<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 17, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PEOPLES COMMUNITY BANCORP, INC.
Exact Name of Registrant as Specified in Its Charter
<TABLE>
<S> <C> <C>
DELAWARE 6306 (BEING APPLIED FOR)
(State or Jurisdiction of (Primary Standard (I.R.S. Employer
Incorporation or Organization) Industrial Identification No.)
Classification Code Number)
</TABLE>
------------------------------
11 S. BROADWAY
LEBANON, OHIO 45036
(513) 932-3876
(Address and Telephone Number of Principal Executive Offices and Principal Place
of Business)
------------------------------
JERRY D. WILLIAMS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PEOPLES COMMUNITY BANCORP, INC.
11 S. BROADWAY
LEBANON, OHIO 45036
(513) 932-3876
(Name, Address, and Telephone Number of Agent for Service)
COPIES TO:
<TABLE>
<S> <C> <C>
KEVIN M. HOULIHAN, ESQ. DAVID J. EYRICH, ESQ. KENNETH R. LEHMAN, ESQ.
HUGH T. WILKINSON, ESQ. KEPLEY, GILLIGAN & EYRICH LUSE LEHMAN GORMAN POMERENK & SCHICK
ELIAS, MATZ, TIERNAN & HERRICK L.L.P. 525 VINE STREET 5335 WISCONSIN AVENUE, N.W.,
734 15TH STREET, N.W., 12TH FLOOR SUITE 2200 SUITE 400
WASHINGTON, D.C. 20005 CINCINNATI, OHIO 45202 WASHINGTON, D.C. 20015
(202) 347-0300 (513) 241-5540 (202) 274-2000
</TABLE>
------------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this 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 under the Securities Act of
1933, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / __________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / __________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED TO BE REGISTERED PER SHARE OFFERING PRICE(1) FEE
<S> <C> <C> <C> <C>
Common Stock, par
value $.01 per share................ 2,715,713 shares $10.00 $27,157,130 $7,169.48
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
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.
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<PAGE>
PROSPECTUS
PEOPLES COMMUNITY BANCORP, INC.
(PROPOSED HOLDING COMPANY FOR PEOPLES COMMUNITY BANK)
UP TO 1,851,500 SHARES OF COMMON STOCK
The People's Building, Loan and Savings Company is converting from the
mutual to the stock form of organization. As part of this conversion, Peoples
Community Bancorp, Inc. is offering its shares of common stock. People's Savings
will become a subsidiary of Peoples Community Bancorp, Inc., a corporation we
recently formed. Just prior to the conversion, People's Savings will merge with
The Oakley Improved Building and Loan Company. Immediately after the conversion,
we will merge with Harvest Home Financial Corporation, the parent of Harvest
Home Savings Bank.
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TERMS OF THE OFFERING
We are offering a minimum of 1,190,000 shares and a maximum of 1,610,000
shares. The maximum can be increased by up to 15% to 1,851,500 shares with
regulatory approval.
<TABLE>
<CAPTION>
PER SHARE TOTAL
-------------- --------------------------
<S> <C> <C>
- - Purchase price: minimum to maximum, as adjusted $10.00 $11,900,000 to $18,515,000
- - Offering expenses, including underwriting
discounts and commissions: minimum to maximum,
as adjusted $0.50 to $0.32 $600,000
- - Net proceeds: minimum to maximum, as adjusted $9.50 to $9.68 $11,300,000 to $17,915,000
</TABLE>
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PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE 8 OF THIS DOCUMENT. AN
INVESTMENT IN THE COMMON STOCK IS SUBJECT TO VARIOUS RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
We have applied to list the common stock on the Nasdaq Stock Market's
National Market under the symbol "PCBI." We must sell a minimum of 1,190,000
shares of common stock or we will not sell any shares. We will not sell more
than 1,851,500 shares in the offering. We are offering the shares on a best
efforts basis. Charles Webb & Company, a division of Keefe, Bruyette &
Woods, Inc., is assisting us in the offering on a best efforts basis. We will
hold funds we receive for stock purchases in a separate savings account at
People's Savings, and we will pay interest at our passbook rate on those funds
for the period the funds are held until we complete or terminate the offering.
In addition to the shares we sell in the offering, we will issue approximately
787,760 shares of our common stock to the former stockholders of Harvest Home
Financial in exchange for their shares of common stock of Harvest Home
Financial.
------------------------
CHARLES WEBB & COMPANY
A DIVISION OF KEEFE, BRUYETTE & WOODS, INC.
[DATE]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Map of Our Market Area...................................... iii
Questions and Answers About the Stock Offering.............. 1
Summary..................................................... 3
Risk Factors................................................ 8
Selected Financial and Other Data of People's Savings....... 12
Selected Financial and Other Data of Oakley................. 13
Selected Consolidated Financial and Other Data of Harvest
Home Financial............................................ 14
Proposed Management Purchases............................... 15
How Our Net Proceeds Will Be Used........................... 16
We Do Not Intend to Pay Quarterly Cash Dividends............ 17
There May Be a Limited Market for Our Common Stock.......... 17
People's Savings, Oakley and Harvest Home Savings Bank Meet
All of Their Regulatory Capital Requirements.............. 17
Capitalization.............................................. 19
Pro Forma Unaudited Combined Consolidated Financial
Information............................................... 21
The People's Building, Loan and Savings Company Statements
of Earnings............................................... 28
Management's Discussion and Analysis of Financial Condition
and Results of Operations of People's Savings............. 29
The Oakley Improved Building and Loan Company Statements of
Operations................................................ 36
Management's Discussion and Analysis of Financial Condition
and Results of Operations of Oakley....................... 37
Harvest Home Financial Corporation Consolidated Statements
of Earnings............................................... 44
Management's Discussion and Analysis of Financial Condition
and Results of Operations of Harvest Home Financial....... 45
Business of Peoples Community Bancorp....................... 55
Business of People's Savings and Oakley..................... 55
Business of Harvest Home Financial.......................... 76
Regulation.................................................. 93
Taxation.................................................... 100
Management.................................................. 103
Our Conversion and Our Mergers with Oakley and Harvest Home
Financial................................................. 111
The Offerings............................................... 129
Restrictions on Acquisition of Peoples Community Bancorp and
People's Savings.......................................... 141
Description of Our Capital Stock............................ 148
Experts..................................................... 149
Legal and Tax Opinions...................................... 150
Additional Information...................................... 150
Index to Financial Statements............................... 151
</TABLE>
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY.
ii
<PAGE>
[MAP TO BE INSERTED.]
iii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING
The following are frequently asked questions. You should read this entire
prospectus, including the Risk Factors beginning on page 8 and Our Conversion
and Our Mergers with Oakley and Harvest Home Financial beginning on page 114,
for more information.
Q. HOW MANY SHARES OF STOCK ARE BEING OFFERED, AND AT WHAT PRICE?
A. We are offering for sale up to 1,610,000 shares of common stock at a
subscription price of $10.00 per share. We must sell at least 1,190,000
shares. If the appraised market value of the common stock changes due to
market or financial conditions, we may be required to sell up to 1,851,500
shares. We also are offering to exchange 0.9 of a share of our common stock
plus $9.00 in cash to Harvest Home Financial stockholders for each share of
their Harvest Home Financial common stock.
Q. WHAT PARTICULAR FACTORS SHOULD I CONSIDER WHEN DECIDING WHETHER TO PURCHASE
THE STOCK?
A. There are many important factors for you to consider before making an
investment decision. Therefore, you should read this entire prospectus
before making your investment decision.
Q. WILL DIVIDENDS BE PAID ON THE STOCK?
A. We do not expect to pay dividends on our common stock initially after the
offering.
Q. WILL I BE ABLE TO SELL MY STOCK AFTER I PURCHASE IT?
A. We anticipate having our stock quoted on the Nasdaq Stock Market's National
Market under the symbol "PCBI." However, we expect the market for our stock
will be limited. There can be no assurance that someone will want to buy
your shares or that you will be able to sell them for more money than you
originally paid. You should consider the possibility that you may be unable
to easily sell your shares of our stock. There may also be a wide spread
between the bid and asked price for our stock.
Q. WILL MY STOCK BE COVERED BY DEPOSIT INSURANCE OR GUARANTEED BY ANY GOVERNMENT
AGENCY?
A. No. Unlike insured deposit accounts at People's Savings and Oakley, our stock
will not be insured or guaranteed by the Federal Deposit Insurance
Corporation, or FDIC, or any other government agency.
Q. WHEN IS THE DEADLINE TO SUBSCRIBE FOR STOCK?
A. We must receive a properly completed and signed order form with the required
payment on or before 12:00 noon, eastern time, on , .
Q. CAN THE OFFERING BE EXTENDED?
A. If we do not receive sufficient orders, we can extend the offering beyond
, . We must complete any offering to general members of the
public within 45 days after the close of the subscription offering, unless
we receive regulatory approval to further extend the offering. No single
extension can exceed 90 days, and the extensions may not go beyond
, .
Q. HOW DO I PURCHASE THE STOCK?
A. First, you should read this prospectus. Then, complete and return the
enclosed stock order and certification form, together with your payment.
Subscription orders may be delivered in person to our office during regular
banking hours, or by mail in the enclosed envelope marked STOCK ORDER
RETURN. If the stock offering is not completed by , and is not
1
<PAGE>
extended, then all funds will be returned promptly with interest, and all
withdrawal authorizations will be cancelled. Stockholders of Harvest Home
Financial are receiving additional information in their proxy
statement/prospectus advising them how to exchange their shares.
Q. CAN I CHANGE MY MIND AFTER I PLACE AN ORDER TO SUBSCRIBE FOR STOCK?
A. No. After we receive your stock order and certification form and payment, you
may not cancel or modify your order. However, if we extend the offering
beyond , you will be able to change or cancel your order. If
you cancel your order, you will receive a prompt refund plus interest.
Q. HOW CAN I PAY FOR THE STOCK?
A. You have several options, including sending us a check or money order; or
authorizing a withdrawal from your deposit account at People's Savings or
Oakley (without any penalty for early withdrawal). Please do not send cash
in the mail.
Q. WILL I RECEIVE INTEREST ON MY SUBSCRIPTION PAYMENT?
A. Subscription payments will be placed in an interest-bearing escrow account at
People's Savings, and will earn interest at our passbook rate. Depositors
who elect to pay by withdrawal will continue to receive interest on their
accounts until the funds are withdrawn.
Q. CAN I SUBSCRIBE FOR SHARES USING FUNDS IN MY INDIVIDUAL RETIREMENT ACCOUNT OR
IRA AT PEOPLE'S OR OAKLEY?
A. Yes. However, you must first establish a self-directed IRA with an outside
trustee to subscribe for stock using your IRA funds. Please call our Stock
Information Center ( ) to get more information. Please understand
that the transfer of IRA funds takes time, so please make arrangements as
soon as possible.
Q. WHAT HAPPENS IF THERE ARE NOT ENOUGH SHARES OF STOCK TO FILL ALL ORDERS?
A. If there is an oversubscription, then you may not receive any or all of the
shares you want to purchase.
Q. WHO CAN HELP ANSWER ANY OTHER QUESTIONS I MAY HAVE ABOUT THE STOCK OFFERING?
A. For answers to other questions we encourage you to read this prospectus.
Questions may also be directed to our Stock Information Center at
Monday through Friday, between the hours of 9:00 a.m. and
4:30 p.m.
TO ENSURE THAT EACH PERSON RECEIVES A PROSPECTUS AT LEAST 48 HOURS PRIOR TO
THE EXPIRATION DATE OF , IN ACCORDANCE WITH FEDERAL LAW, NO
PROSPECTUS WILL BE MAILED ANY LATER THAN FIVE DAYS PRIOR TO , OR
HAND DELIVERED ANY LATER THAN TWO DAYS PRIOR TO , .
2
<PAGE>
SUMMARY
This summary highlights selected information from this document and may not
contain all the information that is important to you. To understand the stock
offering fully, you should read this entire document carefully, including the
financial statements and the notes to financial statements of People's Savings,
Oakley and Harvest Home Financial.
PEOPLES COMMUNITY BANCORP, INC.
We formed Peoples Community Bancorp in December 1999 as a Delaware
corporation. Peoples Community Bancorp will be the holding company for Peoples
Community Bank following the conversion. Peoples Community Bancorp is not an
operating company and has not engaged in any significant business to date. Our
executive offices are located at 11 S. Broadway, Lebanon, Ohio 45036 and our
telephone number is (513) 932-3876.
THE PEOPLE'S BUILDING, LOAN AND SAVINGS COMPANY
Founded in 1889, People's Savings is a community and customer oriented
mutual deposit savings and loan association organized under the laws of the
State of Ohio. We conduct our business out of our main office in Lebanon, Ohio,
and one branch office in Blanchester, Ohio. We acquired our Blanchester office
through a merger with The Peoples Building & Loan Company located in
Blanchester, Ohio in November 1998.
Our business consists principally of attracting deposits from the general
public and using those funds to originate loans secured by one- to four-family
residential properties and, to a lesser extent, commercial real estate loans and
land loans, multi-family residential mortgage loans and other loans. Our
profitability depends primarily on our net interest income, which is the
difference between the income we receive on our loans and other assets and our
cost of funds, which consists of the interest we pay on deposits and borrowings.
At September 30, 1999, we had total assets of $90.3 million, deposits of
$77.7 million and total equity of $11.8 million.
HARVEST HOME FINANCIAL CORPORATION
Harvest Home Financial is an Ohio corporation and the parent holding company
for Harvest Home Savings Bank. Harvest Home Savings Bank is an Ohio chartered,
stock-form savings bank which conducts business out of its main office in
Cheviot, Ohio and two branch offices in Cincinnati. Harvest Home Savings Bank is
a traditional savings bank. As of September 30, 1999, Harvest Home Financial had
total assets of $98.9 million, deposits of $66.2 million and stockholders'
equity of $9.7 million. The executive offices of Harvest Home Financial are
located at 3621 Harrison Avenue, Cheviot, Ohio, and its telephone number is
(513) 661-6612.
THE OAKLEY IMPROVED BUILDING AND LOAN COMPANY
Oakley is an Ohio chartered mutual savings and loan association which
conducts business out of one office in Cincinnati. As of September 30, 1999,
Oakley had total assets of $17.0 million, total deposits of $13.3 million and
total equity of $2.9 million. Oakley's sole office is at 3924 Isabella,
Cincinnati, Ohio and its telephone number is (513) 531-2212.
THE MERGERS
As part of our offering, we are planning to complete two mergers. First,
People's Savings will merge with Oakley. Oakley's depositors will become our
depositors and will be able to buy our common stock in the offering with the
same priority and other rights as our depositors. Immediately after the
completion of the conversion, we will merge with Harvest Home Financial.
Stockholders of
3
<PAGE>
Harvest Home Financial will become stockholders of Peoples Community Bancorp and
will receive $9.00 in cash plus 0.9 of a share of our common stock in exchange
for each of their shares of Harvest Home Financial common stock. We believe that
the mergers will make us a stronger community based savings association. We
believe that by combining three smaller institutions, we will be better able to
compete effectively with the larger financial institutions in our market area.
We will not complete our conversion to stock form unless we can also complete
both of these mergers.
OUR CONVERSION TO STOCK FORM
The conversion is a series of transactions by which we will convert from our
current status as a mutual savings and loan association to a stock savings bank.
Following the conversion, we will change our name to Peoples Community Bank and
we will be a subsidiary of Peoples Community Bancorp. As a stock savings bank,
we will be subject to the regulation and supervision of the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation and the Securities and
Exchange Commission.
As part of the conversion, we are offering between $11,900,000 and
$16,100,000 of our common stock. The purchase price will be $10.00 per share.
Subject to regulatory approval, we may increase the amount of stock to be sold
to $18,515,000 without any further notice to you if market or financial
conditions change before we complete the conversion. In addition to the shares
of our common stock being sold in the offering, stockholders of Harvest Home
Financial will exchange shares of their common stock for 0.9 of a share of our
common stock plus $9.00 in cash.
With the holding company structure, we will be able to develop long-term
growth opportunities and access the capital markets more easily in the future.
The offering will increase our capital and the amount of funds available to us
for lending and investment. This will give us greater flexibility to diversify
and expand our operations in our current market area and neighboring
communities. In addition, we will be able to compensate our directors, officers
and employees in the form of stock.
HOW WE DETERMINED THE PRICE PER SHARE AND THE OFFERING RANGE
The offering range is based on an independent appraisal of our pro forma
market value following the conversion by RP Financial, LC, an appraisal firm
experienced in appraisals of savings institutions. The pro forma market value is
our estimated market value assuming the completion of the two mergers and the
sale of shares in this offering. RP Financial has estimated that in its opinion
as of December 10, 1999, our estimated market value was between $11,900,000 and
$16,100,000, with a midpoint of $14,000,000. The appraisal was based in part
upon our financial condition and operations, the financial condition and
operations of Oakley and Harvest Home Financial, the effects of the mergers with
Oakley and Harvest Home Financial and the effect of the additional capital we
will raise from the sale of common stock in this offering.
Subject to regulatory approval, we may increase the amount of common stock
offered by up to 15%. Accordingly, at the minimum of the offering range, we are
offering 1,190,000 shares, and at the maximum, as adjusted, of the offering
range we are offering 1,851,500 shares. The appraisal will be updated before we
complete the conversion. If the pro forma market value of the common stock at
that time is either below $11,900,000 or above $18,515,000, we will notify you,
and you will have the opportunity to modify or cancel your order. See "The
Conversion--How We Determined the Price Per Share and the Offering Range" for a
description of the factors and assumptions used in determining the stock price
and offering range.
The measures investors use to analyze whether a stock might be a good
investment include the ratio of the offering price to the issuer's "book value,"
the ratio of the offering price to the issuer's "tangible book value" and the
ratio of the offering price to the issuer's annual net income. RP Financial
considered these ratios, among other factors, in preparing its appraisal. Book
value is the same as total equity, and represents the difference between the
issuer's assets and liabilities. Tangible
4
<PAGE>
book value is total equity minus any intangible assets, such as goodwill. The
ratio of the offering price to Peoples Community Bancorp's pro forma book value
ranges from 64.94% to 72.73%, the ratio to pro forma tangible book value ranges
from 76.80% to 83.54%, and the offering price represents between 21.7 and 25.6
times Peoples Community Bancorp's pro forma earnings for the year ended
September 30, 1999. See "Pro Forma Data" for a description of the assumptions we
used in making these calculations.
The peer group selected by RP Financial had a price to book ratio of 96.02%
and a price to tangible book value ratio of 97.54%, which are higher than our
ratios on a pro forma basis. In addition, the peer group traded at 19.57 times
their last 12 months earnings, which is lower than our ratio on a pro forma
basis. Our independent appraiser determined that our value should be lower than
the ratios for the peer group would suggest. RP Financial reduced our value
because the offering is for a new issue of stock, because of our plans to use
some of the proceeds for new offices, because our return on equity as a stock
company will be significantly lower than our peer group and because several
other recently converted institutions are trading below their initial offering
prices.
USE OF PROCEEDS FROM THE SALE OF OUR COMMON STOCK
We will use the proceeds from the offering as follows:
- 8% will be loaned to our employee stock ownership plan to fund its
purchase of common stock;
- 50% will be invested in Peoples Community Bank; and
- 42% will be retained by Peoples Community Bancorp for general corporate
purposes.
The proceeds to be invested in Peoples Community Bank will be available for
general corporate purposes, including growth in the loan portfolio, the
construction and opening of a new headquarters office and additional branches,
possible deposit or bank acquisitions, and the purchase of investment
securities.
People's Savings projects that it may spend approximately $5.0 million of
the net proceeds to build a new headquarters office as well as two new branch
offices and make capital improvements to existing offices. People's Savings
believes that the improvements and the new offices will assist in attracting new
customers.
THE AMOUNT OF STOCK YOU MAY PURCHASE
The minimum purchase is 25 shares. Generally, you may purchase no more than
$150,000. In addition, your total purchases, when combined with those of your
associates, cannot exceed $450,000. For instance, if any of the following
persons purchase stock, then their purchases when combined with your purchases
cannot exceed $450,000:
- persons on joint accounts with you;
- relatives living in your house;
- other persons who have the same address as you on our records;
- companies, trusts or other entities in which you have an interest or hold
a position; or
- other persons who may be acting together with you.
In the event that you are also a stockholder of Harvest Home Financial, then
you will receive shares of our common stock in exchange for your shares of
Harvest Home Financial common stock. The total amount of our common stock that
you may buy in the conversion when added to the shares of our common stock that
you will receive from the merger of Peoples with Harvest Home Financial may not
exceed $450,000.
5
<PAGE>
We may decrease or increase the maximum purchase limitation without
notifying you.
HOW WE WILL PRIORITIZE ORDERS IF WE RECEIVE ORDERS FOR MORE SHARES THAN ARE
AVAILABLE FOR SALE
You might not receive any or all of the shares you order. If we receive
orders for more shares than are available, we will allocate stock to the
following persons or groups in order of priority:
- ELIGIBLE ACCOUNT HOLDERS--Our depositors and Oakley's depositors with a
balance of at least $50 at the close of business on June 30, 1998. Any
remaining shares will be offered to:
- OUR EMPLOYEE STOCK OWNERSHIP PLAN. Any remaining shares will be offered
to:
- SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS--Our depositors and Oakley's
depositors with a balance of at least $50 at the close of business on
, . Any remaining shares will be offered to:
- OTHER MEMBERS--Our depositors and Oakley's depositors at the close of
business on , . Any remaining shares will be offered to:
- Directors, officers and employees of People's Savings and Oakley--These
individuals may also be entitled to purchase stock in the above
categories.
If the above persons do not subscribe for all of the shares offered, we will
offer the remaining shares to the general public, giving preference to persons
who reside in Hamilton, Clinton and Warren Counties, Ohio.
YOUR SUBSCRIPTION RIGHTS ARE NOT TRANSFERABLE
You may not assign or sell your subscription rights. Any transfer of
subscription rights is prohibited by law. If you exercise subscription rights,
you will be required to certify that you are purchasing shares solely for your
own account and that you have no agreement or understanding regarding the sale
or transfer of shares. We intend to pursue any and all legal and equitable
remedies if we learn of the transfer of any subscription rights. We will reject
orders that we determine to involve the transfer of subscription rights.
BENEFITS TO MANAGEMENT FROM THE OFFERING
Our full-time employees will benefit from the offering through our employee
stock ownership plan. This plan will buy shares of stock with a portion of the
net proceeds of the offering and then allocate the stock to employees over a
period of time, at no cost to the employees. You can find more information about
our employee stock ownership plan by reading the section of this document
entitled "Management--New Stock Benefit Plans--Employee Stock Ownership Plan."
Following the conversion, we also intend to implement a restricted stock plan
and a stock option plan, which will benefit our directors, officers and selected
employees. These two plans will not be implemented unless we receive stockholder
approval of the plans at least six months after the conversion. If our
restricted stock plan is approved by stockholders, our executive officers,
directors and selected employees will be awarded shares of common stock at no
cost to them. If our stock option plan is approved by stockholders, stock
options will be granted at no cost to participants, but such persons will be
required to pay the applicable exercise price at the time of exercise in order
to receive the shares of common stock.
6
<PAGE>
The following table summarizes the benefits that directors, officers and
employees may receive from the conversion at the midpoint of the offering range:
<TABLE>
<CAPTION>
% OF VALUE OF SHARES
INDIVIDUALS ELIGIBLE SHARES SOLD IN THE BASED ON MIDPOINT
PLAN TO RECEIVE AWARDS OFFERING(1) OF OFFERING RANGE
- ---- ----------------------------- ------------------ -----------------
<S> <C> <C> <C>
Employee stock ownership All employees 8.0% $1,120,000
plan.......................
Restricted stock plan........ Directors, officers and 4.0% 560,000
selected employees
Stock option plan............ Directors, officers and 10.0% (2)
selected employees
</TABLE>
- ------------------------
(1) Does not include shares to be exchanged for Harvest Home Financial common
stock.
(2) Stock options will be granted with a per share exercise price at least equal
to the market price of our common stock on the date of grant. The value of a
stock option will depend upon increases, if any, in the price of our stock
during the life of the stock option.
We intend to enter into three-year employment agreements with Jerry
D.Williams, Thomas J. Noe, John E. Rathkamp and Dennis J. Slattery, all of whom
will be executive officers of Peoples Community Bancorp after the conversion.
The agreements provide that the officers would receive severance payments equal
to three times their average compensation if Peoples Community Bancorp is
acquired and they lose their jobs after the acquisition. If severance was
required to be paid in 2000 after completion of the conversion, then
Messrs. Williams, Noe, Rathkamp and Slattery would receive severance payments of
approximately $300,000, $225,000, $225,000, and $225,000, respectively.
In addition, we intend to enter into one-year change in control agreements
with certain other officers. The agreements provide that the officers would
receive severance payments equal to one time their average compensation if
Peoples Community Bancorp is acquired and they lose their jobs after the
acquisition.
7
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS DOCUMENT, YOU SHOULD CONSIDER
CAREFULLY THE FOLLOWING RISK FACTORS IN DECIDING WHETHER TO PURCHASE OUR COMMON
STOCK.
HIGHER INTEREST RATES WOULD HURT OUR PROFITABILITY
Our ability to earn a profit depends on our net interest income, which is
the difference between the interest income we earn on our interest-earning
assets, such as mortgage loans, and the interest expense we pay on our
interest-bearing liabilities, such as deposits and borrowings. Because our loans
generally have fixed interest rates, our net interest income could be adversely
affected when the rates we pay on deposits and borrowings are increasing. In
addition, the market value of our fixed-rate assets would decline if interest
rates increase. After the conversion, we plan to increase borrowings and to use
the proceeds from our borrowings to originate additional loans and to buy
mortgage-backed securities. As we pursue this strategy to leverage our balance
sheet, we may become even more sensitive to increases in market rates of
interest.
OUR FUTURE SUCCESS DEPENDS ON THE SUCCESS OF THE MERGERS
We are undertaking three interdependent transactions consisting of our
conversion to stock form and our planned mergers with Oakley and Harvest Home
Financial. Our success after the conversion depends in part on our ability to
successfully complete the mergers and manage the combined operation after the
mergers. For the mergers to be successful, we will have to succeed in combining
the different corporate cultures and operations of the three institutions.
Unlike most recent mergers of financial institutions, we will not focus our
efforts at reducing expenses at the combined institutions. In fact, we expect
minimal cost savings from the mergers with Oakley and Harvest Home Financial.
Instead, we plan to combine the resources of the three institutions and to
increase our loan originations in general and in commercial real estate loans,
in particular, and to continue to expand our physical presence in the Cincinnati
market area. We cannot assure you that our plan to integrate and operate the
three merging institutions will be successful.
OUR PLANS FOR FUTURE EXPANSION WILL INCREASE EXPENSES; GOODWILL WILL REDUCE OUR
NET EARNINGS
Our plans for future expansion will increase our future expenses. We plan to
build a new headquarters office and two additional branches. We also plan to
improve our existing facilities. These expansion efforts will increase our
expenses after the conversion. In addition to construction costs, the new
branches will entail start-up expenses, increases in personnel costs, increases
in real estate taxes and increases in other operating costs. We project spending
approximately $5.0 million to build a new headquarters and new branches and to
make capital improvements to our existing offices. We cannot assure you that we
will realize an acceptable return on these additional capital expenses.
We will record approximately $4.7 million in goodwill as a result of our
merger with Harvest Home Financial. We will amortize this goodwill over
15 years. As a result, our net earnings will be reduced by approximately
$314,000 a year during the amortization period. We cannot assure you that our
earnings after the effect of goodwill costs, as well as our anticipated increase
in other costs due to our planned capital improvements, increases in personnel
and costs from stock benefit plans, will be sufficient to produce returns deemed
acceptable by investors.
OUR COMMERCIAL REAL ESTATE AND LAND LOANS ARE RISKIER THAN OUR RESIDENTIAL LOANS
At September 30, 1999, People's Savings, Oakley and Harvest Home Financial
had an aggregate of $9.7 million in commercial real estate and land loans. After
the conversion and mergers, we expect to significantly increase our commercial
real estate lending efforts. These loans generally involve a higher degree of
credit risk than residential mortgages due primarily to the large amounts loaned
to individual
8
<PAGE>
borrowers. Losses incurred on loans to a small number of borrowers could have a
material adverse impact on our income and financial condition. In addition,
unlike residential mortgage loans, commercial real estate loans depend on the
cash flow from the property or the business to service the debt. Cash flow may
be significantly affected by general economic conditions.
OUR STOCK VALUE MAY SUFFER FROM OUR ABILITY TO IMPEDE POTENTIAL TAKEOVERS
Provisions in our corporate documents and in Delaware corporate law, as well
as certain federal regulations, may make it difficult, and expensive, to pursue
a tender offer, change in control or takeover attempt that our board of
directors opposes. As a result, you may not have an opportunity to participate
in such a transaction, and the trading price of our stock may not rise to the
level of other institutions that are more vulnerable to hostile takeovers.
Anti-takeover provisions contained in our certificate of incorporation also will
make it more difficult for an outsider to remove our current board of directors
or management.
OUR DIRECTORS AND OFFICERS MAY HAVE EFFECTIVE VOTING CONTROL
Our employee stock ownership plan and restricted stock plan will give
control of 12% of our stock sold in the conversion to our directors, officers
and employees at no cost to them, assuming the restricted stock plan is
subsequently approved by stockholders. In addition, our current and proposed
directors and officers intend to purchase 250,000 shares in the conversion, or
21.0% at the minimum and 15.5% at the maximum of the offering.
The above benefit plans and purchases will give our directors, officers and
employees control of greater than 20% of our stock. Holders of 20% of our stock
can block the removal of directors without cause, the approval of certain
business combinations and amendments to our certificate of incorporation. These
ownership levels, along with potential exercises of future stock options, could
make it difficult to obtain majority support for stockholder proposals we
oppose.
If stockholders subsequently approve our proposed stock option plan, our
directors, officers and employees may be granted options to purchase up to 10%
of the stock we sell in the offering. These options will generally be for
10 years, with a per share exercise price equal to the market price of our stock
on the date of grant. Directors, officers and employees will benefit if the
stock price increases after the date of grant, and they may be able to exercise
their options at prices that are less than the market price on the date of
exercise.
OUR EMPLOYEE STOCK BENEFIT PLANS WILL INCREASE OUR COSTS
We anticipate that our employee stock ownership plan will purchase 8% of the
common stock sold in the offering, with funds borrowed from Peoples Community
Bancorp. The cost of acquiring the employee stock ownership plan shares will be
between $952,000 at the minimum of the offering range and $1,288,000 at the
adjusted maximum of the offering range. We will record annual employee stock
ownership plan expenses in an amount equal to the fair value of shares committed
to be released to employees. Based on our assumptions described at pages 25 to
28, we expect our annual employee stock ownership expense to be $74,000 if we
sell $14.0 million of our common stock in the conversion. If shares of common
stock appreciate in value over time, compensation expense relating to the
employee stock ownership plan will increase. We also intend to submit a
restricted stock plan to our stockholders for approval at least six months after
completion of the conversion. Our officers and directors could be awarded (at no
cost to them) under the restricted stock plan up to an aggregate of 4% of the
shares sold in the offering. Assuming the shares of common stock to be awarded
under the plan cost the same as the purchase price in the conversion, the
reduction to stockholders' equity from the plan would be between $476,000 and
$644,000. See "Pro Forma Data" for a discussion of the
9
<PAGE>
increased benefit costs we will incur after the conversion and how these costs
could decrease our return on equity.
OUR EMPLOYEE STOCK BENEFIT PLANS MAY BE DILUTIVE
If the conversion is completed and stockholders subsequently approve a
restricted stock plan and a stock option plan, we will issue stock to our
employees, officers and directors through these plans. If the shares for the
restricted stock plan are issued from our authorized but unissued stock, your
ownership percentage could be diluted by approximately 2.5% (based on the
midpoint of the offering and the issuance of 787,760 shares of our common stock
to stockholders of Harvest Home Financial) and the trading price of our stock
may be reduced. Your ownership percentage would also decrease by approximately
6.0% if all potential stock options are exercised (based on the midpoint of the
offering and the issuance of 787,760 shares of our common stock to stockholders
of Harvest Home Financial). See "Pro Forma Data" for data on the dilutive effect
of the restricted stock plan. These plans will also involve additional expense.
OUR VALUATION IS NOT INDICATIVE OF THE FUTURE PRICE OF OUR COMMON STOCK
We cannot assure you that if you purchase common stock in the offering you
will later be able to sell it at or above the purchase price in the offering.
The final aggregate purchase price of the common stock in the conversion will be
based upon an independent appraisal. The appraisal is not intended, and should
not be construed, as a recommendation of any kind as to the advisability of
purchasing shares of common stock. The valuation is based on estimates and
projections of a number of matters, all of which are subject to change from time
to time.
The shares of common stock offered by this document are not savings accounts
or deposits, are not insured or guaranteed by the Federal Deposit Insurance
Corporation, the Savings Association Insurance Fund or any other governmental
agency, and involve investment risk, including the possible loss of principal.
OUR STOCK PRICE MAY DECLINE
Following the conversion, we cannot assure you that the trading price of our
common stock will be at or above the initial per share offering price. Publicly
traded stocks, including stocks of financial institutions, have recently
experienced substantial market price volatility. In several cases, common stock
issued by recently converted financial institutions has traded at a price that
is below the price at which such shares were sold in the initial offerings of
those companies. The purchase price of our common stock in the offering is based
on the independent appraisal by RP Financial. After our shares begin trading,
the trading price of our common stock will be determined by the marketplace, and
may be influenced by many factors, including prevailing interest rates, investor
perceptions and general industry and economic conditions.
We intend to remain independent for the foreseeable future. Our business
plan is to continue to increase our presence in the Cincinnati region as an
independent savings bank. We do not plan on seeking possible acquirors, and we
believe that it is unlikely that we will be acquired in the foreseeable future.
Accordingly, you should not purchase our common stock with any expectation that
a takeover premium will be paid to you in the near term.
WE MAY BE UNABLE TO MAKE TECHNOLOGICAL ADVANCES
Our industry is experiencing rapid changes in technology. In addition to
improving customer services, effective use of technology increases efficiency
and enables financial institutions to reduce costs. Our future success will thus
depend in part on our ability to address our customers' needs by using
technology. We cannot assure you that we will be able to effectively develop new
technology-
10
<PAGE>
driven products and services or be successful in marketing these products to our
customers. Many of our competitors have far greater resources than we have to
invest in technology.
OUR OPERATIONS ARE SUBJECT TO REGULATORY AND LEGISLATIVE CHANGES
We are subject to extensive government regulation, supervision and
examination. The regulatory authorities have extensive discretion in connection
with their supervisory and enforcement activities. Any change in regulation,
whether by the Office of Thrift Supervision, the FDIC or the U.S. Congress,
could have a significant impact on us and our operations.
11
<PAGE>
SELECTED FINANCIAL AND OTHER DATA OF PEOPLE'S SAVINGS
(DOLLARS IN THOUSANDS)
The following selected historical financial data for the five years ended
September 30, 1999 is derived in part from the audited financial statements of
People's Savings. The selected historical financial data as of September 30,
1999 and 1998 and for each of the three years in the period ended September 30,
1999, should be read in conjunction with, and is qualified in its entirety by,
the historical financial statements of People's Savings, including the related
notes, included elsewhere herein.
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets.............................................. $90,299 $89,638 $89,298 $84,421 $74,629
Cash and cash equivalents................................. 2,020 4,392 4,998 5,546 3,429
Investment securities available for sale.................. 798 1,303 1,702 1,496 1,290
Loans receivable, net..................................... 83,927 79,747 78,722 73,390 65,538
Mortgage-backed securities available for sale............. 1,110 1,419 1,398 1,378 2,218
Deposits.................................................. 77,691 73,691 72,289 69,811 64,954
Federal Home Loan Bank advances........................... -- 4,000 6,000 4,000 --
Retained earnings......................................... 11,787 11,025 10,246 9,369 8,899
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income........................................... $ 6,781 $ 6,802 $ 6,637 $ 6,012 $ 5,655
Interest expense.......................................... 3,913 4,165 4,092 3,740 3,302
------- ------- ------- ------- -------
Net interest income....................................... 2,868 2,637 2,545 2,272 2,353
Provision for losses on loans............................. 150 48 -- 8 --
------- ------- ------- ------- -------
Net interest income after provision for losses on loans... 2,718 2,589 2,545 2,264 2,353
Other income.............................................. 16 20 24 160 85
General, administrative and other expense................. 1,573 1,413 1,264 1,733(1) 1,612
------- ------- ------- ------- -------
Earnings before income taxes.............................. 1,161 1,196 1,305 691 826
Federal income taxes...................................... 395 406 454 221 271
------- ------- ------- ------- -------
Net earnings.............................................. $ 766 $ 790 $ 851 $ 470 $ 555
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
KEY OPERATING RATIOS:
PERFORMANCE RATIOS:(2)
Return on average assets.................................. 0.85% 0.88% 0.98% 0.59% 0.76%
Return on average equity.................................. 6.72 7.43 8.68 5.15 6.44
Average interest-earning assets to average
interest-bearing liabilities............................ 113.62 112.82 111.90 112.25 112.66
Interest rate spread(3)................................... 2.69 2.39 2.41 2.33 2.62
Net interest margin(3).................................... 3.30 3.00 2.98 2.92 3.23
General and administrative expenses to average assets..... 1.75 1.58 1.46 2.18 2.21
ASSET QUALITY RATIOS:
Nonperforming assets to total assets at end of
period(4)............................................... 1.15% 0.79% 1.11% 0.69% 0.61%
Allowance for losses on loans to nonperforming loans at
end of period........................................... 35.06 30.54 18.29 31.28 40.35
Allowance for losses on loans to total loans at end of
period.................................................. 0.43 0.27 0.23 0.25 0.28
CAPITAL AND OTHER RATIOS:
Average equity to average assets.......................... 12.68% 11.89% 11.29% 11.49% 11.94%
Tangible equity to tangible assets at end of period....... 13.04 12.32 11.47 11.10 11.92
Total capital to risk-weighted assets..................... 24.38 23.58 22.31 21.64 23.76
</TABLE>
- ------------------------------
(1) Includes a one-time assessment to the Savings Association Insurance Fund of
$372,000.
(2) With the exception of end of period ratios, all ratios are based on average
monthly balances during the respective periods.
(3) Interest rate spread represents the difference between the weighted average
yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities; net interest margin represents net interest
income as a percentage of average interest-earning assets.
(4) Nonperforming assets consist of non-accrual loans, loans past due 90 days or
more and still accruing interest and real estate acquired through
foreclosure or by deed-in-lieu thereof.
12
<PAGE>
SELECTED FINANCIAL AND OTHER DATA OF OAKLEY
(DOLLARS IN THOUSANDS)
The following selected historical financial data for the five years ended
September 30, 1999 is derived in part from the audited financial statements of
Oakley. The selected historical financial data as of September 30, 1999 and 1998
and for each of the three years in the period ended September 30, 1999, should
be read in conjunction with, and is qualified in its entirety by, the historical
financial statements of Oakley, including the related notes, included elsewhere
herein.
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets.............................................. $17,027 $17,386 $16,218 $15,479 $ 14,956
Cash and cash equivalents................................. 3,163 3,356 2,236 2,328 1,601
Investment securities available for sale.................. 2,452 2,442 2,164 1,760 1,934
Mortgage-backed securities available for sale............. 81 110 131 174 205
Loans receivable, net..................................... 10,624 10,701 11,178 11,012 11,002
Deposits.................................................. 13,327 13,633 13,145 12,887 12,744
Retained earnings......................................... 2,890 2,915 2,419 2,015 1,777
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income......................................... $ 1,091 $ 1,171 $ 1,138 $ 1,118 $ 1,096
Interest expense........................................ 668 726 685 694 655
------- ------- ------- ------- ---------
Net interest income..................................... 423 445 453 424 441
Provision for losses on loans........................... 25 -- 1 4 --
------- ------- ------- ------- ---------
Net interest income after provision for losses on
loans................................................. 398 445 452 420 441
Other income............................................ 4 96 6 34 87
General, administrative and other expense............... 457 325 309 408(1) 373
------- ------- ------- ------- ---------
Earnings (loss) before income taxes (credits)........... (55) 216 149 46 155
Federal income taxes (credits).......................... (24) 69 22 8 50
------- ------- ------- ------- ---------
Net earnings (loss)..................................... $ (31) $ 147 $ 127 $ 38 $ 105
======= ======= ======= ======= =========
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
KEY OPERATING RATIOS:
PERFORMANCE RATIOS:(2)
Return (loss) on average assets........................... (0.18)% 0.87% 0.80% 0.25% 0.71%
Return (loss) on average equity........................... (1.07) 5.51 5.73 2.00 6.91
Average interest-earning assets to average
interest-bearing liabilities............................ 126.04 123.91 120.53 117.34 112.85
Interest rate spread(3)................................... 1.47 1.64 1.99 1.87 2.03
Net interest margin(3).................................... 2.49 2.68 2.89 2.75 2.98
General and administrative expenses to average assets..... 2.66 1.93 1.95 2.68 2.53
ASSET QUALITY RATIOS:
Nonperforming assets to total assets at end of
period(4)............................................... 0.22% --% 0.09% 0.04% 0.01%
Allowance for losses on loans to nonperforming loans at
end of period........................................... 131.58 N/A 166.67 342.86 1,000.00
Allowance for losses on loans to total loans at end of
period.................................................. 0.47 0.23 0.22 0.22 0.18
CAPITAL AND OTHER RATIOS:
Average equity to average assets.......................... 16.87% 15.87% 13.99% 12.46% 10.29%
Tangible equity to tangible assets at end of period....... 10.80 10.74 10.22 9.58 9.46
Total capital to risk-weighted assets..................... 26.30 26.10 24.08 22.36 22.41
</TABLE>
- ------------------------------
(1) Includes a one-time assessment to the Savings Association Insurance Fund of
$82,000.
(2) With the exception of end of period ratios, all ratios are based on average
monthly balances during the respective periods.
(3) Interest rate spread represents the difference between the weighted average
yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities; net interest margin represents net interest
income as a percentage of average interest-earning assets.
(4) Nonperforming assets consist of non-accrual loans and real estate acquired
through foreclosure or by deed-in-lieu thereof.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF HARVEST HOME FINANCIAL
The following selected historical financial data for the five years ended
September 30, 1999 is derived in part from the audited consolidated financial
statements of Harvest Home Financial. The selected historical financial data set
forth below should be read in conjunction with, and is qualified in its entirety
by, the historical consolidated financial statements of Harvest Home Financial,
including the related notes, included elsewhere herein.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED FINANCIAL CONDITION AND OTHER DATA:
Total assets.............................................. $98,935 $96,894 $93,832 $78,718 $69,532
Cash and cash equivalents(1).............................. 2,849 2,887 5,264 1,708 2,313
Investment securities held to maturity.................... -- -- -- -- 18,032
Investment securities available for sale.................. 5,951 4,032 8,039 12,105 --
Mortgage-backed securities held to maturity............... -- -- -- -- 9,009
Mortgage-backed securities available for sale............. 33,711 37,864 32,466 20,429 --
Loans receivable, net..................................... 52,790 48,797 45,229 42,267 38,245
Total deposits............................................ 66,220 60,225 58,786 57,958 56,425
Advances from the FHLB.................................... 22,600 25,850 24,000 10,000 --
Stockholders' equity...................................... 9,653 9,977 10,344 9,725 12,706
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
SUMMARY OPERATING DATA:
Interest income........................................... $ 6,482 $ 6,367 $ 5,983 $ 5,209 $ 4,872
Interest expense.......................................... 4,211 4,143 3,689 2,969 2,569
------- ------- ------- ------- -------
Net interest income....................................... 2,271 2,224 2,294 2,240 2,303
Provision for losses on loans............................. 12 12 9 1 12
------- ------- ------- ------- -------
Net interest income after provision for losses on loans... 2,259 2,212 2,285 2,239 2,291
Other income.............................................. 92 109 64 74 50
General, administrative and other expense................. 1,572 1,516 1,409 2,136(2) 1,372
------- ------- ------- ------- -------
Earnings before income taxes.............................. 779 805 940 177 969
Federal income taxes...................................... 265 264 313 45 329
------- ------- ------- ------- -------
Net earnings.............................................. $ 514 $ 541 $ 627 $ 132 $ 640
======= ======= ======= ======= =======
Earnings per share:
Basic................................................... $ 0.60 $ 0 .63 $ 0.71 $ 0.16 $ 0.73
======= ======= ======= ======= =======
Diluted................................................. $ 0.59 $ 0.60 $ 0.70 $ 0.16 $ 0.73
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SELECTED PERFORMANCE RATIOS(3):
Interest rate spread(4)................................... 1.96% 1.95% 2.17% 2.24% 2.48%
Net yield on average interest-earning assets(4)........... 2.35 2.45 2.76 3.07 3.27
Return on average equity.................................. 5.14 5.28 6.09 1.05 5.09
Return on average assets.................................. 0.51 0.58 0.73 0.18 0.89
Equity-to-assets ratio.................................... 10.01 11.05 12.06 16.94 17.56
Loan loss allowance as a percentage of non-performing
loans(5)................................................ 556.00% 259.18% 121.05% 67.68% 76.92%
</TABLE>
- ------------------------------
(1) Includes cash and due from banks, federal funds sold and interest-bearing
deposits in other financial institutions.
(2) Includes a one-time assessment to the Savings Association Insurance Fund of
$368,000.
(3) With the exception of end of period ratios, all ratios are based on average
monthly balances during the respective periods.
(4) Interest rate spread represents the difference between the weighted average
yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities; net interest margin represents net interest
income as a percentage of average interest-earning assets.
(5) Nonperforming assets consist of non-accrual loans, loans past due 90 days or
more and still accruing interest and real estate acquired through
foreclosure or by deed-in-lieu thereof.
14
<PAGE>
PROPOSED MANAGEMENT PURCHASES
The following table sets forth, for each of People's Savings' current
directors and executive officers (and their associates) and for all of the
directors and executive officers as a group, the proposed purchases of common
stock, assuming sufficient shares are available to satisfy their subscriptions.
The following table also sets forth the proposed purchases of common stock by
Thomas J. Noe who will become a director and the Chief Financial Officer of
Peoples Community Bank and Peoples Community Bancorp. The amounts include shares
that may be purchased through individual retirement accounts.
<TABLE>
<CAPTION>
NUMBER OF
NAME AND TITLE SHARES AMOUNT PERCENT(1)
- -------------- --------- ---------- ----------
<S> <C> <C> <C>
Paul E. Hasselbring,
Chairman of the Board..................... 30,000 300,000 2.14%
Jerry D. Williams, Director,
President and Chief Executive Officer..... 45,000 450,000 3.22
Thomas J. Noe, Director,
Chief Financial Officer................... 45,000 450,000 3.22
Lori Henn, Vice President................... 12,000 120,000 0.86
David Cook, Vice President.................. 3,000 30,000 0.21
Beth Pennington,
Vice President and Treasurer.............. 15,000 150,000 1.07
Zane M. Brant, Director..................... 10,000 100,000 0.71
John L. Buchanan, Director.................. 30,000 300,000 2.14
Donald L. Hawke, Director................... 10,000 100,000 0.71
Richard S. Johnston, Director............... 5,000 50,000 0.36
Nicholas N. Nelson, Director................ 15,000 150,000 1.07
James R. Van DeGrift, Director.............. 30,000 300,000 2.14
------- ---------- -----
All directors and executive officers as a
group
(twelve persons)(2)....................... 250,000 $2,500,000 17.85%
======= ========== =====
</TABLE>
- ------------------------
(1) Based upon the midpoint of the offering range.
(2) This category does not include Messrs. Rathkamp and Slattery or Ms. O'Quinn
who will become directors and/or executive officers of Peoples Community
Bancorp and/or Peoples Community Bank after the conversion and the mergers.
None of these individuals are eligible account holders or supplemental
account holders or other members for purposes of purchasing shares of common
stock in the conversion. Based on the ownership of Harvest Home Financial
common stock by Messrs. Rathkamp and Slattery and Ms. O'Quinn as of ,
2000 and the exchange of 0.9 of a share of Peoples Community Bancorp common
stock for each share of Harvest Home Financial common stock,
Messrs. Rathkamp and Slattery and Ms. O'Quinn would receive ,
and shares of our common stock. Based upon the sale of 1,400,000
shares of common stock in the conversion, the issuance of 787,760 shares of
our common stock to the former stockholders of Harvest Home Financial, the
proposed purchases of our common stock set forth above and the issuance of
, and shares of our common stock to
Messrs. Rathkamp and Slattery and Ms. O'Quinn, all directors and executive
officers of Peoples Community Bancorp as a group, including
Messrs. Rathkamp, Slattery and O'Quinn would own approximately shares
or % of our common stock.
In addition, the employee stock ownership plan currently intends to purchase
8% of the common stock sold in the offering for the benefit of officers and
employees. Stock options and restricted stock awards may also be granted in the
future to directors, officers and employees upon the receipt of
15
<PAGE>
stockholder approval of Peoples Community Bancorp's proposed stock benefit
plans. See "Management--New Stock Benefit Plans" for a description of these
plans.
HOW OUR NET PROCEEDS WILL BE USED
Although the actual net proceeds from the sale of our common stock cannot be
determined until the conversion is completed, it is presently anticipated that
the net proceeds from the sale of the common stock will be between
$11.3 million and $15.5 million ($17.9 million assuming an increase in the
offering range by 15%). See "Pro Forma Data" as to the assumptions used to
arrive at such amounts.
We will use the proceeds from the offering as follows:
- 8% will be loaned to our employee stock ownership plan to fund its
purchase of common stock;
- 50% will be used to purchase all of the common stock of Peoples Community
Bank; and
- 42% will be retained by Peoples Community Bancorp for general corporate
purposes.
The loan to the employee stock ownership plan will be $952,000 and
$1,288,000 at the minimum and maximum of the offering range. The employee stock
ownership plan will distribute the shares it purchases to our employees as the
loan is repaid over 10 years.
The net proceeds we use to purchase the capital stock of Peoples Community
Bank will be used for general corporate purposes, including increased lending
activities. On a short-term basis, we may purchase investment and
mortgage-backed securities. The net proceeds received by Peoples Community Bank
will further strengthen its capital position, which already exceeds all
regulatory requirements. After the conversion and the mergers, Peoples Community
Bank's tangible capital ratio will be 13.33%, based upon the midpoint of the
offering range. As a result, Peoples Community Bank will continue to be a
well-capitalized institution.
People's Savings projects that it may spend approximately $5.0 million of
the net proceeds to build a new headquarters office as well as two new branch
offices and make capital improvements to existing offices. People's Savings
believes that the improvements and the new offices will assist in attracting new
customers. However, no site for the new office has been selected yet, and there
can be no assurance that any new branch office will generate sufficient business
to be profitable.
We may initially use the remaining net proceeds retained by us to invest in
mortgage-backed securities issued by U.S. Government agencies and
government-sponsored enterprises, U.S. Government and federal agency securities
of various maturities, deposits in either Peoples Community Bank or other
financial institutions, or a combination thereof. We plan to use the net
proceeds retained by us to:
- support increased lending activities; and
- support the expansion and improvement of our branch network through
construction of a new headquarters office and two new branch offices as
well as renovation of existing facilities.
Ultimately, we may use the net proceeds remaining from the conversion to
acquire or build additional branch offices or acquire other institutions,
although no such transactions (other than the mergers with Oakley and Harvest
Home Financial) are specifically being considered at this time. We also may use
a portion of the net proceeds for repurchases or our common stock in the future.
OUR NET PROCEEDS MAY VARY BECAUSE TOTAL EXPENSES OF THE CONVERSION MAY BE
MORE OR LESS THAN THOSE ESTIMATED. The net proceeds will also vary if the number
of shares to be issued in the conversion is adjusted to reflect a change in the
estimated pro forma market value of People's Savings. Payments for shares made
through withdrawals from existing deposit accounts at People's Savings will not
result
16
<PAGE>
in the receipt of new funds for investment by People's Savings but will result
in a reduction of People's Savings's interest expense and liabilities as funds
are transferred from interest-bearing certificates or other deposit accounts.
WE DO NOT INTEND TO PAY QUARTERLY CASH DIVIDENDS
After we complete the conversion, our Board of Directors will have the
authority to declare dividends on the common stock, subject to statutory and
regulatory requirements. Initially, we do not intend to pay quarterly cash
dividends on the common stock. Instead, we plan to use our resources to continue
our growth and expand the products we offer. Any dividends paid in the future
will depend upon a number of factors, including the amount of net proceeds
retained by us in the conversion, investment opportunities available to us,
capital requirements, our financial condition and results of operations, tax
considerations, statutory and regulatory limitations, and general economic
conditions. No assurances can be given that any dividends will be paid or that,
if paid, will not be reduced or eliminated in future periods.
THERE MAY BE A LIMITED MARKET FOR OUR COMMON STOCK
Because this is our initial public offering, there is no market for our
common stock at this time. After we complete the offering, we anticipate that
our common stock will be traded on the over-the-counter market with quotations
available through the Nasdaq Stock Market's National Market. Keefe, Bruyette &
Woods, Inc. has indicated its intention to make a market in our common stock.
Making a market may include the solicitation of potential buyers and sellers
in order to match buy and sell orders. However, Keefe, Bruyette & Woods, Inc.
will not be subject to any obligation with respect to such efforts. The
development of a liquid public market depends upon the existence of willing
buyers and sellers, the presence of which is not within our control or of any
market maker. You could have difficulty disposing of your shares on short notice
and should not view the common stock as a short-term investment. Accordingly,
you should consider the possibility that you may be unable to easily sell our
stock. Furthermore, there can be no assurance that you will be able to sell your
shares at or above the initial per share offering price.
PEOPLE'S SAVINGS, OAKLEY AND HARVEST HOME SAVINGS BANK MEET
ALL OF THEIR REGULATORY CAPITAL REQUIREMENTS
At September 30, 1999, People's Savings, Oakley and Harvest Home Savings
Bank each exceeded all of the regulatory capital requirements applicable to it.
The table on the following page sets forth the historical regulatory capital of
People's Savings, Oakley and Harvest Home Savings Bank under generally accepted
accounting principles ("GAAP") and regulatory capital at September 30, 1999 and
the pro forma capital after giving effect to the conversion and the mergers,
based upon the sale of the number of shares shown in the table. The pro forma
capital amounts reflect the receipt by Peoples Community Bank of 50% of the net
conversion proceeds, minus the amounts to be loaned to our employee stock
ownership plan ("ESOP") and to be contributed to our proposed restricted stock
plan ("Recognition Plan"). The pro forma risk-based capital amounts assume the
investment of the net proceeds received by Peoples Community Bank in assets
which have a risk-weight of 20% under applicable regulations, as if such net
proceeds had been received and so applied at September 30, 1999.
17
<PAGE>
<TABLE>
<CAPTION>
HARVEST HOME
SAVINGS PRO FORMA
PEOPLE'S SAVINGS OAKLEY BANK(1) COMBINED
HISTORICAL AT HISTORICAL AT HISTORICAL AT HISTORICAL AT
SEPTEMBER 30, 1999 SEPTEMBER 30, 1999 SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
--------------------- --------------------- --------------------- ---------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2)
-------- ---------- -------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible capital:
Actual............... $11,791 13.05% $1,635 10.82% $9,737 9.76% $20,900 10.31%
Requirement.......... 1,355 1.50 227 1.50 1,497 1.50 3,041 1.50
------- ----- ------ ----- ------ ----- ------- -----
Excess............... $10,436 11.55% $1,408 9.32% $8,240 8.26% $17,859 8.81%
======= ===== ====== ===== ====== ===== ======= =====
Core capital(3):
Actual............... $11,791 13.05% $1,635 10.82% $9,737 9.76% $20,900 10.31%
Requirement.......... 2,710 3.00 453 3.00 2,994 3.00 6,082 3.00
------- ----- ------ ----- ------ ----- ------- -----
Excess............... $ 9,081 10.05% $1,182 7.82% $6,743 6.76% $14,818 7.31%
======= ===== ====== ===== ====== ===== ======= =====
Risk-based capital(3):
Actual............... $12,156 24.40% $1,685 26.25% $9,876 23.48% $21,454 22.92%
Requirement.......... 3,985 8.00 513 8.00 3,365 8.00 7,487 8.00
------- ----- ------ ----- ------ ----- ------- -----
Excess............... $ 8,171 16.40% $1,172 18.25% $6,511 15.48% $13,967 14.92%
======= ===== ====== ===== ====== ===== ======= =====
<CAPTION>
PRO FORMA COMBINED CONSOLIDATED FOR PEOPLE'S COMMUNITY BANK
AT SEPTEMBER 30, 1999 BASED ON
---------------------------------------------------------------------------------------------
1,190,000 1,400,000 1,610,000 1,851,500
SHARES SOLD SHARES SOLD SHARES SOLD SHARES SOLD
AT $10.00 PER SHARE AT $10.00 PER SHARE AT $10.00 PER SHARE AT $10.00 PER SHARE
--------------------- --------------------- --------------------- ---------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2)
-------- ---------- -------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible capital:
Actual............... $19,052 9.48% $20,900 10.31% $22,748 11.12% $24,873 12.03%
Requirement.......... 3,013 1.50 3,041 1.50 3,069 1.50 3,101 1.50
------- ----- ------- ----- ------- ----- ------- -----
Excess............... $16,039 7.98% $17,859 8.81% $19,679 9.62% $21,772 10.53%
======= ===== ======= ===== ======= ===== ======= =====
Core capital(3):
Actual............... $19,052 9.48% $20,900 10.31% $22,748 11.12% $24,873 12.03%
Requirement.......... 6,027 3.00 6,082 3.00 6,138 3.00 6,201 3.00
------- ----- ------- ----- ------- ----- ------- -----
Excess............... $13,025 6.48% $14,818 7.31% $16,610 8.12% $18,672 9.03%
======= ===== ======= ===== ======= ===== ======= =====
Risk-based capital(3):
Actual............... $19,606 20.72% $21,454 22.63% $23,302 24.53% $25,427 26.70%
Requirement.......... 7,570 8.00 7,585 8.00 7,601 8.00 7,618 8.00
------- ----- ------- ----- ------- ----- ------- -----
Excess............... $12,036 12.72% $13,869 14.63% $15,701 16.53% $17,809 18.70%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
- ----------------------------------
(1) Although Harvest Home Savings Bank is subject to the FDIC's capital
regulations, for purposes of this table, Harvest Home Savings Bank is
assumed to be subject to OTS capital requirements.
(2) Adjusted total or adjusted risk-weighted assets, as appropriate. As of
September 30, 1999, the adjusted total and risk-weighted assets of People's
Savings were $90.3 million and $49.8 million, respectively, the adjusted
total and risk-weighted assets of Oakley were $15.1 million and
$6.4 million, respectively, and the adjusted total and risk-weighted assets
of Harvest Home Savings Bank were $99.8 million and $42.1 million,
respectively.
(3) Does not reflect the interest rate risk component to be added to the
risk-based capital requirements or, in the case of the core capital
requirement, the 4.0% requirement to be met in order for an institution to
be "adequately capitalized" under applicable laws and regulations. Also,
tangible, core and risk-based capital are reflected net of goodwill of
$4.7 million arising from the acquisition of Harvest Home Financial by
Peoples Community Bancorp. See "Regulation--People's Savings--Regulatory
Capital Requirements."
18
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of People's
Savings at September 30, 1999, and the pro forma combined consolidated
capitalization of Peoples Community Bancorp after giving effect to the
conversion and merger, based upon the sale of the number of shares shown below
and the other assumptions set forth under "Pro Forma Unaudited Financial
Information--Additional Pro Forma Data."
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
HARVEST HOME PURCHASE CONSOLIDATED
PEOPLE'S SAVINGS-- OAKLEY-- FINANCIAL-- ACCOUNTING REFLECTING
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS PURCHASE
------------------ ---------- ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Goodwill............................... $ -- $ -- $ -- $ 4,705 $ 4,705
======= ========
Deposits(2)............................ $77,691 $13,327 $66,220 (13) $157,225
Borrowings............................. -- -- 22,600 (77) 22,523
------- ------- ------- ------- --------
Total deposits and borrowings.......... $77,691 $13,327 $88,820 $ (90) $179,748
======= ======= ======= ======= ========
Stockholders' equity:
Preferred Stock, $0.01 par value,
1,000,000 shares authorized, none
issued or to be issued............. $ -- $ -- $ -- $ -- $ --
Common Stock, $.01 par value,
10,000,000 shares authorized;
shares issued or to be issued as
reflected(3)....................... -- -- -- 8 8
Additional paid-in capital............. -- -- 6,887 (987) 5,900
Treasury stock(4)...................... -- -- (1,451) 1,451 --
Retained earnings(5)................... 11,791 1,635 5,329 (5,329) 13,426
Net unrealized gain (loss) on available
for sale securities, net of taxes.... (4) 1,255 (694) 694 1,251
Less:
Common Stock held by the Harvest Home
Financial ESOP..................... -- -- (224) 224 --
Common Stock held by the Harvest Home
Financial Recognition Plan......... -- -- (194) 194 --
Less:
Common Stock held or to be acquired
by the Peoples ESOP(6)............. -- -- -- -- --
Common Stock to be acquired by the
Recognition Plan(7)................ -- -- -- -- --
------- ------- ------- ------- --------
Total equity........................... $11,787 $ 2,890 $ 9,653 $ 3,745 $ 20,585
======= ======= ======= ======= ========
Equity to assets ratio................. 13.05% 16.97% 9.76% 10.17%
<CAPTION>
PEOPLES COMMUNITY BANCORP--PRO FORMA CONSOLIDATED
BASED UPON SALE AT $10.00 PER SHARE
---------------------------------------------------------
1,851,500
1,190,000 1,400,000 1,610,000 SHARES(1)
SHARES SHARES SHARES (15% ABOVE
(MINIMUM OF (MIDPOINT OF MAXIMUM OF (MAXIMUM OF
RANGE) RANGE) RANGE) RANGE)
------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Goodwill............................... $ 4,705 $ 4,705 $ 4,705 $ 4,705
======== ======== ======== ========
Deposits(2)............................ $157,225 $157,225 $157,225 $157,225
Borrowings............................. 22,523 22,523 22,523 22,523
-------- -------- -------- --------
Total deposits and borrowings.......... $179,748 $179,748 $179,748 $179,748
======== ======== ======== ========
Stockholders' equity:
Preferred Stock, $0.01 par value,
1,000,000 shares authorized, none
issued or to be issued............. $ -- $ -- $ -- $ --
Common Stock, $.01 par value,
10,000,000 shares authorized;
shares issued or to be issued as
reflected(3)....................... 20 22 24 26
Additional paid-in capital............. 17,188 19,286 21,384 23,797
Treasury stock(4)...................... -- -- -- --
Retained earnings(5)................... 13,426 13,426 13,426 13,426
Net unrealized gain (loss) on available
for sale securities, net of taxes.... 1,251 1,251 1,251 1,251
Less:
Common Stock held by the Harvest Home
Financial ESOP..................... -- -- -- --
Common Stock held by the Harvest Home
Financial Recognition Plan......... -- -- -- --
Less:
Common Stock held or to be acquired
by the Peoples ESOP(6)............. (952) (1,120) (1,288) (1,481)
Common Stock to be acquired by the
Recognition Plan(7)................ (476) (560) (644) (741)
-------- -------- -------- --------
Total equity........................... $ 30,457 $ 32,305 $ 34,153 $ 36,278
======== ======== ======== ========
Equity to assets ratio................. 14.35% 15.09% 15.81% 16.63%
</TABLE>
19
<PAGE>
- ------------------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the offering range of up to 15% to reflect
changes in market and financial conditions before we complete the conversion
or to fill the order of the ESOP.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
common stock in the conversion. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
(3) Reflects the issuance of shares in the conversion plus the issuance of
787,760 shares to Harvest Home Financial stockholders. We have not given any
effect to the issuance of additional shares of common stock pursuant to our
proposed stock option plan. We intend to adopt a stock option plan and to
submit such plan to stockholders at a meeting of stockholders to be held at
least six months following completion of the conversion. If the plan is
approved by stockholders, an amount equal to 10% of the shares of common
stock sold in the conversion will be reserved for issuance under such plan.
(4) Assumes the cancellation of Harvest Home Financial's treasury shares at the
time of the consummation of the merger.
(5) The retained earnings of Peoples Community Bank will be substantially
restricted after the conversion. See "Our Conversion and Our Mergers with
Oakley and Harvest Home Financial--Liquidation Rights of Certain
Depositors."
(6) We have assumed that 8% of the common stock will be purchased by our ESOP.
The common stock acquired by the ESOP is reflected as a reduction of
stockholders' equity. We have assumed that the funds used to acquire the
ESOP shares will be borrowed from Peoples Community Bancorp. See Note 1 to
the table set forth under "Pro Forma Data" and "Management--New Stock
Benefit Plans--Employee Stock Ownership Plan."
(7) Gives effect to the Recognition Plan which we expect to adopt after the
conversion and present to stockholders for approval at a meeting of
stockholders to be held at least six months after we complete the
conversion. No shares will be purchased by the Recognition Plan in the
conversion, and the Recognition Plan cannot purchase any shares until
stockholder approval has been obtained. If the Recognition Plan is approved
by our stockholders, the plan intends to acquire an amount of common stock
equal to 4% of the shares of common stock sold in the offering, or 47,600,
56,000, 64,400 and 74,060 shares at the minimum, midpoint, maximum and 15%
above the maximum of the offering range, respectively. The table assumes
that stockholder approval has been obtained and that such shares are
purchased in the open market at $10.00 per share. The common stock so
acquired by the Recognition Plan is reflected as a reduction in
stockholders' equity. If the shares are purchased at prices higher or lower
than the initial purchase price of $10.00 per share, such purchases would
have a greater or lesser impact, respectively, on stockholders' equity. If
the Recognition Plan purchases authorized but unissued shares from Peoples
Community Bancorp, such issuance would dilute the voting interests of
existing stockholders by approximately 2.4%, 2.5%, 2.6% and 2.7% at the
minimum, midpoint, maximum and 15% above the maximum, respectively.
20
<PAGE>
PRO FORMA UNAUDITED COMBINED CONSOLIDATED FINANCIAL INFORMATION
The following Pro Forma Unaudited Combined Consolidated Statement of
Financial Condition at September 30, 1999 and the Pro Forma Unaudited Combined
Consolidated Statements of Earnings for each of the years ended September 30,
1999, 1998 and 1997 give effect to the proposed conversion and the mergers based
on the assumptions set forth below. The pro forma unaudited combined
consolidated financial statements are based on the audited financial statements
of People's Savings, Oakley and Harvest Home Financial for the years ended
September 30, 1999, 1998 and 1997. The pro forma unaudited combined consolidated
financial statements give effect to the conversion, the merger between People's
Savings and Oakley using the pooling of interests method and the merger between
Peoples Community Bancorp and Harvest Home Financial using the purchase method
of accounting.
The pro forma adjustments in the tables assume the sale of 1,400,000 shares
of common stock in the offering at a price of $10.00 per share. In addition, the
pro forma adjustments in the tables assume the issuance of 787,760 shares in the
merger with Harvest Home Financial. The net proceeds are based upon the
following assumptions: (1) all shares of common stock will be sold in the
subscription offering; and (2) total expenses, including the marketing fees to
be paid to Charles Webb, will be $600,000. Actual expenses may vary from those
estimated and the number of shares sold and the actual purchase price may be
more or less than the assumptions set forth above. For the effects of such
possible changes, see "--Additional Pro Forma Data."
The pro forma unaudited combined consolidated statement of financial
condition assumes the conversion and the mergers were completed on
September 30, 1999. The pro forma unaudited combined consolidated statements of
earnings assume that the conversion and the mergers were completed on the first
day of each indicated period. We calculated historical and pro forma per share
amounts by dividing historical and pro forma amounts by the indicated number of
shares of common stock.
We have provided the pro forma unaudited combined consolidated financial
statements for informational purposes only. The pro forma financial information
presented is not necessarily indicative of the actual results that we would have
achieved had the conversion and the mergers been completed on September 30, 1999
or at the beginning of the periods presented, and is not indicative of our
future results. You should read the pro forma unaudited combined consolidated
financial statements in conjunction with the financial statements and the notes
thereto of People's Savings, Oakley and Harvest Home Financial contained
elsewhere herein.
The stockholders' equity represents the combined book value of the common
stockholders' ownership of People's Savings, Oakley and Harvest Home Financial
computed in accordance with GAAP. This amount is not intended to represent fair
market value nor does it represent any amount that would be available for
distribution to stockholders in the event of liquidation. The book value for
People's Savings, Oakley and Harvest Home Financial on a historical and pro
forma basis has not been changed to reflect any difference between the carrying
value of investments held to maturity or loans held in portfolio and their
market value.
THE UNAUDITED PRO FORMA COMBINED CONSOLIDATED NET EARNINGS AND COMMON
STOCKHOLDERS' EQUITY DERIVED FROM THE ABOVE ASSUMPTIONS ARE QUALIFIED BY THE
STATEMENTS SET FORTH UNDER THIS CAPTION AND SHOULD NOT BE CONSIDERED INDICATIVE
OF THE MARKET VALUE OF THE COMMON STOCK OR THE ACTUAL RESULTS OF OPERATIONS OF
PEOPLE'S SAVINGS, OAKLEY AND HARVEST HOME FINANCIAL FOR ANY PERIOD. THE PRO
FORMA DATA PRESENTED MAY BE MATERIALLY AFFECTED BY THE ACTUAL GROSS PROCEEDS
FROM THE SALE OF COMMON STOCK IN THE CONVERSION AND THE MERGERS AND THE ACTUAL
EXPENSES INCURRED IN CONNECTION WITH THE CONVERSION AND THE MERGERS. SEE "HOW
OUR NET PROCEEDS WILL BE USED."
21
<PAGE>
PRO FORMA UNAUDITED COMBINED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
PEOPLE'S PRO FORMA
PEOPLE'S SAVINGS/OAKLEY CONVERSION
SAVINGS OAKLEY COMBINED(1) ADJUSTMENTS(2)
-------- -------- -------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
ASSETS
Cash............................. $ 70 $ 101 $ 171 $ --
Interest-bearing deposits........ 1,950 2,762 4,712 6,720
Federal funds sold............... -- 700 700 --
------- ------- -------- -------
Cash and cash equivalents........ 2,020 3,563 5,583 6,720
Investment securities available
for sale....................... 798 1,950 2,748 --
Mortgage-backed securities
available for sale............. 1,110 -- 1,110 --
Mortgage-backed securities held
to maturity.................... -- 81 81 --
Investment securities held to
maturity....................... -- 502 502 --
Loans receivable, net............ 83,927 10,624 94,551 --
FHLB stock, at cost.............. 850 171 1,021 --
Office properties and
equipment...................... 1,037 25 1,062 5,000
Accrued interest receivable...... 383 72 455 --
Goodwill......................... -- -- -- --
Other assets..................... 174 39 213 --
------- ------- -------- -------
Total Assets................... $90,299 $17,027 $107,326 $11,720
======= ======= ======== =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities:
Deposits......................... $77,691 $13,327 $ 91,018 $ --
Total borrowings................. -- -- -- --
Advances by borrowers for
insurance and taxes............ 6 -- 6 --
Other liabilities................ 815 810 1,625 --
------- ------- -------- -------
Total liabilities.............. 78,512 14,137 92,649 --
------- ------- -------- -------
Stockholders' equity:
Common Stock..................... -- -- -- 14
Additional paid-in capital....... -- -- -- 13,386
Retained earnings partially
restricted..................... 11,791 1,635 13,426 --
ESOP shares...................... -- -- -- (1,120)
Recognition Plan shares.......... -- -- -- (560)
Treasury stock................... -- -- -- --
Unrealized gains (losses) on
securities..................... (4) 1,255 1,251 --
------- ------- -------- -------
Total stockholders' equity..... 11,787 2,890 14,677 11,720
------- ------- -------- -------
Total liabilities and
stockholders' equity....... $90,299 $17,027 $107,326 $11,720
======= ======= ======== =======
<CAPTION>
PEOPLE'S
SAVINGS, HARVEST PRO FORMA
AS HOME MERGER PRO FORMA
CONVERTED FINANCIAL ADJUSTMENTS CONSOLIDATED
--------- --------- ----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
ASSETS
Cash............................. $ 171 $ 1,347 $ -- $ 1,518
Interest-bearing deposits........ 4,712 1,402 (8,286)(3) 4,548
Federal funds sold............... 700 100 -- 800
-------- ------- ------- --------
Cash and cash equivalents........ 5,583 2,849 (8,286)(3) 6,866
Investment securities available
for sale....................... 2,748 5,951 -- 8,699
Mortgage-backed securities
available for sale............. 7,830 33,711 -- 34,821
Mortgage-backed securities held
to maturity.................... 81 -- -- 81
Investment securities held to
maturity....................... 502 -- -- 502
Loans receivable, net............ 94,551 52,790 (338)(3) 147,003
FHLB stock, at cost.............. 1,021 1,723 -- 2,744
Office properties and
equipment...................... 6,062 1,236 -- 7,298
Accrued interest receivable...... 455 502 -- 957
Goodwill......................... -- -- 4,705 (4) 4,705
Other assets..................... 213 173 84 (3) 470
-------- ------- ------- --------
Total Assets................... $119,046 $98,935 $(3,835) $214,146
======== ======= ======= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities:
Deposits......................... $ 91,018 $66,220 $ (13)(3) $157,225
Total borrowings................. -- 22,600 (77)(3) 22,523
Advances by borrowers for
insurance and taxes............ 6 105 -- 111
Other liabilities................ 1,625 357 -- 1,982
-------- ------- ------- --------
Total liabilities.............. 92,649 89,282 (90) 181,841
-------- ------- ------- --------
Stockholders' equity:
Common Stock..................... 14 -- 8 (4) 22
Additional paid-in capital....... 13,386 6,887 (987)(4) 19,286
Retained earnings partially
restricted..................... 13,426 5,329 (5,329)(4) 13,426
ESOP shares...................... (1,120) (224) 224 (3) (1,120)
Recognition Plan shares.......... (560) (194) 194 (560)
Treasury stock................... -- (1,451) 1,451 (4) --
Unrealized gains (losses) on
securities..................... 1,251 (694) 694 1,251
-------- ------- ------- --------
Total stockholders' equity..... 26,397 9,653 (3,745) 32,305
-------- ------- ------- --------
Total liabilities and
stockholders' equity....... $119,046 $98,935 $(3,835) $214,146
======== ======= ======= ========
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
22
<PAGE>
- ------------------------------
(1) Reflects the merger of People's Savings and Oakley utilizing the pooling of
interests method of accounting. Accordingly, the historical basis of
People's Savings' and Oakley's assets, liabilities and equity accounts have
been carried forward and added together at historical cost.
(2) Reflects gross proceeds of $14.0 million from the sale of common stock in
the conversion, minus (i) estimated expenses of the conversion equal to
$600,000, (ii) the purchase of $1.12 million of shares of common stock by
the ESOP, funded internally by a loan from Peoples Community Bancorp and
(iii) the proposed purchase of $560,000 of common stock by the Recognition
Plan, funded internally by Peoples Community Bancorp.
(3) Reflects the cash consideration of $9.00 per common share, capitalized
merger costs of $220,000, cash payments related to Harvest Home Financial's
stock option plan at an after-tax cost of $478,000. These costs and payments
are partially offset by retirement of the Harvest Home Financial employee
stock ownership plan in the amount of $224,000 and the Harvest Home
Financial recognition plan tax benefits amounting to $66,000. Also reflects
fair value adjustments related to the loan portfolio, deposit accounts and
borrowings net of related tax effects.
(4) Reflects the issuance of shares at fair value based on the exchange of each
share of Harvest Home Financial common stock previously held for 0.9 of a
share of Peoples Community Bancorp common stock with a par value of $.01
(assuming no additional exercises of options to acquire Harvest Home
Financial common stock) and the retirement of Harvest Home Financial shares
previously held in treasury. Also reflects the goodwill inherent in the
Harvest Home Financial acquisition.
23
<PAGE>
PRO FORMA UNAUDITED COMBINED CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1999
------------------------------------------------------------------------------------
PEOPLE'S
SAVINGS/OAKLEY
PEOPLE'S PRO FORMA HARVEST HOME PURCHASE PRO FORMA
SAVINGS OAKLEY COMBINED FINANCIAL ADJUSTMENTS CONSOLIDATED
-------- -------- -------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Interest income............... $6,781 $1,091 $7,872 $ 6,482 $(429)(4) $13,925
Interest expense.............. (3,913) (668) (4,581) (4,211) -- (8,792)
------ ------ ------ ------- ----- -------
Net interest income before
provision for losses on
loans....................... 2,868 423 3,291 2,271 (429) 5,133
Provision for losses on
loans....................... (150) (25) (175) (12) -- (187)
------ ------ ------ ------- ----- -------
Net interest income after
provision for losses on
loans..................... 2,718 398 3,116 2,259 (429) 4,946
Non-interest income........... 16 4 20 92 -- 112
Non-interest expense.......... (1,573) (457) (2,030) (1,572) (103)(5) (3,705)
------ ------ ------ ------- ----- -------
Earnings (loss) before
income taxes.............. 1,161 (55) 1,106 779 (532) 1,353
(Income taxes) credits........ (395) 24 (371) (265) 74 (6) (562)
------ ------ ------ ------- ----- -------
Net earnings................ $ 766 $ (31) $ 735 $ 514 $(458) $ 791
====== ====== ====== ======= ===== =======
Basic earnings per share
(1)......................... N/A N/A N/A $ 0.60 (1) N/A $ 0.36 (2)
======= =======
Diluted earnings per share
(1)......................... N/A N/A N/A $ 0.59 (1) N/A N/A (3)
======= =======
</TABLE>
- ------------------------
(1) Reflects diluted earnings per share and basic earnings per share for Harvest
Home Financial on a historical basis.
(2) The weighted average number of shares outstanding as of September 30, 1999
used to calculate pro forma consolidated basic earnings per share is
2,187,760. The number of shares has been computed by reflecting the weighted
average number of Harvest Home Financial shares outstanding, adjusted for
the exchange ratio of 0.9 of a share of Peoples Community Bancorp common
stock for each outstanding share of common stock of Harvest Home Financial
increased by 1,400,000 shares issued in the conversion, the midpoint of the
offering range.
(3) The dilutive options under the Harvest Home Financial stock option plan will
be cancelled in connection with the merger. The dilutive effects of the
proposed Peoples Community Bancorp stock option plan have not been
calculated because the plan has not been submitted to stockholders or
approved by stockholders.
(4) Reflects loss of interest revenue on $8.3 million of cash outflows related
to Harvest Home Financial acquisition at 5.18%, which represents the yield
on one-year U.S. government securities.
(5) Reflects amortization of $4.7 million of goodwill over a fifteen year life,
less annual compensation savings of $215,000.
(6) Tax benefits associated with footnotes (1) to (4) above computed at 34%.
24
<PAGE>
ADDITIONAL PRO FORMA DATA
We cannot determine the actual net proceeds from the sale of our common
stock until the conversion is completed. However, net proceeds are currently
estimated to be between $11.3 million and $15.5 million (or $17.9 million in the
event the offering range is increased by 15%) based upon the following
assumptions: (1) all shares of common stock will be sold in the subscription
offering; and (2) total expenses, including the marketing fees to be paid to
Charles Webb, will be $600,000. Actual expenses may vary from those estimated.
We calculated pro forma net earnings and stockholders' equity for the year
ended September 30, 1999 as if the common stock to be issued in the offering had
been sold at the beginning of the period. The table assumes that the net
proceeds had been invested at 5.18% for the year ended September 30, 1999, which
represents the yield on one-year U.S. Government securities at September 30,
1999. The effect of withdrawals from deposit accounts for the purchase of common
stock has not been reflected. We assumed a federal income tax rate of 34%,
resulting in an after-tax yield of 3.42% for the year ended September 30, 1999.
We calculated historical and pro forma per share amounts by dividing historical
and pro forma amounts by the indicated number of shares of common stock, as
adjusted to give effect to the shares purchased by the ESOP and the Recognition
Plan with respect to the earnings per share calculations. See Notes 2 and 4 to
the tables below. No effect has been given in the pro forma stockholders' equity
calculations for the assumed earnings on the net proceeds utilized to purchase
fixed assets. As discussed under "How Our Net Proceeds Will Be Used," Peoples
Community Bancorp intends to retain 50% of the net conversion proceeds.
The following pro forma information may not be representative of the
financial effects of the conversion and the mergers at the date on which the
conversion and the mergers actually occur and should not be taken as indicative
of our future results of operations. Pro forma stockholders' equity represents
the difference between the stated amount of our assets and liabilities computed
in accordance with generally accepted accounting principles. The pro forma
stockholders' equity is not intended to represent the fair market value of the
common stock and may be different than amounts that would be available for
distribution to stockholders in the event of liquidation. We did not reflect in
the table the possible issuance of additional shares equal to 10% of the common
stock to be reserved for future issuance pursuant to our proposed stock option
plan, nor does book value give any effect to the liquidation account to be
established for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders or to bad debt reserves. See "Management--New Stock
Benefit Plans" and "Our Conversion and Our Mergers with Oakley and Harvest Home
Financial--Liquidation Rights of Certain Depositors." The table does give effect
to the Recognition Plan, which we expect to adopt following the conversion and
present (together with the stock option plan) to stockholders for approval no
earlier than the first meeting of stockholders. If the Recognition Plan is
approved by stockholders, the Recognition Plan intends to acquire an amount of
common stock equal to 4% of the shares of common stock sold in the offering,
either through open market purchases, if permissible, or from authorized but
unissued shares of common stock. The table assumes that stockholder approval has
been obtained and that the shares acquired by the Recognition Plan are purchased
in the open market at $10.00 per share. There can be no assurance that
stockholder approval of the Recognition Plan will be obtained, that the shares
will be purchased in the open market or that the purchase price will be $10.00
per share.
25
<PAGE>
The table on the following page summarizes historical consolidated data of
People's Savings, Oakley and Harvest Home Financial and pro forma data of
Peoples Community Bancorp at or for the date and period indicated based on the
assumptions set forth above and in the table and should not be used as a basis
for projection of the market value of the common stock following the conversion.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED SEPTEMBER 30, 1999
--------------------------------------------------------
1,851,500
1,190,000 1,400,000 1,610,000 SHARES SOLD
SHARES SOLD SHARES SOLD SHARES SOLD AT $10.00
AT $10.00 AT $10.00 AT $10.00 PER SHARE
PER SHARE PER SHARE PER SHARE (15% ABOVE
(MINIMUM (MIDPOINT (MAXIMUM MAXIMUM
OF RANGE) OF RANGE) OF RANGE) OF RANGE)(8)
----------- ----------- ----------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Gross proceeds........................................... $ 11,900 $ 14,000 $ 16,100 $ 18,515
Less offering expenses................................... (600) (600) (600) (600)
--------- --------- --------- ---------
Estimated net conversion proceeds........................ $ 11,300 $ 13,400 $ 15,500 $ 17,915
Less our ESOP.......................................... (952) (1,120) (1,288) (1,481)
Less our Recognition Plan.............................. (476) (560) (644) (741)
Less our investment in fixed assets.................... (5,000) (5,000) (5,000) (5,000)
--------- --------- --------- ---------
Estimated adjusted net proceeds(1)....................... $ 4,872 $ 6,720 $ 8,568 $ 10,693
========= ========= ========= =========
Net income:
Historical(2).......................................... $ 791 $ 791 $ 791 $ 791
Pro forma adjustments:
Income on adjusted net proceeds(1)................... 167 230 293 366
ESOP(3).............................................. (63) (74) (85) (98)
Recognition Plan(4).................................. (63) (74) (85) (98)
--------- --------- --------- ---------
Pro forma............................................ $ 832 $ 873 $ 914 $ 961
========= ========= ========= =========
Earnings per share(5):
Historical(2).......................................... $ 0.43 $ 0.39 $ 0.35 $ 0.32
Pro forma adjustments:
Income on adjusted net proceeds(1)................... 0.09 0.11 0.13 0.15
ESOP(3).............................................. (0.03) (0.04) (0.04) (0.04)
Recognition Plan (4)................................. (0.03) (0.04) (0.04) (0.04)
--------- --------- --------- ---------
Pro forma basic and diluted earnings per share....... $ 0.46 $ 0.42 $ 0.40 $ 0.39
========= ========= ========= =========
Pro forma basic P/E ratio(4)............................. 21.74x 23.81x 25.00x 25.64x
========= ========= ========= =========
Number of shares used in calculating net income
per share(4):.......................................... 1,854,000 2,042,160 2,230,320 2,446,704
========= ========= ========= =========
Stockholders' equity:
Historical............................................. $ 20,585 $ 20,585 $ 20,585 $ 20,585
Estimated net conversion proceeds...................... 11,300 13,400 15,500 17,915
Less our ESOP(2)....................................... (952) (1,120) (1,288) (1,481)
Less our Recognition Plan(3)........................... (476) (560) (644) (741)
--------- --------- --------- ---------
Pro forma stockholders' equity(5)(6)................. $ 30,457 $ 32,305 $ 34,153 $ 36,278
========= ========= ========= =========
Less goodwill.......................................... (4,705) (4,705) (4,705) (4,705)
--------- --------- --------- ---------
Pro forma stockholders' equity(5)(6)................. $ 25,752 $ 27,600 $ 29,448 $ 31,574
========= ========= ========= =========
Stockholders' equity per share(7):
Historical............................................. $ 10.41 $ 9.41 $ 8.59 $ 7.80
Estimated net conversion proceeds...................... 5.71 6.12 6.46 6.79
Less our ESOP(2)....................................... (0.48) (0.51) (0.54) (0.56)
Less our Recognition Plan(3)........................... (0.24) (0.26) (0.27) (0.28)
--------- --------- --------- ---------
Pro forma stockholders' equity per share(3)(5)(6).... $ 15.40 $ 14.76 $ 14.24 $ 13.75
========= ========= ========= =========
Less goodwill.......................................... (2.38) (2.15) (1.96) (1.78)
--------- --------- --------- ---------
Pro forma stockholders' equity per share(3)(5)(6).... $ 13.02 $ 12.61 $ 12.28 $ 11.97
========= ========= ========= =========
Pro forma price to book ratio(7)....................... 64.94% 67.75% 70.22% 72.73%
========= ========= ========= =========
Pro forma price to tangible book ratio................. 76.80% 79.30% 81.43% 83.54%
========= ========= ========= =========
Number of shares used in equity per share
calculations(7)........................................ 1,977,760 2,187,760 2,397,760 2,639,260
========= ========= ========= =========
</TABLE>
- ------------------------------
(1) Estimated adjusted net proceeds consist of the estimated net conversion
proceeds, minus (i) the proceeds attributable to the purchase by our ESOP,
(ii) the value of the shares to be purchased by our Recognition Plan after
the conversion, subject to stockholder approval, at an assumed purchase
price of $10.00 per share and (iii) the estimated investment in fixed
assets. For
26
<PAGE>
the purposes of this presentation, the fixed asset investment of
$5.0 million, which is expected to be made during calendar year 2000, is
reflected as an adjustment to net proceeds for purposes of the pro forma
earnings and pro forma earnings per share information. See also Note 4 to
the prior presentation of the Pro Forma Unaudited Combined Consolidated
Statement of Financial Condition at September 30, 1999.
(2) Reflects the historical fiscal 1999 net earnings of People's Savings, Oakley
and Harvest Home Financial, adjusted for purchase price adjustments. See
"Pro Forma Unaudited Combined Consolidated Statement of Earnings."
(3) We assumed that 8% of the shares of common stock issued in the conversion
will be purchased by our ESOP. We also assumed that the funds used to
acquire such shares will be borrowed by the ESOP from Peoples Community
Bancorp. We intend to make quarterly contributions to our ESOP over a
ten-year period in an amount at least equal to the principal and interest
requirement of the debt. The pro forma earnings assumes (a) that the loan to
the ESOP is payable over ten years, with the ESOP shares having an average
fair value of $10.00 per share in accordance with SOP 93-6, entitled
"Employers' Accounting for Employee Stock Ownership Plans," of the AICPA,
(b) that the loan to the ESOP bears a fixed interest rate of 8.5%, (c) that
the ESOP expense for the period is equivalent to the principal payment for
the period and was made at the end of the period; (d) that 9,520, 11,200,
12,880 and 14,812 shares were committed to be released with respect to the
year ended September 30, 1999, at the minimum, midpoint, maximum and 15%
above the maximum of the offering range, respectively; (e) in accordance
with SOP 93-6 entitled "Employers' Accounting for Employee Stock Ownership
Plans," only the ESOP shares committed to be released during the period were
considered outstanding for purposes of the earnings per share calculations;
and (f) the effective tax rate was 34% for the period.
(4) We assumed that the Recognition Plan purchases 47,600, 56,000, 64,400 and
74,060 shares at the minimum, midpoint, maximum and 15% above the maximum of
the offering range, assuming that: (a) stockholder approval of the
Recognition Plan is received; (b) the shares were acquired by the
Recognition Plan at the beginning of the period presented in open market
purchases at $10.00 per share; (c) the amortized expense for the year ended
September 30, 1999 was 20% of the amount contributed; and (d) the effective
tax rate applicable to such employee compensation expense was 34%. Statement
of Financial Accounting Standards ("SFAS") No. 128 requires that unvested
shares under the Recognition Plan be excluded from the basic earnings per
share calculation and included in the diluted earnings per share calculation
only if they are dilutive under the treasury stock method. We assumed that
20% of the Recognition Plan shares vested at the beginning of the period. If
the Recognition Plan purchases authorized but unissued shares instead of
making open market purchases, then (a) the voting interests of existing
stockholders would be diluted by approximately 2.4%, 2.5%, 2.6% and 2.7% at
the minimum, midpoint, maximum and 15% above the maximum, respectively, and
(b) the pro forma earnings per share for the year ended September 30, 1999
would be $0.45, $0.43, $0.41 and $0.39, and pro forma stockholders' equity
per share at September 30, 1999 would be $15.27, $14.65, $14.13 and $13.64,
in each case at the minimum, midpoint, maximum and 15% above the maximum of
the offering range, respectively.
(5) Basic earnings per share calculations are determined by (a) starting with
the number of shares assumed to be sold in the conversion, (b) in accordance
with SOP 93-6, subtracting the ESOP shares which have not been committed for
release, and (c) in accordance with SFAS No. 128, subtracting the
Recognition Plan shares which have not vested. The unvested Recognition Plan
shares were deemed to be for future services and not dilutive under the
treasury stock method.
Set forth below is a reconciliation of the number of shares used in making
the earnings per share calculations:
<TABLE>
<CAPTION>
MAXIMUM,
MINIMUM MIDPOINT MAXIMUM AS ADJUSTED
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Total shares issued.................................... 1,190,000 1,400,000 1,610,000 1,851,500
Less shares sold to ESOP............................... (95,200) (112,000) (128,800) (148,120)
Less Recognition Plan shares........................... (47,600) (56,000) (64,400) (74,060)
--------- --------- --------- ---------
Subtotal............................................. 1,047,200 1,232,000 1,416,800 1,629,320
Plus ESOP shares assumed committed to be released...... 9,520 11,200 12,880 14,812
Plus Recognition Plan shares assumed vested............ 9,520 11,200 12,880 14,812
Plus shares issued to Harvest Home Financial
shareholders......................................... 787,760 787,760 787,760 787,760
--------- --------- --------- ---------
Number of shares used in calculating basic and diluted
earnings per share................................... 1,854,000 2,042,160 2,230,320 2,446,704
========= ========= ========= =========
</TABLE>
(5) We did not give any effect to the issuance of additional shares of common
stock pursuant to our proposed stock option plan, which we expect to adopt
after the conversion and present to stockholders for approval at a meeting
of stockholders to be held at least six months after we complete the
conversion. If the stock option plan is approved by stockholders, an amount
equal to 10% of the common stock issued in the conversion, or 119,000,
140,000, 161,000 and 185,150 shares at the minimum, midpoint, maximum and
15% above the maximum of the offering range, respectively, will be reserved
for future issuance upon the exercise of options to be granted under the
stock option plan. The issuance of authorized but previously unissued shares
of common stock pursuant to the exercise of options under such plan would
dilute existing stockholders' interests. Assuming stockholder approval of
the plan, that all the options were exercised at the beginning of the period
at an exercise price of $10.00 per share, and that the shares to fund the
Recognition Plan are acquired through open market purchases at $10.00 per
share, (a) pro forma earnings per share for the year ended September 30,
1999 would be $0.44, $0.42, $0.41 and $0.39, and (b) pro forma stockholders'
equity per share at September 30, 1999 would be $15.09, $14.48, $13.98 and
$13.50, in each case at the minimum, midpoint, maximum and 15% above the
maximum of the offering range, respectively.
(6) The retained earnings of People's Savings will be substantially restricted
after the conversion. See "Our Conversion and Our Mergers with Oakley and
Harvest Home Financial--Liquidation Rights of Certain Depositors." Pro forma
stockholders' equity and pro forma stockholders' equity per share
(i) reflect certain nonrecurring charges, net of tax (see Note 4 to the Pro
Forma Unaudited Consolidated Statement of Financial Condition) and (ii) do
not give effect to the liquidation account or the bad debt reserves
established by People's Savings for federal income tax purposes in the event
of a liquidation of People's Savings.
(7) Based on the number of shares sold in the conversion and 787,760 shares
issued in the merger with Harvest Home Financial.
(8) Assumes an increase in the number of shares due to a 15% increase in the
maximum of the offering range to reflect changes in market and financial
conditions before we complete the conversion or to fill the order of the
ESOP.
27
<PAGE>
THE PEOPLE'S BUILDING, LOAN AND SAVINGS COMPANY
STATEMENTS OF EARNINGS
The following Statements of Earnings of People's Savings for the years ended
September 30, 1999, 1998 and 1997 are a part of the audited financial statements
of People's Savings which appear beginning on page F-1 of this prospectus. You
should read these Statements of Earnings with the Financial Statements and Notes
of People's Savings and Management's Discussion and Analysis of Financial
Condition and Results of Operations of People's Savings included in this
prospectus.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------------
1999 1998 1997
-------- -------------- ----------
(RESTATED) (RESTATED)
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income:
Loans..................................................... $6,429 $6,369 $6,162
Mortgage-backed securities................................ 89 91 101
Investment securities..................................... 74 90 97
Interest-bearing deposits and other....................... 189 252 277
------ ------ ------
Total interest income................................... 6,781 6,802 6,637
Interest expense:
Deposits.................................................. 3,874 3,976 3,850
Borrowings................................................ 39 189 242
------ ------ ------
Total interest expense.................................. 3,913 4,165 4,092
------ ------ ------
Net interest income................................... 2,868 2,637 2,545
Provision for losses on loans............................... 150 48 --
------ ------ ------
Net interest income after provision for losses on
loans............................................... 2,718 2,589 2,545
Other operating income...................................... 16 20 24
General, administrative and other expense:
Employee compensation and benefits........................ 1,001 867 749
Occupancy and equipment................................... 68 61 55
Federal deposit insurance premiums........................ 43 46 63
Franchise taxes........................................... 132 138 132
Other operating........................................... 329 301 265
------ ------ ------
Total general, administrative and other expense......... 1,573 1,413 1,264
------ ------ ------
Earnings before income taxes.......................... 1,161 1,196 1,305
Federal income taxes:
Current................................................... 524 406 415
Deferred.................................................. (129) -- 39
------ ------ ------
Total federal income taxes.............................. 395 406 454
------ ------ ------
Net earnings.......................................... $ 766 $ 790 $ 851
====== ====== ======
</TABLE>
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF PEOPLE'S SAVINGS
GENERAL
Our profitability depends primarily on our net interest income, which is the
difference between interest and dividend income on interest-earning assets,
principally loans, mortgage-backed securities, investment securities and
interest-earning deposits in other institutions, and interest expense on
interest-bearing deposits and borrowings from the Federal Home Loan Bank
("FHLB") of Cincinnati. Net interest income is dependent upon the level of
interest rates and the extent to which such rates are changing. Our
profitability also depends, to a lesser extent, on our noninterest income,
provision for loan losses, general, administrative and other expenses and
federal income taxes.
Our operations and profitability are subject to changes in interest rates,
applicable statutes and regulations and general economic conditions, as well as
other factors beyond our control.
On November 1, 1998, People's Savings combined with The Peoples Building &
Loan Company located in Blanchester, Ohio, an Ohio-chartered savings and loan
association with $8.6 million in assets, in a merger which was accounted for as
a pooling-of-interests. Accordingly, the historical financial statements of
People's Savings have been restated to reflect the effects of that merger as of
October 1, 1996.
OUR FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CHANGE
We make certain statements in this document as to what we expect may happen
in the future. These statements usually contain the words "believe," "estimate,"
"project," "expect," "anticipate," "intend" or similar expressions. Because
these statements look to the future, they are based on our current expectations
and beliefs. Actual results or events may differ materially from those reflected
in the forward-looking statements. You should be aware that our current
expectations and beliefs as to future events are subject to change at any time,
and we can give you no assurances that the future events will actually occur.
OUR EXPOSURE TO CHANGES IN INTEREST RATES
Our ability to maintain net interest income depends upon earning a higher
yield on our assets than the rates we pay on our deposits and borrowings.
People's Savings' interest-earning assets consist primarily of long-term
residential mortgage loans which have fixed rates of interest. Our ability to
maintain a positive "spread" between the interest earned on assets and the
interest we pay on deposits and borrowings can be adversely affected when market
rates of interest rise. Although our mortgage loans contain a provision which
permits us to call the loans due at any time after three years from origination,
which theoretically offers some protection from changing interest rates, we have
never used that provision to call a loan due. Because long-term, fixed-rate
mortgage loans make up the dominant portion of our interest-earning assets,
People's Savings may be particularly susceptible to the risk of changing
interest rates.
QUANTITATIVE ANALYSIS. The OTS provides a quarterly report on the potential
impact of interest rate changes upon the market value of our portfolio equity.
We review the quarterly reports from the OTS which show the impact of changing
interest rates on our net portfolio value ("NPV"). NPV is the difference between
incoming and outgoing discounted cash flows from assets, liabilities, and
off-balance sheet contracts. An institution has greater than "normal" interest
rate risk if it would suffer a loss of NPV exceeding 2.0% of the estimated
market value of its assets in the event of a 200 basis point increase or
decrease in interest rates. A resulting change in NPV of more than 2% of the
estimated market value of an institution's assets will require the institution
to deduct from its risk-based capital 50% of that excess change, if and when a
rule adopted by the OTS takes effect. Under the rule, an
29
<PAGE>
institution with greater than "normal" interest rate risk will be subject to a
deduction of its interest rate risk component from total capital for purposes of
calculating the risk-based capital requirement. However, the OTS has indicated
that no institution will be required to deduct capital for interest rate risk
until further notice. Because a 200 basis point increase in interest rates would
have resulted in our NPV decreasing by more than 2% of the estimated market
value of our assets as of September 30, 1999, we would have been subject to a
capital deduction of $655,000 as of September 30, 1999 if the regulation had
been effective as of such date.
The following table presents People's Savings' NPV as of September 30, 1999,
as calculated by the OTS, based on information provided to the OTS by People's
Savings. The information presented is based on the feature in People's Savings'
mortgage loans which permits the loans to be called any time after three years
from the date of origination and the assumed repricing of called loans at a
higher rate in a rising rate environment.
<TABLE>
<CAPTION>
CHANGE IN CHANGE IN
INTEREST RATES NET PORTFOLIO VALUE NPV AS % OF NPV AS % OF
IN BASIS POINTS ------------------------------ PORTFOLIO VALUE PORTFOLIO VALUE
(RATE SHOCK) AMOUNT $ CHANGE % CHANGE OF ASSETS OF ASSETS
- --------------------- -------- -------- -------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
300 $ 9,520 $(2,409) (20)% 10.92% (223)
200 10,619 (1,310) (11)% 11.98% (117)
100 11,420 (509) (4)% 12.73% (44)
Static 11,929 -- -- 13.15% --
(100) 12,236 307 3% 13.39% 24
(200) 12,571 643 5% 13.66% 51
(300) 13,035 1,106 9% 14.05% 90
</TABLE>
As shown by the table above, increases in interest rates will result in
declines in People's Savings' net portfolio value based on OTS calculations as
of September 30, 1999, primarily due to our significant holdings of long-term
fixed-rate loans. See "Risk Factors--Higher Interest Rates Would Hurt Our
Profitability."
QUALITATIVE ANALYSIS. Our fixed-rate loans help our profitability if
interest rates are stable or declining, since these loans have yields that
exceed our cost of funds. However, if interest rates increase, we would have to
pay more on our deposits and new borrowings, which would adversely affect our
interest rate spread. In order to counter the potential effects of dramatic
increases in market rates of interest, People's Savings has focused primarily on
maintaining a strong deposit base. Historically, we have been able to maintain
relatively stable levels of net interest income despite the interest rate risk
inherent in our operations. In the future, we expect to reduce our potential
exposure to interest rate risk by:
- originating one-year and three-year adjustable rate mortgage ("ARM")
loans;
- increasing our originations of commercial real estate mortgage loans,
which generally have higher yields and shorter terms to maturity than
single-family residential mortgage loans; and
- originating home equity lines of credit with interest rates that adjust
monthly based on an index.
CHANGES IN FINANCIAL CONDITION
Total assets of People's Savings have remained stable during the past three
fiscal years and amounted to $90.3 million at September 30, 1999 compared to
$89.3 million at September 30, 1997. Cash and cash equivalents decreased from
$5.0 million at September 30, 1997 to $2.0 million at September 30, 1999 while
loans receivable, net increased from $78.7 million at September 30, 1997 to
$83.9 million at September 30, 1999. Total liabilities decreased from
$79.1 million at September 30, 1997 to $78.5 million at September 30, 1999 due
to a decrease of $6.0 million in FHLB advances, substantially offset by an
increase in deposits from $72.3 million at September 30, 1997 to $77.7 million
30
<PAGE>
at September 30, 1999. Total equity increased from $10.2 million or 11.47% of
total assets at September 30, 1997 to $11.8 million or 13.05% of total assets at
September 30, 1999.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND
1998.
GENERAL. Our net earnings amounted to $766,000 for the year ended
September 30, 1999 compared to $790,000 for the year ended September 30, 1998.
The decrease of $24,000 or 3.0% was due primarily to an increase in the
provision for losses on loans and an increase in general, administrative and
other expense. These increases were substantially offset by an increase in net
interest income. These and other significant fluctuations in our results of
operations are discussed below.
AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID. The
following table presents for the periods indicated the total dollar amount of
our interest income from average interest-earning assets and the resultant
yields, as well as our interest expense on average interest-bearing liabilities,
expressed both in dollars and rates, and the net interest margin. All average
balances are based on monthly balances. We do not believe that the monthly
averages differ significantly from what the daily averages would be.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------ ------------------------------ ------------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE(1) BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(2)......... $80,337 $6,429 8.00% $79,235 $6,369 8.04% $76,056 $6,162 8.10%
Mortgage-backed
securities................ 1,269 89 7.01 1,416 91 6.43 1,379 101 7.32
Investment securities(3).... 2,067 132 6.39 2,673 141 5.27 2,742 145 5.29
Interest-earning deposits... 3,132 131 4.18 4,620 201 4.35 5,197 229 4.41
------- ------ ------- ------ ------- ------
Total interest-earning
assets.................. 86,805 6,781 7.81 87,944 6,802 7.73 85,374 6,637 7.77
------ ------ ------
Noninterest-earning assets.... 1,664 1,524 1,486
------- ------- -------
Total assets.............. $88,469 $89,468 $86,860
======= ======= =======
Interest-bearing liabilities:
Passbook accounts............. $ 4,160 156 3.75 $ 4,693 176 3.75 $ 4,587 172 3.75
Money market deposit
accounts.................... 17,212 714 4.15 16,530 686 4.15 14,721 626 4.25
Certificates of deposit....... 54,319 3,004 5.53 53,195 3,114 5.85 52,489 3,052 5.81
FHLB advances................. 710 39 5.49 3,530 189 5.35 4,500 242 5.38
------- ------ ------- ------ ------- ------
Total interest-bearing
liabilities............. 76,401 3,913 5.12 77,948 4,165 5.34 76,297 4,092 5.36
------ ------ ------
Noninterest-bearing
liabilities................. 662 884 755
------- ------- -------
Total liabilities......... 77,063 78,832 77,052
Retained earnings............. 11,406 10,636 9,808
------- ------- -------
Total liabilities and
retained earnings....... $88,469 $89,468 $86,860
======= ======= =======
Net interest income; average
interest rate spread........ $2,868 2.69% $2,637 2.39% $2,545 2.41%
====== ==== ====== ==== ====== ====
Net interest margin(4)........ 3.30% 3.00% 2.98%
==== ==== ====
Average interest-earning
assets to average
interest-bearing
liabilities................. 113.62% 112.82% 111.90%
======= ======= =======
</TABLE>
- ------------------------------
(1) At September 30, 1999, the weighted average yields earned and rates paid
were as follows: loans receivable, 7.68%; mortgage-backed securities, 6.87%;
investment securities, 6.04%; other interest-earning assets, 5.44%; total
interest-earning assets, 7.58%; deposits, 4.95%; total interest-bearing
liabilities, 4.95%; and interest rate spread, 2.63%.
(2) Includes non-accruing loans.
(3) Includes FHLB stock.
(4) Equals net interest income divided by average interest-earning assets.
31
<PAGE>
RATE/VOLUME ANALYSIS. The following table shows the extent to which changes
in interest rates and changes in volume of interest-related assets and
liabilities affected People's interest income and expense during the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
volume (change in volume multiplied by prior year rate), and (ii) changes in
rate (change in rate multiplied by prior year volume). The combined effect of
changes in both rate and volume has been allocated proportionately to the change
due to rate and the change due to volume.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
1999 VS. 1998 1998 VS. 1997
----------------------------------------- -----------------------------------------
INCREASE(DECREASE) INCREASE(DECREASE)
DUE TO TOTAL DUE TO TOTAL
------------------------- INCREASE ------------------------- INCREASE
RATE VOLUME (DECREASE) RATE VOLUME (DECREASE)
-------- -------- ---------- -------- -------- ----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable.................. $ (26) $ 86 $ 60 $(52) $259 $207
Mortgage-backed securities........ 7 (9) (2) (13) 3 (10)
Investment securities(1).......... 27 (36) (9) 2 (6) (4)
Interest-earning deposits......... (7) (63) (70) (7) (21) (28)
----- ----- ----- ---- ---- ----
1 (22) (21) (70) 233 165
Interest-bearing liabilities:
Passbook accounts................. -- (20) (20) -- 4 4
Money market deposit accounts..... -- 28 28 (15) 75 60
Certificates of deposit........... (174) 64 (110) 21 41 62
FHLB advances..................... 1 (151) (150) (1) (52) (53)
----- ----- ----- ---- ---- ----
Total interest-bearing
liabilities................... (173) (79) (252) 5 68 73
----- ----- ----- ---- ---- ----
Increase in net interest income..... $ 174 $ 57 $ 231 $(75) $167 $ 92
===== ===== ===== ==== ==== ====
</TABLE>
- ------------------------
(1) Includes FHLB stock and certificates of deposit at other institutions.
NET INTEREST INCOME. Net interest income is determined by our interest rate
spread (i.e., the difference between the yields earned on our interest-earning
assets and the rates paid on our interest-bearing liabilities) and the relative
amounts of our interest-earning assets and interest-bearing liabilities. Net
interest income increased $231,000 or 8.8% to $2.9 million for the year ended
September 30, 1999 compared to $2.6 million for the year ended September 30,
1998. Such increase was primarily due to an increase in the average interest
rate spread to 2.69% for fiscal 1999 compared to 2.39% for fiscal 1998. In
addition, the ratio of average interest-earning assets to interest-bearing
liabilities was 113.62% for fiscal 1999 compared to 112.82% for fiscal 1998. For
the same time periods, our net interest margin increased from 3.00% to 3.30%.
INTEREST INCOME. Interest income decreased $21,000 or 0.3% between fiscal
1998 and 1999. The decrease was primarily due to a decrease in the average
outstanding balance of investment securities and interest-earning deposits.
These decreases were partially offset by an increase in the average outstanding
balance of loans receivable. The average outstanding balance of investment
securities and interest earning deposits decreased $606,000 and $1.5 million or
22.7% and 32.2%, respectively, from $2.7 million and $4.6 million, respectively,
for fiscal 1998 to $2.1 million and $3.1 million, respectively, for fiscal 1999.
During the same period, the average outstanding balance of loans receivable
increased $1.1 million or 1.4% from $79.2 million for fiscal 1998 to
$80.3 million for fiscal 1999. We used the excess liquidity from
interest-earning deposits and the maturity of certain investment securities to
fund our continued loan growth.
32
<PAGE>
INTEREST EXPENSE. Interest expense decreased $252,000 or 6.1% to
$3.9 million for fiscal 1999 compared to $4.2 million for fiscal 1998. This
decrease was primarily due to a decrease on the rate paid on certificates of
deposit and a decrease in the outstanding average balance of FHLB advances. The
average rate we paid on our certificates of deposit decreased from 5.85% in
fiscal 1998 to 5.53% in fiscal 1999 as a result of a general decline in market
rates of interest. The average outstanding balance of advances decreased
$2.8 million or 79.9% to $710,000 for fiscal 1999 compared to $3.5 million for
fiscal 1998. Upon completion of our merger with The Peoples Building & Loan
Company in November 1998, we used some of the cash acquired to pay down
borrowings.
PROVISION FOR LOSSES ON LOANS. It is our policy to provide valuation
allowances for estimated losses on loans based on past loss experience, trends
in the level of delinquent and problem loans, adverse situations that may affect
the borrower's ability to repay, the estimated value of any underlying
collateral and current and anticipated economic conditions in our primary
lending area. When the collection of a loan becomes doubtful, or otherwise
troubled, we record a loan charge-off equal to the difference between the fair
value of the property securing the loans and the loan's carrying value. Major
loans and major lending areas are reviewed periodically to determine potential
problems at an early date. The allowance for loan losses is increased by charges
to earnings and decreased by charge-offs (net of recoveries).
For the years ended September 30, 1999 and 1998, the provision for losses on
loans amounted to $150,000 and $48,000, respectively. The increase in the
provision during fiscal 1999 was due to an increase in our nonperforming loans.
While we cannot assure that future charge-offs and/or additional provisions will
not be necessary, we believe that, as of September 30, 1999, our allowance for
loan losses was adequate.
OTHER OPERATING INCOME. Between fiscal 1998 and 1999, our other operating
income decreased $4,000 or 20% from $20,000 to $16,000.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSES. General, administrative and
other expenses consist of employee compensation and benefits, occupancy and
equipment, federal deposit insurance premiums, franchise taxes and other
miscellaneous operating expenses. Noninterest expense amounted to $1.6 million
for fiscal 1999 compared to $1.4 million for fiscal 1998. The $160,000 or 11.3%
increase was primarily due to an increase of $134,000 or 15.5% in employee
compensation and benefits as a result of normal salary and merit increases as
well as costs to integrate the operations of The Peoples Building & Loan Company
located in Blanchester, Ohio.
INCOME TAXES. Income taxes amounted to $395,000 and $406,000 for fiscal
1999 and 1998, respectively, resulting in effective tax rates of 34.0% and
33.9%, respectively.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND
1997.
GENERAL. Our net earnings amounted to $790,000 in fiscal 1998 compared to
$851,000 in fiscal 1997. The decrease of $61,000 or 7.2% was primarily due to an
increase in the provision for losses on loans and an increase in general,
administrative and other expenses. These increases were partially offset by an
increase in net interest income.
NET INTEREST INCOME. Net interest income increased $92,000 or 3.6% to
$2.6 million for fiscal 1998 from $2.5 million for fiscal 1997. Our interest
rate spread decreased slightly from 2.41% for fiscal 1997 to 2.39% for fiscal
1998 while the ratio of average interest-earning assets to average interest-
bearing liabilities increased from 111.90% to 112.82% during the same periods.
Our net interest margin increased slightly to 3.00% for fiscal 1998 from 2.98%
for fiscal 1997.
INTEREST INCOME. Interest income increased $165,000 or 2.5% from
$6.6 million for fiscal 1997 to $6.8 million for fiscal 1998. The increase was
due primarily to an increase of $3.2 million or 4.2% in
33
<PAGE>
the average outstanding balance of loans receivable from $76.1 million in fiscal
1997 to $79.2 million for fiscal 1998. This increase in the average outstanding
balance of the loan portfolio was primarily due to continued growth in our loan
portfolio.
INTEREST EXPENSE. Interest expense amounted to $4.2 million and
$4.1 million for the years ended September 30, 1998 and 1997, respectively. The
increase of $73,000 or 1.8% was primarily due to increases in the average
outstanding balance of money market deposit accounts and certificates of
deposit. The average outstanding balance of money market deposit accounts
increased $1.8 million or 12.3% and the average outstanding balance of
certificates of deposit increased $706,000 or 1.3%. Such increases were used to
fund our loan growth.
OTHER OPERATING INCOME. Other operating income decreased $4,000 or 16.7%
from $24,000 for fiscal 1997 to $20,000 for fiscal 1998.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSES. General, administrative and
other expenses amounted to $1.4 million for fiscal 1998 compared to
$1.3 million for fiscal 1997. The increase of $149,000 or 11.8% was primarily
due to an increase of $118,000 or 15.8% in employee compensation and benefits as
a result of normal salary and merit increases.
INCOME TAXES. Income taxes amounted to $406,000 and $454,000 for fiscal
1998 and 1997, respectively, resulting in effective tax rates of 33.9% and
34.8%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
People's Savings is required under applicable federal regulations to
maintain specified levels of "liquid" investments in qualifying types of U.S.
Government, federal agency and other investments having maturities of five years
or less. Current regulations require that a savings institution maintain liquid
assets of not less than 4% of its average daily balance of net withdrawable
deposit accounts and borrowings payable in one year or less. At September 30,
1999, People's Savings' liquidity was 5.1% or $777,000 in excess of the minimum
requirement.
At September 30, 1999, People's Savings had outstanding commitments to
originate $2.0 million of loans and $2.8 million of undisbursed construction
loans. In addition, as of September 30, 1999, the total amount of certificates
of deposit which were scheduled to mature in the following 12 months was
$33.2 million. People's Savings believes that it has adequate resources to fund
all of its commitments and that it can adjust the rate on certificates of
deposit to retain deposits in changed interest rate environments. If People's
Savings requires funds beyond its internal funding capabilities, advances from
the FHLB of Cincinnati are available as an additional source of funds.
People's Savings is required to maintain regulatory capital sufficient to
meet tangible, core and risk-based capital ratios of at least 1.5%, 3.0% and
8.0%, respectively. At September 30, 1999, People's Savings exceeded each of its
capital requirements, with tangible, core and risk-based capital ratios of
13.1%, 13.1% and 24.4%, respectively. See "People's Savings Meets All of Its
Regulatory Capital Requirements," "Regulation--People's Savings--Regulatory
Capital Requirements" and Note J of Notes to People's Saving's Financial
Statements.
Assuming the sale of common stock at the midpoint of the offering range,
Peoples Community Bancorp's ratio of equity to assets would be 15.09% on a pro
forma basis at September 30, 1999. Both Peoples Community Bancorp and People's
Savings will be well-capitalized upon consummation of the conversion. We
anticipate that the net conversion proceeds contributed to People's Savings will
initially increase People's Savings' liquidity.
34
<PAGE>
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related financial data presented herein
regarding People's Savings have been prepared in accordance with generally
accepted accounting principles, which generally require the measurement of
financial position and operating results in terms of historical dollars, without
considering changes in relative purchasing power over time due to inflation.
Unlike most industrial companies, virtually all of People's Savings' assets and
liabilities are monetary in nature. As a result, interest rates generally have a
more significant impact on People's Savings' performance than does the effect of
inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the prices of goods and services, since such prices are
affected by inflation to a larger extent than interest rates.
RECENT ACCOUNTING STANDARDS
On January 1, 1998, we adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 130, REPORTING COMPREHENSIVE INCOME. This
statement establishes standards for reporting and display of comprehensive
income and its components. Comprehensive income includes the reported net income
of a company adjusted for items that are currently accounted for as direct
entries to net worth, such as the mark to market adjustment on securities
available for sale. For us, comprehensive income represents net income plus
other comprehensive income, which consists of the net change in after-tax
unrealized gains or losses on securities available for sale for the period.
Accumulated other comprehensive income in the accompanying statements of
financial condition represents the net unrealized gains or losses on securities
available for sale as of the reporting dates. Comprehensive income for fiscal
1999, 1998 and 1997 was $762,000, $790,000 and $851,000, respectively.
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION.
SFAS No. 131 requires public companies to report financial and other information
about key revenue producing segments of the entity for which such information is
available and is utilized by the chief operating officer. Specific information
to be reported for individual segments includes profit or loss, certain specific
revenue and expense items, and total assets. A reconciliation of segment
financial information to amounts reported in the financial statements is also
provided. As a community-oriented financial institution, substantially all of
our operations involve the delivery of loan and deposit products to customers.
Management makes operating decisions and assesses performance based on an
ongoing review of these community banking operations, which constitute our only
operating segment for financial reporting purposes. Therefore, the adoption of
SFAS No. 131 did not result in any change in our reporting.
SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES,
was issued in June 1998. This statement requires that all derivatives be
recognized as either assets or liabilities in the statement of financial
condition and that those instruments be measured at fair value. The accounting
for changes in the fair value of a derivative (that is, gains and losses)
depends on the intended use of the derivative and the resulting designation.
This statement, as amended by SFAS No. 137, is effective for fiscal years
beginning after June 15, 2000, although earlier adoption is permitted. We
anticipate, based on current activities, that the adoption of SFAS No. 133 will
not have an effect on our financial position or results of operations.
In October 1998, the FASB issued SFAS No. 134, ACCOUNTING FOR
MORTGAGE-BACKED SECURITIES RETAINED AFTER THE SECURITIZATION OF MORTGAGE LOANS
HELD FOR SALE BY A MORTGAGE BANKING ENTERPRISE, WHICH AMENDS SFAS NO. 65,
ACCOUNTING FOR CERTAIN MORTGAGE BANKING ACTIVITIES. This statement conforms the
subsequent accounting for securities retained after the securitization of
mortgage loans by a mortgage banking enterprise with the accounting for such
securities by a non-mortgage banking enterprise. This statement is effective for
the first quarter beginning after December 15, 1998, and did not have any impact
on our financial position or results of operations as we do not currently
securitize mortgage loans.
35
<PAGE>
THE OAKLEY IMPROVED BUILDING AND LOAN COMPANY
STATEMENTS OF OPERATIONS
The following Statements of Operations of Oakley for the years ended
September 30, 1999, 1998 and 1997 are a part of the audited financial statements
of Oakley which appear beginning on page F-21 of this prospectus. You should
read these Statements of Operations with the Financial Statements and Notes of
Oakley and Management's Discussion and Analysis of Financial Condition and
Results of Operations of Oakley included in this prospectus.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income:
Loans..................................................... $ 836 $ 924 $ 944
Mortgage-backed securities................................ 7 9 10
Investments............................................... 80 94 73
Interest-bearing deposits................................. 168 144 111
------ ------ ------
Total interest income................................... 1,091 1,171 1,138
Interest expense:
Deposits.................................................. 668 726 685
------ ------ ------
Net interest income................................... 423 445 453
Provision for losses on loans............................... 25 -- 1
------ ------ ------
Net interest income after provision for losses on
loans............................................... 398 445 452
Other income:
Gain on sale of investment securities..................... -- 91 --
Other operating........................................... 4 5 6
------ ------ ------
Total other income...................................... 4 96 6
General, administrative and other expense:
Employee compensation and benefits........................ 371 250 238
Occupancy and equipment................................... 18 12 13
Franchise taxes........................................... 19 21 16
Other operating........................................... 49 42 42
------ ------ ------
Total general, administrative and other expense......... 457 325 309
------ ------ ------
Earnings (loss) before income taxes (credits)......... (55) 216 149
Federal income taxes (credits):
Current................................................... (23) 58 48
Deferred.................................................. (1) 11 (26)
------ ------ ------
Total federal income taxes (credits).................... (24) 69 22
------ ------ ------
Net earnings (loss)................................... $ (31) $ 147 $ 127
====== ====== ======
</TABLE>
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF OAKLEY
GENERAL
Oakley's profitability depends primarily on its net interest income, which
is the difference between interest and dividend income on interest-earning
assets, principally loans, mortgage-backed securities, investment securities and
interest-earning deposits in other institutions, and interest expense on
interest-bearing deposits. Net interest income is dependent upon the level of
interest rates and the extent to which such rates are changing. Oakley's
profitability also depends, to a lesser extent, on its noninterest income,
provision for loan losses, noninterest expense and income taxes.
Oakley's operations and profitability are subject to changes in interest
rates, applicable statutes and regulations and general economic conditions, as
well as other factors beyond Oakley's control.
OAKLEY'S EXPOSURE TO CHANGES IN INTEREST RATES
Oakley's ability to maintain net interest income depends upon having a
higher yield on its assets than the rates Oakley pays on its deposits. Since
many of Oakley's mortgage loans have fixed interest rates, its ability to
maintain a positive interest rate spread can be adversely affected when the
rates Oakley pay on deposits and borrowings are increasing.
QUANTITATIVE ANALYSIS. Oakley monitors and evaluates the potential impact
of interest rate changes upon the market value of its portfolio equity on a
quarterly basis, in an attempt to ensure that interest rate risk is maintained
within limits established by the Board of Directors. Oakley uses the quarterly
reports from the OTS which show the impact of changing interest rates on its
NPV. An institution has greater than "normal" interest rate risk if it would
suffer a loss of NPV exceeding 2.0% of the estimated market value of its assets
in the event of a 200 basis point increase or decrease in interest rates. A
resulting change in NPV of more than 2% of the estimated market value of an
institution's assets will require the institution to deduct from its risk-based
capital 50% of that excess change, if and when a rule adopted by the OTS takes
effect. Under the rule, an institution with greater than "normal" interest rate
risk will be subject to a deduction of its interest rate risk component from
total capital for purposes of calculating the risk-based capital requirement.
However, the OTS has indicated that no institution will be required to deduct
capital for interest rate risk until further notice. Because a 200 basis point
increase in interest rates would have resulted in Oakley's NPV decreasing by
more than 2% of the estimated market value of its assets as of September 30,
1999, Oakley would have been subject to a capital deduction of $233,000 as of
September 30, 1999 if the regulation had been effective as of such date.
The following table presents Oakley's NPV as of September 30, 1999, as
calculated by the OTS, based on information provided to the OTS by Oakley.
<TABLE>
<CAPTION>
CHANGE IN CHANGE IN
INTEREST RATES NET PORTFOLIO VALUE NPV AS % OF NPV AS % OF
IN BASIS POINTS ------------------------------ PORTFOLIO VALUE PORTFOLIO VALUE
(RATE SHOCK) AMOUNT $ CHANGE % CHANGE OF ASSETS OF ASSETS
- --------------------- -------- -------- -------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
300 $3,049 $(741) (20)% 18.69% (327)%
200 3,326 (465) (12) 19.96% (200)
100 3,577 (213) (6) 21.07% (89)
Static 3,790 -- -- 21.96% --
(100) 3,958 167 4 22.62% 66
(200) 4,123 332 9 23.25% 129
(300) 4,314 524 14 23.98% 203
</TABLE>
37
<PAGE>
As shown by the table above, increases in interest rates will result in
declines in Oakley's net portfolio value based on OTS calculations as of
September 30, 1999, primarily due to Oakley's significant holdings of long-term
fixed-rate loans, as well as its use of the National Average Contract Mortgage
Rate as the index for its adjustable-rate mortgage loans. The National Average
Contract Mortgage Rate is an index which generally adjusts more slowly to
changes in market rates than other indices.
QUALITATIVE ANALYSIS. Oakley has pursued various courses of action in order
to minimize the potential for adverse effects of material changes in interest
rates on its results of operations. Such actions have consisted primarily of the
following:
- Originating adjustable or variable rate long-term loans for portfolio;
- Maintaining adequate liquidity; and
- Maintaining a strong retail deposit base and emphasizing core deposits.
CHANGES IN FINANCIAL CONDITION
Oakley's total assets increased slightly at September 30, 1999 compared to
September 30, 1997, amounting to $17.0 million and $16.2 million, respectively.
Cash and cash equivalents increased from $2.2 million at September 30, 1997 to
$3.2 million at September 30, 1999 while loans receivable, net decreased from
$11.2 million at September 30, 1997 to $10.6 million at September 30, 1999.
Total liabilities increased from $13.8 million at September 30, 1997 to
$14.1 million at September 30, 1999 due to an increase in deposits from
$13.1 million at September 30, 1997 to $13.3 million at September 30, 1999.
Total equity increased from $2.4 million or 14.9% of total assets at
September 30, 1997 to $2.9 million or 17.0% of total assets at September 30,
1999.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND
1998.
GENERAL. Oakley's net loss amounted to $31,000 for the year ended
September 30, 1999 compared to net earnings of $147,000 for the year ended
September 30, 1998. The decrease of $178,000 was primarily due to a decrease in
other income and an increase in general, administrative and other expense. These
and other significant fluctuations in Oakley's results of operations are
discussed below.
AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID. The
following table presents for the periods indicated the total dollar amount of
interest income from Oakley's average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates, and the net interest margin. All average
balances
38
<PAGE>
are based on monthly balances. Oakley does not believe that the monthly averages
differ significantly from what the daily averages would be.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------ ------------------------------ ------------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE(1) BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(2).......... $10,662 $ 836 7.84% $11,019 $ 924 8.39% $11,095 $ 944 8.51%
Mortgage-backed securities... 95 7 7.37 120 9 7.50 135 10 7.41
Investment securities(3)..... 3,062 80 2.61 2,755 94 3.41 2,277 73 3.21
Interest-earning deposits.... 3,161 168 5.31 2,696 144 5.34 2,182 111 5.09
------- ------ ------- ------ ------- ------
Total interest-earning
assets................... 16,980 1,091 6.43 16,590 1,171 7.06 15,689 1,138 7.25
Noninterest-earning assets..... 226 212 159
------- ------- -------
Total assets............... $17,206 $16,802 $15,848
======= ======= =======
Interest-bearing liabilities:
Passbook accounts.............. $ 1,518 46 3.03 $ 1,600 52 3.25 $ 1,629 51 3.13
Money market deposit
accounts................... 1,862 62 3.33 1,543 54 3.50 1,598 54 3.38
Certificates of deposit........ 10,092 560 5.55 10,246 620 6.05 9,790 580 5.92
------- ------ ------- ------ ------- ------
Total interest-bearing
liabilities.............. 13,472 668 4.96 13,389 726 5.42 13,017 685 5.26
------ ------ ------
Noninterest-bearing
liabilities.................. 832 746 614
------- ------- -------
Total liabilities.......... 14,304 14,135 13,631
Retained earnings.............. 2,902 2,667 2,217
------- ------- -------
Total liabilities and
retained earnings........ $17,206 $16,802 $15,848
======= ======= =======
Net interest income; average
interest rate spread......... $ 423 1.47% $ 445 1.64% $ 453 1.99%
====== ==== ====== ==== ====== ====
Net interest margin(4)......... 2.49% 2.68% 2.89%
==== ==== ====
Average interest-earning assets
to average interest-bearing
liabilities.................. 126.04% 123.91% 120.53%
======= ======= =======
</TABLE>
- ------------------------------
(1) At September 30, 1999, the weighted average yields earned and rates paid
were as follows: loans receivable, 7.82%; mortgage-backed securities, 6.38%;
investment securities, 5.44%; other interest-earning assets, 5.24%, total
interest-earning assets, 6.91%; deposits, 4.86%; total interest-bearing
liabilities, 4.86%; and interest rate spread, 2.05%.
(2) Includes non-accruing loans.
(3) Includes FHLB stock and certificates of deposit with other financial
institutions.
(4) Equals net interest income divided by average interest-earning assets.
RATE/VOLUME ANALYSIS. The following table shows the extent to which changes
in interest rates and changes in volume of interest-related assets and
liabilities affected Oakley's interest income and expense during the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
volume (change in volume multiplied by prior year rate), and (ii) changes in
rate (change in rate multiplied by prior year volume).
39
<PAGE>
The combined effect of changes in both rate and volume has been allocated
proportionately to the change due to rate and the change due to volume.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
1999 VS. 1998 1998 VS. 1997
-------------------------------- --------------------------------
INCREASE INCREASE
(DECREASE) (DECREASE)
DUE TO TOTAL DUE TO TOTAL
------------------- INCREASE ------------------- INCREASE
RATE VOLUME (DECREASE) RATE VOLUME (DECREASE)
-------- -------- ---------- -------- -------- ----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable............................. $(59) $(29) $(88) $(13) $(7) $(20)
Mortgage-backed securities................... -- (2) (2) -- (1) (1)
Investment securities(1)..................... (23) 9 (14) 5 16 21
Interest-earning deposits.................... -- 24 24 6 27 33
---- ---- ---- ---- --- ----
(82) 2 (80) (2) 35 33
Interest-bearing liabilities:
Passbook accounts............................ (4) (2) (6) 2 (1) 1
Money market deposit accounts................ (3) 11 8 2 (2) --
Certificates of deposit...................... (51) (9) (60) 13 27 40
---- ---- ---- ---- --- ----
Total interest-bearing liabilities......... (58) -- (58) 17 24 41
---- ---- ---- ---- --- ----
Increase (decrease) in net interest income..... $(24) $ 2 $(22) $(19) $11 $ (8)
==== ==== ==== ==== === ====
</TABLE>
- ------------------------
(1) Includes FHLB stock.
NET INTEREST INCOME. Net interest income decreased $22,000 or 4.9% to
$423,000 for the year ended September 30, 1999 compared to $445,00 for the year
ended September 30, 1998. Such decrease was primarily due to a decrease in the
average interest rate spread to 1.47% for fiscal 1999 compared to 1.64% for
fiscal 1998. For the same time periods, Oakley's net interest margin decreased
from 2.68% to 2.49%.
INTEREST INCOME. Interest income decreased $80,000 or 6.8% between fiscal
1998 and 1999. The decrease was primarily due to a decrease in the yield earned
on loans receivable as well as a decrease in the average outstanding balance of
loans receivable. The average yield on loans receivable decreased from 8.39% for
fiscal 1998 to 7.84% for fiscal 1999 while the average outstanding balance of
such assets decreased $357,000 or 3.2% to $10.7 million for fiscal 1999. Such
decreases were partially offset by an increase in the average outstanding
balance of investment securities and interest-earning deposits. The decrease in
the average balance of loans receivable and the increase in the average balance
of investment securities and interest-earning deposits was due to decreased loan
demand and excess liquidity.
INTEREST EXPENSE. Interest expense decreased $58,000 or 8.0% to $668,000
for fiscal 1999 compared to $726,000 for fiscal 1998. This decrease was
primarily due to a decrease in the rate paid on deposits. The average rate paid
on deposits decreased from 5.42% in fiscal 1998 to 4.96% in fiscal 1999.
PROVISION FOR LOSSES ON LOANS. It is Oakley's policy to provide valuation
allowances for estimated losses on loans based on past loss experience, trends
in the level of delinquent and problem loans, adverse situations that may affect
the borrower's ability to repay, the estimated value of any underlying
collateral and current and anticipated economic conditions in Oakley's primary
lending area. When the collection of a loan becomes doubtful, or otherwise
troubled, Oakley records a loan charge-off equal to the difference between the
fair value of the property securing the loans and the loan's carrying value.
40
<PAGE>
Major loans and major lending areas are reviewed periodically to determine
potential problems at an early date. The allowance for loan losses is increased
by charges to earnings and decreased by charge-offs (net of recoveries).
For the years ended September 30, 1999 and 1998, the provision for losses on
loans amounted to $25,000 and $0, respectively. The increase in the provision
during fiscal 1999 was due to an increase in Oakley's nonperforming loans. In
addition, the increase was due to growth in origination of multi-family and
commercial real estate loans which typically have a higher degree of credit
risk. While no assurance can be given that future charge-offs and/or additional
provisions will not be necessary, management of Oakley believes that, as of
September 30, 1999, the allowance for loan losses was adequate.
OTHER INCOME. Other income amounted to $4,000 and $96,000 for fiscal 1999
and 1998, respectively. The decrease of $92,000 between fiscal 1998 and 1999 was
due to a decrease in gain on sale of investment securities. During fiscal 1998,
Oakley sold $93,000 of investment securities designated as available for sale.
Oakley did not conduct any such sales in fiscal 1999.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and
other expenses consist of employee compensation and benefits, occupancy and
equipment, franchise taxes and other miscellaneous operating expenses. General,
administrative and other expense amounted to $457,000 for fiscal 1999 compared
to $325,000 for fiscal 1998. The $132,000 or 40.6% increase was primarily due to
an increase of $121,000 or 48.4% in employee compensation and benefits as a
result of the adoption of a directors' deferred compensation plan, the hiring of
a new managing officer and normal salary and merit increases.
INCOME TAXES. Income taxes (credits) amounted to a $24,000 credit in fiscal
1999 compared to a provision of $69,000 for fiscal 1998.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND
1997.
GENERAL. Oakley's net earnings amounted to $147,000 in fiscal 1998 compared
to $127,000 in fiscal 1997. The increase of $20,000 or 15.7% was primarily due
to an increase in total other income. Such increase was partially offset by an
increase in income taxes.
NET INTEREST INCOME. Net interest income decreased $8,000 or 1.8% to
$445,000 for fiscal 1998 from $453,000 for fiscal 1997. Oakley's interest rate
spread decreased from 1.99% for fiscal 1997 to 1.64% for fiscal 1998 while the
ratio of average interest-earning assets to average interest-bearing liabilities
increased from 120.53% to 123.91% during the same periods. Oakley's net interest
margin decreased to 2.68% for fiscal 1998 from 2.89% for fiscal 1997.
INTEREST INCOME. Interest income increased $33,000 or 2.9% from
$1.1 million for fiscal 1997 to $1.2 million for fiscal 1998. The increase was
due primarily to an increase in the average outstanding balance of investment
securities and interest-earning deposits as Oakley invested some of its excess
liquid funds.
INTEREST EXPENSE. Interest expense amounted to $726,000 and $685,000 for
the years ended September 30, 1998 and 1997, respectively. The increase of
$41,000 or 6.0% was primarily due to an increase in the average outstanding
balance of certificates of deposit as well as the rate paid on such liabilities.
The average outstanding balance of certificates of deposit increased $456,000 or
4.7%. The rate paid on certificates of deposit increased from 5.92% in fiscal
1997 to 6.05% in fiscal 1998.
OTHER INCOME. Other income increased from $6,000 in fiscal 1997 to $96,000
in fiscal 1998. The increase of $90,000 in fiscal 1997 was due to gain on sale
of investment securities.
41
<PAGE>
GENERAL, ADMINISTRATIVE AND OTHER EXPENSES. General, administrative and
other expenses amounted to $325,000 for fiscal 1998 compared to $309,000 for
fiscal 1997. The increase of $16,000 or 5.2% was primarily due to an increase of
$12,000 or 5.0% in employee compensation and benefits as a result of normal
salary and merit increases.
INCOME TAXES. Income taxes amounted to $69,000 and $22,000 for fiscal 1998
and 1997, respectively, resulting in effective tax rates of 31.9% and 14.8%,
respectively. The lower effective tax rate in fiscal 1997 was due to the use of
a net operating loss carryback from 1999 of $26,000.
LIQUIDITY AND CAPITAL RESOURCES
Oakley is required under applicable federal regulations to maintain
specified levels of "liquid" investments in qualifying types of U.S. Government,
federal agency and other investments having maturities of five years or less.
Current regulations require that a savings institution maintain liquid assets of
not less than 4% of its average daily balance of net withdrawable deposit
accounts and borrowings payable in one year or less. At September 30, 1999,
Oakley's liquidity was 45.7% or $5.6 million in excess of the minimum
requirement.
At September 30, 1999, Oakley had outstanding commitments to originate
$41,000 of loans and $540,000 of undisbursed construction loans. In addition, as
of September 30, 1999, the total amount of certificates of deposit which were
scheduled to mature in the following 12 months was $7.2 million. Oakley believes
that it has adequate resources to fund all of its commitments and that it can
adjust the rate on certificates of deposit to retain deposits in changed
interest rate environments. If Oakley requires funds beyond its internal funding
capabilities, advances from the FHLB of Cincinnati are available as an
additional source of funds.
Oakley is required to maintain regulatory capital sufficient to meet
tangible, core and risk-based capital ratios of at least 1.5%, 3.0% and 8.0%,
respectively. At September 30, 1999,Oakley exceeded each of its capital
requirements, with tangible, core and risk-based capital ratios of 10.8%, 10.8%
and 26.3%, respectively. See Note I of Notes to Oakley's Financial Statements.
IMPACT OF INFLATION AND CHANGING PRICES
Oakley's financial statements and related financial data presented herein
have been prepared in accordance with generally accepted accounting principles,
which generally require the measurement of financial position and operating
results in terms of historical dollars, without considering changes in relative
purchasing power over time due to inflation. Unlike most industrial companies,
virtually all of Oakley's assets and liabilities are monetary in nature. As a
result, interest rates generally have a more significant impact on Oakley's
performance than does the effect of inflation. Interest rates do not necessarily
move in the same direction or in the same magnitude as the prices of goods and
services, since such prices are affected by inflation to a larger extent than
interest rates.
RECENT ACCOUNTING STANDARDS
On January 1, 1998, Oakley adopted the provisions of SFAS No. 130, REPORTING
COMPREHENSIVE INCOME. This statement establishes standards for reporting and
display of comprehensive income and its components. Comprehensive income
includes the reported net income of a company adjusted for items that are
currently accounted for as direct entries to net worth, such as the mark to
market adjustment on securities available for sale. For Oakley, comprehensive
income represents net income plus other comprehensive income, which consists of
the net change in after-tax unrealized gains or losses on securities available
for sale for the period. Accumulated other comprehensive income in the
accompanying statements of financial condition represents the net unrealized
gains or losses on securities available for sale as of the reporting dates.
Comprehensive income (loss) for fiscal 1999, 1998 and 1997 was $(25,000),
$496,000 and $404,000, respectively.
42
<PAGE>
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION.
SFAS No. 131 requires public companies to report financial and other information
about key revenue producing segments of the entity for which such information is
available and is utilized by the chief operating officer. Specific information
to be reported for individual segments includes profit or loss, certain specific
revenue and expense items, and total assets. A reconciliation of segment
financial information to amounts reported in the financial statements is also
provided. As a community-oriented financial institution, substantially all of
our operations involve the delivery of loan and deposit products to customers.
Management makes operating decisions and assesses performance based on an
ongoing review of these community banking operations, which constitute our only
operating segment for financial reporting purposes. Therefore, the adoption of
SFAS No. 131 did not result in any change in our reporting.
The FASB issued SFAS No. 132, EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND
OTHER POST RETIREMENT BENEFITS, in February 1998. This statement revises
employers' disclosures about pension and other post retirement benefit plans. It
does not change the measurement or the recognition of these benefit costs for
plans. The statement was effective for our fiscal year 1998 reporting and did
not impact Oakley's financial position or results off operations.
43
<PAGE>
HARVEST HOME FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
The following Consolidated Statements of Earnings of Harvest Home Financial
for the years ended September 30, 1999, 1998 and 1997 are a part of the audited
financial statements of Harvest Home Financial which appear beginning on page
F-40 of this prospectus. You should read these Consolidated Statements of
Earnings with the Consolidated Financial Statements and Notes of Harvest Home
Financial and Management's Discussion and Analysis of Financial Condition and
Results of Operations of Harvest Home Financial included in this prospectus.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C> <C>
Interest income:
Loans..................................................... $3,748 $3,571 $3,457
Mortgage-backed securities................................ 2,126 2,085 1,654
Investment securities..................................... 417 504 734
Interest-bearing deposits and other....................... 191 207 138
------ ------ ------
Total interest income................................... 6,482 6,367 5,983
Interest expense:
Deposits.................................................. 3,001 2,922 2,786
Borrowings.............................................. 1,210 1,221 903
------ ------ ------
Total interest expense.................................. 4,211 4,143 3,689
------ ------ ------
Net interest income................................... 2,271 2,224 2,294
Provision for losses on loans............................... 12 12 9
------ ------ ------
Net interest income after provision for losses on
loans............................................... 2,259 2,212 2,285
Other income:
Gain on sale of investment and mortgage-backed
securities.............................................. -- 43 7
Other operating........................................... 92 66 57
------ ------ ------
Total other income...................................... 92 109 64
General, administrative and other expense:
Employee compensation and benefits........................ 884 851 803
Occupancy and equipment................................... 205 184 170
Federal deposit insurance premiums........................ 37 36 28
Franchise taxes........................................... 115 124 121
Data processing........................................... 107 98 87
Other operating........................................... 224 223 200
------ ------ ------
Total general, administrative and other expense......... 1,572 1,516 1,409
------ ------ ------
Earnings before income taxes.......................... 779 805 940
Federal income taxes:
Current................................................... 219 241 130
Deferred.................................................. 46 23 183
------ ------ ------
Total federal income taxes.............................. 265 264 313
------ ------ ------
Net earnings.......................................... $ 514 $ 541 $ 627
====== ====== ======
Earnings per share:
Basic..................................................... $ 0.60 $ 0.63 $ 0.71
====== ====== ======
Diluted................................................... $ 0.59 $ 0.60 $ 0.70
====== ====== ======
</TABLE>
44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF HARVEST HOME FINANCIAL
GENERAL
Since its formation, Harvest Home Financial's activities have been primarily
limited to holding the stock of Harvest Home Savings Bank. As a result, the
discussion that follows focuses largely on the operations of Harvest Home
Savings Bank.
Harvest Home Savings Bank's operating results are dependent to a significant
degree on its net interest income, which is the difference between interest
income on loans and investments and interest expense on deposits and borrowings.
Like most thrift institutions, the interest income and interest expense of
Harvest Home Savings Bank changes as interest rates fluctuate and assets and
liabilities reprice. Interest rates may fluctuate because of general economic
conditions, the policies of various regulatory authorities and other factors
beyond Harvest Home Savings Bank's control. Assets and liabilities will reprice
in accordance with the contractual terms of the asset or liability instrument
and in accordance with customer reaction to general economic trends.
Harvest Home Savings Bank's interest-earning assets repricing within one
year after September 30, 1999, are greater than interest-bearing liabilities
repricing within the same period by approximately $1.7 million, resulting in a
positive cumulative one-year gap of 1.7% of total assets. Harvest Home Savings
Bank's interest-earning assets repricing within three years of September 30,
1999, were $3.6 million greater than interest bearing liabilities repricing
during the same period, resulting in a positive cumulative gap for such period
of 3.7% of total assets.
In the event that interest rates rise during the forthcoming year, Harvest
Home Savings Bank's positive cumulative one-year gap may have a positive effect
on earnings because interest-earning assets may reprice at a faster pace than
interest-bearing liabilities. However, rising interest rates could also affect
Harvest Home Savings Bank's earnings in a negative manner as a result of
diminished loan demand and the increased risk of delinquencies resulting from
increased payment amounts on adjustable-rate loans.
Harvest Home Savings Bank's earnings are also vulnerable to changes in
interest rates due to the amount of adjustable-rate mortgage loans ("ARMs")
originated with low margins and adjustment caps. Harvest Home Savings Bank
originates ARMs which provide for interest rate adjustments every three years.
Moreover, many of these loans have adjustment caps of 2% in any three year
period. Therefore, if interest rates rise rapidly, Harvest Home Savings Bank may
be unable to increase the interest rates on such loans as rapidly as the cost of
liabilities increase.
Notwithstanding the foregoing risks, Harvest Home Savings Bank is operating
within management's predetermined level of interest rate risk and management
believes that Harvest Home Savings Bank's interest rate risk posture and the
strategies discussed below will result in Harvest Home Savings Bank maintaining
acceptable operating results in the current interest rate environment.
ASSET AND LIABILITY MANAGEMENT
Harvest Home Savings Bank's interest rate spread is the principal
determinant of income. The interest rate spread, and therefore net interest
income, can vary considerably over time because asset and liability repricing do
not coincide. Moreover, the long-term or cumulative effect of interest rate
changes can be substantial. Interest rate risk is defined as the sensitivity of
an institution's earnings and net asset values to changes in interest rates. In
managing its interest rate risk, Harvest Home Savings Bank begins with an
objective to increase the interest rate sensitivity of its assets by originating
loans with interest rates subject to period adjustment and market conditions
and/or shorter maturities. Harvest Home Savings Bank has historically had to
rely primarily upon retail deposit accounts as a
45
<PAGE>
source of funds and intends to continue to do so. Management believes that
reliance on retail deposit accounts as a source of funds compared to brokered
deposits and long-term borrowings may reduce the effects of interest rate
fluctuations because these deposits generally represent a more stable source of
funds. However, Harvest Home Savings Bank has utilized FHLB advances as a source
of financing to fund purchases of certain mortgage-backed securities when
favorable spreads became available.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at September 30, 1999, which are
expected to reprice or mature in each of the future periods shown. The analysis
of this interest-rate sensitivity, which is prepared quarterly by a financial
advisory firm for Harvest Home Savings Bank, incorporates the assumptions set
forth below.
<TABLE>
<CAPTION>
WITHIN SIX SIX MONTHS TO OVER 10
MONTHS ONE YEAR 1-3 YEARS 3-5 YEARS 5-10 YEARS YEARS TOTAL
---------- ------------- --------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Loans:
Adjustable Rate(1)............ $ 6,173 $13,235 $ -- $ -- $ -- $ -- $19,408
Fixed Rate(2)................. 2,842 2,491 6,686 4,718 6,872 3,039 26,648
Non-residential adjustable
rate(1)..................... 1,742 3,630 -- -- -- -- 5,372
Other loans:
Home equity................... 1,480 -- -- -- -- -- 1,480
Consumer...................... 20 -- -- -- -- -- 20
Investments(3).................. 1,823 -- 6,000 -- -- -- 7,823
Mortgage-backed securities...... 27,628 2,442 4,645 -- -- -- 34,715
------- ------- ------- ------- ------ ------ -------
Total rate sensitive
assets.................... $41,708 $21,798 $17,331 $ 4,718 $6,872 $3,039 $95,466
======= ======= ======= ======= ====== ====== =======
Interest-bearing liabilities
Deposits:
Certificates of deposit(4).... 9,502 24,871 9,097 3,570 -- -- 47,040
Money market accounts(5)...... 649 562 1,591 895 877 273 4,847
NOW accounts.................. 564 489 1,382 777 762 237 4,211
Passbook accounts............. 1,370 1,186 3,355 1,887 1,851 575 10,224
FHLB advances................... 19,100 3,500 -- -- -- -- 22,600
------- ------- ------- ------- ------ ------ -------
Total rate sensitive
liabilities............... $31,185 $30,608 $15,425 $ 7,129 $3,490 $1,085 $88,922
======= ======= ======= ======= ====== ====== =======
Interest rate sensitivity gap..... $10,523 $(8,810) $ 1,906 $(2,411) $3,382 $1,954 $ 6,544
======= ======= ======= ======= ====== ====== =======
Cumulative interest rate
sensitivity gap................. $10,523 $ 1,713 $ 3,619 $ 1,208 $4,590 $6,544 $ 6,544
======= ======= ======= ======= ====== ====== =======
Cumulative interest rate
sensitivity gap as a percent of
total asset..................... 10.64% 1.73% 3.66% 1.22% 4.64% 6.61% 6.61%
======= ======= ======= ======= ====== ====== =======
</TABLE>
- ------------------------
(1) Includes all adjustable rate mortgage loans and mortgage-backed securities
based on contractual term to repricing.
(2) Includes all fixed-rate mortgage loans and mortgage-backed securities which
are assumed to reprice in accordance with prepayment assumptions supplied by
Harvest Home Savings Banks' asset/liability management software provider.
Such prepayment assumptions have been derived from prepayment assumption
models previously utilized by the OTS.
(3) Includes all investment securities, interest-bearing deposits and federal
funds sold.
(4) Certificates of deposit are shown repricing based on contractual terms to
maturity.
46
<PAGE>
(5) Based on assumptions supplied by Harvest Home Savings Banks' asset/liability
management provider, money market deposits, NOW accounts and passbook
accounts are assumed to decay over a five-year period.
Savings banks have historically presented a gap analysis as a measure of
interest rate risk. The gap analysis presents the projected maturities and
periods to repricing of a savings bank's rate sensitive assets and liabilities.
As set forth above, Harvest Home Savings Bank's cumulative one-year gap, which
represents the difference between the amount of interest sensitive assets
maturing or repricing in one year and the amount of interest sensitive
liabilities maturing or repricing in the same period, was a positive 1.7% of
total assets at September 30, 1999. A positive cumulative gap indicates that
interest sensitive assets exceed interest sensitive liabilities at a specific
date. In a rising interest rate environment, institutions with positive
repricing or maturity gaps generally experience a more rapid increase in
interest income earned on assets than the interest expense paid on liabilities.
Conversely, in an environment of falling interest rates, interest income earned
on assets will generally decrease more rapidly than the interest expense paid on
liabilities. A negative gap will have the opposite effect. Harvest Home Savings
Bank's one to three year gap was a positive 3.7% (of total assets), while all
other maturities greater than three years reflected a positive gap of 3.0% of
total assets. The foregoing totals have been based on certain prepayment and
repricing data that may not reflect actual performance in a rapidly rising or
declining interest rate environment.
FORWARD-LOOKING STATEMENTS
In addition to historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. Economic circumstances, Harvest Home Financial's operations and
Harvest Home Financial's actual results could differ significantly from those
discussed in the forward-looking statements. Some of the factors that could
cause or contribute to such differences are discussed herein but also include
changes in the economy and interest rates in the nation and Harvest Home
Financial's market area generally.
Some of the forward-looking statements included herein are the statements
regarding management's determination of the amount and adequacy of the allowance
for loan losses, the effect of the year 2000 on information technology systems
and the effect of recent accounting pronouncements.
CHANGES IN FINANCIAL CONDITION FROM SEPTEMBER 30, 1998 TO SEPTEMBER 30, 1999
Harvest Home Financial's assets totaled $98.9 million at September 30, 1999,
an increase of $2.0 million, or 2.1%, over September 30, 1998 levels. The
increase in total assets was funded primarily by a $6.0 million increase in
deposits, partially offset by a $3.3 million decrease in Federal Home Loan Bank
advances.
Cash, federal funds sold and interest-bearing deposits in other financial
institutions totaled $2.8 million at September 30, 1999, a decrease of $38,000,
or 1.3%, from 1998 levels. Federal funds sold decreased by $100,000, while
interest-bearing deposits and cash increased by $62,000, or 2.3%, during 1999.
Investment securities totaled $6.0 million at September 30, 1999, an increase of
$1.9 million, or 47.6%, over the balance at September 30, 1998. This increase
resulted primarily from the purchase of $6.0 million of investment securities,
offset by the maturity of $4.0 million of investment securities during the 1999
period.
Mortgage-backed securities decreased by $4.2 million, or 11.0%, to a total
of $33.7 million at September 30, 1999, compared to September 30, 1998, as
principal repayments of $15.0 million exceeded purchases of $12.0 million.
During fiscal 1999, management purchased $8.0 million of long-term,
adjustable-rate U.S. Government agency collateralized mortgage obligations with
a weighted-average yield of 6.38%. Such purchases were funded with proceeds from
Federal Home Loan Bank
47
<PAGE>
advances. Additionally, Harvest Home Savings Bank acquired $4.0 million of
intermediate-term U. S. Government agency collateralized mortgage obligations at
a fixed rate of 5.50%.
Loans receivable increased by $4.0 million, or 8.2%, to a total of
$52.8 million at September 30, 1999, compared to September 30, 1998 levels. Loan
disbursements totaled $15.8 million during fiscal 1999, as compared to
$13.9 million during fiscal 1998, and were partially offset by principal
repayments totaling $11.9 million. Growth in the loan portfolio consisted
primarily of one- to four-family residential and construction loans, which
increased by $3.2 million, or 6.9%, year to year.
At September 30, 1999, Harvest Home Savings Bank's allowance for loan losses
totaled $139,000, representing .25% of total loans and 556.0% of nonperforming
loans. At September 30, 1998, the allowance for loan losses totaled $127,000, or
.25% of total loans, and 259.2% of nonperforming loans. Nonperforming loans
amounted to $25,000, or .1%, and $49,000, or .1%, of total assets at
September 30, 1999 and 1998, respectively. Although management believes that its
allowance for loan losses at September 30, 1999, was adequate based on the
available facts and circumstances, there can be no assurance that additions to
such allowance will not be necessary in future periods, which could adversely
affect Harvest Home Savings Bank's results of operations.
Deposits totaled $66.2 million at September 30, 1999, an increase of
$6.0 million, or 10.0%, over the $60.2 million total at September 30, 1998.
Harvest Home Savings Bank has historically sought to maintain a moderate rate of
deposit growth through marketing and pricing strategies. The increase in
deposits during fiscal 1999 can be attributed primarily to consolidation in the
financial services industry in Harvest Home Savings Bank's market area, and
consumers' preference for conducting financial business with a smaller,
locally-owned institution.
Federal Home Loan Bank advances totaled $22.6 million at September 30, 1999,
a decrease of $3.3 million, or 12.6%, from September 30, 1998, as repayments of
mortgage-backed securities were used to repay advances. At September 30, 1999,
the advances carried a 5.23% weighted-average interest rate and are scheduled to
mature through fiscal 2008.
Stockholders' equity totaled $9.7 million at September 30, 1999, a decrease
of $324,000, or 3.2%, from September 30, 1998 levels. The decrease resulted
primarily from cash dividends paid totaling $376,000, coupled with an increase
of $781,000 in unrealized losses on securities designated as available for sale,
which were partially offset by net earnings of $514,000, amortization of stock
benefit plan expense of $197,000, and the exercise of stock options totaling
$122,000.
COMPARISON OF RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
1999 AND 1998
GENERAL. Net earnings for the year ended September 30, 1999, totaled
$514,000, a decrease of $27,000, or 5.0%, from the $541,000 in net earnings
reported for the fiscal year ended September 30, 1998. The decrease in net
earnings resulted primarily from a $56,000 increase in general administrative
and other expense, coupled with a $17,000 decrease in other income, which were
partially offset by a $47,000 increase in net interest income.
NET INTEREST INCOME. Total interest income amounted to $6.5 million for the
fiscal year ended September 30, 1999, an increase of $115,000, or 1.8%, over
fiscal 1998. Interest income on loans totaled $3.7 million in fiscal 1999, an
increase of $177,000, or 5.0%. This increase was due primarily to a
$3.7 million, or 7.9%, increase in the weighted-average balance outstanding,
which was partially offset by a 21 basis point decrease in weighted-average
yield, to 7.49% in 1999. Interest income on mortgage-backed securities increased
by $41,000, or 2.0%, as a result of a $2.9 million increase in the weighted-
average balance outstanding, which was partially offset by a 38 basis point
decrease in weighted-average yield, to 5.86% in fiscal 1999. Interest income on
investment securities and interest-bearing deposits decreased by $103,000, or
14.5%, due to a $515,000, or 4.7%, decrease in the weighted-average balance
outstanding, coupled with a 64 basis point decrease in weighted-average yield,
to 5.85% in fiscal 1999.
48
<PAGE>
Interest expense totaled $4.2 million for the fiscal year ended
September 30, 1999, an increase of $68,000, or 1.6%, over the $4.1 million total
recorded in fiscal 1998. Interest expense on deposits increased by $79,000, or
2.7%, due to a $5.1 million, or 8.5%, increase in the weighted-average balance
outstanding, which was partially offset by a 27 basis point decrease in the
weighted-average cost of funds, to 4.61% during fiscal 1999. Interest expense on
borrowings totaled $1.2 million during fiscal 1999, a decrease of $11,000 from
fiscal 1998, due to a decrease of 54 basis points in the weighted-average
interest rate, to 5.08% during fiscal 1999, partially offset by a $2.1 million
increase in the weighted-average balance of advances outstanding from the FHLB.
As a result of the foregoing changes in interest income and interest
expense, net interest income increased by $47,000, or 2.1%, from $2.2 million
for the fiscal year ended September 30, 1998, to $2.3 million for fiscal 1999.
The interest rate spread increased by 1 basis point during fiscal 1999 to 1.96%,
while the net interest margin declined by 10 basis points year-to-year,
amounting to 2.35% in fiscal 1999.
PROVISION FOR LOSSES ON LOANS. A provision for losses on loans is charged to
earnings to bring the total allowance for loan losses to a level considered
appropriate by management based on historical experience, the volume and type of
lending conducted by the Harvest Home Savings Bank, the status of past due
principal and interest payments, general economic conditions, particularly as
such conditions relate to the Harvest Home Savings Bank's market area, and other
factors related to the collectibility of the Harvest Home Savings Bank's loan
portfolio. As a result of such analysis, management recorded a $12,000 provision
for losses on loans during each of the fiscal years ended September 30, 1999 and
1998. The provisions for each of the fiscal years 1999 and 1998 have been
predicated primarily upon growth in the loan portfolio and a stable level of
nonperforming loans. There can be no assurance that the allowance for loan
losses of the Harvest Home Savings Bank will be adequate to cover losses on
nonperforming assets in the future.
OTHER INCOME. Other income decreased by $17,000, or 15.6%, from $109,000
for the fiscal year ended September30, 1998 to $92,000 for fiscal 1999. The
decrease was primarily due to the absence of the $43,000 gain on sale of
mortgage-backed securities recorded in fiscal 1998, partially offset by a
$20,000 increase in NOW account fees.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and
other expense increased by $56,000, or 3.7%, to a total of $1.6 million for the
year ended September 30, 1999, as compared to $1.5 million for fiscal 1998. The
increase resulted primarily from an increase of $33,000, or 3.9%, in employee
compensation and benefits and a $21,000, or 11.4%, increase in occupancy and
equipment expense. The increase in employee compensation and benefits resulted
from normal merit increases and an increase in staffing levels, while the
increases in occupancy and equipment resulted from the addition of new computer
technology.
FEDERAL INCOME TAXES. The provision for federal income taxes totaled
$265,000 for the fiscal year ended September 30, 1999, an increase of $1,000
from the $264,000 total in fiscal 1998. The effective tax rates for the years
ended September 30, 1999 and 1998 were 34.0% and 32.8%, respectively.
COMPARISON OF RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
1998 AND 1997
GENERAL. Net earnings for the year ended September 30, 1998, totaled
$541,000, a decrease of $86,000, or 13.7%, from the $627,000 in net earnings
reported for the fiscal year ended September 30, 1997. The decrease in net
earnings resulted primarily from a $70,000 decline in net interest income,
coupled with a $107,000 increase in general administrative and other expense,
which were partially offset by a $45,000 increase in other income and a $49,000
decrease in the provision for federal income taxes.
49
<PAGE>
NET INTEREST INCOME. Total interest income amounted to $6.4 million for the
fiscal year ended September 30, 1998, an increase of $384,000, or 6.4%, over
fiscal 1997. Interest income on loans totaled $3.6 million in fiscal 1998, an
increase of $114,000, or 3.3%. This increase was due primarily to a
$2.5 million increase in the weighted-average balance outstanding, which was
offset by a 17 basis point decrease in weighted-average yield, to 7.70% in 1998.
Interest income on mortgage-backed securities increased by $431,000, or 26.1%,
as a result of a $7.4 million increase in the weighted-average balance
outstanding, which was partially offset by a 14 basis point decrease in
weighted-average yield, to 6.24% in fiscal 1998. Interest income on investment
securities and interest-bearing deposits decreased by $161,000, or 18.5%, due
primarily to a $2.5 million decrease in the weighted-average balance
outstanding.
Interest expense totaled $4.1 million for the fiscal year ended
September 30, 1998, an increase of $454,000, or 12.3%, over the $3.7 million
total recorded in fiscal 1997. Interest expense on deposits increased by
$136,000, or 4.9%, due primarily to a 6 basis point increase in the
weighted-average cost of funds, to 4.87% during fiscal 1998. Interest expense on
borrowings totaled $1.2 million during fiscal 1998, an increase of $318,000 over
fiscal 1997, due to the previously discussed $6.1 million increase in the
weighted-average balance of advances outstanding from the Federal Home Loan
Bank.
As a result of the foregoing changes in interest income and interest
expense, net interest income decreased by $70,000, or 3.1%, from $2.3 million
for the fiscal year ended September 30, 1997, to $2.2 million for fiscal 1998.
The interest rate spread declined by 22 basis points during fiscal 1998 to
1.95%, while the net interest margin declined by 31 basis points year-to-year,
amounting to 2.45% in fiscal 1998.
PROVISION FOR LOSSES ON LOANS. A provision for losses on loans is charged to
earnings to bring the total allowance for loan losses to a level considered
appropriate by management based on historical experience, the volume and type of
lending conducted by the Harvest Home Savings Bank, the status of past due
principal and interest payments, general economic conditions, particularly as
such conditions relate to the Harvest Home Savings Bank's market area, and other
factors related to the collectibility of the Harvest Home Savings Bank's loan
portfolio. As a result of such analysis, management recorded a $12,000 provision
for losses on loans during the fiscal year ended September 30, 1998, as compared
to $9,000 for fiscal 1997. There can be no assurance that the allowance for loan
losses of the Harvest Home Savings Bank will be adequate to cover losses on
nonperforming assets in the future.
OTHER INCOME. Other income increased by $45,000, or 70.0%, from $64,000 for
the fiscal year ended September30, 1997 to $109,000 for fiscal 1998. The
increase was due primarily to a $36,000 increase in gain on sale of investment
and mortgage-backed securities during the year.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and
other expense increased by $107,000, or 7.6%, to a total of $1.5 million for the
year ended September 30, 1998, as compared to $1.4 million for fiscal 1997. The
increase resulted primarily from an increase of $48,000, or 6.0%, in employee
compensation and benefits, a $14,000, or 8.2%, increase in occupancy and
equipment expense and a $23,000, or 11.5% increase in other operating expenses.
The increase in employee compensation and benefits resulted from normal merit
increases and additional staffing levels, while the increases in occupancy and
equipment resulted from the addition of new computer technology and other
related corporate expenses, respectively.
FEDERAL INCOME TAXES. The provision for federal income taxes totaled
$264,000 for the fiscal year ended September 30, 1998, a decrease of $49,000
from the $313,000 total in fiscal 1997. The decrease resulted primarily from a
$135,000, or 14.4%, decrease in pre-tax earnings. The effective tax rates for
the years ended September 30, 1998 and 1997 were 32.8% and 33.3%, respectively.
50
<PAGE>
AVERAGE YIELD ANALYSIS. The following table presents for the periods
indicated, the total amount of interest income from average interest-earning
assets and the resulting yields, and the interest expense on average
interest-bearing liabilities, expressed both in dollars and rates, and the net
interest margin. Balances are based on average monthly balances which, in the
opinion of management, do not differ materially from daily balances.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------
1999 1998
--------------------------------- ---------------------------------
AVERAGE INTEREST AVERAGE INTEREST
OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE
----------- -------- -------- ----------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable................. $50,060 $3,748 7.49% $46,391 $3,571 7.70%
Mortgage-backed securities....... 36,286 2,126 5.86 33,391 2,085 6.24
Investment securities............ 5,046 301 5.97 5,900 402 6.81
Interest-bearing deposits and
other.......................... 5,347 307 5.74 5,008 309 6.17
------- ------ ------ ------- ------ ------
Total interest-earning
assets....................... 96,739 6,482 6.70 90,690 6,367 7.02
Non-interest-earning assets........ 3,161 2,031
------- -------
Total assets................... $99,900 $92,721
======= =======
Interest-bearing liabilities:
Deposits
NOW accounts..................... $ 3,997 75 1.88 $ 3,533 77 2.18
Passbook....................... 9,926 250 2.52 9,264 250 2.70
Money market demand deposits... 4,398 132 3.00 4,354 130 2.99
Certificates................... 46,745 2,544 5.44 42,814 2,465 5.76
Borrowings....................... 23,827 1,210 5.08 21,738 1,221 5.62
------- ------ ------ ------- ------ ------
Total interest-bearing
liabilities.................. 88,893 4,211 4.74 81,703 4,143 5.07
------ ------ ------ ------
Non-interest-bearing liabilities... 1,003 770
------- -------
Total liabilities.............. 89,896 82,473
Stockholders' equity............... 10,004 10,248
------- -------
Total liabilities and
stockholders' equity........... $99,900 $92,721
------- -------
Net interest income; interest rate
spread (1)....................... $2,271 1.96% $2,224 1.95%
------ ------ ------ ------
Net yield (net interest income as a
percent of average
interest-earning assets)......... 2.35% 2.45%
------ ------
Ratio of average interest-earning
assets to average
interest-bearing liabilities..... 108.83% 111.00%
------ ------
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------
1997
---------------------------------
AVERAGE INTEREST
OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE
----------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable................. $43,929 $3,457 7.87%
Mortgage-backed securities....... 25,938 1,654 6.38
Investment securities............ 9,846 675 6.86
Interest-bearing deposits and
other.......................... 3,538 197 5.57
------- ------ ------
Total interest-earning
assets....................... 83,251 5,983 7.19
Non-interest-earning assets........ 2,153
-------
Total assets................... $85,404
=======
Interest-bearing liabilities:
Deposits
NOW accounts..................... $ 3,477 110 3.16
Passbook....................... 9,057 252 2.78
Money market demand deposits... 4,436 144 3.25
Certificates................... 40,909 2,280 5.57
Borrowings....................... 15,615 903 5.78
------- ------ ------
Total interest-bearing
liabilities.................. 73,494 3,689 5.02
------ ------
Non-interest-bearing liabilities... 1,608
-------
Total liabilities.............. 75,102
Stockholders' equity............... 10,302
-------
Total liabilities and
stockholders' equity........... $85,404
-------
Net interest income; interest rate
spread (1)....................... $2,294 2.17%
------ ------
Net yield (net interest income as a
percent of average
interest-earning assets)......... 2.76%
------
Ratio of average interest-earning
assets to average
interest-bearing liabilities..... 113.28%
------
</TABLE>
- ------------------------------
(1) Represents the difference between the average yield on interest-earning
assets and the average cost of interest-bearing liabilities.
51
<PAGE>
RATE/VOLUME TABLE. The following table describes the extent to which
changes in interest rates and changes in volume of interest-earning assets and
interest-bearing liabilities have affected Harvest Home Financial's interest
income and expense during the fiscal years indicated. For each category of
interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to (i) changes in volume (change in volume
multiplied by prior year rate), (ii) changes in rate (change in rate multiplied
by prior year volume), and (iii) total changes in rate and volume. The combined
effects of changes in both volume and rate, which cannot be separately
identified, have been allocated proportionately to the change due to volume and
the change due to rate.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------------------
1999 V. 1998 1998 V. 1997
------------------------------------ ------------------------------------
INCREASE INCREASE
(DECREASE) DUE TO (DECREASE) DUE TO
---------------------- ----------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income attributable to:
Loans receivable......................... $276 $ (99) $177 $190 $(76) $114
Mortgage-backed securities............... 175 (134) 41 469 (38) 431
Investment securities.................... (54) (47) (101) (269) (4) (273)
Other interest-earning assets(1)......... 21 (23) (2) 87 25 112
---- ----- ---- ---- ---- ----
Total interest income.................. 418 (303) 115 477 (93) 384
Interest expense attributable to:
Deposits(2).............................. 240 (161) 79 100 36 136
Borrowings............................... 112 (123) (11) 345 (27) 318
---- ----- ---- ---- ---- ----
Total interest expense................. 352 (284) 68 445 9 454
---- ----- ---- ---- ---- ----
Increase (decrease) in net interest
income................................... $ 47 $(70)
==== ====
</TABLE>
- ------------------------
(1) Includes interest-bearing deposits in other financial institutions and other
interest-earning assets.
(2) Includes interest-bearing escrow deposits.
LIQUIDITY AND CAPITAL RESOURCES. Harvest Home Savings Bank's principal
sources of funds are deposits, repayments on loans and mortgage-backed
securities, maturities of investment securities, and funds provided by
operations. While scheduled loan and mortgage-backed securities amortization and
maturing interest-bearing deposits and investment securities are relatively
predictable sources of funds, deposit flows and loan and mortgage-backed
securities prepayments are greatly influenced by economic conditions, the
general level of interest rates, and competition. The particular sources of
funds utilized by Harvest Home Savings Bank from time to time are selected based
on comparative costs and availability.
The FDIC requires savings banks to maintain a level of investments in
specified types of liquid assets sufficient to protect and ensure the safety and
soundness of the Harvest Home Savings Bank. The FDIC has no specific minimum
guideline for liquidity.
The primary investing activities of Harvest Home Savings Bank include
investing in loans, mortgage-backed securities and investment securities. Such
investments are funded primarily from loans and mortgage-backed securities
repayments, increases in customer deposit liabilities and borrowings from the
Federal Home Loan Bank. During the fiscal year ended September 30, 1999, loan
originations totaled $15.8 million and purchases of mortgage-backed and
investment securities totaled $18.0 million, representing the deployment of
funds from deposit growth, proceeds from Federal Home Loan Bank advances and
proceeds from maturity of investment securities. Customer deposits increased
during the
52
<PAGE>
fiscal year ended September 30, 1999, by $6.0 million and increased during the
fiscal year ended September 30, 1998 by $1.4 million.
The FDIC has adopted risk-based capital ratio guidelines to which Harvest
Home Savings Bank is subject. The guidelines establish a systematic analytical
framework that makes regulatory capital requirements more sensitive to
differences in risk profiles among banking organizations. Risk-based capital
ratios are determined by allocating assets and specified off-balance sheet
commitments to four risk weighted categories, with higher levels of capital
being required for the categories perceived as representing greater risk.
These guidelines divide the capital into two tiers. The first tier ("Tier
I") includes common equity, certain non-cumulative perpetual preferred stock
(excluding auction rate issues) and minority interests in equity accounts of
consolidated subsidiaries, less goodwill and certain other intangible assets
(except mortgage servicing rights and purchased credit card relationships,
subject to certain limitations). Supplementary ("Tier II") capital includes,
among other items, cumulative perpetual and long-term limited-life preferred
stock, mandatory convertible securities, certain hybrid capital instruments,
term subordinated debts and the allowance for loan and lease losses, subject to
certain limitations, less required deductions. Savings banks are required to
maintain a total risk-based capital (the sum of Tier 1 and Tier 2 capital) ratio
of 8%, of which 4% must be Tier I capital. The FDIC may, however, set higher
capital requirements when a bank's particular circumstances warrant. Banks
experiencing or anticipating significant growth are expected to maintain a Tier
I leverage ratio, including tangible capital positions, well above the minimum
levels.
In addition, the FDIC established guidelines prescribing a minimum Tier I
leverage ratio (Tier I capital to adjusted total assets as specified in the
guidelines). These guidelines provide for a minimum Tier I leverage ratio of 3%
for banks that meet certain specified criteria, including that they have the
highest regulatory rating and are not experiencing or anticipating significant
growth. All other banks are required to maintain a Tier I leverage ratio of 3%
plus an additional cushion of at least 100 to 200 basis points.
The following table sets forth the regulatory capital of Harvest Home
Savings Bank at September 30, 1999:
<TABLE>
<S> <C>
Total Capital to Risk-Weighted Assets....................... 23.5%
Tier I Capital to Risk-Weighted Assets...................... 23.2%
Tier I Leverage Ratio....................................... 9.8%
</TABLE>
IMPACT OF INFLATION AND CHANGING PRICES
Harvest Home Financial's consolidated financial statements and related
financial data presented herein have been prepared in accordance with generally
accepted accounting principles, which generally require the measurement of
financial position and operating results in terms of historical dollars, without
considering changes in relative purchasing power over time due to inflation.
Unlike most industrial companies, virtually all of Harvest Home Financial's
assets and liabilities are monetary in nature. As a result, interest rates
generally have a more significant impact on Harvest Home Financial's performance
than does the effect of inflation. Interest rates do not necessarily move in the
same direction or in the same magnitude as the prices of goods and services,
since such prices are affected by inflation to a larger extent than interest
rates.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 established standards for reporting and
display of comprehensive income and its components (revenues,
53
<PAGE>
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. It does not require a specific format for that
financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statement.
SFAS No. 130 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. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
Management adopted SFAS No. 130 effective October 1, 1998, as required, without
material impact on Harvest Home Financial's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 significantly changes the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about reportable segments in interim financial reports
issued to shareholders. It also established standards for related disclosures
about products and services, geographic areas and major customers. SFAS No. 131
uses a "management approach" to disclose financial and descriptive information
about the way that management organizes the segments within the enterprise for
making operating decisions and assessing performance. For many enterprises, the
management approach will likely result in more segments being reported. In
addition, SFAS No. 131 requires significantly more information to be disclosed
for each reportable segment than is presently being reported in annual financial
statements and also requires that selected information be reported in interim
financial statements. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. Management adopted SFAS No. 131 effective October 1, 1998, as
required, without material impact on Harvest Home Financial's financial
statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires entities to recognize all
derivatives in their financial statements as either assets or liabilities
measured at fair value. SFAS No. 133 also specifies new methods of accounting
for hedging transactions, prescribes the items and transactions that may be
hedged, and specifies detailed criteria to be met to qualify for hedge
accounting.
The definition of a derivative financial instrument is complex, but in
general, it is an instrument with one or more underlyings, such as an interest
rate or foreign exchange rate, that is applied to a notional amount, such as an
amount of currency, to determine the settlement amount(s). It generally requires
no significant initial investment and can be settled net or by delivery of an
asset that is readily convertible to cash. SFAS No. 133 applies to derivatives
embedded in other contracts, unless the underlying of the embedded derivative is
clearly and closely related to the host contract.
SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years
beginning after June15, 2000. On adoption, entities are permitted to transfer
held-to-maturity debt securities to the available-for-sale or trading category
without calling into question their intent to hold other debt securities to
maturity in the future. SFAS No. 133 is not expected to have a material impact
on Harvest Home Financial's financial statements.
54
<PAGE>
BUSINESS OF PEOPLES COMMUNITY BANCORP
Peoples Community Bancorp is a Delaware corporation organized in
December 1999 by People's Savings for the purpose of becoming a unitary savings
and loan holding company of Peoples Community Bank. We will purchase all of the
capital stock of Peoples Community Bank to be issued in the conversion in
exchange for 50% of the net conversion proceeds and will retain the remaining
50% of the net proceeds as our initial capitalization. Immediately following the
conversion, our only significant assets will be the capital stock of Peoples
Community Bank, our loan to the Peoples ESOP, and the remainder of the net
conversion proceeds retained by us. The business and management of Peoples
Community Bancorp will initially primarily consist of the business and
management of Peoples Community Bank.
BUSINESS OF PEOPLE'S SAVINGS AND OAKLEY
OVERVIEW
People's Savings and Oakley are traditional mutual-form savings and loan
associations operating in the Cincinnati area. Immediately prior to the
conversion, Oakley will merge into People's Savings with People's Savings
surviving. Below we describe the business of each of People's Savings and
Oakley. Because People's Savings is significantly larger than Oakley and because
we will follow the business plan of People's Savings after the Oakley merger, we
have focused the description of business on People's Savings, although the
business practices of Oakley, which have been very similar to those of People's
Savings, also are described below.
OUR LENDING ACTIVITIES
GENERAL. At September 30, 1999, the net loan portfolio of People's Savings
totalled $83.9 million, representing approximately 92.9% of total assets at that
date. The principal lending activity of People's Savings is the origination of
one- to four-family (which are also known as single-family) residential loans.
At September 30, 1999, conventional first mortgage, one- to four-family
residential loans (including construction loans) amounted to $80.7 million or
92.3% of the total loan portfolio. To a lesser extent, People's Savings
originates commercial real estate and land loans and multi-family residential
mortgage loans. At September 30, 1999, commercial real estate and land loans
totalled $5.6 million or 6.5% of the total loan portfolio, before net items, and
multi-family residential mortgage loans amounted to $982,000, or 1.1% of the
total loan portfolio.
Oakley also focuses its lending efforts on one- to four- family residential
mortgage loans. At September 30, 1999, Oakley's single-family residential
mortgage loans totalled $9.7 million or 86.0% of Oakley's total loan portfolio.
The types of loans that People's Savings and Oakley may originate are
subject to federal and state laws and regulations. Interest rates charged on
loans are affected principally by the demand for such loans and the supply of
money available for lending purposes and the rates offered by its competitors.
These factors are, in turn, affected by general and economic conditions, the
monetary policy of the federal government, including the Federal Reserve Board,
legislative and tax policies, and governmental budgetary matters.
A savings institution generally may not make loans to one borrower and
related entities in an amount which exceeds the greater of (i) 15% of its
unimpaired capital and surplus, although loans in an amount equal to an
additional 10% of unimpaired capital and surplus may be made to a borrower if
the loans are fully secured by readily marketable securities, and
(ii) $500,000. At September 30, 1999, People's Savings' regulatory limit on
loans-to-one borrower was $1.8 million and its five largest loans or groups of
loans-to-one borrower, including related entities, aggregated $1.3 million,
$922,000, $900,000,
55
<PAGE>
$851,000 and $805,000. All of People's Savings' five largest loans or groups of
loans were performing in accordance with their terms at September 30, 1999. See
"Classified Assets."
As a result of the conversion, the Oakley merger and the Harvest Home
merger, we will have significantly more unimpaired capital and surplus. This
will increase our loans-to-one borrower limit and will permit us to make larger
loans than we can make now.
LOAN PORTFOLIO COMPOSITION. The following table sets forth the composition
of People's Savings' loans at the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
---------------------------------------------------------------------
1999 1998 1997
--------------------- --------------------- ---------------------
PERCENT OF PERCENT OF PERCENT OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
-------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Single-family residential............... $80,690 92.28% $75,564 91.56% $73,320 90.98%
Multi-family residential................ 982 1.12 1,036 1.26 143 0.18
Commercial real estate and land......... 5,647 6.46 5,801 7.03 6,980 8.66
------- ------ ------- ------ ------- ------
Total mortgage loans.................. 87,319 99.86 82,401 99.85 80,443 99.82
Other loans................................. 124 0.14 129 0.15% 150 0.18
------- ------ ------- ------ ------- ------
Total loans receivable................ 87,443 100.00% 82,530 100.00 80,593 100.00%
====== ====== ======
Less:
Undisbursed portion of loans in
process............................... 2,797 2,214 1,340
Allowance for losses on loans........... 365 210 182
Deferred loan fees...................... 354 359 349
------- ------- -------
Loans receivable, net....................... $83,927 $79,747 $78,722
======= ======= =======
</TABLE>
The following table sets forth the composition of Oakley's loans at the
dates indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------------------------------------------
1999 1998 1997
--------------------- --------------------- ---------------------
PERCENT OF PERCENT OF PERCENT OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
-------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Single-family residential............... $ 9,680 85.97% $ 9,844 91.38% $10,032 89.15%
Multi-family residential................ 606 5.38 575 5.34 750 6.66
Commercial real estate and land......... 965 8.57 342 3.17 451 4.01
------- ------ ------- ------ ------- ------
Total mortgage loans.................. 11,251 99.92 10,761 99.89 11,233 99.82
Other loans................................. 9 0 .08 12 0.11 20 0 .18
------- ------ ------- ------ ------- ------
Total loans receivable................ 11,260 100.00% 10,773 100.00% 11,253 100.00%
====== ====== ======
Less:
Undisbursed portion of loans in
process............................... 540 -- --
Allowance for losses on loans........... 50 25 25
Deferred loan fees...................... 46 47 50
------- ------- -------
Loans receivable, net....................... $10,624 $10,701 $11,178
======= ======= =======
</TABLE>
ORIGINATION OF LOANS. The lending activities of People's Savings are
subject to the written underwriting standards and loan origination procedures
established by the Board of Directors and
56
<PAGE>
management. Loan originations are obtained through a variety of sources,
including referrals from real estate brokers, builders and existing customers.
Written loan applications are taken by loan officers. The loan officers also
supervise the procurement of credit reports, appraisals and other documentation
involved with a loan. Property valuations are performed by independent outside
appraisers approved by the Board of Directors of People's Savings.
Under the real estate lending policy of People's Savings, a title opinion
must be obtained for each real estate loan. We also require fire and extended
coverage casualty insurance, in order to protect the properties securing our
real estate loans. Borrowers must also obtain flood insurance policies when the
property is in a flood hazard area as designated by the Department of Housing
and Urban Development. People's Savings does not require borrowers to advance
funds to an escrow account for the payment of real estate taxes or hazard
insurance premiums.
People's Savings loan approval process is intended to assess the borrower's
ability to repay the loan, the viability of the loan and the adequacy of the
value of the property that will secure the loan. All real estate loans must be
approved by the Board of Directors.
ACTIVITY IN LOANS. The following table shows the activity in People's
Savings loans during the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Total loans held at beginning of period..................... $82,530 $80,593 $75,261
Originations of loans:
Mortgage loans:
Single-family residential............................... 24,516 18,983 19,311
Multi-family residential................................ 246 900 --
Commercial real estate and land......................... 1,864 1,914 2,303
Other loans................................................. 41 43 50
------- ------- -------
Total originations.................................... 26,667 21,840 21,664
------- ------- -------
Purchases of loans.......................................... -- -- --
------- ------- -------
Total originations and purchases...................... 26,667 21,840 21,664
------- ------- -------
Loans sold.................................................. -- -- --
Transfers to real estate owned.............................. -- -- --
Charge-offs................................................. -- 15 --
Repayments.................................................. 22,449 20,534 16,700
------- ------- -------
Net activity in loans....................................... 4,218 1,291 4,964
------- ------- -------
Gross loans held at end of period........................... $87,443 $82,530 $80,593
======= ======= =======
</TABLE>
57
<PAGE>
The following table shows the activity in Oakley's loans during the periods
indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Total loans held at beginning of period..................... $10,773 $11,253 $11,097
Originations of loans:
Mortgage loans:
Single-family residential............................... 3,146 1,640 1,897
Multi-family residential................................ 238 -- --
Commercial real estate and land......................... 650 -- --
Other loans................................................. 9 12 20
------- ------- -------
Total originations(1)................................. 4,043 1,652 1,917
------- ------- -------
Purchases of loans.......................................... -- -- --
------- ------- -------
Total originations and purchases...................... 4,043 1,652 1,917
------- ------- -------
Loans sold.................................................. -- -- --
Transfers to real estate owned.............................. -- -- --
Charge-offs................................................. -- -- --
Repayments.................................................. 3,556 2,132 1,761
------- ------- -------
Net activity in loans....................................... 487 (480) 156
------- ------- -------
Gross loans held at end of period........................... $11,260 $10,773 $11,253
======= ======= =======
</TABLE>
- ------------------------
(1) Includes undisbursed portion of construction loans.
Although federal laws and regulations permit savings institutions to
originate and purchase loans secured by real estate located throughout the
United States, People's Savings as well as Oakley, confines its lending activity
to its primary market area in southwestern Ohio. More specifically, People's
Savings lends in Warren and Clinton counties and Oakley lends to residents in
Hamilton County, Ohio. Subject to its loans-to-one borrower limitation, People's
Savings and Oakley are permitted to invest without limitation in residential
mortgage loans and up to 400% of their capital in loans secured by
non-residential or commercial real estate. People's Savings and Oakley may also
invest in secured and unsecured consumer loans in an amount not exceeding 35% of
total assets. This 35% limitation may be exceeded for certain types of consumer
loans, such as home equity and property improvement loans secured by residential
real property. In addition, People's Savings and Oakley may invest up to 10% of
their total assets in secured and unsecured loans for commercial, corporate,
business or agricultural purposes. At September 30, 1999, People's Savings and
Oakley were well within each of the above lending limits.
ONE- TO FOUR-FAMILY RESIDENTIAL REAL ESTATE LOANS. The primary real estate
lending activity of People's Savings is the origination of loans secured by
first mortgage liens on one- to four-family residences. At September 30, 1999,
$80.7 million or 92.3% of the total loan portfolio of People's Savings, before
net items, consisted of conventional first mortgage, one- to four-family
residential loans (including single-family construction loans).
The loan-to-value ratio, maturity and other provisions of the loans made by
People's Savings generally have reflected the policy of making less than the
maximum loan permissible under applicable regulations, in accordance with sound
lending practices, market conditions and underwriting standards established by
People's Savings. People's Savings lending policies on one- to four-family
residential mortgage loans generally limit the maximum loan-to-value ratio to
80% of the lesser of the appraised
58
<PAGE>
value or purchase price of the property. Residential mortgage loans are
amortized on a monthly basis with principal and interest due each month. The
loans generally include "due-on-sale" clauses.
The residential mortgages originated by People's Savings consist of
fixed-rate loans maturing in 25 years. The single-family residential mortgage
loans of People's Savings contain a three-year demand provision which permits
People's Savings to accelerate the due date of a mortgage loan at any time at or
after three years from the date of origination (although People's Savings has
never utilized this provision). Other than this demand provision, the
single-family residential mortgage loans of People's Savings generally conform
to Fannie Mae and Freddie Mac requirements.
People's Savings and Oakley have the authority to originate and purchase
mortgage loans which provide for periodic interest rate adjustments subject to
certain limitations. While People's Savings has not offered adjustable-rate
mortgages ("ARMs") in the past, after the conversion we plan to offer ARMs on
which the interest rate adjusts every one or three years based upon the one-year
or three-year rate on T-bills plus a specified margin. In addition, we plan to
introduce a traditional fixed-rate mortgage loan without the three-year
demand/adjustment provision. Oakley currently originates one-year and three-year
ARM loans based upon the National Average Contract Mortgage Rate.
People's Savings one-to four-family residential mortgage loans also include
loans to construct single-family residences. At September 30, 1999, People's
Savings had approximately $6.6 million in single-family residential construction
loans. The construction loans of People's Savings are comprised largely of loans
made to borrowers to construct individual pre-sold homes. Generally, the
construction loan and the permanent mortgage loan are originated at one closing
as a construction/permanent loan. Interest-only payments are required during the
construction period, which is typically six months. People's Savings also
originates a limited amount of construction loans to local developers to build
homes on a speculative basis.
Construction lending is generally considered to involve a higher degree of
risk of loss than long-term financing on improved, owner-occupied real estate
because of the uncertainties of construction, including the possibility of costs
exceeding the initial estimates and the need to obtain a tenant or purchaser if
the property will not be owner-occupied. People's Savings generally attempts to
mitigate the risks associated with construction lending by, among other things,
lending in its market area, using conservative underwriting guidelines, and
monitoring the construction process.
COMMERCIAL REAL ESTATE AND LAND LOANS. People's Savings commercial real
estate and land loan portfolio primarily consists of loans secured by
professional offices and churches located within our primary market area.
Commercial real estate and land loans amounted to $5.6 million or 6.5% of the
total loan portfolio of People's Savings at September 30, 1999, with an average
loan balance of approximately $73,000.
The commercial real estate loans of People's Savings typically have a
loan-to-value ratio of 75% or less and generally have higher interest rates than
single-family residential mortgage loans. The maximum term of People's Savings'
commercial real estate loans is 25 years. Otherwise, the commercial real estate
loans of People's Savings have terms which are substantially similar to its
single-family residential mortgage loans, including the three-year demand
provision. The land loans of People's Savings also have a loan-to-value ratio of
75% or less and are amortized over a five- year period or over a 15-year period
with a balloon payment of the remaining principal amount due at five years from
the date of origination. Land loans generally are secured by single-family
residential lots or undeveloped land being held for residential development.
Upon completion of the conversion, we expect to increase the amount of
commercial real estate loans that we originate. We believe that after the
conversion and mergers we can be a niche lender to small and medium sized
businesses in our market area. We plan to increase our originations of
commercial real estate loans because they generally have higher yields and
shorter terms to maturity than single-family residential mortgage loans.
59
<PAGE>
At September 30, 1999, Oakley's commercial real estate and land loans
amounted to $965,000 or 8.6% of its total portfolio. Oakley's practices in
underwriting commercial real estate and land loans have been substantially
similar to ours.
Commercial real estate lending is generally considered to involve a higher
degree of risk than one- to four-family residential lending. Such lending
typically involves large loan balances concentrated in a single borrower or
groups of related borrowers for rental or business properties. In addition, the
payment experience on loans secured by income-producing properties is typically
dependent on the success of the operation of the related project and thus is
typically affected by adverse conditions in the real estate market and in the
economy. We generally attempt to mitigate the risks associated with our
commercial real estate lending by, among other things, lending primarily in our
market area and using low loan-to-value ratios in the underwriting process.
Land development and acquisition loans involve significant additional risks
when compared with loans on existing residential properties. These loans may
involve larger loan balances to single borrowers, and the payment experience may
be dependent on the successful development of the land and the sale of the lots.
These risks can be significantly impacted by supply and demand conditions.
MULTI-FAMILY RESIDENTIAL AND OTHER LOANS. People's Savings also has a
relatively small amount of multi-family (over four units) residential loans and
a nominal amount of other loans. The multi-family residential mortgage loans of
People's Savings are underwritten on substantially the same basis as its
commercial real estate loans, although loan-to-value ratios may be up to 80%. At
September 30, 1999, People's Savings had $982,000 in multi-family residential
mortgage loans which amounted to 1.1% of our total portfolio. At such date,
Oakley had $606,000 of multi-family residential loans. People's Savings other
loans consist of loans secured by deposit accounts. After the conversion,
People's Savings plans to expand its consumer lending activities by offering a
home equity line of credit loan which is a product that Harvest Home Financial
already offers.
LOAN ORIGINATION AND OTHER FEES. In addition to interest earned on loans,
People's Savings and Oakley receive loan origination fees or "points" for
originating loans. Loan points are a percentage of the principal amount of the
mortgage loan and are charged to the borrower in connection with the origination
of the loan.
In accordance with Statement of Financial Accounting Standards No. 91, which
deals with the accounting for non-refundable fees and costs associated with
originating or acquiring loans, loan origination fees and certain related direct
loan origination costs are offset, and the resulting net amount is deferred and
amortized as interest income over the contractual life of the related loans as
an adjustment to the yield of such loans. At September 30, 1999, People's
Savings had $354,000 of deferred loan fees and Oakley had $46,000 of deferred
loan fees which will be amortized into interest income as a yield adjustment
over the contractual maturities of the related loans.
60
<PAGE>
CONTRACTUAL PRINCIPAL REPAYMENTS AND INTEREST RATES. The following table
sets forth scheduled contractual amortization of People's Savings loans at
September 30, 1999 as well as the dollar amount of such loans which are
scheduled to mature after one year which have fixed or adjustable interest
rates. Demand loans, loans having no schedule of repayments and no stated
maturity and overdraft loans are reported as due in one year or less.
<TABLE>
<CAPTION>
PRINCIPAL REPAYMENTS CONTRACTUALLY DUE
IN YEAR(S) ENDED SEPTEMBER 30,
TOTAL AT --------------------------------------------------------------------------
SEPTEMBER 30, 2003- 2005- 2011- THERE-
1999 2000 2001 2002 2004 2010 2016 AFTER
------------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Single-family residential.... $80,690 $2,308 $2,445 $2,606 $5,761 $19,212 $36,674 $11,684
Multi-family residential..... 982 28 30 32 70 234 446 142
Commercial real estate and
land....................... 5,647 162 171 182 403 1,345 2,567 817
Other loans.................... 124 124 -- -- -- -- -- --
------- ------ ------ ------ ------ ------- ------- -------
Total(1)................... $87,443 $2,622 $2,646 $2,820 $6,234 $20,791 $39,687 $12,643
======= ====== ====== ====== ====== ======= ======= =======
</TABLE>
- ------------------------
(1) All of the $84.8 million of loan principal repayments contractually due
after September 30, 2000 have fixed rates of interest (with a call provision
after three years) and none had adjustable rates of interest.
The following table sets forth scheduled contractual amortization of the
Oakley's loans at September 30, 1999 as well as the dollar amount of such loans
which are scheduled to mature after one year which have fixed or adjustable
interest rates. Demand loans, loans having no schedule of repayments and no
stated maturity and overdraft loans are reported as due in one year or less.
<TABLE>
<CAPTION>
PRINCIPAL REPAYMENTS CONTRACTUALLY DUE
IN YEAR(S) ENDED SEPTEMBER 30,
TOTAL AT --------------------------------------------------------------------------
SEPTEMBER 30, 2003- 2005- 2011- THERE-
1999 2000 2001 2002 2004 2010 2016 AFTER
------------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Single-family residential.... $ 9,680 $ 269 $ 285 $ 303 $ 668 $ 2,200 $ 4,033 $ 1,922
Multi-family residential..... 606 14 15 16 35 108 168 250
Commercial real estate and
land....................... 965 23 24 25 55 172 268 398
Other loans.................... 9 9 -- -- -- -- -- --
------- ------ ------ ------ ------ ------- ------- -------
Total(1)................... $11,260 $ 315 $ 324 $ 344 $ 758 $ 2,480 $ 4,469 $ 2,570
======= ====== ====== ====== ====== ======= ======= =======
</TABLE>
- ------------------------
(1) Of the $10.9 million of loan principal repayments contractually due after
September 30, 2000, approximately $5.8 million have fixed rates of interest
and $5.2 million have adjustable rates of interest.
Scheduled contractual maturities of loans do not necessarily reflect the
actual expected term of the loan portfolio. The average life of mortgage loans
is substantially less than their average contractual terms because of
prepayments. The average life of mortgage loans tends to increase when current
mortgage loan rates are higher than rates on existing mortgage loans and,
conversely, decrease when rates on current mortgage loans are lower than
existing mortgage loan rates (due to refinancing of
61
<PAGE>
adjustable-rate and fixed-rate loans at lower rates). Under the latter
circumstance, the weighted average yield on loans decreases as higher yielding
loans are repaid or refinanced at lower rates.
ASSET QUALITY
GENERAL. People's Savings mails delinquent notices to borrowers when a
borrower fails to make a required payment within 15 days of the date due.
Additional notices begin when a loan becomes 30 days past due. If a loan becomes
60 days past due, People's Savings refers it to an attorney to commence
foreclosure. In most cases, deficiencies are cured promptly. While People's
Savings generally prefers to work with borrowers to resolve such problems, we
will institute foreclosure or other collection proceedings when necessary to
minimize any potential loss.
Loans are placed on non-accrual status when management believes the
probability of collection of interest is insufficient to warrant further
accrual. When a loan is placed on non-accrual status, previously accrued but
unpaid interest is deducted from interest income. As a matter of policy,
People's Savings generally discontinues the accrual of interest income when the
loan becomes 90 days past due as to principal or interest.
Real estate acquired by People's Savings as a result of foreclosure or by
deed-in-lieu of foreclosure are classified as real estate owned until sold.
Neither People's Savings nor Oakley had any real estate owned at September 30,
1999, 1998 or 1997.
DELINQUENT LOANS. The following table sets forth information concerning
delinquent mortgage loans at the dates indicated, in dollar amounts and as a
percentage of each category of People's Savings' loan portfolio. The amounts
presented represent the total outstanding principal balances of the related
loans, rather than the actual payment amounts which are past due.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
---------------------------------------------------------------------
1999 1998 1997
--------------------- --------------------- ---------------------
60-89 DAYS 60-89 DAYS 60-89 DAYS
DELINQUENT DELINQUENT DELINQUENT
--------------------- --------------------- ---------------------
PERCENT OF PERCENT OF PERCENT OF
LOAN LOAN LOAN
AMOUNT CATEGORY AMOUNT CATEGORY AMOUNT CATEGORY
-------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Residential:
Single-family....................... $1,001 1.24% $ 903 1.20% $679 0.93%
Multi-family........................ -- -- -- -- -- --
Commercial real estate and land....... 111 1.97% 126 2.17% -- --
------ ------ ----
Total............................. $1,112 1.27% $1,029 1.25% $679 0.84%
====== ====== ====
</TABLE>
The following table sets forth information concerning delinquent mortgage
loans at the dates indicated, in dollar amounts and as a percentage of each
category of the Oakley's loan portfolio. The
62
<PAGE>
amounts presented represent the total outstanding principal balances of the
related loans, rather than the actual payment amounts which are past due.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
---------------------------------------------------------------------
1999 1998 1997
--------------------- --------------------- ---------------------
60-89 DAYS 60-89 DAYS 60-89 DAYS
DELINQUENT DELINQUENT DELINQUENT
--------------------- --------------------- ---------------------
PERCENT OF PERCENT OF PERCENT OF
LOAN LOAN LOAN
AMOUNT CATEGORY AMOUNT CATEGORY AMOUNT CATEGORY
-------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Residential:
Single-family.............................. $111 1.15% $141 1.43% $93 0.93%
Multi-family............................... -- -- -- -- -- --
Commercial real estate and land.............. -- -- -- -- -- --
---- ---- ---
Total.................................... $111 0.99% $141 1.31% $93 0.83%
==== ==== ===
</TABLE>
NON-PERFORMING ASSETS. The following table sets forth information with
respect to non-performing assets identified by People's Savings, including
non-accrual loans, loans more than 90 days past due and still accruing interest
and other real estate owned.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
------------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Loans past due 90 days or more and still accruing:
Single-family residential....................... $ 223 $ 147 $ 666
Commercial real estate and land................. 166 -- 14
------ ----- -----
Total......................................... 389 147 680
------ ----- -----
Non-accrual loans:
Single-family residential....................... 652 557 315
Multi-family residential........................ -- -- --
Commercial real estate and land................. -- -- --
Other loans..................................... -- -- --
------ ----- -----
Total non-accruing loans...................... 652 557 315
------ ----- -----
Total non-performing loans...................... 1,041 704 995
------ ----- -----
Other real estate owned, net...................... -- -- --
------ ----- -----
Total non-performing assets..................... $1,041 $ 704 $ 995
====== ===== =====
Non-performing assets to total assets............. 1.15% 0.79% 1.11%
Non-performing loans to total loans............... 1.24% 0.88% 1.26%
</TABLE>
63
<PAGE>
The following table sets forth information with respect to non-performing
assets identified by Oakley, including non-accrual loans and other real estate
owned. Oakley had no accruing loans 90 days or more past due as to principal or
interest at any of the below-referenced dates.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-------------------------------------
1999 1998 1997
-------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Non-accrual loans:
Mortgage loans:
Single-family residential........................ $ 38 $ -- $ 15
Multi-family residential......................... -- -- --
Commercial real estate and land.................. -- -- --
Other loans........................................ -- -- --
----- --------- -----
Total non-accruing loans......................... 38 -- 15
----- --------- -----
Total non-performing loans....................... 38 -- 15
----- --------- -----
Other real estate owned, net......................... -- -- --
----- --------- -----
Total non-performing assets...................... $ 38 $ -- $ 15
===== ========= =====
Non-performing assets to total assets................ 0.22% --% 0.09%
Non-performing loans to total loans.................. 0.36% --% 0.13%
</TABLE>
If the $652,000 of non-accruing loans of People's Savings has been current
in accordance with their terms during fiscal 1999, the gross income on such
loans would have been approximately $1,100. A total of approximately $7,000 of
interest income was actually recorded by People's Savings on such loans in the
fiscal year ended September 30, 1999.
If the $38,000 of non-accruing loans of Oakley had been current in
accordance with their terms during fiscal 1999, the gross income on such loans
would have been approximately $1,100. No interest income was actually recorded
by Oakley on such loans in the fiscal year ended September 30, 1999.
CLASSIFIED ASSETS. Federal regulations require that each insured savings
institution classify its assets on a regular basis. In addition, in connection
with examinations of insured institutions, federal examiners have authority to
identify problem assets and, if appropriate, classify them. There are three
classifications for problem assets: "substandard," "doubtful" and "loss."
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that the insured institution will sustain some loss if
the deficiencies are not corrected. Doubtful assets have the weaknesses of
substandard assets with the additional characteristic that the weaknesses make
collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a higher possibility of loss.
An asset classified loss is considered uncollectible and of such little value
that continuance as an asset of the institution is not warranted. Another
category designated "special mention" also must be established and maintained
for assets which do not currently expose an insured institution to a sufficient
degree of risk to warrant classification as substandard, doubtful or loss.
Assets classified as substandard or doubtful require the institution to
establish general allowances for loan losses. If an asset or portion thereof is
classified loss, the insured institution must either establish specific
allowances for loan losses in the amount of 100% of the portion of the asset
classified loss, or charge-off such amount. General loss allowances established
to cover possible losses related to assets classified substandard or doubtful
may be included in determining an institution's regulatory capital, while
specific valuation allowances for loan losses do not qualify as regulatory
capital. Federal examiners may disagree with an insured institution's
classifications and amounts reserved.
People's Savings' total classified assets at September 30, 1999 (excluding
loss assets specifically reserved for) amounted to $2.7 million, all of which
was classified as substandard. The largest classified
64
<PAGE>
asset at September 30, 1999 consisted of a $249,000, residential loan. The
remaining $2.4 million of substandard assets at September 30, 1999 consisted of
$1.9 million of residential real estate loans and $478,000 of commercial real
estate loans. The $249,000 loan referenced above is part of a group of three
residential real estate loans and two commercial real estate loans aggregating
$900,000 to one borrower all of which are classified as substandard.
At September 30, 1999, Oakley had $38,000 in total classified assets, all of
which was classified as substandard.
ALLOWANCE FOR LOAN LOSSES. At September 30, 1999, People's Savings'
allowance for loan losses amounted to $365,000 or 0.43% of the total loan
portfolio. At such date Oakley's allowance for loan losses was $50,000 or 0.47%
of its total loan portfolio. The loan portfolios of both People's Savings and
Oakley consist primarily of residential mortgage loans. Due to the predominance
in residential mortgage loans, neither People's Savings nor Oakley allocates its
respective allowance for loan losses to particular types of loans. The loan loss
allowance is maintained by management at a level considered adequate to cover
estimated losses inherent in the existing portfolio based on prior loan loss
experience, known and probable risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral, general economic conditions, and other factors and
estimates which are subject to change over time. People's Savings' increased its
allowance for loan losses in fiscal 1999 by recording a $150,000 provision for
loan losses. Such increase in the provision for loan losses by People's Savings
in fiscal 1999 was primarily in response to the $337,000 increase in total
non-performing loans during the year. This increase was due to increases in
single-family residential and commercial real estate and land loans past due
90 days or more and still accruing interest and non-performing single-family
residential loans. While management believes that it determines the size of the
allowance based on the best information available at the time, the allowance
will need to be adjusted as circumstances change and assumptions are updated.
Future adjustments to the allowance could significantly affect net income.
65
<PAGE>
The following table sets forth the activity in People's Savings' allowance
for loan losses during the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Allowance at beginning of period................... $ 215 $ 182 $ 182
----- ----- -----
Provisions......................................... 150 48 --
Charge-offs:
Mortgage loans:
Single-family residential.................... -- 15 --
Multi-family residential..................... -- -- --
Commercial real estate and land.............. -- -- --
Construction and land development
Other loans.................................... -- -- --
----- ----- -----
Total charge-offs............................ -- 15 --
Recoveries:
Mortgage loans:
Single-family residential.................... -- -- --
Multi-family residential..................... -- -- --
Commercial real estate and land.............. -- -- --
Construction and land development
Other loans.................................... -- -- --
----- ----- -----
Total recoveries............................. -- -- --
----- ----- -----
Net loans charged-off to allowance for losses
on loans..................................... -- (15) --
----- ----- -----
Allowance at end of period......................... $ 365 $ 215 $ 182
===== ===== =====
Allowance for loan losses to total nonperforming
loans at end of period........................... 35.06% 30.54% 18.29%
Allowance for loan losses to total loans at end of
period........................................... 0.43% 0.27% 0.23%
</TABLE>
66
<PAGE>
The following table sets forth the activity in Oakley's allowance for loan
losses during the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Allowance at beginning of period............... $ 25 $ 25 $ 24
------- ----- -------
Provisions..................................... 25 -- 1
Charge-offs:
Mortgage loans:
Single-family residential................ -- -- --
Multi-family residential................. -- -- --
Commercial real estate and land.......... -- -- --
Other loans................................ -- -- --
------- ----- -------
Total charge-offs........................
Recoveries:
Mortgage loans:
Single-family residential................ -- -- --
Multi-family residential................. -- -- --
Commercial real estate and land.......... -- -- --
Other loans................................ -- -- --
------- ----- -------
Total recoveries......................... -- -- --
------- ----- -------
Net loans charged-off to allowance for
losses on loans.......................... -- -- --
------- ----- -------
Allowance at end of period..................... $ 50 $ 25 $ 25
======= ===== =======
Allowance for loan losses to total
nonperforming loans at end of period......... 131.58% --% 166.67%
Allowance for loan losses to total loans at end
of period.................................... 0.47% 0.23% 0.22%
</TABLE>
INVESTMENT SECURITIES
People's Savings and Oakley have authority to invest in various types of
securities, including mortgage-backed securities, United States Treasury
obligations, securities of various federal agencies and of state and municipal
governments, certificates of deposit at federally-insured banks and savings
institutions, certain bankers' acceptances and federal funds. Each significant
purchase of an investment security is approved by the Board of Directors.
At September 30, 1999, People's Savings' investment securities portfolio
consisted of $1.1 million of mortgage-backed securities, $798,000 of U.S.
government and agency obligations and $850,000 in stock of the FHLB. At such
date, Oakley had investments of $2.0 million in stock of the Federal Home Loan
Mortgage Corporation, $502,000 of U.S. Government and agency obligations,
$81,000 of mortgage-backed securities, $400,000 in certificates of deposit at
other institutions and $171,000 in FHLB stock.
67
<PAGE>
The following table sets forth information regarding the carrying and fair
value of People's Savings' securities at the dates indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------------------------------------
1999 1998 1997
------------------- ------------------- -------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE VALUE VALUE
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Available for sale (at fair value):
Mortgage-backed securities..................... $1,110 $1,110 $1,419 $1,419 $1,398 $1,398
U.S. Government and agency obligations......... 798 798 1,303 1,303 1,702 1,702
------ ------ ------ ------ ------ ------
Total...................................... 1,908 1,908 2,722 2,722 3,100 3,100
====== ====== ====== ====== ====== ======
HELD TO MATURITY:
Certificates of deposit........................ $ -- $ -- $ 400 $ 400 $ 425 $ 425
Federal Home Loan Bank stock................... 850 850 792 792 738 738
------ ------ ------ ------ ------ ------
Total...................................... $ 850 $ 850 $1,192 $1,192 $1,163 $1,163
====== ====== ====== ====== ====== ======
</TABLE>
The following table sets forth the activity in People's Savings aggregate
securities portfolio during the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Securities at beginning of period.................. $ 3,914 $4,263 $4,005
Purchases(2)....................................... 53 326 504
Sales of available for sale securities............. -- -- --
Repayments, prepayments and maturities............. (1,205) (675) (246)
Decrease in unrealized gains on available-for-sale
securities....................................... (4) -- --
------- ------ ------
Securities at end of period(1)..................... $ 2,758 $3,914 $4,263
======= ====== ======
</TABLE>
- ------------------------
(1) At September 30, 1999, $1.1 million or 40.2% of People's Savings' securities
portfolio consisted of adjustable rate securities, as compared to
$1.4 million or 36.5% and $1.4 million or 32.9% at September 30, 1998 and
1997, respectively.
(2) Includes increases in FHLB stock from purchases and dividends.
68
<PAGE>
The following table sets forth information regarding the carrying and fair
value of Oakley's securities at the dates indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------------------------------------
1999 1998 1997
------------------- ------------------- -------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE VALUE VALUE
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Available for sale (at fair value):
FHLMC stock.................................... $1,950 $1,950 $1,940 $1,940 $1,415 $1,415
U.S. Government and agency obligations......... 502 502 502 502 749 749
Mortgage-backed securities..................... 81 81 110 110 130 130
------ ------ ------ ------ ------ ------
Total...................................... $2,533 $2,533 $2,552 $2,552 $2,294 $2,294
====== ====== ====== ====== ====== ======
Held to maturity:
Certificates of deposit........................ $ 400 $ 400 $ 500 $ 500 $ 300 $ 300
Federal Home Loan Bank Stock................... 171 171 159 159 146 146
------ ------ ------ ------ ------ ------
Total...................................... $ 571 $ 571 $ 659 $ 659 $ 446 $ 446
====== ====== ====== ====== ====== ======
</TABLE>
The following table sets forth the activity in Oakley's aggregate securities
portfolio during the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Securities at beginning of period................... $3,211 $2,740 $2,084
Purchases (2)....................................... 508 713 756
Sales of available for sale securities.............. -- (93) --
Repayments, prepayments and maturities.............. (629) (770) (522)
Increase in unrealized gains on available-for-sale
securities........................................ 14 621 422
------ ------ ------
Securities at end of period(1)...................... $3,104 $3,211 $2,740
====== ====== ======
</TABLE>
- ------------------------
(1) At September 30, 1999, $41,000 or 1.3% of Oakley's securities portfolio
consisted of adjustable rate securities, as compared to $55,000 or 1.7% and
$65,000 or 2.4% at September 30, 1998 and 1997, respectively.
(2) Includes increases from FHLB stock dividends.
Mortgage-backed securities represent a participation interest in a pool of
one- to four-family or multi-family mortgages. The mortgage originators use
intermediaries (generally U.S. Government agencies and government-sponsored
enterprises) to pool and repackage the participation interests in the form of
securities, with investors such as the Bank receiving the principal and interest
payments on the mortgages. Such U.S. Government agencies and
government-sponsored enterprises guarantee the payment of principal and interest
to investors.
Mortgage-backed securities are typically issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a range and have varying maturities. The
underlying pool of mortgages, i.e., fixed-rate or adjustable-rate, as well as
prepayment risk, are passed on to the certificate holder. The life of a
mortgage-backed pass-through security approximates the life of the underlying
mortgages.
69
<PAGE>
The mortgage-backed securities of People's Savings consist entirely of
Government National Mortgage Association ("GNMA") securities. The GNMA is a
government agency within the Department of Housing and Urban Development which
is intended to help finance government-assisted housing programs. GNMA
securities are backed by loans insured by the Federal Housing Administration, or
guaranteed by the Veterans Administration, and the timely payment of principal
and interest on GNMA securities are guaranteed by the GNMA and backed by the
full faith and credit of the U.S. Government.
At September 30, 1999, People's Savings' mortgage-backed securities amounted
to $1.1 million, all of which are accounted for as available for sale.
Mortgage-backed securities generally yield less than the loans which
underlie such securities because of their payment guarantees or credit
enhancements which offer nominal credit risk. In addition, mortgage-backed
securities are more liquid than individual mortgage loans and may be used to
collateralize borrowings or other obligations of People's Savings.
The following table sets forth certain information regarding the maturities
of People's Savings' investment securities at September 30, 1999.
<TABLE>
<CAPTION>
CONTRACTUALLY MATURING
-------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
UNDER 1 AVERAGE 1-5 AVERAGE 6-10 AVERAGE OVER 10 AVERAGE
YEAR YIELD YEARS YIELD YEARS YIELD YEARS YIELD
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage backed securities............... $ -- --% $ 21 9.09% $493 7.07% $596 6.61%
U.S. Government and federal agency
obligations............................ 597 5.96 200 6.25 -- -- -- --
Federal Home Loan Bank stock............. 850 7.15 -- -- -- -- -- --
------ ---- ---- ---- ---- ---- ---- ----
$1,447 6.66% $221 6.52% $493 7.07% $596 6.61%
====== ==== ==== ==== ==== ==== ==== ====
</TABLE>
The following table sets forth certain information regarding the maturities
of Oakley's other securities (all of which were classified as held to maturity)
at September 30, 1999.
<TABLE>
<CAPTION>
CONTRACTUALLY MATURING
--------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
UNDER 1 AVERAGE 1-5 AVERAGE 6-10 AVERAGE OVER 10 AVERAGE
YEAR YIELD YEARS YIELD YEARS YIELD YEARS YIELD
-------- -------- -------- -------- --------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FHLMC stock(1)........................... $1,950 .8% $ -- --% $ -- --% $ -- --%
U.S. Government obligations.............. 502 5.44 -- -- -- -- -- --
Mortgage- backed securities.............. -- -- -- -- -- -- 81 9.62
Certificates of deposit.................. 400 4.78 -- -- -- -- -- --
Federal Home Loan Bank stock............. -- -- -- -- -- 171 7.15
------ ---- ---- ---- --------- -------- ---- ----
$2,852 2.21% $ --% $ --% $252 7.94%
====== ==== ==== ==== ========= ======== ==== ====
</TABLE>
- ------------------------
(1) FHLMC stock has no stated maturity and is marked-to-market quarterly.
SOURCES OF FUNDS
GENERAL. Deposits are the primary source of People's Savings and Oakley's
funds for lending and other investment purposes. In addition to deposits,
principal and interest payments on loans and mortgage-backed securities are a
source of funds. Loan repayments are a relatively stable source of funds, while
deposit inflows and outflows are significantly influenced by general interest
rates and money market conditions. Borrowings may also be used on a short-term
basis to compensate for
70
<PAGE>
reductions in the availability of funds from other sources and on a longer-term
basis for general business purposes.
DEPOSITS. Deposits are attracted by People's Savings and Oakley principally
from within their primary market area. Deposit account terms vary, with the
principal differences being the minimum balance required, the time periods the
funds must remain on deposit and the interest rate. To date, both People's
Savings and Oakley have offered only traditional passbook savings accounts,
money market accounts and certificates of deposit. Upon consummation of the
conversion, we expect to introduce checking accounts.
People's Savings and Oakley obtain deposits primarily from residents of
southwestern Ohio. Neither People's Savings nor Oakley has solicited deposits
from outside Ohio or paid fees to brokers to solicit funds for deposit.
Interest rates paid, maturity terms, service fees and withdrawal penalties
are established on a periodic basis. Management determines the rates and terms
based on rates paid by competitors, the need for funds or liquidity, growth
goals and federal and state regulations.
The following table sets forth the activity in People's Savings deposits
during the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance................................ $73,691 $72,290 $69,812
Net increase (decrease) before interest
credited....................................... 2,056 (589) 553
Interest credited................................ 1,944 1,990 1,925
------- ------- -------
Net increase in deposits......................... 4,000 1,401 2,478
------- ------- -------
Ending balance................................... $77,691 $73,691 $72,290
======= ======= =======
</TABLE>
The following table sets forth by various interest rate categories the
certificates of deposit with People's Savings at the dates indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
0.00% to 2.99%................................... $ 198 $ -- $ 100
3.00% to 3.99%................................... -- -- --
4.00% to 4.99%................................... 17,548 2,943 2,840
5.00% to 6.99%................................... 38,682 39,295 38,803
7.00% to 8.99%................................... -- 9,972 11,030
------- ------- -------
Total.......................................... $56,428 $52,210 $52,773
======= ======= =======
</TABLE>
71
<PAGE>
The following table sets forth the amount and remaining maturities of
People's Savings certificates of deposit at September 30, 1999.
<TABLE>
<CAPTION>
OVER SIX OVER ONE OVER TWO
MONTHS YEAR YEARS
SIX MONTHS THROUGH ONE THROUGH TWO THROUGH OVER THREE
AND LESS YEAR YEARS THREE YEARS YEARS
---------- ----------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
0.00% to 1.99%....................... $ 198 $ -- $ -- $ -- $ --
2.00% to 2.99%....................... -- -- -- -- --
3.00% to 3.99%....................... -- -- -- -- --
4.00% to 4.99%....................... 5,310 12,238 -- -- --
5.00% to 6.99%....................... 10,583 4,876 9,604 9,594 4,025
------- ------- ------ ------ ------
Total.............................. $16,091 $17,114 $9,604 $9,594 $4,025
======= ======= ====== ====== ======
</TABLE>
As of September 30, 1999, the aggregate amount of outstanding time
certificates of deposit at People's Savings in amounts greater than or equal to
$100,000, was approximately $23.0 million. The following table presents the
maturity of these time certificates of deposit at such dates.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------
(IN THOUSANDS)
<S> <C>
3 months or less............................................ $ 2,880
Over 3 months through 6 months.............................. 2,304
Over 6 months through 12 months............................. 5,762
Over 12 months.............................................. 12,096
-------
$23,042
=======
</TABLE>
The following table sets forth the dollar amount of deposits in various
types of deposits offered by People's Savings at the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-----------------------------------------------------------------------
1999 1998 1997
--------------------- --------------------- ---------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
-------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Passbook accounts........................ $ 4,008 5.16% $ 4,855 6.59 $ 4,531 6.27
Certificates of deposit.................. 56,428 72.63 52,210 70.85 51,324 71.00
Money market accounts.................... 17,255 22.21 16,626 22.56 16,434 22.73
------- ------ ------- ------ ------- ------
Total.................................. $77,691 100.00% $73,691 100.00% $72,289 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
The following table sets forth the activity in Oakley's deposits during the
periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance................................ $13,633 $13,145 $12,887
Net increase (decrease) before interest
credited....................................... (640) 125 (84)
Interest credited................................ 334 363 342
------- ------- -------
Net increase (decrease) in deposits.............. (306) 488 258
------- ------- -------
Ending balance................................... $13,327 $13,633 $13,145
======= ======= =======
</TABLE>
72
<PAGE>
The following table sets forth by various interest rate categories the
certificates of deposit with Oakley at the dates indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
0.00% to 2.99%.................................... $ -- $ -- $ --
3.00% to 3.99%.................................... -- -- --
4.00% to 4.99%.................................... 3,410 30 --
5.00% to 6.99%.................................... 5,648 9,464 9,408
7.00% to 8.99%.................................... 768 731 721
------ ------- -------
Total........................................... $9,826 $10,225 $10,129
====== ======= =======
</TABLE>
The following table sets forth the amount and remaining maturities of
Oakley's certificates of deposit at September 30, 1999.
<TABLE>
<CAPTION>
OVER SIX OVER ONE OVER TWO
MONTHS YEAR YEARS
SIX MONTHS THROUGH ONE THROUGH TWO THROUGH OVER THREE
AND LESS YEAR YEARS THREE YEARS YEARS
---------- ----------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
0.00% to 1.99%....... $ -- $ -- $ -- $ -- $ --
2.00% to 2.99%....... -- -- -- -- --
3.00% to 3.99%....... -- -- -- -- --
4.00% to 4.99%....... 852 2,558 -- -- --
5.00% to 6.99%....... 639 2,408 1,602 332 667
7.00% to 8.99%....... 390 378 -- -- --
------ ------ ------ ---- ----
Total.............. $1,881 $5,344 $1,602 $332 $667
====== ====== ====== ==== ====
</TABLE>
As of September 30, 1999, the aggregate amount of outstanding time
certificates of deposit at Oakley in amounts greater than or equal to $100,000,
was approximately $1.2 million. The following table presents the maturity of
these time certificates of deposit at such dates.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------
(IN THOUSANDS)
<S> <C>
3 months or less............................................ $ 145
Over 3 months through 6 months.............................. 200
Over 6 months through 12 months............................. 300
Over 12 months.............................................. 600
------
$1,245
======
</TABLE>
73
<PAGE>
The following table sets forth the dollar amount of deposits in various
types of deposits offered by Oakley at the dates indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------------------------------------------------
1999 1998 1997
--------------------- --------------------- ---------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
-------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Passbook accounts...................... $ 1,400 10.50% $ 1,607 11.79% $ 1,293 9.84%
Certificates of deposit................ 9,826 73.73 10,225 75.00 10,129 77.06
Money market accounts.................. 2,101 15.77 1,801 13.21 1,723 13.10
------- ------ ------- ------ ------- ------
Total................................ $13,327 100.00% $13,633 100.00% $13,145 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
People's Savings and Oakley attempt to control the flow of deposits by
pricing their accounts to remain generally competitive with other financial
institutions in its market area.
BORROWINGS. People's Savings and Oakley may obtain advances from the FHLB
of Cincinnati upon the security of the common stock they own in that bank and
certain of its residential mortgage loans and mortgage-backed securities,
provided certain standards related to creditworthiness have been met. These
advances are made pursuant to several credit programs, each of which has its own
interest rate and range of maturities. FHLB advances are generally available to
meet seasonal and other withdrawals of deposit accounts and to permit increased
lending.
The following table shows certain information regarding the borrowings of
People's Savings at or for the dates indicated:
<TABLE>
<CAPTION>
AT OR FOR THE YEAR
ENDED SEPTEMBER
30,
----------------------
1999 1998
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
FHLB advances:
Average balance outstanding.............................. $ 710 $3,530
Maximum amount outstanding at any month-end during the
period................................................. $4,000 $6,000
Balance outstanding at end of period..................... $ -- $4,000
Average interest rate during the period.................. 5.49% 5.35%
Weighted average interest rate at end of period.......... N/A 5.45%
</TABLE>
As of September 30, 1999, People's Savings was permitted to borrow up to an
aggregate total of $10.0 million from the FHLB of Cincinnati and Oakley was
permitted to borrow $4.0 million. At such date, neither People's Savings nor
Oakley had any outstanding borrowings. During fiscal 1999, People's Savings
average balance of FHLB advances was $710,000 compared to $3.5 million during
fiscal 1998. Oakley did not utilize borrowings during the past two fiscal years.
After we complete the conversion, we expect to increase our use of borrowings in
order to leverage our balance sheet.
NO SUBSIDIARIES
At September 30, 1999, neither People's Savings nor Oakley had any
subsidiaries.
TOTAL EMPLOYEES
People's Savings had sixteen full-time employees and one part-time employee
at September 30, 1999 and Oakley had four full-time employees and one part-time
employee at such date. None of these
74
<PAGE>
employees are represented by a collective bargaining agent, and People's Savings
and Oakley believes that they enjoy good relations with their personnel.
COMPETITION
People's Savings and Oakley face significant competition both in attracting
deposits and in making loans. Their most direct competition for deposits has
come historically from commercial banks, credit unions and other savings
institutions located in their primary market area, including many large
financial institutions which have greater financial and marketing resources
available to them. In addition, they face significant competition for investors'
funds from short-term money market securities, mutual funds and other corporate
and government securities. Neither People's Savings nor Oakley rely upon any
individual group or entity for a material portion of their deposits. The ability
of People's Savings and Oakley to attract and retain deposits depends on their
ability to generally provide a rate of return, liquidity and risk comparable to
that offered by competing investment opportunities.
People's Savings and Oakley's competition for real estate loans comes
principally from mortgage banking companies, commercial banks, other savings
institutions and credit unions. They compete for loan originations primarily
through the interest rates and loan fees they charge, and the efficiency and
quality of services they provide borrowers. Factors which affect competition
include general and local economic conditions, current interest rate levels and
volatility in the mortgage markets. Competition may increase as a result of the
continuing reduction of restrictions on the interstate operations of financial
institutions and the anticipated slowing of refinancing activity.
PROPERTIES
The following table sets forth certain information relating to People's
Savings' offices at September 30, 1999.
<TABLE>
<CAPTION>
NET BOOK VALUE OF
PROPERTY AND
LEASEHOLD
LEASE IMPROVEMENTS AT
OWNED OR EXPIRATION SEPTEMBER 30, DEPOSITS AT
LOCATION LEASED DATE 1999 SEPTEMBER 30, 1999
- -------- -------- ---------- ----------------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
11 South Broadway
Lebanon, Ohio 45036.................... Owned N/A $1,011 $70,744
112 E. Main Street
Blanchester, Ohio 45107................ Leased 6/03 26 6,947
</TABLE>
The following table sets forth certain information relating to Oakley's
office at September 30, 1999.
<TABLE>
<CAPTION>
NET BOOK VALUE OF
PROPERTY AND
LEASE LEASEHOLD
OWNED OR EXPIRATION IMPROVEMENTS AT DEPOSITS AT
LOCATION LEASED DATE SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
- -------- -------- ---------- ------------------ ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
3924 Isabella
Cincinnati, Ohio 45209................ Owned N/A $25 $13,327
</TABLE>
After completion of the conversion and the mergers, we plan to upgrade our
office network. We plan to open a new branch office in Lebanon, Ohio, to
renovate the office currently owned by Oakley, to replace our Blanchester office
and to build a new corporate headquarters, with an additional branch office,
between Lebanon and Cincinnati. We expect that our total capital expenditures
with respect to these office upgrades will be approximately $5.0 million.
NO MATERIAL LEGAL PROCEEDINGS
People's Savings and Oakley are involved in routine legal proceedings
occurring in the ordinary course of business which, in the aggregate, are
believed by management to be immaterial to the financial condition and results
of operations of People's Savings and Oakley.
75
<PAGE>
BUSINESS OF HARVEST HOME FINANCIAL
GENERAL
As a community oriented financial institution, Harvest Home Savings Bank
seeks to serve the financial needs of the families and community businesses in
its market area. Harvest Home Savings Bank is principally engaged in the
business of attracting deposits from the general public (which are insured to
applicable limits by the Savings Association Insurance Fund) and using such
deposits to originate residential loans in its primary market area. To a lesser
extent, Harvest Home Savings Bank also originates construction loans and loans
secured by multi-family residential real estate, nonresidential real estate, and
deposits. In addition, Harvest Home Savings Bank invests in mortgage-backed
securities, other investment grade securities, and short-term liquid assets.
Harvest Home Savings Bank also offers a Visa credit card program through a
commercial bank.
Harvest Home Savings Bank conducts business from its main office in Cheviot,
Ohio and from two full-service branch offices located in the Cincinnati area.
Harvest Home Savings Bank's primary market area consists of western Hamilton
County, Ohio, although its market also extends to the remainder of Hamilton
County and to the townships contiguous to Hamilton County in the counties of
Butler, Clermont, and Warren.
LENDING ACTIVITIES
GENERAL. Harvest Home Savings Bank's primary lending activity is the
origination of conventional mortgage loans for its own portfolio secured by
one-to four- family residential properties located in Harvest Home Savings
Bank's primary market area. To a lesser extent, loans for the construction of
one- to four-family homes, mortgage loans on multifamily properties containing
five units or more and nonresidential properties, and secured home equity loans
are also offered by Harvest Home Savings Bank. In addition to mortgage lending,
Harvest Home Savings Bank makes a limited amount of consumer loans secured by
deposits.
76
<PAGE>
LOAN PORTFOLIO COMPOSITION. The following table presents certain
information with respect to the composition of Harvest Home Savings Bank's loan
portfolio at the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
---------------------------------------------------------------------------------------------
1999 1998 1997 1996
--------------------- --------------------- --------------------- ---------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
TOTAL TOTAL TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
-------- ---------- -------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Type of Loan:
Residential real estate loans:
Construction loans............ $ 5,964 11.3% $ 4,663 9.6% $ 1,513 3.4% $ 3,290 7.8%
1-4 family and multi-family
(1)......................... 46,741 88.5 43,856 89.8 42,353 93.6 38,210 90.4
Nonresidential real estate and
land.......................... 3,085 5.8 3,024 6.2 2,554 5.7 3,281 7.8
Deposit accounts................ 20 0.1 25 0.1 45 0.1 42 0.1
------- ----- ------- ----- ------- ----- ------- -----
55,810 105.7 51,568 105.7 46,465 102.8 44,823 106.1
Less:
Loans in process................ (2,823) (5.3) (2,556) (5.2) (1,019) (2.3) (2,320) (5.5)
Deferred loan origination
fees.......................... (58) (0.1) (88) (0.2) (102) (0.2) (125) (0.3)
Allowance for loan losses....... (139) (0.3) (127) (0.3) (115) (0.3) (111) (0.3)
------- ----- ------- ----- ------- ----- ------- -----
Total Loans............... $52,790 100.0% $48,797 100.0% $45,229 100.0% $42,267 100.0%
======= ===== ======= ===== ======= ===== ======= =====
Type of Security:
Residential real estate:
1-4 family.................... $50,527 95.7% $47,152 96.6% $42,464 93.9% $39,978 94.6%
Other dwelling................ 2,178 4.1 1,367 2.8 1,402 3.1 1,522 3.6
Nonresidential real estate...... 3,085 5.8 3,024 6.2 2,554 5.7 3,281 7.8
Deposit accounts................ 20 0.1 25 0.1 45 0.1 42 0.1
------- ----- ------- ----- ------- ----- ------- -----
55,810 105.7 51,568 105.7 46,465 102.8 44,823 106.1
Less:
Loans in process................ (2,823) (5.3) (2,556) (5.2) (1,019) (2.3) (2,320) (5.5)
Deferred loan origination
fees.......................... (58) (0.1) (88) (0.2) (102) (0.2) (125) (0.3)
Allowance for loan losses....... (139) (0.3) (127) (0.3) (115) (0.3) (111) (0.3)
------- ----- ------- ----- ------- ----- ------- -----
Total Loans............... $52,790 100.0% $48,797 100.0% $45,229 100.0% $42,267 100.0%
======= ===== ======= ===== ======= ===== ======= =====
<CAPTION>
AT SEPTEMBER 30,
---------------------
1995
---------------------
PERCENT OF
TOTAL
AMOUNT LOANS
-------- ----------
<S> <C> <C>
Type of Loan:
Residential real estate loans:
Construction loans............ $ 1,505 3.9%
1-4 family and multi-family
(1)......................... 34,002 88.9
Nonresidential real estate and
land.......................... 3,341 8.8
Deposit accounts................ 83 0.2
------- -----
38,931 101.8
Less:
Loans in process................ (428) (1.1)
Deferred loan origination
fees.......................... (148) (0.4)
Allowance for loan losses....... (110) (0.3)
------- -----
Total Loans............... $38,245 100.0%
======= =====
Type of Security:
Residential real estate:
1-4 family.................... $34,117 89.2%
Other dwelling................ 1,390 3.6
Nonresidential real estate...... 3,341 8.8
Deposit accounts................ 83 0.2
------- -----
38,931 101.8
Less:
Loans in process................ (428) (1.1)
Deferred loan origination
fees.......................... (148) (0.4)
Allowance for loan losses....... (110) (0.3)
------- -----
Total Loans............... $38,245 100.0%
======= =====
</TABLE>
- ------------------------
(1) Includes home equity lines of credit underwritten on the same basis as first
mortgage loans.
77
<PAGE>
LOAN MATURITY. The following table sets forth certain information as of
September 30, 1999 regarding the dollar amount of loans maturing in Harvest Home
Savings Bank's portfolio based on their contractual terms to maturity. Demand
loans, loans having no stated schedule of repayments and no stated maturity, and
overdrafts are reported as due in one year or less.
<TABLE>
<CAPTION>
DUE DURING THE YEARS
SEPTEMBER 30,
-------------------------------------------- DUE 20 OR
DUE 3-5 DUE 5-10 DUE 10-20 MORE YEARS
YEARS AFTER YEARS AFTER YEARS AFTER AFTER
2000 2001 2002 9/30/99 9/30/99 9/30/99 9/30/99 TOTAL
-------- -------- -------- ----------- ----------- ----------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans(1)(2)
One to four family residential:
Adjustable................... $1,480 $ 11 $ 8 $160 $ 624 $12,579 $6,270 $21,132
Fixed........................ 19 486 247 441 5,154 17,282 2,746 26,375
Multi-family residential:
Adjustable................... -- -- 23 -- 286 1,357 512 2,178
Non-residential................ 30 5 95 -- 882 2,073 -- 3,085
Deposit account loans.......... 20 -- -- -- -- -- -- 20
------ ---- ---- ---- ------ ------- ------ -------
Total loans.................... $1,549 $502 $373 $601 $6,946 $33,291 $9,528 $52,790
====== ==== ==== ==== ====== ======= ====== =======
</TABLE>
- ------------------------------
(1) Amounts shown are net of loans in process of $2,823,000, deferred loan
origination fees of $58,000 and allowance for loan losses of $139,000.
(2) Includes construction loans and land loans.
The following table sets forth the dollar amount of all loans due after one
year from September 30, 1999, which have predetermined interest rates and
floating or adjustable interest rates:
<TABLE>
<CAPTION>
PREDETERMINED FLOATING OR
RATES ADJUSTABLE RATE TOTAL
------------- --------------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Mortgage Loans:
One- to four-family residential........................ $26,356 $19,652 $46,008
Multi-family residential............................... -- 2,178 2,178
Nonresidential......................................... -- 3,055 3,055
------- ------- -------
Total loans:......................................... $26,356 $24,885 $51,241
======= ======= =======
</TABLE>
ONE- TO FOUR-FAMILY RESIDENTIAL REAL ESTATE LOANS. The primary lending
activity of Harvest Home Savings Bank has been the origination of permanent
conventional loans secured by one- to four-family residences, primarily
single-family residences, located within Harvest Home Savings Bank's primary
market area. In addition, Harvest Home Savings Bank makes second mortgage loans,
as well as home equity lines of credit underwritten on the same basis as first
mortgage loans. Harvest Home Savings Bank also has a small percentage of loans
secured by property located outside its primary market area including a small
percentage secured by real estate located in nearby southeastern Indiana. Each
of such loans is secured by a mortgage on the underlying real estate and
improvements thereon, if any.
Regulations limit the amount which Harvest Home Savings Bank may lend in
relationship to the appraised value of the real estate and improvements at the
time of loan origination. Within the parameters of such regulations, Harvest
Home Savings Bank makes fixed rate loans on single family, owner occupied
residences up to 80% of the value of the real estate and improvements (the
"Loan-to-Value Ratio" or "LTV") for terms not to exceed 20 years and
adjustable-rate mortgage loans ("ARMs") up to 95% LTV not to exceed 30 years.
Harvest Home Savings Bank does not require
78
<PAGE>
private mortgage insurance for such loans. Harvest Home Savings Bank also offers
loans to low and moderate income borrowers for first time purchase of single
family owner occupied residences. These loans can be obtained for up to 95% of
the property's purchase price at a discounted fixed interest rate for a period
of up to 25 years. No private mortgage insurance is required for any of these
loan products.
ARMs are offered by Harvest Home Savings Bank for terms of up to 30 years.
The interest rate adjustment period on the ARMs is three years which is tied to
changes in the weekly average yield on U.S. Treasury securities, adjusted to a
constant maturity of one year as made available by the Board of Governors of the
Federal Reserve System (the "Index"). The interest rate for the next three-year
period is increased or decreased by the amount of the change in the Index
between the date the interest rate was set and the date of the three-year
adjustment rounded to the nearest one-quarter percent. The maximum allowable
adjustment at each adjustment date is usually 2% with a maximum adjustment of 5%
over the term of the loan. ARMs generally have an increased risk of delinquency
in periods of rising interest rates due to the increasing monthly payments
required of borrowers. Harvest Home Savings Bank has in the past issued
three-year ARMs tied to different indexes. One such index is tied to a one-year
(our most current index) constant maturity U.S. Treasury Index. Another index is
tied to the interest rates being charged by Harvest Home Savings Bank for
similar type loans at the time of the interest rate change. Borrowers are
qualified at the contract rate at the time of origination of the loan.
Harvest Home Savings Bank's one- to four-family residential real estate loan
portfolio, including construction loans, was approximately $50.5 million at
September 30, 1999, and represented 95.7% of total loans at such date. At such
date, loans secured by one- to four-family residential real estate with
outstanding balances of $25,000, or .05%, of the total one- to four-family
residential real estate loan balance, were non-performing. See "Delinquent
Loans, Non-Performing Assets and Classified Assets."
MULTI-FAMILY RESIDENTIAL REAL ESTATE LOANS. In addition to loans on one- to
four-family properties, Harvest Home Savings Bank makes loans secured by
multi-family properties containing over four units. Multi-family loans generally
have terms of up to 20 years and a maximum LTV of 80%. Such loans are currently
made with adjustable interest rates.
Multi-family lending is generally considered to involve a higher degree of
risk because the loan amounts are larger and 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.
Harvest Home Savings Bank attempts to reduce the risk associated with
multi-family lending by evaluating the credit-worthiness of the borrower and the
projected income from the project, and by obtaining personal guarantees on loans
made to corporations and partnerships, and, where deemed necessary, Harvest Home
Savings Bank obtains additional collateral. Harvest Home Savings Bank may
require that borrowers agree to submit financial statements annually to enable
Harvest Home Savings Bank to monitor the loan, although no such requirement
existed until 1993.
At September 30, 1999, Harvest Home Savings Bank had $2.2 million of
multi-family residential real estate loans, representing 4.1% of total loans at
that date. At this date, no such loans were non-performing.
CONSTRUCTION LOANS. Harvest Home Savings Bank makes construction loans for
residential and non-residential real estate. Such loans are structured to become
permanent loans upon completion of construction. Residential construction loans
are offered at fixed rates for terms up to 20 years, and at adjustable rates up
to 30 years. Non-residential construction loans are offered at adjustable rates
for terms up to 20 years. The majority of the construction loans originated by
Harvest Home Savings Bank are made to owner-occupants for construction of single
family homes. These loans are typically one year in duration and require only
interest payments until the loan becomes a permanent loan upon
79
<PAGE>
completion of construction. The remainder are made for non-owner occupied
properties to builders for small projects, some of which have not been pre-sold,
and to other small commercial developers.
Construction loans for non-owner occupied properties generally involve
greater underwriting and default risks than do loans secured by mortgages on
existing properties due to the concentration of principal in a limited number of
loans and borrowers and the effects of general economic conditions on real
estate developments, developers, managers and builders. In addition,
construction loans in general are more difficult to evaluate and monitor. Loan
funds are advanced upon the security of the project under construction, which is
more difficult to value before the completion of construction. Moreover, because
of the uncertainties inherent in estimating construction costs, it is relatively
difficult to evaluate accurately the LTVs and the total loan funds required to
complete a project. In the event a default on a construction loan occurs and
foreclosure follows, Harvest Home Savings Bank would have to take control of the
project and attempt either to arrange for completion of construction or dispose
of the unfinished project. Harvest Home Savings Bank's construction loans
generally are secured by property located in Harvest Home Savings Bank's primary
market area. Construction loans secured by property outside the primary lending
area are secured by property in Eastern Hamilton County and surrounding
counties, all within the State of Ohio; such loans are made on the same terms
and conditions as those within the primary lending area and pose no more risk
than those within the primary lending area.
At September 30, 1999, Harvest Home Savings Bank had $6.0 million of
construction loans, or 11.3% of its loan portfolio, none of which were
non-performing.
NONRESIDENTIAL REAL ESTATE LOANS AND LAND LOANS. Harvest Home Savings Bank
also makes loans secured by nonresidential real estate consisting primarily of
retail stores, warehouses, and office buildings. Such nonresidential loans are
made only with adjustable rates of interest. Such loans have terms of up to
20 years and a maximum LTV of 75%. The largest loan of this type at
September 30, 1999 had a principal balance of $468,600 and was secured by a
retail shopping center and the residence of the borrower, both located in
Harvest Home Savings Bank'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. If the cash flow on the property is
reduced, for example, as leases are not obtained or renewed, the borrower's
ability to repay may be impaired. Harvest Home Savings Bank has endeavored to
reduce such risk by evaluating the credit history and past performance of the
borrower, the location of the real estate, the quality of the management
constructing and operating the property, the debt service ratio, the quality and
characteristics of the income stream generated by the property, and appraisals
supporting the property's valuation. Harvest Home Savings Bank may require
borrowers to agree to submit financial statements annually to allow Harvest Home
Savings Bank to monitor the loan, although no such requirement existed until
1993.
At September 30, 1999, Harvest Home Savings Bank had a total of
$3.0 million invested in nonresidential real estate loans. Such loans comprised
approximately 5.8% of Harvest Home Savings Bank's total loans at such date. At
such date, none of the nonresidential real estate loans were non-performing.
DEPOSIT ACCOUNT LOANS. Harvest Home Savings Bank makes consumer loans,
exclusively to depositors on the security of their deposit accounts. Such loans
are made at adjustable rates of interest, and the principal amount of the loan
cannot exceed the face value of the pledged deposit. Interest is due quarterly,
and principal is due on demand.
At September 30, 1999, Harvest Home Savings Bank had approximately $20,000
or .1% of total loans, invested in deposit loans.
80
<PAGE>
HOME EQUITY LINES OF CREDIT AND SECOND MORTGAGES. Harvest Home Savings Bank
offers home equity lines of credit. These are typically secured by second
mortgages, but with some being secured by first mortgages. The line of credit
agreements currently being offered by Harvest Home Savings Bank provide that
borrowers can obtain advances up to their credit limit for a period of fifteen
years, and after that time, the borrowers must repay the outstanding balance
over a period of the next ten years. Harvest Home Savings Bank has offered in
the past home equity lines of credit which are open ended and have no required
repayment period or fixed termination date. These lines of credit may, however,
be terminated at any time by either party.
LOAN SOLICITATION AND PROCESSING. Loan originations are developed from a
number of sources, including continuing business with depositors, other
borrowers and real estate developers, solicitations by Harvest Home Savings
Bank's lending staff, and walk-in customers.
Loan applications for permanent mortgage loans are taken by loan personnel.
Harvest Home Savings Bank obtains a credit report, verification of employment,
and other documentation concerning the credit-worthiness of the borrower. An
appraisal of the fair market value of the real estate which will be given as
security for the loan is prepared by an independent fee appraiser approved by
the Board of Directors. For residential properties, an environmental study is
conducted only if the appraiser or management has reason to believe that an
environmental problem may exist. For most nonresidential properties, an
environmental report is required. For most multi-family and nonresidential
mortgage loans, a personal guarantee is required. Upon the completion of the
appraisal and the receipt of information on the borrower, the application for a
loan is submitted to the Executive Committee and/or the Board of Directors for
approval or rejection. Loan applications which do not exceed $200,000 generally
can be approved by the Harvest Home Savings Bank's designated loan officer as
long as the loan conforms to all underwriting requirements.
If a mortgage loan application is approved, an attorney's opinion of title
is obtained on the real estate which will secure the mortgage loan. Harvest Home
Savings Bank does not obtain title insurance. Borrowers are required to carry
satisfactory fire and casualty insurance and flood insurance, if applicable, and
to name Harvest Home Savings Bank as an insured mortgagee.
The procedure for approval of construction loans is the same as for
permanent mortgage loans, except that an appraiser evaluates the building plans,
construction specifications, and estimates of construction costs. Harvest Home
Savings Bank also evaluates the feasibility of the proposed construction project
and the experience and record of the builder.
Harvest Home Savings Bank's loans contain provisions that the entire balance
of the loan is due upon sale of the property securing the loan.
LOAN ORIGINATIONS, PURCHASES, AND SALES. During the past several years,
Harvest Home Savings Bank has been actively originating new fixed-rate and
adjustable-rate loans. All loans originated during that period have been held in
portfolio. Harvest Home Savings Bank has not sold a loan since 1984. Harvest
Home Savings Bank does not process loans on forms accepted in the secondary
market. Management believes other significant secondary market guidelines are
followed. While there are no current plans to do so, Harvest Home Savings Bank
may sell loans in the future if management deems it in the best interest of
Harvest Home Savings Bank. Prior to 1981, Harvest Home Savings Bank originated
mortgage loans only at fixed rates. Beginning in 1981, Harvest Home Savings Bank
originated only adjustable-rate loans. In the late '80s, Harvest Home Savings
Bank again began originating a limited amount of fixed-rate mortgage loans, up
to maximum terms of 20 years, which are held in its portfolio in addition to
ARMs.
Harvest Home Savings Bank generally does not participate in loans originated
by other institutions. Harvest Home Savings Bank will consider participation in
loans if management deems it to be in the interest of Harvest Home Savings Bank.
The following table presents Harvest Home Savings Bank's
81
<PAGE>
mortgage loan originations and mortgage-backed securities purchases and sales
activity for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans Originated:
Construction.................................. $ 3,046 $ 1,540 $ 1,625 $ 3,488 $ 962
1 to 4 Family................................. 10,768 11,256 6,271 7,082 5,466
Home equity line of credit.................... 883 212 532 570 385
5 or more units............................... 710 433 -- 220 --
Nonresidential real estate.................... 431 438 485 844 --
Deposit accounts.............................. 6 43 -- 56 85
------- ------- ------- ------- ------
Total loans originated...................... $15,844 $13,922 $ 8,913 $12,260 $6,898
======= ======= ======= ======= ======
Mortgage-backed securities purchased:
Insured, guaranteed or collaterized mortgage-
backed securities........................... $11,967 $26,992 $18,205 $12,972 $2,013
======= ======= ======= ======= ======
Mortgage-backed securities sold................. $ -- $ 1,878 $ 141 $ 267 $ --
======= ======= ======= ======= ======
</TABLE>
FEDERAL LENDING LIMIT. Regulations generally limit the aggregate amount
that a savings bank can lend to one borrower to an amount equal to 15% of the
savings bank's unimpaired capital and unimpaired surplus (collectively,
"Unimpaired Capital"). A savings bank may loan to one borrower an additional
amount not to exceed 10% of the association's Unimpaired 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 these limits, the regulations require that loans to certain related or
affiliated borrowers be aggregated. Based on such limits, Harvest Home Savings
Bank could have made loans in an aggregate principal amount of $1.5 million to
one borrower at September 30, 1999. At that date, Harvest Home Savings Bank had
no loans in excess of such limits.
LOAN ORIGINATION AND OTHER FEES. Harvest Home Savings Bank realizes loan
origination fee and other fee revenue from its lending activities, and also
realizes income from late payment charges, and fees for other miscellaneous
services.
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, NON-PERFORMING ASSETS AND CLASSIFIED ASSETS. When a
borrower fails to make a required payment on a loan, Harvest Home Savings Bank
attempts to cause the deficiency to be cured by contacting the borrower. In most
cases, deficiencies have been cured promptly.
Loans originated by Harvest Home Savings Bank before 1981 required payment
of interest in advance. Although the mortgage documents require payments on the
first of each month, borrowers were told that payments would not be treated as
delinquent if made by the last working day of that month.
Loans originated commencing in 1981 require interest in arrears, and
payments are due on the first day of the following month.
82
<PAGE>
The following collection procedures are generally used:
- When a loan payment is in arrears beyond the late payment date, a notice
of late payment is generated by the on-line computer system and mailed to
the borrower. A copy of the notice is filed in the loan file.
- When a loan payment exceeds the due date by thirty days, the loan is
scheduled for individual attention. Additional late notices are sent to
the borrower followed by a telephone call, if necessary.
- When a loan payment exceeds the due date by sixty days and personal
contact has not cured the delinquency, a thirty day collection letter is
sent to the borrower by Harvest Home Savings Bank's attorney. When a
delinquent loan account is referred to the attorney for collection, the
borrower is restricted from making any payment other than the total amount
due as of the date of payment.
- If the procedures outlined in C above have not cured the delinquency,
legal action is filed against the borrower.
Real estate acquired by Harvest Home Savings Bank as a result of foreclosure
proceedings is classified as real estate owned ("REO") until it is sold. When
property is so acquired, it is recorded by Harvest Home Savings Bank at the
lower of the book value of the related loan or the estimated fair value of the
real estate, less selling expenses at the date of acquisition, and any
write-down resulting therefrom is charged to the allowance for loan losses.
Interest accrual, if any, ceases no later than the date of acquisition of the
real estate, and all costs incurred from such date in maintaining the property
are expensed. Costs relating to the development and improvement of the property
are capitalized to the extent of fair value. Harvest Home Savings Bank has had
only two parcels of REO during the last three years.
Harvest Home Savings Bank places loans on non-accrual status when the
collectibility of the loan is in doubt or when a loan is more than ninety days
delinquent in interest payments.
The following table reflects the amount of loans in a delinquent status as
of the dates indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------------------ ------------------------------ ------------------------------
PERCENT PERCENT PERCENT
OF TOTAL OF TOTAL OF TOTAL
NUMBER AMOUNT LOANS NUMBER AMOUNT LOANS NUMBER AMOUNT LOANS
-------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Days delinquent for: (1)
30--59 days................ 11 $506 0.96% 6 $290 0.60% 13 $461 1.02%
60--89 days................ 5 429 0.81 4 142 0.29 5 376 0.83
90 days and over............. 1 25 0.05 1 49 0.10 2 95 0.21
--- ---- ---- --- ---- ---- --- ---- ----
Total delinquent loans... 17 $960 1.82% 11 $481 0.99% 20 $932 2.06%
=== ==== ==== === ==== ==== === ==== ====
</TABLE>
- ------------------------------
(1) At September 30, 1999, delinquencies include 15 one-to-four family
residential loans with principal balances totaling $735,531, one
multi-family residential loan with a principal balance of $195,122 and one
nonresidential loan with a principal balance of $29,777.
83
<PAGE>
The following table sets forth the amounts and categories of Harvest Home
Savings Bank's non-performing assets as indicated by the dates on the accrual
status when they become past due 90 days or more.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
--------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Accruing loans delinquent 90 days or more................... $ -- $ -- $ --
===== ===== =====
Loans accounted for on a nonaccrual basis:
Real Estate:
Residential............................................... 25 49 64
Nonresidential............................................ -- -- 31
Deposit account........................................... -- -- --
----- ----- -----
Total nonaccrual loans...................................... 25 49 95
Other non-performing assets................................. -- -- --
----- ----- -----
Total non-performing assets................................. $ 25 $ 49 $ 95
===== ===== =====
Total non-performing assets as a percentage of total
assets.................................................... .03% .05% .10%
Specific loan loss allowance................................ $ -- $ -- $ --
General loan loss allowance (unallocated as to any specific
loan type)................................................ 139 127 115
----- ----- -----
Total loan loss allowance................................... $ 139 $ 127 $ 115
===== ===== =====
Loan loss allowance as a percent of non-performing loans.... 556.0% 259.2% 121.1%
Loan loss allowance as a percent of non-performing assets... 556.0% 259.2% 121.1%
</TABLE>
Harvest Home Savings Bank had one non-performing loan at both September 30,
1999 and 1998. During the periods shown, Harvest Home Savings Bank had no
restructured loans within the meaning of SFAS No. 114.
Harvest Home Savings Bank's classification policy provides for the
classification of loans and other assets such as debt and equity securities
considered to be of lesser quality as "substandard," "doubtful" or "loss"
assets. An asset is considered "substandard" if it is inadequately protected by
the current net worth and paying capacity of the obligor or of the collateral
pledged, if any. "Substandard" assets include those characterized by the
"distinct possibility" that Harvest Home Savings Bank will sustain "some loss"
if the deficiencies are not corrected. Assets classified as "doubtful" have all
of the weaknesses inherent in those classified "substandard," with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as "loss" are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted. Assets
which do not currently expose the insured institution to sufficient risk to
warrant classification in one of the aforementioned categories, but possess
weaknesses, are designated "special mention" by management. An insured
institution is required to establish general allowances for loan losses in an
amount deemed prudent by management for loans classified substandard or
doubtful, as well as for other problem loans. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies
problem assets as "loss," it is required either to establish a specific
allowance for losses equal to 100% of the amount of the asset so classified or
to charge off such amount.
Generally, Harvest Home Savings Bank classifies as "substandard" all loans
that are more than 90 days delinquent unless management believes the delinquency
status is short-term due to unusual
84
<PAGE>
circumstances. Loans delinquent fewer than 90 days may also be classified if the
loans have the characteristics described above rendering classification
appropriate.
The aggregate amounts of Harvest Home Savings Bank's classified assets at
the dates indicated were as follows:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Substandard................................................. $524 $228 $219
Doubtful.................................................... -- -- --
Loss........................................................ -- -- --
---- ---- ----
Total classified assets................................... $524 $228 $219
==== ==== ====
</TABLE>
Federal and state examiners are authorized to classify a savings bank's
assets. If a savings bank does not agree with an examiner's classification of an
asset, it may appeal to regulatory authorities.
ALLOWANCE FOR LOAN LOSSES. The Board of Directors reviews on a quarterly
basis the allowance for loan losses as it relates to a number of relevant
factors, including but not limited to, trends in the level of non-performing
assets and classified loans, current and anticipated economic conditions in the
primary lending area, past loss experience, and possible losses arising from
specific problem assets. To a lesser extent, management also considers loan
concentrations to single borrowers and changes in the composition of the loan
portfolio. 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 earnings could be significantly affected if
circumstances differ substantially from the assumptions used in making the final
determination. At September 30, 1999, 1998, and 1997, Harvest Home Savings
Bank's allowance for loan losses totaled $139,000, $127,000 and $115,000,
respectively, none of which was allocated to a particular type of loan at any
such dates. Due to the absence of any material loss on any loan in recent years,
the Board of Directors of Harvest Home Savings Bank does not believe such a
specific allocation is necessary.
The following table sets forth an analysis of Harvest Home Savings Bank's
allowance for losses on loans for the periods indicated. Harvest Home Savings
Bank had no recoveries during such periods.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 30,
--------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year................................ $ 127 $ 115 $ 111
Loans charged-off........................................... -- -- (5)
Recoveries.................................................. -- -- --
Provision for losses on loans (charged to operations)....... 12 12 9
----- ----- -----
Balance at end of period.................................... $ 139 $ 127 $ 115
===== ===== =====
Ratio of allowance for losses on loans to non-accrual
loans..................................................... 556.0% 259.2% 121.1%
Ratio of allowance for losses on loans to total loans....... 0.26% 0.25% 0.25%
</TABLE>
MORTGAGE-BACKED AND RELATED SECURITIES
Harvest Home Savings Bank faces significant competition for loans in its
primary market area. This competitive factor, coupled with the declining
interest rate environment over the past several years has limited the
opportunities for originating adjustable rate mortgage loans. As a result,
Harvest Home
85
<PAGE>
Savings Bank has purchased adjustable rate mortgage-backed securities, as well
as mortgage related securities such as CMO/REMICs as interest-rate sensitive
portfolio investments.
Harvest Home Savings Bank's adjustable rate mortgage-backed securities are
guaranteed as to principal and interest by FNMA or FHLMC. At September 30, 1999,
$24.0 million, or 71.2% of Harvest Home Savings Bank's mortgage-backed
securities were adjustable rate.
CMO/REMICs are securities derived by reallocating cash flows from
mortgage-backed securities or pools of mortgage loans in order to create
multiple classes, or tranches of securities with coupon rates that differ from
the underlying collateral as a whole. Harvest Home Savings Bank invests in these
securities as an interest rate sensitive investment portfolio alternative to
mortgage loans. As of September 30, 1999, Harvest Home Savings Bank's CMO/REMICS
totaled $26.8 million, or 79.5%, of the mortgage- backed securities portfolio.
All of the CMO/REMICs owned by Harvest Home Savings Bank are insured or
guaranteed directly, or indirectly, through mortgage-backed securities
underlying the obligations by FNMA or FHLMC. CMOs and REMICs can be classified
by federal regulators under certain economic scenarios as "high risk"
derivatives and are therefore potentially subject to forced divestiture.
However, due to the nature of Harvest Home Savings Bank's investments, i.e.,
relatively short-term to maturity, the probability of such occurrence is viewed
by management as remote.
At September 30, 1999, Harvest Home Financial's investment and market value
information of mortgage-backed securities designated as available for sale was
comprised of the following:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES MARKET VALUE
--------- ---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
FHLMC participation certificates.................. $ 4,901 $ -- $ 128 $ 4,773
FHLMC CMOs........................................ 22,236 -- 858 21,378
FNMA participation certificates................... 2,158 2 52 2,108
FNMA CMOs......................................... 5,420 33 1 5,452
------- ---- ------ -------
Total........................................... $34,715 $ 35 $1,039 $33,711
======= ==== ====== =======
</TABLE>
INVESTMENT ACTIVITIES
Federal and state regulations require Harvest Home Savings Bank to maintain
a prudent amount of liquid assets to protect the safety and soundness of Harvest
Home Savings Bank. Therefore, the Board of Directors of Harvest Home Savings
Bank has established an investment policy to maintain safety and soundness and
to provide control and guidelines for investments purchased by the institution.
In accordance with the investment policy, Harvest Home Savings Bank invests in
U.S. Treasury obligations, U.S. Federal agency and federally sponsored agency
obligations, federal funds sold and certificates of deposits at insured banks.
86
<PAGE>
The following table sets forth the composition of Harvest Home Financial's
interest-bearing deposits and investment portfolio at the dates indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------------------------------------------------------------------------
1999 1998
---------------------------------------------- ----------------------------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST % OF TOTAL VALUE % OF TOTAL COST % OF TOTAL VALUE % OF TOTAL
--------- ---------- -------- ---------- --------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Securities:
U.S. Gov't & Agency
obligations.............. $6,000 65.0% $5,951 64.8% $4,005 57.2% $4,032 57.4%
Other investments:
Interest-bearing deposits
in other financial
institutions............. 1,402 15.2 1,402 15.3 1,182 16.9% 1,182 16.8%
Federal funds sold......... 100 1.1 100 1.1 200 2.9% 200 2.8%
Federal Home Loan Bank
Stock.................... 1,723 18.7 1,723 18.8 1,606 23.0% 1,606 23.0%
------ ----- ------ ----- ------ ----- ------ -----
Total investment
securities,
interest-bearing deposits
and other................ $9,225 100.0% $9,176 100.0% $6,993 100.0% $7,020 100.0%
====== ===== ====== ===== ====== ===== ====== =====
<CAPTION>
SEPTEMBER 30,
----------------------------------------------
1997
----------------------------------------------
AMORTIZED MARKET
COST % OF TOTAL VALUE % OF TOTAL
--------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment Securities:
U.S. Gov't & Agency
obligations.............. $ 7,972 57.4% $ 8,039 57.6%
Other investments:
Interest-bearing deposits
in other financial
institutions............. 2,106 15.1% 2,106 15.1%
Federal funds sold......... 2,600 18.7% 2,600 18.6%
Federal Home Loan Bank
Stock.................... 1,219 8.8% 1,219 8.7%
------- ----- ------- -----
Total investment
securities,
interest-bearing deposits
and other................ $13,897 100.0% $13,964 100.0%
======= ===== ======= =====
</TABLE>
87
<PAGE>
The following table sets forth the scheduled maturities, carrying values,
market values and average yields for Harvest Home Savings Bank's investment
securities at September 30, 1999. All of such securities mature in three years
or less.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1999
---------------------------------------------------------------
ONE YEAR OR LESS ONE TO FIVE YEARS
------------------------------ ------------------------------
AMORTIZED COST AVERAGE YIELD AMORTIZED COST AVERAGE YIELD
-------------- ------------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Government and agency securities.... $ -- $ -- $6,000 5.50%
====== ====== ====== ====
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1999
----------------------------------------------------------------
TOTAL INVESTMENT SECURITIES
----------------------------------------------------------------
AVERAGE LIFE IN WEIGHTED AVERAGE
YEARS AMORTIZED COST FAIR VALUE YIELD
--------------- -------------- ---------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Government and agency securities.... 1.5 $6,000 $5,951 5.50%
=== ====== ====== ====
</TABLE>
DEPOSITS AND BORROWINGS
GENERAL. Deposits have traditionally been the primary source of Harvest
Home Savings Bank's funds for use in lending and other investment activities. In
addition to deposits, Harvest Home Savings Bank derives funds from interest
payments and principal repayments on loans and mortgage-backed securities,
income on earning assets, and service charges. Loan payments are a relatively
stable source of funds, while deposit inflows and outflows fluctuate more in
response to general interest rates and money market conditions.
DEPOSITS. Deposits are attracted principally from within Harvest Home
Savings Bank's primary market area through the offering of a broad selection of
deposit instruments, including negotiable order of withdrawal ("NOW") accounts,
Super NOW accounts, money market deposit accounts, regular passbook savings
accounts, term certificate accounts, and individual retirement accounts
("IRAs"). Interest rates paid, maturity terms, service fees, and withdrawal
penalties for the various types of accounts are established periodically by
management of Harvest Home Savings Bank based on Harvest Home Savings Bank's
liquidity requirements, growth goals, and interest rates paid by competitors.
Harvest Home Savings Bank has never used brokers to attract deposits.
At September 30, 1999, Harvest Home Savings Bank's certificates of deposit
totaled $47.0 million, or 71.0% of total deposits. Of such amount, approximately
$34.4 million in certificates of deposit will mature within one year. Based on
past experience and Harvest Home Savings Bank's prevailing pricing strategies,
management believes that a substantial percentage of such certificates will
renew with Harvest Home Savings Bank at maturity. If there is a significant
deviation from historical experience, Harvest Home Savings Bank can utilize
borrowings from the FHLB of Cincinnati as an alternative to this source of
funds.
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<PAGE>
The following table sets forth the dollar amount of deposits in the various
types of savings programs offered by Harvest Home Savings Bank at the dates
indicated:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
---------------------------------------------------------------------
1999 1998 1997
--------------------- --------------------- ---------------------
PERCENT OF PERCENT OF PERCENT OF
TOTAL TOTAL TOTAL
AMOUNT DEPOSITS AMOUNT DEPOSITS AMOUNT DEPOSITS
-------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Transaction accounts:
NOW accounts(1)........................... $ 3,806 5.7% $ 3,208 5.3% $ 2,699 4.6%
Super NOW accounts(1)..................... 405 0.6 253 0.4 300 0.5
Passbook savings(2)....................... 10,437 15.8 9,494 15.8 9,143 15.6
Money market deposit account(3)........... 4,534 6.9 4,107 6.8 4,332 7.4
------- ----- ------- ----- ------- -----
Total transaction accounts.............. 19,182 29.0 17,062 28.3 16,474 28.1
Certificates of Deposit(4):
4.00-5.99%................................ 42,304 63.9 38,275 63.6 38,031 64.7
6.00-7.99%................................ 4,734 7.1 4,888 8.1 4,281 7.2
------- ----- ------- ----- ------- -----
Total certificates of deposit........... 47,038 71.0 43,163 71.7 42,312 71.9
------- ----- ------- ----- ------- -----
Total deposits............................ $66,220 100.0% $60,225 100.0% $58,786 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
- ------------------------
(1) Harvest Home Savings Bank's weighted average interest rate paid on NOW
accounts fluctuates with the general movement of interest rates. At
September 30, 1999, 1998, and 1997, the weighted average rates on NOW
accounts were 1.84%, 1.84% and 2.69%, respectively. At September 30, 1999,
1998, and 1997, the weighted average rate of Super NOW accounts was 2.75%.
(2) Harvest Home Savings Bank's weighted average interest rate paid on passbook
accounts fluctuates with the general movement of interest rates. At
September 30, 1999, 1998, and 1997, the weighted average rates on passbook
accounts were 2.53%, 2.53% and 2.79%, respectively.
(3) Harvest Home Savings Bank's weighted average interest rate paid on money
market deposit accounts fluctuates with the general movement of interest
rates. At September 30, 1999, 1998, and 1997, the weighted average rate on
money market accounts was 3.00%.
(4) IRAs are generally offered under certificate of deposit programs.
The following table shows interest rate and original contractual maturity
information for Harvest Home Savings Bank's certificates of deposit as of
September 30, 1999:
<TABLE>
<CAPTION>
UP TO ONE OVER 1 YEAR OVER 2 YEARS
YEAR TO 2 YEARS TO 3 YEARS OVER 3 YEARS TOTAL
--------- ----------- ------------ ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
4.00 - 5.99%............................ $30,622 $6,922 $1,191 $3,569 $42,304
6.00 - 7.99%............................ 3,750 984 -- -- 4,734
------- ------ ------ ------ -------
Total certificates of deposit........... $34,372 $7,906 $1,191 $3,569 $47,038
======= ====== ====== ====== =======
</TABLE>
89
<PAGE>
The following table presents the amount of Harvest Home Savings Bank's
certificates of deposit of $100,000 or more by the time remaining until maturity
as of September 30, 1999:
<TABLE>
<CAPTION>
MATURITY AT SEPTEMBER 30, 1999
- -------- ---------------------
(IN THOUSANDS)
<S> <C>
Three months or less..................................... $ 743
Over 3 months to 6 months................................ 511
Over 6 months to 12 months............................... 1,425
Over 12 months........................................... 1,440
------
Total................................................ $4,119
======
</TABLE>
The following table sets forth Harvest Home Savings Bank's deposit account
balance activity for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance........................................... $60,225 $58,786 $57,958
Deposits.................................................... 75,155 65,375 58,930
Withdrawals................................................. (72,135) (66,862) (60,904)
Interest credited........................................... 2,975 2,926 2,802
------- ------- -------
Ending balance.............................................. $66,220 $60,225 $58,786
======= ======= =======
Net increase................................................ $ 5,995 $ 1,439 $ 828
Percent increase............................................ 9.95% 2.45% 1.43%
</TABLE>
BORROWINGS. The FHLB System functions as a central reserve bank providing
credit for its member institutions and certain other financial institutions. As
a member in good standing of the FHLB of Cincinnati, Harvest Home Savings Bank
is authorized to apply for advances from the FHLB of Cincinnati, provided
certain standards of creditworthiness have been met. Under current regulations,
a bank must meet certain qualifications to be eligible for FHLB advances. All
standards required are currently met by Harvest Home Savings. Harvest Home
Savings is a member of the FHLB and is required to own capital stock in the
FHLB. Each FHLB credit program has its own interest rate, which may be fixed or
variable and range of maturity. The FHLB may prescribe the acceptable uses for
these advances as well as limitations on the size of the advances and repayment
provisions.
The following table sets forth certain information as to Harvest Home
Savings Bank's FHLB advances at the date indicated:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
FHLB advances............................................... $22,600 $25,850 $24,000
Weighted average interest rate of FHLB advances............. 5.23% 5.26% 5.82%
</TABLE>
90
<PAGE>
The following table sets forth the maximum balance and average balance of
FHLB advances during the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Maximum Balance:
FHLB advances............................................. $26,000 $25,850 $24,000
Average Balance:
FHLB advances............................................. 23,827 21,738 15,615
Weighted average interest rate of FHLB advances............. 5.08% 5.62% 5.78%
</TABLE>
COMPETITION
Harvest Home Savings Bank competes for deposits with other savings banks and
associations, commercial banks and credit unions, and with the issuers of
commercial paper and other securities, such as shares in money market mutual
funds. The primary factors in competing for deposits are interest rates and
convenience of office location. In making loans, Harvest Home Savings Bank
competes with other savings banks and associations, commercial banks, consumer
finance companies, credit unions, leasing companies, and other lenders. Harvest
Home Savings Bank 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 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.
Due to Harvest Home Savings Bank's size relative to the many other financial
institutions in its market area, management believes that Harvest Home Savings
Bank has a small share of the deposit and loan markets.
The size of financial institutions competing with Harvest Home Savings Bank
is likely to increase as a result of changes in statutes and regulations
eliminating various restrictions on interstate and inter-industry branching and
acquisitions. Such increased competition may have an adverse effect upon Harvest
Home Savings Bank.
PROPERTIES
The following table sets forth certain information at September 30, 1999,
regarding the properties on which main office and each branch office of Harvest
Home Savings Bank is located:
<TABLE>
<CAPTION>
OWNED OR NET BOOK DEPOSITS AT
LOCATION LEASED DATE ACQUIRED VALUE(1) SEPTEMBER 30, 1999
- -------- -------- ----------------- -------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
MAIN OFFICE:
3621 Harrison Avenue................... Various from 1926
Cheviot, OH 45211 Owned to present $418 37,865
BRANCH OFFICES:
7030 Hamilton Avenue...................
Cincinnati, OH 45231 Owned 1975 $277 17,379
3663 Ebenezer Road.....................
Cincinnati, OH 45248 Owned 1985 $287 10,976
</TABLE>
- ------------------------
(1) At September 30, 1999, Harvest Home's office premises and equipment had a
total net book value of $1.2 million.
91
<PAGE>
Harvest Home Financial has contracted for the data processing and reporting
services of NCR Corporation. the cost of these data processing services is
approximately $9,000 per month.
NO MATERIAL LEGAL PROCEEDINGS
Neither Harvest Home Financial nor Harvest Home Savings Bank is presently
involved in any legal proceedings of a material nature. From time to time,
Harvest Home Savings Bank is a party to legal proceedings incidental to its
business to enforce its security interest in collateral pledged to secure loans
made by Harvest Home Savings Bank.
92
<PAGE>
REGULATION
People's Savings and Oakley currently are Ohio chartered mutual savings and
loan associations and Harvest Home Savings currently is an Ohio chartered
stock-form savings bank. Each of People's Savings, Oakley and Harvest Home
Savings are subject to Ohio laws and regulations governing savings and loan
associations or savings banks and to the jurisdiction of the Superintendent of
the Division of Financial Institutions of the State of Ohio. People's Savings
and Oakley also are subject to regulations by the Office of Thrift Supervision,
as their primary Federal regulator, while the Federal Deposit Insurance
Corporation is the primary Federal regulator of Harvest Home Savings. When the
conversion and the mergers are completed, People's Savings will be a Federally
chartered savings bank with the Office of Thrift Supervision as its primary
Federal regulator and it will no longer be subject to the jurisdiction of the
Superintendent of the Ohio Division of Financial Institutions. People's Savings
does not believe that its change to a Federally chartered institution from an
Ohio chartered institution will have any material effect on its financial
condition or operations.
THE FOLLOWING DISCUSSION OF CERTAIN LAWS AND REGULATIONS APPLICABLE TO
PEOPLES COMMUNITY BANCORP AND PEOPLE'S SAVINGS UPON COMPLETION OF THE MERGERS
AND CONVERSION AS WELL AS DESCRIPTIONS OF LAWS AND REGULATIONS CONTAINED
ELSEWHERE HEREIN, SUMMARIZES THE ASPECTS OF THE LAWS AND REGULATIONS WHICH ARE
DEEMED TO BE MATERIAL TO PEOPLES COMMUNITY BANCORP AND PEOPLE'S. HOWEVER, THE
SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO APPLICABLE LAWS AND REGULATIONS.
PEOPLES COMMUNITY BANCORP
HOLDING COMPANY ACQUISITIONS. When we complete the conversion, Peoples
Community Bancorp will become a savings and loan holding company within the
meaning of the Home Owners' Loan Act, as amended ("HOLA"), and will be required
to register with the OTS. Federal law generally prohibits a savings and loan
holding company, without prior OTS approval, from acquiring the ownership or
control of any other savings institution or savings and loan holding company, or
all, or substantially all, of the assets or more than 5% of the voting shares
thereof. These provisions also prohibit, among other things, any director or
officer of a savings and loan holding company, or any individual who owns or
controls more than 25% of the voting shares of such holding company, from
acquiring control of any savings institution not a subsidiary of such savings
and loan holding company, unless the acquisition is approved by the OTS.
HOLDING COMPANY ACTIVITIES. Peoples Community Bancorp will operate as a
unitary savings and loan holding company. As a result of recently enacted
legislation, the activities of a new unitary savings and loan holding company
like Peoples Community Bancorp and its non-savings institution subsidiaries are
restricted to activities traditionally permitted to multiple savings and loan
holding companies and to financial holding companies under newly added
provisions of the Bank Holding Company Act. Multiple savings and loan holding
companies may:
- furnish or perform management services for a savings association
subsidiary of a savings and loan holding company;
- hold, manage or liquidate assets owned or acquired from a savings
association subsidiary of a savings and loan holding company;
- hold or manage properties used or occupied by a savings association
subsidiary of a savings and loan holding company;
- engage in activities determined by the Federal Reserve to be closely
related to banking and a proper incident thereto; and
93
<PAGE>
- engage in services and activities previously determined by the Federal
Home Loan Bank Board by regulation to be permissible for a multiple
savings and loan holding company as of March 5, 1987.
The activities financial holding companies may engage in include:
- lending, exchanging, transferring or investing for others, or safeguarding
money or securities;
- insuring, guaranteeing or indemnifying others, issuing annuities, and
acting as principal, agent or broker for purposes of the foregoing;
- providing financial, investment or economic advisory services, including
advising an investment company;
- issuing or selling interests in pooled assets that a bank could hold
directly;
- underwriting, dealing in or making a market in securities; and
- merchant banking activities.
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 institution, the OTS may impose such restrictions as deemed necessary to
address such risk. These restrictions include limiting the following:
- the payment of dividends by the savings institution;
- transactions between the savings institution and its affiliates; and
- any activities of the savings institution that might create a serious risk
that the liabilities of the holding company and its affiliates may be
imposed on the savings institution.
Every savings institution subsidiary of a savings and loan holding company
is required to give the OTS at least 30 days' advance notice of any proposed
dividends to be made on its guarantee, permanent or other non-withdrawable
stock, or else such dividend will be invalid. See "--People's Savings--Capital
Distributions."
RESTRICTIONS ON TRANSACTIONS WITH AFFILIATES. Transactions between a
savings institution and its "affiliates" are subject to quantitative and
qualitative restrictions under Sections 23A and 23B of the Federal Reserve Act
and OTS regulations. Affiliates of a savings institution generally include,
among other entities, the savings institution's holding company and companies
that are controlled by or under common control with the savings institution.
In general, a savings institution or its subsidiaries may engage in certain
"covered transactions" with affiliates up to certain limits. In addition, a
savings institution and its subsidiaries may engage in covered transactions and
certain other transactions only on terms and under circumstances that are
substantially the same, or at least as favorable to the savings institution or
its subsidiary, as those prevailing at the time for comparable transactions with
nonaffiliated companies. A "covered transaction" is defined to include a loan or
extension of credit to an affiliate; a purchase of investment securities issued
by an affiliate; a purchase of assets from an affiliate, with certain
exceptions; the acceptance of securities issued by an affiliate as collateral
for a loan or extension of credit to any party; or the issuance of a guarantee,
acceptance or letter of credit on behalf of an affiliate. In addition, a savings
institution may not:
- make a loan or extension of credit to an affiliate unless the affiliate is
engaged only in activities permissible for bank holding companies;
- purchase or invest in securities of an affiliate other than shares of a
subsidiary;
94
<PAGE>
- purchase a low-quality asset from an affiliate; or
- engage in covered transactions and certain other transactions between a
savings institution or its subsidiaries and an affiliate except on terms
and conditions that are consistent with safe and sound banking practices.
With certain exceptions, each loan or extension of credit by a savings
institution to an affiliate must be secured by collateral with a market value
ranging from 100% to 130% (depending on the type of collateral) of the amount of
the loan or extension of credit.
FEDERAL SECURITIES LAWS. Peoples Community Bancorp has filed with the SEC a
registration statement under the Securities Act of 1933 for the registration of
the Common Stock to be issued pursuant to the conversion and to holders of
Harvest Home Financial common stock. Upon consummation of the conversion,
Peoples Community Bancorp intends to register its common stock with the SEC
under Section 12(g) of the Securities Exchange Act of 1934. Peoples Community
Bancorp will then be subject to the proxy and tender offer rules, insider
trading reporting requirements and restrictions, and certain other requirements
under the Exchange Act. Pursuant to OTS regulations and the Plan of Conversion,
Peoples Community Bancorp has agreed to maintain such registration for a minimum
of three years following the conversion.
The registration under the Securities Act of the shares of common stock to
be issued in the conversion does not cover the resale of such shares. Shares of
common stock purchased by persons who are not affiliates of Peoples Community
Bancorp may be sold without registration. Shares purchased by an affiliate of
Peoples Community Bancorp will be subject to the resale restrictions of
Rule 144 under the Securities Act. If Peoples Community Bancorp meets the
current public information requirements of Rule 144 under the Securities Act,
each affiliate of Peoples Community Bancorp who complies with the other
conditions of Rule 144 would be able to sell in the public market, without
registration, a number of shares not to exceed, in any three-month period, the
greater of (a) 1% of the outstanding shares of Peoples Community Bancorp or
(b) the average weekly volume of trading in such shares during the preceding
four calendar weeks.
PEOPLE'S SAVINGS
GENERAL. As part of the conversion, People's Savings will convert from an
Ohio chartered savings and loan association in mutual form to a federally
chartered stock savings bank. The OTS will be the chartering authority and
primary federal regulator of Peoples Community Bank. The OTS has extensive
authority over the operations of federally chartered savings institutions. As
part of this authority, federally chartered savings institutions are required to
file periodic reports with the OTS and are subject to periodic examinations by
the OTS and the FDIC. People's Savings also is subject to regulation and
examination by the FDIC and to requirements established by the Federal Reserve
Board. The investment and lending authority of savings institutions are
prescribed by federal laws and regulations, and such institutions are prohibited
from engaging in any activities not permitted by such laws and regulations. Such
regulation and supervision is primarily intended for the protection of
depositors and the Savings Association Insurance Fund.
The OTS' enforcement authority over all savings institutions and their
holding companies includes, among other things, the ability to assess civil
money penalties, to issue cease and desist or removal orders and to initiate
injunctive actions. In general, these enforcement actions may be initiated for
violations of laws and regulations and unsafe or unsound practices. Other
actions or inactions may provide the basis for enforcement action, including
misleading or untimely reports filed with the OTS.
INSURANCE OF ACCOUNTS. The deposits of People's Savings, Oakley and Harvest
Home Savings are insured to the maximum extent permitted by the SAIF, which is
administered by the FDIC, and are backed by the full faith and credit of the
U.S. Government. As insurer, the FDIC is authorized to
95
<PAGE>
conduct examinations of, and to require reporting by, FDIC-insured institutions.
It also may prohibit any FDIC-insured institution from engaging in any activity
the FDIC determines by regulation or order to pose a serious threat to the FDIC.
The FDIC also has the authority to initiate enforcement actions against savings
institutions, after giving the OTS an opportunity to take such action.
On September 30, 1996, new legislation required all SAIF member institutions
to pay a one-time special assessment to recapitalize the SAIF, with the
aggregate amount to be sufficient to bring the reserve ratio to 1.25% of insured
deposits.
Currently, FDIC deposit insurance rates generally range from zero basis
points to 27 basis points, depending on the assessment risk classification
assigned to the depository institution. From 1998 through 1999, SAIF members
paid 6.4 basis points, while BIF member institutions paid approximately 1.3
basis points.
The FDIC may terminate the deposit insurance of any insured depository
institution, including People's Savings, if it determines after a hearing that
the institution has engaged or is engaging in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, order or any condition imposed by an agreement with
the FDIC. It also may suspend deposit insurance temporarily during the hearing
process for the permanent termination of insurance, if the institution has no
tangible capital. If insurance of accounts is terminated, the accounts at the
institution at the time of the termination, less subsequent withdrawals, shall
continue to be insured for a period of six months to two years, as determined by
the FDIC. Management is aware of no existing circumstances which would result in
termination of the deposit insurance of People's Savings, Oakley or Harvest Home
Savings.
REGULATORY CAPITAL REQUIREMENTS. Federally insured savings institutions are
required to maintain minimum levels of regulatory capital. The OTS has
established capital standards applicable to all savings institutions. These
standards generally must be as stringent as the comparable capital requirements
imposed on national banks. The OTS also is authorized to impose capital
requirements in excess of these standards on individual institutions on a
case-by-case basis.
Current OTS capital standards require savings institutions to satisfy three
different capital requirements. Under these standards, savings institutions must
maintain "tangible" capital equal to at least 1.5% of adjusted total assets,
"core" capital equal to at least 3.0% of adjusted total assets and "total"
capital (a combination of core and "supplementary" capital) equal to at least
8.0% of "risk-weighted" assets. Core capital generally consists of common
stockholders' equity (including retained earnings). Tangible capital generally
equals core capital minus intangible assets, with only a limited exception for
purchased mortgage servicing rights.
In determining compliance with the risk-based capital requirement, a savings
institution is allowed to include both core capital and supplementary capital in
its total capital, provided that the amount of supplementary capital included
does not exceed the savings institution's core capital. Supplementary capital
generally consists of general allowances for loan losses up to a maximum of
1.25% of risk-weighted assets, together with certain other items. In determining
the required amount of risk-based capital, total assets, including certain
off-balance sheet items, are multiplied by a risk weight based on the risks
inherent in the type of assets. The risk weights range from 0% for cash and
securities issued by the U.S. Government or unconditionally backed by the full
faith and credit of the U.S. Government to 100% for loans (other than qualifying
residential loans weighted at 80%) and repossessed assets.
In August 1993, the OTS adopted a final rule incorporating an interest-rate
risk component into the risk-based capital regulation. Under the rule, an
institution with greater than "normal" interest rate risk will be subject to a
deduction of its interest rate risk component from total capital for purposes of
calculating its risk-based capital. As a result, such an institution will be
required to maintain additional
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capital in order to comply with the risk-based capital requirement. An
institution has greater than "normal" interest rate risk if it would suffer a
loss of net portfolio value exceeding 2.0% of the estimated market value of its
assets in the event of a 200 basis point increase or decrease in interest rates.
The interest rate risk component will be calculated, on a quarterly basis, as
one-half of the difference between an institution's measured interest rate risk
and 2.0% multiplied by the market value of its assets. The rule also authorizes
the OTS to waive or defer an institution's interest rate risk component on a
case-by-case basis. Because of continuing delays by the OTS, the interest rate
risk component has never been operative.
Savings institutions must value securities available for sale at amortized
cost for regulatory capital purposes. This means that in computing regulatory
capital, savings institutions should add back any unrealized losses and deduct
any unrealized gains, net of income taxes, on debt securities reported as a
separate component of GAAP capital.
At September 30, 1999, People's Savings exceeded all of its regulatory
capital requirements, with tangible, core and risk-based capital ratios of
13.1%, 13.1% and 24.4%, respectively. At such date, Oakley and Harvest Home
Savings also exceeded all of their regulatory capital requirements.
Any savings institution that fails any of the capital requirements is
subject to possible enforcement actions by the OTS or the FDIC. Such actions
could include a capital directive, a cease and desist order, civil money
penalties, the establishment of restrictions on the institution's operations,
termination of federal deposit insurance and the appointment of a conservator or
receiver. The OTS' capital regulation provides that such actions, through
enforcement proceedings or otherwise, could require one or more of a variety of
corrective actions.
PROMPT CORRECTIVE ACTION. The following table shows the amount of capital
associated with the different capital categories set forth in the prompt
corrective action regulations.
<TABLE>
<CAPTION>
TOTAL TIER 1 TIER 1
CAPITAL CATEGORY RISK-BASED CAPITAL RISK-BASED CAPITAL LEVERAGE CAPITAL
- ---------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C>
Well capitalized..... 10% or more 6% or more 5% or more
Adequately 8% or more 4% or more 4% or more
capitalized........
Undercapitalized..... Less than 8% Less than 4% Less than 4%
Significantly Less than 6% Less than 3% Less than 3%
undercapitalized...
</TABLE>
In addition, an institution is "critically undercapitalized" if it has a
ratio of tangible equity to total assets that is equal to or less than 2.0%.
Under specified circumstances, a federal banking agency may reclassify a well
capitalized institution as adequately capitalized and may require an adequately
capitalized institution or an undercapitalized institution to comply with
supervisory actions as if it were in the next lower category (except that the
FDIC may not reclassify a significantly undercapitalized institution as
critically undercapitalized).
An institution generally must file a written capital restoration plan which
meets specified requirements within 45 days of the date that the institution
receives notice or is deemed to have notice that it is undercapitalized,
significantly undercapitalized or critically undercapitalized. A federal banking
agency must provide the institution with written notice of approval or
disapproval within 60 days after receiving a capital restoration plan, subject
to extensions by the agency. An institution which is required to submit a
capital restoration plan must concurrently submit a performance guaranty by each
company that controls the institution. In addition, undercapitalized
institutions are subject to various regulatory restrictions, and the appropriate
federal banking agency also may take any number of discretionary supervisory
actions.
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At September 30, 1999, People's Savings was deemed a well capitalized
institution for purposes of the above regulations and as such is not subject to
the above mentioned restrictions. Oakley and Harvest Home Savings were also
deemed well capitalized at such date under applicable regulations.
SAFETY AND SOUNDNESS GUIDELINES. The OTS and the other federal banking
agencies have established guidelines for safety and soundness, addressing
operational and managerial standards, as well as compensation matters for
insured financial institutions. Institutions failing to meet these standards are
required to submit compliance plans to their appropriate federal regulators. The
OTS and the other agencies have also established guidelines regarding asset
quality and earnings standards for insured institutions. People's Savings
believes that it, as well as Oakley and Harvest Home Savings are in compliance
with these guidelines and standards.
LIQUIDITY REQUIREMENTS. All savings institutions are required to maintain
an average daily balance of liquid assets equal to a certain percentage of the
sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings institutions. At the present time, the required minimum
liquid asset ratio is 4%. People's Savings, Oakley and Harvest Home Savings all
are in compliance with the liquidity requirements.
CAPITAL DISTRIBUTIONS. OTS regulations govern capital distributions by
savings institutions, which include cash dividends, stock repurchases and other
transactions charged to the capital account of a savings institution to make
capital distributions. A savings institution must file an application for OTS
approval of the capital distribution if either (1) the total capital
distributions for the applicable calendar year exceed the sum of the
institution's net income for that year to date plus the institution's retained
net income for the preceding two years, (2) the institution would not be at
least adequately capitalized following the distribution, (3) the distribution
would violate any applicable statute, regulation, agreement or OTS-imposed
condition, or (4) the institution is not eligible for expedited treatment of its
filings. If an application is not required to be filed, savings institutions
which are a subsidiary of a holding company (as well as certain other
institutions) must still file a notice with the OTS at least 30 days before the
board of directors declares a dividend or approves a capital distribution.
COMMUNITY REINVESTMENT ACT AND THE FAIR LENDING LAWS. Savings institutions
have a responsibility under the Community Reinvestment Act of 1977 ("CRA") and
related regulations of the OTS to help meet the credit needs of their
communities, including low- and moderate-income neighborhoods. In addition, the
Equal Credit Opportunity Act and the Fair Housing Act (together, the "Fair
Lending Laws") prohibit lenders from discriminating in their lending practices
on the basis of characteristics specified in those statutes. An institution's
failure to comply with the provisions of CRA could, at a minimum, result in
regulatory restrictions on its activities. Failure to comply with the Fair
Lending Laws could result in enforcement actions by the OTS, as well as other
federal regulatory agencies and the Department of Justice.
QUALIFIED THRIFT LENDER TEST. All savings institutions are required to meet
a qualified thrift lender or QTL test to avoid certain restrictions on their
operations. A savings institution can comply with the QTL test by either
qualifying as a domestic building and loan association as defined in the Code or
by maintaining at least 65% of its portfolio assets in certain housing and
consumer-related assets such as:
- loans made to purchase, refinance, construct, improve or repair domestic
residential housing;
- home equity loans;
- most mortgage-backed securities;
- stock issued by the FHLB of Cincinnati; and
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- direct or indirect obligations of the FDIC.
A savings institution that does not meet the QTL test must either convert to
a bank charter or comply with certain restrictions on its operations.
At September 30, 1999, the qualified thrift investments of People's were
approximately 96.3% of its portfolio assets. At such date, Oakley and Harvest
Home Savings also satisfied the QTL test.
FEDERAL HOME LOAN BANK SYSTEM. People's Savings, Oakley and Harvest Home
Savings Bank are members of the FHLB of Cincinnati, which is one of 12 regional
FHLBs that administers the home financing credit function of savings
institutions. Each FHLB serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from proceeds derived from
the sale of consolidated obligations of the FHLB System. It makes loans to
members (i.e., advances) in accordance with policies and procedures established
by the Board of Directors of the FHLB.
As a member, People's Savings is required to purchase and maintain stock in
the FHLB of Cincinnati in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans or similar obligations at the beginning of each year.
At September 30, 1999, People's Savings had $850,000 in FHLB stock, which was in
compliance with this requirement. In addition, each of Oakley and Harvest Home
Savings Bank were in compliance with this requirement at September 30, 1999.
The FHLBs are required to provide funds for the resolution of troubled
savings institutions and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid in the past and could do so
in the future. These contributions also could have an adverse effect on the
value of FHLB stock in the future.
FEDERAL RESERVE SYSTEM. The Federal Reserve Board requires all depository
institutions to maintain reserves against their transaction accounts (primarily
NOW and Super NOW checking accounts) and non-personal time deposits. Because
required reserves must be maintained in the form of vault cash or a
noninterest-bearing account at a Federal Reserve Bank, the effect of this
reserve requirement is to reduce an institution's earning assets.
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TAXATION
FEDERAL TAXATION
GENERAL. Peoples Community Bancorp and People's Savings are subject to the
corporate tax provisions of the Code, and People's Savings is subject to certain
additional provisions which apply to thrifts and other types of financial
institutions. The following discussion of federal taxation is intended only to
summarize certain pertinent federal income tax matters relevant to the taxation
of Peoples Community Bancorp and People's Savings and is not a comprehensive
discussion of the tax rules applicable to Peoples Community Bancorp and People's
Savings.
FISCAL YEAR. Peoples Community Bancorp and People's will file federal
income tax returns on the basis of a calendar year ending on December 31, and it
is expected that separate returns will be filed for 2000 and 2001.
BAD DEBT RESERVES. In 1996, legislation, the Small Business Protection Act
of 1996, was enacted that repealed the reserve method of accounting (including
the percentage of taxable income method) previously used by many savings
institutions to calculate their bad debt reserve for federal income tax
purposes. Savings institutions with $500 million or less in assets may, however,
continue to use the experience method. People's Savings must recapture that
portion of its reserve which exceeds the amount that could have been taken under
the experience method for post-1987 tax years. At December 31, 1995, People's
Savings' post-1987 excess reserves amounted to approximately $627,000. The
recapture will occur over a six-year period, which commenced January 1, 1998.
The legislation also requires savings institutions to account for bad debts for
federal income tax purposes on the same basis as commercial banks for tax years
beginning after December 31, 1995. This change in accounting method and
recapture of excess bad debt reserves is adequately provided for in People's
Savings' deferred tax liability.
At September 30, 1999, the federal income tax reserves of People's Savings
and Harvest Home Savings Bank included $1.9 million and $1.3 million,
respectively, for which no federal income tax has been provided. Because of
these federal income tax reserves and the liquidation account to be established
for the benefit of certain depositors of People's Savings in connection with the
conversion, the retained earnings of People's Savings are substantially
restricted.
DISTRIBUTIONS. If People's Savings were to distribute cash or property to
its stockholders, and the distribution was treated as being from its accumulated
bad debt reserves, the distribution would cause People's Savings to have
additional taxable income. A distribution is from accumulated bad debt reserves
if (a) the reserves exceed the amount that would have been accumulated on the
basis of actual loss experience, and (b) the distribution is a "non-qualified
distribution." A distribution with respect to its stock is a non-qualified
distribution to the extent that, for federal income tax purposes,
- it is in redemption of its shares,
- it is pursuant to a liquidation of the institution, or
- in the case of a current distribution, together with all other such
distributions during the taxable year, it exceeds the institution's
current and post-1951 accumulated earnings and profits.
The amount of additional taxable income created by a non-qualified
distribution is an amount that when reduced by the tax attributable to it is
equal to the amount of the distribution.
MINIMUM TAX. The Code imposes an alternative minimum tax at a rate of 20%.
The alternative minimum tax generally applies to a base of regular taxable
income plus certain tax preferences ("alternative minimum taxable income" or
"AMTI") and is payable to the extent such AMTI is in excess of an exemption
amount. Tax preference items include the following:
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- depreciation, and
- 75% of the excess (if any) of
(1) AMTI determined without regard to this preference and prior to
reduction by net operating losses, over
(2) adjusted current earnings as defined in the Code.
Neither People's Savings nor Harvest Home Financial has been subject to the
alternative minimum tax or have any such amounts available as credits for carry
over.
CAPITAL GAINS AND CORPORATE DIVIDENDS-RECEIVED DEDUCTION. Corporate net
capital gains are taxed at a maximum rate of 35%. Corporations which own 20% or
more of the stock of a corporation distributing a dividend may deduct 80% of the
dividends received. Corporations which own less than 20% of the stock of a
corporation distributing a dividend may deduct 70% of the dividends received.
However, a corporation that receives dividends from a member of the same
affiliated group of corporations may deduct 100% of the dividends received.
OTHER MATTERS. Federal legislation is introduced from time to time that
would limit the ability of individuals to deduct interest paid on mortgage
loans. Individuals are currently not permitted to deduct interest on consumer
loans. Significant increases in tax rates or further restrictions on the
deductibility of mortgage interest could adversely affect People's Savings.
People's Savings' federal income tax returns for the tax years ended 1999,
1998 and 1997 are open under the statute of limitations and are subject to
review by the IRS. People's Savings has not been audited by the IRS during the
last five years.
STATE TAXATION
OHIO TAXATION. We are subject to the Ohio corporation franchise tax, which,
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 or (ii) 0.582% times
taxable net worth.
In computing our tax under the net worth method, we may exclude 100% of our
investment in the capital stock of People's Savings after the conversion, as
reflected on our balance sheet, in computing our taxable net worth as long as we
own at least 25% of the issued and outstanding capital stock of People's
Savings. 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, we 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 us,
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 0.11% of the first $50,000 of computed Ohio taxable income and
0.22% 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 0.014% times taxable
net worth.
People's savings 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
People's Savings' book net worth determined in accordance with GAAP. As a
"financial institution", People's Savings is not subject to any tax based upon
net income or net profits imposed by the State of Ohio.
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DELAWARE STATE TAXATION. As a Delaware holding company not earning income
in Delaware, Peoples Community Bancorp is exempt from Delaware corporate income
tax but is required to file an annual report with and pay an annual franchise
tax to the State of Delaware. The tax is imposed as a percentage of the capital
base of Peoples Community Bancorp with an annual maximum of $150,000.
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MANAGEMENT
MANAGEMENT OF PEOPLES COMMUNITY BANCORP
Our Board of Directors is divided into three classes, each of which contains
approximately one-third of the Board. Our directors will be elected by
stockholders for staggered three-year terms, or until their successors are
elected and qualified. No director is related to any other director or executive
officer of Peoples Community Bancorp or People's Savings. The following table
sets forth certain information regarding our directors, all of whom are also
directors of People's Savings.
In connection with the completion of the mergers, Peoples Community Bancorp
and People's Savings agreed to appoint Thomas J. Noe and John E. Rathkamp to
their Boards of Directors.
<TABLE>
<CAPTION>
DIRECTOR OF YEAR
PEOPLE'S TERM
NAME AGE(1) POSITION WITH PEOPLE'S SAVINGS SAVINGS SINCE EXPIRES
- ---- -------- ------------------------------ ------------- --------
<S> <C> <C> <C> <C>
Paul E. Hasselbring.................. 75 Chairman of the Board 1967 2001
Jerry D. Williams.................... 50 Director, President and Chief 1980 2000
Executive Officer
Richard S. Johnston.................. 71 Director 1998 2001
Zane M. Brant........................ 80 Director 1974 2001
John L. Buchanan..................... 50 Director 1996 2000
Donald L. Hawke...................... 67 Director 1987 2002
Nicholas N. Nelson................... 53 Director 1990 2000
James R. Van DeGrift................. 60 Director 1994 2002
</TABLE>
- ------------------------
(1) Age as of September 30, 1999.
Set forth below is information with respect to the principal occupations
during at least the last five years for the directors of People's Savings.
PAUL E. HASSELBRING. Mr. Hasselbring has served as Chairman of the Board of
People's Savings since 1990. He currently works part time for
King--Hasselbring & Assoc. since November 1996. Previously, Mr. Hasselbring
served as a senior partner with Hasselbring & Assoc., an engineering firm
located in Lebanon, Ohio from 1951 to 1996.
JERRY D. WILLIAMS. Mr. Williams currently serves as President and Chief
Executive Officer of People's Savings and has done so since June 1998.
Previously, Mr. Williams served as Managing Officer and Chief Executive Officer
from 1979 to 1998.
RICHARD S. JOHNSTON. Mr. Johnston is currently retired. Mr. Johnston
retired as President from The People's Building & Loan Company located in
Blanchester, Ohio in 1998.
ZANE M. BRANT. Mr. Brant is President of Brant's Inc., a hardware retailer
located in Lebanon, Ohio which he has operated since 1946.
JOHN L. BUCHANAN. Mr. Buchanan is currently President of Buchanan's Power
Equipment Center, Inc., a John Deere dealership located in Lebanon, Ohio which
he has operated since 1971.
DONALD L. HAWKE. Mr. Hawke is currently retired.
NICHOLAS N. NELSON. Mr. Nelson is County Auditor for Warren County, Ohio,
serving in such position since March 1987.
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JAMES R. VAN DEGRIFT. Mr. Van DeGrift has been a trustee of Turtlecreek
Township in Lebanon, Ohio since 1992. Previously, Mr. Van DeGrift was the
athletic director and a teacher at Lebanon High School.
Upon completion of the mergers, Messrs. Noe and Rathkamp will be appointed
as directors of Peoples Community Bancorp and Peoples Community Bank in the
class whose term expires in 2002 and 2001, respectively. In addition, Mr. Noe
will be appointed Chief Financial Officer of Peoples Community Bancorp and
Peoples Community Bank and Mr. Rathkamp will be appointed Chief Lending Officer
of Peoples Community Bancorp and Peoples Community Bank. Set forth below is
certain biographical information with respect to Messrs. Noe and Rathkamp.
THOMAS J. NOE. Mr. Noe, age 39 years, has served as a director and the
Managing Officer of Oakley since August, 1999. Between January 1994 and
May 1999, Mr. Noe served as the Chief Financial Officer for Enterprise Federal
Bancorp, Inc., a unitary savings and loan holding company for Enterprise Federal
Savings Bank, West Chester, Ohio.
JOHN E. RATHKAMP. Mr. Rathkamp, age 57 years, joined Harvest Home Savings
Bank in 1965 as Treasurer. He became Secretary and Managing Officer in 1976. He
has been a Director of Harvest Home Savings Bank since 1971. In 1991 he was
elected President of Harvest Home Savings Bank and currently is serving as
President, Secretary and Managing Officer of Harvest Home Savings Bank and
President of Harvest Home Financial.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Set forth below is information with respect to the principal occupations
during at least the last five years for each of our executive officers who do
not serve as a director.
LORI MARION HENN. Age 36 years. Ms. Henn has served as Vice President of
People's Savings since 1998. She served as a Compliance Officer of People's
Savings from October 1997 to 1998. Previously, Ms. Henn was an examiner with the
Office of Thrift Supervision in Cincinnati, Ohio from 1984 to 1995.
DAVID A. COOK. Age 40 years. Mr. Cook has served as Vice President of
People's Savings since November 1988 and Secretary since 1984.
BETH DARLENE PENNINGTON. Age 36 years. Ms. Pennington has served as Vice
President of People's Savings since June 1998 and Treasurer since January 1996.
Previously, Ms. Pennington served as Secretary from 1996 to 1998 and Assistant
Secretary from 1994 to 1995.
In connection with the completion of the mergers, Dennis J. Slattery,
currently the Executive Vice President and Treasurer of Harvest Home Savings
Bank, will be appointed Chief Operating Officer of Peoples Community Bancorp and
Peoples Community Bank. Mr. Slattery joined Harvest Home Savings Bank in 1978
and became Treasurer in 1981. In 1991, Mr. Slattery was elected Executive Vice
President and served as Treasurer and Executive Vice President in 1994.
Directors of Peoples Community Bancorp initially will not be compensated by
us but will serve with and be compensated by Peoples Community Bank. It is not
anticipated that separate compensation will be paid to our directors until such
time as such persons devote significant time to the separate management of our
affairs, which is not expected to occur until we become actively engaged in
additional businesses other than holding the stock of Peoples Community Bank. We
may determine that such compensation is appropriate in the future.
Our executive officers are elected annually and hold office until their
respective successors have been elected and qualified or until death,
resignation or removal by the Board of Directors.
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MANAGEMENT OF PEOPLE'S SAVINGS
The directors and executive officers of People's Savings are the same as our
directors and executive officers. Information concerning the names, ages,
principal occupations during the past five years and term of office of the
directors and executive officers of People's Savings is set forth under
"--Management of Peoples Community Bancorp." People's Savings' mutual
constitution requires the Board of Directors to be divided into three classes as
nearly equal in number as possible. Similarly, after the conversion, the federal
stock charter of Peoples Community Bank will require the Board of Directors to
be divided into three classes as nearly equal in number as possible. The members
of each class will be elected for a term of three years or until their
successors are elected and qualified, with one class of directors elected
annually.
BOARD MEETINGS AND COMMITTEES
Regular meetings of the Board of Directors of People's Savings are held
weekly and special meetings of the Board of Directors of People's Savings are
held from time-to-time as needed. There were 53 meetings of the Board of
Directors of People's Savings held during the year ended September 30, 1999. No
director attended fewer than 75% of the total number of meetings of the Board of
Directors of People's Savings held during the year ended September 30, 1999 and
no fewer than 75% of the total number of meetings held by all committees of the
Board on which the director served during such year.
The Board of Directors does not have any separate executive, audit,
compensation or nominating committees. All directors are appointed to serve on
an appraisal committee and construction inspection committee.
DIRECTORS' COMPENSATION
Each director of People's Savings receives $225 for each regular meeting of
the Board of Directors. Directors are paid only for meetings attended, however,
eight paid absences are permitted. Directors also are paid $25 each for each
appraisal review and $30 for each construction inspection review.
During 1994 People's Savings established an unfunded, non-qualified,
deferred compensation arrangement to provide retirement benefits to its Board of
Directors. The benefits are based on years of service and director compensation
during the year preceding retirement. The plan also provides for death benefit
payments to a surviving spouse, beneficiaries or the estate of the director.
People's Savings has elected not to establish a trust for the holding or
investing of assets. Pension accruals for the plan are not deductible for
federal income tax purposes until benefits are paid. Accruals are intended to
provide not only for the benefits attributed to service to date but also for
those expected to be earned in the future.
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EXECUTIVE COMPENSATION
The following table shows the compensation paid by People's Savings to its
President and Chief Executive Officer during the fiscal year ended
September 30, 1999.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
FISCAL --------------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS OTHER(2) COMPENSATION
- --------------------------- -------- --------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Jerry D. Williams............................. 1999 $88,847 $13,350 $ -- $ --
President and Chief Executive Officer
</TABLE>
- ------------------------
(1) Includes directors' fees of $225 per week in fiscal 1999.
(2) Annual compensation does not include amounts attributable to other
miscellaneous benefits received by Mr. Williams. The costs to People's
Savings of providing such benefits during fiscal 1999 did not exceed 10% of
the total salary and bonus paid to or accrued for the benefit of such
individual executive officer.
EMPLOYMENT AGREEMENTS
Peoples Community Bancorp and Peoples Community Bank, as employers, intend
to enter into employment agreements with each of Messrs. Jerry D. Williams,
Thomas J. Noe, John E. Rathkamp and Dennis J. Slattery when the conversion is
completed. These agreements will supercede any existing employment agreements
with such persons. The employers have agreed to employ Mr. Williams as President
and Chief Executive Officer of Peoples Community Bancorp and Peoples Community
Bank, Mr. Noe as Chief Financial Officer of Peoples Community Bancorp and
Peoples Community Bank, Mr. Rathkamp as Chief Lending Officer of Peoples
Community Bancorp and Peoples Community Bank and Mr. Slattery as Chief Operating
Officer of Peoples Community Bancorp and Peoples Community Bank, in each case
for a term of three years. The agreements provide that Messrs. Williams, Noe,
Rathkamp and Slattery will initially be paid salary levels of $100,000, $75,000,
$75,000 and $75,000, respectively. The executives' compensation and expenses
shall be paid by Peoples Community Bancorp and Peoples Community Bank in the
same proportion as the time and services actually expended by the executives on
behalf of each employer. The employment agreements will be reviewed annually.
The term of the executives' employment agreements shall be extended each year
for a successive additional one-year period upon the approval of the employers'
Boards of Directors, unless either party elects, not less than 30 days prior to
the annual anniversary date, not to extend the employment term.
Each of the employment agreements shall be terminable with or without cause
by the employers. The executives shall have no right to compensation or other
benefits pursuant to the employment agreements for any period after voluntary
termination or termination by the employers for cause, disability or retirement.
The agreements provide for certain benefits in the event of the executive's
death. In the event that
(1) either executive terminates his or her employment because the
employers either fail to comply with any material provision of the
employment agreement or change the executive's title or duties, or
(2) the employment agreement is terminated by the employers other than
for cause, disability, retirement or death or by the executive as a result
of certain adverse actions which are taken with respect to the executive's
employment following a change in control of Peoples Community Bancorp, as
defined,
then the executive will be entitled to a cash severance amount equal to three
times his average annual compensation for the last five calendar years (or such
shorter period that he has worked with People's
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Savings), plus the continuation of certain miscellaneous fringe benefits,
subject to reduction pursuant to Section 280G of the Code as set forth below in
the event of a change in control.
A change in control is generally defined in the employment agreements to
include any change in control of Peoples Community Bancorp required to be
reported under the federal securities laws, as well as (1) the acquisition by
any person of 20% or more of Peoples Community Bancorp's outstanding voting
securities and (2) a change in a majority of the directors of Peoples Community
Bancorp during any three-year period without the approval of at least two-thirds
of the persons who were directors of Peoples Community Bancorp at the beginning
of such period.
Each employment agreement provides that, in the event any of the payments to
be made thereunder or otherwise upon termination of employment are deemed to
constitute "parachute payments" within the meaning of Section 280G of the Code,
then such payments and benefits shall be reduced by the minimum necessary to
result in the payments not exceeding three times the recipient's average annual
compensation from the employers which was includable in the recipient's gross
income during the most recent five taxable years (the "Section 280G Limit"). As
a result, none of the severance payments will be subject to a 20% excise tax,
and the employers will be able to deduct such payments as compensation expense
for federal income tax purposes. If a change in control was to occur in 2000
after we complete the conversion, the severance payments would be approximately
$300,000 for Mr. Williams, $225,000 for Mr. Noe, $225,000 for Mr. Rathkamp and
$225,000 for Mr. Slattery.
Although the above-described employment agreements could increase the cost
of any acquisition of control of us, we do not believe that the terms thereof
would have a significant anti-takeover effect. We may determine to enter into
similar employment agreements with other officers in the future.
CHANGE IN CONTROL AGREEMENTS
Upon conversion, Peoples Community Bank intends to enter into one-year
change in control agreements with , none of whom will be covered by
employment contracts. Commencing on the first anniversary date and continuing on
each anniversary thereafter, these change in control agreements may be renewed
by the Board of Directors for an additional year. These agreements will provide
that in the event voluntary or involuntary termination follows a change in
control of Peoples Community Bancorp or Peoples Community Bank, the officer
would be entitled to receive a severance payment equal to one times the
officer's average annual compensation for the five most recent taxable years. In
the event of a change in control of Peoples Community Bancorp or Peoples
Community Bank, the total payments that would be due under these agreements,
based solely on the current annual compensation paid to the officers covered by
these agreements and excluding any benefits under any employee benefit plan
which may be payable would be approximately $ million.
DEFINED CONTRIBUTORY PENSION PLAN
People's Savings maintains a Simplified Employee Pension Plan for its
employees. Each employee who (i) is at least age 21 and (ii) has performed
services for People's Savings in at least 53 of the immediately preceding 260
weeks is eligible to participate. People's Savings may make discretionary
contributions to the plan which are shared pro-rata among all eligible employees
based on their compensation for that calendar year. No employee may be allocated
funds under the plan in any one year in excess of 15% of his compensation for
that calendar year. During fiscal 1999 and 1998, People's Savings made
contributions to the plan in amounts equaling 10% of participants' compensation.
People's Savings contributions to the plan amounted to $35,000 and $60,000 for
fiscal 1999 and 1998, respectively. Participants are immediately vested in
employer contributions as well as their elective deferrals and may withdraw
either at any time. Amounts withdrawn, however, are includable in a
participant's income and may be subject to a 10% penalty tax.
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NEW STOCK BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN. We have established the ESOP for our
employees to become effective upon the conversion. Our full-time employees who
have been credited with at least 1,000 hours of service during a 12-month period
and who have attained age 21 are eligible to participate in the ESOP.
As part of the conversion, in order to fund the purchase of up to 8% of the
common stock sold in the offering, we anticipate that the ESOP will borrow funds
from us. It is anticipated that such loan will equal 100% of the aggregate
purchase price of the common stock acquired by the ESOP. The loan to the ESOP
will be repaid principally from our contributions to the ESOP over a period of
10 years, and the collateral for the loan will be the common stock purchased by
the ESOP. The interest rate for the ESOP loan is expected to be a fixed rate of
8.5%. We may, in any plan year, make additional discretionary contributions for
the benefit of plan participants in either cash or shares of common stock, which
may be acquired through the purchase of outstanding shares in the market or from
individual stockholders, upon the original issuance of additional shares by
Peoples Community Bancorp or upon the sale of treasury shares by us. Such
purchases, if made, would be funded through additional borrowings by the ESOP or
additional contributions from us. The timing, amount and manner of future
contributions to the ESOP will be affected by various factors, including
prevailing regulatory policies, the requirements of applicable laws and
regulations and market conditions.
Shares purchased by the ESOP with the loan proceeds will be held in a
suspense account and released to participants on a pro rata basis as debt
service payments are made. Shares released from the ESOP will be allocated to
each eligible participant's ESOP account based on the ratio of each such
participant's base compensation to the total base compensation of all eligible
ESOP participants. Forfeitures will be reallocated among remaining participating
employees and may reduce any amount we might otherwise have contributed to the
ESOP. [UPON THE COMPLETION OF THREE YEARS OF SERVICE, THE ACCOUNT BALANCES OF
PARTICIPANTS WITHIN THE ESOP WILL BECOME 20% VESTED AND WILL CONTINUE TO VEST AT
THE RATE OF 20% FOR EACH ADDITIONAL YEAR OF SERVICE COMPLETED BY THE
PARTICIPANT, SUCH THAT A PARTICIPANT WILL BECOME 100% VESTED UPON THE COMPLETION
OF SEVEN YEARS OF SERVICE.] Credit is given for years of service with People's
Savings prior to adoption of the ESOP. In the case of a "change in control," as
defined, however, participants will become immediately fully vested in their
account balances. Benefits may be payable upon retirement or separation from
service. Our contributions to the ESOP are not fixed, so benefits payable under
the ESOP cannot be estimated.
Messrs. and and will serve as trustees of the ESOP. Under the
ESOP, the trustees must generally vote all allocated shares held in the ESOP in
accordance with the instructions of the participating employees, and unallocated
shares will generally be voted in the same ratio on any matter as those
allocated shares for which instructions are given, in each case subject to the
requirements of applicable law and the fiduciary duties of the trustees.
Generally accepted accounting principles require that any third party
borrowing by the ESOP be reflected as a liability on our statement of financial
condition. Since the ESOP is borrowing from us, the loan will not be treated as
a liability but rather will be excluded from stockholders' equity. If the ESOP
purchases newly issued shares from us, total stockholders' equity would neither
increase nor decrease, but per share stockholders' equity and per share net
earnings would decrease as the newly issued shares are allocated to the ESOP
participants.
The ESOP will be subject to the requirements of the Employee Retirement
Income Security Act of 1974, and the regulations of the IRS and the Department
of Labor thereunder.
STOCK OPTION PLAN. Following consummation of the conversion, we intend to
adopt a stock option plan, which will be designed to attract and retain
qualified personnel in key positions, provide directors, officers and key
employees with a proprietary interest in us as an incentive to contribute to our
success
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and reward key employees for outstanding performance. The stock option plan will
provide for the grant of incentive stock options intended to comply with the
requirements of Section 422 of the Internal Revenue Code, non-incentive or
compensatory stock options and stock appreciation rights (collectively, awards).
Awards may be granted to our directors, advisory board directors and key
employees. The stock option plan will be administered and interpreted by a
committee of the Board of Directors. Unless sooner terminated, the stock option
plan shall continue in effect for a period of 10 years from the date the stock
option plan is adopted by the Board of Directors.
Under the stock option plan, the plan committee will determine which
directors, officers and key employees will be granted awards, whether options
will be incentive or compensatory options, the number of shares subject to each
award, the exercise price of each option, whether options may be exercised by
delivering other shares of common stock and when such options become
exercisable. The per share exercise price of an incentive stock option must at
least equal the fair market value of a share of common stock on the date the
option is granted (110% of fair market value in the case of incentive stock
options granted to employees who are 10% stockholders).
At a meeting of our stockholders after the conversion, which under
applicable OTS regulations may be held no earlier than six months after the
completion of the conversion, we intend to present the stock option plan to
stockholders for approval and to reserve an amount equal to 10% of the shares of
common stock sold in the conversion (161,000 shares or 185,150 shares based on
the maximum and 15% above the maximum of the offering range, respectively), for
issuance under the stock option plan. Currently, we intend to present the stock
option plan to stockholders at least one year after completion of the
conversion. OTS regulations provide that, in the event such plan is implemented
within one year after the conversion, no individual officer or employee of
People's Savings may receive more than 25% of the options granted under the
stock option plan and non-employee directors may not receive more than 5%
individually, or 30% in the aggregate of the options granted under the stock
option plan. OTS regulations also provide that the exercise price of any options
granted under any such plan must be at least equal to the fair market value of
the common stock as of the date of grant. Each stock option or portion thereof
will be exercisable at any time on or after it vests and will be exercisable
until 10 years after its date of grant or for periods of up to five years
following the death, disability or other termination of the optionee's
employment or service as a director. However, failure to exercise incentive
stock options within three months after the date on which the optionee's
employment terminates may result in the loss of incentive stock option
treatment.
At the time an award is granted pursuant to the stock option plan, the
recipient will not be required to make any payment in consideration for such
grant. With respect to incentive or compensatory stock options, the optionee
will be required to pay the applicable exercise price at the time of exercise in
order to receive the underlying shares of common stock. The shares reserved for
issuance under the stock option plan may be authorized but previously unissued
shares, treasury shares, or shares purchased by us on the open market or from
private sources. In the event of a stock split, reverse stock split or stock
dividend, the number of shares of common stock under the stock option plan, the
number of shares to which any award relates and the exercise price per share
under any option or stock appreciation right shall be adjusted to reflect such
increase or decrease in the total number of shares of common stock outstanding.
If we declare a special cash dividend or return of capital after we implement
the stock option plan in an amount per share which exceeds 10% of the fair
market value of a share of common stock as of the date of declaration, the per
share exercise price of all previously granted options which remain unexercised
as of the date of such declaration shall, subject to certain limitations, be
proportionately adjusted to give effect to the special cash dividend or return
of capital as of the date of payment of such special cash dividend or return of
capital.
Under current provisions of the Code, the federal income tax treatment of
incentive stock options and compensatory stock options is different. A holder of
incentive stock options who meets certain holding period requirements will not
recognize income at the time the option is granted or at the time
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the option is exercised, and a federal income tax deduction generally will not
be available to us at any time as a result of such grant or exercise. With
respect to compensatory stock options, the difference between the fair market
value on the date of exercise and the option exercise price generally will be
treated as compensation income upon exercise, and we will be entitled to a
deduction in the amount of income so recognized by the optionee. Upon the
exercise of a stock appreciation right, the holder will realize income for
federal income tax purposes equal to the amount received by him, whether in
cash, shares of stock or both, and we will be entitled to a deduction for
federal income tax purposes in the same amount.
RECOGNITION PLAN. After the conversion, we intend to adopt a recognition
plan for our directors, officers and employees. The objective of the recognition
plan will be to enable us to provide directors, officers and employees with a
proprietary interest in us as an incentive to contribute to our success. We
intend to present the recognition plan to our stockholders for their approval at
a meeting of stockholders which, pursuant to applicable OTS regulations, may be
held no earlier than six months after the conversion.
The recognition plan will be administered by a committee of our Board of
Directors, which will have the responsibility to invest all funds contributed to
the trust created for the recognition plan. We will contribute sufficient funds
to the recognition plan trust so that the trust can purchase, following the
receipt of stockholder approval, a number of shares equal to an aggregate of 4%
of the common stock sold in the conversion (64,400 shares or 74,040 shares based
on the maximum and 15% above the maximum of the offering range, respectively).
Shares of common stock granted pursuant to the recognition plan generally will
be in the form of restricted stock vesting at a rate to be determined by our
Board of Directors or a committee thereof. For accounting purposes, compensation
expense in the amount of the fair market value of the common stock at the date
of the grant to the recipient will be recognized pro rata over the period during
which the shares are payable. A recipient will be entitled to all voting and
other stockholder rights, except that the shares, while restricted, may not be
sold, pledged or otherwise disposed of and are required to be held in the trust.
Under the terms of the recognition plan, recipients of awards will be entitled
to instruct the trustees of the recognition plan as to how the underlying shares
should be voted, and the trustees will be entitled to vote all unallocated
shares in their discretion. If a recipient's employment is terminated as a
result of death or disability, all restrictions will expire and all allocated
shares will become unrestricted. We can terminate the recognition plan at any
time, and if we do so, any shares not allocated will revert to us. Recipients of
grants under the recognition plan will not be required to make any payment at
the time of grant or when the underlying shares of common stock become vested,
other than payment of withholding taxes.
INDEBTEDNESS OF MANAGEMENT
In the ordinary course of our business, we make loans available to our
directors, officers and employees. Such loans are made in the ordinary course of
business on the same terms, including interest rates and collateral, as
comparable loans to our other borrowers. It is the belief of management that
these loans neither involve more than the normal risk of collectibility nor
present other unfavorable features. At September 30, 1999, we had four loans
outstanding to directors and executive officers of People's Savings, or members
of their immediate families. These loans totalled approximately $214,000 or 1.8%
of our total equity at September 30, 1999.
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OUR CONVERSION AND OUR MERGERS
WITH OAKLEY AND HARVEST HOME FINANCIAL
THE BOARDS OF DIRECTORS OF PEOPLES COMMUNITY BANCORP AND PEOPLE'S SAVINGS
APPROVED THE PLAN OF CONVERSION, AS HAS THE OTS AND THE OHIO DIVISION OF
FINANCIAL INSTITUTIONS, SUBJECT TO APPROVAL BY THE MEMBERS OF PEOPLE'S SAVINGS
AND OAKLEY ENTITLED TO VOTE ON THE MATTER AND THE SATISFACTION OF CERTAIN OTHER
CONDITIONS. REGULATORY APPROVAL, HOWEVER, DOES NOT CONSTITUTE A RECOMMENDATION
OR ENDORSEMENT OF THE PLAN OF CONVERSION BY SUCH AGENCIES. IN ADDITION, THE
BOARDS OF DIRECTORS OF PEOPLES COMMUNITY BANCORP AND PEOPLE'S SAVINGS ADOPTED
THE AGREEMENT OF MERGER BETWEEN PEOPLE'S SAVINGS AND OAKLEY AND THE AGREEMENT
AND PLAN OF MERGER BETWEEN PEOPLE'S SAVINGS AND HARVEST HOME FINANCIAL.
GENERAL
In connection with approval of the merger agreements, on September 30, 1999,
the Board of Directors of People's Savings unanimously adopted the Plan of
Conversion, pursuant to which People's Savings will convert from an Ohio
chartered mutual savings and loan association to a federally chartered stock
savings bank to be known as "Peoples Community Bank," and we will offer and sell
our common stock. All of the common stock of Peoples Community Bank following
the conversion will be held by Peoples Community Bancorp, which is incorporated
under Delaware law. The Plan has been approved by the OTS and the Ohio Division
of Financial Institutions, subject to, among other things, approval of the Plan
by the members of People's Savings and Oakley. People's Savings and Oakley each
have called a special meeting for this purpose to be held on , 2000.
Immediately prior to the completion of the conversion, Oakley will merge
with and into People's Savings with People's Savings being the survivor.
Immediately after the completion of the conversion, Harvest Home Financial will
merge with and into Peoples Community Bancorp, with Peoples Community Bancorp
being the survivor. Immediately thereafter Harvest Home Savings Bank will merge
with and into Peoples Community Bank with Peoples Community Bank being the
survivor. The mergers are governed by the merger agreements, which were
unanimously adopted by the respective Boards of Directors of People's Savings,
Oakley and Harvest Home Financial and upon its formation, by the Board of
Directors of Peoples Community Bancorp.
The conversion and the mergers are interdependent transactions and no
transactions will occur unless all of them do. Thus, in the event the conditions
to the mergers are not satisfied or waived, the conversion will not be
completed, the offerings will be terminated and the funds received in connection
therewith returned to subscribers. The completion of the Oakley merger is
expected to occur immediately before the conversion and the Harvest Home merger
is expected to occur immediately after the completion of the conversion.
We have received approval from the OTS to become a savings and loan holding
company and to acquire all of the common stock of Peoples Community Bank to be
issued in connection with the conversion as well as all of the Harvest Home
Financial common stock. We plan to retain 50% of the net proceeds from the sale
of the common stock, and to use the remaining proceeds to purchase all of the
then to be issued and outstanding capital stock of Peoples Community Bank. Based
on the minimum and maximum of the offering range, we intend to use approximately
$952,000 and $1.3 million, respectively, of the net proceeds retained by us to
loan funds to the ESOP to enable the ESOP to purchase up to 8% of the common
stock. The conversion will not be completed unless we sell shares of common
stock within the range of our appraised value.
The Plan of Conversion provides generally that we will offer shares of
common stock for sale in the Subscription Offering to Eligible Account Holders,
Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible Account
Holders, Other Members, and officers, directors and employees of People's
Savings and Oakley. In addition, subject to the prior rights of holders of
subscription rights,
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we may elect to offer the shares of common stock not subscribed for in the
Subscription Offering, if any, for sale in a Community Offering commencing prior
to or upon completion of the Subscription Offering. See "The
Offerings--Subscription Offering and Subscription Rights" and "--Community
Offering." We have the right to accept or reject, in whole or in part, any
orders to purchase shares of common stock received in the Community Offering.
The aggregate price of the shares of common stock to be issued in the
conversion will be within the offering range, which was determined based upon an
independent appraisal of the estimated pro forma market value of the common
stock. The offering range is currently $11,900,000 to $16,100,000. All shares of
common stock to be issued and sold in the conversion will be sold at the same
price. The independent appraisal will be affirmed or, if necessary, updated
before we complete the conversion. The appraisal has been performed by RP
Financial, LC, a consulting firm experienced in the valuation and appraisal of
savings institutions. See "The Offerings--How We Determined the Price Per Share
and the Offering Range" for more information as to how the estimated pro forma
market value of the common stock was determined.
OUR PURPOSES FOR CONVERTING TO STOCK-FORM AND MERGING WITH OAKLEY AND HARVEST
HOME FINANCIAL
As mutual savings and loan associations, People's Savings and Oakley do not
have stockholders and have no authority to issue capital stock. By converting to
the capital stock form of organization, People's Savings will be structured in
the form used by commercial banks and most business entities. The conversion
will permit People's Savings' and Oakley's customers and possibly other members
of the local community and of the general public to become equity owners and to
share in our future. The conversion will also provide additional funds for
lending and investment activities, possible diversification into other related
financial services activities and future growth through possible acquisitions of
other financial institutions.
The Boards of Directors of Peoples Community Bancorp, People's Savings,
Oakley, Harvest Home Financial and Harvest Home Savings Bank believe that the
combination of the parties will enhance the competitive position of the combined
entities and will enable the resulting institution to compete more effectively
than either People's Savings, Oakley or Harvest Home Savings Bank could on its
own. The combined entity will have greater financial resources and, as a result
of the offerings, increased capital levels. Our pro forma stockholders' equity
will amount to 15.81% of pro forma total assets at September 30, 1999, assuming
the conversion shares are sold at the maximum of the estimated offering range.
The combination will result in increased funds being available for lending
purposes, greater resources for expansion of services and better opportunities
for attracting and retaining qualified personnel.
After the conversion, we will be able to raise additional equity capital
through further sales of securities and to issue securities in connection with
possible additional acquisitions. At the present time, we have no plans with
respect to additional offerings of securities, other than the possible issuance
of additional shares to the recognition plan or upon exercise of stock options.
After the conversion, we will also be able to use stock-related incentive
programs to attract and retain executive and other personnel for Peoples
Community Bancorp and Peoples Community Bank. See "Management--New Stock Benefit
Plans."
The terms of the merger agreements were the result of arm's length
negotiations between the representatives of People's Savings, Oakley and Harvest
Home Financial. In adopting the Plan and the merger agreements, the Boards of
Directors of People's Savings, Harvest Home Financial and Oakley determined that
the conversion and the mergers were advisable and in the best interests of
People's Savings, Harvest Home Financial and Oakley and our depositors,
employees, customers and the
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communities historically served by us. Among the factors considered by the
Boards of Directors of People's Savings, Harvest Home Financial and Oakley were:
- the ability to expand People's Savings' presence in the Cincinnati
metropolitan area (upon completion of the mergers, Peoples Community Bank
will increase from two to six branches in the Cincinnati metropolitan
area);
- the ability to offer additional products, such as ARM loans and checking
accounts;
- the ability to offer larger loans and to increase the amount of our
commercial real estate loan portfolio;
- information concerning the financial condition, results of operations,
capital levels, asset quality and prospects of People's Savings, Oakley
and Harvest Home;
- the impact the conversion and the mergers will have on our consolidated
results of operations;
- the compatibility of the respective management and business philosophies;
- the enhanced ability of the combined enterprise to compete in relevant
banking and non-banking markets;
- industry and economic conditions; and
- the impact of the conversion and the mergers on the depositors, employees,
customers and communities served by People's Savings, Oakley and Harvest
Home Savings Bank through the contemplated expansion of lending products
as well as the expansion of retail banking products and services.
In light of the foregoing, the Boards of Directors of Peoples Community
Bancorp, People's Savings, Harvest Home Financial and Oakley believe that the
conversion and the mergers are in the best interest of the parties and their
respective members.
EFFECTS OF OUR CONVERSION AND THE MERGERS
GENERAL. Prior to the conversion, each depositor in People's Savings and
Oakley has both a deposit account in the institution and a pro rata ownership
interest in the net worth of People's Savings or Oakley, which interest may only
be realized in the event of a liquidation of People's Savings or Oakley.
However, this ownership interest is tied to the depositor's account and has no
tangible market value separate from such deposit account. A depositor who
reduces or closes his account receives nothing for his ownership interest in the
net worth of People's Savings or Oakley, which is lost to the extent that the
balance in the account is reduced.
Consequently, the depositors of People's Savings and Oakley normally cannot
realize the value of their ownership interest, which has realizable value only
in the unlikely event that People's Savings or Oakley is liquidated. In such
event, the depositors of record at that time, as owners, would share pro rata in
any residual surplus and reserves of People's Savings or Oakley after other
claims, including claims of depositors to the amount of their deposits, are
paid.
After the Oakley merger, when People's Savings converts to stock form,
permanent nonwithdrawable capital stock will be created to represent the
ownership of the net worth of Peoples Community Bank and Peoples Community Bank
will become a wholly owned subsidiary of Peoples Community Bancorp. THE COMMON
STOCK OF PEOPLES COMMUNITY BANK AND PEOPLES COMMUNITY BANCORP IS SEPARATE AND
APART FROM DEPOSIT ACCOUNTS OF PEOPLE'S SAVINGS AND CANNOT BE AND IS NOT INSURED
BY THE FDIC OR ANY OTHER GOVERNMENTAL AGENCY. Certificates will be issued to
evidence ownership of the permanent stock of Peoples Community Bank and Peoples
Community Bancorp. The stock certificates of Peoples Community Bancorp will be
transferable, and therefore the stock may be
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sold or traded if a purchaser is available with no effect on any account the
seller may hold in Peoples Community Bank.
CONTINUITY. During the conversion and mergers, People's Savings, Oakley and
Harvest Home Savings Bank will continue their normal business of accepting
deposits and making loans. People's Savings, Oakley and Harvest Home Savings
Bank will continue to be subject to regulation by the OTS and the FDIC. After
the conversion and the mergers, Peoples Community Bank will continue to provide
services for depositors and borrowers under current policies.
The directors and officers of People's Savings at the time of the conversion
will continue to serve as directors and officers of Peoples Community Bank after
the conversion. The directors and officers of Peoples Community Bancorp consist
of individuals currently serving as directors and officers of People's Savings.
In addition, on completion of the mergers, certain officers and directors of
Oakley and Harvest Home Savings Bank will become officers and directors of
Peoples Community Bancorp and/or Peoples Community Bank.
EFFECT ON DEPOSIT ACCOUNTS. Each depositor in People's Savings, Oakley and
Harvest Home Savings Bank at the time of the conversion and mergers will
automatically continue as a depositor in Peoples Community Bank. The conversion
and the mergers will not affect deposit balance, interest rate and other terms,
except to the extent that funds in the account are withdrawn to purchase the
common stock and except with respect to voting and liquidation rights. Deposit
accounts at Peoples Community Bank will continue to be insured by the FDIC to
the same extent as before the conversion and mergers and depositors will
continue to hold their existing certificates, passbooks and other evidences of
their accounts.
EFFECT ON LOANS. The conversion and mergers will not affect loans from
People's Savings, Oakley or Harvest Home Savings Bank, except that Peoples
Community Bank will be the lender, and the amount, interest rate, maturity and
security for each loan will remain as they were contractually fixed before the
conversion.
EFFECT ON VOTING RIGHTS OF MEMBERS. At present, all depositors of People's
Savings and Oakley are members of, and have voting rights in, People's Savings
and Oakley as to all matters requiring membership action. When we complete the
conversion and Oakley merger, depositors will cease to be members and will no
longer be entitled to vote at meetings of Peoples Community Bank. After the
conversion, all voting rights in Peoples Community Bank will be vested in
Peoples Community Bancorp as the sole stockholder of Peoples Community Bank.
Exclusive voting rights with respect to Peoples Community Bancorp will be vested
in the holders of common stock. Depositors of People's Savings will not have
voting rights in us after the conversion, except to the extent that they become
stockholders of us.
TAX EFFECTS. To complete the conversion and the mergers, we must receive
rulings or opinions with regard to federal and Ohio income taxation which
indicate that the conversion will not be taxable for federal or Ohio income tax
purposes to us or People's Savings Eligible Account Holders or Supplemental
Eligible Account Holders, except as discussed below. We have received favorable
opinions regarding the federal and Ohio income tax consequences of the
conversion. See "--Tax Aspects of Our Conversion and the Mergers."
EFFECT ON LIQUIDATION RIGHTS. If People's Savings or Oakley were to
liquidate, all claims of People's Savings' or Oakley's creditors (including
those of depositors, to the extent of their deposit balances) would be paid
first. Thereafter, if there were any assets remaining, members of People's
Savings or Oakley would receive such remaining assets, pro rata, based upon the
deposit balances in their deposit accounts at People's Savings or Oakley
immediately prior to liquidation. In the unlikely event that Peoples Community
Bank were to liquidate after the conversion and the mergers, all claims
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of creditors (including those of depositors, to the extent of their deposit
balances) would also be paid first, followed by distribution of the "liquidation
account" to certain depositors (see "--Liquidation Rights of Certain
Depositors"), with any assets remaining thereafter distributed to us as the
holder of the capital stock of Peoples Community Bank. Pursuant to the rules and
regulations of the OTS, a post-conversion merger, consolidation, sale of bulk
assets or similar combination or transaction with another insured savings
institution would not be considered a liquidation and, in such a transaction,
the liquidation account would be required to be assumed by the surviving
institution.
TERMS OF OUR MERGER AGREEMENTS WITH OAKLEY AND HARVEST HOME FINANCIAL
The following is a general summary of the agreements People's Savings,
Oakley and Harvest Home Savings Bank have regarding actions prior to the
mergers. We urge you to read the merger agreements, which are included as
exhibits to the registration statement filed on Form S-1 with the SEC, for a
more complete understanding of these agreements.
CONDITIONS TO THE MERGERS. Our proposed mergers with Oakley and Harvest
Home Financial will not be completed unless certain conditions are satisfied.
The obligations of People's Savings and Oakley to complete their merger are
subject to the following conditions being satisfied:
- compliance with or satisfaction of all representations and warranties set
forth in the merger agreement;
- People's Savings and Oakley continue to conduct their business in the
ordinary and usual course;
- all necessary regulatory approvals required to complete the Oakley merger
must be received;
- there may not be any material adverse changes in the business, operations,
properties or financial condition of People's Savings or Oakley; and
- all corporate action necessary to authorize the execution, delivery and
performance of the Oakley merger agreement must have been duly and validly
taken by People's Savings and Oakley.
In addition to the foregoing, none of the consents, approvals or
authorizations from governmental bodies or third parties may contain any term or
condition which would have a material adverse effect on the business,
operations, properties, assets or financial position of Oakley or People's
Savings or otherwise materially reduce or impair the value of Oakley to People's
Savings.
The obligations of Oakley also are conditioned on People's Savings having
taken all action required in connection with completion of the conversion and
the acquisition of Harvest Home Financial and receiving all necessary regulatory
or governmental approvals or consents.
The obligations of People's Savings and Harvest Home Financial to complete
their merger are subject to the satisfaction of the following:
- all corporate action necessary to authorize, execute and deliver the
merger agreement and to complete the merger must have been taken by
People's Savings, Peoples Community Bancorp and Harvest Home Financial;
- all necessary regulatory approvals must be received and all waiting
periods must have expired;
- the representations and warranties made by each of the parties in the
merger agreement must be true in all material respects, except for certain
inaccuracies which would not be deemed to have a material adverse effect
on People's Savings or Harvest Home Financial;
- no proceeding for an order, decree or injunction to enjoin or prohibit the
conversion or the merger may be pending;
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- no statute, rule or regulation, order or decree will prohibit the merger;
- the Oakley merger and the conversion have been completed;
- the registration statement on Form S-1 has been declared effective by the
SEC and the SEC is not taking any actions to stop the merger from
proceeding;
- the shares of common stock of Peoples Community Bancorp have been approved
for listing on the Nasdaq Stock Market's National Market;
- the receipt by the parties of tax opinions that the transactions
contemplated by the merger agreement qualify as a reorganization within
the meaning of Section 368 of the Code and, among other things, the
stockholders of Harvest Home Financial will not recognize any gain or loss
upon receipt of shares of common stock of Peoples Community Bancorp in
exchange for their Harvest Home Financial common stock in the merger; and
- the holders of not more than 15% of the outstanding Harvest Home Financial
common stock shall have elected to exercise dissenters' rights.
In addition to the foregoing conditions, the obligations of People's Savings
and Harvest Home Financial under the Harvest Home merger agreement are further
subject to the satisfaction of the following conditions before completion of the
merger:
- the performance and compliance in all material respects by People's
Savings and Harvest Home Financial of all of their respective covenants
and obligations under the merger agreement; and
- the delivery to each of People's Savings and Harvest Home Financial of
various letters, certificates and other documents.
We cannot guarantee when, or whether, the regulatory consents and approvals
necessary to complete the conversion and the mergers will be obtained or whether
all of the other conditions to the mergers will be satisfied or waived by the
party permitted to do so. If the mergers are not completed on or before
September 30, 2000, the merger agreements may be terminated.
CONDUCT OF BUSINESS PRIOR TO THE CLOSING DATE. The parties to the merger
agreements have agreed to certain limitations on the way that they conduct their
business prior to the mergers being completed. Under the terms of the Oakley
merger agreement, People's Savings and Oakley have agreed to conduct their
businesses in the ordinary and usual course. In addition, under the terms of the
merger agreement, Oakley and People's Savings have agreed that each shall not,
except as otherwise approved by the written consent of the other, take certain
actions, including the following:
- amend its Articles of Incorporation, Constitution or Bylaws;
- alter the terms of its existing deposit accounts or the terms upon which
deposit accounts are accepted by it, other than in response to market
conditions;
- enter into any material contracts, agreements or commitments or enter into
any securities transaction or investments involving in excess of $25,000,
whether oral or written, except in the ordinary and usual course of its
business;
- enter into any lease, contract or commitment for the purchase, sale or
improvement of any real estate;
- incur any indebtedness or refinance any existing indebtedness except, in
each case, in the ordinary and usual course of its business;
- declare or pay any bonus, extra dividend, or extra interest to members or
depositors;
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- execute any employment contract with any employee or increase the
remuneration paid to any director, officer, employee or agent, or agree to
do so, except for normal merit and cost of living increases for employees;
- make any material change in its historic accounting methods;
- employ or make any agreement or commitment to employ any additional
officer, employee (other than tellers to be employed by People's Savings)
or agent or appoint any additional person as director or nominate any
person as a candidate for election as a director who is not currently a
director;
- waive any rights or cancel any debts or claims of material value, whether
considered individually or in the aggregate;
- incur any material obligation or liability, except in the ordinary course
of business;
- establish any new lending programs or make any changes in its policies
concerning which persons may approve loans;
- make any advance secured by an open end mortgage except the original loan
amount secured by such a mortgage;
- make or commit to make any material capital expenditure; or
- except for the proposed merger with Harvest Home Financial, negotiate or
participate with anyone, other than each other, in respect of the merger
or consolidation of Oakley or People's Savings or the acquisition of all
or any part of the business or assets of Oakley or People's Savings.
Under the terms of the Harvest Home merger agreement, People's Savings and
Harvest Home Financial have agreed to conduct their respective businesses only
in the ordinary course and consistent with past practice, except with the prior
written consent of People's Savings or Harvest Home Financial, as the case may
be. Harvest Home Financial also has agreed to use its reasonable efforts to
preserve its business organization intact, keep available to itself and People's
Savings the present services of its employees, and preserve for itself and
People's Savings the goodwill of its customers and those of its subsidiaries and
others with whom business relationships exist.
In addition, under the terms of the Harvest Home merger agreement, Harvest
Home Financial has agreed that, except as otherwise approved by People's Savings
in writing or as permitted, contemplated or required by the merger agreement, it
will not, nor will it permit any of its subsidiaries to take certain actions,
including the following:
- declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of the Harvest Home Financial common stock, except for regular quarterly
cash dividends at a rate not in excess of $.11 per share and except, in
the event the effective time occurs more than 45 days after the
commencement of any calendar quarter but prior to the normal dividend
payment date for such calendar quarter, a pro rata cash dividend based on
Harvest Home Financial's normal quarterly cash dividend rate;
- issue any shares of its capital stock, other than upon exercise of the
Harvest Home Financial options or issue, grant, modify or authorize any
warrants, options, rights or convertible securities relating to such
capital stock; purchase any shares of Harvest Home Financial common stock;
or effect any recapitalization, reclassification, stock dividend, stock
split or like change in capitalization;
- amend its Articles of Incorporation, Constitution, Code of Regulations,
Bylaws or similar organizational documents; impose, or suffer the
imposition, on any share of stock or other
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ownership interest held by Harvest Home Financial in the Bank of any lien,
charge or encumbrance or permit any such lien, charge or encumbrance to
exist; or waive or release any material right or cancel or compromise any
material debt or claim;
- increase the rate of compensation of any of its directors, officers or
employees, or pay or agree to pay any bonus or severance to, or provide
any other new employee benefit or incentive to, any of its directors,
officers or employees, except (A) as may be required pursuant to
previously disclosed commitments existing on the date hereof, (B) as may
be required by law and (C) merit increases in accordance with past
practices, normal cost-of-living increases and normal increases related to
promotions or increased job responsibilities;
- enter into or, except as may be required by law, modify any pension,
retirement, stock option, stock purchase, stock appreciation right,
savings, profit sharing, deferred compensation, supplemental retirement,
consulting, bonus, group insurance or other employee benefit, incentive or
welfare contract, plan or arrangement, or any trust agreement related
thereto, in respect of any of its directors, officers or employees; or
make any contributions to either Harvest Home Financial's pension plan or
ESOP (other than as required by law or regulation or in a manner and
amount consistent with past practices);
- enter into (A) any transaction, agreement, arrangement or commitment not
made in the ordinary course of business, (B) any agreement, indenture or
other instrument relating to the borrowing of money by Harvest Home
Financial or the Bank or guarantee by Harvest Home Financial or the Bank
of any such obligation, except in the case of the Bank for deposits, FHLB
advances, federal funds purchased and securities sold under agreements to
repurchase in the ordinary course of business consistent with past
practice, (C) any agreement, arrangement or commitment relating to the
employment of an employee or consultant, or amend any such existing
agreement, arrangement or commitment provided that Harvest Home Financial
and the Bank may employ an employee or consultant in the ordinary course
of business if the employment of such employee or consultant is terminable
by Harvest Home Financial or the Bank at will without liability, other
than as required by law; or (D) any contract, agreement or understanding
with a labor union;
- change its method of accounting in effect for the year ended
September 30, 1999, except as required by changes in laws or regulations
or generally accepted accounting principles, or change any of its methods
of reporting income and deductions for federal income tax purposes from
those employed in the preparation of its federal income tax return for
such year, except as required by changes in laws or regulations;
- make any capital expenditures in excess of $50,000 individually or
$100,000 in the aggregate, other than pursuant to binding commitments
existing on the September 30, 1999 and other than expenditures necessary
to maintain existing assets in good repair; or enter into any new lease of
real property or any new lease of personal property providing for annual
payments exceeding $15,000;
- file any applications or make any contract with respect to branching or
site location or relocation;
- acquire in any manner whatsoever (other than to realize upon collateral
for a defaulted loan) control over or any equity interest in any business
or entity, except for investments in marketable equity securities in the
ordinary course of business and not exceeding 5% of the outstanding shares
of any class;
- enter or agree to enter into any agreement or arrangement granting any
preferential right to purchase any of its assets or rights or requiring
the consent of any party to the transfer and assignment of any such assets
or rights;
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- change or modify in any material respect any of its lending or investment
policies, except to the extent required by law or an applicable regulatory
authority;
- take any action that would prevent or impede the merger or the conversion
from qualifying as a reorganization within the meaning of Section 368 of
the Code;
- enter into any futures contract, option contract, interest rate caps,
interest rate floors, interest rate exchange agreement or other agreement
for purposes of hedging the exposure of its interest-earning assets and
interest-bearing liabilities to changes in market rates of interest; or
- take any action that would result in any of the representations and
warranties of Harvest Home Financial contained in the merger agreement not
to be true and correct in any material respect at the effective time or
that would cause any of the conditions to completion of the merger from
being satisfied.
Pursuant to the Harvest Home merger agreement, until the effective time of
the merger with Harvest Home Financial, except with the prior written consent of
Harvest Home Financial or as expressly contemplated in the merger agreement,
People's Savings has agreed not to (i) take any action that would prevent or
impede the merger with Harvest Home Financial or the conversion from qualifying
as a reorganization within the meaning of Section 368 of the Internal Revenue
Code; or (ii) take any action that would result in any of the representations
and warranties of People's Savings contained in the merger agreement not to be
true and correct in any material respect at the effective time or that would
cause any of the conditions to completion of the merger from being satisfied.
WHAT HAPPENS IF A THIRD PARTY OFFERS TO BUY HARVEST HOME FINANCIAL. Harvest
Home Financial has agreed that it will not solicit or encourage inquiries or
proposals with respect to, furnish any information relating to, or participate
in any negotiations or discussions concerning, any acquisition, purchase of all
or a substantial portion of the assets of, or any equity interest in, Harvest
Home Financial or Harvest Home Savings Bank (other than with People's Savings or
an affiliate thereof). However, the Board of Directors of Harvest Home Financial
may furnish such information or participate in such negotiations or discussions
if the Board of Directors, after having consulted with and considered the advice
of outside counsel, has determined that the failure to do the same may cause the
members of such Board of Directors to breach their fiduciary duties under
applicable law. Harvest Home Financial must promptly inform People's Savings of
any such request for information or of any such negotiations or discussions.
REPRESENTATIONS AND WARRANTIES MADE BY PEOPLE'S SAVINGS, OAKLEY AND HARVEST
HOME FINANCIAL IN THE MERGER AGREEMENTS. Pursuant to the execution of the merger
agreements, People's Savings, Oakley and Harvest Home Financial have made
customary representations and warranties relating to their businesses. With
certain exceptions, such representations and warranties must remain true in all
material respects through the completion of the merger. See "--Conditions to the
Mergers."
WAIVING AND AMENDING PROVISIONS IN, OR TERMINATING THE MERGER
AGREEMENTS. Any provision in the merger agreements generally may be amended or
waived by the mutual consent of the parties. However, once the stockholders of
Harvest Home Financial have approved the Harvest Home merger agreement, the
amount or form of consideration to be received by stockholders of Harvest Home
Financial may not be modified without additional approval by stockholders.
The Oakley merger agreement may be terminated prior to the effective time
by:
- the mutual consent of the Boards of Directors of Oakley and People's
Savings;
- either party if the conditions to their obligations under the merger
agreement are not satisfied or waived before September 30, 2000; and
- either party if the merger is not completed before September 30, 2000.
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The Harvest Home merger agreement may be terminated prior to the effective
time by:
- the mutual consent of both parties;
- either party if the other has materially breached (i) any of the material
covenants or undertakings in the agreement or (ii) any representation or
warranty in the agreement and such breach would have a material adverse
effect and has not been cured within 30 days;
- either party if any approval, consent or waiver of a governmental
authority required to permit completion of the transactions shall have
been denied (unless a petition for rehearing or amended application is
filed within 25 days) or any governmental authority of competent
jurisdiction shall have issued a final unappealable order prohibiting
completion of the transactions contemplated by the merger agreement;
- either party in the event of (i) failure of Harvest Home Financial
stockholders to approve the merger agreement; (ii) the failure of People's
Savings' and Oakley's members to approve the conversion;
- either party in the event that the merger is not consummated by
September 30, 2000; and
- People's Savings in the event a purchase event (as defined below) has
occurred.
For purposes of the Harvest Home merger agreement, the term "purchase event"
means any of the following events or transactions occurring after the date of
the merger agreement:
(i) Harvest Home Financial or Harvest Home Savings Bank without having
received People's Savings' prior written consent, enters into an agreement
to engage in an acquisition transaction (as defined) with anyone other than
the Peoples Community Bancorp or People's Savings or the Board of Directors
of Harvest Home Financial recommends that the stockholders of Harvest Home
Financial approve or accept an acquisition transaction with anyone other
than Peoples Community Bancorp or People's;
(ii) After a bona fide proposal for an acquisition transaction is made
by anyone other than Peoples Community Bancorp or People's Savings,
(A) Harvest Home Financial or Harvest Home Savings Bank breaches any
covenant or obligation contained in the merger agreement and such breach
would entitle People's Savings to terminate the merger agreement or (B) the
holders of the Harvest Home Financial common stock do not approve the merger
agreement or (C) the Harvest Home Financial special meeting to approve the
merger agreement is not held or is canceled or (D) the Board of Directors of
Harvest Home Financial withdraws or modifies in a manner adverse to People's
Savings its recommendation to approve the merger agreement.
For purposes of the merger agreement, "acquisition transaction" means: a
merger or consolidation, or any similar transaction, involving Harvest Home
Financial or Harvest Home Savings Bank; a purchase, lease or other acquisition
of all or substantially all of the assets of Harvest Home Financial or Harvest
Home Savings Bank; or a purchase or other acquisition of securities representing
25% or more of the voting power of Harvest Home Financial or Harvest Home
Savings Bank.
In the event of the termination of the merger agreement, as provided above,
the merger agreement shall become void and have no effect, and there shall be no
liability on the part of any party to the merger agreement or their respective
officers or directors, except that certain provisions regarding confidential
information and expenses shall survive and remain in full force and effect. No
party shall be relieved from any liability arising out of the willful breach by
such party of any covenant or agreement of it or the willful misrepresentation
in the merger agreement of any material fact.
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If the Harvest Home Financial merger agreement is terminated for any reason,
then People's Savings will be required to pay Harvest Home Financial a
termination fee of $200,000 except if:
- People's Savings terminates the agreement because Harvest Home Financial
has materially breached any material covenant, undertaking, representation
or warranty or if there has been a purchase event (as defined above);
- Harvest Home Financial refuses to convene a meeting of its stockholders to
approve the Harvest Home Financial merger agreement or if such
stockholders vote and do not approve such agreement;
- Harvest Home Financial cannot deliver certain certificates that, among
other things, it has materially complied with all of its covenants,
obligations, representations and warranties under the merger agreement;
- a proceeding has been initiated by a governmental entity seeking to
prevent the merger with Harvest Home Financial; or
- if Harvest Home Financial terminates the merger agreement prior to
September 30, 2000.
If there is a "purchase event" (as defined above), then Harvest Home
Financial will be required to pay People's Savings a fee of $500,000, provided
that the purchase event occurs before a fee termination event.
A fee termination event shall be the first to occur of the following: the
day that the merger with harvest Home Financial is completed; termination of the
merger agreement in accordance with the terms hereof before the occurrence of a
purchase event (other than a termination of the merger agreement by People's
Savings as a result of a purchase event or a willful breach of any
representation, warranty, covenant or agreement by Harvest Home Financial) or
12 months following termination of the merger agreement by People's Savings
unless a purchase event occurred before that time.
REGULATORY APPROVALS NEEDED TO COMPLETE THE CONVERSION AND THE MERGERS
We have to receive various approvals of the OTS and the Ohio Division of
Financial Institutions in order to complete the conversion and the mergers. The
OTS has approved the plan of conversion, subject to approval by the members of
People's Savings and Oakley. In addition, completion of the conversion and the
mergers is subject to OTS approval of Peoples Community Bancorp's holding
company application to acquire all the Harvest Home Financial common stock and
People's Savings and the applications under The Bank Merger Act with respect to
the mergers of Harvest Home Savings Bank and Oakley with and into People's
Savings with People's Savings being the surviving entity. Applications for these
approvals have been filed and are currently pending.
The period for the OTS review of any proposed acquisition, such as the
transactions contemplated by the holding company and merger applications
currently pending, commences upon receipt by the OTS of an application deemed
sufficient by the OTS. Once an application is deemed sufficient, the OTS
generally has a 60-day period for review of the application, which may be
extended by the OTS for up to an additional 30 days.
There can be no assurances that the requisite OTS approvals will be received
in a timely manner, in which event the completion of the conversion and the
mergers may be delayed beyond the expiration of the offerings. In the event the
conversion and the mergers are not consummated on or before September 30, 2000,
the merger agreements may be terminated by People's Savings and by Oakley or
Harvest Home Savings Bank for their respective agreements.
Pursuant to OTS regulations, the Plan of Conversion must be approved by at
least a majority of the total number of votes eligible to be cast by members of
People's Savings and Oakley. In addition,
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the parties have conditioned the completion of the conversion and the merger on
the approval of the Harvest Home merger agreement by the stockholders of Harvest
Home Financial at a special meeting thereof called for , 2000.
Under Ohio law, the Harvest Home merger agreement must be approved by majority
of the outstanding Harvest Home Financial common stock entitled to vote thereon
at Harvest Home Financial's special meeting.
Peoples Community Bancorp is required to make certain filings with state
securities regulatory authorities in connection with the issuance of common
stock in the conversion and the merger with Harvest Home Financial.
INTERESTS OF DIRECTORS AND OFFICERS IN THE CONVERSION AND THE MERGERS THAT MAY
BE
DIFFERENT FROM YOUR INTERESTS
BOARDS OF DIRECTORS. At the time of completion of the conversion and the
mergers, Peoples Community Bancorp and People's Savings will also take all
necessary action to appoint Mr. Rathkamp, currently a member of Harvest Home
Financial's and Harvest Home Savings Bank' Boards, to Peoples Community
Bancorp's and Peoples Community Bank's Boards of Directors for a three-year
term. Mr. Noe, a director of Oakley will also be appointed to the Boards of
Directors of Peoples Community Bancorp and Peoples Community Bank for a
three-year term.
CREATION OF THE OAKLEY ADVISORY BOARD. The remaining directors of Oakley as
of the effective time who are not elected to the Board of Directors of Peoples
Community Bank will be appointed to an advisory board of Peoples Community Bank
for a one-year term, and, subject to review on each anniversary date of the
effective time, will be reappointed to two additional one-year terms. In
addition, assuming approval of the stock option plan by our stockholders after
the conversion, each advisory board member will be granted options to acquire
2,000 shares of our common stock. We have also agreed to assume the obligations
under Oakley's fully funded director's deferred compensation plan.
EXECUTIVE OFFICERS. Effective as of the effective time, Peoples Community
Bancorp and Peoples Community Bank will enter into employment agreements with
Messrs. Williams, Noe, Rathkamp and Slattery. See "Management--Employment
Agreements."
EXISTING BENEFIT PLANS AND EMPLOYMENT AGREEMENTS. As of September 30, 1999,
there were an aggregate of 84,947 stock options to purchase Harvest Home
Financial common stock outstanding under Harvest Home Financial's Stock Option
and Incentive Plan. All of these stock options are currently exercisable. If any
of the Harvest Home Financial options remain outstanding immediately prior to
completion of the conversion and the merger with Harvest Home Financial, they
will be cancelled and all rights under the options will be extinguished.
However, in consideration for the cancellation, Harvest Home Financial will make
cash payment to each option holder, immediately prior to the consummation of the
merger with Peoples Community Bancorp, equal to the number of shares subject to
the option multiplied by the difference between $18.00 and the exercise price of
the option.
As of September 30, 1999, the Harvest Home Financial ESOP held 20,337 shares
of Harvest Home Financial common stock which had not yet been allocated to
participants and which were pledged as collateral for the remaining $224,088
loan to the Harvest Home Financial ESOP. The loan balance is expected to be
repaid immediately prior to completion of the conversion and the merger, at such
time the remaining unallocated shares will be allocated to the participants and
the ESOP will be terminated.
Pursuant to the merger agreements, People's Savings has agreed to retain all
employees of Oakley, Harvest Home Financial and Harvest Home Savings Bank after
the completion of the mergers provided that Peoples Community Bancorp and
People's Savings shall not have any obligation to continue the employment of
such persons. The merger agreements provide that officers and employees
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of Oakley, Harvest Home Financial and Harvest Home Savings Bank who become
employees of People's Savings after the merger will be entitled to participate
in People's Savings' employee benefit plans maintained generally for the benefit
of its employees. People's Savings shall treat Oakley's and Harvest Home Savings
Bank's employees who become employees of People's Savings as new employees, but
shall amend its employee benefit plans to provide credit, for purposes of
vesting and eligibility to participate, for service with Oakley and Harvest Home
Savings Bank to the extent that such service was recognized for similar purposes
under Oakley's and Harvest Home Savings Bank's plans.
LIQUIDATION RIGHTS OF CERTAIN DEPOSITORS
In the unlikely event of a complete liquidation of People's Savings or
Oakley in their present mutual forms, each depositor of People's Savings or
Oakley would receive his pro rata share of any assets of People's Savings or
Oakley remaining after payment of claims of all creditors (including the claims
of all depositors to the withdrawal value of their accounts). Each depositor's
pro rata share of such remaining assets would be in the same proportion as the
value of his deposit account was to the total value of all deposit accounts in
People's Savings or Oakley at the time of liquidation. After the conversion,
each depositor, in the event of a complete liquidation of People's Savings or
Oakley, would have a claim as a creditor of the same general priority as the
claims of all other general creditors of People's Savings or Oakley. However,
except as described below, his claim would be solely in the amount of the
balance in his deposit account plus accrued interest. He would not have an
interest in the value or assets of People's Savings or Oakley above that amount.
The Plan of Conversion provides for the establishment, upon the completion
of the conversion, of a special liquidation account for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in an amount equal to
the net worth of People's Savings and Oakley as of the date of its latest
statement of financial condition contained in the final prospectus utilized in
the conversion. As of the date of this prospectus, the initial balance of the
liquidation account would be approximately $14.7 million. Each Eligible Account
Holder and Supplemental Eligible Account Holder, if he were to continue to
maintain his deposit account at People's Savings, would be entitled, upon a
complete liquidation of People's Savings after the conversion, to an interest in
the liquidation account prior to any payment to Peoples Community Bancorp as the
sole stockholder of People's Savings. Each Eligible Account Holder and
Supplemental Eligible Account Holder would have an initial interest in such
liquidation account for each deposit account, including passbook accounts, NOW
accounts, money market deposit accounts, and certificates of deposit, held in
People's Savings at the close of business on June 30, 1998 or , 2000, as
the case may be. Each Eligible Account Holder and Supplemental Eligible Account
Holder will have a pro rata interest in the total liquidation account for each
of his deposit accounts based on the proportion that the balance of each such
deposit account on the June 30, 1998 eligibility record date (or the ,
2000 supplemental eligibility record date, as the case may be) bore to the
balance of all deposit accounts in People's Savings on such dates.
If, however, on any September 30 annual closing date of People's Savings,
commencing September 30, 2000, the amount in any deposit account is less than
the amount in such deposit account on June 30, 1998 or , 2000, as
the case may be, or any other annual closing date, then the interest in the
liquidation account relating to such deposit account would be reduced by the
proportion of any such reduction, and such interest will cease to exist if such
deposit account is closed. In addition, no interest in the liquidation account
would ever be increased despite any subsequent increase in the related deposit
account. Any assets remaining after the claims of general creditors (including
the claims of all depositors to the withdrawal value of their accounts) and the
above liquidation rights of Eligible Account Holders and Supplemental Eligible
Account Holders are satisfied would be distributed to Peoples Community Bancorp
as the sole stockholder of People's Savings.
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Harvest Home Savings Bank currently maintains a liquidation account for the
benefit of savings account holders of Harvest Home Savings Bank on
September 30, 1994. Upon completion of the conversion and the merger, People's
Savings will assume the current liquidation account of Harvest Home Savings Bank
in addition to the establishment of the liquidation account for the benefit of
Eligible Account Holders and Supplemental Eligible Account Holders of People's
Savings.
TAX ASPECTS OF OUR CONVERSION AND THE MERGERS
People's Savings has received an opinion from its special counsel, Elias,
Matz, Tiernan & Herrick L.L.P., as to the material federal income tax
consequences of the conversion.
The opinion provides that, among other things:
- the change in form of People's Savings from mutual to stock form will
constitute a tax-free reorganization under Section 368(a)(1)(F) of the
Internal Revenue Code;
- no gain or loss will be recognized by us upon our purchase of the stock of
Peoples Community Bank;
- depositors of People's Savings and Oakley will not recognize any gain or
loss upon the issuance to them of deposit accounts in Peoples Community
Bank in its stock form plus their interests in the liquidation account in
exchange for their deposit accounts in the mutual bank;
- assuming the subscription rights to purchase our common stock have no
value, the tax basis of the depositors' deposit accounts in People's
Savings immediately after the conversion will be the same as the basis of
their deposit accounts immediately prior to the conversion;
- assuming the subscription rights to purchase our common stock have no
value, the tax basis of each depositor's interest in the liquidation
account will be zero; and
- the tax basis to depositors who buy our common stock in the conversion
will be the amount paid therefor, and the holding period for the shares of
common stock purchased by such persons will begin on the date on which
such person exercises the subscription right.
The opinion of Elias, Matz, Tiernan & Herrick L.L.P. is based in part upon,
and subject to the continuing validity in all material respects through the date
of the conversion of various representations of People's Savings. It is also
based upon certain assumptions and qualifications, including that the conversion
is consummated in the manner and according to the terms provided in the plan of
conversion. The opinion is also based upon the Internal Revenue Code,
regulations now in effect or proposed, current administrative rulings and
practice and judicial authority, all of which are subject to change, including a
change with a retroactive effect. Unlike private letter rulings received from
the IRS, an opinion is not binding upon the IRS and there is no assurance that
the IRS will not take a position contrary to the positions reflected in the
opinion, or that the courts will uphold the opinion if challenged by the IRS.
Grant Thornton LLP has also rendered an opinion to the effect that the
foregoing tax effects of the conversion under Ohio law are substantially the
same as they are under federal law.
People's Savings has received a letter from RP Financial stating its belief
that the subscription rights do not have any value, because those rights are
acquired by the recipients without cost, are nontransferable and of short
duration, and afford the recipients the right only to purchase the common stock
at a price equal to its estimated fair market value, which will be the same
price as the purchase price for the unsubscribed shares of common stock. If the
subscription rights granted to eligible subscribers are deemed to have an
ascertainable value, receipt of those rights would be taxable probably only to
those eligible subscribers who exercise the subscription rights, either as a
capital gain or ordinary income, in an amount equal to that value. Eligible
subscribers are encouraged to consult
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with their own tax advisor as to the tax consequences in the event that such
subscription rights are deemed to have an ascertainable value. Unlike private
rulings, the letter of RP Financial is not binding on the IRS, and the IRS could
disagree with conclusions reached in the letter. In the event of any
disagreement, there is no assurance that the IRS would not prevail in a judicial
or administrative proceeding.
Elias, Matz, Tiernan & Herrick L.L.P. also has issued an opinion to the
effect that, for federal income tax purposes, the Harvest Home Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code.
Kepley, Gilligan & Eyrich, counsel to Harvest Home Financial and Harvest Home
Savings Bank has issued an opinion to the effect that:
A Harvest Home Financial stockholder will generally recognize gain, but not
loss, upon his receipt of cash and shares of common stock of Peoples Community
Bancorp in exchange for his shares of Harvest Home Financial to the extent of
the lesser of:
(1) the excess of (a) the sum of the aggregate fair market value of the
Peoples Community Bancorp common stock received and the amount of cash
received over (b) the stockholder's aggregate tax basis for the shares of
Harvest Home Financial common stock exchanged; and
(2) the amount of cash received by such stockholder.
For this purpose, gain or loss must be calculated separately for each
identifiable block of shares surrendered in the exchange, and a loss realized on
one block of shares may not be used to offset gain realized on another block of
shares. Any such gain will be long-term capital gain if the shares of Harvest
Home Financial common stock exchanged were held for more than one year, unless
the receipt of cash has the effect of a distribution of a dividend under the
provisions of the IRS, in which case such gain will be treated as a dividend to
the extent of such stockholder's ratable share of the undistributed accumulated
earnings and profits of Harvest Home Financial. Harvest Home Financial
stockholders should consult their tax advisors as to the possibility that all or
a portion of the cash received in exchange for their Harvest Home Financial
common stock will be treated as a dividend.
A stockholder's aggregate tax basis in the Peoples Community Bancorp common
stock received pursuant to the Harvest Home Financial merger will equal such
stockholder's aggregate tax basis in the shares of Harvest Home Financial common
stock being exchanged, reduced by any amount allocable to a fractional share
interest of Peoples Community Bancorp common stock for which cash is received
and by the amount of cash consideration received (as discussed below), and
increased by the amount of gain, if any, recognized by such stockholder in the
Harvest Home Financial merger (including any portion of such gain that is
treated as a dividend). The holding period of Peoples Community Bancorp common
stock received will include the holding period of the shares of Peoples
Community Bancorp common stock being exchanged.
No fractional shares of Peoples Community Bancorp common stock will be
issued in the Harvest Home Financial merger. An Harvest Home Financial
stockholder who receives cash in lieu of such a fractional share will be treated
as having received such fractional share pursuant to the merger and then as
having exchanged such fractional share for cash in a redemption by Peoples
Community Bancorp. A Harvest Home Financial stockholder will generally recognize
capital gain or loss on such a deemed redemption of the fractional share in an
amount determined by the excess of the amount of cash received and the
stockholder's tax basis in the fractional share. Any capital gain or loss will
be long-term capital gain or loss if the Harvest Home Financial common stock
exchanged was held for more than one year.
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SELLING THE PEOPLES COMMUNITY BANCORP COMMON STOCK YOU RECEIVE IN THE
HARVEST HOME FINANCIAL MERGER
The shares of Peoples Community Bancorp common stock to be issued in the
Harvest Home Financial merger will be registered under the Securities Act and
will be freely transferable under the Securities Act except for shares issued to
any Harvest Home Financial stockholder who may be deemed to control Harvest Home
Financial, such as an executive officer, director or someone who owns a
significant amount of Harvest Home Financial's stock. These controlling persons
may not sell their shares of Peoples Community Bancorp common stock acquired in
connection with the Harvest Home Financial merger except under an effective
registration statement under the Securities Act covering such shares or in
compliance with an applicable exemption from the registration requirements of
the Securities Act. This document does not cover any resales of Harvest Home
Financial common stock received in the merger by persons who may be deemed to be
controlling persons of Harvest Home Financial.
ACCOUNTING TREATMENT OF THE MERGERS
The Oakley merger will be accounted for as a pooling-of-interests. The
Harvest Home Financial merger will be accounted for under the purchase method of
accounting in accordance with generally accepted accounting principles. This
means that Peoples Community Bancorp will record the fair market value of
Harvest Home Financial's assets and liabilities on its financial statements. Any
difference between the purchase price and the fair value of the identifiable net
assets of Harvest Home Financial is recorded as goodwill. Peoples Community
Bancorp estimates that it will record $6.75 million in goodwill from the Harvest
Home Financial merger. This goodwill will be amortized on a straight-line basis
over 15 years. The income statement of Peoples Community Bancorp will
incorporate the recorded income of Harvest Home Financial's operations beginning
at the completion of the merger.
WHEN THE MERGERS WILL BE COMPLETED
The Oakley merger will be completed immediately prior to the conversion and
the Harvest Home Financial merger will be completed immediately after the
conversion. The Harvest Home Financial merger will become effective at the time
set forth in the certificate of merger that will be filed with the Secretaries
of State of the States of Delaware and Ohio. The certificate of merger will be
filed following the satisfaction or waiver of certain conditions to the merger.
See "--Conditions to the Merger." The merger agreements may be terminated by
either party if, among other reasons, the merger has not been completed on or
before September 30, 2000. See "--Waiving and Amending Provisions In, or
Terminating, the Merger Agreements."
DELIVERY OF CERTIFICATES
As soon as practicable following completion of the conversion, our transfer
agent will mail certificates representing common stock issued in the stock
offering to the persons entitled to certificates at the addresses of such
persons appearing on the stock order form. We will hold any certificates
returned as undeliverable until claimed by persons legally entitled to it or
otherwise disposed of in accordance with applicable law. Until certificates for
common stock are available and delivered to subscribers, subscribers may not be
able to sell the shares of common stock for which they have subscribed, even
though trading of the common stock may have commenced.
After completion of the conversion and the mergers, each holder of a
certificate or certificates previously evidencing issued and outstanding shares
of Harvest Home Financial common stock, upon surrender of the certificate or
certificates to our exchange agent, shall be entitled to receive in exchange
cash and a certificate or certificates representing the number of full shares of
our common
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stock for which the shares of Harvest Home Financial common stock surrendered.
The exchange agent will promptly mail to each such holder of record of an
outstanding Harvest Home Financial certificate, a form of letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to such certificate shall pass, only upon delivery of such certificate to the
exchange agent) advising such holder of the terms of the exchange effected by
the Harvest Home merger and of the procedure for surrendering to the exchange
agent such certificate in exchange for cash and a certificate or certificates
evidencing our common stock. THE STOCKHOLDERS OF HARVEST HOME FINANCIAL SHOULD
NOT FORWARD HARVEST HOME FINANCIAL COMMON STOCK CERTIFICATES TO PEOPLES
COMMUNITY BANCORP OR THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED THE TRANSMITTAL
LETTER.
No holder of a certificate representing shares of Harvest Home Financial
common stock shall be entitled to receive any dividends in respect of our common
stock into which such shares shall have been converted by virtue of the
conversion and the Harvest Home Financial merger until the certificate
representing shares of Harvest Home Financial common stock is surrendered in
exchange for cash and certificates representing shares of our common stock. In
the event that dividends are declared and paid by us in respect of our common
stock after the completion of the conversion and the merger but prior to
surrender of certificates representing shares of Harvest Home Financial common
stock, dividends payable in respect of shares of our common stock not then
issued shall accrue (without interest). Any such dividends shall be paid
(without interest) upon surrender of the certificates representing such shares
of Harvest Home Financial common stock. We will be entitled, after the
completion of the conversion and the merger, to treat certificates representing
shares of Harvest Home Financial common stock as evidencing ownership of the
number of full shares of our common stock into which the shares of Harvest Home
Financial common stock represented by such certificates shall have been
converted, notwithstanding the failure on the part of the holder thereof to
surrender such certificates.
We will not be obligated to deliver a certificate or certificates
representing shares of our common stock to which a holder of Harvest Home
Financial common stock would otherwise be entitled as a result of the conversion
and the merger until such holder surrenders the certificate or certificates
representing the shares of Harvest Home Financial common stock for exchange as
provided above, or, in default thereof, an appropriate affidavit of loss and
indemnity agreement and/or a bond as may be required in each case by us. If any
certificate evidencing shares of our common stock is to be issued in a name
other than that in which the certificate evidencing Harvest Home Financial
common stock surrendered in exchange therefor is registered, it shall be a
condition of the issuance thereof that the certificate so surrendered shall be
properly endorsed and otherwise in proper form for transfer tax or other tax
required by reason of the issuance of a certificate for shares of our common
stock in any name other than that of the registered holder of the certificate
surrendered or otherwise establish to the satisfaction of the exchange agent
that such tax has been paid or is not payable.
CERTAIN RESTRICTIONS ON PURCHASE OR TRANSFER OF SHARES AFTER THE CONVERSION
All shares of common stock purchased in connection with the conversion by
any of our directors or executive officers will be subject to a restriction that
the shares not be sold for a period of one year following the conversion, except
in the event of the death of such director or executive officer or pursuant to a
merger or similar transaction approved by the OTS. Each certificate for
restricted shares will bear a legend giving notice of this restriction on
transfer, and appropriate stop-transfer instructions will be issued to our
transfer agent. Any shares of common stock issued at a later date within this
one year period as a stock dividend, stock split or otherwise with respect to
such restricted stock will be subject to the same restrictions. Our directors
and executive officers will also be subject to the insider trading rules
promulgated pursuant to the Exchange Act as long as the common stock is
registered pursuant to Section 12(g) of the Exchange Act.
Purchases of our common stock by our directors, executive officers and their
associates during the three-year period following completion of the conversion
may be made only through a broker or dealer
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registered with the SEC, except with the prior written approval of the OTS. This
restriction does not apply, however, to negotiated transactions involving more
than 1% of our outstanding common stock or to certain purchases of stock
pursuant to an employee stock benefit plan, such as the ESOP, or by any
non-tax-qualified employee stock benefit plan, such as the recognition plan.
Pursuant to OTS regulations, we will generally be prohibited from
repurchasing any shares of the common stock within one year following completion
of the conversion. During the second and third years following completion of the
conversion, we may not repurchase any shares of our common stock other than
pursuant to
(1) an offer to all stockholders on a pro rata basis which is approved
by the OTS;
(2) the repurchase of qualifying shares of a director, if any;
(3) purchases in the open market by a tax-qualified or non-tax-qualified
employee stock benefit plan in an amount reasonable and appropriate to fund
the plan; or
(4) purchases that are part of an open-market stock repurchase program
not involving more than 5% of its outstanding capital stock during a
12-month period,
if the repurchases do not cause People's Savings to become undercapitalized and
People's Savings provides to the Regional Director of the OTS no later than
10 days prior to the commencement of a repurchase program written notice
containing a full description of the program to be undertaken and such program
is not disapproved by the Regional Director. The OTS may permit stock
repurchases in excess of such amounts prior to the third anniversary of the
conversion if exceptional circumstances are shown to exist.
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THE OFFERING
HOW WE DETERMINED THE PRICE PER SHARE AND THE OFFERING RANGE
The Plan of Conversion requires that the purchase price of the common stock
must be based on the appraised pro forma market value of the common stock, as
determined on the basis of an independent valuation. People's Savings has
retained RP Financial to make such valuation. For its services in making such
appraisal and assistance in preparing a business plan, RP Financial's fees and
out-of-pocket expenses are estimated to be $40,000. People's Savings has agreed
to indemnify RP Financial and any employees of RP Financial who act for or on
behalf of RP Financial in connection with the appraisal and the business plan
against any and all loss, cost, damage, claim, liability or expense of any kind
(including claims under federal and state securities laws) arising out of any
misstatement or untrue statement of a material fact or an omission to state a
material fact in the information supplied by People's Savings to RP Financial,
unless RP Financial is determined to be negligent or otherwise at fault.
An appraisal has been made by RP Financial in reliance upon the information
contained in this document, including the financial statements. RP Financial
also considered the following factors, among others:
- the present and projected operating results and financial condition of
Peoples Community Bancorp, People's Savings, Oakley, Harvest Home
Financial and Harvest Home Savings Bank and the economic and demographic
conditions in People's Savings Oakley's and Harvest Home Savings Bank'
existing marketing areas;
- certain historical, financial and other information relating to People's
Savings, Oakley and Harvest Home Financial;
- a comparative evaluation of the operating and financial statistics of
People's Savings, Oakley and Harvest Home Financial with those of other
similarly situated publicly traded savings institutions located in Ohio
and other regions of the United States;
- the aggregate size of the offering of the common stock;
- the impact of the conversion and the mergers on People's Savings' net
worth and earnings potential;
- the proposed dividend policy of Peoples Community Bancorp and People's
Savings; and
- the trading market for securities of comparable institutions and general
conditions in the market for such securities.
In its review of the appraisal provided by RP Financial, the Board of
Directors reviewed the methodologies and the appropriateness of the assumptions
used by RP Financial in addition to the factors enumerated above, and the Board
of Directors believes that such assumptions were reasonable. The projected
operating results reviewed by RP Financial covered periods through
September 30, 2003. The financial projections assume the following:
(1) Loan portfolio growth consisting of one-to-four family permanent
mortgage loans, construction loans, commercial real estate loans and home
equity lines of credit.
(2) Loan growth will primarily be funded by retail deposit growth with
such growth consisting of NOW, money market and passbook savings accounts
and certificates of deposit.
(3) Utilization of FHLB advances to fund purchases of mortgage-backed
securities at a positive interest rate spread.
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(4) Capital expenditures of $5.0 million for renovation of present
branch offices and construction of a new main office.
On the basis of the foregoing, RP Financial gave us an opinion, dated
December 10, 1999, that the estimated pro forma market value of the common stock
ranged from a minimum of $11,900,000 to a maximum of $16,100,000, with a
midpoint of $14,000,000. We determined that the common stock should be sold at
$10.00 per share, resulting in a range of 1,190,000 to 1,610,000 shares of
common stock being offered. The offering range may be amended with the approval
of the OTS, if required, or if necessitated by subsequent developments in our
financial condition or market conditions generally, or to fill the order of the
ESOP. In the event the offering range is updated to amend the value of People's
Savings below $11,900,000 or above $18,515,000 (the maximum of the offering
range, as adjusted by 15%), the new appraisal will be filed with the SEC by
post-effective amendment.
In the event we receive orders for common stock in excess of $16,100,000
(the maximum of the offering range) and up to $18,515,000 (the maximum of the
offering range, as adjusted by 15%), we may be required by the OTS to accept all
such orders. No assurances, however, can be made that we will receive orders for
common stock in excess of the maximum of the offering range or that, if such
orders are received, that all such orders will be accepted because the final
valuation and number of shares to be issued are subject to the receipt of an
updated appraisal from RP Financial which reflects the increase in the valuation
and the approval of such increase by the OTS. In addition, an increase in the
number of shares above 1,610,000 shares will first be used, if necessary, to
fill the order of the ESOP. There is no obligation or understanding on the part
of management to take and/or pay for any shares in order to complete the
conversion.
RP FINANCIAL'S VALUATION IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING SUCH SHARES. RP
FINANCIAL DID NOT INDEPENDENTLY VERIFY THE FINANCIAL STATEMENTS AND OTHER
INFORMATION PROVIDED BY PEOPLE'S SAVINGS, OAKLEY OR HARVEST HOME FINANCIAL, NOR
DID RP FINANCIAL VALUE INDEPENDENTLY THE ASSETS OR LIABILITIES OF PEOPLE'S
SAVINGS, OAKLEY OR HARVEST HOME FINANCIAL. THE VALUATION CONSIDERS PEOPLE'S
SAVINGS AS A GOING CONCERN AND SHOULD NOT BE CONSIDERED AS AN INDICATION OF THE
LIQUIDATION VALUE OF PEOPLE'S SAVINGS. 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 STOCK IN THE CONVERSION OR RECEIVING EXCHANGE SHARES
IN THE HARVEST HOME MERGER WILL THEREAFTER BE ABLE TO SELL SUCH SHARES AT PRICES
AT OR ABOVE THE INITIAL PURCHASE PRICE OF $10.00 PER SHARE.
Before we complete the conversion, the maximum of the offering range may be
increased up to 15% and the number of shares of common stock may be increased to
up to 1,851,000 shares to reflect changes in market and financial conditions or
to fill the order of the ESOP, without the resolicitation of subscribers. See
"--Limitations on Common Stock Purchases" as to the method of distribution and
allocation of additional shares that may be issued in the event of an increase
in the offering range to fill unfilled orders in the Subscription Offering.
No sale of shares of common stock in the conversion or issuance of the
exchange shares may be consummated unless RP Financial first confirms that
nothing of a material nature has occurred which, taking into account all
relevant factors, would cause it to conclude that the purchase price is
materially incompatible with the estimate of the pro forma market value of a
share of common stock upon completion of the conversion and the mergers. If such
is not the case, a new offering range may be set and a new Subscription and
Community Offering may be held or such other action may be taken as we determine
and the OTS may permit or require.
Depending upon market or financial conditions, the total number of shares of
common stock may be increased or decreased without a resolicitation of
subscribers, provided that the aggregate gross proceeds are not below the
minimum or more than 15% above the maximum of the offering range. In
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the event market or financial conditions change so as to cause the aggregate
purchase price of the shares to be below the minimum of the offering range or
more than 15% above the maximum of such range, purchasers will be resolicited.
In any resolicitation, purchasers will be permitted to continue, modify or
rescind their orders. If no election is made by a purchaser prior to the
expiration of the resolicitation offering, the purchaser's order will be
rescinded and any funds paid will be promptly refunded with interest at People's
Savings' passbook rate of interest, and withdrawal authorizations will be
cancelled. Any change in the offering range must be approved by the OTS. If the
number of shares of common stock issued in the conversion is increased due to an
increase of up to 15% in the offering range to reflect changes in market or
financial conditions or to fill the order of the ESOP, persons who subscribed
for the maximum number of shares will be given the opportunity to subscribe for
the adjusted maximum number of shares. See "--Limitations on Common Stock
Purchases."
An increase in the number of shares of common stock as a result of an
increase in the estimated pro forma market value would decrease both a
subscriber's ownership interest and our pro forma net income and stockholders'
equity on a per share basis while increasing pro forma net income and
stockholders' equity on an aggregate basis. A decrease in the number of shares
of common stock would increase both a subscriber's ownership interest and our
pro forma net income and stockholders' equity on a per share basis while
decreasing pro forma net income and stockholders' equity on an aggregate basis.
See "Risk Factors--Possible Increase in the Offering Range Would Be Dilutive"
and "Pro Forma Data."
The appraisal report of RP Financial has been filed as an exhibit to our
Registration Statement and Application for Conversion, of which this prospectus
is a part, and is available for inspection in the manner set forth under
"Additional Information."
SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS
In accordance with the Plan of Conversion, rights to subscribe for the
purchase of common stock have been granted under the Plan of Conversion to the
following persons in the following order of descending priority:
(1) Eligible Account Holders,
(2) the ESOP,
(3) Supplemental Eligible Account Holders,
(4) Other Members, and
(5) directors, officers and employees of People's Savings and Oakley.
All subscriptions received will be subject to the availability of common stock
after satisfaction of all subscriptions of all persons having prior rights in
the Subscription Offering and to the maximum and minimum purchase limitations
set forth in the Plan of Conversion and as described below under "--Limitations
on Common Stock Purchases."
PRIORITY 1: ELIGIBLE ACCOUNT HOLDERS. Each Eligible Account Holder will
receive, without payment, first priority, nontransferable subscription rights to
subscribe for in the Subscription Offering up to the greater of
(a) $150,000 of common stock,
(b) one-tenth of one percent (0.10%) of the total offering of shares of
common stock or
(c) 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of common stock to be
issued by a fraction, of which the numerator is
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the amount of the Eligible Account Holder's qualifying deposits and the
denominator of which is the total amount of qualifying deposits of all
Eligible Account Holders,
in each case as of the close of business on June 30, 1998 (the "Eligibility
Record Date"), subject to the overall purchase limitations. See "--Limitations
on Common Stock Purchases."
If there are not sufficient shares available to satisfy all subscriptions,
shares first will be allocated among subscribing Eligible Account Holders so as
to permit each such Eligible Account Holder, to the extent possible, to purchase
a number of shares sufficient to make his total allocation equal to the lesser
of the number of shares subscribed for or 100 shares. Any shares remaining after
each subscribing Eligible Account Holder has been allocated the lesser of the
number of shares subscribed for or 100 shares will be allocated among the
subscribing Eligible Account Holders whose subscriptions remain unfilled in the
proportion that the amounts of their respective eligible deposits bear to the
total amount of eligible deposits of all subscribing Eligible Account Holders
whose subscriptions remain unfilled, provided that no fractional shares shall be
issued. Subscription Rights of Eligible Account Holders will be subordinated to
the priority rights of the ESOP to purchase shares in excess of the maximum of
the offering range.
To ensure proper allocation of stock, each Eligible Account Holder must list
on his subscription order form all accounts in which he has an ownership
interest. Failure to list an account could result in fewer shares being
allocated than if all accounts had been disclosed. The subscription rights of
Eligible Account Holders who are also directors or officers of People's Savings
or Oakley or their associates will be subordinated to the subscription rights of
other Eligible Account Holders to the extent attributable to increased deposits
in the year preceding June 30, 1998.
PRIORITY 2: EMPLOYEE STOCK OWNERSHIP PLAN. The ESOP will receive, without
payment, second priority, nontransferable subscription rights to purchase, in
the aggregate, up to 10% of the common stock, including any increase in the
number of shares of common stock after the date hereof as a result of an
increase of up to 15% in the maximum of the offering range. The ESOP intends to
purchase 8% of the shares of common stock, or 95,200 shares and 128,800 shares
based on the minimum and maximum of the offering range, respectively.
Subscriptions by the ESOP will not be aggregated with shares of common stock
purchased directly by or which are otherwise attributable to any other
participants in the Subscription and Community Offerings, including
subscriptions of any of People's Savings' or Oakley's directors, officers,
employees or associates thereof. In the event that the total number of shares
offered in the conversion is increased to an amount greater than the number of
shares representing the maximum of the offering range ("Maximum Shares"), the
ESOP will have a priority right to purchase any such shares exceeding the
Maximum Shares up to an aggregate of 10% of the common stock. See "--Limitations
on Common Stock Purchases" and "Risk Factors--Possible Increase in the Offering
Range Would Be Dilutive."
PRIORITY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. To the extent that there
are sufficient shares remaining after satisfaction of subscriptions by Eligible
Account Holders and the ESOP, each Supplemental Eligible Account Holder will
receive, without payment, third priority, nontransferable subscription rights to
subscribe for in the Subscription Offering up to the greater of
(a) $150,000 of common stock,
(b) one-tenth of one percent (0.10%) of the total offering of shares of
common stock or
(c) 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of common stock to be
issued by a fraction, of which the numerator is the amount of the
Supplemental Eligible Account Holder's qualifying deposits and the
denominator of which is the total amount of qualifying deposits of all
Supplemental Eligible Account Holders,
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in each case as of the close of business on , 2000 (the "Supplemental
Eligibility Record Date"), subject to the overall purchase limitations. See
"--Limitations on Common Stock Purchases."
If there are not sufficient shares available to satisfy all subscriptions of
all Supplemental Eligible Account Holders, available shares first will be
allocated among subscribing Supplemental Eligible Account Holders so as to
permit each such Supplemental Eligible Account Holder, to the extent possible,
to purchase a number of shares sufficient to make his total allocation equal to
the lesser of the number of shares subscribed for or 100 shares. Thereafter, any
shares remaining available will be allocated among the Supplemental Eligible
Account Holders whose subscriptions remain unfilled in the proportion that the
amounts of their respective eligible deposits bear to the total amount of
eligible deposits of all subscribing Supplemental Eligible Account Holders whose
subscriptions remain unfilled, provided that no fractional shares shall be
issued.
PRIORITY 4: OTHER MEMBERS. To the extent that there are sufficient shares
remaining after satisfaction of subscriptions by Eligible Account Holders, the
ESOP and Supplemental Eligible Account Holders, each Other Member will receive,
without payment, fourth priority, nontransferable subscription rights to
subscribe for common stock in the Subscription Offering up to the greater of
(a) $150,000 of common stock or
(b) one-tenth of one percent (0.10%) of the total offering of shares of
common stock, in each case subject to the overall purchase limitations. See
"--Limitations on Common Stock Purchases."
In the event the Other Members subscribe for a number of shares which, when
added to the shares subscribed for by Eligible Account Holders, the ESOP and
Supplemental Eligible Account Holders, is in excess of the total number of
shares of common stock offered in the conversion, available shares first will be
allocated so as to permit each subscribing Other Member, to the extent possible,
to purchase a number of shares sufficient to make his total allocation equal to
the lesser of the number of shares subscribed for or 100 shares. Any remaining
shares will be allocated among such subscribing Other Members on a pro rata
basis in the same proportion as each Other Member's subscription bears to the
total subscriptions of all subscribing Other Members, provided that no
fractional shares shall be issued.
PRIORITY 5: DIRECTORS, OFFICERS AND EMPLOYEES. To the extent that there are
sufficient shares remaining after satisfaction of all subscriptions by Eligible
Account Holders, the ESOP, Supplemental Eligible Account Holders and Other
Members, then directors, officers and employees of People's Savings and Oakley
will receive, without payment, fifth priority, nontransferable subscription
rights to subscribe for, in this category, an aggregate of up to 23% of the
shares of common stock offered in the Subscription Offering. The ability of
directors, officers and employees to purchase common stock under this category
is in addition to rights which are otherwise available to them under the Plan as
they may fall within higher priority categories, and the Plan generally allows
such persons to purchase in the aggregate up to 33% of common stock sold in the
conversion. See "--Limitations on Common Stock Purchases."
In the event of an oversubscription in this category, subscription rights
will be allocated among the individual directors, officers and employees on a
point system basis, whereby such individuals will receive subscription rights in
the proportion that the number of points assigned to each of them bears to the
total points assigned to all directors, officers and employees, provided that no
fractional shares shall be issued. One point will be assigned for each year of
service with People's Savings or Oakley, one point for each salary increment of
$5,000 per annum and five points for each office presently held in People's
Savings or Oakley, including directorships. For information as to the number of
shares proposed to be purchased by the directors and executive officers, see
"Proposed Management Purchases."
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EXPIRATION DATE FOR THE SUBSCRIPTION OFFERING. The Subscription Offering
will expire at 12:00 noon, eastern time, on , 2000 (the "Expiration
Date"), unless extended for up to 45 days or for such additional periods by us
as may be approved by the OTS. The Subscription Offering may not be extended
beyond , 2001. Subscription rights which have not been exercised prior
to the Expiration Date (unless extended) will become void.
We will not execute orders until at least the minimum number of shares of
common stock ( shares) have been subscribed for or otherwise sold. If all
shares have not been subscribed for or sold within 45 days after the Expiration
Date, unless such period is extended with the consent of the OTS, all funds
delivered to People's Savings and Oakley pursuant to the Subscription Offering
will be returned promptly to the subscribers with interest and all withdrawal
authorizations will be cancelled. If an extension beyond the 45-day period
following the Expiration Date is granted, we will notify subscribers of the
extension of time and of any rights of subscribers to modify or rescind their
subscriptions.
COMMUNITY OFFERING
To the extent that shares remain available for purchase after satisfaction
of all subscriptions of Eligible Account Holders, the ESOP, Supplemental
Eligible Account Holders, Other Members and directors, officers and employees of
People's Savings and Oakley, we may elect to offer such shares either prior to
or upon completion of the Subscription Offering to certain members of the
general public, with preference given to natural persons residing in Warren,
Clinton and Hamilton counties in Ohio (such natural persons referred to as
"Preferred Subscribers"). Such persons may purchase up to the greater of
(a) $150,000 of common stock, or
(b) one-tenth of one percent (0.10%) of the total offering of shares of
common stock,
in each case subject to the maximum purchase limitations. See "--Limitations on
Common Stock Purchases." THIS AMOUNT MAY BE INCREASED AT OUR SOLE DISCRETION TO
UP TO 5% OF THE TOTAL OFFERING OF SHARES IN THE SUBSCRIPTION OFFERING. THE
OPPORTUNITY TO SUBSCRIBE FOR SHARES OF COMMON STOCK IN THE COMMUNITY OFFERING
CATEGORY IS SUBJECT TO OUR RIGHT, IN OUR SOLE DISCRETION, TO ACCEPT OR REJECT
ANY SUCH ORDERS IN WHOLE OR IN PART EITHER AT THE TIME OF RECEIPT OF AN ORDER OR
AS SOON AS PRACTICABLE FOLLOWING THE EXPIRATION DATE.
If there are not sufficient shares available to fill the orders of Preferred
Subscribers after completion of the Subscription and Community Offerings, such
stock will be allocated first to each Preferred Subscriber whose order is
accepted by us, in an amount equal to the lesser of 100 shares or the number of
shares subscribed for by each such Preferred Subscriber, if possible.
Thereafter, unallocated shares will be allocated among the Preferred Subscribers
whose accepted orders remain unsatisfied in the same proportion that the
unfilled subscription of each (up to 2% of the total offering) bears to the
total unfilled subscriptions of all Preferred Subscribers whose accepted orders
remain unsatisfied, provided that no fractional shares shall be issued. Orders
for common stock in the Community Offering will first be filled to a maximum of
2% of the total number of shares of common stock sold in the conversion and
thereafter any remaining shares shall be allocated on an equal number of shares
basis per order until all orders have been filled. If there are any shares
remaining, shares will be allocated to other members of the general public who
subscribe in the Community Offering applying the same allocation described above
for Preferred Subscribers.
SYNDICATED COMMUNITY OFFERING
The Plan of Conversion provides that, if necessary, all shares of common
stock not purchased in the Subscription and Community Offerings, if any, may be
offered for sale to the general public in a
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Syndicated Community Offering through selected dealers managed by Charles Webb
acting as our agent in the sale of the common stock. We have the right to reject
orders, in whole or in part, in our sole discretion in the Syndicated Community
Offering. Neither Charles Webb nor any registered broker-dealer shall have any
obligation to take or purchase any shares of common stock in the Syndicated
Community Offering; however, Charles Webb has agreed to use its best efforts in
the sale of shares in the Syndicated Community Offering. Common stock sold in
the Syndicated Community Offering will be sold at a purchase price per share
which is the same price as all other shares being offered in the conversion. No
person will be permitted to subscribe in the Syndicated Community Offering for
shares of common stock with an aggregate purchase price of more than $150,000.
It is estimated that the selected dealers will receive a negotiated
commission based on the amount of common stock sold by the selected dealer,
payable by us. During the Syndicated Community Offering, selected dealers may
only solicit indications of interest from their customers to place orders with
us as of a certain date (the "Order Date") for the purchase of shares of common
stock. When and if we and Charles Webb believe that enough indications and
orders have been received in the offering to consummate the conversion, Charles
Webb will request, as of the Order Date, selected dealers to submit orders to
purchase shares for which they have received indications of interest from their
customers. Selected dealers will send confirmations of the orders to such
customers on the next business day after the Order Date. Selected dealers will
debit the accounts of their customers on a date which will be three business
days from the Order Date ("Debit Date"). Customers who authorize selected
dealers to debit their brokerage accounts are required to have the funds for
payment in their account on but not before the Debit Date. On the next business
day following the Debit Date, select dealers will remit funds to the account
that we will establish for each selected dealer. After payment has been received
by us from selected dealers, funds will earn interest at People's Savings
passbook savings rate until the conversion is completed. In the event the
conversion is not completed, funds will be returned promptly with interest to
the selected dealers, who, in turn, will promptly credit their customers'
brokerage account.
The Syndicated Community Offering may close at any time after the Expiration
Date at our discretion, but in no case later than , 2000, unless
further extended with the consent of the OTS. The offering may not be extended
beyond , 2001.
PERSONS WHO CANNOT EXERCISE SUBSCRIPTION RIGHTS
We will make reasonable efforts to comply with the securities laws of all
states in the United States in which persons entitled to subscribe for stock
pursuant to the Plan reside. However, we are not required to offer stock in the
Subscription Offering to any person who resides in a foreign country or resides
in a state of the United States with respect to which:
- the number of persons otherwise eligible to subscribe for shares under the
Plan who reside in such jurisdiction is small;
- the granting of subscription rights or the offer or sale of shares of
common stock to such persons would require any of Peoples Community
Bancorp and People's Savings or our officers, directors or employees,
under the laws of such jurisdiction, to register as a broker, dealer,
salesman or selling agent or to register or otherwise qualify its
securities for sale in such jurisdiction or to qualify as a foreign
corporation or file a consent to service of process in such jurisdiction;
and
- such registration, qualification or filing in our judgment would be
impracticable or unduly burdensome for reasons of costs or otherwise.
Where the number of persons eligible to subscribe for shares in one state is
small, we will base our decision as to whether or not to offer the common stock
in such state on a number of factors, including
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but not limited to the size of accounts held by account holders in the state,
the cost of registering or qualifying the shares or the need to register Peoples
Community Bancorp, its officers, directors or employees as brokers, dealers or
salesmen.
LIMITATIONS ON COMMON STOCK PURCHASES
The Plan includes the following limitations on the number of shares of
common stock which may be purchased in the conversion:
(1) No fewer than 25 shares of common stock may be purchased, to the
extent such shares are available;
(2) Each Eligible Account Holder may subscribe for and purchase in the
Subscription Offering up to the greater of (a) $150,000 of common stock,
(b) one-tenth of one percent (0.10%) of the total offering of shares of
common stock or (c) 15 times the product (rounded down to the next whole
number) obtained by multiplying the total number of shares of common stock
to be issued by a fraction, of which the numerator is the amount of the
qualifying deposits of the Eligible Account Holder and the denominator is
the total amount of qualifying deposits of all Eligible Account Holders, in
each case as of the close of business on the Eligibility Record Date, with
clauses (a) and (b) above subject to the overall limitation in clause (6)
below;
(3) The ESOP may purchase in the aggregate up to 10% of the shares of
common stock, including any additional shares issued in the event of an
increase in the offering range, although at this time it intends to purchase
only 8% of such shares;
(4) Each Supplemental Eligible Account Holder may subscribe for and
purchase in the Subscription Offering up to the greater of (a) $150,000 of
common stock, (b) one-tenth of one percent (0.10%) of the total offering of
shares of common stock or (c) 15 times the product (rounded down to the next
whole number) obtained by multiplying the total number of shares of common
stock to be issued by a fraction, of which the numerator is the amount of
the qualifying deposits of the Supplemental Eligible Account Holder and the
denominator is the total amount of qualifying deposits of all Supplemental
Eligible Account Holders, in each case as of the close of business on the
Supplemental Eligibility Record Date, with clauses (a) and (b) above subject
to the overall limitation in clause (6) below;
(5) Each Other Member or any person purchasing shares of common stock in
the Community Offering may subscribe for and purchase in the Subscription
Offering or Community Offering, as the case may be, up to the greater of
(a) $150,000 of common stock or (b) one-tenth of one percent (0.10%) of the
total offering of shares of common stock, subject to the overall limitation
in clause (6) below;
(6) Except for the ESOP and certain Eligible Account Holders and
Supplemental Eligible Account Holders whose subscription rights are based
upon the amount of their deposits, the maximum number of shares of common
stock subscribed for or purchased in all categories of the conversion by any
person, together with associates of and groups of persons acting in concert
with such persons when aggregated with any Exchange Shares received or to be
received pursuant to the Harvest Home merger, shall not exceed $450,000; and
(7) No more than 23% of the total number of shares offered for sale in
the Subscription Offering may be purchased by directors and officers of
People's Savings in the fourth priority category in the Subscription
Offering. No more than 33% of the total number of shares offered for sale in
the conversion may be purchased by directors and officers of People's
Savings and their associates in the aggregate, excluding purchases by the
ESOP.
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In the event that you are also a stockholder of Harvest Home Financial, then
you will receive shares of our common stock in exchange for your shares of
Harvest Home Financial common stock. In such event, the total amount of our
common stock that you may buy in the conversion when added to the shares of our
common stock that you will receive from the merger of Harvest Home Financial
with Peoples Community Bancorp may not exceed $450,000.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the members of
People's Savings or Oakley, the individual amount permitted to be subscribed for
may be increased up to a maximum of 5% of the number of shares sold in the
conversion and both the individual and the overall purchase limitations may be
decreased to a minimum of 0.10% of the number of shares sold in the conversion
at our sole discretion. If such amount is increased, subscribers for the maximum
amount will be, and certain other large subscribers in our sole discretion may
be, given the opportunity to increase their subscriptions up to the then
applicable limit.
In the event of an increase in the total number of shares of common stock
offered in the conversion due to an increase in the offering range of up to 15%
(the "Adjusted Maximum"), the additional shares will be allocated in the
following order of priority in accordance with the Plan:
(1) to fill the ESOP's subscription of 8% of the Adjusted Maximum number
of shares;
(2) in the event that there is an oversubscription by Eligible Account
Holders, to fill unfulfilled subscriptions of Eligible Account Holders,
inclusive of the Adjusted Maximum;
(3) in the event that there is an oversubscription by Supplemental
Eligible Account Holders, to fill unfulfilled subscriptions of Supplemental
Eligible Account Holders, inclusive of the Adjusted Maximum;
(4) in the event that there is an oversubscription by Other Members, to
fill unfulfilled subscriptions of Other Members, inclusive of the Adjusted
Maximum;
(5) in the event there is an oversubscription by our directors, officers
and employees, to fill unfulfilled subscriptions of directors, officers and
employees, inclusive of the Adjusted Maximum; and
(6) to fill unfulfilled subscriptions in the Community Offering to the
extent possible, inclusive of the Adjusted Maximum.
The term "associate" of a person is defined to include the following:
(a) any corporation or other organization (other than Peoples Community
Bancorp and People's Savings or a majority-owned subsidiary of People's
Savings) of which such person is a director, officer or partner or is
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, provided, however, that such term shall not
include any tax-qualified employee stock benefit plan of Peoples Community
Bancorp and People's Savings in which such person has a substantial
beneficial interest or serves as a trustee or in a similar fiduciary
capacity; and
(c) any relative or spouse of such person, or any relative of such
spouse, who either has the same home as such person or who is a director or
officer of us or any of our subsidiaries.
The term "acting in concert" is defined to mean (1) knowing participation in
a joint activity or interdependent conscious parallel action towards a common
goal whether or not pursuant to an express agreement, or (2) a combination or
pooling of voting or other interests in the securities of an issuer for
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a common purpose pursuant to any contract, understanding, relationship,
agreement or other arrangement, whether written or otherwise. We may presume
that certain persons are acting in concert based upon, among other things, joint
account relationships, common addresses on People's Savings records and the fact
that such persons have filed joint Schedules 13D or 13G with the SEC with
respect to other companies.
MARKETING ARRANGEMENTS
Peoples Community Bancorp and People's Savings have retained Charles Webb &
Company to consult with and to advise People's Savings, and to assist Peoples
Community Bancorp, on a best efforts basis, in the distribution of the shares of
common stock in the offering. The services that Charles Webb & Company will
provide include, but are not limited to:
- training the employees of People's Savings and Oakley who will perform
certain ministerial functions in the offering regarding the mechanics and
regulatory requirements of the stock offering;
- managing the stock information centers by assisting interested stock
subscribers and by keeping records of all stock orders;
- preparing marketing materials; and
- assisting in the solicitation of proxies from members of People's Savings
and Oakley for use at the special meetings.
For its services, Charles Webb & Company will receive a fee of $215,000. In the
event that selected dealers are used to assist in the sale of shares of Peoples
Community Bancorp common stock in the direct community offering, these dealers
will be paid a fee of up to 5.5% of the total purchase price of the shares sold
by such dealers. People's Savings has agreed to indemnify Charles Webb & Company
against certain claims or liabilities, including certain liabilities under the
Securities Act of 1933, as amended, and will contribute to payments Charles
Webb & Company may be required to make in connection with any such claims or
liabilities.
Sales of shares of Peoples Community Bancorp common stock will be made by
registered representatives affiliated with Charles Webb & Company or by the
broker-dealers managed by Charles Webb & Company. Charles Webb & Company has
undertaken that the shares of Peoples Community Bancorp common stock will be
sold in a manner which will ensure that the distribution standards of the Nasdaq
Stock Market will be met. A stock information center will be established at the
main office of People's Savings in Lebanon, Ohio and in the Cincinnati
metropolitan area. Peoples Community Bancorp will rely on Rule 3a4-1 of the
Securities Exchange Act of 1934 and sales of Peoples Community Bancorp common
stock will be conducted within the requirements of this rule, so as to permit
officers, directors and employees to participate in the sale of Peoples
Community Bancorp common stock in those states where the law permits. No
officer, director of employee of Peoples Community Bancorp or People's Savings
or Oakley will be compensated directly or indirectly by the payment of
commissions or other remuneration in connection with his or her participation in
the sale of common stock.
PROCEDURE FOR PURCHASING SHARES IN THE SUBSCRIPTION AND COMMUNITY OFFERINGS
To ensure that each purchaser receives a prospectus at least 48 hours before
the Expiration Date (unless extended) in accordance with Rule 15c2-8 of the
Exchange Act, no prospectus will be mailed any later than five days prior to
such date or hand delivered any later than two days prior to such date.
Execution of the order form will confirm receipt or delivery in accordance with
Rule 15c2-8. Order forms will only be distributed with a prospectus.
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To purchase shares in the Subscription and Community Offerings, an executed
order form with the required payment for each share subscribed for, or with
appropriate authorization for withdrawal from a deposit account at People's
Savings (which may be given by completing the appropriate blanks in the order
form), must be received by People's Savings by 12:00 noon, central time, on the
Expiration Date (unless extended). In addition, we will require a prospective
purchaser to execute a certification in the form required by applicable OTS
regulations in connection with any sale of common stock. Order forms which are
not received by such time or are executed defectively or are received without
full payment (or appropriate withdrawal instructions) are not required to be
accepted. Copies of order forms, order forms unaccompanied by an executed
certification form, payments from other private third parties and wire transfers
are also not required to be accepted. We have the right to waive or permit the
correction of incomplete or improperly executed forms, but do not represent that
we will do so. Once received, an executed order form may not be modified,
amended or rescinded without our consent, unless the conversion has not been
completed within 45 days after the end of the Subscription Offering, unless such
period has been extended.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priority, depositors as of the close of business on the Eligibility
Record Date (June 30, 1998) or the Supplemental Eligibility Record Date (
, 1999) and depositors and borrowers as of the close of business on the Voting
Record Date ( , 1999) must list all accounts on the stock order form
giving all names in each account and the account numbers. FAILURE TO LIST ALL OF
YOUR ACCOUNTS MAY RESULT IN FEWER SHARES BEING ALLOCATED TO YOU THAN IF ALL OF
YOUR ACCOUNTS HAD BEEN DISCLOSED.
Payment for subscriptions may be made (1) in cash if delivered in person at
the main office of People's Savings, (2) by check or money order, or (3) by
authorization of withdrawal from deposit accounts maintained with People's
Savings. Interest will be paid on payments made by cash, check or money order at
People's Savings passbook rate of interest from the date payment is received
until the conversion is completed or terminated. If payment is made by
authorization of withdrawal from deposit accounts, the funds authorized to be
withdrawn from a deposit account will continue to accrue interest at the
contractual rates until completion or termination of the conversion, but a hold
will be placed on such funds, thereby making them unavailable to the depositor
until completion or termination of the conversion.
If a subscriber authorizes People's Savings to withdraw the amount of the
purchase price from his deposit account, People's Savings will do so as of the
effective date of the conversion. People's Savings will waive any applicable
penalties for early withdrawal from certificate accounts. If the remaining
balance in a certificate account is reduced below the applicable minimum balance
requirement at the time that the funds actually are transferred under the
authorization, the certificate will be cancelled at the time of the withdrawal,
without penalty, and the remaining balance will earn interest at the passbook
rate.
The ESOP will not be required to pay for the shares subscribed for at the
time it subscribes. Instead, the ESOP may pay for the shares of common stock
subscribed for by it at the Purchase Price upon consummation of the Subscription
and Community Offerings, provided that there is a valid loan commitment in force
from the time of its subscription until such time. The loan commitment may be
from an unrelated financial institution or Peoples Community Bancorp to lend to
the ESOP, at the completion of the conversion, the aggregate Purchase Price of
the shares for which the ESOP subscribed.
Owners of self-directed individual retirement accounts ("IRAs") may use the
assets of such IRAs to purchase shares of common stock in the Subscription and
Community Offerings, provided that such IRAs are not maintained at People's
Savings. Persons with IRAs maintained at People's Savings must have their
accounts transferred to an unaffiliated institution or broker to purchase shares
of common
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stock in the Subscription and Community Offerings. In addition, applicable
regulations require that officers, directors and 10% stockholders who use
self-directed IRA funds to purchase shares of common stock in the Subscription
and Community Offerings make such purchases for the exclusive benefit of the
IRAs. Any interested parties wishing to use IRA funds for stock purchases are
advised to contact the Stock Information Center for additional information and
allow sufficient time for the account to be transferred as required.
Certificates representing shares of common stock purchased will be mailed to
purchasers at the last address of such persons appearing on the records of
People's Savings, or to such other address as may be specified in properly
completed order forms, as soon as practicable following consummation of the
conversion. Any certificates returned as undeliverable will be disposed of in
accordance with applicable law.
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES
You may not transfer or enter into any agreement or understanding to
transfer the legal or beneficial ownership of your subscription rights issued
under the Plan or the shares of common stock to be issued upon their exercise.
You may exercise your subscription rights only for your own account. If you
exercise your subscription rights, you will be required to certify that you are
purchasing shares solely for your own account and that you have no agreement or
understanding regarding the sale or transfer of such shares. Federal regulations
also prohibit any person from offering or making an announcement of an offer or
intent to make an offer to purchase such subscription rights or shares of common
stock prior to the completion of the conversion.
WE WILL PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES IN THE EVENT WE
BECOME AWARE OF THE TRANSFER OF SUBSCRIPTION RIGHTS AND WILL NOT HONOR ORDERS
KNOWN BY US TO INVOLVE THE TRANSFER OF SUCH RIGHTS.
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RESTRICTIONS ON ACQUISITION OF
PEOPLES COMMUNITY BANCORP AND PEOPLE'S SAVINGS
GENERAL
As described below, certain provisions in our Certificate of Incorporation
and Bylaws and in our proposed benefit plans, together with provisions of
Delaware corporate law and OTS regulations, may have anti-takeover effects. In
addition, regulatory restrictions may make it difficult for persons or companies
to acquire control of us.
RESTRICTIONS IN OUR CERTIFICATE OF INCORPORATION AND BYLAWS
GENERAL. A number of provisions of our Certificate of Incorporation and
Bylaws deal with matters of corporate governance and certain rights of
stockholders. The following discussion of our Certificate of Incorporation and
Bylaws summarizes the material provisions which might be deemed to have a
potential "anti-takeover" effect. These provisions may have the effect of
discouraging a future takeover attempt which is not approved by the Board of
Directors but which individual stockholders may deem to be in their best
interests or in which stockholders may receive a substantial premium for their
shares over then current market prices. As a result, stockholders who might
desire to participate in such a transaction may not have an opportunity to do
so. Such provisions will also render the removal of our current Board of
Directors or management more difficult. The following description of certain of
the provisions of our Certificate of Incorporation and Bylaws is necessarily
general and reference should be made in each case to such Certificate of
Incorporation and Bylaws, which are incorporated herein by reference. See
"Additional Information" as to how to obtain a copy of these documents.
LIMITATION ON VOTING RIGHTS. Article 12.B of our Certificate of
Incorporation provides that no person shall directly or indirectly offer to
acquire or acquire the beneficial ownership of
(1) more than 10% of the issued and outstanding shares of any class of
an equity security of Peoples Community Bancorp, or
(2) any securities convertible into, or exercisable for, any of our
equity securities if, assuming conversion or exercise by such person of all
securities of which such person is the beneficial owner which are
convertible into, or exercisable for, such equity securities (but of no
securities convertible into, or exercisable for, such equity securities of
which such person is not the beneficial owner), such person would be the
beneficial owner of more than 10% of any class of an equity security of
Peoples Community Bancorp.
The terms "person" and "beneficial ownership" are broadly defined to prevent
circumvention of this restriction.
The foregoing restrictions do not apply to the following:
- any offer with a view toward public resale made exclusively to us by
underwriters or a selling group acting on our behalf,
- any tax-qualified employee benefit plan or arrangement established by us
and any trustee of such a plan or arrangement, or
- any other offer or acquisition approved in advance by the affirmative vote
of two-thirds of our entire Board of Directors.
In the event that shares are acquired in violation of Article 12.B, all shares
beneficially owned by any person in excess of 10% shall be considered "Excess
Shares" and shall not be counted as shares entitled to vote and shall not be
voted by any person or counted as voting shares in connection with any matters
submitted to stockholders for a vote, and our Board of Directors may cause such
Excess
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Shares to be transferred to an independent trustee for sale on the open market
or otherwise, with the expenses of such trustee to be paid out of the proceeds
of sale.
BOARD OF DIRECTORS. Article 7.A of our Certificate of Incorporation
contains provisions relating to the Board of Directors and provides, among other
things, that the Board of Directors shall be divided into three classes as
nearly equal in number as possible, with the term of office of one class
expiring each year. See "Management--Management of Peoples Community Bancorp."
The classified Board is intended to provide for continuity of the Board of
Directors and to make it more difficult and time consuming for a stockholder
group to fully use its voting power to gain control of the Board of Directors
without the consent of our incumbent Board of Directors. Cumulative voting in
the election of directors is not permitted.
Directors may be removed only for cause at a duly constituted meeting of
stockholders called expressly for that purpose upon the vote of the holders of
at least 80% of the total votes eligible to be cast by stockholders. Cause for
removal shall exist only if the director whose removal is proposed has been
either declared of unsound mind by an order of a court of competent
jurisdiction, convicted of a felony or of an offense punishable by imprisonment
for a term of more than one year by a court of competent jurisdiction, or deemed
liable by a court of competent jurisdiction for gross negligence or misconduct
in the performance of such director's duties to Peoples Community Bancorp. Any
vacancy occurring in the Board of Directors for any reason (including an
increase in the number of authorized directors) may be filled by the affirmative
vote of a majority of the remaining directors, whether or not a quorum of the
Board of Directors is present, or the sole remaining director of Peoples
Community Bancorp, and a director appointed to fill a vacancy shall serve until
the expiration of the term to which he was appointed and until his successor is
elected and qualified.
Our Bylaws govern nominations for election to the Board, and require all
nominations for election to the Board of Directors other than those made by the
Board to be made by a stockholder eligible to vote at an annual meeting of
stockholders who has complied with the notice provisions in that section.
Written notice of a stockholder nomination must be delivered to, or mailed to
and received at, our principal executive offices not later than 120 days prior
to the anniversary date of the initial mailing of proxy materials by us in
connection with the immediately preceding annual meeting of our stockholders,
provided that, with respect to the first scheduled annual meeting following
completion of the conversion, notice must be received no later than the close of
business on Friday, September 29, 2000. As specified in Section 4.15 of the
Bylaws, each such notice shall set forth the following:
(a) the name, age, business address and residence address of the
stockholder who intends to make the nomination and of the person or persons
to be nominated;
(b) the principal occupation or employment of the stockholder submitting
the notice and of each person being nominated;
(c) the class and number of shares of our stock beneficially owned by
the stockholder submitting the notice, by any person who is acting in
concert with or who is an affiliate or associate of such stockholder (as
such terms are defined in our Certificate of Incorporation), by any person
who is a member of any group with such stockholder with respect to our stock
or who is known by such stockholder to be supporting such nominee(s) on the
date the notice is given to us, by each person being nominated, and by each
person who is in control of, is controlled by or is under common control
with any of the foregoing persons (if any of the foregoing persons is a
partnership, corporation, limited liability company, association or trust,
information must be provided regarding the name and address of, and the
class and number of shares of our stock which are beneficially owned by,
each partner in such partnership, each director, executive officer and
stockholder in such corporation, each member in such limited liability
company or association, and each trustee and beneficiary of such trust, and
in each case each person controlling such entity and each partner, director,
executive officer, stockholder, member or trustee of any entity which is
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ultimately in control of such partnership, corporation, limited liability
company, association or trust);
(d) a representation that the stockholder is a holder of record of our
stock entitled to vote at such meeting and intends to appear in person or by
proxy at the meeting to nominate the person or persons specified in the
notice;
(e) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the stockholder;
(f) such other information regarding the stockholder submitting the
notice, each nominee proposed by such stockholder and any other person
covered by clause (c) of this paragraph as would be required to be included
in a proxy statement filed pursuant to the proxy rules of the SEC; and
(g) the consent of each nominee to serve as a director of Peoples
Community Bancorp if so elected.
Our Certificate of Incorporation provides that the personal liability of our
directors and officers for monetary damages shall be eliminated to the fullest
extent permitted by the Delaware General Corporation Law ("DGCL") as it exists
on the effective date of the Certificate of Incorporation or as such law may be
thereafter in effect. Section 102(b)(7) of the DGCL currently provides that
directors (but not officers) of corporations that have adopted such a provision
will not be so liable, except for:
- any breach of the director's duty of loyalty to us or our stockholders,
- any acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
- any unlawful dividend, stock repurchase or redemption, or
- any transaction from which the director derived an improper personal
benefit.
This provision would absolve directors of personal liability for negligence in
the performance of their duties, including gross negligence. It would not permit
a director to be exculpated, however, for liability for actions involving
conflicts of interest or breaches of the traditional "duty of loyalty" to the
Company and its stockholders, and it would not affect the availability of
injunctive or other equitable relief as a remedy.
Our Certificate of Incorporation also provides that we shall 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, by reason of the fact that such
person is or was a director, officer, employee or agent of Peoples Community
Bancorp, or is or was serving at our request as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise. Such indemnification is furnished to the full extent provided by law
against expenses (including attorneys' fees), judgments, fines, excise taxes and
amounts paid in settlement actually and reasonably incurred in connection with
such action, suit or proceeding to the fullest extent authorized by the DGCL,
provided that Peoples Community Bancorp shall not be liable for any amounts
which may be due in connection with a settlement of any action, suit or
proceeding effected without its prior written consent or any action, suit or
proceeding initiated by any person seeking indemnification thereunder without
its prior written consent. The indemnification provisions also permit us to pay
reasonable expenses in advance of the final disposition of any action, suit or
proceeding as authorized by our Board of Directors, provided that the
indemnified person undertakes to repay us if it is ultimately determined that
such person was not entitled to indemnification.
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The rights of indemnification provided in our Certificate of Incorporation
are not exclusive of any other rights which may be available under our Bylaws,
any insurance or other agreement, by vote of stockholders or directors
(regardless of whether directors authorizing such indemnification are
beneficiaries thereof) or otherwise. In addition, the Certificate of
Incorporation authorizes us to maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of Peoples Community Bancorp,
whether or not we would have the power to provide indemnification to such
person. These provisions are designed to reduce, in appropriate cases, the risks
incident to serving as a director, officer, employee or agent and to enable us
to attract and retain the best personnel available.
The provisions regarding director elections and other provisions in the
Certificate of Incorporation and Bylaws are generally designed to protect the
ability of our Board of Directors to negotiate with the proponent of an
unfriendly or unsolicited proposal to take over or restructure us by making it
more difficult and time-consuming to change majority control of the Board,
whether by proxy contest or otherwise. The effect of these provisions will be to
generally require at least two (and possibly three) annual stockholders'
meetings, instead of one, to effect a change in control of our Board of
Directors even if holders of a majority of our capital stock believed that a
change in the composition of the Board of Directors was desirable. Because a
majority of the directors at any given time will have prior experience as
directors, these requirements will help to ensure continuity and stability of
our management and policies and facilitate long-range planning for our business.
The provisions relating to removal of directors and filling of vacancies are
consistent with and supportive of a classified board of directors.
The procedures regarding stockholder nominations will provide our Board of
Directors with sufficient time and information to evaluate a stockholder nominee
to the Board and other relevant information, such as existing stockholder
support for the nominee. The proposed procedures, however, will provide
incumbent directors advance notice of a dissident slate of nominees for
directors, and will make it easier for the Board to solicit proxies in
opposition to such nominees. This may make it easier for the incumbent directors
to retain their status as directors, even when certain stockholders view the
stockholder nominations as in the best interests of Peoples Community Bancorp or
our stockholders.
AUTHORIZED SHARES. Article 4 of our Certificate of Incorporation authorizes
the issuance of 11,000,000 shares of stock, of which 1,000,000 shares shall be
shares of preferred stock, and 10,000,000 shall be common stock. The shares of
common stock and preferred stock were authorized in an amount greater than that
to be issued in the conversion to provide us with as much flexibility as
possible to effect, among other transactions, financings, acquisitions, stock
dividends, stock splits and employee stock options. However, these additional
authorized shares may also be used by the Board of Directors consistent with its
fiduciary duty to deter future attempts to gain control of us. The Board of
Directors also has sole authority to determine the terms of any one or more
series of preferred stock, including voting rights, conversion rates, and
liquidation preferences. As a result of the ability to fix voting rights for a
series of preferred stock, the Board has the power, to the extent consistent
with its fiduciary duty, to issue a series of preferred stock to persons
friendly to management in order to attempt to block a post-tender offer merger
or other transaction by which a third party seeks control, and thereby assist
management to retain its position. We currently have no plans for the issuance
of additional shares, other than the issuance of additional shares pursuant to
stock benefit plans.
MEETINGS OF STOCKHOLDERS AND STOCKHOLDER PROPOSALS. Our Certificate of
Incorporation provides that any action required or permitted by the DGCL or the
Certificate of Incorporation to be approved by or consented to by our
stockholders, must be effected at a duly called annual or special meeting of
stockholders and may not be effected by written consent by stockholders in lieu
of a meeting of stockholders. The Certificate of Incorporation further provides
that, with limited exceptions, special meetings of stockholders may be called
only by a three-fourths vote of the Board of Directors.
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Our Bylaws provide that only such business as shall have been properly
brought before an annual meeting of stockholders shall be conducted at the
annual meeting. In order to be properly brought before an annual meeting
following completion of the conversion, business must be brought before the
meeting by or at the direction of the Board of Directors or by a stockholder who
has given timely and complete notice thereof in writing to us. For stockholder
proposals to be included in our proxy materials, the stockholder must comply
with all the timing and informational requirements of Rule 14a-8 of the Exchange
Act. With respect to stockholder proposals to be considered at the annual
meeting of stockholders but not included in our proxy materials, the
stockholder's notice must be delivered to or mailed and received at our
principal executive offices not later than 120 days prior to the anniversary
date of the initial mailing of our proxy materials in connection with the
immediately preceding annual meeting; provided, however, that with respect to
the first scheduled annual meeting following completion of the conversion, such
written notice must be received by us not later than the close of business on
Friday, September 29, 2000. A stockholder's notice shall set forth as to each
matter the stockholder proposes to bring before the annual meeting the
following:
(a) a description of the proposal desired to be brought before the
annual meeting;
(b) the name and address, as they appear on our books, of the
stockholder proposing such business, and, to the extent known, any other
stockholders known by such stockholder to be supporting such proposal;
(c) the class and number of shares of Peoples Community Bancorp which
are beneficially owned by the stockholder; and, to the extent known, by any
other stockholders known by such stockholder to be supporting such proposal
on the date of such shareholder notice;
(d) the identification of any person retained to make stockholder
solicitations or recommendations with respect to such proposal; and
(e) any material interest of the stockholder in such business.
The procedures regarding stockholder proposals are designed to provide the
Board with sufficient time and information to evaluate a stockholder proposal
and other relevant information, such as existing stockholder support for the
proposal. The proposed procedures, however, will give incumbent directors
advance notice of a stockholder proposal. This may make it easier for the
incumbent directors to defeat a stockholder proposal, even when certain
stockholders view such proposal as in the best interests of Peoples Community
Bancorp or its stockholders.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS. Article 13 of our
Certificate of Incorporation generally provides that any amendment of the
Certificate of Incorporation must be first approved by a majority of our Board
of Directors and then by the holders of at least 80% of our shares entitled to
vote in an election of directors ("Voting Shares"), except that if the amendment
is approved by at least two-thirds of our Board of Directors, the amendment
shall only need stockholder approval if required by the DGCL and then only by
the affirmative vote of the holders of a majority of the Voting Shares.
Our Bylaws may be amended by a majority of the Board of Directors or by the
affirmative vote of a majority of the Voting Shares, except that the affirmative
vote of at least 80% of the Voting Shares shall be required to amend, adopt,
alter, change or repeal any provision inconsistent with certain specified
provisions of the Bylaws.
DELAWARE CORPORATE LAW
In addition to the provisions contained in our Certificate of Incorporation,
the DGCL includes certain provisions applicable to Delaware corporations, such
as us, which may be deemed to have an anti-takeover effect. Such provisions give
stockholders the right to receive the fair value of their shares
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of stock following a control transaction from a controlling person or group and
set forth requirements relating to certain business combinations.
Section 203 of the DGCL imposes certain restrictions on business
combinations between us and large shareholders. Specifically, Section 203
prohibits a "business combination" (as defined in Section 203, generally
including mergers, sales and leases of assets, issuances of securities and
similar transactions) between us or a subsidiary and an "interested shareholder"
(as defined in Section 203, generally the beneficial owner of 15% or more of our
common stock) within three years after the person or entity becomes an
interested shareholder, unless
- prior to the person or entity becoming an interested shareholder, the
business combination or the transaction pursuant to which such person or
entity became an interested shareholder shall have been approved by our
Board of Directors,
- upon consummation of the transaction in which the interested shareholder
became such, the interested shareholder holds at least 85% of our common
stock (excluding shares held by persons who are both officers and
directors and shares held by certain employee benefit plans), or
- the business combination is approved by our Board of Directors and by the
holders of at least two-thirds of our outstanding common stock, excluding
shares owned by the interested shareholders.
One of the effects of Section 203 may be to prevent highly leveraged
takeovers, which depend upon getting access to the acquired corporation's assets
to support or repay acquisition indebtedness and certain coercive acquisition
tactics. By requiring approval of the holders of two-thirds of the shares held
by disinterested shareholders for business combinations involving an interested
shareholder, Section 203 may prevent any interested shareholder from taking
advantage of its position as a substantial, if not controlling, shareholder and
engaging in transactions with us that may not be fair to our other shareholders
or that may otherwise not be in our best interests, or the best interests of our
shareholders and other constituencies.
For similar reasons, however, these provisions may make more difficult or
discourage an acquisition of Peoples Community Bancorp or the acquisition of
control of Peoples Community Bancorp by a principal shareholder, and thus the
removal of incumbent management. In addition, to the extent that Section 203
discourages takeovers that would result in the change of our management, such a
change may be less likely to occur.
ANTI-TAKEOVER EFFECTS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS AND
MANAGEMENT
REMUNERATION ADOPTED IN THE CONVERSION
The foregoing provisions of our Certificate of Incorporation and Bylaws and
Delaware law could have the effect of discouraging an acquisition of us or stock
purchases in furtherance of an acquisition, and could accordingly, under certain
circumstances, discourage transactions which might otherwise have a favorable
effect on the price of our common stock.
In addition, the proposed employment agreements with our executive officers
and certain provisions in our proposed stock benefit plans provide for
accelerated benefits to participants in the event of a change in control of us.
See "Management--Employment Agreements" and "--New Stock Benefit Plans." The
foregoing provisions and limitations may make it more costly for companies or
persons to acquire control of us.
Our Board of Directors believes that the provisions described above are
prudent and will reduce vulnerability to takeover attempts and certain other
transactions that are not negotiated with and approved by our Board of
Directors. The Board of Directors believes that these provisions are in the
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best interests of Peoples Community Bancorp and our future stockholders. In the
Board of Directors' judgment, the Board of Directors is in the best position to
determine our true value and to negotiate more effectively for what may be in
the best interests of our stockholders. Accordingly, the Board of Directors
believes that it is in the best interests of Peoples Community Bancorp and our
future stockholders to encourage potential acquirors to negotiate directly with
the Board of Directors and that these provisions will encourage such
negotiations and discourage hostile takeover attempts. It is also the Board of
Directors' view that these provisions should not discourage persons from
proposing a merger or other transaction at prices reflective of our true value
and where the transaction is in the best interests of all stockholders.
Despite the Board of Directors' belief as to the benefits to our
stockholders of the foregoing provisions, these provisions also may have the
effect of discouraging a future takeover attempt in which stockholders might
receive a substantial premium for their shares over then current market prices
and may tend to perpetuate existing management. As a result, stockholders who
might desire to participate in such a transaction may not have an opportunity to
do so. The Board of Directors, however, has concluded that the potential
benefits of these provisions outweigh their possible disadvantages.
We are not aware of any effort that might be made to acquire control of us.
REGULATORY RESTRICTIONS
Applicable law provides that no person, acting directly or indirectly or
through or in concert with one or more other persons, may acquire control of a
savings institution unless the OTS has been given at least 60 days' prior
written notice. The HOLA provides that no company may acquire "control" of a
savings institution without the prior approval of the OTS. Any company that
acquires such control becomes a savings and loan holding company subject to
registration, examination and regulation by the OTS. Pursuant to federal
regulations, control of a savings institution is conclusively deemed to have
been acquired by, among other things, the acquisition of more than 25% of any
class of voting stock of the institution or the ability to control the election
of a majority of the directors of an institution. Moreover, control is presumed
to have been acquired, subject to rebuttal, upon the acquisition of more than
10% of any class of voting stock, or of more than 25% of any class of stock, of
a savings institution where certain enumerated "control factors" are also
present in the acquisition. The OTS may prohibit an acquisition if
- it would result in a monopoly or substantially lessen competition,
- the financial condition of the acquiring person might jeopardize the
financial stability of the institution, or
- the competence, experience or integrity of the acquiring person indicates
that it would not be in the interest of the depositors or of the public to
permit the acquisition of control by such person.
The foregoing restrictions do not apply to the acquisition of a savings
institution's capital stock by one or more tax-qualified employee stock benefit
plans, provided that the plan or plans do not have beneficial ownership in the
aggregate of more than 25% of any class of equity security of the savings
institution.
For three years following the conversion, OTS regulations prohibit any
person from acquiring, either directly or indirectly, or making an offer to
acquire more than 10% of the stock of any converted savings institution or its
holding company, without the prior written approval of the OTS, except for
(1) any offer with a view toward public resale made exclusively to the
institution or its holding company or to underwriters or a selling group
acting on its behalf,
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(2) offers that if consummated would not result in the acquisition by
such person during the preceding 12-month period of more than 1% of such
stock,
(3) offers in the aggregate for up to 24.9% by our ESOP or other
tax-qualified plans, and
(4) an offer to acquire or acquisition of beneficial ownership of more
than 10% of the common stock of the savings institution or its holding
company by a corporation whose ownership is or will be substantially the
same as the ownership of the savings institution, provided that the offer or
acquisition is made more than one year following the date of completion of
the conversion. Such prohibition also is applicable to the acquisition of
the common stock.
In the event that any person, directly or indirectly, violates this regulation,
the securities beneficially owned by such person in excess of 10% shall not be
counted as shares entitled to vote and shall not be voted by any person or
counted as voting shares in connection with any matters submitted to a vote of
stockholders. The definition of beneficial ownership for this regulation extends
to persons holding revocable or irrevocable proxies for the stock of an
institution or its holding company under circumstances that give rise to a
conclusive or rebuttable determination of control under OTS regulations.
In addition to the foregoing, the Plan prohibits any person, prior to the
completion of the conversion, from offering, or making an announcement of an
intent to make an offer, to purchase subscription rights for common stock. See
"The Offerings--Restrictions on Transfer of Subscription Rights and Shares."
DESCRIPTION OF OUR CAPITAL STOCK
GENERAL
We are authorized to issue 11,000,000 shares of capital stock, of which
10,000,000 are shares of common stock, par value $.01 per share and 1,000,000
are shares of preferred stock, par value $.01 per share. We currently expect to
issue up to a maximum of 1,851,500 shares of common stock and no shares of
preferred stock in the conversion plus we will issue approximately 787,760
shares in the merger with Harvest Home Financial in exchange for shares of
common stock of Harvest Home Financial. Each share of our common stock issued in
the conversion will have the same relative rights as, and will be identical in
all respects with, each other share of common stock issued in the conversion.
Upon payment of the Purchase Price for the common stock in accordance with the
Plan of Conversion, all such stock will be duly authorized, fully paid and
nonassessable based on the laws and regulations in effect as of the date of
consummation of the conversion.
OUR COMMON STOCK WILL REPRESENT NONWITHDRAWABLE CAPITAL, WILL NOT BE AN
ACCOUNT OF AN INSURABLE TYPE, AND WILL NOT BE INSURED BY THE FDIC.
COMMON STOCK
DIVIDENDS. We can pay dividends if, as and when declared by our Board of
Directors, subject to compliance with limitations which are imposed by law. See
"We Do Not Intend to Pay Quarterly Cash Dividends." The holders of our common
stock will be entitled to receive and share equally in such dividends as may be
declared by our Board of Directors out of funds legally available therefor. If
we issue preferred stock, the holders thereof may have a priority over the
holders of the common stock with respect to dividends.
VOTING RIGHTS. Upon completion of the conversion, the holders of our common
stock will possess exclusive voting rights in Peoples Community Bancorp. They
will elect our Board of Directors and act on such other matters as are required
to be presented to them under Delaware law or our Certificate of Incorporation
or as are otherwise presented to them by the Board of Directors. Except as
discussed
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in "Restrictions on Acquisition of Peoples Community Bancorp and People's
Savings," each holder of common stock will be entitled to one vote per share and
will not have any right to cumulate votes in the election of directors. If we
issue preferred stock, holders of the preferred stock may also possess voting
rights.
LIQUIDATION. In the event of any liquidation, dissolution or winding up of
People's Savings, Peoples Community Bancorp, as the sole holder of People's
Savings capital stock, would be entitled to receive, after payment or provision
for payment of all debts and liabilities of People's Savings (including all
deposit accounts and accrued interest thereon) and after distribution of the
balance in the special liquidation account to Eligible Account Holders and
Supplemental Eligible Account Holders (see "Our Conversion and Our Mergers with
Oakley and Harvest Home Financial--Liquidation Rights of Certain Depositors"),
all assets of People's Savings available for distribution. In the event of any
liquidation, dissolution or winding up of Peoples Community Bancorp, the holders
of our common stock would be entitled to receive, after payment or provision for
payment of all its debts and liabilities, all of our assets available for
distribution. If preferred stock is issued, the holders thereof may have a
priority over the holders of the common stock in the event of liquidation or
dissolution.
PREEMPTIVE RIGHTS. Holders of our common stock will not be entitled to
preemptive rights with respect to any shares which may be issued in the future.
The common stock is not subject to any required redemption.
PREFERRED STOCK
None of our authorized shares of preferred stock will be issued in the
conversion. Such stock may be issued with such preferences and designations as
our Board of Directors may from time to time determine. The Board of Directors
can, without stockholder approval, issue preferred stock with voting, dividend,
liquidation and conversion rights which could dilute the voting strength of the
holders of the common stock and may assist management in impeding an unfriendly
takeover or attempted change in control.
EXPERTS
The financial statements of People's Savings as of September 30, 1999 and
1998 and for each of the three years in the period ended September 30, 1999,
included in this prospectus and our registration statement on Form S-1 have been
included herein in reliance upon the report of Grant Thornton LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
The financial statements of Oakley as of September 30, 1999 and 1998 and for
each of the years in the three-year period ended September 30, 1999, included in
this prospectus were audited by Grant Thornton LLP, independent certified public
accountants, as stated in their report appearing elsewhere herein and are
included in reliance upon the report of such firm given as experts in accounting
and auditing.
The financial statements of Harvest Home Financial as of September 30, 1999
and 1998 and for each of the years in the three-year period ended September 30,
1999, included in this prospectus have been audited by Grant Thornton LLP,
independent certified public accountants, as stated in their report appearing
elsewhere herein and have been so included in reliance upon the report of such
firm given as experts in accounting and auditing.
RP Financial has consented to the publication herein of the summary of its
report to us setting forth its opinion as to the estimated pro forma market
value of the common stock to be outstanding upon completion of the conversion
and its opinion with respect to subscription rights.
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LEGAL AND TAX OPINIONS
The legality of the common stock and the federal income tax consequences of
the conversion and the Harvest Home Financial merger will be passed upon for us
by Elias, Matz, Tiernan & Herrick L.L.P., Washington, D.C., our special counsel.
The Ohio income tax consequences of the conversion will be passed upon for us by
Grant Thornton LLP, Cincinnati, Ohio. Kepley, Gilligan & Eyrich, Cincinnati,
Ohio, has passed upon the federal income tax consequences of the Harvest Home
Financial merger to Harvest Home Financial and its stockholders. Certain legal
matters will be passed upon for Charles Webb by Luse Lehman Gorman Pomerenk &
Schick, P.C. Certain legal matters will be passed upon for Oakley by Silver,
Freedman & Taff, L.L.P., Washington, D.C.
ADDITIONAL INFORMATION
We have filed with the SEC a Registration Statement under the Securities Act
with respect to the common stock offered hereby. As permitted by the rules and
regulations of the SEC, this prospectus does not contain all the information set
forth in the Registration Statement. Such information, including the appraisal
report which is an exhibit to the Registration Statement, can be examined
without charge at the public reference facilities of the SEC located at 450
Fifth Street, N.W., Washington, D.C. 20549, and copies of such material can be
obtained from the SEC at prescribed rates. In addition, the SEC maintains a web
site that contains registration statements and other reports regarding
registrants that file electronically with the SEC (such as Peoples Community
Bancorp). The address of the SEC's web site is http://www.sec.gov. The
statements contained in this prospectus as to the contents of any contract or
other document filed as an exhibit to the Registration Statement summarize the
provisions of such contracts or other documents which are deemed to be material.
However, such summary is, of necessity, a brief description of the provisions
and is not necessarily complete; each such statement is qualified by reference
to such contract or document.
People's Savings has filed an Application for Conversion with the OTS with
respect to the conversion. This prospectus omits certain information contained
in that application. The application may be examined at the principal office of
the OTS, 1700 G Street, N.W., Washington, D.C. 20552 and at the Central Regional
Office of the OTS located at 200 West Madison Street, Suite 1300, Chicago,
Illinois 60606.
We filed with the Office of Thrift Supervision an Application to Form a
Holding Company and for permission to acquire Harvest Home Financial. This
prospectus omits certain information contained in that application. Such
application may be inspected at the principal office of the OTS, 1700 G Street,
N.W., Washington, D.C. 20552, and at the Central Regional Office of the OTS
located at 200 West Madison Street, Suite 1300, Chicago, Illinois 60606.
In connection with the conversion, we will register our common stock with
the SEC under Section 12(g) of the Exchange Act, and, upon such registration,
Peoples Community Bancorp and the holders of our stock will become subject to
the proxy and tender offer rules, insider trading reporting requirements and
restrictions on stock purchases and sales by directors, officers and greater
than 10% stockholders, and certain other requirements of the Exchange Act. Under
the Plan, we have undertaken that we will not terminate such registration for a
period of at least three years following the conversion.
A copy of the Plan of Conversion and our Articles of Incorporation and
Bylaws and the Constitution, Articles of Incorporation and Bylaws of People's
Savings are available without charge from People's Savings or Oakley. Requests
for such information should be directed to: David A. Cook, Secretary, The
People's Building, Loan and Savings Company, 11 South Broadway, Lebanon, Ohio
45036; or Alexis Thompson, Secretary, The Oakley Improved Building & Loan
Company, 3924 Isabella Avenue, Cincinnati, Ohio 45209.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
FINANCIAL STATEMENTS OF PEOPLE'S SAVINGS
Report of Independent Certified Public Accountants.......... F-1
Statements of Financial Condition as of September 30, 1999
and 1998.................................................. F-2
Statements of Earnings for the years ended September 30,
1999, 1998 and 1997....................................... 28
Statements of Comprehensive Income for the years ended
September 30, 1999, 1998 and 1997......................... F-3
Statements of Retained Earnings for the years ended
September 30, 1999, 1998 and 1997......................... F-4
Statements of Cash Flows for the years ended September 30,
1999 and 1998............................................. F-5
Notes to Financial Statements............................... F-7
</TABLE>
All financial statement schedules are omitted because the required
information either is not applicable or is shown in the financial statements or
in the notes thereto.
The financial statements of Peoples Community Bancorp are omitted because
Peoples Community Bancorp has not yet issued any stock, has no assets or
liabilities, and has not conducted any business other than of an organizational
nature.
<TABLE>
<S> <C>
FINANCIAL STATEMENTS OF OAKLEY
Report of Independent Certified Public Accountants.......... F-18
Statements of Financial Condition as of September 30, 1999
and 1998 (audited)........................................ F-19
Statements of Operations for the years ended September 30,
1999, 1998 and 1997 (audited)............................. 36
Statements of Comprehensive Income (Loss) for the years
ended September 30, 1999, 1998 and 1997 (audited)......... F-20
Statements of Retained Earnings for the years ended
September 30, 1999, 1998 and 1997 (audited)............... F-21
Statements of Cash Flows for the years ended September 30,
1999, 1998 and 1997 (audited)............................. F-22
Notes to Financial Statements............................... F-23
</TABLE>
All financial statement schedules are omitted because the required
information either is not applicable or is shown in the financial statements or
in the notes thereto.
<TABLE>
<S> <C>
FINANCIAL STATEMENTS OF HARVEST HOME FINANCIAL
Report of Independent Certified Public Accountants.......... F-35
Consolidated Statements of Financial Condition as of
September 30, 1999 and 1998............................... F-36
Consolidated Statements of Earnings for the years ended
September 30, 1999, 1998 and 1997......................... 44
Consolidated Statements of Comprehensive Income for the
years ended September 30, 1999, 1998 and 1997............. F-37
Consolidated Statements of Stockholders' Equity for the
years ended September 30, 1999, 1998 and 1997............. F-38
Consolidated Statements of Cash Flows for the years ended
September 30, 1999, 1998
and 1997.................................................. F-39
Notes to Consolidated Financial Statements.................. F-40
</TABLE>
All financial statement schedules are omitted because the required
information either is not applicable or is shown in the financial statements or
in the notes thereto.
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
The People's Building, Loan and Savings Company
We have audited the statements of financial condition of The People's
Building, Loan and Savings Company as of September 30, 1999 and 1998, and the
related statements of earnings, comprehensive income, retained earnings and cash
flows for each of the years ended September 30, 1999, 1998 and 1997. These
financial statements are the responsibility of the Company'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 financial statements referred to above present fairly,
in all material respects, the financial position of The People's Building, Loan
and Savings Company as of September 30, 1999 and 1998, and the results of its
operations and its cash flows for each of the years end September 30, 1999, 1998
and 1997, in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
- ---------------------------------
Cincinnati, Ohio
December 10, 1999
F-1
<PAGE>
THE PEOPLE'S BUILDING, LOAN AND SAVINGS COMPANY
STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30,
<TABLE>
<CAPTION>
1999 1998
-------- ----------
(RESTATED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 70 $ 79
Interest-bearing deposits in other financial institutions... 1,950 4,313
------- -------
Cash and cash equivalents............................. 2,020 4,392
Certificates of deposit in other financial institutions..... -- 400
Investment securities designated as available for sale--at
market.................................................... 798 1,303
Mortgage-backed securities designated as available for
sale--at market........................................... 1,110 1,419
Loans receivable--net....................................... 83,927 79,747
Office premises and equipment--at depreciated cost.......... 1,037 945
Federal Home Loan Bank stock--at cost....................... 850 792
Accrued interest receivable on loans........................ 355 350
Accrued interest receivable on mortgage-backed securities... 7 9
Accrued interest receivable on investments and
interest-bearing deposits................................. 21 23
Prepaid expenses and other assets........................... 174 218
Prepaid federal income taxes................................ -- 40
------- -------
Total assets.......................................... $90,299 $89,638
======= =======
LIABILITIES AND RETAINED EARNINGS
Deposits.................................................... $77,691 $73,691
Advances from the Federal Home Loan Bank.................... -- 4,000
Advances by borrowers for taxes and insurance............... 6 10
Accrued interest payable.................................... 2 16
Other liabilities........................................... 751 741
Accrued federal income taxes................................ 38 --
Deferred federal income taxes............................... 24 155
------- -------
Total liabilities........................................... 78,512 78,613
Commitments................................................. -- --
Retained earnings--substantially restricted................. 11,791 11,025
Accumulated other comprehensive income, unrealized losses on
securities designated as available for sale, net of
related tax effects....................................... (4) --
------- -------
Total retained earnings............................... 11,787 11,025
------- -------
Total liabilities and retained earnings............... $90,299 $89,638
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
THE PEOPLE'S BUILDING, LOAN AND SAVINGS COMPANY
STATEMENTS OF COMPREHENSIVE INCOME
YEAR ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net earnings................................................ $766 $790 $851
Other comprehensive income, net of tax:
Unrealized holding losses on securities during the period,
net of tax benefits of $2............................... (4) -- --
---- ---- ----
Comprehensive income........................................ $762 $790 $851
==== ==== ====
Accumulated comprehensive income (loss)..................... $ (4) $ -- $ --
==== ==== ====
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
THE PEOPLE'S BUILDING, LOAN AND SAVINGS COMPANY
STATEMENTS OF RETAINED EARNINGS
YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
Balance at October 1, 1996 (as restated for business
combination).............................................. $ 9,384
Net earnings for the year ended September 30, 1997.......... 851
-------
Balance at September 30, 1997............................... 10,235
Net earnings for the year ended September 30, 1998.......... 790
-------
Balance at September 30, 1998............................... 11,025
Net earnings for the year ended September 30, 1999.......... 766
Unrealized losses on securities designated as available for
sale, net of related tax benefits......................... (4)
-------
Balance at September 30, 1999............................... $11,787
=======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
THE PEOPLE'S BUILDING, LOAN AND SAVINGS COMPANY
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1999 1998 1997
-------- ---------- ----------
RESTATED RESTATED
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings for the year................................. $ 766 $ 790 $ 851
Adjustments to reconcile net earnings to net cash provided
by
(used in) operating activities:
Amortization of discounts and premiums on investment
and mortgage-backed securities--net................. 3 4 4
Amortization of deferred loan origination fees........ (112) (120) (108)
Depreciation and amortization......................... 43 43 48
Provision for losses on loans......................... 150 48 --
Federal Home Loan Bank stock dividends................ (58) (55) (48)
Increase (decrease) in cash due to changes in:
Accrued interest receivable......................... (1) (5) (55)
Prepaid expenses and other assets................... 44 26 70
Other liabilities................................... 6 12 (481)
Accrued interest payable............................ (14) (4) --
Federal income taxes
Current........................................... 78 (24) 108
Deferred.......................................... (129) -- 39
------- ------- -------
Net cash provided by operating activities....... 776 715 428
Cash flows provided by (used in) investing activities:
Purchase of investment securities......................... -- -- (204)
Proceeds from maturity of investment securities........... 500 400 --
Purchase of mortgage-backed securities.................... -- (300) (300)
Principal repayments on mortgage-backed securities........ 305 275 246
Loan principal repayments................................. 22,449 20,549 16,700
Loan disbursements........................................ (26,667) (21,840) (21,664)
Purchase of office premises and equipment................. (135) (42) (9)
Purchase of Federal Home Loan Bank stock.................. -- -- (13)
Decrease in certificates of deposit in other financial
institutions............................................ 400 -- --
------- ------- -------
Net cash used in investing activities........... (3,148) (958) (5,244)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts.......................... 4,000 1,401 2,478
Proceeds from Federal Home Loan Bank advances............. 2,000 14,000 19,000
Repayment of Federal Home Loan Bank advances.............. (6,000) (16,000) (17,000)
------- ------- -------
Net cash provided by (used in) financing
activities.................................... -- (599) 4,478
------- ------- -------
Net decrease in cash and cash equivalents................... (2,372) (842) (338)
Cash and cash equivalents at beginning of year.............. 4,392 5,234 5,572
------- ------- -------
Cash and cash equivalents at end of year.................... $ 2,020 $ 4,392 $ 5,234
======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes.................................... $ 437 $ 340 $ 295
======= ======= =======
Interest on deposits and borrowings..................... $ 3,927 $ 3,980 $ 3,850
======= ======= =======
Supplemental disclosure of noncash investing activities:
Unrealized losses on securities designated as available
for sale,
net of related tax benefits............................. $ (4) $ -- $ --
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
THE PEOPLE'S BUILDING, LOAN AND SAVINGS COMPANY
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE A--SUMMARY OF ACCOUNTING POLICIES
The People's Building, Loan and Savings Company ("People's" or the
"Company") conducts a general banking business in southwestern Ohio which
primarily consists of attracting deposits from the general public and applying
those funds to the origination of loans for residential, consumer, and
nonresidential purposes. The Company's profitability is significantly dependent
on its net interest income, which is the difference between interest income
generated from interest-earning assets (i.e. loans and investments) and the
interest expense paid on interest-bearing liabilities (i.e. deposits and
borrowed funds). Net interest income is affected by the relative amount of
interest-earning assets and interest-bearing liabilities and the interest
received or paid on these balances. The level of interest rates paid or received
by the Company can be significantly influenced by a number of environmental
factors, such as governmental monetary policy, that are outside of management's
control.
The financial information presented herein has been prepared in accordance
with generally accepted accounting principles ("GAAP") and general accounting
practices within the financial services industry. In preparing financial
statements in accordance with GAAP, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and revenues and expenses during the reporting
period. Actual results could differ from such estimates.
On November 1, 1998, the Company completed a merger with The Peoples
Building and Loan Company of Blanchester, Ohio. The merger was accounted for as
a pooling of interests and, accordingly, the financial statements have been
restated to reflect the effects of the business combination as of October 1,
1996.
The following is a summary of significant accounting policies which have
been consistently applied in the preparation of the accompanying financial
statements.
1. INVESTMENT AND MORTGAGE-BACKED SECURITIES
The Company accounts for investment and mortgage-backed securities in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity Securities." SFAS
No. 115 requires that investments be categorized as held-to-maturity, trading,
or available for sale. Securities classified as held-to-maturity are carried at
cost only if the Company has the positive intent and ability to hold these
securities to maturity. Trading securities and securities designated as
available for sale are carried at fair value with resulting unrealized gains or
losses recorded to operations or retained earnings, respectively. At
September 30, 1999, the Company's retained earnings reflected net unrealized
losses on investment and mortgage-backed securities designated as available for
sale totaling $4,000.
2. LOANS RECEIVABLE
Loans receivable are stated at the principal amount outstanding, adjusted
for deferred loan origination fees and the allowance for loan losses. Interest
is accrued as earned unless the collectibility of the loan is in doubt. Interest
on loans that are contractually past due is charged off, or an allowance is
established based on management's periodic evaluation. The allowance is
established by a charge to interest income equal to all interest previously
accrued, and income is subsequently recognized only to the extent that cash
payments are received until, in management's judgment, the borrower's ability to
F-6
<PAGE>
THE PEOPLE'S BUILDING, LOAN AND SAVINGS COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE A--SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
make periodic interest and principal payments has returned to normal, in which
case the loan is returned to accrual status. If the ultimate collectibility of
the loan is in doubt, in whole or in part, all payments received on nonaccrual
loans are applied to reduce principal until such doubt is eliminated.
3. LOAN ORIGINATION FEES
The Company accounts for loan origination fees in accordance with SFAS
No. 91, "Accounting for Nonrefundable Fees and Costs Associated with Originating
or Acquiring Loans and Initial Direct Costs of Leases." Pursuant to the
provisions of SFAS No. 91, origination fees received from loans, net of certain
direct origination costs, are deferred and amortized to interest income using
the level-yield method, giving effect to actual loan prepayments. Additionally,
SFAS No. 91 generally limits the definition of loan origination costs to the
direct costs attributable to originating a loan, i.e., principally actual
personnel costs.
4. ALLOWANCE FOR LOAN LOSSES
It is the Company's policy to provide valuation allowances for estimated
losses on loans based on past loss experience, trends in the level of delinquent
and problem loans, adverse situations that may affect the borrower's ability to
repay, the estimated value of any underlying collateral and current and
anticipated economic conditions in the Company's primary lending area. When the
collection of a loan becomes doubtful, or otherwise troubled, the Company
records a loan charge-off equal to the difference between the fair value of the
property securing the loan and the loan's carrying value. Major loans and major
lending areas are reviewed periodically to determine potential problems at an
early date. The allowance for loan losses is increased by charges to earnings
and decreased by charge-offs (net of recoveries).
The Company accounts for impaired loans in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," which requires that impaired
loans be measured based upon the present value of expected future cash flows
discounted at the loan's effective interest rate or, as an alternative, at the
loan's observable market price or fair value of the collateral. The Company's
current procedures for evaluating impaired loans result in carrying such loans
at the lower of cost or fair value.
A loan is defined as impaired under SFAS No. 114 when, based on current
information and events, it is probable that a creditor will be unable to collect
all amounts due according to the contractual terms of the loan agreement. In
applying the provisions of SFAS No. 114, the Company considers its investment in
one- to four-family and consumer loans to be homogeneous and therefore excluded
from separate identification for evaluation of impairment. With respect to the
Company's investment in multi-family and nonresidential loans, and its
evaluation of impairment thereof, such loans are collateral dependent, and, as a
result, are carried as a practical expedient at the lower of cost or fair value.
It is the Company's policy to charge off unsecured credits that are more
than ninety days delinquent. Similarly, collateral dependent loans which are
more than ninety days delinquent are considered to constitute more than a
minimum delay in repayment and are evaluated for impairment under SFAS No. 114
at that time.
F-7
<PAGE>
THE PEOPLE'S BUILDING, LOAN AND SAVINGS COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE A--SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
At September 30, 1999 and 1998, the Company had no loans that would be
defined as impaired under SFAS No. 114.
5. REAL ESTATE ACQUIRED THROUGH FORECLOSURE
Real estate acquired through foreclosure is carried at the lower of the
loan's unpaid principal balance (cost), or fair value less estimated selling
expenses at the date of acquisition. Real estate loss provisions are recorded if
the properties' fair value subsequently declines below the value determined at
the recording date. In determining the lower of cost or fair value at
acquisition, costs relating to development and improvement of property are
capitalized. Costs relating to holding real estate acquired through foreclosure,
net of rental income, are charged against earnings as incurred.
6. OFFICE PREMISES AND EQUIPMENT
Office premises and equipment are carried at cost and include expenditures
which extend the useful lives of existing assets. Maintenance, repairs and minor
renewals are expensed as incurred. For financial reporting, depreciation and
amortization are provided primarily on the straight-line and accelerated methods
over the useful lives of the assets, estimated to be forty years for the
building, ten to forty years for building improvements and five to ten years for
furniture and equipment. An accelerated method is used for tax reporting
purposes.
7. FEDERAL INCOME TAXES
The Company accounts for federal income taxes in accordance with the
provisions of SFAS No. 109, "Accounting for Income Taxes." Pursuant to the
provisions of SFAS No. 109, a deferred tax liability or deferred tax asset is
computed by applying the current statutory tax rates to net taxable or
deductible differences between the tax basis of an asset or liability and its
reported amount in the financial statements that will result in taxable or
deductible amounts in future periods. Deferred tax assets are recorded only to
the extent that the amount of net deductible temporary differences or
carryforward attributes may be utilized against current period earnings, carried
back against prior years earnings, offset against taxable temporary differences
reversing in future periods, or utilized to the extent of management's estimate
of future taxable income. A valuation allowance is provided for deferred tax
assets to the extent that the value of net deductible temporary differences and
carryforward attributes exceeds management's estimates of taxes payable on
future taxable income. Deferred tax liabilities are provided on the total amount
of net temporary differences taxable in the future.
The Company's principal temporary differences between pretax financial
income and taxable income result from different methods of accounting for
deferred loan origination fees and costs, the deferred compensation plan, the
cash versus accrual basis of accounting, general loan loss allowances, the
percentage of earnings bad debt deductions, and Federal Home Loan Bank stock
dividends. Additionally, a temporary difference is recognized for depreciation
utilizing accelerated methods for federal income tax purposes.
F-8
<PAGE>
THE PEOPLE'S BUILDING, LOAN AND SAVINGS COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE A--SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
8. BENEFIT PLANS
The Company has a noncontributory unfunded pension plan that covers all
directors. The Company's policy is to maintain an accrued liability equal to the
present value of all vested benefits computed using a predetermined annual
benefit amount at retirement. Each director is vested at 65% automatically with
an additional vesting of 15% after three years and 5% per year thereafter until
100% vesting is reached. This plan provides for a life annuity for 120 months,
with eligibility at age 65. The provision for pension expense was $29,000,
$114,000 and $63,000 for the years ended September 30, 1999, 1998 and 1997,
respectively.
In addition, the Company maintains a Simplified Employee Pension Plan for
its employees. Each employee who is at least 21 and has performed services for
People's in at least 53 of the immediately preceding 260 weeks is eligible to
participate. People's may make discretionary contributions to the plan which are
shared pro-rata among all eligible employees based on their compensation for
that calendar year. No employee may be allocated funds under the plan in any one
year in excess of 15% of the employee's compensation for that calendar year.
People's contribution expense for the plan amounted to $39,000, $27,000 and
$35,000 for the years ended September 30, 1999, 1998 and 1997, respectively.
Participants are immediately vested in employer contributions as well as their
elective deferrals and may withdraw either at any time. The disclosures required
under SFAS No. 87, "Accounting for Pensions," have not been provided based on
materiality.
9. COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, "Reporting Comprehensive Income," as of
October 1, 1998. The Statement established standards for reporting and
presentation of comprehensive income and its components in a full set of
general-purpose financial statements. It 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 presented with
the same prominence as other financial statements. SFAS No. 130 requires that
companies (i) classify items of other comprehensive income by their nature in a
financial statement and (ii) display the accumulated balance of other
comprehensive income or loss separately from retained earnings. Financial
statements for earlier fiscal years were restated for comparative purposes. The
Company's accumulated comprehensive income (loss) consists solely of the change
in unrealized gains and losses on securities designated as available for sale in
accordance with SFAS No. 115.
10. CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash
and due from banks and interest-bearing deposits in other financial institutions
with original terms to maturity of less than ninety days.
11. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1999
financial statement presentation.
F-9
<PAGE>
THE PEOPLE'S BUILDING, LOAN AND SAVINGS COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE B--INVESTMENT AND MORTGAGE-BACKED SECURITIES
The investment and mortgage-backed securities depicted below were classified
as held to maturity by The Peoples Building and Loan Company of Blanchester
prior to combination with the Company. Upon completion of the merger in fiscal
1999, all investment and mortgage-backed securities were classified as available
for sale to adhere to the Company's investment policies. The amortized cost and
estimated fair values of investment securities at September 30, 1999 and 1998
are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
--------- ---------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available for sale:
U.S. Government and agency
obligations, due within one
year.............................. $799 $798 $1,294 $1,303
==== ==== ====== ======
</TABLE>
At September 30, 1999, the Company's amortized cost of investment securities
exceeded the estimated fair value by $1,000, comprised solely of gross
unrealized losses. At September 30, 1998, the Company's fair value of investment
securities exceeded amortized cost by $9,000, consisting solely of gross
unrealized gains.
The amortized cost, gross unrealized gains, gross unrealized losses, and
estimated fair values of mortgage-backed securities at September 30, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
1999
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available for sale:
Government National Mortgage
Association participation
certificates...................... $1,115 $8 $13 $1,110
====== == === ======
</TABLE>
<TABLE>
<CAPTION>
1998
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available for sale:
Government National Mortgage
Association participation
certificates...................... $1,428 $7 $16 $1,419
====== == === ======
</TABLE>
F-10
<PAGE>
THE PEOPLE'S BUILDING, LOAN AND SAVINGS COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE B--INVESTMENT AND MORTGAGE-BACKED SECURITIES (CONTINUED)
The amortized cost of mortgage-backed securities, by contractual terms to
maturity, are shown below. Expected maturities will differ from contractual
maturities because borrowers may generally prepay obligations without prepayment
penalties.
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Due within three years...................................... $ 11 $ 30
Due in three to five years.................................. 10 16
Due in five to ten years.................................... 493 628
Due after ten years......................................... 601 754
------ ------
$1,115 $1,428
====== ======
</TABLE>
NOTE C--LOANS RECEIVABLE
The composition of the loan portfolio at September 30 is as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Residential real estate
One-to-four family...................................... $80,690 $75,564
Multi-family............................................ 982 1,036
Nonresidential real estate and land....................... 5,647 5,801
Consumer and other........................................ 124 129
------- -------
87,443 82,530
Less:
Undisbursed portion of loans-in-process................. 2,797 2,209
Deferred loan origination fees.......................... 354 359
Allowance for loan losses............................... 365 215
------- -------
$83,927 $79,747
======= =======
</TABLE>
The Company's lending efforts have historically focused on one-to-four
family and multi-family residential real estate loans, which comprise
approximately $78.9 million, or 94%, of the total loan portfolio as of
September 30, 1999 and $74.4 million, or 93%, of the total loan portfolio as of
September 30, 1998. Generally, such loans have been underwritten on the basis of
no more than an 80% loan-to-value ratio, which has historically provided the
Company with adequate collateral coverage in the event of default. Nevertheless,
the Company, as with any lending institution, is subject to the risk that real
estate values could deteriorate in its primary lending area of southwestern
Ohio, thereby impairing collateral values. However, management is of the belief
that real estate values in the Company's primary lending area are presently
stable.
In the normal course of business, the Company has made loans to some of its
directors, officers and employees. In the opinion of management, such loans are
consistent with sound lending practices
F-11
<PAGE>
THE PEOPLE'S BUILDING, LOAN AND SAVINGS COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE C--LOANS RECEIVABLE (CONTINUED)
and are within applicable regulatory lending limitations. The aggregate dollar
amount of loans outstanding to directors and officers totaled approximately
$214,000 and $238,000 at September 30, 1999 and 1998, respectively.
NOTE D--ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is summarized as follows for
the years ended September 30:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN
THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year............................ $215 $182 $182
Provision for loan losses............................... 150 48 --
Charge-off of loans..................................... -- (15) --
---- ---- ----
Balance at end of year.................................. $365 $215 $182
==== ==== ====
</TABLE>
As of September 30, 1999, the Company's allowance for loan losses was solely
general in nature, and is includible as a component of regulatory risk-based
capital.
The Company had nonperforming and nonaccrual loans totaling $1.0 million,
$704,000 and $995,000 at September 30, 1999, 1998 and 1997, respectively.
Interest income that would have been recognized had such loans been performing
in accordance with their contractual terms totaled approximately $26,000,
$21,000 and $23,000 for the years ended September 30, 1999, 1998 and 1997,
respectively.
NOTE E--OFFICE PREMISES AND EQUIPMENT
At September 30, office premises and equipment were comprised of the
following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 48 $ 48
Building and improvements................................... 851 834
Furniture and equipment..................................... 494 351
------ ------
1,393 1,233
Less accumulated depreciation and amortization.............. 356 288
------ ------
$1,037 $ 945
====== ======
</TABLE>
F-12
<PAGE>
THE PEOPLE'S BUILDING, LOAN AND SAVINGS COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE F--DEPOSITS
Deposits consist of the following major classifications at September 30:
<TABLE>
<CAPTION>
DEPOSIT TYPE AND WEIGHTED-AVERAGE INTEREST RATE 1999 1998
- ----------------------------------------------- -------- --------
(IN THOUSANDS)
<S> <C> <C>
Passbook..................................................
1999--3.88%............................................. $ 4,008
1998--3.62%............................................. $ 4,855
Money market deposit accounts.............................
1999--4.14%............................................. 17,255
1998--4.12%............................................. 16,626
------- -------
Total demand, transaction and passbook deposits........... 21,263 21,481
Certificates of deposit
Original maturities of:
Less than 12 months...................................
1999--4.47%......................................... 6,093
1998--4.99%......................................... 4,415
12 months to 36 months................................
1999--5.39%......................................... 30,956
1998--5.96%......................................... 26,823
36 months to 48 months................................
1999--5.18%......................................... 16,143
1998--6.95%......................................... 18,108
Individual retirement accounts
1999--5.79%............................................. 3,236
1998--6.37%............................................. 2,864
------- -------
Total certificates of deposit............................. 56,428 52,210
------- -------
Total deposit accounts.................................... $77,691 $73,691
======= =======
</TABLE>
At September 30, 1999 and 1998, the Company had certificate of deposit
accounts with balances in excess of $100,000 totaling approximately
$22.1 million and $19.1 million, respectively.
Interest expense on deposits for the years ended September 30 is summarized
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Passbook............................................ $ 156 $ 176 $ 172
Money market deposit accounts....................... 714 686 768
Certificates of deposit............................. 3,004 3,114 2,910
------ ------ ------
$3,874 $3,976 $3,850
====== ====== ======
</TABLE>
F-13
<PAGE>
THE PEOPLE'S BUILDING, LOAN AND SAVINGS COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE F--DEPOSITS (CONTINUED)
Maturities of outstanding certificates of deposit at September 30 are
summarized as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Less than one year........................................ $33,205 $36,398
One year to three years................................... 19,198 14,126
More than three years..................................... 4,025 1,686
------- -------
$56,428 $52,210
======= =======
</TABLE>
NOTE G--ADVANCES FROM THE FEDERAL HOME LOAN BANK
At September 30, 1998, advances from the Federal Home Loan Bank consisted of
short-term borrowings with a weighted-average interest rate of 5.45%. Such
advances were collateralized by a pledge of certain residential mortgage loans
totaling $6.0 million and the Company's investment in Federal Home Loan Bank
stock.
NOTE H--FEDERAL INCOME TAXES
Federal income taxes do not differ materially from the amounts computed at
the statutory corporate tax rate for the fiscal years ended September 30, 1999,
1998 and 1997.
The composition of the Company's net deferred tax liability at September 30
is as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Taxes (payable) refundable on temporary differences
at statutory rate:
Deferred tax assets:
General loan loss allowance............................... $ 124 $ 71
Deferred loan origination fees............................ 73 49
Unrealized losses on securities designated as available
for sale................................................ 2 --
Deferred compensation plan................................ 185 188
----- -----
Total deferred tax assets............................. 384 308
Deferred tax liabilities:
Federal Home Loan Bank stock dividends.................... (144) (120)
Book/tax depreciation differences......................... (63) (43)
Cash versus accrual basis of accounting................... (41) (87)
Percentage of earnings bad debt deduction................. (156) (213)
Other..................................................... (4) --
----- -----
Deferred tax liabilities.............................. (408) (463)
----- -----
Net deferred tax liability............................ $ (24) $(155)
===== =====
</TABLE>
F-14
<PAGE>
THE PEOPLE'S BUILDING, LOAN AND SAVINGS COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE H--FEDERAL INCOME TAXES (CONTINUED)
The Company has historically been allowed a special bad debt deduction,
generally limited to 8% of otherwise taxable income, and subject to certain
limitations based on aggregate loans and deposit account balances at the end of
the year. If the amounts that qualify as deductions for federal income taxes are
later used for purposes other than bad debt losses, including distributions in
liquidation, such distributions will be subject to federal income taxes at the
then current corporate income tax rate. Retained earnings at September 30, 1999,
includes approximately $1.9 million for which federal income taxes have not been
provided. The amount of unrecognized deferred tax liability relating to the
cumulative bad debt deduction was approximately $485,000 at September 30, 1999.
Pursuant to legislation enacted in 1996, the Company is required to
recapture as taxable income approximately $640,000 of its tax bad debt reserve,
which represents the post-1987 additions to the reserve, and will be unable to
utilize the percentage of earnings method to compute its bad debt deduction in
the future. The Company has provided deferred taxes for this amount and began
amortizing the recapture of the bad debt reserve into taxable income over a six
year period commencing in fiscal 1998.
NOTE I--LOAN COMMITMENTS
The Company 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
including commitments to extend credit. Such commitments involve, to varying
degrees, elements of credit and interest-rate risk in excess of the amount
recognized in the statement of financial condition. The contract or notional
amounts of the commitments reflect the extent of the Company's involvement in
such financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The Company
uses the same credit policies in making commitments and conditional obligations
as those utilized for on-balance-sheet instruments.
At September 30, 1999, the Company had outstanding commitments of
approximately $1.0 million to originate loans. In the opinion of management, all
loan commitments equaled or exceeded prevalent market interest rates as of
September 30, 1999, and will be funded from normal cash flow from operations and
existing excess liquidity.
NOTE J--REGULATORY CAPITAL
The Company is subject to minimum regulatory capital standards promulgated
by the Office of Thrift Supervision (the "OTS"). Failure to meet minimum capital
requirements can initiate certain mandatory--and possibly additional
discretionary--actions by regulators that, if undertaken, could have a direct
material effect on the financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of the Company's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
F-15
<PAGE>
THE PEOPLE'S BUILDING, LOAN AND SAVINGS COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE J--REGULATORY CAPITAL (CONTINUED)
The minimum capital standards of the OTS generally require the maintenance
of regulatory capital sufficient to meet each of three tests, hereinafter
described as the tangible capital requirement, the core capital requirement and
the risk-based capital requirement. The tangible capital requirement provides
for minimum tangible capital (defined as retained earnings less all intangible
assets) equal to 1.5% of adjusted total assets. The core capital requirement
provides for minimum core capital (tangible capital plus certain forms of
supervisory goodwill and other qualifying intangible assets) equal to 3.0% of
adjusted total assets. An OTS proposal, if adopted in present form, would
increase the core capital requirement to a range of 4.0%--5.0% of adjusted total
assets for substantially all savings associations. Management anticipates no
material change to the Company's excess regulatory capital position as a result
of this proposed change in the regulatory capital requirement. The risk-based
capital requirement currently provides for the maintenance of core capital plus
general loss allowances equal to 8.0% of risk-weighted assets. In computing
risk-weighted assets, the Company multiplies the value of each asset on its
statement of financial condition by a defined risk-weighting factor, e.g., one-
to four-family residential loans carry a risk-weighted factor of 50%.
As of September 30, 1999 and 1998, management believes that the Company met
all capital adequacy requirements to which it was subject.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
----------------------------------------------------------------
TO BE "WELL-CAPITALIZED"
UNDER PROMPT
FOR CAPITAL CORRECTIVE ACTION
ACTUAL ADEQUACY PURPOSES PROVISIONS
---------------- ----------------- ---------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- ------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital..... $11,791 13.1% *$1,354 *1.5% *$4,515 * 5.0%
Core capital......... $11,791 13.1% *$2,709 *3.0% *$5,418 * 6.0%
Risk-based capital... $12,156 24.4% *$3,985 *8.0% *$4,982 *10.0%
* greater than or equal to
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
--------------------------------------------------------------------
TO BE "WELL-CAPITALIZED"
UNDER PROMPT
FOR CAPITAL ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS
---------------- --------------------- ---------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ----- ---------- --------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital..... $11,025 12.3% *$1,345 *1.5% *$4,482 * 5.0%
Core capital......... $11,025 12.3% *$2,690 *3.0% *$5,378 * 6.0%
Risk-based capital... $11,240 23.6% *$3,806 *8.0% *$4,758 *10.0%
* greater than or equal to
</TABLE>
The Company's management believes that, under the current regulatory capital
regulations, the Company will continue to meet its minimum capital requirements
in the foreseeable future. However, events beyond the control of the Company,
such as increased interest rates or a downturn in the
F-16
<PAGE>
THE PEOPLE'S BUILDING, LOAN AND SAVINGS COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE J--REGULATORY CAPITAL (CONTINUED)
economy in the Company's market area, could adversely affect future earnings
and, consequently, the ability to meet future minimum regulatory capital
requirements.
NOTE K--BUSINESS COMBINATIONS AND REORGANIZATION OF CORPORATE FORM
On October 1, 1999, the Company and The Oakley Improved Building and Loan
Company ("Oakley"), (collectively "the Companies"), jointly announced the
signing of an Agreement and Plan of Merger (the "Agreement") wherein Oakley
would merged with and into the Company. The merger will be accounted for under
the pooling-of-interests method of accounting. In connection therewith, the
Companies adopted an overall Plan of Conversion (the "conversion") whereby the
Company will form a new holding company and convert from mutual to stock form.
Pursuant to the Plan, the Companies will offer for sale up to 1,610,000
common shares to its depositors and members of the community. The costs of
issuing the common stock will be deferred and deducted from the sale proceeds of
the offering. If the conversion is unsuccessful, all deferred costs will be
charged to operations. At September 30, 1999, the Company had not incurred any
conversion costs.
At the date of the conversion, People's will establish a liquidation account
in an amount equal to retained earnings reflected in the statement of financial
condition used in the conversion offering circular. The liquidation account will
be maintained for the benefit of eligible savings account holders who maintain
deposit accounts in People's after conversion.
In the event of a complete liquidation (and only in such event), each
eligible savings account holder will be entitled to receive a liquidation
distribution from the liquidation account in the amount of the then current
adjusted balance of deposit accounts held, before any liquidation distribution
may be made with respect to the common shares. Except for the repurchase of
stock and payment of dividends by the Companies, the existence of the
liquidation account will not restrict the use or further application of such
retained earnings.
People's may not declare or pay a cash dividend on, or repurchase any of its
common shares if the effect thereof would cause the Company's shareholders'
equity to be reduced below either the amount required for the liquidation
account or the regulatory capital requirements for insured institutions.
Additionally, the Company will acquire the Harvest Home Financial
Corporation ("Harvest Home") for consideration of approximately $16.5 million in
cash and common stock. Under the terms of the Agreement, each share of Harvest
Home's common stock will be exchanged for a combination of $9.00 per share in
cash plus new common shares of Peoples' holding company with a value of $9.00.
It is currently anticipated that the number of shares of common stock that will
be exchanged for each share of Harvest Home's common stock is 0.9 shares,
assuming the initial offering price of People's common stock is $10 per share.
The acquisition will be accounted for using the purchase method of accounting.
F-17
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
The Oakley Improved Building and Loan Company
We have audited the statements of financial condition of The Oakley Improved
Building and Loan Company as of September 30, 1999 and 1998, and the related
statements of operations, comprehensive income, retained earnings and cash flows
for each of the years ended September 30, 1999, 1998 and 1997. These financial
statements are the responsibility of the Company'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 financial statements referred to above present fairly,
in all material respects, the financial position of The Oakley Improved Building
and Loan Company as of September 30, 1999, and 1998, and the results of its
operations and its cash flows for each of the years ended September 30, 1999,
1998 and 1997, in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
- ---------------------------------
Cincinnati, Ohio
December 3, 1999
F-18
<PAGE>
THE OAKLEY IMPROVED BUILDING AND LOAN COMPANY
STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30,
<TABLE>
<CAPTION>
1999 1998
--------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 101 $ 97
Federal funds sold.......................................... 700 1,100
Interest-bearing deposits in other financial institutions... 2,362 2,159
--------- -------
Cash and cash equivalents........................... 3,163 3,356
Certificates of deposit in other financial institutions..... 400 500
Investment securities designated as available for sale--at
market.................................................... 2,452 2,442
Mortgage-backed securities designated as available for
sale--at market........................................... 81 110
Loans receivable--net....................................... 10,624 10,701
Office premises and equipment--at depreciated cost.......... 25 28
Federal Home Loan Bank stock--at cost....................... 171 159
Accrued interest receivable on loans........................ 58 65
Accrued interest receivable on investments.................. 1 1
Accrued interest receivable on mortgage-backed securities... 13 9
Prepaid expenses and other assets........................... 32 15
Prepaid federal income taxes................................ 7 --
--------- -------
Total assets........................................ $ 17,027 $17,386
========= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits.................................................... $ 13,327 $13,633
Other liabilities........................................... 180 160
Accrued federal income taxes................................ -- 51
Deferred federal income taxes............................... 630 627
--------- -------
Total liabilities................................... 14,137 14,471
Commitments................................................. -- --
Retained earnings--substantially restricted................. 1,635 1,666
Accumulated other comprehensive income, unrealized gains on
securities designated as available for sale, net of
related tax effects....................................... 1,255 1,249
--------- -------
Total retained earnings............................. 2,890 2,915
--------- -------
Total liabilities and retained earnings............. $ 17,027 $17,386
========= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE>
THE OAKLEY IMPROVED BUILDING AND LOAN COMPANY
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEAR ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net earnings (loss) for the year............................ $ (31) $ 147 $127
Other comprehensive income, net of tax:
Unrealized holding gains on securities during the period,
net of tax of $3, $211 and $143 in fiscal 1999, 1998 and
1997, respectively...................................... 6 409 277
Reclassification adjustment for realized gains included in
earnings, net of tax of $31 in 1998....................... -- (60) --
------ ------ ----
Comprehensive income (loss)................................. $ (25) $ 496 $404
====== ====== ====
Accumulated comprehensive income............................ $1,255 $1,249 $900
====== ====== ====
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE>
THE OAKLEY IMPROVED BUILDING AND LOAN COMPANY
STATEMENTS OF RETAINED EARNINGS
YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
UNREALIZED
GAINS ON
SECURITIES
DESIGNATED AS
RETAINED AVAILABLE
EARNINGS FOR SALE TOTAL
-------- ------------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at October 1, 1996.................................. $1,392 $ 623 $2,015
Net earnings for the year ended September 30, 1997.......... 127 -- 127
Unrealized gains on securities designated as available for
sale, net of related tax effects.......................... -- 277 277
------ ------ ------
Balance at September 30, 1997............................... 1,519 900 2,419
Net earnings for the year ended September 30, 1998.......... 147 -- 147
Unrealized gains on securities designated as available for
sale, net of related tax effects.......................... -- 349 349
------ ------ ------
Balance at September 30, 1998............................... 1,666 1,249 2,915
Net loss for the year ended September 30, 1999.............. (31) -- (31)
Unrealized gains on securities designated as available for
sale, net of related tax effects.......................... -- 6 6
------ ------ ------
Balance at September 30, 1999............................... $1,635 $1,255 $2,890
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-21
<PAGE>
THE OAKLEY IMPROVED BUILDING AND LOAN COMPANY
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) for the year.......................... $ (31) $ 147 $ 127
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Amortization of deferred loan origination fees........ (15) (13) (16)
Depreciation and amortization......................... 5 4 3
Amortization of premiums and (discounts) on investment
securities--net...................................... (4) (2) 2
Federal Home Loan Bank stock dividends................ (12) (11) (9)
Provision for losses on loans......................... 25 -- 1
Gain on sale of investments designated as available
for sale............................................. -- (91) --
Increase (decrease) in cash due to changes in:
Accrued interest receivable......................... 9 1 4
Prepaid expenses and other assets................... (23) (6) 7
Other liabilities................................... 20 (8) (91)
Federal income taxes Current........................ (58) 30 29
Deferred............................................ (1) 11 (26)
------- ------- -------
Net cash provided by (used in) operating
activities.................................... (85) 62 31
Cash flows provided by (used in) investing activities:
(Increase) decrease in certificates of deposit in other
financial institutions.................................. 100 (200) --
Purchase of investment securities......................... (496) (502) (747)
Proceeds from maturities of investment securities......... 500 750 500
Proceeds from repayments on mortgage-backed securities.... 29 20 22
Proceeds from sale of investments designated as available
for sale................................................ -- 93 --
Loan principal repayments................................. 3,556 2,132 1,761
Loan disbursements........................................ (3,489) (1,707) (1,914)
Purchase of office premises and equipment................. (2) (17) (2)
------- ------- -------
Net cash provided by (used in) investing
activities.................................... 198 569 (380)
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposit accounts............... (306) 488 258
------- ------- -------
Net increase (decrease) in cash and cash equivalents........ (193) 1,119 (91)
Cash and cash equivalents at beginning of year.............. 3,356 2,237 2,328
------- ------- -------
Cash and cash equivalents at end of year.................... $ 3,163 $ 3,356 $ 2,237
======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes.................................... $ 35 $ 30 $ 18
======= ======= =======
Interest on deposits.................................... $ 668 $ 726 $ 685
======= ======= =======
Supplemental disclosure of noncash investing activities:
Unrealized gains on investment securities designated as
available for sale,
net of related tax effects.............................. $ 6 $ 349 $ 277
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-22
<PAGE>
THE OAKLEY IMPROVED BUILDING AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE A--SUMMARY OF ACCOUNTING POLICIES
The Oakley Improved Building and Loan Company (the "Company") conducts a
general banking business in southwestern Ohio which primarily consists of
attracting deposits from the general public and applying those funds to the
origination of loans for residential, consumer, and nonresidential purposes. The
Company's profitability is significantly dependent on its net interest income,
which is the difference between interest income generated from interest-earning
assets (i.e. loans and investments) and the interest expense paid on
interest-bearing liabilities (i.e. deposits and borrowed funds). Net interest
income is affected by the relative amount of interest-earning assets and
interest-bearing liabilities and the interest received or paid on these
balances. The level of interest rates paid or received by the Company can be
significantly influenced by a number of environmental factors, such as
governmental monetary policy, that are outside of management's control.
The financial information presented herein has been prepared in accordance
with generally accepted accounting principles ("GAAP") and general accounting
practices within the financial services industry. In preparing financial
statements in accordance with GAAP, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and revenues and expenses during the reporting
period. Actual results could differ from such estimates.
The following is a summary of significant accounting policies which have
been consistently applied in the preparation of the accompanying financial
statements.
1. INVESTMENT AND MORTGAGE-BACKED SECURITIES
The Company accounts for investment and mortgage-backed securities in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity Securities." SFAS
No. 115 requires that investments be categorized as held-to-maturity, trading,
or available for sale. Securities classified as held-to-maturity are carried at
cost only if the Company has the positive intent and ability to hold these
securities to maturity. Trading securities and securities designated as
available for sale are carried at fair value with resulting unrealized gains or
losses recorded to operations or retained earnings, respectively. At
September 30, 1999 and 1998, the Company's retained earnings reflected
unrealized gains on investment and mortgage-backed securities designated as
available for sale totaling $1.3 million and $1.2 million, respectively.
2. LOANS RECEIVABLE
Loans receivable are stated at the principal amount outstanding, adjusted
for deferred loan origination fees and the allowance for loan losses. Interest
is accrued as earned unless the collectibility of the loan is in doubt. Interest
on loans that are contractually past due is charged off, or an allowance is
established based on management's periodic evaluation. The allowance is
established by a charge to interest income equal to all interest previously
accrued, and income is subsequently recognized only to the extent that cash
payments are received until, in management's judgment, the borrower's ability to
make periodic interest and principal payments has returned to normal, in which
case the loan is returned to accrual status. If the ultimate collectibility of
the loan is in doubt, in whole or in part, all payments received on nonaccrual
loans are applied to reduce principal until such doubt is eliminated.
F-23
<PAGE>
THE OAKLEY IMPROVED BUILDING AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE A--SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
3. LOAN ORIGINATION FEES
The Company accounts for loan origination fees in accordance with SFAS
No. 91, "Accounting for Nonrefundable Fees and Costs Associated with Originating
or Acquiring Loans and Initial Direct Costs of Leases." Pursuant to the
provisions of SFAS No. 91, origination fees received from loans, net of certain
direct origination costs, are deferred and amortized to interest income using
the level-yield method, giving effect to actual loan prepayments. Additionally,
SFAS No. 91 generally limits the definition of loan origination costs to the
direct costs attributable to originating a loan, i.e., principally actual
personnel costs.
4. ALLOWANCE FOR LOSSES ON LOANS
It is the Company's policy to provide valuation allowances for estimated
losses on loans based on past loss experience, trends in the level of delinquent
and problem loans, adverse situations that may affect the borrower's ability to
repay, the estimated value of any underlying collateral and current and
anticipated economic conditions in the Company's primary lending area. When the
collection of a loan becomes doubtful, or otherwise troubled, the Company
records a loan charge-off equal to the difference between the fair value of the
property securing the loan and the loan's carrying value. Major loans and major
lending areas are reviewed periodically to determine potential problems at an
early date. The allowance for loan losses is increased by charges to earnings
and decreased by charge-offs (net of recoveries).
The Company accounts for impaired loans in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," which requires that impaired
loans be measured based upon the present value of expected future cash flows
discounted at the loan's effective interest rate or, as an alternative, at the
loan's observable market price or fair value of the collateral. The Company's
current procedures for evaluating impaired loans result in carrying such loans
at the lower of cost or fair value.
A loan is defined under SFAS No. 114 as impaired when, based on current
information and events, it is probable that a creditor will be unable to collect
all amounts due according to the contractual terms of the loan agreement. In
applying the provisions of SFAS No. 114, the Company considers its investment in
one- to four-family residential loans and consumer loans to be homogeneous and
therefore excluded from separate identification for evaluation of impairment.
With respect to the Company's investment in multi-family and nonresidential
loans, and its evaluation of impairment thereof, such loans are collateral
dependent, and as a result, are carried as a practical expedient at the lower of
cost or fair value.
It is the Company's policy to charge off unsecured credits that are more
than ninety days delinquent. Similarly, collateral dependent loans which are
more than ninety days delinquent are considered to constitute more than a
minimum delay in repayment and are evaluated for impairment under SFAS No. 114
at that time.
At September 30, 1999 and 1998, the Company had no loans that would be
defined as impaired under SFAS No. 114.
F-24
<PAGE>
THE OAKLEY IMPROVED BUILDING AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE A--SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
5. REAL ESTATE ACQUIRED THROUGH FORECLOSURE
Real estate acquired through foreclosure is carried at the lower of the
loan's unpaid principal balance (cost), or fair value less estimated selling
expenses at the date of acquisition. Real estate loss provisions are recorded if
the properties' fair value subsequently declines below the value determined at
the recording date. In determining the lower of cost or fair value at
acquisition, costs relating to development and improvement of property are
capitalized. Costs relating to holding real estate acquired through foreclosure,
net of rental income, are charged against earnings as incurred.
6. OFFICE PREMISES AND EQUIPMENT
Office premises and equipment are carried at cost and include expenditures
which extend the useful lives of existing assets. Maintenance, repairs and minor
renewals are expensed as incurred. For financial reporting, depreciation and
amortization are provided primarily on the straight-line and accelerated methods
over the useful lives of the assets, estimated to be forty years for the
building, ten to forty years for building improvements and five to ten years for
furniture and equipment. An accelerated method is used for tax reporting
purposes.
7. FEDERAL INCOME TAXES
The Company accounts for federal income taxes in accordance with the
provisions of SFAS No. 109, "Accounting for Income Taxes." Pursuant to the
provisions of SFAS No. 109, a deferred tax liability or deferred tax asset is
computed by applying the current statutory tax rates to net taxable or
deductible differences between the tax basis of an asset or liability and its
reported amount in the financial statements that will result in taxable or
deductible amounts in future periods. Deferred tax assets are recorded only to
the extent that the amount of net deductible temporary differences or
carryforward attributes may be utilized against current period earnings, carried
back against prior years earnings, offset against taxable temporary differences
reversing in future periods, or utilized to the extent of management's estimate
of future taxable income. A valuation allowance is provided for deferred tax
assets to the extent that the value of net deductible temporary differences and
carryforward attributes exceeds management's estimates of taxes payable on
future taxable income. Deferred tax liabilities are provided on the total amount
of net temporary differences taxable in the future.
The Company's principal temporary differences between pretax financial
income and taxable income result from different methods of accounting for
deferred loan origination fees and costs, general loan loss allowances, certain
components of retirement expense, and Federal Home Loan Bank stock dividends.
Additionally, a temporary difference is recognized for depreciation utilizing
accelerated methods for federal income tax purposes.
8. BENEFIT PLANS
The Company has a deferred unfunded compensation plan that provides
retirement benefits for officers and directors. Expense under the plan totaled
$44,000, $15,000 and $16,000 for the fiscal years ended September 30, 1999, 1998
and 1997, respectively.
F-25
<PAGE>
THE OAKLEY IMPROVED BUILDING AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE A--SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
The Company also has a Simplified Employee Pension Plan that provides
retirement benefits to all employees. Contributions to the plan are subject to
the discretion of the Board of Directors. Expense recognized for the plan
totaled $21,000, $19,000 and $20,000 for the fiscal years ended September 30,
1999, 1998 and 1997, respectively.
9. COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, "Reporting Comprehensive Income," as of
October 1, 1998. The Statement established standards for reporting and
presentation of comprehensive income and its components in a full set of
general-purpose financial statements. It 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 presented with
the same prominence as other financial statements. SFAS No. 130 requires that
companies (i) classify items of other comprehensive income by their nature in a
financial statement and (ii) display the accumulated balance of other
comprehensive income separately from retained earnings. Financial statements for
earlier fiscal years were restated for comparative purposes. The Company's
accumulated comprehensive income consists solely of the change in unrealized
gains and losses on securities designated as available for sale in accordance
with SFAS No. 115.
10. CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash
and due from banks and interest-bearing deposits in other financial institutions
with original terms to maturity of less than ninety days.
11. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1999
financial statement presentation.
F-26
<PAGE>
THE OAKLEY IMPROVED BUILDING AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE B--INVESTMENT AND MORTGAGE-BACKED SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses, and
estimated fair values of investment securities designated as available for sale
at September 30, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
1999
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
FHLMC stock.......................................... $ 48 $1,902 $ -- $1,950
U.S. Government and agency obligations--due within
one year........................................... 502 -- -- 502
---- ------ ---- ------
$550 $1,902 $ -- $2,452
==== ====== ==== ======
</TABLE>
<TABLE>
<CAPTION>
1998
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
FHLMC stock.......................................... $ 48 $1,892 $ -- $1,940
U.S. Government and agency obligations--due within
two years.......................................... 502 -- -- 502
---- ------ ----- ------
$550 $1,892 $ -- $2,442
==== ====== ===== ======
</TABLE>
Mortgage-backed securities consist of Government National Mortgage
Association ("GNMA") certificates which are scheduled to mature ratably over the
next ten years. The fair value of mortgage-backed securities approximated
amortized cost at both September 30, 1999 and 1998.
F-27
<PAGE>
THE OAKLEY IMPROVED BUILDING AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE C--LOANS RECEIVABLE
The composition of the loan portfolio at September 30 is as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Residential real estate
One-to-four family...................................... $ 9,680 $ 9,844
Multi-family............................................ 606 575
Construction............................................ 677 --
Nonresidential real estate and land....................... 288 342
Consumer and other........................................ 9 12
------- -------
11,260 10,773
Less:
Undisbursed portion of loans in process................. 540 --
Deferred loan origination fees.......................... 46 47
Allowance for loan losses............................... 50 25
------- -------
$10,624 $10,701
======= =======
</TABLE>
The Company's lending efforts have historically focused on one-to-four
family and multi-family residential real estate loans, which comprise
approximately $10.4 million, or 98%, of the total loan portfolio as of
September 30, 1999 and $10.4 million, or 97%, of the total loan portfolio as of
September 30, 1998. Generally, such loans have been underwritten on the basis of
no more than an 80% loan-to-value ratio, which has historically provided the
Company with adequate collateral coverage in the event of default. Nevertheless,
the Company, as with any lending institution, is subject to the risk that real
estate values could deteriorate in its primary lending area of southwestern
Ohio, thereby impairing collateral values. However, management is of the belief
that real estate values in the Company's primary lending area are presently
stable.
There were no loans outstanding to the Company's officers, directors or
employees at September 30, 1999, 1998 and 1997.
NOTE D--ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is summarized as follows for
the years ended September 30:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year............................ $ 25 $ 25 $ 24
Provision for loan losses............................... 25 -- 1
---- ---- ----
Balance at end of year.................................. $ 50 $ 25 $ 25
==== ==== ====
</TABLE>
As of September 30, 1999, the Company's allowance for loan losses was solely
general in nature, and is includible as a component of regulatory risk-based
capital.
F-28
<PAGE>
THE OAKLEY IMPROVED BUILDING AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE D--ALLOWANCE FOR LOAN LOSSES (CONTINUED)
The Company had nonperforming and nonaccrual loans totaling $38,000 and
$15,000 at September 30, 1999 and 1997, respectively. Interest income that would
have been recognized had such loans been performing in accordance with their
contractual terms totaled approximately $1,100 and $700 for the years ended
September 30, 1999 and 1997, respectively. The Company had no nonperforming and
nonaccrual loans at September 30, 1998.
NOTE E--OFFICE PREMISES AND EQUIPMENT
At September 30, office premises and equipment were comprised of the
following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 9 $ 9
Building and improvements................................... 28 28
Furniture and equipment..................................... 72 70
---- ----
109 107
Less accumulated depreciation and amortization.............. 84 79
---- ----
$ 25 $ 28
==== ====
</TABLE>
F-29
<PAGE>
THE OAKLEY IMPROVED BUILDING AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE F--DEPOSITS
Deposits consist of the following major classifications at September 30:
<TABLE>
<CAPTION>
DEPOSIT TYPE AND WEIGHTED-
AVERAGE INTEREST RATE 1999 1998
- -------------------------- -------- --------
(IN THOUSANDS)
<S> <C> <C>
Passbook
1999--3.00%............................................. $ 1,400
1998--3.00%............................................. $ 1,607
Money market deposit accounts
1999--3.25%............................................. 2,101
1998--3.50% 1,801
------- -------
Total demand, transaction and passbook deposits........... 3,501 3,408
Certificates of deposit
Original maturities of:
Less than 12 months
1999--4.80%......................................... 4,094
1998--5.45%......................................... 3,098
12 months to 36 months
1999--5.60%......................................... 2,325
1998--5.92%......................................... 3,288
More than 36 months
1999--6.36%......................................... 2,374
1998--6.32%......................................... 2,833
Individual retirement accounts
1999--5.74%........................................... 1,033
1998--5.99%........................................... 1,006
------- -------
Total certificates of deposit............................. 9,826 10,225
------- -------
Total deposit accounts.................................... $13,327 $13,633
======= =======
</TABLE>
At September 30, 1999 and 1998, the Company had deposit accounts with
balances in excess of $100,000 totaling approximately $1.2 million and $960,000,
respectively.
Interest expense on deposits for the year ended September 30 is summarized
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Passbook................................................ $ 46 $ 52 $ 51
Money market deposit accounts........................... 62 54 54
Certificates of deposit................................. 560 620 580
---- ---- ----
$668 $726 $685
==== ==== ====
</TABLE>
F-30
<PAGE>
THE OAKLEY IMPROVED BUILDING AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE F--DEPOSITS (CONTINUED)
Maturities of outstanding certificates of deposit at September 30 are
summarized as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Less than one year......................................... $7,225 $ 5,887
One year to three years.................................... 1,602 3,467
More than three years...................................... 999 871
------ -------
$9,826 $10,225
====== =======
</TABLE>
NOTE G--FEDERAL INCOME TAXES (CREDITS)
Federal income taxes (credits) differ from the amounts computed at the
statutory corporate tax rate for the fiscal years ended September 30 as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Federal income taxes (credits) at statutory
rate............................................ $ (19) $ 73 $ 51
Changes in taxes or credits resulting from:
Tax exempt dividends............................ (5) (4) (4)
Other (primarily surtax exemptions in 1997)..... -- -- (25)
------ ----- -----
Federal income taxes (credits) per consolidated
financial statements............................ $ (24) $ 69 $ 22
====== ===== =====
Effective rate of tax (credits)................... (34.5)% 31.9% 14.8%
====== ===== =====
</TABLE>
The composition of the Company's net deferred tax liability at September 30
is as follows:
<TABLE>
<CAPTION>
TAXES (PAYABLE) REFUNDABLE ON TEMPORARY
DIFFERENCES AT STATUTORY RATE: 1999 1998
- --------------------------------------- -------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
General loan loss allowance............................... $ 17 $ 9
Deferred loan origination fees............................ 16 16
Benefit plans............................................. 46 40
----- -----
Deferred tax assets..................................... 79 65
Deferred tax liabilities:
Federal Home Loan Bank stock dividends.................... (35) (31)
Book/tax depreciation differences......................... (6) (1)
Cash versus accrual basis of accounting................... (21) (17)
Unrealized gains on securities designated as available for
sale.................................................... (647) (643)
----- -----
Deferred tax liabilities................................ (709) (692)
----- -----
Net deferred tax liability.............................. $(630) $(627)
===== =====
</TABLE>
F-31
<PAGE>
THE OAKLEY IMPROVED BUILDING AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE G--FEDERAL INCOME TAXES (CREDITS) (CONTINUED)
The Company has historically been allowed a special bad debt deduction,
generally limited to 8% of otherwise taxable income, and subject to certain
limitations based on aggregate loans and deposit account balances at the end of
the year. If the amounts that qualify as deductions for federal income taxes are
later used for purposes other than bad debt losses, including distributions in
liquidation, such distributions will be subject to federal income taxes at the
then current corporate income tax rate. Retained earnings at September 30, 1999,
includes approximately $290,000 for which federal income taxes have not been
provided. The amount of unrecognized deferred tax liability relating to the
cumulative bad debt deduction was approximately $99,000 at September 30, 1999.
Pursuant to legislation enacted in 1996, the Company was required to
recapture as taxable income approximately $80,000 of its tax bad debt reserve,
which represented the post-1987 additions to the reserve, and will be unable to
utilize the percentage of earnings method to compute its bad debt deduction in
the future. The Company effected the recapture of the bad debt reserve into
taxable income during fiscal 1997.
NOTE H--LOAN COMMITMENTS
The Company 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
including commitments to extend credit. Such commitments involve, to varying
degrees, elements of credit and interest-rate risk in excess of the amount
recognized in the statement of financial condition. The contract or notional
amounts of the commitments reflect the extent of the Company's involvement in
such financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The Company
uses the same credit policies in making commitments and conditional obligations
as those utilized for on-balance-sheet instruments.
At September 30, 1999, the Company had outstanding commitments of
approximately $41,000 to originate loans. In the opinion of management, all loan
commitments equaled or exceeded prevalent market interest rates as of
September 30, 1999, and will be funded from normal cash flow from operations and
existing excess liquidity.
NOTE I--REGULATORY CAPITAL
The Company is subject to minimum regulatory capital standards promulgated
by the Office of Thrift Supervision (the "OTS"). Failure to meet minimum capital
requirements can initiate certain mandatory--and possibly additional
discretionary--actions by regulators that, if undertaken, could have a direct
material effect on the financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of the Company's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
The minimum capital standards of the OTS generally require the maintenance
of regulatory capital sufficient to meet each of three tests, hereinafter
described as the tangible capital requirement, the
F-32
<PAGE>
THE OAKLEY IMPROVED BUILDING AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE I--REGULATORY CAPITAL (CONTINUED)
core capital requirement and the risk-based capital requirement. The tangible
capital requirement provides for minimum tangible capital (defined as retained
earnings less all intangible assets) equal to 1.5% of adjusted total assets. The
core capital requirement provides for minimum core capital (tangible capital
plus certain forms of supervisory goodwill and other qualifying intangible
assets) equal to 3.0% of adjusted total assets. An OTS proposal, if adopted in
present form, would increase the core capital requirement to a range of
4.0%--5.0% of adjusted total assets for substantially all savings associations.
Management anticipates no material change to the Company's excess regulatory
capital position as a result of this proposed change in the regulatory capital
requirement. The risk-based capital requirement currently provides for the
maintenance of core capital plus general loss allowances equal to 8.0% of
risk-weighted assets. In computing risk-weighted assets, the Company multiplies
the value of each asset on its statement of financial condition by a defined
risk-weighting factor, e.g., one- to four-family residential loans carry a
risk-weighted factor of 50%.
As of September 30, 1999 and 1998, management believes that the Company met
all capital adequacy requirements to which it was subject.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
-------------------------------------------------------------------
TO BE "WELL-
CAPITALIZED" UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------- -------------------- --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- -------- --------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital.............. $1,635 10.8% *$227 *1.5% *$756 * 5.0%
Core capital.................. $1,635 10.8% *$454 *3.0% *$908 * 6.0%
Risk-based capital............ $1,685 26.3% *$513 *8.0% *$642 *10.0%
* greater than or equal to
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
-------------------------------------------------------------------
TO BE "WELL-
CAPITALIZED" UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------- -------------------- --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- -------- --------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital.............. $1,666 10.7% *$233 *1.5% *$775 * 5.0%
Core capital.................. $1,666 10.7% *$465 *3.0% *$930 * 6.0%
Risk-based capital............ $1,691 26.1% *$517 *8.0% *$647 *10.0%
* greater than or equal to
</TABLE>
The Company's management believes that, under the current regulatory capital
regulations, the Company will continue to meet its minimum capital requirements
in the foreseeable future. However, events beyond the control of the Company,
such as increased interest rates or a downturn in the economy in the Company's
market area, could adversely affect future earnings and, consequently, the
ability to meet future minimum regulatory capital requirements.
F-33
<PAGE>
THE OAKLEY IMPROVED BUILDING AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE J--BUSINESS COMBINATIONS AND REORGANIZATION OF CORPORATE FORM
On October 1, 1999, the Company and the People's Building Loan and Savings
Company ("People's"), an institution chartered under the laws of the State of
Ohio (collectively "the Companies"), jointly announced the signing of an
Agreement and Plan of Merger (the "Agreement") in which the Company will be
merged with and into People's. In connection therewith, the Companies adopted an
overall Plan of Conversion (the "conversion") whereby People's will form a new
holding company and convert from mutual to stock form.
Pursuant to the Plan, the Companies will offer for sale up to 1,610,000
common shares to their depositors and members of the community. The costs of
issuing the common stock will be deferred and deducted from the sale proceeds of
the offering. If the conversion is unsuccessful, all deferred costs will be
charged to operations. At September 30, 1999, the Company had not incurred any
conversion costs.
At the date of the conversion, People's will establish a liquidation account
in an amount equal to retained earnings reflected in the statement of financial
condition used in the conversion offering circular. The liquidation account will
be maintained for the benefit of eligible savings account holders who maintained
deposit accounts in People's after conversion.
In the event of a complete liquidation (and only in such event), each
eligible savings account holder will be entitled to receive a liquidation
distribution from the liquidation account in the amount of the then current
adjusted balance of deposit accounts held, before any liquidation distribution
may be made with respect to the common shares. Except for the repurchase of
stock and payment of dividends by the Companies, the existence of the
liquidation account will not restrict the use or further application of such
retained earnings.
People's may not declare or pay a cash dividend on, or repurchase any of its
common shares if the effect thereof would cause the Company's shareholders'
equity to be reduced below either the amount required for the liquidation
account or the regulatory capital requirements for insured institutions.
People's has agreed to acquire the Harvest Home Financial Corporation
("Harvest Home") for consideration of approximately $16.5 million in cash and
common stock. Under the terms of the Agreement, each share of Harvest Home's
common stock will be exchanged for a combination of $9.00 per share in cash plus
new common shares of Peoples' holding company with a value of $9.00. It is
currently anticipated that the number of shares of common stock that will be
exchanged for each share of Harvest Home's common stock is 0.9 shares, assuming
the initial offering price of People's common stock is $10 per share.
F-34
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Harvest Home Financial Corporation
We have audited the accompanying consolidated statements of financial
condition of Harvest Home Financial Corporation as of September 30, 1999 and
1998, and the related consolidated statements of earnings, comprehensive income,
stockholders' equity, and cash flows for each of the three years ended
September 30, 1999, 1998 and 1997. These consolidated financial statements are
the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Harvest Home
Financial Corporation as of September 30, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the years ended
September 30, 1999, 1998 and 1997, in conformity with generally accepted
accounting principles.
/s/ Grant Thornton LLP
- ---------------------------------
Cincinnati, Ohio
November 19, 1999
F-35
<PAGE>
HARVEST HOME FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30,
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 1,347 $ 1,505
Federal funds sold.......................................... 100 200
Interest-bearing deposits in other financial institutions... 1,402 1,182
------- -------
Cash and cash equivalents........................... 2,849 2,887
Investment securities designated as available for sale--at
market.................................................... 5,951 4,032
Mortgage-backed securities designated as available for
sale--at market........................................... 33,711 37,864
Loans receivable--net....................................... 52,790 48,797
Office premises and equipment--at depreciated cost.......... 1,236 1,117
Federal Home Loan Bank stock--at cost....................... 1,723 1,606
Accrued interest receivable on loans........................ 287 257
Accrued interest receivable on mortgage-backed securities... 160 173
Accrued interest receivable on investments and
interest-bearing deposits................................. 55 47
Prepaid expenses and other assets........................... 117 114
Deferred federal income tax asset........................... 56 --
------- -------
Total assets........................................ $98,935 $96,894
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits.................................................... $66,220 $60,225
Advances from the Federal Home Loan Bank.................... 22,600 25,850
Advances by borrowers for taxes and insurance............... 105 119
Accrued interest payable.................................... 115 126
Other liabilities........................................... 232 230
Accrued federal income taxes................................ 10 65
Deferred federal income taxes............................... -- 302
------- -------
Total liabilities................................... 89,282 86,917
Commitments................................................. -- --
Stockholders' equity
Common stock--2,000,000 shares of no par value authorized;
991,875 shares issued................................... -- --
Additional paid-in capital................................ 6,887 6,903
Retained earnings--restricted............................. 5,329 5,191
Shares acquired by Employee Stock Ownership Plan.......... (224) (301)
Shares acquired by Recognition and Retention Plan......... (194) (291)
Accumulated other comprehensive income, unrealized gains
(losses) on securities designated as available for sale,
net of related tax effects.............................. (694) 87
Less 116,586 and 129,518 shares of treasury stock--at
cost.................................................... (1,451) (1,612)
------- -------
Total stockholders' equity.......................... 9,653 9,977
------- -------
Total liabilities and stockholders' equity.......... $98,935 $96,894
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-36
<PAGE>
HARVEST HOME FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEAR ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net earnings for the year................................... $ 514 $541 $627
Other comprehensive income (loss), net of tax effects:
Unrealized holding gains (losses) on securities during the
period, net of tax effects of $(403), $39 and $28 in
1999, 1998 and 1997, respectively....................... (781) 75 54
Reclassification adjustment for unrealized gains included
in earnings, net of tax effects of $15 and $2 in 1998
and 1997, respectively.................................. -- (28) (5)
----- ---- ----
Comprehensive income (loss)................................. $(267) $588 $676
===== ==== ====
Accumulated comprehensive income (loss)..................... $(694) $ 87 $ 40
===== ==== ====
</TABLE>
The accompanying notes are an integral part of these statements.
F-37
<PAGE>
HARVEST HOME FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
SHARES ON SECURITIES
ACQUIRED DESIGNATED
ADDITIONAL BY STOCK AS
COMMON PAID-IN RETAINED BENEFIT AVAILABLE TREASURY
STOCK CAPITAL EARNINGS PLANS FOR SALE STOCK TOTAL
--------- ---------- -------- -------- ------------- -------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1996........... $ -- $6,740 $4,787 $(1,160) $ (9) $ (633) $9,725
Net earnings for the year ended
September 30, 1997................. -- -- 627 -- -- -- 627
Cash dividends of $.40 per share..... -- -- (371) -- -- -- (371)
Purchase of treasury shares--at
cost............................... -- -- -- -- -- (223) (223)
Amortization of expense related to
stock benefit plans................ -- 144 -- 393 -- -- 537
Unrealized gains on securities
designated as available for sale,
net of related tax effects......... -- -- -- -- 49 -- 49
--------- ------ ------ ------- ----- ------- ------
Balance at September 30, 1997........ -- 6,884 5,043 (767) 40 (856) 10,344
Net earnings for the year ended
September 30, 1998................. -- -- 541 -- -- -- 541
Cash dividends of $.44 per share..... -- -- (393) -- -- -- (393)
Purchase of treasury shares--at
cost............................... -- -- -- -- -- (756) (756)
Amortization of expense related to
stock benefit plans................ -- 19 -- 175 -- -- 194
Unrealized gains on securities
designated as available for sale,
net of related tax effects......... -- -- -- -- 47 -- 47
--------- ------ ------ ------- ----- ------- ------
Balance at September 30, 1998........ -- 6,903 5,191 (592) 87 (1,612) 9,977
Net earnings for the year ended
September 30, 1999................. -- -- 514 -- -- -- 514
Cash dividends of $.44 per share..... -- -- (376) -- -- -- (376)
Exercise of stock options............ -- (39) -- -- -- 161 122
Amortization of expense related to
stock benefit plans................ -- 23 -- 174 -- -- 197
Unrealized losses on securities
designated as available for sale,
net of related tax effects......... -- -- -- -- (781) -- (781)
--------- ------ ------ ------- ----- ------- ------
Balance at September 30, 1999........ $ -- $6,887 $5,329 $ (418) $(694) $(1,451) $9,653
========= ====== ====== ======= ===== ======= ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-38
<PAGE>
HARVEST HOME FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings for the year................................. $ 514 $ 541 $ 627
Adjustments to reconcile net earnings to net cash provided
by
(used in) operating activities:
Amortization of deferred loan origination fees........ (44) (34) (34)
Depreciation and amortization......................... 77 57 51
Amortization of premiums on mortgage-backed
securities........................................... 15 5 6
Amortization of premiums (discounts) on investment
securities--net...................................... 5 (33) 17
Gain on sale of investment and mortgage-backed
securities........................................... -- (43) (7)
Amortization expense of stock benefit plans........... 197 194 537
Provision for losses on loans......................... 12 12 9
Federal Home Loan Bank stock dividends................ (117) (102) (59)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans................ (30) (12) (36)
Accrued interest receivable on mortgage-backed
securities.......................................... 13 (34) (37)
Accrued interest receivable on investments and
interest-bearing deposits........................... (8) 79 85
Prepaid expenses and other assets................... (3) (41) 1
Accrued interest payable............................ (11) 37 12
Other liabilities................................... 2 (23) (563)
Federal income taxes
Current........................................... (55) 116 22
Deferred.......................................... 46 23 183
-------- -------- --------
Net cash provided by operating activities....... 613 742 814
Cash flows provided by (used in) investing activities:
Principal repayments on mortgage-backed securities........ 14,992 19,867 2,644
Purchase of mortgage-backed securities.................... (11,963) (26,992) (18,205)
Proceeds from sale of mortgage-backed securities available
for sale................................................ -- 1,878 141
Proceeds from maturity of mortgage-backed securities...... -- -- 3,500
Purchase of investment securities......................... (6,000) -- --
Proceeds from maturity of investment securities........... 4,000 4,000 2,003
Proceeds from sale of investment securities available for
sale.................................................... -- -- 2,003
Principal repayments on loans............................. 11,883 10,376 5,976
Loan disbursements........................................ (15,844) (13,922) (8,913)
Purchase of Federal Home Loan Bank stock.................. -- (285) (572)
Purchase of office equipment.............................. (196) (193) (80)
-------- -------- --------
Net cash used in investing activities........... (3,128) (5,271) (11,503)
-------- -------- --------
Net cash used in operating and investing
activities
(balance carried forward)..................... (2,515) (4,529) (10,689)
-------- -------- --------
Net cash used in operating and investing
activities
(balance brought forward)..................... $ (2,515) $ (4,529) $(10,689)
Cash flows provided by (used in) financing activities:
Net increase in deposits.................................. 5,995 1,439 828
Proceeds from Federal Home Loan Bank advances............. 10,000 38,200 18,200
Repayment of Federal Home Loan Bank advances.............. (13,250) (36,350) (4,200)
Advances by borrowers for taxes and insurance............. (14) 12 11
Dividends on common stock................................. (376) (393) (371)
Proceeds from exercise of stock options................... 122 -- --
Purchase of treasury stock................................ -- (756) (223)
-------- -------- --------
Net cash provided by financing activities....... 2,477 2,152 14,245
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ (38) (2,377) 3,556
Cash and cash equivalents at beginning of year.............. 2,887 5,264 1,708
-------- -------- --------
Cash and cash equivalents at end of year.................... $ 2,849 $ 2,887 $ 5,264
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes.................................... $ 180 $ 121 $ 96
======== ======== ========
Interest paid on deposits and borrowings................ $ 4,222 $ 4,106 $ 3,677
======== ======== ========
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as
available for sale,
net of related tax effects.............................. $ (781) $ 47 $ 49
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-39
<PAGE>
HARVEST HOME FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Harvest Home Financial Corporation (the "Corporation") is a savings and loan
holding company whose activities are primarily limited to holding the stock of
Harvest Home Savings Bank, (the "Savings Bank"). The Savings Bank conducts a
general banking business in southwestern Ohio which consists of attracting
deposits from the general public and primarily applying those funds to the
origination of loans for residential, consumer and nonresidential purposes. The
Savings Bank's profitability is significantly dependent on net interest income,
which is the difference between interest income generated from interest-earning
assets (i.e. loans and investments) and the interest expense paid on
interest-bearing liabilities (i.e. customer deposits and borrowed funds). Net
interest income is affected by the relative amount of interest-earning assets
and interest-bearing liabilities and the interest received or paid on these
balances. The level of interest rates paid or received by the Savings Bank can
be significantly influenced by a number of environmental factors, such as
governmental monetary policy, that are outside of management's control.
The consolidated financial information presented herein has been prepared in
accordance with generally accepted accounting principles ("GAAP") and general
accounting practices within the financial services industry. In preparing
consolidated financial statements in accordance with GAAP, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and revenues and expenses during the
reporting period. Actual results could differ from such estimates.
The following is a summary of the Corporation's significant accounting
policies which have been consistently applied in the preparation of the
accompanying consolidated financial statements.
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Corporation and the Savings Bank. All significant intercompany balances and
transactions have been eliminated.
2. INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
The Corporation accounts for investment and mortgage-backed securities in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity Securities". SFAS
No. 115 requires that investments in debt and equity securities be categorized
as held-to-maturity, trading, or available for sale. Securities classified as
held-to-maturity are carried at cost only if the Corporation has the positive
intent and ability to hold these securities to maturity. Trading securities and
securities designated as available for sale are carried at fair value with
resulting unrealized gains or losses recorded to operations or stockholders'
equity, respectively.
At September 30, 1999, the Corporation's stockholders' equity reflected net
unrealized losses on securities designated as available for sale totaling
$694,000. At September 30, 1998, the Corporation's stockholders' equity
reflected net unrealized gains on securities designated as available for sale
totaling $87,000.
Realized gains and losses on sales of securities are recognized using the
specific identification method.
F-40
<PAGE>
HARVEST HOME FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
3. LOANS RECEIVABLE
Loans receivable are stated at the principal amount outstanding, adjusted
for deferred loan origination fees and the allowance for loan losses. Interest
is accrued as earned unless the collectibility of the loan is in doubt. Interest
on loans that are contractually past due is charged off, or an allowance is
established based on management's periodic evaluation. The allowance is
established by a charge to interest income equal to all interest previously
accrued, and income is subsequently recognized only to the extent that cash
payments are received until, in management's judgment, the borrower's ability to
make periodic interest and principal payments has returned to normal, in which
case the loan is returned to accrual status. If the ultimate collectibility of
the loan is in doubt, in whole or in part, all payments received on nonaccrual
loans are applied to reduce principal until such doubt is eliminated.
4. LOAN ORIGINATION FEES
The Savings Bank accounts for loan origination fees in accordance with SFAS
No. 91 "Accounting for Nonrefundable Fees and Costs Associated with Originating
or Acquiring Loans and Initial Direct Cost of Leases". Pursuant to the
provisions of SFAS No. 91, origination fees received from loans, net of direct
origination costs, are deferred and amortized to interest income using the
level-yield method, giving effect to actual loan prepayments. Additionally, SFAS
No. 91 generally limits the definition of loan origination costs to the direct
costs of originating a loan, i.e., principally actual personnel costs. Fees
received for loan commitments that are expected to be drawn upon, based on the
Savings Bank's experience with similar commitments, are deferred and amortized
over the life of the loan using the level-yield method. Fees for other loan
commitments are deferred and amortized over the loan commitment period on a
straight-line basis.
5. ALLOWANCE FOR LOSSES ON LOANS
It is the Savings Bank's policy to provide valuation allowances for
estimated losses on loans based on past loss experience, trends in the level of
delinquent and problem loans, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying collateral and current
and anticipated economic conditions in the primary lending area. When the
collection of a loan becomes doubtful, or otherwise troubled, the Savings Bank
records a loan charge-off equal to the difference between the fair value of the
property securing the loan and the loan's carrying value. Major loans (including
development projects) and major lending areas are reviewed periodically to
determine potential problems at an early date. The allowance for loan losses is
increased by charges to earnings and decreased by charge-offs (net of
recoveries).
The Savings Bank accounts for impaired loans in accordance with SFAS
No. 114, "Accounting by Creditors for Impairment of a Loan," which requires that
impaired loans be measured based upon the present value of expected future cash
flows discounted at the loan's effective interest rate or, as an alternative, at
the loan's observable market price or fair value of the collateral. The Savings
Bank's current procedures for evaluating impaired loans result in carrying such
loans at the lower of cost or fair value.
A loan is defined under SFAS No. 114 as impaired when, based on current
information and events, it is probable that a creditor will be unable to collect
all amounts due according to the contractual
F-41
<PAGE>
HARVEST HOME FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
terms of the loan agreement. In applying the provisions of SFAS No. 114, the
Savings Bank considers its investment in one- to four-family residential loans
and consumer installment loans to be homogeneous and therefore excluded from
separate identification for evaluation of impairment. With respect to the
Savings Bank's investment in multi-family and nonresidential loans, and its
evaluation of impairment thereof, such loans are collateral dependent, and as a
result, are carried as a practical expedient at the lower of cost or fair value.
It is the Savings Bank's policy to charge off unsecured credits that are
more than ninety days delinquent. Similarly, collateral dependent loans which
are more than ninety days delinquent are considered to constitute more than a
minimum delay in repayment and are evaluated for impairment under SFAS No. 114
at that time.
At September 30, 1999, the Savings Bank had one loan account totaling
$195,000 that is defined as impaired under SFAS No. 114. The Savings Bank had no
such loans at September 30, 1998. No portion of the allowance for credit losses
was allocated to such impaired loans at September 30, 1999 or 1998.
6. OFFICE PREMISES AND EQUIPMENT
Office premises and equipment are carried at cost and include expenditures
which extend the useful lives of existing assets. Maintenance, repairs and minor
renewals are expensed as incurred. For financial reporting, depreciation and
amortization are provided on the straight-line and accelerated methods over the
useful lives of the assets, estimated to be forty years for buildings, ten to
forty years for building improvements, and five to ten years for furniture and
equipment. An accelerated method is used for tax reporting purposes.
7. REAL ESTATE ACQUIRED THROUGH FORECLOSURE
Real estate acquired through foreclosure is carried at the lower of the
loan's unpaid principal balance (cost) or fair value less estimated selling
expenses at the date of acquisition. Real estate loss provisions are recorded if
the properties' fair value subsequently declines below the amount determined at
the recording date. In determining the lower of cost or fair value at
acquisition, costs relating to development and improvement of property are
capitalized. Costs relating to holding real estate acquired through foreclosure,
net of rental income, are charged against earnings as incurred.
8. FEDERAL INCOME TAXES
The Corporation accounts for federal income taxes in accordance with the
provisions of SFAS No. 109, "Accounting for Income Taxes". Pursuant to the
provisions of SFAS No. 109, a deferred tax liability or deferred tax asset is
computed by applying the current statutory tax rates to net taxable or
deductible differences between the tax basis of an asset or liability and its
reported amount in the consolidated financial statements that will result in
taxable or deductible amounts in future periods. Deferred tax assets are
recorded only to the extent that the amount of net deductible temporary
differences or carryforward attributes may be utilized against current period
earnings, carried back against prior years' earnings, offset against taxable
temporary differences reversing in future periods, or utilized to the extent of
management's estimate of future taxable income. A valuation allowance is
provided for deferred tax assets to the extent that the value of net deductible
temporary differences
F-42
<PAGE>
HARVEST HOME FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and carryforward attributes exceeds management's estimates of taxes payable on
future taxable income. Deferred tax liabilities are provided on the total amount
of net temporary differences taxable in the future.
The Corporation's principal temporary differences between pretax financial
income and taxable income result from different methods of accounting for
deferred loan origination fees and costs, Federal Home Loan Bank stock
dividends, retirement expense, the general loan loss allowance and percentage of
earnings bad debt deductions. Additional temporary differences result from
depreciation computed using accelerated methods for tax purposes.
9. BENEFIT PLANS
The Savings Bank provides a supplemental retirement plan to certain key
officers. The Savings Bank's obligations under the supplemental plan have been
funded via the purchase of key man life insurance policies for which the Savings
Bank is the beneficiary. Expense under the supplemental plan totaled
approximately $1,000 during each of the fiscal years ended September 30, 1999,
1998 and 1997.
The Corporation has an Employee Stock Ownership Plan ("ESOP") which provides
retirement benefits for substantially all full-time employees who have completed
one year of service. The Corporation accounts for the ESOP in accordance with
Statement of Position ("SOP") 93-6, "Employers' Accounting for Employee Stock
Ownership Plans". SOP 93-6 requires that compensation expense recorded by
employers equal the fair value of ESOP shares allocated to participants during a
given fiscal year. Expense recognized related to the ESOP totaled approximately
$114,000, $111,000 and $48,000 for the fiscal years ended September 30, 1999,
1998 and 1997, respectively.
The Corporation also has a Recognition and Retention Plan ("RRP"). During
fiscal 1996, the RRP purchased 39,675 shares of the Corporation's common stock
in the open market. At September 30, 1999, 37,211 shares had been awarded to
executive officers and members of the Board of Directors of the Corporation.
Common stock awarded under the RRP vests ratably over a five year period,
commencing with the date of the award. A provision of $97,000 related to the RRP
was charged to expense for each of the fiscal years ended September 30, 1999,
1998 and 1997.
10. EARNINGS PER SHARE AND DIVIDENDS PER SHARE
Basic earnings per share for the years ended September 30, 1999, 1998 and
1997 is computed based upon the weighted-average shares outstanding during the
period, less 20,337, 28,252 and 36,774 shares, respectively, in the ESOP that
are unallocated and not committed to be released. Weighted-average common shares
deemed outstanding totaled 851,799, 859,891 and 881,720 for the years ended
September 30, 1999, 1998 and 1997, respectively.
Diluted earnings per share is computed taking into consideration common
shares outstanding and dilutive potential common shares to be issued under the
Corporation's stock option plan. Weighted-average common shares deemed
outstanding for purposes of computing diluted earnings per share totaled
878,289, 894,437 and 893,942 for the fiscal years ended September 30, 1999, 1998
and 1997, respectively. Incremental shares related to the assumed exercise of
stock options included in the computation of diluted earnings per share totaled
26,490, 34,546 and 12,222 for the fiscal years ended September 30, 1999, 1998
and 1997, respectively. Options to purchase 1,000 shares of common stock
F-43
<PAGE>
HARVEST HOME FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
with an exercise price of $14.00 per share were outstanding at September 30,
1999, but were excluded from the computation of diluted earnings per share
because the exercise price was greater than the average market price of the
common shares.
Capital distributions paid in excess of the Corporation's earnings and
profits (computed on a stand-alone basis for federal income tax purposes) are
deemed by management to constitute a return of excess capital. Management has
determined that $.21, $.33 and $.37 of fiscal 1999, 1998 and 1997 dividends
constitute tax-free distributions.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments",
requires disclosure of the fair value of financial instruments, both assets and
liabilities whether or not recognized in the consolidated statement of financial
condition, for which it is practicable to estimate that value. For financial
instruments where quoted market prices are not available, fair values are based
on estimates using present value and other valuation methods.
The methods used are greatly affected by the assumptions applied, including
the discount rate and estimates of future cash flows. Therefore, the fair values
presented may not represent amounts that could be realized in an exchange for
certain financial instruments.
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments at
September 30, 1999 and 1998:
CASH AND CASH EQUIVALENTS: The carrying amounts presented in the
consolidated statements of financial condition for cash and cash equivalents are
deemed to approximate fair value.
INVESTMENT AND MORTGAGE-BACKED SECURITIES: For investment and
mortgage-backed securities, fair value is deemed to equal the quoted market
price.
LOANS RECEIVABLE: The loan portfolio has been segregated into categories
with similar characteristics, such as one- to four-family residential,
multi-family residential and nonresidential real estate. These loan categories
were further delineated into fixed-rate and adjustable-rate loans. The fair
values for the resultant loan categories were computed via discounted cash flow
analysis, using current interest rates offered for loans with similar terms to
borrowers of similar credit quality. For loans on deposit accounts and consumer
and other loans, fair values were deemed to equal the historic carrying values.
The historical carrying amount of accrued interest on loans is deemed to
approximate fair value.
DEPOSITS: The fair value of NOW accounts, passbook accounts, money market
demand and escrow deposits is deemed to approximate the amount payable on
demand. Fair values for fixed-rate certificates of deposit have been estimated
using a discounted cash flow calculation using the interest rates currently
offered for deposits of similar remaining maturities.
ADVANCES FROM THE FEDERAL HOME LOAN BANK: The fair value of these advances
is estimated using the rates currently offered for similar advances of similar
remaining maturities.
COMMITMENTS TO EXTEND CREDIT: For fixed-rate and adjustable-rate loan
commitments, the fair value estimate considers the difference between current
levels of interest rates and committed rates. At
F-44
<PAGE>
HARVEST HOME FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
September 30, 1999 and 1998, the difference between the fair value and notional
amount of loan commitments was not material.
Based on the foregoing methods and assumptions, the carrying value and fair
value of the Corporation's financial instruments at September 30 are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents............................... $ 2,849 $ 2,849 $ 2,887 $ 2,887
Investment securities................................. 5,951 5,951 4,032 4,032
Mortgage-backed securities............................ 33,711 33,711 37,864 37,864
Loans receivable...................................... 52,790 52,512 48,797 50,590
------- ------- ------- -------
$95,301 $95,023 $93,580 $95,373
======= ======= ======= =======
Financial liabilities
Deposits.............................................. $66,220 $66,439 $60,225 $61,304
Advances from Federal Home Loan Bank.................. 22,600 22,598 25,850 25,775
Escrow deposits....................................... 105 105 119 119
------- ------- ------- -------
$88,925 $89,142 $86,194 $87,198
======= ======= ======= =======
</TABLE>
12. COMPREHENSIVE INCOME
The Corporation adopted SFAS No. 130, "Reporting Comprehensive Income," as
of October 1, 1998. The Statement established standards for reporting and
presentation of comprehensive income and its components in a full set of
general-purpose financial statements. It 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 presented with
the same prominence as other financial statements. SFAS No. 130 requires that
companies (i) classify items of other comprehensive income by their nature in a
financial statement and (ii) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital. Financial statements for earlier periods were restated for comparative
purposes. The Corporation's accumulated comprehensive income consists solely of
the change in unrealized gains and losses on securities designated as available
for sale in accordance with SFAS No. 115.
13. CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash
and due from banks, federal funds sold and interest-bearing deposits in other
financial institutions with original maturities of less than ninety days.
F-45
<PAGE>
HARVEST HOME FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
14. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1999
consolidated financial statement presentation.
NOTE B--INVESTMENTS AND MORTGAGE-BACKED SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses, and
estimated fair values of investment securities at September 30, 1999 and 1998
are summarized as follows:
<TABLE>
<CAPTION>
1999
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available for sale:
U.S. Government agency obligations................. $6,000 $ -- $49 $5,951
====== ========= === ======
</TABLE>
<TABLE>
<CAPTION>
1998
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available for sale:
U.S. Government agency obligations................. $4,005 $27 $ -- $4,032
====== === ========= ======
</TABLE>
The amortized cost and estimated fair values of U.S. Government agency
obligations by contractual term to maturity at September 30 are shown below:
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due within one year................................... $ -- $ -- $4,005 $4,032
Due after one year through five years................. 6,000 5,951 -- --
------ ------ ------ ------
$6,000 $5,951 $4,005 $4,032
====== ====== ====== ======
</TABLE>
F-46
<PAGE>
HARVEST HOME FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE B--INVESTMENTS AND MORTGAGE-BACKED SECURITIES (CONTINUED)
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair values of mortgage-backed securities at September 30, 1999 and
1998 are summarized as follows:
<TABLE>
<CAPTION>
1999
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available for sale:
Federal Home Loan Mortgage Corporation:
Participation certificates....................... $ 4,901 $ -- $ 128 $ 4,773
Collateralized mortgage obligations.............. 22,236 -- 858 21,378
Federal National Mortgage Association:
Participation certificates....................... 2,158 2 52 2,108
Collateralized mortgage obligations.............. 5,420 33 1 5,452
------- ---- ------ -------
Total mortgage-backed securities............... $34,715 $ 35 $1,039 $33,711
======= ==== ====== =======
</TABLE>
<TABLE>
<CAPTION>
1999
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available for sale:
Federal Home Loan Mortgage Corporation:
Participation certificates....................... $ 6,140 $ 3 $ 26 $ 6,117
Collateralized mortgage obligations.............. 15,358 8 29 15,337
Federal National Mortgage Association:
Participation certificates....................... 3,068 29 37 3,060
Collateralized mortgage obligations.............. 13,193 172 15 13,350
------- ---- ---- -------
Total mortgage-backed securities............... $37,759 $212 $107 $37,864
======= ==== ==== =======
</TABLE>
The amortized cost of mortgage-backed securities, by contractual terms to
maturity at September 30, are shown below. Expected maturities will differ from
contractual maturities because borrowers may generally prepay obligations
without prepayment penalties.
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Due within three years.................................... $ 1,044 $ 1,010
Due in three to five years................................ 4,016 5,713
Due in five to ten years.................................. 8,055 8,761
Due in ten to twenty years................................ 1,261 2,857
Due after twenty years.................................... 20,339 19,418
------- -------
$34,715 $37,759
======= =======
</TABLE>
F-47
<PAGE>
HARVEST HOME FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE C--LOANS RECEIVABLE
The composition of the loan portfolio at September 30 is summarized as
follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Residential real estate
One-to-four family...................................... $43,083 $41,214
Home equity lines of credit............................. 1,480 1,275
Multifamily............................................. 2,178 1,367
Construction............................................ 5,964 4,663
Nonresidential real estate and land....................... 3,085 3,024
Deposit account........................................... 20 25
------- -------
55,810 51,568
Less:
Undisbursed portion of loans in process................. 2,823 2,556
Deferred loan origination fees.......................... 58 88
Allowance for loan losses............................... 139 127
------- -------
$52,790 $48,797
======= =======
</TABLE>
As depicted above, the Savings Bank's lending efforts have historically
focused on one-to-four family residential and multifamily residential real
estate loans, which comprise approximately $49.9 million, or 94%, of the total
loan portfolio at September 30, 1999, and $46.0 million, or 94%, of the total
loan portfolio at September 30, 1998. Generally, such loans have been
underwritten on the basis of no more than an 80% loan-to-value ratio, which has
historically provided the Savings Bank with adequate collateral coverage in the
event of default. Nevertheless, the Savings Bank, as with any lending
institution, is subject to the risk that residential real estate values could
deteriorate in its primary lending area of southwestern Ohio, thereby impairing
collateral values. However, management is of the belief that residential real
estate values in the Savings Bank's primary lending area are presently stable.
The Savings Bank had sold participating interests in loans in the secondary
market, retaining servicing on the loans sold. Loans sold and serviced for
others totaled approximately $196,000 at September 30, 1998. There were no loans
serviced for others at September 30, 1999.
In the ordinary course of business, the Savings Bank has granted loans to
some of its directors, officers and their related business interests. All loans
to related parties have been made on substantially the same terms as those
prevailing at the time for unrelated third parties. The aggregate dollar amount
of loans to officers and directors was approximately $132,000 and $157,000 at
September 30, 1999 and 1998, respectively. During the fiscal year ended
September 30, 1999, $75,000 in new loans were disbursed to officers and
directors, while principal repayments of $100,000 were received from officers
and directors.
F-48
<PAGE>
HARVEST HOME FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE D--ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is summarized as follows for
the years ended September 30:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year............................ $127 $115 $111
Provision for losses on loans........................... 12 12 9
Charge-off of loans..................................... -- -- (5)
---- ---- ----
Balance at end of year.................................. $139 $127 $115
==== ==== ====
</TABLE>
At September 30, 1999, the Savings Bank's allowance for loan losses was
comprised solely of a general loan loss allowance, which is includible as a
component of regulatory risk-based capital.
At September 30, 1999, 1998 and 1997, the Savings Bank's nonaccrual and
nonperforming loans totaled $25,000, $49,000 and $95,000, respectively. Interest
income which would have been recognized if such loans had performed pursuant to
contractual terms totaled approximately $1,000, $2,000 and $6,000 for the years
ended September 30, 1999, 1998 and 1997, respectively.
NOTE E--OFFICE PREMISES AND EQUIPMENT
Office premises and equipment are comprised of the following at
September 30:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land and improvements....................................... $ 119 $ 119
Office buildings and improvements........................... 1,425 1,397
Furniture, fixtures and equipment........................... 642 474
Automobile.................................................. 14 14
------ ------
2,200 2,004
Less accumulated depreciation............................... 964 887
------ ------
$1,236 $1,117
====== ======
</TABLE>
F-49
<PAGE>
HARVEST HOME FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE F--DEPOSITS
Deposits consist of the following major classifications at September 30:
<TABLE>
<CAPTION>
1999 1998
DEPOSIT TYPE AND WEIGHTED-AVERAGE ------------------- -------------------
INTEREST RATE AMOUNT % AMOUNT %
- --------------------------------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
NOW accounts--1.84% in 1999 and 1998..................... $ 3,806 5.7 $ 3,208 5.3
Super NOW accounts--2.75% in 1999 and 1998............... 405 .6 253 .4
Passbook accounts--2.53% in 1999 and 1998................ 10,437 15.8 9,494 15.8
Money market demand deposit--3.00% in 1999 and 1998...... 4,534 6.9 4,107 6.8
------- ----- ------- -----
Total demand, transaction and passbook deposits........ 19,182 29.0 17,062 28.3
Certificates of deposit:
Original maturities of:
Less than 12 months
4.57% in 1999 and 5.13% in 1998.................... 4,012 6.1 3,163 5.3
12 months
4.90% in 1999 and 5.15% in 1998.................... 21,751 32.8 21,945 36.4
18 months
5.45% in 1999 and 5.86% in 1998.................... 5,231 7.9 4,760 7.9
30 months
5.60% in 1999 and 5.80% in 1998.................... 6,844 10.3 5,254 8.7
48 months and greater
6.02% in 1999 and 6.12% in 1998.................... 9,200 13.9 8,041 13.4
------- ----- ------- -----
Total certificates of deposit.................... 47,038 71.0 43,163 71.7
------- ----- ------- -----
Total deposits................................... $66,220 100.0% $60,225 100.0%
======= ===== ======= =====
</TABLE>
At September 30, 1999 and 1998, the Savings Bank had certificate of deposit
accounts with balances greater than $100,000 totaling $4.1 million and
$2.9 million, respectively.
Interest expense on deposit accounts is summarized as follows for the years
ended September 30:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Money market demand deposit accounts................ $ 132 $ 130 $ 144
Passbook and escrow accounts........................ 253 254 256
NOW and Super NOW accounts.......................... 72 73 107
Certificates of deposit............................. 2,544 2,465 2,279
------ ------ ------
$3,001 $2,922 $2,786
====== ====== ======
</TABLE>
F-50
<PAGE>
HARVEST HOME FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE F--DEPOSITS (CONTINUED)
Maturities of outstanding certificates of deposit are summarized as follows
at September 30:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Less than six months...................................... $18,130 $13,202
Six months to one year.................................... 16,242 16,864
One to two years.......................................... 7,906 6,976
Two to three years........................................ 1,191 4,358
Three to four years....................................... 1,347 341
Over four years........................................... 2,222 1,422
------- -------
$47,038 $43,163
======= =======
</TABLE>
NOTE G--ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank, collateralized at September 30,
1999 by pledges of certain residential mortgage loans totaling $33.9 million and
the Savings Bank's investment in Federal Home Loan Bank stock, are summarized as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
MATURING FISCAL -------------------
INTEREST RATE YEAR ENDING IN 1999 1998
- ------------- --------------- -------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C>
5.58%........................................ 2000 $ -- $ 3,000
5.38%........................................ 2001 5,600 --
5.43%--5.71%................................. 2007 -- 950
4.66%--5.64%................................. 2008 17,000 21,900
------- -------
$22,600 $25,850
======= =======
Weighted-average interest rate............... 5.23% 5.26%
======= =======
</TABLE>
F-51
<PAGE>
HARVEST HOME FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE H--COMMITMENTS
The Savings Bank is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers including commitments to extend credit. Such commitments involve, to
varying degrees, elements of credit and interest-rate risk in excess of the
amount recognized in the consolidated statement of financial condition. The
contract or notional amounts of the commitments reflect the extent of the
Savings Bank's involvement in such financial instruments.
The Savings Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The Savings
Bank uses the same credit policies in making commitments and conditional
obligations as those utilized for on-balance-sheet instruments.
At September 30, 1999, the Savings Bank had commitments for unused lines of
credit under home equity loans of $3.0 million. Management believes that such
loan commitments are able to be funded through cash flow from operations and
existing excess liquidity. Fees received in connection with these commitments
have not been recognized in earnings.
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. Since many of the commitments may expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Savings Bank evaluates each customer's creditworthiness
on a case-by-case basis. The amount of collateral obtained, if it is deemed
necessary by the Savings Bank upon extension of credit, is based on management's
credit evaluation of the counterparty. Collateral on loans may vary but the
preponderance of loans granted generally include a mortgage interest in real
estate as security.
NOTE I--FEDERAL INCOME TAXES
The Corporation's provision for federal income taxes does not differ
materially from the amounts computed at the statutory corporate tax rate for the
years ended September 30, 1999, 1998 and 1997.
F-52
<PAGE>
HARVEST HOME FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE I--FEDERAL INCOME TAXES (CONTINUED)
The composition of the Corporation's net deferred tax asset (liability) at
September 30 is as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Taxes (payable) refundable on temporary differences at
estimated corporate tax rate:
Deferred tax assets:
General loan loss allowance............................. $ 47 $ 43
Stock benefit plans..................................... 25 25
Unrealized losses on securities designated as available
for sale.............................................. 359 --
----- -----
Total deferred tax assets............................. 431 68
Deferred tax liabilities:
Percentage of earnings bad debt deduction................. (104) (125)
Deferred loan origination costs........................... (39) (24)
Federal Home Loan Bank stock dividends.................... (230) (176)
Unrealized gains on securities designated as available for
sale.................................................... -- (45)
Other..................................................... (2) --
----- -----
Total deferred tax liabilities........................ (375) (370)
----- -----
Net deferred tax asset (liability).................... $ 56 $(302)
===== =====
</TABLE>
The Savings Bank was allowed a special bad debt deduction based on a
percentage of earnings, generally limited to 8% of otherwise taxable income and
subject to certain limitations based on aggregate loans and savings account
balances at the end of the year. This deduction totaled approximately
$1.7 million as of September 30, 1999. If the amounts that qualify as deductions
for federal income tax purposes are later used for purposes other than for bad
debt losses, including distributions in liquidation, such distributions will be
subject to federal income taxes at the then current corporate income tax rate.
The approximate amount of the unrecognized deferred tax liability relating to
the cumulative bad debt deduction is $450,000.
Due to recent legislation, the Savings Bank is required to recapture as
taxable income approximately $370,000 of its tax bad debt reserve, which
represents the post-1987 additions to the reserve, and will be unable to utilize
the percentage of earnings method to compute its bad debt deduction in the
future. The Savings Bank has provided deferred taxes for this amount and will
amortize the recapture of the bad debt reserve in taxable income over a six year
period, which commenced in fiscal 1999.
NOTE J--REGULATORY CAPITAL
The Savings Bank is subject to the regulatory capital requirements of the
Federal Deposit Insurance Corporation (the "FDIC"). Failure to meet minimum
capital requirements can initiate certain mandatory--and possibly additional
discretionary--actions by regulators that, if undertaken, could have a direct
material effect on the Savings Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Savings Bank must meet
F-53
<PAGE>
HARVEST HOME FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE J--REGULATORY CAPITAL (CONTINUED)
specific capital guidelines that involve quantitative measures of the Savings
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Savings Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
During the calendar year, the Savings Bank was notified by its primary
regulator that it was categorized as "well-capitalized" under the regulatory
framework for prompt corrective action. To be categorized as "well-capitalized"
the Savings Bank must maintain minimum capital ratios as set forth in the table
that follows.
The FDIC has adopted risk-based capital ratio guidelines to which the
Savings Bank is subject. The guidelines establish a systematic analytical
framework that makes regulatory capital requirements more sensitive to
differences in risk profiles among banking organizations. Risk-based capital
ratios are determined by allocating assets and specified off-balance sheet
commitments to four risk-weighting categories, with higher levels of capital
being required for the categories perceived as representing greater risk.
These guidelines divide the capital into two tiers. The first tier ("Tier
1") includes common equity, certain non-cumulative perpetual preferred stock
(excluding auction rate issues) and minority interests in equity accounts of
consolidated subsidiaries, less goodwill and certain other intangible assets
(except mortgage servicing rights and purchased credit card relationships,
subject to certain limitations). Supplementary ("Tier 2") capital includes,
among other items, cumulative perpetual and long-term limited-life preferred
stock, mandatory convertible securities, certain hybrid capital instruments,
term subordinated debt and the allowance for loan losses, subject to certain
limitations, less required deductions. Savings banks are required to maintain a
total risk-based capital (the sum of Tier 1 and Tier 2 capital) ratio of 8%, of
which 4% must be Tier 1 capital. The FDIC may, however, set higher capital
requirements when particular circumstances warrant. Savings banks experiencing
or anticipating significant growth are expected to maintain capital ratios,
including tangible capital positions, well above the minimum levels.
In addition, the FDIC established guidelines prescribing a minimum Tier 1
leverage ratio (Tier 1 capital to adjusted total assets as specified in the
guidelines). These guidelines provide for a minimum Tier 1 leverage ratio of 3%
for savings banks that meet certain specified criteria, including that they have
the highest regulatory rating and are not experiencing or anticipating
significant growth. All other savings banks are required to maintain a Tier 1
leverage ratio of 3% plus an additional cushion of at least 100 to 200 basis
points.
F-54
<PAGE>
HARVEST HOME FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE J--REGULATORY CAPITAL (CONTINUED)
As of September 30, 1999 and 1998, management believes that the Savings Bank
met all capital adequacy requirements to which it was subject.
<TABLE>
<CAPTION>
1999
------------------------------------------------------------
TO BE "WELL-
CAPITALIZED" UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------- ----------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- -------- -------- ------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total capital
(to risk-weighted assets)........ $9,876 23.5% *$3,365 *8.0% *$4,206 *10.0%
Tier I capital
(to risk-weighed assets)......... $9,737 23.2% *$1,682 *4.0% *$2,523 *6.0%
Tier I leverage.................... $9,737 9.8% *$3,985 *4.0% *$4,981 *5.0%
* greater than or equal to
</TABLE>
<TABLE>
<CAPTION>
1999
------------------------------------------------------------
TO BE "WELL-
CAPITALIZED" UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------- ----------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- -------- -------- ------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total capital
(to risk-weighted assets)............ $9,419 23.7% *$3,174 *8.0% *$3,967 *10.0%
Tier I capital
(to risk-weighed assets)............. $9,292 23.4% *$1,587 *4.0% *$2,380 *6.0%
Tier I leverage........................ $9,292 9.6% *$3,860 *4.0% *$4,825 *5.0%
* greater than or equal to
</TABLE>
The Savings Bank's management believes that, under the current regulatory
capital regulations, the Savings Bank will continue to meet its minimum capital
requirements in the foreseeable future. However, events beyond the control of
the Savings Bank, such as increased interest rates or a downturn in the economy
in the primary market area, could adversely affect future earnings and,
consequently, the ability to meet future minimum regulatory capital
requirements.
F-55
<PAGE>
HARVEST HOME FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE K--STOCK OPTION PLAN
The Board of Directors adopted a Stock Option Plan that provided for the
issuance of 129,333 shares (adjusted) of authorized, but unissued shares of
common stock at fair value at the date of grant. During fiscal 1996, the
Corporation granted options to purchase 74,297 shares to members of the Board of
Directors and executive officers at an initial fair value of $12.25 per share.
In order to give effect to a return of capital distribution paid in fiscal 1996,
the number of shares granted under option and the exercise price were adjusted
in fiscal 1997 to 96,879 and $9.42 per share, respectively.
The Corporation accounts for its stock option plan in accordance with SFAS
No. 123, "Accounting for Stock-Based Compensation," which contains a fair
value-based method for valuing stock-based compensation that entities may use,
which measures compensation cost at the grant date based on the fair value of
the award. Compensation is then recognized over the service period, which is
usually the vesting period. Alternatively, SFAS No. 123 permits entities to
continue to account for stock options and similar equity instruments under
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." Entities that continue to account for stock options using APB
Opinion No. 25 are required to make pro forma disclosures of net earnings and
earnings per share, as if the fair value-based method of accounting defined in
SFAS No. 123 had been applied.
The Corporation applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option plan. Accordingly, no compensation cost has been
recognized for the plan. Had compensation cost for the Corporation's stock
option plan been determined based on the fair value at the grant dates for
awards under the plan consistent with the accounting method utilized in SFAS
No. 123, the Corporation's net earnings and earnings per share would have
resulted in the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C> <C>
Net earnings (In thousands) As reported................................. $514 $541 $627
==== ==== ====
Pro-forma................................... $514 $541 $627
==== ==== ====
Earnings per share
Basic As reported................................. $.60 $.63 $.71
==== ==== ====
Pro-forma................................... $.60 $.63 $.71
==== ==== ====
Diluted As reported................................. $.59 $.60 $.70
==== ==== ====
Pro-forma................................... $.59 $.60 $.70
==== ==== ====
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the modified Black-Scholes options-pricing model with the following
weighted-average assumptions used for grants in fiscal 1999: dividend yield of
5.5%, expected volatility of 20.0%, a risk-free interest rate of 6.5% and
expected lives of ten years.
F-56
<PAGE>
HARVEST HOME FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE K--STOCK OPTION PLAN (CONTINUED)
A summary of the status of the Corporation's stock option plan as of
September 30, 1999, 1998 and 1997, and changes during the periods ending on
those dates is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- --------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year......... 96,879 $9.42 96,879 $9.42 74,297 $12.25
Adjustment for return of capital
distribution............................. -- -- -- -- 22,582 (2.83)
Granted.................................. 1,000 14.00 -- -- -- --
Exercised................................ (12,932) 9.42 -- -- -- --
Forfeited................................ -- -- -- -- -- --
------- ----- ------ ----- ------ ------
Outstanding at end of year............... 84,947 $9.47 96,879 $9.42 96,879 $ 9.42
------- ----- ------ ----- ------ ------
Options exercisable at year-end.......... 84,947 $9.47 96,879 $9.42 96,879 $ 9.42
------- ----- ------ ----- ------ ------
Weighted-average fair value of options
granted during the year................ $2.98 N/A N/A
----- ----- ------
</TABLE>
The following information applies to options outstanding at September 30,
1999:
<TABLE>
<S> <C>
Number outstanding.......................................... 84,947
Range of exercise prices.................................... $ 9.42--$14.00
Weighted-average exercise price............................. $9.47
Weighted-average remaining contractual life................. 6.25 years
</TABLE>
F-57
<PAGE>
HARVEST HOME FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE L--CONDENSED FINANCIAL STATEMENTS OF HARVEST HOME FINANCIAL CORPORATION
The following condensed financial statements summarize the financial
position of Harvest Home Financial Corporation as of September 30, 1999 and
1998, and the results of its operations and its cash flows for the three years
ended September 30, 1999, 1998 and 1997.
HARVEST HOME FINANCIAL CORPORATION
STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 174 $ 130
Mortgage-backed securities designated as available for
sale--at market........................................... 191 397
Loan receivable from ESOP................................... 224 301
Investment in Harvest Home Savings Bank..................... 9,041 9,370
Prepaid expenses and other.................................. 48 69
------- -------
Total assets.......................................... $ 9,678 $10,267
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities........................................... $ 25 $ 290
Stockholders' equity
Common stock and additional paid-in capital............... 6,887 6,903
Retained earnings......................................... 5,329 5,191
Shares acquired by stock benefit plans.................... (418) (592)
Unrealized gains (losses) on securities designated as
available for sale, net of tax effects.................. (694) 87
Less treasury stock--at cost.............................. (1,451) (1,612)
------- -------
Total stockholders' equity............................ 9,653 9,977
------- -------
Total liabilities and stockholders' equity............ $ 9,678 $10,267
======= =======
</TABLE>
F-58
<PAGE>
HARVEST HOME FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE L--CONDENSED FINANCIAL STATEMENTS OF HARVEST HOME FINANCIAL CORPORATION
(CONTINUED)
HARVEST HOME FINANCIAL CORPORATION
STATEMENTS OF EARNINGS
FOR THE YEAR ENDED SEPTEMBER 30,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenue
Interest income........................................... $ 29 $ 57 $108
Other income.............................................. 7 26 27
Equity in earnings of Harvest Home Savings Bank........... 548 542 602
---- ---- ----
Total revenue......................................... 584 625 737
General and administrative expenses......................... 87 98 100
---- ---- ----
Earnings before income taxes (credits)................ 497 527 637
Federal income taxes (credits).............................. (17) (14) 10
---- ---- ----
NET EARNINGS.......................................... $514 $541 $627
==== ==== ====
</TABLE>
F-59
<PAGE>
HARVEST HOME FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE L--CONDENSED FINANCIAL STATEMENTS OF HARVEST HOME FINANCIAL CORPORATION
(CONTINUED)
HARVEST HOME FINANCIAL CORPORATION
STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash provided by (used in) operating activities:
Net earnings for the year................................. $ 514 $ 541 $ 627
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities
Accretion of discounts on mortgage-backed securities.... (1) (4) (4)
Undistributed earnings of consolidated subsidiary....... (248) (542) (602)
Amortization expense of stock benefit plans............. -- 8 144
Gain on sale of mortgage-backed securities.............. -- (6) --
Increase (decrease) in cash due to changes in:
Prepaid expenses and other assets..................... 21 (25) 66
Other liabilities..................................... (261) 257 (199)
----- ------- -----
Net cash provided by operating activities........... 25 229 32
Cash flows provided by investing activities:
PROCEEDS FROM REPAYMENT OF LOAN TO ESOP................... 77 77 296
Proceeds from sale of mortgage-backed securities.......... -- 337 --
Principal repayments on mortgage-backed securities........ 196 281 228
----- ------- -----
Net cash provided by investing activities........... 273 695 524
Cash flows provided by (used in) financing activities:
Payment of dividends on common stock...................... (376) (393) (371)
Purchase of treasury stock................................ -- (756) (223)
Proceeds from exercise of stock options................... 122 -- --
----- ------- -----
Net cash used in financing activities............... (254) (1,149) (594)
----- ------- -----
Net increase (decrease) in cash and cash equivalents........ 44 (225) (38)
Cash and cash equivalents at beginning of year.............. 130 355 393
----- ------- -----
Cash and cash equivalents at end of year.................... $ 174 $ 130 $ 355
===== ======= =====
</TABLE>
F-60
<PAGE>
HARVEST HOME FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE M--PENDING MERGER
On October 1, 1999, the Corporation entered into an Agreement and Plan of
Merger (the "Agreement") whereby the Corporation would be acquired by a newly
formed holding company of The People's Building, Loan and Savings Company
("People's") for total consideration of approximately $16.5 million in cash and
common stock. In connection with the acquisition, People's (following a merger
with The Oakley Improved Building and Loan Company) will convert from a mutual
to a stock institution and form the holding company. Under the terms of the
Agreement, each share of the Corporation's common stock will be exchanged for a
combination of $9.00 per share in cash plus new common shares of Peoples'
holding company with a value of $9.00. It is currently anticipated that the
number of shares of common stock that will be exchanged for each share of the
Corporation's common stock is 0.9 shares, assuming the initial offering price of
People's common stock is $10 per share.
F-61
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information that is different. If the
laws of your state or other jurisdiction prohibit us from offering our common
stock to you, then this prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of our common stock. Neither the delivery of
this prospectus nor any sale hereunder shall imply that there has been no change
in our affairs since any of the dates as of which information is furnished
herein or since the date hereof.
------------------------
Our Table of Contents is located on the inside of the front cover page of this
document.
------------------------
UNTIL , 2000 OR 90 DAYS AFTER COMMENCEMENT OF THE SYNDICATED COMMUNITY
OFFERING, IF ANY, WHICHEVER IS LATER, ALL DEALERS EFFECTING TRANSACTIONS IN OUR
COMMON STOCK MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO ANY UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
UP TO 1,851,500 SHARES
PEOPLES COMMUNITY
BANCORP, INC.
(PROPOSED HOLDING COMPANY FOR
PEOPLES COMMUNITY BANK)
COMMON STOCK
---------------------
PROSPECTUS
---------------------
CHARLES WEBB & COMPANY
A DIVISION OF KEEFE, BRUYETTE & WOODS, INC.
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC filing fees............................................. $ 7,170
OTS filing fees............................................. 14,500
Nasdaq filing fees.......................................... 48,750
Printing, postage and mailing............................... 50,000
Legal fees.................................................. 160,000
Accounting fees............................................. 35,000
Appraiser's fees............................................ 40,000
Conversion agent fees and expenses.......................... 19,000
Miscellaneous............................................... 10,580
--------
TOTAL....................................................... $385,000
========
</TABLE>
In addition to the foregoing expenses, Charles Webb & Company, a Division of
Keefe, Bruyette & Woods, Inc. will receive a fee of $215,000.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law sets forth circumstances
under which directors, officers, employees and agents may be insured or
indemnified against liability which they may incur in their capacity as such.
The Certificate of Incorporation and the Bylaws of Peoples Community Bancorp
provide that the directors, officers, employees and agents of Peoples Community
Bancorp shall be indemnified to the full extent permitted by law. Such indemnity
shall extend to expenses, including attorneys' fees, judgments, fines and
amounts paid in the settlement, prosecution or defense of the foregoing actions.
Article 10 of the Registrant's Certificate of Incorporation provides as
follows:
ARTICLE 10. INDEMNIFICATION. The Corporation shall indemnify its directors,
officers, employees, agents and former directors, officers, employees and
agents, and any other persons serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, association,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees, judgments, fines and amounts paid in settlement)
incurred in connection with any pending or threatened action, suit or
proceeding, whether civil, criminal, administrative or investigative, with
respect to which such director, officer, employee, agent or other person is a
party, or is threatened to be made a party, to the full extent permitted by the
General Corporation Law of the State of Delaware, provided, however, that the
Corporation shall not be liable for any amounts which may be due to any person
in connection with a settlement of any action, suit or proceeding effected
without its prior written consent or any action, suit or proceeding initiated by
any person seeking indemnification hereunder without its prior written consent.
The indemnification provided herein (i) shall not be deemed exclusive of any
other right to which any person seeking indemnification may be entitled under
any bylaw, agreement or vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
any other capacity, and (ii) shall inure to the benefit of the heirs, executors
and administrators of any such person. The Corporation shall have the power, but
shall not be obligated, to purchase and maintain insurance on behalf of any
person or persons enumerated above against any liability asserted against or
incurred by them or any of them arising out of their status as corporate
directors, officers, employees, or agents whether or not the Corporation would
have the power to indemnify them against such liability under the provisions of
this Article 10.
II-1
<PAGE>
Article VI of the Registrant's Bylaws provides as follows:
6.1 INDEMNIFICATION. The Corporation shall provide indemnification to its
directors, officers, employees, agents and former directors, officers, employees
and agents and to others in accordance with the Corporation's Certificate of
Incorporation.
6.2 ADVANCEMENT OF EXPENSES. Reasonable expenses (including attorneys'
fees) incurred by a director, officer or employee of the Corporation in
defending any civil, criminal, administrative or investigative action, suit or
proceeding described in Section 6.1 may be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding as authorized by the
Board of Directors only upon receipt of an undertaking by or on behalf of such
person to repay such amount if it shall ultimately be determined that the person
is not entitled to be indemnified by the Corporation.
6.3 OTHER RIGHTS AND REMEDIES. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article VI shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under the Corporation's Certificate of
Incorporation, any agreement, vote of stockholders or disinterested directors or
otherwise, both as to actions in their official capacity and as to actions in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer or employee and shall inure to the
benefit of the heirs, executors and administrators of such person.
6.4 INSURANCE. Upon resolution passed by the Board of Directors, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer of employee of the Corporation, or is or was serving
at the request of the corporation as a director, officer or employee of another
corporation, partnership, joint venture, trust or other enterprise, against any
liability asserted against him or 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 the provisions of its
Certificate of Incorporation or this Article VI.
6.5 MODIFICATION. The duties of the Corporation to indemnify and to
advance expenses to a director, officer or employee provided in this Article VI
shall be in the nature of a contract between the Corporation and each such
person, and no amendment or repeal of any provision of this Article VI shall
alter, to the detriment of such person, the right of such person to the advance
of expenses or indemnification related to a claim based on an act or failure to
act which took place prior to such amendment or repeal.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(A) LIST OF EXHIBITS (filed herewith unless otherwise noted)
<TABLE>
<C> <S>
1.1 Engagement Letter with Charles Webb & Company, a Division of
Keefe, Bruyette & Woods, Inc.
1.2 Form of Agency Agreement with Charles Webb & Company, a
Division of Keefe, Bruyette & Woods, Inc.*
2.1 Plan of Conversion
2.2 Agreement of Merger between The People's Building, Loan and
Savings Company and The Oakley Improved Building & Loan
Company (without exhibits)
2.3 Agreement and Plan of Merger between The People's Building,
Loan and Savings Company and Harvest Home Financial
Corporation (without exhibits)
3.1 Certificate of Incorporation of Peoples Community Bancorp,
Inc.
3.2 Bylaws of Peoples Community Bancorp, Inc.
4.0 Form of Stock Certificate of Peoples Community Bancorp, Inc.
5.0 Opinion of Elias, Matz, Tiernan & Herrick L.L.P. re:
legality*
8.1 Opinion of Elias, Matz, Tiernan & Herrick L.L.P. re: Federal
tax matters*
8.2 Opinion of Grant Thornton LLP re: Ohio tax matters*
8.3 Letter of RP Financial, LC. re: Subscription Rights
10.1 Form of Employment Agreement to be entered into between
Peoples Community Bancorp, Inc., Peoples Community Bank and
each of Jerry D. Williams, Thomas J. Noe, John E. Rathkamp
and Dennis J. Slattery
10.2 Form of Change in Control Severance Agreement to be entered
into between Peoples Community Bank and Teresa O'Quinn
23.1 Consent of Elias, Matz, Tiernan & Herrick L.L.P. (included
in Exhibits 5.0 and 8.1, respectively)*
23.2 Consent of Grant Thornton LLP re: People's Savings
23.3 Consent of Grant Thornton LLP re: Oakley
23.4 Consent of Grant Thornton LLP re: Harvest Home Financial
23.5 Consent of RP Financial, LC.
24.0 Power of Attorney (included in Signature Page of this
Registration Statement)
27.0 Financial Data Schedule
99.1 Appraisal Report of RP Financial, LC.*
99.2 Subscription Order Form and Instructions
99.3 Additional Solicitation Material
99.4 Consent of John E. Rathkamp to be identified as a proposed
director
99.5 Consent of Thomas J. Noe to be identified as a proposed
director
99.6 Form of Harvest Home proxy card*
99.7 Proxy Statement for Harvest Home Financial
99.8 Proxy Statement for People's Savings and Oakley
</TABLE>
- ------------------------
* To be filed by amendment
(B) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant 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
Securities Act of 1933;
(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. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of the
securities offered would not exceed that which was registered) and any
deviation from the low or high and the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424 (b) if, in the aggregate, the changes in volume and price represent
no more than 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
Registration Statement;
(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 Securities
Act of 1933, 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.
The undersigned Registrant hereby undertakes to furnish stock certificates
to or in accordance with the instructions of the respective purchasers of the
common stock, so as to make delivery to each purchaser promptly following the
closing under the Plan of Conversion.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of 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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Form S-1 Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the State of Ohio on
December 17, 1999
<TABLE>
<S> <C> <C>
PEOPLES COMMUNITY BANCORP, INC.
By: /s/ PAUL E. HASSELBRING
-----------------------------------------
Paul E. Hasselbring
CHAIRMAN OF THE BOARD
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby makes, constitutes and appoints Paul E. Hasselbring his true and lawful
attorney, with full power to sign for each person and in such person's name and
capacity indicated below, and with full power of substitution, any and all
amendments to this Registration Statement, hereby ratifying and confirming such
person's signature as it may be signed by said attorney to any and all
amendments.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ PAUL E. HASSELBRING
------------------------------------------- Chairman of the Board December 17, 1999
Paul E. Hasselbring
Director, President and
/s/ JERRY D. WILLIAMS Chief Executive Officer
------------------------------------------- (Principal accounting December 17, 1999
Jerry D. Williams officer)
/s/ ZANE M. BRANT
------------------------------------------- Director December 17, 1999
Zane M. Brant
/s/ JOHN L. BUCHANAN
------------------------------------------- Director December 17, 1999
John L. Buchanan
/s/ DONALD L. HAWKE
------------------------------------------- Director December 17, 1999
Donald L. Hawke
/s/ RICHARD S. JOHNSTON
------------------------------------------- Director December 17, 1999
Richard S. Johnston
/s/ NICHOLAS N. NELSON
------------------------------------------- Director December 17, 1999
Nicholas N. Nelson
/s/ JAMES R. VAN DEGRIFT
------------------------------------------- Director December 17, 1999
James R. Van DeGrift
</TABLE>
II-5
<PAGE>
EXHIBIT 1.1
September 30, 1999
Mr. Jerry D. Williams
Chief Executive Officer
People's Building, Loan & Savings Company
11 S. Broadway Street
Lebanon, Ohio 45036
Dear Mr. Williams:
This proposal is in connection with People's Building, Loan & Savings Company's
(the "Client" or "Bank") intention to convert from a mutual to a capital stock
form of organization (the "Conversion"). In order to effect the Conversion, it
is contemplated that all of the Bank's common stock to be outstanding pursuant
to the Conversion will be issued to a holding company (the "Company") to be
formed by the Bank, and that the Company will offer and sell shares of its
common stock first to eligible persons (pursuant to the Bank's Plan of
Conversion) in a Subscription and Community Offering.
Charles Webb & Company ("Webb"), a Division of Keefe, Bruyette and Woods, Inc.
("KBW"), will act as the Bank's and the Company's exclusive financial advisor
and marketing agent in connection with the Conversion. This letter sets forth
selected terms and conditions of our engagement.
1. ADVISORY/CONVERSION SERVICES. As the Bank's and Company's financial advisor
and marketing agent, Webb will provide the Bank and the Company with a
comprehensive program of conversion services designed to promote an orderly,
efficient, cost-effective and long-term stock distribution. Webb will provide
financial and logistical advice to the Bank and the Company concerning the
offering and related issues. Webb will assist in providing conversion
enhancement services intended to maximize stock sales in the Subscription
Offering and to residents of the Bank's market area, if necessary, in the
Community Offering.
Webb shall provide financial advisory services to the Bank which are typical in
connection with an equity offering and include, but are not limited to, overall
financial analysis of the client with a focus on identifying factors which
impact the valuation of the common stock and provide the appropriate
recommendations for the betterment of the equity valuation.
Additionally, post conversion financial advisory services will include advice on
shareholder relations, NASDAQ listing, dividend policy (for both regular and
special dividends), stock
<PAGE>
Mr. Jerry D. Williams
September 30, 1999
Page 2 of 7
repurchase strategy and communication with market makers. Prior to the closing
of the offering, Webb shall furnish to client a Post-Conversion reference manual
which will include specifics relative to these items. (The nature of the
services to be provided by Webb as the Bank's and the Company's financial
advisor and marketing agent are further described in Exhibit A attached hereto.)
2. PREPARATION OF OFFERING DOCUMENTS. The Bank, the Company and their counsel
will draft the Registration Statement, Application for Conversion, Prospectus
and other documents to be used in connection with the Conversion. Webb will
attend meetings to review these documents and advise you on their form and
content. Webb and its counsel will draft appropriate agency agreement and
related documents as well as marketing materials other than the Prospectus.
3. DUE DILIGENCE REVIEW. Prior to filing the Registration Statement, Application
for Conversion or any offering or other documents naming Webb as the Bank's and
the Company's financial advisor and marketing agent, Webb and their
representatives will undertake substantial investigations to learn about the
Bank's business and operations ("due diligence review") in order to confirm
information provided to us and to evaluate information to be contained in the
Bank's and/or the Company's offering documents. The Bank agrees that it will
make available to Webb all relevant information, whether or not publicly
available, which Webb reasonably requests, and will permit Webb to discuss with
management the operations and prospects of the Bank. Webb will treat all
material non-public information as confidential. The Bank acknowledges that Webb
will rely upon the accuracy and completeness of all information received from
the Bank, its officers, directors, employees, agents and representatives,
accountants and counsel including this letter to serve as the Bank's and the
Company's financial advisor and marketing agent.
4. REGULATORY FILINGS. The Bank and/or the Company will cause appropriate
offering documents to be filed with all regulatory agencies including, the
Securities and Exchange Commission ("SEC"), the National Association of
Securities Dealers ("NASD"), Federal Deposit Insurance Corp. ("FDIC") and such
state securities commissioners as may be determined by the Bank.
5. AGENCY AGREEMENT. The specific terms of the conversion services, conversion
offering enhancement and syndicated offering services contemplated in this
letter shall be set forth in a mutually agreed upon Agency Agreement between
Webb and the Bank and the Company to be executed prior to commencement of the
offering, and dated the date that the Company's Prospectus is declared effective
and/or authorized to be disseminated by the appropriate regulatory agencies, the
SEC, the NASD, the FDIC and such state securities commissioners and other
regulatory agencies as required by applicable law.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS. The Agency Agreement will provide
for to be agreed upon representations, warranties and covenants by the Bank and
Webb, and for the
<PAGE>
Mr. Jerry D. Williams
September 30, 1999
Page 3 of 7
Company to indemnify Webb and their controlling persons (and, if applicable, the
members of the selling group and their controlling persons), and for Webb to
indemnify the Bank and the Company against certain liabilities, including,
without limitation, liabilities under the Securities Act of 1933.
7. FEES. For the services hereunder, the Bank and/or Company shall pay the
following fees to Webb at closing unless stated otherwise:
(a) MANAGEMENT FEE. A Management Fee of $25,000 payable in four
consecutive monthly installments of $6,250 commencing with the
signing of this letter. Such fees shall be deemed to have been
earned when due. Should the Conversion be terminated for any
reason not attributable to the action or inaction of Webb,
Webb shall have earned and be entitled to be paid fees
accruing through the stage at which point the termination
occurred.
(b) A SUCCESS FEE of $215,000 will be charged. The Management Fee
as described in Section 7(a) will be credited against the
Success Fee.
(c) BROKER-DEALER PASS-THROUGH. If any shares of the Company's
stock remain available after the subscription offering, at the
request of the Bank, Webb will seek to form a syndicate of
registered broker-dealers to assist in the sale of such common
stock on a best efforts basis, subject to the terms and
conditions set forth in the selected dealers agreement. Webb
will endeavor to distribute the common stock among dealers in
a fashion which best meets the distribution objectives of the
Bank and the Plan of Conversion. Webb will be paid a fee not
to exceed 5.5% of the aggregate Purchase Price of the shares
of common stock sold by them. From this fee, Webb will pass
onto selected broker-dealers, who assist in the syndicated
community, an amount competitive with gross underwriting
discounts charged at such time for comparable amounts of stock
sold at a comparable price per share in a similar market
environment. Fees with respect to purchases affected with the
assistance of a broker/dealer other than Webb shall be
transmitted by Webb to such broker/dealer. THE DECISION TO
UTILIZE SELECTED BROKER-DEALERS WILL BE MADE BY THE BANK upon
consultation with Webb. In the event, with respect to any
stock purchases, fees are paid pursuant to this subparagraph
7(c), such fees shall be in addition to payment pursuant to
subparagraph 7(a) and 7(b).
8. ADDITIONAL SERVICES. Webb further agrees to provide financial advisory
assistance to the Company and the Bank for a period of one year following
completion of the Conversion, including formation of a dividend policy and share
repurchase program, assistance with shareholder reporting and shareholder
relations matters, general advice on mergers and
<PAGE>
Mr. Jerry D. Williams
September 30, 1999
Page 4 of 7
acquisitions and other related financial matters, without the payment by the
Company and the Bank of any fees in addition to those set forth in Section 7
hereof. Nothing in this Agreement shall require the Company and the Bank to
obtain such services from Webb. Following this initial one year term, if both
parties wish to continue the relationship, a fee will be negotiated and an
agreement entered into at that time.
9. EXPENSES. The Bank will bear those expenses of the proposed offering
customarily borne by issuers, including, without limitation, regulatory filing
fees, SEC, "Blue Sky," and NASD filing and registration fees; the fees of the
Bank's accountants, attorneys, appraiser, transfer agent, conversion agent and
registrar, printing, mailing and marketing and syndicate expenses associated
with the Conversion; the fees set forth in Section 7; and fees for "Blue Sky"
legal work. If Webb incurs expenses on behalf of Client, Client will reimburse
Webb for such expenses.
Webb shall not request reimbursement for out-of-pocket expenses, including costs
of legal counsel, travel, meals and lodging, photocopying, telephone, facsimile
and couriers. The selection of Webb's counsel will be done by Webb.
10. CONDITIONS. Webb's willingness and obligation to proceed hereunder shall be
subject to, among other things, satisfaction of the following conditions in
Webb's opinion, which opinion shall have been formed in good faith by Webb after
reasonable determination and consideration of all relevant factors: (a) full and
satisfactory disclosure of all relevant material, financial and other
information in the disclosure documents and a determination by Webb, in its sole
discretion, that the sale of stock on the terms proposed is reasonable given
such disclosures; (b) no material adverse change in the condition or operations
of the Bank subsequent to the execution of the agreement; and (c) no adverse
market conditions at the time of offering which in Webb's opinion make the sale
of the shares by the Company inadvisable.
12. BENEFIT. This Agreement shall inure to the benefit of the parties hereto and
their respective successors and to the parties indemnified pursuant to the terms
and conditions of the Agency Agreement and their successors, and the obligations
and liabilities assumed hereunder by the parties hereto shall be binding upon
their respective successors provided, however, that this Agreement shall not be
assignable by Webb.
13. DEFINITIVE AGREEMENT. This letter reflects Webb's present intention of
proceeding to work with the Bank on its proposed Conversion. It does not create
a binding obligation on the part of the Bank, the Company or Webb except as to
the agreement to maintain the confidentiality of non-public information set
forth in Section 3, the payment of certain fees as set forth in Section 7(a) and
7(b) and the assumption of expenses as set forth in Section 9, all of which
shall constitute the binding obligations of the parties hereto and which shall
survive the termination of this Agreement or the completion of the services
furnished hereunder and shall
<PAGE>
Mr. Jerry D. Williams
September 30, 1999
Page 5 of 7
remain operative and in full force and effect. You further acknowledge that any
report or analysis rendered by Webb pursuant to this engagement is rendered for
use solely by the management of the Bank and its agents in connection with the
Conversion. Accordingly, you agree that you will not provide any such
information to any other person without our prior written consent.
Webb acknowledges that in offering the Company's stock no person will be
authorized to give any information or to make any representation not contained
in the offering prospectus and related offering materials filed as part of a
registration statement to be declared effective in connection with the offering.
Accordingly, Webb agrees that in connection with the offering it will not give
any unauthorized information or make any unauthorized representation. We will be
pleased to elaborate on any of the matters discussed in this letter at your
convenience.
If the foregoing correctly sets forth our mutual understanding, please so
indicate by signing and returning the original copy of this letter to the
undersigned.
Sincerely,
CHARLES WEBB & COMPANY,
A DIVISION OF KEEFE, BRUYETTE & WOODS, INC.
By: /s/ Harold T. Hanley III
-------------------------------
Harold T. Hanley III
Senior Vice President
PEOPLE'S BUILDING, LOAN & SAVINGS COMPANY
By: /s/ Jerry D. Williams Date: 10-8-99
-------------------------------- --------------
Jerry D. Williams
Chief Executive Officer
<PAGE>
EXHIBIT A
CONVERSION SERVICES PROPOSAL
TO PEOPLE'S BUILDING LOAN & SAVINGS COMPANY
Charles Webb & Company provides thrift institutions converting from mutual to
stock form of ownership with a comprehensive program of conversion services
designed to promote an orderly, efficient, cost-effective and long-term stock
distribution. The following list is representative of the conversion services,
if appropriate, we propose to perform on behalf of the Bank.
GENERAL SERVICES
Assist management and legal counsel with the design of the transaction
structure.
Analyze and make recommendations on bids from printing, transfer agent, and
appraisal firms.
Assist officers and directors in obtaining bank loans to purchase stock, if
requested.
Assist in drafting and distribution of press releases as required or
appropriate.
CONVERSION OFFERING ENHANCEMENT SERVICES
Establish and manage Stock Information Center at the Bank. Stock Information
Center personnel will track prospective investors; record stock orders; mail
order confirmations; provide the Bank's senior management with daily reports;
answer customer inquiries; and handle special situations as they arise.
Assign Webb's personnel to be at the Bank through completion of the Subscription
and Community Offerings to manage the Stock Information Center, meet with
prospective shareholders at individual and community information meetings,
solicit local investor interest through a tele-marketing campaign, answer
inquiries, and otherwise assist in the sale of stock in the Subscription and
Community Offerings. This effort will be lead by a Principal of Webb/KBW.
Create target investor list based upon review of the Bank's depositor base.
Provide intensive financial and marketing input for drafting of the prospectus.
<PAGE>
CONVERSION OFFERING ENHANCEMENT SERVICES- CONTINUED
Prepare other marketing materials, including prospecting letters and brochures,
and media advertisements.
Arrange logistics of community information meeting(s) as required.
Prepare audio-visual presentation by senior management for community information
meeting(s).
Prepare management for question-and-answer period at community information
meeting(s).
Attend and address community information meeting(s) and be available to answer
questions.
BROKER-ASSISTED SALES SERVICES.
Arrange for broker information meeting(s) as required.
Prepare audio-visual presentation for broker information meeting(s).
Prepare script for presentation by senior management at broker information
meeting(s).
Prepare management for question-and-answer period at broker information
meeting(s).
Attend and address broker information meeting(s) and be available to answer
questions.
Produce confidential broker memorandum to assist participating brokers in
selling the Bank's common stock.
AFTERMARKET SUPPORT SERVICES.
Webb will use their best efforts to secure market making and on-going research
commitment from at least two NASD firms, one of which will be Keefe, Bruyette &
Woods, Inc.
<PAGE>
EXHIBIT 2.1
PLAN OF CONVERSION
OF
PEOPLES BUILDING LOAN & SAVINGS COMPANY
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION
NUMBER PAGE
<S> <C> <C>
1. Introduction............................................................................. 1
2. Definitions.............................................................................. 2
3. General Procedure for Conversion......................................................... 6
4. Total Number of Shares and Purchase Price of Conversion Stock............................ 7
5. Subscription Rights of Eligible Account Holders.......................................... 8
6. Subscription Rights of Tax-Qualified Employee Stock Benefit Plans........................ 9
7. Subscription Rights of Supplemental Eligible Account Holders............................. 10
8. Subscription Rights of Other Members..................................................... 10
9. Subscription Rights of Directors, Officers and Employees................................. 11
10. Community Offering, Syndicated Community Offering, Public Offering
and Other Offerings.................................................................... 11
11. Limitations on Subscriptions and Purchases of Conversion Stock........................... 13
12. Timing of Subscription Offering, Manner of Exercising Subscription
Rights and Order Forms................................................................. 15
13. Payment for Conversion Stock............................................................. 17
14. Account Holders in Nonqualified States or Foreign Countries.............................. 18
15. Voting Rights of Stockholders............................................................ 18
16. Liquidation Account...................................................................... 18
17. Transfer of Deposit Accounts............................................................. 20
18. Requirements Following Conversion for Registration, Market Making
and Stock Exchange Listing............................................................. 20
19. Directors and Officers of the Bank....................................................... 20
20. Requirements for Stock Purchases by Directors and Officers Following
Conversion.............................................................................. 21
21. Restrictions on Transfer of Stock........................................................ 21
22. Restrictions on Acquisition of Stock of the Holding Company.............................. 22
23. Stock-Form Constitution, Articles of Incorporation and Bylaws............................ 22
24. Tax Rulings or Opinions.................................................................. 22
25. Stock Compensation Plans ................................................................ 23
26. Dividend and Repurchase Restrictions on Stock............................................ 23
27. Payment of Fees to Brokers............................................................... 23
28. Effective Date........................................................................... 24
29. Amendment or Termination of the Plan..................................................... 24
30. Interpretation of the Plan............................................................... 24
</TABLE>
<PAGE>
PLAN OF CONVERSION
OF
THE PEOPLES BUILDING, LOAN AND SAVINGS COMPANY
1. INTRODUCTION.
The Board of Directors of The Peoples Building, Loan and Savings Company
(the "Bank") believes that a conversion of the Bank to stock form pursuant to
this Plan of Conversion is in the best interests of the Bank, as well as in the
best interests of the Bank's depositors, employees, customers and the
communities historically served by the Bank. The Conversion (as defined below)
will result in the Bank being wholly owned by a stock holding company. In
addition, the Conversion will result in the raising of additional capital which
will provide the Bank, through the holding company structure, greater
organizational and operational flexibility, including greater flexibility for
effecting mergers and acquisitions of financial institutions.
The Conversion is intended to provide a larger capital base to support
the Bank's lending and investment activities, possible diversification into
other related financial services activities and future growth through possible
acquisitions of other financial institutions. The Board of Directors has
identified such growth opportunities in two proposed acquisitions which it
intends to pursue substantially simultaneously with the transactions
contemplated with this Plan of Conversion. The Board of Directors has approved
the execution, as of the date hereof, of an Agreement of Merger by and between
the Bank and The Oakley Improved Building & Loan Company, an Ohio chartered
mutual savings and loan association ("Oakley"), pursuant to which Oakley will be
merged with and into the Bank in a transaction occurring immediately prior to
the Conversion (the "Oakley Merger"). In addition, the Board of Directors has
approved the execution, as of the date hereof, of an Agreement and Plan of
Merger by and between the Bank and Harvest Home Financial Corporation ("HHFC"),
an Ohio corporation and the parent holding company for the Harvest Home Savings
Bank ("HHSB"), an Ohio chartered stock-form savings bank, pursuant to which HHFC
will be merged with and into the Holding Company, as defined below, and HHSB
will be merged with and into the Bank in a transaction occurring immediately
subsequent to the Conversion (the "Harvest Home Merger"). The Conversion is
expressly subject to the conditions, among others, that (i) the Oakley Merger
has been consummated and (ii) that all conditions to the Harvest Home Merger
have been satisfied or waived such that the Harvest Home Merger can be
consummated immediately subsequent to the Merger. In addition, the Conversion is
intended to further enhance the Bank's capabilities to serve the borrowing and
other financial needs of the communities it currently serves.
The Plan was adopted by the Board of Directors of the Bank on September
30, 1999.
<PAGE>
2. DEFINITIONS.
As used in this Plan, the terms set forth below have the following
meaning:
2.1 ACTUAL PURCHASE PRICE means the price per share at which the
Conversion Stock is ultimately sold by the Holding Company to Participants in
the Subscription Offering and Persons in the Community Offering and/or
Syndicated Community Offering in accordance with the terms hereof.
2.2 AFFILIATE means a Person who, directly or indirectly, through one or
more intermediaries, controls or is controlled by or is under common control
with the Person specified.
2.3 APPLICATION FOR CONVERSION shall have the meaning set forth in
Section 3(a) hereof.
2.4 ASSOCIATE when used to indicate a relationship with any Person,
means (i) a corporation or organization (other than the Bank, a majority-owned
subsidiary of the Bank or the Holding Company) of which such Person is a
director, officer or partner or is, directly or indirectly, the beneficial owner
of 10% or more of any class of equity securities, (ii) 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, provided, however,
that such terms shall not include any Tax-Qualified Employee Stock Benefit Plan
or Non-Tax- Qualified Employee Stock Benefit Plan of the Holding Company or the
Bank in which such Person has a substantial beneficial interest or serves as a
trustee or in a similar fiduciary capacity, and (iii) any relative or spouse of
such Person, or any relative of such spouse of such Person, who has the same
home as such Person or who is a director or officer of the Bank or the Holding
Company or any of the subsidiaries of the foregoing.
2.5 BANK means The Peoples Building, Loan and Savings Company, in its
mutual or stock form, as the sense of the reference requires.
2.6 BANK BENEFIT PLANS includes, but is not limited to, Tax-Qualified
Employee Stock Benefit Plans and Non-Tax-Qualified Employee Stock Benefit Plans.
2.7 CODE means the Internal Revenue Code of 1986, as amended.
2.8 COMMUNITY OFFERING means the offering for sale by the Holding
Company of any shares of Conversion Stock not subscribed for in the Subscription
Offering to (i) natural persons residing in counties in Ohio in which the Bank
or Oakley have a branch office, and (ii) such other Persons within or without
the State of Ohio as may be selected by the Holding Company and the Bank within
their sole discretion.
2.9 CONTROL (including the terms "controlling," "controlled by," and
"under common control with") means the possession, directly or indirectly, of
the power to direct or cause the direction of
-2-
<PAGE>
the management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
2.10 CONVERSION means (i) the amendment of the Bank's Constitution and
Articles of Incorporation to authorize the issuance of shares of capital stock
and otherwise to conform to the requirements of a stock-form savings bank
organized under the laws of the United States, (ii) the issuance of Conversion
Stock by the Holding Company as provided herein, and (iii) the purchase by the
Holding Company of all of the capital stock of the Bank to be issued by the Bank
in connection with its conversion from mutual to stock form.
2.11 CONVERSION STOCK means the Holding Company Common Stock to be
issued and sold in the Offering pursuant to the Plan of Conversion, which stock
cannot and will not be insured by the FDIC, and which shall not include shares
which may be issued in the Harvest Home Merger.
2.12 DEPOSIT ACCOUNT means withdrawable or repurchasable shares,
investment certificates or deposits or other savings accounts, including money
market deposit accounts, negotiable order of withdrawal accounts and demand
accounts, held by an account holder of the Bank or Oakley.
2.13 DIRECTOR, OFFICER AND EMPLOYEE means the terms as applied
respectively to any person who is a director, officer or employee of the Bank or
Oakley.
2.14 DIVISION means the Ohio Department of Commerce, Division of
Financial Institutions or any successor thereto.
2.15 ESOP means a Tax-Qualified Employee Stock Benefit Plan adopted by
the Company and the Bank in connection with the Conversion, the purpose of which
shall be to acquire capital stock of the Company, including Conversion Stock.
2.16 ELIGIBLE ACCOUNT HOLDER means any Person holding a Qualifying
Deposit on the Eligibility Record Date for purposes of determining Subscription
Rights and establishing subaccount balances in the liquidation account to be
established pursuant to Section 16 hereof.
2.17 ELIGIBILITY RECORD DATE means the date for determining Qualifying
Deposits of Eligible Account Holders and is the close of business on June 30,
1998.
2.18 ESTIMATED PRICE RANGE means the range of the estimated aggregate
pro forma market value of the total number of shares of Conversion Stock to be
issued in the Conversion, as determined by the Independent Appraiser in
accordance with Section 4 hereof.
2.19 EXCHANGE SHARES means the shares of Holding Company Common Stock to
be exchanged for shares of common stock, no par value, of HHFC as a result of
the Harvest Home Merger.
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2.20 FDIC means the Federal Deposit Insurance Corporation or any
successor thereto.
2.21 HOLDING COMPANY means the corporation organized at the direction of
the Board of Directors of the Bank to hold all of the capital stock of the Bank,
which shall be incorporated under the laws of Delaware or such other state as so
determined by the Bank's Board of Directors.
2.22 HOLDING COMPANY COMMON STOCK means the common stock of the Holding
Company.
2.23 INDEPENDENT APPRAISER means the independent investment banking or
financial consulting firm retained by the Bank to prepare an appraisal of the
estimated pro forma market value of the Conversion Stock.
2.24 INITIAL PURCHASE PRICE means the price per share to be paid
initially by Participants for shares of Conversion Stock subscribed for in the
Subscription Offering and by Persons for shares of Conversion Stock ordered in
the Community Offering and/or Syndicated Community Offering.
2.25 MEMBER means any Person qualifying as a member of either the Bank
or Oakley in accordance with their respective mutual constitution, articles of
incorporation and bylaws and the laws of the state of Ohio.
2.26 OFFERINGS means the Subscription Offering, the Community Offering
and the Syndicated Community Offering or Public Offering.
2.27 OFFICER means the president, executive vice president, senior vice
president, vice president, secretary, treasurer or principal financial officer,
comptroller or principal accounting officer and any other person performing
similar functions with respect to any organization whether incorporated or
unincorporated.
2.28 ORDER FORM means the form or forms provided by the Bank, containing
all such terms and provisions as set forth in Section 12 hereof, to a
Participant or other Person by which Conversion Stock may be ordered in the
Subscription Offering, the Community Offering and/or the Syndicated Community
Offering.
2.29 OTHER MEMBER means a Voting Member who is not an Eligible Account
Holder or Supplemental Eligible Account Holder.
2.30 OTS means the Office of Thrift Supervision or any successor
thereto.
2.31 PARTICIPANT means any Eligible Account Holder, Tax-Qualified
Employee Stock Benefit Plan, Supplemental Eligible Account Holder, Other Member
and Director, Officer and Employee.
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2.32 PERSON means an individual, a corporation, a partnership, an
association, a joint stock company, a trust, an unincorporated organization or a
government or any political subdivision thereof.
2.33 PLAN AND PLAN OF CONVERSION mean this Plan of Conversion as adopted
by the Board of Directors of the Bank and any amendment hereto approved as
provided herein.
2.34 PROSPECTUS means the one or more documents to be used in offering
the Conversion Stock in the Subscription Offering and, to the extent applicable,
Community Offering and Syndicated Community Offering and for providing
information to Participants and other Persons in connection with such offerings.
2.35 PUBLIC OFFERING means an underwritten firm commitment offering to
the public through one or more underwriters.
2.36 QUALIFYING DEPOSIT means the aggregate balance of all Deposit
Accounts in the Bank or Oakley, as the case may be, of (i) an Eligible Account
Holder at the close of business on the Eligibility Record Date, provided such
aggregate balance in either the Bank or Oakley, as the case may be, is not less
than $50 and (ii) a Supplemental Eligible Account Holder at the close of
business on the Supplemental Eligibility Record Date, provided such aggregate
balance in either the Bank or Oakley, as the case may be, is not less than $50.
2.37 SEC means the Securities and Exchange Commission.
2.38 SPECIAL MEETINGS means the special meetings of Members of the Bank
and Oakley called for the purpose of submitting this Plan to the Members for
their approval, including any adjournment.
2.39 SUBSCRIPTION OFFERING means the offering of the Conversion Stock to
Participants.
2.40 SUBSCRIPTION RIGHTS means non-transferable rights to subscribe for
Conversion Stock granted to Participants pursuant to the terms of this Plan.
2.41 SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER if applicable, means any
Person, except Directors and Officers of the Bank or Oakley and their respective
Associates, holding a Qualifying Deposit at the close of business on the
Supplemental Eligibility Record Date.
2.42 SUPPLEMENTAL ELIGIBILITY RECORD DATE if applicable, means the date
for determining Qualifying Deposits of Supplemental Eligible Account Holders and
shall be required if the Eligibility Record Date is more than 15 months prior to
the date of the latest amendment to the application for Conversion filed prior
to approval of such application by the OTS and the Division. If applicable, the
Supplemental Eligibility Record Date shall be the last day of the calendar
quarter preceding OTS
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and Division approval of the application for Conversion submitted by the Bank
pursuant to this Plan of Conversion.
2.43 SYNDICATED COMMUNITY OFFERING means the offering for sale by a
syndicate of broker-dealers to the general public of shares of Conversion Stock
not purchased in the Subscription Offering and the Community Offering.
2.44 TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLAN means any defined benefit
plan or defined contribution plan, including the Employee Stock Ownership Plan
established by the Company and the Bank in connection with the Conversion, a
stock bonus plan, profit-sharing plan or other plan, which is established for
the benefit of the employees of the Holding Company and the Bank and which, with
its related trust, meets the requirements to be "qualified" under Section 401 of
the Code as from time to time in effect. A "Non-Tax-Qualified Employee Stock
Benefit Plan" is any defined benefit plan or defined contribution stock benefit
plan which is not so qualified.
2.45 VOTING MEMBER means a Person who at the close of business on the
Voting Record Date is entitled to vote as a member of the Bank or Oakley in
accordance with their respective constitution, articles of incorporation and
bylaws.
2.46 VOTING RECORD DATE means the date for determining the eligibility
of Members to vote at the Special Meeting.
3. GENERAL PROCEDURE FOR CONVERSION.
(a) An Application for Conversion, including the Plan, will be
submitted, together with all requisite material, to the OTS and the Division for
approval. The Bank also will cause notice of the adoption of the Plan by the
Board of Directors of the Bank to be given by publication in a newspaper having
general circulation in each community in which an office of the Bank is located,
and will cause copies of the Plan to be made available at each office of the
Bank and Oakley for inspection by account holders. The Bank will post the notice
of the filing of its Application for Conversion in each of its offices and will
again cause to be published, in accordance with the requirements of applicable
regulations of the OTS and the Division, a notice of the filing with the OTS and
the Division of an application to convert from mutual to stock form.
(b) Promptly following approval of the Bank's Application for Conversion
by the OTS and the Division, this Plan will be submitted to the Voting Members
for their consideration and approval at the Special Meetings. The Bank may, at
its option, mail to all Members as of the Voting Record Date, at their last
known address appearing on the records of the Bank or Oakley, a proxy statement
in either long or summary form describing the Plan which will be submitted to a
vote of the Members at the Special Meetings. If the Bank provides a summary form
proxy statement, the Bank shall also mail to all Eligible Account Holders and
Supplemental Eligible Account Holders who are not Members as of the Voting
Record Date a letter informing them of their right to receive a Prospectus and
Order Form for the purchase of Conversion Stock. Under such circumstances,
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Participants will be given the opportunity to request a Prospectus and Order
Form and other materials relating to the Conversion by returning a postage
prepaid card which will be distributed with the proxy statement or letter. If
the Plan is approved by the affirmative vote of a majority of the total number
of the aggregate votes eligible to be cast by Voting Members at the Special
Meetings, the Bank shall take all other necessary organizational steps pursuant
to applicable laws and regulations to amend its constitution, articles of
incorporation and bylaws to authorize the issuance of its capital stock to the
Holding Company at the time the Conversion of the Bank to stock form is
consummated. The Bank and Oakley must solicit new proxies from Voting Members
for voting on the Conversion at the Special Meetings in accordance with the
regulations of the OTS and the Division.
(c) As soon as practicable after the adoption of the Plan by the Board
of Directors of the Bank, the Bank shall cause the Holding Company to be
incorporated and the Board of Directors of the Holding Company shall adopt the
Plan by at least a two-thirds vote. The Holding Company shall submit or cause to
be submitted to the OTS and the Division such applications as may be required
for approval of the Holding Company's acquisition of the Bank and a Registration
Statement to the SEC to register the Conversion Stock and the Exchange Shares
under the Securities Act of 1933, as amended. The Holding Company shall also
register the Conversion Stock and the Exchange Shares under any applicable state
securities laws, subject to Section 14 hereof. Upon registration and after the
receipt of all required regulatory approvals, the Conversion Stock shall be
first offered for sale in a Subscription Offering to Eligible Account Holders,
Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible Account
Holders, if applicable, Other Members and Directors, Officers and Employees. It
is anticipated that any shares of Conversion Stock remaining unsold after the
Subscription Offering will be sold through a Community Offering and/or a
Syndicated Community Offering. The purchase price per share for the Conversion
Stock shall be a uniform price determined in accordance with Section 4 hereof.
The Holding Company shall purchase all of the capital stock of the Bank with an
amount of the net proceeds received by the Holding Company from the sale of
Conversion Stock as shall be determined by the Boards of Directors of the
Holding Company and the Bank and as shall be approved by the OTS and the
Division.
(d) The Holding Company and the Bank may retain and pay for the services
of financial and other advisors and investment bankers to assist in connection
with any or all aspects of the Conversion, including in connection with the
Subscription Offering, Community Offering and/or any Syndicated Community
Offering, the payment of fees to brokers and investment bankers for assisting
Persons in completing and/or submitting Order Forms. All fees, expenses,
retainers and similar items shall be reasonable.
4. TOTAL NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION
STOCK.
(a) The aggregate price at which all shares of Conversion Stock shall be
sold shall be based on a pro forma valuation of the aggregate market value of
the Conversion Stock prepared by the Independent Appraiser. The valuation shall
be based on financial information relating to the Holding
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Company and the Bank, economic and financial conditions, a comparison of the
Holding Company and the Bank with selected publicly-held financial institutions
and holding companies and with comparable financial institutions and holding
companies and such other factors as the Independent Appraiser may deem to be
important, including, but not limited to, the projected operating results and
financial condition of the Holding Company and the Bank. The valuation shall be
stated in terms of an Estimated Price Range, the maximum of which shall
generally be no more than 15% above the average of the minimum and maximum of
such price range and the minimum of which shall generally be no more than 15%
below such average. The valuation shall be updated during the Conversion as
market and financial conditions warrant and as may be required by the OTS and
the Division.
(b) Based upon the independent valuation, the Boards of Directors of the
Holding Company and the Bank shall fix the Initial Purchase Price and the number
of shares of Conversion Stock to be offered in the Subscription Offering,
Community Offering and/or Syndicated Community Offering. The Actual Purchase
Price and the total number of shares of Conversion Stock to be issued in the
Offerings shall be determined by the Boards of Directors of the Holding Company
and the Bank upon conclusion of such offerings in consultation with the
Independent Appraiser and any financial advisor or investment banker retained by
the Bank in connection with such offerings.
(c) Subject to the approval of the OTS, the Estimated Price Range may be
increased or decreased to reflect market and economic conditions prior to
completion of the Conversion or to fill the order of the Tax-Qualified Employee
Stock Benefit Plans, and under such circumstances the Holding Company may
increase or decrease the total number of shares of Conversion Stock to be issued
in the Conversion to reflect any such change. Notwithstanding anything to the
contrary contained in this Plan, no resolicitation of subscribers shall be
required and subscribers shall not be permitted to modify or cancel their
subscriptions unless the gross proceeds from the sale of the Conversion Stock
issued in the Conversion are less than the minimum or more than 15% above the
maximum of the Estimated Price Range set forth in the Prospectus. In the event
of an increase in the total number of shares offered in the Conversion due to an
increase in the Estimated Price Range, the priority of share allocation shall be
as set forth in this Plan.
5. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS.
(a) Each Eligible Account Holder shall receive, without payment,
non-transferable Subscription Rights to purchase up to the greater of (i)
$150,000 of Conversion Stock (or such maximum purchase limitation as may be
established for the Community Offering and/or Syndicated Community Offering or
Public Offering), (ii) one-tenth of 1% of the total offering of shares in the
Subscription Offering and (iii) 15 times the product (rounded down to the next
whole number) obtained by multiplying the total number of shares of Conversion
Stock offered in the Subscription Offering by a fraction, of which the numerator
is the amount of the Qualifying Deposits of the Eligible Account Holder and the
denominator is the total amount of all Qualifying Deposits of all Eligible
Account Holders.
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(b) In the event of an oversubscription for shares of Conversion Stock
pursuant to Section 5(a), available shares shall be allocated among subscribing
Eligible Account Holders so as to permit each such Eligible Account Holder, to
the extent possible, to purchase a number of shares which will make his or her
total allocation equal to the lesser of the number of shares subscribed for or
100 shares. Any available shares remaining after each subscribing Eligible
Account Holder has been allocated the lesser of the number of shares subscribed
for or 100 shares shall be allocated among the subscribing Eligible Account
Holders in the proportion which the Qualifying Deposit of each such subscribing
Eligible Account Holder bears to the total Qualifying Deposits of all such
subscribing Eligible Account Holders, provided that no fractional shares shall
be issued. Subscription Rights of Eligible Account Holders shall be subordinated
to the priority rights of the ESOP to purchase shares in excess of the Maximum
Shares, as defined in Section 6 below. Subscription Rights of Eligible Account
Holders who are also Directors or Officers of the Bank or Oakley and their
Associates shall be subordinated to those of other Eligible Account Holders to
the extent that they are attributable to increased deposits during the one year
period preceding the Eligibility Record Date.
6. SUBSCRIPTION RIGHTS OF TAX-QUALIFIED EMPLOYEE STOCK BENEFIT
PLANS
Tax-Qualified Employee Stock Benefit Plans, including the ESOP, shall
receive, without payment, non-transferable Subscription Rights to purchase in
the aggregate up to 10% of the Conversion Stock, including shares of Conversion
Stock to be issued in the Conversion as a result of an increase in the Estimated
Price Range after commencement of the Subscription Offering and prior to
completion of the Conversion. The subscription rights granted to Tax-Qualified
Employee Stock Benefit Plans shall be subject to the availability of shares of
Conversion Stock after taking into account the shares of Conversion Stock
purchased by Eligible Account Holders, provided, however, that in the event that
the total number of shares offered in the Conversion is increased to an amount
greater than the number of shares representing the maximum of the Estimated
Price Range as set forth in the Prospectus ("Maximum Shares"), the ESOP shall
have a priority right to purchase any such shares exceeding the Maximum Shares
up to an aggregate of 8% of Conversion Stock. Shares of Conversion Stock
purchased by any individual participant ("Plan Participant") in a Tax-Qualified
Employee Stock Benefit Plan using funds therein pursuant to the exercise of
subscription rights granted to such Participant in his individual capacity as an
Eligible Account Holder and/or Supplemental Eligible Account Holder and/or
purchases by such Plan Participant in the Community Offering shall not be deemed
to be purchases by a Tax-Qualified Employee Stock Benefit Plan for purposes of
calculating the maximum amount of Conversion Stock that Tax-Qualified Employee
Stock Benefit Plans may purchase pursuant to the first sentence of this Section
6 if the individual Plan Participant controls or directs the investment
authority with respect to such account or subaccount. Consistent with applicable
laws and regulations and policies and practices of the OTS, the ESOP may use
funds contributed by the Holding Company or the Bank and/or borrowed from an
independent financial institution to exercise such Subscription Rights, and the
Holding Company and the Bank may make scheduled discretionary contributions
thereto, provided that such
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contributions do not cause the Holding Company or the Bank to fail to meet any
applicable capital maintenance requirements.
7. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT
HOLDERS.
(a) In the event that the Eligibility Record Date is more than 15 months
prior to the date of the latest amendment to the Application for Conversion
filed prior to OTS and Department approval, then, and only in that event, each
Supplemental Eligible Account Holder shall receive, without payment,
non-transferable Subscription Rights to purchase up to the greater of (i)
$150,000 of Conversion Stock (or such maximum purchase limitation as may be
established for the Community Offering and/or Syndicated Community Offering or
Public Offering), (ii) one-tenth of 1% of the total offering of shares in the
Subscription Offering and (iii) 15 times the product (rounded down to the next
whole number) obtained by multiplying the total number of shares of Conversion
Stock offered in the Subscription Offering by a fraction, of which the numerator
is the amount of the Qualifying Deposits of the Supplemental Eligible Account
Holder and the denominator is the total amount of all Qualifying Deposits of all
Supplemental Eligible Account Holders, subject to the availability of shares of
Common Stock for purchase after taking into account the shares of Conversion
Stock purchased by Eligible Account Holders and the ESOP through the exercise of
Subscription Rights under Sections 5 and 6 hereof.
(b) In the event of an oversubscription for shares of Conversion Stock
pursuant to Section 7(a), available shares shall be allocated among subscribing
Supplemental Eligible Account Holders so as to permit each such Supplemental
Eligible Account Holder, to the extent possible, to purchase a number of shares
sufficient to make his or her total allocation (including the number of shares,
if any, allocated in accordance with Section 5(a)) equal to the lesser of the
number of shares subscribed for or 100 shares. Any remaining available shares
shall be allocated among subscribing Supplemental Eligible Account Holders in
the proportion that the amount of their respective Qualifying Deposits bears to
the total amount of the Qualifying Deposits of all subscribing Supplemental
Eligible Account Holders, provided that no fractional shares shall be issued.
8. SUBSCRIPTION RIGHTS OF OTHER MEMBERS.
(a) Each Other Member shall receive, without payment, non-transferable
Subscription Rights to purchase up to the greater of (i) $150,000 of Conversion
Stock (or such maximum purchase limitation as may be established for the
Community Offering and/or Syndicated Community Offering or Public Offering) and
(ii) one-tenth of 1% of the total offering of shares in the Subscription
Offering, in each case if and only to the extent that shares of Conversion Stock
are available for purchase after taking into account the shares of Conversion
Stock purchased by Eligible Account Holders, Tax-Qualified Employee Stock
Benefit Plans and Supplemental Eligible Account Holders through the exercise of
Subscription Rights under Sections 5, 6 and 7 hereof.
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(b) If, pursuant to this Section 8, Other Members subscribe for a number
of shares of Conversion Stock in excess of the total number of shares of
Conversion Stock remaining, shares shall be allocated so as to permit each such
Other Member, to the extent possible, to purchase a number of shares which will
make his or her total allocation equal to the lesser of the number of shares
subscribed for or 100 shares. Any shares remaining will be allocated among the
subscribing Other Members whose subscriptions remain unsatisfied on an equal
number of shares basis per order until all orders have been filled or the
remaining shares have been allocated, provided no fractional shares shall be
issued.
9. SUBSCRIPTION RIGHTS OF DIRECTORS, OFFICERS AND EMPLOYEES.
(a) To the extent that there are sufficient shares remaining after
satisfaction of all subscriptions under the above categories, Directors,
Officers and Employees of the Bank and Oakley shall receive, without payment,
non-transferable subscription rights to purchase in this category, in the
aggregate, up to 23% of the shares of Conversion Stock offered in the
Subscription Offering.
(b) In the event of oversubscription pursuant to Section 9(a),
Subscription Rights for the purchase of such shares shall be allocated among the
individual Directors, Officers and Employees of the Bank and Oakley on a point
system basis, whereby a point will be assigned for each year of employment and
for each salary increment of $5,000 per annum and five points for each office
held in the Bank, including a directorship. If any such Director, Officer or
Employee does not subscribe for his or her full allocation of shares, any shares
not subscribed for may be purchased by other Directors, Officers and Employees
in proportion to their respective subscriptions, provided that no fractional
shares shall be issued.
10. COMMUNITY OFFERING, SYNDICATED COMMUNITY OFFERING, PUBLIC
OFFERING AND OTHER OFFERINGS.
(a) If less than the total number of shares of the Conversion Stock are
sold in the Subscription Offering, it is anticipated that all remaining shares
of Conversion Stock shall, if practicable, be sold directly by the Holding
Company and the Bank in a Community Offering and/or a Syndicated Community
Offering. Subject to the requirements set forth herein, Conversion Stock sold in
the Community Offering and/or the Syndicated Community Offering shall achieve
the widest possible distribution of such stock.
(b) In the event of a Community Offering, all shares of Conversion
Stock which are not subscribed for in the Subscription Offering shall be offered
for sale by means of a direct community marketing program, which may provide for
the use of brokers, dealers or investment banking firms experienced in the sale
of financial institution securities. Any available shares in excess of those not
subscribed for in the Subscription Offering will be available for purchase by
members of the general public who receive a Prospectus, with preference given to
natural persons residing in counties in Ohio in which the Bank or Oakley has a
branch office ("Preferred Subscribers").
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(c) A Prospectus and Order Form shall be furnished to such Persons as
the Holding Company and the Bank may select in connection with the Community
Offering, subject to the last sentence in subsection 10(b) above, and each order
for Conversion Stock in the Community Offering shall be subject to the absolute
right of the Holding Company and the Bank to accept or reject any such order in
whole or in part either at the time of receipt of an order or as soon as
practicable following completion of the Community Offering. Available shares
will be allocated first to each Preferred Subscriber whose order is accepted by
the Holding Company, in an amount equal to the lesser of 100 shares or the
number of shares subscribed for by each such Preferred Subscriber, if possible.
Thereafter, any shares remaining will be allocated among the Preferred
Subscribers whose subscriptions remain unsatisfied on an equal number of shares
basis per order until all orders have been filled or the remaining shares have
been allocated, provided no fractional shares shall be issued. If there are any
shares remaining after all subscriptions by Preferred Subscribers have been
satisfied, such remaining shares shall be allocated to other members of the
general public who purchase in the Community Offering applying the same
allocation described above for Preferred Subscribers.
(d) The amount of Conversion Stock that any Person together with any
Associate thereof or group of Persons acting in concert may purchase in the
Community Offering shall not exceed the greater of (i) $150,000 or (ii)
one-tenth of 1% of the total offering of shares in the Subscription Offering,
provided, however, that this amount may be increased to 5% of the total offering
of shares in the Subscription Offering, subject to any required regulatory
approval but without the further approval of Members; provided, further, that
orders for Conversion Stock in the Community Offering shall first be filled to a
maximum of 2% of the total number of shares of Conversion Stock sold in the
Conversion and thereafter any remaining shares shall be allocated on an equal
number of shares basis per order until all orders have been filled, provided no
fractional shares shall be issued. The Holding Company and the Bank may commence
the Community Offering concurrently with, at any time during, or as soon as
practicable after the end of, the Subscription Offering, and the Community
Offering must be completed within 45 days after the completion of the
Subscription Offering, unless extended by the Holding Company and the Bank with
any required regulatory approval.
(e) Subject to such terms, conditions and procedures as may be
determined by the Holding Company and the Bank, all shares of Conversion Stock
not subscribed for in the Subscription Offering or ordered in the Community
Offering may be sold by a syndicate of broker-dealers to the general public in a
Syndicated Community Offering. Each order for Conversion Stock in the Syndicated
Community Offering shall be subject to the absolute right of the Holding Company
and the Bank to accept or reject any such order in whole or in part either at
the time of receipt of an order or as soon as practicable after completion of
the Syndicated Community Offering. The amount of Conversion Stock that any
Person together with any Associate thereof or group of Persons acting in concert
may purchase in the Syndicated Community Offering shall not exceed $150,000
provided, however, that this amount may be increased to 5% of the total offering
of shares in the Subscription Offering, subject to any required regulatory
approval but without the further approval of Members; provided further that
orders for Conversion Stock in the Syndicated Community Offering shall first be
filled to a maximum of 2% of the total number of shares of Conversion Stock sold
in the
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Conversion and thereafter any remaining shares shall be allocated on an equal
number of shares basis per order until all orders have been filled, provided no
fractional shares shall be issued. The Holding Company and the Bank may commence
the Syndicated Community Offering concurrently with, at any time during, or as
soon as practicable after the end of the Subscription Offering and/or Community
Offering, and the Syndicated Community Offering must be completed within 45 days
after the completion of the Subscription Offering, unless extended by the
Holding Company and the Bank with any required regulatory approval.
(f) The Holding Company and the Bank may sell any shares of Conversion
Stock remaining following the Subscription Offering, Community Offering and/or
the Syndicated Community Offering in a Public Offering. The provisions of
Section 11 hereof shall not be applicable to the sales to underwriters for
purposes of the Public Offering but shall be applicable to sales by the
underwriters to the public. The price to be paid by the underwriters in such an
offering shall be equal to the Actual Purchase Price less an underwriting
discount to be negotiated among such underwriters and the Bank and the Holding
Company, subject to any required regulatory approval or consent.
(g) If for any reason a Syndicated Community Offering or Public
Offering of shares of Conversion Stock not sold in the Subscription Offering and
the Community Offering cannot be effected, or in the event that any
insignificant residue of shares of Conversion Stock is not sold in the
Subscription Offering, Community Offering or Syndicated Community Offering, the
Holding Company and the Bank shall use their best efforts to obtain other
purchasers for such shares in such manner and upon such conditions as may be
satisfactory to the OTS and the Division.
11. LIMITATIONS ON SUBSCRIPTIONS AND PURCHASES OF CONVERSION
STOCK.
(a) The maximum number of shares of Conversion Stock which may be
purchased in the Conversion by the ESOP shall not exceed 8% and all
Tax-Qualified Employee Stock Benefit Plans shall not exceed 10% of the total
number of shares of Conversion Stock sold in the Conversion, in each instance,
including any shares which may be issued in the event of an increase in the
maximum of the Estimated Price Range to reflect changes in market and economic
conditions after commencement of the Subscription Offering and prior to the
completion of the Conversion; provided; however, that purchases of Conversion
Stock which are made by Plan Participants pursuant to the exercise of
subscription rights granted to such Plan Participant in his individual capacity
as an Eligible Account Holder or Supplemental Eligible Account Holder or
purchases by a Plan Participant in the Community Offering using the funds
thereof held in Tax-Qualified Employee Stock Benefit Plans shall not be deemed
to be purchases by a Tax-Qualified Employee Stock Benefit Plan for purposes of
this Section 11(a).
(b) Except in the case of Tax-Qualified Employee Stock Benefit Plans in
the aggregate, as set forth in Section 11(a) hereof, and certain Eligible
Account Holders and Supplemental Eligible Account Holders, and in addition to
the other restrictions and limitations set forth herein, the
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maximum amount of Conversion Stock which any Person together with any Associate
or group of Persons acting in concert may, directly or indirectly, subscribe for
or purchase in the Conversion (including without limitation the Subscription
Offering, Community Offering and/or Syndicated Community Offering), when
aggregated with any Exchange Shares to be received in the Harvest Home Merger,
shall not exceed $450,000.
(c) The number of shares of Conversion Stock which Directors and
Officers and their Associates may purchase in the aggregate in the Conversion
shall not exceed 33% of the total number of shares of Conversion Stock offered
in the Conversion, including any shares which may be issued in the event of an
increase in the maximum of the Estimated Price Range to reflect changes in
market and economic conditions after commencement of the Subscription Offering
and prior to completion of the Conversion.
(d) No Person may purchase fewer than 25 shares of Conversion Stock in
the Conversion, to the extent such shares are available; provided, however, that
if the Actual Purchase Price is greater than $20.00 per share, such minimum
number of shares shall be adjusted so that the aggregate Actual Purchase Price
for such minimum shares will not exceed $500.00.
(e) For purposes of the foregoing limitations and the determination of
Subscription Rights, (i) Directors and Officers shall not be deemed to be
Associates or a group acting in concert solely as a result of their capacities
as such, (ii) shares purchased by Tax-Qualified Employee Stock Benefit Plans
shall not be attributable to the individual trustees or beneficiaries of any
such plan for purposes of determining compliance with the limitations set forth
in Section 11(b) hereof, and (iii) shares purchased by Tax-Qualified Employee
Stock Benefit Plans shall not be attributable to the individual trustees or
beneficiaries of any such plan for purposes of determining compliance with the
limitation set forth in Section 11(c) hereof.
(f) Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the Members of
the Bank or Oakley or resolicitation of subscribers, the Holding Company and the
Bank may increase or decrease any of the individual purchase limitations set
forth herein to a percentage which does not exceed 5% or fall below .10% of the
total offering of shares in the Subscription Offering and may increase the
aggregate purchase limitation set forth herein to a percentage which does not
exceed 5% whether prior to, during or after the Subscription Offering, Community
Offering, Syndicated Community Offering and/or Public Offering. In the event
that an individual purchase limitation is increased after commencement of the
Subscription Offering or any other offering, the Holding Company and the Bank
shall permit any Person who subscribed for the maximum number of shares of
Conversion Stock to purchase an additional number of shares such that such
Person shall be permitted to subscribe for the then maximum number of shares
permitted to be subscribed for by such Person, subject to the rights and
preferences of any Person who has priority Subscription Rights. In the event
that an individual purchase limitation is decreased after commencement of the
Subscription Offering or any other offering, the orders of any Person who
subscribed for the maximum number of shares of Conversion
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Stock shall be decreased by the minimum amount necessary so that such Person
shall be in compliance with the then maximum number of shares permitted to be
subscribed for by such Person.
(g) The Holding Company and the Bank shall have the right to take all
such action as they may, in their sole discretion, deem necessary, appropriate
or advisable in order to monitor and enforce the terms, conditions, limitations
and restrictions contained in this Section 11 and elsewhere in this Plan and the
terms, conditions and representations contained in the Order Form, including,
but not limited to, the absolute right (subject only to any necessary regulatory
approvals or concurrence) to reject, limit or revoke acceptance of any
subscription or order and to delay, terminate or refuse to consummate any sale
of Conversion Stock which they believe might violate, or is designed to, or is
any part of a plan to, evade or circumvent such terms, conditions, limitations,
restrictions and representations. Any such action shall be final, conclusive and
binding on all persons and the Holding Company and the Bank and their respective
Boards shall be free from any liability to any Person on account of any such
action.
12. TIMING OF SUBSCRIPTION OFFERING, MANNER OF EXERCISING SUBSCRIPTION
RIGHTS AND ORDER FORMS.
(a) The Subscription Offering may be commenced concurrently with or at
any time after the mailing to Voting Members of the proxy statements to be used
in connection with the Special Meetings. The Subscription Offering may be closed
before the Special Meetings, provided that the offer and sale of the Conversion
Stock shall be conditioned upon the approval of the Plan by Voting Members at
the Special Meetings.
(b) The exact timing of the commencement of the Subscription Offering
shall be determined by the Holding Company and the Bank in consultation with the
Independent Appraiser and any financial or advisory or investment banking firm
retained by them in connection with the Conversion. The Holding Company and the
Bank may consider a number of factors, including, but not limited to, their
current and projected future earnings, local and national economic conditions
and the prevailing market for stocks in general and stocks of financial
institutions in particular. The Holding Company and the Bank shall have the
right to withdraw, terminate, suspend, delay, revoke or modify any such
Subscription Offering, at any time and from time to time, as it in its sole
discretion may determine, without liability to any Person, subject to compliance
with applicable securities laws and any necessary regulatory approval or
concurrence.
(c) The Holding Company and the Bank shall, promptly after the SEC has
declared the Prospectus effective and all required regulatory approvals have
been obtained, distribute or make available the Prospectus, together with Order
Forms for the purchase of Conversion Stock, to all Participants for the purpose
of enabling them to exercise their respective Subscription Rights, subject to
Section 14 hereof. The Holding Company and the Bank may elect to mail a
Prospectus and Order Form only to those Participants who request such materials
by returning a postage-paid card to the Holding Company and the Bank by a date
specified in the letter informing them of their Subscription Rights. Under such
circumstances, the Subscription Offering shall not be closed until the
expiration
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of 30 days after the mailing by the Holding Company and the Bank of the
postage-paid card to Participants.
(d) A single Order Form for all Deposit Accounts maintained with the
Bank and/or Oakley by an Eligible Account Holder and a Supplemental Eligible
Account Holder may be furnished irrespective of the number of Deposit Accounts
maintained with the Bank and/or Oakley on the Eligibility Record Date and
Supplemental Eligibility Record Date, respectively. No person holding a
subscription right may exceed any otherwise applicable purchase limitation by
submitting multiple orders for Conversion Stock. Multiple orders are subject to
adjustment, as appropriate, on a pro rata basis and deposit balances will be
divided equally among such orders in allocating shares in the event of an
oversubscription.
(e) The recipient of an Order Form shall have no less than 20 days and
no more than 45 days from the date of mailing of the Order Form (with the exact
termination date to be set forth on the Order Form) to properly complete and
execute the Order Form and deliver it to the Bank. The Holding Company and the
Bank may extend such period by such amount of time as they determine is
appropriate. Failure of any Participant to deliver a properly executed Order
Form to the Bank, along with payment (or authorization for payment by
withdrawal) for the shares of Conversion Stock subscribed for, within the time
limits prescribed, shall be deemed a waiver and release by such person of any
rights to subscribe for shares of Conversion Stock. Each Participant shall be
required to confirm to the Holding Company and the Bank by executing an Order
Form that such Person has fully complied with all of the terms, conditions,
limitations and restrictions in the Plan.
(f) The Holding Company and the Bank shall have the absolute right, in
their sole discretion and without liability to any Participant or other Person,
to reject any Order Form, including, but not limited to, any Order Form (i) that
is improperly completed or executed; (ii) that is not timely received; (iii)
that is submitted by facsimile or is photocopied; (iv) that is not accompanied
by the proper payment (or authorization of withdrawal for payment) or, in the
case of institutional investors in the Community Offering, not accompanied by an
irrevocable order together with a legally binding commitment to pay the full
amount of the purchase price prior to 48 hours before the completion of the
Offerings; (v) submitted by a Person whose representations the Holding Company
and the Bank believe to be false or who they otherwise believe, either alone, or
acting in concert with others, is violating, evading or circumventing, or
intends to violate, evade or circumvent, the terms and conditions of the Plan.
Furthermore, in the event Order Forms (i) are not delivered and are returned to
the Bank by the United States Postal Service or the Bank is unable to locate the
addressee, or (ii) are not mailed pursuant to a "no mail" order placed in effect
by the account holder, the subscription rights of the person to which such
rights have been granted will lapse as though such person failed to return the
contemplated Order Form within the time period specified thereon. The Holding
Company and the Bank may, but will not be required to, waive any irregularity on
any Order Form or may require the submission of corrected Order Forms or the
remittance of full payment for shares of Conversion Stock by such date as they
may specify. The interpretation of the Holding Company and the Bank of the terms
and conditions of the Order Forms shall be final and conclusive.
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13. PAYMENT FOR CONVERSION STOCK.
(a) Payment for shares of Conversion Stock subscribed for by
Participants in the Subscription Offering and payment for shares of Conversion
Stock ordered by Persons in the Community Offering shall be equal to the Initial
Purchase Price per share multiplied by the number of shares which are being
subscribed for or ordered, respectively. Such payment may be made in cash, if
delivered in person, or by check or money order at the time the Order Form is
delivered to the Bank. The Bank, in its sole and absolute discretion, may also
elect to receive payment for shares of Conversion Stock by wire transfer. In
addition, the Holding Company and the Bank may elect to provide Participants
and/or other Persons who have a Deposit Account with the Bank or Oakley the
opportunity to pay for shares of Conversion Stock by authorizing the Bank or
Oakley (acting as agent for the Bank), as the case may be, to withdraw from such
Deposit Account an amount equal to the aggregate Initial Purchase Price of such
shares. Payment may also be made by a Participant using funds held for such
Participant's benefit by a Bank Benefit Plan to the extent that such plan allows
participants or any related trust established for the benefit of such
participants to direct that some or all of their individual accounts or
sub-accounts be invested in Conversion Stock. If the Actual Purchase Price is
less than the Initial Purchase Price, the Bank shall refund the difference to
all Participants and other Persons, unless the Holding Company and the Bank
choose to provide Participants and other Persons the opportunity on the Order
Form to elect to have such difference applied to the purchase of additional
whole shares of Conversion Stock. If the Actual Purchase Price is more than the
Initial Purchase Price, the Bank shall reduce the number of shares of Conversion
Stock ordered by Participants and other Persons and refund any remaining amount
which is attributable to a fractional share interest, unless the Bank chooses to
provide Participants and other Persons the opportunity to increase the Actual
Purchase Price submitted to it.
(b) Consistent with applicable laws and regulations and policies and
practices of the OTS, payment for shares of Conversion Stock subscribed for by
the ESOP may be made with funds contributed by the Holding Company or the Bank
and/or funds obtained pursuant to a loan from an unrelated financial institution
pursuant to a loan commitment which is in force from the time that any such plan
submits an Order Form until the closing of the transactions contemplated hereby.
(c) If a Participant or other Person authorizes the Bank or Oakley, as
the case may be, to withdraw the amount of the Initial Purchase Price from his
or her Deposit Account, the Bank and/or Oakley, as the case may be, shall have
the right to make such withdrawal or to freeze funds equal to the aggregate
Initial Purchase Price upon receipt of the Order Form. Notwithstanding any
regulatory provisions regarding penalties for early withdrawals from certificate
accounts, the Bank and/or Oakley, as the case may be, may allow payment by means
of withdrawal from certificate accounts without the assessment of such
penalties. In the case of an early withdrawal of only a portion of such account,
the certificate evidencing such account shall be cancelled if any applicable
minimum balance requirement ceases to be met. In such case, the remaining
balance will earn interest at the regular passbook rate. However, where any
applicable minimum balance is maintained in such certificate account, the rate
of return on the balance of the certificate account shall remain the same as
prior to such early withdrawal. This waiver of the early withdrawal penalty
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applies only to withdrawals made in connection with the purchase of Conversion
Stock and is entirely within the discretion of the Holding Company and the Bank
or Oakley, as the case may be.
(d) The Bank shall pay interest, at not less than its passbook rate,
for all amounts paid in cash, by check or money order to purchase shares of
Conversion Stock in the Subscription Offering and the Community Offering from
the date payment is received until the date the Conversion is completed or
terminated.
(e) Neither the Bank nor Oakley shall knowingly loan funds or otherwise
extend credit to any Participant or other Person to purchase Conversion Stock.
(f) Each share of Conversion Stock shall be non-assessable upon payment
in full of the Actual Purchase Price.
14. ACCOUNT HOLDERS IN NONQUALIFIED STATES OR FOREIGN
COUNTRIES.
The Holding Company and the Bank shall make reasonable efforts to
comply with the securities laws of all jurisdictions in the United States in
which Participants reside. However, no Participant will be offered or receive
any Conversion Stock under the Plan if such Participant resides in a foreign
country or in a jurisdiction of the United States with respect to which all of
the following apply: (a) there are few Participants otherwise eligible to
subscribe for shares under this Plan who reside in such jurisdiction; (b) the
granting of Subscription Rights or the offer or sale of shares of Conversion
Stock to such Participants would require the Holding Company or the Bank or
their respective Directors and Officers, under the laws of such jurisdiction, to
register as a broker or dealer, salesman or selling agent or to register or
otherwise qualify the Conversion Stock for sale in such jurisdiction, or the
Holding Company or the Bank would be required to qualify as a foreign
corporation or file a consent to service of process in such jurisdiction; and
(c) such registration or qualification in the judgment of the Holding Company
and the Bank would be impracticable or unduly burdensome for reasons of cost or
otherwise.
15. VOTING RIGHTS OF STOCKHOLDERS.
Following Conversion, voting rights with respect to the Bank shall be
held and exercised exclusively by the Holding Company as holder of the Bank's
voting capital stock and voting rights with respect to the Holding Company shall
be held and exercised exclusively by the holders of the Holding Company's voting
capital stock. No Person shall have any rights as a stockholder of the Holding
Company unless and until the Conversion Stock has been issued to such Person.
16. LIQUIDATION ACCOUNT.
(a) At the time of Conversion, the Bank shall establish a liquidation
account in an amount equal to the combined net worth of the Bank and Oakley as
reflected in their latest statements of pro forma combined financial condition
contained in the final prospectus utilized in the Conversion. The function of
the liquidation account will be to preserve the rights of certain holders of
Deposit
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Accounts in the Bank and Oakley who maintain such accounts in the Bank following
Conversion to a priority to distributions in the unlikely event of a liquidation
of the Bank subsequent to Conversion.
(b) The liquidation account shall be maintained for the benefit of
Eligible Account Holders and Supplemental Eligible Account Holders, if any, who
maintain their Deposit Accounts in the Bank after Conversion. Each such account
holder will, with respect to each Deposit Account held, have a related inchoate
interest in a portion of the liquidation account balance, which interest will be
referred to in this Section 16 as the "subaccount balance." All Deposit Accounts
having the same social security number will be aggregated for purposes of
determining the initial subaccount balance with respect to such Deposit
Accounts, except as provided in Section 16(d) hereof.
(c) In the event of a complete liquidation of the Bank subsequent to
Conversion (and only in such event), each Eligible Account Holder and
Supplemental Eligible Account Holder, if any, shall be entitled to receive a
liquidation distribution from the liquidation account in the amount of the then
current subaccount balances for Deposit Accounts then held (adjusted as
described below) before any liquidation distribution may be made with respect to
the capital stock of the Bank. No merger, consolidation, sale of bulk assets or
similar combination transaction with another FDIC-insured institution in which
the Bank is not the surviving entity shall be considered a complete liquidation
for this purpose. In any such transaction, the liquidation account shall be
assumed by the surviving entity.
(d) The initial subaccount balance for a Deposit Account held by an
Eligible Account Holder and Supplemental Eligible Account Holder, if any, shall
be determined by multiplying the opening balance in the liquidation account by a
fraction, of which the numerator is the amount of the Qualifying Deposits of
such account holder and the denominator is the total amount of Qualifying
Deposits of all Eligible Account Holders and, if applicable, Supplemental
Eligible Account Holders. For Deposit Accounts in existence at both the
Eligibility Record Date and the Supplemental Eligibility Record Date, if
applicable, separate initial subaccount balances shall be determined on the
basis of the Qualifying Deposits in such Deposit Accounts on each such record
date. Initial subaccount balances shall not be increased, and shall be subject
to downward adjustment as provided below.
(e) If the aggregate deposit balance in any Deposit Account(s) of any
Eligible Account Holder or Supplemental Eligible Account Holder at the close of
business on any September 30 annual closing date, commencing September 30, 2000,
is less than the lesser of (a) the deposit balance in such Deposit Account(s) at
the close of business on any other annual closing date subsequent to such record
dates or (b) the deposit balance in such Deposit Account(s) as of the
Eligibility Record Date or the Supplemental Eligibility Record Date, if any, the
subaccount balance for such Deposit Account(s) shall be adjusted by reducing
such subaccount balance in an amount proportionate to the reduction in such
deposit balance. In the event of such a downward adjustment, the subaccount
balance shall not be subsequently increased, notwithstanding any increase in the
deposit balance of the related Deposit Account(s). The subaccount balance of an
Eligible Account Holder or Supplemental Eligible Account Holder, if any, shall
be reduced to zero if such holder ceases to maintain a Deposit Account at the
Bank that has the same social security number as
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appeared on his or her Deposit Account(s) at the Eligibility Record Date or, if
applicable, the Supplemental Eligibility Record Date.
(f) Subsequent to Conversion, the Bank may not pay cash dividends
generally on deposit accounts and/or capital stock of the Bank, or repurchase
any of the capital stock of the Bank, if such dividend or repurchase would
reduce the Bank's net worth below the aggregate amount of the then current
subaccount balances for Deposit Accounts then held; otherwise, the existence of
the liquidation account shall not operate to restrict the use or application of
any of the net worth accounts of the Bank.
(g) For purposes of this Section 16, a Deposit Account includes a
predecessor or successor account which is held only by an account holder with
the same social security number.
17. TRANSFER OF DEPOSIT ACCOUNTS.
Each Deposit Account in the Bank at the time of the consummation of the
Conversion shall become, without further action by the holder, a Deposit Account
in the Bank equivalent in withdrawable amount to the withdrawal value (as
adjusted to give effect to any withdrawal made for the purchase of Conversion
Stock), and subject to the same terms and conditions (except as to voting and
liquidation rights) as such Deposit Account in the Bank immediately preceding
consummation of the Conversion. Holders of Deposit Accounts in the Bank shall
not, as such holders, have any voting rights.
18. REQUIREMENTS FOLLOWING CONVERSION FOR REGISTRATION,
MARKET MAKING AND STOCK EXCHANGE LISTING.
In connection with the Conversion, the Holding Company shall register
its common stock pursuant to the Securities Exchange Act of 1934, as amended,
and shall undertake not to deregister such stock for a period of three years
thereafter. The Holding Company also shall use its best efforts to (i) encourage
and assist a market maker to establish and maintain a market for its common
stock; and (ii) list its common stock on a national or regional securities
exchange or to have quotations for its common stock disseminated on the Nasdaq
Stock Market.
19. DIRECTORS AND OFFICERS OF THE BANK.
Each person serving as a Director or Officer of the Bank at the time of
the Conversion shall continue to serve as a Director or Officer of the Bank for
the balance of the term for which the person was elected prior to the
Conversion, and until a successor is elected and qualified.
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20. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS
FOLLOWING CONVERSION.
For a period of three years following the Conversion, the Directors and
Officers of the Holding Company and the Bank and their Associates may not
purchase, without the prior written approval of the OTS, the Holding Company
Common Stock except from a broker or dealer registered with the SEC. This
prohibition shall not apply, however, to (i) a negotiated transaction arrived at
by direct negotiation between buyer and seller and involving more than 1% of the
outstanding common stock of the Holding Company, (ii) purchases of stock made by
and held by any Tax-Qualified Employee Stock Benefit Plan (and purchases of
stock made by and held by any Non-Tax-Qualified Employee Stock Benefit Plan
following receipt of stockholder approval of such plan) that may be attributable
to individual Officers or Directors and (iii) the exercise of any options
pursuant to any stock benefit plan of the Holding Company.
The foregoing restriction on purchases of Holding Company Common Stock
shall be in addition to any restrictions that may be imposed by federal and
state securities laws.
21. RESTRICTIONS ON TRANSFER OF STOCK.
All shares of the Conversion Stock which are purchased by Persons other
than Directors and Officers shall be transferable without restriction, except in
connection with a transaction proscribed by Section 22 of this Plan. Shares of
Conversion Stock purchased by Directors and Officers of the Holding Company and
the Bank on original issue from the Holding Company (by subscription or
otherwise) shall be subject to the restriction that such shares shall not be
sold or otherwise disposed of for value for a period of one year following the
date of purchase, except for any disposition of such shares following the death
of the original purchaser or pursuant to any merger or similar transaction
approved by the OTS. The shares of Conversion Stock issued by the Holding
Company to Directors and Officers shall bear the following legend giving
appropriate notice of such one-year restriction:
"The shares of stock evidenced by this Certificate are restricted as to
transfer for a period of one year from the date of this Certificate
pursuant to Part 563b of the Rules and Regulations of the Office of
Thrift Supervision. These shares may not be transferred during such
one-year period without a legal opinion of counsel for the Company that
said transfer is permissible under the provisions of applicable law and
regulation. This restrictive legend shall be deemed null and void after
one year from the date of this Certificate."
In addition, the Holding Company shall give appropriate instructions to
the transfer agent for the Holding Company Common Stock with respect to the
applicable restrictions relating to the transfer of restricted stock. Any shares
issued at a later date as a stock dividend, stock split or otherwise with
respect to any such restricted stock shall be subject to the same holding period
restrictions as may then be applicable to such restricted stock.
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The foregoing restriction on transfer shall be in addition to any
restrictions on transfer that may be imposed by federal and state securities
laws.
22. RESTRICTIONS ON ACQUISITION OF STOCK OF THE HOLDING COMPANY.
Upon consummation of the Conversion, the certificate of incorporation
of the Holding Company shall prohibit any Person together with Associates or
group of Persons acting in concert from offering to acquire or acquiring,
directly or indirectly, beneficial ownership of more than 10% of any class of
equity securities of the Holding Company, or of securities convertible into more
than 10% of any such class. The certificate of incorporation of the Holding
Company also shall provide that all equity securities beneficially owned by any
Person in excess of 10% of any class of equity securities shall be considered
"excess shares," and that excess shares shall not be counted as shares entitled
to vote and shall not be voted by any Person or counted as voting shares in
connection with any matters submitted to the stockholders for a vote. The
foregoing restrictions shall not apply to (i) any offer with a view toward
public resale made exclusively to the Holding Company by underwriters or a
selling group acting on its behalf, (ii) the purchase of shares by a
Tax-Qualified Employee Stock Benefit Plan established for the benefit of the
employees of the Holding Company and its subsidiaries which is exempt from
approval requirements under 12 C.F.R. SECTION 574.3(c)(1)(vi) or any successor
thereto, and (iii) any offer or acquisition approved in advance by a specified
affirmative vote of the entire Board of Directors of the Holding Company.
Directors, Officers or employees of the Holding Company or the Bank or any
subsidiary thereof shall not be deemed to be Associates or a group acting in
concert with respect to their individual acquisitions of any class of equity
securities of the Holding Company solely as a result of their capacities as
such.
23. STOCK-FORM CONSTITUTION, ARTICLES OF INCORPORATION AND BYLAWS.
As part of the Conversion, the Bank shall take all appropriate steps to
amend its Constitution, Articles of Incorporation and Bylaws to be in the
stock-form and to authorize the issuance of capital stock.
24. TAX RULINGS OR OPINIONS.
Consummation of the Conversion is expressly conditioned upon prior
receipt by the Bank of either a ruling or an opinion of counsel with respect to
federal tax laws, and either a ruling or an opinion of counsel with respect to
Ohio tax laws, to the effect that consummation of the transactions contemplated
hereby will not result in a taxable reorganization under the provisions of the
applicable codes or otherwise result in any adverse tax consequences to the
Holding Company, the Bank and its account holders receiving Subscription Rights
before or after the Conversion, except in each case to the extent, if any, that
Subscription Rights are deemed to have fair market value on the date such rights
are issued.
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25. STOCK COMPENSATION PLANS.
(a) The Holding Company and the Bank are authorized to adopt
Tax-Qualified Employee Stock Benefit Plans in connection with the Conversion,
including, without limitation, the ESOP. Subsequent to the Conversion, the
Holding Company and the Bank are authorized to adopt Non-Tax Qualified Employee
Stock Benefit Plans, including without limitation, stock option plans and
restricted stock plans, provided however that, with respect to any such plan
implemented during the one-year period subsequent to the date of consummation of
the Conversion, any such plan: (i) shall be disclosed in the proxy solicitation
materials for the Special Meeting of Members and in the Prospectus; (ii) in the
case of stock option plans, shall have a total number of shares of Holding
Company Common Stock for which options may be granted of not more than 10% of
the amount of shares of Conversion Stock issued in the Conversion; (iii) in the
case of management or employee recognition or grant plans, shall have a total
number of shares of Holding Company Common Stock of not more than 4% of the
amount of shares of Conversion Stock issued in the Conversion; (iv) in the case
of stock option plans and employee recognition or grant plans, shall be
submitted for approval by the holders of the Holding Company Common Stock no
earlier than six months following consummation of the Conversion; and (v) shall
comply with all other applicable requirements of the OTS.
(b) Existing as well as any newly created Tax-Qualified Employee Stock
Benefit Plans may purchase shares of Conversion Stock in the Offerings, to the
extent permitted by the terms of such benefit plans and this Plan.
(c) The Holding Company and the Bank are authorized to enter into
employment or severance agreements with their executive officers.
26. DIVIDEND AND REPURCHASE RESTRICTIONS ON STOCK.
(a) Following consummation of the Conversion, any repurchases of shares
of capital stock by the Holding Company will be made in accordance with then
applicable laws and regulations.
(b) The Bank may not declare or pay a cash dividend on, or repurchase
any of, its capital stock if the effect thereof would cause the regulatory
capital of the Bank to be reduced below the amount required for the liquidation
account. Any dividend declared or paid on, or repurchase of, the Bank's capital
stock shall be made in compliance with Section 563.134 of the Regulations
Applicable to All Savings Associations, or any successor thereto.
27. PAYMENT OF FEES TO BROKERS.
The Bank may elect to offer to pay fees on a per share basis to
securities brokers who assist Persons in determining to purchase shares in the
Offerings.
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28. EFFECTIVE DATE.
The effective date of the Conversion shall be the date of the closing
of the sale of all shares of Conversion Stock. The closing of the sale of all
shares of Conversion Stock sold in the Offerings shall occur simultaneously and
shall be conditioned upon the prior receipt of all requisite regulatory and
other approvals.
29. AMENDMENT OR TERMINATION OF THE PLAN.
If deemed necessary or desirable by the Board of Directors of the Bank,
this Plan may be substantively amended, as a result of comments from regulatory
authorities or otherwise, at any time prior to the solicitation of proxies from
Members to vote on the Plan and at any time thereafter with the concurrence of
the OTS and the Division. Any amendment to this Plan made after approval by the
Members with the concurrence of the OTS and the Division shall not necessitate
further approval by the Members unless otherwise required by the OTS and the
Division. This Plan shall terminate if the sale of all shares of Conversion
Stock is not completed within 24 months from the date of the Special Meetings
(subject to extension by the OTS and the Division). Prior to the Special
Meetings, this Plan may be terminated by the Board of Directors of the Bank
without approval of the OTS and the Division; after the Special Meetings, the
Board of Directors may terminate this Plan only with the approval of the OTS and
the Division.
30. INTERPRETATION OF THE PLAN.
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Directors of the Holding
Company and the Bank shall be final, subject to the authority of the OTS and the
Division.
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Exhibit 2.2
AGREEMENT OF MERGER
This Agreement of Merger (this "Agreement"), made as of September 30,
1999, by and between THE PEOPLE'S BUILDING, LOAN AND SAVINGS COMPANY, a mutual
deposit savings and loan association organized and existing under the laws of
the State of Ohio ("Peoples"), and THE OAKLEY IMPROVED BUILDING & LOAN COMPANY,
a mutual deposit savings and loan association organized and existing under the
laws of the State of Ohio ("Oakley");
WITNESSETH:
WHEREAS, the Board of Directors of each of Peoples and Oakley
(collectively, the "Constituent Associations") has determined that the merger of
the Constituent Associations is in the best interests of the Constituent
Associations;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the Constituent Associations
hereby agree that the terms of the merger contemplated by this Agreement (the
"Merger") and the mode of carrying the Merger into effect shall be as follows:
ARTICLE ONE
SECTION 1.01. THE MERGER. At the time when the Merger shall become
effective in accordance with Section 10.01 of this Agreement (the "Effective
Date"), Oakley shall merge with and into Peoples. Peoples shall be the
continuing, surviving and resulting association in the Merger, shall exist at
such time as a mutual deposit savings and loan association under the laws of the
State of Ohio and shall be the only one of the Constituent Associations to
continue its separate corporate existence after the Effective Date. The term
"Resulting Association" as used hereinafter refers to Peoples at and after the
Effective Date.
SECTION 1.02. NAME OF RESULTING ASSOCIATION. The name of the
Resulting Association shall be "The People's Building, Loan and Savings
Company."
SECTION 1.03. ARTICLES OF INCORPORATION OF RESULTING ASSOCIATION. The
Articles of Incorporation of Peoples existing at the Effective Date shall be the
Articles of Incorporation of the Resulting Association until amended in
accordance with law.
SECTION 1.04. CONSTITUTION OF RESULTING ASSOCIATION. The Constitution
of Peoples existing at the Effective Date shall be the Constitution of the
Resulting Association until amended in accordance with law.
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SECTION 1.05. BYLAWS OF RESULTING ASSOCIATION. The Bylaws of Peoples
existing at the Effective Date shall be the Bylaws of the Resulting Association
until amended in accordance with law.
SECTION 1.06. OFFICES OF RESULTING ASSOCIATION. At and after the
Effective Date, until changed in accordance with law, the home office of Peoples
at 11 S. Broadway, Lebanon, Warren County, Ohio, shall be the home office and
principal place of business of the Resulting Association, and the office of
Oakley at 3924 Isabella, Cincinnati, Hamilton County, Ohio, shall be a branch
office of the Resulting Association.
SECTION 1.07. DIRECTORS OF RESULTING ASSOCIATION. At and after the
Effective Date, and until changed in accordance with law, the number of members
of the Board of Directors of the Resulting Association shall be ten, each of
whom shall serve until the annual meeting of members of the Resulting
Association in the year indicated in the table set forth immediately below, and
the names and residence addresses of whom are as follows:
<TABLE>
<CAPTION>
Name Residence Address Term Expires
- ---- ----------------- ------------
<S> <C> <C>
Paul E. Hasselbring 905 McBurney Drive 2001
Lebanon, OH 45036
Jerry D. Williams 219 South Mechanic 2000
Lebanon, OH 45036
Wesley W. Glines 1113 Hunters Run 2002
Lebanon, OH 45036
Richard S. Johnston 10780 Wadkins-Bowman Road 2001
Blanchester, OH 45107
Zane M. Brant 9 Hathaway Commons 2001
Lebanon, OH 45036
John L. Buchanan 2730 Redbird Drive 2000
Lebanon, OH 45036
Donald L. Hawke 205 Summit Street 2002
Lebanon, OH 45036
Nicholas N. Nelson 1130 S. Nixon Camp Road 2000
Oregonia, OH 45054
James R. Van DeGrift 1347 N. State Route 123 2002
Lebanon, OH 45036
Thomas J. Noe 3348 Partridgelake Court 2001
Cincinnati, Ohio 45248
</TABLE>
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SECTION 1.08. OFFICERS OF RESULTING ASSOCIATION. At and after the
Effective Date, and until changed in accordance with law, the persons whose
names and residence addresses are set forth immediately below shall be the
officers of the Resulting Association and shall hold the offices set forth
beside their respective names:
<TABLE>
<CAPTION>
Office Name Residence Address
- ------ ---- -----------------
<S> <C> <C>
Chairman of the Board Paul E. Hasselbring 905 McBurney Drive
Lebanon, OH 45036
President and Chief Jerry D. Williams 219 South Mechanic
Executive Officer Lebanon, OH 45036
Executive Vice President Wesley W. Glines 4818 Shawnee Trace Road
Blanchester, OH 45107
Chief Financial Officer Thomas J. Noe 3348 Partridgelake Court
Cincinnati, Ohio 45248
Treasurer Beth D. Pennington 513 Mound Court
Lebanon, OH 45036
Secretary David A. Cook 1120 Kirby Road
Lebanon, OH 45036
</TABLE>
SECTION 1.09. ADVISORY BOARD. At the time when the Merger shall become
effective and as a result thereof, there shall be created, automatically and
without further act of the Constituent Associations, an advisory board (the
"Advisory Board") of the Resulting Association. All present board members of
Oakley as of the date hereof, other than Thomas J. Noe, shall serve as the
members of the Advisory Board for a one-year period commencing with the
Effective Date and, subject to review on each annual anniversary date of the
Effective Date, shall be re-appointed to two additional one-year terms to such
Advisory Board. The members of the Advisory Board shall perform such duties as
may be assigned by the Board of Directors of the Resulting Association in
exchange for which such members shall receive an annual advisory board fee of
$6,900. In addition, Peoples will grant to each advisory board member options to
acquire not less than 2,000 shares of common stock of the holding company (the
"Holding Company") to be formed in connection with Peoples proposed conversion
to stock form (the "Conversion"). The grant of options hereby is subject to
corporate, regulatory and stockholder approval.
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ARTICLE TWO
SECTION 2.01. DEPOSIT ACCOUNTS. At the Effective Date, each Oakley
deposit account then existing shall, automatically and without further act of
the Constituent Associations or the holder thereof, become a fully paid and
non-assessable outstanding deposit account of the Resulting Association having
the same withdrawal value and terms and conditions as immediately prior to the
Effective Date. In addition, members of Oakley shall have priority subscription
rights and liquidation rights in the Conversion to the same extent as similar
members of Peoples.
ARTICLE THREE
SECTION 3.01. TAX CONSEQUENCES. This Agreement is intended by the
Constituent Associations to be a Plan of Reorganization under Section 368 of the
Internal Revenue Code of 1996, as amended (the "Code"), to be effectuated in the
manner set forth herein.
ARTICLE FOUR
SECTION 4.01. EFFECTS OF MERGER. On and after the Effective Date, the
separate existence of Oakley shall cease; provided, however, that whenever a
conveyance, assignment, transfer, deed or other instrument or act is necessary
to vest property or rights in the Resulting Association, the officers of Oakley
shall execute, acknowledge and deliver such instruments, and do such acts. For
such purposes, the existence of Oakley and the authority of its officers and
directors shall be continued, notwithstanding the Merger.
SECTION 4.02. RIGHTS AND LIABILITIES OF RESULTING ASSOCIATION. On and
after the Effective Date, the Resulting Association shall possess all of the
assets and property of every description, and every interest therein, wherever
located, and the rights, privileges, immunities, powers, franchises and
authority, of a public as well as of a private nature, of each of the
Constituent Associations, and all liabilities of and obligations belonging to or
due to each of the Constituent Associations, all of which are vested in the
Resulting Association without further act or deed. Title to any real estate or
any interest therein vested in any Constituent Association shall not revert or
in any way be impaired by reason of the Merger.
ARTICLE FIVE
Peoples hereby represents and warrants to Oakley as follows:
SECTION 5.01. ORGANIZATION AND GOOD STANDING. Peoples is a mutual
deposit savings and loan association duly organized, validly existing and in
good standing under the laws of the State of Ohio. Peoples has the corporate
power and authority to own or lease all of its properties and assets and to
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carry on its business as it is now being conducted and is duly licensed or
qualified to do business in each jurisdiction in which the nature of the
business conducted by Peoples or the character or location of the properties and
assets owned or leased by Peoples makes such licensing or qualification
necessary, except where the failure to be so licensed or qualified would not
have a material adverse effect on Peoples. The deposits of Peoples are insured
by the Savings Association Insurance Fund (the "SAIF") of the Federal Deposit
Insurance Corporation (the "FDIC") to the maximum extent permitted by the
applicable rules and regulations of the FDIC.
SECTION 5.02. CORPORATE POWER AND AUTHORITY. Peoples has full corporate
power and authority to execute and deliver this Agreement and, subject to the
receipt of the approval of the Ohio Superintendent of Financial Institutions
(the "Superintendent") and the Office of Thrift Supervision (the "OTS") and the
amendment of its Constitution to increase the number of directors, to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly approved by the affirmative vote of at least two-thirds of the
members of the Board of Directors of Peoples. This Agreement has been duly and
validly executed and delivered by Peoples and constitutes the valid and binding
agreement of Peoples, enforceable against Peoples in accordance with its terms.
SECTION 5.03. FINANCIAL STATEMENTS.
(a) The statements of financial condition as of June 30, 1999
and 1998 of Peoples and the related statements of earnings, retained earnings
and changes in cash flows for each of the years ended June 30, 1999, 1998 and
1997, examined and reported upon by Kennedy, Kraft, Dreyer & Noe, independent
certified public accountants, complete copies of which have previously been
delivered to Oakley (the "Peoples Audited Financials"), have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis and fairly present the financial position of Peoples at such dates and the
results of its operations and changes in cash flows for such periods.
(b) The OTS Quarterly Financial Report of Peoples dated June
30, 1999 together with the schedules and supplements attached thereto, as filed
with the OTS, a copy of which was previously delivered to Oakley (the "Peoples
OTS Quarterly Report"), has been prepared in accordance with accounting
practices permitted by the OTS applied on a consistent basis and fairly presents
the financial position of Peoples at such date.
(c) The Peoples Audited Financials and the Peoples OTS
Quarterly Report did not as of the dates thereof, contain any untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(d) Except as disclosed in the Peoples Audited Financials and
the Peoples OTS Quarterly Report, as of the date of this Agreement, Peoples had
no liabilities or obligations material
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to the business condition (financial or otherwise) of Peoples, whether accrued,
absolute, contingent or otherwise and whether due or to become due.
(e) Peoples has devised and maintained systems of internal
accounting controls sufficient to provide reasonable assurances that: (I)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit the
preparation of financial statements in conformity with generally accepted
accounting principles or any other criteria applicable to such statements, and
to maintain proper accountability for items; (iii) access is permitted only in
accordance with managements general or specific authorization; and (iv) the
recorded accountability for items is compared with the actual levels at
reasonable intervals and appropriate action is taken with respect to any
differences.
SECTION 5.04. MATERIAL ADVERSE CHANGE. There has not been any material
adverse change in the business, operations, properties, assets or financial
condition of Peoples since June 30, 1999. No fact or condition exists which
Peoples has reason to believe will cause any such material adverse change in the
foreseeable future.
SECTION 5.05. AGREEMENTS WITH REGULATORY AUTHORITIES. Peoples is not a
party to any written agreement or memorandum of understanding with any federal
or state governmental authority charged with the supervision or regulation of
thrift institutions or engaged in the insurance of thrift deposits which
restricts the conduct of the business of Peoples or in any manner relates to the
capital adequacy, credit policies or management of Peoples.
SECTION 5.06. LEGAL PROCEEDINGS. There are no legal or governmental
proceedings pending to which Peoples is a party, or to which any property of
Peoples is subject, which may reasonably be anticipated to result, either
individually or in the aggregate, in a material adverse effect on Peoples and,
to Peoples's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or by others.
SECTION 5.07. TAXES AND TAX RETURNS. Peoples has duly and timely filed
all tax returns required to be filed by Peoples on or before the date hereof and
has duly paid or made provision for the payment of all taxes which have been
incurred or are due or claimed to be due from Peoples by any taxing authorities
on or before the date hereof. No reserves need to be established for the payment
of any taxes for which Peoples may be liable in its own right or as transferee
of the assets of, or successor to, any corporation, person, association,
partnership, joint venture or other entity. There are no disputes pending with
respect to, or claims asserted for, taxes or audits or investigations of
outstanding matters under discussion with federal, state or local authorities
with respect to the payment of taxes by Peoples, nor has Peoples given or been
requested to give any currently effective waivers extending the statutory period
of limitation applicable to any tax return for any period.
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SECTION 5.08. EMPLOYEE BENEFIT PLANS; ERISA.
(a) Exhibit A contains a true and complete list of all
qualified pension or profit-sharing plans or deferred compensation, consulting,
bonus or group insurance plans or agreements and all other incentive, welfare or
employee benefit plans or agreements maintained for the benefit of employees or
former employees of Peoples. Copies of such plans and agreements, together with
rulings and determination letters and any open requests for rulings or letters
that pertain to any qualified plan, have been delivered or been made available
to Oakley.
(b) Peoples does not maintain and, since 1982, has not
maintained any defined benefit pension plan subject to Title IV of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or any other
retirement plan subject to mandatory employer funding under Section 412 of the
Code. Peoples does not participate in and has never participated in a
multiemployer plan, as defined in Section 3(37) of ERISA. Except as required by
Section 4980B of the Code and Sections 601 through 608 of ERISA (COBRA), Peoples
does not maintain or contribute to any plan or arrangement which provides or has
any liability to provide any retiree health or medical benefits to former
employees.
(c) No prohibited transaction (which shall mean any
transaction prohibited by Section 406 of ERISA and not exempt under Section 409
of ERISA) has occurred with respect to any employee benefit plan maintained by
Peoples (I) which would result in the imposition, directly or indirectly, of a
material excise tax under Section 4975 of the Code or (ii) the correction of
which would have a material adverse effect on the financial condition, results
of operations or business of Peoples.
(d) Each plan and agreement listed on Exhibit A has been
maintained in compliance with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations, including but not limited
to ERISA and the Code, which are applicable to such plan or agreement.
SECTION 5.09. PEOPLES INFORMATION. Peoples has filed all reports,
registrations and statements, together with any amendments required to be made
with respect thereto, required to be filed with federal or state regulatory
authorities. All such documents, as of their respective dates, complied in all
material respects with all the statutes, rules and regulations enforced or
promulgated by the regulatory authority with which they were filed. None of such
documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
SECTION 5.10. COMPLIANCE WITH APPLICABLE LAW.
(a) Peoples has complied with, and is not in default in any
respect under, any applicable laws, statutes (including environmental laws),
orders, rules or regulations or any
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applicable policies or guidelines of, or agreements with, any federal, state or
local governmental authority, except to the extent that failure to be in
compliance, or being in default, would not have a material adverse effect on
Peoples. Peoples has not received notice of any violation (or claim of
violation) of, and does not know of any violations of, any of such laws,
statutes, orders, rules, regulations, policies, guidelines or agreements.
(b) To the knowledge of Peoples, there is no claim of
violation of any environmental law pending or threatened (I) against Peoples,
(ii) against any person or entity whose liability for any such claim has or may
have been retained or assumed by Peoples either contractually or by operation of
law, or (iii) against any real or personal property which Peoples owns, leases
or manages, or supervises or participates in the management of, or in which
Peoples holds a security interest in connection with a loan or loan
participation, other than such as would not, either individually or in the
aggregate, have a material adverse effect on Peoples.
(c) There are no present or, to the knowledge of Peoples, past
activities, conditions or incidents, including, without limitation, the release
or disposal of any material of environmental concern, that could reasonably form
the basis of any environmental claim against Peoples or against any person or
entity whose liability for any environmental claim has or may have been retained
or assumed by Peoples, either contractually or by operation of law, other than
such as would not, either individually or in the aggregate, have a material
adverse effect on Peoples.
SECTION 5.11 PROPERTY RIGHTS. Peoples has marketable title to, or valid
binding and enforceable leasehold interests in, all real properties and good
title to all other property and assets, tangible and intangible, reflected in
the Peoples Audited Financials or purported to have been acquired or leased by
Peoples since the date thereof, free and clear of all liens, security interests
and encumbrances, except for liens for taxes or assessments not delinquent or
being contested in good faith, pledges to secure deposits and such other liens
and encumbrances and imperfections of title as are not individually or in the
aggregate material to Peoples, or which do not materially interfere with or
impair the present and continued use of any such property or asset material to
Peoples.
SECTION 5.12. DISCLOSURES. No representation or warranty contained in
this Agreement, and no statement contained in any certificate, list or other
writing furnished by Peoples to Oakley pursuant to the provisions hereof,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements herein or therein not misleading.
No information material to the transaction contemplated by this Agreement and
which is necessary to make the representations and warranties herein contained
not misleading, has been withheld by Peoples from, or has not been made
available to, Oakley.
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ARTICLE SIX
Oakley hereby represents and warrants to Peoples as follows:
SECTION 6.01. ORGANIZATION AND GOOD STANDING. Oakley is a mutual
deposit savings and loan association duly organized, validly existing and in
good standing under the laws of the State of Ohio. Oakley has the corporate
power and authority to own or lease all of its properties and assets and to
carry on its business as it is now being conducted and is duly licensed or
qualified to do business in each jurisdiction in which the nature of the
business conducted by Oakley or the character or location of the properties and
assets owned or leased by Oakley makes such licensing or qualification
necessary, except where the failure to be so licensed or qualified would not
have a material adverse effect on Oakley. The deposits of Oakley are insured by
the SAIF to the maximum extent permitted by the applicable rules and regulations
of the FDIC.
SECTION 6.02. CORPORATE POWER AND AUTHORITY. Oakley has full corporate
power and authority to execute and deliver this Agreement and, subject to the
receipt of the approval of the Superintendent and the OTS, to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly approved by the affirmative vote of at least two-thirds of the members
of the Board of Directors of Oakley. This Agreement has been duly and validly
executed and delivered by Oakley and constitutes the valid and binding agreement
of Oakley, enforceable against Oakley in accordance with its terms.
SECTION 6.03. FINANCIAL STATEMENTS.
(a) The statements of financial condition as of June 30, 1999
and 1998 of Oakley and the related statements of earnings, retained earnings and
changes in cash flows for each of the years ended June 30, 1999, 1998 and 1997,
examined and reported upon by Kennedy, Kraft, Dreyer & Noe, independent
certified public accountants, complete copies of which have previously been
delivered to Peoples (the "Oakley Audited Financials"), have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis and fairly present the financial position of Oakley at such dates and the
results of its operations and changes in cash flows for such periods.
(b) The OTS Quarterly Financial Report of Oakley dated June
30, 1999, together with the schedules and supplements attached thereto, as filed
with the OTS, a copy of which was previously delivered by Oakley to Peoples (the
"Oakley OTS Quarterly Report"), has been prepared in accordance with accounting
practices permitted by the OTS applied on a consistent basis and fairly presents
the financial position of Oakley at such date.
(c) The Oakley Audited Financials and the Oakley OTS Quarterly
Report did not, as of the dates thereof, contain any untrue statement of a
material fact or omit to state any material
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fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(d) Except as disclosed in the Oakley Audited Financials and
the Oakley OTS Quarterly Report as of the date of this Agreement, Oakley had no
liabilities or obligations material to the business condition (financial or
otherwise) of Oakley, whether accrued, absolute, contingent or otherwise and
whether due or to become due.
(e) Oakley has devised and maintained systems of internal
accounting controls sufficient to provide reasonable assurances that: (I)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit the
preparation of financial statements in conformity with generally accepted
accounting principles or any other criteria applicable to such statements, and
to maintain proper accountability for items; (iii) access is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for items is compared with the actual levels at
reasonable intervals and appropriate action is taken with respect to any
differences.
SECTION 6.04. MATERIAL ADVERSE CHANGE. There has not been any material
adverse change in the business, operations, properties, assets or financial
condition of Oakley since June 30, 1999. No fact or condition exists which
Oakley has reason to believe will cause any such material adverse change in the
foreseeable future.
SECTION 6.05. AGREEMENTS WITH REGULATORY AUTHORITIES. Oakley is not a
party to any written agreement or memorandum of understanding with any federal
or state governmental authority charged with the supervision or regulation of
thrift institutions or engaged in the insurance of thrift deposits which
restricts the conduct of the business of Oakley or in any manner relates to the
capital adequacy, credit policies or management of Oakley.
SECTION 6.06. LEGAL PROCEEDINGS. There are no legal or governmental
proceedings pending to which Oakley is a party, or to which any property of
Oakley is subject, which may reasonably be anticipated to result, either
individually or in the aggregate, in a material adverse effect on Oakley and to
Oakley's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or by others.
SECTION 6.07. TAXES AND TAX RETURNS. Oakley has duly and timely filed
all tax returns required to be filed by Oakley on or before the date hereof and
has duly paid or made provision for the payment of all taxes which have been
incurred or are due or claimed to be due from Oakley by any taxing authorities
on or before the date hereof. No reserves need to be established for the payment
of any taxes for which Oakley may be liable in its own right or as transferee of
the assets of, or successor to, any corporation, person, association,
partnership, joint venture or other entity. There are no disputes pending with
respect to, or claims asserted for, taxes or audits or investigations of
outstanding matters under discussion with federal, state or local authorities
with respect to the
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payment of taxes by Oakley, nor has Oakley given or been requested to give
any currently effective waivers extending the statutory period of limitation
applicable to any tax return for any period.
SECTION 6.08 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Exhibit B contains a true and complete list of all
qualified pension or profit-sharing plans or deferred compensation, consulting,
bonus or group insurance plans or agreements and all other incentive, welfare or
employee benefit plans or agreements maintained for the benefit of employees or
former employees of Oakley. Copies of such plans and agreements, together with
rulings and determination letters and any open requests for rulings or letters
that pertain to any qualified plan, have been delivered or been made available
to Oakley.
(b) Oakley does not maintain and, since 1982, has not
maintained any defined benefit pension plan subject to Title IV of ERISA, or any
other retirement plan subject to mandatory employer funding under Section 412 of
the Code. Oakley does not participate in and has never participated in a
multiemployer plan, as defined in Section 3(37) of ERISA. Except as required by
Section 4980B of the Code and Sections 601 through 608 of ERISA (COBRA), Oakley
does not maintain or contribute to any plan or arrangement which provides or has
any liability to provide any retiree health or medical benefits to former
employees.
(c) No prohibited transaction (which shall mean any
transaction prohibited by Section 406 of ERISA and not exempt under Section 409
of ERISA) has occurred with respect to any employee benefit plan maintained by
Oakley (I) which would result in the imposition, directly or indirectly, of a
material excise tax under Section 4975 of the Code or (ii) the correction of
which would have a material adverse effect on the financial condition, results
of operations or business of Oakley.
(d) Each plan and agreement listed on Exhibit B has been
maintained in compliance with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations, including but not limited
to ERISA and the Code, which are applicable to such plan or agreement.
SECTION 6.09. OAKLEY INFORMATION. Oakley has filed all reports,
registrations and statements, together with any amendments required to be made
with respect thereto, required to be filed with federal or state regulatory
authorities. All such documents, as of their respective dates, complied in all
material respects with all the statutes, rules and regulations enforced or
promulgated by the regulatory authority with which they were filed. None of such
documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
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SECTION 6.10. COMPLIANCE WITH APPLICABLE LAW.
(a) Oakley has complied with, and is not in default in any
respect under, any applicable laws, statutes (including environmental laws),
orders, rules or regulations or any applicable policies or guidelines of, or
agreements with, any federal, state or local governmental authority except to
the extent that failure to be in compliance, or being in default, would not have
a material adverse effect on Oakley. Oakley has not received notice of any
violation (or claim of violation) of, and does not know of any violations of,
any of such laws, statutes, orders, rules, regulations, policies, guidelines or
agreements.
(b) To the knowledge of Oakley, there is no claim of violation
of any environmental law pending or threatened (I) against Oakley, (ii) against
any person or entity whose liability for any such claim has or may have been
retained or assumed by Oakley either contractually or by operation of law, or
(iii) against any real or personal property which Oakley owns, leases or
manages, or supervises or participates in the management of, or in which Oakley
holds a security interest in connection with a loan or loan participation, other
than such as would not, either individually or in the aggregate, have a material
adverse effect on Oakley.
(c) There are no present or, to the knowledge of Oakley, past
activities, conditions or incidents, including, without limitation the release
or disposal of any material of environmental concern, that could reasonably form
the basis of any environmental claim against Oakley or against any person or
entity whose liability for any environmental claim has or may have been retained
or assumed by Oakley, either contractually or by operation of law, other than
such as would not, either individually or in the aggregate, have a material
adverse effect on Oakley.
SECTION 6.11. PROPERTY RIGHTS. Oakley has marketable title to, or valid
binding and enforceable leasehold interests in, all real properties and good
title to all other property and assets, tangible and intangible, reflected in
the Oakley Audited Financials or purported to have been acquired or leased by
Oakley since the date thereof, free and clear of all liens, security interests
and encumbrances, except for liens for taxes or assessments not delinquent or
being contested in good faith, pledges to secure deposits and such other liens
and encumbrances and imperfections of title as are not individually or in the
aggregate material to Oakley, or which do not materially interfere with or
impair the present and continued use of any such property or asset material to
Oakley.
SECTION 6.12. DISCLOSURES. No representation or warranty contained in
this Agreement, and no statement contained in any certificate, list or other
writing furnished by Oakley to Peoples pursuant to the provisions hereof,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements herein or therein not misleading.
No information material to the transaction contemplated by this Agreement and
which is necessary to make the representations and warranties herein contained
not misleading, has been withheld by Oakley from, or has not been made available
to, Peoples.
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ARTICLE SEVEN
SECTION 7.01. CONDUCT OF BUSINESS. From the date of this Agreement
until the Effective Date, Oakley and Peoples each shall continue to conduct its
business in the ordinary and usual course and, without limiting the generality
of the foregoing, each shall not, without the prior written consent of the
other:
(a) amend its Articles of Incorporation, Constitution or
Bylaws;
(b) alter the terms of its existing deposit accounts or the
terms upon which deposit accounts are accepted by it, other than in response to
market conditions;
(c) except as previously disclosed, enter into any material
contracts, agreements or commitments or enter into any securities transaction or
investments involving in excess of $25,000, whether oral or written, except in
the ordinary and usual course of its business;
(d) enter into any lease, contract or commitment for the
purchase, sale or improvement of any real estate;
(e) incur any indebtedness or refinance any existing
indebtedness except, in each case, in the ordinary and usual course of its
business;
(f) declare or pay any bonus, extra dividend, or extra
interest to members or depositors;
(g) except as previously disclosed, execute any employment
contract with any employee or increase the remuneration paid to any director,
officer, employee or agent, or agree to do so, except for normal merit and cost
of living increases for employees;
(h) make any material change in its historic accounting
methods;
(i) employ or make any agreement or commitment to employ any
additional officer, employee (other than tellers to be employed by Peoples) or
agent or appoint any additional person as director or nominate any person as a
candidate for election as a director who is not currently a director;
(j) waive any rights or cancel any debts or claims of material
value, whether considered individually or in the aggregate;
(k) incur any material obligation or liability, except in the
ordinary course of business;
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(l) establish any new lending programs or make any changes in
its policies concerning which persons may approve loans;
(m) make any advance secured by an open end mortgage except
the original loan amount secured by such a mortgage;
(n) make or commit to make any material capital expenditure;
or
(o) except as previously disclosed, negotiate or participate
with anyone, other than each other, in respect of the merger or consolidation of
Oakley or Peoples or the acquisition of all or any part of the business or
assets of Oakley or Peoples.
SECTION 7.02. REGULATORY FILINGS.
(a) As soon as practicable after the date of this Agreement,
Peoples and Oakley will submit to the Superintendent and to the OTS such
documents as are required to be filed in connection with the Merger.
(b) As soon as practicable after the receipt of the necessary
approvals from the Superintendent and the OTS, Peoples and Oakley will prepare
and submit to the Superintendent and the OTS such final Merger documents as are
required by the Superintendent and the OTS to be filed in order to consummate
the Merger, and will take all such additional action as may be necessary or
desirable to consummate the Merger.
SECTION 7.03. NOTIFICATION OF MATERIAL CHANGES. At all times from the
date of this Agreement until the Effective Time, each party shall promptly
notify the other in writing of any materially adverse business conditions, other
than general economic conditions, threatening its normal business operations or
of the occurrence of any event or the failure of any event to occur which might
reasonably be expected to result in a breach of or a failure to comply with any
representation, warranty, covenant, condition or agreement contained in this
Agreement or of the commencement of any action, suit, proceeding or
investigation against it.
SECTION 7.04. ACCESS. Until the Effective Time, Peoples shall afford to
Oakley, and Oakley shall afford to Peoples, and to their respective officers and
representatives (including, without limitation, counsel, financial advisers and
independent accountants), reasonable access to their properties, personnel,
books, records and affairs. Such access shall include, but shall not be limited
to, (I) permitting verification, by audit or otherwise, of any representation or
warranty made hereunder; (ii) authorizing release of any information (including
the work papers of such independent auditors) and financial consultants; (iii)
consistent with applicable regulations or procedures, furnishing regular and
special examination reports since the date of this Agreement; and (iv)
delivering copies of all documents or reports or correspondence filed and any
correspondence with any federal regulatory or supervisory agency from the date
of this Agreement. Each party shall
14
<PAGE>
furnish the other party with such additional financial and operating data and
other information regarding its businesses and properties as may be reasonably
requested.
SECTION 7.05. PRESS RELEASES. Peoples and Oakley shall consult with
each other before issuing any press release or otherwise making any public
statements with respect to the Merger and shall not issue any such press release
or make any such public statement without obtaining the prior consent of the
other party, except as may be required by law.
ARTICLE EIGHT
SECTION 8.01. MERGER-RELATED FEES. No director, officer, agent or
employee of Peoples or of Oakley shall receive any fee, commission, compensation
or other valuable consideration whatsoever solely for aiding, promoting or
assisting the Merger, except that accountants and attorneys retained by Peoples
or Oakley shall receive reasonable fees for their professional services.
SECTION 8.02. AMENDMENT OF AGREEMENT. At any time prior to the
Effective Date, this Agreement may be amended from time to time by an agreement
in writing executed in the same manner as this Agreement, after authorization of
such action by the Board of Directors of each of Peoples and Oakley.
SECTION 8.03. MISCELLANEOUS. No officer, employee or agent of Peoples
or of Oakley is authorized to make any representation, warranty or promise not
contained in this Agreement. No change, termination or attempted waiver of any
of the provisions of this Agreement shall be binding on any party hereto unless
duly executed in writing in accordance with the provisions of Section 8.02 of
this Agreement.
SECTION 8.04. CERTAIN POST-MERGER AGREEMENTS.
The parties hereto agree to the following arrangements following the
Effective Date:
(a) Effective as of the Effective Date, the number of
directors of Peoples shall be increased by one, and Peoples shall appoint Thomas
J. Noe as a director of Peoples to serve as a director for a three-year term.
(b) Peoples will retain all persons who are officers and
employees of Oakley as of both the date of this Agreement and the Effective Date
except in the event of termination for cause. To the extent an employee
terminates his or her employment with Peoples within one year from the Effective
Date such employee will be entitled to severance pay equal to two weeks for each
full year employed by Oakley with a minimum of twelve weeks of severance pay and
a maximum of fifty two weeks of severance pay.
15
<PAGE>
(c) Peoples will honor in accordance with their terms all of
Oakley's retirement and benefit plans disclosed on Exhibit B. All employees of
Oakley immediately prior to the Effective Date who are employed by Peoples
immediately following the Effective Date ("Transferred Employees") will be
covered by the Peoples employee benefit plans on substantially the same basis as
any employee of Peoples with a comparable salary. Notwithstanding the foregoing,
Peoples may determine to continue any of the Oakley benefit plans for
Transferred Employees in lieu of offering participation in Peoples' benefit
plans providing similar benefits (e.g., medical and hospitalization benefits),
to terminate any of Oakley's benefit plans, or to merge any such benefit plans
with the Peoples benefit plans, provided the result is the provision of benefits
to Transferred Employees that are substantially similar to the benefits provided
to the Peoples' employees generally. Service to Oakley by a Transferred Employee
prior to the Effective Date shall be recognized as service to Peoples for
purposes of eligibility to participate under Peoples' sick leave policies, paid
vacation policies, and medical, long-term disability and life insurance plans.
Peoples agrees that any pre-existing condition, limitation or exclusion in its
medical, long-term disability and life insurance plans shall not apply to
Transferred Employees or their covered dependents who are covered under a
medical or hospitalization indemnity plan maintained by Oakley on the Effective
Date and who then change coverage to Peoples' medical or hospitalization
indemnity health plan at the time such Transferred Employees are first given the
option to enroll. In addition, all Transferred Employees will be eligible to
participate in all stock based compensation plans implemented by Peoples or the
Holding Company in connection with the Conversion based upon the same criteria
as the other employees of Peoples.
(d) Peoples shall maintain a directors' and officers'
liability insurance policy covering the directors and officers of Oakley for a
period of three years after the Effective Date on terms generally no less
favorable than the Oakley policy in effect on the date of this Agreement,
provided however, that the annual cost of such insurance shall not exceed 150%
of the amount currently expended by Oakley.
ARTICLE NINE
SECTION 9.01. CONDITIONS TO OBLIGATIONS OF PEOPLES. The obligations of
Peoples hereunder shall be subject to the satisfaction of each of the following
conditions precedent:
(a) The representations warranties of Oakley set forth in
Article Six of this Agreement shall be true in all material respects on the
Effective Date as if made on the Effective Date. A Certificate of the President
of Oakley, dated as of the Effective Date, shall be delivered to Peoples and
shall certify that the representations and warranties set forth in Article Six
of this Agreement are true in all material respects;
(b) Oakley shall have conformed to the limitations imposed by
Section 7.01 in all material respects from the date of this Agreement until the
Effective Date. A Certificate of the
16
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President of Oakley, dated as of the Effective Date, shall be delivered to
Peoples and shall certify that the limitations in Section 7.01 have been
complied with in all material respects;
(c) Peoples shall have received all necessary regulatory or
governmental approvals or consents required to consummate the transactions
contemplated hereby;
(d) There shall not have occurred any material adverse change
in the business, operations, properties or financial condition of Oakley from
that disclosed in the Oakley Audited Financials;
(e) All action required to be taken by, or on the part of,
Oakley to authorize the execution, delivery and performance of this Agreement by
Oakley and the consummation by Oakley of the transactions contemplated hereby
shall have been duly and validly taken by the Board of Directors of Oakley; and
(f) None of the consents, waivers, clearances, approvals or
authorizations from governmental bodies or third parties shall contain any term
or condition which, in the reasonable judgment of Peoples, individually or in
the aggregate, would have a material adverse effect on the business, operations,
properties, assets or financial position of Oakley or Peoples or otherwise
materially reduce or impair the value of Oakley to Peoples.
SECTION 9.02. CONDITION TO OBLIGATIONS OF OAKLEY. The obligations of
Oakley hereunder shall be subject to the satisfaction of each of the following
conditions precedent:
(a) The representations and warranties of Peoples set forth in
Article Five of this Agreement shall be true in all material respects on the
Effective Date as if made on the Effective Date. A Certificate of the President
of Peoples, dated as of the Effective Date, shall be delivered to Oakley and
shall certify that the representations and warranties set forth in Article Five
of this Agreement are true in all material respects;
(b) Peoples shall have conformed to the limitations imposed by
Section 7.01 in all material respects from the date of this Agreement until the
Effective Date. A Certificate of the President of Peoples, dated as of the
Effective Date, shall be delivered to Oakley and shall certify that the
limitations in Section 7.01 have been complied with in all material respects;
(c) Oakley shall have received all necessary regulatory or
governmental approvals or consents required to consummate the transactions
contemplated hereby;
(d) There shall not have occurred any material adverse change
in the business, operations, properties, assets or financial condition of
Peoples from that disclosed in the Peoples Audited Financials;
17
<PAGE>
(e) All action required to be taken by, or on the part of,
Peoples to authorize the execution, delivery and performance of this Agreement
by Peoples and the consummation by Peoples of the transactions contemplated
hereby shall have been duly and validly taken by the Board of Directors of
Peoples; and
(f) All action required to be taken in connection with the
consummation of the Conversion and the acquisition of Harvest Home Financial
Corporation and Harvest Home Savings Bank by Peoples and the Holding Company
(the "Acquisition") shall have been taken and all necessary regulatory or
governmental approvals or consents to consummate the Conversion and the
Acquisition shall have been received.
SECTION 9.03. TERMINATION OF AGREEMENT. This Agreement may be
terminated:
(a) By the mutual consent of the Board of Directors of each of
Oakley and of Peoples at any time;
(b) By the Board of Directors of Peoples if the conditions
precedent to its obligations provided for in Section 9.01 of this Agreement
shall not have been satisfied or waived on or before September 30, 2000;
(c) By the Board of Directors of Oakley if any of the
conditions precedent to its obligations provided for in Section 9.02 of this
Agreement shall not have been satisfied or waived on or before September 30,
2000; or
(d) By the Board of Directors of Peoples or Oakley if the
Effective Date shall not have occurred on or before September 30, 2000.
In the event of any termination pursuant to Section 9.03, the
terminating party shall give written notice thereof forthwith to the other party
hereto, and, upon the giving of such notice, such termination shall
automatically occur and no party hereto shall have any liability or obligation
under this Agreement, except as stated in Section 8.0l hereof.
ARTICLE TEN
SECTION 10.01. CLOSING. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at a time and place mutually
agreed upon by Peoples and Oakley. On the day of the Closing, a Certificate of
Merger prepared in accordance with Section 1701.81 of the Ohio Revised Code
shall be filed with the Superintendent. The Merger shall become effective at the
close of business on the date on which the Superintendent files such Certificate
of Merger in the office of the Secretary of State of Ohio.
SECTION 10.02. EXECUTION IN COUNTERPARTS. This Agreement may be
executed in one or more counterparts, each of which shall be deemed to be a
duplicate original.
18
<PAGE>
IN WITNESS WHEREOF, the Constituent Associations have caused this
Agreement to be executed by their respective officers as of the day and year
first above written.
ATTEST: THE PEOPLES BUILDING, LOAN AND
SAVINGS COMPANY
/s/David A. Cook By: /s/Jerry D. Williams
- ---------------------------------- --------------------------------
David A. Cook, Secretary Jerry D. Williams, President
ATTEST: THE OAKLEY IMPROVED BUILDING &
LOAN COMPANY
/s/Alexis Thompson By: /s/Thomas J. Noe
- ---------------------------------- --------------------------------
Alexis Thompson, Secretary Thomas J. Noe, Managing Officer
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON
The foregoing instrument was acknowledged before me this 30th day of
September, 1999, by Thomas J. Noe, the Managing Officer, and Alexis Thompson,
the Secretary of The Oakley Improved Building & Loan Company.
/s/ John E. Rathkamp
------------------------------
Notary Public
STATE OF OHIO )
) SS:
COUNTY OF WARREN
The foregoing instrument was acknowledged before me this 30th day of
September, 1999, by Jerry D. Williams, the President, and David A. Cook, the
Secretary of The People's Building Loan and Savings Company.
/s/ Wesley W. Glines
------------------------------
Notary Public
19
<PAGE>
Exhibit 2.3
AGREEMENT AND PLAN OF MERGER
BETWEEN
PEOPLES BUILDING, LOAN AND SAVINGS COMPANY
AND
HARVEST HOME FINANCIAL CORPORATION
DATED AS OF SEPTEMBER 30, 1999
<PAGE>
AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
ARTICLE I DEFINITIONS.............................................................................. 1
ARTICLE II THE MERGER............................................................................... 6
2.1 The Merger............................................................................... 6
2.2 Effective Time; Closing.................................................................. 7
2.3 Treatment of Capital Stock............................................................... 7
2.4 Shareholder Rights; Stock Transfers...................................................... 8
2.5 Dissenting Shares........................................................................ 8
2.6 Options.................................................................................. 8
2.7 Exchange Procedures...................................................................... 9
2.8 Additional Actions....................................................................... 11
ARTICLE III REPRESENTATIONS AND WARRANTIES
OF THE COMPANY.......................................................................... 11
3.1 Capital Structure........................................................................ 11
3.2 Organization, Standing and Authority of the Company...................................... 12
3.3 Ownership of the Company Subsidiaries.................................................... 12
3.4 Organization, Standing and Authority of
the Bank............................................................................... 12
3.5 Authorized and Effective Agreement....................................................... 13
3.6 Securities Documents and Regulatory Reports.............................................. 14
3.7 Financial Statements..................................................................... 14
3.8 Material Adverse Change.................................................................. 15
3.9 Environmental Matters.................................................................... 15
3.10 Tax Matters.............................................................................. 16
3.11 Legal Proceedings........................................................................ 17
3.12 Compliance with Laws..................................................................... 17
3.13 Certain Information...................................................................... 18
3.14 Employee Benefit Plans................................................................... 18
3.15 Certain Contracts........................................................................ 19
3.16 Brokers and Finders...................................................................... 20
3.17 Insurance................................................................................ 20
3.18 Properties............................................................................... 21
3.19 Labor.................................................................................... 21
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
3.20 Affiliates............................................................................... 21
3.21 Year 2000 Compliance..................................................................... 21
3.22 Disclosures.............................................................................. 22
ARTICLE IV REPRESENTATIONS AND WARRANTIES
OF PEOPLES............................................................................. 22
4.1 Capital Structure........................................................................ 22
4.2 Organization, Standing and Authority of Peoples and the Holding
Company ............................................................................... 22
4.3 Ownership of the Peoples Subsidiaries.................................................... 23
4.4 Authorized and Effective Agreement....................................................... 23
4.5 Regulatory Reports....................................................................... 24
4.6 Financial Statements..................................................................... 25
4.7 Material Adverse Change.................................................................. 25
4.8 Environmental Matters.................................................................... 25
4.9 Tax Matters.............................................................................. 26
4.10 Legal Proceedings........................................................................ 27
4.11 Compliance with Laws..................................................................... 27
4.12 Certain Information...................................................................... 28
4.13 Employee Benefit Plans................................................................... 28
4.14 Certain Contracts........................................................................ 29
4.15 Brokers and Finders...................................................................... 30
4.16 Insurance................................................................................ 30
4.17 Properties............................................................................... 30
4.18 Labor.................................................................................... 30
4.19 Ownership of Company Common Stock........................................................ 31
4.20 Year 2000 Compliance..................................................................... 31
4.21 Disclosures.............................................................................. 31
ARTICLE V COVENANTS................................................................................ 32
5.1 Reasonable Best Efforts.................................................................. 32
5.2 Shareholder and Member Meetings.......................................................... 32
5.3 Regulatory Matters....................................................................... 32
5.4 Investigation and Confidentiality........................................................ 33
5.5 Press Releases........................................................................... 34
5.6 Business of the Parties.................................................................. 34
5.7 Certain Actions.......................................................................... 38
5.8 Current Information...................................................................... 38
5.9 Indemnification; Insurance............................................................... 38
5.10 Directors................................................................................ 40
5.11 Employees and Employee Benefit Plans..................................................... 40
</TABLE>
ii
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
5.12 Bank Merger.............................................................................. 43
5.13 Organization of the Holding Company...................................................... 43
5.14 Affiliates' Letters...................................................................... 44
5.15 Accountants' Letters..................................................................... 44
5.16 Integration of Policies.................................................................. 44
5.17 Disclosure Supplements................................................................... 44
5.18 Failure to Fulfill Conditions............................................................ 44
ARTICLE VI CONDITIONS PRECEDENT..................................................................... 45
6.1 Conditions Precedent - Peoples and the Company........................................... 45
6.2 Conditions Precedent - The Company....................................................... 46
6.3 Conditions Precedent - Peoples........................................................... 47
ARTICLE VII TERMINATION, WAIVER AND AMENDMENT........................................................ 48
7.1 Termination.............................................................................. 48
7.2 Effect of Termination.................................................................... 49
7.3 Survival of Representations, Warranties
and Covenants.......................................................................... 49
7.4 Waiver................................................................................... 49
7.5 Amendment or Supplement.................................................................. 50
ARTICLE VIII MISCELLANEOUS.................................................................................... 50
8.1 Expenses; Termination Fees............................................................... 50
8.2 Entire Agreement......................................................................... 52
8.3 No Assignment............................................................................ 52
8.4 Notices.................................................................................. 52
8.5 Alternative Structure.................................................................... 53
8.6 Interpretation........................................................................... 53
8.7 Counterparts............................................................................. 53
8.8 Governing Law............................................................................ 54
Exhibit A Form of Shareholder Agreement
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger (the "Agreement"), dated as of September
30, 1999, by and among People's Building, Loan and Savings Company ("Peoples"),
an Ohio chartered savings and loan association, and Harvest Home Financial
Corporation (the "Company"), an Ohio corporation.
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Peoples and the Company have
determined to consummate the business combination transactions provided for
herein, subject to the terms and conditions set forth herein; and
WHEREAS, the parties desire to provide for certain undertakings,
conditions, representations, warranties and covenants in connection with the
transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the parties hereto do hereby agree as
follows:
ARTICLE I
DEFINITIONS
The following terms shall have the meanings ascribed to them for all
purposes of this Agreement.
"Application for Conversion" shall mean the application submitted by
Peoples to the OTS pursuant to the HOLA and the regulations of the OTS
thereunder and to the Division pursuant to the laws and regulations of the State
of Ohio in connection with the Conversion, as amended and supplemented.
"Bank" shall mean Harvest Home Savings Bank, an Ohio chartered savings
bank and a wholly-owned subsidiary of the Company.
"BHCA" shall mean the Bank Holding Company Act of 1956, as amended.
"Bank Merger" shall have the meaning set forth in Section 5.12 hereof.
"Bank Merger Agreement" shall have the meaning set forth in Section
5.12 hereof.
"Certificate of Merger" shall have the meaning set forth in Section
2.2 hereof.
"Closing" shall have the meaning set forth in Section 2.2 hereof.
"Closing Date" shall have the meaning set forth in Section 2.2 hereof.
<PAGE>
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" shall mean the Securities and Exchange Commission.
"Company Affiliate" shall mean any person who is deemed, for purposes
of Rule 145 under the Securities Act, to be an "affiliate" of the Company.
"Company Common Stock" shall mean the common stock, no par value, of
the Company.
"Company Employee Plans" shall have the meaning set forth in Section
3.14(a) hereof.
"Company Financial Statements" shall mean (i) the consolidated
statements of financial condition (including related notes and schedules, if
any) of the Company as of September 30, 1998, 1997 and 1996 and the consolidated
statements of earnings, changes in stockholders' equity and cash flows
(including related notes and schedules, if any) of the Company for each of the
three years ended September 30, 1998, 1997 and 1996 as filed by the Company in
its Securities Documents, and (ii) the consolidated statements of financial
condition of the Company (including related notes and schedules, if any) and the
consolidated statements of earnings, changes in stockholders' equity and cash
flows (including related notes and schedules, if any) of the Company included in
the Securities Documents filed by the Company with respect to the periods ended
subsequent to September 30, 1998.
"Company Options" shall mean options to purchase shares of Company
Common Stock granted pursuant to the Company Option Plan.
"Company Option Plan" shall mean the Company's Stock Option and
Incentive Plan as in effect as of the date hereof.
"Conversion" shall mean (i) the amendment of Peoples' Constitution to
authorize the issuance of capital stock and otherwise to conform to the
requirements of a stock savings bank chartered under the laws of the United
States, (ii) the issuance of Holding Company Common Stock to eligible account
holders of Peoples and Oakley and others in connection therewith, and (iii) the
purchase by the Holding Company of all of the capital stock of Peoples to be
sold by Peoples in connection with its conversion from mutual to stock form.
"Dissenting Shares" shall have the meaning set forth in Section 2.5
hereof.
"Division" shall mean the Ohio Department of Commerce, Division of
Financial Institutions.
"DGCL" shall mean the General Corporation Law of the State of Delaware,
as amended.
"DOJ" shall mean the United States Department of Justice.
2
<PAGE>
"Effective Time" shall mean the date and time specified pursuant to
Section 2.2 hereof as the effective time of the Merger.
"Environmental Claim" means any written notice from any Governmental
Entity or third party alleging potential liability (including, without
limitation, potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property damages,
personal injuries or penalties) arising out of, based on, or resulting from the
presence, or release into the environment, of any Materials of Environmental
Concern.
"Environmental Laws" means any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, order, judgment, decree, injunction or agreement with any governmental
entity relating to (i) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface soil, plant and
animal life or any other natural resource), and/or (ii) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Materials of Environment Concern.
The term Environmental Law includes without limitation (i) the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
ss.9601, ET SEQ; the Resource Conservation and Recovery Act, as amended, 42
U.S.C. ss.6901, ET SEQ; the Clean Air Act, as amended, 42 U.S.C. ss.7401, ET
SEQ; the Federal Water Pollution Control Act, as amended, 33 U.S.C. ss.1251, ET
SEQ; the Toxic Substances Control Act, as amended, 15 U.S.C. ss.9601, ET SEQ;
the Emergency Planning and Community Right to Know Act, 42 U.S.C. ss.1101, ET
SEQ; the Safe Drinking Water Act, 42 U.S.C. ss.300f, ET SEQ; and all comparable
state and local laws, and (ii) any common law (including without limitation
common law that may impose strict liability) that may impose liability or
obligations for injuries or damages due to, or threatened as a result of, the
presence of or exposure to any Materials of Environmental Concern.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"ESOP" shall mean the Company's Employee Stock Ownership Plan and
Trust.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"FDIA" shall mean the Federal Deposit Insurance Act, as amended.
"FDIC" shall mean the Federal Deposit Insurance Corporation or any
successor thereto.
"FHLB" shall mean Federal Home Loan Bank.
"Form S-1" shall mean the registration statement on Form S-1 (or on any
successor or other appropriate form) to be filed by the Holding Company in
connection with the issuance of shares of Holding Company Common Stock in
connection with the Merger and the Conversion, as amended and supplemented.
3
<PAGE>
"FRB" shall mean the Board of Governors of the Federal Reserve System.
"Governmental Entity" shall mean any federal or state court,
administrative agency or commission or other governmental authority or
instrumentality.
"Holding Company" shall mean a business corporation which shall be
organized by Peoples under the DGCL for the purposes of becoming the holding
company of Peoples upon consummation of the Conversion and acquiring the Company
pursuant to the terms of this Agreement.
"Holding Company Common Stock" shall mean the common stock, par value
$.01 per share, of the Holding Company.
"HOLA" shall mean the Home Owners' Loan Act, as amended.
"Initial Public Offering Price" shall mean the price per share at which
Holding Company Common Stock is ultimately sold by the Holding Company to
eligible account holders of Peoples and Oakley and others in connection with the
Conversion.
"Material Adverse Effect" shall mean, (i) with respect to the Company,
any effect that is material and adverse to the financial condition, results of
operations or business of the Company and the Bank taken as whole, (ii) with
respect to Peoples, any effect that is material and adverse to the financial
condition, results of operations, or business of Peoples or (iii) materially
impairs the ability of either the Company or the Bank, on the one hand, or the
Holding Company or Peoples, on the other hand, to consummate the Merger or any
of the other transactions contemplated by this Agreement, provided, however,
that Material Adverse Effect shall not be deemed to include the impact of (a)
changes in laws and regulations or interpretations thereof that are generally
applicable to the banking or savings industries, (b) changes in generally
accepted accounting principles that are generally applicable to the banking or
savings industries, (c) expenses incurred in connection with the transactions
contemplated hereby including the proposed merger of Oakley with and into
Peoples, (d) actions or omissions of a party (or any of its Subsidiaries) taken
with the prior informed written consent of the other party or parties in
contemplation of the transactions contemplated hereby or (e) changes
attributable to or resulting from changes in general economic conditions,
including changes in the prevailing level of interest rates.
"Materials of Environmental Concern" means pollutants, contaminants,
wastes, toxic substances, petroleum and petroleum products and any other
materials regulated under Environmental Laws.
"Member" shall mean any person, firm or entity qualifying as a member
of Peoples or Oakley in accordance with their respective Constitution and
Bylaws.
"Merger" shall have the meaning set forth in Section 2.1(a) hereof.
4
<PAGE>
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Oakley" shall mean The Oakley Improved Building & Loan Company.
"ORC" shall mean the Ohio Revised Code.
"OTS" shall mean the Office of Thrift Supervision of the U.S.
Department of the Treasury or any successor thereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Peoples Employee Plans" shall have the meaning set forth in Section
4.14(a) hereof.
"Peoples Financial Statements" shall mean (i) the consolidated
statements of condition (including related notes and schedules, if any) of
Peoples as of June 30, 1999, 1998 and 1997 and the consolidated statements of
income, retained income and cash flows (including related notes and schedules,
if any) of Peoples for each of the three years ended June 30, 1999, 1998 and
1997, and (ii) the consolidated statements of condition of Peoples (including
related notes and schedules, if any) and the consolidated statements of income,
retained income and cash flows (including related notes and schedules, if any)
of Peoples with respect to the periods ended subsequent to June 30, 1999.
"Previously Disclosed" shall mean disclosed (i) in a disclosure
schedule dated the date hereof delivered from the disclosing party to the other
party specifically referring to the appropriate section of this Agreement and
describing in reasonable detail the matters contained therein, or (ii) a
supplement to the disclosure schedule dated after the date hereof from the
disclosing party specifically referring to this Agreement and describing in
reasonable detail the matters contained therein and delivered by the other party
pursuant to Section 5.17 hereof.
"Prospectus" shall mean the prospectus to be delivered to (i)
shareholders of the Company in connection with the offering of Holding Company
Common Stock in connection with the Merger pursuant to this Agreement and (ii)
eligible account holders of Peoples and Oakley and others in connection with the
offering of Holding Company Common Stock in connection with the Conversion, as
amended and supplemented.
"Proxy Statements" shall mean the proxy statements to be delivered to
(i) shareholders of the Company in connection with the solicitation of their
approval of this Agreement and the transactionscontemplated hereby and (ii)
members of Peoples and Oakley in connection with the solicitation of their
approval of the Conversion and the transactions contemplated thereby, as amended
and supplemented.
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"Rights" shall mean warrants, options, rights, convertible securities
and other arrangements or commitments which obligate an entity to issue or
dispose of any of its capital stock or other ownership interests.
"SAIF" means the Savings Association Insurance Fund administered by the
FDIC or any successor thereto.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Documents" shall mean all reports, offering circulars,
proxy statements, registration statements and all similar documents filed, or
required to be filed, pursuant to the Securities Laws.
"Securities Laws" shall mean the Securities Act; the Exchange Act; the
Investment Company Act of 1940, as amended; the Investment Advisers Act of 1940,
as amended; the Trust Indenture Act of 1939, as amended, and the rules and
regulations of the Commission promulgated thereunder.
"Subsidiary" and "Significant Subsidiary" shall have the meanings set
forth in Rule 1-02 of Regulation S-X of the Commission.
"Surviving Bank" shall have the meaning set forth in section 5.12
hereof.
Other terms used herein are defined in the preamble and elsewhere in
this Agreement.
ARTICLE II
THE MERGER
2.1 THE MERGER
(a) Subject to the terms and conditions of this Agreement, at the
Effective Time (as defined in Section 2.2 hereof), the Company shall be merged
with and into the Holding Company (the "Merger") in accordance with the
provisions of Section 251 of the DGCL and Title 17 Chapter 1701 of the ORC. The
Holding Company shall be the surviving corporation (hereinafter sometimes called
the "Surviving Corporation") of the Merger, and shall continue its corporate
existence under the laws of the State of Delaware. The name of the Surviving
Corporation shall be as stated in the Certificate of Incorporation of the
Holding Company immediately prior to the Effective Time. Upon consummation of
the Merger, the separate corporate existence of the Company shall terminate.
(b) From and after the Effective Time, the Merger shall have the
effects set forth in Section 259 of the DGCL.
(c) The Certificate of Incorporation and Bylaws of the Holding Company,
as in effect immediately prior to the Effective Time, shall be the Certificate
of Incorporation and Bylaws of the
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Surviving Corporation, respectively, until altered, amended or repealed in
accordance with their terms and applicable law.
(d) The authorized capital stock of the Surviving Corporation shall be
as stated in the Certificate of Incorporation of the Holding Company immediately
prior to the Effective Time.
(e) The directors and officers of the Holding Company immediately prior
to the Effective Time, together with the directors and officers elected pursuant
to Section 5.10(a) and 5.11(e) hereof, shall be the directors and officers of
the Surviving Corporation, each to hold office in accordance with the
Certificate of Incorporation and Bylaws of the Surviving Corporation as well as
the provisions hereof.
2.2 EFFECTIVE TIME; CLOSING
The Merger shall become effective upon the occurrence of the filing of
a certificate of merger with the Secretary of State of the State of Delaware and
with the Secretary of State of the State of Ohio (the "Certificate of Merger"),
unless a later date and time is specified as the effective time in such
Certificate of Merger (the "Effective Time"). The Effective Time will occur
simultaneously with, or immediately after, the consummation of the Conversion. A
closing (the "Closing") shall take place immediately prior to the Effective Time
at 10:00 a.m., Central Time, following the satisfaction or waiver, to the extent
permitted hereunder, of the conditions to the consummation of the Merger
specified in Article VI of this Agreement (other than the delivery of
certificates, opinions and other instruments and documents to be delivered at
the Closing) (the "Closing Date"), at such place and at such time as the parties
may mutually agree upon. At the Closing, there shall be delivered to Peoples and
the Holding Company, on the one hand, and the Company, on the other hand, the
opinions, certificates and other documents required to be delivered under
Article VI hereof.
2.3 TREATMENT OF CAPITAL STOCK
Subject to the provisions of this Agreement, at the Effective Time,
automatically by virtue of the Merger and without any action on the part of any
shareholder:
(i) each share of Holding Company Common Stock issued and
outstanding immediately prior to the Effective Time (consisting of
shares issued or to be issued by the Holding Company in connection with
the Conversion) shall be unchanged and shall remain issued and
outstanding;
(ii) each share of Company Common Stock owned by the Company
(including treasury shares) or the Holding Company or any of their
respective Subsidiaries (other than shares held in a fiduciary capacity
for the benefit of third parties or as a result of debts previously
contracted) shall be cancelled and retired and shall not represent
capital stock of the Holding Company and shall not be exchanged for
shares of Holding Company Common Stock, or other consideration; and
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(iii) each share of Company Common Stock which under the terms
of Section 2.7 hereof is to be converted into the right to receive
shares of Holding Company Common Stock shall be converted into and
become the right to receive .9 share of Holding Company Common Stock
and $9.00 in cash (the "Merger Consideration"), provided however that
if the Initial Public Offering Price is not $10.00 per share, the .9 of
a share of Holding Company Common Stock shall be adjusted to provide
for a ratio that will yield a cash equivalent of $9.00.
2.4 SHAREHOLDER RIGHTS; STOCK TRANSFERS
At the Effective Time, holders of Company Common Stock shall cease to
be and shall have no rights as shareholders of the Company, other than to
receive the consideration provided under Section 2.3 hereof. After the Effective
Time, there shall be no transfers on the stock transfer books of the Company or
the Surviving Corporation of shares of Company Common Stock and if certificates
evidencing such shares are presented for transfer after the Effective Time, they
shall be cancelled against delivery of certificates for whole shares of Holding
Company Common Stock or cash (without interest) as herein provided.
2.5 DISSENTING SHARES
Each outstanding share of Company Common Stock the holder of which has
perfected his right to dissent under the ORC and has not effectively withdrawn
or lost such right as of the Effective Time (the "Dissenting Shares") shall not
be converted into or represent a right to receive shares of Holding Company
Common Stock and the holder thereof shall be entitled only to such rights as are
granted by the ORC. Any payments made in respect of Dissenting Shares shall be
made by the Surviving Corporation. If any dissenting shareholder shall
effectively withdraw or lose (through failure to perfect or otherwise) his right
to such payment at or prior to the Effective Time, such holder's shares of
Company Common Stock shall be converted into a right to receive the Merger
Consideration. If such holder shall effectively withdraw or lose (through
failure to perfect or otherwise) his right to such payment after the Effective
Time, each share of Company Common Stock of such holder shall be converted into
the right to receive the Merger Consideration.
2.6 OPTIONS
(a) At the Effective Time, each Company Option which is then
outstanding and unexercised immediately prior thereto, whether or not then
vested or exercisable, shall be cancelled and all rights thereunder shall be
extinguished. As consideration for such cancellation, the Holding Company shall
make payment immediately prior to the Effective Time to each holder of a Company
Option of an amount determined by multiplying (x) the number of shares of
Company Common Stock underlying such Company Option by (y) an amount equal to
the excess (if any) of (i) the Merger Consideration, over (ii) the exercise
price per share of such Company Option, provided, however, that no such payment
shall be made to a holder unless and until such holder has executed and
delivered to the Company an instrument in such form prescribed by the Holding
Company and reasonably satisfactory to the Company accepting such payment in
full settlement of his or her rights relative to the Company Option. Prior to
the Effective Time, the Company shall take or cause to be taken all actions
required under the Company Option Plan to provide for the foregoing.
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2.7 EXCHANGE PROCEDURES
(a) The Holding Company shall designate an exchange agent, reasonably
acceptable to the Company, to act as agent (the "Exchange Agent") for purposes
of conducting the exchange procedure as described herein. No later than seven
business days following the Effective Time, the Holding Company shall cause the
Exchange Agent to mail or make available to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented issued and outstanding shares of Company Common Stock (i) a notice
and letter of transmittal (which shall specify that delivery shall be effected
and risk of loss and title to the certificates theretofore representing shares
of Company Common Stock shall pass only upon proper delivery of such
certificates to the Exchange Agent) advising such holder of the effectiveness of
the Merger and the procedure for surrendering to the Exchange Agent such
certificate or certificates which immediately prior to the Effective Time
represented issued and outstanding shares of Company Common Stock in exchange
for the consideration set forth in Section 2.3 hereof deliverable in respect
thereof pursuant to this Agreement.
(b) At the Effective Time, the Holding Company shall issue to the
Exchange Agent the number of shares of Holding Company Common Stock and cash
issuable in the Merger, which shall be held by the Exchange Agent in trust for
the holders of Company Common Stock. The Exchange Agent shall promptly
distribute Holding Company Common Stock and cash as provided herein. The
Exchange Agent shall not be entitled to vote or exercise any rights of ownership
with respect to the shares of Holding Company Common Stock held by it from time
to time hereunder, except that it shall receive and hold all dividends or other
distributions paid or distributed with respect to such shares for the account of
the persons entitled thereto.
(c) Each holder of an outstanding certificate or certificates which
prior thereto represented shares of Company Common Stock who surrenders such
certificate or certificates to the Exchange Agent will, upon acceptance thereof
by the Exchange Agent, be entitled to a certificate or certificates representing
the number of full shares of Holding Company Common Stock into which the
aggregate number of shares of Company Common Stock previously represented by
such certificate or certificates surrendered shall have been converted pursuant
to this Agreement and any other distribution theretofore paid with respect to
Holding Company Common Stock issuable in the Merger, in each case without
interest. The Exchange Agent shall accept such certificates upon compliance with
such reasonable terms and conditions as the Exchange Agent may impose to effect
an orderly exchange thereof in accordance with normal exchange practices. Each
outstanding certificate which prior to the Effective Time represented Company
Common Stock and which is not surrendered to the Exchange Agent in accordance
with the procedures provided for herein shall, except as otherwise herein
provided, until duly surrendered to the Exchange Agent be deemed to evidence
ownership of the number of shares of Holding Company Common Stock into which the
aggregate number of shares of Company Common Stock previously represented by
such certificate shall have been converted pursuant to the terms of this
Agreement. After the Effective Time, there shall be no further transfer on the
records of the Company of certificates representing shares of Company Common
Stock and if such certificates are presented to the Company for transfer, they
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shall be cancelled against delivery of certificates for Holding Company Common
Stock or cash as hereinabove provided. No dividends which have been declared
will be remitted to any person entitled to receive shares of Holding Company
Common Stock under this Section 2.7 until such person surrenders the certificate
or certificates representing Company Common Stock, at which time such dividends
shall be remitted to such person, without interest.
(d) The Holding Company shall not be obligated to deliver a certificate
or certificates representing shares of Holding Company Common Stock to which a
holder of Company Common Stock would otherwise be entitled as a result of the
Merger until such holder surrenders the certificate or certificates representing
the shares of Company Common Stock for exchange as provided in this Section 2.7,
or, in default thereof, an appropriate affidavit of loss and indemnity agreement
and/or a bond as may be required in each case by the Holding Company. If any
certificates evidencing shares of Holding Company Common Stock are to be issued
in a name other than that in which the certificate evidencing Company Common
Stock surrendered in exchange therefor is registered, it shall be a condition of
the issuance thereof that the certificate so surrendered shall be properly
endorsed or accompanied by an executed form of assignment separate from the
certificate and otherwise in proper form for transfer and that the person
requesting such exchange pay to the Exchange Agent any transfer or other tax
required by reason of the issuance of a certificate for shares of Holding
Company Common Stock in any name other than that of the registered holder of the
certificate surrendered or otherwise establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable.
(e) Any portion of the shares of Holding Company Common Stock and cash
delivered to the Exchange Agent by the Holding Company pursuant to Section
2.7(b) that remains unclaimed by the shareholders of the Company for six months
after the Effective Time shall be delivered by the Exchange Agent to the Holding
Company. Any shareholders of the Company who have not theretofore complied with
Section 2.7(c) shall thereafter look only to the Holding Company for the Merger
Consideration deliverable in respect of each share of Company Common Stock such
shareholder holds as determined pursuant to this Agreement without any interest
thereon. If outstanding certificates for shares of Company Common Stock are not
surrendered or the payment for them is not claimed prior to the date on which
such shares of Holding Company Common Stock and cash would otherwise escheat to
or become the property of any governmental unit or agency, the unclaimed items
shall, to the extent permitted by abandoned property and any other applicable
law, become the property of the Holding Company (and to the extent not in its
possession shall be delivered to it), free and clear of all claims or interest
of any person previously entitled to such property. Neither the Exchange Agent
nor any party to this Agreement shall be liable to any holder of Company Common
Stock represented by any certificate for any consideration paid to a public
official pursuant to applicable abandoned property, escheat or similar laws. The
Holding Company and the Exchange Agent shall be entitled to rely upon the stock
transfer books of the Company to establish the identity of those persons
entitled to receive consideration specified in this Agreement, which books shall
be conclusive with respect thereto. In the event of a dispute with respect to
ownership of stock represented by any certificate, the Holding Company and the
Exchange Agent
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shall be entitled to deposit any consideration represented thereby in escrow
with an independent third party and thereafter be relieved with respect to any
claims thereto.
(f) Notwithstanding any other provision hereof, no fractional shares of
Holding Company Common Stock shall be issued to holders of Company Common Stock.
In lieu thereof, each holder of shares of Company Common Stock entitled to a
fraction of a share of Holding Company Common Stock shall, at the time of
surrender of the certificate or certificates representing such holder's shares,
receive an amount of cash (without interest) equal to the amount determined by
multiplying the fractional share interest to which such holder would otherwise
be entitled by the Initial Public Offering Price. No such holder shall be
entitled to dividends, voting rights or any other rights in respect of
fractional shares.
2.8 ADDITIONAL ACTIONS
If, at any time after the Effective Time, the Surviving Corporation
shall consider that any further assignments or assurances in law or any other
acts are necessary or desirable to (i) vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation its right, title or interest in, to or
under any of the rights, properties or assets of the Company acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with, the
Merger, or (ii) otherwise carry out the purposes of this Agreement, the Company
and its proper officers and directors shall be deemed to have granted to the
Surviving Corporation an irrevocable power of attorney to execute and deliver
all such proper deeds, assignments and assurances in law and to do all acts
necessary or proper to vest, perfect or confirm title to and possession of such
rights, properties or assets in the Surviving Corporation and otherwise to carry
out the purposes of this Agreement; and the proper officers and directors of the
Surviving Corporation are fully authorized in the name of the Company or
otherwise to take any and all such action.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Peoples as follows, except as
Previously Disclosed:
3.1 CAPITAL STRUCTURE
The authorized capital stock of the Company consists of 2,000,000
shares of Company Common Stock and no preferred stock. As of the date hereof,
875,289 shares of Company Common Stock are issued and outstanding and 116,586
shares of Company Common Stock are held in treasury. All outstanding shares of
Company Common Stock have been duly authorized and validly issued and are fully
paid and nonassessable, and none of the outstanding shares of Company Common
Stock has been issued in violation of the preemptive rights of any person, firm
or entity. Except for Company Options to acquire not more than 84,947 shares of
Company Common Stock
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as of the date hereof, a schedule of which has been Previously Disclosed, there
are no Rights authorized, issued or outstanding with respect to the capital
stock of the Company.
3.2 ORGANIZATION, STANDING AND AUTHORITY OF THE COMPANY
The Company is a corporation duly organized and validly existing under
the laws of the State of Ohio with full corporate power and authority to own or
lease all of its properties and assets and to carry on its business as now
conducted and is duly licensed or qualified to do business in each jurisdiction
in which its ownership or leasing of property or the conduct of its business
requires such licensing or qualification, except where the failure to be so
licensed, qualified or in good standing would not have a Material Adverse Effect
on the Company. The Company is duly registered as a bank holding company under
the BHCA and the regulations of the FRB thereunder. The Company has heretofore
delivered to Peoples true and complete copies of the Articles of Incorporation
and Code of Regulations of the Company as in effect as of the date hereof.
3.3 OWNERSHIP OF THE COMPANY SUBSIDIARIES
The Bank is the Company's only Significant Subsidiary. Except for (x)
capital stock of the Bank, (y) securities and other interests held in a
fiduciary capacity and beneficially owned by third parties or taken in
consideration of debts previously contracted and (z) securities and other
interests which are Previously Disclosed, the Company does not own or have the
right to acquire, directly or indirectly, any outstanding capital stock or other
voting securities or ownership interests of any corporation, bank, savings
association, partnership, joint venture or other organization, other than
investment securities representing not more than 5% of any entity. The
outstanding shares of capital stock of the Bank have been duly authorized and
validly issued, are fully paid and nonassessable, and are directly owned by the
Company free and clear of all liens, claims, encumbrances, charges, pledges,
restrictions or rights of third parties of any kind whatsoever. No rights are
authorized, issued or outstanding with respect to the capital stock or other
ownership interests of the Bank and there are no agreements, understandings or
commitments relating to the right of the Company to vote or to dispose of such
capital stock.
3.4 ORGANIZATION, STANDING AND AUTHORITY OF THE BANK
The Bank is (i) duly organized, validly existing and in good standing
under the laws of Ohio, (ii) has full power and authority to own or lease all of
its properties and assets and to carry on its business as now conducted, and
(ii) is duly licensed or qualified to do business and is in good standing in
each jurisdiction in which its ownership or leasing of property or the conduct
of its business requires such qualification, except where the failure to be so
licensed, qualified or in good standing would not have a Material Adverse Effect
on the Company. The deposit accounts of the Bank are insured by the SAIF to the
maximum extent permitted by the FDIA and the Bank has paid all deposit insurance
premiums and assessments required by the FDIA and the regulations thereunder.
The Company has heretofore delivered or made available to Peoples true and
complete copies of the Constitution and Bylaws of the Bank as in effect as of
the date hereof.
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3.5 AUTHORIZED AND EFFECTIVE AGREEMENT
(a) The Company has all requisite corporate power and authority to
enter into this Agreement and (subject to receipt of all necessary governmental
approvals and the approval of the Company's shareholders of this Agreement) to
perform all of its obligations under this Agreement. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action in
respect thereof on the part of the Company, except for the approval of this
Agreement by the Company's shareholders. This Agreement has been duly and
validly executed and delivered by the Company and, assuming due authorization,
execution and delivery by Peoples, constitutes a legal, valid and binding
obligation of the Company which is enforceable against the Company in accordance
with its terms, subject, as to enforceability, to bankruptcy, insolvency and
other laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
(b) Neither the execution and delivery of this Agreement, nor
consummation of the transactions contemplated hereby (including the Merger and
the Bank Merger), nor compliance by the Company with any of the provisions
hereof (i) does or will conflict with or result in a breach of any provisions of
the Articles of Incorporation or Code of Regulations of the Company or the
Constitution and Bylaws of the Bank, (ii) violate, conflict with or result in a
breach of any term, condition or provision of, or constitute a default (or an
event which, with notice or lapse of time, or both, would constitute a default)
under, or give rise to any right of termination, cancellation or acceleration
with respect to, or result in the creation of any lien, charge or encumbrance
upon any property or asset of the Company or the Bank pursuant to, any material
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which the Company or the Bank is a party, or
by which any of their respective properties or assets may be bound or affected,
or (iii) subject to receipt of all required governmental and shareholder
approvals, violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Company or the Bank.
(c) To the best knowledge of the Company and the Bank, except for (i)
the filing of applications with and the approvals of the OTS and the Division,
(ii) the filing and effectiveness of the Form S-1 and the Proxy Statement
relating to the meeting of shareholders of the Company to be held pursuant to
Section 5.2 hereof with the Commission, (iii) the approval of this Agreement by
the requisite vote of the shareholders of the Company, (iv) the filing of the
Certificate of Merger with the Secretaries of State of each of the States of
Delaware and Ohio pursuant to the DGCL and the ORC, respectively, in connection
with the Merger, (v) the filing of Articles of Combination with the OTS in
connection with the Bank Merger and, (vi) review of the Merger by the DOJ under
federal antitrust laws, no consents or approvals of or filings or registrations
with any Governmental Entity or with any third party are necessary on the part
of the Company or the Bank in connection with (x) the execution and delivery by
the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby and (y) the execution and delivery by the Bank
of the Bank Merger Agreement and the consummation of the transactions
contemplated thereby.
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(d) As of the date hereof, neither the Company nor the Bank is aware of
any reasons relating to the Company or the Bank (including without limitation
Community Reinvestment Act compliance) why all consents and approvals shall not
be procured from all regulatory agencies having jurisdiction over the
transactions contemplated by this Agreement and the Bank Merger Agreement as
shall be necessary for (i) consummation of the transactions contemplated by this
Agreement and the Bank Merger Agreement and (ii) the continuation by the Holding
Company and Peoples after the Effective Time of the business of the Company and
the Bank, respectively, as such business is carried on immediately prior to the
Effective Time, free of any conditions or requirements which, in the reasonable
opinion of the Company, could have a Material Adverse Effect on the Holding
Company or Peoples or materially impair the value of the Company and the Bank to
the Holding Company and Peoples, respectively.
3.6 SECURITIES DOCUMENTS AND REGULATORY REPORTS
(a) Since January 1, 1996, the Company has timely filed with the
Commission and the NASD all Securities Documents required by the Securities Laws
and such Securities Documents complied in all material respects with the
Securities Laws and did not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(b) Since January 1, 1996, each of the Company and the Bank has duly
filed with the FDIC, the Commission, the FRB and any other applicable federal or
state banking authority, as the case may be, the reports required to be filed
under applicable laws and regulations and such reports were in all material
respects complete and accurate and in compliance with the requirements of
applicable laws and regulations. In connection with the most recent examinations
of the Company and the Bank by the FRB, the FDIC or the Division, neither the
Company nor the Bank was required to correct or change any action, procedure or
proceeding which the Company or the Bank believes has not been corrected or
changed as required as of the date hereof and which could have a Material
Adverse Effect on the Company.
3.7 FINANCIAL STATEMENTS
(a) The Company has previously delivered or made available to Peoples
accurate and complete copies of the Company Financial Statements which, in the
case of the consolidated statements of financial condition of the Company as of
September 30, 1998, 1997 and 1996 and the consolidated statements of earnings,
changes in stockholders' equity and cash flows for each of the three years ended
December 31, 1998, 1997 and 1996, are accompanied by the audit reports of Grant
Thornton LLP, independent certified public accountants with respect to the
Company. The Company Financial Statements referred to herein, as well as the
Company Financial Statements to be delivered pursuant to Section 5.8 hereof,
fairly present or will fairly present, as the case may be, the consolidated
financial condition of the Company as of the respective dates set forth therein,
and the
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consolidated income, changes in stockholders' equity and cash flows of the
Company for the respective periods or as of the respective dates set forth
therein.
(b) Each of the Company Financial Statements referred to in Section
3.7(a) has been or will be, as the case may be, prepared in accordance with
generally accepted accounting principles consistently applied during the periods
involved, except as stated therein. The audits of the Company and the Bank have
been conducted in all material respects in accordance with generally accepted
auditing standards. The books and records of the Company and the Bank are being
maintained in material compliance with applicable legal and accounting
requirements, and such books and records accurately reflect in all material
respects all dealings and transactions in respect of the business, assets,
liabilities and affairs of the Company and the Bank.
(c) Except and to the extent (i) reflected, disclosed or provided for
in the consolidated statement of financial condition of the Company as of
September 30, 1998 (including related notes), (ii) of liabilities incurred since
September 30, 1998 in the ordinary course of business and (iii) of liabilities
incurred in connection with consummation of the transactions contemplated by
this Agreement, neither the Company nor the Bank has any liabilities, whether
absolute, accrued, contingent or otherwise, material to the financial condition,
results of operations or business of the Company on a consolidated basis.
3.8 MATERIAL ADVERSE CHANGE
Since June 30, 1999, (i) the Company and its Subsidiaries have
conducted their respective businesses in the ordinary and usual course
(excluding the incurrence of expenses in connection with this Agreement and the
transactions contemplated hereby) and (ii) no event has occurred or circumstance
arisen that, individually or in the aggregate, has had or is reasonably likely
to have a Material Adverse Effect on the Company.
3.9 ENVIRONMENTAL MATTERS
(a) To the best of the Company's knowledge, the Company and the Bank
are in compliance with all Environmental Laws, except for any violations of any
Environmental Law which would not, singly or in the aggregate, have a Material
Adverse Effect on the Company. Neither the Company nor the Bank has received any
communication alleging that the Company or the Bank is not in such compliance
and, to the best knowledge of the Company, there are no present circumstances
that would prevent or interfere with the continuation of such compliance.
(b) To the best of the Company's knowledge, none of the properties
owned, leased or operated by the Company or the Bank has been or is in violation
of or liable under any Environmental Law, except any such violations or
liabilities which would not singly or in the aggregate have a Material Adverse
Effect on the Company.
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(c) To the best of the Company's knowledge, there are no past or
present actions, activities, circumstances, conditions, events or incidents that
could reasonably form the basis of any Environmental Claim or other claim or
action or governmental investigation that could result in the imposition of any
liability arising under any Environmental Law against the Company or the Bank or
against any person or entity whose liability for any Environmental Claim the
Company or the Bank has or may have retained or assumed either contractually or
by operation of law, except such which would not have a Material Adverse Effect
on the Company.
(d) The Company has not conducted any environmental studies during the
past five years with respect to any properties owned by it or the Bank as of the
date hereof.
3.10 TAX MATTERS
(a) The Company and the Bank have timely filed all federal, state and
local (and, if applicable, foreign) income, franchise, bank, excise, real
property, personal property and other tax returns required by applicable law to
be filed by them (including, without limitation, estimated tax returns, income
tax returns, information returns and withholding and employment tax returns) and
have paid, or where payment is not required to have been made, have set up an
adequate reserve or accrual for the payment of, all taxes required to be paid in
respect of the periods covered by such returns and, as of the Effective Time,
will have paid, or where payment is not required to have been made, will have
set up an adequate reserve or accrual for the payment of, all material taxes for
any subsequent periods ending on or prior to the Effective Time. Neither the
Company nor the Bank will have any material liability for any such taxes in
excess of the amounts so paid or reserves or accruals so established.
(b) All federal, state and local (and, if applicable, foreign) income,
franchise, bank, excise, real property, personal property and other tax returns
filed by the Company and the Bank are complete and accurate in all material
respects. Neither the Company nor the Bank is delinquent in the payment of any
tax, assessment or governmental charge or has requested any extension of time
within which to file any tax returns in respect of any fiscal year or portion
thereof which have not since been filed. The federal, state and local income tax
returns of the Company and the Bank have been examined by the applicable tax
authorities (or are closed to examination due to the expiration of the
applicable statute of limitations) and no deficiencies for any tax, assessment
or governmental charge have been proposed, asserted or assessed (tentatively or
otherwise) against the Company or the Bank as a result of such examinations or
otherwise which have not been settled and paid. There are currently no
agreements in effect with respect to the Company or the Bank to extend the
period of limitations for the assessment or collection of any tax. As of the
date hereof, no audit, examination or deficiency or refund litigation with
respect to such return is pending or, to the best of the Company's knowledge,
threatened.
(c) Except as Previously Disclosed, neither the Company nor the Bank
(i) is a party to any agreement providing for the allocation or sharing of
taxes, (ii) is required to include in income any adjustment pursuant to Section
481(a) of the Code by reason of a voluntary change in accounting
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method initiated by the Company or the Bank (nor does the Company have any
knowledge that the Internal Revenue Service has proposed any such adjustment or
change of accounting method) or (iii) has filed a consent pursuant to Section
341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply.
3.11 LEGAL PROCEEDINGS
There are no actions, suits, claims, governmental investigations or
proceedings instituted, pending or, to the best knowledge of the Company,
threatened against the Company or the Bank or against any asset, interest or
right of the Company or the Bank, or against any officer, director or employee
of either of them that in any such case, if decided adversely, would have a
Material Adverse Effect on the Company. Neither the Company nor the Bank is a
party to any order, judgment or decree which has or could reasonably be expected
to have a Material Adverse Effect on the Company.
3.12 COMPLIANCE WITH LAWS
(a) Each of the Company and the Bank has all permits, licenses,
certificates of authority, orders and approvals of, and has made all filings,
applications and registrations with, federal, state, local and foreign
governmental or regulatory bodies that are required in order to permit them to
carry on their respective businesses as it is presently being conducted and the
absence of which could reasonably be expected to have a Material Adverse Effect
on the Company; all such permits, licenses, certificates of authority, orders
and approvals are in full force and effect; and to the best knowledge of the
Company, no suspension or cancellation of any of the same is threatened.
(b) Neither the Company nor the Bank is in violation of its respective
Articles of Incorporation, Constitution, Code of Regulations or Bylaws, or of
any applicable federal, state or local law or ordinance or any order, rule or
regulation of any federal, state, local or other governmental agency or body
(including, without limitation, all banking (including all regulatory capital
requirements), securities, municipal securities, safety, health, environmental,
zoning, anti-discrimination, antitrust, and wage and hour laws, ordinances,
orders, rules and regulations), or in default with respect to any order, writ,
injunction or decree of any court, or in default under any order, license,
regulation or demand of any governmental agency, any of which violations or
defaults could reasonably be expected to have a Material Adverse Effect on the
Company; and neither the Company nor the Bank has received any notice or
communication from any federal, state or local governmental authority asserting
that the Company or the Bank is in violation of any of the foregoing which could
reasonably be expected to have a Material Adverse Effect on the Company. Neither
the Company nor the Bank is subject to any regulatory or supervisory cease and
desist order, agreement, written directive, memorandum of understanding or
written commitment (other than those of general applicability to savings banks
or holding companies thereof issued by governmental authorities), and neither of
them has received any written communication requesting that it enter into any of
the foregoing.
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3.13 CERTAIN INFORMATION
None of the information relating to the Company and the Bank supplied
or to be supplied by them for inclusion in (i) the Form S-1, including the
Prospectus, at the time the Form S-1 and any amendment thereto becomes effective
under the Securities Act, will contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, (ii) the
Application for Conversion, at the time the Application for Conversion and any
amendment thereto is approved by the OTS under the HOLA and the regulations of
the OTS thereunder, will contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, and (iii) the
Proxy Statements, as of the date or dates such Proxy Statements are mailed to
shareholders of the Company and Members of Peoples and Oakley and up to and
including the date or dates of the meetings of shareholders and Members to which
such Proxy Statements relate, will contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading,
provided that information as of a later date shall be deemed to modify
information as of an earlier date.
3.14 EMPLOYEE BENEFIT PLANS
(a) The Company has Previously Disclosed all stock option, employee
stock purchase and stock bonus plans, qualified pension or profit-sharing plans,
any deferred compensation, consultant, bonus or group insurance contract or any
other incentive, health and welfare or employee benefit plan or agreement
maintained for the benefit of employees or former employees of the Company or
the Bank, whether written or oral, (the "Company Employee Plans"), and the
Company has previously furnished or made available to Peoples accurate and
complete copies of the same together with, in the case of qualified plans, (i)
the most recent actuarial and financial reports prepared with respect thereto,
(ii) the most recent annual reports filed with any governmental agency with
respect thereto, and (iii) all rulings and determination letters and any open
requests for rulings or letters that pertain thereto.
(b) None of the Company, the Bank, any Company Employee Plan
constituting an "employee pension benefit plan" within the meaning of Section
3(2) of ERISA ("Company Pension Plan") or, to the best of the Company's
knowledge, any fiduciary of such Company Pension Plan, has incurred any material
liability to the PBGC or the Internal Revenue Service with respect to any such
Company Pension Plan. To the best of the Company's knowledge, no reportable
event under Section 4043(b) of ERISA has occurred with respect to any Company
Pension Plan.
(c) Neither the Company nor the Bank participates in or has incurred
any liability under Section 4201 of ERISA for a complete or partial withdrawal
from a multi-employer plan (as such term is defined in ERISA).
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(d) A favorable determination letter has been issued by the Internal
Revenue Service with respect to each Company Pension Plan which is intended to
qualify under Section 401 of the Code to the effect that such Company Pension
Plan is qualified under Section 401 of the Code, and the trust associated with
such Company Pension Plan is tax exempt under Section 501 of the Code. No such
letter has been revoked or, to the best of the Company's knowledge, is
threatened to be revoked, and the Company does not know of any ground on which
such revocation may be based. Neither the Company nor the Bank has any liability
under any such Company Pension Plan that is not reflected on the consolidated
statement of financial condition of the Company at September 30, 1998 or the
notes thereto included in the Company Financial Statements, other than
liabilities incurred in the ordinary course of business in connection therewith
subsequent to the date thereof.
(e) To the best of the Company's knowledge, no prohibited transaction
(which shall mean any transaction prohibited by Section 406 of ERISA and not
exempt under Section 408 of ERISA or Section 4975 of the Code) has occurred with
respect to any Company Employee Plan which would result in the imposition,
directly or indirectly, of a material excise tax under Section 4975 of the Code
or otherwise have a Material Adverse Effect on the Company.
(f) Full payment has been made (or proper accruals have been
established) of all contributions which are required for periods prior to the
date hereof, and full payment will be so made (or proper accruals will be so
established) of all contributions which are required for periods after the date
hereof and prior to the Effective Time, under the terms of each Company Employee
Plan or ERISA; no accumulated funding deficiency (as defined in Section 302 of
ERISA or Section 412 of the Code), whether or not waived, exists with respect to
any Company Pension Plan, and there is no "unfunded current liability" (as
defined in Section 412 of the Code) with respect to any Company Pension Plan.
(g) To the best of the Company's knowledge, the Company Employee Plans
have been operated in compliance in all material respects with the applicable
provisions of ERISA, the Code, all regulations, rulings and announcements
promulgated or issued thereunder and all other applicable governmental laws and
regulations.
(h) There are no pending or, to the best knowledge of the Company,
threatened claims (other than routine claims for benefits) by, on behalf of or
against any of the Company Employee Plans or any trust related thereto or any
fiduciary thereof.
3.15 CERTAIN CONTRACTS
(a) Except as Previously Disclosed, neither the Company nor the Bank is
a party to, is bound or affected by, receives, or is obligated to pay, benefits
under (i) any agreement, arrangement or commitment, including without limitation
any agreement, indenture or other instrument, relating to the borrowing of money
by the Company or the Bank (other than in the case of the Bank deposits, FHLB
advances, federal funds purchased and securities sold under agreements to
repurchase in the ordinary course of business) or the guarantee by the Company
or the Bank of any obligation, other
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than by the Bank in the ordinary course of its banking business, (ii) any
agreement, arrangement or commitment relating to the employment of a consultant
or the employment, election or retention in office of any present or former
director, officer or employee of the Company or the Bank, (iii) any agreement,
arrangement or understanding pursuant to which any payment (whether of severance
pay or otherwise) became or may become due to any director, officer or employee
of the Company or the Bank upon execution of this Agreement or upon or following
consummation of the transactions contemplated by this Agreement (either alone or
in connection with the occurrence of any additional acts or events); (iv) any
agreement, arrangement or understanding pursuant to which the Company or the
Bank is obligated to indemnify any director, officer, employee or agent of the
Company or the Bank; (v) any agreement, arrangement or understanding to which
the Company or the Bank is a party or by which any of the same is bound which
limits the freedom of the Company or the Bank to compete in any line of business
or with any person, (vi) any assistance agreement, supervisory agreement,
memorandum of understanding, consent order, cease and desist order or condition
of any regulatory order or decree with or by the OTS, the FDIC or any other
regulatory agency, or (vii) any other agreement, arrangement or understanding
which would be required to be filed as an exhibit to the Company's Annual Report
on Form 10-K under the Exchange Act and which has not been so filed.
(b) Neither the Company nor the Bank is in default or in
non-compliance, which default or non-compliance could reasonably be expected to
have a Material Adverse Effect on the Company, under any contract, agreement,
commitment, arrangement, lease, insurance policy or other instrument to which it
is a party or by which its assets, business or operations may be bound or
affected, whether entered into in the ordinary course of business or otherwise
and whether written or oral, and there has not occurred any event that with the
lapse of time or the giving of notice, or both, would constitute such a default
or non-compliance.
3.16 BROKERS AND FINDERS
Except for Charles Webb & Company, neither the Company nor the Bank nor
any of their respective directors, officers or employees, has employed any
broker or finder or incurred any liability for any broker or finder fees or
commissions in connection with the transactions contemplated hereby.
3.17 INSURANCE
Each of the Company and the Bank is insured for reasonable amounts with
financially sound and reputable insurance companies against such risks as
companies engaged in a similar business would, in accordance with good business
practice, customarily be insured and has maintained all insurance required by
applicable laws and regulations.
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3.18 PROPERTIES
All real and personal property owned by the Company or the Bank or
presently used by any of them in its respective business is in an adequate
condition (ordinary wear and tear excepted) and is sufficient to carry on the
business of the Company and the Bank in the ordinary course of business
consistent with their past practices. The Company has good and marketable title
free and clear of all liens, encumbrances, charges, defaults or equities (other
than equities of redemption under applicable foreclosure laws) to all of its
material properties and assets, real and personal, except (i) liens for current
taxes not yet due or payable (ii) pledges to secure deposits and other liens
incurred in the ordinary course of its banking business, (iii) such
imperfections of title, easements and encumbrances, if any, as are not material
in character, amount or extent and (iv) as reflected on the consolidated
statement of condition of the Company as of June 30, 1999 included in the
Company Financial Statements. All real and personal property which is material
to the Company's business on a consolidated basis and leased or licensed by the
Company or the Bank is held pursuant to leases or licenses which are valid and
enforceable in accordance with their respective terms and such leases will not
terminate or lapse prior to the Effective Time.
3.19 LABOR
No work stoppage involving the Company or the Bank is pending or, to
the best knowledge of the Company, threatened. Neither the Company nor the Bank
is involved in or, to the best knowledge of the Company, threatened with or
affected by, any labor dispute, arbitration, lawsuit or administrative
proceeding involving the employees of the Company or the Bank which could have a
Material Adverse Effect on the Company. Employees of the Company and the Bank
are not represented by any labor union nor are any collective bargaining
agreements otherwise in effect with respect to such employees, and to the best
of the Company's knowledge, there have been no efforts to unionize or organize
any employees of the Company or the Bank during the past five years.
3.20 AFFILIATES
The Company has Previously Disclosed to Peoples a schedule of each
person that, to the best of its knowledge, is deemed to be a Company Affiliate.
3.21 YEAR 2000 COMPLIANCE.
To the actual knowledge of the Company, all hardware, firmware,
software and computer systems owned, used or licensed by the Company and the
Bank, including but not limited to system and application programs, files, data
bases and computer services, are Year 2000 Compliant (as defined below). For
purposes of this Agreement, "Year 2000 Compliant" means that the hardware,
firmware, software and computer systems (i) will correctly and accurately
address, produce, store, process and calculate data involving dates beginning
with January 1, 2000 and will not produce abnormally ending or incorrect results
involving such dates as used in any forward or regression dated based functions;
(ii) will provide that all "date"-related functionalities and data fields
include
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the indication of century and millennium, and will perform calculations which
involve a four-digit year; and (iii) will be interoperable with other Year 2000
Compliant hardware or software owned, used or licensed by the Company and the
Bank which may deliver records to, receive records from or otherwise interact
with such hardware or software in the course of processing records or data.
3.22 DISCLOSURES
None of the representations and warranties of the Company or any of the
written information or documents furnished or to be furnished by the Company to
Peoples in connection with or pursuant to this Agreement or the consummation of
the transactions contemplated hereby, when considered as a whole, contains or
will contain any untrue statement of a material fact, or omits or will omit to
state any material fact required to be stated or necessary to make any such
information or document, in light of the circumstances, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PEOPLES
Peoples represents and warrants to the Company as follows, except as
Previously Disclosed:
4.1 CAPITAL STRUCTURE
As of the date hereof, Peoples is an Ohio chartered savings and loan
association in mutual form and, as a result, has no authorized or outstanding
capital stock. Upon consummation of the Conversion, Peoples will be a duly
organized federal savings bank in stock form and will have authorized capital
stock as set forth in its Charter. Immediately prior to the Conversion, Oakley
will merge with and into Peoples with Peoples as the surviving entity.
4.2 ORGANIZATION, STANDING AND AUTHORITY OF PEOPLES AND THE HOLDING COMPANY
(a) Peoples is a savings and loan association duly organized, validly
existing and in good standing under the laws of the State of Ohio, with full
corporate power and authority to own or lease all of its properties and assets
and to carry on its business as now conducted, and Peoples is duly licensed or
qualified to do business and is in good standing in each jurisdiction in which
its ownership or leasing of property or the conduct of its business requires
such licensing or qualification, except where the failure to be so licensed,
qualified or in good standing would not have a Material Adverse Effect on
Peoples. The deposit accounts of Peoples are insured by the SAIF to the maximum
extent permitted by the FDIA, and Peoples has paid all premiums and assessments
required by the FDIA and the regulations thereunder. Peoples has heretofore
delivered to the Company true and complete copies of the Constitution, Articles
of Incorporation and Bylaws of Peoples as in effect as of the date hereof.
(b) At the Effective Time, the Holding Company will be duly organized,
and validly existing under the DGCL.
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4.3 OWNERSHIP OF THE PEOPLES SUBSIDIARIES
Peoples does not have any Subsidiaries. Except for (y) securities and
other interests held in a fiduciary capacity and beneficially owned by third
parties or taken in consideration of debts previously contracted and (z)
securities and other interests which are Previously Disclosed, Peoples does not
own or have the right to acquire, directly or indirectly, any outstanding
capital stock or other voting securities or ownership interests of any
corporation, bank, savings association, partnership, joint venture or other
organization, other than investment securities representing not more than 5% of
any entity.
4.4 AUTHORIZED AND EFFECTIVE AGREEMENT
(a) Peoples has, and following its organization the Holding Company
will have, all requisite corporate power and authority to enter into this
Agreement and (subject to receipt of all necessary governmental approvals and
the approval of the Conversion by the Members of Peoples and Oakley) to perform
all of its respective obligations under this Agreement. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
in respect thereof on the part of Peoples, except for the approval of the
Conversion by the Members of Peoples and Oakley, and promptly following
organization of the Holding Company and its execution and delivery of an
instrument of accession pursuant to Section 5.13 of this Agreement, the
execution and delivery of this Agreement by the Holding Company and the
consummation of the transactions contemplated hereby will have been duly and
validly authorized by all necessary corporate action in respect thereof on the
part of the Holding Company. This Agreement has been duly and validly executed
and delivered by Peoples and upon its execution and delivery of an instrument of
accession pursuant to Section 5.13 of this Agreement, this Agreement will have
been duly and validly executed and delivered by the Holding Company and,
assuming due authorization, execution and delivery by the Company, this
Agreement constitutes or will constitute, as applicable, a legal, valid and
binding obligation of Peoples and the Holding Company which is enforceable
against Peoples and the Holding Company in accordance with its terms, subject,
as to enforceability, to bankruptcy, insolvency and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
(b) Neither the execution and delivery of this Agreement, nor
consummation of the transactions contemplated hereby (including the Merger and
the Bank Merger) nor compliance by Peoples or, upon its organization, the
Holding Company, with any of the provisions hereof (i) does or will conflict
with or result in a breach of any provisions of the Constitution, Articles of
Incorporation, Bylaws or similar organizational documents of Peoples, or upon
its organization the Holding Company, except that Peoples will not be authorized
to issue capital stock until consummation of the Conversion, (ii) violate,
conflict with or result in a breach of any term, condition or provision of, or
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, or give rise to any right of termination,
cancellation or acceleration with respect to, or result in the creation of any
lien, charge or encumbrance upon any
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property or asset of Peoples or upon its organization the Holding Company
pursuant to, any material note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which Peoples or
upon its organization the Holding Company is a party, or by which any of their
respective properties or assets may be bound or affected, or (iii) subject to
receipt of all required governmental and Member approvals, violate any order,
writ, injunction, decree, statute, rule or regulation applicable to Peoples or
upon its organization the Holding Company.
(c) To the best knowledge of Peoples, except for (i) the filing of
applications and notices with and the approvals of the OTS and the Division,
(ii) the filing and effectiveness of the Form S-1 with the Commission, (iii)
compliance with applicable state securities or "blue sky" laws and the NASD
Bylaws in connection with the issuance of Holding Company Common Stock in
connection with the Merger and the Conversion, (iv) the approval of the
Conversion by the requisite vote of the Members of Peoples and Oakley, (v) the
filing of a Certificate of Merger with the Secretaries of State of the States of
Delaware and Ohio pursuant to the DGCL and the ORC, respectively, in connection
with the Merger, (vi) review of the Merger by the DOJ under federal antitrust
laws and (vii) the filing of Articles of Combination with the OTS in connection
with the Bank Merger, no consents or approvals of or filings or registrations
with any Governmental Entity or with any third party are necessary on the part
of Peoples or the Holding Company in connection with the (x) execution and
delivery by Peoples of this Agreement, the execution and delivery by the Holding
Company of an instrument of accession to this Agreement pursuant to Section 5.13
hereof and the consummation by Peoples and the Holding Company of the
transactions contemplated hereby and (y) the execution and delivery by Peoples
of the Bank Merger Agreement and the consummation by Peoples of the transactions
contemplated thereby.
(d) As of the date hereof, Peoples is not aware of any reasons relating
to Peoples (including without limitation Community Reinvestment Act compliance)
why all consents and approvals shall not be procured from all regulatory
agencies having jurisdiction over the transactions contemplated by this
Agreement and the Bank Merger Agreement as shall be necessary for (i)
consummation of the transactions contemplated by this Agreement and the Bank
Merger Agreement and (ii) the continuation by the Holding Company and Peoples
after the Effective Time of the business of each of the Company and the Bank as
such business is carried on immediately prior to the Effective Time, free of any
conditions or requirements which in the reasonable opinion of Peoples could have
a Material Adverse Effect on the Holding Company or Peoples or materially impair
the value of the Company and the Bank to the Holding Company and Peoples,
respectively.
4.5 REGULATORY REPORTS
Since January 1, 1996, Peoples has duly filed with the OTS the reports
required to be filed under applicable laws and regulations and such reports were
in all material respects complete and accurate and in compliance with the
requirements of applicable laws and regulations. In connection with the most
recent examinations of Peoples by the OTS and the Division, Peoples was not
required to correct or change any action, procedure or proceeding which Peoples
believes has not been
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corrected or changed as required as of the date hereof and which could have a
Material Adverse Effect on Peoples.
4.6 FINANCIAL STATEMENTS
(a) Peoples has previously delivered or made available to the Company
accurate and complete copies of the Peoples Financial Statements, which are
accompanied by the audit reports of Kennedy, Kraft, Dreyer & Noe, independent
certified public accountants with respect to Peoples. The Peoples Financial
Statements, as well as the Peoples Financial Statements to be delivered pursuant
to Section 5.8 hereof, fairly present or will fairly present, as the case may
be, the financial condition of Peoples as of the respective dates set forth
therein, and the income, changes in retained income and cash flows of Peoples
for the respective periods or as of the respective dates set forth therein.
(b) Each of the Peoples Financial Statements and the Peoples Financial
Statements to be delivered pursuant to Section 5.8 hereof has been or will be,
as the case may be, prepared in accordance with generally accepted accounting
principles consistently applied during the periods involved, except as stated
therein. The audits of Peoples have been conducted in all material respects in
accordance with generally accepted auditing standards. The books and records of
Peoples are being maintained in material compliance with applicable legal and
accounting requirements, and all such books and records accurately reflect in
all material respects all dealings and transactions in respect of the business,
assets, liabilities and affairs of Peoples.
(c) Except as Previously Disclosed or to the extent (i) reflected,
disclosed or provided for in the statement of condition of Peoples as of June
30, 1999 (including related notes), (ii) of liabilities incurred since June 30,
1999 in the ordinary course of business and (iii) of liabilities in connection
with consummation of the transaction contemplated by this Agreement, Peoples has
any liabilities, whether absolute, accrued, contingent or otherwise, material to
the financial condition, results of operations or business of Peoples.
4.7 MATERIAL ADVERSE CHANGE
Since June 30, 1999, (i) Peoples has conducted its business in the
ordinary and usual course (excluding the incurrence of expenses in connection
with the Merger with Oakley, the Conversion and with this Agreement and the
transactions contemplated hereby) and (ii) no event has occurred or circumstance
arisen that, individually or in the aggregate, has had or is reasonably likely
to have a Material Adverse Effect on Peoples.
4.8 ENVIRONMENTAL MATTERS
(a) To the best of Peoples' knowledge, Peoples is in compliance with
all Environmental Laws, except for any violations of any Environmental Law which
would not, singly or in the aggregate, have a Material Adverse Effect on
Peoples. Peoples has not received any communication alleging that Peoples is not
in such compliance and, to the best knowledge of Peoples, there are no present
circumstances that would prevent or interfere with the continuation of such
compliance.
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(b) To the best of Peoples' knowledge, none of the properties owned,
leased or operated by Peoples has been or is in violation of or liable under any
Environmental Law, except any such violations or liabilities which would not
singly or in the aggregate have a Material Adverse Effect on Peoples.
(c) To the best of Peoples' knowledge, there are no past or present
actions, activities, circumstances, conditions, events or incidents that could
reasonably form the basis of any Environmental Claim or other claim or action or
governmental investigation that could result in the imposition of any liability
arising under any Environmental Law against Peoples or against any person or
entity whose liability for any Environmental Claim Peoples has or may have
retained or assumed either contractually or by operation of law, except such
which would not have a Material Adverse Effect on Peoples.
(d) Peoples has not conducted any environmental studies during the past
five years with respect to any properties owned by it as of the date hereof.
4.9 TAX MATTERS
(a) Peoples has timely filed all federal, state and local (and, if
applicable, foreign) income, franchise, bank, excise, real property, personal
property and other tax returns required by applicable law to be filed by them
(including, without limitation, estimated tax returns, income tax returns,
information returns and withholding and employment tax returns) and have paid,
or where payment is not required to have been made, have set up an adequate
reserve or accrual for the payment of, all taxes required to be paid in respect
of the periods covered by such returns and, as of the Effective Time, will have
paid, or where payment is not required to have been made, will have set up an
adequate reserve or accrual for the payment of, all taxes for any subsequent
periods ending on or prior to the Effective Time. Peoples will not have any
material liability for any such taxes in excess of the amounts so paid or
reserves or accruals so established.
(b) All federal, state and local (and, if applicable, foreign) income,
franchise, bank, excise, real property, personal property and other tax returns
filed by Peoples are complete and accurate in all material respects. Peoples is
not delinquent in the payment of any tax, assessment or governmental charge or
has requested any extension of time within which to file any tax returns in
respect of any fiscal year or portion thereof which have not since been filed.
The federal, state and local income tax returns of Peoples have been examined by
the applicable tax authorities (or are closed to examination due to the
expiration of the applicable statute of limitations) and no deficiencies for any
tax, assessment or governmental charge have been proposed, asserted or assessed
(tentatively or otherwise) against Peoples as a result of such examinations or
otherwise which have not been settled and paid. There are currently no
agreements in effect with respect to Peoples to extend the period of limitations
for the assessment or collection of any tax. As of the date hereof, no audit,
examination or deficiency or refund litigation with respect to such return is
pending or, to the best of Peoples' knowledge, threatened.
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(c) Peoples (i) is not a party to any agreement providing for the
allocation or sharing of taxes, (ii) is not required to include in income any
adjustment pursuant to Section 481(a) of the Code by reason of a voluntary
change in accounting method initiated by Peoples (nor does Peoples have any
knowledge that the Internal Revenue Service has proposed any such adjustment or
change of accounting method) and (iii) has not filed a consent pursuant to
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code
apply.
4.10 LEGAL PROCEEDINGS
There are no actions, suits, claims, governmental investigations or
proceedings instituted, pending or to the best knowledge of Peoples threatened
against Peoples or against any asset, interest or right of Peoples, or against
any officer, director or employee of Peoples that in any such case, if decided
adversely, would have a Material Adverse Effect on Peoples. Peoples is not a
party to any order, judgment or decree which has or could reasonably be expected
to have a Material Adverse Effect on Peoples.
4.11 COMPLIANCE WITH LAWS
(a) Peoples has all permits, licenses, certificates of authority,
orders and approvals of, and has made all filings, applications and
registrations with, federal, state, local and foreign governmental or regulatory
bodies that are required in order to permit it to carry on its business as it is
presently being conducted and the absence of which could reasonably be expected
to have a Material Adverse Effect on Peoples; all such permits, licenses,
certificates of authority, orders and approvals are in full force and effect;
and to the best knowledge of Peoples, no suspension or cancellation of any of
the same is threatened.
(b) Peoples is not in violation of its Constitution, Articles of
Incorporation or Bylaws, or of any applicable federal, state or local law or
ordinance or any order, rule or regulation of any federal, state, local or other
governmental agency or body (including, without limitation, all banking
(including all regulatory capital requirements), securities, municipal
securities, safety, health, environmental, zoning, anti- discrimination,
antitrust, and wage and hour laws, ordinances, orders, rules and regulations),
or in default with respect to any order, writ, injunction or decree of any
court, or in default under any order, license, regulation or demand of any
governmental agency, any of which violations or defaults could reasonably be
expected to have a Material Adverse Effect on Peoples; and Peoples has not
received any notice or communication from any federal, state or local
governmental authority asserting that Peoples is in violation of any of the
foregoing which could reasonably be expected to have a Material Adverse Effect
on Peoples. Peoples is not subject to any regulatory or supervisory cease and
desist order, agreement, written directive, memorandum of understanding or
written commitment (other than those of general applicability to all savings
banks, savings associations or holding companies thereof, as applicable, issued
by governmental authorities), and Peoples has not received any written
communication requesting that it enter into any of the foregoing.
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4.12 CERTAIN INFORMATION
None of the information relating to Peoples or the Holding Company
supplied by them and to be included in (i) the Form S-1, including the
Prospectus, will, at the time the Form S-1 and any amendment thereto becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, (ii)
the Application for Conversion, at the time the Application for Conversion and
any amendment thereto is approved by the OTS under the HOLA and the regulations
of the OTS thereunder, will contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, and (iii) the
Proxy Statements, as of the date or dates such Proxy Statements are mailed to
shareholders of the Company and Members of Peoples and Oakley and up to and
including the date or dates of the meetings of shareholders and Members to which
such Proxy Statements relate, will contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading,
provided that information as of a later date shall be deemed to modify
information as of an earlier date.
4.13 EMPLOYEE BENEFIT PLANS
(a) Peoples has Previously Disclosed all qualified pension or
profit-sharing plans, any deferred compensation, consultant, bonus or group
insurance contract or any other incentive, health and welfare or employee
benefit plan or agreement maintained for the benefit of employees or former
employees of Peoples (the "Peoples Employee Plans"), whether written or oral.
(b) None of Peoples, any Peoples Employee Plan constituting an
"employee pension benefit plan" within the meaning of Section 3(2) of ERISA
("Peoples Pension Plan") or to the best of Peoples's knowledge, any fiduciary of
a Peoples Pension Plan has incurred any material liability to the PBGC or the
Internal Revenue Service with respect to any such Peoples Pension Plan. To the
best of Peoples's knowledge, no reportable event under Section 4043(b) of ERISA
has occurred with respect to any Peoples Pension Plan.
(c) Peoples does not participate in and have not incurred any liability
under Section 4201 of ERISA for a complete or partial withdrawal from a
multi-employer plan (as such term is defined in ERISA).
(d) A favorable determination letter has been issued by the Internal
Revenue Service with respect to each Peoples Pension Plan which is intended to
qualify under Section 401 of the Code to the effect that the Peoples Pension
Plan is qualified under Section 401 of the Code and the trust associated with
such Peoples Pension Plan is tax exempt under Section 501 of the Code. No such
letter has been revoked or, to the best of Peoples's knowledge, is threatened to
be revoked and Peoples does not know of any ground on which such revocation may
be based. Peoples does not have any liability under any such Peoples Pension
Plan that is not reflected on the statement of
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condition of Peoples at June 30, 1999 or the notes thereto included in the
Peoples Financial Statements, other than liabilities incurred in the ordinary
course of business in connection therewith subsequent to the date thereof.
(e) To the best of Peoples's knowledge, no prohibited transaction
(which shall mean any transaction prohibited by Section 406 of ERISA and not
exempt under Section 408 of ERISA or Section 4975 of the Code) has occurred with
respect to any Peoples Employee Plan which would result in the imposition,
directly or indirectly, of a material excise tax under Section 4975 of the Code
or otherwise have a Material Adverse Effect on Peoples.
(f) Full payment has been made (or proper accruals have been
established) of all contributions which are required for periods prior to the
date hereof, and full payment will be so made (or proper accruals will be so
established) of all contributions which are required for periods after the date
hereof and prior to the Effective Time, under the terms of each Peoples Employee
Plan or ERISA; no accumulated funding deficiency (as defined in Section 302 of
ERISA or Section 412 of the Code), whether or not waived, exists with respect to
any Peoples Pension Plan, and there is no "unfunded current liability" (as
defined in Section 412 of the Code) with respect to any Peoples Pension Plan.
(g) To the best of Peoples's knowledge, the Peoples Employee Plans have
been operated in compliance in all material respects with the applicable
provisions of ERISA, the Code, all regulations, rulings and announcements
promulgated or issued thereunder and all other applicable governmental laws and
regulations.
(h) There are no pending or, to the best knowledge of Peoples,
threatened claims (other than routine claims for benefits) by, on behalf of or
against any of the Peoples Employee Plans or any trust related thereto or any
fiduciary thereof.
4.14 CERTAIN CONTRACTS
Peoples is not a party to, is not bound or affected by, does not
receive, nor is obligated to pay, benefits under (i) any agreement, arrangement
or understanding to which Peoples is a party or by which it is bound which
limits the freedom of Peoples to compete in any line of business or with any
person, (ii) any assistance agreement, supervisory agreement, memorandum of
understanding, consent order, cease and desist order or condition of any of
regulatory order or decree with or by the OTS, the FDIC, the Division or any
other regulatory agency, or (iii) any other agreement, arrangement or
understanding which would be required to be filed as an exhibit to the Annual
Report on Form 10-K under the Exchange Act (assuming Peoples was required to
file such reports under the Exchange Act).
(b) Peoples is not in default or in non-compliance, which default or
non-compliance could reasonably be expected to have a Material Adverse Effect on
Peoples, under any contract, agreement, commitment, arrangement, lease,
insurance policy or other instrument to which it is a party or by
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which its assets, business or operations may be bound or affected, whether
entered into in the ordinary course of business or otherwise and whether written
or oral, and there has not occurred any event that with the lapse of time or the
giving of notice, or both, would constitute such a default or non-compliance.
4.15 BROKERS AND FINDERS
Except Charles Webb & Company, neither of Peoples, the Holding Company,
nor any of their respective directors, officers or employees, has employed any
broker or finder or incurred any liability for any broker or finder fees or
commissions in connection with the transactions contemplated hereby.
4.16 INSURANCE
Peoples is insured for reasonable amounts with financially sound and
reputable insurance companies against such risks as companies engaged in a
similar business would, in accordance with good business practice, customarily
be insured and has maintained all insurance required by applicable laws and
regulations.
4.17 PROPERTIES
All real and personal property owned by Peoples or presently used by it
in its business is in an adequate condition (ordinary wear and tear excepted)
and is sufficient to carry on its business in the ordinary course of business
consistent with its past practices. Peoples has good and marketable title free
and clear of all liens, encumbrances, charges, defaults or equities (other than
equities of redemption under applicable foreclosure laws) to all of its material
properties and assets, real and personal, except (i) liens for current taxes not
yet due or payable (ii) pledges to secure deposits and other liens incurred in
the ordinary course of its banking business, (iii) such imperfections of title,
easements and encumbrances, if any, as are not material in character, amount or
extent and (iv) as reflected on the statement of condition of Peoples as of June
30, 1999 included in the Peoples Financial Statements. All real and personal
property which is material to Peoples's business on a consolidated basis and
leased or licensed by Peoples is held pursuant to leases or licenses which are
valid and enforceable in accordance with their respective terms and such leases
will not terminate or lapse prior to the Effective Time.
4.18 LABOR
No work stoppage involving Peoples is pending or, to the best knowledge
of Peoples, threatened. Peoples is not involved in or to the best knowledge of
Peoples threatened with or affected by, any labor dispute, arbitration, lawsuit
or administrative proceeding involving its employees which could have a Material
Adverse Effect on Peoples. Employees of Peoples are not represented by any labor
union nor are any collective bargaining agreements otherwise in effect with
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respect to such employees, and to the best of Peoples' knowledge, there have
been no efforts to unionize or organize any employees of Peoples during the past
five years.
4.19 OWNERSHIP OF COMPANY COMMON STOCK
As of the date hereof, neither Peoples nor, to its best knowledge, any
of its affiliates or associates (as such terms are defined under the Exchange
Act), (i) beneficially own, directly or indirectly, or (ii) are parties to any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of, in each case, shares of Company Common Stock which in
the aggregate represent 5% or more of the outstanding shares of Company Common
Stock (other than shares held in a fiduciary capacity and beneficially owned by
third parties or shares taken in consideration of debts previously contracted).
4.20 YEAR 2000 COMPLIANCE.
To the actual knowledge of Peoples, all hardware, firmware, software
and computer systems owned, used or licensed by Peoples, including but not
limited to system and application programs, files, data bases and computer
services, are Year 2000 Compliant (as defined below). For purposes of this
Agreement, "Year 2000 Compliant" means that the hardware, firmware, software and
computer systems (i) will correctly and accurately address, produce, store,
process and calculate data involving dates beginning with January 1, 2000 and
will not produce abnormally ending or incorrect results involving such dates as
used in any forward or regression dated based functions; (ii) will provide that
all "date"-related functionalities and data fields include the indication of
century and millennium, and will perform calculations which involve a four-digit
year; and (iii) will be interoperable with other Year 2000 Compliant hardware or
software owned, used or licensed by Peoples which may deliver records to,
receive records from or otherwise interact with such hardware or software in the
course of processing records or data.
4.21 DISCLOSURES
None of the representations and warranties of Peoples or any of the
written information or documents furnished or to be furnished by Peoples to the
Company in connection with or pursuant to this Agreement or the consummation of
the transactions contemplated hereby, when considered as a whole, contains or
will contain any untrue statement of a material fact, or omits or will omit to
state any material fact required to be stated or necessary to make any such
information or document, in light of the circumstances, not misleading.
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ARTICLE V
COVENANTS
5.1 REASONABLE BEST EFFORTS
Subject to the terms and conditions of this Agreement, each of the
Company and Peoples (i) shall use its reasonable best efforts in good faith to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary or advisable under applicable laws and regulations so as to
permit and otherwise enable consummation of the Conversion and the Merger as
promptly as reasonably practicable, it being the intention of the parties that
the Conversion be consummated prior to the Effective Time and that the Bank
Merger be consummated following the Effective Time in accordance with Section
5.12 hereof, and (ii) shall cooperate fully with each other to that end.
5.2 SHAREHOLDER AND MEMBER MEETINGS
(a) The Company shall take all action necessary to properly call and
convene a meeting of its shareholders as soon as practicable after the date
hereof to consider and vote upon this Agreement and the transactions
contemplated hereby. The Board of Directors of the Company will recommend that
the shareholders of the Company approve this Agreement and the transactions
contemplated hereby, provided that the Board of Directors of the Company may
fail to make such recommendation, or withdraw, modify or change any such
recommendation, if such Board of Directors, after having consulted with and
considered the advice of outside counsel, has determined that the making of such
recommendation, or the failure to withdraw, modify or change such
recommendation, would constitute a breach of the fiduciary duties of such
directors under applicable law.
(b) Peoples shall take all action necessary to properly call and
convene a meeting of its Members as soon as practicable to consider and vote
upon the Conversion and the transactions contemplated thereby. The Board of
Directors of Peoples will recommend that the Members of Peoples approve the
Conversion and the transactions contemplated thereby.
5.3 REGULATORY MATTERS
(a) The parties hereto shall promptly cooperate with each other in the
preparation and filing of the Form S-1, the Prospectus and the Proxy Statements
relating to the meetings of shareholders of the Company and the Members of
Peoples to be held pursuant to Section 5.2 of this Agreement (the "Company Proxy
Statement" and the "Peoples Proxy Statement," respectively) under the Securities
Act and the Exchange Act, as applicable. Each of the Holding Company, Peoples
and the Company shall use its reasonable best efforts to have the Form S-1
declared effective under the Securities Act and the Company Proxy Statement
approved for mailing in definitive form under the Exchange Act as promptly as
practicable after such filings and the receipt of conditional approval of the
Application for Conversion by the OTS and the Division, and thereafter the
Company shall promptly mail to its shareholders the Company Proxy Statement and
Prospectus and Peoples shall
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promptly mail, or in the case of the Prospectus make available, to its Members
the Peoples Proxy Statement and the Prospectus. The Holding Company also shall
use its reasonable best efforts to obtain all necessary state securities law or
"blue sky" permits and approvals required to carry out the issuance of Holding
Company Common Stock in connection with the Merger and the Conversion. The
Company shall furnish all information concerning the Company and the holders of
the Company Common Stock as may be reasonably requested in connection with any
of the foregoing actions.
(b) The parties hereto shall cooperate with each other and use their
reasonable best efforts to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and filings, and
to obtain as promptly as practicable all permits, consents, approvals and
authorizations of all Governmental Entities and third parties which are
necessary or advisable to consummate the transactions contemplated by this
Agreement (including without limitation the Conversion, the Merger and the Bank
Merger). Peoples and the Company shall have the right to review in advance, and
to the extent practicable each will consult with the other on, in each case
subject to applicable laws relating to the exchange of information, all the
information which appears in any filing made with or written materials submitted
to any third party or any Governmental Entity in connection with the
transactions contemplated by this Agreement. In exercising the foregoing right,
each of the parties hereto shall act reasonably and as promptly as practicable.
The parties hereto agree that they will consult with each other with respect to
the obtaining of all permits, consents, approvals and authorizations of all
third parties and Governmental Entities necessary or advisable to consummate the
transactions contemplated by this Agreement and each party will keep the other
apprised of the status of matters relating to completion of the transactions
contemplated herein.
(c) Peoples and the Company shall, upon request, furnish each other
with all information concerning themselves and their directors and officers and,
with respect to the Company, its shareholders, and such other matters as may be
reasonably necessary or advisable in connection with the Form S-1 or any other
statement, filing, notice or application made by or on behalf of Peoples, the
Holding Company, the Company or the Bank to any Governmental Entity in
connection with the Conversion, the Merger, the Bank Merger and the other
transactions contemplated hereby.
(d) Peoples and the Company shall promptly furnish each other with
copies of written communications received by Peoples or the Company and the
Bank, as the case may be, from, or delivered by any of the foregoing to, any
Governmental Entity in respect of the transactions contemplated hereby.
5.4 INVESTIGATION AND CONFIDENTIALITY
(a) Each party shall permit the other party and its representatives
reasonable access to its properties and personnel, and shall disclose and make
available to such other party all books, papers and records relating to the
assets, stock ownership, properties, operations, obligations and liabilities of
it and with respect to the Company, the Bank, including, but not limited to, all
books of account (including the general ledger), tax records, minute books of
meetings of boards of directors (and any
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committees thereof) and shareholders, organizational documents, bylaws, material
contracts and agreements, filings with any regulatory authority, accountants'
work papers, litigation files, loan files, plans affecting employees, and any
other business activities or prospects in which the other party may have a
reasonable interest, provided that such access shall be reasonably related to
the transactions contemplated hereby and, in the reasonable opinion of the
respective parties providing such access, not unduly interfere with normal
operations. Peoples, the Company and the Bank shall make their respective
directors, officers, employees and agents and authorized representatives
(including counsel and independent public accountants) available to confer with
the other party and its representatives, provided that such access shall be
reasonably related to the transactions contemplated hereby and shall not unduly
interfere with normal operations.
(b) All information furnished previously in connection with the
transactions contemplated by this Agreement or pursuant hereto shall be treated
as the sole property of the party furnishing the information until consummation
of the transactions contemplated hereby and, if such transactions shall not
occur, the party receiving the information shall either destroy or return to the
party which furnished such information all documents or other materials
containing, reflecting or referring to such information, shall use its best
efforts to keep confidential all such information, and shall not directly or
indirectly use such information for any competitive or other commercial
purposes. The obligation to keep such information confidential shall continue
for five years from the date the proposed transactions are abandoned but shall
not apply to (i) any information which (x) the party receiving the information
can establish was already in its possession prior to the disclosure thereof by
the party furnishing the information; (y) was then generally known to the
public; or (z) became known to the public through no fault of the party
receiving the information; or (ii) disclosures pursuant to a legal requirement
or in accordance with an order of a court of competent jurisdiction, provided
that the party which is the subject of any such legal requirement or order shall
use its best efforts to give the other party at least ten business days prior
notice thereof.
5.5 PRESS RELEASES
Peoples and the Company shall agree with each other as to the form and
substance of any press release related to this Agreement or the transactions
contemplated hereby, and consult with each other as to the form and substance of
other public disclosures which may relate to the transactions contemplated by
this Agreement, provided, however, that nothing contained herein shall prohibit
either party, following notification to the other party, from making any
disclosure which is required by law or regulation.
5.6 BUSINESS OF THE PARTIES
(a) During the period from the date of this Agreement and continuing
until the Effective Time, except as expressly contemplated or permitted by this
Agreement or with the prior written consent of Peoples, the Company and the Bank
shall carry on their respective businesses in the ordinary course consistent
with past practice. During such period, the Company also will use all reasonable
efforts to (x) preserve its business organization and that of the Bank intact,
(y) keep
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available to itself and Peoples the present services of the employees of the
Company and the Bank and (z) preserve for itself and Peoples the goodwill of the
customers of the Company and the Bank and others with whom business
relationships exist. Without limiting the generality of the foregoing, except
with the prior written consent of Peoples or as expressly contemplated hereby,
between the date hereof and the Effective Time, the Company shall not, and shall
cause the Bank not to:
(i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of the Company Common Stock, except for regular
quarterly cash dividends at a rate per share of Company Common Stock
not in excess of $.11 per share and except, in the event the Effective
Time occurs more than 45 days after the commencement of any calendar
quarter but prior to the normal dividend payment date for such calendar
quarter, a pro rata cash dividend based on the Company's normal
quarterly cash dividend rate; provided, however, that nothing contained
herein shall be deemed to affect the ability of the Bank to pay
dividends on its capital stock to the Company;
(ii) issue any shares of its capital stock, other than upon
exercise of the Company Options referred to in Section 3.1 hereof, or
issue, grant, modify or authorize any Rights; purchase any shares of
Company Common Stock; or effect any recapitalization, reclassification,
stock dividend, stock split or like change in capitalization;
(iii) amend its Articles of Incorporation, Constitution, Code
of Regulations, Bylaws or similar organizational documents; impose, or
suffer the imposition, on any share of stock or other ownership
interest held by the Company in the Bank of any lien, charge or
encumbrance or permit any such lien, charge or encumbrance to exist; or
waive or release any material right or cancel or compromise any
material debt or claim;
(iv) increase the rate of compensation of any of its
directors, officers or employees, or pay or agree to pay any bonus or
severance to, or provide any other new employee benefit or incentive
to, any of its directors, officers or employees, except (i) as may be
required pursuant to Previously Disclosed commitments existing on the
date hereof, (ii) as may be required by law and (iii) merit increases
in accordance with past practices, normal cost-of-living increases
and normal increases related to promotions or increased job
responsibilities;
(v) enter into or, except as may be required by law, modify
any pension, retirement, stock option, stock purchase, stock
appreciation right, savings, profit sharing, deferred compensation,
supplemental retirement, consulting, bonus, group insurance or other
employee benefit, incentive or welfare contract, plan or arrangement,
or any trust agreement related thereto, in respect of any of its
directors, officers or employees; or make any contributions to any of
the Company's Pension
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Plan or ESOP (other than as required by law or regulation or in a
manner and amount consistent with past practices);
(vi) enter into (w) any transaction, agreement, arrangement or
commitment not made in the ordinary course of business, (x) any
agreement, indenture or other instrument relating to the borrowing of
money by the Company or the Bank or guarantee by the Company or the
Bank of any such obligation, except in the case of the Bank for
deposits, FHLB advances, federal funds purchased and securities sold
under agreements to repurchase in the ordinary course of business
consistent with past practice, (y) any agreement, arrangement or
commitment relating to the employment of an employee or consultant, or
amend any such existing agreement, arrangement or commitment, provided
that the Company and the Bank may employ an employee or consultant in
the ordinary course of business if the employment of such employee or
consultant is terminable by the Company or the Bank at will without
liability, other than as required by law; or (z) any contract,
agreement or understanding with a labor union;
(vii) change its method of accounting in effect for the year
ended September 30, 1999, except as required by changes in laws or
regulations or generally accepted accounting principles, or change any
of its methods of reporting income and deductions for federal income
tax purposes from those employed in the preparation of its federal
income tax return for such year, except as required by changes in laws
or regulations;
(viii) make any capital expenditures in excess of $50,000
individually or $100,000 in the aggregate, other than pursuant to
binding commitments existing on the date hereof and other than
expenditures necessary to maintain existing assets in good repair; or
enter into any new lease of real property or any new lease of personal
property providing for annual payments exceeding $15,000;
(ix) file any applications or make any contract with respect
to branching or site location or relocation;
(x) acquire in any manner whatsoever (other than to realize
upon collateral for a defaulted loan) control over or any equity
interest in any business or entity, except for investments in
marketable equity securities in the ordinary course of business and not
exceeding 5% of the outstanding shares of any class;
(xi) enter or agree to enter into any agreement or arrangement
granting any preferential right to purchase any of its assets or rights
or requiring the consent of any party to the transfer and assignment of
any such assets or rights;
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(xii) change or modify in any material respect any of its
lending or investment policies, except to the extent required by law or
an applicable regulatory authority;
(xiii) take any action that would prevent or impede the Merger
or the Conversion from qualifying as a reorganization within the
meaning of Section 368 of the Code;
(xiv) enter into any futures contract, option contract,
interest rate caps, interest rate floors, interest rate exchange
agreement or other agreement for purposes of hedging the exposure of
its interest-earning assets and interest-bearing liabilities to changes
in market rates of interest;
(xv) take any action that would result in any of the
representations and warranties of the Company contained in this
Agreement not to be true and correct in any material respect at the
Effective Time or that would cause any of the conditions of Sections
6.1 or 6.3 hereof not to be satisfied; or
(xvi) agree to do any of the foregoing.
(b) During the period from the date of this Agreement and continuing
until the Effective Time, except with the prior written consent of the Company
or as expressly contemplated hereby, Peoples shall carry on its business in the
ordinary course consistent with past practice. During the period between the
date hereof and the Effective Time, Peoples will use all reasonable efforts to
(x) preserve its business organization intact, and (y) preserve for itself and
the Company the goodwill of the customers of Peoples and others with whom
business relationships exist. Without limiting the generality of the foregoing,
except with the prior written consent of the Company or as expressly
contemplated hereby, between the date hereof and the Effective Time, Peoples
shall not:
(i) take any action that would prevent or impede the Merger or
the Conversion from qualifying as a reorganization within the meaning
of Section 368 of the Code;
(ii) take any action that would result in any of the
representations and warranties of Peoples contained in this Agreement
not to be true and correct in any material respect at the Effective
Time or that would cause any of the conditions of Sections 6.1 or 6.2
hereof not to be satisfied; or
(iii) agree to do any of the foregoing.
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5.7 CERTAIN ACTIONS
The Company and the Bank shall not solicit or encourage inquiries or
proposals with respect to, furnish any information relating to, or participate
in any negotiations or discussions concerning, any acquisition, purchase of all
or a substantial portion of the assets of, or any equity interest in, the
Company or the Bank (other than with Peoples or an affiliate thereof), provided,
however, that the Board of Directors of the Company may furnish such information
or participate in such negotiations or discussions if such Board of Directors,
after having consulted with and considered the advice of outside counsel, has
determined that the failure to do the same may cause the members of such Board
of Directors to breach their fiduciary duties under applicable law. The Company
will promptly inform Peoples orally and in writing of any such request for
information or of any such negotiations or discussions, as well as instruct its
and the Bank's directors, officers, representatives and agents to refrain from
taking any action prohibited by this Section 5.7.
5.8 CURRENT INFORMATION
During the period from the date of this Agreement to the Effective
Time, each of Peoples and the Company shall, upon the request of the other
party, cause one or more of its designated representatives to confer on a
monthly or more frequent basis with representatives of the other party regarding
its financial condition, operations and business and matters relating to the
completion of the transactions contemplated hereby. As soon as reasonably
available, but in no event more than 45 days after the end of each calendar
quarter ending after the date of this Agreement (other than the quarter ending
September 30, 1999), the Company will deliver to Peoples its quarterly report on
Form 10-Q under the Exchange Act, and, as soon as reasonably available, but in
no event more than 90 days after September 30, 1999, the Company will deliver to
Peoples its Annual Report on Form 10-K for 1999. As soon as reasonably
available, but in no event more than 90 days after September 30, 1999, Peoples
will deliver to the Company audited statements of condition (including related
notes and schedules, if any) of Peoples as of September 30, 1999 and 1998 and
statements of income, changes in net worth and cash flows (including related
notes and schedules, if any) of Peoples for each of the years in the three-year
period ended September 30, 1999. Peoples also will deliver to the Company each
Thrift Financial Report ("TFR") report filed by Peoples with the OTS
concurrently with the filing of such call report. Within 25 days after the end
of each month, the Company and Peoples will deliver to the other party an
unaudited consolidated statement of condition and an unaudited consolidated
statement of income, without related notes, for such month prepared in
accordance with generally accepted accounting principles.
5.9 INDEMNIFICATION; INSURANCE
(a) From and after the Effective Time through the third anniversary of
the Effective Time, the Holding Company (the "Indemnifying Party") shall provide
indemnification to any present or former director, officer or employee of the
Company and the Bank, in each case determined as of the Effective Time (the
"Indemnified Parties"), with respect to any costs or expenses (including
reasonable attorneys' fees), judgments, fines, losses, claims, damages or
liabilities incurred in
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connection with any claim, action, suit, proceeding or investigation, whether,
civil, criminal, administrative or investigative, arising out of matters
existing or occurring at or prior to the Effective Time, if first asserted or
claimed prior to the date hereof and Previously Disclosed, if first asserted or
claimed between the date hereof and the Effective Time and disclosed pursuant to
Section 5.17 hereof or if first asserted or claimed after the Effective Time, to
the fullest extent, if any, that such Indemnified Party would have been entitled
to indemnification by the Company or the Bank under the Articles of
Incorporation, Constitution or Bylaws of the Company or the Bank as Previously
Disclosed, provided, however, that all rights to indemnification in respect of
any claim asserted or made within such period shall continue until the final
disposition of such claim, and provided, further, that nothing contained herein
shall extend or be deemed a waiver of any applicable statute of limitations in
respect of any claim or claim for indemnification. Without limiting the
foregoing, all limitations of liability existing in favor of the Indemnified
Parties in the Articles of Incorporation, Constitution or Bylaws of the Company
or the Bank, arising out of matters existing or occurring at or prior to the
Effective Time shall survive the Merger and shall continue in full force and
effect.
(b) Any Indemnified Party wishing to claim indemnification under
Section 5.9(a), upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify the Indemnifying Party, but the failure to
so notify shall not relieve the Indemnifying Party of any liability it may have
to such Indemnified Party if such failure does not materially prejudice the
Indemnifying Party. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), (i) the
Indemnifying Party shall have the right to assume the defense thereof and the
Indemnifying Party shall not be liable to such Indemnified Parties for any legal
expenses of other counsel or any other expenses subsequently incurred by such
Indemnified Parties in connection with the defense thereof, except that if the
Indemnifying Party elects not to assume such defense or counsel for the
Indemnified Parties advises that there are issues which raise conflicts of
interest between the Indemnifying Party and the Indemnified Parties, the
Indemnified Parties may retain counsel which is reasonably satisfactory to the
Indemnifying Party, and the Indemnifying Party shall pay, promptly as statements
therefor are received, the reasonable fees and expenses of such counsel for the
Indemnified Parties (which may not exceed one firm in any jurisdiction unless
the use of one counsel for such Indemnified Parties would present such counsel
with a conflict of interest) in accordance with the obligations set forth in
Section 5.9(a) hereof, (ii) the Indemnified Parties will cooperate in the
defense of any such matter, (iii) the Indemnifying Party shall not be liable for
any settlement effected without its prior written consent and (iv) the
Indemnifying Party shall have no obligation hereunder in the event a federal
banking agency or a court of competent jurisdiction shall ultimately determine,
and such determination shall have become final and nonappealable, that
indemnification of an Indemnified Party in the manner contemplated hereby is
prohibited by applicable law.
(c) The Holding Company shall maintain the Company's existing
directors' and officers' liability insurance policy (or purchase an insurance
policy providing coverage on substantially the same terms and conditions) for
acts or omissions occurring prior to the Effective Time by persons who are
currently covered by such insurance policy maintained by the Company and the
Bank for a period of three years following the Effective Time, provided,
however, that in no event shall the
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Holding Company be required to expend on an annual basis more than 125% of the
amount paid by the Company and the Bank as of the date hereof for such insurance
coverage (the "Insurance Amount") to maintain or procure such insurance
coverage, and further provided that if the Holding Company is unable to maintain
or obtain the insurance called for hereby, the Holding Company shall use all
reasonable efforts to obtain as much comparable insurance as is available for
the Insurance Amount. At the request of the Holding Company, the Company shall
use reasonable efforts to procure the insurance coverage referred to in the
preceding sentence prior to the Effective Time.
(d) In the event that the Holding Company or any of its respective
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then, and in each such case the successors
and assigns of such entity shall assume the obligations set forth in this
Section 5.9, which obligations are expressly intended to be for the irrevocable
benefit of, and shall be enforceable by, each director and officer covered
hereby.
5.10 DIRECTORS
Each of Peoples and the Holding Company agrees to take all action
necessary to appoint or elect, effective as of the Effective Time, John E.
Rathkamp as a director of the Holding Company and the Surviving Bank to a
three-year class ending at the Annual Meeting in 2002.
5.11 EMPLOYEES AND EMPLOYEE BENEFIT PLANS
(a) All employees of the Company or the Bank as of the Effective Time
(collectively, "Company Employees") shall become employees of the Holding
Company or a Holding Company Subsidiary as of the Effective Time, provided that,
other than as provided by Section 5.11(g) hereof, the Holding Company or a
Holding Company Subsidiary shall have no obligation to continue the employment
of any such person and nothing contained in this Agreement shall give any
employee of the Holding Company or a Holding Company Subsidiary a right to
continuing employment with the Holding Company or a Holding Company Subsidiary
after the Effective Time. To the extent that the Holding Company or a Holding
Company Subsidiary terminates the employment of any Company Employee (other than
those employees who receive payments pursuant to Section 5.11(d) hereof), other
than for cause, within six months following the Effective Time, the Holding
Company shall, or shall cause a Holding Company Subsidiary to, provide severance
benefits in a cash amount equal to such employee's regular salary for a one-week
period (as in effect immediately prior to the Effective Time) multiplied by the
total number of whole years of such employee's employment with a minimum of four
weeks severance pay and a maximum of 26 weeks of severance pay.
(b) Each Company Employee who remains employed by the Holding Company
or a Holding Company Subsidiary following the Effective Time (each, a
"Continuing Employee") shall be entitled to participate in (i) such of the
employee benefit plans, deferred compensation arrangements, bonus or incentive
plans and other compensation and benefit plans that the Holding
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Company or a Holding Company Subsidiary may continue for the benefit of
Continuing Employees following the Effective Time and (ii) whatever employee
benefit plans and other compensation and benefit plans (other than any stock
option or restricted stock grant plan implemented by the Holding Company) that
the Holding Company or a Holding Company Subsidiary may maintain for the benefit
of its similarly situated employees on an equitably equivalent basis, if such
Continuing Employee is not otherwise then participating in a similar plan
described in Section 5.11(c) hereof. The parties hereto acknowledge that
Continuing Employees shall be eligible to participate in the stock option plan
implemented by the Holding Company subsequent to the Effective Time ("New Option
Plan") (subject to receipt of necessary corporate, regulatory and stockholder
approval) based upon the same criteria as other employees of Peoples or the
Holding Company and the level of grants shall give due regard to, among other
factors, relative levels of title, duties, salary and other compensation and
benefits.
(c) (i) At the Effective Time, the Holding Company or a Holding Company
Subsidiary shall become the plan sponsor of each Company Employee Plan in effect
prior to such time. The Company agrees to take or cause to be taken such actions
as the Holding Company or a Holding Company Subsidiary may reasonably request to
give effect to such assumption. The Holding Company or a Holding Company
Subsidiary shall have the right and power at any time following the Effective
Time to amend or terminate or cease benefit accruals under any Company Employee
Plan or cause it to be merged with or its assets and liabilities to be
transferred to a similar plan maintained by it.
(ii) For purposes of its employee benefit plans, the Holding
Company and a Holding Company Subsidiary shall treat Continuing Employees as new
employees, but shall amend its plans to provide credit for purposes of vesting
and eligibility to participate, for each Continuing Employee's service with the
Company and the Bank to the extent that such service was recognized for similar
purposes under the Company Employee Plans immediately prior to the Effective
Time. Continuing Employees and their covered dependents will not be deprived of
any partial or complete coverage under any employee plan of the Holding Company
or a Holding Company Subsidiary (which provides the type of benefits similar to
benefits under any Company Employee Plan) because of any waiting period or
pre-existing condition or previous medical treatments, except to the extent that
such pre-existing condition or previous medical treatments were excluded from
coverage under a Company Employee Plan, in which case this Section 5.11(c)(ii)
shall not require coverage for such pre-existing condition or previous medical
treatments. To the extent that the initial period of coverage for Continuing
Employees under any employee benefit plan of the Holding Company or a Holding
Company Subsidiary that is an "employee welfare benefit plan" as defined in
Section 3(1) of ERISA overlaps with the 12 months coverage period of an
applicable Company Employee Plan, Continuing Employees shall be given credit
during the initial period of coverage for any deductibles and coinsurance
payments made by Continuing Employees under any Company Employee Plan during
any partial period.
(d) At the Effective Time, the employment agreements between the
Company and the three executives listed on Disclosure Schedule 5.11(d) hereto
shall be cancelled in consideration of
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the execution of new employment agreements between each of such executives and
Peoples and/or the Holding Company.
(e) In the sole discretion of the Holding Company or a Holding Company
Subsidiary, as applicable, payments made by it in satisfaction of obligations of
the Company or the Bank under any Company Employee Plan shall be subject to the
recipient's delivery to the Holding Company or a Holding Company Subsidiary, as
applicable, of (i) a written acknowledgement signed by such recipient that the
payment or payments to be made to him or her is in full and complete
satisfaction of all liabilities and obligations thereunder of the Company, the
Bank, the Holding Company or any Holding Company Subsidiary, and each of their
respective affiliates, directors, officers, employees and agents, and (ii) a
release by such recipient of all such parties from further liability in
connection with the particular Company Employee Plan.
(f) The Company's Employee Stock Ownership Plan (the "Company ESOP")
shall be terminated effective one day prior to the Effective Time. As soon as
practicable after the Effective Time (but not prior to the publication of
financial results covering at least 30 days of combined operations after the
Merger), the trustees of the Company ESOP shall, if necessary, convert to cash a
portion of the Holding Company Common Stock received by the Company ESOP in the
Merger with respect to unallocated Company Common Stock in order to repay the
entire outstanding balance of the Company ESOP loan in accordance with ERISA,
the rules and regulations promulgated thereunder, the Code, the rules,
regulations promulgated thereunder, and any precedential rulings issued by the
Internal Revenue Service ("IRS"). As soon as practicable after the retirement of
the Company ESOP loan (but not later than 90 days after the publication of
financial results covering at least 30 days of combined operations after the
Merger), the trustees of the Company ESOP shall allocate the remaining Holding
Company Common Stock and cash received by the Company ESOP in the Merger with
respect to unallocated shares of Company Common Stock to the accounts of all
Company ESOP participants (whether or not such participants are then actively
employed) and beneficiaries in proportion to the account balance of such
participants and beneficiaries as they existed as of the Effective Time (and, if
required, to the accounts of former participants or their beneficiaries) as
investment earnings of the Company ESOP except as restricted by applicable law.
The Company and/or Peoples and the Holding Company shall exercise best efforts
to implement procedures that will assure the full allocation of the remaining
suspense account to such participants or their beneficiaries. Upon the election
of any participant, his or her benefit that constitutes an "eligible rollover
distribution" (as defined in Section 402(f)(2)(A) of the Code) under the Company
ESOP may (i) in the sole discretion of Peoples and the Holding Company, be
rolled over to any qualified Peoples or Holding Company (or any Subsidiary
thereof) benefit plan, other than an employee stock ownership plan of the
Holding Company or Peoples, or (ii) be rolled over to any individual retirement
account and, provided further, that any such distribution shall not occur until
receipt of a favorable termination ruling from the IRS.
The foregoing actions relating to termination of the Company ESOP will
be adopted conditioned upon the consummation of the Merger and upon receiving
(i) a favorable determination letter from the IRS with regard to the continued
qualification of the Company ESOP after any
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required amendments necessary to implement the actions thereof set forth above
and (ii) the receipt of a favorable termination letter as to the termination of
the Company ESOP. The Company, the Bank, and the Holding Company will cooperate
in submitting appropriate requests for any such determination and termination
letters to the IRS and will use their best efforts to seek the issuance of such
letters as soon as practicable following the date hereof. The Company and the
Holding Company will adopt such additional amendments to the Company ESOP as may
be reasonably required by the IRS as a condition to granting such favorable
determination and termination letters provided that such amendments do not
substantially change the terms outlined herein or would result in a material
adverse change in the business, operations, assets, financial condition or
prospects of the Company or the Bank or result in an additional material
liability to the Holding Company or Peoples.
(g) As of the Effective Time, the Holding Company and/or Peoples shall
offer employment to John E. Rathkamp, Dennis J. Slattery and Teresa O'Quinn
pursuant to the terms of employment agreements to be reasonably agreed upon.
5.12 BANK MERGER
Peoples, the Holding Company and the Company shall take, and the
Company shall cause the Bank to take, all necessary and appropriate actions,
including causing the Bank and Peoples to enter into a merger agreement (the
"Bank Merger Agreement"), to cause the Bank to merge with and into Peoples (the
"Bank Merger") immediately after the Effective Time, or at such other time
thereafter as may be determined by the Holding Company and Peoples in their sole
discretion, in accordance with the requirements of all applicable laws of the
United States and regulations of the OTS thereunder and the laws of the State of
Ohio and the regulations of the Division thereunder. Peoples shall be the
surviving corporation in the Bank Merger (the "Surviving Bank"), and shall
continue its corporate existence under the laws of the United States as a
wholly-owned subsidiary of the Holding Company. The name of the Surviving Bank
shall be determined by the Board of Directors of Peoples. The directors and
executive officers of the Surviving Bank upon consummation of the Bank Merger
shall be the directors and executive officers of Peoples immediately prior to
the consummation of the Bank Merger, except as provided in Section 5.10 of this
Agreement. Upon consummation of the Bank Merger, the separate corporate
existence of the Bank shall cease.
5.13 ORGANIZATION OF THE HOLDING COMPANY
Prior to the Effective Time, Peoples shall cause the Holding Company to
be organized under the DGCL. Following the organization of the Holding Company
and prior to the Effective Time, the Board of Directors shall approve this
Agreement and the transaction contemplated hereby, and Peoples shall cause the
Holding Company to execute and deliver an appropriate instrument of accession to
this Agreement, whereupon the Holding Company shall become a party to, and be
bound by, this Agreement.
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5.14 AFFILIATES' LETTERS
The Company shall use its reasonable best efforts to cause each person
who is a Company Affiliate to execute and deliver to the Holding Company within
60 days of the date hereof an agreement in the form of Exhibit A hereto.
5.15 ACCOUNTANTS' LETTERS
Each of the Company and Peoples shall use its reasonable best efforts
to be delivered to the other party a letter of its respective independent public
accountants, dated (i) the date on which the Form S-1 becomes effective under
the Securities Act and (ii) a date shortly prior to the Effective Time, and
addressed to such other party, in form and substance customary for "comfort"
letters delivered by independent accountants in accordance with Statement of
Financial Accounting Standards No. 72.
5.16 INTEGRATION OF POLICIES
During the period from the date of this Agreement to the Effective
Time, the Company and the Bank shall, and shall cause their directors, officers
and employees to, cooperate and assist Peoples in the formulation of a plan of
integration for Peoples and the Company and the Bank with respect to their
combined operations subsequent to the Effective Time.
5.17 DISCLOSURE SUPPLEMENTS
From time to time prior to the Effective Time, each party shall
promptly supplement or amend any materials Previously Disclosed and delivered to
the other party pursuant hereto with respect to any matter hereafter arising
which, if existing, occurring or known at the date of this Agreement, would have
been required to be set forth or described in materials Previously Disclosed to
the other party or which is necessary to correct any information in such
materials which has been rendered materially inaccurate thereby; no such
supplement or amendment to such materials shall be deemed to have modified the
representations, warranties and covenants of the parties for the purpose of
determining whether the conditions set forth in Article VI hereof have been
satisfied.
5.18 FAILURE TO FULFILL CONDITIONS
In the event that either of the parties hereto determines that a
condition to its respective obligations to consummate the transactions
contemplated may not be fulfilled on or prior to the termination of this
Agreement, it will promptly notify the other party. Each party will promptly
inform the other party of any facts applicable to it that would be likely to
prevent or materially delay approval of the Merger, the Conversion or any of the
other transactions contemplated hereby by any Governmental Entity or third party
or which would otherwise prevent or materially delay consummation of such
transactions.
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ARTICLE VI
CONDITIONS PRECEDENT
6.1 CONDITIONS PRECEDENT - PEOPLES AND THE COMPANY
The respective obligations of Peoples and the Company to effect the
Merger shall be subject to satisfaction of the following conditions at or prior
to the Effective Time.
(a) All corporate action necessary to authorize the execution and
delivery of this Agreement and consummation of the Merger and the other
transactions contemplated hereby shall have been duly and validly taken by
Peoples, the Holding Company, and the Company, including without limitation
approval of this Agreement by the requisite vote of the shareholders of the
Company.
(b) All approvals and consents from any Governmental Entity the
approval or consent of which is required for the consummation of the Merger and
the other transactions contemplated hereby shall have been received and all
statutory waiting periods in respect thereof shall have expired; and Peoples,
the Holding Company, the Company and the Bank shall have procured all other
approvals, consents and waivers of each person (other than the Governmental
Entities referred to above) whose approval, consent or waiver is necessary to
the consummation of the Merger and the other transactions contemplated hereby
and the failure of which to obtain would have the effects set forth in the
following proviso clause; provided, however, that no approval or consent
referred to in this Section 6.1(b) shall be deemed to have been received if it
shall include any condition or requirement that, individually or in the
aggregate, would so materially reduce the economic or business benefits of the
transactions contemplated by this Agreement to Peoples or the Company that had
such condition or requirement been known, Peoples or the Company, in its
reasonable judgment, would not have entered into this Agreement.
(c) None of Peoples, the Holding Company, the Company or the Bank shall
be subject to any statute, rule, regulation, injunction or other order or decree
which shall have been enacted, entered, promulgated or enforced by any
governmental or judicial authority which prohibits, restricts or makes illegal
consummation of the Merger or the other transactions contemplated hereby.
(d) The Form S-1 shall have become effective under the Securities Act,
and Peoples shall have received all state securities laws or "blue sky" permits
and other authorizations or there shall be exemptions from registration
requirements necessary to issue the Holding Company Common Stock in connection
with the Merger, and neither the Form S-1 nor any such permit, authorization or
exemption shall be subject to a stop order or threatened stop order by the
Commission or any state securities authority.
(e) The shares of Holding Company Common Stock to be issued in
connection with the Merger and the Conversion shall have been approved for
listing on the Nasdaq Stock Market's National Market.
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(f) Peoples shall have received the written opinion of Elias, Matz,
Tiernan & Herrick L.L.P., special counsel to Peoples, to the effect that for
federal income tax purposes the Merger will constitute a reorganization within
the meaning of Section 368(a) of the Code, and the Company shall have received
the written opinion of Kepley, Gilligan & Eyrich to such effect and to the
effect that (i) no gain or loss will be recognized by the shareholders of the
Company who receive Holding Company Common Stock in exchange for their Company
Common Stock in the Merger; (ii) the tax basis of a shareholder in the Holding
Company Common Stock received in the Merger in exchange for his or her Company
Common Stock will be the same as the tax basis of the Company Common Stock
surrendered in exchange therefor; and (iii) the holding period of the shares of
Holding Company Common Stock received in the Merger will include the holding
period of the shares of Company Common Stock surrendered therefor, provided that
such Company Common Stock was held as a capital asset by such shareholder. Each
such opinion shall be based on such written representations from Peoples, the
Company and others as such independent public accountants and counsel shall
reasonably request as to factual matters.
(g) The Conversion shall have been consummated in accordance with the
terms of Section 5.1 of this Agreement and applicable laws and regulations.
(h) Holders of not more than 15% of the outstanding Company Common
Stock shall have elected to exercise dissenters' or appraisal rights under the
ORC.
(i) The merger of Oakley with and into Peoples shall have been
consummated in accordance with all applicable laws and regulations (the
"Acquisition").
6.2 CONDITIONS PRECEDENT - THE COMPANY
The obligations of the Company to effect the Merger shall be subject to
satisfaction of the following conditions at or prior to the Effective Time
unless waived by the Company pursuant to Section 7.4 hereof.
(a) The representations and warranties of Peoples set forth in Article
IV hereof shall be true and correct in all material respects as of the date of
this Agreement and as of the Closing Date as though made on and as of the
Closing Date, or on the date when made in the case of a representation and
warranty which specifically relates to an earlier date. Notwithstanding the
preceding sentence, except for the representations and warranties contained in
the first sentence of Section 4.13, any inaccuracies in the representations and
warranties of Peoples shall not prevent the satisfaction of the condition
contained in this Section 6.2(a) unless the cumulative effect of all such
inaccuracies, taken in the aggregate, represent a Material Adverse Effect on
Peoples. In applying the preceding sentence, the determination of whether a
representation and warranty of Peoples is inaccurate shall be made without
regard to any language in Article IV which would otherwise qualify such
representation and warranty individually by reference to materiality or a
Material Adverse Effect.
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(b) Peoples shall have performed in all material respects all
obligations and complied with all covenants required to be performed and
complied with by it pursuant to this Agreement on or prior to the Effective
Time.
(c) Peoples shall have delivered to the Company a certificate, dated
the date of the Closing and signed by its Chief Executive Officer and by its
Chief Financial Officer, to the effect that the conditions set forth in Sections
6.2(a) and 6.2(b) have been satisfied.
(d) No proceeding initiated by any Governmental Entity seeking an
order, injunction or decree issued by any court or agency of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the Merger or the other transactions contemplated hereby shall be pending.
(e) Peoples shall have furnished the Company with such certificates of
its respective officers or others and such other documents to evidence
fulfillment of the conditions set forth in Sections 6.1 and 6.2 as such
conditions relate to Peoples as the Company may reasonably request.
6.3 CONDITIONS PRECEDENT - PEOPLES
The obligations of Peoples to effect the Merger shall be subject to
satisfaction of the following conditions at or prior to the Effective Time
unless waived by Peoples pursuant to Section 7.4 hereof.
(a) The representations and warranties of the Company set forth in
Article III hereof shall be true and correct in all material respects as of the
date of this Agreement and as of the Closing Date as though made on and as of
the Closing Date, or on the date when made in the case of a representation and
warranty which specifically relates to an earlier date. Notwithstanding the
preceding sentence, except for the representations and warranties contained in
the second and fourth sentences of Section 3.1 and the first sentence of Section
3.13, any inaccuracies in the representations and warranties of the Company
shall not prevent the satisfaction of the condition contained in this Section
6.3(a) unless the cumulative effect of all such inaccuracies, taken in the
aggregate, represent a Material Adverse Effect on the Company. In applying the
preceding sentence, the determination of whether a representation and warranty
of the Company is inaccurate shall be made without regard to any language in
Article III which would otherwise qualify such representation and warranty
individually by reference to materiality or a Material Adverse Effect.
(b) The Company shall have performed in all material respects all
obligations and covenants required to be performed by it pursuant to this
Agreement on or prior to the Effective Time.
(c) The Company shall have delivered to Peoples a certificate, dated
the date of the Closing and signed by its President and by its Executive Vice
President, to the effect that the conditions set forth in Sections 6.3(a) and
6.3(b) have been satisfied.
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(d) No proceeding initiated by any Governmental Entity seeking an
order, injunction or decree issued by any court or agency of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the Merger or the other transactions contemplated hereby shall be pending.
(e) The Company shall have furnished Peoples with such certificates of
its officers or others and such other documents to evidence fulfillment of the
conditions set forth in Sections 6.1 and 6.3 as such conditions relate to the
Company as Peoples may reasonably request.
ARTICLE VII
TERMINATION, WAIVER AND AMENDMENT
7.1 TERMINATION
This Agreement may be terminated:
(a) at any time on or prior to the Effective Time, by the mutual
consent in writing of the parties hereto;
(b) at any time on or prior to the Effective Time, by Peoples in
writing if the Company has, or by the Company in writing if Peoples has, in any
material respect, breached (i) any material covenant or undertaking contained
herein or (ii) any representation or warranty contained herein, in any case if
such breach would have a Material Adverse Effect on the party and has not been
cured by the earlier of 30 days after the date on which written notice of such
breach is given to the party committing such breach or the Effective Time;
(c) at any time, by either Peoples or the Company in writing, (i) if
any application for prior approval of a Governmental Entity which is necessary
to consummate the Acquisition, the Merger, the Conversion or the other
transactions contemplated hereby is denied or withdrawn at the request or
recommendation of the Governmental Entity which must grant such approval, unless
within the 25-day period following such denial or withdrawal a petition for
rehearing or an amended application has been filed with the applicable
Governmental Entity, provided, however, that no party shall have the right to
terminate this Agreement pursuant to this clause (i) if such denial or request
or recommendation for withdrawal shall be due to the failure of the party
seeking to terminate this Agreement to perform or observe the covenants and
agreements of such party set forth herein, or (ii) if any Governmental Entity of
competent jurisdiction shall have issued a final nonappealable order enjoining
or otherwise prohibiting the consummation of the Acquisition, the Merger, the
Conversion or the other transactions contemplated by this Agreement;
(d) at any time, by either Peoples or the Company in writing, if (i)
the shareholders of the Company do not approve this Agreement after a vote taken
thereon at a meeting duly called for such purpose (or at any adjournment
thereof) or (ii) the Members of Peoples and Oakley do not approve the Conversion
after a vote taken thereon at a meeting duly called for such purpose (or at any
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adjournment thereof), unless in any case the failure of such occurrence shall be
due to the failure of the party seeking to terminate to perform or observe in
any material respect its agreements set forth herein to be performed or observed
by such party at or before the Effective Time; and
(e) by either Peoples or the Company in writing if the Effective Time
has not occurred by the close of business on September 30, 2000, provided that
this right to terminate shall not be available to any party whose failure to
perform an obligation in breach of such party's obligations under this Agreement
has been the cause of, or resulted in, the failure of the Merger to be
consummated by such date.
(f) by Peoples in the event of a Purchase Event (as defined in Section
8.1 hereof).
For purposes of this Section 7.1, termination by Peoples also shall be
deemed to be termination on behalf of the Holding Company.
7.2 EFFECT OF TERMINATION
In the event that this Agreement is terminated pursuant to Section 7.1
hereof, this Agreement shall become void and have no effect, except that (i) the
provisions relating to confidentiality set forth in Section 5.4(b) and expenses
and the termination fees set forth in Section 8.1, and this Section 7.2, shall
survive any such termination and (ii) a termination pursuant to Section 7.1(b),
(c), (d) or (e) shall not relieve the breaching party from liability for willful
breach of any covenant, undertaking, representation or warranty giving rise to
such termination.
7.3 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
All representations, warranties and covenants in this Agreement or in
any instrument delivered pursuant hereto or thereto shall expire on, and be
terminated and extinguished at, the Effective Time other than covenants that by
their terms are to be performed after the Effective Time (including without
limitation the covenants set forth in Sections 5.9, 5.10, 5.11 and 5.12 hereof),
provided that no such representations, warranties or covenants shall be deemed
to be terminated or extinguished so as to deprive Peoples or the Company (or any
director, officer or controlling person of either thereof) of any defense at law
or in equity which otherwise would be available against the claims of any
person, including, without limitation, any shareholder or former shareholder of
either Peoples or the Company.
7.4 WAIVER
Each party hereto by written instrument signed by an executive officer
of such party, may at any time (whether before or after approval of this
Agreement by the shareholders of the Company) extend the time for the
performance of any of the obligations or other acts of the other party hereto
and may waive (i) any inaccuracies of the other party in the representations or
warranties contained in this Agreement or any document delivered pursuant
hereto, (ii) compliance with any of the
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covenants, undertakings or agreements of the other party, (iii) to the extent
permitted by law, satisfaction of any of the conditions precedent to its
obligations contained herein or (iv) the performance by the other party of any
of its obligations set forth herein, provided that any such waiver granted, or
any amendment or supplement pursuant to Section 7.5 hereof executed after
shareholders of the Company have approved this Agreement shall not modify either
the amount or form of the consideration to be provided hereby to the holders of
Company Common Stock upon consummation of the Merger or otherwise materially
adversely affect such shareholders without the approval of the shareholders who
would be so affected.
7.5 AMENDMENT OR SUPPLEMENT
This Agreement may be amended or supplemented at any time by mutual
agreement of the parties hereto, subject to the proviso to Section 7.4 hereof.
Any such amendment or supplement must be in writing and authorized by or under
the direction of their respective Boards of Directors.
ARTICLE VIII
MISCELLANEOUS
8.1 EXPENSES; TERMINATION FEES
(a) Each party hereto shall bear and pay all costs and expenses
incurred by it in connection with the transactions contemplated by this
Agreement, including fees and expenses of its own financial consultants,
investment bankers, accountants and counsel, provided that notwithstanding
anything to the contrary contained in this Agreement, neither Peoples nor the
Company shall be released from any liabilities or damages arising out of its
willful breach of any provision of this Agreement.
(b) Except as provided below, if this Agreement is terminated for any
reason, Peoples shall pay to the Company within five days after such termination
in immediately available funds, the sum of $200,000 as an agreed-upon break up
fee. Provided, however, no break up fee shall be payable by Peoples to the
Company if any of the following shall occur: (i) this Agreement is properly
terminated by Peoples pursuant to 7.1(b) or (f); (ii) the Company refuses to
convene its shareholders' meeting to vote on this Agreement or such
shareholders' meeting is held and the Company shareholders do not approve this
Agreement by the required vote; (iii) this Agreement is terminated because the
closing condition set forth in Section 6.3(c) or (d) can not be satisfied; or
(v) the Company exercises a right of termination prior to September 30, 2000.
(c) The Company shall pay Peoples, and Peoples shall be entitled to
payment of, a fee (the "Fee") upon the occurrence of a Purchase Event (as
defined herein) so long as the Purchase Event occurs prior to a Fee Termination
Event (as defined herein). Such payment shall be made to Peoples in immediately
available funds within five business days after the occurrence of a Purchase
Event. The Fee shall be equal to $500,000. A Fee Termination Event shall be the
first to occur of
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the following: (i) the Effective Date, (ii) termination of this Agreement in
accordance with the terms hereof prior to the occurrence of a Purchase Event
(other than a termination of this Agreement by Peoples pursuant to Section
7.1(b) hereof as a result of a willful breach of any representation, warranty,
covenant or agreement of the Company or the Bank or pursuant to Section 7.1(f)
as a result of a Purchase Event) or (iii) 12 months following a termination of
this Agreement by Peoples pursuant to Section 7.1(b) hereof unless a Purchase
Event shall have occurred prior thereto.
(d) The term "Purchase Event" shall mean any of the following events or
transactions occurring after the date hereof:
(i) The Company or the Bank, without having received Peoples'
prior written consent, shall have entered into an agreement to engage
in an Acquisition Transaction (as defined below) with any person (the
term "person" for purposes of this Agreement having the meaning
assigned thereto in Sections 3(a)(9) and 13(d)(3) of the Exchange Act
and the rules and regulations thereunder) other than Peoples or any
affiliate of Peoples (the term "affiliate" for purposes of this
Agreement having the meaning assigned thereto in Rule 405 under the
Securities Act) or the Board of Directors of the Company shall have
recommended that the shareholders of the Company approve or accept any
Acquisition Transaction with any person other than Peoples or any
affiliate of Peoples. For purposes of this Agreement, "Acquisition
Transaction" shall mean (x) a merger or consolidation, or any similar
transaction, involving the Company or the Bank, (y) a purchase, lease
or other acquisition of all or substantially all of the assets of the
Company or the Bank, or (z) a purchase or other acquisition (including
by way of merger, consolidation, share exchange or otherwise) of
securities representing 25% or more of the voting power of the Company
or the Bank; provided that the term "Acquisition Transaction" does not
include any internal merger or consolidation involving only the Company
and/or any Subsidiary including the Bank;
(ii) After a bona fide proposal is made by any person other
than Peoples or any affiliate of Peoples to the Company or its
shareholders to engage in an Acquisition Transaction, (A) the Company
or the Bank shall have breached any covenant or obligation contained
in this Agreement and such breach would entitle Peoples to terminate
this Agreement or (B) the holders of the Company Common Stock shall
not have approved this Agreement at the meeting of such shareholders
held for the purpose of voting on this Agreement or (C) the meeting
of the holders of the Company Common Stock to approve this Agreement
shall not have been held or shall have been canceled prior to
termination of this Agreement or (D) the Board of Directors of the
Company shall have withdrawn or modified in a manner adverse to
Peoples the recommendation of the Board of Directors of the Company
with respect to this Agreement.
If more than one of the transactions giving rise to a Purchase Event
under this Section is undertaken or effected, then all such transactions shall
give rise to only one Purchase Event.
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(e) The Company shall give written notice to Peoples within 24 hours of
the occurrence of a Purchase Event known to the Company; however, the giving of
such notice by the Company shall not be a condition to the right of Peoples to
obtain the Fee.
8.2 ENTIRE AGREEMENT
This Agreement contains the entire agreement among the parties with
respect to the transactions contemplated hereby and supersedes all prior
arrangements or understandings with respect thereto, written or oral, other than
documents referred to herein and therein. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and thereto and their respective successors. Nothing in this Agreement,
expressed or implied, is intended to confer upon any party, other than the
parties hereto, and their respective successors, any rights, remedies,
obligations or liabilities other than as set forth in Sections 5.9, 5.10 and
5.11 hereof.
8.3 NO ASSIGNMENT
None of the parties hereto may assign any of its rights or obligations
under this Agreement to any other person.
8.4 NOTICES
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally, telecopied
(with confirmation) or sent by overnight mail service or by registered or
certified mail (return receipt requested), postage prepaid, addressed as
follows:
If to Peoples:
Peoples Building, Loan and Savings Company
11 S. Broadway
Lebanon, Ohio 45036
Attn: Jerry D. Williams
President
Fax: (513) 932-3367
With a required copy to:
Elias, Matz, Tiernan & Herrick L.L.P.
734 15th Street, N.W.
Washington, DC 20005
Attn: Kevin M. Houlihan, Esq. or Hugh T. Wilkinson, Esq.
Fax: (202) 347-2172
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If to the Company:
Harvest Home Financial Corporation
3621 Harrison Avenue
Cheviot, Ohio 45211
Attn: John E. Rathkamp
President and Managing Officer
Fax: (513) 389-3923
With a required copy to:
Kepley, Gilligan & Eyrich
525 Vine Street
Suite 2200
Cincinnati, Ohio 45202
Attn: David J. Eyrich, Esq.
Fax: (513) 241-8111
8.5 ALTERNATIVE STRUCTURE
Notwithstanding any provision of this Agreement to the contrary,
Peoples may, with the written consent of the Company, which shall not be
unreasonably withheld, elect, subject to the filing of all necessary
applications and the receipt of all required regulatory approvals, to modify the
structure of the acquisition of the Company set forth herein, provided that (i)
the federal income tax consequences of any transactions created by such
modification shall not be other than those set forth in Section 6.1(f) hereof,
(ii) consideration to be paid to the holders of the Company Common Stock is not
thereby changed in kind or reduced in amount as a result of such modification
and (iii) such modification will not materially delay or jeopardize receipt of
any required regulatory approvals or any other condition to the obligations of
Peoples set forth in Sections 6.1 and 6.3 hereof.
8.6 INTERPRETATION
The captions contained in this Agreement are for reference purposes
only and are not part of this Agreement.
8.7 COUNTERPARTS
This Agreement may be executed in any number of counterparts, and each
such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
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8.8 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of Ohio applicable to agreements made and entirely to be
performed within such jurisdiction.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts by their duly authorized officers and their corporate
seal to be hereunto affixed and attested by their officers thereunto duly
authorized, all as of the day and year first above written.
HARVEST HOME FINANCIAL CORPORATION
Attest:
/s/Dennis J. Slattery By: /s/John E. Rathkamp
- ------------------------- ---------------------------
Name: Dennis J. Slattery Name: John E. Rathkamp
Title: Executive Vice President Title: President and
Managing Officer
PEOPLES BUILDING LOAN
& SAVINGS COMPANY
Attest:
/s/David A. Cook By: /s/Jerry D. Williams
- -------------------------- --------------------------------
Name: David A. Cook Name: Jerry D. Williams
Title: Corporate Secretary Title: President and
Chief Executive Officer
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Exhibit 3.1
CERTIFICATE OF INCORPORATION OF
PEOPLES COMMUNITY BANCORP, INC.
ARTICLE 1. NAME. The name of the corporation is Peoples Community
Bancorp, Inc. (hereinafter referred to as the "Corporation").
ARTICLE 2. REGISTERED OFFICE AND REGISTERED AGENT. The address of the
registered office of the Corporation in the State of Delaware is 1209 Orange
Street, in the city of Wilmington, county of New Castle. The name of the
registered agent at such address is The Corporation Trust Company.
ARTICLE 3. NATURE OF BUSINESS. The purpose of the Corporation is to
engage in any lawful act or activity for which a corporation may be organized
under the General Corporation Law of the State of Delaware.
ARTICLE 4. CAPITAL STOCK. The total number of shares of capital stock
which the Corporation has authority to issue is 11,000,000, of which 1,000,000
shall be preferred stock, $.01 par value per share (hereinafter the "Preferred
Stock"), and 10,000,000 shall be common stock, par value $.01 per share
(hereinafter the "Common Stock").
The Board of Directors is hereby expressly authorized, by resolution or
resolutions to provide, out of the unissued shares of Preferred Stock, for
series of Preferred Stock. Before any shares of any such series are issued, the
Board of Directors shall fix, and hereby is expressly empowered to fix, by
resolution or resolutions, the following provisions of the shares thereof:
(a) the designation of such series, the number of shares to constitute
such series and the stated value thereof if different from the par value
thereof;
(b) whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms of such
voting rights, which may be general or limited;
(c) the dividends, if any, payable on such series, whether any such
dividends shall be cumulative, and, if so, from what dates, the conditions and
dates upon which such dividends shall be payable, and the preference or relation
which such dividends shall bear to the dividends payable on any shares of stock
of any other class or any other series of this class;
(d) whether the shares of such series shall be subject to redemption by
the Corporation, and, if so, the times, prices and other conditions of such
redemption;
(e) the amount or amounts payable upon shares of such series upon, and
the rights of the holders of such series in, the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, or upon any
distribution of the assets of the Corporation;
<PAGE>
(f) whether the shares of such series shall be subject to the operation
of a retirement or sinking fund and, if so, the extent to and manner in which
any such retirement or sinking fund shall be applied to the purchase or
redemption of the shares of such series for retirement or other corporate
purposes and the terms and provisions relative to the operation thereof;
(g) whether the shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or any other series of this
class or any other securities, and, if so, the price or prices or the rate or
rates of conversion or exchange and the method, if any, of adjusting the same,
and any other terms and conditions of conversion or exchange;
(h) the limitations and restrictions, if any, to be effective while any
shares of such series are outstanding upon the payment of dividends or the
making of other distributions on, and upon the purchase, redemption or other
acquisition by the Corporation of, the Common Stock or shares of stock of any
other class or any other series of this class;
(i) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such series or of any other series of this class
or of any other class; and
(j) any other powers, preferences and relative, participating, optional
and other special rights, and any qualifications, limitations and restrictions
thereof.
The powers, preferences and relative, participating, optional and other
special rights of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding. All shares of any one series of
Preferred Stock shall be identical in all respects with all other shares of such
series, except that shares of any one series issued at different times may
differ as to the dates from which dividends thereon shall accrue and/or be
cumulative.
ARTICLE 5. INCORPORATOR. The name and mailing address of the sole
incorporator is as follows:
NAME ADDRESS
The People's Building, Loan and 11 South Broadway
Savings Company Lebanon, Ohio 45036
ARTICLE 6. PREEMPTIVE RIGHTS. No holder of the capital stock of the
Corporation shall be entitled as such, as a matter of right, to subscribe for or
purchase any part of any new or additional issue of stock of any class
whatsoever of the Corporation, or of securities convertible into stock of any
class whatsoever, whether now or hereafter authorized, or whether issued for
cash or other consideration or by way of a dividend.
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ARTICLE 7. DIRECTORS. The business and affairs of the Corporation shall
be managed by or under the direction of a Board of Directors. Except as
otherwise fixed pursuant to the provisions of Article 4 hereof relating to the
rights of the holders of any class or series of stock having a preference over
the Common Stock as to dividends or upon liquidation to elect additional
directors, the number of directors shall be determined as stated in the
Corporation's Bylaws, as may be amended from time to time.
A. CLASSIFICATION AND TERM. The Board of Directors, other than those who
may be elected by the holders of any class or series of stock having preference
over the Common Stock as to dividends or upon liquidation, shall be divided into
three classes as nearly equal in number as possible, with one class to be
elected annually. The term of office of the initial directors shall be as
follows: the term of directors of the first class shall expire at the first
annual meeting of stockholders after the effective date of this Certificate of
Incorporation; the term of office of the directors of the second class shall
expire at the second annual meeting of stockholders after the effective date of
this Certificate of Incorporation; and the term of office of the third class
shall expire at the third annual meeting of stockholders after the effective
date of this Certificate of Incorporation; and, as to directors of each class,
when their respective successors are elected and qualified. At each annual
meeting of stockholders, directors elected to succeed those whose terms are
expiring shall be elected for a term of office to expire at the third succeeding
annual meeting of stockholders, unless a different term of office is necessary
to comply with the requirements of the first sentence of this Article 7.A., and
until their respective successors are elected and qualified. Stockholders of the
Corporation shall not be permitted to cumulate their votes for the election of
directors.
B. VACANCIES. Except as otherwise fixed pursuant to the provisions of
Article 4 hereof relating to the rights of the holders of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation to elect directors, any vacancy occurring in the Board of Directors,
including any vacancy created by reason of an increase in the number of
directors, may be filled by a majority vote of the directors then in office,
whether or not a quorum is present, or by a sole remaining director, and any
director so chosen shall hold office for the remainder of the term to which the
director has been selected and until such director's successor shall have been
elected and qualified. When the number of directors is changed, the Board of
Directors shall determine the class or classes to which the increased or
decreased number of directors shall be apportioned, provided that no decrease in
the number of directors shall shorten the term of any incumbent director.
C. REMOVAL. Subject to the rights of any class or series of stock having
preference over the Common Stock as to dividends or upon liquidation to elect
directors, any director (including persons elected by directors to fill
vacancies in the Board of Directors) may be removed from office only with cause
ffirmative vote of not less than 80% of the Voting Shares ( as defined in
Article 12 hereof and after giving effect to Article 12.D. hereof) at a duly
constituted meeting of stockholders called expressly for such purpose. Cause for
removal shall exist only if the director whose removal is proposed has been
either declared incompetent by an order of a court, convicted of a felony or of
an offense punishable by imprisonment for a term of more than one year by a
court
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of competent jurisdiction, or deemed liable by a court of competent
jurisdiction for gross negligence or misconduct in the performance of such
director's duties to the Corporation. At least 30 days prior to such meeting of
stockholders, written notice shall be sent to the director whose removal will be
considered at the meeting.
D. EVALUATION OF ACQUISITION PROPOSALS. The Board of Directors of the
Corporation, when evaluating any offer to the Corporation or to the stockholders
of the Corporation from another party to (a) purchase for cash, or exchange any
securities or property for, any outstanding equity securities of the
Corporation, (b) merge or consolidate the Corporation with another corporation
or (c) purchase or otherwise acquire all or substantially all of the properties
and assets of the Corporation, may, consistent with the exercise of its
fiduciary duties and in connection with the exercise of its judgment in
determining what is in the best interest of the Corporation and its
stockholders, give due consideration to the extent permitted by law not only to
the price or other consideration being offered, but also to all other relevant
factors including, without limitation, the financial and managerial resources
and future prospects of the other party, the possible effects on the business of
the Corporation and its subsidiaries and on the employees, customers, suppliers
and creditors of the Corporation and its subsidiaries, the effects on the
ability of the Corporation to fulfill its corporate objectives as a holding
company and on the ability of its subsidiary savings bank to fulfill its
objectives as a savings bank, and the effects on the communities in which the
Corporation's and its subsidiaries' facilities are located.
ARTICLE 8. MEETINGS OF STOCKHOLDERS. Any action required or permitted by
the General Corporation Law of the State of Delaware or this Certificate of
Incorporation to be approved by or consented to by the stockholders of the
Corporation, must be effected at a duly called annual or special meeting of
stockholders and may not be effected by written consent by such stockholders in
lieu of a meeting of stockholders. Except as otherwise required by law and
subject to the rights of the holders of any class or series of Preferred Stock,
special meetings of the stockholders may be called only by the Board of
Directors pursuant to a resolution approved by the affirmative vote of at least
three-fourths of the directors then in office.
ARTICLE 9. LIABILITY OF DIRECTORS AND OFFICERS. The personal liability
of the directors and officers of the Corporation for monetary damages shall be
eliminated to the fullest extent permitted by the General Corporation Law of the
State of Delaware as it exists on the effective date of this Certificate of
Incorporation or as such law may be thereafter in effect. No amendment,
modification or repeal of this Article 9 shall adversely affect the rights
provided hereby with respect to any claim, issue or matter in any proceeding
that is based in any respect on any alleged action or failure to act prior to
such amendment, modification or repeal.
ARTICLE 10. INDEMNIFICATION. The Corporation shall indemnify its
directors, officers, employees, agents and former directors, officers, employees
and agents, and any other persons serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, association,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees, judgments, fines and amounts paid in settlement)
incurred in connection
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with any pending or threatened action, suit or proceeding, whether civil,
criminal, administrative or investigative, with respect to which such director,
officer, employee, agent or other person is a party, or is threatened to be made
a party, to the full extent permitted by the General Corporation Law of the
State of Delaware, provided, however, that the Corporation shall not be liable
for any amounts which may be due to any person in connection with a settlement
of any action, suit or proceeding effected without its prior written consent or
any action, suit or proceeding initiated by any person seeking indemnification
hereunder without its prior written consent. The indemnification provided herein
(i) shall not be deemed exclusive of any other right to which any person seeking
indemnification may be entitled under any bylaw, agreement or vote of
stockholders or disinterested directors or otherwise, both as to action in his
or her official capacity and as to action in any other capacity, and (ii) shall
inure to the benefit of the heirs, executors and administrators of any such
person. The Corporation shall have the power, but shall not be obligated, to
purchase and maintain insurance on behalf of any person or persons enumerated
above against any liability asserted against or incurred by them or any of them
arising out of their status as corporate directors, officers, employees, or
agents whether or not the Corporation would have the power to indemnify them
against such liability under the provisions of this Article 10.
ARTICLE 11. STOCKHOLDER APPROVAL OF CERTAIN ACTIONS. Except as set forth
in the following sentence, any action required or permitted to be taken by the
stockholders of the Corporation pursuant to Subchapter IX (Merger or
Consolidation) and Subchapter X (Sale of Assets, Dissolution and Winding Up) of
the General Corporation Law of the State of Delaware, or any successors thereto,
shall be taken upon the affirmative vote of at least 80% of the Voting Shares
(as defined in Article 12 hereof and after giving effect to Article 12.D.
hereof), as well as such additional vote of the Preferred Stock as may be
required by the provisions of any series thereof. Notwithstanding the preceding
sentence, if any such action is recommended by at least two thirds of the entire
Board of Directors (including any vacancies), the 80% stockholder vote set forth
in the preceding sentence will not be applicable, and, in such event, the action
will require only such affirmative vote as is required by law.
ARTICLE 12. RESTRICTIONS ON OFFERS AND ACQUISITIONS OF THE CORPORATION'S
EQUITY SECURITIES.
A. DEFINITIONS.
(a) ACQUIRE. The term "Acquire" includes every type of
acquisition, whether effected by purchase, exchange, operation of law or
otherwise.
(b) ACTING IN CONCERT. The term "Acting in Concert" means (i)
knowing participation in a joint activity or conscious parallel action towards
a common goal whether or not pursuant to an express agreement, or (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise.
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(c) AFFILIATE. An "Affiliate" of, or a Person "affiliated with," a
specified Person, means a Person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, the Person specified.
(d) ASSOCIATE. The term "Associate" used to indicate a relationship with
any Person means:
(i) Any corporation or organization (other than the Corporation
or a Subsidiary of the Corporation), or any subsidiary or parent
thereof, of which such Person is a director, officer or partner or is,
directly or indirectly, the Beneficial Owner of 10% or more of any
class of equity securities;
(ii) Any trust or other estate in which such Person has a 10% or
greater beneficial interest or as to which such Person serves as
trustee or in a similar fiduciary capacity, provided, however, such
term shall not include any employee stock benefit plan of the
Corporation or a Subsidiary of the Corporation in which such Person
has a 10% or greater beneficial interest or serves as a trustee or in
a similar fiduciary capacity;
(iii) Any relative or spouse of such Person (or any relative of
such spouse) who has the same home as such Person or who is a director
or officer of the Corporation or a Subsidiary of the Corporation (or
any subsidiary or parent thereof); or
(iv) Any investment company registered under the Investment
Company Act of 1940 for which such Person or any Affiliate or
Associate of such Person serves as investment advisor.
(e) BENEFICIAL OWNER (INCLUDING BENEFICIALLY OWNED). A Person shall be
considered the "Beneficial Owner" of any shares of stock (whether or not owned
of record):
(i) With respect to which such Person or any Affiliate or
Associate of such Person directly or indirectly has or shares (A)
voting power, including the power to vote or to direct the voting of
such shares of stock, and/or (B) investment power, including the power
to dispose of or to direct the disposition of such shares of stock;
(ii) Which such Person or any Affiliate or Associate of such
Person has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise,
and/or (B) the right to vote pursuant to any agreement, arrangement or
understanding (whether such right is exercisable immediately or only
after the passage of time); or
(iii) Which are Beneficially Owned within the meaning of (i) or
(ii) of this Article 12.A(e) by any other Person with which such
first-mentioned Person or any of
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its Affiliates or Associates either (A) has any agreement, arrangement
or understanding, written or oral, with respect to acquiring, holding,
voting or disposing of any shares of stock of the Corporation or any
Subsidiary of the Corporation or acquiring, holding or disposing of
all or substantially all, or any Substantial Part, of the assets or
business of the Corporation or a Subsidiary of the Corporation, or (B)
is Acting in Concert. For the purpose only of determining whether a
Person is the Beneficial Owner of a percentage specified in this
Article 10 of the outstanding Voting Shares, such shares shall be
deemed to include any Voting Shares which may be issuable pursuant to
any agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants, options or otherwise and
which are deemed to be Beneficially Owned by such Person pursuant to
the foregoing provisions of this Article 12.A(e), but shall not
include any other Voting Shares which may be issuable in such manner.
(f) OFFER. The term "Offer" shall mean every offer to buy or acquire,
solicitation of an offer to sell, tender offer or request or invitation for
tender of, a security or interest in a security for value; provided that the
term "Offer" shall not include (i) inquiries directed solely to the management
of the Corporation and not intended to be communicated to stockholders which are
designed to elicit an indication of management's receptivity to the basic
structure of a potential acquisition with respect to the amount of cash and or
securities, manner of acquisition and formula for determining price, or (ii)
non-binding expressions of understanding or letters of intent with the
management of the Corporation regarding the basic structure of a potential
acquisition with respect to the amount of cash and or securities, manner of
acquisition and formula for determining price.
(g) PERSON. The term "Person" shall mean any individual, partnership,
corporation, limited liability company, association, trust, group or other
entity. When two or more Persons act as a partnership, limited partnership,
syndicate, association or other group for the purpose of acquiring, holding or
disposing of shares of stock, such partnership, syndicate, associate or group
shall be deemed a "Person."
(h) SUBSTANTIAL PART. The term "Substantial Part" as used with
reference to the assets of the Corporation or of any Subsidiary means assets
having a value of more than 10% of the total consolidated assets of the
Corporation and its Subsidiaries as of the end of the Corporation's most recent
fiscal year ending prior to the time the determination is being made.
(i) SUBSIDIARY. "Subsidiary" means any corporation of which a majority
of any class of equity security is owned, directly or indirectly, by the Person
in question.
(j) VOTING SHARES. "Voting Shares" shall mean shares of the Corporation
entitled to vote generally in an election of directors.
(k) CERTAIN DETERMINATIONS WITH RESPECT TO ARTICLE 12. A majority of
the directors shall have the power to determine for the purposes of this
Article 12, on the basis of information known to them and acting in good faith:
(i) the number of Voting Shares of which any Person is the
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Beneficial Owner, (ii) whether a Person is an Affiliate or Associate of another
Person, (iii) whether a Person has an agreement, arrangement or understanding
with another as to the matters referred to in the definition of "Beneficial
Owner" as hereinabove defined, and (iv) such other matters with respect to which
a determination is required under this Article 12. Any such determinations made
by the Board of Directors of the Corporation pursuant to this Article 12 shall
be conclusive and binding upon the Corporation and its stockholders. In order to
carry out its responsibilities under this Article 12, the Board of Directors
shall have the right to demand that any person who is reasonably believed to be
the Beneficial Owner of Excess Shares shall supply the Corporation with complete
information as to (x) the record owners of all shares of equity securities
Beneficially Owned by such Person and (y) any other factual matter relating to
the applicability or effect of this Article 12 as may be reasonably requested by
the Board of Directors.
(l) DIRECTORS, OFFICERS OR EMPLOYEES. Directors, officers or employees of
the Corporation or any Subsidiary thereof shall not be deemed to be a group
with respect to their individual acquisitions of any class of equity securities
of the Corporation solely as a result of their capacities as such.
B. RESTRICTIONS. Upon the effective date of the reorganization of The
People's Building, Loan and Savings Company (the "Bank") as a subsidiary of the
Corporation, no Person shall directly or indirectly Offer to Acquire or Acquire
the Beneficial Ownership of (i) more than 10% of the issued and outstanding
shares of any class of an equity security of the Corporation, or (ii) any
securities convertible into, or exercisable for, any equity securities of the
Corporation if, assuming conversion or exercise by such Person of all securities
of which such Person is the Beneficial Owner which are convertible into, or
exercisable for, such equity securities (but of no securities convertible into,
or exercisable for, such equity securities of which such Person is not the
Beneficial Owner), such Person would be the Beneficial Owner of more than 10% of
any class of an equity security of the Corporation.
C. EXCLUSIONS. The foregoing restrictions shall not apply to (i) any
Offer with a view toward public resale made exclusively to the Corporation by
underwriters or a selling group acting on its behalf, (ii) any tax-qualified
employee benefit plan or arrangement established by the Corporation and any
trustee of such a plan or arrangement, and (iii) any other Offer or acquisition
approved in advance by the affirmative vote of two-thirds of the Corporation's
entire Board of Directors (including any vacancies).
D. REMEDIES. In the event that shares are Acquired in violation of this
Article 12, all shares Beneficially Owned by any Person in excess of 10% shall
be considered "Excess Shares" and (i) shall not be counted as shares entitled to
vote and shall not be voted by any Person or counted as Voting Shares in
connection with any matters submitted to stockholders for a vote, (ii) the
Corporation is authorized to refuse to recognize a transfer or attempted
transfer of any shares of the Corporation's equity securities to any Person who
is the Beneficial Owner, or as the result of such transfer would become the
Beneficial Owner, of Excess Shares and (iii) the Board of Directors may
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cause such Excess Shares to be transferred to an independent trustee for sale on
the open market or otherwise, with the expenses of such trustee to be paid out
of the proceeds of the sale.
For purposes of ensuring compliance with Article 12.B, in the event any
partnership, corporation, limited liability company, association or trust is
deemed to Beneficially Own more than 5% of any class of the Corporation's stock,
either by itself or together with one or more other Persons who is an Affiliate
of or Acting in Concert with such entity or who is a member of any group with
such entity with respect to the Corporation's stock, then the Corporation shall
be entitled upon written request to such entity to receive information regarding
the name and address of, and the class and number of shares of Corporation stock
which are Beneficially Owned by, each partner in such partnership, each
director, executive officer and stockholder in such corporation, each member in
such limited liability company or association, and each trustee and beneficiary
of such trust, and in each case each Person controlling such entity and each
partner, director, executive officer, stockholder, member or trustee of any
entity which is ultimately in control of such partnership, corporation, limited
liability company, association or trust.
E. SEVERABILITY. In the event any provision (or portion thereof) of this
Article 12 shall be found to be invalid, prohibited or unenforceable for any
reason, the remaining provisions (or portions thereof) of this Article 12 shall
remain in full force and effect, and shall be construed as if such invalid,
prohibited or unenforceable provision had been stricken herefrom or otherwise
rendered inapplicable, it being the intent of this Corporation and its
stockholders that each such remaining provision (or portion thereof) of this
Article 12 remain, to the fullest extent permitted by law, applicable and
enforceable as to all stockholders.
ARTICLE 13. AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS.
A. CERTIFICATE OF INCORPORATION. The Corporation reserves the right to
amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by law, and all rights
conferred upon stockholders herein are granted subject to this reservation. No
amendment, addition, alteration, change or repeal of this Certificate of
Incorporation shall be made unless it is first approved by the Board of
Directors of the Corporation pursuant to a resolution adopted by the affirmative
vote of a majority of the directors then in office, and is thereafter approved
by the holders of at least 80% of Voting Shares (as defined in Article 12 hereof
and after giving effect to Article 12.D. hereof), voting together as a single
class, as well as such additional vote of the Preferred Stock as may be required
by the provisions of any series thereof. Notwithstanding the preceding sentence,
any amendment to this Certificate of Incorporation recommended for adoption by
at least two thirds of the entire Board of Directors (including any vacancies)
shall, to the extent the General Corporation Law of the State of Delaware
requires stockholder approval of such amendment, require the affirmative vote of
a majority of the Voting Shares (as defined in Article 12 hereof and after
giving effect to Article 12.D. hereof), voting together as a single class, as
well as such additional vote of the Preferred Stock as may be required by the
provisions of any series thereof.
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B. BYLAWS. The Board of Directors or stockholders may adopt, alter,
amend or repeal the Bylaws of the Corporation. Such action by the Board of
Directors shall require the affirmative vote of a majority of the directors then
in office at any regular or special meeting of the Board of Directors. Such
action by the stockholders shall require the affirmative vote of at least a
majority of the Voting Shares (as defined in Article 12 hereof and after giving
effect to Article 12.D. hereof), as well as such additional vote of the
Preferred Stock as may be required by the provisions of any series thereof
provided, however, that the affirmative vote of at least 80% of the Voting
Shares (as defined in Article 12 hereof and after giving effect to Article 12.D.
hereof), voting together as a single class, as well as such additional vote of
the Preferred Stock as may be required by the provisions of any series thereof,
shall be required to amend, alter, change or repeal any provision of, or adopt
any provision inconsistent with, Sections 2.4, 2.14, 4.1, 4.2, 4.3, 4.4, 4.5 and
4.15 and Article VI of the Bylaws.
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THE PEOPLE'S BUILDING, LOAN AND SAVINGS COMPANY, being the sole
Incorporator herein before named, for the purpose of forming a corporation
pursuant to the General Corporation Law of the State of Delaware, does make this
Certificate, hereby declaring and certifying that this is the Incorporator's act
and deed and that the facts herein stated are true, and accordingly has caused
this Certificate to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 10th of December 1999.
THE PEOPLE'S BUILDING, LOAN
AND SAVINGS COMPANY
By: /s/ Jerry D. Williams
------------------------------------------
Name: Jerry D. Williams
Title: President and Chief Executive Officer
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EXHIBIT 3.2
BYLAWS
OF
PEOPLES COMMUNITY BANCORP, INC.
ARTICLE I. OFFICES
1.1 REGISTERED OFFICE AND REGISTERED AGENT. The registered office of
Peoples Community Bancorp, Inc. (the "Corporation") shall be located in the
State of Delaware at such place as may be fixed from time to time by the Board
of Directors upon filing of such notices as may be required by law, and the
registered agent shall have a business office identical with such registered
office.
1.2 OTHER OFFICES. The Corporation may have other offices within or
without the State of Delaware at such place or places as the Board of Directors
may from time to time determine.
ARTICLE II. STOCKHOLDERS' MEETINGS
2.1 MEETING PLACE. All meetings of the stockholders shall be held at the
principal place of business of the Corporation, or at such other place within or
without the State of Delaware as shall be determined from time to time by the
Board of Directors, and the place at which any such meeting shall be held shall
be stated in the notice of the meeting.
2.2 ANNUAL MEETING. The annual meeting of the stockholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held each year on such date and time
as determined by the Board of Directors and stated in the notice of such
meeting.
2.3 ORGANIZATION. Each meeting of the stockholders shall be presided
over by the Chairman of the Board, or in his absence by the President, or in
their absences, any other individual selected by the Board of Directors. The
Secretary, or in his absence a temporary Secretary, shall act as secretary of
each meeting of the stockholders. In the absence of the Secretary and any
temporary Secretary, the chairman of the meeting may appoint any person present
to act as secretary of the meeting. The chairman of any meeting of the
stockholders shall announce the date and time of the opening and the closing of
the polls for each matter upon which the stockholders will vote at a meeting
and, unless prescribed by law or regulation or unless the Board of Directors has
otherwise determined, shall determine the order of the business and the
procedure at the meeting, including such regulation of the manner of voting and
the conduct of discussions as seem to him in order.
2.4 SPECIAL MEETINGS. Except as otherwise required by law and subject to
the rights of the holders of any class or series of Preferred Stock, special
meetings of the stockholders may be called
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only by the Board of Directors pursuant to a resolution approved by the
affirmative vote of at least three-fourths of the directors then in office.
2.5 NOTICE.
(a) Notice of the time and place of the annual meeting of stockholders
shall be given by delivering personally or by mailing a written notice of the
same, not less than ten days and not more than sixty days prior to the date of
the meeting, to each stockholder of record entitled to vote at such meeting.
When any stockholders' meeting, either annual or special, is adjourned for
thirty days or more, or if a new record date is fixed for an adjourned meeting
of stockholders, notice of the adjourned meeting shall be given as in the case
of an original meeting. It shall not be necessary to give any notice of the time
and place of any meeting adjourned for less than thirty days (unless a new
record date is fixed therefor), other than an announcement at the meeting at
which such adjournment is taken. At the adjourned meeting the Corporation may
transact any business which might have been transacted at the original meeting.
(b) Not less than ten days and not more than sixty days prior to the
meeting, a written notice of each special meeting of stockholders, stating the
place, day and hour of such meeting, and the purpose or purposes for which the
meeting is called, shall be either delivered personally or mailed to each
stockholder of record entitled to vote at such meeting.
2.6 RECORD LIST OF STOCKHOLDERS. At least ten days before each meeting
of stockholders, a complete record of the stockholders entitled to vote at such
meeting, or any adjournment thereof, shall be made, arranged in alphabetical
order, with the address of and number of shares registered in the name of each,
which record shall be kept open to the examination of any stockholder, for a
purpose germane to the meeting, in accordance with the General Corporation Law
("GCL") of the State of Delaware. The record also shall be kept open at the time
and place of such meeting for the inspection of any stockholder.
2.7 QUORUM; ACTIONS OF STOCKHOLDERS. Except as otherwise required by
law or the Corporation's Certificate of Incorporation:
(a) A quorum at any annual or special meeting of stockholders shall
consist of stockholders representing, either in person or by proxy, a majority
of the outstanding capital stock of the Corporation entitled to vote at such
meeting;
(b) In all matters other than the election of directors, the affirmative
vote of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders. Directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. If, at any meeting of the stockholders, due
to a vacancy or vacancies or otherwise, directors of more than one class of the
Board of Directors are to be elected, each class of directors to be elected at
the meeting shall be elected in a separate election by a plurality vote.
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2.8 VOTING OF SHARES. Except as otherwise provided in these Bylaws or to
the extent that voting rights of the shares of any class or classes are limited
or denied by the Certificate of Incorporation, each stockholder, on each matter
submitted to a vote at a meeting of stockholders, shall have one vote for each
share of stock registered in his name on the books of the Corporation.
2.9 CLOSING OF TRANSFER BOOKS AND FIXING OF THE RECORD DATE. For the
purpose of determining stockholders entitled to notice of or to vote at any
meeting of stockholders, or any adjournment thereof, or entitled to receive
payment of any dividend, the Board of Directors may provide that the stock
transfer books shall be closed for a stated period not to exceed 60 days nor
less than ten days preceding such meeting. In lieu of closing the stock transfer
books, the Board of Directors may fix in advance a record date for any such
determination of stockholders, which record date shall not precede the date upon
which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than sixty days and, in case
of a meeting of stockholders, not less than ten days prior to the date on which
the particular action requiring such determination of stockholders is to be
taken.
2.10 PROXIES. A stockholder may vote either in person or by proxy
executed in writing by the stockholder or his duly authorized attorney-in-fact.
Without limiting the manner in which a stockholder may authorize another person
or persons to act for him as proxy, a stockholder may grant such authority in
the manner specified in Section 212(c) of the GCL (or any successor thereto). No
proxy shall be valid after three years from the date of its execution, unless
otherwise provided in the proxy.
2.11 WAIVER OF NOTICE. A waiver of any notice required to be given any
stockholder, signed by the person or persons entitled to such notice, whether
before or after the time stated therein for the meeting, shall be equivalent to
the giving of such notice. The attendance of any stockholder at a meeting, in
person or by proxy, shall constitute a waiver of notice by such stockholder,
except where a stockholder attends a meeting for the express purpose of
objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or commenced.
2.12 VOTING OF SHARES IN THE NAME OF TWO OR MORE PERSONS. When ownership
stands in the name of two or more persons, whether fiduciaries, members of a
partnership, joint tenants, tenants in common, tenants by the entirety or
otherwise, or if two or more persons have the same fiduciary relationship
respecting the same shares, unless the Secretary of the Corporation is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided, at
any meeting of the stockholders of the Corporation any one or more of such
stockholders may cast, in person or by proxy, all votes to which such ownership
is entitled. In the event an attempt is made to cast conflicting votes, in
person or by proxy, by the several persons in whose names shares of stock stand,
the vote or votes to which those persons are entitled shall be cast as directed
by a majority of those holding such stock and present in person or by proxy at
such meeting, but no votes shall be cast for such stock if a majority cannot
agree, except to the extent provided in Section 217(b)(3) of the GCL (or any
successor thereto).
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2.13 VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the name of
another corporation may be voted by an officer, agent or proxy as the bylaws of
such corporation may prescribe, or, in the absence of such provision, as the
Board of Directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him without a
transfer of such shares into his name. Shares standing in the name of a receiver
may be voted by such receiver, and shares held by or under the control of a
receiver may be voted by such receiver without the transfer thereof into his
name if authority to do so is contained in an appropriate order of the court or
other public authority by which such receiver was appointed. A stockholder whose
shares are pledged shall be entitled to vote such shares until the shares have
been transferred into the name of the pledgee, and thereafter the pledgee shall
be entitled to vote the shares so transferred.
2.14 PROPOSALS. At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, or (b) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation. To be timely a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not later than 120 days prior to
the anniversary date of the mailing of proxy materials by the Corporation in
connection with the immediately preceding annual meeting of stockholders of the
Corporation or, in the case of the first annual meeting of stockholders of the
Corporation following its acquisition of all of the outstanding capital stock of
Peoples Community Bank (the "Bank"), which is expected to be held in January
2001, notice by the stockholder must be so delivered and received no later than
the close of business on September 30, 2000, notwithstanding a determination by
the Corporation to schedule such first annual meeting later than January 2001. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (a) a description of the
business desired to be brought before the annual meeting, (b) the name and
address, as they appear on the Corporation's books, of the stockholder proposing
such business, (c) the class and number of shares of Corporation stock which are
Beneficially Owned (as defined in Article 12.A(e) of the Corporation's
Certificate of Incorporation) by the stockholder submitting the notice, by any
Person who is Acting in Concert with or who is an Affiliate or Associate of such
stockholder (as such capitalized terms are defined in Article 12.A of the
Corporation's Certificate of Incorporation), by any Person who is a member of
any group with such stockholder with respect to the Corporation stock or who is
known by such stockholder to be supporting such proposal on the date the notice
is given to the Corporation, and by each Person who is in control of, is
controlled by or is under common control with any of the foregoing Persons (if
any of the foregoing Persons is a partnership, corporation, limited liability
company, association or trust, information shall be provided regarding the name
and address of, and the class and number of shares of Corporation stock which
are Beneficially Owned by, each partner in such partnership, each director,
executive officer and
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stockholder in such corporation, each member in such limited liability company
or association, and each trustee and beneficiary of such trust, and in each case
each Person controlling such entity and each partner, director, executive
officer, stockholder, member or trustee of any entity which is ultimately in
control of such partnership, corporation, limited liability company, association
or trust), (d) the identification of any person retained or to be compensated by
the stockholder submitting the proposal, or any person acting on his or her
behalf, to make solicitations or recommendations to stockholders for the purpose
of assisting in the passage of such proposal and a brief description of the
terms of such employment, retainer or arrangement for compensation, and (e) any
material interest of the stockholder in such business. The chairman of an annual
meeting shall, if the facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting in accordance with the
provisions of this Article II, Section 2.14, and if he should so determine, he
shall so declare to the meeting and any such business not properly brought
before the meeting shall not be transacted. This provision is not a limitation
on any other applicable laws and regulations.
2.15 INSPECTORS. For each meeting of stockholders, the Board of
Directors shall appoint one or more inspectors of election, who shall make a
written report of such meeting. If for any meeting the inspector(s) appointed by
the Board of Directors shall be unable to act or the Board of Directors shall
fail to appoint any inspector, one or more inspectors shall be appointed at the
meeting by the chairman thereof. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
ability. An inspector or inspectors shall (i) ascertain the number of shares
outstanding and the voting power of each, (ii) determine the shares represented
at a meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors and
(v) certify their determination of the number of shares represented at the
meeting and their count of all votes and ballots. The date and time of the
opening and the closing of the polls for each matter upon which the stockholders
will vote at a meeting shall be announced at the meeting by the chairman
thereof. An inspector or inspectors shall not accept a ballot, proxy or vote,
nor any revocations thereof or changes thereto, after the closing of the polls
(unless the Court of Chancery of the State of Delaware upon application by a
stockholder shall determine otherwise) and may appoint or retain other persons
or entities to assist them in the performance of their duties. Inspectors need
not be stockholders and may not be nominees for election as directors.
ARTICLE III. CAPITAL STOCK
3.1 CERTIFICATES. Certificates of stock shall be issued in numerical
order, and each stockholder shall be entitled to a certificate signed by the
Chairman of the Board or the President, and the Secretary or the Treasurer, and
may be sealed with the seal of the Corporation or facsimile thereof. The
signatures of such officers may be facsimiles if the certificate is manually
signed on behalf of a transfer agent, or registered by a registrar, other than
the Corporation itself or an
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employee of the Corporation. If an officer who has signed or whose facsimile
signature has been placed upon such certificate ceases to be an officer before
the certificate is issued, it may be issued by the Corporation with the same
effect as if the person were an officer on the date of issue. Each certificate
of stock shall state:
(a) that the Corporation is organized under the laws of the State of
Delaware;
(b) the name of the person to whom issued;
(c) the number and class of shares and the designation of the series, if
any, which such certificate represents; and
(d) the par value of each share represented by such certificate, or a
statement that such shares are without par value.
3.2 TRANSFERS.
(a) Transfers of stock shall be made only upon the stock transfer books
of the Corporation, kept at the registered office of the Corporation or at its
principal place of business, or at the office of its transfer agent or
registrar, and before a new certificate is issued the old certificate shall be
surrendered for cancellation. The Board of Directors may, by resolution, open a
share register in any state of the United States, and may employ an agent or
agents to keep such register, and to record transfers of shares therein.
(b) Shares of stock shall be transferred by delivery of the certificates
therefor, accompanied either by an assignment in writing on the back of the
certificate or an assignment separate from the certificate, or by a written
power of attorney to sell, assign and transfer the same, signed by the holder of
said certificate. No shares of stock shall be transferred on the books of the
Corporation until the outstanding certificates therefor have been surrendered to
the Corporation.
(c) A written restriction on the transfer or registration of transfer of
a certificate evidencing stock of the Corporation, if permitted by the GCL and
noted conspicuously on such certificate, may be enforced against the holder of
the restricted certificate or any successor or transferee of the holder,
including an executor, administrator, trustee, guardian or other fiduciary
entrusted with like responsibility for the person or estate of the holder.
3.3 REGISTERED OWNER. Registered stockholders shall be treated by the
Corporation as the holders in fact of the stock standing in their respective
names and the Corporation shall not be bound to recognize any equitable or other
claim to or interest in any share on the part of any other person, whether or
not it shall have express or other notice thereof, except as expressly provided
by the laws of the State of Delaware.
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3.4 LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation may issue a
new certificate of stock in place of any certificate previously issued by it
which is alleged to have been lost, stolen or destroyed, and the Corporation may
require the owner of the lost, stolen or destroyed certificate, or his legal
representative, to give the Corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate.
3.5 FRACTIONAL SHARES OR SCRIP. The Corporation may (a) issue fractions
of a share which shall entitle the holder to exercise voting rights, to receive
dividends thereon and to participate in any of the assets of the Corporation in
the event of liquidation; (b) arrange for the disposition of fractional
interests by those entitled thereto; (c) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such shares are
determined; or (d) issue scrip in registered or bearer form which shall entitle
the holder to receive a certificate for a full share upon the surrender of such
scrip aggregating a full share.
3.6 SHARES OF ANOTHER CORPORATION. Shares owned by the Corporation in
another corporation, domestic or foreign, may be voted by such officer, agent or
proxy as the Board of Directors may determine or, in the absence of such
determination, by the President of the Corporation.
ARTICLE IV. BOARD OF DIRECTORS
4.1 POWERS. The business and affairs of the Corporation shall be managed
by or under the direction of a Board of Directors, which may exercise all such
authority and powers of the Corporation and do all such lawful acts and things
as are not by law, the Certificate of Incorporation or these Bylaws directed or
required to be exercised or done by the stockholders.
4.2 CLASSIFICATION, TERM AND QUALIFICATIONS. The Board of Directors
shall be divided into three classes as provided in Article 7.A. of the
Corporation's Certificate of Incorporation.
4.3 NUMBER OF DIRECTORS. The initial Board of Directors shall consist of
eleven (11) persons. The number of directors may at any time be increased or
decreased by a vote of a majority of the Board of Directors, provided that no
decrease shall have the effect of shortening the term of any incumbent director.
Notwithstanding anything to the contrary contained within these Bylaws, the
number of directors may not be less than five nor more than 20.
4.4 VACANCIES. All vacancies in the Board of Directors shall be filled
in the manner provided in the Corporation's Certificate of Incorporation.
4.5 REMOVAL OF DIRECTORS. Directors may be removed in the manner
provided in the Corporation's Certificate of Incorporation.
4.6 REGULAR MEETINGS. Regular meetings of the Board of Directors or any
committee thereof may be held at the principal place of business of the
Corporation or at such other place or places,
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either within or without the State of Delaware, as the Board of Directors or
such committee, as the case may be, may from time to time designate. Notice of
such meetings shall be provided to directors in accordance with the provisions
of the GCL. Unless otherwise determined by the Board of Directors, the annual
meeting of the Board of Directors shall be held immediately after the
adjournment of the annual meeting of stockholders.
4.7 SPECIAL MEETINGS.
(a) Special meetings of the Board of Directors may be called at any time
by the Chairman of the Board, the President or by a majority of the authorized
number of directors, to be held at the principal place of business of the
Corporation or at such other place or places as the Board of Directors or the
person or persons calling such meeting may from time to time designate. Notice
of all special meetings of the Board of Directors shall be given to each
director at least twenty-four (24) hours prior to such meeting if notice is
given in person or by telephone, telegraph, telex, facsimile or other electronic
transmission and at least five (5) days prior to such meeting if notice is given
in writing and delivered by courier or by postage prepaid mail. Such notice need
not specify the business to be transacted at, nor the purpose of, the meeting.
Any director may waive notice of any meeting by submitting a signed waiver of
notice with the Secretary, whether before or after the meeting. The attendance
of a director at a meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of objecting
at the beginning of the meeting to the transaction of any business because the
meeting is not lawfully called or convened.
(b) Special meetings of any committee of the Board of Directors may be
called at any time by such person or persons and with such notice as shall be
specified for such committee by the Board of Directors, or in the absence of
such specification, in the manner and with the notice required for special
meetings of the Board of Directors.
4.8 WAIVER OF NOTICE. Attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends
for the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened. A waiver of notice signed by the
director or directors, whether before or after the time stated for the meeting,
shall be equivalent to the giving of notice.
4.9 QUORUM; ACTIONS OF THE BOARD OF DIRECTORS. Except as may be
otherwise specifically provided by law, the Certificate of Incorporation or
these Bylaws, at all meetings of the Board of Directors, a majority of the
entire Board of Directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors. If a quorum
shall not be present at any meeting of the Board of Directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.
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4.10 ACTION BY DIRECTORS WITHOUT A MEETING. Any action required or which
may be taken at a meeting of the directors, or of a committee thereof, may be
taken without a meeting if a consent in writing, setting forth the action so
taken or to be taken, shall be signed by all of the directors, or all of the
members of the committee, as the case may be, and such consents are filed with
the minutes of proceedings of the Board of Directors or committee, as the case
may be. Such consent shall have the same effect as a unanimous vote.
4.11 ACTION BY DIRECTORS BY COMMUNICATIONS EQUIPMENT. Any action
required or which may be taken at a meeting of directors, or of a committee
thereof, may be taken by means of a conference telephone or similar
communications equipment subject to any applicable provisions of the GCL.
4.12 REGISTERING DISSENT. A director who is present at a meeting of the
Board of Directors at which action on a corporate matter is taken shall be
presumed to have assented to such action unless his dissent shall be entered in
the minutes of the meeting, or unless he shall file his written dissent to such
action with the person acting as the secretary of the meeting, before the
adjournment thereof, or shall forward such dissent by registered mail to the
Secretary of the Corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director who voted in favor of such
action.
4.13 EXECUTIVE AND OTHER COMMITTEES. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees which in each case consist of one or more directors of the
Corporation, and may from time to time invest such committees with such powers
as it may see fit, subject to such conditions as may be prescribed by the Board.
An Executive Committee may be appointed by resolution passed by a majority of
the full Board of Directors. It shall have and exercise all of the authority of
the Board of Directors, except in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation or plan of
voluntary liquidation, recommending to the stockholders the sale, lease or
exchange or other disposition of all or substantially all the property and
assets of the Corporation, declaring a dividend on the Corporation's capital
stock or amending these Bylaws. The designation of any such committee, and the
delegation of authority thereto, shall not relieve the Board of Directors, or
any member thereof, of any responsibility imposed by law.
4.14 REMUNERATION. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors, a stated salary as
director and/or such other compensation as may be fixed by the Board of
Directors. Members of special or standing committees may be allowed like
compensation for serving on committees of the Board of Directors. No such
payments shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
4.15 NOMINATIONS OF DIRECTORS Subject to the rights of holders of any
class or series of stock having a preference over the common stock as to
dividends or upon liquidation, nominations for the election of directors may be
made by the Board of Directors or committee appointed by the Board
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of Directors or by any stockholder entitled to vote generally in an election of
directors. However, any stockholder entitled to vote generally in an election of
directors may nominate one or more persons for election as directors at a
meeting only if written notice of such stockholder's intent to make such
nomination or nominations has been given, either by personal delivery or by
United States mail, postage prepaid to the Secretary of the Corporation, which
notice is delivered to or received by the Secretary not later than (i) 120 days
prior to the anniversary date of the mailing of proxy materials by the
Corporation in connection with the immediately preceding annual meeting of
stockholders of the Corporation or, in the case of the first annual meeting of
stockholders of the Corporation following its acquisition of all of the
outstanding capital stock of the Bank, which is expected to be held in January
2001, any such nomination by a stockholder must be so delivered or received no
later than the close of business on September 30, 2000, notwithstanding a
determination by the Corporation to schedule such first Annual Meeting later
than January 2001, and (ii) with respect to an election to be held at a special
meeting of stockholders for the election of directors, the close of business on
the tenth day following the date on which notice of such meeting is first given
to stockholders. Each such notice shall set forth: (a) the name, age, business
address and residence address of the stockholder who intends to make the
nomination and of the person or persons to be nominated; (b) the principal
occupation or employment of the stockholder submitting the notice and of each
person being nominated; (c) the class and number of shares of Corporation stock
which are Beneficially Owned (as defined in Article 12.A(e) of the Corporation's
Certificate of Incorporation) by the stockholder submitting the notice, by any
Person who is Acting in Concert with or who is an Affiliate or Associate of such
stockholder (as such capitalized terms are defined in Article 12.A of the
Corporation's Certificate of Incorporation), by any Person who is a member of
any group with such stockholder with respect to the Corporation stock or who is
known by such stockholder to be supporting such nominee(s) on the date the
notice is given to the Corporation, by each person being nominated, and by each
Person who is in control of, is controlled by or is under common control with
any of the foregoing Persons (if any of the foregoing Persons is a partnership,
corporation, limited liability company, association or trust, information shall
be provided regarding the name and address of, and the class and number of
shares of Corporation stock which are Beneficially Owned by, each partner in
such partnership, each director, executive officer and stockholder in such
corporation, each member in such limited liability company or association, and
each trustee and beneficiary of such trust, and in each case each Person
controlling such entity and each partner, director, executive officer,
stockholder, member or trustee of any entity which is ultimately in control of
such partnership, corporation, limited liability company, association or trust);
(d) a representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (e) a description of all arrangements or understandings between the
stockholder and each nominee and any arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the stockholder; (f) such other information regarding the stockholder submitting
the notice and each nominee proposed by such stockholder as would be required to
be included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission; and (g) the consent of each nominee to serve
as a director of
10
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the Corporation if so elected. The presiding officer of the meeting may refuse
to acknowledge the nomination of any person not made in compliance with the
foregoing procedures.
ARTICLE V. OFFICERS
5.1 DESIGNATIONS. The officers of the Corporation shall be a Chairman of
the Board, a President, a Secretary and a Treasurer appointed by the Board of
Directors, as well as such Executive Vice Presidents, Vice Presidents, Assistant
Vice Presidents, Assistant Secretaries, Assistant Treasurers and such other
officers as the Board of Directors or the Chairman of the Board and President
may designate. Officers of the Corporation shall be elected for one year by the
directors at their first meeting after the annual meeting of stockholders, and
officers of the Corporation shall hold office until their successors are elected
and qualified. Any two or more offices may be held by the same person, except
the offices of President and Secretary.
5.2 POWERS AND DUTIES. The officers of the Corporation shall have such
authority and perform such duties as the Board of Directors or, in the case of
officers with a title of Vice President or lower, the Chairman of the Board and
President, may from time to time authorize or determine. In the absence of
action by the Board of Directors or the Chairman of the Board and President, as
applicable, the officers shall have such powers and duties as generally pertain
to their respective offices.
5.3 DELEGATION. In the case of absence or inability to act of any
officer of the Corporation and of any person herein authorized to act in his
place, the Board of Directors may from time to time delegate the powers or
duties of such officer to any other officer or any director or other person whom
it may select.
5.4 VACANCIES. Vacancies in any office arising from any cause may be
filled by the Board of Directors at any regular or special meeting of the Board.
5.5 TERM - REMOVAL. The officers of the Corporation shall hold office
until their successors are chosen and qualified. Any officer or agent elected or
appointed by the Board of Directors or by the Chairman and the President may be
removed at any time, with or without cause, by the affirmative vote of a
majority of the whole Board of Directors, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed.
5.6 BONDS. The Board of Directors may, by resolution, require any and
all of the officers to give bonds to the Corporation, with sufficient surety or
sureties, conditions for the faithful performance of the duties of their
respective offices, and to comply with such other conditions as may from time to
time be required by the Board of Directors.
11
<PAGE>
ARTICLE VI. INDEMNIFICATION, ETC. OF DIRECTORS,
OFFICERS AND EMPLOYEES
6.1 INDEMNIFICATION. The Corporation shall provide indemnification to
its directors, officers, employees, agents and former directors, officers,
employees and agents and to others in accordance with the Corporation's
Certificate of Incorporation.
6.2 ADVANCEMENT OF EXPENSES. Reasonable expenses (including attorneys'
fees) incurred by a director, officer or employee of the Corporation in
defending any civil, criminal, administrative or investigative action, suit or
proceeding described in Section 6.1 may be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding as authorized by the
Board of Directors only upon receipt of an undertaking by or on behalf of such
person to repay such amount if it shall ultimately be determined that the person
is not entitled to be indemnified by the Corporation.
6.3 OTHER RIGHTS AND REMEDIES. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article VI shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under the Corporation's Certificate of
Incorporation, any agreement, vote of stockholders or disinterested directors or
otherwise, both as to actions in their official capacity and as to actions in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer or employee and shall inure to the
benefit of the heirs, executors and administrators of such person.
6.4 INSURANCE. Upon resolution passed by the Board of Directors, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer of employee of the Corporation, or is or was serving
at the request of the corporation as a director, officer or employee of another
corporation, partnership, joint venture, trust or other enterprise, against any
liability asserted against him or 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 the provisions of its
Certificate of Incorporation or this Article VI.
6.5 MODIFICATION. The duties of the Corporation to indemnify and to
advance expenses to a director, officer or employee provided in this Article VI
shall be in the nature of a contract between the Corporation and each such
person, and no amendment or repeal of any provision of this Article VI shall
alter, to the detriment of such person, the right of such person to the advance
of expenses or indemnification related to a claim based on an act or failure to
act which took place prior to such amendment or repeal.
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<PAGE>
ARTICLE VII. DIVIDENDS; FINANCE; AND FISCAL YEAR
7.1 DIVIDENDS. Subject to the applicable provisions of the General
Corporation Law of the State of Delaware, dividends upon the capital stock of
the Corporation may be declared by the Board of Directors at any regular or
special meeting, and may be paid in cash, in property or in shares of the
capital stock of the Corporation. Before payment of any dividend, there may be
set aside out of any funds of the Corporation available for dividends such sum
or sums as the Board of Directors from time to time, in its absolute discretion,
may deem proper as a reserve or reserves to meet contingencies, or for
dividends, or for repairing or maintaining any property of the Corporation, or
for any other proper purpose, and the Board of Directors may modify or abolish
any such reserve.
7.2 DISBURSEMENTS. All checks or demand for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
7.3 DEPOSITORIES. The monies of the Corporation shall be deposited in
the name of the Corporation in such bank or banks or trust company or trust
companies as the Board of Directors shall designate, and shall be drawn out only
by check or other order for payment of money signed by such persons and in such
manner as may be determined by resolution of the Board of Directors.
7.4 FISCAL YEAR. The fiscal year of the Corporation shall end on the
30th day of September of each year.
ARTICLE VIII. NOTICES
Except as may otherwise be required by law, any notice to any
stockholder or director may be delivered personally or by mail. If mailed, the
notice shall be deemed to have been delivered when deposited in the United
States mail, addressed to the addressee at his last known address in the records
of the Corporation, with postage thereon prepaid.
ARTICLE IX. SEAL
The corporate seal of the Corporation shall be in such form and bear
such inscription as may be adopted by resolution of the Board of Directors, or
by usage of the officers on behalf of the Corporation.
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<PAGE>
ARTICLE X. BOOKS AND RECORDS
The Corporation shall keep correct and complete books and records of
account and shall keep minutes of meetings and proceedings of its stockholders
and Board of Directors (including committees thereof); and it shall keep at its
registered office or principal place of business, or at the office of its
transfer agent or registrar, a record of its stockholders, giving the names and
addresses of all stockholders and the number and class of the shares held by
each. Any books, records and minutes may be in written form or any other form
capable of being converted into written form within a reasonable time.
ARTICLE XI. AMENDMENTS
11.1 AMENDMENTS. These Bylaws may be altered, amended or repealed only
as set forth in the Corporation's Certificate of Incorporation, which provisions
are incorporated herein with the same effect as if they were set forth herein.
11.2 EMERGENCY BYLAWS. The Board of Directors may adopt emergency
Bylaws, subject to repeal or change by action of the stockholders, which shall
be operative during any national or local emergency.
ARTICLE XII. USE OF PRONOUNS
Use of the masculine gender in these Bylaws shall be considered to
represent either masculine or feminine gender whenever appropriate.
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<PAGE>
Exhibit 4.0
(FORM OF STOCK CERTIFICATE - FRONT SIDE)
NUMBER SHARES
COMMON STOCK CUSIP
See reverse for
certain definitions
PEOPLES COMMUNITY BANCORP, INC.
INCORPORATED UNDER THE LAWS OF DELAWARE
This certifies that ___________________________________ is the
registered holder of _________________ fully paid and non-assessable shares of
the Common Stock, par value $.01 per share, of Peoples Community Bancorp, Inc.,
Lebanon, Ohio (the "Corporation"), incorporated under the laws of the State of
Delaware.
The shares evidenced by this Certificate are transferable only on the
books of the Corporation by the holder hereof, in person or by a duly authorized
attorney or legal representative, upon surrender of this Certificate properly
endorsed. This Certificate and the shares represented hereby are subject to all
the provisions of the Certificate of Incorporation and Bylaws of the Corporation
and any and all amendments thereto. THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT FEDERALLY INSURED OR GUARANTEED. This
Certificate is not valid unless countersigned by the Transfer Agent and
registered by the Registrar.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed by the facsimile signatures of its duly authorized officers and has
caused its facsimile seal to be affixed hereto.
Dated:
(SEAL)
- ----------------------------- -------------------------------------
David A. Cook Jerry D. Williams
Secretary President and Chief Executive Officer
<PAGE>
(FORM OF STOCK CERTIFICATE - BACK SIDE)
The Corporation is authorized to issue more than one class of stock,
including a class of preferred stock which may be issued in one or more series.
The Corporation will furnish to any stockholder, upon written request and
without charge, a full statement of the designations, preferences, limitations
and relative rights of the shares of each class authorized to be issued and,
with respect to the issuance of any preferred stock to be issued in series, the
relative rights, preferences and limitations between the shares of each series
so far as the rights, preferences and limitations have been fixed and determined
and the authority of the Board of Directors to fix and determine the relative
rights, preferences and limitations of subsequent series.
The Certificate of Incorporation of the Corporation includes a
provision which generally prohibits any person (including an individual, company
or group acting in concert) from directly or indirectly offering to acquire or
acquiring the beneficial ownership of more than 10% of any class of equity
securities of the Corporation. In the event that stock is acquired in violation
of this 10% limitation, the excess shares will no longer be counted in
determining the total number of outstanding shares for purposes of any matter
involving stockholder action and the Board of Directors of the Corporation may
cause such excess shares to be transferred to an independent trustee for sale in
the open market or otherwise, with the expenses of such sale to be paid out of
the proceeds of the sale.
The Certificate of Incorporation of the Corporation contains provisions
that the affirmative vote of at least 80% of the Voting Shares (as defined) may
be required to approve certain business combinations and other actions.
The following abbreviations, when used in the inscription on the face
of this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not
as tenants in common
UNIF GIFT MIN ACT - Custodian under
------------------------ -------------------
(Cust) (Minor)
Uniform Gifts to Minors Act
---------------------------
(State)
Additional abbreviations may also be used though not in the above list.
<PAGE>
For value received, hereby sell, assign and transfer unto
---------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
TAXPAYER IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------------------------------------------------
(Please print or typewrite name and address including postal zip code of
assignee)
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
_______________shares of Common Stock represented by this Certificate, and do
hereby irrevocably constitute and appoint__________________as Attorney, to
transfer the said shares on the books of the within named Corporation, with full
power of substitution.
Dated ,
-----------------
-------------------------------
Signature
-------------------------------
Signature
NOTICE: The signature(s) to this assignment must correspond with the name(s) as
written upon the face of this Certificate in every particular, without
alteration or enlargement, or any change whatever. The signature(s) should be
guaranteed by an eligible guarantor institution (bank, stockbroker, savings and
loan association or credit union) with membership in an approved signature
medallion program, pursuant to S.E.C. Rule 17Ad-15.
<PAGE>
Exhibit 8.3
RP FINANCIAL, LC.
Financial Services Industry Consultants
December 17, 1999
Board of Directors
People's Building, Loan and Savings Company
11 South Broadway
Lebanon, Ohio 45036
Re: Plan of Conversion: Subscription Rights
People's Building, Loan and Savings Company
Gentlemen:
All capitalized terms not otherwise defined in this letter have the
meanings given such terms in the Plan of Conversion adopted by the Board of
Directors of People's Building, Loan and Savings Company ("People's Building"
or the "Bank") whereby the Bank will convert from an Ohio chartered mutual
savings and loan association to a federally chartered stock savings bank and
issue all of the Bank's outstanding capital stock to Peoples Community Bancorp,
Inc. (the "Holding Company"). Simultaneously, the Holding Company will issue
shares of common stock.
We understand that in accordance with the Plan of Conversion,
subscription rights to purchase shares of common stock in the Holding Company
are to be issued to: (1) Eligible Account Holders; (2) the ESOP; (3)
Supplemental Eligible Account Holders; (4) Other Members; and (5) Directors,
Officers and Employees. Based solely upon our observation that the subscription
rights will be available to such parties without cost, will be legally
non-transferable and of short duration, and will afford such parties the right
only to purchase shares of common stock at the same price as will be paid by
members of the general public in the Community Offering, but without undertaking
any independent investigation of state or federal law or the position of the
Internal Revenue Service with respect to this issue, we are of the belief that,
as a factual matter:
(1) the subscription rights will have no ascertainable market
value; and,
(2) the price at which the subscription rights are exercisable
will not be more or less than the pro forma market value
of the shares upon issuance.
Changes in the local and national economy, the legislative and
regulatory environment, the stock market, interest rates, and other external
forces (such as natural disasters or significant world events) may occur from
time to time, often with great unpredictability and may materially impact the
value of thrift stocks as a whole or the Holding Company's value alone.
Accordingly, no assurance can be given that persons who subscribe to shares of
common stock in the Subscription Offering will thereafter be able to buy or sell
such shares at the same price paid in the Subscription Offering.
Sincerely,
/s/ GREGORY E. DUNN
------------------------
Gregory E. Dunn
Senior Vice President
- --------------------------------------------------------------------------------
WASHINGTON HEADQUARTERS
Rosslyn Center
<PAGE>
Exhibit 10.1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated this ___ day of _______ 2000, between
Peoples Community Bancorp, Inc. (the "Corporation"), Peoples Community Bank, a
Federally chartered savings bank and a wholly owned subsidiary of the
Corporation (the "Bank"), and _______________ (the "Executive").
WITNESSETH
WHEREAS, the Employers desire to be ensured of the Executive's active
participation in the business of the Employers;
WHEREAS, in order to induce the Executive to serve in the employ of the
Employers and in consideration of the Executive's agreeing to serve in the
employ of the Employers, the parties desire to specify the severance benefits
which shall be due the Executive by the Employers in the event that his
employment with the Employers is terminated under specified circumstances;
NOW THEREFORE, in consideration of the mutual agreements herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. DEFINITIONS. The following words and terms shall have the meanings
set forth below for the purposes of this Agreement:
(a) AVERAGE ANNUAL COMPENSATION. The Executive's "Average Annual
Compensation" for purposes of this Agreement shall be deemed to mean the average
level of compensation paid to the Executive by the Employers or any subsidiary
thereof during the most recent five taxable years preceding the Date of
Termination and which was either (i) included in the Executive's gross income
for tax purposes, including but not limited to Base Salary, bonuses and amounts
taxable to the Executive under any qualified or non-qualified employee benefit
plans of the Employers, or (ii) deferred at the election of the Executive.
(b) BASE SALARY. "Base Salary" shall have the meaning set forth in
Section 3(a) hereof.
(c) CAUSE. Termination of the Executive's employment for "Cause" shall
mean termination because of personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule or
regulation (other than traffic violations or similar offenses) or final
cease-and-desist order or material breach of any provision of this Agreement.
(d) CHANGE IN CONTROL OF THE CORPORATION. "Change in Control of the
Corporation" shall mean the occurrence of any of the following: (i) the
acquisition of control of the Corporation as defined in 12 C.F.R. Section 574.4,
unless a presumption of control is successfully rebutted or unless the
transaction is exempted by 12 C.F.R. Section 574.3(c)(vii), or any successor to
such sections; (ii) an event
<PAGE>
that would be required to be reported in response to Item 1(a) of Form 8-K or
Item 6(e) of Schedule 14A of Regulation 14A pursuant to the Securities Exchange
Act of 1934, as amended ("Exchange Act"), or any successor thereto, whether or
not any class of securities of the Corporation is registered under the Exchange
Act; (iii) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Corporation representing 20% or more of the combined voting power of the
Corporation's then outstanding securities; or (iv) during any period of three
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Corporation cease for any reason to constitute at
least a majority thereof unless the election, or the nomination for election by
stockholders, of each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning of the
period.
(e) CODE. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(f) DATE OF TERMINATION. "Date of Termination" shall mean (i) if the
Executive's employment is terminated for Cause or for Disability, the date
specified in the Notice of Termination, and (ii) if the Executive's employment
is terminated for any other reason, the date on which a Notice of Termination is
given or as specified in such Notice.
(g) DISABILITY. Termination by the Employers of the Executive's
employment based on "Disability" shall mean termination because of any physical
or mental impairment which qualifies the Executive for disability benefits under
the applicable long-term disability plan maintained by the Employers or any
subsidiary or, if no such plan applies, which would qualify the Executive for
disability benefits under the Federal Social Security System.
(h) GOOD REASON. Termination by the Executive of the Executive's
employment for "Good Reason" shall mean termination by the Executive within
twenty-four (24) months following a Change in Control of the Corporation based
on:
(i) Without the Executive's express written consent, the
failure to elect or to re-elect or to appoint or to
re-appoint the Executive to the offices of __________
and ____________ of the Employers or a material
adverse change made by the Employers in the
Executive's functions, duties or responsibilities as
__________ and ____________ of the Employers;
(ii) Without the Executive's express written consent, a
reduction by either of the Employers in the
Executive's Base Salary as the same may be increased
from time to time or, except to the extent permitted
by Section 3(b) hereof, a reduction in the package of
fringe benefits provided to the Executive, taken as a
whole;
- 2 -
<PAGE>
(iii) The principal executive office of either of the
Employers is relocated outside of the Lebanon, Ohio
area or, without the Executive's express written
consent, either of the Employers require the
Executive to be based anywhere other than an area in
which the Employers' principal executive office is
located, except for required travel on business of
the Employers to an extent substantially consistent
with the Executive's present business travel
obligations;
(iv) Any purported termination of the Executive's
employment for Disability or Retirement which is not
effected pursuant to a Notice of Termination
satisfying the requirements of paragraph (j) below;
or
(v) The failure by the Employers to obtain the assumption
of and agreement to perform this Agreement by any
successor as contemplated in Section 9 hereof.
(i) IRS. IRS shall mean the Internal Revenue Service.
(j) NOTICE OF TERMINATION. Any purported termination of the Executive's
employment by the Employers for any reason, including without limitation for
Cause, Disability or Retirement, or by the Executive for any reason, including
without limitation for Good Reason, shall be communicated by written "Notice of
Termination" to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" shall mean a dated notice which (i) indicates the
specific termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated, (iii)
specifies a Date of Termination, which shall be not less than thirty (30) nor
more than ninety (90) days after such Notice of Termination is given, except in
the case of the Employers' termination of Executive's employment for Cause,
which shall be effective immediately; and (iv) is given in the manner specified
in Section 10 hereof.
(k) RETIREMENT. "Retirement" shall mean voluntary termination by the
Executive in accordance with the Employers' retirement policies, including early
retirement, generally applicable to their salaried employees.
2. TERM OF EMPLOYMENT.
(a) The Employers hereby employ the Executive as __________ and
____________, and the Executive hereby accepts said employment and agrees to
render such services to the Employers on the terms and conditions set forth in
this Agreement. The term of this Agreement shall be a period of three years
commencing as of the date hereof (the "Commencement Date"), subject to earlier
termination as provided herein. Beginning on the day which is one year
subsequent to the Commencement Date, and on each annual anniversary thereafter,
the term of this Agreement shall be extended for a period of one year in
addition to the then-remaining term, provided that the
- 3 -
<PAGE>
Employers have not given notice to the Executive in writing at least 60 days
prior to such day that the term of the Agreement shall not be extended further.
Reference herein to the term of this Agreement shall refer to both such initial
term and such extended terms. The Boards of Directors of the Employers shall
review on a periodic basis (and no less frequently than annually) whether to
permit further extensions of the term of this Agreement. As part of such review,
the Board of Directors shall consider all relevant factors, including the
Executive's performance hereunder, and shall either expressly approve further
extensions of the time of this Agreement or decide to provide notice to the
contrary. Effective upon the Commencement Date, any and all prior agreements
with the Employers or with Harvest Home Financial Corporation, Harvest Home
Savings Bank or The Oakley Improved Building and Loan Company (collectively, the
"Former Employers") shall terminate, with no obligations to the Executive
thereunder on the part of the Former Employers.
(b) During the term of this Agreement, the Executive shall perform such
executive services for the Employers as may be consistent with his titles and
from time to time assigned to him by the Employers' Boards of Directors.
3. COMPENSATION AND BENEFITS.
(a) The Employers shall compensate and pay the Executive for his
services during the term of this Agreement at a minimum base salary of $________
per year ("Base Salary"), which may be increased from time to time in such
amounts as may be determined by the Boards of Directors of the Employers and may
not be decreased without the Executive's express written consent. In addition to
his Base Salary, the Executive shall be entitled to receive during the term of
this Agreement such bonus payments as may be determined by the Boards of
Directors of the Employers.
(b) During the term of this Agreement, the Executive shall be entitled
to participate in and receive the benefits of any pension or other retirement
benefit plan, profit sharing, stock option, employee stock ownership, or other
plans, benefits and privileges given to employees and executives of the
Employers, to the extent commensurate with his then duties and responsibilities,
as fixed by the Boards of Directors of the Employers. The Employers shall not
make any changes in such plans, benefits or privileges which would adversely
affect the Executive's rights or benefits thereunder, unless such change occurs
pursuant to a program applicable to all executive officers of the Employers and
does not result in a proportionately greater adverse change in the rights of or
benefits to the Executive as compared with any other executive officer of the
Employers. Nothing paid to the Executive under any plan or arrangement presently
in effect or made available in the future shall be deemed to be in lieu of the
salary payable to the Executive pursuant to Section 3(a) hereof.
(c) During the term of this Agreement, the Executive shall be entitled
to paid annual vacation in accordance with the policies as established from time
to time by the Boards of Directors of the Employers. The Executive shall not be
entitled to receive any additional compensation from the Employers for failure
to take a vacation, nor shall the Executive be able to accumulate unused
vacation time from one year to the next, except to the extent authorized by the
Boards of Directors of the Employers.
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<PAGE>
(d) In the event the Executive's employment is terminated due to
Disability or Retirement, the Employers shall provide continued life, medical,
dental and disability coverage substantially identical to the coverage
maintained by the Employers for the Executive immediately prior to his
termination. Such coverage shall cease upon the expiration of the remaining term
of this Agreement.
(e) The Executive's compensation, benefits and expenses shall be paid
by the Corporation and the Bank in the same proportion as the time and services
actually expended by the Executive on behalf of each respective Employer.
4. EXPENSES. The Employers shall reimburse the Executive or otherwise
provide for or pay for all reasonable expenses incurred by the Executive in
furtherance of or in connection with the business of the Employers, including,
but not by way of limitation, automobile expenses and other traveling expenses,
and all reasonable entertainment expenses (whether incurred at the Executive's
residence, while traveling or otherwise), subject to such reasonable
documentation and other limitations as may be established by the Boards of
Directors of the Employers. If such expenses are paid in the first instance by
the Executive, the Employers shall reimburse the Executive therefor.
5. TERMINATION.
(a) The Employers shall have the right, at any time upon prior Notice
of Termination, to terminate the Executive's employment hereunder for any
reason, including without limitation termination for Cause, Disability or
Retirement, and the Executive shall have the right, upon prior Notice of
Termination, to terminate his employment hereunder for any reason.
(b) In the event that (i) the Executive's employment is terminated by
the Employers for Cause or (ii) the Executive terminates his employment
hereunder other than for Disability, Retirement, death or Good Reason, the
Executive shall have no right pursuant to this Agreement to compensation or
other benefits for any period after the applicable Date of Termination.
(c) In the event that the Executive's employment is terminated as a
result of Disability, Retirement or the Executive's death during the term of
this Agreement, the Executive shall have no right pursuant to this Agreement to
compensation or other benefits for any period after the applicable Date of
Termination, except as provided for in Section 3(d) hereof.
(d) In the event that (i) the Executive's employment is terminated by
the Employers for other than Cause, Disability, Retirement or the Executive's
death or (ii) such employment is terminated by the Executive (a) due to a
material breach of this Agreement by the Employers, which breach has not been
cured within fifteen (15) days after a written notice of non-compliance has been
given by the Executive to the Employers, or (b) for Good Reason, then the
Employers shall, subject to the provisions of Section 6 hereof, if applicable
- 5 -
<PAGE>
(A) pay to the Executive, in either thirty-six (36) equal
monthly installments beginning with the first business day of the month
following the Date of Termination or in a lump sum within five business
days of the Date of Termination (at the Executive's election), a cash
severance amount equal to three (3) times that portion of the
Executive's Average Annual Compensation paid by the Employers, and
(B) maintain and provide for a period ending at the earlier of
(i) the expiration of the remaining term of employment pursuant hereto
prior to the Notice of Termination or (ii) the date of the Executive's
full-time employment by another employer (provided that the Executive
is entitled under the terms of such employment to benefits
substantially similar to those described in this subparagraph (B)), at
no cost to the Executive, the Executive's continued participation in
all group insurance, life insurance, health and accident insurance,
disability insurance and other employee benefit plans, programs and
arrangements offered by the Employers in which the Executive was
entitled to participate immediately prior to the Date of Termination
(excluding (x) stock option and restricted stock plans of the
Employers, (y) bonuses and other items of cash compensation included in
Average Annual Compensation and (z) other benefits, or portions
thereof, included in Average Annual Compensation), provided that in the
event that the Executive's participation in any plan, program or
arrangement as provided in this subparagraph (B) is barred, or during
such period any such plan, program or arrangement is discontinued or
the benefits thereunder are materially reduced, the Employers shall
arrange to provide the Executive with benefits substantially similar to
those which the Executive was entitled to receive under such plans,
programs and arrangements immediately prior to the Date of Termination.
6. LIMITATION OF BENEFITS UNDER CERTAIN CIRCUMSTANCES. If the payments
and benefits pursuant to Section 5 hereof, either alone or together with other
payments and benefits which the Executive has the right to receive from the
Employers, would constitute a "parachute payment" under Section 280G of the
Code, the payments and benefits payable by the Employers pursuant to Section 5
hereof shall be reduced, in the manner determined by the Executive, by the
amount, if any, which is the minimum necessary to result in no portion of the
payments and benefits payable by the Employers under Section 5 being
non-deductible to the Employers pursuant to Section 280G of the Code and subject
to the excise tax imposed under Section 4999 of the Code. The parties hereto
agree that the present value of the payments and benefits payable pursuant to
this Agreement to the Executive upon termination shall be limited to three times
the Executive's Average Annual Compensation. The determination of any reduction
in the payments and benefits to be made pursuant to Section 5 shall be based
upon the opinion of independent counsel selected by the Employers' independent
public accountants and paid by the Employers. Such counsel shall be reasonably
acceptable to the Employers and the Executive; shall promptly prepare the
foregoing opinion, but in no event later than thirty (30) days from the Date of
Termination; and may use such actuaries as such counsel deems necessary or
advisable for the purpose. Nothing contained herein shall result in a reduction
of any payments or benefits to which the Executive may be entitled upon
termination of employment under any circumstances other than as specified in
this Section 6, or a reduction in the payments and benefits specified in Section
5 below zero.
- 6 -
<PAGE>
7. MITIGATION; EXCLUSIVITY OF BENEFITS.
(a) The Executive shall not be required to mitigate the amount of any
benefits hereunder by seeking other employment or otherwise, nor shall the
amount of any such benefits be reduced by any compensation earned by the
Executive as a result of employment by another employer after the Date of
Termination or otherwise.
(b) The specific arrangements referred to herein are not intended to
exclude any other benefits which may be available to the Executive upon a
termination of employment with the Employers pursuant to employee benefit plans
of the Employers or otherwise.
8. WITHHOLDING. All payments required to be made by the Employers
hereunder to the Executive shall be subject to the withholding of such amounts,
if any, relating to tax and other payroll deductions as the Employers may
reasonably determine should be withheld pursuant to any applicable law or
regulation.
9. ASSIGNABILITY. The Employers may assign this Agreement and its
rights and obligations hereunder in whole, but not in part, to any corporation,
bank or other entity with or into which the Employers may hereafter merge or
consolidate or to which the Employers may transfer all or substantially all of
its assets, if in any such case said corporation, bank or other entity shall by
operation of law or expressly in writing assume all obligations of the Employers
hereunder as fully as if it had been originally made a party hereto, but may not
otherwise assign this Agreement or its rights and obligations hereunder. The
Executive may not assign or transfer this Agreement or any rights or obligations
hereunder.
10. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below:
To the Employers: Boards of Directors
Peoples Bancorp, Inc.
Peoples Community Bank
11 South Broadway
Lebanon, Ohio 45036-1780
To the Executive: [EXECUTIVE]
[HOME ADDRESS]
11. AMENDMENT; WAIVER. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer or officers as may be
specifically designated by the Boards of
- 7 -
<PAGE>
Directors of the Employers to sign on their behalf. No waiver by any party
hereto at any time of any breach by any other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
12. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise by the substantive laws of the State of Ohio.
13. NATURE OF OBLIGATIONS. Nothing contained herein shall create or
require the Employers to create a trust of any kind to fund any benefits which
may be payable hereunder, and to the extent that the Executive acquires a right
to receive benefits from the Employers hereunder, such right shall be no greater
than the right of any unsecured general creditor of the Employers.
14. HEADINGS. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
17. REGULATORY ACTIONS. The following provisions shall be applicable to
the parties to the extent that they are required to be included in employment
agreements between a savings association and its employees pursuant to Section
563.39(b) of the Regulations Applicable to All Savings Associations, 12 C.F.R.
Section 563.39(b), or any successor thereto, and shall be controlling in the
event of a conflict with any other provision of this Agreement, including
without limitation Section 5 hereof.
(a) If the Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of the Employers' affairs pursuant
to notice served under Section 8(e)(3) or Section 8(g)(1) of the Federal Deposit
Insurance Act ("FDIA") (12 U.S.C. Sections 1818(e)(3) and 1818(g)(1)), the
Employers' obligations under this Agreement shall be suspended as of the date of
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Employers may, in their discretion: (i) pay the Executive all
or part of the compensation withheld while its obligations under this Agreement
were suspended, and (ii) reinstate (in whole or in part) any of its obligations
which were suspended.
(b) If the Executive is removed from office and/or permanently
prohibited from participating in the conduct of the Employers' affairs by an
order issued under Section 8(e)(4) or
- 8 -
<PAGE>
Section 8(g)(1) of the FDIA (12 U.S.C. Sections 1818(e)(4) and (g)(1)), all
obligations of the Employers under this Agreement shall terminate as of the
effective date of the order, but vested rights of the Executive and the
Employers as of the date of termination shall not be affected.
(c) If the Bank is in default, as defined in Section 3(x)(1) of the
FDIA (12 U.S.C. Section 1813(x)(1)), all obligations under this Agreement shall
terminate as of the date of default, but vested rights of the Executive and the
Employers as of the date of termination shall not be affected.
(d) All obligations under this Agreement shall be terminated pursuant
to 12 C.F.R. Section 563.39(b)(5) (except to the extent that it is determined
that continuation of the Agreement for the continued operation of the Employers
is necessary): (i) by the Director of the Office of Thrift Supervision ("OTS"),
or his/her designee, at the time the Federal Deposit Insurance Corporation
("FDIC") enters into an agreement to provide assistance to or on behalf of the
Bank under the authority contained in Section 13(c) of the FDIA (12 U.S.C.
Section 1823(c)); or (ii) by the Director of the OTS, or his/her designee, at
the time the Director or his/her designee approves a supervisory merger to
resolve problems related to operation of the Bank or when the Bank is
determined by the Director of the OTS to be in an unsafe or unsound condition,
but vested rights of the Executive and the Employers as of the date of
termination shall not be affected.
18. REGULATORY PROHIBITION. Notwithstanding any other provision of this
Agreement to the contrary, any payments made to the Executive pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with Section 18(k) of the Federal Deposit Insurance Act (12 U.S.C. Section
1828(k)) and the regulations promulgated thereunder, including 12 C.F.R.
Part 359.
19. PAYMENT OF COSTS AND LEGAL FEES AND REINSTATEMENT OF BENEFITS. In
the event any dispute or controversy arising under or in connection with the
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, the Executive shall be entitled to the
payment of (a) all legal fees incurred by the Executive in resolving such
dispute or controversy, and (2) any back-pay, including Base Salary, bonuses and
any other cash compensation, fringe benefits and any compensation and benefits
due to the Executive under this Agreement.
20. ENTIRE AGREEMENT. This Agreement embodies the entire agreement
between the Employers and the Executive with respect to the matters agreed to
herein. All prior agreements between the Employers and the Executive with
respect to the matters agreed to herein are hereby superseded and shall have no
force or effect. Notwithstanding the foregoing, nothing contained in this
Agreement shall affect the agreement of even date being entered into between the
Corporation and the Executive.
- 9 -
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
Attest: PEOPLES COMMUNITY BANCORP, INC.
By:
- --------------------------- ----------------------------
Attest: PEOPLES COMMUNITY BANK
By:
- --------------------------- ----------------------------
EXECUTIVE
----------------------------
<PAGE>
Exhibit 10.2
CHANGE IN CONTROL
SEVERANCE AGREEMENT BETWEEN
PEOPLES COMMUNITY BANK
AND [EXECUTIVE]
AGREEMENT, dated this ____ day of ____________ 2000, between Peoples
Community Bank (the "Bank" or the "Employer"), a Federally chartered stock-form
savings bank and a wholly owned subsidiary of Peoples Community Bancorp, Inc.
(the "Corporation") and __________________ (the "Executive").
WITNESSETH:
WHEREAS, the Executive is presently an officer of the Employer; and
WHEREAS, the Employer desires to be ensured of the Executive's continued
active participation in the business of the Employer; and
WHEREAS, in order to induce the Executive to remain in the employ of the
Employer and in consideration of the Executive's agreeing to remain in the
employ of the Employer, the parties desire to specify the severance benefits
which shall be due the Executive in the event that his employment with the
Employer is terminated under specified circumstances;
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereby agree as follows:
1. DEFINITIONS. The following words and terms shall have the
meanings set forth below for the purposes of this Agreement:
(a) AVERAGE ANNUAL COMPENSATION. The Executive's "Average Annual
Compensation" for purposes of this Agreement shall be deemed to mean the
average level of compensation paid to the Executive by the Employer or
any subsidiary thereof during the most recent five taxable years
preceding the Date of Termination and which was either (i) included in
the Executive's gross income for tax purposes, including but not limited
to base salary, bonuses and amounts taxable to the Executive under any
qualified or non-qualified employee benefit plans of the employer, or
(ii) deferred at the election of the Executive.
(b) CAUSE. Termination by the Employer of the Executive's
employment for "Cause" shall mean termination because of personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform
<PAGE>
stated duties, willful violation of any law, rule or regulation (other
than traffic violations or similar offenses) or final cease-and-desist
order. For purposes of this paragraph, no act or failure to act on the
Executive's part shall be considered "willful" unless done, or omitted
to be done, by the Executive not in good faith and without reasonable
belief that the Executive's action or omission was in the best interest
of the Employer.
(c) CHANGE IN CONTROL OF THE CORPORATION. "Change in Control of
the Corporation" shall mean a change in control of a nature that would
be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended ("Exchange Act"), or any successor thereto, whether or not any
security of the Corporation is registered under Exchange Act; provided
that, without limitation, such a change in control shall be deemed to
have occurred if any "person" (as such term is used in Section 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Corporation representing 25% or more of the
combined voting power of the Corporation's then outstanding securities.
(d) CODE. Code shall mean the Internal Revenue Code of 1986, as
amended.
(e) DATE OF TERMINATION. "Date of Termination" shall mean (i) if
the Executive's employment is terminated for Cause or for Disability,
the date specified in the Notice of Termination, and (ii) if the
Executive's employment is terminated for any other reason, the date on
which a Notice of Termination is given or as specified in such Notice.
(f) DISABILITY. Termination by the Employer of the Executive's
employment based on "Disability" shall mean termination because of any
physical or mental impairment which qualifies the Executive for
disability benefits under the applicable long-term disability plan
maintained by the Employer or, if no such plan applies, which would
qualify the Executive for disability benefits under the Federal Social
Security System.
(g) GOOD REASON. Termination by the Executive of the Executive's
employment for "Good Reason" shall mean termination by the Executive
based on:
(i) Without the Executive's express written consent, the
assignment by the Employer to the Executive of any duties which
are materially inconsistent with the Executive's positions,
duties, responsibilities and status with the Employer immediately
prior to a Change in Control of the Corporation, or a material
change in the Executive's reporting responsibilities, titles or
offices as an employee and as in effect immediately prior to such
a Change in Control, or any removal of the Executive from or any
failure to re-elect the Executive to any of such
responsibilities, titles or offices, except in connection with
the termination of the Executive's employment for Cause,
Disability or Retirement or as a result of the Executive's death
or by the Executive other than for Good Reason;
2
<PAGE>
(ii) Without the Executive's express written consent, a
reduction by the Employer in the Executive's base salary as in
effect on the date of the Change in Control of the Corporation or
as the same may be increased from time to time thereafter or a
reduction in the package of fringe benefits provided to the
Executive;
(iii) Any purported termination of the Executive's
employment for Cause, Disability or Retirement which is not
effected pursuant to a Notice of Termination satisfying the
requirements of paragraph (i) below; or
(iv) The failure by the Employer to obtain the assumption
of and agreement to perform this Agreement by any successor as
contemplated in Section 6 hereof.
(h) IRS. IRS shall mean the Internal Revenue Service.
(i) NOTICE OF TERMINATION. Any purported termination by the
Employer for Cause, Disability or Retirement or by the Executive for
Good Reason shall be communicated by written "Notice of Termination" to
the other party hereto. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of Executive's employment under the provision so
indicated, (iii) specifies a Date of Termination, which shall be not
less than thirty (30) nor more than ninety (90) days after such Notice
of Termination is given, except in the case of the Employer's
termination of Executive's employment for Cause, and (iv) is given in
the manner specified in Section 7 hereof.
(j) RETIREMENT. Termination by the Employer of the Executive's
employment based on "Retirement" shall mean voluntary termination by the
Executive in accordance with the Employer's retirement policies,
including early retirement, generally applicable to their salaried
employees.
2. BENEFITS UPON TERMINATION. If the Executive's employment by the
Employer shall be terminated subsequent to a Change in Control of the
Corporation by (i) the Employer other than for Cause, Disability, Retirement, or
as a result of the Executive's death, or (ii) the Executive for Good Reason,
then the Employer shall, subject to the provisions of Section 3 hereof, if
applicable:
(a) pay to the Executive, in equal monthly installments beginning
with the first business day of the month following the Date of
Termination, a cash amount equal to one (1) times the Executive's
Average Annual Compensation; and
(b) maintain and provide for a period ending at the earlier of
(i) one (1) year after the Date of Termination or (ii) the date of the
Executive's full-time employment by another employer (provided that the
Executive is entitled under the terms of such employment to benefits
substantially similar to those described in this subparagraph (b)), at
no cost to the
3
<PAGE>
Executive, the Executive's continued participation in all group
insurance, life insurance, health and accident, disability and other
employee benefit plans, programs and arrangements in which the Executive
was entitled to participate immediately prior to the Date of Termination
(other than retirement plans or stock compensation plans of the
Employer), provided that in the event that the Executive's participation
in any plan, program or arrangement as provided in this subparagraph (b)
is barred, or during such period any such plan, program or arrangement
is discontinued or the benefits thereunder are materially reduced, the
Employer shall arrange to provide the Executive with benefits
substantially similar to those which the Executive was entitled to
receive under such plans, programs and arrangements immediately prior to
the Date of Termination.
3. LIMITATION OF BENEFITS UNDER CERTAIN CIRCUMSTANCES. If the payments
and benefits pursuant to Section 2 hereof, either alone or together with other
payments and benefits which Executive has the right to receive from the Employer
would constitute a "parachute payment" under Section 280G of the Code, the
payments and benefits pursuant to Section 2 hereof shall be reduced, in the
manner determined by the Executive, by the amount, if any, which is the minimum
necessary to result in no portion of the payments and benefits under Section 2
being non-deductible to the Employer pursuant to Section 280G of the Code and
subject to the excise tax imposed under Section 4999 of the Code. The
determination of any reduction in the payments and benefits to be made pursuant
to Section 2 shall be based upon the opinion of independent tax counsel selected
by the Employer's independent public accountants and paid for by the Employer.
In the event that the Employer and/or the Executive do not agree with the
opinion of such counsel, (i) the Employer shall pay to the Executive the maximum
amount of payments and benefits pursuant to Section 2, as selected by the
Executive, which such opinion indicates that there is a high probability do not
result in any of such payments and benefits being non-deductible to the Employer
and subject to the imposition of the excise tax imposed under Section 4999 of
the Code and (ii) the Employer may request, and Executive shall have the right
to demand that the Employer request, a ruling from the IRS as to whether the
disputed payments and benefits pursuant to Section 2 hereof have such
consequences. Any such request for a ruling from the IRS shall be promptly
prepared and filed by the Employer, but in no event later than thirty (30) days
from the date of the opinion of counsel referred to above, and shall be subject
to Executive's approval prior to filing, which shall not be unreasonably
withheld. The Employer and Executive agree to be bound by any ruling received
from the IRS and to make appropriate payments to each other to reflect any such
rulings, together with interest at the applicable federal rate provided for in
Section 7872(f)(2) of the Code. Nothing contained herein shall result in a
reduction of any payments or benefits to which the Executive may be entitled
upon termination of employment other than pursuant to Section 2 hereof, or a
reduction in the payments and benefits specified in Section 2 below zero.
4. MITIGATION; EXCLUSIVITY OF BENEFITS.
(a) The Executive shall not be required to mitigate the amount of any
benefits hereunder by seeking other employment or otherwise, nor shall the
amount of any such benefits be reduced by
4
<PAGE>
any compensation earned by the Executive as a result of employment by another
employer after the Date of Termination or otherwise.
(b) The specific arrangements referred to herein are not intended to
exclude any other benefits which may be available to the Executive upon a
termination of employment with the Employer pursuant to employee benefit plans
of the Employer or otherwise.
5. WITHHOLDING. All payments required to be made by the Employer
hereunder to the Executive shall be subject to the withholding of such amounts,
if any, relating to tax and other payroll deductions as the Employer may
reasonably determine should be withheld pursuant to any applicable law or
regulation.
6. ASSIGNABILITY. The Employer may assign this Agreement and its rights
hereunder in whole, but not in part, to any corporation, bank or other entity
with or into which the Employer may hereafter merge or consolidate or to which
the Employer may transfer all or substantially all of its respective assets, if
in any such case said corporation, bank or other entity shall by operation of
law or expressly in writing assume all obligations of the Employer hereunder as
fully as if it had been originally made a party hereto, but may not otherwise
assign this Agreement or its rights hereunder. The Executive may not assign or
transfer this Agreement or any rights or obligations hereunder.
7. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below:
To the Employer: Chairman of the Board
Peoples Community Bank
11 South Broadway
Lebanon, Ohio 45036-1780
To the Executive: [EXECUTIVE]
[HOME ADDRESS]
8. AMENDMENT; WAIVER. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer or officers as may be
specifically designated by the Board of Directors of the Employer to sign on its
behalf. No waiver by any party hereto at any time of any breach by any other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
5
<PAGE>
9. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise the substantive laws of the State of Ohio.
10. NATURE OF EMPLOYMENT AND OBLIGATIONS.
(a) Nothing contained herein shall be deemed to create other than a
terminable at will employment relationship between the Employer and the
Executive, and the Employer may terminate the Executive's employment at any
time, subject to providing any payments specified herein in accordance with the
terms hereof.
(b) Nothing contained herein shall create or require the Employer to
create a trust of any kind to fund any benefits which may be payable hereunder,
and to the extent that the Executive acquires a right to receive benefits from
the Employer hereunder, such right shall be no greater than the right of any
unsecured general creditor of the Employer.
11. TERM OF AGREEMENT. The term of this Agreement shall be a period of
one year commencing on ____________ ____, 2000 (the "Commencement Date"),
subject to earlier termination as provided herein. Beginning on the day which is
one year subsequent to the Commencement Date, and on each annual anniversary
thereafter, the term of this Agreement shall be extended for a period of one
year, provided that the Employer has not given notice to the Executive in
writing at least 30 days prior to such day that the term of this Agreement shall
not be extended further. Reference herein to the term of this Agreement shall
refer to both such initial term and such extended terms. Effective upon the
Commencement Date, any and all prior agreements with the Employer or with
Harvest Home Financial Corporation, Harvest Home Savings Bank or The Oakley
Improved Building and Loan Company (collectively, the "Former Employers") shall
terminate, with no obligations to the Executive thereunder on the part of the
Former Employers.
12. HEADINGS. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
14. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
15. REGULATORY ACTIONS. The following provisions shall be applicable
to the parties to the extent that they are required to be included in
employment contracts between a savings association and its employees pursuant
to Section 563.39(b) of the Regulations Applicable to all Savings
Associations, 12 C.F.R. Section 563.39(b), or any successor thereto, and
shall be controlling in the event
6
<PAGE>
of a conflict with any other provision of this Agreement, including without
limitation Section 2 hereof.
(a) If the Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of the Employer's affairs
pursuant to notice served under Section 8(e)(3) or Section 8(g)(1) of the
Federal Deposit Insurance Act ("FDIA") (12 U.S.C. Sections 1818(e)(3) and
1818(g)(1)), the Employer's obligations under this Agreement shall be
suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Employer may, in
its discretion: (i) pay the Executive all or part of the compensation
withheld while its obligations under this Agreement were suspended, and (ii)
reinstate (in whole or in part) any of its obligations which were suspended.
(b) If the Executive is removed from office and/or permanently
prohibited from participating in the conduct of the Employer's affairs by an
order issued under Section 8(e)(4) or Section 8(g)(1) of the FDIA (12 U.S.C.
Sections 1818(e)(4) and (g)(1)), all obligations of the Employer under this
Agreement shall terminate as of the effective date of the order, but vested
rights of the Executive and the Employer as of the date of termination shall
not be affected.
(c) If the Bank is in default, as defined in Section 3(x)(1) of the
FDIA (12 U.S.C. Section 1813(x)(1)), all obligations under this Agreement
shall terminate as of the date of default, but vested rights of the Executive
and the Employer as of the date of termination shall not be affected.
(d) All obligations under this Agreement shall be terminated pursuant
to 12 C.F.R. Section 563.39(b)(5) (except to the extent that it is determined
that continuation of the Agreement for the continued operation of the
Employer is necessary): (i) by the Director of the Office of Thrift
Supervision ("OTS"), or his/her designee, at the time the Federal Deposit
Insurance Corporation ("FDIC") enters into an agreement to provide assistance
to or on behalf of the Bank under the authority contained in Section 13(c) of
the FDIA (12 U.S.C. Section 1823(c)); or (ii) by the Director of the OTS, or
his/her designee, at the time the Director or his/her designee approves a
supervisory merger to resolve problems related to operation of the Bank or
when the Bank is determined by the Director of the OTS to be in an unsafe or
unsound condition, but vested rights of the Executive and the Employer as of
the date of termination shall not be affected.
16. REGULATORY PROHIBITION. Notwithstanding any other provision of
this Agreement to the contrary, the obligations of the Employer hereunder
shall be suspended in the event that the FDIC prohibits or limits, by
regulation or order, any payment hereunder pursuant to Section 18(k) of the
FDIA (12 U.S.C. Section 1828(k)).
7
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
Attest: PEOPLES COMMUNITY BANK
By:
- ----------------------------- -------------------------------
Attest: [EXECUTIVE]
By:
- ----------------------------- ------------------------------
8
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated December 10, 1999, accompanying the financial
statements of The People's Building, Loan and Savings Company as contained in
Forms S-1, OC and AC Peoples Community Bancorp, Inc. to be filed with the
Securities and Exchange Commission and the Office of Thrift Supervision on or
about December 17, 1999. We consent to the use of the aforementioned reports in
the Registration Statements and Prospectus and to the use of our name as it
appears under the caption "Experts."
/s/ GRANT THORNTON LLP
Cincinnati, Ohio
December 16, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated December 3, 1999, accompanying the financial
statements of The Oakley Improved Building and Loan Company as contained in
Forms S-1, OC and AC Peoples Community Bancorp, Inc. to be filed with the
Securities and Exchange Commission and the Office of Thrift Supervision on or
about December 17, 1999. We consent to the use of the aforementioned reports in
the Registration Statements and Prospectus and to the use of our name as it
appears under the caption "Experts."
/s/ GRANT THORNTON LLP
- ----------------------
Cincinnati, Ohio
December 16, 1999
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated November 19, 1999, accompanying the financial
statements of Harvest Home Financial Corporation contained in Forms S-1, OC and
AC of Peoples Community Bancorp, Inc. to be filed with the Securities and
Exchange Commission and the Office of Thrift Supervision on or about December
17, 1999. We consent to the use of the aforementioned reports in the
Registration Statements and Prospectus and to the use of our name as it appears
under the caption "Experts."
/s/ GRANT THORNTON LLP
- ----------------------
Cincinnati, Ohio
December 16, 1999
<PAGE>
Exhibit 23.5
RP Financial, LC.
Financial Services Industry Consultants
December 17, 1999
Board of Directors
People's Building, Loan and Savings Company
11 South Broadway
Lebanon, Ohio 45036
Gentlemen:
We hereby consent to the use of our firm's name in the Application for
Conversion of People's Building, Loan and Savings Company, Lebanon, Ohio, and
any amendments thereto, and in the Form S-1 Registration Statement and any
amendments thereto for Peoples Community Bancorp, Inc. We also hereby consent to
the inclusion of, summary of and references to our Appraisal Report and our
statement concerning subscription rights in such filings including the
Prospectus of Peoples Community Bancorp, Inc.
Sincerely,
RP FINANCIAL, LC.
/s/ GREGORY E. DUNN
-----------------------
Gregory E. Dunn
Senior Vice President
- --------------------------------------------------------------------------------
WASHINGTON HEADQUARTERS
Rosslyn Center
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. $
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 70
<INT-BEARING-DEPOSITS> 1950
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1908
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 83927
<ALLOWANCE> 365
<TOTAL-ASSETS> 90299
<DEPOSITS> 77691
<SHORT-TERM> 0
<LIABILITIES-OTHER> 751
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 11787
<TOTAL-LIABILITIES-AND-EQUITY> 90299
<INTEREST-LOAN> 6429
<INTEREST-INVEST> 74
<INTEREST-OTHER> 278
<INTEREST-TOTAL> 6781
<INTEREST-DEPOSIT> 3874
<INTEREST-EXPENSE> 3913
<INTEREST-INCOME-NET> 2868
<LOAN-LOSSES> 150
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1573
<INCOME-PRETAX> 1161
<INCOME-PRE-EXTRAORDINARY> 1161
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 766
<EPS-BASIC> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 7.81
<LOANS-NON> 652
<LOANS-PAST> 389
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1041
<ALLOWANCE-OPEN> 215
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 365
<ALLOWANCE-DOMESTIC> 365
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
Exhibit 99.2
THE PEOPLE'S BUILDING, LOAN AND SAVINGS COMPANY REVOCABLE PROXY
ANY MEMBER GIVING A PROXY MAY REVOKE IT AT ANY TIME BEFORE IT IS VOTED BY
DELIVERING TO THE SECRETARY OF THE PEOPLE'S BUILDING, LOAN AND SAVINGS COMPANY
EITHER A WRITTEN REVOCATION OF THE PROXY, OR A DULY EXECUTED PROXY BEARING A
LATER DATE, OR BY VOTING IN PERSON AT THE SPECIAL MEETING.
The undersigned hereby acknowledges receipt of a Notice of Special Meeting of
Members to be held on the xxth day of XXXX, 2000 and a proxy statement for the
Special Meeting prior to the signing of this proxy.
------------------------------------------
Signature Date
------------------------------------------
Signature Date
NOTE: Please sign exactly as your name
appears on this Proxy. Only one signature
is required in the case of a joint account.
When signing in a representative capacity,
please give title.
IMPORTANT: PLEASE DETACH, SIGN AND RETURN "ALL" PROXIES FROM "ALL"
PACKETS RECEIVED IN THE ENCLOSED POSTAGE PAID ENVELOPE.
- --------------------------------------------------------------------------------
FAILURE TO VOTE IS EFFECTIVELY THE SAME AS A "NO" VOTE.
PEOPLES COMMUNITY BANCORP, INC.
11 S. Broadway
Lebanon, Ohio 45306
(513) xxx-xxxx
STOCK ORDER AND CERTIFICATION FORM
- --------------------------------------------------------------------------------
DEADLINE: The Subscription Offering ends at 12:00 Noon, Eastern Time, on March
xx, 2000. Your original Stock Order and Certification Form, properly executed
and with the correct payment, must be received (not postmarked) at the address
on the top of this form, or at The People's Building, Loan and Savings Company
branch ("People's Savings") or The Oakley Improved Building and Loan Company
("Oakley") branch office, by the deadline, or it will be considered void. FAXES
OR COPIES OF THIS FORM WILL NOT BE ACCEPTED.
- --------------------------------------------------------------------------------
(1) Number of Shares Price Per Share (2) Total Amount Due
- -------------------- X $10.00 = ------------------------
$
- -------------------- ------------------------
Minimum - 25 shares
Maximum - Generally 15,000 shares; however, see the Prospectus.
- --------------------------------------------------------------------------------
METHOD OF PAYMENT
(3) / / Enclosed is a check, bank draft or money order payable to Peoples
Community Bancorp, Inc. for $______________.
(4) / / I authorize The People's Building, Loan and Savings Company to make
withdrawals from my People's Savings or Oakley certificate or savings
account(s) shown below, and understand that the amounts will not
otherwise be available for withdrawal:
Account Number(s) Amount(s)
- ----------------------------------- -------------------------------------------
- ----------------------------------- -------------------------------------------
- ----------------------------------- -------------------------------------------
- ----------------------------------- -------------------------------------------
TOTAL WITHDRAWAL -------------------------------------------
THERE IS NO PENALTY FOR EARLY WITHDRAWAL.
- --------------------------------------------------------------------------------
(5) PURCHASER INFORMATION (CHECK ONE)
a. / / ELIGIBLE ACCOUNT HOLDER - Check here if you were a depositor with $50
or more on deposit with People's Savings or Oakley as of June 30, 1998. Enter
information in Section 8 for all deposit accounts that you had at People's
Savings or Oakley on June 30, 1998.
b. / / SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER - Check here if you were a
depositor with $50 or more on deposit with People's Savings or Oakley as of
XXXXXX xx, 1999 but are not an Eligible Account Holder. Enter information in
Section 8 for all deposit accounts that you had at People's Savings or Oakley
on XXXXX xx, 1999.
c. / / OTHER MEMBER - Check here if you were a depositor of People's Savings
or Oakley as of XXXXXX xx, 1999, but are not an Eligible Account Holder or a
Supplemental Eligible Account Holder. Enter information in Section 8 for all
accounts that you had at People's Savings or Oakley on XXXXXX xx, 1999.
d. / / DIRECTORS, OFFICERS AND EMPLOYEES OF PEOPLE'S SAVINGS OR OAKLEY TO THE
EXTENT YOU ARE NOT INCLUDED IN 5a, b and c.
(6) / / Check here if you are a DIRECTOR, OFFICER or EMPLOYEE of People's
Savings or Oakley or a member of such person's immediate family (same
household).
- --------------------------------------------------------------------------------
(7) / / NASD AFFILIATION - see description on reverse side of this form.
- --------------------------------------------------------------------------------
(8) Please review the preprinted account information listed below. The accounts
printed below may not be all of your qualifying accounts or even your
accounts as of the earliest of the three dates if you have changed names on
the accounts. You should list any other accounts that you may have or had
with People's Savings in the box below. SEE THE STOCK ORDER FORM
INSTRUCTIONS SHEET FOR FURTHER INFORMATION. All subscription orders are
subject to the provisions of the Plan of Conversion.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ADDITIONAL QUALIFYING ACCOUNTS
ACCOUNT TITLE (NAMES ON ACCOUNTS) ACCOUNT NUMBER
- --------------------------------------------- ----------------------------------
- --------------------------------------------- ----------------------------------
- --------------------------------------------- ----------------------------------
PLEASE NOTE: FAILURE TO LIST ALL OF YOUR ACCOUNTS MAY RESULT IN THE LOSS OF PART
OR ALL OF YOUR SUBSCRIPTION RIGHTS. (additional space on back of form)
(9) HARVEST HOME FINANCIAL CORPORATION SHAREHOLDER INFORMATION
If you are currently a shareholder of Harvest Home Financial Corporation,
please indicate how many shares are owned by you and your associates acting
in concert with you. / /
(10) STOCK REGISTRATION - PLEASE PRINT LEGIBLY AND FILL OUT COMPLETELY
(Note: The stock certificate and all correspondence related to this stock
order will be mailed to the address provided below)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
/ / Individual / / Uniform Transfer to Minors Act / / Partnership
/ / Joint Tenants / / Uniform Gift to Minors Act / / Individual Retirement Account
/ / Tenants in Common / / Corporation / / Fiduciary/Trust (Under Agreement Dated _________________)
</TABLE>
- --------------------------------------------------------------------------------
Name Social Security or Tax I.D.
- --------------------------------------------------------------------------------
Name Social Security or Tax I.D.
- --------------------------------------------------------------------------------
Mailing Daytime
Address Telephone
- --------------------------------------------------------------------------------
Zip Evening
City State Code County Telephone
- --------------------------------------------------------------------------------
ACKNOWLEDGMENT By signing below, I acknowledge receipt of the Prospectus dated
February xx, 2000 and understand I may not change or revoke my order once it is
received by Peoples Community Bancorp, Inc. I also certify that this stock order
is for my account and there is no agreement or understanding regarding any
further sale or transfer of these shares. Applicable regulations prohibit any
persons from transferring, or entering into any agreement directly or indirectly
to transfer, the legal or beneficial ownership of subscription rights or the
underlying securities to the account of another person. Peoples Community
Bancorp, Inc. will pursue any and all legal and equitable remedies in the event
it becomes aware of the transfer of subscription rights and will not honor
orders known by it to involve such transfer. Under penalties of perjury, I
further certify that: (1) the social security number or taxpayer identification
number given above is correct and (2) I am not subject to backup withholding.
You must cross out this item (2) in this acknowledgement if you have been
notified by the Internal Revenue Service that you are subject to backup
withholding because of under-reporting interest or dividends on your tax return.
By signing below, I also acknowledge that I have not waived any rights under the
Securities Act of 1933 and the Securities Exchange Act of 1934, both as amended.
SIGNATURE: THIS FORM MUST BE SIGNED AND DATED BELOW AND ON THE BACK OF THIS
FORM. THIS ORDER IS NOT VALID IF THE STOCK ORDER AND CERTIFICATION FORM ARE NOT
BOTH SIGNED AND PROPERLY COMPLETED. Your order will be filled in accordance with
the provisions of the Plan of Conversion as described in the Prospectus. An
additional signature is required only if payment is by withdrawal from an
account that requires more than one signature to withdraw funds.
<TABLE>
<S> <C> <C>
- -------------------------- ----------------------------------------------------------------------------
Signature Date OFFICE USE ONLY Check # _______________
- -------------------------- Date Rec'd _______/_______Ck. Amt. _______________ ______________
Signature Date Batch # __________ - Order # __________________ Category _____________
- -------------------------- ----------------------------------------------------------------------------
</TABLE>
<PAGE>
THE PEOPLE'S BUILDING, LOAN AND SAVINGS COMPANY REVOCABLE PROXY
YOUR PROXY, IN THE FORM ENCLOSED, IS SOLICITED BY THE BOARD OF DIRECTORS OF THE
PEOPLE'S BUILDING, LOAN AND SAVINGS COMPANY FOR USE AT A SPECIAL MEETING OF
MEMBERS TO BE HELD ON XXXXX xx, 2000 AND ANY ADJOURNMENT OF THAT MEETING, FOR
THE PURPOSES SET FORTH IN THE FOREGOING NOTICE OF SPECIAL MEETING. YOUR BOARD OF
DIRECTORS AND MANAGEMENT URGE YOU TO VOTE FOR THE PLAN OF CONVERSION.
The undersigned being a member of The People's Building, Loan and Savings
Company, hereby authorizes the Board of Directors of The People's Building, Loan
and Savings Company or any successors in their respective positions, as proxy,
with full powers of substitution, to represent the undersigned at the Special
Meeting of Members of The People's Building, Loan and Savings Company to be
held at The People's Building, Loan and Savings Company's main office at 11 S.
Broadway, Lebanon, Ohio on XXXXX xx, 2000, at x:00 p.m., eastern time, and at
any adjournment of said meeting, to act with respect to all votes that the
undersigned would be entitled to cast, if then personally present, as set forth
below:
(1) To approve an Plan of Conversion of The People's Building, Loan and
Savings Company pursuant to which The People's Building, Loan and Savings
Company will convert from a mutual savings institution, including the adoption
of a federal stock savings bank charter and bylaws, with simultaneous issuance
of its common stock to Peoples Community Bancorp, Inc., a Delaware corporation
(the "Holding Company") and sale by the Holding Company of shares of its common
stock.
FOR / / AGAINST / /
(2) To vote, in its discretion, upon such other business as may properly come
before the Special Meeting or any adjournment thereof. Management is not aware
of any other such business that may come before the Special Meeting.
FOR / / AGAINST / /
THIS PROXY, IF EXECUTED, WILL BE VOTED "FOR" ADOPTION OF THE PLAN OF CONVERSION
AND FOR ADJOURNMENT OF THE SPECIAL MEETING, IF NECESSARY, IF NO CHOICE IS MADE
HEREIN. PLEASE DATE AND SIGN THIS PROXY ON THE REVERSE SIDE AND RETURN IT IN THE
ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
PEOPLES COMMUNITY BANCORP, INC.
ITEM (7) CONTINUED - NASD AFFILIATION (this section only applies to those
individuals who meet the delineated criteria)
Check the box if you are a member of the National Association of Securities
Dealers, Inc. ("NASD"), a person associated with an NASD member, a member of the
immediate family of any such person to whose support such person contributes,
directly or indirectly, or the holder of an account in which an NASD member or
person associated with an NASD member has a beneficial interest. To comply with
conditions under which an exemption from the NASD's Interpretation With Respect
to Free-Riding and Withholding is available, you agree, if you have checked the
NASD affiliation box: (1) not to sell, transfer or hypothecate the stock for a
period of three months following the issuance and (2) to report this
subscription in writing to the applicable NASD member within one day of the
payment therefor.
ITEM (8) CONTINUED; PURCHASER INFORMATION
ACCOUNT TITLE (NAMES ON ACCOUNTS) ACCOUNT NUMBER
- ----------------------------------------------- --------------------------------
- ----------------------------------------------- --------------------------------
- ----------------------------------------------- --------------------------------
- ----------------------------------------------- --------------------------------
- ----------------------------------------------- --------------------------------
- --------------------------------------------------------------------------------
CERTIFICATION FORM
(THIS CERTIFICATION FORM MUST BE SIGNED IN ADDITION TO THE STOCK ORDER FORM)
I ACKNOWLEDGE THAT THE SHARES OF COMMON STOCK, $.01 PAR VALUE PER SHARE, OF
PEOPLES COMMUNITY BANCORP, INC. ARE NOT DEPOSITS OR AN ACCOUNT AND ARE NOT
FEDERALLY INSURED OR GUARANTEED BY THE PEOPLE'S BUILDING, LOAN AND SAVINGS
COMPANY OR BY THE FEDERAL GOVERNMENT.
If anyone asserts that the shares of Common Stock are federally insured or
guaranteed, or are as safe as an insured deposit, I should call the Office of
Thrift Supervision Central Regional Director, Ronald N. Karr at (312) 917-5005.
I further certify that, before purchasing the Common Stock of Peoples Community
Bancorp, Inc. I received a copy of the Prospectus dated February xx, 2000 which
discloses the nature of the Common Stock being offered and describes the
following risks involved in an investment in the Common Stock under the heading
"Risk Factors" beginning on page 8 of the Prospectus:
1. Higher interest rates would hurt our profitability
2. Our future success depends on the success of the mergers
3. Our plans for future expansion will increase expenses; goodwill will reduce
our net earnings
4. Our commercial real estate and land loans are riskier than our residential
loans
5. Our stock value may suffer from our ability to impede potential takeovers
6. Our Directors and Officers may have effective voting control
7. Our employee stock benefit plans will increase our costs
8. Our employee stock benefit plans may be dilutive
9. Our valuation is not indicative of the future price of our common stock
10. Our stock price may decline
11. We may be unable to make technological advances
12. Our operations are subject to regulatory and legislative changes
- -------------------------------------- ---------------------------------------
Signature Date Signature Date
- -------------------------------------- ---------------------------------------
(NOTE: IF SHARES ARE TO BE HELD JOINTLY, BOTH PARTIES MUST SIGN)
EXECUTION OF THIS CERTIFICATION FORM WILL NOT CONSTITUTE A WAIVER OF ANY RIGHTS
THAT A PURCHASER MAY HAVE UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND
ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY.
<PAGE>
PEOPLES COMMUNITY STOCK OWNERSHIP GUIDE AND STOCK ORDER FORM INSTRUCTIONS
BANCORP, INC.
- --------------------------------------------------------------------------------
STOCK ORDER FORM INSTRUCTIONS - ALL SUBSCRIPTION ORDERS ARE SUBJECT TO THE
PROVISIONS OF THE PLAN OF CONVERSION.
ITEM 1 AND 2 - Fill in the number of shares that you wish to purchase and the
total payment due. The amount due is determined by multiplying the number of
shares ordered by the subscription price of $10.00 per share. The minimum
purchase is 25 shares. Generally, the maximum purchase for any person is 15,000
shares (15,000 shares x $10.00 per share = $150,000). No person, together with
associates, as defined in the prospectus, and persons acting in concert may
purchase more than 45,000 shares (45,000 shares x $10.00 per share = $450,000)
of the common stock offered in the offering. For additional information, see
"The Offering - Limitations on Common Stock Purchases" in the prospectus.
ITEM 3 - Payment for shares may be made in cash (only if delivered by you in
person, although we request you to exchange the cash for a check with any of the
tellers at The People's Building, Loan and Savings Company ("People's Savings")
branch or The Oakley Improved Building and Loan Company ("Oakley") branch, by
check, bank draft or money order payable to PEOPLES COMMUNITY BANCORP, INC. DO
NOT MAIL CASH. Your funds will earn interest at the People's Savings passbook
rate until the Conversion is completed.
ITEM 4 - To pay by withdrawal from a savings account or certificate at People's
Savings or Oakley, insert the depositor number(s) and the amount(s) you wish to
withdraw from each account. If more than one signature is required for a
withdrawal, all signatories must sign in the signature box on the front of this
form. To withdraw from an account with checking privileges, please write a
check. People's Savings and Oakley will waive any applicable penalties for early
withdrawal from certificate accounts. A hold will be placed on the account(s)
for the amount(s) you indicate to be withdrawn. Payments will remain in
account(s) until the stock offering closes and earn their respective rate of
interest.
ITEM 5 - Please check the appropriate box to tell us the earliest of the three
dates that applies to you.
ITEM 6 - Please check this box if you are a director, officer or employee of
People's Savings, or a depositor of such person's household.
ITEM 7 - Please check this box if you have a National Association of Securities
Dealers, Inc. ("NASD") affiliation (as defined on the reverse side of the Stock
Order Form.)
ITEM 8 - Please review the preprinted qualifying account number(s) information.
THE ACCOUNT NUMBER(S) LISTED MAY NOT BE ALL OF YOUR ACCOUNT NUMBER(S). You
should list any other qualifying accounts that you may have or had with People's
Savings or Oakley in the box located under the heading "Additional Qualifying
Accounts". These may appear on other stock order forms you have received. For
example, if you are ordering stock in just your name, you should list all of
your deposit accounts as of the earliest of the three dates that you were a
depositor. Similarly, if you are ordering stock jointly with another depositor,
you should list all deposit accounts under which either of you are owners, i.e.
individual accounts, joint accounts, etc. If you are ordering stock in your
minor child's or grandchild's name under the UNIFORM GIFTS TO MINORS ACT, the
minor must have had a deposit account on one of the three dates and you should
list only their account number(s). If you are ordering stock corporately, you
need to list just that corporation's deposit accounts, as your individual
account(s) do not qualify. FAILURE TO LIST ALL OF YOUR QUALIFYING ACCOUNTS MAY
RESULT IN THE LOSS OF PART OR ALL OF YOUR SUBSCRIPTION RIGHTS.
ITEM 9 - Indicate numbers of Harvest Home Financial Corporation shares owned, if
any. If you own shares of Harvest Home Financial Corporation, it may limit your
ability to buy stock in the conversion. See "The Offering - Limitations on
Common Stock Purchases".
ITEM 10 - The stock transfer industry has developed a uniform system of
shareholder registrations that we will use in the issuance of Peoples Community
Bancorp, Inc. common stock. Please complete this section as fully and accurately
as possible, and be certain to supply your social security or Tax I.D. number(s)
and your daytime and evening phone numbers. We will need to call you if we
cannot execute your order as given. If you have any questions regarding the
registration of your stock, please consult your legal advisor. SUBSCRIPTION
RIGHTS ARE NOT TRANSFERABLE. If you are an eligible or supplemental eligible
account holder or other depositor, to protect your priority over other
purchasers as described in the Prospectus, you must take ownership in at least
one of the account holder's names.
(SEE REVERSE SIDE FOR STOCK OWNERSHIP GUIDE)
<PAGE>
PEOPLES COMMUNITY STOCK OWNERSHIP GUIDE AND STOCK ORDER FORM INSTRUCTIONS
BANCORP, INC.
- --------------------------------------------------------------------------------
STOCK OWNERSHIP GUIDE
INDIVIDUAL - The stock is to be registered in an individual's name only. You may
not list beneficiaries for this ownership.
JOINT TENANTS - Joint tenants with rights of survivorship identifies two or more
owners. When stock is held by joint tenants with rights of survivorship,
ownership automatically passes to the surviving joint tenant(s) upon the death
of any joint tenant. You may not list beneficiaries for this ownership.
TENANTS IN COMMON - Tenants in common may also identify two or more owners. When
stock is to be held by tenants in common, upon the death of one co-tenant,
ownership of the stock will be held by the surviving co-tenant(s) and by the
heirs of the deceased co-tenant. All parties must agree to the transfer or sale
of shares held by tenants in common. You may not list beneficiaries for this
ownership.
UNIFORM TRANSFERS TO MINORS ACT - For residents of OHIO and many states, stock
may be held in the name of a custodian for the benefit of a minor under the
UNIFORM GIFTS TO MINORS ACT. For residents in other states, stock may be held in
a similar type of ownership under the UNIFORM TRANSFERS TO MINORS ACT of the
individual state. For either ownership, the minor is the actual owner of the
stock with the adult custodian being responsible for the investment until the
child reaches legal age. Only one custodian and one minor may be designated.
INSTRUCTIONS: On the first name line, print the first name, middle initial and
last name of the custodian, with the abbreviation "CUST" after the name. Print
the first name, middle initial and last name of the minor on the second name
line followed by the notation UGMA-OH or UTMA-Other State. LIST ONLY THE MINOR'S
SOCIAL SECURITY NUMBER.
CORPORATION/PARTNERSHIP - Corporations/Partnerships may purchase stock. Please
provide the Corporation/Partnership's legal name and Tax I.D. To have depositor
rights, the Corporation/Partnership must have an account in the legal name.
Please contact the Stock Information Center to verify depositor rights and
purchase limitations.
INDIVIDUAL RETIREMENT ACCOUNT - Individual Retirement Account ("IRA") holders
may make stock purchases from their deposits through a PREARRANGED
"trustee-to-trustee" transfer. Stock may only be held in a self-directed IRA.
Please contact the Stock Information Center if you have any questions about your
IRA account and PLEASE DO NOT DELAY in exploring this option. Registration for
IRA's: On Name Line 1 - list the name of the broker or trust department followed
by CUST or TRUSTEE.
On Name Line 2 - FBO (for benefit of) YOUR NAME IRA a/c #______.
Address will be that of the broker / trust department to where the stock
certificate will be sent.
The Social Security / Tax I.D. number(s) will be either yours or your
trustees, AS THEY DIRECT.
Please list YOUR phone numbers.
FIDUCIARY/TRUST - Generally, fiduciary relationships (such as Trusts, Estates,
Guardianships, etc.) are established under a form of trust agreement or pursuant
to a court order. Without a legal document establishing a fiduciary
relationship, your stock may not be registered in a fiduciary capacity.
INSTRUCTIONS: On the first name line, print the first name, middle initial and
last name of the fiduciary if the fiduciary is an individual. If the fiduciary
is a corporation, list the corporate title on the first name line. Following the
name, print the fiduciary title such as trustee, executor, personal
representative, etc. On the second name line, print the name of the maker, donor
or testator or the name of the beneficiary. Following the name, indicate the
type of legal document establishing the fiduciary relationship (agreement, court
order, etc.). In the blank after "Under Agreement Dated," fill in the date of
the document governing the relationship. The date of the document need not be
provided for a trust created by a will.
(SEE REVERSE SIDE FOR STOCK ORDER FORM INSTRUCTIONS)
<PAGE>
Exhibit 99.3
[GRAPHIC OMITTED]
KEEFE, BRUYETTE & WOODS, INC.
To Members and Friends of The People's Building, Loan and
Savings Company
- --------------------------------------------------------------------------------
Keefe, Bruyette & Woods, Inc. a member of the National Association of Securities
Dealers, Inc. ("NASD"), is assisting The People's Building, Loan and Savings
Company ("People's Savings") in converting from the mutual to the stock form of
organization with the simultaneous issuance of its common stock to Peoples
Community Bancorp, Inc., a Delaware corporation, and the sale by Peoples
Community Bancorp, Inc. of shares of its common stock. As part of the
conversion, The People's Building, Loan and Savings Company will change its name
to Peoples Community Bank. Just prior to the conversion, People's Savings will
merge with The Oakley Improved Building and Loan Company ("Oakley") located in
Cincinnati, Ohio. Immediately after the conversion, Peoples Community Bancorp,
Inc. will merge with Harvest Home Financial Corporation, the parent of Harvest
Home Savings Bank headquartered in Cheviot, Ohio. The conversion to stock form
will not be completed unless both mergers are completed.
At the request of Peoples Community Bancorp, Inc., we are enclosing materials
explaining this process and your options, including an opportunity to invest in
shares of Peoples Community Bancorp, Inc. common stock being offered to
customers of People's Savings and Oakley until 12:00 Noon, eastern time, on
March xx, 2000. Please read the enclosed offering materials carefully. Peoples
Community Bancorp, Inc. has asked us to forward these documents to you in view
of certain requirements of the securities laws in your state.
If you have any questions, please visit our Stock Information Center - 11 S.
Broadway, Lebanon, Ohio, or feel free to call the Stock Information Center at
(513) xxx-xxxx.
Very truly yours,
Keefe, Bruyette & Woods, Inc.
THE COMMON SHARES BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND,
THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY. THIS IS
NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SHARES. THE OFFER IS
MADE ONLY BY THE PROSPECTUS.
<PAGE>
February xx, 2000
Dear Friend:
We are pleased to announce that The People's Building, Loan and Savings Company
("People's Savings") is converting from the mutual to the stock form of
organization (the "Conversion"). In connection with the Conversion, Peoples
Community Bancorp, Inc. ("Peoples Community Bancorp"), the newly-formed holding
company for the People's Savings, is offering common shares in a subscription
offering. As part of the conversion, The People's Building, Loan and Savings
Company will change its name to Peoples Community Bank. Just prior to the
conversion, People's Savings will merge with The Oakley Improved Building and
Loan Company located in Cincinnati, Ohio. Immediately after the conversion,
Peoples Community Bancorp, Inc. will merge with Harvest Home Financial
Corporation, the parent of Harvest Home Savings Bank headquartered in Cheviot,
Ohio. The conversion to stock form will not be completed unless both mergers are
completed.
Because we believe you may be interested in learning more about the merits of
Peoples Community Bancorp common shares as an investment, we are sending you the
following materials which describe the Offering.
PROSPECTUS: This document provides detailed information about the
People's Savings operations and the proposed Offering of Peoples
Community Bancorp common shares.
STOCK ORDER AND CERTIFICATION FORM: This form is used to purchase stock
by returning it with your payment in the enclosed business reply
envelope. The deadline for ordering stock is 12:00 Noon, eastern time,
on March xx, 2000.
As a friend of People's Savings, you will have the opportunity to buy common
shares directly from Peoples Community Bancorp in the Offering without paying a
commission or fee. If you have additional questions regarding the Conversion and
Offering, please call us at (513) xxx-xxxx Monday through Friday from 9:00 a.m.
to 4:30 p.m., or stop by the Stock Information Center located 11 S. Broadway,
Lebanon, Ohio.
We are pleased to offer you this opportunity to become a shareholder of Peoples
Community Bancorp, Inc..
Sincerely,
Jerry D. Williams
President and Chief Executive Officer
THE COMMON SHARES BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND,
THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY. THIS IS
NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SHARES. THE OFFER IS
MADE ONLY BY THE PROSPECTUS.
<PAGE>
February xx, 2000
Dear Member:
We are pleased to announce that The People's Building, Loan and Savings Company
("People's Savings") is converting from the mutual to the stock form of
organization (the "Conversion"). In connection with the Conversion, Peoples
Community Bancorp, Inc. ("Peoples Community Bancorp"), the newly-formed holding
company for the People's Savings, is offering common shares in a subscription
offering. As part of the conversion, The People's Building, Loan and Savings
Company will change its name to Peoples Community Bank. Just prior to the
conversion, People's Savings will merge with The Oakley Improved Building and
Loan Company located in Cincinnati, Ohio. Immediately after the conversion,
Peoples Community Bancorp, Inc. will merge with Harvest Home Financial
Corporation, the parent of Harvest Home Savings Bank headquartered in Cheviot,
Ohio. The conversion to stock form will not be completed unless both mergers are
completed.
To accomplish this Conversion, we need your participation in an important vote.
Enclosed is a proxy statement describing the Plan and your voting and
subscription rights. The People's Savings' Plan has been approved by the Office
of Thrift Supervision and now must be approved by you. YOUR VOTE IS VERY
IMPORTANT.
Enclosed, as part of the proxy materials, is your proxy card, located behind the
window of your mailing envelope. This proxy card should be signed and returned
to us prior to the Special Meeting of Members to be held on XXXX xx, 2000.
Please take a moment now to sign the enclosed proxy card and return it to us in
the postage-paid envelope provided. FAILURE TO VOTE HAS THE SAME EFFECT AS
VOTING AGAINST THE CONVERSION.
The Board of Directors of the People's Savings feels that the Conversion offers
a number of advantages, including an opportunity for the People's Savings'
depositors and customers to become shareholders of Peoples Community Bancorp. In
connection with the Conversion, please remember:
- Your deposit accounts will continue to be insured up to the maximum
legal limit by the Federal Deposit Insurance Corporation ("FDIC").
- There will be no change in the balance, interest rate, or maturity of
any deposit accounts because of the Conversion, unless you choose to
purchase shares using your account balances.
- Members have a right, but not an obligation, to subscribe for Peoples
Community Bancorp common shares before they are offered to the public.
- Like all stock, THE COMMON SHARES issued in this Offering WILL NOT BE
INSURED BY THE FDIC.
In addition, enclosed are materials describing the offering of Peoples Community
Bancorp's common shares. We urge you to read these materials carefully. If you
are interested in purchasing the common shares of Peoples Community Bancorp, you
must submit your Stock Order and Certification Form and payment prior to 12:00
Noon, eastern time, on March xx, 2000.
If you have additional questions regarding the Offering, please call us at (513)
xxx-xxxx, Monday through Friday from 9:00 a.m. to 4:30 p.m., or stop by the
Stock Information Center located at 11 S. Broadway, Lebanon, Ohio.
THE COMMON SHARES BEING OFFERED IN THIS OFFERING ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
PEOPLE'S SAVINGS INSURANCE FUND OR THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY
OTHER GOVERNMENT AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY SHARES. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
<PAGE>
February xx, 2000
Dear Prospective Investor:
We are pleased to announce that The People's Building, Loan and Savings Company
("People's Savings") is converting from the mutual to the stock form of
organization (the "Conversion"). In connection with the Conversion, Peoples
Community Bancorp, Inc. ("Peoples Community Bancorp"), the newly-formed holding
company for People's Savings, is offering common shares in a subscription
offering. As part of the conversion, The People's Building, Loan and Savings
Company will change its name to Peoples Community Bank. Just prior to the
conversion, People's Savings will merge with The Oakley Improved Building and
Loan Company located in Cincinnati, Ohio. Immediately after the conversion,
Peoples Community Bancorp, Inc. will merge with Harvest Home Financial
Corporation, the parent of Harvest Home Savings Bank headquartered in Cheviot,
Ohio. The conversion to stock form will not be completed unless both mergers are
completed.
We have enclosed the following materials which will help you learn more about
the merits of Peoples Community Bancorp common shares as an investment. Please
read and review the materials carefully.
PROSPECTUS: This document provides detailed information about People's
Savings' operations and the proposed Offering.
STOCK ORDER AND CERTIFICATION FORM: This form is used to purchase
common shares by returning it with your payment in the enclosed
business reply envelope. The deadline for ordering common shares is
12:00 Noon, eastern time, on March xx, 2000.
We invite our loyal customers and members of the general public to become
shareholders of Peoples Community Bancorp. Through this Offering you have the
opportunity to buy common shares directly from Peoples Community Bancorp without
paying a commission or fee. The board of directors and senior management of
People's Savings fully supports the Offering.
If you have additional questions regarding the Conversion and Offering, please
call us at (513) xxx-xxxx, Monday through Friday from 9:00 a.m. to 4:30 p.m., or
stop by the Stock Information Center located at 11 S. Broadway, Lebanon, Ohio.
Sincerely,
Jerry D. Williams
President and Chief Executive Officer
THE COMMON SHARES BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE PEOPLE'S SAVINGS
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENT
AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY
SHARES. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
<PAGE>
February xx, 2000
Dear Member:
We are pleased to announce that The People's Building, Loan and Savings Company
("People's Savings") is converting from the mutual to the stock form of
organization (the "Conversion"). In connection with the Conversion, Peoples
Community Bancorp, Inc. ("Peoples Community Bancorp"), the newly-formed holding
company for the People's Savings, is offering common shares in a subscription
offering. As part of the conversion, The People's Building, Loan and Savings
Company will change its name to Peoples Community Bank. Just prior to the
conversion, People's Savings will merge with The Oakley Improved Building and
Loan Company located in Cincinnati, Ohio. Immediately after the conversion,
Peoples Community Bancorp, Inc. will merge with Harvest Home Financial
Corporation, the parent of Harvest Home Savings Bank headquartered in Cheviot,
Ohio. The conversion to stock form will not be completed unless both mergers are
completed.
Unfortunately, Peoples Community Bancorp is unable to either offer or sell its
common shares to you because the small number of eligible subscribers in your
jurisdiction makes registration or qualification of the common shares under the
securities laws of your jurisdiction impractical, for reasons of cost or
otherwise. Accordingly, this letter should not be considered an offer to sell or
a solicitation of an offer to buy the common shares of Peoples Community
Bancorp.
However, as a member of the People's Savings and/or Oakley, you have the right
to vote on the Plan of Conversion at the Special Meeting of Members to be held
on XXXX xx, 2000. Therefore, enclosed is a proxy card, a proxy statement (which
includes the Notice of the Special Meeting), a prospectus (which contains
information incorporated into the proxy statement) and a return envelope for
your proxy card.
I invite you to attend the Special Meeting of Members on XXXX xx, 2000. However,
whether or not you are able to attend the meeting, please complete the enclosed
proxy card and return it in the enclosed envelope.
Sincerely,
<TABLE>
<S> <C>
Jerry D. Williams Thomas J. Noe
President and Chief Executive Officer Managing Officer
The People's Building, Loan and Savings Company The Oakley Improved Building and Loan Company
</TABLE>
THE COMMON SHARES BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSUREANCE CORPORATION, THE BANK INSURANCE FUND,
THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY. THIS IS
NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SHARES. THE OFFER IS
MADE ONLY BY THE PROSPECTUS.
<PAGE>
PROXYGRAM
PLEASE VOTE TODAY
We recently sent you a proxy statement and a related letter informing you that
the Board of Directors of The People's Building Loan and Savings Company had
received conditional regulatory approval to convert from a mutual savings and
loan association to a stock savings bank.
YOUR VOTE ON OUR PLAN OF CONVERSION AND THE CONTRIBUTION TO THE FOUNDATION HAS
NOT YET BEEN RECEIVED.
FAILURE TO VOTE HAS THE SAME EFFECT AS VOTING AGAINST THE PLAN OF CONVERSION.
Your Vote is important to us, and we are, therefore, requesting that you sign
the enclosed proxy card and return it promptly in the enclosed postage-paid
envelope.
Voting for the Plan of Conversion does not obligate you to purchase stock or
affect the terms or insurance on your accounts.
The Board of Directors unanimously recommends you vote "FOR" the Plan of
Conversion.
YOUR VOTE IS IMPORTANT TO US!
Please sign the enclosed proxy card and return it promptly in the enclosed
postage-paid envelope.
Thank you,
Jerry D. Williams
President and Chief Executive Officer
THE PEOPLE'S BUILDING, LOAN AND SAVINGS COMPANY
Lebanon, Ohio
If you mailed the proxy, please accept our thanks and disregard this request.
For further information, call (513) xxx-xxxx.
THIS NOTICE IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
THE COMMON SHARES OF PEOPLES COMMUNITY BANCORP, INC. THE OFFER IS MADE ONLY BY
THE PROSPECTUS DATED FEBRUARY XX, 2000. THE SECURITIES OFFERED IN THE CONVERSION
ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT FEDERALLY INSURED OR GUARANTEED.
<PAGE>
Exhibit 99.4
CONSENT TO BE IDENTIFIED AS
A PROPOSED DIRECTOR
I, John E. Rathkamp, President and Managing Officer of Harvest Home
Financial Corporation and Harvest Home Savings Bank, an Ohio chartered savings
bank, hereby consent to being identified as a proposed director of Peoples
Community Bancorp, Inc. (the "Company") and Peoples Community Bank in the
Company's prospectus to be included in a registration statement on Form S-1 and
on Application for Conversion on Form AC.
By: /s/JOHN E. RATHKAMP
------------------------------
John E. Rathkamp
Dated: December 17, 1999
<PAGE>
Exhibit 99.5
CONSENT TO BE IDENTIFIED AS
A PROPOSED DIRECTOR
I, Thomas J. Noe, Managing Officer of The Oakley Improved Building &
Loan Company, an Ohio mutual deposit savings and loan association, hereby
consent to being identified as a proposed director of Peoples Community Bancorp,
Inc. (the "Company") and Peoples Community Bank in the Company's prospectus to
be included in a registration statement on Form S-1 and on Application for
Conversion on Form AC.
By: /s/ THOMAS J. NOE
------------------------------
Thomas J. Noe
Dated: December 17, 1999
<PAGE>
EXHIBIT 99.7
[NOTE: This proxy statement of Harvest Home Financial Corporation will be
attached to the prospectus included herein of Peoples Community Bancorp, Inc.]
P R E L I M I N A R Y C O P I E S
HARVEST HOME FINANCIAL CORPORATION
3621 HARRISON AVENUE
CINCINNATI, OHIO 45211
(513) 661-6612
-------------------
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders
of Harvest Home Financial Corporation to approve the merger ("Merger") of
Harvest Home Financial Corporation ("Harvest Home Financial") with People's
Building, Loan & Savings Company ("People's Savings"). The meeting is scheduled
to be held at _________, Eastern Standard Time, on _________ at
________________________ located at _____________________________.
The meeting has been called in connection with the proposed merger of
Harvest Home Financial with and into Peoples Community Bancorp, Inc. ("Peoples
Community Bancorp"), a holding company to be formed by People's Savings pursuant
to an Agreement and Plan of Merger dated as of September 30, 1999 (the "Merger
Agreement"). In the merger, you will receive $9.00 cash and $9.00 worth of
Peoples Community Bancorp common stock for each Harvest Home Financial share you
own. Assuming an initial public offering price of $10.00, each share of Harvest
Home Financial would be converted into .9 of a share of Peoples Community
Bancorp common stock in the Merger. Consummation of the merger is subject to
certain conditions, including the approval of the stockholders of Harvest Home
Financial.
The Board of Directors has approved the Merger Agreement and believes
that the merger is in the best interests of Harvest Home Financial and its
stockholders. Accordingly, Harvest Home Financial's Board of Directors
unanimously recommends that you vote FOR the merger.
This proxy statement/prospectus provides you with detailed information
about the proposed merger. We encourage you to read this entire document
carefully. You can also obtain information about Harvest Home Financial and
Peoples Community Bancorp from publicly available documents that have been filed
with the SEC.
YOUR VOTE IS VERY IMPORTANT. Whether or not you attend this meeting,
please take the time to vote by completing and mailing the enclosed proxy card
to us as soon as possible in the envelope provided.
Very truly yours,
John E. Rathkamp
President and Chief Executive Officer
<PAGE>
HARVEST HOME FINANCIAL CORPORATION
3621 HARRISON AVENUE
CINCINNATI, OHIO 45211
(513) 661-6612
-------------------
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of
Harvest Home Financial Corporation will be held at _______, Eastern Standard
Time, on ______________ at ________________ ____________________________,
Cincinnati, Ohio _______ for the following purposes:
1. To consider and vote upon a proposal to adopt an Agreement and Plan
of Merger (the "Merger Agreement"), dated as of September 30, 1999, by and among
Harvest Home Financial Corporation ("Harvest Home Financial") and People's
Building, Loan & Savings Company ("People's Savings"). The Merger Agreement
provides for, among other things, the merger of Harvest Home Financial with and
into Peoples Community Bancorp, Inc. ("Peoples Community Bancorp"), the holding
company to be formed by People's Savings in connection with the conversion of
People's Savings from a mutual to a stock institution. The merger will be
accomplished through the merger of Harvest Home Financial with and into Peoples
Community Bancorp and the merger of Harvest Home Savings Bank ("Harvest Home
Savings Bank") with and into People's Savings.
2. To transact such other business, if any, as may properly come before
the special meeting.
Harvest Home Financial's Board of Directors has fixed the close of
business on _____________, 2000 as the record date (the "Record Date") for the
determination of stockholders entitled to notice of and to vote at the special
meeting. Only holders of common shares of Harvest Home Financial of record at
the close of business on that date will be entitled to notice of and to vote at
the special meeting.
If the merger of Harvest Home Financial by Peoples Community Bancorp is
approved and consummated, you will have the right to dissent on the transaction
and to obtain payment of the fair cash value of your shares by complying with
Section 1701.85 of the Ohio General Corporation Law. A copy of Section 1701.85
of the Ohio General Corporation Law is attached as Annex A to the accompanying
document.
Your Board of Directors has determined the merger to be in the best
interests of Harvest Home Financial and its stockholders and has unanimously
approved the Merger Agreement and UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
ADOPTION OF THE MERGER AGREEMENT.
By Order of the Board of Directors
John E. Rathkamp
President and Chief Executive Officer
Cincinnati, Ohio
________________, 2000
<PAGE>
- --------------------------------------------------------------------------------
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. FAILURE TO RETURN A
PROPERLY EXECUTED PROXY CARD OR TO VOTE AT THE SPECIAL MEETING WILL HAVE THE
SAME EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT. ACCORDINGLY, EVEN IF YOU
PLAN TO BE PRESENT AT THE SPECIAL MEETING, YOU ARE REQUESTED TO COMPLETE, DATE,
SIGN AND RETURN THE PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS
POSSIBLE. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE EITHER IN PERSON OR BY
PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN WRITING OR IN PERSON AT ANY TIME
PRIOR TO ITS EXERCISE.
- --------------------------------------------------------------------------------
<PAGE>
PROXY STATEMENT
OF
HARVEST HOME FINANCIAL CORPORATION
FOR THE SPECIAL MEETING OF STOCKHOLDERS
To be Held on _____________, 2000
--------------------------------------------
PROSPECTUS
OF
PEOPLES COMMUNITY BANCORP, INC.
Up to _________ Shares of Common Stock,
Par value $.01 per share
(to be issued pursuant to the Merger described herein)
---------------------------------------------
This Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of Harvest Home Financial Corporation, an Ohio corporation ("Harvest
Home Financial"), with and into Peoples Community Bancorp, Inc., a Delaware
corporation ("Peoples Community Bancorp") the proposed holding company for
Peoples Community Bank, a federally chartered savings bank, as contemplated by
the Agreement and Plan of Merger, dated as of September 20, 1999 (the "Merger
Agreement"), between People's Building, Loan and Savings Company ("People's
Savings) and Harvest Home Financial. The Merger Agreement is included as
Appendix I hereto and incorporated by reference herein.
This Proxy Statement/Prospectus is being furnished to the holders of
shares of common stock of Harvest Home Financial ("Harvest Home Financial Common
Stock") in connection with the solicitation of proxies by the Board of Directors
of Harvest Home Financial (the "Harvest Home Financial Board") for use at a
Special Meeting of Stockholders (the "Meeting"), scheduled to be held at ______
p.m. , Eastern Standard Time on __________, 2000, at _______________ Cincinnati,
Ohio, and at any and all adjournments and postponements thereof.
This Proxy Statement/Prospectus also constitutes a prospectus of
Peoples Community Bancorp with respect to up to _________ shares of common
stock, par value $.01 per share, of Peoples Community Bancorp ("Peoples
Community Bancorp Common Stock") to be issued upon consummation of the Merger
pursuant to the terms of the Merger Agreement. The Prospectus of Peoples
Community Bancorp is a part of this Proxy Statement/Prospectus (see "Table of
Contents") and is referred to herein as the "Prospectus."
At the Meeting, the holders of Harvest Home Financial Common Stock will
consider and vote upon a proposal to adopt the Merger Agreement and the
transactions contemplated thereby.
Subject to the terms, conditions and procedures set forth in the Merger
Agreement, each holder of Harvest Home Financial Common Stock issued and
outstanding immediately prior to the Merger will have the right to receive for
each Harvest Home Financial share (a) $9.00 in cash, plus (b) 0.9 of a share of
Peoples Community Bancorp Common Stock equal to $9.00 and based on the $10.00
price for the stock. If the initial public offering price is not $10.00 per
share, the portion of a share of Peoples Community Bancorp Common Stock will be
adjusted to provide for a ratio that will correspond to an equivalent value of
$9.00. Cash will be paid in lieu of fractional share interests. Because Peoples
Community Bancorp has never publicly issued any capital stock, there can be no
assurance that an active and liquid market for the Peoples Community Bancorp
Common Stock will develop upon the conversion and merger or that Peoples
Community Bancorp Common Stock will trade above its initial public offering
price. Harvest Home Financial's financial advisor has rendered an opinion to the
effect that, as of September 30, 1999, the Merger Consideration is fair from a
financial point of view to the stockholders
<PAGE>
of Harvest Home Financial. The Merger is subject to certain conditions,
including the approval of the stockholders of Harvest Home Financial. For
additional information regarding the Merger Agreement and the terms of the
Merger, see "The Merger."
NEITHER THE SEC NOR ANY STATE SECURITIES REGULATOR HAS APPROVED OR
DISAPPROVED THE PEOPLES COMMUNITY BANCORP COMMON STOCK TO BE ISSUED UNDER THIS
PROXY STATEMENT/ PROSPECTUS OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement/Prospectus, and the accompanying notice and form
of Proxy, are first being mailed to stockholders of Harvest Home Financial on or
about _____________, 2000.
WHERE YOU CAN FIND MORE INFORMATION
Harvest Home Financial is subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and, in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission ("SEC"). You may read
and copy any reports, statements, or other information that Harvest Home
Financial and Peoples Community Bancorp file at the SEC's public reference rooms
in Washington, D.C., New York, New York and Chicago, Illinois. (The address of
the public reference room in Washington, D.C. is 450 Fifth Street, N.W.,
Washington, DC 20549). Harvest Home Financial's and Peoples Community Bancorp
public filings are also available to the public from commercial document
retrieval services and at the Internet World Wide Web site maintained by the
SEC, at HTTP://WWW.SEC.GOV. Reports, proxy statements and other information
regarding Harvest Home Financial also may be inspected at the offices of Nasdaq
National Market, 9801 Washingtonian Boulevard, Gaithersburg, Maryland 20878.
Peoples Community Bancorp has filed a Registration Statement with the
SEC (Form S-1) to register the shares of Peoples Community Bancorp Common Stock
to be issued to Harvest Home Financial stockholders in the Merger. This document
is a part of the Registration Statement and constitutes a prospectus of Peoples
Community Bancorp, as well as a proxy statement of Harvest Home Financial for
the special meeting.
As allowed by SEC rules, this document does not contain all information
that stockholders can find in the Registration Statement or the exhibits to the
Registration Statement.
The SEC allows Harvest Home Financial to "incorporate by reference"
information into this document, which means that Harvest Home Financial can
disclose important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is deemed to
be part of this document, except for any information replaced by information
contained in this document. This document incorporates by reference Harvest Home
Financial's Form 10-KSB for the year ending September 30, 1999, and the 1999
Annual Report to Stockholders that Harvest Home Financial has previously filed
with the SEC on December 17, 1999. These documents contain important information
about Harvest Home Financial and its respective financial condition.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PROXY STATEMENT OF HARVEST HOME FINANCIAL CORPORATION
FOR THE SPECIAL MEETING OF STOCKHOLDERS
Where You Can Find More Information
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER..........................................1
SUMMARY.........................................................................4
The Companies...................................................................4
Reasons for Merger; Recommendation to Stockholders..............................5
The Merger......................................................................5
Condition to Completing the Merger..............................................5
Federal Income Tax Considerations...............................................5
Comparative Stock Prices........................................................5
Treatment of Harvest Home Financial Stock Options...............................6
Accounting Treatment............................................................6
Dissenters' Rights..............................................................6
Interests of Directors and Executive Officers of Harvest Home Financial.........6
Opinion of Financial Advisor....................................................6
Representations and Warranties..................................................7
Conduct of Business Prior to Closing Date.......................................7
Required Approvals..............................................................7
Waiver and Amendment............................................................7
Termination.....................................................................7
Expenses of the Merger..........................................................8
Management After the Merger.....................................................8
Effects of the Merger on Rights of Stockholders.................................8
Nasdaq Listing..................................................................8
FORWARD LOOKING STATEMENTS......................................................9
THE SPECIAL MEETING.............................................................9
Introduction....................................................................9
Matters to be Considered; Board of Directors Recommendation.....................10
Record Date and Voting..........................................................10
Vote Required...................................................................11
Name and Address of Beneficial Owners...........................................11
Revocability of Proxies.........................................................12
Solicitation of Proxy...........................................................12
Adjournment of the Special Meeting..............................................13
Dissenters' Rights..............................................................13
</TABLE>
<PAGE>
<TABLE>
Page
----
<S> <C>
THE MERGER........................................................................13
Form of the Merger................................................................13
Background and Reasons for the Merger.............................................13
Opinion of Harvest Home Financial's Financial Advisor.............................15
Analysis of Recent Comparable Acquisition Transactions............................16
Interests of Officers and Directors of Harvest Home Financial.....................17
Federal Income Tax Consequences...................................................17
Federal Securities Law Consequences...............................................19
Effects of the Merger.............................................................19
Conduct of Business if Merger Not Consummated.....................................20
Regulatory Filings and Approvals..................................................20
Termination.......................................................................21
THE MERGER AGREEMENT..............................................................22
Terms of the Merger...............................................................22
Exchange of Certificates..........................................................23
Dissenter's Rights................................................................23
Representations and Warranties....................................................24
Conditions to the Merger..........................................................24
Conduct of Business Pending the Merger............................................24
Additional Agreements.............................................................25
RIGHTS OF DISSENTING STOCKHOLDERS.................................................26
COMPARISON OF RIGHTS OF HARVEST HOME FINANCIAL CORPORATION AND PEOPLES COMMUNITY
BANCORP, INC. ..................................................................27
General...........................................................................27
Capital Stock.....................................................................27
Special Meetings..................................................................27
Advance Notice Provisions for Stockholder Nominations and Stockholder Proposals...28
Number of Directors...............................................................28
Classified Board of Directors.....................................................28
Removal of Directors..............................................................28
Vacancies.........................................................................29
Cumulative Voting.................................................................29
Amendments to Charter Documents...................................................29
Liability of Directors and Executive Officers.....................................29
EXPERTS...........................................................................30
STOCKHOLDER MATTERS...............................................................31
</TABLE>
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. WHAT AM I BEING ASKED TO APPROVE?
A. At a special meeting of stockholders, holders of record of Harvest Home
Financial stock at the close of business on _____________ ("Record Date") will
be asked to vote on a proposal to adopt the Merger Agreement.
Q. WHY DO HARVEST HOME FINANCIAL AND PEOPLES COMMUNITY BANCORP WANT TO
MERGE?
A. Harvest Home Financial believes that stockholder value will be
maximized and that its stockholders and customers will benefit through an
affiliation with Peoples. Peoples wants to better serve its customers in Harvest
Home Financial's service areas and to expand Peoples' presence in those markets.
Q. HOW WILL I BENEFIT?
A. The Harvest Home Financial Board of Directors believes that you will
benefit by receiving a fair value for your shares. The Board believes that the
cash portion will allow you to diversify your investments and the stock portion
will allow you to continue to participate as a stockholder of a thrift holding
company.
Q. WHAT WILL I RECEIVE FOR MY HARVEST HOME FINANCIAL SHARES?
A. Each share of Harvest Home Financial Common Stock shall be converted
into the right to receive .9 shares of Peoples Community Bancorp Common Stock
plus $9.00 in cash ("Merger Consideration"). However, in the event that the
Initial Public Offering Price is not $10.00 per share, the 0.9 of a share of
Peoples Community Bancorp Common Stock shall be adjusted to provide for a ratio
that will yield a cash equivalent of $9.00.
Q. WILL MY STOCK IN PEOPLES COMMUNITY BANCORP BE COVERED BY DEPOSIT
INSURANCE OR GUARANTEED BY ANY GOVERNMENT AGENCY?
A. No. Unlike insured deposit accounts at People's Savings, stock in
Peoples Community Bancorp will not be insured or guaranteed by the Federal
Deposit Insurance Corporation, or FDIC, or any other government agency.
Q. WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A. We plan to complete the transaction as soon as possible after the
special meeting, assuming we obtain the required stockholder approval. The
transaction is also subject to the approval of federal and state banking
regulatory authorities and the satisfaction of other closing conditions,
including the merger of Oakley and People's Savings and the conversion by
People's Savings from a mutual savings and loan to a stock company. We expect to
complete the transaction in the second calendar quarter of year 2000.
<PAGE>
Q. WHEN AND WHERE WILL THE SPECIAL MEETING TAKE PLACE?
A. Harvest Home Financial will hold the special meeting at __________ on
___________________ at the ________________________.
Q. WHAT IS THE VOTE REQUIRED AT THE SPECIAL MEETING?
A. Harvest Home Financial's stockholders must adopt the Merger Agreement
by a vote of a majority of the outstanding shares.
Q. WHAT DO I NEED TO DO NOW?
A. Just mail your completed, signed and dated proxy card in the enclosed
return envelope as soon as possible so that your shares will be represented at
the special meeting.
Q. IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER
VOTE MY SHARES FOR ME?
A. Your broker will vote your Harvest Home Financial shares only if you
provide instructions on how to vote. You should follow the directions provided
by your broker and instruct your broker as to how to vote your shares.
Q. MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A. Yes. You can change your vote at any time before your proxy is voted at
the special meeting. You can do this in three ways. First, you can send Harvest
Home Financial a written statement that you would like to revoke your proxy.
Second, you can send Harvest Home Financial a new signed and later-dated proxy
card. Third, you can attend the special meeting and vote in person. However,
your attendance at the special meeting alone will not revoke your proxy.
Q. HOW WILL MY SHARES BE VOTED IF I RETURN A BLANK PROXY CARD?
A. If you sign and send in your proxy and do not indicate how you want to
vote, your proxy will be counted as a vote in favor of the merger.
Q. WHAT WILL BE THE EFFECT IF I DO NOT VOTE?
A. Not voting will have the same effect as voting against the merger.
Q. SHOULD I SEND IN MY STOCK CERTIFICATE NOW?
A. No. If the merger is completed, you will receive written instructions
for exchanging your stock certificates.
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<PAGE>
Q. WHO CAN ANSWER MY QUESTIONS ABOUT THE MERGER?
A. If you have more questions about the merger, please call: John E.
Rathkamp or Dennis J. Slattery at Harvest Home Savings Bank (513) 661-6612.
- -----------------------------------------------------------------------
In addition, __________________ will be assisting Harvest Home
Financial in soliciting proxies for the special meeting. Any questions you have
regarding the merger can also be directed to:
---------------------------------------------------------------
- --------------------------------------------------------------------------------
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<PAGE>
SUMMARY
- --------------------------------------------------------------------------------
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE OR
INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS. CERTAIN
CAPITALIZED TERMS USED IN THIS SUMMARY ARE DEFINED ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS. THIS SUMMARY IS NOT INTENDED TO BE A COMPLETE DESCRIPTION
OF ALL MATERIAL FACTS REGARDING HARVEST HOME FINANCIAL, PEOPLES COMMUNITY
BANCORP, AND PEOPLE'S SAVINGS AND THE MATTERS TO BE CONSIDERED AT THE MEETING
AND IS QUALIFIED IN ITS ENTIRETY BY, AND REFERENCE IS MADE TO, THE MORE DETAILED
INFORMATION CONTAINED ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS AND THE
ACCOMPANYING APPENDICES.
THE COMPANIES
HARVEST HOME FINANCIAL CORPORATION
3621 Harrison Avenue
Cincinnati, Ohio 45211
- ------------------------
Harvest Home Financial Corporation ("Harvest Home Financial") is an
Ohio Corporation and is a holding company for Harvest Home Savings Bank
("Harvest Home Savings Bank"). Harvest Home Savings Bank is an Ohio-chartered
savings bank which conducts business through three full-service offices located
in the Greater Cincinnati, Ohio area. The deposits of Harvest Home Savings Bank
are insured to the maximum extent provided by law by the Savings Association
Insurance Fund ("SAIF"), which is administered by the FDIC. As of the date of
the Merger Agreement, 875,289 shares of Harvest Home Financial Common Stock are
issued and outstanding. There are also options to acquire 84,947 shares of
Harvest Home Financial Common Stock as of the date of the Merger Agreement.
At September 30, 1999, Harvest Home Financial had, on a consolidated
basis, total assets of $98.9 million, total liabilities of $89.3 million
including deposits of $66.2 million and stockholders' equity of $9.6 million.
PEOPLES COMMUNITY BANCORP, INC.
PEOPLE'S BUILDING, LOAN & SAVINGS COMPANY
11 S. Broadway
Lebanon, Ohio 45036
- ---------------------------
Peoples Community Bancorp, Inc. ("Peoples Community Bancorp") is a
Delaware corporation formed by People's Savings in connection with its
conversion. Upon consummation of the conversion, Peoples Community Bancorp will
become the parent holding company of People's Bank and People's Bank will be a
federal stock savings bank. At September 30, 1999, People's Savings had total
assets of $90.3 million, total liabilities of $78.5 million, including deposits
of $66.2 million. The deposit accounts of People's Savings are insured by the
SAIF to the maximum extent permitted by the FDIA. People's Savings conducts its
business through two full-service offices located in Lebanon, Ohio and
Blanchester, Ohio.
The Oakley Improved Building & Loan Company ("Oakley") is a state
chartered savings and loan with offices at 3924 Isabella, Cincinnati, Ohio
45209. At September 30, 1999, Oakley had total assets of $17.0 million, total
liabilities of $14.1 million, including deposits of $13.3 million. Immediately
prior to the conversion, Oakley will merge with and into People's Savings, with
People's Savings as the surviving entity.
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<PAGE>
REASONS FOR MERGER; RECOMMENDATION TO STOCKHOLDERS
The Board of Directors of Harvest Home Financial has unanimously
adopted the Merger Agreement and approved the transactions contemplated thereby
and has determined that the Merger is in the best interests of Harvest Home
Financial and its stockholders. THE HARVEST HOME BOARD RECOMMENDS THAT
STOCKHOLDERS VOTE FOR THE ADOPTION OF THE MERGER AGREEMENT AT THE MEETING.
For a discussion of the factors considered by the Harvest Home Board in
reaching its decision to adopt the Merger Agreement and approve the transactions
contemplated thereby, see "Background and Reasons for the Merger."
THE MERGER
In the Merger, Harvest Home Financial will merge into Peoples Community
Bancorp, the parent holding company of People's Savings. The stockholders of
Harvest Home Financial will become stockholders of Peoples Community Bancorp.
For a description of what Harvest Home Financial stockholders will receive in
the Merger, see "The Merger Agreement - Treatment of Capital Stock."
CONDITIONS TO COMPLETING THE MERGER
The obligations of the parties to consummate the Merger are subject to
the satisfaction or waiver of certain conditions specified in the Merger
Agreement including, among other things, the receipt of all necessary
regulatory, stockholder and member approvals, the compliance with or
satisfaction of all representations, warranties, covenants and conditions, the
absence of any order, decree or injunction enjoining or prohibiting consummation
of either the conversion or the Merger, and the receipt by the parties of tax
opinions with respect to certain federal income tax consequences of the Merger.
There can be no assurance that the conditions to the consummation of the Merger
will be satisfied or waived. See "The Merger - Conditions to the Merger."
FEDERAL INCOME TAX CONSIDERATIONS
Harvest Home Financial stockholders will recognize capital gains income
tax on cash received for shares. The exchange of shares of Harvest Home
Financial common stock for shares of Peoples Community Bancorp common stock will
be tax free. However, because tax matters are complicated, and tax results may
vary among stockholders, we urge you to contact your own advisor to understand
fully how the merger will affect you.
COMPARATIVE STOCK PRICES
Harvest Home Financial common stock is traded on the Nasdaq National
Market under the symbol "HHFC". On September 30, 1999, the last trading day
prior to the public announcement of the proposed merger, the last reported
Nasdaq sales price for Harvest Home Financial common stock was $14.38. On
___________, the day before we printed this document, the last reported sales
price for Harvest Home Financial common stock was
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<PAGE>
$______________. Shares of Peoples Community Bancorp have not been issued or
traded prior to date.
TREATMENT OF HARVEST HOME FINANCIAL STOCK OPTIONS
All unexercised options granted under the HARVEST HOME FINANCIAL
CORPORATION 1996 STOCK OPTION PLAN shall be cancelled and the holders shall
receive the value of their options in cash.
ACCOUNTING TREATMENT
The Merger will be treated as a purchase for accounting purposes.
Accordingly, under generally accepted accounting principles, Peoples Community
Bancorp will record at its cost the acquired assets less liabilities assumed.
Any difference between the cost of Harvest Home Financial and the sum of the
fair values of tangible and identifiable assets, less liabilities, will be
reported as Goodwill. The report of income of Peoples Community Bancorp will
include the operations of Harvest Home Financial after the Merger, based on the
cost to Peoples Community Bancorp.
DISSENTERS' RIGHTS
Under Ohio law, you may dissent from the merger and have the fair cash
value of your shares paid to you. To exercise this right, you must follow a
number of procedures. These procedures include filing a demand for payment of
the fair cash value of your shares and not voting in favor of the merger. For
more information on how to exercise these rights, see "Merger Agreement -
Dissenting Shares."
INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS OF HARVEST HOME FINANCIAL
When considering the recommendation of the Harvest Home Board, you
should be aware that some directors and officers of Harvest Home Financial have
interests in the merger that are different from, or in addition to, your
interests as stockholders. Upon consummation of the merger, the employment
agreements of John E. Rathkamp, Dennis J. Slattery and Teresa O'Quinn shall
terminate and they shall enter into new employment agreements with Peoples
Community Bancorp. John E. Rathkamp shall be appointed to the Peoples Community
Bancorp Board of Directors. Further, there are provisions in the Merger
Agreement relating to director and officer indemnification and insurance after
the merger. The Harvest Home Financial Board was aware of these matters and
considered them, among other matters, in approving the Merger Agreement.
OPINION OF FINANCIAL ADVISOR
In deciding to approve the merger, the Harvest Home Financial Board
considered the opinion of its financial advisor, Charles Webb & Company, to
determine that the Merger consideration is fair from a financial point of view
to the holders of Harvest Home Financial common stock. The opinion of Charles
Webb & Company dated September 30, 1999, is attached as Annex __ to this
document. We encourage you to read this opinion.
-6-
<PAGE>
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains representations and warranties of Harvest
Home Financial and Peoples Community Bancorp which are customary in merger
transactions. See "The Merger - Representations and Warranties of Harvest Home
Financial" and "The Merger - Representations and Warranties of Peoples Community
Bancorp."
CONDUCT OF BUSINESS PRIOR TO CLOSING DATE
Each of Harvest Home Financial and Peoples Community Bancorp has agreed
to conduct its business prior to the Effective Time in accordance with certain
guidelines set forth in the Merger Agreement. See "The Merger - Business of the
Parties."
REQUIRED APPROVALS
Various approvals of the OTS and the Ohio Division of Financial
Institutions are required in order to consummate the Conversion and the Merger.
Applications for these approvals have been filed and are currently pending.
There can be no assurance that the requisite OTS approvals will be received in a
timely manner. In the event that the consummation of the Conversion and the
Merger are not consummated on or before September 30, 2000, the Merger Agreement
may be terminated by either Harvest Home Financial or Peoples Community Bancorp.
There can be no assurance as to the receipt or timing of such approvals.
See "The Merger - Required Approvals."
WAIVER AND AMENDMENT
Prior to the effective time, Harvest Home Financial and Peoples
Community Bancorp may extend the time for performance of any obligations under
the Merger Agreement, waive any inaccuracies in the representations and
warranties contained in the Merger Agreement and waive compliance with any
covenant, agreement or, to the extent permitted by law, any condition of the
Merger Agreement, provided that any such waiver after the Harvest Home Financial
stockholders have adopted the Merger Agreement shall not modify the amount or
form of consideration to be provided to the Harvest Home Financial stockholders
or otherwise materially adversely affect the stockholders without their
approval.
The Merger Agreement may be amended or supplemented at any time by
mutual agreement of Harvest Home Financial and Peoples Community Bancorp,
provided that the amendment or supplement after the Harvest Home Financial
stockholders have adopted the Merger Agreement is subject to the previous
paragraph. See "The Merger - Waiver" and "The Merger - Amendment or Supplement."
TERMINATION
The Merger Agreement may be terminated prior to the Effective Time by:
(i) Harvest Home Financial or Peoples Community Bancorp in the event of (a) the
failure of Harvest Home Financial stockholders to approve the Merger Agreement,
(b) the failure of Peoples Community Bancorp members to approve the conversion,
(c) the failure of Oakley members to approve their
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<PAGE>
merger, (d) a material failure to perform or comply by the other party with any
covenant or undertaking, which failure has not been timely cured after notice,
or (e) any material inaccuracy or omission in the representations or warranties
of the other party which has not been timely cured after notice; (ii) by Harvest
Home Financial or Peoples Community Bancorp if any approval of a governmental
authority required to permit consummation of the transactions shall have been
denied or any governmental authority of competent jurisdiction shall have issued
a final unappealable order prohibiting consummation of the transactions
contemplated by the Merger Agreement; (iii) by Harvest Home Financial or Peoples
Community Bancorp in the event that the Merger is not consummated by September
30, 2000; and (iv) by Peoples Community Bancorp in the event that there has
occurred a "Purchase Event" (as defined in the Merger Agreement). See "The
Merger - Termination."
EXPENSES OF THE MERGER
The Merger Agreement provides, in general, that Harvest Home Financial
and Peoples Community Bancorp shall each bear and pay all of their respective
costs and expenses incurred in connection with the transactions contemplated by
the Merger Agreement, including fees and expenses of their respective financial
consultants, investment bankers, accountants and counsel. See "The Merger -
Expenses."
MANAGEMENT AFTER THE MERGER
The current members of the Board of Directors of Peoples Savings, John
E. Rathkamp, currently a director of Harvest Home Financial, and Thomas Noe,
currently a director of Oakley, shall be the members of the Board of Peoples
Community Bancorp immediately after the Effective Time. See "The Merger -
Directors."
EFFECTS OF THE MERGER ON RIGHTS OF STOCKHOLDERS
As a result of the Merger, holders of Harvest Home Financial Common
Stock who receive shares of Peoples Community Bancorp Common Stock in the Merger
will become stockholders of Peoples Community Bancorp. For a comparison of the
corporate charters and bylaws of Peoples Community Bancorp and Harvest Home
Financial governing the rights of Peoples Community Bancorp and Harvest Home
Financial stockholders, see "Comparison of Stockholder Rights."
NASDAQ LISTING
Harvest Home Financial Common Stock (symbol: HHFC) currently is quoted
on the Nasdaq Stock Market ("Nasdaq SmallCap"). It is a condition to
consummation of the Merger that the shares of Peoples Community Bancorp Common
Stock to be issued to the stockholders of Harvest Home Financial in the Merger
shall have been approved for listing on the Nasdaq National Market. See "The
Merger - Conditions to the Merger."
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<PAGE>
FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe
harbor from civil litigation for certain forward-looking statements.
Forward-looking statements include the information concerning future results of
operations, cost savings and synergies of Peoples Community Bancorp and Harvest
Home Financial after the Merger set forth in "Questions and Answers About the
Merger," "Summary" and "The Merger," and those preceded by, followed by or that
otherwise include the statements "should," "believe," "expect," "anticipate,"
"intend," "may," "will," "continue," "estimate" and other expressions that
indicate future events and trends. Although Peoples Community Bancorp and
Harvest Home Financial believe that in making such statements their expectations
are based on reasonable assumptions, such statements may be influenced by risks
and uncertainties which could cause actual results and trends to be materially
different from historical results or those anticipated depending on a variety of
factors. These factors include, without limitation:
- - revenues following the Merger and Peoples Community Bancorp merger with
Oakley may be lower than expected or deposit withdrawals, operating costs
or customer loss and business disruption following the merger may be
greater than expected;
- - competitive pressures among depository and other financial services
companies may increase significantly;
- - costs or difficulties related to the integration of the businesses acquired
by Peoples Community Bancorp may be greater than expected;
- - changes in the interest rate environment may reduce interest margins, cause
an increase in the prepayment rate on mortgages held and securitized and
other loans or reduce the demand for new loans;
- - general economic or business conditions, either internationally or
nationally, or in the states in which the combined company will be doing
business, may be less favorable than expected, resulting in, among other
things, a deterioration in credit quality or a reduced demand for credit;
- - legislation or regulatory requirements or changes may adversely affect the
businesses in which Peoples Community Bancorp is engaged;
- - technology-related changes, including "Year 2000" data systems compliance
issues, may be harder to make or more expensive than expected; and
- - changes in the securities markets.
You should understand that these factors, in addition to those
discussed elsewhere in this documents and in documents which have been
incorporated by reference, could affect the future results of Peoples Community
Bancorp and Harvest Home Financial, and could cause those results to be
materially different from those expressed in their forward-looking statements.
Peoples Community Bancorp and Harvest Home Financial do not undertake any
obligation to update any forward looking statements to reflect events or
circumstances arising after the date of this document.
THE SPECIAL MEETING
INTRODUCTION
This document is being furnished to the stockholders of
Harvest Home Financial in connection with the solicitation of proxies by the
Board of Directors for use at the special
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<PAGE>
meeting of Harvest Home Financial stockholders to be held on __________, 2000 at
______, Eastern Standard Time, at ______________________________, and at any
adjournments or postponements thereof. Each copy of this document mailed to
Harvest Home Financial stockholders is accompanied by a proxy card furnished in
connection with the solicitation of proxies by the Harvest Home Financial Board
of Directors for use at the special meeting.
MATTER TO BE CONSIDERED; BOARD OF DIRECTORS RECOMMENDATION
At the special meeting, Harvest Home Financial stockholders will be
asked to (i) adopt the Merger Agreement and the transactions contemplated
thereby, and (ii) vote upon such other business as may properly come before the
special meeting or any adjournments or postponements thereof (including, without
limitation, adjournment or postponement of the special meeting in order to allow
for additional solicitation of stockholder votes in order to obtain a quorum or
in order to obtain more votes in favor of the Merger Agreement). The Harvest
Home Financial Board of Directors knows of no business that will be presented
for consideration at the special meeting other than the adoption of the Merger
Agreement.
THE HARVEST HOME FINANCIAL BOARD OF DIRECTORS HAS DETERMINED THAT THE
MERGER AGREEMENT IS ADVISABLE AND IN THE BEST INTERESTS OF HARVEST HOME
FINANCIAL STOCKHOLDERS AND HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT.
ACCORDINGLY, THE HARVEST HOME FINANCIAL BOARD OF DIRECTORS RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
STOCKHOLDERS ARE REQUESTED TO PROMPTLY COMPLETE, DATE, SIGN AND RETURN
THE ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. FAILURE TO
RETURN A PROPERLY EXECUTED PROXY CARD OR TO VOTE AT THE SPECIAL MEETING WILL
HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT.
RECORD DATE AND VOTING
Only the holders of record of Harvest Home Financial common stock as of
the close of business on ________________ are entitled to notice of and to vote
at the special meeting. At the close of business on ______________ there were
875,289 shares of Harvest Home Financial common stock outstanding and entitled
to vote, held by approximately _____ stockholders. Directors and executive
officers of Harvest Home Financial and its affiliates (as a group) were entitled
to vote 122,900 shares of Harvest Home Financial common stock, or approximately
14.04% of the outstanding votes entitled to be cast at the special meeting.
Holders of record of Harvest Home Financial common stock as of the close of
business on ______________ are entitled to one vote per share on any matter
voted on at the special meeting.
The presence, either in person or by proxy, of the holders of a
majority of the outstanding shares of Harvest Home Financial common stock as of
the record date is necessary to constitute a quorum at the special meeting.
Broker non-votes and abstentions count only for the purpose of determining a
quorum at the special meeting.
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<PAGE>
STOCKHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS. IF THE MERGER IS CONSUMMATED, STOCK CERTIFICATES SHOULD BE DELIVERED IN
ACCORDANCE WITH INSTRUCTIONS SET FORTH IN A LETTER OF TRANSMITTAL, WHICH WILL BE
SENT TO STOCKHOLDERS BY ________________, CINCINNATI, OHIO, IN ITS CAPACITY AS
THE EXCHANGE AGENT, WITHIN SEVEN BUSINESS DAYS AFTER THE COMPLETION OF THE
MERGER.
VOTE REQUIRED
The holders of at least a majority of the outstanding shares of Harvest
Home Financial common stock entitled to vote on the matters to be acted upon, or
437,646 shares, must vote to adopt the Merger Agreement. THE FAILURE TO SUBMIT A
PROXY CARD OR VOTE IN PERSON AT THE SPECIAL MEETING HAS THE SAME EFFECT AS A
VOTE AGAINST THE MERGER AGREEMENT. ABSTENTIONS AND BROKER NON-VOTES ALSO HAVE
THE SAME EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT. BROKERS WHO HOLD SHARES
OF HARVEST HOME FINANCIAL COMMON STOCK AS NOMINEES WILL NOT HAVE DISCRETIONARY
AUTHORITY TO VOTE SHARES WITH RESPECT TO THE MERGER AGREEMENT ABSENT
INSTRUCTIONS FROM THE BENEFICIAL OWNER. THEREFORE, BY NOT GIVING SUCH
INSTRUCTIONS YOU WILL IN EFFECT, BE VOTING AGAINST THE MERGER.
The proxy holders named in the enclosed proxy card will vote all of the
Harvest Home Financial shares represented by proxy cards that are properly
signed and returned by stockholders in accordance with the instructions
contained therein. Specify your voting choice by marking the appropriate box on
the proxy card.
IF YOU PROPERLY SIGN AND RETURN THE PROXY CARD SENT TO YOU BY HARVEST
HOME FINANCIAL, BUT DO NOT SPECIFY YOUR VOTING CHOICES, YOUR SHARES WILL BE
VOTED "FOR" THE ADOPTION OF THE MERGER AGREEMENT AS RECOMMENDED BY THE HARVEST
HOME FINANCIAL BOARD OF DIRECTORS.
The Harvest Home Financial Board of Directors is not aware of any
matters other than the Merger that may be brought before the special meeting. If
any other matters properly come before the special meeting the persons named in
the accompanying proxy will vote the shares represented by all properly executed
proxies on such matters in their discretion, except that shares represented by
proxies which have been voted "against" the Merger Agreement will not be used to
vote "for" adjournment of the special meeting for the purpose of allowing
additional time for soliciting additional votes "for" the Merger Agreement.
NAME AND ADDRESS OF BENEFICIAL OWNERS
The following table sets forth, as of December 15, 1999, information
with respect to the beneficial ownership of Harvest Home Financial common stock
by each person known by Harvest Home Financial to be the beneficial owner of
more than five percent of the common stock, by each present director of Harvest
Home Financial, by executive officers of Harvest Home Financial and by all
directors and executive officers of Harvest Home Financial as a group. The
stockholders listed in the table have sole voting and investment power with
respect to shares beneficially owned by them.
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<PAGE>
<TABLE>
<CAPTION>
Name of Beneficial Owner No. of Shares Percent of Class
------------------------ ------------- ----------------
<S> <C> <C>
John E. Rathkamp 14,959 1.7%
Dennis J. Slattery 7,475 .8%
Richard F. Hauck 25,671 2.9%
Walter A. Schuch 14,959 1.7%
Thomas L. Eckert 14,959 1.7%
Marvin J. Ruehlman 14,959 1.7%
Herb E. Menkhaus 14,959 1.7%
George C. Eyrich 14,959 1.7%
Total of all directors
and officers as a group 122,900 14.04%
<CAPTION>
Name of Beneficial Owner No. of Shares(1) Percent of Class
------------------------ ---------------- ----------------
<S> <C> <C>
Tontine Financial Partners, L.P. 67,000 7.66%
Johnson Trust Co. 46,000 5.26%
</TABLE>
REVOCABILITY OF PROXIES
A stockholder may revoke a proxy at any time prior to its exercise by
(i) delivering to Harvest Home Financial, John E. Rathkamp, Chief Executive
Officer, 3621 Harrison Avenue, Cincinnati, Ohio 45211, a written notice of
revocation prior to the special meeting, (ii) delivering, prior to the special
meeting, a duly executed proxy bearing a later date, or (iii) attending the
special meeting and voting in person. The presence of a stockholder at the
special meeting will not in and of itself automatically revoke such stockholder
proxy.
SOLICITATION OF PROXY
All expenses of Harvest Home Financial's solicitation of proxies,
including the cost of mailing this document to you, will be paid by Harvest Home
Financial. In addition to solicitation by use of the mails, proxies may be
solicited from stockholders by directors, officers and employees in person or by
telephone, facsimile, or other means of communications. These directors,
officers and employees will not receive additional compensation, but may be
reimbursed for their out-of-pocket expenses in connection with such
solicitation. Harvest Home Financial will make arrangements with brokerage
houses, custodians, nominees and fiduciaries for the forwarding of proxy
solicitation materials to beneficial owners of shares held of record by such
brokerage houses, custodians, nominees and fiduciaries, and Harvest Home
Financial will reimburse such brokerage houses, custodians, nominees and
fiduciaries for their reasonable expenses incurred in connection with such
solicitation.
- -------------------
(1) The shares held by Tontine Financial Partners, L.P. and Johnson Trust Co.
are disclosed since the percentage of ownership is greater than five percent.
Neither organization is an affiliate of Harvest Home Financial nor Harvest Home
Savings.
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<PAGE>
ADJOURNMENT OF THE SPECIAL MEETING
A vote in person by a stockholder for adjournment of the special
meeting, or for the last proposal on the proxy card authorizing the named
proxies to vote the shares covered by such proxy in their discretion with
respect to other business properly coming before the special meeting, would
allow for additional solicitation of stockholder votes in order to obtain a
quorum or in order to obtain more votes in favor of the Merger Agreement.
DISSENTERS' RIGHTS
Under Ohio law, you may dissent from the merger and be paid the fair
cash value of your shares. To exercise this right, you must follow a number of
procedures. These procedures include filing a demand with Harvest Home Financial
and not voting in favor of the merger. For more information on how to exercise
these rights, see "Rights of Dissenting Stockholders" on page 26 and Ohio
General Corporation Law Sections 1701.84 and 1701.85 set forth in Annex __.
THE MERGER
FORM OF THE MERGER
If the Merger is completed, Peoples Community Bancorp will acquire
Harvest Home Financial common stock through the merger of Harvest Home Financial
into Peoples Community Bancorp and the merger of Harvest Home Savings Bank into
People's Community Bank. The Merger will be consummated following the merger of
Oakley and People's Savings, the conversion of People's Savings from a mutual to
a stock institution known as Peoples Community Bank, and the formation of
Peoples Community Bancorp as a Delaware holding company.
BACKGROUND AND REASONS FOR THE MERGER
Over the past several years, the Harvest Home Board has studied and
evaluated Harvest Home Financial's position as an independent financial
institution. The Harvest Home Board observed that the continuing consolidation
in the thrift industry made it difficult for Harvest Home Financial to compete.
The Harvest Home Board deemed Harvest Home Financial to be at a disadvantage due
to its asset size, relatively small market area coverage, and limited offerings
of products and services. The Harvest Home Board concluded that in order for
Harvest Home Financial to stay competitive and increase earnings, Harvest Home
Financial needed to grow in size and market coverage. The Harvest Home Board,
therefore, decided that it was in the best interest of the stockholders of
Harvest Home Financial to pursue a sale, merger or other consolidation.
A committee of three directors was formed to seek a potential sale or
business combination that would most effectively satisfy the needs of the
Harvest Home Financial, its stockholders and customers. In 1999, Harvest Home
Financial received two formal offers from other financial institutions for the
purchase of and/or merger with Harvest Home Financial. After thoroughly
reviewing and evaluating both offers, the Harvest Home Board concluded that
Peoples Community Bancorp presented the best opportunity for the stockholders of
Harvest Home Financial and agreed to accept the offer of Peoples Community
Bancorp, subject to
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negotiation of a definitive agreement. The Merger Agreement was signed on
September 30, 1999.
The Merger was deemed by the Harvest Home Board as favorable to Harvest
Home Financial stockholders for a variety of reasons. First, Harvest Home
Financial's Board believes the Merger Consideration to be fair. The Board
evaluated People's offer in light of information provided by Harvest Home
Financial's financial advisor, Charles Webb & Company, which included detailed
analysis of the market for thrift stocks over the past couple of years. The
stock price offered in the Merger was deemed favorable in comparison to the
market. The Harvest Home Board also reviewed and considered the opinion of
Charles Webb & Company that the Merger Consideration to be received by Harvest
Home Financial stockholders was fair from a financial perspective.
The Harvest Home Board believes that the combination of stock and cash
would give Harvest Home Financial stockholders the opportunity to use the cash
return to diversify their investment, and also give them the opportunity to
participate in a strengthened and more competitive thrift institution through
the receipt of Peoples Community Bancorp common stock.
The Merger will result in a combined institution that will be better
suited to compete in the marketplace and yet will retain its identity as a
community thrift. The increased asset size of the new company will enable it to
offer a broader array of products and services than currently offered by Harvest
Home Financial. This should enable the new company to be more competitive in its
offering of loans and deposit products, and will enable it to expand its
products and services to its customers. For example, the new company is expected
to be better positioned to offer loans which are more profitable, such as
commercial real estate loans. The Merger also should result in economies of
scale which likewise will enhance the surviving entities' competitive posture.
The Harvest Home Board also took into consideration that the Merger
will allow Harvest Home Financial to expand its market area. Peoples Community
Bancorp has offices in the Lebanon and Blanchester areas. The Oakley office is
in Oakley, which is part of the City of Cincinnati. Together with Harvest Home
Financial's three western-Hamilton County offices, the combined institution will
have broader market coverage in southwestern Ohio. This will also better
position the new entity to expand into growing market areas.
The Merger was also deemed favorable because of the compatibility of
the institutions. As stated above, the branches are well positioned. The asset
mix of Peoples Community Bancorp and Oakley, primarily first mortgage loans, is
compatible with Harvest Home Financial's asset mix. The management team, which
will combine the management of Harvest Home Financial, Peoples Community Bancorp
and Oakley, is deemed by the Harvest Home Board to be a strength in the Merger
and will provide strong and forward-looking management. Finally, the companies
involved have the same business philosophy: to grow as a strong, independent
community institution.
The Harvest Home Board also considered that the additional capital in
the surviving entity will provide greater opportunities for expansion. The
surviving entity will be better positioned to expand into new geographical areas
by acquiring or building additional branches and will have a greater opportunity
to consider future mergers of other banks.
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Another factor considered by the Harvest Home Board was the increase of
Harvest Home Financial's stockholder base, which should provide a more active
trading market for its stockholders.
The preceding discussion summarizes the material factors considered by
the Board of Directors of Harvest Home Financial in determining that the Merger
is in the best interest of Harvest Home Financial stockholders.
OPINION OF HARVEST HOME FINANCIAL'S FINANCIAL ADVISOR
In September 1999, Harvest Home Financial retained Charles Webb &
Company, a division of Keefe, Bruyette & Woods ("KBW") to evaluate the proposed
merger of Harvest Home Financial with Peoples Savings. KBW as part of its
investment banking business, is regularly engaged in the evaluation of business
and securities in connection with mergers and acquisitions, negotiated
underwritings, and distributions of listed and unlisted securities. KBW is
familiar with the market for common stocks of publicly traded banks, thrifts and
bank and thrift holding companies. The Harvest Home Financial Board selected KBW
on the basis of the firm's reputation and its experience and expertise in
transactions similar to the Merger and its prior work for and relationship with
Harvest Home Financial and Harvest Home Savings Bank.
Pursuant to its engagement, KBW was asked to render an opinion as to
the fairness, from a financial point of view, of the Merger Consideration for
the stock of Harvest Home Financial. KBW delivered its opinion to the Harvest
Home Financial Board that, as of October 1, 1999, the Merger Consideration is
fair, from a financial point of view, to the stock of Harvest Home Financial. No
limitations were imposed by the Harvest Home Financial Board upon KBW with
respect to the investigations made or procedures followed by it in rendering its
opinion. KBW has consented to the inclusion herein of the summary of its opinion
to the Harvest Home Financial Board and to the reference to the entire opinion
attached hereto as Annex __.
The full text of the opinion of KBW, which is attached as Annex __ to
this Proxy Statement, sets forth certain assumptions made, matters considered
and limitations on the review undertaken by KBW, and should be read in its
entirety. The summary of the opinion of KBW set forth in this Proxy Statement is
qualified in its entirety by reference to the opinion.
In rendering its opinion, KBW (i) reviewed the Merger Agreement, (ii)
reviewed Harvest Home Financial's Annual Reports, Proxy Statements and Form
10-KSB's for the prior three fiscal years of 1999, 1998 and 1997 and certain
other internal financial analysis considered relevant and reviewed Peoples
Savings financials (iii) discussed with senior management and the Board of
Directors of Harvest Home Financial and its wholly-owned subsidiary, Harvest
Home Savings Bank the current position and prospective outlook for Harvest Home
Financial, (iv) discussed with senior management of Peoples Savings their
operations, financial performance and future plans and prospects, (v) considered
historical quotations, levels of activity and prices of recorded transactions in
Harvest Home Financial's common stock, (vi) reviewed financial and stock market
data of other thrifts in a comparable asset range to Harvest Home Financial,
(vii) reviewed financial and stock market data of other thrifts in a comparable
asset range to Peoples Savings, (viii) reviewed certain recent business
combinations with thrifts as the acquired company, which KBW deemed comparable
in whole or in part, and (ix) performed other analyses which KBW considered
appropriate.
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<PAGE>
In rendering its opinion, KBW assumed and relied upon the accuracy and
completeness of the financial information provided to it by Harvest Home
Financial and Peoples Savings. In its review, with the consent of the Harvest
Home Financial Board, KBW did not undertake any independent verification of the
information provided to it, nor did it make any independent appraisal or
evaluation of the asset or liabilities, and potential or contingent liabilities
of Harvest Home Financial or Peoples Savings.
ANALYSIS OF RECENT COMPARABLE ACQUISITION TRANSACTIONS
In rendering its opinion, KBW analyzed certain comparable merger and
acquisition transactions of both pending and completed thrift deals, comparing
the acquisition price relative to tangible book value, LTM earnings, total
assets, total deposits, and premium to core deposits. The analysis included a
comparison of the median of the above ratios for completed and pending
acquisitions, based on the following five comparable groups: (i) all thrift
acquisitions since January 1, 1999; (ii) all thrift acquisitions with total
assets between $80 million and $150 million ("Comparable Asset Size"); (iii) all
acquisitions since January 1, 1999 with the selling thrift having equity to
total assets of between 8.0% and 12.0% ("Comparable Equity Ratio"); (iv) all
thrift acquisitions since January 1, 1999 with the selling thrift having a
return on average equity between 5% and 8.0% ("comparable Earnings Ratio"); and
(v) all thrift acquisitions since January 1, 1999 located in the Midwest
("Comparable Regional Deals").
The information in the following table summarizes the material
information analyzed by KBW with respect to the Merger. The summary does not
purport to be a complete description of the analysis performed by KBW and should
not be construed independently of the other information considered by KBW in
rendering its opinion. Selecting portions of KBW's analysis or isolating certain
aspects of the comparable transactions without considering all analysis and
factors, could create an incomplete or potentially misleading view of the
evaluation process.
<TABLE>
<CAPTION>
..................Price to.................CoreDep
TangBook LTM EPS Assets Deposits Premium
(%) (x) (%) (%) (%)
<S> <C> <C> <C> <C> <C>
Consideration - $18.00 per share 168.9 31.8 16.5 24.9 11.3
Recent Transactions Number Median for all deals since January 1, 1999
Completed 46 182.0 23.9 19.1 26.0 12.5
Pending 37 151.1 23.2 18.9 25.7 10.9
Comparable Asset Size
Completed 8 178.7 20.9 17.1 22.5 9.0
Pending 10 126.5 20.8 18.9 26.3 8.1
Comparable Equity Ratio
Completed 14 186.1 31.0 21.1 29.5 17.9
Pending 8 182.5 30.3 15.8 24.1 12.2
Comparable Earnings Ratio
Completed 7 168.6 31.5 22.6 32.7 15.7
Pending 12 133.2 22.1 19.3 26.1 6.6
Comparable Regional Deals
Completed 15 185.3 21.0 22.7 31.7 14.8
Pending 12 173.4 23.9 19.3 27.1 9.9
</TABLE>
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Based on the above information, KBW concluded that the implied per
share price of $18.00, was in the ranges of each mentioned comparable group.
In preparing its analysis, KBW made numerous assumptions with respect
to industry performance, business and economic conditions and other matters,
many of which are beyond the control of KBW and Harvest Home. The analyses
performed by KBW are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
such analyses and do not purport to be appraisals or reflect the prices at which
a business may be sold.
KBW will receive a fee of approximately $60,000 for services rendered
in connection with advising and issuing a fairness opinion regarding the Merger.
As of the date of the Proxy Statement, KBW has received $25,000 of the fee and
will receive the remainder shall be paid at the closing of the transaction. KBW
is also the marketing agent for the mutual to stock conversion offering of
Peoples Savings on a best-effort basis, for which it will receive a customary
success fee. KBW will not opine on any fairness issues for Peoples Savings or
provide or set the valuation of the shares to be offered by Peoples Community
Bancorp in its offerings.
INTERESTS OF OFFICERS AND DIRECTORS OF HARVEST HOME FINANCIAL
Three officers of Harvest Home Financial have employment agreements
with Harvest Home Savings Bank which create interests in the Merger for these
officials in addition to their interests solely as Harvest Home Financial
stockholders. All employment agreements with Harvest Home Savings Bank will be
cancelled at the Effective Time in consideration for the execution of new
employment agreements with Peoples Community Bancorp with terms to be agreed
upon.
The Merger will qualify as a change of control of Harvest Home
Financial or Harvest Home Savings Bank under the employment agreements and the
executive officers will be entitled to change in control payments under their
agreements after the completion of the Merger but only in the event the
employees fail to sign new employment agreements with Peoples as contemplated
and their employment is terminated within twelve months of the Merger. The
aggregate payments that would be made under those circumstances to the employees
under the employment agreements, would be approximately _______________________.
John E. Rathkamp will be appointed to a three-year term on the Peoples
Community Bancorp Board of Directors ending at the annual meeting in 2002.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material federal income
tax consequences of the Merger to Harvest Home Financial stockholders. The
discussion is based on the Internal Revenue Code ("Code"), proposed, temporary
and final Treasury regulations promulgated thereunder, published administrative
rulings and pronouncements and judicial decisions in effect as of the date of
this document, all of which are subject to change, possibly with retroactive
effect.
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<PAGE>
This discussion is for general information only and does not address
every aspect of the federal income tax laws that may be relevant to you in light
of your personal investment circumstances, nor does it address the effects of
any state, local or foreign tax laws on the merger. The tax treatment for you
may vary, depending upon your particular situation, and some stockholders
(including, for example, insurance companies, tax-exempt organizations,
financial institutions and broker-dealers, and individuals who received Harvest
Home Financial common stock pursuant to the exercise of employee stock options
or otherwise as compensation) may be subject to special rules not discussed
below. In addition, the discussion relates to persons who hold Harvest Home
Financial common stock as capital assets.
HOLDERS OF HARVEST HOME COMMON STOCK ARE URGED TO CONSULT THEIR TAX ADVISERS AS
TO THE PARTICULAR EFFECT OF THEIR OWN INDIVIDUAL FACTS AND CIRCUMSTANCES ON THE
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO THEM, AND ALSO TO THE EFFECT OF
ANY STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
Under current federal income tax law, and based upon assumptions and
representations of Peoples Community Bancorp and Harvest Home Financial, and
assuming that the Merger is consummated in the manner set forth in the Merger
Agreement, it is anticipated that the following federal income tax consequences
would result:
(i) The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code;
(ii) A Harvest Home Financial stockholder will generally recognize
gain, but not loss, upon his/her receipt of cash and shares of common stock of
Peoples Community Bancorp in exchange for his shares of Harvest Home Financial
to the extent of the lesser of: (1) the realized gain, or (2) the amount of cash
received by such stockholder.
(iii) The aggregate tax basis of Peoples Community Bancorp common stock
received pursuant to the Harvest Home Financial merger will equal such
stockholder's aggregate tax basis in the shares of Harvest Home Financial common
stock being exchanged, reduced by any amount allocable to a fractional share
interest of Peoples Community Bancorp common stock for which cash is received
and by the amount of cash consideration received (AS DISCUSSED BELOW), and
increased by the amount of gain, if any, recognized by such stockholder in the
Harvest Home Financial merger (including any portion of such gain that is
treated as a dividend).
(iv) The holding period of the shares of Peoples Community Bancorp
common stock received by a Harvest Home Financial stockholder in the Merger will
include the holding period of the Peoples Community Bancorp common stock being
exchanged.
(v) Cash received in the Merger by a Harvest Home Financial stockholder
including cash received in lieu of fractional shares will likely qualify as
capital gain income. The recognized capital gain will be the lesser of the
realized gain or the cash received by the Harvest Home Financial Corporation
shareholder. Any capital gain or loss will be long-term capital gain or loss if
the Harvest Home Financial common stock exchanged was held more than one year.
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<PAGE>
Based upon representations to be made by Peoples Community Bancorp and
Harvest Home Financial, Peoples Community Bancorp has received an opinion of
Elias, Matz, Tiernan & Herrick, L.L.P., special counsel to Peoples Community
Bancorp that the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code. Based upon representations made by Peoples Community
Bancorp and Harvest Home Financial, Harvest Home Financial has received an
opinion of Kepley, Gilligan & Eyrich, L.P.A., general counsel to Harvest Home
Financial, to the effect of subparagraphs (ii) - (v) above. The opinions are
subject to various assumptions and qualifications, including that the Merger is
consummated in the manner and in accordance with the terms of the Merger
Agreement. The opinions are based entirely upon the Code, regulations then in
effect or proposed thereunder, then current administrative rulings and practice
and judicial authority, all of which would be subject to change, possibly with
retroactive effect. Consummation of the Merger is conditioned upon the receipt
by Peoples Community Bancorp and Harvest Home Financial, respectively, of such
opinions. See "Conditions to the Merger."
No ruling has been or will be requested from the Internal Revenue
Service ("IRS"), including any ruling as to federal income tax consequences of
the Merger to Peoples Community Bancorp or Harvest Home Financial stockholders.
Unlike a ruling from the IRS, an opinion of counsel or independent certified
public accountants is not binding on the IRS. There can be no assurance that the
IRS will not take a position contrary to the positions reflected in such opinion
or that such opinion would be upheld by the courts if challenged. See also "The
Conversion and the Merger - Tax Aspects" in the Prospectus.
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of Peoples Community Bancorp common stock received by
Harvest Home Financial stockholders in the Merger will be freely transferable,
except for shares of Peoples Community Bancorp common stock received by any
person who is deemed to be an "affiliate" (as such term is defined under the
Securities Exchange Act of 1934) of Harvest Home Financial prior to the Merger
or of Peoples Community Bancorp after the Merger. Affiliates may sell their
Peoples Community Bancorp Common Stock only in compliance with the volume and
manner-of-sale requirements of Rules 144 and 145 under the Securities Exchange
Act of 1933. Affiliates of Harvest Home Financial generally include individuals
or entities that control, are controlled by, or are under common control with,
such party and may include officers and directors of such party as well as
principal stockholders of such party.
EFFECTS OF THE MERGER
Harvest Home Financial will merge with and into Peoples Community
Bancorp, and Harvest Home Financial stockholders will become People Community
Bancorp stockholders. As of the completion of the Merger, Harvest Home Financial
common stock will no longer be traded on Nasdaq, and the registration of Harvest
Home Financial common stock under the Securities Exchange Act of 1934 will be
terminated.
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CONDUCT OF BUSINESS IF MERGER NOT CONSUMMATED
If the Merger is not completed, Harvest Home Financial will continue
its current operations. Harvest Home Financial may, however, continue to explore
strategic alternatives, including a business combination or sale of Harvest Home
Financial.
REGULATORY FILINGS AND APPROVALS
In order to consummate the Merger, Peoples Community Bancorp and
Harvest Home Financial must obtain the prior consent and approval, as
applicable, of the Securities & Exchange Commission ("SEC"), the Office of
Thrift Supervision ("OTS"), and the Ohio Division of Financial Institutions
("Division").
Peoples Community Bancorp People's Savings and Harvest Home Financial
will take all necessary steps to enter into a Bank Merger Agreement to merge
Harvest Home Savings Bank with and into People's Savings. The bank merger is
subject to approval of the OTS, the laws of Ohio, and the regulatory provisions
of the Division.
Peoples Community Bancorp and Harvest Home Financial have agreed to use
their reasonable best efforts to obtain all regulatory approvals required to
consummate the Merger. Various approvals of the OTS are required in order to
consummate the Merger, the Conversion and the Merger. Applications for these
approvals have been filed and are currently pending. The period for OTS review
of any proposed bank merger and conversion commences upon receipt by the OTS of
an application deemed sufficient by the OTS. Once an application is deemed
sufficient, the OTS generally has a 60-day period for review of the application,
which may be extended by the OTS for up to an additional 30 days. There can be
no assurances that the requisite OTS approvals will be received in a timely
manner, in which even the consummation of the Conversion and the Merger may be
delayed. In the event the Conversion and the Merger are not consummated on or
before September 30, 2000, the Merger Agreement may be terminated by either
People or Harvest Home Financial. There can be no assurance as to the receipt or
timing of such approvals.
It is a condition to the consummation of the Merger that the OTS
approvals be obtained without any condition or requirement that, individually or
in the aggregate, would so materially reduce the economic or business benefits
of the transactions contemplated by the Merger Agreement to Harvest Home
Financial that had such condition or requirement been known, Harvest Home
Financial, in its reasonable judgment, would not have entered into the Merger
Agreement. Neither Harvest Home Financial nor Peoples Community Bancorp is aware
of any basis for disapproving the Merger. There can be no assurance that any
such approvals will not contain terms, conditions or requirements which cause
such approvals to fail to satisfy such condition to the consummation of the
Merger. See also "The Conversion and the Merger--Required Approvals."
The approval of the Division also is required for consummation of the
Merger. Under Ohio law, the Division shall not approve an application for such a
transaction unless it determines, after consideration of all relevant evidence,
that the rights of all interested parties are protected. The factors to be
considered by the Division in this regard are substantially similar to those
considered by the OTS.
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Peoples Community Bancorp must file a registration statement under the
Securities Act and the shares of Peoples Community Bancorp Common Stock issued
in connection with the Merger and Conversion and shall have been approved for
listing on the Nasdaq Stock Market National Market.
TERMINATION
The Merger Agreement may be terminated prior to the Effective Time by
(a) mutual consent in writing of the parties, (b) by Peoples Community Bancorp
if Harvest Home Financial has breached (i) any material covenant or undertaking
or (ii) any representation or warranty, which failure has not been cured after
notice, (c) by Peoples Community Bancorp or Harvest Home Financial if any
approval of governmental agency required to permit the consummation of the
transaction shall have been denied or any governmental authority of competent
jurisdiction shall have issued a final unappealable order prohibiting Peoples
Community Bancorp consummation of the transactions contemplated by the Merger
Agreement, (d) by Harvest Home Financial and Peoples Community Bancorp in the
event of (i) the failure of Harvest Home Financial stockholders to approve the
Merger Agreement or (ii) the failure of the members of People's Savings and
Oakley to approve the conversion, (e) by Harvest Home Financial or Peoples
Community Bancorp in the event that the Merger is not consummated by September
30, 2000, (f) by Peoples Community Bancorp in the event of a "Purchase Event"
(as defined in the Merger Agreement).
In the event of the termination of the Merger Agreement, the Merger
Agreement shall thereafter become void and have no effect, except that (i)
certain provisions regarding confidential information and expenses shall survive
and remain in full force and effect; and (ii) no party shall be relieved from
any liability arising out of the willful breach by such party of any covenant or
agreement of it or the willful misrepresentation in the Merger Agreement of any
material fact. If the Merger Agreement is terminated by Peoples Community
Bancorp other than due to (i) Harvest Home Financial's breach of a material
covenant or undertaking or representation or warranty; (ii) Harvest Home
Financial's refusal to convene the meeting to vote on the Merger Agreement or
the meeting is held and the stockholders do not approve the Merger Agreement,
(iii) the existence of a proceeding initiated by a governmental entity seeking
an order, injunction or decree preventing consummation of the Merger, (iv)
Harvest Home Financial exercises a right of termination prior to September 30,
2000, Peoples Community Bancorp shall pay to Harvest Home Financial the sum of
$200,000. Likewise, Harvest Home Financial shall pay Peoples Community Bancorp
the sum of $500,000 upon occurrence of a Purchase Event prior to a Fee
Termination Event (as defined below).
A "Fee Termination Event" shall be the first to occur of the following:
(i) the Effective Date; (ii) termination of the Merger Agreement prior to the
occurrence of a Purchase Event (other than a termination of the Merger Agreement
by Peoples Community Bancorp as a result of a willful breach of any
representation, warranty, covenant or agreement of Harvest Home Financial or
Harvest Home Savings Bank); or, (iii) twelve months following termination of the
Merger Agreement by Peoples Community Bancorp unless a Purchase Event shall have
occurred.
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THE MERGER AGREEMENT
The following description is a summary of all material provisions of
the Merger Agreement. For full information, you should read the Merger
Agreement, a copy of which is attached to this document as Annex __.
TERMS OF THE MERGER
THE MERGER. The Merger Agreement contemplates the Merger of Harvest
Home Financial by Peoples Community Bancorp through the merger of Harvest Home
Financial with and into Peoples Community Bancorp and the merger of Harvest Home
Savings Bank into People's Savings. As soon as practicable after the completion
of the Merger, Harvest Home Financial shall be dissolved and its separate
existence shall cease. Peoples Community Bancorp will be the surviving entity of
the Merger and the separate existence of Harvest Home Financial will cease.
EFFECTIVE TIME. As promptly as practicable after the satisfaction or
waiver of the conditions in the Merger Agreement, the parties will complete the
Merger by filing a Certificate of Merger with the Secretary of State of Ohio and
by filing a Certificate of Merger with the State of Delaware, unless a later
date and time is specified as the effective time in such Certificate of Merger
(the "Effective Time"). The Effective Time will occur simultaneously with, or
immediately after, the consummation of the Conversion. A Closing shall take
place immediately prior to the Effective Time at ______________, following the
satisfaction or waiver, to the extent permitted by the Merger Agreement, of the
conditions to the consummation of the Merger, at such place and at such time as
the parties may mutually agree upon. At the Closing, there shall be delivered to
Peoples Community Bancorp, on the one hand, and Harvest Home Financial, on the
other hand, the opinions, certificates and other documents required to be
delivered under the terms of the Merger Agreement.
CONVERSION OF HARVEST HOME FINANCIAL COMMON STOCK IN THE MERGER. At the
completion of the Merger, each share of Harvest Home Financial common stock
shall be converted into the right to receive 0.9 of a share of Peoples Community
Bancorp common stock and $9.00 in cash (the "Merger Consideration"), provided,
however, that if the initial public offering price is not $10.00 per share, the
0.9 of a share of Peoples Community Bancorp common stock shall be adjusted to
provide for a ratio that will yield a cash equivalent of $9.00.
TREATMENT OF STOCK OPTIONS. At the completion of the merger, each
Harvest Home Financial Option which is then outstanding and unexercised
immediately prior thereto, whether or not then vested or exercisable, shall be
cancelled. As consideration for such cancellation, Peoples Community Bancorp
shall make payment for the options in cash.
FRACTIONAL SHARES. No fractional shares of Peoples Community Bancorp
Common Stock shall be issued to holders of Harvest Home Financial Common Stock.
In lieu thereof, each holder of shares of Harvest Home Financial common stock
entitled to a fraction of a share of Peoples Community Bancorp common stock
shall, at the time of surrender of the certificate or certificates representing
such holder's shares, receive an amount of cash (without interest) equal to the
amount determined by multiplying the fractional share interest to which such
holder would
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otherwise be entitled by the initial public offering price. No such holder shall
be entitled to dividends, voting rights or any other rights in respect of
fractional shares.
EXCHANGE OF CERTIFICATES
EXCHANGE AGENT. The Fifth Third Bank will act as exchange agent for the
exchange of stock certificates pursuant to the merger.
EXCHANGE PROCEDURES. After consummation of the Conversion and the
Merger, each holder of a certificate or certificates for issued and outstanding
shares of Harvest Home Financial Common Stock, upon surrender of the same to the
Exchange Agent, shall be entitled to receive in exchange cash plus a certificate
or certificates representing the number of full shares of Peoples Community
Bancorp Common Stock for which the shares of Harvest Home Financial Common Stock
represented by the certificate or certificates so surrendered shall have been
converted. The Exchange Agent shall promptly mail to each such holder of record
of an outstanding certificate which immediately prior to the consummation of the
conversion and the Merger evidenced shares of Harvest Home Financial Common
Stock, and which is to be exchanged for Peoples Community Bancorp Common Stock
based on the Merger Agreement, a form of letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to such
certificate shall pass, only upon delivery of such certificate to the Exchange
Agent) advising the stockholder of the terms of the exchange effected by the
Merger and of the procedure for surrendering to the Exchange Agent the
certificate in exchange for cash plus a certificate or certificates of Peoples
Community Bancorp Common Stock. THE STOCKHOLDERS OF HARVEST HOME FINANCIAL
SHOULD NOT FORWARD HARVEST HOME FINANCIAL COMMON STOCK CERTIFICATES TO PEOPLES
COMMUNITY BANCORP OR THE EXCHANGE AGENT UNTIL THEY RECEIVE THE TRANSMITTAL
LETTER. See also "Merger Agreement - Exchange Procedures."
Upon the surrender of the stockholder certificate(s) of shares of
Harvest Home Financial Common Stock and a duly completed election form or letter
of transmittal to the Exchange Agent, the stockholder will receive:
- A certificate representing shares of Peoples Community Bancorp
with which shares of Harvest Home Financial Common Stock have been
exchanged;
- Cash to which the holder is entitled;
- Cash issued in place of fractional shares, if any, which the
holder is entitled; and
- Any dividends or other distribution, if any, which the holder is
entitled.
DISSENTER'S RIGHTS
In the Merger Agreement, Harvest Home Financial agrees to give Peoples
Community Bancorp prompt notice of any written demands for payment for any
Harvest Home Financial common stock under Ohio law, attempted withdrawals of
such demands and any other instruments served pursuant to Ohio law and received
by Harvest Home Financial relating to dissenter's rights. Harvest Home Financial
also agrees to give Peoples Community Bancorp the opportunity to participate in
all negotiations and proceedings with respect to the exercise of dissenter's
rights.
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Each outstanding share of Harvest Home Financial Stock, the holder of
which has perfected his right to dissent under Ohio law and has not effectively
withdrawn or lost such right as of the Effective Time (the "Dissenting Shares")
shall not be converted into or represent a right to receive shares of Peoples
Community Bancorp Common Stock and the holder shall only be entitled to such
rights as are granted under Ohio law. If any dissenting stockholder shall
effectively withdraw or lose (through failure to perfect or otherwise) his right
to such payment at or prior to the Effective Time, such holder's shares of
Harvest Home Financial Common Stock shall be converted into a right to receive
the Merger Consideration. If a dissenting stockholder shall effectively withdraw
or lose (through failure to perfect or otherwise) his right to such payment
after the Effective Time, his/her share of Harvest Home Financial Common Stock
shall be converted into the right to receive the Merger Consideration.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains representations and warranties of Harvest
Home Financial and Peoples Community Bancorp which are customary in merger
transactions, including, but not limited to, representations and warranties
concerning: (i) the organization and capitalization of Harvest Home Financial
and Peoples Community Bancorp and their subsidiaries; (ii) the due
authorization, execution, delivery and enforceability of the Merger Agreement;
(iii) consents or approvals required, and the lack of conflicts or violations
under applicable certificates of incorporation, charters, bylaws, instruments
and laws, with respect to the transactions contemplated by the Merger Agreement;
(iv) absence of material adverse changes; (v) the documents to be filed by the
parties with the SEC and other regulatory agencies; (vi) the conduct of business
in the ordinary course and absence for loan losses and real estate owned; (vii)
financial statements; (viii) compliance with laws; and (ix) the allowance for
loan losses and real estate owned. The representations and warranties of Harvest
Home Financial and Peoples Community Bancorp do not survive beyond the Effective
Time if the Merger is consummated, and, if the Merger Agreement is terminated
without consummation of the Merger, there will be no liability on the part of
any party for a misrepresentation except that no party shall be relieved from
any liability arising out of a willful misrepresentation in the Merger
Agreement. See also "The Conversion and the Merger--Representations and
Warranties" in the Prospectus.
CONDITIONS TO THE MERGER
The respective obligations of the parties to consummate the Merger are
subject to the satisfaction or waiver of certain conditions specified in the
Merger Agreement including, among other things, receipt of all necessary
regulatory, stockholder and member approvals, the compliance with or
satisfaction of all representations, warranties, covenants and conditions set
forth therein, the absence of any order, decree or injunction enjoining or
prohibiting consummation of either the Conversion or the Merger, the receipt by
the parties of tax opinions with respect to certain federal income tax
consequences of the Merger. There can be no assurance that the conditions to
consummation of the Merger will be satisfied or waived. See also "The Conversion
and the Merger - Conditions to the Merger" in the Prospectus.
CONDUCT OF BUSINESS PENDING THE MERGER
Before the completion of the Merger, Harvest Home Financial and its
subsidiaries will conduct their business in the ordinary course, consistent with
past practice or to the extent
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otherwise contemplated under the Merger Agreement, except with the prior written
consent of Peoples Community Bancorp. Harvest Home Financial also shall use its
reasonable efforts to (i) preserve its business organization and that of its
subsidiaries intact, (ii) keep available to itself and Peoples Community Bancorp
the present services of its employees and those of its subsidiaries, and (iii)
preserve for itself and Peoples Community Bancorp the goodwill of its customers
and those of its subsidiaries and others with whom business relationships exist.
In addition, under the terms of the Merger Agreement, Harvest Home
Financial has agreed that, except as otherwise approved by Peoples Community
Bancorp in writing or as submitted, contemplated or required by the Merger
Agreement, it will not, nor will it permit its subsidiaries to, engage in
certain activities. See "Merger Agreement - Business of the Parties."
ADDITIONAL AGREEMENTS
CONFIDENTIALITY. Each party will be afforded reasonable access to the
other parties' properties, books, contracts, commitments and records and will
furnish promptly to the other all information concerning its business,
properties, and personnel as the other may reasonably request. Each party has
agreed to keep such information confidential.
NO SOLICITATION. The Merger Agreement provides that Harvest Home
Financial shall not, except as the Harvest Home Financial Board of Directors is
required by its fiduciary duties to stockholders, directly or indirectly,
solicit, initiate or encourage or hold discussions or negotiations with or
provide any information to any person in connection with any proposal from any
person for the merger of all or any substantial portion of the business, assets
or securities of Harvest Home Financial or its subsidiaries. Harvest Home
Financial's Board of Directors may enter into negotiations with other persons
regarding such proposals if the Board provides written notice to Peoples
Community Bancorp and if the Board, after consultation with counsel, determines
that it is required to pursue such negotiations pursuant to its fiduciary
duties.
EMPLOYEE BENEFITS. Peoples Community Bancorp agrees to provide those
employees of Harvest Home Financial and Harvest Home Savings Bank, who continue
to be employed by Peoples Community Bancorp, with the opportunity to participate
in Peoples Community Bancorp employee benefit pension plan, if offered.
REGULATORY FILINGS/COOPERATION. The following documents must be filed
by Harvest Home Financial and/or Peoples Community Bancorp: (i) the filing of
applications with and the approvals of the OTS and the Division; (ii) the filing
and effectiveness of the Form S-1 and the Proxy Statement relating to the
meeting of stockholders of Harvest Home Financial to be held; (iii) the approval
of the Merger Agreement by the requisite vote of the stockholders of Harvest
Home Financial; (iv) the filing of the Certificate of Merger with the
Secretaries of State of each of the States of Delaware and Ohio pursuant to the
DGCL and the ORC, respectively, in connection with the Merger; (v) the filing of
the Articles of Combination with the OTS in connection with the Bank Merger and;
(vi) review of the Merger by the DOJ under federal antitrust laws, no consents
or approvals of or filings or registrations with any Governmental Entity or with
any third party are necessary on the part of Harvest Home Financial or the
Peoples Community Bank in connection with; (vii) the execution and delivery by
Harvest Home Financial of the Merger Agreement and the consummation by Harvest
Home Financial of the transactions contemplated hereby; and (viii) the execution
and delivery by the Peoples
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Community Bank of the Merger Agreement and the consummation of the transactions
contemplated therein.
DIRECTOR AND OFFICER INSURANCE. Peoples Community Bancorp will provide
director and officer liability insurance to the former directors and executive
officers of Harvest Home Financial and its subsidiary for three years after
consummation of the Merger. This insurance will be comparable to Harvest Home
Financial's director and officer liability insurance prior to the merger.
EMPLOYMENT AGREEMENTS. All employees of Harvest Home Financial shall
become employees of Peoples Community Bancorp, or one of its subsidiaries, as of
the Effective Date of the Merger. To the extent that Peoples Community Bancorp,
or one of its subsidiaries, terminates the employment of any Harvest Home
Financial Employee, other than for cause, within six months following the
Effective Date, said terminated employee shall be entitled to severance benefits
as specified in the Merger Agreement. In addition, at the Effective Date, the
employment agreements between Harvest Home Savings Bank and John E. Rathkamp,
Dennis J. Slattery and Teresa O'Quinn should be cancelled and new employment
agreements shall be executed between Peoples Community Bancorp and John E.
Rathkamp, Dennis J. Slattery and Teresa O'Quinn.
RIGHTS OF DISSENTING STOCKHOLDERS
We describe below the steps which Harvest Home Financial stockholders
must take if they wish to exercise dissenters' rights with respect to the
merger. The description is not complete. You should read Section 1701.84 and
1701.85 of the Ohio General Corporation Law. This section is attached as Annex
__ to this document. FAILURE TO TAKE ANY ONE OF THE REQUIRED STEPS MAY RESULT IN
TERMINATION OF THE STOCKHOLDER'S DISSENTERS' RIGHTS UNDER THE OHIO GENERAL
CORPORATION LAW. If you are a Harvest Home Financial stockholder considering
dissenting, you should consult your own legal advisor.
To exercise dissenters' rights, you must satisfy five conditions:
- - You must be a stockholder of record on ______________;
- - You must not vote dissenting shares in favor of the merger;
- - You must deliver a written demand for "fair cash value" of your dissenting
shares within 20 days of the vote on the Merger;
- - If Peoples Community Bancorp requests, you must send to Peoples Community
Bancorp within 15 days of its request, your stock certificates so that a
legend may be added stating that the demand for "fair cash value" has been
made; and
- - Within 3 months of your written demand to receive "fair cash value," you
must file a complaint in court for a determination of the "fair cash value"
or you and Peoples Community Bancorp must have agreed on the "fair cash
value."
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COMPARISON OF RIGHTS
OF HARVEST HOME FINANCIAL CORPORATION AND
PEOPLES COMMUNITY BANCORP, INC.
GENERAL
After the consummation of the Merger, stockholders of Harvest Home
Financial Common Stock will become stockholders of Peoples Community Bancorp, a
Delaware corporation, Common Stock. Their rights will then be governed by
Peoples Community Bancorp's Certificate of Incorporation, Peoples Community
Bancorp's Bylaws and Delaware General Corporation Law. Presently, Harvest Home
Financial stockholders' rights are governed by Harvest Home Financial's Articles
of Incorporation, Harvest Home Financial's Code of Regulations, and Ohio General
Corporation Law. The following discussion summarizes material differences
affecting the rights of stockholders but is not intended to be a complete
statement of all differences and is qualified in its entirety by reference to
the Delaware General Corporation Law ("DGCL"), Peoples Community Bancorp's
Certificate of Incorporation and Peoples Community Bancorp's Bylaws, Harvest
Home Financial's Articles of Incorporation and Code of Regulations. For
information as to how the full text of each document, see "Where You Can Find
More Information" on page ___.
Each Harvest Home Financial stockholder should carefully consider these
differences in connection with the decision to vote for or against the adoption
of the Merger Agreement. See also "Restrictions on Merger of Harvest Home
Financial" in the Prospectus.
CAPITAL STOCK
The Harvest Home Financial Articles authorizes the issuance of
2,000,000 shares of common stock, with no par value, and provides that the
Harvest Home Financial Board of Directors may issue any authorized shares from
time to time. As of ___________ [the Record Date], there were ____________
shares of Harvest Home Financial Common Stock issued and outstanding.
The Peoples Community Bancorp Certificate authorizes the issuance of
10,000,000 shares of common stock, $.01 par value per share, and 1,000,000
shares of preferred stock, $.01 par value per share, and provides that Peoples
Community Bancorp Board of Directors may issue any authorized shares from time
to time and may fix the rights and preferences of the serial preferred stock,
all without stockholder action. Peoples Community Bancorp, which has never
issued capital stock, is offering up to 2,639,260 shares of Peoples Community
Bancorp Common Stock in connection with the Conversion and Merger.
SPECIAL MEETINGS
The Peoples Community Bancorp Certificate provides that special
meetings of stockholders may be called only by the Board of Directors, pursuant
to a resolution approved by the affirmative vote of at least three-fourths of
the directors then in office.
Harvest Home Financial Articles provide that special meetings of
stockholders may be called at any time by the Chairman of the Board, the
President, a majority of the Board of Directors acting with or without a
meeting, or by the President or Secretary upon the request of
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the holder or holders of fifty percent of all shares outstanding and entitled to
vote thereat. Calls for special meetings shall specify the time, place and
object or objects thereof, and, unless all Stockholders agree otherwise, no
business other than that specified in the call therefor shall be considered at
such meeting.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER PROPOSALS
The Peoples Community Bancorp Bylaws provide that if a stockholder
desires to introduce business at the annual meeting, notice must be given in
writing to the Secretary of the Corporation within 120 days prior to the
anniversary date of the mailing of the proxy or in case of the first annual
meeting, by September 30, 2000.
In accordance with Harvest Home Financial's Code of Regulations, in
order for Harvest Home Financial stockholders to properly introduce business to
be transacted at the annual or any special meeting of stockholders, a
stockholder of record must give written notice of any proposal, including
nominations for Harvest Home Financial's Board of Directors, to Harvest Home's
corporate secretary not less than 30 days prior to the meeting.
NUMBER OF DIRECTORS
Peoples Community Bancorp Board of Director will consist of nine
directors and Harvest Home Financial's Board of Directors consists of seven
directors.
CLASSIFIED BOARD OF DIRECTORS
The Peoples Community Bancorp Certificate and Peoples Community Bancorp
Bylaws specifies that the Peoples Community Bancorp Board of Directors is to be
divided into three classes with each class elected in staggered elections and
serving a three-year term. Harvest Home Financial's Articles and Harvest Home
Financial's Code of Regulations specify that Harvest Home Financial's Board of
Directors is to be divided into three classes with each class elected in
staggered elections and serving a three-year term.
Classification of directors makes it more difficult for stockholders to
change the composition of the board of directors. At least two annual meetings
of stockholders, instead of one, will generally be required to change the
majority of the Board of Directors. If the Company was confronted by a holder
attempting to force a proxy contest, a tender or exchange offer or other
extraordinary corporate transaction, this classification and time period would
allow the board of directors sufficient time to review the proposal. The board
of directors would also have the opportunity to review any available
alternatives to the proposal and to act in what it believes to be the best
interests of the stockholders. The classification provisions could also
discourage a third party from starting a proxy contest, making a tender offer or
otherwise attempting to obtain control of the company in a transaction that
could be beneficial to the Company and its stockholders.
REMOVAL OF DIRECTORS
The Peoples Community Bancorp Certificate specifies that Peoples
Community Bancorp directors are subject to removal only with cause by an
affirmative vote of not less than 80% of
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the authorized, issued and outstanding shares. Cause is set out in Peoples
Community Bancorp Certificate of Incorporation. The DGCL provides that directors
serving on a classified board may be removed only for cause unless the
corporation's charter provides otherwise.
The Harvest Home Financial Code of Regulations state that a Harvest
Home Financial director may be removed from office, without assigning any cause,
by the vote of the holders of record of 80% of the authorized, issued and
outstanding stock.
VACANCIES
Vacancies on Peoples Community Bancorp Board may be filled by a
majority vote of the directors then in office, whether or not a quorum is
present, or by a sole remaining director and any director so chosen shall hold
office for the remainder of the term to which the director was elected and until
such director's successor shall have been elected and qualified.
Vacancies and newly created directorships resulting from any increase
in the authorized number of directors of Harvest Home Financial may be filled by
affirmative vote of a majority of the remaining Directors.
CUMULATIVE VOTING
Peoples Community Bancorp stockholders are not entitled to cumulative
votes in the election of directors. Harvest Home Financial stockholders are
entitled to cumulative voting in the election of directors.
AMENDMENTS TO CHARTER DOCUMENTS
Peoples Community Bancorp Articles of Incorporation may be amended by
approval of a resolution for amendment, addition, alteration, change or repeal
by the affirmative vote by the Board of Directors of a majority of the directors
and thereafter approved by stockholders of at least 80% of the voting shares.
The DGCL provides that the Certificate of Incorporation of a Delaware
corporation may be amended only if first approved by the corporation's board of
directors and thereafter by a majority of the outstanding stock entitled to vote
thereon, and, if applicable, a majority of each class of shares entitled to vote
thereon as a class.
Harvest Home Financial's Articles of Incorporation may be amended by
the vote of 51% of the issued and outstanding capital stock of Harvest Home
Financial.
LIABILITY OF DIRECTORS AND EXECUTIVE OFFICERS
Under Ohio law, stockholders are entitled to bring suit, generally in
an action on behalf of the corporation, to recover damages caused by breaches of
duty of care and the duty of loyalty owed to a corporation and its stockholders
by directors and, to a limited extent, executive officers. Ohio law has codified
the traditional business judgment rule. Ohio law provides that the business
judgment presumption of good faith may only be overcome by clear and convincing
evidence, rather than the preponderance of the evidence standard applicable in
most states.
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Further, Ohio law provides specified statutory authority for directors
to consider, in addition to the interests of the corporation's stockholders,
other factors such as the interests of the corporation's employees, suppliers,
creditors and customers; the economy of the state and the nation; community and
societal considerations; the long-term and short-term interests of the
corporation and the stockholders; and the possibility that these interests may
be best served by the continued independence of the corporation.
Directors of Ohio corporations are, unless the corporation's articles
or regulations otherwise provide, liable to the corporation for money damages
for actions taken or failed to be taken as a director only if it is proven by
clear and convincing evidence that the act or failure to act involved an act or
omission undertaken with deliberate intent to cause injury to the corporation or
reckless disregard for the best interests of the corporation.
Peoples Community Bancorp Certificate of Incorporation provides for
indemnification to its directors, officers, employees, agents and former
directors, officers, employees and agents, against expenses (including
attorneys' fees, judgments, fees and amounts aid in settlement) incurred in
connection with any pending or threatened action, suit or proceeding, to the
fullest extent permitted by DGCL.
Harvest Home Financial's Code of Regulations provides to the fullest
extent permitted by Ohio law, for indemnification of directors, officers and
employees who are sued or are threatened with suit, action or proceeding,
whether civil, criminal, administrative, or investigative, by reason of the fact
the he is or was a director, officer, or employee of the Corporation or is or
was serving at the request of the Corporation as a director, trustee, or
employee of another Corporation, partnership, joint venture, trust or other
enterprise, against expenses, judgments, decrees, fines, penalties 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.
EXPERTS
The financial statements of People's Savings as of September 30, 1999
and 1998 and for each of the three years in the period ended September 30, 1999,
included in the prospectus and the registration statement on Form S-1 have been
included in reliance upon the report of Grant Thornton LLP, independent
certified public accountants, upon the authority of said firm as experts in
accounting and auditing.
The financial statements of Oakley as of September 30, 1999 and 1998
and for each of the years in the three-year period ended September 30, 1999,
included in the prospectus were audited by Grant Thornton LLP, independent
auditors, as stated in their report and are included in reliance upon the report
of such firm given as experts in accounting and auditing.
The financial statements of Harvest Home Financial as of September 30,
1999 and 1998 and for each of the years in the three-year period ended September
30, 1999, included in the prospectus have been audited by Grant Thornton LLP,
independent public accountants, as stated
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in their report and have been so included in reliance upon the report of such
firm given as experts in accounting and auditing.
PR Financial has consented to the publication of the summary of its
report to Peoples Community Bancorp setting forth its opinion as to the
estimated pro forma market value of the common stock to be outstanding upon
completion of the conversion and its opinion with respect to subscription
rights.
KBW has consented to the publication of the summary of its report to Harvest
Home Financial setting forth its opinion of the proposed Merger and in
particular the fairness of the price.
STOCKHOLDER MATTERS
Harvest Home Financial will hold its Annual Meeting of Stockholders
only if the Merger is not consummated as set forth in the Merger Agreement. The
Annual Report to Stockholders has been prepared and mailed to all stockholders
of record. The Form 10-KSB for the year ending September 30, 1999, was submitted
to the SEC on December 17, 1999. The Annual Report and the Form 10-KSB are
hereby incorporated by reference.
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EXHIBIT 99.8
THE PEOPLE'S BUILDING, LOAN AND SAVINGS COMPANY
11 South Broadway
Lebanon, Ohio 45036
(513) 932-3876
NOTICE OF SPECIAL MEETING OF MEMBERS
To be held on ________ __, 2000
NOTICE IS HEREBY GIVEN that a special meeting of members of The People's
Building, Loan and Savings Company will be held at, ____________, _____ Ohio, at
[10:00 A.M.,] Eastern Time, on ________ __, 2000, to consider and vote upon:
(1) The Plan of Conversion pursuant to which People's
Savings, immediately subsequent to its merger with The
Oakley Improved Building and Loan Company ("Oakley"),
will convert from an Ohio chartered mutual savings and
loan association to a federally chartered stock savings
bank, with the concurrent issuance and sale of all of
People's Savings' outstanding capital stock to Peoples
Community Bancorp, Inc., a Delaware corporation, and the
issuance and sale of Peoples Community Bancorp's common
stock to the public; and other transactions provided for
in the Plan of Conversion, including the adoption of new
stock Charter and Bylaws for People's Savings; and
(2) Such other business as may properly come before the
special meeting or any adjournment hereof. Except with
respect to procedural matters incident to the conduct of
the meeting, management is not aware of any other such
business.
The Board of Directors has fixed _______ __, 2000 as the voting record
date for the determination of members of People's Savings entitled to notice of
and to vote at the special meeting and at any adjournment thereof. Only those
members of People's Savings of record as of the close of business on the voting
record date will be entitled to vote at the special meeting or any postponement
or adjournment thereof. The Plan of Conversion must be approved by the
affirmative vote of at least a majority of the aggregate amount of votes
eligible to be cast by (i) the members of People's Savings plus (ii) the members
of Oakley. If there are not sufficient votes for approval of the Plan of
Conversion at the time of the special meeting, the special meeting may be
postponed or adjourned to permit further solicitation of the proxies. THE
FOLLOWING PROXY STATEMENT AND THE ATTACHED PROSPECTUS CONTAIN A MORE DETAILED
DESCRIPTION OF PEOPLE'S SAVINGS, PEOPLES COMMUNITY BANCORP AND THE PROPOSED
CONVERSION AND MERGERS.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE REQUESTED
TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD(S) WITHOUT DELAY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE TO ASSURE THAT YOUR VOTE WILL BE COUNTED EVEN IF
YOU ARE UNABLE TO ATTEND. FOR A DISCUSSION OF HOW TO REVOKE A PREVIOUSLY GRANTED
PROXY, SEE "REVOCABILITY OF PROXIES" IN THE ATTACHED PROXY STATEMENT.
By Order of the Board of Directors
David A. Cook
Secretary
Lebanon, Ohio
________ __, 2000
<PAGE>
THE OAKLEY IMPROVED BUILDING & LOAN COMPANY
3924 ISABELLA AVENUE
CINCINNATI, OHIO 45209
(513) 531-0591
NOTICE OF SPECIAL MEETING OF MEMBERS
To be held on ________ __, 2000
NOTICE IS HEREBY GIVEN that a special meeting of members of The Oakley
Improved Building & Loan Company will be held at, ____________, _____ Ohio, at
[10:00 A.M.,] Eastern Time, on ________ __, 2000, to consider and vote upon:
(1) The Plan of Conversion pursuant to which, after its merger with
Oakley, The People's Building, Loan & Savings Company,
immediately subsequent to the merger of Oakley with and into
People's Savings, will convert from an Ohio chartered mutual
savings and loan association to a federally chartered stock
savings bank, with the concurrent issuance and sale of all of
People's Savings' outstanding capital stock to Peoples Community
Bancorp, Inc., a Delaware corporation, and the issuance and sale
of Peoples Community Bancorp's common stock to the public; and
other transactions provided for in the Plan of Conversion,
including the adoption of new stock Charter and Bylaws for
People's Savings; and
(2) Such other business as may properly come before the special
meeting or any adjournment hereof. Except with respect to
procedural matters incident to the conduct of the meeting,
management is not aware of any other such business.
The Board of Directors has fixed _______ __, 2000 as the voting record
date for the determination of members of Oakley entitled to notice of and to
vote at the special meeting and at any adjournment thereof. Only those members
of Oakley of record as of the close of business on the voting record date will
be entitled to vote at the special meeting or any postponement or adjournment
thereof. The Plan of Conversion must be approved by the affirmative vote of at
least a majority of the aggregate amount of votes eligible to be cast by (i) the
members of People's Savings plus (ii) the members of Oakley. If there are not
sufficient votes for approval of the Plan of Conversion at the time of the
special meeting, the special meeting may be postponed or adjourned to permit
further solicitation of the proxies. THE FOLLOWING PROXY STATEMENT AND THE
ATTACHED PROSPECTUS CONTAIN A MORE DETAILED DESCRIPTION OF PEOPLE'S SAVINGS,
PEOPLES COMMUNITY BANCORP AND THE PROPOSED CONVERSION AND THE MERGERS.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE REQUESTED
TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD(S) WITHOUT DELAY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE TO ASSURE THAT YOUR VOTE WILL BE COUNTED EVEN IF
YOU ARE UNABLE TO ATTEND. FOR A DISCUSSION OF HOW TO REVOKE A PREVIOUSLY GRANTED
PROXY, SEE "REVOCABILITY OF PROXIES" IN THE ATTACHED PROXY STATEMENT.
By Order of the Board of Directors
Alexis Thompson
Secretary
Cincinnati, Ohio
________ __, 2000
<PAGE>
[NOTE: This joint proxy statement of The People's Building, Loan and Savings
Company and The Oakley Building and Loan Company will be attached to the
prospectus included herein of Peoples Community Bancorp, Inc.]
THE PEOPLE'S BUILDING, LOAN & SAVINGS THE OAKLEY IMPROVED BUILDING &
COMPANY LOAN COMPANY
11 SOUTH BROADWAY 3924 ISABELLA AVENUE
LEBANON, OHIO 45036 CINCINNATI, OHIO 45209
JOINT PROXY STATEMENT
FOR THE SPECIAL MEETINGS OF MEMBERS
OF THE PEOPLE'S BUILDING, LOAN AND SAVINGS COMPANY
AND THE OAKLEY IMPROVED BUILDING AND LOAN COMPANY
TO BE HELD ON ________ __, 2000
THE BOARDS OF DIRECTORS OF THE PEOPLE'S BUILDING, LOAN AND SAVINGS
COMPANY AND PEOPLES COMMUNITY BANCORP, INC., AS WELL AS THE OTS AND THE OHIO
DIVISION OF FINANCIAL INSTITUTIONS HAVE APPROVED THE PLAN OF CONVERSION SUBJECT
TO ITS APPROVAL BY THE MEMBERS OF PEOPLE'S SAVINGS AND THE OAKLEY IMPROVED
BUILDING & LOAN COMPANY AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS.
HOWEVER, SUCH APPROVAL BY THE OTS DOES NOT CONSTITUTE A RECOMMENDATION OR
ENDORSEMENT OF THE PLAN OF CONVERSION BY THE OTS.
PURPOSE OF THE SPECIAL MEETING AND SUMMARY OF THE CONVERSION AND MERGERS WITH
OAKLEY AND HARVEST HOME FINANCIAL
This proxy statement, together with the attached prospectus of Peoples
Community Bancorp, Inc., constitutes the proxy statement for, and is being
furnished to eligible members of People's Savings and Oakley in connection with
the solicitation by the Board of Directors of proxies to be voted at the special
meetings of members of People's Savings and Oakley each to be held on ________
__, 2000, at __________, at [10:00 A.M.,] Eastern Time, and at any postponement
or adjournment thereof. The special meetings are being held for the purpose of
considering and voting upon the Plan of Conversion of People's Savings and the
transactions contemplated by and provided for in the Plan of Conversion.
On September 30, 1999, the Board of Directors of People's Savings
unanimously adopted the Plan of Conversion pursuant to which People's Savings
will be converted from an Ohio chartered mutual savings and loan association to
a federally chartered stock savings bank. It is currently intended that all of
the capital stock of People's Savings will be held by Peoples Community Bancorp,
which is incorporated under Delaware law. The Plan of Conversion has been
approved by the Office of Thrift Supervision (the "OTS"), subject to, among
other things, approval of the Plan of Conversion by members of People's Savings
and Oakley at the special meetings.
The Plan of Conversion provides generally that (i) People's Savings will
convert from an Ohio-chartered mutual savings and loan association to a
Federally chartered capital stock savings bank and (ii) Peoples Community
Bancorp will offer common stock for sale in the Subscription Offering to
Eligible Account Holders, the ESOP, Supplemental Eligible Account Holders, and
Other Members (as such terms are defined in the Plan of Conversion ). In the
event that any common stock of Peoples Community Bancorp remains unsold upon
completion of the Subscription Offering, People's Savings anticipates such
shares would be offered in the Community Offering (as defined in Plan of
Conversion). Any shares not subscribed for in the Subscription and Community
Offerings will be offered for sale by Peoples Community Bancorp to the general
public in a Syndicated Community Offering (as such term is defined in the Plan
of Conversion). People's Savings and Peoples Community Bancorp have the right to
accept or reject, in whole or in part, any orders to purchase shares of Peoples
Community Bancorp common stock received in any Community Offering or the
Syndicated Community Offering.
On September 30, 1999, People's Savings entered into an Agreement of
Merger with Oakley. Pursuant to the Oakley merger agreement, Oakley will merge
with and into People's Savings with People's Savings being the surviving
association. The Oakley merger will occur immediately before the conversion of
People's Savings to a Federally chartered stock-form savings bank.
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On September 30, 1999, People's Savings also entered into an Agreement
and Plan of Merger with Harvest Home Financial Corporation, an Ohio corporation,
pursuant to which Harvest Home Financial will be merged with and into Peoples
Community Bancorp. Pursuant to the terms of the Harvest Home merger agreement,
upon completion of the merger of Harvest Home Financial with and into Peoples
Community Bancorp, each share of Harvest Home Financial common stock, par value
$0.01 per share, will be converted into the right to receive $9.00 in cash plus
0.9 of a share of Peoples Community Bancorp common stock, based on the purchase
price of $10.00 per share. The Harvest Home merger is expected to occur
simultaneously with, or immediately after, the conversion of People's Savings.
VOTING IN FAVOR OF OR AGAINST THE PLAN OF CONVERSION INCLUDES A VOTE FOR
OR AGAINST THE ADOPTION OF THE NEW FEDERAL STOCK CHARTER AND BYLAWS OF PEOPLE'S
SAVINGS.
VOTING IN FAVOR OF THE PLAN OF CONVERSION WILL NOT OBLIGATE ANY PERSON
TO PURCHASE ANY PEOPLES COMMUNITY BANCORP COMMON STOCK.
THE BOARD OF DIRECTORS OF PEOPLE'S SAVINGS RECOMMENDS THAT YOU VOTE FOR
THE ADOPTION OF THE PLAN OF CONVERSION.
VOTING RIGHTS AND VOTES REQUIRED FOR APPROVAL OF THE PLAN OF CONVERSION
The Board of Directors of People's Savings has fixed ________ __, 2000
as the voting record date for the determination of members, entitled to notice
of and to vote at the special meeting of People's Savings and at any
postponement or adjournment thereof. The Board of Directors of Oakley has fixed
_______ __, 2000 as the voting record date for the determination of members
entitled to notice of and to vote at the special meeting of Oakley and at any
postponement or adjournment thereof. The Plan of Conversion must be approved by
the affirmative vote of at least a majority of of the aggregate amount of votes
eligible to be cast by (i) the members of People's Savings plus (ii) the the
members of Oakley. If there are not sufficient votes for approval of the Plan of
Conversion at the time of the special meetings, either of the special meetings
may be adjourned to permit further solicitation of proxies.
At the special meetings, each depositor member of People's Savings and
Oakley, as the case may be, as of the voting record date will be entitled at the
special meeting to cast one vote per $100, or fraction thereof, of the aggregate
withdrawal value of all of such member's deposit accounts in People's Savings or
Oakley, as the case may be, as of the voting record date. People's Savings' and
Oakley's records indicate that as of the voting record date, there were
approximately ______ and _______ Members, respectively, entitled to cast an
aggregate of _________ votes at the special meetings.
Deposits held in trust or other fiduciary capacity may be voted by the
trustee or other fiduciary to whom voting rights are delegated under the trust
instrument or other governing document or applicable law. In the case of IRA and
Qualified Plan accounts, such as Keough accounts, established at People's
Savings or Oakley, the beneficiary may direct the trustee's vote on the Plan of
Conversion by returning a completed proxy card to People's Savings or Oakley. If
no proxy card is returned, People's Savings or Oakley, as trustee, will not vote
on the adoption of the Plan of Conversion on behalf of such beneficiary.
PROXIES
The members of People's Savings or Oakley as of the voting record date
may vote at the special meeting or at any postponement or adjournment thereof in
person or by proxy. Enclosed is a proxy card which may be used by any member to
vote on the Plan of Conversion. All properly executed proxies received by
People's Savings will be voted in accordance with the instructions indicated
thereon by the member giving such proxies. IF NO INSTRUCTIONS ARE GIVEN,
EXECUTED PROXIES WILL BE VOTED FOR ADOPTION OF THE PLAN OF CONVERSION.
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REVOCABILITY OF PROXIES
A proxy may be revoked at any time before it is voted by filing written
revocation of the proxy with the Secretary of People's Savings by submitting a
duly executed proxy bearing a later date or by attending and voting in person at
the special meeting or any postponement or adjournment thereof. The presence of
a member at the special meeting shall not revoke a proxy unless a written
revocation is filed with the Secretary of People's Savings prior to the voting
of such proxy. The proxies being solicited by the Board of Directors of People's
Savings are only for use at the special meeting and at any adjournment thereof
and will not be used for any other meeting.
SOLICITATION OF PROXIES AND TABULATION OF THE VOTE
To the extent necessary to permit approval of the Plan of Conversion,
proxies may be solicited by officers, directors or employees of People's Savings
and Oakley, by telephone or through other forms of communication and, if
necessary, the special meeting may be adjourned to a later date. Such persons
will be reimbursed by People's Savings for their reasonable out-of-pocket
expenses incurred in connection with such solicitation. Peoples Community
Bancorp has retained Charles Webb & Company, a division of Keefe, Bruyette &
Woods, Inc., to provide proxy solicitation and vote tabulation services, to act
as inspector of election and to provide financial and marketing advisory
services for the offerings, for a fee of $215,000. See "The Offerings -
Marketing Arrangements" in the prospectus. People's Savings will bear all costs
associated with proxy solicitation and vote tabulation.
REASONS FOR CONVERSION
See "Our Conversion and Our Mergers with Oakley and Harvest Home
Financial - Our Purposes for Converting to Stock - Form and Merging with Oakley
and Harvest Home Financial" and "-Effects of Our Conversion and the Mergers" in
the prospectus for a discussion of the basis upon which the Board of Directors
determined to undertake the proposed conversion. As more fully discussed in
those sections and in other sections of the prospectus, the Board of Directors
believes that the Plan of Conversion is in the best interest of People's
Savings, its members, the members of Oakley and the communities it serves.
STOCK-BASED BENEFITS TO MANAGEMENT
See "Summary - Benefits to Management from the Offering,", and
"Management - Employment Agreements," " - Change in Control Agreements," " -
Defined Contributory Pension Plan" and " - New Stock Benefit Plans" in the
prospectus for a discussion of the interests of management in the conversion.
REVIEW OF OTS ACTION
Any person aggrieved by a final action of the OTS which approves, with
or without conditions, or disapproves a plan of conversion 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 publication of
notice of such final action in the Federal Register, or 30 days after the
mailing by the applicant of the notice to members as provided for in 12 C.F.R.
Section 563b.6(c), whichever is later. The further procedure for review is as
follows: A copy of the petition is forthwith transmitted to the OTS by the clerk
of the court and thereupon the OTS files in the court the record in proceeding,
as provided in Section 2112 of Title 28 of the United States Code. Upon the
filing of the petition, the court has jurisdiction, which upon the filing of the
record is exclusive, to affirm, modify, terminate, or set aside in whole or in
part, the final action of the OTS. Review of such proceedings is as provided in
Chapter 7 of Title 5 of the United States Code. The judgment and decree of the
court is final, except that they are subject to review by the Supreme Court upon
certiorari as provided in Section 1254 of Title 28 of the United States Code.
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ADDITIONAL INFORMATION
A copy of the Plan of Conversion, the Constitution, Articles of
Incorporation and Bylaws of People's Savings are available without charge from
People's Savings or Oakley. Requests for such information should be directed to:
David A. Cook, Secretary, The People's Building, Loan and Savings Company, 11
South Broadway, Lebanon, Ohio 45036; or Alexis Thompson, Secretary, The Oakley
Improved Building & Loan Company, 3924 Isabella Avenue, Cincinnati, Ohio 45209.
THE ATTACHED PROSPECTUS IS AN INTEGRAL PART OF THIS PROXY STATEMENT AND
CONTAINS DETAILED INFORMATION ABOUT PEOPLE'S SAVINGS, PEOPLES COMMUNITY BANCORP,
THE CONVERSION, INCLUDING, THE RIGHTS OF ELIGIBLE ACCOUNT HOLDERS, SUPPLEMENTAL
ELIGIBLE ACCOUNT HOLDERS AND OTHER MEMBERS TO SUBSCRIBE FOR SHARES OF PEOPLES
COMMUNITY BANCORP COMMON STOCK, AND THE MERGERS, INCLUDING INFORMATION ABOUT
OAKLEY, HARVEST HOME SAVINGS AND HARVEST HOME FINANCIAL. MEMBERS AS OF THE
VOTING RECORD DATE ARE URGED TO CONSIDER SUCH INFORMATION CAREFULLY PRIOR TO
SUBMITTING THEIR PROXIES.
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