors, trustees, or any one who performs, or
whose nominee or representative performs, a similar policy making function at a
company (other than the Association or the Holding Company) or principal
business units or subsidiaries of a company, or (b) any person who directly or
indirectly owns or controls 10% or more of the stock of a company (other than
the Association or the Holding Company); or (ii) one person provides credit to
the other for the purchase of Common Shares or is instrumental in obtaining that
credit. In addition, if a person is presumed to be Acting in Concert with
another person, then the person is also presumed to be Acting in Concert with
anyone else who is, or is presumed to be, Acting in Concert with that other
person.
For purposes of the Plan, (i) the directors of the Association are not
deemed to be Acting in Concert solely by reason of their membership on the Board
of Directors of the Association, and (ii) an associate of a person (an
"Associate") is: (a) any corporation or organization (other than the
Association) of which such person is an officer, partner or, directly or
indirectly, the beneficial owner of 10% or more of any class of equity
securities; (b) any trust or other estate in which such person has a substantial
beneficial interest or as to which such person serves as trustee or in a similar
fiduciary capacity; and (c) any relative or spouse of such person, or relative
of such spouse, who either has the same home as such person or who is a director
or officer of the Association. Executive officers and directors of the
Association and their Associates may not purchase, in the aggregate, more than
35% of the total number of Common Shares sold in the Conversion. Shares acquired
by the ESOP will not, pursuant to regulations governing the Conversion, be
aggregated with the shares purchased by the directors, officers and employees of
the Association.
Purchases of Common Shares in the Offering are also subject to the change
in control regulations which restrict direct and indirect purchases of 10% or
more of the stock of any savings association by any person or group of persons
acting in concert, under certain circumstances. See "RESTRICTIONS ON ACQUISITION
OF THE HOLDING COMPANY AND THE ASSOCIATION AND RELATED ANTI-TAKEOVER PROVISIONS
- - Federal Law and Regulation" in the Prospectus.
After the Conversion, Common Shares, except for Common Shares purchased by
affiliates of the Holding Company and the Association, will be freely
transferable, subject to OTS and Division regulations.
PLAN OF DISTRIBUTION
The offering of the Common Shares is made only pursuant to the Prospectus,
which is available at the offices of the Association. See "ADDITIONAL
INFORMATION AND STOCK ORDER FORMS." Officers and directors of the Association
will be available to answer questions about the Conversion and may also hold
informational meetings for interested persons. Such officers and directors will
not be permitted to make statements about the Holding Company or the Association
unless such information is also set forth in the Prospectus, nor will they
render investment advice. The Holding Company will rely on Rule 3a4-1 under the
Securities Exchange Act of 1934 (the "Exchange Act"), and sales of Common Shares
will be conducted within the requirements of Rule 3a4-1, which will permit
officers, directors and employees of the Holding Company and the Association to
participate in the sale of Common Shares. No officer, director or employee of
the Holding Company or the Association will be compensated in connection with
his participation by the payment of commissions or other remuneration based
either directly or indirectly on the transactions in the Common Shares.
To assist the Holding Company and the Association in marketing the Common
Shares, the Holding Company and the Association have retained Charles Webb &
Company, a division of Keefe, Bruyette & Woods, Inc. ("Webb"), a broker-dealer
registered with the Securities and Exchange Commission (the "SEC") and a member
of the National Association of Securities Dealers, Inc. (the "NASD"). Webb will
assist the Association in (i) training and educating the Association's employees
regarding the mechanics and regulatory requirements of the conversion process;
(ii) conducting information meetings for subscribers and other potential
purchasers; and (iii) keeping records of all stock subscriptions. For providing
these services, the Association has agreed to pay Webb (a) a management fee of
$25,000, all of which has been paid, and (b) a marketing fee of 1.5% of the
aggregate dollar amount of Common Shares sold in the Subscription Offering and
the
11
<PAGE> 13
Community Offering, excluding shares sold by Selected Brokers, if any, and
shares purchased by the ESOP and directors, officers, and employees of the
Association and members of their immediate families.
The Association has also agreed to reimburse Webb for its reasonable legal
fees and disbursements. The Association and the Holding Company have also agreed
to indemnify Webb, under certain circumstances, against liabilities and expenses
(including legal fees) arising out of or based upon untrue statements or
omissions contained in the materials used in the Offering or in various
documents submitted to regulatory authorities in respect of the Conversion,
including liabilities under the Securities Act of 1933, as amended (the "Act"),
unless such untrue statement or omission, or alleged untrue statement or
omission, was made in reliance upon certain information furnished to the
Association by Webb expressly for use in this Summary Proxy Statement or the
Prospectus.
SELECTED BROKERS
If Common Shares remain available after the satisfaction of all
subscriptions received in the Subscription Offering, Webb may enter into an
agreement with other NASD member firms ("Selected Brokers") to assist in the
sale of Common Shares in the Community Offering. If Selected Brokers are used,
Webb will receive commissions of no more than 5.5% of the aggregate purchase
price of the Common Shares sold in the Community Offering by the Selected
Brokers, and Webb will pay to the Selected Brokers a portion of the 5.5%
commission pursuant to selected dealer agreements. During the Community
Offering, Selected Brokers may only solicit indications of interest from their
customers to place orders with the Association as of a certain date (the "Order
Date") for the purchase of Common Shares. When and if the Association believes
that enough indications of interest and orders have been received in the
Community Offering to consummate the Conversion, Webb will request, as of the
Order Date, Selected Brokers to submit orders to purchase shares for which they
have previously received indications of interest from the customers. Selected
Brokers will send confirmations of the orders to such customers on the next
business day after the Order Date. Selected Brokers will debit the accounts of
their customers on the date which will be three business days from the Order
Date (the "Settlement Date"). On the Settlement Date, funds received by Selected
Brokers will be remitted to the Association. It is anticipated that the
Conversion will be consummated on the Settlement Date. However, if consummation
is delayed after payment has been received by the Association from Selected
Brokers, funds will earn interest at the passbook rate, currently an annual
percentage yield of ____%, until the completion of the offering. Funds will be
returned promptly in the event the Conversion is not consummated.
EFFECT OF EXTENSION OF COMMUNITY OFFERING
If the Community Offering extends beyond ______________, 1997, persons who
have subscribed for Common Shares in the Subscription Offering or in the
Community Offering will receive a written notice that they have the right to
affirm, increase, decrease or rescind their subscriptions for Common Shares
prior to a date specified in the notice. Persons who do not affirmatively elect
to continue their subscription or who elect to rescind their subscriptions
during any such extension will have all of their funds promptly refunded with
interest. Persons who elect to decrease their subscriptions will have the
appropriate portion of their funds promptly refunded with interest.
USE OF STOCK ORDER FORMS
Subscriptions for Common Shares in the Subscription Offering and in the
Community Offering may be made only by completing and submitting a Stock Order
Form. Any person who desires to subscribe for Common Shares in the Subscription
Offering must do so by delivering to the Association by mail or in person, prior
to noon Bridgeport, Ohio Time, on __________, 1997, a properly executed and
completed Stock Order Form, together with full payment of the subscription price
of $10 for each Common Share for which subscription is made. ANY STOCK ORDER
FORM WHICH IS NOT RECEIVED BY THE ASSOCIATION PRIOR TO NOON, BRIDGEPORT, OHIO
TIME, ON _________, 1997, OR FOR WHICH FULL PAYMENT HAS NOT BEEN RECEIVED BY THE
ASSOCIATION PRIOR TO SUCH TIME, WILL NOT BE ACCEPTED. PHOTOCOPIES, TELECOPIES OR
OTHER REPRODUCTIONS OF STOCK ORDER FORMS WILL NOT BE ACCEPTED. See "ADDITIONAL
INFORMATION."
AN EXECUTED STOCK ORDER FORM, ONCE RECEIVED BY THE HOLDING COMPANY, MAY NOT
BE MODIFIED, AMENDED OR RESCINDED WITHOUT THE CONSENT OF THE HOLDING COMPANY,
UNLESS (I) THE COMMUNITY OFFERING IS NOT COMPLETED BY ___________, 1997, OR (II)
THE FINAL VALUATION OF THE ASSOCIATION, AS CONVERTED, IS LESS THAN $5,737,500 OR
MORE THAN $8,926,870. IF EITHER OF THOSE EVENTS OCCUR, PERSONS WHO HAVE
SUBSCRIBED FOR COMMON SHARES IN THE SUBSCRIPTION
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<PAGE> 14
OFFERING OR ORDERED COMMON SHARES IN THE COMMUNITY OFFERING WILL RECEIVE WRITTEN
NOTICE THAT THEY HAVE A RIGHT TO AFFIRM, INCREASE, DECREASE OR RESCIND THEIR
SUBSCRIPTIONS OR ORDERS PRIOR TO A DATE SPECIFIED IN THE NOTICE. ANY PERSON WHO
DOES NOT AFFIRMATIVELY ELECT TO CONTINUE HIS SUBSCRIPTION OR ELECTS TO RESCIND
HIS SUBSCRIPTION DURING ANY SUCH EXTENSION WILL HAVE ALL OF HIS FUNDS PROMPTLY
REFUNDED WITH INTEREST. ANY PERSON WHO ELECTS TO DECREASE HIS SUBSCRIPTION
DURING ANY SUCH EXTENSION WILL HAVE THE APPROPRIATE PORTION OF HIS FUNDS
PROMPTLY REFUNDED WITH INTEREST. IN ADDITION, IF THE MAXIMUM PURCHASE LIMITATION
IS INCREASED TO MORE THAN 14,000 COMMON SHARES, PERSONS WHO HAVE SUBSCRIBED FOR
14,000 COMMON SHARES WILL BE GIVEN THE OPPORTUNITY TO INCREASE THEIR
SUBSCRIPTIONS.
PAYMENT FOR COMMON SHARES
Payment of the subscription price for all Common Shares for which
subscription is made must accompany a completed Stock Order Form in order for
subscriptions or orders to be valid. Payment for Common Shares may be made (i)
in cash, if delivered in person; (ii) by check, bank draft, or money order made
payable to the Association; or (iii) by authorization of withdrawal from deposit
accounts in the Association (other than non-self-directed IRAs). The Association
cannot lend money or otherwise extend credit to any person to purchase Common
Shares.
Payments made in cash or by check, bank draft, or money order will be
placed in a segregated savings account insured by the FDIC up to applicable
limits until the Conversion is completed or terminated. Interest will be paid by
the Association on such account at the then current passbook savings account
rate, which is currently __% with an annual percentage yield of ___%, from the
date payment is received until the Conversion is completed or terminated.
Payments made by check will not be deemed to have been received until such check
has cleared for payment.
Instructions for authorizing withdrawals from deposit accounts, including
certificates of deposit, are provided in the Stock Order Form. Once a withdrawal
has been authorized, none of the designated withdrawal amount may be used by a
subscriber for any purpose other than to purchase Common Shares, unless the
Conversion is terminated. All sums authorized for withdrawal will continue to
earn interest at the contract rate for such account or certificate until the
completion or termination of the Conversion. Interest penalties for early
withdrawal applicable to certificate accounts will be waived in the case of
withdrawals authorized for the purchase of Common Shares. If a partial
withdrawal from a certificate account results in a balance less than the
applicable minimum balance requirement, the certificate will be canceled and the
remaining balance will earn interest at the Association's passbook rate
subsequent to the withdrawal.
In order to utilize funds in an IRA maintained at the Association, the
funds must be transferred to a self-directed IRA that permits the funds to be
invested in stock. There will be no early withdrawal or IRS penalties for such
transfer. The beneficial owner of the IRA must direct the trustee of the account
to use funds from such account to purchase Common Shares in the Conversion. THIS
CANNOT BE DONE THROUGH THE MAIL. Persons who are interested in utilizing IRAs at
the Association to subscribe for Common Shares should contact the Conversion
Information Center at (614) 635-1632 or (614) 635-1633 for instructions and
assistance.
Subscriptions will not be filled by the Association until subscriptions
have been received in the Offering for up to 573,750 Common Shares, the minimum
point of the Valuation Range. If the Conversion is terminated, all funds
delivered to the Association for the purchase of Common Shares will be returned
with interest, and all charges to deposit accounts will be rescinded. If
subscriptions are received for at least 573,750 Common Shares, subscribers and
other purchasers will be notified by mail, promptly upon completion of the sale
of the Common Shares, of the number of shares for which their subscriptions have
been accepted. The funds on deposit with the Association for the purchase of
Common Shares will be withdrawn and paid to the Holding Company in exchange for
the Common Shares. Certificates representing Common Shares will be delivered
promptly thereafter. The Common Shares will not be insured by the FDIC.
If the ESOP subscribes for Common Shares in the Subscription Offering, the
ESOP will not be required to pay for the shares subscribed for at the time it
subscribes but may pay for such Common Shares upon consummation of the
Conversion.
13
<PAGE> 15
SHARES TO BE PURCHASED BY MANAGEMENT PURSUANT TO SUBSCRIPTION RIGHTS
The following table sets forth certain information regarding the
subscription rights intended to be exercised by the directors and executive
officers of the Association and the Holding Company and their Associates and
persons with whom they may be deemed to be Acting in Concert:
<TABLE>
<CAPTION>
Total Percent of Aggregate
Name shares(1) total offering(2) purchase price
- ---- --------- ----------------- --------------
<S> <C> <C> <C>
John O. Costine 2,000 0.30% $ 20,000
Anton M. Godez 14,000 2.07 140,000
Jon W. Letzkus 14,000 2.07 140,000
Manuel C. Thomas 14,000 2.07 140,000
William E. Reline 5,000 0.74 50,000
All directors and
executive officers
as a group (9 persons) 52,700 7.81% $527,000
- ----------
<FN>
(1) Includes intended purchases by Associates of directors and executive
officers, to the extent known.
(2) Assumes that 675,00 Common Shares, the midpoint of the Valuation Range, will
be sold in connection with the Conversion at $10.00 per share and that a
sufficient number of Common Shares will be available to satisfy the intended
purchases by directors and executive officers. See "Pricing and Number of
Common Shares to be Sold."
</TABLE>
All purchases by executive officers and directors of the Association are
being made for investment purposes only and with no present intent to resell.
PRICING AND NUMBER OF COMMON SHARES TO BE SOLD
The aggregate offering price of the Common Shares will be based on the pro
forma market value of the shares as determined by an independent appraisal of
the Association. RP Financial, a firm which evaluates and appraises financial
institutions, was retained by the Association to prepare an appraisal of the
estimated pro forma market value of the Association as converted. RP Financial
will receive a fee of $12,500 for its appraisal and one update. Such amount does
not include out-of-pocket expenses of up to $1,250.
RP Financial was selected by the Board of Directors of the Association
because RP Financial has extensive experience in the valuation of thrift
institutions, particularly in the mutual-to-stock conversion context. The Board
of Directors reviewed the credentials of RP Financial's appraisal personnel and
obtained references and recommendations from other companies which have engaged
RP Financial. RP Financial is certified by the OTS as a mutual-to-stock
conversion appraiser. The Association and RP Financial have no relationships
which would affect RP Financial's independence.
The appraisal was prepared by RP Financial in reliance upon the information
contained herein and in the Prospectus. RP Financial also considered the
following factors, among others: the economic and demographic conditions in the
Association's existing market area; the quality and depth of the Association's
management and personnel; certain historical financial and other information
relating to the Association; a comparative evaluation of the operating and
financial statistics of the Association with those of other thrift institutions;
the aggregate size of the Offering; the impact of the Conversion on the
Association's regulatory capital and earnings potential; the trading market for
stock of comparable thrift institutions and thrift holding companies; and
general conditions in the markets for such stocks.
The Pro Forma Value of the Association, as converted, determined by RP
Financial, is $6,750,000 as of June 6, 1997. The Valuation Range established in
accordance with the Plan is $5,737,500 to $7,762,500, which, based upon a per
share offering price of $10, will result in the sale of between 573,750 and
776,250 Common Shares. Applicable regulations
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<PAGE> 16
permit the Holding Company to offer additional Common Shares in an amount not to
exceed 15% above the maximum of the Valuation Range, which would permit the
issuance of up to 892,687 Common Shares. The total number of Common Shares sold
in the Conversion will be based on the Valuation Range. Pro forma shareholders'
equity per share and pro forma earnings per share decrease moving from the low
end to the high end of the Valuation Range. See "PRO FORMA DATA" in the
Prospectus.
In the event that RP Financial determines at the close of the Conversion
that the aggregate pro forma value of the Association is higher or lower than
the Pro Forma Value, but is nevertheless within the Valuation Range, the Holding
Company will make an appropriate adjustment by raising or lowering the total
number of Common Shares sold in the Conversion consistent with the final
Valuation Range. If, due to changing market conditions, the final valuation is
less than $5,737,500 or more than $8,926,870, subscribers will be given the
right to affirm, increase, decrease or rescind their subscriptions. Any person
who does not affirmatively elect to continue his subscription or elects to
rescind his subscription before the date specified in the notice will have all
of his funds promptly refunded with interest. Any person who elects to decrease
his subscription will have the appropriate portion of his funds promptly
refunded with interest.
THE APPRAISAL BY RP FINANCIAL IS NOT INTENDED, AND MUST NOT BE CONSTRUED,
AS A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING COMMON
SHARES OR VOTING TO APPROVE THE CONVERSION. IN PREPARING THE VALUATION, RP
FINANCIAL HAS RELIED UPON AND ASSUMED THE ACCURACY AND COMPLETENESS OF THE
AUDITED FINANCIAL STATEMENTS AND STATISTICAL INFORMATION PROVIDED BY THE
ASSOCIATION. RP FINANCIAL DID NOT INDEPENDENTLY VERIFY THE FINANCIAL STATEMENTS
AND OTHER INFORMATION PROVIDED BY THE ASSOCIATION, NOR DID RP FINANCIAL VALUE
INDEPENDENTLY THE ASSETS OR LIABILITIES OF THE ASSOCIATION OR THE HOLDING
COMPANY. THE VALUATION CONSIDERS THE ASSOCIATION ONLY AS A GOING CONCERN AND
SHOULD NOT BE CONSIDERED AS AN INDICATION OF THE LIQUIDATION VALUE OF THE
ASSOCIATION. MOREOVER, BECAUSE SUCH VALUATION IS NECESSARILY BASED UPON
ESTIMATES AND PROJECTIONS OF A NUMBER OF MATTERS, ALL OF WHICH ARE SUBJECT TO
CHANGE FROM TIME TO TIME, NO ASSURANCE CAN BE GIVEN THAT PERSONS PURCHASING
COMMON SHARES WILL THEREAFTER BE ABLE TO SELL SUCH SHARES AT THE CONVERSION
PURCHASE PRICE.
A copy of the complete appraisal is on file and open for inspection at the
offices of the OTS, 1700 G Street, N.W., Washington, D.C. 20552; at the Central
Regional Office of the OTS, 200 West Madison Street, Suite 1300, Chicago,
Illinois 60606; at the offices of the Division, 77 S. High Street, Columbus,
Ohio 43215; and at the offices of the Association.
RESTRICTIONS ON REPURCHASE OF COMMON SHARES
OTS regulations generally prohibit the Holding Company from repurchasing
any of its capital stock for three years following the date of completion of the
Conversion, except as part of an open-market stock repurchase program during the
second and third years following the Conversion involving no more than 5% of the
outstanding capital stock during a twelve-month period. In addition, after such
a repurchase, the Association's regulatory capital must equal or exceed all
regulatory capital requirements. Before the commencement of a repurchase
program, the Holding Company must provide notice to the OTS, and the OTS may
disapprove the program if the OTS determines that it would adversely affect the
financial condition of the Association or if it determines that there is no
valid business purpose for such repurchase. Such repurchase restrictions would
not prohibit the ESOP or the RRP from purchasing Common Shares during the first
year following the Conversion.
Ohio regulations prohibit the Holding Company from repurchasing shares
during the first year after the Conversion if the effect thereof would cause the
Association not to meet its capital requirements.
RESTRICTIONS ON TRANSFER OF COMMON SHARES BY DIRECTORS AND OFFICERS
Common Shares purchased by directors and executive officers of the Holding
Company will be subject to the restriction that such shares may not be sold for
a period of one year following completion of the Conversion, except in the event
of the death of the shareholder. The certificates evidencing Common Shares
issued by the Holding Company to directors and executive officers will bear a
legend giving appropriate notice of the restriction imposed upon them. In
addition, the Holding Company will give appropriate instructions to the transfer
agent (if any) for the Holding Company's common shares in respect of the
applicable restriction on transfer of any restricted shares. Any shares issued
as a stock dividend, stock split or otherwise in respect of restricted shares
will be subject to the same restrictions.
15
<PAGE> 17
Subject to certain exceptions, for a period of three years following the
Conversion, no director or officer of the Holding Company or the Association, or
any of their Associates, may purchase any common shares of the Holding Company
without the prior written approval of the OTS, except through a broker-dealer
registered with the SEC. This restriction will not apply, however, to negotiated
transactions involving more than 1% of a class of outstanding common shares of
the Holding Company or shares acquired by any stock benefit plan of the Holding
Company or the Association.
The Common Shares, like the stock of most public companies, are subject to
the registration requirements of the Act. Accordingly, the Common Shares may be
offered and sold only in compliance with such registration requirements or
pursuant to an applicable exemption from registration. Common Shares received in
the Conversion by persons who are not "affiliates" of the Holding Company may be
resold without registration. Common Shares received by affiliates of the Holding
Company will be subject to resale restrictions. An "affiliate" of the Holding
Company, for purposes of Rule 144, is a person who directly, or indirectly
through one or more intermediaries, controls, or is controlled by or is under
common control with, the Holding Company. Rule 144 generally requires that there
be publicly available certain information concerning the Holding Company and
that sales subject to Rule 144 be made in routine brokerage transactions or
through a market maker. If the conditions of Rule 144 are satisfied, each
affiliate (or group of persons acting in concert with one or more affiliates) is
generally entitled to sell in the public market, without registration, in any
three-month period, a number of shares which does not exceed the greater of (i)
1% of the number of outstanding shares of the Holding Company or (ii) if the
shares are admitted to trading on a national securities exchange or reported
through the automated quotation system of a registered securities association,
such as Nasdaq SmallCap, the average weekly reported volume of trading during
the four weeks preceding the sale.
OTHER
THE PLAN IS ATTACHED TO THIS SUMMARY PROXY STATEMENT AS EXHIBIT A AND
SHOULD BE REVIEWED CAREFULLY. ALL STATEMENTS MADE IN THIS SUMMARY PROXY
STATEMENT AND THE PROSPECTUS ARE HEREBY QUALIFIED IN THEIR ENTIRETY BY REFERENCE
TO THE PLAN. THE ADOPTION OF THE PLAN BY THE VOTING MEMBERS AT THE SPECIAL
MEETING WILL AUTHORIZE THE BOARDS OF DIRECTORS OF THE HOLDING COMPANY AND THE
ASSOCIATION TO AMEND OR TERMINATE THE PLAN. IF THE BOARDS OF DIRECTORS OF THE
HOLDING COMPANY AND THE ASSOCIATION DETERMINE, UPON ADVICE OF COUNSEL AND AFTER
CONSULTATION WITH THE OTS AND THE DIVISION, THAT ANY SUCH AMENDMENT IS MATERIAL,
SUBSCRIBERS WILL BE NOTIFIED OF THE AMENDMENT AND WILL BE PROVIDED THE
OPPORTUNITY TO AFFIRM, INCREASE, DECREASE OR CANCEL THEIR SUBSCRIPTIONS.
USE OF PROCEEDS
The following table presents the estimated gross and net proceeds from the
sale of the Common Shares, based on the Valuation Range:
<TABLE>
<CAPTION>
Maximum,
Minimum Mid-point Maximum as adjusted
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Gross proceeds $5,737,500 $6,750,000 $7,762,500 $8,926,875
Less estimated expenses 352,930 366,900 380,870 396,940
---------- ---------- ---------- ----------
Total net proceeds $5,384,570 $6,383,100 $7,381,630 $8,529,930
========== ========== ========== ==========
</TABLE>
The net proceeds from the sale of the Common Shares may vary depending upon
financial and market conditions at the time of the completion of the Offering.
See "THE CONVERSION - Pricing and Number of Common Shares to be Sold." The
expenses detailed above are estimated. Actual expenses may be more than or less
than estimated. See "THE CONVERSION Plan of Distribution."
The Holding Company will retain up to 50% of the net proceeds from the sale
of the Common Shares, or approximately $4.3 million at the maximum, as adjusted,
of the Valuation Range. The loan to the ESOP will have a
16
<PAGE> 18
term of up to ten years and an interest rate equal to the applicable federal
rate. Such proceeds will be used to lend up to eight percent of the proceeds of
the Offering to the ESOP to acquire Common Shares in the Offering with the
balance of the proceeds initially invested in short-term investments or deposits
with staggered maturities ranging up to three years. Ultimately, the proceeds
will be used for general corporate purposes, which may include payments of
dividends, repurchases of Common Shares and funding of the RRP. See "THE
CONVERSION - Restrictions on Repurchase of Common Shares." OTS regulations
generally prohibit stock repurchases in the first year following the completion
of the Conversion, without prior approval of the OTS.
The remainder of the net proceeds received from the sale of the Common
Shares, approximately $4.3 million at the maximum, as adjusted, of the Valuation
Range, will be invested by the Holding Company in the capital stock to be issued
by the Association to the Holding Company as a result of the Conversion and will
increase the regulatory capital of the Association and will permit the
Association to expand its lending and investment activities and to enhance
customer services. The Association anticipates that such net proceeds will
initially be invested in short-term investments with maturities of one year or
less and then utilized to originate loans and to purchase loan participations
within Ohio.
MARKET FOR COMMON SHARES
There is currently no market for the Common Shares. No assurance can be
given that an active or liquid market for the Common Shares will develop after
the completion of the Conversion or, if such a market does develop, that it will
continue. Investors should consider, therefore, the potentially illiquid and
long-term nature of an investment in the Common Shares.
A public trading market for the stock of any issuer, including the Holding
Company, depends upon the presence of both willing buyers and willing sellers at
any given time. The Holding Company has received conditional approval from the
Nasdaq SmallCap to have the Common Shares quoted under the symbol "OSFS" upon
completion of the Conversion, subject to certain conditions which the
Association and the Holding Company believe will be satisfied, although no
assurance can be provided that the conditions will be met. One of the conditions
to the Nasdaq SmallCap listing is the commitment of at least two brokerage firms
to make a market in the Common Shares. Keefe, Bruyette & Woods, Inc. has
informed the Holding Company that it intends to make a market in the Common
Shares, but it has no obligation to do so.
If the Common Shares are not listed on the Nasdaq SmallCap, the Holding
Company expects that the common shares will be traded in the over-the-counter
market and will be quoted through brokers participating on the National Daily
Quotation Service.
The appraisal of the pro forma market value of the Association, as
converted, is not a recommendation as to the advisability of purchasing Common
Shares, nor does it represent RP Financial's opinion as to the price at which
the Common Shares may trade. There can be no assurance that the Common Shares
may later be resold at the price at which they are purchased in connection with
the Conversion. See "RISK FACTORS - Limited Market for the Common Shares" in the
Prospectus.
DIVIDEND POLICY
The declaration and payment of dividends by the Holding Company will be
subject to the discretion of the Board of Directors of the Holding Company, to
the earnings and financial condition of the Holding Company and to general
economic conditions. If the Board of Directors of the Holding Company determines
in the exercise of its discretion that the net income, capital, and consolidated
financial condition of the Holding Company and the general economy justify the
declaration and payment of dividends by the Holding Company, the Board of
Directors of the Holding Company may authorize the payment of dividends on the
Common Shares, subject to the limitation under Ohio law that a corporation may
pay dividends only out of surplus. There can be no assurance that dividends will
be paid on the Common Shares or, if paid, that such dividends will continue to
be paid in the future. In addition, the Holding Company will not take any action
that would further the payment of a tax-free return of capital to its
shareholders during the first year following the completion of the Conversion.
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<PAGE> 19
Other than earnings on the investment of the proceeds retained by the
Holding Company and interest earned on the loan to the ESOP, the principal
source of income of the Holding Company will be dividends periodically declared
and paid by the Board of Directors of the Association on the common shares of
the Association held by the Holding Company. The declaration and payment of
dividends by the Association to the Holding Company will be subject to the
discretion of the Board of Directors of the Association, to the earnings and
financial condition of the Association, to general economic conditions and to
federal and state restrictions on the payment of dividends by thrift
institutions. Under regulations of the OTS applicable to converted associations,
the Association will not be permitted to pay a cash dividend on its capital
stock after the Conversion if its regulatory capital would, as a result of the
payment of such dividend, be reduced below the amount required for the
Liquidation Account or the applicable regulatory capital requirement prescribed
by the OTS. See "THE CONVERSION - Principal Effects of the Conversion --
Liquidation Account" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Liquidity and Capital Resources" in the
Prospectus. The Association may not pay a dividend unless such dividend also
complies with an OTS regulation limiting capital distributions by savings and
loan associations. Capital distributions, for purposes of such regulation,
include, without limitation, payments of cash dividends, repurchases, and
certain other acquisitions by an association of its shares and payments to
stockholders of another association in an acquisition of such other association.
See "REGULATION - Office of Thrift Supervision -- Limitations on Capital
Distributions" in the Prospectus.
DESCRIPTION OF AUTHORIZED SHARES
GENERAL
The Articles of Incorporation of the Holding Company authorize the issuance
of 3,000,000 common shares, without par value. Upon receipt by the Holding
Company of the purchase price therefor and subsequent issuance thereof, each
Common Share issued in the Conversion will be fully paid and nonassessable.
Notwithstanding the foregoing, until payments are received by the Holding
Company from the ESOP in accordance with the terms of a loan agreement to be
entered into by and between the Holding Company and the ESOP, Common Shares
issued to the ESOP for which payment in money has not been received will not be
fully paid and non-assessable. The Common Shares will represent nonwithdrawable
capital and will not and cannot be insured by the FDIC. Each Common Share will
have the same relative rights and will be identical in all respects to every
other Common Share.
The following is a summary description of the rights of the common shares
of the Holding Company, including the material express terms of such shares as
set forth in the Holding Company's Articles of Incorporation.
LIQUIDATION RIGHTS
In the event of the complete liquidation or dissolution of the Holding
Company, the holders of the Common Shares will be entitled to receive all assets
of the Holding Company available for distribution, in cash or in kind, after
payment or provision for payment of (i) all debts and liabilities of the Holding
Company, (ii) any accrued dividend claims, and (iii) any interests in the
Liquidation Account payable as a result of a liquidation of the Association. See
"THE CONVERSION - Principal Effects of the Conversion -- Liquidation Account."
VOTING RIGHTS
The holders of the Common Shares will possess exclusive voting rights in
the Holding Company. Each holder of Common Shares will be entitled to one vote
for each share held of record on all matters submitted to a vote of holders of
common shares. See "RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY AND THE
ASSOCIATION - Articles of Incorporation of the Holding Company -- Elimination of
Cumulative Voting" in the Prospectus.
DIVIDENDS
The holders of the Common Shares will be entitled to the payment of
dividends when, as and if declared by the Board of Directors and paid out of
funds, if any, available under applicable laws and regulations for the payment
of
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dividends. The payment of dividends is subject to federal and state statutory
and regulatory restrictions. See "DIVIDEND POLICY," "REGULATION - Office of
Thrift Supervision -- Limitations on Capital Distributions" in the Prospectus
and "TAXATION - Federal Taxation" in the Prospectus for a description of
restrictions on the payment of cash dividends.
PREEMPTIVE RIGHTS
After the consummation of the Conversion, no shareholder of the Holding
Company will have, as a matter of right, the preemptive right to purchase or
subscribe for shares of any class, now or hereafter authorized, or to purchase
or subscribe for securities or other obligations convertible into or
exchangeable for such shares or which by warrants or otherwise entitle the
holders thereof to subscribe for or purchase any such share.
RESTRICTIONS ON ALIENABILITY
See "THE CONVERSION - Restrictions on Repurchase of Common Shares" for a
description of the limitations on the repurchase of stock by the Holding
Company; "THE CONVERSION - Restrictions on Transfer of Common Shares by
Directors and Officers" for a description of certain restrictions on the
transferability of Common Shares purchased by officers and directors; and
"RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY AND THE ASSOCIATION AND
RELATED ANTI-TAKEOVER PROVISIONS" in the Prospectus for information regarding
regulatory restrictions on acquiring Common Shares.
EXPERTS
RP Financial has consented to the publication herein of the summary of its
letter to the Association setting forth its opinion as to the estimated pro
forma market value of the Association as converted and to the use of its name
and statements with respect to it appearing herein.
The consolidated financial statements of the Association as of December 31,
1996, and for each of the three years in the period ended December 31, 1996,
have been included herein in reliance upon the report of S. R. Snodgrass, A.C.,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of such firm as experts in auditing and accounting.
LEGAL PROCEEDINGS
The Association is not presently involved in any material legal
proceedings. From time to time, the Association is a party to legal proceedings
incidental to its business to enforce its security interest in collateral
pledged to secure loans made by the Association.
ADDITIONAL INFORMATION AND STOCK ORDER FORMS
The Prospectus contains the following: audited financial statements of the
Association, including statements of income and retained earnings, for the three
fiscal years ended December 31, 1996, management's discussion and analysis of
financial condition and results of operations; selected financial information of
the Association for the five fiscal years ended December 31, 1996, information
concerning the capitalization of the Association; a description of the
Association's lending, savings and investment activities; and additional
information about the business and financial condition of the Association. A
copy of the Prospectus accompanies this Summary Proxy Statement. To obtain an
additional copy of the Prospectus, contact the Association's Conversion
Information Center at (614) 635-1632 or (614) 635-1633.
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The Subscription Offering will commence on _________, 1997, and end at
noon, Bridgeport, Ohio Time, on ____________, 1997. Stock Order Forms for
purchases of Common Shares in the Subscription Offering must be received by the
Association on or before noon, Bridgeport, Ohio Time, ____________, 1997.
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