<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 2000
REGISTRATION NO. 333-93047
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 1 TO
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 31-1686242
(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(2)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Previously Paid
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.
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.
IF YOU ARE A CURRENT OR FORMER DEPOSITOR OF PEOPLE'S SAVINGS (SEE PAGES 35
AND 59)--
- You may have priority rights to purchase shares at $10.00 per share.
- You may purchase up to 45,000 shares but may purchase no fewer than 25
shares.
- Our offering will end at 12:00 noon, eastern time, on , 2000.
IF YOU ARE A CURRENT OR FORMER DEPOSITOR OF OAKLEY (SEE PAGES 44 AND 59 )--
- You may have the same priority rights to purchase shares as current and
former depositors of People's Savings as a result of the merger of Oakley
with People's Savings.
IF YOU ARE CURRENTLY A STOCKHOLDER OF HARVEST HOME FINANCIAL (SEE PAGE 47)--
- Each of your shares will be exchanged for 0.9 of a share of our common
stock and $9.00 in cash as a result of the merger of Harvest Home
Financial with People's Community Bancorp.
OFFERING SUMMARY
<TABLE>
<CAPTION>
MINIMUM MAXIMUM, AS ADJUSTED
----------- --------------------
<S> <C> <C>
Number of shares............................................ 1,190,000 1,851,500
Gross offering proceeds..................................... $11,900,000 $18,515,000
Estimated offering expenses................................. $ 600,000 $ 600,000
Estimated net proceeds...................................... $11,300,000 $17,915,000
Estimated net proceeds per share............................ $9.50 $9.68
</TABLE>
PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE 9 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. 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.
------------------------
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................................................ 9
Selected Financial and Other Data of People's Savings....... 13
Selected Financial and Other Data of Oakley................. 14
Selected Consolidated Financial and Other Data of Harvest
Home Financial............................................ 15
Recent Development of People's Savings...................... 16
Recent Developments of Oakley............................... 18
Recent Developments of Harvest Home Financial............... 20
Proposed Management Purchases............................... 22
How Our Net Proceeds Will Be Used........................... 23
We Do Not Intend to Pay Quarterly Cash Dividends............ 24
There May Be a Limited Market for Our Common Stock.......... 24
People's Savings, Oakley and Harvest Home Savings Bank Meet
All of Their Regulatory Capital Requirements.............. 24
Capitalization.............................................. 26
Pro Forma Unaudited Combined Consolidated Financial
Information............................................... 28
Our Conversion and Our Mergers with Oakley and Harvest Home
Financial................................................. 35
The Merger Between People's Savings and Oakley.............. 44
The Merger Between Peoples Community Bancorp and Harvest
Home Financial............................................ 47
The Offering................................................ 59
The People's Building, Loan and Savings Company Statements
of Earnings............................................... 71
Management's Discussion and Analysis of Financial Condition
and Results of Operations of People's Savings............. 72
The Oakley Improved Building and Loan Company Statements of
Operations................................................ 79
Management's Discussion and Analysis of Financial Condition
and Results of Operations of Oakley....................... 80
Harvest Home Financial Corporation Consolidated Statements
of Earnings............................................... 87
Management's Discussion and Analysis of Financial Condition
and Results of Operations of Harvest Home Financial....... 88
Business of Peoples Community Bancorp....................... 98
Business of People's Savings and Oakley..................... 98
Business of Harvest Home Financial.......................... 120
Regulation.................................................. 137
Taxation.................................................... 144
Management.................................................. 147
Restrictions on Acquisition of Peoples Community Bancorp and
People's Savings.......................................... 155
Description of Our Capital Stock............................ 162
Experts..................................................... 163
Legal and Tax Opinions...................................... 164
Additional Information...................................... 164
Index to Financial Statements............................... 165
</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 9, for more
information.
Q. WHO MAY PURCHASE SHARES OF OUR STOCK?
A. Generally, rights to subscribe for the purchase of our stock have been
granted under our plan of conversion to the following persons in the
following order of descending priority:
- depositors of People's Savings and Oakley as of June 30, 1998
- our employee stock ownership plan
- depositors of People's Savings and Oakley as of December 31, 1999
- depositors of People's Savings and Oakley as of , 2000
- directors, officers and employees of People's Savings and Oakley.
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 INITIALLY BE PAID ON THE STOCK?
A. No. 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. Perhaps. 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 , .
1
<PAGE>
Q. CAN THE OFFERING BE EXTENDED?
A. Yes. 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
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. Yes. 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., eastern time.
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.
3
<PAGE>
STRUCTURE OF OUR CORPORATE CHANGE AND THE MERGERS
We are undertaking three interdependent transactions.
- Initially, 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.
[LOGO]
- Secondly, People's Savings will convert to a federally-chartered stock
savings bank and we will sell shares of our common stock. As part of this
transaction we will become the holding company for People's Savings. We
will not complete our conversion to stock form unless we can also complete
the merger with Oakley and the merger with Harvest Home Financial.
[LOGO]
- Lastly, Harvest Home Financial will merge with Peoples Community Bancorp
and Harvest Home Savings Bank will merge with People's Savings.
Stockholders of Harvest Home Financial will become stockholders of Peoples
Community Bancorp and will receive $9.00 in cash plus 0.9 of share of our
common stock in exchange for each of their shares of Harvest Home
Financial common stock.
[LOGO]
- Upon completion of these three transactions, Peoples Community Bancorp
will be a holding company for People's Savings. People's Savings will
continue its operations with the additional assets acquired from Oakley
and Harvest Home Savings Bank.
4
<PAGE>
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.
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 book value is total equity minus any
intangible assets, such as goodwill.
The following table presents these ratios and multiples applied to us on a
pro forma basis at or for the year ended September 30, 1999 at the minimum and
adjusted maximum of the offering range compared to those of our peer group as
selected by RP Financial. See "Pro Forma Data" for a description of the
assumptions we used in making our calculations.
<TABLE>
<CAPTION>
PEOPLES COMMUNITY
BANCORP
----------------------
MAXIMUM
MINIMUM AS ADJUSTED PEER GROUP
-------- ----------- ----------
<S> <C> <C> <C>
Price to book ratio......................................... 64.94% 72.73% 96.02%
Price to tangible book ratio................................ 76.80% 83.54% 97.54%
Price to earnings multiple.................................. 21.74x 25.64x 19.57x
</TABLE>
5
<PAGE>
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.
For its services in preparing our appraisal and assistance in preparing a
business plan, RP Financial's fees and out-of-pocket expenses are estimated to
be $40,000.
USE OF PROCEEDS FROM THE SALE OF OUR COMMON STOCK
We will use the $13.4 million of the estimated net proceeds assuming the
sale of shares at the midpoint the offering range as follows:
- 8% or $1.1 million will be loaned to our employee stock ownership plan to
fund its purchase of common stock;
- 50% or $6.7 million will be invested in People's Savings; and
- 42% or $5.6 million will be retained by Peoples Community Bancorp for
general corporate purposes.
The proceeds to be invested in People's Savings will be available for
general corporate purposes, including the construction and opening of a new
headquarters office and additional branches, 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 remaining $1.7 million of net proceeds will
initially be used to purchase investment securities.
We intend to use $4.5 million of the $5.6 million of net proceeds retained
by us to partially fund the cash consideration of $8.3 million to be paid to
former stockholders of Harvest Home Financial, as a result of our merger with
Harvest Home Financial. The remaining $3.8 million in cash consideration will be
funded from cash in Harvest Home Financial on the date of the merger. The
remaining $1.1 million of net proceeds retained by us will be initially used to
purchase investment securities.
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.
6
<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.
7
<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.
8
<PAGE>
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
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.
GOODWILL WILL REDUCE OUR NET EARNINGS
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
9
<PAGE>
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 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
10
<PAGE>
the plan would be between $476,000 and $644,000. The substantial increase in our
costs as a result of these employee stock benefit plans may cause our stock
price to decline. See "Pro Forma Data" for a discussion of the 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.
THE ISSUANCE OF OUR SHARES TO HARVEST HOME FINANCIAL STOCKHOLDERS WILL BE
DILUTIVE
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. Assuming the sale of 1,610,000 shares of our
common stock in the conversion, the issuance of 787,760 shares of our common
stock to former stockholders of Harvest Home Financial will dilute the voting
interests of subscribers in the conversion by approximately 32.9%.
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 of our estimated market value assuming the
completion of the two mergers and the sale of shares in the offering. 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.
11
<PAGE>
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-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.
12
<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.
13
<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.
14
<PAGE>
RECENT DEVELOPMENT OF PEOPLE'S SAVINGS
(DOLLARS IN THOUSANDS)
The selected and other data of People's Savings set forth below does not
purport to be complete and is qualified in its entirety by reference to the more
detailed financial information contained elsewhere herein. In the opinion of
management, the unaudited financial information at December 31, 1999 and for the
three months ended December 31, 1999 and 1998 reflects all adjustments
(consisting only of normal recurring accruals) which are necessary for a fair
presentation of the information as of such date and for such periods. The
operating and other data for the three months ended December 31, 1999 may not be
indicative of the operations of People's Savings on an annualized basis.
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets.............................................. $92,487 $90,299
Cash and cash equivalents................................. 2,086 2,020
Investment securities available for sale.................. 600 798
Loans receivable, net..................................... 86,402 83,927
Mortgage-backed securities available for sale............. 1,045 1,110
Deposits.................................................. 79,007 77,691
Federal Home Loan Bank advances........................... 700 --
Retained earnings......................................... 12,009 11,787
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
----------------------------
1999 1998
------------ -------------
<S> <C> <C>
SELECTED OPERATING DATA:
Interest income........................................... $ 1,740 $ 1,715
Interest expense.......................................... 973 1,032
------- -------
Net interest income....................................... 767 683
Provision for losses on loans............................. 30 10
------- -------
Net interest income after provision for losses on loans... 737 673
Other income.............................................. 5 5
General, administrative and other expenses................ 396 379
------- -------
Earnings before income taxes.............................. 346 299
Federal income taxes...................................... 117 88
------- -------
Net earnings.............................................. $ 229 $ 211
======= =======
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED
DECEMBER 31,
----------------------------
1999 1998
------------ -------------
<S> <C> <C>
KEY OPERATING RATIOS:
PERFORMANCE RATIOS:(1)
Return on average assets.................................. 1.00% .94%
Return on average equity.................................. 7.70 7.58
Average interest-earning assets to average
interest-bearing liabilities............................ 113.14 113.04
Interest rate spread(2)................................... 2.70 2.47
Net interest margin(2).................................... 3.31 3.08
General and administrative expenses to average assets..... 1.73 1.68
ASSET QUALITY RATIOS:
Nonperforming assets to total assets at end of
period(3)............................................... .55% 1.02%
Allowance for losses on loans to nonperforming loans at
end of
period(3)............................................... 77.15 24.32
Allowance for losses on loans to total loans at the end of
period.................................................. .46 .27
CAPITAL AND OTHER RATIOS:
Average equity to average assets.......................... 13.02% 12.34%
Tangible equity to tangible assets at end of period....... 12.98 12.36
Total capital to risk-weighted assets..................... 24.02 23.68
</TABLE>
- ------------------------------
(1) With the exception of end of period ratios, all ratios are based on average
monthly balances during the respective period and are annualized where
appropriate.
(2) 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.
(3) 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.
16
<PAGE>
Total assets increased by $2.2 million or 2.4% to $92.5 million at
December 31, 1999 compared to $90.3 million at September 30, 1999. This increase
in assets was primarily due to a $2.5 million or 2.9% increase in loans
receivable as a result of an increase in commercial real estate loan
originations. Deposits increased $1.3 million or 1.7% to $79.0 million at
December 31, 1999 compared to $77.7 million at September 30, 1999. Total equity
amounted to $12.0 million or 13.0% of total assets at December 31, 1999 compared
to $11.8 million or 13.1% of total assets at September 30, 1999. The increase of
$222,000 or 1.9% was due to continued net earnings during the three months ended
December 31, 1999.
Our net earnings amounted to $229,000 for the three months ended
December 31, 1999 compared to $211,000 for the same period in 1998. The increase
of $18,000 or 8.5% was primarily due to an increase in net interest income
partially offset by increases in the provision for losses on loans, general,
administrative and other expenses and income taxes.
Net interest income increased $84,000 or 12.3% to $767,000 for the three
months ended December 31, 1999 compared to the three months ended December 31,
1998. This increase was due to an increase in interest income and a decrease in
interest expense. In addition, the interest rate spread increased to 2.70% for
the December 1999 quarter compared to the 2.47% for the December 1998 quarter.
The net interest margin also increased to 3.31% for the December 1999 quarter
compared to 3.08% for the comparable 1998 quarter.
Interest income increased $25,000 or 1.5% to $1.7 million for the three
months ended December 31, 1999 compared to the same period in 1998. This
increase was primarily due to an increase in the average outstanding balance of
loans receivable as a result of increased originations of commercial real estate
loans.
Interest expense decreased $59,000 or 5.7% to $973,000 for the three months
ended December 31, 1999 compared to the same period in 1998. The decrease in
interest expense was primarily due to a decrease in the average rate paid on
deposits.
The provision for losses on loans amounted to $30,000 and $10,000 for the
quarters ended December 31, 1999 and 1998. The increase in the provision for
losses on loans was primarily due to increased originations of commercial real
estate loans which generally involve a higher degree of risk than one-to-four
family residential lending.
Noninterest income and general, administrative and other expenses remained
stable during the three months ended December 31, 1999 compared to the same
period in 1998.
Income taxes amounted to $117,000 and $88,000 for the three months ended
December 31, 1999 and 1998, respectively, resulting in effective tax rates of
33.8% and 29.4%, respectively. The higher income taxes during the 1999 quarter
were due to greater earnings before income taxes.
17
<PAGE>
RECENT DEVELOPMENTS OF OAKLEY
(DOLLARS IN THOUSANDS)
The selected and other data of Oakley set forth below does not purport to be
complete and is qualified in its entirety by reference to the more detailed
financial information contained elsewhere herein. In the opinion of management,
the unaudited financial information at December 31, 1999 and 1998 reflects all
adjustments (consisting only of normal recurring accruals) which are necessary
for a fair presentation of the information as of such date and for such periods.
The operating and other data for the three months ended December 31, 1999 may
not be indicative of the operations of Oakley on an annualized basis.
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 1999
------------ -------------
<S> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets.............................................. $19,372 $17,027
Cash and cash equivalents................................. 2,938 3,163
Investment securities available for sale.................. 2,282 2,452
Mortgage-backed securities available for sale............. 78 81
Loans receivable, net..................................... 12,731 10,624
Deposits.................................................. 15,872 13,327
Retained earnings......................................... 2,579 2,890
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
----------------------------
1999 1998
------------ -------------
<S> <C> <C>
SELECTED OPERATING DATA:
Interest income........................................... $ 287 $ 285
Interest expense.......................................... 169 178
------- -------
Net interest income....................................... 118 107
Provision for losses on loans............................. 3 --
------- -------
Net interest income after provision for losses on loans... 115 107
Other income.............................................. 24 1
General, administrative and other expenses................ 118 93
------- -------
Earnings before income taxes.............................. 21 15
Federal income taxes...................................... 3 4
------- -------
Net earnings.............................................. $ 18 $ 11
======= =======
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED
DECEMBER 31,
----------------------------
1999 1998
------------ -------------
<S> <C> <C>
KEY OPERATING RATIOS:
PERFORMANCE RATIOS:(1)
Return on average assets.................................. .40% .25%
Return on average equity.................................. 2.55 1.42
Average interest-earning assets to average
interest-bearing liabilities............................ 124.98 125.89
Interest rate spread(2)................................... 2.30 1.60
Net interest margin(2).................................... 3.35 2.64
General and administrative expenses to average assets..... 2.59 2.11
ASSET QUALITY RATIOS:
Nonperforming assets to total assets at end of
period(3)............................................... --% --%
Allowance for losses on loans to nonperforming loans at
end of period(3)........................................ N/A N/A
Allowance for losses on loans to total loans at the end of
period.................................................. .42 .25
CAPITAL AND OTHER RATIOS:
Average equity to average assets.......................... 15.52% 17.54%
Tangible equity to tangible assets at end of period....... 9.16 10.84
Total capital to risk-weighted assets..................... 26.83 44.63
</TABLE>
- ------------------------------
(1) With the exception of end of period ratios, all ratios are based on average
monthly balances during the respective periods and are annualized where
appropriate.
(2) 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.
(3) Nonperforming assets consist of non-accrual loans and real estate acquired
through foreclosure or by deed-in-lieu thereof.
18
<PAGE>
Total assets increased $2.3 million or 13.8% to $19.4 million at
December 31, 1999 compared to $17.0 million at September 30, 1999. This increase
in assets was primarily due to a $2.1 million or 19.8% increase in loans
receivable as a result of an increase in commercial real estate loan
originations. Deposits increased $2.5 million or 19.1% to $15.9 million at
December 31, 1999 compared to $13.3 million at September 30, 1999. Total equity
amounted to $2.8 million or 14.2% of total assets at December 31, 1999 compared
to $2.9 million or 17.0% of assets at September 30, 1999. The decrease in total
equity was due to a decrease in the market value of Oakley's Federal Home Loan
Mortgage Corporation stock.
Oakley's net earnings amounted to $18,000 for the three months ended
December 31, 1999 compared to $11,000 for the same period in 1998. This increase
was due to increases in net interest income and noninterest income,
substantially offset be increases in general, administrative and other expenses
and income taxes.
Net interest income increased slightly to $118,000 for the December 1999
quarter compared to $111,000 for the December 1998 quarter. This was due to a
slight increase in interest income and a decrease in interest expense. In
addition, the interest rate spread and net interest margin increased from 1.60%
and 2.64% for the three months ended December 31, 1998 to 2.30% and 3.35% for
the comparable period in 1999.
Interest income increased $2,000 to $287,000 for the three months ended
December 31, 1999 compared to the same period in 1998.
Interest expense decreased $9,000 to $169,000 for the December 1999 quarter
compared to $178,000 for the December 1998 quarter. This decrease was primarily
due to a decrease in the average rate paid on deposits.
The provision for losses on loans was relatively stable, amounting to $3,000
for the quarter ended December 31, 1999 and nothing for the comparable 1998
quarter.
Noninterest income amounted to $24,000 for the December 1999 quarter
compared to $1,000 for the December 1998 quarter. This increase was due to
increased fees associated with the increase in commercial real estate loan
originations.
General, administrative and other expenses increased $25,000 or 26.9% to
$118,000 for the quarter ended December 31, 1999 compared to the same period in
1998. This increase was primarily due to the hiring of Oakley's managing officer
in August 1999.
Income taxes amounted to $3,000 and $4,000 for the three months ended
December 31, 1998, respectively, resulting in effective tax rates of 14.3% and
26.6%, respectively.
19
<PAGE>
RECENT DEVELOPMENTS OF HARVEST HOME FINANCIAL
The selected and other data of Harvest Home Financial set forth below does
not purport to be complete and is qualified in its entirety by reference to the
more detailed financial information contained elsewhere herein. In the opinion
of management, the unaudited financial information at December 31, 1999 and 1998
reflect all adjustments (consisting only of normal recurring accruals) which are
necessary for a fair presentation of the information as of such date and for
such periods. The operating and other data for the three months ended
December 31, 1999 may not be indicative of the operations of Harvest Home
Financial on an annualized basis.
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 1999
------------ -------------
<S> <C> <C>
SELECTED CONSOLIDATED FINANCIAL CONDITION AND OTHER DATA:
Total assets.............................................. $99,703 $ 98,935
Cash and cash equivalents(1).............................. 1,982 2,849
Investment securities held to maturity.................... -- --
Investment securities available for sale.................. 5,936 5,951
Mortgage-backed securities held to maturity............... -- --
Mortgage-backed securities available for sale............. 32,678 33,711
Loans receivable, net..................................... 55,430 52,790
Total deposits............................................ 64,561 66,220
Advance from the Federal Home Loan Bank................... 24,800 22,600
Stockholders' equity...................................... 9,916 9,653
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
----------------------------
1999 1998
------------ -------------
<S> <C> <C>
SUMMARY OPERATING DATA:
Interest income........................................... $ 1,651 $ 1,624
Interest expense.......................................... 1,037 1,046
------- -------
Net interest income....................................... 614 578
Provision for losses on loans............................. 3 3
------- -------
Net interest income after provision for losses on loans... 611 575
Other income.............................................. 34 20
General, administrative and other expenses................ 414 388
------- -------
Earnings before income taxes.............................. 231 207
Federal income taxes...................................... 78 70
------- -------
Net earnings.............................................. $ 153 $ 137
======= =======
Earnings per share:
Basic................................................... $ 0.18 $ 0.16
======= =======
Diluted................................................. $ 0.17 $ 0.15
======= =======
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED
DECEMBER 31,
----------------------------
1999 1998
------------ -------------
<S> <C> <C>
SELECTED PERFORMANCE RATIOS:(2)
Interest rate spread(3)................................... 2.16% 2.06%
Net yield on average interest-earning assets(3)........... 2.54 2.47
Return on average equity.................................. 6.25 5.47
Return on average assets.................................. .62 .57
Equity-to-assets ratio.................................... 9.95 10.74
Loan loss allowance as a percentage of non-performing
loans(4)................................................ 48.63 1,857.14
</TABLE>
- ------------------------------
(1) Includes cash and due from banks, federal funds sold and interest-bearing
deposits in other financial institutions.
(2) With the exception of end of period ratios, all ratios are based on average
monthly balances during the respective periods and are annualized where
appropriate.
(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.
20
<PAGE>
Harvest Home Financial reported total assets of $99.7 million at
December 31, 1999, an increase of $768,000, or .8%, over the total at
September 30, 1999. The increase was funded by a $2.2 million increase in
advances from the Federal Home Loan Bank, partially offset by a decline in
deposits of $1.7 million. Loans receivable totaled $55.3 million at
December 31, 1999, an increase of $2.6 million, or 5.0%, over September 30, 1999
levels. Loan originations were funded by the net increase in borrowings, as well
as by proceeds from repayments of mortgage-backed securities and excess
liquidity.
Net earnings for the three months ended December 31, 1999 amounted to
$153,000, an increase of $16,000, or 11.7%, over the $137,000 in net earnings
reported for the three month period ended December 31, 1998. The increase in
earnings was due primarily to a $37,000, increase in net interest income,
coupled with a $15,000 increase in other operating income, which were partially
offset by a $27,000 increase in general, administrative and other expense and a
$9,000 increase in the provision for federal income taxes.
Net interest income increased by $37,000, or 6.4%, for the three month
period ended December 31, 1999, compared to the same period in 1998, due
primarily to a $33,000, or 3.5%, increase in interest income on loans, coupled
with a $10,000, or 1.0%, decrease in interest expense. Harvest Home Financial's
interest rate spread amounted to 2.17% and 2.06% for the three months periods
ended December 31, 1999 and 1998, respectively, and the net interest margin
totaled 2.55% and 2.47% for the respective 1999 and 1998 three month periods.
Other operating income increased by $15,000, or 75.0%, during the three
month period ended December 31, 1999, compared to the same quarter in 1998, due
primarily to an increase in the volume of fees on deposit accounts and on
automated teller machine transactions.
General, administrative and other expense increased by approximately
$27,000, or 7.0%, during the three months ended December 31, 1999, compared to
the same quarter in 1998. This increase was primarily the result of an $11,000,
or 4.9%, increase in employee compensation and benefits, a $7,000, or 14.3%,
increase in occupancy and equipment expense, and a $9,000, or 42.9% increase in
data processing expense. The increase in employee compensation and benefits
resulted primarily from normal merit increases and increased health insurance
premiums. The increase in occupancy and equipment and processing costs was due
primarily to depreciation and other expenses related to the teller operating
system upgrade completed in mid-1999.
The federal income tax provision increased by $9,000, or 12.9%, due
primarily to a $25,000, or 12.1%, increase in pretax earnings year to year. The
effective tax rates were 34.1% and 33.8% for the three month periods ended
December 31, 1999 and 1998, respectively.
21
<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
22
<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 $13.4 million of the estimated net proceeds assuming the
sale of shares at the midpoint of the offering range as follows:
- 8% or $1.1 million will be loaned to our employee stock ownership plan to
fund its purchase of common stock;
- 50% or $6.7 million will be used to purchase all of the common stock of
People's Savings; and
- 42% or $5.6 million will be retained by Peoples Community Bancorp for
general corporate purposes.
The loan to the employee stock ownership plan will be $1,120,000 at the
midpoint 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 $6.7 million of net proceeds we use to purchase the capital stock of
People's Savings will be used for general corporate purposes, including the
construction and opening of a new headquarters office and additional branches
and the purchase of investment securities. The net proceeds received by People's
Savings will further strengthen its capital position, which already exceeds all
regulatory requirements. After the conversion and the mergers, People's Savings'
tangible capital ratio will be 13.33%, based upon the midpoint of the offering
range. As a result, People's Savings 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. The remaining $1.7 million of net proceeds will be initially
used to purchase investment securities.
We intend to use $4.5 million of the $5.6 million of net proceeds retained
by us to partially fund the cash consideration of $8.3 million to be paid to
former stockholders of Harvest Home Financial as a result of our merger with
Harvest Home Financial. The remaining $3.8 million in cash consideration will be
funded from cash in Harvest Home Financial on the date of the merger. The
remaining $1.1 million of net proceeds retained by us will be initially used to
purchase investment securities.
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 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.
23
<PAGE>
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. In addition, we
have committed to the Office of Thrift Supervision that we will take no action
to further the payment of any return of capital during the one-year period
following completion of the conversion.
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.
We have applied to have our common stock listed on the Nasdaq National
Market under the symbol "PCBI." If the application is not approved, we expect
that our common stock will be listed on the Nasdaq Small Cap Market.
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 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 and to be contributed to our proposed restricted stock 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.
24
<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% $14,629 7.55%
Requirement.......... 1,355 1.50% 227 1.50% 1,497 1.50% 2,908 1.50%
------- ----- ------ ----- ------ ----- ------- -----
Excess............... $10,436 11.55% $1,408 9.32% $8,240 8.26% $11,721 6.05%
======= ===== ====== ===== ====== ===== ======= =====
Core capital(3):
Actual............... $11,791 13.05% $1,635 10.82% $9,737 9.76% $14,629 7.55%
Requirement.......... 2,710 3.00% 453 3.00% 2,994 3.00% 5,816 3.00%
------- ----- ------ ----- ------ ----- ------- -----
Excess............... $ 9,081 10.05% $1,182 7.82% $6,743 6.76% $ 8,814 4.55%
======= ===== ====== ===== ====== ===== ======= =====
Risk-based capital(3):
Actual............... $12,156 24.40% $1,685 26.25% $9,876 23.48% $15,183 16.22%
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% $ 7,696 8.22%
======= ===== ====== ===== ====== ===== ======= =====
<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............... $18,851 9.47% $19,649 9.82% $20,447 10.17% $21,365 10.57%
Requirement.......... 2,985 1.50% 3,000 1.50% 3,014 1.50% 3,031 1.50%
------- ----- ------- ----- ------- ----- ------- -----
Excess............... $15,866 7.97% $16,649 8.32% $17,433 8.67% $18,334 9.07%
======= ===== ======= ===== ======= ===== ======= =====
Core capital(3):
Actual............... $18,851 9.47% $19,649 9.82% $20,447 10.17% $21,365 10.57%
Requirement.......... 2,839 3.00% 2,844 3.00% 2,850 3.00% 2,857 3.00%
------- ----- ------- ----- ------- ----- ------- -----
Excess............... $16,012 6.47% $16,805 6.82% $17,597 7.17% $18,508 7.57%
======= ===== ======= ===== ======= ===== ======= =====
Risk-based capital(3):
Actual............... $19,405 20.51% $20,203 21.31% $21,001 22.10% $21,919 23.02%
Requirement.......... 7,570 8.00% 7,585 8.00% 7,601 8.00% 7,618 8.00%
------- ----- ------- ----- ------- ----- ------- -----
Excess............... $11,835 12.51% $12,618 13.31% $13,400 14.10% $14,301 15.02%
======= ===== ======= ===== ======= ===== ======= =====
</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 Office of Thrift Supervision 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."
25
<PAGE>
INTERESTS OF DIRECTORS AND OFFICERS IN THE CONVERSION AND THE HARVEST HOME
MERGER 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 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.
EXECUTIVE OFFICERS. Effective as of the effective time, Peoples Community
Bancorp and Peoples Community Bank will enter into employment agreements with
Messrs. 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 employee stock
ownership plan 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 employee stock
ownership plan. 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 employee stock
ownership plan will be terminated.
Pursuant to the merger agreements, People's Savings has agreed to retain all
employees of 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 agreement provides that officers and employees of 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 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 if their
service was recognized for similar purposes under Harvest Home Savings Bank's
plans.
RIGHTS OF HARVEST HOME FINANCIAL STOCKHOLDERS TO DISSENT. Stockholders of
Harvest Home Financial have the right to dissent to the merger with Peoples
Community Bancorp. 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 notice and proxy statement distributed to stockholders of Harvest
Home Financial together with this prospectus. 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;
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- 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 three 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."
OPINION OF HARVEST HOME FINANCIAL'S FINANCIAL ADVISOR
In September 1999, Harvest Home Financial retained Keefe, Bruyette & Woods
to evaluate the proposed merger of Harvest Home Financial with Peoples Savings.
Keefe, Bruyette & Woods 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. Keefe, Bruyette & Woods is familiar with the market for
common stocks of publicly traded banks, thrifts and bank and thrift holding
companies. The Board of Directors selected Keefe, Bruyette & Woods 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, Keefe, Bruyette & Woods was asked to render an
opinion as to the fairness, from a financial point of view, of the consideration
to be received in the merger for the stock of Harvest Home Financial. Keefe,
Bruyette & Woods delivered its opinion to the Harvest Home Financial Board that,
as of October 1, 1999, the consideration to be received in the merger is fair,
from a financial point of view, to the stockholders of Harvest Home Financial.
No limitations were imposed by the Board of Directors upon Keefe, Bruyette &
Woods with respect to the investigations made or procedures followed by it in
rendering its opinion. Keefe, Bruyette & Woods 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 as Annex __ to the notice and proxy
statement distributed to stockholders of Harvest Home Financial together with
this prospectus.
The full text of the opinion of Keefe, Bruyette & Woods, which is attached
as Annex __ to the notice and proxy statement distributed to stockholders of
Harvest Home Financial together with this prospectus, sets forth certain
assumptions made, matters considered and limitations on the review undertaken by
Keefe, Bruyette & Woods, and should be read in its entirety. The summary of the
opinion of Keefe, Bruyette & Woods set forth as Annex __ to the notice and proxy
statement distributed to stockholders of Harvest Home Financial together with
this prospectus is qualified in its entirety by reference to the opinion.
In rendering its opinion, Keefe, Bruyette & Woods (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 People's Savings' financials (iii) discussed with senior management and
the Board of Directors of Harvest Home Financial and its wholl-owned subsidiary,
Harvest Home Savings Bank the current position and prospective outlook for
Harvest Home Financial, (iv) discussed with senior management of People's
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 People's Savings, (viii) reviewed certain recent
business combinations with thrifts as the acquired company, which Keefe,
Bruyette & Woods deemed
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comparable in whole or in part, and (ix) performed other analyses which Keefe,
Bruyette & Woods considered appropriate.
In rendering its opinion, Keefe, Bruyette & Woods assumed and relied upon
the accuracy and completeness of the financial information provided to it by
Harvest Home Financial and People's Savings. In its review, with the consent of
the Harvest Home Financial Board, Keefe, Bruyette & Woods 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 People's Savings.
ANALYSIS OF RECENT COMPARABLE ACQUISITION TRANSACTIONS. In rendering its
opinion, Keefe, Bruyette & Woods analyzed certain comparable merger and
acquisition transactions of both pending and completed thrift deals, comparing
the acquisition price relative to tangible book value, last twelve month
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 Keefe, Bruyette & Woods with respect to the Merger. The summary does
not purport to be a complete description of the analysis performed by Keefe,
Bruyette & Woods and should not be construed independently of the other
information considered by Keefe, Bruyette & Woods in rendering its opinion.
Selecting portions of Keefe, Bruyette & Woods'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
-------------------------------------------------------- CORE
LAST TWELVE MONTHS DEPOSIT
TANGIBLE BOOK EARNINGS PER SHARE ASSETS DEPOSITS PREMIUM
------------- ------------------ -------- -------- --------
(%) (X) (%) (%) (%)
<S> <C> <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, Keefe, Bruyette & Woods concluded that the
implied per share price of $18.00, was in the ranges of each mentioned
comparable group.
In preparing its analysis, Keefe, Bruyette & Woods made numerous assumptions
with respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of Keefe, Bruyette & Woods and
Harvest Home. The analyses performed by Keefe, Bruyette & Woods 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.
Keefe, Bruyette & Woods will receive a fee of approximately $60,000 for
services rendered in connection with advising and issuing a fairness opinion
regarding the Harvest Home merger. To date, Keefe, Bruyette & Woods has received
$25,000 of the fee and will receive the remainder at the closing of the
transaction. Keefe, Bruyette & Woods is also the marketing agent for the mutual
to stock conversion offering of People's Savings on a best-effort basis, for
which it will receive a fee. Keefe, Bruyette & Woods 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.
FEDERAL INCOME TAX CONSEQUENCES TO HARVEST HOME FINANCIAL STOCKHOLDERS
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 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.
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 Harvest Home 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
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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.
Based upon factual 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 Harvest Home merger will constitute a reorganization within the
meaning of Section 368(a) of the Code. Based upon factual 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 Harvest Home merger is consummated in the manner and in accordance with the
terms of the merger agreement. The opinions are based entirely upon the Internal
Revenue 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
Harvest Home merger is conditioned upon the receipt by Peoples Community Bancorp
and Harvest Home Financial, respectively, of such opinions. The full opinions of
Elias, Matz, Tiernan & Harrick L.L.P. and Kepley, Gilligan & Eyrich, L.P.A., are
filed as exhibits to our registration statement.
No ruling has been or will be requested from the 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.
FEDERAL SECURITIES LAW CONSEQUENCES OF THE HARVEST HOME MERGER
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. As of the completion of the Harvest Home
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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COMPARISON OF RIGHTS OF HARVEST HOME FINANCIAL AND PEOPLES COMMUNITY BANCORP
GENERAL. After the completion of the Harvest Home merger, stockholders of
Harvest Home Financial will become stockholders of Peoples Community Bancorp, a
Delaware corporation. Their rights will then be governed by Peoples Community
Bancorp's Certificate of Incorporation, Bylaws and the 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.
Peoples Community Bancorp's Certificate of Incorporation and Bylaws, Harvest
Home Financial's Articles of Incorporation and Code of Regulations and the Ohio
General Corporation Law. For information as to how the full text of each
document, see "Additional Information" on page 164.
Each Harvest Home Financial stockholder should carefully consider these
differences in connection with the decision to vote for or against the adoption
of the Harvest Home merger agreement.
CAPITAL STOCK. The Harvest Home Financial Articles of Incorporation
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 of Incorporation 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 mergers.
SPECIAL MEETINGS. The Peoples Community Bancorp Certificate of
Incorporation 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.
The Harvest Home Financial Articles of Incorporation provides 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 the holder or
holders of fifty percent of all shares outstanding and entitled to vote at the
meeting. 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 Peoples Community Bancorp 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.
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NUMBER OF DIRECTORS. Peoples Community Bancorp's 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 of
Incorporation and Bylaws specify that the Peoples Community Bancorp Board of
Directors will be divided into three classes with each class elected in
staggered elections and serving a three-year term. Harvest Home Financial's
Articles of Incorporation and Code of Regulations specify that Harvest Home
Financial's Board of Directors will 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 Peoples Community Bancorp or Harvest Home
Financial 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 Peoples Community
Bancorp or Harvest Home Financial and their stockholders.
REMOVAL OF DIRECTORS. The Peoples Community Bancorp Certificate of
Incorporation specifies that Peoples Community Bancorp directors are subject to
removal only with cause by an affirmative vote of not less than 80% of the
authorized, issued and outstanding shares. Cause is set out in Peoples Community
Bancorp Certificate of Incorporation. The Delaware corporate law 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's Certificate 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 Delaware corporate law 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.
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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.
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 of
incorporation or code of 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's 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 Delaware corporate law.
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 Harvest Home Financial 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 Harvest
Home Financial and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
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EXPIRATION DATE FOR THE SUBSCRIPTION OFFERING. The Subscription Offering
will expire at 12:00 noon, eastern time, on , 2000, unless extended for
up to 45 days or for such additional periods by us as may be approved by the
Office of Thrift Supervision. The Subscription Offering may not be extended
beyond , 2001. Subscription rights which have not been exercised prior
to the expiration time of the Subscription Offering (unless extended) will
become void.
We will not execute orders until at least the minimum number of shares of
common stock ( shares) are subscribed for or otherwise sold. If all shares
are not subscribed for or sold within 45 days after the expiration date of the
Subscription Offering, unless such period is extended with the consent of the
Office of Thrift Supervision, 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 of the
Subscription Offering 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 employee stock ownership
plan, 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 TIME OF THE SUBSCRIPTION
OFFERING.
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 Keefe,
Bruyette & Woods 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 Keefe, Bruyette & Woods nor any
registered broker-dealer shall have any obligation to take or purchase any
shares of common stock in the Syndicated Community Offering; however, Keefe,
Bruyette & Woods 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, and until a specified
order date, selected dealers may only solicit indications of interest from their
customers to place orders with us for the purchase of shares of common stock.
When and if we and Keefe, Bruyette & Woods believe that enough indications and
orders have been received in the offering to complete the conversion, Keefe,
Bruyette & Woods 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 on a debit date,
which is three business days after the order date, selected dealers will debit
the accounts of their customers. 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 customers'
brokerage account.
The Syndicated Community Offering may close at any time after the expiration
time of the Subscription Offering at our discretion, but in no case later than
, 2000, unless further extended with the consent of the Office of
Thrift Supervision. 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 of Conversion 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 of Conversion 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.
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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 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 of Conversion 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 employee stock ownership plan 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 employee stock ownership plan 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
employee stock ownership plan.
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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 additional adjusted maximum number of shares will be allocated in the
following order of priority in accordance with the Plan:
(1) to fill the employee stock ownership plan'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;
(3) in the event that there is an oversubscription by Supplemental
Eligible Account Holders, to fill unfulfilled subscriptions of Supplemental
Eligible Account Holders;
(4) in the event that there is an oversubscription by Other Members, to
fill unfulfilled subscriptions of Other Members;
(5) in the event there is an oversubscription by our directors, officers
and employees, to fill unfulfilled subscriptions of directors, officers and
employees; and
(6) to fill unfulfilled subscriptions in the Community Offering to the
extent possible.
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 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
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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 retained Keefe, Bruyette &
Woods 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 Keefe, Bruyette & Woods 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, Keefe, Bruyette & Woods 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 Keefe,
Bruyette & Woods against certain claims or liabilities, including certain
liabilities under the Securities Act of 1933, as amended, and will contribute to
payments Keefe, Bruyette & Woods 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 Keefe, Bruyette & Woods or by the
broker-dealers managed by Keefe, Bruyette & Woods. Keefe, Bruyette & Woods 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 time of the Subscription Offering (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.
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
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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 , 2000 (unless extended). In addition, we
will require a prospective purchaser to execute a certification in the form
required by applicable Office of Thrift Supervision 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 employee stock ownership plan will not be required to pay for the shares
subscribed for at the time it subscribes. Instead, the employee stock ownership
plan 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 employee stock ownership
plan, at the completion of the conversion, the aggregate purchase price of the
shares for which the employee stock ownership plan subscribed.
Owners of self-directed individual retirement accounts 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 stock in the Subscription and Community Offerings. In addition,
applicable regulations require that
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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 completion 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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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>
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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 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 Office of Thrift Supervision 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
Office of Thrift Supervision which show the impact of changing interest rates on
our net portfolio value. Net portfolio value 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 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. A resulting change in net portfolio value 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 Office of Thrift Supervision takes effect.
Under the rule, an
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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 Office of Thrift
Supervision 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 net portfolio value 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' net portfolio value as of
September 30, 1999, as calculated by the Office of Thrift Supervision, based on
information provided to the Office of Thrift Supervision 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 NET PORTFOLIO NET PORTFOLIO
INTEREST RATES NET PORTFOLIO VALUE VALUE AS % OF VALUE 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 Office of Thrift
Supervision 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 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 Federal Home Loan Bank advances, substantially
offset by an increase in deposits from $72.3 million at September 30, 1997
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to $77.7 million 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
Federal Home Loan Bank
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 Federal Home Loan Bank stock.
(4) Equals net interest income divided by average interest-earning assets.
74
<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
Federal Home Loan Bank 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 Federal Home Loan Bank 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.
75
<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 Federal Home Loan
Bank 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 the average outstanding
balance of loans receivable from $76.1 million in fiscal 1997 to $79.2 million
76
<PAGE>
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 Federal Home Loan Bank 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.
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,
77
<PAGE>
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 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 issued Statement of
Financial Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. Statement of Financial Accounting Standards
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
Statement of Financial Accounting Standards No. 131 did not result in any change
in our reporting.
Statement of Financial Accounting Standards 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
Statement of Financial Accounting Standards 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 Statement of
Financial Accounting Standards No. 133 will not have an effect on our financial
position or results of operations.
In October 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 134, ACCOUNTING FOR MORTGAGE-BACKED
SECURITIES RETAINED AFTER THE SECURITIZATION OF MORTGAGE LOANS HELD FOR SALE BY
A MORTGAGE BANKING ENTERPRISE, WHICH AMENDS STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS 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.
78
<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-19 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>
79
<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 Office of Thrift Supervision which show the impact of changing
interest rates on its Net Portfolio Value. 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. A resulting change in Net
Portfolio Value 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 Office of
Thrift Supervision 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 Office of Thrift Supervision 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 Net Portfolio Value 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.
80
<PAGE>
The following table presents Oakley's Net Portfolio Value as of
September 30, 1999, as calculated by the Office of Thrift Supervision, based on
information provided to the Office of Thrift Supervision by Oakley.
<TABLE>
<CAPTION>
CHANGE IN
CHANGE IN NET PORTFOLIO VALUE NET PORTFOLIO VALUE
INTEREST RATES NET PORTFOLIO VALUE AS % OF 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>
As shown by the table above, increases in interest rates will result in
declines in Oakley's net portfolio value based on Office of Thrift Supervision
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-
81
<PAGE>
bearing liabilities, expressed both in dollars and rates, and the net interest
margin. All average balances 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 Federal Home Loan Bank 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).
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<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 Federal Home Loan Bank 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.
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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.
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<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 Federal Home Loan Bank 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 Statement of Financial
Accounting Standards 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.
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<PAGE>
Comprehensive income (loss) for fiscal 1999, 1998 and 1997 was $(25,000),
$496,000 and $404,000, respectively.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. Statement of Financial Accounting Standards
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
Statement of Financial Accounting Standards No. 131 did not result in any change
in our reporting.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards 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.
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<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-36 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>
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<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 originated
with low margins and adjustment caps. Harvest Home Savings Bank originates
adjustable rate mortgage loans 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
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<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 Federal Home Loan Bank
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
Federal Home Loan Bank
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 Office of Thrift Supervision.
(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.
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<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
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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.
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<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
Federal Home Loan Bank.
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.
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<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.
93
<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.
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<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
95
<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 issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
Statement of Financial Accounting Standards No. 130 established standards for
reporting and display of comprehensive income and its components
96
<PAGE>
(revenues, expenses, gains and losses) in a full set of general-purpose
financial statements. Statement of Financial Accounting Standards 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.
Statement of Financial Accounting Standards 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. Statement of Financial Accounting Standards 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 Statement of Financial Accounting Standards No. 130 effective
October 1, 1998, as required, without material impact on Harvest Home
Financial's financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." Statement of Financial Accounting Standards
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. Statement of Financial Accounting Standards 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, Statement of Financial Accounting Standards 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. Statement
of Financial Accounting Standards No. 131 is effective for fiscal years
beginning after December 15, 1997. Management adopted Statement of Financial
Accounting Standards No. 131 effective October 1, 1998, as required, without
material impact on Harvest Home Financial's financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 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. Statement of Financial Accounting Standards 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. Statement of Financial Accounting
Standards 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.
Statement of Financial Accounting Standards No. 133, as amended by Statement
of Financial Accounting Standards 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. Statement of Financial Accounting Standards No. 133 is
not expected to have a material impact on Harvest Home Financial's financial
statements.
97
<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 employee stock ownership plan, 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.
MARKET AREA OF PEOPLE'S SAVINGS, OAKLEY AND HARVEST HOME FINANCIAL
People's Savings conducts operations through two full service branch offices
in southwestern Ohio. Our branch network serves Warren and Clinton Counties,
with our largest market presence being in Warren County where we are currently
headquartered. Oakley's sole office facility is located in Cincinnati, which is
part of Hamilton County. Harvest Home Financial operates three full service
branch offices in Hamilton County.
Our primary market area will include a mixture of rural, suburban and urban
markets, with Hamilton County being the most populous and more urban of the
markets that will be served by our branches. Our market area has a fairly
diversified economy, with services, wholesale/retail trade, manufacturing, and
state and local government constituting the basis of the three county primary
market area served by People's Savings, Oakley and Harvest Home Financial.
MARKET AREA DEMOGRAPHICS
Demographic and economic growth trends, measured by changes in population,
number of households, and median household income, provide key insight into the
health of our market area. In the 1990s, the primary market area served by
People's Savings, Oakley and Harvest Home Financial exhibited mixed growth
characteristics as measured by population and household growth. Hamilton County,
which has the largest population among our primary market area counties, posted
a slight decline in population growth from 1990 to 1999. Comparatively, Warren
and Clinton Counties experienced growth in population during the 1990s, with the
more populous Warren County posting a stronger annual growth rate than Clinton
County (3.2 percent versus 1.5 percent for Clinton County). Population growth
rates for both Warren and Clinton Counties exceeded the U.S. and Ohio growth
rates in 1990s. Warren County's comparatively higher population growth reflects
its central location between Cincinnati and Dayton and the outward expansion of
those markets. Accordingly, the more affordable housing of the Warren County
market has become an increasingly attractive characteristic for individuals
commuting to jobs in the Cincinnati and Dayton markets.
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<PAGE>
Median household income measures for the primary market area counties
indicate Warren County is a relatively affluent market area, reflecting the
impact of population growth among white collar professionals who commute to jobs
in either Cincinnati or Dayton. Median household income measures for Clinton and
Hamilton Counties are fairly comparable and are not materially different from
the U.S. and Ohio household income measures. Household income distribution
measures further imply that Warren County is a relatively affluent market area,
based on Warren County's higher percentage of households with incomes of
$100,000 or more.
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, $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.
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<PAGE>
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 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.
100
<PAGE>
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>
101
<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
102
<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 in the past, after the conversion we plan to offer adjustable rate
mortgage loans 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 adjustable rate mortgage 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.
103
<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.
104
<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
105
<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
106
<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>
107
<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
108
<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.
109
<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>
110
<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 Federal Home Loan
Bank. 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 Federal Home Loan Bank stock.
111
<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 Federal Home Loan Bank stock from purchases and
dividends.
112
<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):
Federal Home Loan Mortgage Corporation 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 Federal Home Loan Bank 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 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.
113
<PAGE>
The mortgage-backed securities of People's Savings consist entirely of
Government National Mortgage Association ("Ginnie Mae") securities. Ginnie Mae
is a government agency within the Department of Housing and Urban Development
which is intended to help finance government-assisted housing programs. Ginnie
Mae 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 Ginnie Mae securities are guaranteed by
Ginnie Mae 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>
Federal Home Loan Mortgage Corporation
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) 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
114
<PAGE>
money market conditions. Borrowings may also be used on a short-term basis to
compensate for 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>
115
<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>
116
<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>
117
<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
Federal Home Loan Bank 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. Federal Home Loan Bank 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>
Federal Home Loan Bank 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 Federal Home Loan Bank 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 Federal Home Loan Bank 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 employees are represented by a collective
bargaining agent, and People's Savings and Oakley believes that they enjoy good
relations with their personnel.
118
<PAGE>
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.
119
<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.
120
<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.
121
<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") for terms not to exceed 20 years and adjustable-rate
mortgage loans up to 95% loan-to-value ratio not to exceed 30 years. Harvest
Home Savings Bank does not require private
122
<PAGE>
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.
Adjustable rate mortgage loans are offered by Harvest Home Savings Bank for
terms of up to 30 years. The interest rate adjustment period on the adjustable
rate mortgage loans 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. Adjustable rate mortgage loans 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 adjustable rate mortage loans 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 loan-to-value ratio 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
123
<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 loan-to-value ratios 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 loan-to-value ratio 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.
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<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
adjustable rate mortgage loans.
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
125
<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 surplus. A savings bank may loan to one
borrower an additional amount not to exceed 10% of the association's unimpaired
capital and surplus if the additional amount is fully secured by certain forms
of "readily marketable collateral." Real estate is not considered "readily
marketable collateral." In applying these limits, the regulations require that
loans to certain related or affiliated borrowers be aggregated. 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 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.
126
<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 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 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 real estate
owned 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.
127
<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 Statement of Financial Accounting
Standards 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
128
<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
129
<PAGE>
Savings Bank has purchased adjustable rate mortgage-backed securities, as well
as mortgage related securities as interest-rate sensitive portfolio investments.
Harvest Home Savings Bank's adjustable rate mortgage-backed securities are
guaranteed as to principal and interest by Federal National Mortgage Association
or Federal Home Loan Mortgage Corporation. 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 Federal National Mortgage Association or Federal
Home Loan Mortgage Corporation. 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>
Federal Home Loan Mortgage Corporation
participation certificates...................... $ 4,901 $ -- $ 128 $ 4,773
Federal Home Loan Mortgage Corporation CMOs....... 22,236 -- 858 21,378
Federal National Mortgage Association
participation certificates...................... 2,158 2 52 2,108
Federal National Mortgage Association 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.
130
<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>
131
<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 Federal Home Loan Bank of Cincinnati as an alternative to
this source of funds.
132
<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>
133
<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 Federal Home Loan Bank 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 Federal Home Loan
Bank of Cincinnati, Harvest Home Savings Bank is authorized to apply for
advances from the Federal Home Loan Bank of Cincinnati, provided certain
standards of creditworthiness have been met. Under current regulations, a bank
must meet certain qualifications to be eligible for Federal Home Loan Bank
advances. All standards required are currently met by Harvest Home Savings.
Harvest Home Savings is a member of the Federal Home Loan Bank and is required
to own capital stock in the Federal Home Loan Bank. Each Federal Home Loan Bank
credit program has its own interest rate, which may be fixed or variable and
range of maturity. The Federal Home Loan Bank 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 Federal Home Loan Bank advances at the date indicated:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Federal Home Loan Bank advances............................. $22,600 $25,850 $24,000
Weighted average interest rate of Federal Home Loan Bank
advances.................................................. 5.23% 5.26% 5.82%
</TABLE>
134
<PAGE>
The following table sets forth the maximum balance and average balance of
Federal Home Loan Bank advances during the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Maximum Balance:
Federal Home Loan Bank advances........................... $26,000 $25,850 $24,000
Average Balance:
Federal Home Loan Bank advances........................... 23,827 21,738 15,615
Weighted average interest rate of Federal Home Loan Bank
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................... Owned Various from 1926 $418 $37,865
Cheviot, OH 45211 to present
BRANCH OFFICES:
7030 Hamilton Avenue................... Owned 1975 $277 $17,379
Cincinnati, OH 45231
3663 Ebenezer Road..................... Owned 1985 $287 $10,976
Cincinnati, OH 45248
</TABLE>
- ------------------------
(1) At September 30, 1999, Harvest Home's office premises and equipment had a
total net book value of $1.2 million.
135
<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.
136
<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, and will be required to register with the
Office of Thrift Supervision. Federal law generally prohibits a savings and loan
holding company, without prior Office of Thrift Supervision 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 Office of Thrift Supervision.
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
137
<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 Office of Thrift Supervision 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 Office of Thrift
Supervision 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 Office of Thrift Supervision 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 Office of Thrift Supervision 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;
138
<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 Office of Thrift Supervision 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 Office of Thrift Supervision will be the
chartering authority and primary federal regulator of Peoples Community Bank.
The Office of Thrift Supervision 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
Office of Thrift Supervision and are subject to periodic examinations by the
Office of Thrift Supervision 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 Office of Thrift Supervision's 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 Office of Thrift
Supervision.
139
<PAGE>
INSURANCE OF ACCOUNTS. The deposits of People's Savings, Oakley and Harvest
Home Savings are insured to the maximum extent permitted by the Savings
Association Insurance Fund, 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 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 Office of Thrift Supervision an
opportunity to take such action.
On September 30, 1996, new legislation required all Savings Association
Insurance Fund member institutions to pay a one-time special assessment to
recapitalize the Savings Association Insurance Fund, 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, Savings
Association Insurance Fund members paid 6.4 basis points, while Bank Insurance
Fund 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 Office of Thrift
Supervision 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 Office of Thrift Supervision
also is authorized to impose capital requirements in excess of these standards
on individual institutions on a case-by-case basis.
Current Office of Thrift Supervision 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
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U.S. Government to 100% for loans (other than qualifying residential loans
weighted at 80%) and repossessed assets.
In August 1993, the Office of Thrift Supervision 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 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 Office of Thrift Supervision to waive or defer an institution's interest
rate risk component on a case-by-case basis. Because of continuing delays by the
Office of Thrift Supervision, 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 generally accepted accounting principles 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 Office of Thrift Supervision 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 Office of Thrift Supervision's
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
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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.
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 Office of Thrift Supervision 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 Office of Thrift Supervision 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. Office of Thrift Supervision 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 Office of Thrift Supervision approval of the capital
distribution if either (1) the total capital distributions for the applicable
calendar year exceed the sum of the institution's retained 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 Office of Thrift Supervision 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 and related
regulations of the Office of Thrift Supervision 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 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 Community Reinvestment Act could, at a minimum, result in
regulatory restrictions on its activities. Failure to comply with fair lending
laws could result in enforcement actions by the Office of Thrift Supervision, 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 test to avoid certain restrictions on their
operations. A savings institution can comply with the qualified thrift lender
test by either qualifying as a domestic building and loan association as defined
in the
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Internal Revenue 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 Federal Home Loan Bank of Cincinnati; and
- direct or indirect obligations of the FDIC.
A savings institution that does not meet the qualified thrift lender 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 qualified thrift lender test.
FEDERAL HOME LOAN BANK SYSTEM. People's Savings, Oakley and Harvest Home
Savings Bank are members of the Federal Home Loan Bank of Cincinnati, which is
one of 12 regional Federal Home Loan Banks that administers the home financing
credit function of savings institutions. Each Federal Home Loan Bank 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
Federal Home Loan Bank System. It makes loans to members (i.e., advances) in
accordance with policies and procedures established by the Board of Directors of
the Federal Home Loan Bank.
As a member, People's Savings is required to purchase and maintain stock in
the Federal Home Loan Bank 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
Federal Home Loan Bank 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 Federal Home Loan Banks 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 Federal Home Loan Bank
dividends paid in the past and could do so in the future. These contributions
also could have an adverse effect on the value of Federal Home Loan Bank 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") and
is payable to the extent such alternative minimum taxable income 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) alternative minimum taxable income 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 generally
accepted accounting principles. 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.
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.
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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.
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
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"--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 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.
150
<PAGE>
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.
NEW STOCK BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN. We have established the employee stock
ownership plan for our employees to become effective upon the conversion. Our
full-time employees who have been credited
151
<PAGE>
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 employee stock ownership
plan.
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 employee stock
ownership plan 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
employee stock ownership plan. The loan to the employee stock ownership plan
will be repaid principally from our contributions to the employee stock
ownership plan over a period of 10 years, and the collateral for the loan will
be the common stock purchased by the employee stock ownership plan. The interest
rate for the employee stock ownership plan 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
employee stock ownership plan or additional contributions from us. The timing,
amount and manner of future contributions to the employee stock ownership plan
will be affected by various factors, including prevailing regulatory policies,
the requirements of applicable laws and regulations and market conditions.
Shares purchased by the employee stock ownership plan 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 employee stock
ownership plan will be allocated to each eligible participant's employee stock
ownership plan account based on the ratio of each such participant's base
compensation to the total base compensation of all eligible employee stock
ownership plan participants. Forfeitures will be reallocated among remaining
participating employees and may reduce any amount we might otherwise have
contributed to the employee stock ownership plan. [UPON THE COMPLETION OF THREE
YEARS OF SERVICE, THE ACCOUNT BALANCES OF PARTICIPANTS WITHIN THE EMPLOYEE STOCK
OWNERSHIP PLAN 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 employee stock ownership plan. 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 employee stock ownership plan are not
fixed, so benefits payable under the employee stock ownership plan cannot be
estimated.
Messrs. and and will serve as trustees of the employee stock
ownership plan. Under the employee stock ownership plan, the trustees must
generally vote all allocated shares held in the employee stock ownership plan 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 employee stock ownership plan be reflected as a liability on
our statement of financial condition. Since the employee stock ownership plan is
borrowing from us, the loan will not be treated as a liability but rather will
be excluded from stockholders' equity. If the employee stock ownership plan
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 employee
stock ownership plan participants.
The employee stock ownership plan 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.
152
<PAGE>
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 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 Office of Thrift Supervision 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. Office of Thrift Supervision 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. Office of Thrift
Supervision 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.
153
<PAGE>
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 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 Office of Thrift
Supervision 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. Any loans to directors, officers and
employees that are defined as insiders will comply with all applicable
regulatory requirements
154
<PAGE>
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....................................... 71
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-19
Statements of Financial Condition as of September 30, 1999
and 1998 (audited)........................................ F-20
Statements of Operations for the years ended September 30,
1999, 1998 and 1997 (audited)............................. 79
Statements of Comprehensive Income (Loss) for the years
ended September 30, 1999, 1998 and 1997 (audited)......... F-21
Statements of Retained Earnings for the years ended
September 30, 1999, 1998 and 1997 (audited)............... F-22
Statements of Cash Flows for the years ended September 30,
1999, 1998 and 1997 (audited)............................. F-23
Notes to Financial Statements............................... F-24
</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-36
Consolidated Statements of Financial Condition as of
September 30, 1999 and 1998............................... F-37
Consolidated Statements of Earnings for the years ended
September 30, 1999, 1998 and 1997......................... 87
Consolidated Statements of Comprehensive Income for the
years ended September 30, 1999, 1998 and 1997............. F-38
Consolidated Statements of Stockholders' Equity for the
years ended September 30, 1999, 1998 and 1997............. F-39
Consolidated Statements of Cash Flows for the years ended
September 30, 1999, 1998
and 1997.................................................. F-40
Notes to Consolidated Financial Statements.................. F-41
</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.
165
<PAGE>
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. 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
F-9
<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)
financial instruments where quoted market prices are not available, fair values
are based on estimates using present value and other valuation methods. This
requirement is for institutions with total consolidated assets greater than
$100 million. Therefore, the company will be required to present all disclosures
pursuant to SFAS No. 107 subsequent to its pending business combination.
Management is under the opinion that currently recorded balances for assets and
liabilities did not differ materially from market values at September 30, 1999
or 1998.
12. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1999
financial statement presentation.
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.
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, 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>
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>
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
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 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.
F-12
<PAGE>
THE PEOPLE'S BUILDING, LOAN AND SAVINGS COMPANY
NOTES TO 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............................ $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-13
<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-14
<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-15
<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--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.
In addition to loan commitments, the company also leases the building in
which its Blanchester branch is located. This lease commitment expires in Fiscal
2003. The remaining commitment for this lease totals $27,000 as of
September 30, 1999.
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
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)
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 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>
F-17
<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 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.
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-18
<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-19
<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-20
<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-21
<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-22
<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-23
<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-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)
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-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)
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-26
<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.
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. This
requirement is for institutions with total consolidated assets greater than
$100 million. Therefore, the Company will be required to present all disclosures
pursuant to SFAS No. 107 subsequent to its pending business combination.
Management is under the opinion that currently recorded balances for assets and
liabilities did not differ materially from market values at September 30, 1999
or 1998.
12. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1999
financial statement presentation.
F-27
<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-28
<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-29
<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-30
<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-31
<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-32
<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-33
<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-34
<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-35
<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-36
<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-37
<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-38
<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-39
<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-40
<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-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)
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-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)
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-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)
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-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)
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-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)
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-46
<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-47
<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-48
<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-49
<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-50
<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-51
<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-52
<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-53
<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-54
<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-55
<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-56
<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-57
<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-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
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-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 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-60
<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-61
<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-62
<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 25 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
---------------------
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, 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*
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>
- ------------------------
* Previously filed.
** To be filed by amendment.
*** Filed by Form SE.
(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 amended Form S-1 Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the State of Ohio on
January 28, 2000.
<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 amended
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ PAUL E. HASSELBRING
------------------------------------------- Chairman of the Board January 28, 2000
Paul E. Hasselbring
Director, President and Chief
/s/ JERRY D. WILLIAMS Executive Officer
------------------------------------------- (Principal accounting January 28, 2000
Jerry D. Williams officer)
/s/ ZANE M. BRANT
------------------------------------------- Director January 28, 2000
Zane M. Brant
/s/ JOHN L. BUCHANAN
------------------------------------------- Director January 28, 2000
John L. Buchanan
/s/ DONALD L. HAWKE
------------------------------------------- Director January 28, 2000
Donald L. Hawke
/s/ RICHARD S. JOHNSTON
------------------------------------------- Director January 28, 2000
Richard S. Johnston
/s/ NICHOLAS N. NELSON
------------------------------------------- Director January 28, 2000
Nicholas N. Nelson
/s/ JAMES R. VAN DEGRIFT
------------------------------------------- Director January 28, 2000
James R. Van DeGrift
</TABLE>
II-5
<PAGE>
Exhibit 1.2
PEOPLES COMMUNITY BANCORP, INC.
Up to 1,851,500 Conversion Shares and up to 787,760 Exchange Shares
COMMON STOCK
($0.01 Par Value)
Subscription Price for Conversion Shares: $10.00 Per Share
AGENCY AGREEMENT
February ___, 2000
Charles Webb & Company,
a division of Keefe, Bruyette & Woods, Inc.
211 Bradenton Drive
Dublin, Ohio 43017-5034
Ladies and Gentlemen:
Peoples Community Bancorp, Inc. a Delaware corporation (the "Company")
and People's Building, Loan and Savings Company, an Ohio-chartered savings and
loan association currently in the mutual form of organization (the "Bank," which
shall include all references to the Bank in the mutual form, or Peoples
Community Bank in the stock form of organization, as indicated by the context),
with its deposit accounts insured by the Savings Association Insurance Fund
("SAIF") administered by the Federal Deposit Insurance Corporation ("FDIC"),
hereby confirm their agreement with Charles Webb & Company, a division of Keefe,
Bruyette & Woods, Inc. ("Webb" or "Agent") as follows:
SECTION 1. THE OFFERING AND THE MERGERS. The Bank, in accordance with
its plan of conversion adopted by its Board of Directors (the "Plan"), intends
to convert from an Ohio-chartered savings and loan association to a federally
chartered stock savings bank, chane its name to Peoples Community Bank, and to
issue all of its issued and outstanding capital stock to the Company. In
addition, pursuant to the Plan, the Company will offer and sell up to 1,851,500
shares of its common stock, par value $0.01 per share (the "Shares" or "Common
Stock"), in a subscription offering (the "Subscription Offering") to (1)
depositors of the Bank and Oakley Improved Building and Loan Company ("Oakley")
with savings accounts of $50 or more as of the close of business on June 30,
1998 ("Eligible Account Holders"), (2) the Company's Employee Stock Ownership
Plan ("ESOP"), (3) depositors of the Bank and Oakley with savings accounts of
$50 or more as of December 31, 1999 ("Supplemental Eligible Account Holders")
and (4) depositors and certain borrowers of the Bank and Oakley as of
________________, 1999 (the "Voting Record Date" and such depositors "Other
Members"), and (v) certain officers,
<PAGE>
Page 2
directors and employees of the Bank and Oakley. To the extent any Shares remain
unsold in the Subscription Offering, the Company will offer shares for sale in a
direct community offering (the "Community Offering" and, when referred to
together with the Subscription Offering, the "Subscription and Community
Offering"), the Shares not so subscribed for or ordered in the Subscription
Offering to certain members of the general public to whom a copy of the
Prospectus (as hereinafter defined) is delivered ("Other Subscribers") (all such
offerees being referred to in the aggregate as "Eligible Offerees"). It is
anticipated that shares not subscribed for in the Subscription Offering and any
Community Offering will be offered to members of the general public on a best
efforts basis by a selling group of broker-dealers managed by Webb (the
"Syndicated Community Offering") (the Subscription Offering, Community Offering
and Syndicated Community Offering are collectively referred to as the
"Offering"). It is acknowledged that the purchase of Shares in the Offering is
subject to the maximum and minimum purchase limitations as described in the Plan
and that the Company and the Bank may reject, in whole or in part, any orders
received in the Community Offering or Syndicated Community Offering.
Collectively, these transactions are referred to herein as the "Conversion." The
shares will be sold in the Offering for a purchase price of $10.00 per share
(the "Purchase Price").
In addition, On September 30, 1999, the Bank entered into an Agreement
of Merger (the "Oakley Merger Agreement") with Oakley, an Ohio-chartered savings
and loan association, pursuant to which Oakley will be merged with and into the
Bank (the "Oakley Merger"). Pursuant to the terms of the Oakley Merger
Agreement, (i) immediately prior to the completion of the Conversion Oakley
shall merge with and into the Bank and each Oakley deposit account shall
automatically and without further action of Oakley or the Bank become a fully
paid and non-assessable outstanding deposit account of the Bank having the same
withdrawal value and terms and conditions as immediately prior to the effective
date of the merger, and (ii) members and former members of Oakley shall have
priority subscription rights and liquidation rights in the Conversion to the
same extent as similar members and former members of the Bank.
In addition, on September 30, 1999, the Bank entered into an Agreement
and Plan of Merger (the "HH Merger Agreement" and together with the Oakley
Merger Agreement the "Merger Agreements") with Harvest Home Financial Corp., a
Delaware corporation ("Harvest Home"), pursuant to which immediately following
the completion of the Conversion Harvest Home will be merged with and into the
Company (the "Harvest Home Merger, and together with the Oakley Merger, the
"Mergers"). Pursuant to the terms of the HH Merger Agreement, immediately upon
consummation of the Harvest Home Merger, each share of Harvest Home common
stock, par value $0.01 per share (the "Harvest Home Common Stock"), will be
converted into the right to receive $9.00 cash and shares of Company Common
Stock with a value of $9.00 based solely on the Purchase Price. It is
anticipated that, based on the number of outstanding shares of Harvest Home
Common Stock as of ________________________, 2000, the Harvest Home Merger will
result in an aggregate of ____________ shares of Common Stock being issued in
exchange for shares of Harvest Home Common Stock and, in the event all
<PAGE>
Page 3
previously granted options to acquire Harvest Home Common Stock were exercised,
up to ___________ shares of Common Stock could be issued in exchange for Harvest
Home Common Stock (the "Exchange Shares").
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (File No. 333-______________)
(the "Registration Statement"), containing a prospectus relating to the Offering
and the Harvest Home Merger, for the registration of the Common Stock to be
issued in the Conversion and Harvest Home Merger under the Securities Act of
1933 (the "1933 Act"), and has filed such amendments thereof, if any, and such
amended prospectuses as may have been required to the date hereof. The
prospectus, as amended, on file with the Commission at the time the Registration
Statement initially became effective is hereinafter called the "Prospectus,"
except that if any prospectus is filed by the Company pursuant to Rule 424(b) or
(c) of the rules and regulations of the Commission under the 1933 Act (the "1933
Act Regulations") differing from the prospectus on file at the time the
Registration Statement initially becomes effective, the term "Prospectus" shall
refer to the prospectus filed pursuant to Rule 424(b) or (c) from and after the
time said prospectus is filed with the Commission.
In accordance with the Rules and Regulations of the Office of Thrift
Supervision ("OTS"), the Bank has filed with the OTS an Application for
Conversion (the "Conversion Application"), including the prospectus, and has
filed such amendments thereto, if any, as may have been required by the OTS. The
Conversion Application has been approved by the OTS and the related Prospectus
has been authorized for use by the OTS. The Company has filed with the OTS an
application (the "Holding Company Application") to become a savings and loan
holding company and for approval to acquire the Bank, and has filed
________________ with the Division of Financial Institutions of the State of
Ohio (the "Division")
SECTION 2. RETENTION OF WEBB, COMPENSATION, SALE AND DELIVERY OF THE
SHARES. Subject to the terms and conditions herein set forth, the Company and
the Bank hereby appoint Webb (ii) as their exclusive financial advisory and
marketing agent to utilize its best efforts to solicit subscriptions for Shares
of the Common Stock and to advise and assist the Company and the Bank with
respect to the Company's sale of the Shares in the Offering and (ii) to
participate in the Offering in the areas of market making, research coverage and
syndicate formation (if necessary).
On the basis of the representations, warranties, and agreements herein
contained, but subject to the terms and conditions herein set forth, Webb
accepts such appointment and agrees to consult with and advise the Company and
the Bank as to the matters set forth in the letter agreement ("Letter
Agreement"), dated September 30, 1999, between the Bank and Webb (a copy of
which is attached hereto as Exhibit A). It is acknowledged by the Company and
the Bank that Webb shall not be required to purchase any Shares and shall not be
obligated to take any action which is inconsistent with all applicable laws,
regulations, decisions or orders. In the event
<PAGE>
Page 4
of a Syndicated Community Offering, Webb will assemble and manage a selling
group of broker-dealers which are members of the National Association of
Securities Dealers, Inc. (the "NASD") to participate in the solicitation of
purchase orders for shares under a selected dealers' agreement ("Selected
Dealers' Agreement"), the form of which is set forth as EXHIBIT B to this
Agreement.
The obligations of Webb pursuant to this Agreement shall terminate upon
the completion or termination or abandonment of the Plan by the Company or upon
termination of the Offering, but in no event later than the date (the "End
Date") which is 45 days after the Closing Date (as hereinafter defined). All
fees or expenses due to Webb but unpaid will be payable to Webb in next day
funds at the earlier of the Closing Date (as hereinafter defined) or the End
Date. In the event the Offering is extended beyond the End Date, the Company,
the Bank and Webb may agree to renew this Agreement under mutually acceptable
terms.
In the event the Company is unable to sell a minimum of 1,190,000
Shares (or such lesser amount approved by the OTS) within the period herein
provided, this Agreement shall terminate and the Company shall refund to any
persons who have subscribed for any of the Shares, the full amount which it may
have received from them plus accrued interest as set forth in the Prospectus;
and none of the parties to this Agreement shall have any obligation to the other
parties hereunder, except as otherwise set forth in this Section 2 and in
Sections 6, 8 and 9 hereof.
In the event the Offering is terminated for any reason not attributable
to the action or inaction of Webb, Webb shall be paid the fees and expenses due
to the date of such termination pursuant to subparagraphs (a) and (d) below.
If all conditions precedent to the consummation of the Conversion,
including, without limitation, the sale of all Shares required by the Plan to be
sold, are satisfied, the Company agrees to issue, or have issued, the Shares
sold in the Offering and to release for delivery certificates for such Shares on
the Closing Date (as hereinafter defined) against payment to the Company by any
means authorized by the Plan, provided however, that no funds shall be released
to the Company until the conditions specified in Section 7 hereof shall have
been complied with to the reasonable satisfaction of Webb and its counsel. The
release of Shares against payment therefor shall be made on a date and at a
place acceptable to the Company, the Bank and Webb. Certificates for shares
shall be delivered directly to the purchasers in accordance with their
directions. The time and date upon which the Company shall release or deliver,
or have released or delivered, the Shares sold in the Offering, in accordance
with the terms herein, is called the "Closing Time" and "Closing Date,"
respectively.
Webb shall receive the following compensation for their services
hereunder:
(a) A Management Fee of $25,000 payable in four consecutive monthly
installments of $6,250. Such fees shall be deemed to have been earned when due.
Should the Mergers or
<PAGE>
Page 5
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. Webb
acknowledges prior receipt of the $_________ as of the date of this letter.
(b) A Success Fee of $215,000 upon completion of the Offering. The
Management fee described in paragraph 2(a) shall be applied against the Success
Fee described in this paragraph 2(b).
(c) If any shares of the Company's stock remain available after the
Subscription and any Community 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 shares of 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. Webb will be paid a fee not to
exceed 5.5% of the aggregate Purchase Price of the shares of Common Stock sold
pursuant to the selected dealers agreement and then will pass on to 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 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 2(e), such fees shall be in addition to payment pursuant to
subparagraphs 2(a) and 2(b).
(d) The Bank will bear the expenses of the Offering customarily borne
by issuers including, without limitation, Division, SEC, "Blue Sky," and NASD
filing and registration fees; the fees of the Bank's accountants, conversion
agent, attorneys, appraiser, transfer agent and registrar, printing, mailing and
marketing expenses associated with the Conversion; and the fees set forth under
this Section 2, and fees for "Blue Sky" legal work. If Webb incurs expenses on
behalf of the Bank, the Bank 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. Full payment of Webb's actual expenses incurred on behalf of the Bank
and advisory fees and compensation shall be made in next day funds on the
earlier of the Closing Date or a determination by the Bank to terminate or
abandon the Plan.
Webb will provide financial advisory assistance for a period of one
year following completion of the Conversion as set forth in the Letter
Agreement. Following this initial one-year term, if Webb and the Company wish to
continue the relationship, a fee will be negotiated and an agreement entered
into at that time.
SECTION 3. PROSPECTUS AND OFFERING. The Shares are to be initially
offered in the
<PAGE>
Page 6
Offering at the Purchase Price as defined and set forth on the cover page of the
Prospectus.
SECTION 4. REPRESENTATIONS AND WARRANTIES. The Company and the Bank
jointly and severally represent and warrant to Webb on the date hereof as
follows:
(a) The Registration Statement was declared effective by the Commission
on February ___, 1999. At the time the Registration Statement, including the
Prospectus contained therein (including any amendment or supplement thereto),
became effective, the Registration Statement complied in all material respects
with the requirements of the 1933 Act and the 1933 Act Regulations and the
Registration Statement, including the Prospectus contained therein (including
any amendment or supplement thereto), and any information regarding the Company,
the Bank or Oakley contained in Sales Information (as such term is defined in
Section 8 hereof) authorized by the Company or the Bank for use in connection
with the Offering, did not contain an untrue statement of a material fact or
omit 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, and at the time any Rule 424(b) or (c) Prospectus was
filed with the Commission; provided, however, that the representations and
warranties in this Section 4(a) shall not apply to statements or omissions made
in reliance upon and in conformity with written information furnished to the
Company or the Bank by Webb expressly regarding Webb for use in the Prospectus
under the caption "THE OFFERING--Marketing Arrangements" or statements in or
omissions from any Sales Information or information filed pursuant to state
securities or blue sky laws or regulations regarding Webb.
(b) The Bank has filed with the Department of the Treasury, Office of
Thrift Supervision ("OTS"), the Conversion Application and has filed such
amendments thereto and supplementary materials as may have been required to the
date hereof including copies of the Bank's and Oakley's Proxy Statements, to be
dated February _________, 1999, relating to the Conversion (the "Proxy
Statements"), and the Prospectus. The OTS has, by letter dated February ____,
1999, approved the Conversion Application, such order remains in full force and
effect and no order has been issued by the OTS suspending or revoking such order
and no proceedings therefor have been initiated or, to the knowledge of the
Company or the Bank, threatened by the OTS. At the date of such approval and at
the Closing Date referred to in Section 2, the Conversion Application complied
and will comply in all material respects with the applicable provisions of the
OTS' Conversion Regulations except as waived in writing by the OTS. The
Conversion Application, including the Prospectus (including any amendment or
supplement thereto), does not include any untrue statement of 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; provided,
however, that the representations and warranties in this Section 4(b) shall not
apply to statements or omissions made in reliance upon and in conformity with
written information furnished to the Company or the Bank by Webb expressly
regarding Webb for use in the Prospectus contained in the Conversion Application
under the caption "THE OFFERING--Marketing Arrangements" or statements in or
omissions from any sales information or information filed pursuant to state
securities or blue sky laws or regulations
<PAGE>
Page 7
regarding Webb.
(c) The Company has filed with the OTS the Company's Form H-(e)1/3
application for approval of its acquisition of the Bank, Harvest Home and Oakley
(the "Holding Company Application") pursuant to the Home Owners' Loan Act
("HOLA") and the regulations promulgated thereunder. The Company has filed with
the Ohio Division of Financial Institutions (the "Division") an application for
approval of ________________________.
(d) No order has been issued by the Commission, the OTS or the Division
preventing or suspending the use of the Prospectus and no action by or before
any such government entity to revoke any approval, authorization or order of
effectiveness related to the Conversion is, to the best knowledge of the Company
or the Bank, pending or threatened.
(e) To the best knowledge of the Company, no person has sought to
obtain review of the final action of the OTS in approving or taking no objection
to the Plan or in approving the Conversion, the Mergers or the Holding Company
Application pursuant to the Conversion Regulations, the HOLA, or any other
applicable statute or regulation.
(f) At the time of their use, the Proxy Statements and any other proxy
solicitation materials will comply all material respects with the applicable
provisions of the Conversion Regulations and will not contain an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading. The Company and the Bank will promptly file the
Prospectus and any supplemental sales literature with the OTS. The Prospectus
and all supplemental sales literature, as of the date the Registration Statement
became effective and at the Closing Date referred to in Section 2, complied and
will comply in all material respects with the applicable requirements of the
Conversion Regulations and, at or prior to the time of their first use, all
required authorizations of the OTS for use in final form will have been
received.
(g) The Bank has filed with the OTS applications for merger (the
"Merger Application") pursuant to Section 1828(c) of the Federal Deposit
Insurance Act ("FDIA"), the provisions of the HOLA and the regulations
promulgated thereunder with respect to the Mergers. At the date of such
approval, the Merger Application complied in all material respects with the
applicable provisions of the FDIA, the HOLA and the regulations promulgated
thereunder.
(h) At the time of their use, the Proxy Statements and any other proxy
solicitation materials will comply in all material respects with the applicable
provisions of the Conversion Regulations and will not contain an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading. The Prospectus and all supplemental sales
literature, as of the date the Registration Statement became effective and at
the Closing Time referred to in Section 2, complied and will comply in all
material respects with the applicable requirements of the Conversion Regulations
and, at or prior to the time of their first use, all required
<PAGE>
Page 8
authorizations of the OTS for use in final form will have been received.
(i) The OTS has not, by order or otherwise, prevented or suspended the
use of the Prospectus or any supplemental sales literature authorized by the
Company or the Bank for use in connection with the Offerings.
(j) At the Closing Time referred to in Section 2, the Company and the
Bank will have completed the conditions precedent to the Conversion in
accordance with the Plan, the applicable Conversion Regulations and all other
applicable laws, regulations, decisions and orders, including all material
terms, conditions, requirements and provisions precedent to the Conversion
imposed upon the Company or the Bank by the OTS, the FDIC, the Division or any
other regulatory authority, other than those which the regulatory authority
permits to be completed after the Conversion. As of the Closing Time, as defined
in Section 2 hereof, the Company and the Bank will have completed the conditions
precedent to the Mergers in accordance with the HH Merger Agreement and the
Oakley Merger Agreement, the provisions of the FDIA and HOLA and all other
applicable laws, regulations, decisions and orders, including all material
terms, conditions, requirements and provisions precedent to the Mergers imposed
upon the Company or the Bank by the OTS, the Division, the FDIC or any other
regulatory authority, other than those which the regulatory authority permits to
be completed after the effective time of the Mergers.
(k) RP Financial, Inc., which prepared the valuation of the Bank as
part of the Conversion, has advised the Company that they satisfy all
requirements for an appraiser set forth in the Conversion Regulations.
(l) The accountants who certified the financial statements and
supporting schedules of the Bank included in the Registration Statement have
advised the Company that they are independent public accountants within the
meaning of the Code of Ethics of the AICPA, and that such accountants are, with
respect to the Company, the Bank and any subsidiary of the Bank, independent
certified public accountants as required by the 1933 Act and the 1933 Act
Regulations.
(m) The consolidated financial statements and the related notes thereto
included in the Registration Statement and the Prospectus present fairly the
financial position of each of the Bank, Oakley, and Harvest Home and its
consolidated subsidiaries and, except as otherwise stated in the Registration
Statement, said financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis; and the
supporting schedules and tables included in the Registration Statement present
fairly the information required to be stated therein.
(n) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, except as otherwise stated therein
(A) there has been no material adverse change in the financial condition,
results of operations or business affairs of the Company, the Bank, Oakley, or
Harvest Home and its subsidiaries, whether or not arising in the
<PAGE>
Page 9
ordinary course of business, and (B) except for transactions specifically
referred to or contemplated in the Prospectus, there have been no transactions
entered into by the Company, the Bank, Oakley, or Harvest Home or any of its
subsidiaries, other than those in the ordinary course of business, which are
material with respect to the Company, the Bank, Oakley and Harvest Home and its
subsidiaries considered as one enterprise.
(o) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware with
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus; and the Company is duly
qualified as a foreign corporation to transact business in each jurisdiction in
which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure to so
qualify would not have a material adverse effect on the financial condition,
results of operations or business affairs of the Company and its subsidiaries
considered as one enterprise.
(p) Upon consummation of the Conversion, the authorized, issued and
outstanding capital stock of the Company will be within the range set forth in
the Prospectus under "Capitalization" (except for subsequent issuances, if any,
pursuant to reservations, agreements or employee benefit plans referred to in
the Prospectus); no shares of Common Stock have been or will be issued and
outstanding prior to the Closing Time referred to in Section 2; at the time of
Conversion, the Securities will have been duly authorized for issuance and, when
issued and delivered by the Company pursuant to the Plan against payment of the
consideration calculated as set forth in the Plan, will be duly and validly
issued and fully paid and non-assessable; the terms and provisions of the Common
Stock and the capital stock of the Company conform to all statements relating
thereto contained in the Prospectus; and the issuance of the Securities is not
subject to preemptive or other similar rights.
(q) The Bank, as of the date hereof, is an Ohio-chartered savings
and loan association in mutual form and upon consummation of the Conversion
will be a federally chartered savings bank in stock form, in both instances
with full corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus; the
Company and the Bank have obtained all licenses, permits and other
governmental authorizations currently required for the conduct of their
respective businesses or required for the conduct of their respective
businesses as contemplated by the Holding Company Application, the Conversion
Application and the Merger Application, except where the failure to obtain
such licenses, permits or other governmental authorizations would not have a
material adverse effect on the financial condition, results of operations or
business affairs of the Company and the Bank considered as one enterprise;
all such licenses, permits and other governmental authorizations are in full
force and effect and the Company and the Bank are in all material respects in
compliance therewith; neither the Company nor the Bank has received notice of
any proceeding or action relating to the revocation or modification of any
such license, permit or other governmental authorization which, singly or in
the aggregate, if the subject of an unfavorable decision, ruling or finding,
might have a material adverse effect on the financial condition, results of
operations or business
<PAGE>
Page 10
affairs of the Company and the Bank considered as one enterprise; and the
Bank is in good standing under the laws of the Ohio and is qualified as a
foreign corporation in each jurisdiction in which the failure to so qualify
would have a material adverse effect on the financial condition, results of
operations or business affairs of the Company and the Bank considered as one
enterprise.
(r) The deposit accounts of the Bank are insured by the FDIC and upon
consummation of the Conversion, the liquidation account for the benefit of the
Bank's and Oakley's eligible account holders and supplemental eligible account
holders will be duly established in accordance with the requirements of the
Conversion Regulations.
(s) No shares of Bank common stock have been or will be issued prior to
the Closing Time referred to in Section 2; and as of Closing Time referred to in
Section 2, all of the issued and outstanding capital stock of the Bank will be
duly authorized, validly issued and fully paid and nonassessable, and all such
capital stock will be owned beneficially and of record by the Company free and
clear of any mortgage, pledge, lien, encumbrance or claim.
(t) The Company has no subsidiaries other than the Bank, and the Bank
has no subsidiaries.
(u) The Company and the Bank have taken all corporate action necessary
for them to execute, deliver and perform this Agreement, and this Agreement has
been duly executed and delivered by, and is the valid and binding agreement of,
the Company and the Bank, enforceable in accordance with its terms, except as
may be limited by bankruptcy, insolvency or other laws affecting the
enforceability of the rights of creditors generally and judicial limitations on
the right of specific performance and except as the enforceability of
indemnification and contribution provisions may be limited by applicable
securities laws.
(v) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus and prior to the Closing Time,
except as otherwise may be indicated or contemplated in the Prospectus, neither
the Company nor the Bank will have (A) issued any securities or incurred any
material liability or obligation, direct or contingent, or borrowed money,
except borrowings in the ordinary course of business from the same or similar
sources and in similar amounts as indicated in the Prospectus, or (B) entered
into any transaction or series of transactions which is material in light of the
business of the Company and the Bank taken as a whole.
(w) No approval of any regulatory or supervisory or other public
authority is required in connection with the execution and delivery of this
Agreement or the issuance of the Shares and Exchange Shares, except for the
approval of the OTS of the Mergers under the provisions of the FDIA and the
HOLA, the approval of the Division, the declaration of effectiveness of the
Registration Statement and any required post-effective amendment to the
Registration Statement by the Commission and approval thereof, if necessary, by
the OTS, the issuance of the federal stock charter by the OTS and as may be
required under the securities law of various jurisdictions.
<PAGE>
Page 11
(x) The Company is not in violation of its Certificate of Incorporation
and Bylaws, the Bank is not in violation of its Articles of Incorporation,
Constitution and Bylaws, and the Bank will not be in violation of its charter or
bylaws in stock form upon consummation of the Conversion; and neither the
Company nor the Bank is in default (nor has any event occurred which, with
notice or lapse of time or both, would constitute a default) in the performance
or observance of any obligation, agreement, covenant or condition contained in
any contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which the Company or the Bank is a party or by which it or any of
them may be bound, or to which any of the property or assets of the Company or
the Bank is subject, except for such defaults that would not, individually or in
the aggregate, have a material adverse effect on the financial condition,
results of operations or business of the Company and the Bank.
(y) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein have been duly authorized
by all necessary corporate action and do not and will not conflict with or
constitute a breach of, or default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or the Bank pursuant to any contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which the Company or the Bank is a
party or by which either of them may be bound, or to which any of the property
or assets of the Company or the Bank is subject, except for such defaults that
would not, individually or in the aggregate, have a material adverse effect on
the financial condition, results of operations or business affairs of the
Company and the Bank considered as one enterprise; nor will such action result
in any violation of the provisions of the charter or bylaws of the Company or
the Articles of Incorporation, Constitution and Bylaws of the Bank; nor will
such action result in any violation of any applicable law, administrative
regulation or administrative or court decree except for violations that would
not impair the ability of the Company and the Bank to execute, deliver and
perform under this Agreement or consummate the transactions contemplated herein
and except for violations that would not, individually or in the aggregate, have
a material adverse effect on the financial condition, results of operations or
business of the Company and the Bank considered as one enterprise.
(z) No labor dispute with the employees of the Company or the Bank
exists or, to the knowledge of the Company or the Bank, is imminent.
(aa) The Company, the Bank amd Oakley have good and marketable title to
all properties and assets for which ownership is material to the business of the
Company, the Bank and Oakley and to those properties and assets described in the
Prospectus as owned by them, free and clear of all liens, charges, encumbrances
or restrictions, except such as are described in the Prospectus or are not
material in relation to the business of the Company, the Bank and Oakley
considered as one enterprise; and all of the leases and subleases material to
the business of the Company, the Bank or Oakley under which the Company, the
Bank or Oakley hold properties, including those described in the Prospectus, are
valid and binding agreements of the Company,
<PAGE>
Page 12
the Bank or Oakley, enforceable in accordance with their terms.
(bb) The Company and the Bank are not in violation of any directive
from the OTS, the Division or the FDIC to make any material change in the method
of conducting their respective businesses; the Bank, Oakley, and Harvest Home
and its subsidiaries have conducted and are conducting their business so as to
comply in all material respects with all applicable statutes, regulations and
administrative and court decrees (including, without limitation, all
regulations, decisions, directives and orders of the OTS, the Division or the
FDIC).
(cc) There is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company or the Bank, threatened, against or affecting the
Company or the Bank which is required to be disclosed in the Registration
Statement (other than as disclosed therein), or which might result in any
material adverse change in the financial condition, results of operations or
business affairs of the Company and the Bank considered as one enterprise, or
which might materially and adversely affect the consummation of the Conversion;
all pending legal or governmental proceedings to which the Company and the Bank
is a party or of which any of their properties or assets is the subject which
are not described in the Registration Statement, including ordinary routine
litigation incidental to the business, are considered in the aggregate not
material; and there are no contracts or documents of the Company or the Bank
which are required to be filed as exhibits to the Registration Statement or the
Conversion Application which have not been so filed.
(dd) The Bank has obtained an opinion of its counsel, Elias, Matz,
Tiernan & Herrick, with respect to the legality of the Securities to be issued
and the federal income tax consequences of the Conversion and the opinion of
Grant Thornton, LLP as to Ohio tax matters, copies of which are filed as
exhibits to the Registration Statement; all material aspects of the aforesaid
opinions are accurately summarized in the Prospectus; the facts and
representations upon which such opinions are based are truthful, accurate and
complete in all material respects; and neither the Bank nor the Company has
taken any action inconsistent therewith.
(ee) The Company is not required to be registered under the Investment
Company Act of 1940, as amended.
(ff) All of the loans represented as assets on the most recent
financial statements or selected financial information of the Bank and Oakley
included in the Prospectus meet or are exempt from all requirements of federal,
state or local law pertaining to lending, including without limitation truth in
lending (including the requirements of Regulations Z and 12 C.F.R. Part 226 and
Section 563.99), real estate settlement procedures, consumer credit protection,
equal credit opportunity and all disclosure laws applicable to such loans,
except for violations which, if asserted, would not result in a material adverse
effect on the financial condition, results of operations or business of the
Company, the Bank and Oakley considered as one enterprise.
(gg) To the knowledge of the Company and the Bank, none of the Company,
the Bank
<PAGE>
Page 13
or employees of the Bank has made any payment of funds of the Company or the
Bank as a loan for the purchase of the Common Stock or made any other payment of
funds prohibited by law, and no funds have been set aside to be used for any
payment prohibited by law.
(hh) The Company and the Bank are in compliance in all material
respects with the applicable financial recordkeeping and reporting requirements
of the Currency and Foreign Transaction Reporting Act of 1970, as amended, and
the rules and regulations thereunder.
(ii) Neither the Company, the Bank, or Oakley nor any properties owned
or operated by the Company, the Bank or Oakley is in violation of or liable
under any Environmental Law (as defined below), except for such violations or
liabilities that, individually or in the aggregate, would not have a material
adverse effect on the financial condition, results of operations or business
affairs of the Company, the Bank and Oakley considered as one enterprise. There
are no actions, suits or proceedings, or demands, claims, notices or
investigations (including, without limitation, notices, demand letters or
requests for information from any environmental agency) instituted or pending,
or to the knowledge of the Company, the Bank or Oakley, threatened, relating to
the liability of any property owned or operated by the Company, the Bank or
Oakley under any Environmental Law. For purposes of this subsection, the term
"Environmental Law" means any federal, state, local or foreign law, statute,
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, order, judgment, decree, injunction or agreement with any regulatory
authority 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 any substance presently listed,
defined, designated or classified as hazardous, toxic, radioactive or dangerous,
or otherwise regulated, whether by type or by quantity, including any material
containing any such substance as a component.
(jj) The Company, the Bank and Oakley have filed all federal income and
state and local franchise tax returns required to be filed and have made timely
payments of all taxes shown as due and payable in respect of such returns, and
no deficiency has been asserted with respect thereto by any taxing authority.
(kk) The Company has received conditional approval to have the
Securities quoted on the Nasdaq National Market effective as of the Closing
Time.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF WEBB.
(a) Webb represents and warrants to the Company and the Bank that:
(1) Keefe, Bruyette & Woods, Inc. is a corporation and is
validly existing in good standing under the laws of
the State of New York with full power and
<PAGE>
Page 14
authority to provide the services to be furnished to
the Bank and the Company hereunder.
(2) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby
have been duly and validly authorized by all necessary
action on the part of Webb, and this Agreement has
been duly and validly executed and delivered by Webb
and is the legal, valid and binding agreement of Webb,
enforceable in accordance with its terms, except as
may be limited by bankruptcy, insolvency or other laws
affecting the enforceability of the rights of
creditors generally and judicial limitations on the
right of specific performance and except as the
enforceability of indemnification and contribution
provisions may be limited by applicable securities
laws.
(3) Each of Webb and its employees, agents and
representatives who shall perform any of the services
hereunder shall be duly authorized and empowered, and
shall have all licenses, approvals and permits
necessary to perform such services.
(4) No approval of any regulatory or supervisory or other
public authority is required in connection with Webb's
execution and delivery of this Agreement, except as
may have been received.
(5) There is no suit or proceeding or charge or action
before or by any court, regulatory authority or
government agency or body or, to the best knowledge of
Webb, pending or threatened, which might materially
adversely affect Webb's performance under this
Agreement.
SECTION 5.1 COVENANTS OF THE COMPANY AND THE BANK. The Company and the
Bank hereby jointly and severally covenant with Webb as follows:
(a) The Company will not, at any time after the date the Registration
Statement is declared effective, file any amendment or supplement to the
Registration Statement without providing Webb and its counsel an opportunity to
review such amendment or supplement or file any amendment or supplement to which
amendment or supplement Webb or its counsel shall reasonably object.
(b) The Bank will not, at any time after the Conversion Application is
approved by the OTS, file any amendment or supplement to such Conversion
Application without providing Webb and its counsel an opportunity to review such
amendment or supplement or file any amendment or supplement to which amendment
or supplement Webb or its counsel shall reasonably object.
<PAGE>
Page 15
(c) The Company will not, at any time before the Holding Company
Application is approved by the OTS, file any amendment or supplement to such
Holding Company Application without providing Webb and its counsel an
opportunity to review such amendment or supplement or file any amendment or
supplement to which amendment or supplement Webb or its counsel shall reasonably
object.
(d) The Company and the Bank will use their best efforts to cause the
Registration Statement and any post-effective amendment to the Registration
Statement to be declared effective by the Commission and any amendment to the
Conversion Application to be approved by the OTS and will immediately upon
receipt of any information concerning the events listed below notify Webb: (i)
when the Registration Statement, as amended, has become effective; (ii) when the
Conversion Application, as amended, has been approved by the OTS; (iii) when the
Holding Company Application, as amended, has been approved by the OTS; (iv) any
comments from the Commission or the OTS or any other governmental entity with
respect to the Conversion or the transactions contemplated by this Agreement;
(v) the request by the Commission or the OTS or any other governmental entity
for any amendment or supplement to the Registration Statement, the Conversion
Application, the Holding Company Application or for additional information; (vi)
the issuance by the Commission or the OTS or any other governmental. entity of
any order or other action suspending the Offering or the use of the Registration
Statement or the Prospectus or any other filing of the Company or the Bank under
the Conversion Regulations, or other applicable law, or the threat of any such
action; (vii) the issuance by the Commission or OTS of any stop order suspending
the effectiveness of the Registration Statement or the approval of the
Conversion Application or Holding Company Application, or of the initiation or
threat of initiation or threat of any proceedings for any such purpose; or
(viii) of the occurrence of any event mentioned in paragraph (h) below. The
Company and the Bank will make every reasonable effort (i) to prevent the
issuance by the Commission or the OTS of any such order and, if any such order
shall at any time be issued, (ii) to obtain the lifting thereof at the earliest
possible time.
(e) The Company and the Bank will deliver to Webb and to its counsel
two conformed copies of the Registration Statement, the Conversion Application,
the Holding Company Application and Merger Application, as originally filed and
of each amendment or supplement thereto, including all exhibits. Further, the
Company and the Bank will deliver such additional copies of the foregoing
documents to counsel to Webb as may be required for any NASD filings.
(f) The Company and the Bank will furnish to Webb, from time to time
during the period when the Prospectus (or any later prospectus related to this
offering) is required to be delivered under the 1933 Act or the Securities
Exchange Act of 1934, (the "1934 Act"), such number of copies of such Prospectus
(as amended or supplemented) as Webb may reasonably request for the purposes
contemplated by the 1933 Act, the 1933 Act Regulations, the 1934 Act or the
rules and regulations promulgated under the 1934 Act (the "1934 Act
Regulations"). The Company authorizes Webb to use the Prospectus (as amended or
supplemented, if amended or
<PAGE>
Page 16
supplemented) in any lawful manner contemplated by the Plan in connection with
the sale of the Shares by Webb.
(g) The Company and the Bank will prepare and file such amendments or
supplements to the Merger Application as may be appropriate in order to receive
all necessary regulatory approvals of the Mergers. The Company will notify Webb
immediately and confirm notice in writing of the receipt of any comments from
the OTS with respect to the transactions described in the Merger Application, of
any request for supplemental information to the Merger Application, or issuance
of any order regarding the Mergers or the initiation of any proceedings
regarding the Mergers.
(h) The Company and the Bank will comply with any and all material
terms, conditions, requirements and provisions with respect to the Conversion
and Mergers imposed by the Commission, the OTS, the Conversion Regulations or
the HOLA and regulations promulgated thereunder, and by the 1933 Act, the 1933
Act Regulations, the 1934 Act and the 1934 Act Regulations to be complied with
prior to or subsequent to the Closing Date and when the Prospectus is required
to be delivered, the Company and the Bank will comply, at their own expense,
with all material requirements imposed upon them by the Commission, the OTS, the
Conversion Regulations, the HOLA, and by the 1993 Act, the 1933 Act Regulations,
the 1934 Act and the 1934 Act Regulations, in each case as from time to time in
force, so far as necessary to permit the continuance of sales or dealing in
shares of Common Stock during such period in accordance with the provisions
hereof and the Prospectus.
(i) If, at any time during the period when the Prospectus relating to
the Shares is required to be delivered, any event relating to or affecting the
Company or the Bank shall occur, as a result of which it is necessary or
appropriate, in the opinion of counsel for the Company and the Bank to amend or
supplement the Registration Statement or Prospectus in order to make the
Registration Statement or Prospectus not misleading in light of the
circumstances existing at the time the Prospectus is delivered to a purchaser,
the Company and the Bank will, at their expense, prepare and file with the
Commission and the OTS, and furnish to Webb a reasonable number of copies of an
amendment or amendments of, or a supplement or supplements to, the Registration
Statement and Prospectus (in form and substance satisfactory to Webb and its
counsel after a reasonable time for review) which will amend or supplement the
Registration Statement and Prospectus so that as amended or supplemented it will
not contain an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in light of the
circumstances existing at the time the Prospectus is delivered to a purchaser,
not misleading. For the purpose of this Agreement, the Company and the Bank each
will timely furnish to Webb such information with respect to itself as Webb may
from time to time reasonably request.
(j) At the Closing Time referred to in Section 2, the Plan and Merger
Agreements will have been adopted by the Board of Directors of the Company and
the Board of Directors of the Bank and the Oakley Merger will have been
completed, and the offer and sale of the Shares
<PAGE>
Page 17
and exchange of Exchange Shares will have been conducted in all material
respects in accordance with the Plan, Merger Agreements, the Conversion
Regulations, and all other applicable laws, regulations, decisions and orders,
including all terms, conditions, requirements and provisions precedent to the
Conversion and Merger imposed upon the Company or the Bank by the Commission,
the OTS, or any other regulatory authority and in the manner described in the
Prospectus.
(k) Upon completion of the sale by the Company of the Shares
contemplated by the Prospectus, (i) the Bank will be converted pursuant to the
Plan to a federally chartered stock savings bank, (ii) all of the authorized and
outstanding capital stock of the Bank will be owned by the Company, and (iii)
the Company will have no direct subsidiaries other than the Bank. The Conversion
will have been effected in all material respects in accordance with all
applicable statutes, regulations, decisions and orders; and, except with respect
to the filing of certain post-sale, post-Conversion reports, and documents in
compliance with the 1933 Act Regulations, and all terms, conditions,
requirements and provisions with respect to the Conversion (except those that
are conditions subsequent) imposed by the Commission and the OTS, if any, will
have been complied with by the Company and the Bank in all material respects or
appropriate waivers will have been obtained and all material notice and waiting
periods will have been satisfied, waived or elapsed.
(l) The Company and the Bank will take all necessary actions, in
cooperation with Webb, and furnish to whomever Webb may direct, such information
as may be required to qualify or register the Shares for offering and sale by
the Company or to exempt such Shares from registration, or to exempt the Company
as a broker-dealer and its officers, directors and employees as broker-dealers
or agents under the applicable securities or blue sky laws of such jurisdictions
in which the Shares are to be offered and sold as Webb and the Company and the
Bank may reasonably agree upon; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify to do
business in any jurisdiction in which it is not so qualified. In each
jurisdiction where any of the Shares shall have been qualified or registered as
above provided, the Company will make and file such statements and reports in
each fiscal period as are or may be required by the laws of such jurisdiction.
(m) The liquidation account for the benefit of Eligible Account
Holders and Supplemental Eligible Account Holders will be duly established and
maintained in accordance with the requirements of the OTS.
(n) The Company and the Bank will not sell or issue, contract to sell
or otherwise dispose of, for a period of 180 days after the Closing Date,
without Webb's prior written consent, any shares of Common Stock other than the
Shares or other than in connection with any plan or arrangement described in the
Prospectus
(o) The Company shall register its Common Stock under Section 12(g) of
the 1934 Act prior to the consummation of the Offering pursuant to the Plan and
shall request that such registration be effective no later than upon completion
of the Conversion. The Company shall
<PAGE>
Page 18
maintain the effectiveness of such registration for not less than three years or
such shorter period as may be required by the OTS.
(p) During the period during which the Company's Common Stock is
registered under the 1934 Act or for three years from the date hereof, whichever
period is greater, the Company will furnish to its stockholders as soon as
practicable after the end of each fiscal year an annual report of the Company
(including a consolidated balance sheet and statements of consolidated income,
stockholders' equity and cash flows of the Company and its subsidiaries as at
the end of and for such year, certified by independent public accountants in
accordance with Regulation S-X under the 1933 Act and the 1934 Act).
(q) During the period of three years from the date hereof, the Company
will furnish to Webb: (i) as soon as practicable after such information is
publicly available, a copy of each report of the Company furnished to or filed
with the Commission under the 1934 Act or any national securities exchange or
system on which any class of securities of the Company is listed or quoted
(including, but not limited to, reports on Forms 10-K, 10-Q and 8-K and all
proxy statements and annual reports to stockholders), (ii) a copy of each other
non-confidential report of the Company mailed to its stockholders or filed with
the Commission or OTS, or any other supervisory or regulatory authority or any
national securities exchange or system on which any class of securities of the
Company is listed or quoted, each press release and material news items and
additional documents and information with respect to the Company or the Bank as
Webb may reasonably request; and (iii) from time to time, such other
nonconfidential information concerning the Company or the Bank as Webb may
reasonably request.
(r) The Company and the Bank will use the net proceeds from the sale
of the Shares in the manner set forth in the Prospectus under the caption "How
Our Net Proceeds Will Be Used."
(s) Other than as permitted by the Conversion Regulations, HOLA, the
1933 Act, the 1933 Act Regulations, and the laws of any state in which the
Shares are registered or qualified for sale or exempt from registration, neither
the Company nor the Bank will distribute any prospectus or other offering
material in connection with the offer and sale of the Shares.
(t) The Company will use its best efforts to (i) encourage and assist
three market makers to establish and maintain a market for the Shares and (ii)
list the Shares on a national or regional securities exchange or on the Nasdaq
National Market of the Nasdaq Stock Market effective on or prior to the Closing
Date.
(u) The Bank will maintain appropriate arrangements for depositing all
funds received from persons mailing subscriptions for or orders to purchase
Shares in the Offering on an interest bearing basis at the rate described in the
Prospectus until the Closing Date and satisfaction of all conditions precedent
to the release of the Bank's obligation to refund payments received from persons
subscribing for or ordering Shares in the Offering in accordance with the
<PAGE>
Page 19
Plan and as described in the Prospectus or until refunds of such funds have been
made to the persons entitled thereto or withdrawal authorizations cancelled in
accordance with the Plan and as described in the Prospectus. The Bank will
maintain such records of all funds received to permit the funds of each
subscriber to be separately insured by the FDIC (to the maximum extent
allowable) and to enable the Bank to make the appropriate refunds of such funds
in the event that such refunds are required to be made in accordance with the
Plan and as described in the Prospectus.
(v) Prior to the Closing Date, the Merger Application shall have been
approved and all applicable waiting periods shall have expired, the Holding
Company Application shall have been approved by the OTS. The Company will
promptly take all necessary action to register as a savings and loan holding
company under the HOLA within 90 days of the Closing Date.
(w) The Company and the Bank will take such actions and furnish such
information as are reasonably requested by Webb in order for Webb to ensure
compliance with the NASD's "Interpretation Relating to Free Riding and
Withholding."
(x) The Bank will not amend the Plan without notifying Webb prior
thereto.
(y) The Company shall assist Webb, if necessary, in connection with
the allocation of the Shares in the event of an oversubscription and shall
provide Webb with any information necessary in allocating the Shares in such
event.
(z) Prior to the Closing Date, the Company and the Bank will inform
Webb of any event or circumstances of which it is aware as a result of which the
Registration Statement, the Conversion Application and/or Prospectus, as then
amended or supplemented, would contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein
not misleading.
SECTION 5.2 COVENANTS OF WEBB. Webb hereby covenants with the
Company and the Bank as follows:
(a) During the period when the Prospectus is delivered, Webb will
comply, in all material respects and at its own expense, with all requirements
imposed upon it by the Commission and the NASD, including to the extent
applicable, by the 1933 Act and the 1934 Act and the rules and regulations
promulgated thereunder.
(b) Webb will distribute copies of the Prospectus and Sales
Information in connection with the sales of the Common Stock only in accordance
with NASD and SEC regulations, the 1933 Act and the rules and regulations
promulgated thereunder.
(c) Webb shall use its best efforts to assist the Company in obtaining
at least three market makers for the shares of Common Stock.
<PAGE>
Page 20
SECTION 6. PAYMENT OF EXPENSES. Whether or not the Conversion is
completed or the sale of the Shares by the Company is consummated, the Company
and the Bank jointly and severally agree to pay or reimburse Webb for: (a) all
filing fees in connection with all filings with the NASD; (b) any stock issue or
transfer taxes which may be payable with respect to the sale of the Shares; (c)
all reasonable expenses of the Conversion, including but not limited to, the
Company's and the Bank's attorneys' fees, transfer agent, registrar and other
agent charges, fees relating to auditing and accounting or other advisors and
costs of printing all documents necessary in connection with the Conversion.
Webb shall not request reimbursement for out-of-pocket expenses, including costs
of legal counsel, travel, meals and lodging, photocopying, telephone, facsimile
and couriers. In the event the Company is unable to sell a minimum of 1,190,000
Shares or the Conversion is terminated or otherwise abandoned, the Company and
the Bank shall reimburse Webb in accordance with Section 2 hereof.
SECTION 7. CONDITIONS TO WEBB'S OBLIGATIONS. Webb's obligations
hereunder, as to the Shares to be issued at the Closing Date, are subject, to
the extent not waived by Webb, to the condition that all representations and
warranties of the Company and the Bank herein are, at and as of the commencement
of the Offering and at and as of the Closing Date, true and correct in all
material respects, the condition that the Company and the Bank shall have
performed all of their obligations hereunder to be performed on or before such
dates, and to the following further conditions:
(a) At the Closing Date, the Company and the Bank shall have conducted
the Conversion and Mergers in all material respects in accordance with the Plan,
Merger Agreements, the Conversion Regulations, and all other applicable laws,
regulations, decisions and orders, including all terms, conditions, requirements
and provisions precedent to the Conversion imposed upon them by the OTS.
(b) The Registration Statement has been declared effective by the
Commission, the Conversion Application approved by the OTS and Merger
Application approved by OTS not later than 5:30 p.m. on the date of this
Agreement, or with Webb's consent at a later time and date; and at the Closing
Date, the Holding Company Application shall have been approved by the OTS and no
stop order suspending the effectiveness of the Registration Statement shall have
been issued under the 1933 Act or proceedings therefore initiated or threatened
by the Commission, or any state authority and no order or other action
suspending the authorization of the Prospectus or the consummation of the
Conversion or Merger shall have been issued or proceedings therefore initiated
or, to the Company's or the Bank's knowledge threatened by the Commission, the
OTS, or any other federal or state authority.
(c) At the Closing Date, Webb shall have received to following:
(1) The favorable opinion, dated as of the Closing Date
and addressed to Webb and for its benefit, of Elias,
Matz, Tiernan & Herrick, special counsel for
<PAGE>
Page 21
the Company and the Bank, in form and substance to the
effect that:
(i) The Company has been duly incorporated and
is validly existing as a corporation in
good standing under the laws of the State
of Delaware and has full corporate power
and authority to own, lease and operate its
properties and to conduct its business as
described in the Registration Statement and
the Prospectus and to enter into and
perform its obligations under this
Agreement. The Company is duly qualified as
a foreign corporation to transact business
and is in good standing in each
jurisdiction where it owns or leases any
material properties or conducts any
material business, unless the failure to so
qualify would not have a material adverse
effect on the financial condition, results
of operations or business of the Company.
(ii) The Bank is organized and is validly
existing as an Ohio-chartered savings and
loan association under the laws of the
State of Ohio and the United States, in
mutual form of organization and upon the
Conversion will become a duly organized and
validly existing federally chartered
savings bank in capital stock form of
organization under the laws of the United
States, in both instances duly authorized
to conduct its business and own its
property as described in the Registration
Statement and Prospectus. All of the
outstanding capital stock of the Bank will
be duly authorized and, upon payment
therefor, will be validly issued, fully
paid and non- assessable and, to the best
of such counsel's knowledge, will be owned
by the Company, free and clear of any
liens, encumbrances, claims or other
restrictions.
(iii) The Bank is a member of the FHLB of
Cincinnati. The Bank is an insured
depository institution under the provisions
of Section 4(a) of the FDI Act, as amended,
and no proceedings for the termination or
revocation of such insurance are, to the
best of such counsel's knowledge, pending
or threatened; the description of the
liquidation account as set forth in the
Prospectus under the caption "Our
Conversion and Our Mergers -- Liquidation
Rights of Certain Depositors" to the extent
that such information constitutes matters
of law and legal conclusions has been
reviewed by such counsel and is accurate in
all material respects.
(iv) Upon consummation of the Conversion, the
authorized, issued and outstanding capital
stock of the Company will be within the
range set forth in the Prospectus under the
caption
<PAGE>
Page 22
"Capitalization," and except for shares
issued upon incorporation of the Company,
no shares of Common Stock have been issued
prior to the Closing Date; at the time of
the Conversion, the Shares subscribed for
pursuant to the Offering will have been
duly and validly authorized for issuance,
and when issued and delivered by the
Company pursuant to the Plan against
payment of the consideration calculated as
set forth in the Plan and the Prospectus,
will be duly and validly issued and fully
paid and non-assessable; the issuance of
the Shares is not subject to statutory
preemptive rights (except for Subscription
Rights granted pursuant to the Plan) and
the terms and provisions of the Shares
conform in all material respects to the
description thereof contained in the
Prospectus. To the best of such counsel's
knowledge, upon the issuance of the Shares,
good title to the Shares will be
transferred from the Company to the
purchasers thereof against payment
therefor, subject to such claims as may be
asserted against the purchasers thereof by
third-party claimants.
(v) The Bank has no subsidiaries.
(vi) The OTS has duly approved the Holding
Company Application and, to the best of
such counsel's knowledge, no action is
pending or threatened respecting the
Holding Company Application or the
acquisition by the Company of all of the
Bank's issued and outstanding capital
stock; the Holding Company Application
complies as to form in all material
respects with the BHCA.
(vii) The OTS has duly approved the Conversion
Application and, to the best of such
counsel's knowledge, no action is pending
or threatened respecting the OTS's approval
of the Conversion Application; the
Conversion Application complies as to form
in all material respects with the
Conversion Regulations of the OTS.
(viii) The execution and delivery of the
Agreement and the consummation of the
transactions contemplated hereby have been
duly and validly authorized by all
necessary action on the part of the Company
and the Bank; and the Agreement is a valid
and binding obligation of the Company and
the Bank, enforceable in accordance with
its terms, except as the enforceability
thereof may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium,
<PAGE>
Page 23
conservatorship, receivership or other
similar laws now or hereafter in effect
affecting the enforceability of the rights
of creditors generally or the rights of
creditors of federally chartered savings
banks and their holding companies, (ii)
general principles of equity, (iii) laws
relating to the safety and soundness of
insured depository institutions and their
holding companies; and (iv) applicable law
with respect to the indemnification and/or
contribution provisions contained herein,
(regardless of whether such enforceability
is considered in a proceeding in equity or
at law), including, without limitation,
Sections 23A and 23B of the Federal Reserve
Act; and such action will not result in any
violation of the provisions of the
certificate of incorporation, bylaws or
charter, as applicable, of the Company or
the Bank or any applicable federal law,
act, regulation (except that no opinion
need be rendered with respect to the
securities or blue sky laws of various
jurisdictions or the rules and regulations
of the NASD and/or the National Market
System of the Nasdaq Stock Market).
(ix) The Plan has been duly adopted by the
required vote of the directors of the
Company and the Directors of the Bank and,
based upon the certificate of the inspector
of election, by the depositors and
borrowers of the Bank and Oakley.
(x) Subject to the satisfaction of the
conditions to the OTS's approval of the
Conversion and the Division's approval of
________, the Company and the Bank are not
required to receive any further approval,
authorization, consent or other order of,
register with, or submit a notice to any
other agency in connection with the
execution and delivery of the Agreement,
the issuance of the Shares and the
consummation of the Conversion, except as
may be required under the securities or
blue sky laws of various jurisdictions (as
to which no opinion need be rendered),
except as may be required under the rules
and regulations of the NASD and/or the
National Market System of the Nasdaq Stock
Market (as to which no opinion need be
rendered) and except for the registration
of the Company as a savings bank holding
company.
(xi) The Registration Statement is effective
under the 1933 Act and no stop order
suspending the effectiveness has been
issued under the 1933 Act or, to the best
of such counsel's knowledge,
<PAGE>
Page 24
proceedings therefor pending or threatened
by the Commission.
(xii) At the time that the Registration Statement
became effective, (i) the Registration
Statement (as amended or supplemented, if
so amended or supplemented) (other than the
financial statements, the notes thereto and
other tabular, financial, statistical and
appraisal data included therein or omitted
therefrom, as to which no opinion need be
rendered) complied as to form in all
material respects with the requirements of
the 1933 Act and the 1933 Act Regulations,
and (ii) the Prospectus (other than the
financial statements, the notes thereto and
other tabular, financial, statistical and
appraisal data included therein or omitted
therefrom, as to which no opinion need be
rendered) complied as to form in all
material respects with the requirements of
the 1933 Act and the 1933 Act Regulations.
(xiii) The terms and provisions of the Shares of
the Company conform, in all material
respects, to the description thereof
contained in the Registration Statement and
Prospectus, and the form of certificate
used to evidence the Shares complies with
applicable law.
(xiv) The descriptions in the Conversion
Application, the Registration Statement and
the Prospectus of the contracts,
indentures, mortgages, loan agreements,
notes, leases or other instruments filed as
exhibits thereto are accurate in all
material respects and fairly present the
information required to be shown.
(xv) To the best of such counsel's knowledge the
Company and the Bank have conducted the
Conversion in all material respects in
accordance with applicable requirements of
the Plan, the Conversion Regulations, and
all other applicable regulations, decisions
and orders thereunder, including all
material applicable terms, conditions,
requirements and conditions precedent to
the Conversion imposed upon the Company or
the Bank by the OTS and the Division and,
to the best of such counsel's knowledge, no
person has sought to obtain review of the
final action of the OTS in approving the
Plan.
(xvi) To the best of such counsel's knowledge,
the Company and the Bank have obtained all
material licenses, permits and other
governmental authorizations currently
required under the HOLA and Ohio State law
and all applicable rules and regulations
promulgated thereunder for the conduct of
their businesses and to
<PAGE>
Page 25
the best of such counsel's knowledge all
such licenses, permits and other
governmental authorizations are in full
force and effect, and the Company and the
Bank are in all material respects complying
therewith, except whether the failure to
have such licenses, permits and other
governmental authorizations or the failure
to be in compliance therewith would not
have a material adverse affect on the
business or operations of the Bank and the
Company, taken as a whole.
(xvii) The Company's certificate of incorporation
and bylaws comply in all material respects
with the Delaware General Corporate Law.
The Bank's articles of incorporation,
constitution and bylaws in mutual form
comply in all material respects with the
laws of the State of Ohio and the
regulations of the Division, and, upon the
completion of the Conversion the Bank's
charter and bylaws will comply in all
material respects with the laws of the
United States and the regulations of the
OTS.
(xviii) To the best of such counsel's knowledge,
neither the Company nor the Bank is in
violation of any directive from the OTS or
the Division to make any material change in
the method of conducting its respective
business.
(xix) The information in the Prospectus under the
captions "Regulation," "Our Conversion and
Our Mergers with Oakley and Harvest Home
Financial," "Restrictions on Acquisition of
Peoples Community Bancorp and People's
Savings" and "Description of Our Capital
Stock," to the extent that such information
constitutes matters of law, summaries of
legal matters, documents or proceedings, or
legal conclusions, has been reviewed by
such counsel and is correct in all material
respects. The description of the Conversion
process under the caption "Our Conversion
and Our Mergers with Oakley and Harvest
Home Financial" in the Prospectus has been
reviewed by such counsel and is in all
material respects correct. The discussion
of Federal statutes or regulations
described or referred to in the Prospectus
are, in all material respects, accurate
summaries. The information regarding the
federal tax opinion under the caption "Our
Conversion and Our Mergers with Oakley and
Harvest Home Financial-- Tax Aspects of Our
Conversion and the Mergers" has been
reviewed by such counsel and constitutes an
accurate summary of the opinion rendered by
such counsel to the Company and the Bank
<PAGE>
Page 26
with respect to such matters subject to the
qualifications and limitations noted
therein.
(xx) The Bank has the power and authority to
consummate the transactions contemplated by
the Merger Agreements.
(xxi) The Merger Agreements have been duly
authorized, executed and delivered by the
Bank and constitute the valid and binding
obligation of the Bank enforceable in
accordance with their terms subject to (i)
applicable bankruptcy, insolvency and
similar laws affecting creditors' rights
and remedies generally or the rights of
creditors of federal savings banks and Ohio
savings and loan associations, (ii) as to
enforceability, general principles of
equity, whether applied in a court of law
or a court of equity, and (iii) laws
relating to the safety and soundness of
insured depository institutions.
(xxii) To the best knowledge of such counsel all
corporate acts and other proceedings
required to be taken by or on the part of
the Bank to consummate the transactions
contemplated by the Merger Agreements have
been properly taken; neither the execution
and delivery of the Merger Agreements, nor
the consummation of the transactions
contemplated thereby, with and without the
giving of notice or the lapse of time, or
both, will violate any provision of the
Articles of Incorporation, Constitution or
Bylaws of the Bank in the mutual form or
the Charter and Bylaws of the Bank in stock
form.
(xxiii) Except as disclosed in such opinion, to the
knowledge of such counsel there are no
actions, suits, proceedings or
investigations (public or private) of any
nature pending or threatened that challenge
the validity or propriety of the
transactions contemplated by the Merger
Agreements or which seek or threaten to
restrain, enjoin or prohibit or to obtain
substantial damages in connection with the
consummation of such transactions.
(xxiv) All regulatory and governmental approvals
and consents which are necessary to be
obtained by the Bank to permit the
execution, delivery and performance of the
Merger Agreements have been obtained.
(xxv) All conditions precedent to consummation of
the Mergers have
<PAGE>
Page 27
been satisfied, including but not limited
to those referenced in the Merger
Agreements, all statutory waiting periods
with respect to all regulatory and
governmental approvals of the transactions
contemplated by the Merger Agreements have
expired and there are no facts or
circumstances which would preclude the
immediate consummation of the Merger.
(2) The favorable opinion, dated as of the Closing Time,
of Kepley, Gilligan & Eyrich, counsel to Harvest Home
and Harvest Home Savings Bank, concerning the
following matters:
(i) Harvest Home is a corporation duly
organized, validly existing and in good
standing under the laws of the State of
Delaware, and Harvest Home Savings Bank is
a federally chartered stock savings bank
duly organized and in existence under the
laws of the United States of America.
(ii) Harvest Home and Harvest Home Savings Bank
have the power and authority to carry on
their business as described in the
Prospectus and to consummate the
transactions contemplated by the HH Merger
Agreement.
(iii) The HH Merger Agreement has been duly
approved, authorized, executed and
delivered by Harvest Home, the HH Merger
Agreement and the transactions contemplated
thereby have been approved by the requisite
vote of Harvest Home's shareholders, and
the HH Merger Agreement constitutes the
valid and binding obligation of Harvest
Home enforceable in accordance with its
terms subject to applicable bankruptcy,
insolvency and similar laws affecting
creditors rights and remedies generally and
subject, as to enforceability, to general
principles of equity, whether applied in a
court of law or a court of equity.
(iv) To the best knowledge of such counsel, all
actions required to be taken by or on the
part of Harvest Home, including the
adoption of the HH Merger Agreement by the
shareholders of Harvest Home, and the
necessary approvals, consents,
authorizations or notifications required to
be taken to consummate the transactions
contemplated by the HH Merger Agreement,
have been properly taken or obtained;
neither the execution and delivery of the
HH Merger Agreement nor the consummation of
the transactions contemplated hereby and
thereby, with or without the giving of
notice or the lapse of time, or both, will
(i) violate any provision
<PAGE>
Page 28
of the Certificate, Charter or Bylaws; or
(ii) to the knowledge of such counsel,
violate, conflict with, result in the
material breach or termination of,
constitute a material default under,
accelerate the performance required by, or
result in the creation of any material
lien, charge or encumbrance upon any of the
properties or assets of Harvest Home or
Harvest Home Savings Bank pursuant to any
indenture, mortgage, deed of trust, or
other agreement or instrument to which
Harvest Home or Harvest Home Savings Bank
are a party or by which it or any of their
properties or assets may be bound, or
violate any statute, rule or regulation
applicable to Harvest Home or Harvest Home
Savings Bank, which would have a material
adverse effect on the financial condition,
assets, liabilities, or business of Harvest
Home or Harvest Home Savings Bank; to the
knowledge of such counsel, no consent,
approval, authorization, order,
registration or qualification of or with
any court, regulatory authority or other
governmental body other than as
specifically contemplated by the HH Merger
Agreement is required for the consummation
by Harvest Home or Harvest Home Savings
Bank of the transactions contemplated by
the HH Merger Agreement.
(v) To the best knowledge of such counsel,
there are no actions, suits, proceedings,
or investigations of any nature pending or
threatened that challenge the validity or
legality of the transactions contemplated
by the HH Merger Agreement which seek or
threaten to restrain, enjoin or prohibit
(or obtain substantial damages in
connection with) the consummation of such
transactions.
(vi) To the best knowledge of such counsel,
there is no litigation, appraisal or other
proceeding or governmental investigation
pending or threatened against or relating
to the business or property of Harvest Home
or Harvest Home Savings Bank which would
have a materially adverse effect on the
consolidated financial condition of Harvest
Home, or any legal impediment to the
continued operation of the properties and
business of Harvest Home or Harvest Home
Savings Bank in the ordinary course after
the consummation of the transactions
contemplated by the HH Merger Agreement.
(vii) All conditions precedent to consummation of
the Harvest Home Merger have been
satisfied, all statutory waiting periods
with respect to all regulatory and
governmental approvals of the
<PAGE>
Page 29
Harvest Home Merger have expired and there
are no facts or circumstances which would
preclude the immediate consummation of the
Harvest Home Merger.
(3) The favorable opinion, dated as of the Closing Time,
of Silver, Freedman & Taff, LLP, counsel to Oakley,
concerning the following matters:
(i) Oakley is organized and validly existing as
an Ohio-chartered savings and loan
association under the laws of the State of
Ohio.
(ii) Oakley has the power and authority to carry
on its business as described in the
Prospectus and to consummate the
transactions contemplated by the Oakley
Merger Agreement.
(iii) The Oakley Merger Agreement has been duly
approved, authorized, executed and
delivered by Oakley and the Oakley Merger
Agreement constitutes the valid and binding
obligation of Oakley enforceable in
accordance with its terms subject to
applicable bankruptcy, insolvency and
similar laws affecting creditors rights and
remedies generally and subject, as to
enforceability, to general principles of
equity, whether applied in a court of law
or a court of equity.
(iv) To the best knowledge of such counsel, all
actions required to be taken by or on the
part of Oakley, and the necessary
approvals, consents, authorizations or
notifications required to be taken to
consummate the transactions contemplated by
the Oakley Merger Agreement, have been
properly taken or obtained; the Plan has
been duly adopted by the required vote of
the directors and members of Oakley;
neither the execution and delivery of the
Oakley Merger Agreement nor the
consummation of the transactions
contemplated hereby and thereby, with or
without the giving of notice or the lapse
of time, or both, will (i) violate any
provision of Oakley's Articles of
Incorporation, Constitution or Bylaws; or
(ii) to the knowledge of such counsel,
violate, conflict with, result in the
material breach or termination of,
constitute a material default under,
accelerate the performance required by, or
result in the creation of any material
lien, charge or encumbrance upon any of the
properties or assets of Oakley pursuant to
any indenture, mortgage, deed of trust, or
other agreement or instrument to which
Oakley is a party or by which it or any of
its properties or assets may be bound, or
violate any statute, rule or regulation
applicable to Oakley, which would have a
material adverse effect on the financial
condition, assets, liabilities, or
<PAGE>
Page 30
business of Oakley; to the knowledge of
such counsel, no consent, approval,
authorization, order, registration or
qualification of or with any court,
regulatory authority or other governmental
body other than as specifically
contemplated by the Oakley Merger Agreement
is required for the consummation by Oakley
of the transactions contemplated by the
Oakley Merger Agreement.
(v) To the best knowledge of such counsel,
there are no actions, suits, proceedings,
or investigations of any nature pending or
threatened that challenge the validity or
legality of the transactions contemplated
by the Oakley Merger Agreement which seek
or threaten to restrain, enjoin or prohibit
(or obtain substantial damages in
connection with) the consummation of such
transactions.
(vi) To the best knowledge of such counsel,
there is no litigation, appraisal or other
proceeding or governmental investigation
pending or threatened against or relating
to the business or property of Oakley that
would have a materially adverse effect on
the financial condition of Oakley, or any
legal impediment to the continued operation
of the properties and business of Oakley in
the ordinary course after the consummation
of the transactions contemplated by the
Oakley Merger Agreement.
(vii) All conditions precedent to consummation of
the Oakley Merger have been satisfied, all
statutory waiting periods with respect to
all regulatory and governmental approvals
of the Oakley Merger have expired and there
are no facts or circumstances which would
preclude the immediate consummation of the
Oakley Merger.
(4) The favorable opinion, dated as of the Closing Date,
of Luse Lehman Gorman Pomerenk & Schick, P.C., Webb's
counsel, with respect to such matters as Webb may
reasonably require. Such opinion may rely upon the
opinions of counsel to the Company and the Bank, and
as to matters of fact, upon certificates of officers
and directors of the Company and the Bank delivered
pursuant hereto or as such counsel shall reasonably
request.
(5) In giving their opinions required by subsections 1, 2,
and 3, respectively, of this Section, Elias, Matz,
Tiernan & Herrick L.L.P., Kepley, Gilligan & Eyrich,
and Silver, Freedman & Taff, L.L.P. shall each
additionally state that nothing has come to their
attention that would lead them to believe that the
Registration Statement (except for financial
statements, the notes thereto and other financial,
statistical data and appraisal included therein, as
<PAGE>
Page 31
to which counsel need make no statement), at the time
it became effective, contained an 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 not misleading or that the
Prospectus (except for financial statements and
schedules and other financial or statistical data
included therein, as to which counsel need make no
statement), at the time the Registration Statement
became effective or at Closing Time, included an
untrue statement of a material fact or omitted to
state a material fact necessary in order to make the
statements therein, in the light of the circumstances
under which they were made, not misleading. In giving
their opinions, counsel may rely as to matters of fact
on certificates of officers and directors of the
Company and the Bank and certificates of public
officials, and Luse Lehman Gorman Pomerenk & Schick
may also rely on the opinion of Elias, Matz, Tiernan &
Herrick L.L.P.
(6) In giving their opinions counsel may state that it has
not independently verified the information with
respect to the Company, the Bank, Harvest Home and
Harvest Home Savings Bank contained in the
Registration Statement and the Prospectus. For
purposes of opinions required hereunder, no
proceedings shall be deemed to be pending, no order or
stop order shall be deemed to be issued, and no action
shall be deemed to be instituted unless, in each case,
either a director or executive officer of the Company,
the Bank, Harvest Home, Harvest Home Savings Bank or
the firm giving the opinion shall have received a copy
of such proceedings, order, stop order or action. If
so stated, the opinions of counsel may be governed by
the provisions of The Legal Opinion Accord (the
"Accord") of the American Bar Association Section of
Business Law (1991). The term "actual knowledge" and
"to the best of such counsel's knowledge" as used
herein shall have the meaning set forth in the Accord
for the term "Actual Knowledge."
(d) At the Closing Date, Webb shall have received the Officers'
Certificates attached as Exhibit A. The Company will take all action necessary
to cause Harvest Home and Harvest Home Savings Bank Savings to provide such
Certificates.
(e) At Closing Time, there shall not have been, since the date hereof
or since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change in the
financial condition, results of operations or business affairs of the Company,
the Bank, Oakley (with the Bank and Oakley considered as one enterprise
following the Oakley Merger which shall occur immediately prior to the Closing
Time), Harvest Home, or Harvest Home Savings Bank, whether or not arising in the
ordinary course of business, and the Agent shall have received a certificate of
the President and Chief Executive Officer of the Company and the Bank, and the
officer who shall be the Chief Financial
<PAGE>
Page 32
Officer of the Company and the Bank following the Oakley Merger, dated as of
Closing Time, to the effect that: (i) there has been no such material adverse
change; (ii) they have reviewed the Prospectus and, in their opinion, at the
time the Prospectus became authorized for final use, the Prospectus did not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading; (iii) since the date the Prospectus
became authorized for final use, no event has occurred, which should have been
set forth in an amendment or supplement to the Prospectus which has not been so
set forth, and the conditions set forth in this Section 7 have been satisfied;
(iv) there has been no material transaction entered into by the Company or the
Bank from the latest date as of which the financial condition of the Company or
the Bank is set forth in the Registration Statement and the Prospectus other
than the Oakley Merger and other transactions referred to or contemplated
therein and transactions in the ordinary course of business and consistent with
past practices; (v) neither the Company, the Bank nor Oakley have received from
the OTS any direction (oral or written) to make any material change in the
method of conducting their businesses with which they have not complied (which
direction, if any, shall have been disclosed to the Agent) or which materially
and adversely would affect the business, financial condition or results of
operations of the Company, the Bank or Oakley; (vi) the representations and
warranties in Section 4 hereof are true and correct with the same force and
effect as though expressly made at and as of the Closing Time except that the
Bank and Oakley shall be considered as one entity following the Oakley Merger;
(vii) the Company and the Bank have complied in all material respects with all
agreements and satisfied all conditions on their part to be performed or
satisfied at or prior to the Closing Date and will comply in all material
respects with all obligations to be satisfied by them after Conversion; (viii)
no stop order suspending the effectiveness of the Registration Statement is
pending or, to the best knowledge of the Company or the Bank, threatened by the
Commission or any state authority; (ix) no order suspending the Offering, the
Conversion, the acquisition of all of the shares of the Bank by the Company, or
the authorization for final use of or effectiveness of the Prospectus has been
issued and no proceedings for that purpose are pending or, to the best knowledge
of the Company or the Bank, threatened by the OTS, the Commission or any other
federal or state authority; and (x) to the best knowledge of the Company or the
Bank, no person has sought to obtain review of the final action of the OTS
approving the Plan.
(f) Prior to and at the Closing Date: (i) in the reasonable opinion of
Webb, there shall have been no material adverse change in the financial
condition, or in the earnings or business of the Bank or Oakley independently,
or of the Company, the Bank and Oakley considered as one enterprise, from that
as of the latest dates as of which such condition is set forth in the Prospectus
other than transactions referred to or contemplated therein; (iii) the Company
or the Bank shall not have received from the OTS any direction (oral or written)
to make any material change in the method of conducting their business with
which it has not complied (which direction, if any, shall have been disclosed to
Webb) or which materially and adversely would affect the business, operations or
financial condition or income of the Company and the Bank considered as one
enterprise; (iv) the Company and the Bank shall not have been in material
default (nor shall an event have occurred which, with notice or lapse of time or
both,
<PAGE>
Page 33
would constitute a default) under any material provision of any agreement or
instrument relating to any outstanding indebtedness; (v) no action, suit or
proceedings, at law or in equity or before or by any federal or state
commission, board or other administrative agency, shall be pending or, to the
knowledge of the Company or the Bank, threatened against the Company or the Bank
affecting any of their properties wherein an unfavorable decision, ruling or
finding would materially and adversely affect the business operations,
financially condition or income of the Company and the Bank considered as one
enterprise; and (vi) the Shares have been qualified or registered for offering
and sale or exempted therefore under the securities or blue sky laws of the
jurisdictions as Webb shall have requested and as agreed to by the Company and
the Bank.
(g) At the time of the execution of this Agreement, the Agent shall
have received from Grant Thornton LLP, independent auditors, the following:
(1) a letter dated such date, in form and substance
satisfactory to the Agent, to the effect that (i) they
are independent public accountants with respect to the
Company and the Bank, and any subsidiary within the
meaning of the Code of Ethics of the American
Institute of Certified Public Accountants, the 1933
Act and the 1933 Act Regulations and the Conversion
Regulations; (ii) it is their opinion that the
financial statements and financial statements and
supporting schedules included in the Registration
Statement and covered by their opinions therein comply
as to form in all material respects with the
applicable accounting requirements of the 1933 Act and
the 1933 Act Regulations; (iii) based upon limited
procedures set forth in detail in such letter, nothing
has come to their attention which causes them to
believe that (A) the unaudited financial statements
and supporting schedules of the Bank included in the
Registration Statement do not comply as to form in all
material respects with the applicable accounting
requirements of the 1933 Act and the 1933 Act
Regulations or are not presented in conformity with
generally accepted accounting principles applied on a
basis substantially consistent with that of the
audited financial statements included in the
Registration Statement and the Prospectus, (B) the
unaudited amounts set forth under "SELECTED FINANCIAL
AND OTHER DATA OF PEOPLE'S SAVINGS" in the Prospectus
were not determined on a basis substantially
consistent with that used in determining the
corresponding amounts in the audited financial
statements included in the Registration Statement, (C)
at a specified date not more than five days prior to
the date of this Agreement, except as described in the
Prospectus or in such letter, there has been any
increase in the consolidated long-term or short-term
debt of the Bank or any decrease in total deposits or
net worth of the Bank, in each case as compared with
the amounts shown in the September 30, 1999 balance
sheet included in the Registration Statement or (D)
during the period from September 30, 1999 to a
specified date not more than five days prior to the
date of this
<PAGE>
Page 34
Agreement, there were any decreases, as compared with
the corresponding period in the preceding year, in
total interest income, net interest income, net
interest income after provision for loan losses,
income before income tax expense or net income of the
Bank, except in all instances for increases or
decreases which the Registration Statement and the
Prospectus disclose have occurred or may occur; and
(iv) in addition to the examination referred to in
their opinions and the limited procedures referred to
in clause (iii) above, they have carried out certain
specified procedures, not constituting an audit, with
respect to certain amounts, percentages and financial
information which are included in the Registration
Statement and Prospectus and which are specified by
the Agent, and have found such amounts, percentages
and financial information to be in agreement with the
relevant accounting, financial and other records of
the Company or the Bank identified in such letter.
(2) a letter dated such date, in form and substance
satisfactory to the Agent, to the effect that (i) they
are independent public accountants with respect to the
Oakley, and any subsidiary within the meaning of the
Code of Ethics of the American Institute of Certified
Public Accountants, the 1933 Act and the 1933 Act
Regulations and the Conversion Regulations; (ii) it is
their opinion that the financial statements and
financial statements and supporting schedules included
in the Registration Statement and covered by their
opinions therein comply as to form in all material
respects with the applicable accounting requirements
of the 1933 Act and the 1933 Act Regulations; (iii)
based upon limited procedures set forth in detail in
such letter, nothing has come to their attention which
causes them to believe that (A) the unaudited
financial statements and supporting schedules of
Oakley included in the Registration Statement do not
comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and
the 1933 Act Regulations or are not presented in
conformity with generally accepted accounting
principles applied on a basis substantially consistent
with that of the audited financial statements included
in the Registration Statement and the Prospectus, (B)
the unaudited amounts set forth under "SELECTED
FINANCIAL AND OTHER DATA OF OAKLEY" in the Prospectus
were not determined on a basis substantially
consistent with that used in determining the
corresponding amounts in the audited financial
statements included in the Registration Statement, (C)
at a specified date not more than five days prior to
the date of this Agreement, except as described in the
Prospectus or in such letter, there has been any
increase in the consolidated long-term or short-term
debt of Oakley or any decrease in total deposits or
net worth of Oakley, in each case as compared with the
amounts shown in the September 30, 1999 balance sheet
included in the Registration Statement or (D) during
the period from September 30,
<PAGE>
Page 35
1999 to a specified date not more than five days prior
to the date of this Agreement, there were any
decreases, as compared with the corresponding period
in the preceding year, in total interest income, net
interest income, net interest income after provision
for loan losses, income before income tax expense or
net income of Oakley, except in all instances for
increases or decreases which the Registration
Statement and the Prospectus disclose have occurred or
may occur; and (iv) in addition to the examination
referred to in their opinions and the limited
procedures referred to in clause (iii) above, they
have carried out certain specified procedures, not
constituting an audit, with respect to certain
amounts, percentages and financial information which
are included in the Registration Statement and
Prospectus and which are specified by the Agent, and
have found such amounts, percentages and financial
information to be in agreement with the relevant
accounting, financial and other records of the Company
or the Bank identified in such letter.
(3) a letter dated such date, in form and substance
satisfactory to the Agent, to the effect that (i) they
are independent public accountants with respect to
Harvest Home and Harvest Home Savings Bank, and any
subsidiary within the meaning of the Code of Ethics of
the American Institute of Certified Public
Accountants, the 1933 Act and the 1933 Act Regulations
and the Conversion Regulations; (ii) it is their
opinion that the consolidated financial statements and
consolidated financial statements and supporting
schedules included in the Registration Statement and
covered by their opinions therein comply as to form in
all material respects with the applicable accounting
requirements of the 1933 Act and the 1933 Act
Regulations; (iii) based upon limited procedures set
forth in detail in such letter, nothing has come to
their attention which causes them to believe that (A)
the unaudited consolidated financial statements and
supporting schedules of Harvest Home included in the
Registration Statement do not comply as to form in all
material respects with the applicable accounting
requirements of the 1933 Act and the 1933 Act
Regulations or are not presented in conformity with
generally accepted accounting principles applied on a
basis substantially consistent with that of the
audited consolidated financial statements included in
the Registration Statement and the Prospectus, (B) the
unaudited amounts set forth under "SELECTED
CONSOLIDATED FINANCIAL AND OTHER DATA OF HARVEST HOME
FINANCIAL" in the Prospectus were not determined on a
basis substantially consistent with that used in
determining the corresponding amounts in the audited
financial statements included in the Registration
Statement, (C) at a specified date not more than five
days prior to the date of this Agreement, except as
described in the Prospectus or in such letter, there
has been any increase in the consolidated long-term or
<PAGE>
Page 36
short-term debt of Harvest Home or any decrease in
total deposits or net worth of the Harvest Home, in
each case as compared with the amounts shown in the
September 30, 1999 balance sheet included in the
Registration Statement or (D) during the period from
September 30, 1999 to a specified date not more than
five days prior to the date of this Agreement, there
were any decreases, as compared with the corresponding
period in the preceding year, in total interest
income, net interest income, net interest income after
provision for loan losses, income before income tax
expense or net income of Harvest Home, except in all
instances for increases or decreases which the
Registration Statement and the Prospectus disclose
have occurred or may occur; and (iv) in addition to
the examination referred to in their opinions and the
limited procedures referred to in clause (iii) above,
they have carried out certain specified procedures,
not constituting an audit, with respect to certain
amounts, percentages and financial information which
are included in the Registration Statement and
Prospectus and which are specified by the Agent, and
have found such amounts, percentages and financial
information to be in agreement with the relevant
accounting, financial and other records of Harvest
Home or Harvest Home Savings Bank identified in such
letter.
(h) At Closing Time, the Agent shall have received from Grant
Thornton, LLP letters, dated as of Closing Time, to the effect that Grant
Thornton, LLP reaffirms the statements made in the letters furnished pursuant to
subsection(g) of this Section, except that the specified date referred to shall
be a date not more than three days prior to Closing Time.
(i) All conditions precedent to consummation of the Mergers have been
satisfied, including but not limited to those referenced in the Merger
Agreements, all statutory waiting periods with respect to all regulatory and
governmental approvals of the Mergers have expired and there are no facts or
circumstances which would preclude the immediate consummation of the Mergers.
(j) At Closing Time, the Securities shall have been approved for
listing on the Nasdaq Stock Market upon notice of issuance.
(k) At Closing Time, counsel for the Agent shall have been furnished
with such documents and opinions as they may require for the purpose of enabling
them to pass upon the issuance and sale of the Securities as herein contemplated
and related proceedings, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company in connection with
the issuance and sale of the Securities as herein contemplated shall be
satisfactory in form and substance to the Agent and counsel for the Agent.
(l) At any time prior to Closing Time, (i) there shall not have
occurred any material
<PAGE>
Page 37
adverse change in the financial markets in the United States or elsewhere or any
outbreak of hostilities or escalation thereof or other calamity or crisis the
effect of which, in the judgment of the Agent, is so material and adverse as to
make it impracticable to market the Securities or to enforce contracts,
including subscriptions or orders, for the sale of the Securities, and (ii)
trading generally on either the Nasdaq Stock Market or the New York Stock
Exchange shall not have been suspended, and minimum or maximum prices for
trading shall not have been fixed, or maximum ranges for prices for securities
have been required, by either of said Exchanges or by order of the Commission or
any other governmental authority, and a banking moratorium shall not have been
declared by either Federal or New York authorities; (iii) a general moratorium
on the operations of commercial banks or federal savings associations or a
general moratorium on the withdrawal of deposits from commercial banks or
federal savings associations shall not have been declared by federal or Ohio
authorities; or (iv) there shall not have been a material decline in the price
of equity or debt securities if the effect of such a decline, in Webb's
reasonable judgment, makes it impracticable or inadvisable to proceed with the
Offering or the delivery of the shares on the terms and in the manner
contemplated in the Registration Statement and Prospectus.
(m) At the Closing Date, Webb shall receive a letter from R.P.
Financial dated the date thereof and addressed to counsel for Webb, (i)
confirming that said firm is independent of the Company and the Bank and is
experienced and expert in the area of corporate appraisals and (ii) stating that
its opinion of the aggregate pro forma market value of the Company and the Bank
expressed in its Appraisal dated as of __________, and most recently updated,
remains in effect and is confirmed..
(n) The Company and the Bank shall not have sustained since the date
of the latest audited financial statements included in the Prospectus any
material loss or interference with their businesses from fire, explosion, flood
or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Registration Statement and Prospectus.
(o) At or prior to the Closing Date, Webb shall receive: (i) a copy of
the letter from the OTS approving the Conversion Application and authorizing the
use of the Prospectus; (ii) a copy of the order from the Commission declaring
the Registration Statement effective; (iii) a certificate from the OTS
evidencing the existence of the Bank; (iv) certificates of good standing from
the States of Ohio and Delaware evidencing the good standing of the Company; (v)
a certificate from the FDIC evidencing the Bank's insurance of accounts; (vi) a
certificate of the FHLB-Cincinnati evidencing the Bank's membership thereof,
(vii) a copy of the letter from the OTS approving the Company's Holding Company
Application.
(p) As soon as available after the Closing Date, Webb shall receive,
upon request, a copy of the Bank's federal stock charter.
SECTION 8. INDEMNIFICATION.
<PAGE>
Page 38
(a) The Company and the Bank jointly and severally agree to indemnify
and hold harmless Webb, its officers, directors, agents, servants and employees
and each person, if any, who controls Webb within the meaning of Section 15 of
the 1933 Act or Section 20(a) of the 1934 Act, against any and all loss,
liability, claim, damage or expense whatsoever (including but not limited to
reasonable and documented settlement expenses), joint or several, that Webb or
any of them may suffer or to which Webb and any such persons may become subject
under all applicable federal or state laws or otherwise, and to promptly
reimburse Webb and any such persons upon written demand for any expense
(including reasonable and documented fees and disbursements of counsel) incurred
by Webb or any of them in connection with investigating, preparing or defending
any actions, proceedings or claims (whether commenced or threatened) to the
extent such losses, claims, damages, liabilities or actions: (i) arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (or any amendment or supplement
thereto), preliminary or final Prospectus (or any amendment or supplement
thereto), the Conversion Application (or any amendment or supplement thereto),
the Holding Company Application or any blue sky application or other instrument
or document executed by the Company or the Bank or based upon written
information supplied by the Company or the Bank filed in any state or
jurisdiction to register or qualify any or all of the Shares or to claim an
exemption therefrom, or provided to any state or jurisdiction to exempt the
Company as a broker-dealer or its officers, directors and employees as
broker-dealers or agents, under the securities laws thereof (collectively, the
"Blue Sky Application"), or any application or other document, advertisement,
oral statement or communication ("Sales Information") prepared, made or executed
by or on behalf of the Company or the Bank with their consent or based upon
written or oral information furnished by or on behalf of the Company or the
Bank, whether or not filed in any jurisdiction, in order to qualify or register
the Shares or to claim an exemption therefrom under the securities laws thereof;
(ii) arise out of or based upon the omission or alleged omission to state in any
of the foregoing documents or information, 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; or (iii) arise from
any theory of liability whatsoever relating to or arising from or based upon the
Registration Statement (or any amendment or supplement thereto), preliminary or
final Prospectus (or any amendment or supplement thereto), the Conversion
Application (or any amendment or supplement thereto), any Blue Sky Application
or Sales Information or other documentation distributed in connection with the
Conversion; PROVIDED, HOWEVER, that no indemnification is required under this
paragraph (a) to the extent such losses, claims, damages, liabilities or actions
arise out of or are based upon Webb's gross negligence, bad faith or willful
misconduct (as determined in a final judgment by a court of competent
jurisdiction) or upon any untrue material statement or alleged untrue material
statements in, or material omission or alleged material omission from, the
Registration Statement (or any amendment or supplement thereto), preliminary or
final Prospectus (or any amendment or supplement thereto), the Conversion
Application, any Blue Sky Application or Sales Information made in reliance upon
and in conformity with information furnished in writing to the Company or the
Bank by Webb regarding Webb for use in the Prospectus contained in the
Conversion Application under the
<PAGE>
Page 39
caption "The Offering -- Marketing Arrangements," and provided further that such
indemnification shall be to the extent permitted by Sections 23A and 23B of the
Federal Reserve Act, as amended.
(b) Webb agrees to indemnify and hold harmless the Company and the
Bank, their directors and officers and each person, if any, who controls the
Company or the Bank within the meaning of Section 15 of the 1933 Act or Section
20(a) of the 1934 Act against any and all loss, liability, claim, damage or
expense whatsoever (including but not limited to reasonable and documented
settlement expenses), joint or several, which it, or any of them, may suffer or
to which it, or any of them may become subject under all applicable federal and
state laws or otherwise, and to promptly reimburse the Company, the Bank, and
any such persons upon written demand for any expenses (including reasonable and
documented fees and disbursements of counsel) incurred by it, or any of them, in
connection with investigating, preparing or defending any actions, proceedings
or claims (whether commenced or threatened) to the extent such losses, claims,
damages, liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment or supplement thereto), the Conversion
Application (or any amendment or supplement thereto) or the preliminary or final
Prospectus (or any amendment or supplement thereto), or are based upon the
omission or alleged omission to state in an of the foregoing documents a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that Webb's obligations under this Section 8(b)
shall exist only if and only to the extent that such untrue statement or alleged
untrue statement was made in, or such material fact or alleged material fact was
omitted from, the Registration Statement (or any amendment or supplement
thereto), the preliminary or final Prospectus (or any amendment or supplement
thereto) or the Conversion Application (or any amendment or supplement thereto),
any Blue Sky Application or Sales Information in reliance upon and in conformity
with information furnished in writing to the Company or the Bank by Webb
regarding Webb for use in the Prospectus contained in the Conversion Application
under the caption "The Offering -- Marketing Arrangements."
(c) Each indemnified party shall give prompt written notice to each
indemnifying party of any action, proceeding, claim (whether commenced or
threatened), or suit instituted against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve it from any liability which it may have on account of this Section 8 or
otherwise. An indemnifying party may participate at its own expense in the
defense of such action. In addition, if it so elects within a reasonable time
after receipt of such notice, an indemnifying party, jointly with any other
indemnifying parties receiving such notice, may assume defense of such action
with counsel chosen by it and approved by the indemnified parties that are
defendants in such action, unless such indemnified parties reasonably object to
such assumption on the ground that there may be legal defenses available to them
that are different from or in addition to those available to such indemnifying
party. If an indemnifying party assumes the defense of such action, the
indemnifying parties shall not be liable for any fees and
<PAGE>
Page 40
expenses of counsel for the indemnified parties incurred thereafter in
connection with such action, proceeding or claim, other than reasonable costs of
investigation. In no event shall the indemnifying parties be liable for the
reasonable fees and expenses of more than one separate firm of attorneys (and
any special counsel that said firm may retain) for each indemnified party in
connection with any one action, proceeding or claim or separate but similar or
related actions, proceeding or claim or separate but similar or related actions,
proceedings or claims in the same jurisdiction arising out of the same general
allegations or circumstances.
(d) The agreements contained in this Section 8 and in Section 9 hereof
and the representations and warranties of the Company and the Bank set forth in
this Agreement shall remain operative and in full force and effect regardless of
(i) any investigation made by or on behalf of Webb or its officers, directors or
controlling persons, agents or employees or by or on behalf of the Company or
the Bank or any officers, directors or controlling persons, agents or employees
of the Company or the Bank; (ii) delivery of and payment hereunder for the
Shares; or (iii) any termination of this Agreement.
SECTION 9. CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 8 is due in accordance with its terms but is for any reason held by a
court to be unavailable from the Company, the Bank or Webb, the Company, the
Bank and Webb shall contribute to the aggregate losses, claims, damages and
liabilities (including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding of any claims asserted, but after deducting any contribution received
by the Company, the Bank or Webb from persons other than the other party
thereto, who may also be liable for contribution) in such proportion so that
Webb is responsible for that portion represented by the percentage that the fees
paid to Webb pursuant to Section 2 of this Agreement (not including expenses)
bears to the gross proceeds received by the Company from the sale of the Shares
in the Offering and the Company and the Bank shall be responsible for the
balance. If, however, the allocation provided above is not permitted by
applicable law or if the indemnified party failed to give the notice required
under Section 8 above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative fault of the Company and the Bank
on the one hand and Webb on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions, proceedings or claims in respect thereto), but also the relative
benefits received by the Company and the Bank on the one hand and Webb on the
other from the Offering (before deducting expenses). The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company and/or the Bank
on the one hand or Webb on the other and the parties' relative intent, good
faith, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company, the Bank and Webb agree that it would
not be just and equitable if contribution pursuant to this Section 9 were
determined by pro-rata allocation or by any other method of allocation which
does not take into account the equitable considerations
<PAGE>
Page 41
referred to above in this Section 9. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions, proceedings or claims in respect thereof) referred to above in this
Section 9 shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action, proceeding or claim. It is expressly agreed that Webb shall not
be required to contribute any amount which in the aggregate exceeds the amount
paid (excluding reimbursable expenses) to Webb under this Agreement. It is
understood that the above stated limitation on Webb's liability for contribution
is essential to Webb and that Webb would not have entered into this Agreement if
such limitation had not been agreed to by the parties to this Agreement. No
person found guilty of any fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not found guilty of such fraudulent misrepresentation. The obligations
of the Company and the Bank under this Section 9 and under Section 8 shall be in
addition to any liability which the Company and the Bank may otherwise have. For
purposes of this Section 9, each of Webb's, the Company's or the Bank's officers
and directors and each person, if any, who controls Webb or the Company or the
Bank within the meaning of the 1933 Act and the 1934 Act shall have the same
rights to contribution as Webb, the Company or the Bank. Any party entitled to
contribution, promptly after receipt of notice of commencement of any action,
suit, claim or proceeding against such party in respect of which a claim for
contribution may be made against another party under this Section 9, will notify
such party from whom contribution may be sought, but the omission to so notify
such party shall not relieve the party from whom contribution may be sought from
any other obligation it may have hereunder or otherwise than under this Section
9.
SECTION 10. SURVIVAL OF AGREEMENTS REPRESENTATIONS AND INDEMNITIES. The
respective indemnities of the Company, the Bank and Webb and the representations
and warranties and other statements of the Company, the Bank and Webb set forth
in or made pursuant to this Agreement shall remain in full force and effect,
regardless of any termination or cancellation of this Agreement or any
investigation made by or on behalf of Webb, the Company, the Bank or any
controlling person referred to in Section 8 hereof, and shall survive the
issuance of the Shares, and any legal representative, successor or assign of
Webb, tile Company, the Bank, and any such controlling person shall be entitled
to the benefit of the respective agreements, indemnities, warranties and
representations.
SECTION 11. TERMINATION. Webb may terminate its obligations under this
Agreement by giving the notice indicated below in this Section 11 at any time
after this Agreement becomes effective as follows:
(a) In the event the Company fails to sell all of the Shares by
September 30, 2000, and in accordance with the provisions of the Plan or as
required by the Conversion Regulations, and applicable law, this Agreement shall
terminate upon refund by the Bank to each person who has subscribed for or
ordered any of the Shares tile full amount which it may have received from such
person, together with interest as provided in the Prospectus, and no party to
this Agreement shall have any obligation to the other hereunder, except for
payment by the Company and/or the Bank as set forth in Sections 2(a) and (d), 6,
8 and 9 hereof
<PAGE>
Page 42
(b) If any of the conditions specified in Section 7 shall not have been
fulfilled when and as required by this Agreement unless waived in writing, or by
the Closing Date, this Agreement and all of Webb's obligations hereunder may be
cancelled by Webb by notifying the Company and the Bank of such cancellation in
writing at any time at or prior to the Closing Date, and any such cancellation
shall be without liability of any party to any other party except as otherwise
provided in Sections 2, 6, 8 and 9 hereof.
(c) If Webb elects to terminate this Agreement with respect to it as
provided in this Section, the Company and the Bank shall be notified promptly by
such Agent by telephone or telegram, confirmed by letter.
The Company and the Bank may terminate this Agreement with respect to
Webb in the event Webb is in material breach of the representations and
warranties or covenants contained in Section 5 and such breach has not been
cured after the Company and the Bank have provided Webb with notice of such
breach.
This Agreement may also be terminated by mutual written consent of the
parties hereto.
SECTION 12. NOTICES. All communications hereunder, except as herein
otherwise specifically provided, shall be mailed in writing and if sent to Webb
shall be mailed, delivered or telegraphed and confirmed to Charles Webb &
Company, 211 Bradenton, Dublin, Ohio 43017-5034, Attention: Harold T. Hanley,
III (with a copy to Luse Lehman Gorman Pomerenk & Schick, 5335 Wisconsin Avenue,
N.W., Washington, D.C. 20015, Attention: Kenneth R. Lehman, Esq.) and, if sent
to the Company and the Bank, shall be mailed, delivered or telegraphed and
confirmed to the Company and the Bank at Peoples Community Bancorp, Inc., 11 S.
Broadway, Lebanon, Ohio 45036, Attention Jerry D. Williams, Chief Executive
Officer (with a copy to Elias, Matz, Tiernan & Herrick, 734 15th Street, N.W.,
Washington, D.C. 20005, Attention: Kevin M. Houlihan, Esq. or Hugh T. Wilkenson.
Esq.).
SECTION 13. PARTIES. The Company and the Bank shall be entitled to act
and rely on any request, notice, consent, waiver or agreement purportedly given
on behalf of Webb when the same shall have been given by the undersigned. Webb
shall be entitled to act and rely on any request, notice, consent, waiver or
agreement purportedly given on behalf of the Company or the Bank, when the same
shall have been given by the undersigned or any other officer of the Company or
the Bank. This Agreement shall inure solely to the benefit of, and shall be
binding upon, Webb, the Company, the Bank, and their respective successors,
legal representatives and assigns, and no other person shall have or be
construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein contained. It
is understood and agreed that this Agreement, including Exhibit A hereto, is the
exclusive agreement among the parties hereto, and supersedes any prior agreement
among the parties and may not be varied except in writing signed by all the
parties.
<PAGE>
Page 43
SECTION 14. CLOSING. The closing for the sale of the Shares shall take
place on the Closing Date at such location as mutually agreed upon by Webb and
the Company and the Bank. At the closing, the Company and the Bank shall deliver
to Webb in next day funds the commissions, fees and expenses due and owing to
Webb as set forth in Sections 2 and 6 hereof and the opinions and certificates
required hereby and other documents deemed reasonably necessary by Webb shall be
executed and delivered to effect the sale of the Shares as contemplated hereby
and pursuant to the terms of the Prospectus.
SECTION 15. PARTIAL INVALIDITY. In the event that any term, provision
or covenant herein or the application thereof to any circumstance or situation
shall be invalid or unenforceable, in whole or in part, the remainder hereof and
the application of said term, provision or covenant to any other circumstances
or situation shall not be affected thereby, and each term, provision or covenant
herein shall be valid and enforceable to the full extent permitted by law.
SECTION 16. CONSTRUCTION. This Agreement shall be construed in
accordance with the laws of the State of New York.
SECTION 17. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which so executed and delivered shall be an original, but
all of which together shall constitute a binding agreement.
<PAGE>
Page 44
If the foregoing correctly sets forth the arrangement among the
Company, the Bank and Webb, please indicate acceptance thereof in the
space provided below for that purpose, whereupon this letter and Webb's
acceptance shall constitute a binding agreement.
Very truly yours
PEOPLES COMMUNITY BANCORP, INC. PEOPLES BUILDING, LOAN AND SAVINGS
COMPANY
- ------------------------------- -------------------------------
By: Jerry D. Williams By: Jerry D. Williams
President and President and
Chief Executive Officer Chief Executive Officer
Accepted as of the date first above written
CHARLES WEBB & COMPANY,
A DIVISION OF KEEFE, BRUYETTE
& WOODS, INC.
- ------------------------------
By: Harold T. Hanley, III
Senior Vice President
<PAGE>
Page 45
If the foregoing correctly sets forth the arrangement among the
Company, the Bank and Webb, please indicate acceptance thereof in the
space provided below for that purpose, whereupon this letter and Webb's
acceptance shall constitute a binding agreement.
Very truly yours,
PEOPLES COMMUNITY BANCORP, INC. PEOPLES COMMUNITY BANK
- ------------------------------- -------------------------------
By: Jerry D. Williams By: Jerry D. Williams
President and President and
Chief Executive Officer Chief Executive Officer
Accepted as of the date first above written
CHARLES WEBB & COMPANY,
A DIVISION OF KEEFE, BRUYETTE
& WOODS, INC.
- ------------------------------
By: Harold T. Hanley, III
Senior Vice President
<PAGE>
Page 46
EXHIBIT A
HARVEST HOME FINANCIAL CORP.
AND
HARVEST HOME SAVINGS BANK
OFFICER'S CERTIFICATE
The undersigned, John E. Rathcamp being the duly elected and serving
President of Harvest Home Financial Corp. ("Harvest Home"), a Delaware
corporation, and President, Secretary and Managing Officer of Harvest
Home Savings Bank, a federal savings bank and wholly-owned subsidiary
of Harvest Home, does hereby represent and warrant to Charles Webb &
Company, that the representations and warranties contained in ARTICLE
III of the Agreement and Plan of Merger, dated September 30, 1999, by
and between Peoples Building, Loan and Savings Company and Harvest
Home, are true and correct with the same force and effect as though
expressly made as of the date hereof.
The undersigned understands that the execution and delivery of this
Officer's Certificate is a condition to the Agency Agreement by and
among Charles Webb & Company, Peoples Community Bancorp, Inc. and
People's Building, Loan and Savings Company dated as of February ___,
2000 ("Agency Agreement"), and that Charles Webb & Company is carrying
out its obligation under the terms of the Agency Agreement in reliance
upon, among other things, the representations and warranties set forth
in the Merger Agreement.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
_____ day of February 2000.
HARVEST HOME FINANCIAL CORP.
By:
-----------------------------------
John E. Rathkamp
President
HARVEST HOME SAVINGS BANK
By:
-----------------------------------
John E. Rathkamp
President and Managing Officer
<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 Amendment No. 1 to Forms S-1 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 January 28, 2000. 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
January 27, 2000
<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
Amendment No. 1 to Forms S-1 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 January 28, 2000. 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
January 27, 2000
<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
Amendment No. 1 to Forms S-1 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 January 28, 2000. 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
January 27, 2000
<PAGE>
Exhibit 99.6
HARVEST HOME FINANCIAL CORPORATION
SPECIAL MEETING OF STOCKHOLDERS
to be Held on ________, 2000
The undersigned hereby appoints the Board of Directors of Harvest Home
Financial Corporation (the "Company"), with full powers of substitution, to act
as attorneys and proxies for the undersigned to vote all shares of capital stock
of the Company which the undersigned is entitled to vote at the Special Meeting
of Stockholders (the "Meeting") to be held at _________________
________________________________, on ________________ at ________, and at any
and all adjournments and postponements thereof.
1. Adoption of the Agreement and Plan of Merger dated as of September
30, 1999, between The People's Building, Loan and Savings Company and the
Company (the "Merger Agreement").
/ / FOR / / AGAINST / / ABSTAIN
In their discretion, the proxies are authorized to vote on any other
business that may properly come before the Meeting or any adjournment or
postponement thereof.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE
SPECIFIED, THIS PROXY WILL BE VOTED FOR THE ADOPTION OF THE MERGER AGREEMENT. IF
ANY OTHER BUSINESS IS PRESENTED AT THE MEETING, THIS PROXY WILL BE VOTED BY
THOSE NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD
OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
The Board of Directors recommends a vote "FOR" adoption of the Merger
Agreement.
(Continued and to be SIGNED on Reverse Side)
<PAGE>
THIS IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting or
at any adjournments or postponements thereof, and after notification to the
Secretary of the Company at the Meeting of the stockholder's decision to
terminate this proxy, then the power of such attorneys or proxies shall be
deemed terminated and of no further force and effect. This proxy may also be
revoked by filing a written notice of revocation with the Secretary of the
Company or by duly executing a proxy bearing a later date.
The undersigned acknowledges receipt from the Company, prior to the
execution of this proxy, of notice of the Meeting, a Proxy Statement and a
Prospectus.
Dated: , 2000
---------------
--------------------------------
Signature of Stockholder
--------------------------------
Signature of Stockholder
Please sign exactly as your
name(s) appear(s) to the
left. When signing as
attorney, executor,
administrator, trustee or
guardian, please give your
full title. If shares are
held jointly, each holder
should sign.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
<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 of
Harvest Home Financial Corporation with People's Building, Loan & Savings
Company. 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., a
holding company to be formed by People's Savings pursuant to an Agreement and
Plan of Merger dated as of September 30, 1999. 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, dated as of September 30, 1999, by and among Harvest Home
Financial Corporation and People's Building, Loan & Savings Company. The
Merger Agreement provides for, among other things, the merger of Harvest Home
Financial with and into Peoples Community Bancorp, Inc., 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 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 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 of
Harvest Home Financial Corporation, an Ohio corporation, with and into
Peoples Community Bancorp, Inc., a Delaware corporation 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, between People's Building, Loan and Savings Company 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 in connection with the
solicitation of proxies by the Board of Directors of Harvest Home Financial
for use at a Special Meeting of Stockholders, 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 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 Between Peoples Community Bancorp and Harvest Home
Financial" in the Prospectus.
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 and, in
accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission. 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.
<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..........................................
SUMMARY.........................................................................
The Companies...................................................................
Reasons for Merger; Recommendation to Stockholders..............................
The Merger......................................................................
Condition to Completing the Merger..............................................
Federal Income Tax Considerations...............................................
Comparative Stock Prices........................................................
Treatment of Harvest Home Financial Stock Options...............................
Accounting Treatment............................................................
Dissenters' Rights..............................................................
Interests of Directors and Executive Officers of Harvest Home Financial.........
Opinion of Financial Advisor....................................................
Representations and Warranties..................................................
Conduct of Business Prior to Closing Date.......................................
Required Approvals..............................................................
Waiver and Amendment............................................................
Termination.....................................................................
Expenses of the Merger..........................................................
Management After the Merger.....................................................
Effects of the Merger on Rights of Stockholders.................................
Nasdaq Listing..................................................................
FORWARD LOOKING STATEMENTS......................................................
THE SPECIAL MEETING.............................................................
Introduction....................................................................
Matters to be Considered; Board of Directors Recommendation.....................
Record Date and Voting..........................................................
Vote Required...................................................................
Name and Address of Beneficial Owners...........................................
Revocability of Proxies.........................................................
Solicitation of Proxy...........................................................
Adjournment of the Special Meeting..............................................
Dissenters' Rights..............................................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
STOCKHOLDER MATTERS.............................................................
PROSPECTUS OF PEOPLES COMMUNITY BANCORP.........................................
</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.
-2-
<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:
---------------------------------------------------------------
- --------------------------------------------------------------------------------
-3-
<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, THE
ACCOMPANYING APPENDICES, AND THE ACCOMPANYING PROSPECTUS OF PEOPLES
COMMUNITY BANCORP.
THE COMPANIES
HARVEST HOME FINANCIAL CORPORATION
3621 Harrison Avenue
Cincinnati, Ohio 45211
- ------------------------
Harvest Home Financial Corporation is an Ohio Corporation and is a
holding company for 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, 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. 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. 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.
-4-
<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 "The Merger Between Peoples Community
Bancorp and Harvest Home Financial - Background and Reasons for the Harvest
Home Merger" in the Prospectus.
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 Between Peoples
Community Bancorp and Harvest Home Financial -- Terms of Our Merger Agreement
with Harvest Home Financial -- Conversion of Harvest Home Financial Common
Stock in the Merger" in the Prospectus.
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
Between Peoples Community Bancorp and Harvest Home Financial -- Conditions to
the Harvest Home 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
-5-
<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 "Dissenters' Rights."
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 Between Peoples Community Bancorp and
Harvest Home Financial -- Terms of Our Merger Agreement with Harvest Home
Financial -- Representations and Warranties" in the Prospectus.
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 "Conduct of
Business Pending the Harvest Home Merger" in the Prospectus."
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.
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.
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).
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.
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.
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 "The Merger Between Peoples
Community Bancorp and Harvest Home Financial -- 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.
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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 the Ohio General Corporation Law Sections
1701.84 and 1701.85 set forth in Annex __.
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 $9.00 in cash plus 0.9 of a share of
Peoples Community Bancorp common stock, subject to adjustment, for each share
of Harvest Home Financial common stock. 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
$9.00 in cash plus 0.9 of a share of Peoples Community Bancorp common stock,
subject to adjustment, for each share of Harvest Home Financial common stock.
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."
<PAGE>
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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<PAGE>
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.
<PAGE>
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.
No member may cast more than 1,000 votes at such special meetings. In
general, accounts held in different ownership capacities will be treated as
separate accounts for purposes of applying the 1,000 vote limitation. For
example, if two persons hold a $100,000 account in their joint names and each
of the persons also holds a separate account for $100,000 in their own name,
each person would be entitled to 1,000 votes for the separate account and
they would together be entitled to cast 1,000 votes on the basis of the joint
account. 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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