<PAGE> 1
As filed with the Securities and Exchange Commission on March __, 1999
Registration No. 333-____
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------
WINTON FINANCIAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
OHIO 6035 31-1303854
- ------------------------------------- ---------------------------------- --------------------
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
5511 Cheviot Road
Cincinnati, Ohio 45247
(513) 3853800
-----------------------------------------------------
(Address, including ZIP Code, and telephone number,
including area code, of agent for service)
Copies to:
MR. ROBERT L. BOLLIN JOHN C. VORYS, ESQ.
Winton Financial Corporation KATHLEEN M. MOLINSKY, ESQ.
5511 Cheviot Road Vorys, Sater, Seymour and Pease
Cincinnati, Ohio 45247 221 E. Fourth Street
Suite 2100, Atrium Two
Cincinnati, Ohio 45202
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after this Registration Statement has become
effective and all other conditions to the consummation of the transactions have
been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of each
class of securities Amount to be Proposed maximum Proposed maximum Amount of
to be registered registered offering price per unit(1) aggregate price registration fee
------------------- ----------------- -------------------------- --------------- ----------------
<S> <C> <C> <C> <C>
Common Stock, 376,228 shares of $ 14.6875 $ 5,525,849 $ 1,537
no par value Common Stock
</TABLE>
- ------------------------------
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(f) on the basis of the market value of a common
share of Winton Financial Corporation on March 2, 1999, as determined
pursuant to Rule 457(c).
<PAGE> 2
PROSPECTUS PROXY STATEMENT
WINTON FINANCIAL CORPORATION BENCHMARK FEDERAL SAVINGS BANK
for issuance of up to for
376,228 Common Shares Special Meeting of Shareholders
On December 4, 1998, Winton Financial Corporation, The Winton Savings
and Loan and Loan Co. and BenchMark Federal Savings Bank executed a merger
agreement that provides for the merger of BenchMark into Winton Savings and
Loan.
The merger cannot be completed unless the holders of 74,872 BenchMark
shares approve it. BenchMark's board of directors has scheduled a special
meeting for BenchMark's shareholders to vote on the merger. The date, time and
place of the special meeting are as follows:
______, 1999
__:__ _.m., Eastern Time
------------------------
Cincinnati, Ohio
If you do not dissent from the merger and the merger is completed, you
will receive 3.35 common shares of Winton Financial in exchange for each common
share of BenchMark you own immediately before we complete the merger.
Winton Financial common shares are traded on the American Stock
Exchange under the symbol "WFI." On _________, 1999, the date before we printed
this prospectus/proxy statement, Winton Financial common shares closed at
$____________ on the American Stock Exchange. Based on that $____________ price,
3.35 common shares of Winton Financial would be valued at
$_____________________.
This prospectus/proxy statement provides detailed information about the
merger. We encourage you to read this entire document carefully.
BenchMark shareholders who dissent from the merger and follow specified
procedures will be entitled to dissenters' rights if the proposed merger is
completed.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE WINTON FINANCIAL COMMON SHARES TO BE ISSUED IN THE
MERGER OR DETERMINED IF THIS PROSPECTUS/PROXY STATEMENT IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE WINTON FINANCIAL
COMMON SHARES ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY.
Prospectus/Proxy Statement dated _____, 1999, and first mailed
to shareholders of BenchMark on or about ____, 1999.
<PAGE> 3
REFERENCES TO ADDITIONAL INFORMATION
This document incorporates important business and financial information
about Winton Financial from documents that it has filed with the Securities and
Exchange Commission but has not included in or delivered with this document. If
you write or call Jill M. Burke, the Treasurer of Winton Financial, she will
send you these documents, excluding exhibits, without charge. You can contact
her at:
Winton Financial Corporation
5511 Cheviot Road
Cincinnati, Ohio 45247
(513) 385-3880
Please request documents by ____________, 1999. If you request any
incorporated documents, Ms. Burke will mail the documents you request by first
class mail, or another equally prompt means, by the next business day after she
receives your request.
See "Where You Can Find More Information" on page ____ for more
information about the documents referred to in this document.
<PAGE> 4
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Summary...................................................................................................................1
The merger.............................................................................................................1
The companies..........................................................................................................1
The merger agreement...................................................................................................2
Reasons for the merger.................................................................................................2
Recommendation to shareholders.........................................................................................2
Opinion of Charles Webb & Company......................................................................................2
Tax consequences of the merger.........................................................................................2
Rights of dissenting shareholders......................................................................................3
Termination and amendment of the merger agreement......................................................................3
Special meeting of BenchMark shareholders.............................................................................3
Accounting treatment...................................................................................................4
Per share market price information.....................................................................................4
Comparative stock prices and dividends....................................................................................4
Selected consolidated financial data of Winton Financial...............................................................6
Selected consolidated financial data of BenchMark.........................................................................7
Comparative per share data................................................................................................8
Purpose of this document..................................................................................................9
The merger................................................................................................................9
Background and reasons for the merger..................................................................................9
Opinion of Charles Webb & Company.....................................................................................11
Recommendation of the board of directors of BenchMark.................................................................15
Exchange of BenchMark shares..........................................................................................15
Fractional shares.....................................................................................................15
Exchange of certificates evidencing Winton Financial common shares and BenchMark common shares........................15
Representations, warranties and covenants.............................................................................16
Conditions............................................................................................................17
Effective time........................................................................................................18
Termination and amendment.............................................................................................18
Interests of directors and executive officers.........................................................................18
Board of directors and management of Winton Financial following the merger............................................18
Resale of Winton Financial common shares..............................................................................19
Income tax consequences...............................................................................................19
Accounting treatment..................................................................................................20
Stock option agreement................................................................................................20
Rights of dissenting shareholders........................................................................................21
The special meeting of BenchMark shareholders............................................................................22
Time, date and place..................................................................................................22
Purpose of the meeting................................................................................................23
Shares outstanding and entitled to vote; record date..................................................................23
Votes required........................................................................................................23
Voting and solicitation and revocation of proxies.....................................................................23
Pro forma unaudited condensed combined consolidated statements of financial condition....................................25
Pro forma unaudited condensed combined consolidated statements of earnings...............................................26
Pro forma unaudited condensed combined consolidated statements of earnings...............................................27
BenchMark management's discussion and analysis of financial condition and results of operations..........................28
Financial condition changes from December 31, 1997, to December 31, 1998..............................................28
Results of operations for the years ended December 31, 1998, and December 31, 1997....................................28
Asset/liability management............................................................................................29
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C>
Effect of recent accounting pronouncements............................................................................33
Business of BenchMark....................................................................................................35
Lending activities....................................................................................................35
Investment activities.................................................................................................43
Deposits and borrowings...............................................................................................45
Competition...........................................................................................................48
Year 2000 considerations..............................................................................................48
Personnel.............................................................................................................49
Security ownership of BenchMark..........................................................................................50
Regulation Of BenchMark..................................................................................................51
Federal taxation.........................................................................................................55
Ohio taxation............................................................................................................57
Description of Winton Financial common shares............................................................................58
Comparison of rights of holders of Winton Financial common shares and holders
of BenchMark common shares...........................................................................................61
Authorized shares.....................................................................................................61
Board of directors....................................................................................................61
Voting rights.........................................................................................................61
Antitakeover provisions...............................................................................................62
Preemptive rights.....................................................................................................62
Dividends.............................................................................................................62
Antitakeover statutes applicable to Winton Financial and BenchMark......................................................63
Director and officer liability and indemnification.......................................................................64
Legal matters............................................................................................................66
Experts..................................................................................................................66
Where you can find more information......................................................................................66
BenchMark Federal Savings Bank Consolidated Financial Statements........................................................F-1
</TABLE>
Annex A Agreement and Plan of Reorganization dated December 4, 1998, by and
- ------- among Winton Financial Corporation, the Winton Savings and Loan Co. and
BenchMark Federal Savings Bank
Annex B Stock Option Agreement dated December 4, 1998, by and between Winton
- ------- Financial Corporation and BenchMark Federal Savings Bank
Annex C Opinion of Charles Webb & Company, a division of Keefe, Bruyette &
- ------- Woods, Inc. dated _______, 1999
Annex D Office of Thrift Supervision Regulation Section 552.14
- -------
<PAGE> 6
SUMMARY
This summary highlights selected information from this prospectus/proxy
statement. It does not contain all of the information that is important to you.
You should read carefully this entire document and the other documents referred
to in this document to fully understand the merger. For a guide as to where you
can obtain more information, see "Where You Can Find More Information" on page
__. Page references are included in this Summary to direct you to a more
complete description of topics discussed in this document.
THE MERGER
Winton Financial, Winton Savings and Loan and BenchMark have executed
an Agreement and Plan of Reorganization providing for the merger of BenchMark
into Winton Savings and Loan. The merger cannot be completed unless the holders
of 74,872 BenchMark common shares approve the merger. Even if holders of 74,872
BenchMark common shares approve the merger, the board of directors of BenchMark
may decide not to complete the merger if the average sales price of a Winton
Financial common share falls below $10.50 before the merger is completed. After
the merger, the three BenchMark offices will become branch offices of Winton
Savings and Loan.
If the merger is completed and you do not dissent from the merger, you
will receive 3.35 Winton Financial common shares for each share of BenchMark you
own. This exchange ratio will not change even if the price of Winton Financial
common shares or BenchMark common shares increases or decreases between now and
the date the merger is completed.
Because the exchange ratio is fixed and the market price of Winton
Financial common shares will fluctuate, we cannot be sure of the market value of
the Winton Financial common shares you will receive in the merger. We urge you
to obtain current price quotations for the Winton Financial common shares before
casting your vote regarding the merger. You may obtain current stock quotations
for Winton Financial shares from newspapers, the Internet or your broker.
THE COMPANIES (PAGE __)
Winton Financial Corporation/
The Winton Savings and Loan Co.
5511 Cheviot Road
Cincinnati, Ohio 45247
(513) 385-3880
Winton Financial is an Ohio corporation and a savings and loan holding
company. The primary activity of Winton Financial is holding the common shares
of Winton Savings and Loan, an Ohio savings and loan association. On
______________, 1999, Winton Financial had ___ common shares outstanding.
Winton Savings and Loan currently conducts business from its five
full-service branch offices in Hamilton County, Ohio and serves a market area
which includes nine southern Ohio counties, four southeastern Indiana counties
and four northern Kentucky counties. In August 1998, Winton Savings and Loan
opened its first loan production office in Western Hills, Ohio. Winton Savings
and Loan's principal business is the making of first mortgage loans in its
primary market area. Interest earned on loans is Winton Savings and Loan's
primary source of revenue. Winton Savings and Loan also invests in U.S.
Government and agency obligations, interest-bearing deposits in other financial
institutions and mortgage-backed securities.
-1-
<PAGE> 7
BenchMark Federal Savings Bank
8670 Winton Road
Cincinnati, Ohio 45231-4935
(513) 522-5551
BenchMark is a federal savings bank and conducts business from three
offices located in the Cincinnati, Ohio area. BenchMark is principally engaged
in the business of originating conventional mortgage loans secured by
residential real estate. On _________, 1999, BenchMark had 112,307 common shares
outstanding.
THE MERGER AGREEMENT (PAGE __)
We have attached the merger agreement to this document as Annex A.
Please read the merger agreement. It is the legal document that governs the
merger.
REASONS FOR THE MERGER (PAGE ___)
After careful review and consideration, the board of directors of
Winton Financial unanimously concluded on December 2, 1998, that the terms of
the merger were fair to, and in the best interests of, the shareholders of
Winton Financial. The board of directors of Winton Financial based this
conclusion on a variety of factors, including the opportunity created by the
merger to expand the deposit taking and mortgage making markets of Winton
Savings and Loan and the asset mix and quality of BenchMark.
In early 1998, in light of the consolidations and mergers occurring in
the banking industry and the failure of a market to develop for BenchMark's
shares, the BenchMark board of directors determined that a sale of the company
or a strategic alliance could present the best avenue for BenchMark to maximize
shareholder value. After reviewing preliminary non-binding indications of
interest to acquire BenchMark, the board of directors elected to pursue the
Winton Financial proposal, which it deemed the most attractive of the three
positive indications received based on price and Winton Financial's strong
growth record and future prospects.
RECOMMENDATION TO SHAREHOLDERS (PAGE __)
The board of directors of BenchMark believes that the merger is in the
best interests of BenchMark and its shareholders and unanimously recommends that
you vote for the proposal to approve and adopt the merger agreement.
OPINION OF CHARLES WEBB & COMPANY (PAGES _____ THROUGH ____)
In deciding to approve the merger, the BenchMark board of directors
considered the opinion of its financial advisors, Charles Webb & Company, a
division of Keefe, Bruyette & Woods, Inc., dated December 4, 1998, and updated
on ___________, 1999, that the exchange ratio was fair to BenchMark
shareholders, from a financial point of view. The updated opinion is attached as
Annex C to this prospectus/proxy statement. We encourage you to read the
opinion.
TAX CONSEQUENCES OF THE MERGER (PAGE __)
Generally, BenchMark's shareholders who exchange their BenchMark common
shares for Winton Financial common shares will not recognize a gain or loss for
federal income tax purposes. If you exchange a fractional BenchMark share for
cash or if you dissent from the merger and receive cash in exchange for your
BenchMark common shares, the Internal Revenue Service will treat the payment as
a distribution in redemption of your BenchMark common shares subject to Section
302 of the Internal Revenue Code of 1986, as amended.
-2-
<PAGE> 8
Determining the actual tax consequences of the merger to you as an
individual taxpayer can be complicated. The tax implications will depend on your
specific situation and other variables that are not within Winton Financial's or
BenchMark's control. You should consult a tax advisor for a complete
understanding of the merger's tax consequences to you.
STOCK OPTION AGREEMENT (PAGE __)
To increase the likelihood that the merger would be completed, Winton
Financial and BenchMark executed a stock option agreement in which BenchMark
granted Winton Financial an option to purchase up to 19.9% of the outstanding
common shares of BenchMark at a price of $38.50 per share.
RIGHTS OF DISSENTING SHAREHOLDERS (PAGE __)
Under federal thrift regulations, you have the right to dissent from
the merger and be paid cash equal to the appraised value of your BenchMark
shares. To exercise this right, you must satisfy each of the following
conditions:
- You must be a shareholder of record of your BenchMark shares
on ____________, 1999;
- You must not vote in favor of the merger;
- You must deliver a written demand to BenchMark for an
appraisal that complies with the federal thrift regulations
before the BenchMark special meeting of shareholders on
______, 1999; and
- You must deliver the certificates evidencing your BenchMark
shares to Firstar Bank, National Association, Winton
Financial's transfer agent, within 60 days after the merger is
completed for endorsement of a legend that an appraisal has
been demanded.
If you dissent, the Office of Thrift Supervision may determine that the
appraised value of each BenchMark share you own is less than the market value of
a Winton Financial share at the time of the completion of the merger.
TERMINATION AND AMENDMENT OF THE MERGER AGREEMENT (PAGE __)
We may agree to terminate the merger agreement at any time before the
consummation of the merger, even if you have voted to adopt the merger
agreement. The merger agreement also allows either one of us to terminate the
agreement if:
- We do not complete the merger by September 30, 1999;
- We have not satisfied, or agreed to waive, conditions listed
in the merger agreement; or
- The representations, warranties or obligations of the other
party under the merger agreement cannot be satisfied.
If the merger is not completed because BenchMark decides to sell its
assets to, or merge with, another company, BenchMark will have to pay $200,000
to Winton Financial.
We may amend the merger agreement by the unanimous consent of our
boards of directors at any time before or after BenchMark shareholder approval
and adoption of the merger agreement. However, if the BenchMark shareholders
have already adopted the merger agreement, we will not amend the merger
agreement without their approval if the amendment would materially and adversely
affect their rights as shareholders.
SPECIAL MEETING OF BENCHMARK SHAREHOLDERS (PAGE __)
The BenchMark special meeting of shareholders will take place on
____________, 1999. If you owned BenchMark common shares on ________________,
1999, you are entitled to vote at the special meeting. The holders of two-thirds
of the outstanding BenchMark common shares, or 74,872 shares, must vote in favor
of the merger agreement to approve and adopt the merger.
Each of directors and the President of BenchMark have agreed to vote
all of their BenchMark common shares for the approval and adoption of the merger
agreement. As of ________, 1999, the directors and the
-3-
<PAGE> 9
President owned, or had voting powers, in the aggregate, with respect to 47,612
BenchMark common shares, or 42.4% of the outstanding shares.
ACCOUNTING TREATMENT (PAGE __)
We expect the merger to qualify as a pooling of interests. This means
we will treat our companies as if they had always been combined for accounting
and financial reporting purposes.
PER SHARE MARKET PRICE INFORMATION (PAGE __)
Winton Financial common shares are traded on the American Stock
Exchange. On December 3, 1998, the last full trading day before the public
announcement of the proposed merger, Winton Financial common shares closed at
$14.56.
BenchMark common shares are not listed on an exchange or quoted on The
Nasdaq Stock Market. The last known sale of BenchMark common shares occurred on
September 18, 1998, when BenchMark sold 620 shares to a deferred compensation
trust for its directors. The purchase price was $25.10 per share, which was the
value given to a BenchMark share by an independent appraiser for purposes of the
BenchMark Employee Stock Ownership Plan.
The market value of 3.35 common shares of Winton Financial would be
$48.78 based on Winton Financial's December 3, 1998, closing price and $______
based on Winton Financial's _____, 1999 closing price. We cannot be certain of
the market value of the Winton Financial common shares BenchMark shareholders
will receive when we complete the merger because the market price of Winton
Financial shares will fluctuate. You may obtain current stock quotations for
Winton Financial common shares from a newspaper, the Internet or your broker.
COMPARATIVE STOCK PRICES AND DIVIDENDS
Winton Financial common shares are quoted on the American Stock
Exchange under the symbol "WFI." BenchMark common shares are not actively
traded, have no established public market and are not listed on any national
exchange or quotation system.
As of ________, 1999, there were ______ Winton Financial common shares
outstanding and held by approximately ___ holders of record. The following table
shows the high and low bid prices for Winton Financial common shares on the
American Stock Exchange for each fiscal quarter of 1998, 1997 and 1996 and the
cash dividends per Winton Financial common share declared during each of these
periods. All information reflects the Winton Financial two-for-one stock split
in the form of a stock dividend paid in 1998.
-4-
<PAGE> 10
<TABLE>
<CAPTION>
CASH DIVIDEND
QUARTER ENDED HIGH LOW DECLARED
- ------------- ---- --- --------
<S> <C> <C> <C>
September 30, 1998 $16.44 $ 9.75 $.0625
June 30, 1998 20.63 14.75 .0625
March 31, 1998 15.13 10.19 .0625
December 31, 1997 10.31 8.81 .0625
September 30, 1997 $ 8.75 $ 7.88 $.0575
June 30, 1997 7.50 6.00 .0575
March 31, 1997 7.00 5.75 .0575
December 31, 1996 6.75 5.63 .0525
September 30, 1996 $ 6.88 $ 5.63 $.0525
June 30, 1996 7.13 6.00 .0525
March 31, 1996 7.50 5.50 .0525
December 31, 1995 7.50 5.50 .0500
</TABLE>
As of ________, 1999, there were 112,307 common shares of BenchMark
outstanding and held by approximately 81 holders of record. BenchMark paid
dividends of $.125 per share for each quarter of 1998, 1997 and 1996. The last
known sale of BenchMark common shares was on September 18, 1998, when BenchMark
sold 620 shares to a deferred compensation trust for its directors. The purchase
price was $25.10, which was the value given to a BenchMark share by an
independent appraiser for purposes of the BenchMark Employee Stock Ownership
Plan.
The following table shows (a) the last reported sales prices as of
December 3, 1998, the last trading day before the public announcement of the
signing of the merger agreement, and (b) the last reported closing price as of
_________, 1999, the last practicable trading day before the date of this
prospectus/proxy statement, for the Winton Financial common shares and the
BenchMark common shares. The table also shows the equivalent pro forma price of
BenchMark common shares, determined by multiplying the price of Winton Financial
common shares on each date by 3.35, the exchange ratio.
<TABLE>
<CAPTION>
Price per Price per Equivalent price per
Winton Financial common BenchMark BenchMark
share common share common share
----- ------------ ------------
<S> <C> <C> <C>
December 3, 1998 $14.56 $25.10 $48.78
__________, 1999 $ $ $
</TABLE>
<PAGE> 11
SELECTED CONSOLIDATED FINANCIAL DATA OF WINTON FINANCIAL
The tables below contain information regarding the financial condition
and earnings of Winton Financial for the five years ended September 30, 1998,
based on the audited consolidated financial statements of Winton Financial.
Winton Financial derived the historical consolidated financial data for the
three months ended December 31, 1998 and 1997, from its unaudited consolidated
financial statements. However, in the opinion of Winton Financial management,
Winton Financial has made all adjustments necessary for a fair presentation of
consolidated financial condition and results of operations.
<TABLE>
<CAPTION>
WINTON FINANCIAL At December 31, At September 30,
------------------- --------------------------------------------------------------
STATEMENT OF FINANCIAL CONDITION DATA: 1998 1997 1998 1997 1996 1995 1994
-------- -------- -------- -------- ------- -------- ------
(Unaudited) (In thousands)
Total amount of:
<S> <C> <C> <C> <C> <C> <C> <C>
Assets $371,892 329,897 $354,193 $324,488 $292,241 $250,180 $239,513
Interest-bearing deposits in other
financial institutions 1,306 2,958 2,607 1,419 -- 2,360 1,712
Investment securities (1) 21,041 17,691 20,437 16,216 12,174 13,080 9,316
Mortgage-backed securities (1) 12,376 14,921 12,983 15,413 19,356 19,442 20,624
Loans receivable, net (2) 324,701 283,102 305,308 280,544 250,490 205,964 198,879
Deposits 264,186 248,070 266,007 240,317 221,533 197,905 185,327
Federal Home Loan Bank advances 74,882 53,404 56,899 57,425 46,376 29,830 33,671
Shareholders' equity - net, 27,647 24,391 26,892 23,277 20,831 20,397 18,879
restricted
Three months ended
December 31, Year ended September 30,
------------------- --------------------------------------------------------------
STATEMENT OF EARNINGS DATA: 1998 1997 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- --------- ------
(Unaudited) (In thousands, except share data)
Total interest income $6,899 $6,505 $27,071 $24,233 $20,830 $18,713 $16,966
Total interest expense 4,258 4,026 16,748 15,036 12,696 10,959 9,130
------- ------- ------- ------- -------- -------- --------
Net interest income 2,641 2,479 10,323 9,197 8,134 7,754 7,836
Provision for loan losses (23) - (60) -- (253) (88) (45)
------- ------- ------- ------- --------- -------- --------
Net interest income after provision for
loan losses 2,618 2,479 10,263 9,197 7,881 7,666 7,791
Other income 822 444 2,180 1,619 1,419 818 628
General, administrative and other (1,769) (1,459) (6,321) (5,907) (7,491) (5,529) (5,497)
expense ------- ------- ------- ------- -------- -------- -------
Earnings before income taxes 1,671 1,464 6,122 4,909 1,809 2,955 2,922
Federal income taxes (571) (504) (2,065) (1,683) (628) (994) (971)
------- ------- ------- ------- -------- --------- --------
Net earnings $1,100 $ 960 $ 4,057 $ 3,226 $ 1,181 $ 1,961 $ 1,951
======= ======= ======= ======= ======== ========= ========
Earnings per share
Basic (3) $.27 $.24 $1.01 $.81 $.30 $.50 $.50
==== ==== ===== ==== ==== ==== ====
Diluted (3) $.26 $.23 $ .96 $.80 $.30 $.50 $.50
==== ==== ====== ==== ==== ==== ====
</TABLE>
- --------------------------
(1) Includes securities designated as available for sale.
(2) Includes loans held for sale.
(3) Basic and diluted earnings per share for 1994 through 1997 have been
adjusted to give effect to the two-for-one stock split in the form of a
stock dividend paid in fiscal 1998.
-6-
<PAGE> 12
<TABLE>
<CAPTION>
At or for the three months
ended December 31, Year ended September 30,
------------------------ -------------------------------------------------------
OTHER DATA: 1998 1997 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest rate spread 2.64% 2.90% 2.68% 2.78% 2.80% 3.06% 3.39%
Return on average equity 16.07 16.05 16.08 14.65 5.67 9.94 10.58
Return on average assets 1.25 1.21 1.19 1.05 .44 .80 .85
Shareholders' equity to assets 7.43 7.39 7.59 7.17 7.13 8.15 7.88
Number of:
Loans outstanding 5,921 5,607 5,871 5,576 5,146 4,604 4,329
Deposit accounts 21,241 20,369 21,128 20,410 20,735 20,209 19,278
Full service offices 5 5 5 5 5 5 5
</TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA OF BENCHMARK
The tables below contain information regarding the financial condition
and earnings of BenchMark for the five years ended December 31, 1998, based on
the audited consolidated financial statements of BenchMark. Please read these
tables together with the consolidated financial statements, including the
related notes, and other financial information of BenchMark included elsewhere
in this prospectus/proxy statement.
<TABLE>
<CAPTION>
At December 31,
BENCHMARK -----------------------------------------------------------------
STATEMENT OF FINANCIAL CONDITION DATA: 1998 1997 1996 1995 1994
-------- -------- -------- -------- ------
(In thousands)
Total amount of:
<S> <C> <C> <C> <C> <C>
Assets $55,303 $48,831 $47,403 $44,409 $41,189
Interest-bearing deposits and Federal funds sold 1,225 2,360 1,245 1,937 2,347
Investment securities (1) 15 514 542 762 1,561
Mortgage-backed securities (1) 3,644 4,608 5,207 6,685 7,342
Loans, receivable, net (2) 47,668 38,819 38,230 32,594 27,906
Deposits 39,719 39,026 39,849 38,506 35,763
Federal Home Loan Bank advances 11,120 5,682 3,680 1,809 1,325
Shareholders' equity - net, restricted 3,511 3,383 3,181 3,335 3,295
Year ended December 31,
STATEMENT OF EARNINGS DATA: 1998 1997 1996 1995 1994
-------- -------- -------- --------- ------
(In thousands, except share data)
Total interest income $3,816 $3,518 $3,413 $3,120 $2,973
Total interest expense 2,435 2,187 2,168 1,888 1,700
------- ------ ------ ------ ------
Net interest income 1,381 1,331 1,245 1,232 1,273
Provision for (recoveries of) losses on loans 26 4 19 9 (11)
-------- --------- -------- --------- ---------
Net interest income after provision for loan losses 1,355 1,327 1,226 1,223 1,284
Other income (loss) 54 117 94 42 (69)
General, administrative and other expense 1,267 1,264 1,502 1,175 1,151
------ ------ ------ ------ ------
Earnings (loss) before income taxes (credits) 142 180 (182) 90 64
Federal income taxes (credits) 39 32 (59) 17 11
------ ------ ------ ------- -------
Net earnings (loss) $ 103 $ 148 $ (123) $ 73 $ 53
====== ====== ====== ======= =======
Earnings (loss) per share
Basic $.94 $1.43 $(1.22) $.72 $.52
==== ===== ====== ==== ====
Diluted $.94 $1.42 $(1.22) $.71 $.51
==== ===== ====== ==== ====
</TABLE>
- ---------------------------
(1) Includes securities designated as available for sale.
(2) Includes loans held for sale.
-7-
<PAGE> 13
<TABLE>
<CAPTION>
OTHER DATA: 1998 1997 1996 1995 1994
-------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Interest rate spread 2.57% 2.64% 2.83% 2.58% 2.99%
Return (loss) on average equity 2.97 4.44 (3.77) 2.18 1.63
Return (loss) on average assets .20 .31 (.26) .17 .12
Shareholders' equity to assets 6.35 6.93 6.71 7.51 8.00
Number of:
Loans outstanding 1,004 993 993 950 947
Deposit accounts 5,244 5,051 4,926 4,416 3,568
Full service offices 3 3 3 3 2
</TABLE>
COMPARATIVE PER SHARE DATA
Presented below are the book value per common share and net earnings
per common share of (a) Winton Financial on a historical basis, (b) BenchMark on
a historical basis, (c) Winton Financial on a pro forma basis and (d) BenchMark
on an equivalent pro forma basis adjusted to reflect the completion of the
merger as of the beginning of each of the periods indicated. See "Pro forma
unaudited condensed combined consolidated statements of financial condition" on
page___ and "Pro forma unaudited condensed combined statements of earnings" on
page ____. The information in the following table is not necessarily indicative
of the results which actually would have been obtained if we had completed the
merger before the periods indicated.
<TABLE>
<CAPTION>
Three months ended
December 31, Year ended September 30,
1998 1997 1998 1997 1996
-------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
WINTON FINANCIAL HISTORICAL
Earnings per share:
Basic $ .27 $ .24 $ 1.01 $ .81 $ .30
Diluted .26 .23 .96 .80 .30
Book value per share $ 6.89 $ 6.09 $ 6.70 $ 5.86 $ 5.25
BENCHMARK HISTORICAL
Earnings (loss) per share:
Basic $ .14 $ .26 $ .75 $ 1.54 $ (1.57)
Diluted .14 .26 .75 1.53 (1.57)
Book value per share $ 31.26 $ 31.39 $ 31.12 $ 30.93 $ 30.19
WINTON FINANCIAL PRO FORMA COMBINED
Earnings per share:
Basic $ .26 $ .22 $ .95 $ .78 $ .24
Diluted .25 .22 .91 .77 .24
Book value per share $ 7.10 $ 6.92 $ 6.92 $ 6.13 $ 4.83
BENCHMARK PRO FORMA EQUIVALENT
Earnings per share:
Basic $ .47 $ .87 $ 2.51 $ 5.16 $ (5.26)
Diluted .47 .87 $ 2.51 $ 5.13 $ (5.26)
Book value per share $ 104.72 $ 105.16 $ 104.25 $ 103.62 $ 101.14
</TABLE>
-8-
<PAGE> 14
PURPOSE OF THIS DOCUMENT
This prospectus/proxy statement serves as both a prospectus of Winton
Financial for the issuance of up to 376,228 Winton Financial common shares in
connection with the merger and a proxy statement of BenchMark for the
solicitation of proxies by the board of directors of BenchMark for the BenchMark
special meeting of shareholders. We will mail this prospectus/proxy statement to
BenchMark shareholders on or about _____, 1999.
Winton Financial and Winton Savings and Loan provided all information
in this prospectus/proxy statement relating to them and BenchMark provided all
information relating to it. Each party is responsible for the accuracy of its
information.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR
TO WHICH WE HAVE REFERRED IN THIS DOCUMENT. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
THE MERGER
The following is a summary of the material provisions of the merger
agreement, a copy of which we attached as Annex A. We urge you to read the
merger agreement carefully for details of the merger and the terms and
conditions of the merger agreement.
BACKGROUND AND REASONS FOR THE MERGER
BENCHMARK. BenchMark began operations as an Ohio chartered savings and
loan in 1885. In 1937, BenchMark converted to a federal savings and loan charter
and, in 1988, it became a federal mutual savings bank. BenchMark converted to a
federally-chartered stock savings bank in 1991.
Throughout its operating history, BenchMark has concentrated on the
business of attracting deposits in its local market area and investing those
deposits in mortgage loans and investment securities.
In early 1998, in light of the consolidations and mergers occurring in
the banking industry and the failure of a market to develop for BenchMark's
shares, the BenchMark board of directors determined that a sale of the company
or a merger could present the best avenue for BenchMark to maximize shareholder
value. The board of directors met with Charles Webb & Company and, in July 1998,
the board of directors selected Charles Webb & Company, a nationally recognized
investment banking firm with experience and expertise in the area of mergers and
acquisitions of financial institutions, to review the opportunities for a merger
or sale of the company.
Beginning in August 1998, the board of directors conducted a
confidential inquiry through Charles Webb & Company regarding the possible
interest of ten entities in acquiring or merging with BenchMark. Eight of the
ten expressed an interest in receiving additional information. Charles Webb &
Company provided these eight with information on BenchMark, including financial
statements, loan and deposit summaries, and other data. Each of the eight
entities signed a confidentiality agreement before receiving the information
from Charles Webb & Company. In August and September 1998, Winton Financial and
another company submitted preliminary, non-binding indications of interest to
acquire BenchMark.
In September 1998, shortly after receipt of these indications of
interest, Charles Webb & Company and the BenchMark board of directors met to
review them in greater detail. As a result of this review, the BenchMark board
of directors elected to begin discussions with Winton Financial.
In October 1998, the BenchMark board of directors and Charles Webb &
Company met to review a formal proposal from Winton Financial and a preliminary
indication of interest from a third company. The board
-9-
<PAGE> 15
elected to pursue the proposal from Winton Financial, which it deemed the most
attractive of the three positive indications received based on price and Winton
Financial's strong growth record and future prospects. Off-site due diligence
and negotiation of a definitive agreement began immediately. When the due
diligence process was completed, the BenchMark board of directors and Winton
Financial agreed that the definitive agreement would provide for a fixed
exchange ratio of 3.35 Winton Financial shares for each BenchMark share.
On December 4, 1998, the BenchMark board of directors met with Charles
Webb & Company and BenchMark's legal counsel. At this meeting, BenchMark's legal
counsel reviewed the terms of the merger agreement and the contemplated
transaction. Charles Webb & Company delivered its opinion that the exchange
ratio of 3.35 common shares was fair, from a financial point of view, to the
shareholders of BenchMark. After a thorough discussion of the transaction, the
BenchMark board of directors voted unanimously to approve the merger agreement.
The terms of the merger agreement, including the 3.35 exchange ratio to
be paid to BenchMark's shareholders, were the result of negotiations between
board members, officers, and representatives of BenchMark and Winton Financial.
In deciding to approve and recommend the merger agreement, the BenchMark board
of directors considered the following important factors:
- the value of 3.35 Winton Financial common shares in relation to
the market value, book value, earnings per share and dividend
rates of BenchMark common shares;
- information concerning the financial condition, results of
operations, capital levels, asset quality and prospects for
Winton Financial;
- industry and economic conditions;
- the impact of the merger on the depositors, employees, customers
and communities served by BenchMark;
- the opinion of Charles Webb & Company as to the fairness of the
3.35 exchange ratio, from a financial point of view, to the
BenchMark shareholders;
- the general structure of the transaction and the compatibility of
management and business philosophy;
- the likelihood of receiving the required approvals in a timely
manner; and
- the ability of the combined enterprise to compete in relevant
banking markets.
In making its determination, the BenchMark board of directors did not ascribe
relative weights to the factors which it considered.
The BenchMark board of directors believes that the merger is in the best
interests of its shareholders. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.
WINTON FINANCIAL. After careful review and consideration, the board of
directors of Winton Financial unanimously concluded on December 2, 1998, that
the terms of the merger were fair to, and in the best interests of, the
shareholders of Winton Financial. Winton Financial based this conclusion on a
variety of factors, including the manner in which the office locations of
BenchMark would expand the deposit taking and mortgage making markets of Winton
Savings and Loan and the attractiveness of the asset mix and quality of
BenchMark.
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<PAGE> 16
The directors focused on the effect of the merger on the market area of
Winton Savings and Loan. Currently, Winton Savings and Loan's market area
consists primarily of the northwest quadrant of Hamilton County and the downtown
area of Cincinnati. As a result of the merger, Winton Savings and Loan's market
strength will expand into the northeast quadrant of Hamilton County because of
BenchMark's Montgomery branch. The directors believe that this expansion will
provide the opportunity for increased mortgage lending and deposit taking.
The directors also examined the asset mix of BenchMark and determined
that the composition of BenchMark's assets complements the asset mix of Winton
Savings and Loan. Both BenchMark and Winton Savings and Loan invest primarily in
mortgages secured by single-family dwellings and in government and other
conventional securities. In addition, the high asset quality of BenchMark, as
evidenced by its low level of classified assets, reflects Winton Financial's
commitment to sound lending practices.
As the directors considered the expansion of market area and the
complementary asset mix that will result from the merger, they also examined the
various ways in which the merger might pose risks to Winton Financial
shareholder value. The directors believed the primary risks were related to
present and future credit and other problems with BenchMark loans. To assess
possible risks, the officers of Winton Savings and Loan investigated the credit
and other sources of potential risk in the BenchMark portfolio. Upon the
conclusion of their investigation, the officers reported to the board of
directors on a variety of issues, including the investigation of specific loans.
The report of the officers convinced the directors that the benefits of the
merger outweighed the relatively low risks.
Based upon all of the foregoing, the directors of Winton Financial
concluded that the terms of the merger were fair to, and in the best interests
of, the Winton Financial shareholders and, on December 2, 1998, authorized the
appropriate officers of Winton Financial to execute the merger agreement.
OPINION OF CHARLES WEBB & COMPANY
In July 1998, BenchMark retained Charles Webb & Company to offer
financial advisory and investment banking services in connection with strategic
planning and merger and acquisition transactions.
Charles Webb & Company is a nationally recognized investment banking
firm. As part of its investment banking business, it is regularly engaged in the
valuation of bank, bank holding company and thrift institution securities in
connection with mergers and acquisitions, negotiated underwritings,
distributions of listed and unlisted securities, private placements and
valuations for various other purposes. Charles Webb & Company is familiar with
the market for common stocks of publicly traded banks, thrifts and bank and
thrift holding companies. The BenchMark board of directors selected Charles Webb
& Company based on its qualifications, reputation and its experience and
expertise in transactions similar to the merger. Charles Webb & Company has
acted exclusively for the BenchMark board of directors in rendering its fairness
opinion and will receive a fee for its services.
Charles Webb & Company was asked to render an opinion as to the
fairness, from a financial point of view, of the 3.35 exchange ratio to
shareholders of BenchMark. Charles Webb & Company has delivered its opinions to
the BenchMark board of directors that, as of December 4, 1998, and ___________,
1999, the receipt of 3.35 Winton Financial common shares was fair, from a
financial point of view, to the shareholders of BenchMark. No limitations were
imposed by the BenchMark board of directors upon Charles Webb & Company with
respect to the investigations made or procedures followed by it in rendering its
opinions. Charles Webb & Company has consented to the inclusion in this
prospectus/proxy statement of the summary of its opinion to the BenchMark board
of directors and to the furnishing of the entire opinion dated _________, 1999,
as Annex C to this document.
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<PAGE> 17
THE FULL TEXT OF THE OPINION OF CHARLES WEBB & COMPANY, WHICH IS
ATTACHED AS ANNEX C TO THIS PROSPECTUS/PROXY STATEMENT, SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED, AND LIMITATIONS ON THE REVIEW UNDERTAKEN
BY CHARLES WEBB & COMPANY, AND SHOULD BE READ IN ITS ENTIRETY. THE SUMMARY OF
THE OPINION OF CHARLES WEBB & COMPANY IN THIS PROSPECTUS/PROXY STATEMENT IS
QUALIFIED BY ITS FULL TEXT.
In rendering its opinion, Charles Webb & Company reviewed financial and
other business data supplied to it by BenchMark and Winton Financial, including:
- the merger agreement;
- BenchMark's audited financial statements and proxy statements for
the years ended December 31, 1995, 1996 and 1997;
- BenchMark's internally prepared financial statements for the
quarter ended September 30, 1998;
- Winton Financial's audited financial statements and proxy
statements for the years ended September 30, 1997, 1996, and
1995;
- Winton Financial's internally prepared financial statements for
the year ended September 30, 1998; and
- other information Charles Webb & Company deemed relevant.
Charles Webb & Company also discussed the current position and
prospective outlook for BenchMark with senior management and its board of
directors. In addition, Charles Webb & Company reviewed financial and stock
market data of other savings institutions, particularly in the midwestern region
of the United States, and the financial and structural terms of several other
recent transactions involving mergers and acquisitions of savings institutions
or proposed changes of control of comparably situated companies.
In rendering its opinion, Charles Webb & Company relied, without
independent verification, on the accuracy and completeness of the material
furnished to it by BenchMark and Winton Financial and the material otherwise
made available to it, including information from published sources. With respect
to the financial information, including asset valuations Charles Webb & Company
received from BenchMark, Charles Webb & Company assumed (with BenchMark's
consent) that they had been reasonably prepared reflecting the best currently
available estimates and judgment of BenchMark management. In addition, Charles
Webb & Company did not make or obtain any independent appraisals or evaluations
of the assets or liabilities, and potential or contingent liabilities of
BenchMark or Winton Financial. Charles Webb & Company further relied on the
assurances of BenchMark and Winton Financial management that they are not aware
of any facts that would make the information it received inaccurate or
misleading. Charles Webb & Company's opinion is necessarily based on the market,
economic, and other relevant considerations as they existed and could be
evaluated as of December 4, 1998, and ____________, 1999.
ANALYSIS OF THE WINTON FINANCIAL OFFER. Charles Webb & Company
calculated the multiple which the merger consideration represents based on the
exchange ratio in the merger agreement of each BenchMark share being exchanged
for 3.35 shares of Winton Financial and the closing price of Winton Financial
common stock as of December 3, 1998, and __________, 1999. Based on the $14.5625
closing price of Winton Financial on December 3, 1998, and the ______ closing
price of Winton Financial common stock on _________, 1999, the 3.35 exchange
ratio represented a per share value of $48.78 per share and $ ________ per share
for each share of BenchMark. The multiples were calculated based on BenchMark's
September 30, 1998, book value per share of $31.12 and last twelve months'
earnings per share of $.69. The price to book value was 1.57 times, and the
price to last twelve months' earnings per share was 71 times.
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<PAGE> 18
ANALYSIS OF RECENT COMPARABLE ACQUISITION TRANSACTIONS In rendering its
opinion, Charles Webb & Company analyzed a number of comparable merger and
acquisition transactions involving both pending and completed thrift deals,
comparing the acquisition price relative to tangible book value, last twelve
months' 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:
- all thrift acquisitions since March 31, 1998;
- all thrift transactions with an aggregate deal value between $2.5
million and $7.5 million;
- all acquisitions since March 31, 1998 with the selling thrift
having equity to total assets of between 5.0% and 10.0%;
- all thrift acquisitions with the target thrift having assets
between $50 million and $200 million; and
- all thrift acquisitions since March 31, 1998, located in Ohio,
Indiana, and Kentucky.
The information in the following table summarizes the material
information analyzed by Charles Webb & Company with respect to the merger. The
summary is not a complete description of the analysis performed by Charles Webb
& Company and you should not construe it independently of the other information
Charles Webb & Company considered in rendering its opinion. Selecting portions
of Charles Webb & Company's analysis or isolating aspects of the comparable
transactions without considering all analyses and factors, could create an
incomplete or potentially misleading view of the evaluation process.
-13-
<PAGE> 19
<TABLE>
<CAPTION>
Price to (2)
-----------------------------------------------------
Core
Tangible Last 12 deposit
book value months EPS Assets Deposit premium
---------- ---------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Consideration - $48.78 per share (1) 156.7% 71.1x 9.9% 13.6% 4.9%
Number of
Recent Transactions Acquisitions Median for all deals since March 31, 1998
------------ -----------------------------------------------------------------
Completed 60 187.2% 20.7x 18.6% 24.2% 12.8%
Pending 44 180.8% 26.2x 22.2% 30.6% 16.4%
Comparable Deal Value
Completed 5 121.2% 17.1x 10.4% 11.3% 3.9%
Pending 4 167.4% 27.5x 11.9% 15.2% 7.8%
Comparable Equity Ratio
Completed 9 190.9% 50.9x 15.9% 18.5% 8.9%
Pending 7 144.1% 53.0x 16.9% 23.4% 8.4%
Comparable Asset Size
Completed 16 162.7% 21.5x 12.4% 14.8% 6.1%
Pending 15 156.9% 22.3x 19.3% 22.3% 10.8%
Comparable Regional Deals
Completed 7 217.2% 19.7x 23.2% 33.2% 20.6%
Pending 7 248.0% 28.7x 22.0% 32.5% 24.0%
- -------------------------
</TABLE>
(1) Based on a fixed exchange ratio of 3.35 Winton Financial common shares
for each BenchMark common share and a price of $14.5625 for a Winton
Financial common share as of December 3, 1998 (the day before the
signing of the definitive merger agreement).
(2) Financial data as of September 30, 1998.
No company or transaction used as a comparison in the above analysis is
identical to BenchMark, Winton Financial or the merger. Accordingly, an analysis
of the results of the above is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading value of the companies to which they are being compared.
This summary provides a summary description of the material analyses
prepared by Charles Webb & Company in connection with the rendering of its
opinion. The preparation of a fairness opinion is not necessarily susceptible to
partial analysis or summary description. Charles Webb & Company believes that
its analysis and this summary must be considered as a whole and that selecting
portions of the analysis without considering all analyses, or selecting part of
the above summary, without considering all factors and analyses, would create an
incomplete view of the process underlying the analysis contained in Charles Webb
& Company's presentation and opinion. The ranges of valuations resulting from
any particular analysis described above should not be taken to be Charles Webb &
Company's view of the actual value of BenchMark or Winton Financial. The fact
that any specific analysis has been referred to in the summary above is not
meant to indicate that it was given greater weight than any other analysis.
-14-
<PAGE> 20
In preparing its analysis, Charles Webb & Company made numerous
assumptions with respect to industry performance, business and economic
conditions, and other matters, many of which are beyond the control of Charles
Webb & Company and BenchMark. The analyses performed by Charles Webb & Company
are not necessarily indicative of actual values or future results, which may be
significantly more or less favorable. The analyses are not appraisals and do not
reflect the prices at which a business may be sold or the prices at which any
securities may trade at the present time or at any time in the future. In
addition, as described above, Charles Webb & Company's opinion, along with its
presentation to the BenchMark board of directors, was just one of the many
factors taken into consideration by the BenchMark board of directors in
approving the merger agreement.
For its services to BenchMark, Charles Webb & Company will receive a
fee of $100,000. As of the date of this prospectus/proxy statement, Charles Webb
& Company has received $50,000 of its fee. The remainder is due upon the
completion of the merger. BenchMark has also agreed to indemnify Charles Webb &
Company against liabilities under the federal securities laws, and to reimburse
Charles Webb & Company for out-of-pocket expenses.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF BENCHMARK
The board of directors of BenchMark unanimously recommends that the
BenchMark shareholders vote FOR the approval and adoption of the merger
agreement. The board of directors believes that the terms of the merger are fair
to, and in the best interests of, BenchMark's shareholders.
EXCHANGE OF BENCHMARK SHARES
If the holders of more than 74,872 BenchMark common shares approve the
merger, if all necessary regulatory approvals are received and if all conditions
to the completion of the merger are satisfied or waived, BenchMark will merge
with Winton Savings and Loan. After the merger, Winton Savings and Loan will be
the continuing and surviving corporation and each BenchMark common share will be
converted into the right to receive 3.35 common shares of Winton Financial.
Based on the 112,307 BenchMark common shares issued and outstanding on
__________, 1999, the total number of Winton Financial common shares to be
issued to BenchMark shareholders would be 376,228. Based on the number of Winton
Financial common shares issued and outstanding on ___________, 1999, the total
number of outstanding shares of Winton Financial after the merger would then
equal 4,391,532, of which 8.6% would be held by the former BenchMark
shareholders.
FRACTIONAL SHARES
Winton Financial will not issue fractional shares in the merger.
Instead, Winton Financial will pay to each BenchMark shareholder who otherwise
would be entitled to receive a fraction of a Winton Financial common share, cash
based on the closing sale price of a share of Winton Financial on the American
Stock Exchange on the day of the merger.
EXCHANGE OF CERTIFICATES EVIDENCING WINTON FINANCIAL COMMON SHARES AND
BENCHMARK COMMON SHARES
After the merger is effective, Winton Financial will mail a form letter
of transmittal to each person who holds a certificate representing BenchMark
common shares. The letter of transmittal will contain instructions for
surrendering your BenchMark stock certificates. When you surrender your
certificates for cancellation, together with a duly executed letter of
transmittal, you will be entitled to receive a certificate for the number of
Winton Financial common shares to which you are entitled under the merger
agreement. Until you surrender your
-15-
<PAGE> 21
certificates, Winton Financial will not pay you any dividends or other
distributions and your rights as a shareholder of Winton Financial will be
suspended.
If you have lost or misplaced your BenchMark stock certificate, you
should immediately call Jill M. Burke, Treasurer of Winton Financial, at (513)
385-3880. She will mail to you a written statement detailing the procedures for
replacing the lost certificate.
REPRESENTATIONS, WARRANTIES AND COVENANTS
Each of Winton Financial, Winton Savings and Loan and BenchMark has
made representations and warranties in the merger agreement regarding:
- corporate organization,
- authority and capital,
- financial condition,
- past conduct of business,
- legal proceedings, and
- business condition.
In addition, BenchMark has made representations and warranties regarding:
- investments,
- properties,
- taxes,
- contracts,
- employee benefit plans, and
- other matters.
During the period between December 4, 1998, and the completion of the
merger, BenchMark has agreed to conduct its business only in the ordinary and
usual course before the merger unless Winton Financial agrees in writing. The
ordinary course of business includes the ability to pay regular dividends to
BenchMark shareholders. BenchMark may not solicit or initiate any proposals or
offers from any person, or discuss or negotiate with any person or entity, in
respect of any acquisition or purchase of all or a material amount of the assets
of, any equity security of, or any merger, consolidation or business combination
with, BenchMark, except as required by the good faith exercise of the fiduciary
duties of the board of directors of BenchMark.
BenchMark has also agreed to do the following immediately before
completion of the merger:
- to establish and take, at the request of Winton Financial, the
necessary reserves and accruals to make BenchMark's loan, accrual
and reserve policies similar to Winton Financial's policies;
-16-
<PAGE> 22
- to implement policies regarding excess facilities and equipment
capacity, severance costs, litigation matters, write-off or
write-down of various assets and other appropriate accounting
adjustments; and
- to recognize for financial accounting purposes the expenses of
the merger and any restructuring charges to be incurred in
connection with the merger.
Winton Financial has agreed to indemnify the officers and directors of
BenchMark for a three-year period beginning on completion of the merger against
liabilities incurred before the merger. A determination must be made in each
particular case by the directors of Winton Financial that the appropriate
standard of conduct under Winton Financial's amended articles of incorporation,
code of regulations and applicable law has been met and that indemnification is
permissible under applicable law before indemnification is required.
CONDITIONS
Winton Financial and BenchMark may complete the merger only if the
merger agreement is approved and adopted by holders of two-thirds of the
outstanding BenchMark shares and the parties receive regulatory approvals from
the Office of Thrift Supervision and the Ohio Division of Financial
Institutions. In addition, Winton Financial will not be required to complete the
merger unless the following conditions are satisfied:
- the truth, in all material respects, of all of BenchMark's
representations and warranties in the merger agreement;
- BenchMark's satisfaction, in all material respects, of its
obligations in the merger agreement;
- the absence of a material adverse change in BenchMark after
December 4, 1998;
- the exercise of dissenters' rights by the holders of 5% or less
of the outstanding BenchMark common shares; and
- BenchMark shareholders' equity at the time of the merger being
not less than $3,497,000, exclusive of up to $130,000 in expenses
related to the merger and exclusive of reserves, accruals and
charges taken or established by BenchMark at the request of
Winton Financial.
BenchMark will not be required complete the merger unless the following
conditions are satisfied:
- the truth, in all material respects, of all of Winton Financial's
representations and warranties in the merger agreement;
- Winton Financial's satisfaction, in all material respects, of its
obligations in the merger agreement;
- the absence of a material adverse change in Winton Financial
after December 4, 1998; and
- an average closing sales price of Winton Financial common shares
on the American Stock Exchange of at least $10.50 during the
twenty trading days ending five trading days before the merger.
Winton Financial and BenchMark may waive any of the conditions unless
the waiver is prohibited by law.
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<PAGE> 23
Winton Financial has submitted applications to the Office of Thrift
Supervision and the Ohio Division of Financial Institutions seeking approval of
the merger. We anticipate that the Office of Thrift Supervision and the Ohio
Division of Financial Institutions will approve the merger shortly after
_________, 1999.
EFFECTIVE TIME
Following the satisfaction or waiver of all conditions in the merger
agreement, we will file a Certificate of Merger as soon as practicable with the
Superintendent of the Ohio Division of Financial Institutions and with the Ohio
Secretary of State in order to complete the merger. We anticipate that we will
complete the merger in ___ 1999.
TERMINATION AND AMENDMENT
Either Winton Financial or BenchMark may terminate the merger agreement
or the merger under the circumstances described below, whether or not the
BenchMark shareholders already have voted to approve and adopt the merger
agreement. Termination may occur by the mutual agreement of Winton Financial and
BenchMark, or by either party if:
- the merger is not consummated by September 30, 1999;
- the BenchMark shareholders do not adopt the merger agreement; or
- an event occurs that would preclude satisfaction of or compliance
with any of the conditions in the merger agreement.
If the merger is not completed because BenchMark decides to sell its
assets to, or merge with, another company, BenchMark will have to pay $200,000
to Winton Financial.
The merger agreement may be amended by the unanimous consent of Winton
Financial, Winton Savings and Loan and BenchMark by action of their respective
boards of directors and in an instrument in writing signed on behalf of Winton
Financial, Winton Savings and Loan and BenchMark. The merger agreement may be
amended at any time before or after the BenchMark special meeting of
shareholders. An amendment of the merger agreement which materially and
adversely affects the rights of the shareholders of BenchMark and which takes
place after the BenchMark special meeting of shareholders, however, will not be
made without further approval of the BenchMark shareholders. If necessary,
BenchMark will seek approval at a subsequent meeting of shareholders.
INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS
Each of the directors and the President of BenchMark have indicated
their intention to vote the BenchMark common shares held by them in favor of the
adoption of the merger agreement. On ________, 1999, the record date for the
BenchMark special meeting of shareholders, the President and directors, as a
group, owned an aggregate of 47,612 BenchMark common shares, or 42.4% of all
outstanding BenchMark common shares.
BOARD OF DIRECTORS AND MANAGEMENT OF WINTON FINANCIAL FOLLOWING THE MERGER
After the merger, the boards of directors and executive officers of
Winton Financial and Winton Savings and Loan will be the same people who
presently serve on the boards of directors and as executive officers of Winton
Financial and Winton Savings and Loan.
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<PAGE> 24
RESALE OF WINTON FINANCIAL COMMON SHARES
Winton Financial has registered the Winton Financial common shares to
be issued after the completion of the merger with the Securities and Exchange
Commission under the Securities Act of 1933, as amended. The Winton Financial
shares will be freely transferable, except for Winton Financial common shares
received by persons who may be deemed to be affiliates of BenchMark. The term
"affiliate" is defined in Rule 145 promulgated under the Securities Act and
generally includes executive officers and directors. Affiliates may not sell
their Winton Financial common shares, except (a) pursuant to an effective
registration statement under the Securities Act covering their Winton Financial
common shares or (b) in compliance with Rule 145 or another applicable exemption
from the registration requirements of the Securities Act. In addition, all
directors, officers and affiliates of BenchMark must agree not to dispose of
their Winton Financial common shares if the disposition would prevent Winton
Financial from treating the merger as a pooling of interests for accounting
purposes.
INCOME TAX CONSEQUENCES
Winton Financial, Winton Savings and Loan and BenchMark have received
an opinion of Vorys, Sater, Seymour and Pease LLP that the merger will produce
the following material federal income tax consequences:
- With respect to BenchMark and the shareholders of BenchMark:
- The merger should constitute a tax-free reorganization under
Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue
Code of 1986, as amended;
- No gain or loss will be recognized by Winton Financial, Winton
Savings and Loan or BenchMark as a result of the merger;
- Your adjusted basis in the Winton Financial common shares you
receive will be the same as the adjusted basis of the BenchMark
common shares you surrendered, decreased by the amount of cash you
received for fractional shares surrendered and increased by the
amount of gain, if any, you recognized because of the exchange of
shares;
- Your holding period for the Winton Financial common shares you
receive after the merger should include the period during which
you held the BenchMark common shares you surrendered; and
- If you received a cash payment instead of fractional Winton
Financial shares, the cash payment should be treated as a
distribution in accordance with Section 302 of the Internal
Revenue Code.
For federal income tax purposes, any cash you receive instead of a
fractional Winton Financial share will be treated as received in exchange for
the fractional share and gain or loss will be recognized for federal income tax
purposes, measured by the difference between the amount of cash you received and
the portion of the basis of the BenchMark common share allocable to the
fractional share. Any gain or loss should be long-term capital gain or loss if
you held your BenchMark common share as a capital asset for more than one year
at the effective time of the merger. Generally, any long-term capital gain
resulting from your receipt of cash instead of a fractional Winton Financial
common share will be taxed at a maximum rate of 20%.
If you exercise dissenters' rights under applicable Office of Thrift
Supervision regulations and receive a cash payment of the fair value of your
BenchMark common shares, you will be treated as having received the payment in
redemption of your shares. This redemption will be governed by Section 302 of
the Internal Revenue Code, including the attribution rules of Section 318 of the
Internal Revenue Code. In general, if you hold BenchMark common shares as a
capital asset when the merger is completed and dissent from the merger, you will
recognize capital gain or loss measured by the difference between the amount of
cash you received and the basis
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<PAGE> 25
for your shares. If, however, you own, either actually or constructively, any
other BenchMark common shares, the payment made to you could be treated as
dividend income. In general, under the constructive ownership rules of the
Internal Revenue Code, a holder may be considered to own stock that is owned,
and in some cases constructively owned, by related individuals or entities, as
well as stock that the holder (or related individuals or entities) has the right
to acquire by exercising an option or converting a convertible security. If you
contemplate exercising dissenters' rights, you should consult your own tax
advisor regarding the federal and other tax consequences of the merger.
BECAUSE OF THE COMPLEXITIES OF THE FEDERAL, STATE AND LOCAL TAX LAWS,
WE RECOMMENDED THAT YOU CONSULT YOUR OWN TAX ADVISOR.
With respect to Winton Financial and Winton Savings and Loan:
- The merger will constitute a tax-free reorganization under
Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue
Code;
- No gain or loss will be recognized by Winton Financial or Winton
Savings and Loan upon the receipt of assets of BenchMark in
exchange for Winton Financial common shares;
- The adjusted basis of the assets of BenchMark in the hands of
Winton Savings and Loan will be the same as the basis of the
assets in the hands of BenchMark immediately before the merger;
and
- The holding period of the assets of BenchMark to be received by
Winton Savings and Loan will include the period during which
assets were held by BenchMark.
ACCOUNTING TREATMENT
The merger will be treated as a pooling of interests for accounting
purposes. Accordingly, the assets and liabilities of Winton Savings and Loan and
BenchMark will be combined with those of Winton Financial and carried forward at
historical cost. In addition, the statements of operations of Winton Savings and
Loan and BenchMark will be retroactively combined with the statements of
operations of Winton Financial on a consolidated basis. The obligations of
Winton Financial under the merger agreement are conditioned upon its receipt of
an opinion from its independent auditors that Winton Financial may treat the
merger as a pooling of interests for accounting purposes.
STOCK OPTION AGREEMENT
Winton Financial and BenchMark executed a stock option agreement in
which BenchMark granted Winton Financial an option to purchase up to 19.9% of
the outstanding common shares of BenchMark at a price of $38.50 per share.
Winton Financial may only exercise the option if one of following
events or transactions has occurred on or after December 4, 1998:
- BenchMark, without having received Winton Financial's prior
written consent, enters into an agreement with any person (a) to
merge, consolidate or effect any similar transaction, (b) to
dispose of all or substantially all of the assets of BenchMark, or
(c) to issue securities representing 20% or more of the voting
power of BenchMark;
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<PAGE> 26
- any person (other than BenchMark in a fiduciary capacity or
Winton Financial in a fiduciary capacity) acquires beneficial
ownership or the right to acquire beneficial ownership of 20% or
more of the outstanding BenchMark common shares;
- any person makes a takeover proposal for BenchMark; or
- BenchMark breaches the merger agreement, before or after a
takeover proposal, in a manner which would entitle Winton
Financial to terminate the merger agreement and the breach is not
cured.
The term "takeover proposal" means any tender or exchange offer,
proposal for a merger, consolidation or other business combination involving
BenchMark or any proposal or offer to acquire in any manner 20% or more of the
outstanding shares of any class of voting securities, or 15% or more of the
consolidated assets, of BenchMark, other than the transactions contemplated by
the stock option agreement. If BenchMark receives an unsolicited takeover
proposal, BenchMark shall notify Winton Financial as soon as possible of the
receipt of the takeover proposal.
The stock option agreement is intended to increase the likelihood that
the merger will be completed. The existence of the option could significantly
increase the cost to a potential acquiror of acquiring BenchMark. The increased
cost might discourage a potential acquiror from considering or proposing an
acquisition or might result in a potential acquiror proposing to pay a lower per
share price to acquire BenchMark than it might otherwise have proposed to pay.
Moreover, the exercise or repurchase of the option is likely to prevent any
other acquiror of BenchMark from accounting for an acquisition of BenchMark
using the pooling of interests accounting method for a period of two years. The
stock option agreement, therefore, may discourage persons who might be
interested in acquiring BenchMark from considering or proposing an acquisition
before the merger is completed, including persons who were prepared to pay a
higher price than Winton Financial.
We have attached a copy of the stock option agreement as Annex B to
this prospectus/proxy statement. We urge you to read it.
RIGHTS OF DISSENTING SHAREHOLDERS
If you desire, you are entitled to relief as a dissenting shareholder
under Office of Thrift Supervision Regulation Section 552.14. You will be
entitled to such relief, however, only if you comply strictly with all of the
procedural and other requirements of Section 552.14. The following summary is
not a complete statement of the method of compliance with Section 552.14. A copy
of Section 552.14 is attached to this prospectus/proxy statement as Annex D. We
urge you to read Annex D.
If you wish to perfect your dissenting shareholder's rights in the
event the merger agreement is approved and adopted, you must satisfy the
following conditions:
- you must have been a record holder of BenchMark common shares
on ____________, 1999;
- you must deliver to BenchMark before the special meeting of
shareholders on _______, 1999, a writing that identifies you and
your intent to demand an appraisal of your BenchMark common
shares;
- you must NOT vote in favor of approval and adoption of the merger
agreement; and
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<PAGE> 27
- you must submit to Firstar Bank, National Association, Winton
Financial's transfer agent, within 60 days after the, merger is
completed, your share certificates for notation that an appraisal and
payment have been demanded and that appraisal proceedings are pending.
Your vote against the approval and adoption of the merger agreement
will not satisfy the requirements of a written demand for appraisal. You must
send a written demand to: BenchMark Federal Savings Bank, 8670 Winton Road,
Cincinnati, Ohio 45231-4935, Attention: Robin C. McNulty.
Because a proxy which does not contain voting instructions will be
voted in favor of the approval and the adoption of the merger agreement, if you
wish to exercise dissenters' rights you must either (a) not sign and return your
proxy or, (b) if you sign and return your proxy, vote against or abstain from
voting on the approval and adoption of the merger agreement. Unless you and
BenchMark agree on the fair market value per share of the BenchMark common
shares within 60 days of the effective time of the merger, you must file a
petition with the Office of Thrift Supervision demanding a determination of the
fair market value of your shares. If you do not file a petition within 60 days
of the effective time of the merger, you will be deemed to have accepted the
3.35 exchange ratio offered for your BenchMark shares under the merger
agreement. If you dissent from the merger, you will be notified of the effective
date of the merger and Firstar Bank's address (for sending your BenchMark share
certificates), within 10 days of the effective date of the merger.
For purposes of Section 552.14, the fair market value of a BenchMark
common share will be determined as of the date the merger is completed, and will
exclude any appreciation or depreciation in market value resulting from the
merger. Payment will be made, together with interest from the effective date of
the merger, at a rate deemed equitable by the Director of the Office of Thrift
Supervision.
Your rights as a dissenting shareholder will terminate if:
- You have not complied with Section 552.14, unless the BenchMark
board of directors waives such failure;
- Winton Financial or BenchMark abandons or is enjoined or
prevented from carrying out, or the shareholders of BenchMark
rescind their approval and adoption of, the merger agreement;
- You withdraw your written demand;
- You and BenchMark have not agreed upon the fair market value per
share of the BenchMark common shares and you have not timely
filed a petition with the Office of Thrift Supervision for a
determination of the fair market value of your shares; or
- You fail to deliver your BenchMark share certificates to Firstar
Bank within 60 days of the effective date of the merger.
If you are not in favor of the merger but do not wish to exercise
dissenters' rights, you may, in the alternative, attempt to sell your shares in
the open market at the then current market price before the merger is completed.
No active trading market for BenchMark common shares exists.
THE SPECIAL MEETING OF BENCHMARK SHAREHOLDERS
TIME, DATE AND PLACE
The BenchMark special meeting of shareholders will be held at __:__
_.m., Eastern Time, on ______ __, 1999, at ______, Cincinnati, Ohio.
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<PAGE> 28
PURPOSE OF THE MEETING
At the special meeting of shareholders, you will be asked to consider
and vote upon a proposal to approve and adopt the merger agreement.
SHARES OUTSTANDING AND ENTITLED TO VOTE; RECORD DATE
Only shareholders of record on ____ __, 1999, will be entitled to
notice of and to vote at the special meeting of shareholders. At the close of
business on ____________, 1999, there were 112,307 BenchMark common shares
outstanding and entitled to vote. The BenchMark shares were held of record by 81
shareholders. Each BenchMark share entitles the holder to one vote on all
matters properly presented at the special meeting of shareholders.
VOTES REQUIRED
The holders of two-thirds of the outstanding BenchMark shares, or
74,872 shares, must vote in favor of the merger agreement. As of ______________,
1999, the directors and the President of BenchMark owned or had voting power, in
the aggregate, with respect to 47,612 BenchMark common shares, or 42.4% of the
outstanding BenchMark common shares. The directors and the President of
BenchMark have agreed to vote all of their BenchMark common shares for the
approval and adoption of the merger agreement. The affirmative vote of the
holders of an additional 27,260 shares, representing an additional 24.3% of the
outstanding BenchMark common shares, will be necessary to approve and adopt the
merger agreement.
A quorum, consisting of the holders of over 50% of the outstanding
BenchMark common shares, voting in person or by proxy, must be present at the
special meeting before any action can be taken.
Under Ohio law, shares which are held by a nominee for a beneficial
owner and which are represented in person or by proxy at the special meeting
will be counted as being present for purposes of establishing a quorum. If you
abstain or fail to vote your shares, it will be the same as a vote against the
approval and the adoption of the merger agreement. If your proxy is signed and
dated, but no vote is specified, it will be voted "FOR" the approval and
adoption of the merger agreement.
VOTING AND SOLICITATION AND REVOCATION OF PROXIES
With each copy of this prospectus/proxy statement mailed to BenchMark
shareholders, we included a form of proxy for use at the special meeting of
shareholders. This proxy is solicited by the BenchMark board of directors.
Whether or not you attend the special meeting, the BenchMark board of directors
urges you to use the enclosed proxy. You attendance at the special meeting will
not, by itself, serve as a revocation of a proxy. If you have executed a proxy,
you may revoke it at any time before the vote by:
- filing with BenchMark, at 8670 Winton Road, Cincinnati, Ohio
45231-4935, written notice of revocation;
- executing and returning a later-dated proxy; or
- attending the special meeting and giving notice of revocation
in person.
We do not expect any matter other than the merger to be brought before
the special meeting of shareholders. The persons named as proxies will use their
best judgment in voting with respect to any other matters which properly come
before the special meeting.
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<PAGE> 29
BenchMark will pay its expenses incurred in connection with preparing
and mailing this prospectus/proxy statement, the accompanying proxy and any
other related materials and all other costs incurred in connection with the
solicitation of proxies on behalf of the BenchMark board of directors. Winton
Financial will pay the costs and expenses incurred by Winton Financial in
connection with preparing and printing this prospectus/proxy statement. Proxies
will be solicited by mail and may be further solicited, for no additional
compensation, by officers, directors or employees of BenchMark. BenchMark will
also pay the standard charges and expenses of brokerage houses, voting trustees,
banks, associations and other custodians, nominees and fiduciaries, who are
record holders of BenchMark common shares not beneficially owned by them, for
forwarding the proxy materials to, and obtaining proxies from, the beneficial
owners of BenchMark common shares entitled to vote at the special meeting of
shareholders.
<PAGE> 30
PRO FORMA UNAUDITED CONDENSED COMBINED CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
At December 31, 1998
-------------------------------------
Winton Pro forma
Financial BenchMark Combined (1)
--------- --------- ------------
(Dollars in thousands)
<S> <C> <C> <C>
Assets
Cash and due from banks $ 1,478 $ 864 $ 2,342
Interest-bearing deposits and Federal funds sold 1,306 1,225 2,531
Investments designated as available for sale - at market 5,405 -- 5,405
Investment securities held to maturity - at cost 15,636 15 15,651
Mortgage-backed securities designated as available for sale - at
market 517 -- 517
Mortgage-backed securities held to maturity - at cost 11,859 3,644 15,503
Loans receivable - net 318,357 47,668 366,025
Loans held for sale - at lower of cost or market 6,344 -- 6,344
Office premises and equipment - net 2,940 867 3,807
Real estate acquired through foreclosure 491 -- 491
Federal Home Loan Bank stock - at cost 4,104 581 4,685
Other assets 3,455 439 3,894
-------- -------- --------
TOTAL ASSETS $371,892 $ 55,303 $427,195
======== ======== ========
Liabilities
Deposits $264,186 $ 39,719 $303,905
Advances from Federal Home Loan Bank 74,882 11,120 86,002
Other liabilities 5,177 953 6,130
-------- -------- --------
Total liabilities 344,245 51,792 396,037
Shareholders' equity
Common stock - 18,000,000 shares of no par value authorized;
4,391,532 assumed outstanding (2) -- 112 --
Additional paid-in capital 8,789 931 9,832
Retained earnings - substantially restricted 18,318 2,468 20,786
Unrealized gain on investment securities designated as available
for sale 540 -- 540
-------- -------- --------
Total shareholders' equity 27,647 3,511 31,158
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $371,892 $ 55,303 $427,195
======== ======== ========
Equity to asset ratio 7.43% 6.35% 7.29%
======== ======== ========
</TABLE>
- --------------------------
(1) The Pro Forma Unaudited Condensed Combined Consolidated Statements of
Financial Condition assume that the merger is accounted for as a
pooling of interests. Accordingly, Winton Financial's and BenchMark's
assets, liabilities and shareholders' equity are added together at the
historical carrying values. Both of the companies utilize the same
accounting methods, and there were not intercompany transactions
effected as of or for any of the periods presented.
(2) The Pro Form Unaudited Condensed Combined Consolidated Statements of
Financial Condition assume an exchange ratio of 3.35 common shares of
Winton Financial for each BenchMark common share and the issuance of
376,228 Winton Financial common shares in exchange for all BenchMark
common shares.
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<PAGE> 31
PRO FORMA UNAUDITED CONDENSED COMBINED CONSOLIDATED
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Three Months Ended December 31,
-----------------------------------------------------------------------------------
1998 1997
----------------------------------------- ---------------------------------------
Winton Pro forma Winton Pro forma
Financial BenchMark combined (1) Financial BenchMark combined (1)
--------- --------- ------------ --------- --------- ------------
(Dollars in thousands, except for per share data)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans and
mortgage-backed securities $6,464 $945 $7,409 $6,182 $838 $7,020
Interest on investment securities 299 - 299 262 6 268
Interest on interest-bearing and
other assets 136 32 168 61 42 103
------ ------ ------ ------ ----- ------
Total interest income 6,899 977 7,876 6,505 886 7,391
------ ------ ------ ------ ----- ------
Interest expense:
Interest on deposits 3,355 479 3,834 3,243 481 3,724
Interest on borrowings 903 151 1,054 783 75 858
------ ------ ------ ------ ----- ------
Total interest expense 4,258 630 4,888 4,026 556 4,582
------ ------ ------ ------ ----- ------
Net interest income 2,641 347 2,988 2,479 330 2,809
Provision for loan losses 23 - 23 - - -
------ ------ ------ ------ ----- ------
Net interest income after
provision for loan losses 2,618 347 2,965 2,479 330 2,809
Other income 822 7 829 444 18 462
Other expense 1,769 307 2,076 1,459 330 1,789
------ ------ ------ ------ ----- ------
Earnings before income taxes 1,671 47 1,718 1,464 18 1,482
Income taxes 571 20 591 504 3 507
------ ------ ------ ------ ----- ------
Net earnings $1,100 $ 27 $1,127 $ 960 $ 15 $ 975
====== ====== ====== ====== ====== ======
Earnings per common share
Basic (2) $.27 $.24 $.24 $.14
==== ==== ==== ====
Diluted $.26 $.24 $.23 $.14
==== ==== ==== ====
Pro forma earnings per common
share
Basic (3) $.26 $.22
==== ====
Diluted (4) $.25 $.22
==== ====
</TABLE>
- ---------------------------
(1) The pro forma unaudited condensed combined consolidated statements of
earnings assumes that the merger is accounted for as a pooling of
interests. Accordingly, Winton Financial's and BenchMark's revenue and
expense accounts are added together for each of the periods presented.
(2) Winton Financial historic weighted average shares outstanding totaled
4,014,847 and 4,007,738 for each of the three-month periods ended
December 31, 1998 and December 31, 1997, for purposes of computing
basic earnings per share. BenchMark historic weighted average shares
outstanding totaled 112,307 and 104,560 for the three-month periods
ended December 31, 1998 and December 31, 1997.
(3) Pro forma basic earnings per common share is based on 4,391,075 and
4,358,014 weighted average shares outstanding for each of the
three-month periods ended December 31, 1998 and December 31, 1997.
(4) Pro forma diluted earnings per common share is based on 4,572,267 and
4,491,435 weighted average shares outstanding for each of the
three-month periods ended December 31, 1998 and December 31, 1997.
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<PAGE> 32
PRO FORMA UNAUDITED CONDENSED COMBINED CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Year Ended September 30,
1998 1997
-------------------------------------- -----------------------------------
Winton Pro forma Winton Pro forma
Financial BenchMark combined (1) Financial BenchMark combined (1)
--------- --------- ------------ --------- --------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $24,813 $3,289 $28,102 $22,086 $3,042 $25,128
Interest on mortgage-backed securities 875 259 1,134 1,061 308 1,369
Interest on investment securities 1,105 9 1,114 879 28 907
Interest on interest-bearing deposits and
other 278 166 444 207 137 344
------- ------ ------- ------- ------ -------
Total interest income 27,071 3,723 30,794 24,233 3,515 27,748
Interest Expense:
Interest on deposits 13,118 1,937 15,055 12,009 1,919 13,928
Interest on borrowings 3,630 423 4,053 3,027 265 3,292
------- ------ ------- ------- ------ -------
Total interest expense 16,748 2,360 19,108 15,036 2,184 17,220
------- ------ ------- ------- ------ -------
Net interest income 10,323 1,363 11,686 9,197 1,331 10,528
Provision for loan losses 60 26 86 - 6 6
------- ------ ------- ------- ------ -------
Net interest income after provision for loan 10,263 1,337 11,600 9,197 1,325 10,522
losses
Other income 2,180 65 2,245 1,619 113 1,732
Other expense 6,321 1,289 7,610 5,907 1,226 7,133
------- ------ ------- ------- ------ -------
Earnings (loss) before income taxes (credits) 6,122 113 6,235 4,909 212 5,121
Income taxes (credits) 2,065 31 2,096 1,683 54 1,737
------- ------ ------- ------- ------ -------
Net earnings (loss) $ 4,057 $ 82 $ 4,139 $ 3,226 $ 158 $ 3,384
======= ======= ======= ======= ====== =======
Earnings (loss) per common share
(2) Basic $1.01 $.75 $.81 $1.54
===== ==== ==== =====
(3) Diluted $ .96 $.75 $.80 $1.53
====== ==== ==== =====
Pro forma earnings per common share
(4) Basic $.95 $.78
==== ====
(5) Diluted $.91 $.77
==== ====
<CAPTION>
Year Ended September 30,
1996
-------------------------------------
Winton Pro forma
Financial BenchMark combined (1)
--------- --------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Interest Income:
Interest and fees on loans $18,627 $2,777 $21,404
Interest on mortgage-backed securities 1,183 371 1,554
Interest on investment securities 821 53 874
Interest on interest-bearing deposits and 199 146 345
other ------- ------ -------
Total interest income 20,830 3,347 24,177
Interest Expense:
Interest on deposits 10,700 1,944 12,644
Interest on borrowings 1,996 143 2,139
------- ------ -------
Total interest expense 12,696 2,087 14,783
------- ------ -------
Net interest income 8,134 1,260 9,394
Provision for loan losses 253 19 272
------- ------ -------
Net interest income after provision for loan 7,881 1,241 9,122
losses
Other income 1,419 137 1,556
Other expense 7,491 1,601 9,092
------- ------ -------
Earnings (loss) before income taxes (credits) 1,809 (223) 1,586
Income taxes (credits) 628 (68) 560
------- ------ -------
Net earnings (loss) $ 1,181 $ (155) $ 1,026
======= ====== ========
Earnings (loss) per common share
(2) Basic $.30 $(1.57)
==== ======
(3) Diluted $.30 $(1.57)
==== ======
Pro forma earnings per common share
(4) Basic $.24
====
(5) Diluted $.24
====
</TABLE>
- ---------------------------
(1) The pro forma unaudited condensed combined consolidated statements of
earnings assume that the merger is accounted for as a pooling of
interests. Accordingly, Winton Financial's and BenchMark's revenues and
expenses are added together. Both of the companies utilize the same
accounting methods, and there were no intercompany transactions
effected as of or for any of the periods presented.
(2) Winton Financial historic weighted average common shares outstanding
for basic earnings per share totaled 4,012,605, 3,972,304 and 3,970,034
for each of the periods presented. BenchMark historic weighted average
common shares outstanding for basic earnings per share totaled 108,332,
102,872 and 98,714 for each of the periods presented.
(3) Winton Financial historic weighted average common shares outstanding
for diluted earnings per share totaled 4,205,030, 4,026,996 and
3,989,657 for each of the periods presented. BenchMark historic
weighted average common shares outstanding for diluted earnings per
share totaled 108,332, 103,573, 98,714 for each of the periods
presented.
(4) Pro forma basic earnings per common share is based on 4,375,517,
4,316,925 and 4,300,726 for each of the periods presented.
(5) Pro forma diluted earnings per common share is based on 4,567,942,
4,373,966 and 4,320,349 for each of the periods presented.
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<PAGE> 33
BENCHMARK MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION CHANGES FROM DECEMBER 31, 1997, TO DECEMBER 31, 1998
BenchMark's total assets at December 31, 1998 were $55.3 million,
representing an increase of $6.5 million, or 13.3%, from total assets of $48.8
million at December 31, 1997. Asset growth was financed by a $5.4 million
increase in Federal Home Loan Bank advances and an increase of approximately
$700,000 in deposits.
Loans receivable at December 31, 1998, totaled $47.7 million,
representing an $8.8 million, or 22.8%, increase over December 31, 1997, levels.
Cash and investment securities reflected a $900,000 decrease during the
twelve-month period. Mortgage-backed securities declined $900,000 during 1998
due to prepayment activity.
The growth in loans receivable during 1998 generally reflects a
competitive pricing strategy by BenchMark management during a period of lower
interest rates and heavy refinance demand.
Asset quality, as measured by the level of nonperforming assets to
total assets, improved from 1997 to 1998. While loans receivable outstanding
increased $8.8 million, or 22.8%, from 1997 to 1998, nonperforming assets
declined from $85,000 at December 31, 1997, to $72,000 at December 31, 1998.
These amounts represent .17% and .13% of total assets at each of the respective
dates. BenchMark's allowance for loan losses totaled $53,000 and $77,000 at
December 31, 1998, and December 31, 1997.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998, AND
DECEMBER 31, 1997
NET INTEREST INCOME. Net interest income for the year ended December
31, 1998, increased to $1.38 million, which was $50,000, or 3.7%, over interest
income of $1.33 from 1997. Interest on loans increased $375,000, or 12.3%, from
$3.04 received in 1997 to $3.41 in 1998. The growth was attributable to an
increase in weighted-average loans outstanding and was partially offset by a
decrease in weighted-average yields on loans outstanding. The decrease in asset
yield in 1998 is indicative of the overall decrease in interest rates that
occurred in the mortgage lending industry from 1997 to 1998.
Interest expense on deposits increased $30,000, or 1.6%, from $1.91
million in 1997 to $1.94 million in 1998, due to the growth in deposits.
Interest on borrowings increased by $218,000, or 77.6%, over 1997, reflecting
BenchMark's reliance on advances from the Federal Home Loan Bank to fund loan
growth. In recent years, BenchMark has relied on certificates of deposit as its
principal source of funds. Certificates of deposit are generally a more costly
deposit product than passbook accounts or transactions accounts, such as
checking accounts. However, during 1998, BenchMark utilized long-term Federal
Home Loan Bank advances, which were priced below the marginal cost of acquiring
new certificates of deposits. As a result, interest expenses for 1998 were less
than they would have been assuming the same amount of loan growth had been
funded with certificates of deposit.
PROVISION FOR LOAN LOSSES. BenchMark's provision for loan losses for
1998 was $26,000, compared to $4,000 for 1997. The increase in BenchMark's
provision was based on the 1998 sale of a commercial property acquired by
BenchMark when it foreclosed on a mortgage loan for less than the loan amount
and the existing provision for loan losses.
OTHER INCOME. Other income totaled $54,000 for 1998, a $63,000, or
53.8%, decrease from other income of $117,000 in 1997. The decrease was
primarily attributable to an increase in amortization of mortgage servicing
rights totaling $30,000 and a $16,000 decrease in gain on sale of loans.
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<PAGE> 34
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and
other expense increased by $3,000, or .24%, for 1998. The small growth in
operating expense relates primarily to a $40,000, or 5.8%, decrease in employee
compensation, due primarily to an increase in deferred loan origination costs
under Statement of Financial Accounting Standard No. 91, which offset a $51,000,
or 2.1%, increase in occupancy and equipment expense due to teller terminal
upgrades and the move of BenchMark's main operations from its downtown
Cincinnati, Ohio office to its suburban office in Finneytown, Ohio.
FEDERAL INCOME TAXES. BenchMark's provision for federal income taxes
for 1998 increased by $7,000, or 21.8%, to $39,000 from $32,000 in 1997.
BenchMark's 1997 federal income tax liability was lowered by a nonrecurring
reduction of tax expense due to net operating loss carryforwards available for
1997. BenchMark's effective federal income tax rates for the years ended
December 31, 1998 and 1997 were 27.5% and 17.8%.
ASSET/LIABILITY MANAGEMENT
BenchMark's primary goal in asset/liability management is to maintain
an appropriate balance between interest sensitive assets and interest sensitive
liabilities, while assuring adequate liquidity and maximizing long-term
profitability. To accomplish this objective, BenchMark has formulated an
asset/liability management policy. The principal elements of this policy are to
maintain the interest rate sensitivity of BenchMark's assets by the origination
of adjustable-rate loans for its portfolio, as well as adjustable-rate home
equity loans and shorter maturity fixed-rate mortgage loans. Further, the policy
objective is to lengthen the maturities of liabilities by seeking long-term
deposits and utilizing, to a much lesser extent, fixed-rate borrowings which
have repayment characteristics similar to the mortgage loans funded with these
liabilities.
On a quarterly basis, management and the board of directors of
BenchMark monitor the interest rate sensitivity of the assets and liabilities of
BenchMark through reports prepared by the Office of Thrift Supervision and an
outside consultant.
The following table sets forth the repricing or maturity of BenchMark's
assets and liabilities at December 31, 1998, based upon contractual terms of the
assets and liabilities, without consideration of prepayment assumptions. This
table does not necessarily indicate the impact of general interest rate
movements on BenchMark's net interest income because the repricing of assets and
liabilities is affected by competitive and other pressures. As a result, assets
and liabilities indicated as repricing within the same period may in fact
reprice at different times and at different rate levels.
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<PAGE> 35
<TABLE>
<CAPTION>
Within Over Over Over Over
One Year 1-3 Years 3-5 Years 5-10 Years 10 Years Total
-------- --------- --------- ---------- -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans(1) $ 6,432 $ 10,801 $ 3,860 $ 4,431 $ 22,513 $ 48,037
Investments 15 -- -- -- -- 15
Mortgage-backed securities 3,090 261 -- 209 84 3,644
Interest bearing deposits 1,225 -- -- -- -- 1,225
-------- -------- -------- -------- -------- --------
Total interest-earning assets 10,762 11,062 3,860 4,640 22,597 52,921
Interest-bearing liabilities:
Certificates of deposit 18,424 5,819 1,555 -- -- 25,798
Money market deposits 3,985 -- -- -- -- 3,985
Demand deposits 2,526 -- -- -- -- 2,526
Passbook savings accounts 7,410 -- -- -- -- 7,410
-------- -------- -------- -------- -------- --------
Total deposits 32,345 5,819 1,555 -- -- 39,719
Federal Home Loan Bank advances -- -- 3,832 7,288 -- 11,120
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities 32,345 5,819 5,387 7,288 -- 50,839
-------- -------- -------- -------- -------- --------
Interest-bearing assets less interest
bearing-liabilities $(21,583) $ (5,243) $ (1,527) $ (2,648) $ 22,597 $ 2,082
======== ======== ======== ======== ======== ========
Cumulative interest rate sensitivity gap $(21,583) $(16,340) $(17,867) $(20,515) $ 2,082 $ 2,082
======== ======== ======== ======== ======== ========
Cumulative interest rate sensitivity gap
as a percentage of interest earning
assets (40.8%) (30.9%) (33.8%) (38.8%) 3.9% 3.9%
</TABLE>
- -----------------------------
(1) Loans are recorded before net items of loans in process, allowance for
loan losses and deferred loan costs.
BenchMark's earnings depend primarily upon its net interest income,
which is the difference between its interest income on its interest-earning
assets, such as mortgage loans, investment securities and mortgage-backed
securities, and its interest expense paid on its interest-bearing liabilities,
consisting of deposits and borrowings. As market interest rates change, asset
yields and liability costs do not change simultaneously. Due to maturity,
repricing and timing differences of interest-earning assets and interest-bearing
liabilities, earnings will be affected differently under various interest rate
scenarios. BenchMark has sought to limit these net earnings fluctuations and
manage interest rate risk by originating adjustable-rate loans and purchasing
relatively short-term and variable-rate investments and securities.
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<PAGE> 36
The following table sets forth certain information relating to
BenchMark's average balance sheet information and reflects the average yield on
interest-earning assets and the average cost of interest-bearing liabilities for
the years indicated. Such yields and costs are derived by dividing income or
expense by the average monthly balance of interest-earning assets or
interest-bearing liabilities, respectively, for the years presented. Average
balances are derived from month-end balances, which include nonaccruing loans in
the loan portfolio, net of the allowance for loan losses. BenchMark management
does not believe that the use of month-end balances instead of daily balances
has caused any material differences in the information presented.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------
1998 1997
------------------------------------ -------------------------------------
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 (1) $44,136 $3,416 7.74% $38,154 $ 3,041 7.97%
Mortgage-backed securities - held
to maturity 3,950 240 6.08 4,762 302 6.74
Investment securities - held to
maturity 15 4 2.67 422 27 6.40
Other interest-earning assets 1,999 156 7.81 2,339 148 6.33
------- ---------- ------- ------- -------- -------
Total interest-earning assets 50,100 3,816 7.62 45,677 3,518 7.75
Non-interest-earning assets 2,605 2,258
------- -------
Total assets $52,705 $47,935
======= =======
Interest-bearing liabilities:
Deposits $39,764 1,936 4.87 $39,253 1,906 4.86
Federal Home Loan Bank advances 9,100 499 5.48 4,931 281 5.70
------- ------- ------- ------- ------- -------
Total interest-bearing
liabilities 48,864 2,435 4.98 44,184 2,187 4.95
------- ------- ------- -------
Non-interest-bearing liabilities 378 422
------- -------
Total liabilities 49,242 44,606
Stockholders' equity 3,463 3,329
------- -------
Total liabilities and
stockholders' equity $52,705 $47,935
======= =======
Net interest income/
Interest rate spread $ 1,381 2.64% $ 1,331 2.80%
======== ======== ======= =======
Net interest margin (net interest
income as a percent of average
interest-earning assets) 2.76% 2.91%
======== =======
Average interest-earning assets to
interest-bearing liabilities 102.53% 103.38%
====== =======
</TABLE>
- ----------------------------
(1) Includes loans held for sale and non-accrual loans.
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<PAGE> 37
The table below describes the extent to which changes in interest rates
and changes in volume of interest-earning assets and interest-bearing
liabilities have affected BenchMark's interest income and expense during the
periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (change in volume multiplied by prior year rate), (ii)
changes in rate (change in rate multiplied by prior year volume) and (iii) total
changes in rate and volume. The combined effects of changes in both volume and
rate, which cannot be separately identified, have been allocated proportionately
to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
1998 vs. 1997
-------------------------------
Increase (decrease)
due to
--------------------------------
Volume Rate Total
------ ---- -----
(In thousands)
<S> <C> <C> <C>
Interest income attributable to:
Loans receivable(1) $466 $(91) $375
Mortgage-backed securities (38) (24) (62)
Investment securities (18) (5) (23)
Other interest-earning assets(2) 22 30 8
---- ---- ----
Total interest-earning assets $388 $(90) $298
==== ===== ====
Interest expense attributable to:
Deposits $25 $5 $30
Borrowings 230 (12) 218
---- ----- ----
Total interest-bearing liabilities $255 $(7) $248
---- ---- ----
Increase (decrease) in net interest income $148 $(79) $50
==== ===== ====
</TABLE>
- ------------------------------
(1) Includes loans held for sale.
(2) Includes interest-bearing deposits and certificates of deposit in other
financial institutions.
BenchMark'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. The
management and board of directors of BenchMark attempt to manage BenchMark's
exposure to interest rate risk in a manner to maintain the projected
four-quarter percentage change in net interest income and the projected change
in the market value of portfolio equity within the limits established by the
board of directors, assuming a permanent and instantaneous parallel shift in
interest rates.
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<PAGE> 38
The following table sets forth at the date indicated, the weighted
average yields on BenchMark's interest-earning assets, the weighted average
interest rates on interest-bearing liabilities, the interest rate spread and the
net interest margin on interest-earning assets.
<TABLE>
<CAPTION>
At December 31,
-----------------------
1998 1997
---- ----
<S> <C> <C>
Weighted average yield on loan portfolio 7.51% 7.90%
Weighted average yield on mortgage-backed securities 6.51 6.65
Weighted average yield on investment securities 4.70 5.98
Weighted average yield on all interest-earning assets 7.38 7.66
Weighted average interest rate paid on deposits 4.64 4.89
Weighted average interest rate paid on borrowings 5.43 5.94
Weighted average interest rate paid on all interest-bearing
liabilities 4.81 5.02
Interest rate spread (spread between weighted average interest rate
on all interest-earning assets and all interest-bearing
liabilities) 2.57 2.64
</TABLE>
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," that provides
accounting guidance on transfers of financial assets, servicing of financial
assets, and extinguishment of liabilities. Statement of Financial Accounting
Standards No. 125 introduces an approach to accounting for transfers of
financial assets that provides a means of dealing with more complex transactions
in which the seller disposes of only a partial interest in the assets, retains
rights or obligations, makes use of special purpose entities in the transaction,
or otherwise has continuing involvement with the transferred assets. The new
accounting method, referred to as the financial components approach, provides
that the carrying amount of the financial assets transferred be allocated to
components of the transaction based on their relative fair values. Statement of
Financial Accounting Standards No. 125 provides criteria for determining whether
control of assets has been relinquished and whether a sale has occurred. If the
transfer does not qualify as a sale, it is accounted for as a secured borrowing.
Transactions subject to the provisions of Statement of Financial Accounting
Standards No. 125 include, among others, transfers involving repurchase
agreements, securitizations of financial assets, loan participations, factoring
arrangements, and transfers of receivables with recourse.
An entity that undertakes an obligation to service financial assets
recognizes either a servicing asset or liability for the servicing contract
(unless related to a securitization of assets, and all the securitized assets
are retained and classified as held-to-maturity). A servicing asset or liability
that is purchased or assumed is initially recognized at its fair value.
Servicing assets and liabilities are amortized in proportion to and over the
period of estimated net servicing income or net servicing loss and are subject
to subsequent assessments for impairment based on fair value.
Statement of Financial Accounting Standard No. 125 provides that a
liability is removed from the balance sheet only if the debtor either pays the
creditor and is relieved of its obligation for the liability or is legally
released from being the primary obligor.
Statement of Financial Accounting Standard No. 125 is effective for
transfers and servicing of financial assets and extinguishment of liabilities
occurring after December 31, 1997, and is to be applied prospectively.
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<PAGE> 39
Earlier or retroactive application is not permitted. Management adopted
Statement of Financial Accounting Standard No. 125 effective January 1, 1998, as
required, without material effect on BenchMark's consolidated financial position
or results of operations.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 130, "Reporting Comprehensive Income."
Statement of Financial Accounting Standard No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. Statement of Financial Accounting Standard 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 Standard 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 in the equity section of a statement of financial condition. Statement
of Financial Accounting Standard 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 Standard No. 130 effective January 1, 1998, as
required, without material impact on BenchMark's financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information." Statement of Financial Accounting Standard
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 establishes standards
for related disclosures about products and services, geographic areas and major
customers. Statement of Financial Accounting Standard 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 Standard 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 Standard No. 131 is effective for fiscal years beginning after
December 15, 1997. Statement of Financial Accounting Standard No. 131 is not
expected to have a material impact on BenchMark'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 specifics 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.
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<PAGE> 40
Statement of Financial Accounting Standards No. 133 is effective for
fiscal years beginning after June 1, 1999. On adoption, entities are permitted
to transfer held-to-maturity debt securities to the available-for-sale or
trading category without calling into question their intent to hold other debt
securities to maturity in the future. SFAS No. 133 is not expected to have a
material impact on BenchMark's financial statements.
BUSINESS OF BENCHMARK
LENDING ACTIVITIES
GENERAL. The principal lending activity of BenchMark historically has
been the origination of conventional mortgage loans secured by residential real
estate. BenchMark also makes nonresidential real estate loans, construction
loans and loans secured by deposit accounts at BenchMark.
The table below contains selected data relating to the composition of
BenchMark's loan portfolio at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------
1998 1997
--------------------------- ---------------------------
Amount % Amount %
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real estate/loans
One- to four-family residential $43,622 91.5% $34,097 87.8%
Multifamily residential 944 2.0 947 2.5
Nonresidential 1,340 2.8 1,591 4.1
Mobile home 44 .1 75 .2
Education 3 - 5 -
Loans on savings accounts 111 .2 110 .3
Consumer and other loans 1,123 2.3 1,132 2.9
Construction loans 850 1.8 1,094 2.8
------- ----- ------- -----
Total 48,037 100.7 39,051 100.6
Deferred loan origination costs 129 .3 75 .2
Undisbursed portion of loans in process (445) (.9) (230) (.6)
Allowance for loan losses (53) (.1) (77) (.2)
------- ----- ------- -----
Total loans receivable $47,668 100.0% $38,819 100.0%
======= ===== ======= =====
</TABLE>
Under federal regulations, BenchMark's loans and extensions of credit
to a person outstanding at any time generally may not exceed 15% of BenchMark's
total capital under the regulatory capital requirements plus any additional loan
reserve not included in total capital. A savings association may lend to one
borrower an additional amount not to exceed 10% of total capital plus any
additional loan reserve if the additional amount is fully secured by specified
forms of "readily marketable collateral." Real estate is not considered "readily
marketable collateral." An exception to these limits permits loans to one
borrower of up to $500,000 "for any purpose."
Based upon these limits, BenchMark was able to lend approximately
$530,000 to one borrower at December 31, 1998. The largest amount BenchMark had
outstanding to one borrower at December 31, 1998, was $466,000.
ONE- TO FOUR-FAMILY RESIDENTIAL REAL ESTATE LOANS. The primary lending
activity of BenchMark has been the origination of conventional loans for the
acquisition or construction of one- to four-family residential properties
located within BenchMark's primary market area. Each of these loans is secured
by a mortgage on the
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<PAGE> 41
underlying real estate and improvements thereon. At December 31, 1998, $43.6
million, or 91.5%, of BenchMark's total outstanding loans (excluding
construction loans) consisted of loans secured by first and second mortgage
loans and home equity lines of credit secured by one- to four-family residential
real estate, including loans held for sale. Second mortgages and home equity
lines of credit have a higher degree of risk than first mortgage loans, because,
in the event of default or foreclosure, amounts due on first mortgages have a
prior claim to available funds. Most of the second mortgages and home equity
lines of credit made by BenchMark are secured by property on which BenchMark
holds the first mortgage.
Office of Thrift Supervision regulations and Ohio law limit the amount
which BenchMark may lend in relationship to the appraised value of the real
estate and its improvements at the time of loan origination. In keeping with
these regulations, BenchMark makes loans on single-family residences up to 95%
of the value of the real estate and improvements. BenchMark also makes loans
over the 95% loan-to-value ratio, though most of those loans are sold in the
secondary market. Generally, BenchMark requires private mortgage insurance
and/or charges premium interest rates for loans over the 80% loan-to-value
ratio.
BenchMark offers adjustable-rate mortgage loans with interest rate
adjustment periods of generally one or three years. The interest rates initially
charged on adjustable-rate mortgage loans and the new rate at each adjustment
date are determined by adding a stated margin to the one-year or three-year
United States Treasury bill rate at the time the loan is originated. The initial
interest rate for a three-year adjustable-rate mortgage loan is set slightly
higher than for the one-year adjustable-rate mortgage loan to compensate
BenchMark for the increased exposure to risk resulting from interest-rate
fluctuations during the adjustment period. The maximum adjustment at each
adjustment date for one-year adjustable-rate mortgage loans is usually 2%, with
a maximum adjustment of 6% over the term of the loan. The maximum adjustment on
three-year adjustable-rate mortgage loans presently originated by BenchMark is
2% at each adjustment date, with a maximum adjustment of 6% over the life of the
loan. None of BenchMark's adjustable-rate mortgage loans have negative
amortization features. Of the total mortgage loans originated by BenchMark
during the fiscal year ended December 31, 1998, 27.0% were adjustable-rate
mortgage loans and 73.0% were fixed-rate.
Residential mortgage loans offered by BenchMark are usually for terms of
10 to 30 years. Due to the general long-term nature of an investment in mortgage
loans, these loans could have an adverse effect upon the earnings spread of an
association if the loans do not reprice as quickly as the association's cost of
funds. To minimize the adverse effect, BenchMark emphasizes the origination of
adjustable-rate mortgage loans. Furthermore, experience during recent years
reveals that, as a result of prepayments in connection with refinancings and
sales of the underlying properties, residential loans generally remain
outstanding for periods which are substantially shorter than the maturity of the
loans.
At December 31, 1998, BenchMark had nonperforming loans totaling $72,000
in its one- to four-family portfolio. BenchMark considers a loan nonperforming
when, in the opinion of management, the collection of additional interest on the
loan is unlikely, the loan meets non-accrual criteria as established by
regulatory authorities, or the loan is accruing interest but is more than 90
days past due. One- to four-family loans constituted $18.8 million, or 83.9%, of
the $22.4 million of loans originated in fiscal 1998.
MULTIFAMILY RESIDENTIAL REAL ESTATE LOANS. In addition to loans on one-
to four-family properties, BenchMark makes adjustable- and fixed-rate loans
secured by multifamily properties containing over four units. At December 31,
1998, loans secured by multifamily properties (excluding construction loans)
totaled approximately $944,000, or 2.0% of total loans.
Multifamily 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.
BenchMark attempts to reduce the risk associated with multifamily
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<PAGE> 42
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. BenchMark requires that the borrower agrees to
submit rent rolls and financial statements annually to enable BenchMark to
monitor the loan.
Multifamily loans generally have terms of up to 25 years and a maximum
loan-to-value ratio of 75%, although a higher loan-to-value ratio occasionally
is approved for an established borrower. Adjustable-rate multifamily residential
loans are currently made with the same adjustment schedules, indexes and caps as
for one- to four-family residential adjustable-rate mortgage loans, with a
margin of 3% over the index.
BenchMark had no nonperforming loans secured by multifamily properties
at December 31, 1998.
NONRESIDENTIAL REAL ESTATE LOANS. At December 31, 1998, BenchMark had
nonresidential real estate loans in its portfolio, all in its primary market
area, including loans secured by retail, office and other types of business
facilities. The largest nonresidential real estate loan outstanding at December
31, 1998, was a $393,000 loan secured by office and restaurant property.
Nonresidential permanent loans (excluding construction loans) comprised $1.3
million, or 2.8% of total loans at December 31, 1998.
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. For example, if the cash flow on the
property is reduced as leases are not obtained or renewed, the borrower's
ability to repay may be impaired. BenchMark has endeavored to reduce the risk of
non-payment 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.
In recent years, nonresidential real estate loans have been made
primarily on an adjustable-rate basis, with loan terms generally up to a maximum
of 25 years. BenchMark has made a limited number of fixed-rate nonresidential
real estate loans during that period. These loans are typically made at a
maximum 75% loan-to-value ratio, although a higher loan-to-value ratio is
occasionally approved for established borrowers. Adjustable-rate nonresidential
real estate loans have the same adjustment schedules, index and caps as the
residential adjustable-rate mortgage loans described above in "One- to
four-family residential real estate loans."
BenchMark had no nonperforming loans in its nonresidential loan
portfolio at December 31, 1998.
Federal regulations limit the amount of nonresidential mortgage loans
that an association may make to 400% of its capital. At December 31, 1998,
BenchMark's nonresidential permanent mortgage loans totaled 38.2% of BenchMark's
capital.
CONSTRUCTION LOANS. BenchMark offers residential construction loans both
to owner-occupants and to builders for loans being built under contract with
owner-occupants. To a very limited extent, BenchMark also makes construction
loans to persons constructing projects for investment purposes. At December 31,
1998, a total of $850,000, or approximately 1.8%, of BenchMark's total loans
consisted of construction loans.
Construction loans generally involve greater underwriting and default
risks than do loans secured by mortgages on existing properties because of 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 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
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<PAGE> 43
the event a default on a construction loan occurs and foreclosure follows,
BenchMark would have to take control of the project and attempt either to
arrange for completion of construction or dispose of the unfinished project.
Almost all of BenchMark's construction loans are secured by properties in
Hamilton County or the other Ohio counties of Clinton, Clermont, Warren, Butler,
Montgomery, Brown, Adams and Franklin and the Kentucky counties of Boone,
Campbell, Gallatin and Kenton. The economy of this lending area has been
relatively stable over the last three years ended December 31, 1998.
Generally, construction loans have terms ranging from 6 to 12 months at
fixed rates of interest over the construction period. Residential construction
loans and nonresidential construction loans are interim loans which are replaced
by permanent fixed- or adjustable-rate loans at the end of the construction
period. Permanent loans may or may not be obtained from BenchMark.
At December 31, 1998, BenchMark had no nonperforming loans in
construction loans. Construction loans constituted $2.5 million, or 11.2%, of
the $22.4 million of loans originated in fiscal 1998.
MOBILE HOME LOANS. To a very limited extent, BenchMark has originated
loans on both new and used mobile homes in the past. At December 31, 1998, the
aggregate outstanding principal balance of mobile home loans in BenchMark's
portfolio was approximately $44,000, or .1% of total loans. The mobile home
loans were generally made at fixed rates of interest, with the rate charged on
loans for used mobile homes generally set higher than for new mobile homes. The
maximum term of a mobile home loan is 10 years for a new home and seven years
for a used home. BenchMark usually obtains a security interest in the mobile
home for which the loan is made.
Loans that are secured by rapidly depreciating assets such as mobile
homes may entail greater risk than residential loans. The repossessed collateral
may not provide an adequate source of repayment of the outstanding loan balance.
The risk of default on mobile home loans increases during periods of recession,
high unemployment and other adverse economic conditions.
Federal regulations permit an association to invest without limitation
in mobile home loans.
CONSUMER AND OTHER LOANS. BenchMark makes various types of consumer
loans, including loans made to depositors on the security of their savings
deposits, automobile loans, commercial loans, loans secured by stock of entities
other than BenchMark, lines of credit to businesses secured by non-real estate
assets and unsecured personal loans. At December 31, 1998, consumer and other
loans constituted 2.5% of BenchMark's total loans and 2.2% of total assets.
Consumer loans are generally made at fixed rates of interest tied to the
prime rate, generally for terms of 90 days to five years. Consumer loans,
particularly consumer loans that are unsecured or are secured by rapidly
depreciating assets such as automobiles, may entail greater risk than
residential loans. Repossessed collateral for a defaulted consumer loan may not
provide an adequate source of repayment of the outstanding loan balance. The
risk of default on consumer loans increases during periods of recession, high
unemployment and other adverse economic conditions.
Although BenchMark has not had significant delinquencies on consumer
loans, no assurance can be provided that delinquencies will not increase. At
December 31, 1998, BenchMark had no nonperforming loans in its consumer loan
portfolio. Consumer and other loans constituted $1.1 million, or 4.9%, of the
$22.4 million of loans originated in 1998.
LOAN SOLICITATION AND PROCESSING. Loan originations are developed from a
number of sources, including commissioned loan originators, loan brokers,
continuing business with depositors, other borrowers and real estate developers,
solicitations by BenchMark's directors, officers and lending staff and walk-in
customers.
-38-
<PAGE> 44
Loan applications for permanent mortgage loans are taken by loan
personnel. BenchMark 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 generally prepared by an independent fee appraiser
approved by the board of directors. An environmental study is conducted only if
the appraiser or management has reason to believe that an environmental problem
may exist. For multifamily and nonresidential mortgage loans, a personal
guarantee is generally required. BenchMark also obtains information with respect
to prior projects completed by the borrower. Upon the completion of the
appraisal and the receipt of information on the borrower, the application for a
loan is submitted to one or both of the Loan Committee and the board of
directors for approval or rejection.
If a mortgage loan application is approved, an attorney's opinion of
title or a title insurance policy is obtained on the real estate which will
secure the mortgage loan. Borrowers are required to carry fire and casualty
insurance and flood insurance, if applicable, and to name BenchMark 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. BenchMark also
evaluates the feasibility of the proposed construction project and the
experience and record of the builder.
Consumer loans are underwritten on the basis of the borrower's credit
history and an analysis of the borrower's income and expenses, ability to repay
the loan and the value of the collateral, if any.
BenchMark's loans carry provisions that the entire balance of the loan
is due upon sale of the property securing the loan.
LOAN ORIGINATIONS, PURCHASES AND SALES. BenchMark has been actively
originating new 30-year, 20-year and 15-year fixed-rate and adjustable-rate
loans. Virtually all residential fixed-rate loans made by BenchMark are
originated on documentation that will permit a possible sale of the loans to the
Federal Home Loan Mortgage Corporation or other secondary mortgage market
participants. When mortgage loans are sold to the Federal Home Loan Mortgage
Corporation or other secondary mortgage market participants, BenchMark generally
retains the servicing on the loans by collecting monthly payments of principal
and interest and forwarding the payments to the Federal Home Loan Mortgage
Corporation or other secondary mortgage market participants, net of a servicing
fee, though some of the loans originated with the assistance of loan brokers are
sold with the servicing rights released. Fixed-rate loans not sold in the
secondary market and generally all of the adjustable-rate mortgage loans
originated by BenchMark are held in BenchMark's loan portfolio.
Management sold $1.6 million of fixed-rate loans during 1998, compared
to sales of $3.6 million of fixed-rate loans in 1997.
-39-
<PAGE> 45
The table below shows BenchMark's loan origination and sales activity
for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Loans originated:
Conventional real estate loans:
Construction $ 848 $ 793
On existing properties 21,006 9,589
Other 518 265
------- -------
Total $22,372 $10,647
======= =======
Loans sold:
Total $ 1,640 $ 3,563
======= =======
</TABLE>
LOAN MATURITIES. The following table summarizes information at December
31, 1998, regarding the dollar amount of loans maturing or repricing in
BenchMark's portfolio based on the contractual terms to maturity or repricing.
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 Due 1 through 5 Due 5 through Due 10 through Due after 15
year ending years after 10 years after 15 years after years after
December 31, December 31, December 31, December 31, December 31,
1999 1998 1998 1998 1998 TOTAL
-------- ---------- -------- -------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate mortgage loans $6,278 $14,145 $4,313 $8,615 $13,405 $46,756
Consumer loans 154 526 118 126 367 1,218
------ ------- ------ ------ ------- -------
Total $6,432 $14,661 $4,431 $8,741 $13,772 $48,037
====== ======= ====== ====== ======= =======
</TABLE>
The following table shows the dollar amount of all loans in BenchMark's
portfolio due after December 31, 1999, that have fixed interest rates or
adjustable interest rates:
<TABLE>
<CAPTION>
Fixed Adjustable
Rate Rate
------- -------
(In thousands)
<S> <C> <C>
Real estate mortgage loans $24,217 $16,324
Consumer and other loans 974 90
------- -------
Total $25,191 $16,414
======= =======
</TABLE>
LOAN ORIGINATION AND OTHER FEES. BenchMark realizes loan origination fee
and other fee income from its lending activities and also realizes income from
late payment charges, application fees, 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 some direct loan
origination costs are deferred and recognized as an adjustment to yield over the
life of the related loan, as required by Statement of Financial Accounting
Standards No. 91.
-40-
<PAGE> 46
DELINQUENT LOANS, NONPERFORMING ASSETS AND CLASSIFIED ASSETS. When a
borrower fails to make a required payment on a loan, BenchMark attempts to cause
the deficiency to be cured by contacting the borrower. In most cases,
deficiencies are cured promptly.
BenchMark attempts to minimize loan delinquencies through the assessment
of late charges and adherence to its established collection procedures. After a
mortgage loan payment is 15 days delinquent, a late charge of 5% of the amount
of the payment is assessed and BenchMark contacts the borrower by mail or phone
to request payment. In limited instances, BenchMark may modify the loan or grant
a limited moratorium on loan payments to enable the borrower to reorganize his
financial affairs. If the loan continues to be delinquent for 90 days or more,
BenchMark generally will initiate foreclosure proceedings.
Real estate acquired by BenchMark as a result of foreclosure or by deed
in lieu of foreclosure is classified as "real estate owned" until it is sold.
When property is so acquired, it is recorded at the lower of the loan's unpaid
principal balance or fair value at the date of foreclosure less estimated
selling expenses. Periodically, real estate owned is reviewed to ensure that
fair value is not less than carrying value, and any allowance resulting
therefrom is charged to the general loan loss allowance. All costs incurred from
date of acquisition are expensed in the period paid.
The following table sets forth BenchMark's delinquent loans for the
periods presented.
<TABLE>
<CAPTION>
At December 31,
---------------------------
1998 1997
---- ----
<S> <C> <C>
Loans delinquent
30 to 59 days $226 $425
60 to 89 days 283 106
90 or more days 72 85
------ ------
Total delinquent loans $581 $616
==== ====
Ratio of total delinquent loans to total loans 1.21% 1.57%
==== ====
</TABLE>
All delinquent loans are reviewed on a regular basis and are placed on
non-accrual status when, in the opinion of management, the collection of
additional interest is doubtful. Residential mortgage loans are placed on
non-accrual status when either principal or interest is considered
uncollectible. Consumer loans generally are charged off when the loan becomes
over 120 days delinquent. Nonresidential real estate loans are evaluated for
non-accrual status when the loan is 90 days or more past due. Interest accrued
and unpaid at the time a loan is placed on non-accrual status is charged against
interest income. Subsequent payments are either applied to the outstanding
principal balance or recorded as interest income, depending on the assessment of
the ultimate collectibility of the loan.
-41-
<PAGE> 47
The following table sets forth information with respect to BenchMark's
nonperforming assets for the periods indicated. During the periods shown,
BenchMark had no restructured loans within the meaning of Statement of Financial
Accounting Standards No. 15. In addition, as of December 31, 1998, BenchMark had
no loans that are not reflected in the table as non-accrual, 90 days past due or
restructured that may become so in the near future because management has
concerns as to the ability of the borrowers to comply with repayment terms.
<TABLE>
<CAPTION>
At December 31,
----------------------
1998 1997
---- ----
(Dollars in thousands)
<S> <C> <C>
Accruing loans which are contractually past due 90 days or more:
Residential real estate $ - $ -
Consumer and other loans - -
Loans accounted for on a nonaccrual basis 72 85
---- -----
Total nonperforming loans 72 85
Other nonperforming assets (1) - 134
--- ----
Total nonperforming assets $72 $219
=== ====
Nonperforming loans as a percent of total loans .2% .2%
Nonperforming assets as a percent of total assets .1% .5%
</TABLE>
- ---------------------------
(1) Nonperforming assets consist of real estate owned.
For the year ended December 31, 1998, gross interest income that would
have been recorded had nonaccruing loans been complying with their original
terms was approximately $6,000.
Federal regulations require savings institutions to classify their own
assets on a regular basis. In addition, in connection with examinations of
savings institutions, examiners have the authority to identify problem assets
and, if appropriate, classify them. The regulations also contain a special
mention category, defined as assets which do not currently expose a savings
institution to a sufficient degree of risk to warrant classification but do
possess credit deficiencies or potential weaknesses deserving management's close
attention. Assets classified as substandard or doubtful require the institution
to establish general allowances for loan losses. If an asset or a portion of an
asset is classified loss, the institution must either establish specified
allowances for loan losses in the amount of 100% of the portion of the asset
classified loss or charge off the amount.
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 nonperforming
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 the board of directors 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 December 31, 1998,
BenchMark's allowance for loan losses totaled $53,000.
-42-
<PAGE> 48
The following table displays an analysis of BenchMark's allowance for
loan losses for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997
---- ----
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of period $ 77 $ 77
Charge-offs:
Real estate loans (49) (3)
Consumer and other loans (1) (1)
---- ----
Total charge-offs (50) (4)
Recoveries
Real estate loans -- --
Consumer and other loans -- --
---- ----
Net charge-offs (50) (4)
Provision for loan losses 26 4
---- ----
Balance at end of year $ 53 $ 77
==== ====
Ratio of net charge-offs during the
period to average loans outstanding during the
period (.1)% --
</TABLE>
INVESTMENT ACTIVITIES
In the recent past, BenchMark has purchased mortgage-backed securities
insured or guaranteed by government agencies in order to improve BenchMark's
asset portfolio yield by profitably investing excess funds. At December 31,
1998, mortgage-backed securities totaled approximately $3.6 million, or 6.6% of
total assets.
The Office of Thrift Supervision requires minimum levels of liquid
assets. Office of Thrift Supervision regulations presently require BenchMark to
maintain specified levels of "liquid" investments in qualifying types of United
States Government and agency obligations and other permissible investments
having specified maturity limitations and marketability requirements. This
minimum requirement, which was revised by the Office of Thrift Supervision in
1998, is an amount equal to 4% of the sum of BenchMark's average daily balance
of net withdrawable deposit accounts and borrowings payable in one year or less.
The liquidity requirement, which may be changed from time to time by the Office
of Thrift Supervision to reflect changing economic conditions, is intended to
provide a source of relatively liquid funds upon which BenchMark may rely if
necessary to fund deposit withdrawals and other short-term funding needs.
The liquidity of BenchMark, as measured by the ratio of cash, cash
equivalents (not committed, pledged or required to liquidate specific
liabilities) and qualifying investments, mortgage-backed securities and loans to
the sum of net withdrawable savings plus borrowings payable within one year was
19.3% at December 31, 1998. At December 31, 1998, BenchMark's "liquid" assets
totaled approximately $2.3 million, which was approximately $646,000 in excess
of the current Office of Thrift Supervision minimum requirement. BenchMark
believes that its liquidity posture at December 31, 1998, was adequate to meet
outstanding loan commitments and other cash requirements.
-43-
<PAGE> 49
The following table presents the amortized cost and market values of
BenchMark's investment securities at the dates indicated:
<TABLE>
<CAPTION>
September 30,
------------------------------------------------------------
1998 1997
-------------------------- -------------------------
Amortized Market Amortized Market
Cost Value Cost Value
--------- ------ --------- ------
(In thousands)
<S> <C> <C> <C> <C>
Municipal obligations $15 $15 $ 15 $ 15
Federal Home Loan Bank
note - - 499 498
----- ----- ----- -----
Total $15 $15 $514 $513
=== === ==== ====
</TABLE>
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair values of mortgage-backed securities designated as
held-to-maturity at December 31, 1998 and 1997, are shown below.
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
Cost Gains Losses Value
--------- ------------ ----------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage
Corporation participation
certificates $1,571 $ 1 $ 39 $1,533
Federal National Mortgage Association
participation certificates 1,795 6 34 1,767
Government National Mortgage
Association participation
certificates 278 - 3 275
------ --- ---- ------
$3,644 $ 7 $ 76 $3,575
====== === ==== ======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
Cost Gains Losses Value
--------- ------------ ----------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage
Corporation participation $1,865 $ - $ 88 $1,777
certificates
Federal National Mortgage Association
participation certificates 2,417 10 56 2,371
Government National Mortgage
Association participation
certificates 326 - 6 320
------ ---- ---- ------
$4,608 $ 10 $150 $4,468
====== ==== ==== ======
</TABLE>
-44-
<PAGE> 50
The combined amortized cost of mortgage-backed securities designated as
held to maturity at December 31, 1998 and 1997, by contractual terms to maturity
are shown below. Actual maturities may differ from contractual maturities
because borrowers generally may prepay obligations without prepayment penalties.
Also, the timing of cash flows will be affected by management's intent to sell
securities designated as available for sale under certain economic conditions.
<TABLE>
<CAPTION>
Amortized cost at Amortized cost at
December 31, 1998 December 31, 1997
----------------- -----------------
(In thousands)
<S> <C> <C>
Due after one through three years $ 793 $1,097
Due after three years through five years 545 791
Due after five years through ten years 1,390 1,603
Due after ten years through twenty years 609 726
Due after twenty years 307 391
------- -------
$3,644 $4,608
====== ======
</TABLE>
DEPOSITS AND BORROWINGS
GENERAL USE. Deposits have traditionally been the primary source of
BenchMark's funds for use in lending and other investment activities. In
addition to deposits, BenchMark derives funds from interest payments and
principal repayments on loans and mortgage-backed securities, advances from the
Federal Home Loan Bank, income on earning assets, service charges and gains on
the sale of assets. Loan payments are a relatively stable source of funds, while
deposit inflows and outflows fluctuate more in response to general interest
rates and money market conditions. Federal Home Loan Bank advances are used on a
short-term basis to compensate for reductions in the availability of funds from
other sources or on a longer term basis for general business purposes.
DEPOSITS. Historically, deposits have been attracted principally from
within BenchMark's primary market area through the offering of a broad selection
of deposit instruments, including NOW accounts, regular passbook savings
accounts, Christmas Club accounts, term certificate accounts and individual
retirement accounts.
Interest rates paid, maturity terms, service fees and withdrawal
penalties for the various types of accounts are established periodically by
management of BenchMark based on BenchMark's liquidity requirements, growth
goals and interest rates paid by competitors. In a rising interest rate
environment, BenchMark attempts to manage its interest rate risk by lengthening
the term to maturity or repricing of more of its deposit liabilities.
At December 31, 1998, BenchMark's certificates of deposit totaled $25.8
million, or 65.0% of total deposits. Of this amount, approximately $18.4 million
in certificates of deposit mature within one year. Based on past experience and
BenchMark's prevailing pricing strategies, management believes that a
substantial percentage of these certificates will renew with BenchMark at
maturity. If there is a significant deviation from historical experience,
BenchMark can, to a limited extent, utilize additional borrowings from the
Federal Home Loan Bank as an alternative to this source of funds.
-45-
<PAGE> 51
The following table sets forth the dollar amount of deposits in the
various types of savings programs offered by BenchMark at December 31, 1998:
<TABLE>
<CAPTION>
Percent of
Amount Total Deposits
------ --------------
(In thousands)
<S> <C> <C>
Transaction accounts:
Passbook accounts (1) $ 7,410 18.7%
Money Market demand accounts (2) 3,985 10.0
Demand accounts (3) 2,526 6.4
-------- ------
Total transaction accounts 13,921 35.1
Certificates of deposit (4):
2.00 - 3.99% 54 .1
4.00 - 5.99% 21,691 54.6
6.00 - 7.99% 3,980 10.0
8.00 - 9.99% 73 .2
----------- --------
Total certificates of deposit 25,798 64.9
-------- ------
Total deposits $39,719 100.0%
======= =====
</TABLE>
- -----------------------------
(1) BenchMark's weighted average interest rate on passbook accounts
fluctuates with the general movement of interest rates. The weighted
average interest rate on passbook accounts was 3.55% at December 31,
1998.
(2) BenchMark's weighted average interest rate paid on Money Market demand
accounts fluctuates with the general movement of interest rates. At
December 31, 1998, the weighted average rate on these accounts was
3.40%.
(3) BenchMark's weighted average interest rate paid on Demand accounts
fluctuates with the general movement of interest rates. At December 31,
1998, the weighted average rate on demand accounts was 1.11%.
(4) Includes Individual Retirement Accounts and jumbo certificates of
deposit (those with balances in excess of $100,000). Terms of
certificates of deposit offered range from 30 days to 15 years, with
the average accounts ranging from 90 days to 5 years.
-46-
<PAGE> 52
The following table shows rate and maturity information for BenchMark's
certificates of deposit as of December 31, 1998:
<TABLE>
<CAPTION>
Amount Due
----------------------------------------------------------------------
Over Over
Up to 1 year to 2 years to Over
Rate One Year 2 Years 3 Years 3 Years Total
---- -------- - -------- -- --------- -- --------- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
2.00 - 3.99% $ 41 $ 13 $ - $ - $ 54
4.00 - 5.99 16,301 3,215 1,065 1,110 21,691
6.00 - 7.99 2,009 1,486 40 445 3,980
8.00 - 9.99 73 - - - 73
--------- --------- --------- --------- ---------
Total certificates of deposit $ 18,424 $ 4,714 $ 1,105 $ 1,555 $ 25,798
========= ========= ========= ========= =========
</TABLE>
The following table presents the amount of BenchMark's certificates of
deposit of $100,000 or more, by the time remaining until maturity:
<TABLE>
<CAPTION>
Maturity At December 31, 1998
-------- --------------------
(In thousands)
<S> <C> <C>
Due within one year $3,832
Due within one to three years 1,062
Due within three to five years 105
-------
Total $4,999
======
</TABLE>
BORROWINGS. During the year ended December 31, 1998, BenchMark's only
borrowings were Federal Home Loan Bank advances. The following table sets forth
the maximum amount of BenchMark's Federal Home Loan Bank advances outstanding at
any month-end, during the periods shown, and the average aggregate balances of
Federal Home Loan Bank advances for these periods:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Maximum amount of Federal Home Loan Bank advances $11,415 $5,682
======= ======
Average amount of Federal Home Loan Bank advances outstanding
during period $9,100 $4,931
====== ======
</TABLE>
-47-
<PAGE> 53
The following table sets forth information as to BenchMark's Federal
Home Loan Bank advances at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
-----------------------------
1998 1997
---- ----
(In thousands)
<S> <C> <C>
FHLB advances $11,120 $5,682
======= ======
Weighted average interest cost of FHLB advances 5.43% 5.94%
==== ====
</TABLE>
COMPETITION
BenchMark competes for deposits with other savings 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, BenchMark competes with other savings associations,
commercial banks, consumer finance companies, credit unions, leasing companies,
mortgage brokers and other lenders. BenchMark 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 many factors, including the general availability of lendable funds,
general and local economic conditions, current interest rate levels and other
factors which are not readily predictable.
Because BenchMark is smaller than the many other financial institutions
in its market area, management believes that BenchMark does not have a
substantial share of the deposit and loan markets.
The size of financial institutions competing with BenchMark is likely to
increase as a result of changes in statutes and regulations eliminating various
restrictions on interstate and inter-industry branching and acquisitions. This
increased competition may have an adverse effect upon BenchMark.
YEAR 2000 CONSIDERATIONS
BenchMark is addressing the potential problems associated with the
possibility that the computers which control or operate BenchMark's operating
systems may not be programmed to read four-digit date codes and, upon arrival of
the year 2000, may recognize the two-digit code "00" as the year 1900, causing
systems to fail to function or to generate erroneous data. Other concerns have
been raised regarding February 29, 2000, as well as September 9, 1999, which are
new calculations challenges that may result in further problems.
Most significantly affected are all forms of financial accounting,
including interest computations, due dates, pensions, personnel benefits,
investments, legal commitments, valuations, fixed asset depreciation schedules,
tax filings and financial models. Additional problems may occur on other systems
using computers for processing, vault openings, check protectors and gas and
electric. The total impact is currently unknown; however, it is projected that
failure to address these programming code issues and make appropriate changes
may expose an institution to all types of risks, including credit, transaction,
liquidity, interest rate, compliance, reputation, price and foreign exchange.
BenchMark has established a year 2000 team, headed by the systems
analyst, to analyze the risk of potential problems that might arise from the
failures of computer programming to recognize the year 2000 and to develop a
plan to mitigate any risk. Research by the team indicates that the greatest
potential impact upon BenchMark is the risk related to vendors used by
BenchMark, particularly Intrieve, Inc., its data processing service bureau.
-48-
<PAGE> 54
Quarterly progress reports from Intrieve, Inc. have indicated levels of manpower
and expertise sufficient to amend and test the adequacy of Intrieve's computer
programming and systems before the arrival of the year 2000. All other vendors
and commercial customers have been identified and requests for year 2000
certificates have been sent by BenchMark.
The year 2000 team submits quarterly progress reports to the board of
directors and as of December 31, 1998, all required internal testing of each
system utilized has been completed. Additionally, Intrieve has advised BenchMark
that it has implemented a fully year 2000 compliant processing system that had
been fully tested as of January 1, 1999. BenchMark's systems were tested by
Intrieve during November 1998, with satisfactory results. Intrieve advised
BenchMark that all additional required testing will be completed by May 1999.
The year 2000 team estimates that the impact upon BenchMark's results of
operations, liquidity and capital resources will be immaterial.
Management has developed a contingency plan which includes BenchMark's
ability to conduct transactions using manual procedures, along with the use of
some off-line canned programs. Management has set a budget of approximately
$35,000 to ensure BenchMark is year 2000 compliant. BenchMark has expended
approximately $27,000 related to year 2000 testing during the period ended
December 31, 1998.
In addition, financial institutions may experience increases in problem
loans and credit losses in the event that borrowers fail to prepare properly for
year 2000, and higher funding costs could result if consumers react to publicity
about the issue by withdrawing deposits. BenchMark is assessing these risks
among its customers and will take action to minimize their effect.
PERSONNEL
As of December 31, 1998, BenchMark had 18 full-time equivalent
employees. BenchMark believes that relations with its employees are good.
BenchMark offers health, disability, life and dependent care benefits. None of
the employees of BenchMark are represented by a collective bargaining unit.
-49-
<PAGE> 55
SECURITY OWNERSHIP OF BENCHMARK
The following table sets forth as of __________, 1999, stock ownership
information as to (a) those persons BenchMark knew to be the beneficial owners
of more than 5% of the outstanding BenchMark common shares, (b) each BenchMark
director and (c) all directors and officers of BenchMark as a group.
<TABLE>
<CAPTION>
Amount and Nature of Percentage of Shares of
Name And Address Beneficial Ownership (1) Common Stock Outstanding
- ---------------- -------------------- ------------------------
<S> <C> <C>
BenchMark Employee Stock Ownership Plan (2) 10,000 8.90%
101 W. Central Pkwy.
Cincinnati, Ohio 45202
George E. Castrucci, director 5,669 (3) 5.05 (3)
8355 Old Stable Road
Cincinnati, Ohio 45243
Frank J. D'Andrea, director 6,391 (3) 5.69 (3)
7947 Huntersknoll
Cincinnati, Ohio 45242
Gerald A. Faust, Jr., director 6,390 5.69
2939 Woodcrest Drive
Fairlawn, Ohio 44333
Anthony J. Schement, director 6,390 5.69
8032 Deershadow
Cincinnati, Ohio 45242
Kenneth J. Schneider, director 6,390 (3) 5.67 (3)
9804 Tollgate
Cincinnati, Ohio 45242
Wayne F. Shuler, director 6,391 (3) 5.69 (3)
11324 Ironwood
Cincinnati, Ohio 45242
George M. Vredeveld, director 6,391 (3) 5.69 (3)
1111 Springfield Pike
Cincinnati, Ohio 45215
All directors and executive officers as a
group (11 persons) 50,716.636 (4) 45.16 (4)
</TABLE>
- ---------------------------
(1) Unless otherwise indicated, includes shares owned by a spouse or a
trustee and shares over which the named persons effectively exercise
sole or shared voting and investment power.
(2) The trustees of the BenchMark Employee Stock Ownership Plan are
required to solicit directions from the participants in the ESOP as to
how to vote the shares in their accounts regarding the merger.
(footnotes continued on next page)
-50-
<PAGE> 56
(3) Does not include 1,034 BenchMark common sales held by an independent
trustee in the named director's account in the BenchMark Federal
Saving Bank Directors Deferral Compensation Trust. The named director
does not have any rights regarding these shares, including voting
power, until he ceases to be a director of BenchMark and these shares
will be voted at the sole discretion of the trustee.
(4) Includes 4,779.636 BenchMark common shares held by the BenchMark
Employee Stock Ownership Plan accounts of executive officers, which the
trustees of the plan will vote according to directions from the
executive officers; but does not include any of the 5,170 BenchMark
common shares held in the deferred compensation trust which will be
voted solely at the discretion of the trustee of the deferred
compensation trust.
REGULATION OF BENCHMARK
GENERAL. As a savings bank organized under the laws of the United
States, BenchMark is regulated by the Office of Thrift Supervision and, because
BenchMark's deposits are insured by the FDIC, BenchMark is also examined and
regulated by the FDIC. BenchMark must file periodic reports with the Office of
Thrift Supervision concerning its activities and financial condition.
Examinations are conducted periodically by the Office of Thrift Supervision and
the FDIC to determine whether BenchMark is in compliance with various regulatory
requirements and is operating in a safe and sound manner. BenchMark is a member
of the Federal Home Loan Bank of Cincinnati.
OFFICE OF THRIFT SUPERVISION. The Office of Thrift Supervision is an
office in the Department of the Treasury and is responsible for the regulation
and supervision of all federally chartered savings associations and all other
savings associations, the deposits of which are insured by the FDIC in the
Savings Association Insurance Fund. The Office of Thrift Supervision issues
regulations governing the operation of savings associations, regularly examines
associations and imposes assessments on savings associations based on their
asset size to cover the costs of general supervision and examination. It also
promulgates regulations that prescribe the permissible investments and
activities of federally chartered savings associations, including the type of
lending that the associations may engage in and the investments in real estate,
subsidiaries and securities they may make. The Office of Thrift Supervision also
may initiate enforcement actions against savings associations and persons
affiliated with them for violations of laws or regulations or for engaging in
unsafe or unsound practices. If the grounds provided by law exist, the Office of
Thrift Supervision may appoint a conservator or receiver for a savings
association.
Federally chartered savings associations are regulated by various
consumer protection and fair lending laws. These laws govern areas such as
truth-in-lending disclosure, equal credit opportunity, fair credit reporting and
community reinvestment. Failure to abide by federal laws and regulations
governing community reinvestment could limit the ability of an association to
open a new branch or engage in a merger transaction. Community reinvestment
regulations evaluate how well and to what extent an institution lends and
invests in its designated service area, with particular emphasis on
low-to-moderate income communities and borrowers in those areas. BenchMark has
received a satisfactory examination rating under those regulations.
OFFICE OF THRIFT SUPERVISION REGULATORY CAPITAL REQUIREMENTS. BenchMark
is required by the Office of Thrift Supervision regulations to meet specified
minimum capital requirements.
Current capital requirements call for tangible capital (which for
BenchMark is equity capital under generally accepted accounting principles) of
1.5% of adjusted total assets, core capital (which for BenchMark consists of
tangible capital) of 3.0% of adjusted total assets and risk-based capital (which
for BenchMark consists of core capital plus general valuation reserves of
$53,000) of 8% of risk-weighted assets. The Office of Thrift Supervision has
proposed to amend the core capital requirement so that those associations that
do not have the highest examination rating and exceed an acceptable level of
risk will be required to maintain core capital of from 4% to 5%, depending on
the association's examination rating and overall risk. BenchMark does not
anticipate that
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it will be adversely affected if the core capital requirement regulation is
amended as proposed. BenchMark's current core capital level is 6.3% of adjusted
total assets.
The following table sets forth the amount and percentage level of
regulatory capital of BenchMark at December 31, 1998, and the amount by which it
exceeds the minimum capital requirements. Tangible and core capital are
reflected as a percentage of adjusted total assets. Total (or risk-based)
capital, which consists of core and supplementary capital, is reflected as a
percentage of risk-weighted assets. Assets are weighted at percentage levels
ranging from 0% to 100% depending on their relative risk.
<TABLE>
<CAPTION>
At December 31, 1998
----------------------------------
Amount Percent
------ -------
<S> <C> <C>
Tangible capital $3,506 6.3%
Requirement 829 1.5
-------- -----
Excess $2,677 4.8%
====== =====
Core capital $3,506 6.3%
Requirement 1,659 3.0
------- -----
Excess $1,847 3.3%
====== =====
Total capital $3,559 12.9%
Risk-based requirement 2,203 8.0
------- -----
Excess $1,356 4.9%
====== =====
</TABLE>
The Office of Thrift Supervision has adopted an interest rate risk
component to the risk-based capital requirement, though the implementation of
that component has been delayed. Under that requirement, a savings association
would have to measure the effect of an immediate 200 basis point change in
interest rates on the value of its portfolio, as determined under the
methodology established by the Office of Thrift Supervision. If the measured
interest rate risk is above the level deemed normal under the regulation, the
association will be required to deduct one-half of that excess exposure from its
total capital when determining its level of risk-based capital. In general, an
association with less than $300 million in assets and a risk-based capital ratio
of greater than 12% will be exempt from the interest rate risk component.
BenchMark currently qualifies for this exemption. Pending implementation of the
interest rate risk component, the Office of Thrift Supervision has the authority
to impose a higher individualized capital requirement on any savings association
it deems to have excess interest rate risk. The Office of Thrift Supervision
also may adjust the risk-based capital requirement on an individual basis for
any association to take into account risks due to concentrations of credit and
non-traditional activities.
The Office of Thrift Supervision has adopted regulations governing
prompt corrective action to resolve the problems of capital deficient and
otherwise troubled savings associations. At each successively lower defined
capital category, an association is regulated by more restrictive and numerous
mandatory or discretionary regulatory actions or limits, and the Office of
Thrift Supervision has less flexibility in determining how to resolve the
problems of the institution. The Office of Thrift Supervision has defined these
capital levels as follows: (1) well-capitalized associations must have total
risk-based capital of at least 10%, core risk-based capital (consisting only of
items that qualify for inclusion in core capital) of at least 6% and core
capital of at least 5%; (2) adequately capitalized associations are those that
meet the regulatory minimum of total risk-based capital of at least 8%, core
risk-based capital (consisting only of items that qualify for inclusion in core
capital) of at least 4% and core capital of at least 4% (except for associations
receiving the highest examination rating and with an acceptable level of risk,
in which case the level is at least 3%); (3) undercapitalized associations are
those that do not meet regulatory limits, but that are not significantly
undercapitalized; (4) significantly undercapitalized associations have total
risk-based capital of less than 6%, core risk-based capital (consisting only of
items that qualify for inclusion in core capital) of less than 3% or core
capital of less than 3%; and (5) critically
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undercapitalized associations are those with tangible equity of less than 2% of
total assets. In addition, the Office of Thrift Supervision generally can
downgrade an association's capital category, notwithstanding its capital level,
if, after notice and opportunity for hearing, the association is deemed to be
engaging in an unsafe or unsound practice because it has not corrected
deficiencies that resulted in it receiving a less than satisfactory examination
rating on matters other than capital or it is deemed to be in an unsafe or
unsound condition. An undercapitalized association must submit a capital
restoration plan to the Office of Thrift Supervision within 45 days after it
becomes undercapitalized. This type of association will experience increased
monitoring and asset growth restrictions and will be required to obtain prior
approval for acquisitions, branching and engaging in new lines of business.
Furthermore, critically undercapitalized institutions must be placed in
conservatorship or receivership within 90 days of reaching that capitalization
level, except under limited circumstances. BenchMark's capital at December 31,
1998, meets the standards for a well-capitalized institution.
Federal law prohibits an insured institution from making a capital
distribution to anyone or paying management fees to any person having control of
the association if, after the distribution or payment, the association would be
undercapitalized. In addition, each company controlling an undercapitalized
association must guarantee that the association will comply with its capital
plan until the association has been adequately capitalized on an average during
each of four preceding calendar quarters and must provide adequate assurances of
performance.
LIMITATIONS ON CAPITAL DISTRIBUTIONS. The Office of Thrift Supervision
imposes various restrictions or requirements on the ability of associations to
make capital distributions, including dividend payments. An association which
has converted to stock form is prohibited from declaring or paying any dividends
or from repurchasing any of its stock if, as a result, the net worth of the
association would be reduced below the amount required to be maintained for the
liquidation account established in connection with its mutual to stock
conversion. Office of Thrift Supervision regulations also establish a three-tier
system limiting capital distributions according to ratings of associations based
on their capital level and supervisory condition.
Tier 1 consists of associations that, before and after the proposed
distribution, meet their fully phased-in capital requirements. Associations in
this category may make capital distributions during any calendar year equal to
the greater of 100% of net income, current year-to-date, plus 50% of the amount
by which the lesser of the association's tangible, core or risk-based capital
exceeds its capital requirement for the capital component, as measured at the
beginning of the calendar year, or the amount authorized for a Tier 2
association. A Tier 1 association deemed to be in need of more than normal
supervision by the Office of Thrift Supervision may be downgraded to a Tier 2 or
Tier 3 association. A Tier 2 association may make capital distributions of up to
75% of net income over the four most recent quarters. Tier 3 associations do not
meet current minimum capital requirements and must obtain Office of Thrift
Supervision approval of any capital distribution.
In January 1998, the Office of Thrift Supervision issued a proposal to
amend the capital distribution limits. Under that proposal, an association owned
by a holding company would still be required to provide either a notice or an
application to the Office of Thrift Supervision, although under some
circumstances a savings association without a holding company having an
examination rating of 1 or 2 could make a capital distribution without notice to
the Office of Thrift Supervision, if it would remain adequately capitalized
after the distribution is made.
LIQUIDITY. Office of Thrift Supervision regulations require that each
savings association maintain an average daily balance of liquid assets (cash,
some time deposits, bankers' acceptances and specified United States government,
state or federal agency obligations) in each calendar quarter equal to not less
than 4% of (1) its net withdrawable savings deposits plus borrowings payable in
one year or less at the end of the preceding quarter or (2) the average daily
balance of its net withdrawable savings deposits plus borrowings payable in one
year or less during the preceding quarter. Monetary penalties may be imposed
upon associations failing to meet liquidity
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requirements. The eligible liquidity of BenchMark, as computed under current
regulations, at December 31, 1998, was $2.3 million, or 5.5% and exceeded the
4.0% liquidity requirement by approximately $646,000.
QUALIFIED THRIFT LENDER TEST. Savings associations are required to meet
the Qualified Thrift Lender Test. Before September 30, 1996, the Qualified
Thrift Lender Test required savings associations to maintain a specified level
of investments in assets that are designated as qualifying thrift investments,
which are generally related to domestic residential real estate and manufactured
housing and include stock issued by any Federal Home Loan Bank, the Federal Home
Loan Mortgage Corporation or the Federal National Mortgage Association. Under
this test 65% of an institution's "portfolio assets" (total assets less goodwill
and other intangibles, property used to conduct business and 20% of liquid
assets) must consist of QTI on a monthly average basis in 9 out of every 12
months. Congress created a second Qualified Thrift Lender Test, effective
September 30, 1996, which permits a savings association to qualify as a
Qualified Thrift Lenders thrift if at least 60% of the institution's assets (on
a tax basis) consist of specified assets (generally loans secured by residential
real estate or deposits, educational loans, cash and some governmental
obligations). The Office of Thrift Supervision may grant exceptions to the
Qualified Thrift Lender Test under limited circumstances. If a savings
association fails to meet the Qualified Thrift Lender Test, the association and
its holding company must comply with specific operating and regulatory
restrictions. A savings association that fails to meet the Qualified Thrift
Lender Test will not be eligible for new Federal Home Loan Bank advances. At
December 31, 1998, BenchMark met the Qualified Thrift Lender Test.
LENDING LIMIT. Office of Thrift Supervision regulations generally limit
the aggregate amount that a savings association may lend to one borrower to an
amount equal to 15% of the savings association's total capital under the
regulatory capital requirements plus any additional loan reserve not included in
total capital. A savings association may loan to one borrower an additional
amount not to exceed 10% of total capital plus additional reserves if the
additional loan amount is fully secured by specified forms of "readily
marketable collateral." Real estate is not considered "readily marketable
collateral." A few types of loans are not affected by these limits. In applying
these limits, loans to designated borrowers may be aggregated. Notwithstanding
the specified limits, an association may lend to one borrower up to $500,000
"for any purpose." At December 31, 1998, BenchMark was in compliance with this
lending limit.
TRANSACTIONS WITH INSIDERS AND AFFILIATES. Loans to executive officers,
directors and principal shareholders and their related interests must conform to
the lending limit, and the total of these loans cannot exceed the association's
lending limit capital. Most loans to directors, executive officers and principal
shareholders must be approved in advance by a majority of the "disinterested"
members of board of directors of the association with any "interested" director
not participating. All loans to directors, executive officers and principal
shareholders must be made on terms substantially the same as offered in
comparable transactions with the general public or as offered to all employees
in a company-wide benefit program. Loans to executive officers must meet
additional restrictions. BenchMark was in compliance with these restrictions at
December 31, 1998.
All transactions between savings associations and their affiliates must
comport with Sections 23A and 23B of the Federal Reserve Act. An affiliate of a
savings association is any company or entity that controls, is controlled by or
is under common control with the savings association. Generally, Sections 23A
and 23B of the FRA (1) limit the extent to which a savings association or its
subsidiaries may engage in "covered transactions" with any one affiliate to an
amount equal to 10% of such institution's capital stock and surplus, (2) limit
the aggregate of all covered transactions with all affiliates to an amount equal
to 20% of such capital stock and surplus, and (3) require that all covered
transactions be on terms substantially the same, or at least as favorable to the
association, as those provided in transactions with a non-affiliate. The term
"covered transaction" includes the making of loans, purchase of assets, issuance
of a guarantee and other similar types of transactions. In addition to the
limits in Sections 23A and 23B, a savings association may not make any loan or
other extension of credit to an affiliate unless the affiliate is engaged only
in activities permissible for a bank holding company and may not
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purchase or invest in securities of any affiliate except shares of a subsidiary.
BenchMark was in compliance with these requirements and restrictions at December
31, 1998.
FEDERAL DEPOSIT INSURANCE CORPORATION REGULATIONS. The FDIC is an
independent federal agency that insures the deposits of federally insured banks
and thrifts, up to prescribed statutory limits, and safeguards the safety and
soundness of the banking and thrift industries. The FDIC administers two
separate insurance funds, the Bank Insurance Fund for commercial banks and state
savings banks and the Savings Association Insurance Fund for savings
associations. BenchMark is a member of the Savings Association Insurance Fund
and its deposit accounts are insured by the FDIC, up to the prescribed limits.
The FDIC has examination authority over all insured depository institutions,
including BenchMark, and has authority to initiate enforcement actions against
federally insured savings associations, if the FDIC does not believe the Office
of Thrift Supervision has taken appropriate action to safeguard safety and
soundness and the deposit insurance fund.
The FDIC is required to maintain designated levels of reserves in each
fund. The FDIC may increase assessment rates for either fund if necessary to
restore the fund's ratio of reserves to insured deposits to its target level
within a reasonable time and may decrease the rates if the target level has been
met. The FDIC has established a risk-based assessment system for both Savings
Association Insurance Fund and Bank Insurance Fund members. Under this system,
assessments vary based on the risk the institution poses to its deposit
insurance fund. The risk level is determined based on the institution's capital
level and the FDIC's level of supervisory concern about the institution.
Because of the differing reserve levels of the funds, deposit insurance
assessments paid by healthy banks were reduced significantly below the level
paid by healthy savings associations effective in mid-1995. Federal legislation,
which was effective September 30, 1996, provided for the recapitalization of the
Savings Association Insurance Fund by means of a special assessment of $.657 per
$100 of Savings Association Insurance Fund deposits held at March 31, 1995, in
order to increase Savings Association Insurance Fund reserves to the level
required by law. BenchMark paid a special assessment of $234,000, which was
accounted for and recorded as of September 30, 1996.
FEDERAL RESERVE BANK RESERVE REQUIREMENTS. Effective December 1, 1998,
Federal Reserve Bank regulations currently require that reserves of 3% of net
transaction accounts (primarily NOW accounts) up to $46.5 million (with an
exemption of up to $4.9 million), and of 10% of net transaction accounts in
excess of $46.5 million. At December 31, 1998, BenchMark was in compliance with
its reserve requirements.
FEDERAL HOME LOAN BANKS. The Federal Home Loan Banks provide credit to
their members in the form of advances. BenchMark is a member of the Federal Home
Loan Bank of Cincinnati and must maintain an investment in the capital stock of
that Federal Home Loan Bank in an amount equal to the greater of 1.0% of the
aggregate outstanding principal amount of BenchMark's residential mortgage
loans, home purchase contracts and similar obligations at the beginning of each
year, or 5% of its advances from the Federal Home Loan Bank. BenchMark was in
compliance with this at December 31, 1998.
Upon the origination or renewal of a loan or advance, the Federal Home
Loan Bank of Cincinnati is required by law to obtain and maintain a security
interest in various types of collateral specified by regulation. All long-term
advances by each Federal Home Loan Bank must be made only to provide funds for
residential housing finance.
FEDERAL TAXATION
BenchMark is governed by the federal tax laws and regulations which
apply to corporations generally. In addition to the regular income tax,
corporations, including BenchMark, may have to pay the alternative minimum tax
which is imposed at a minimum tax rate of 20% on "alternative minimum taxable
income" (which is the sum
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of a corporation's regular taxable income, with adjustments, and tax preference
items), less any available exemption. The tax preference items include interest
on some tax-exempt bonds issued after August 7, 1986. In addition, 75% of the
amount by which a corporation's "adjusted current earnings" exceeds its
alternative minimum taxable income computed without regard to this preference
item and before reduction by net operating losses, is included in alternative
minimum taxable income. Net operating losses can offset no more than 90% of
alternative minimum taxable income. The alternative minimum tax is imposed to
the extent it exceeds the corporation's regular income tax. Payments of
alternative minimum tax may be used as credits against regular tax liabilities
in future years. However, the Taxpayer Relief Act of 1997 repealed the
alternative minimum tax for "small corporations" for tax years beginning after
December 31, 1997. A corporation initially qualifies as a small corporation if
it had average gross receipts of $5,000,000 or less for the three tax years
ending with its first tax year beginning after December 31, 1996. Once a
corporation is recognized as a small corporation, it will continue to be exempt
from the alternative minimum tax for as long as its average gross receipts for
the prior three-year period does not exceed $7,500,000. In determining if a
corporation meets this requirement, the first year that it achieved small
corporation status is not taken into consideration.
BenchMark's average gross receipts for the three tax years ending on
December 31, 1998, is $3.7 million and as a result, BenchMark does qualify as a
small corporation exempt from the alternative minimum tax.
Before the enactment of the Small Business Jobs Protection Act, which
was signed into law on August 21, 1996, thrift institutions, such as BenchMark,
were allowed deductions for bad debts under methods more favorable than those
granted to other taxpayers. Qualified thrift institutions could compute
deductions for bad debts using either the specific charge-off method of Section
166 of the Code or one of two reserve methods of Section 593 of the Code. The
reserve methods under Section 593 of the Code permitted a thrift institution
annually to elect to deduct bad debts under either (1) the "percentage of
taxable income" method applicable only to thrift institutions, or (2) the
"experience" method that also was available to small banks. Under the
"percentage of taxable income" method, a thrift institution generally was
allowed a deduction for an addition to its bad debt reserve equal to 8% of its
taxable income (determined without regard to this deduction and with additional
adjustments). Under the "experience" method, a thrift institution was generally
allowed a deduction for an addition to its bad debt reserve equal to the greater
of (a) an amount based on its actual average experience for losses in the
current and five preceding taxable years, or (b) an amount necessary to restore
the reserve to its balance as of the close of the base year. A thrift
institution could elect annually to compute its allowable addition to bad debt
reserves for qualifying loans either under the experience method or the
percentage of taxable income method. For the tax year 1995, BenchMark used the
percentage of taxable income method.
The Act eliminated the percentage of taxable income method of
accounting for bad debts by thrift institutions, effective for taxable years
beginning after 1995. Thrift institutions that are treated as small banks are
allowed to utilize the experience method applicable to those institutions, while
thrift institutions that are treated as large banks are required to use only the
specific charge off method.
A thrift institution required to change its method of computing
reserves for bad debt will treat such change as a change in the method of
accounting, initiated by the taxpayer and having been made with the consent of
the Secretary of the Treasury. Section 481(a) of the Code requires some amounts
to be recaptured with respect to the change. Generally, the amounts to be
recaptured will be determined solely with respect to the "applicable excess
reserves" of the taxpayer. The amount of the applicable excess reserves will be
taken into account ratably over a six-taxable year period, beginning with the
first taxable year beginning after 1995, after considering the residential loan
requirement described below. In the case of a thrift institution that is treated
as a large bank, the amount of the institution's applicable excess reserves
generally is the excess of (a) the balances of its reserve for losses on
qualifying real property loans (generally loans secured by improved real estate)
and its reserve for losses on nonqualifying loans (all other types of loans) as
of the close of its last taxable year beginning before January 1, 1996, over (b)
the balances of such reserves as of the close of its last taxable year beginning
before January 1, 1988 (I.E., the "pre-1988 reserves"). In the case of a thrift
institution that is treated as a small bank, like the Bank,
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the amount of the institution's applicable excess reserves generally is the
excess of (1) the balances of its reserve for losses on qualifying real property
loans and its reserve for losses on nonqualifying loans as of the close of its
last taxable year beginning before January 1, 1996, over (2) the greater of the
balance of (a) its pre-1988 reserves or (b) what the thrift's reserves would
have been at the close of its last year beginning before January 1, 1996, had
the thrift always used the experience method.
For taxable years that begin after December 31, 1995, and before
January 1, 1998, if a thrift meets the residential loan requirement for a tax
year, the recapture of the applicable excess reserves otherwise required to be
taken into account as a Code Section 481(a) adjustment for the year will be
suspended. A thrift meets the residential loan requirement if, for the tax year,
the principal amount of residential loans made by the thrift during the year is
not less than its base amount. The "base amount" generally is the average of the
principal amounts of the residential loans made by the thrift during the six
most recent tax years beginning before January 1, 1996. A residential loan is a
loan as described in Section 7701(a)(19)(C)(v) (generally a loan secured by
residential or church property and some mobile homes), but only to the extent
that the loan is made to the owner of the property.
The balance of the pre-1988 reserves is regulated by the provisions of
Section 593(e), as modified by the Act, which require recapture in the case of
specified excessive distributions to shareholders. The pre-1988 reserves may not
be utilized for payment of cash dividends or other distributions to a
shareholder (including distributions in dissolution or liquidation) or for any
other purpose (except to absorb bad debt losses). Distribution of a cash
dividend by a thrift institution to a shareholder is treated as made: first, out
of the institution's post-1951 accumulated earnings and profits; second, out of
the pre-1988 reserves; and third, out of other accounts as may be proper. To the
extent a distribution by BenchMark is deemed paid out of its pre-1988 reserves
under these rules, the pre-1988 reserves would be reduced and the gross income
of the Bank for tax purposes would be increased by the amount which, when
reduced by the income tax, if any, attributable to the inclusion of the amount
in its gross income, equals the amount deemed paid out of the pre-1988 reserves.
As of December 31, 1998, the pre-1988 reserves of BenchMark for tax purposes
totaled approximately $211,000. BenchMark believes it had approximately $2.3
million of accumulated earnings and profits for tax purposes as of December 31,
1998, which would be available for dividend distributions, provided regulatory
restrictions applicable to the payment of dividends are met. No representation
can be made as to whether BenchMark will have current or accumulated earnings
and profits in subsequent years.
The tax returns of BenchMark have been audited or closed without audit
through fiscal year 1994. In the opinion of management, any examination of open
returns would not result in a deficiency which could have a material adverse
effect on the financial condition of BenchMark.
OHIO TAXATION
BenchMark is a "financial institution" for State of Ohio tax purposes.
As a financial institution, it must pay the Ohio corporate franchise tax on
"financial institutions," which is imposed annually at a rate of 1.5% of the
book net worth of the Bank determined by generally accepted accounting
principles. For tax year 1999, however, the franchise tax on financial
institutions will be 1.4% of the book net worth and for tax year 2000 and years
thereafter the tax will be 1.3% of the book net worth. As a "financial
institution," BenchMark does not pay any tax based upon net income or net
profits imposed by the State of Ohio.
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DESCRIPTION OF WINTON FINANCIAL COMMON SHARES
The following is a summary of the material attributes of Winton
Financial common shares.
AUTHORIZED CAPITAL STOCK
Winton Financial's authorized capital stock consists of 20,000,000
Winton Financial shares, 18,000,000 of which are common shares, each without par
value, and 2,000,000 of which are preferred shares, each without par value. As
of __________, 1999, the date before the printing of this prospectus/proxy
statement, ___________ common shares were outstanding. No preferred shares have
ever been issued.
Holders of Winton Financial shares have no conversion rights or
preemptive or other rights to subscribe for additional shares. There are no
redemption or sinking fund provisions with respect to any outstanding Winton
Financial shares aside from any provision required by law.
VOTING RIGHTS
Winton Financial shareholders are entitled to one vote for each common
share held. Holders of Winton Financial preferred shares would not be entitled
to vote unless dividends on the preferred shares become in arrears, at which
time they would become entitled to one vote for each Winton Financial preferred
share. When all dividends in arrears on Winton Financial preferred shares have
been paid in full, the voting rights of holders of Winton Financial preferred
shares would cease.
The amended code of regulations of Winton Financial provide for a board
of directors consisting of nine directors, divided into three classes. Each
class is elected by a separate election and the directors in each class are
elected for three-year terms. As a result of the classification of Winton
Financial's board of directors, a minimum of two annual meetings of shareholders
will be necessary for a majority of the members of the board of directors to
stand for election.
DIVIDEND AND LIQUIDATION RIGHTS
Winton Financial shareholders are entitled to receive dividends when
and if declared by the board of directors of Winton Financial from funds legally
available therefor. Upon liquidation, all Winton Financial shares currently
outstanding are entitled to participate equally in the assets of Winton
Financial available for distribution to its shareholders.
ANTITAKEOVER PROVISIONS IN THE AMENDED ARTICLES AND CODE OF REGULATIONS OF
WINTON FINANCIAL
The amended articles of incorporation and code of regulations of Winton
Financial contain provisions which may deter a change of control of Winton
Financial. These provisions are intended to encourage any potential acquirer to
negotiate the terms of an acquisition with the board of directors of Winton
Financial. These provisions reduce the vulnerability of Winton Financial to
takeover attempts and other transactions which have not been negotiated with and
approved by the board of directors.
Anti-takeover devices and provisions may, however, discourage takeover
attempts that some shareholders may feel are in their best interests or in which
shareholders may receive a substantial premium for their shares. These
provisions may also benefit management by discouraging changes of control in
which incumbent management would be removed from office. The provisions may
result in Winton Financial being less attractive to a potential acquirer and may
result in shareholders receiving less for their shares than otherwise might be
available in the event of a takeover attempt.
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The following is a summary of the antitakeover provisions of the
amended articles of incorporation and code of regulations of Winton Financial.
SUPERMAJORITY PROVISION. A 75% vote by Winton Financial shareholders is
required to adopt any of the following transactions if the board of directors of
Winton Financial recommends against approval:
- a proposed amendment to Winton Financial's amended articles of
incorporation;
- a proposal to adopt a new code of regulations or an amendment
to the code of regulations of Winton Financial;
- a proposal to change the number of directors;
- an agreement of merger or consolidation providing for the
proposed merger or consolidation of Winton Financial with or
into one or more other corporations;
- a proposed combination or majority share acquisition involving
the issuance of Winton Financial shares and requiring
shareholder approval;
- a proposal to sell, exchange, transfer or otherwise dispose of
all, or substantially all, of the assets, with or without the
goodwill, of Winton Financial; or
- a proposed dissolution of Winton Financial.
If the board of directors recommends that shareholders approve any of these
transactions, a majority vote is sufficient.
NOMINATION PROCEDURE. Winton Financial's code of regulations provides
that shareholder nominations for the election of directors must be made in
writing and must be delivered or mailed to the secretary of Winton Financial. In
the case of a nominee proposed for election as a director at an annual meeting
of shareholders, the written notice must be received by the secretary of Winton
Financial by the later of:
- the February 1st immediately preceding such annual meeting; or
- the 60th day before the first anniversary of the most recent
annual meeting of shareholders of Winton Financial held for
the election of directors.
If the annual meeting is not held on or before the thirty-first day following
the anniversary of the last meeting, the written notice must be received by the
secretary within a reasonable time before the date of the annual meeting.
In the case of a nominee proposed for election as a director at a
special meeting of shareholders, the written notice of a proposed nominee must
be received by the secretary of Winton Financial by the close of business on the
seventh day after the day on which notice of the special meeting was mailed to
shareholders.
- The written notice of a proposed nominee must state:
- the name, age, and business or residence address of each
nominee;
- the principal occupation or employment of each nominee;
- the number of Winton Financial common shares owned
beneficially and of record by each nominee; and
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- the length of time any shares have been so owned.
FAIR PRICE PROVISION. Winton Financial's amended articles of
incorporation contain a fair price provision. The purpose of the provision is to
provide assurance that if another person or entity acquires control of Winton
Financial and subsequently seeks to eliminate the remaining shareholders of
Winton Financial through a forced merger or similar transaction, the remaining
shareholders will not be eliminated at an unfavorable price. The fair price
provision may discourage non-negotiated tender offers for less than all of
Winton Financial's shares by making the effectuation of a second-step merger or
similar transaction more costly and difficult.
The fair price provision applies only to mergers or similar
transactions which involve a "controlling person," an "affiliate" of a
controlling person or an "associate" of a controlling person or affiliate, as
defined in the amended articles of incorporation of Winton Financial. The
definition of "controlling person" encompasses all forms of ownership and all
types of arrangements that give a person actual or potential voting or
investment rights in Winton Financial's common shares. Generally, however, a
person who beneficially owns 20% or more of the outstanding voting shares of
Winton Financial is a "controlling person." To the best knowledge of the board
of directors, no shareholder of Winton Financial is a controlling person.
When applicable, the fair price provision requires the affirmative vote
of the holders of at least 80% of the outstanding common shares of Winton
Financial before prescribed business combinations between Winton Financial and a
controlling person, or its affiliates or associates, may be completed, unless
the following occur:
- A "minimum price per share" is paid to Winton Financial
shareholders who do not vote in favor of the transaction and
whose proprietary interest will be terminated if the
transaction is completed; and
- A proxy statement describing the transaction is submitted to
the shareholders.
The definition of "business combination" includes virtually every
extraordinary transaction between a controlling person, and certain of its
affiliates and associates, and Winton Financial or a subsidiary of Winton
Financial. For example, if a corporation, through a cash tender offer, acquires
shares of Winton Financial entitling the corporation to exercise 75% of the
voting power of Winton Financial, the corporation will thus become a controlling
person. If, within the five-year period following the time when the corporation
becomes a controlling person, the corporation wishes to merge with Winton
Financial, the enlarged majority vote will be necessary to approve the merger,
unless the non-controlling shareholders were first furnished with a proxy
statement describing the merger and were also offered the minimum price per
share for their shares. If the two conditions were met, the enlarged majority
vote would not apply.
Under the minimum price per share formula, the price offered must equal
at least the initial tender offer price of the controlling person, plus an
increment for the passage of time after the tender offer. "Minimum price per
share" means the sum of (1) the higher of (a) the highest gross per share price
paid or agreed to be paid to acquire any common shares of Winton Financial
beneficially owned by a controlling person, provided such payment or agreement
to make payment was made within five years immediately before the record date
set to determine the shareholders entitled to vote or consent to the business
combination in question, or (b) the highest per share closing public market
price for the common shares during the five-year period, plus (2) the aggregate
amount, if any, by which 5% for each year, beginning on the date on which the
controlling person became a controlling person, of the higher per share price
exceeds the aggregate amount of all common shares dividends per share paid in
cash since the date on which the person became a controlling person. The
calculation of the minimum price per share also requires appropriate adjustments
for capital changes, such as stock splits, stock dividends and reverse stock
splits.
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Thus, a merger involving Winton Financial and a controlling person in
which the minimum price per share was not offered would require a vote of the
holders of 75% of the voting shares, even if the transaction were approved by a
majority of the directors of Winton Financial. The fair price provision cannot
be amended or repealed during any period in which there is a controlling person
except by the enlarged majority vote described above. During any period in which
there is no controlling person, the fair price provision could be amended in the
same manner as other Amended Articles are amended.
COMPARISON OF RIGHTS OF HOLDERS OF WINTON FINANCIAL COMMON SHARES
AND HOLDERS OF BENCHMARK COMMON SHARES
As a result of the merger, all of the BenchMark shareholders will
become shareholders of Winton Financial, except for those BenchMark shareholders
who exercise dissenters' rights. The rights of holders of Winton Financial
common shares and those of holders of BenchMark common shares are similar in
most material respects, but there are some differences.
AUTHORIZED SHARES
The amended articles of incorporation of Winton Financial authorize
18,000,000 common shares and 2,000,000 preferred shares. BenchMark's amended
charter authorizes 2,000,000 common shares and 500,000 preferred shares.
BOARD OF DIRECTORS
GENERAL. Winton Financial's code of regulations provides for a
classified board of directors consisting of nine directors, divided into three
classes and elected for three-year terms.
BenchMark's amended bylaws provide for a classified board of directors
consisting of seven directors, divided into three classes and elected for
three-year terms.
REMOVAL. The directors of Winton Financial may be removed only by the
vote of the holders of a majority of the Winton Financial shares entitled to
vote at an election of directors.
BenchMark's bylaws provide that a director may be removed only for
cause by a vote of the holders of a majority of the shares entitled to vote at
an election of directors.
VACANCIES. Winton Financial's code of regulations and BenchMark's
amended bylaws provide that vacancies on the board of directors may be filled by
an affirmative vote of a majority of the remaining directors. Any director
chosen to fill a vacancy will serve until the next election of the class in
which the director was elected.
VOTING RIGHTS
CUMULATIVE VOTING. Neither holders of Winton Financial shares nor
holders of BenchMark shares have cumulative voting rights.
SPECIAL VOTING REQUIREMENTS. The holders of at least 75% of the voting
shares of Winton Financial are required to adopt any of the following matters if
the directors of Winton Financial recommend against approval:
- a proposed amendment to Winton Financial's amended articles of
incorporation;
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- a proposal to adopt new regulations or an amendment to the
code of regulations of Winton Financial;
- a proposal to change the number of directors by action of the
shareholders;
- an agreement of merger or consolidation providing for the
proposed merger or consolidation of Winton Financial with or
into one or more other corporations;
- a proposed combination or majority share acquisition involving
the issuance of Winton Financial shares and requiring
shareholder approval;
- a proposal to sell, exchange, transfer or otherwise dispose of
all, or substantially all, of the assets, with or without the
goodwill, of Winton Financial; or
- a proposed dissolution of Winton Financial.
If the directors recommend that shareholders approve any of these matters, a
majority vote of shareholders would be sufficient, unless expressly otherwise
provided by statute.
Amendments to BenchMark's amended charter must be approved by the
BenchMark board of directors and also by a majority of the outstanding BenchMark
common shares. The amended bylaws of BenchMark may be amended by approval of the
amendment by a two-thirds vote of the full board of directors or by the
affirmative vote of a majority of the total votes eligible to be voted at a duly
constituted meeting of shareholders.
ANTITAKEOVER PROVISIONS
The charter of BenchMark contains no provision similar to the fair
price provision contained in Winton Financial's amended articles of
incorporation discussed on page ____.
PREEMPTIVE RIGHTS
None of the shareholders of Winton Financial or BenchMark have
preemptive rights.
DIVIDENDS
Ohio regulations generally provides that, subject to any restrictions
in the corporation's articles of incorporation, a corporation may make
distributions to its shareholders, provided that the dividend does not exceed
the combination of the surplus of the corporation (defined generally as the
excess of a corporation's assets plus stated capital over its liabilities) and
the difference between the following: (i) the reduction in surplus that results
from the immediate recognition of the transition obligation under Statement of
Financial Accounting Standards No. 106 issued by the Financial Accounting
Standards Board and (ii) the aggregate amount of the transition obligation that
would have been recognized as of the date of the declaration of a dividend or
distribution if the corporation had elected to amortize its recognition of the
transition obligation under Statement of Financial Accounting Standards No. 106;
and provided further that no dividend or distribution shall be paid to the
holders of shares of any class in violation of the rights of the holders of
shares of any other class, or when the corporation is insolvent or there is
reasonable ground to believe that by such payment the corporation would be
rendered insolvent.
The ability of Winton Savings and Loan and BenchMark to pay dividends
is limited by the regulations of the Office of Thrift Supervision. Tier 1
associations such as Winton Savings and Loan and BenchMark are associations
having capital immediately before and after giving effect to a proposed capital
distribution that is equal to or greater than the amount of its capital
requirement. A Tier 1 association may make capital distributions up to the
higher of:
- 100% of its net earnings to date during the calendar year in
which the distribution is made, plus the amount that would
reduce by one-half its "surplus capital ratio" at the
beginning of the calendar year; or
- 75% of its net income over the most recent four-quarter
period.
The "surplus capital ratio" is the percentage by which an association's
capital-to-assets ratio exceeds the association's ratio of fully phased-in
capital requirement to assets.
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At December 31, 1998, Winton Savings and Loan and BenchMark could have
paid approximately $6.3 million and $750,000 in dividends.
ANTITAKEOVER STATUTES APPLICABLE TO WINTON FINANCIAL AND BENCHMARK
BenchMark, Winton Financial and Winton Savings and Loan are governed by
the Office of Thrift Supervision. Winton Financial is also governed by Ohio law.
The following are federal and Ohio statutes that are intended to discourage
takeovers:
OHIO CONTROL SHARE ACQUISITION ACT. The Ohio Control Share Acquisition
Act provides that specified notice and informational filings and special
shareholder meetings and voting procedures must occur before consummation of a
proposed "control share acquisition," which is defined as any acquisition of an
issuer's shares that would entitle the acquirer to exercise or direct the voting
power of the issuer in the election of directors within any of the following
ranges: (a) one-fifth or more but less than one-third of the voting power; (b)
one-third or more but less than a majority of the voting power; or (c) a
majority or more of such voting power. Assuming compliance with the notice and
information filing requirements prescribed by the statute, the proposed control
share acquisition may take place only if, at a duly convened special meeting of
shareholders, the acquisition is approved by both a majority of the voting power
of the issuer represented at the meeting and a majority of the voting power
remaining after excluding the combined voting power of the intended acquirer and
the directors and officers of the issuer. The Control Share Acquisition Act does
not apply to a corporation whose articles of incorporation or regulations so
provide. Winton Financial has not opted out of the application of The Control
Share Acquisition Act.
OHIO MERGER MORATORIUM STATUTE. Chapter 1704 of the Ohio Revised Code
prohibits specified business combinations and transactions between an "issuing
public corporation" and a beneficial owner of 10% or more of the shares of the
corporation, an "interested shareholder," for at least three years after the
interested shareholder attains 10% ownership, unless the board of directors of
the issuing public corporation approves the transaction before the interested
shareholders attains 10% ownership. An "issuing public corporation" is defined
as an Ohio corporation with 50 or more stockholders that has its principal place
of business, principal executive offices, or substantial assets within the State
of Ohio, and as to which no close corporation agreement exists. Examples of
transactions regulated by the merger moratorium provisions include the
disposition of assets, mergers, consolidations, voluntary dissolutions, and the
transfer of shares. Subsequent to the three-year period, a moratorium
transaction may take place provided that certain conditions are satisfied,
including that (a) the board of directors approves the transaction, (b) the
transaction is approved by the holders of shares with at least two-thirds of the
voting power of the corporation (or a different proportion set forth in the
articles of incorporation), including at least a majority of the outstanding
shares after excluding shares controlled by the interested shareholder, or (c)
the business combination results in stockholders, other than the interested
shareholder, receiving a fair price plus interest for their shares. Although the
merger moratorium provisions may apply, a corporation may elect not to be
covered by the merger moratorium provisions, or subsequently elect to be
covered, with an appropriate amendment to its articles of incorporation. The
merger moratorium provisions apply to Winton Financial and it has not taken any
corporate action to opt out of the Ohio merger moratorium statute.
FEDERAL REGULATION. Office of Thrift Supervision regulations prohibit
any person, without the prior approval of the Office of Thrift Supervision, from
acquiring or making an offer to acquire more than 10% of the stock of any
converted savings institution for a period of five years after the conversion,
if the person is, or after consummation of the acquisition would be, the
beneficial owner of more than 10% of the stock. In the event that any person,
directly or indirectly, violates this regulation, the securities beneficially
owned by the person in excess of 10% may not be counted as shares entitled to
vote and may not be voted or counted as voting shares. Like the charter
provisions outlined above, these federal regulations can make a change in
control more difficult, even if desired by the holders of a majority of the
shares of the stock. The board of directors has the right to ask
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the Office of Thrift Supervision or other federal regulators to enforce these
restrictions against persons seeking to obtain control of BenchMark. BenchMark
and Winton Financial have requested that Office of Thrift Supervision not
enforce these provisions in the merger.
Federal law provides that no company, "directly or indirectly or acting
in concert with one or more persons, or through one or more subsidiaries, or
through one or more transactions," may acquire "control" of a savings
association at any time without the prior approval of the Office of Thrift
Supervision. In addition, federal regulations require that, before obtaining
control of a savings association, a person, other than a company, must give 60
days' notice to the Office of Thrift Supervision and have received no Office of
Thrift Supervision objection to the acquisition of control. Any company that
acquires control becomes a "savings and loan holding company."
Federal law generally defines "control" as ownership, control of or
holding irrevocable proxies representing more than 25% of any class of voting
stock or control in any manner of the election of a majority of directors. A
determination by the Office of Thrift Supervision that an acquirer has the power
to direct or exercise a controlling influence over the management or policies of
the institution also constitutes control. Acquisition of more than 10% of any
class of a savings association's voting stock, if the acquirer also qualifies
for any one of eight "control factors," constitutes a rebuttable determination
of control under the regulations. The determination of control may be rebutted
by submission to the Office of Thrift Supervision, before the acquisition of
stock or the occurrence of any other circumstances giving rise to the
determination, of a statement setting forth facts and circumstances which would
support a finding that no control relationship will exist and containing
required undertakings. The regulations provide that persons or companies which
acquire beneficial ownership exceeding 10% or more of any class of a savings
bank's stock must file with the Office of Thrift Supervision a certification
that the holder is not in control of the institution, does not have a rebuttable
determination of control and will take no action which would result in a
determination or rebuttable determination of control without prior notice to or
approval of the Office of Thrift Supervision, as applicable.
DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION
The code of regulations of Winton Financial provide that Winton
Financial shall indemnify its directors or officers against expenses (including,
without limitation, attorneys' fees, filing fees, court reporters' fees and
transcript costs), judgments, fines, and amounts paid in settlement by reason of
the fact that they are or were directors, officers, employees or agents of the
corporation or, at the request of Winton Financial, were serving another
organization in a similar capacity, if the directors or officers acted in good
faith and in a manner they reasonably believed to be in the best interests of
the corporation. With regard to criminal matters, directors and officers must be
indemnified by the corporation if the directors or officers had no reasonable
cause to believe their conduct was unlawful. Directors or officers claiming
indemnification shall be presumed to have acted in good faith and in a manner
they reasonably believed to be not opposed to the best interests of the
corporation and, with respect to any criminal matter, to have had no reasonable
cause to believe their conduct was unlawful.
Winton Financial shall not indemnify any officer or director of the
corporation who was a party to any completed action or suit instituted by (or in
the right of) the corporation for any matter asserted in the action as to which
the officer or director shall have been adjudged to be liable for acting with
reckless disregard for the best interests of the corporation or misconduct
(other than negligence) in the performance of his duty to the corporation.
However, should the court in which the action was brought determine that the
officer or director is fairly and reasonably entitled to indemnity, Winton
Financial shall indemnify the officer or director to the extent permitted by the
court.
Any indemnification not precluded by judgment shall be made by the
corporation only upon a determination that the director has met the applicable
standard of conduct. This determination may be made only (a) by a majority vote
of a quorum of disinterested directors, (b) if the quorum is not obtainable or
if a majority of
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a quorum of disinterested directors so directs, in a written opinion by
independent legal counsel, (c) by the shareholders or (d) by the court, if any,
in which the action was brought. Expenses incurred in defending any action, suit
or proceeding shall be paid by Winton Financial in advance upon receipt of an
undertaking by or on behalf of the director or officer to repay the amount if
the director or officer is not entitled to be indemnified by the corporation.
In addition, Winton Financial has agreed to indemnify each of its
directors and officers against expenses (including, without limitation,
attorneys' fees, filing fees, court reporters' fees and transcript costs),
judgments, fines, and amounts paid in settlement by reason of the fact that he
is or was a director, officer, employee or agent of the corporation or, at the
request of Winton Financial, was serving another organization in a similar
capacity, if the director or officer acted in good faith and in a manner he
reasonably believed to be in the best interests of the corporation and if, with
respect to any criminal action or proceeding, the director or officer had no
reason to believe that his conduct was unlawful. Indemnification shall be made,
however, only upon a determination by the directors or shareholders of Winton
Financial, the Court of Common Pleas of Hamilton County or written opinion of
legal counsel appointed by Winton Financial that the director or officer has
adhered to the appropriate standard of conduct.
As a federal savings bank, BenchMark is governed by federal
regulations which provide that any person against whom any action, suit or other
judicial or administrative proceeding, or threatened proceeding, whether civil,
criminal, or otherwise, including any appeal or other proceeding for review, is
brought by reason of the fact that the person is or was a director, officer or
employee of BenchMark shall be indemnified by BenchMark for the following:
- reasonable costs and expenses, including reasonable attorney's
fees actually paid or incurred by the person in connection
with proceedings related to the defense or settlement of an
action brought by reason of the fact that such person is or
was a director, officer or employee of BenchMark;
- any amount for which the person becomes liable by reason of
any judgment in an action brought by reason of the fact that
the person is or was a director, officer or employee of
BenchMark; and
- reasonable costs and expenses, including reasonable attorney's
fees, actually paid or incurred in any action brought by
reason of the fact that the person is or was a director,
officer or employee of BenchMark, to enforce his rights under
this section if the person attains a final judgment in favor
of the person in the action.
Indemnification shall be made to the officer, director or employee only if the
following requirements are met:
- BenchMark shall make the indemnification in connection with
any action brought by reason of the fact that the person is or
was a director, officer or employee of BenchMark which results
in a final judgment on the merits in favor of the director,
officer or employee; and
- BenchMark shall make the indemnification in case of (a)
settlement of any action brought by reason of the fact that
the person is or was a director, officer or employee of
BenchMark, (b) final judgment against the director, officer or
employee, or (c) final judgment in favor of the director,
officer or employee other than on the merits, only if a
majority of the directors of BenchMark determines that the
director, officer or employee was acting in good faith within
what he or she reasonably believed under the circumstances was
the scope of his or her employment or authority and for a
purpose which he or she reasonably believed under the
circumstances was in the best interest of BenchMark or its
stockholders.
BenchMark may authorize payment of reasonable costs and expenses,
including reasonable attorney's fees arising from the defense or settlement of
any action brought by reason of the fact that such person is or was a
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director, officer or employee of BenchMark, to any director, officer or employee
if a majority of the directors of BenchMark conclude that such person may become
entitled to indemnification. The directors of BenchMark may impose conditions on
such payment, and, before making an advance payment, BenchMark shall obtain an
agreement from such person that BenchMark will be repaid if the person on whose
behalf payment is made is later determined not to be entitled to such
indemnification.
BenchMark currently maintains a directors' and officers' liability
policy which provides for insurance of directors and officers for liability
incurred in connection with the performance of their duties as directors and
officers. Such policy does not, however, provide insurance for losses resulting
from willful or criminal misconduct.
LEGAL MATTERS
The validity of the issuance of Winton Financial common shares being
offered by this document and the federal income tax consequences of the merger
have been passed upon by Vorys, Sater, Seymour and Pease LLP, Suite 2100, Atrium
Two, 221 East Fourth Street, P.O. Box 0236, Cincinnati, Ohio 45201-0236.
EXPERTS
The consolidated financial statements of Winton Financial at September
30, 1998 and 1997, and for each of the three years ended September 30, 1998,
incorporated by reference in this prospectus/proxy statement, have been audited
by Grant Thornton LLP, independent certified public accountants, as stated in
their report appearing in Winton Financial's 1998 Annual Report to Shareholders.
The financial statements have been included in reliance upon the report of Grant
Thornton LLP and given upon their authority as experts in accounting and
auditing.
The financial statements of BenchMark at December 31, 1998 and 1997,
and for each of the two years ended December 31, 1998, included in this
prospectus/proxy statement, have been audited by Grant Thornton LLP, independent
certified public accountants, as stated in their report included in this
document. The financial statements have been included in reliance upon the
report and given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Winton Financial files annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange Commission.
Winton Financial has filed with the Securities and Exchange Commission a
Registration Statement on Form S-4 under the Securities Act for the Winton
Financial common shares to be issued to BenchMark shareholders in the merger.
This prospectus/proxy statement is a part of the Registration Statement on Form
S-4. As permitted by the rules and regulations of the Securities and Exchange
Commission, this prospectus/proxy statement omits information, exhibits and
undertakings which are contained in the Registration Statement on Form S-4. You
should read the Registration Statement on Form S-4 and its exhibits for further
information. Statements concerning these documents are not necessarily complete
and, in each instance, we refer you to the copy of that document filed as an
exhibit to the Registration Statement on Form S-4.
You can inspect and copy the Registration Statement and its exhibits,
as well as the reports, proxy statements and other information filed with the
Securities and Exchange Commission by Winton Financial, at the Securities and
Exchange Commission's Public Reference Room, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Securities and Exchange Commission
located at 500 West Madison Street, Suite
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1400, Chicago, Illinois 60661 and at 7 World Trade Center, Suite 1300, New York,
New York 10048. Please call the Securities and Exchange Commission for more
information on the operation of the Public Reference Room at 1-800-Securities
and Exchange Commission-0330. WINTON FINANCIAL IS AN ELECTRONIC FILER, AND THE
SECURITIES AND EXCHANGE COMMISSION MAINTAINS A WEB SITE THAT CONTAINS REPORTS,
PROXY AND INFORMATION STATEMENTS AND OTHER INFORMATION REGARDING REGISTRANTS
THAT FILE ELECTRONICALLY WITH THE SECURITIES AND EXCHANGE COMMISSION AT THE
FOLLOWING WEB ADDRESS: (http://www.sec.gov).
The Securities and Exchange Commission allows Winton Financial to
"incorporate by reference" into this prospectus/proxy statement, which means
that Winton Financial can disclose important information to you by referring you
to another document filed separately with the Securities and Exchange
Commission. The information incorporated by reference is considered to be part
of this prospectus/proxy statement, except for any information superseded by
information contained in later-filed documents incorporated by reference in this
prospectus/proxy statement. You should read the information relating to Winton
Financial contained in this prospectus/proxy statement and the information in
the documents incorporated by reference. Winton Financial incorporates by
reference the documents listed below which were filed by it with the Securities
and Exchange Commission and any future filings made by it with the Securities
and Exchange Commission before the special meeting of BenchMark shareholders
under Sections 13(a), 13(c), or 15(d) of the Securities Exchange Act of 1934, as
amended.
Commission Filings (File No. 10-18993) Period/date
- -------------------------------------- -----------
Annual Report on Form 10-K Year ended September 30, 1998 Quarterly Reports on
Form 10-Q Quarter ended December 31, 1998 Current Reports on Form 8-K Filed on
December __, 1998
We have included copies of Winton Financial's 1998 Annual Report to
Shareholders and Winton Financial's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1998, with this document.
YOU CAN RECEIVE THE DOCUMENTS INCORPORATED BY REFERENCE (WITHOUT
EXHIBITS, UNLESS THE EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO
THIS PROSPECTUS/PROXY STATEMENT) WITHOUT CHARGE BY CALLING OR WRITING JILL M.
BURKE, TREASURER, WINTON FINANCIAL CORPORATION, 5511 CHEVIOT ROAD, CINCINNATI,
OHIO 45247, (513) 385-3880. IN ORDER TO ENSURE TIMELY DELIVERY OF DOCUMENTS,
WINTON FINANCIAL MUST RECEIVE YOUR REQUEST BY ____________, 1999. YOU MAY ALSO
OBTAIN COPIES OF THE DOCUMENTS FROM THE SECURITIES AND EXCHANGE COMMISSION
THROUGH ITS WEBSITE AT THE ADDRESS PROVIDED ABOVE.
Following the merger, Winton Financial will continue to be regulated by
the information, reporting and proxy statement requirements of the Securities
Exchange Act of 1934, as amended.
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================================================================================
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
BENCHMARK FEDERAL SAVINGS BANK
December 31, 1998 and 1997
<PAGE> 74
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 4
CONSOLIDATED STATEMENTS OF EARNINGS 5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 6
CONSOLIDATED STATEMENTS OF CASH FLOWS 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9
</TABLE>
<PAGE> 75
Report of Independent Certified Public Accountants
Board of Directors
BenchMark Federal Savings Bank
We have audited the accompanying consolidated statements of financial condition
of BenchMark Federal Savings Bank as of December 31, 1998 and 1997, and the
related consolidated statements of earnings, stockholders' equity and cash flows
for the years then ended. These consolidated financial statements are the
responsibility of the Savings Bank'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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
BenchMark Federal Savings Bank as of December 31, 1998 and 1997, and the
consolidated results of its operations and its cash flows for the years then
ended, in conformity with generally accepted accounting principles.
Grant Thornton LLP
Cincinnati, Ohio
February 1, 1999
<PAGE> 76
BENCHMARK FEDERAL SAVINGS BANK
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31,
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS 1998 1997
<S> <C> <C>
Cash and due from banks $ 864 $ 596
Federal funds sold 50 50
Interest-bearing deposits in other financial institutions 1,175 2,310
------- -------
Cash and cash equivalents 2,089 2,956
Investment securities - at cost, approximate market value of
$15 and $513 in 1998 and 1997 15 514
Mortgage-backed securities - at cost, approximate market value of
$3,575 and $4,468 in 1998 and 1997 3,644 4,608
Loans receivable - net 47,668 38,819
Real estate acquired through foreclosure - net -- 134
Office premises and equipment - at depreciated cost 867 847
Stock in Federal Home Loan Bank - at cost 581 530
Accrued interest receivable on loans 275 288
Accrued interest receivable on investments and mortgage-
backed securities 27 40
Prepaid expenses and other assets 93 48
Prepaid federal income taxes 44 47
------- -------
Total assets $55,303 $48,831
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $39,719 $39,026
Advances from the Federal Home Loan Bank 11,120 5,682
Advances by borrowers for taxes and insurance 444 437
Accounts payable on mortgage loans serviced for others 314 158
Accrued interest payable 62 40
Other liabilities 63 61
Deferred federal income taxes 70 44
------- -------
Total liabilities 51,792 45,448
Commitments -- --
Stockholders' equity
Common stock (2,000,000 shares of $1.00 par value authorized;
112,307 and 107,772 shares issued and outstanding) 112 108
Additional paid-in capital 931 854
Retained earnings - substantially restricted 2,468 2,421
------- -------
Total stockholders' equity 3,511 3,383
------- -------
Total liabilities and stockholders' equity $55,303 $48,831
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 77
BENCHMARK FEDERAL SAVINGS BANK
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended December 31,
(In thousands, except share data)
<TABLE>
<CAPTION>
1998 1997
Interest income
<S> <C> <C>
Loans $3,416 $3,041
Mortgage-backed securities 240 302
Investment securities 4 27
Interest-bearing deposits and other 156 148
------ ------
Total interest income 3,816 3,518
Interest expense
Deposits 1,936 1,906
Borrowings 499 281
------ ------
Total interest expense 2,435 2,187
------ ------
Net interest income 1,381 1,331
Provision for losses on loans 26 4
------ ------
Net interest income after provision
for losses on loans 1,355 1,327
Other income
Gain on sale of loans 24 42
Other operating 30 75
------ ------
Total other income 54 117
General, administrative and other expense
Employee compensation and benefits 641 681
Occupancy and equipment 295 244
Federal deposit insurance premiums 24 25
Franchise taxes 53 50
Other operating 254 264
------ ------
Total general, administrative and other expense 1,267 1,264
------ ------
Earnings before income taxes 142 180
Federal income taxes
Current 13 19
Deferred 26 13
------ ------
Total federal income taxes 39 32
------ ------
NET EARNINGS $ 103 $ 148
====== ======
EARNINGS PER SHARE
Basic $ .94 $ 1.43
====== ======
Diluted $ .94 $ 1.42
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 78
BENCHMARK FEDERAL SAVINGS BANK
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1998 and 1997
(In thousands, except share data)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
<S> <C> <C> <C> <C>
Balance at January 1, 1997 $ 101 $ 754 $ 2,326 $ 3,181
Stock options exercised 4 42 -- 46
Shares issued to deferred compensation plan 3 58 -- 61
Net earnings for the year ended December 31, 1997 -- -- 148 148
Cash dividends of $.50 per share -- -- (53) (53)
------- ------- ------- -------
Balance at December 31, 1997 108 854 2,421 3,383
Stock options exercised 2 32 -- 34
Shares issued to deferred compensation plan 2 45 -- 47
Net earnings for the year ended December 31, 1998 -- -- 103 103
Cash dividends of $.50 per share -- -- (56) (56)
------- ------- ------- -------
Balance at December 31, 1998 $ 112 $ 931 $ 2,468 $ 3,511
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 79
BENCHMARK FEDERAL SAVINGS BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the year $ 103 $ 148
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Amortization of premiums on loans and mortgage-backed
securities - net 21 15
Amortization of deferred loan origination costs - net 13 30
Depreciation and amortization 75 59
Gain on sale of loans (9) (5)
Provision for losses on loans 26 4
Loans originated for sale in secondary market (1,640) (3,563)
Proceeds from sale of loans 1,649 3,568
Loss on disposal of office premises and equipment -- 1
Federal Home Loan Bank stock dividends (39) (36)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans 13 (25)
Accrued interest receivable on investments and
mortgage-backed securities 13 (1)
Prepaid expenses and other assets (45) 16
Accounts payable on mortgage loans serviced
for others 156 29
Other liabilities 2 (2)
Accrued interest payable 22 6
Federal income taxes
Current 3 11
Deferred 26 13
-------- --------
Net cash provided by operating activities 389 268
Cash flows provided by (used in) investing activities:
Principal repayments on mortgage-backed securities 943 583
Proceeds from maturity of investment securities 499 527
Purchase of investment securities -- (499)
Loan principal repayments 11,854 6,427
Loan disbursements (20,732) (7,084)
Proceeds from sale of real estate acquired
through foreclosure 124 25
Purchase of Federal Home Loan Bank stock (12) --
Purchase of office premises and equipment (95) (82)
-------- --------
Net cash used in investing activities (7,419) (103)
-------- --------
Net cash provided by (used in) operating and
investing activities (balance carried forward) (7,030) 165
-------- --------
</TABLE>
7
<PAGE> 80
BENCHMARK FEDERAL SAVINGS BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Year ended December 31,
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net cash provided by (used in) operating and
investing activities (balance brought forward) $ (7,030) $ 165
Cash flows provided by (used in) financing activities:
Increase (decrease) in deposit accounts 693 (823)
Proceeds from Federal Home Loan Bank advances 10,000 6,250
Repayment of Federal Home Loan Bank advances (4,562) (4,247)
Advances by borrowers for taxes and insurance 7 1
Proceeds from issuance of common stock 81 107
Dividends paid on common stock (56) (53)
-------- --------
Net cash provided by financing activities 6,163 1,235
-------- --------
Net increase (decrease) in cash and cash equivalents (867) 1,400
Cash and cash equivalents at beginning of year 2,956 1,556
-------- --------
Cash and cash equivalents at end of year $ 2,089 $ 2,956
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes $ 10 $ --
======== ========
Interest on deposits and borrowings $ 2,413 $ 2,181
======== ========
Supplemental disclosure of noncash investing activities:
Transfers from loans to real estate
acquired through foreclosure $ 38 $ 36
======== ========
Recognition of mortgage servicing rights in accordance
with SFAS No. 125 $ 15 $ 37
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE> 81
BENCHMARK FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE A - SUMMARY OF ACCOUNTING POLICIES
BenchMark Federal Savings Bank (the "Savings Bank") conducts a general
banking business in southwestern Ohio which consists of attracting deposits
from the general public and applying those funds to the origination of
residential, consumer and nonresidential loans. The Savings Bank'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. 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 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 Savings
Bank and its wholly-owned subsidiary, Celestial Service Corporation. The
Service Corporation continues to retain its corporate charter, however,
Celestial was inactive for all periods presented and, at December 31, 1998,
was capitalized on a nominal basis. All significant intercompany balances
and transactions have been eliminated.
2. Investment Securities and Mortgage-Backed Securities
----------------------------------------------------
The Savings Bank 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 Savings Bank has the positive intent and
ability to hold these securities to maturity. Trading securities and
securities available for sale are carried at fair value with resulting
unrealized gains or losses recorded to operations or stockholders' equity,
respectively. At December 31, 1998 and 1997, the Savings Bank had designated
all investment and mortgage-backed securities as held to maturity.
Realized gains and losses on the sale of investment and mortgage-backed
securities are recognized using the specific identification method.
9
<PAGE> 82
BENCHMARK FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
3. Loans Receivable
----------------
Loans held in portfolio are stated at the principal amount outstanding,
adjusted for deferred loan origination fees and costs, premiums and
discounts on loans purchased and sold and the allowance for loan losses.
Premiums and discounts on loans purchased and sold are amortized and
accreted to operations using the interest method over the estimated life of
the underlying loans.
Interest is accrued as earned unless the collectibility of the loan is in
doubt. Uncollectible 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.
The Savings Bank has sold whole loans and participating interests in loans
in the secondary market, retaining servicing on the loans sold. Loans sold
and serviced for others totaled approximately $11.9 million and $17.1
million at December 31, 1998 and 1997, respectively.
The Savings Bank generally retains the servicing on loans sold and agrees to
remit to the investor loan principal and interest at agreed-upon rates. The
Savings Bank accounts for these mortgage servicing rights pursuant to the
provisions of SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," which requires that
the Savings Bank recognize the rights to service mortgage loans for others
as assets, regardless of how those servicing rights are acquired. An
institution that acquires mortgage servicing rights through either the
purchase or origination of mortgage loans and sells those loans with
servicing rights retained would allocate some of the cost of the loans to
the mortgage servicing rights.
SFAS No. 125 requires that securitization of mortgage loans be accounted for
as sales of mortgage loans and acquisitions of mortgage-backed securities.
Additionally, SFAS No. 125 requires that capitalized mortgage servicing
rights and capitalized excess servicing receivables be assessed for
impairment. Impairment is based on fair value.
The mortgage servicing rights recorded by the Savings Bank, calculated in
accordance with the provisions of SFAS No. 125, were segregated into pools
for valuation purposes, using as pooling criteria the loan term and coupon
rate. Once pooled, each grouping of loans was evaluated on a discounted
earnings basis to determine the present value of future earnings that a
purchaser could expect to realize from each portfolio. Earnings were
projected from a variety of sources including loan servicing fees, interest
earned on float, net interest earned on escrows, miscellaneous income, and
costs to service the loans. The present value of future earnings is the
"economic" value of the pool, i.e., the net realizable present value to an
acquirer of the acquired servicing.
10
<PAGE> 83
BENCHMARK FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
3. Loans Receivable (continued)
----------------
The Savings Bank recorded amortization related to mortgage servicing rights
totaling approximately $40,000 and $23,000 for the years ended December 31,
1998 and 1997, respectively. At December 31, 1998 and 1997, the fair value
of the Savings Bank's mortgage servicing rights totaled approximately
$51,000 and $76,000, respectively.
4. Loan Origination Fees
---------------------
The Savings Bank accounts for loan origination fees and costs in accordance
with the provisions of 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 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. 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 related 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, current trends in
the level of delinquent and specific 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
its primary market area. When the collection of a loan becomes doubtful, or
otherwise troubled, the Savings Bank records a loan loss provision 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 Savings Bank accounts for impaired loans in accordance with SFAS No.
114, "Accounting by Creditors for Impairment of a Loan". SFAS No. 114
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 loans observable market price or fair value of
the collateral.
11
<PAGE> 84
BENCHMARK FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
5. Allowance for Losses on Loans (continued)
-----------------------------
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 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 nonresidential and multifamily residential real
estate loans, and its evaluation of impairment thereof, such loans are
generally 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 and consumer 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 December 31, 1998 and 1997, the Savings Bank had no loans that would be
defined as impaired under SFAS No. 114.
6. 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. The loan loss allowance is charged for
any writedown in the loan's carrying value to fair value at the date of
acquisition. Loss provisions are recorded if the property's 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 considered. Costs relating to
holding real estate acquired through foreclosure, net of rental income, are
charged against earnings as incurred.
7. 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 using the straight-line
method over the useful lives of the assets, estimated to be ten to
thirty-five years for buildings and improvements, and three to ten years for
furniture and equipment. An accelerated method is used for tax reporting
purposes.
12
<PAGE> 85
BENCHMARK FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
8. Federal Income Taxes
--------------------
The Savings Bank accounts for income taxes pursuant to SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 established financial accounting
and reporting standards for the effects of income taxes that result from the
Savings Bank's activities within the current and previous years. In
accordance with 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 temporary differences between the tax basis of an asset or
liability and its reported amount in the consolidated financial statements
that will result in net 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 Savings Bank's principal temporary differences between pretax financial
income and taxable income result primarily from the different methods of
accounting for deferred loan origination fees and costs, Federal Home Loan
Bank stock dividends, general loan loss allowances and certain components of
retirement expense. A temporary difference is also recognized for
depreciation expense computed using accelerated methods for federal income
tax purposes.
9. Employee Stock Ownership and Retirement Plans
---------------------------------------------
In conjunction with the conversion to the stock form of ownership, the
Savings Bank implemented an Employee Stock Ownership Plan ("ESOP"). The ESOP
provides retirement benefits for substantially all employees who have
completed one year of service and have attained the age of 21. Contributions
of approximately $17,000 and $14,000 were made to the ESOP for the years
ended December 31, 1998 and 1997, respectively.
The Savings Bank also has a 401(k) Salary Savings Plan whereby employees may
make voluntary tax deferred contributions up to 15% of their base annual
compensation. The Savings Bank will provide matching funds for each
participant's contribution up to 6% of annual compensation. The Savings
Bank's 401(k) Salary Savings Plan expense for the years ended December 31,
1998 and 1997, amounted to $11,000 and $13,000, respectively.
13
<PAGE> 86
BENCHMARK FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
10. Earnings Per Share
------------------
Basic earnings per share is computed based upon the weighted-average shares
outstanding during the period, which totaled 110,256 and 103,797 for the
years ended December 31, 1998 and 1997, respectively.
Diluted earnings per share is computed taking into consideration common
shares outstanding and, when applicable, dilutive potential common shares
issued under the Savings Bank's stock option plan. Weighted-average common
shares deemed outstanding for purposes of computing diluted earnings per
share totaled 110,256 and 104,499 for the years ended December 31, 1998 and
1997, respectively. There were 702 incremental shares related to the assumed
exercise of stock options included in the computation of diluted earnings
per share for the year ended December 31, 1997. There was no effect on
earnings per share related to stock options for the year ended December 31,
1998.
11. 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 terms to maturity of ninety days
or less.
12. Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform to the 1998
consolidated financial statement presentation.
13. Comprehensive Income
--------------------
Effective January 1, 1998, the Savings Bank adopted the provisions of SFAS
No. 130, "Reporting Comprehensive Income." For the year ended December 31,
1998, the Savings Bank had no reportable items under SFAS No. 130.
NOTE B - INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
Amortized cost and estimated fair values of investment securities designated
as held to maturity are summarized as follows at December 31:
<TABLE>
<CAPTION>
1998 1997
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
(In thousands)
<S> <C> <C> <C> <C>
HELD TO MATURITY:
Municipal obligations $ 15 $ 15 $ 15 $ 15
Federal Home Loan Bank notes -- -- 499 498
---- ---- ---- ----
$ 15 $ 15 $514 $513
==== ==== ==== ====
</TABLE>
14
<PAGE> 87
BENCHMARK FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE B - INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES (continued)
At December 31, 1997, the cost carrying value of the Savings Bank's
investment securities in excess of the estimated fair value was comprised
solely of gross unrealized losses totaling $1,000. At December 31, 1998,
there were no gross unrealized gains or losses related to investment
securities.
The amortized cost, gross unrealized gains, gross unrealized losses, and
estimated fair values of mortgage-backed securities designated as
held-to-maturity at December 31, 1998 and 1997, are shown below.
<TABLE>
<CAPTION>
1998
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(In thousands)
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage Corporation
participation certificates $1,571 $ 1 $ 39 $1,533
Federal National Mortgage Association
participation certificates 1,795 6 34 1,767
Government National Mortgage Association
participation certificates 278 -- 3 275
----- --- --- -----
$3,644 $ 7 $ 76 $3,575
===== === === =====
1997
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(In thousands)
Federal Home Loan Mortgage Corporation
participation certificates $1,865 $ -- $ 88 $1,777
Federal National Mortgage Association
participation certificates 2,417 10 56 2,371
Government National Mortgage Association
participation certificates 326 -- 6 320
----- --- --- -----
$4,608 $ 10 $150 $4,468
===== === === =====
</TABLE>
The amortized cost of mortgage-backed securities at December 31, 1998, by
contractual terms to maturity is shown below. Expected maturities will
differ from contractual maturities because borrowers may generally prepay
obligations without prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED
COST
(In thousands)
<S> <C>
Due within fifteen years $ 719
Due after fifteen years 2,925
-----
$3,644
=====
</TABLE>
15
<PAGE> 88
BENCHMARK FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE C - LOANS RECEIVABLE
The composition of the loan portfolio is as follows at December 31:
<TABLE>
<CAPTION>
1998 1997
(In thousands)
<S> <C> <C>
One-to-four family residential $44,472 $35,191
Multi-family residential 944 947
Nonresidential loans 1,340 1,591
Mobile home loans 44 75
Education loans 3 5
Loans on savings accounts 111 110
Consumer and other loans 1,123 1,132
Deferred loan origination costs 129 75
------- -------
48,166 39,126
Less:
Undisbursed portion of loans in process 445 230
Allowance for loan losses 53 77
------- -------
$47,668 $38,819
======= =======
</TABLE>
The Savings Bank's lending efforts have historically focused on one-to-four
family and multi-family residential real estate loans, which comprise
approximately $45.4 million, or 95%, of the total loan portfolio at December
31, 1998, and $36.1 million, or 93%, of the total loan portfolio at December
31, 1997. Historically, 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 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 Savings Bank's
primary lending area are presently stable.
In the ordinary course of business, the Savings Bank has granted loans to
some of its officers, directors and their related business interests.
Related party loans are made on the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
unrelated persons. The aggregate dollar amount of loans to related parties
was approximately $1.0 million at both December 31, 1998 and 1997. During
the year ended December 31, 1998, $408,000 in new loans were disbursed to
officers, directors and employees, while principal repayments of $295,000
were received.
16
<PAGE> 89
BENCHMARK FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE D - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is as follows at December 31:
<TABLE>
<CAPTION>
1998 1997
(In thousands)
<S> <C> <C>
Beginning balance $ 77 $ 77
Provision for losses on loans 26 4
Charge-offs of loans, net of recoveries (50) (4)
---- ----
Ending balance $ 53 $ 77
==== ====
</TABLE>
At December 31, 1998, the Savings Bank's allowance for loan losses consisted
solely of a general loan loss allowance which is includible as a component
of regulatory risk-based capital.
Nonperforming and nonaccrual loans totaled $72,000 and $85,000 at December
31, 1998 and 1997. Interest income which would have been recognized on
nonaccrual loans had such loans performed pursuant to contractual terms
totaled $6,000 and $3,000 for the years ended December 31, 1998 and 1997,
respectively.
NOTE E - OFFICE PREMISES AND EQUIPMENT
Office premises and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
(In thousands)
<S> <C> <C>
Land $ 261 $ 261
Buildings and improvements 654 610
Furniture and equipment 493 526
------ ------
1,408 1,397
Less accumulated depreciation and
amortization 541 550
------ ------
$ 867 $ 847
====== ======
</TABLE>
17
<PAGE> 90
BENCHMARK FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE F - DEPOSITS
Deposits consist of the following major classifications at December 31:
<TABLE>
<CAPTION>
DEPOSIT TYPE AND WEIGHTED-AVERAGE
INTEREST RATE 1998 1997
(In thousands)
<S> <C> <C>
Demand deposits
1998 - 1.11% $ 2,526
1997 - 1.07% $ 2,523
Passbook
1998 - 3.55% 7,410
1997 - 3.57% 7,599
Money market demand accounts
1998 - 3.40% 3,985
1997 - 3.42% 3,093
------- -------
Total demand, transaction and passbook deposits 13,921 13,215
Certificates of deposit
Original maturities of:
91-day
1998 - 4.36% 349
1997 - 5.26% 257
6-month
1998 - 4.78% 1,138
1997 - 5.38% 903
6-month to 12-month
1998 - 5.17% 369
1997 - 5.44% 491
12-month
1998 - 5.29% 3,976
1997 - 5.71% 5,093
18-month
1998 - 5.59% 4,342
1997 - 5.80% 3,578
2-10 year
1998 - 5.69% 3,333
1997 - 5.82% 3,775
IRA
1998 - 5.93% 4,824
1997 - 6.13% 4,581
Jumbo (minimum balance of $50,000)
1998 - 5.51% 7,467
1997 - 5.92% 7,133
------- -------
Total certificates of deposit 25,798 25,811
------- -------
Total deposits $39,719 $39,026
======= =======
</TABLE>
The Savings Bank had deposit accounts with balances greater than $100,000 of
$4.1 million and $3.6 million at December 31, 1998 and 1997, respectively.
18
<PAGE> 91
BENCHMARK FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE F - DEPOSITS (continued)
Interest on deposits is summarized as follows for the year ended December
31:
<TABLE>
<CAPTION>
1998 1997
(In thousands)
<S> <C> <C>
Passbook $ 256 $ 281
Demand deposits 27 26
Money market demand 124 126
Certificates of deposit 1,529 1,473
------ ------
$1,936 $1,906
====== ======
</TABLE>
Maturities of outstanding certificates of deposit are summarized as follows
at December 31:
<TABLE>
<CAPTION>
1998 1997
(In thousands)
<S> <C> <C>
Less than six months $11,447 $ 9,820
Six months to one year 6,977 6,658
Over one year to three years 5,819 7,919
Over three years 1,555 1,414
------- -------
$25,798 $25,811
======= =======
</TABLE>
NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank, collateralized at December 31,
1998, by pledges of certain residential mortgage loans totaling $16.7
million, and the Savings Bank's investment in Federal Home Loan Bank stock,
are summarized below:
<TABLE>
<CAPTION>
INTEREST RATE MATURING THROUGH YEAR
ENDING DECEMBER 31, 1998 1997
(Dollars in thousands)
<S> <C> <C> <C>
5.79% - 5.96% 1998 $ -- $2,500
5.75% 1999 -- 500
6.17% - 6.26% 2002 1,110 1,243
5.60% - 6.08% 2003 2,721 1,104
5.45% 2004 289 335
4.31% - 5.87% 2008 7,000 --
------- ------
$11,120 $5,682
======= ======
Weighted-average interest rate 5.43% 5.94%
==== ====
</TABLE>
19
<PAGE> 92
BENCHMARK FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 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 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 December 31, 1998, the Savings Bank had outstanding commitments of
approximately $80,000 to originate residential loans, comprised solely of
fixed-rate loans. Additionally, the Savings Bank has unused lines of credit
on home equity loans totaling approximately $1.6 million as of December 31,
1998. In the opinion of management, outstanding loan commitments equaled or
exceeded prevalent market interest rates as of December 31, 1998, such loans
were underwritten in accordance with normal underwriting policies, and all
commitments will be funded via cash flow from operations and existing excess
liquidity.
The Savings Bank leases property for one of its branch locations under fixed
payments totaling approximately $42,000 for the year ended December 31,
1998. The lease expires in 1999 with future rental commitments totaling
$32,000 for the year then ended.
NOTE I - FEDERAL INCOME TAXES
Federal income taxes differ from those computed at the expected statutory
corporate tax rate for the year ended December 31 as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Federal income taxes computed at
the expected statutory rate $ 48 $ 61
Decrease resulting from:
Rate differential on reversal of temporary differences -- (21)
Other (primarily surtax exemptions) (9) (8)
---- ----
Federal income taxes per consolidated
financial statements $ 39 $ 32
==== ====
</TABLE>
20
<PAGE> 93
BENCHMARK FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE I - FEDERAL INCOME TAXES (continued)
The composition of the Savings Bank's net deferred tax liability at December
31 is as follows:
<TABLE>
<CAPTION>
1998 1997
(In thousands)
<S> <C> <C>
Deferred tax liabilities:
Deferred loan origination costs $(18) $(15)
Federal Home Loan Bank stock dividends (49) (43)
Book/tax depreciation (2) (6)
Percentage of earnings bad debt deduction (3) (3)
Mortgage servicing rights (8) (12)
---- ----
Total deferred tax liabilities (80) (79)
Deferred tax assets:
Reserve for uncollected interest 1 2
General loan loss allowance 8 27
Other 1 6
---- ----
Total deferred tax assets 10 35
---- ----
Net deferred tax liability $(70) $(44)
==== ====
</TABLE>
The Savings Bank was 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 December
31, 1998 include approximately $285,000 for which federal income taxes have
not been provided. The approximate amount of unrecognized deferred tax
liability related to the cumulative bad debt deduction is $92,000 at
December 31, 1998. See Note K for additional information regarding future
percentage of taxable income bad debt deductions.
21
<PAGE> 94
BENCHMARK FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE J - REGULATORY CAPITAL
The Savings Bank is subject to minimum capital requirements promulgated by
the Office of Thrift Supervision ("OTS"). Failure to meet minimum capital
requirements can initiate certain mandatory -- and possibly, additional
discretionary -- actions by the regulators that, if undertaken, could have a
direct material effect on the Savings Bank's consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Savings Bank must meet 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.
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 stockholders' equity 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. 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 as of December
31, 1998. In computing risk-weighted assets, the Savings Bank 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%.
The OTS has proposed an amendment to the core capital requirement that would
increase the minimum 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 Savings Bank's excess regulatory capital position if
the proposal is adopted in its present form.
As of December 31, 1998 and 1997, management believes that the Savings Bank
met all capital adequacy requirements to which it is subject.
<TABLE>
<CAPTION>
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 $3,506 6.3% >$ 829 >1.5% >$2,765 > 5.0%
- - - -
Core capital $3,506 6.3% >$1,659 >3.0% >$3,318 > 6.0%
- - - -
Risk-based capital $3,559 12.9% >$2,203 >8.0% >$2,753 >10.0%
- - - -
</TABLE>
22
<PAGE> 95
BENCHMARK FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE J - REGULATORY CAPITAL (continued)
<TABLE>
<CAPTION>
1997: 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 $3,376 6.9% >$ 732 >1.5% >$2,442 > 5.0%
- - - -
Core capital $3,376 6.9% >$1,465 >3.0% >$2,930 > 6.0%
- - - -
Risk-based capital $3,453 13.7% >$2,022 >8.0% >$2,527 >10.0%
- - - -
</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 Savings Bank's market area, could adversely affect
future earnings and consequently, the ability to meet future regulatory
capital requirements.
NOTE K - LEGISLATIVE MATTERS
A component of the Savings Association Insurance Fund ("SAIF")
recapitalization plan enacted into law in 1996, provides for the merger of
the SAIF and BIF on January 1, 2000, assuming the elimination of the thrift
charter or of the separate federal regulation of thrifts prior to the merger
of the deposit insurance funds. Under such legislation, the Savings Bank
would be regulated as a bank under federal laws which would subject it to
the more restrictive activity limits imposed on national banks. Under
separate but related legislation, the Savings Bank is required to recapture
approximately $26,000 of its bad debt reserve as taxable income, which
represents the post-1987 percentage of earnings bad debt deductions, and
will be unable to utilize the percentage of earnings method to compute its
reserve in the future. The Savings Bank has provided deferred taxes for
post-1987 percentage of earnings deductions and is amortizing the recapture
of such amount into taxable income over a six year period commencing in
1997.
23
<PAGE> 96
BENCHMARK FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE L - STOCK BENEFIT PLANS
In connection with Benchmark's Reorganization to stock form, the Savings
Bank had adopted the 1991 Stock Option Plan (the "1991 Plan") that provided
for the issuance of up to 10,100 shares of authorized, but unissued shares
of common stock. At December 31, 1998, all of the shares had been granted at
exercise prices equal to the fair value of the common stock at the date of
grant.
During 1997 the Savings Bank approved the 1997 Stock Option and Incentive
Plan (the "1997 Plan") which provided for the issuance of up to an
additional 10,463 shares of the Savings Bank's common stock.
In 1996, the Savings Bank adopted 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 Savings Bank applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option plans. Accordingly, no compensation cost has
been recognized for the plans.
Pro-forma disclosures of net earnings and earning per share as required by
SFAS No. 123 are not applicable to the years ended December 31, 1998 and
1997, as the Savings Bank had not made any option grants during those years.
A summary of the status of the Savings Bank's stock option plans as of
December 31, 1998 and 1997, and changes during the periods ending on those
dates is presented below:
<TABLE>
<CAPTION>
1998 1997
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C>
Outstanding at beginning of year 2,500 $ 14.00 6,137 $ 11.63
Granted -- -- -- --
Exercised (2,500) 14.00 (3,637) (10.00)
------ --------- ------ ---------
Outstanding at end of year -- $ -- 2,500 $ 14.00
====== ========= ====== =========
Options exercisable at year-end -- 2,500
====== ======
</TABLE>
24
<PAGE> 97
BENCHMARK FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE L - STOCK BENEFIT PLANS (continued)
In addition to the stock option plan, the Savings Bank adopted a deferred
compensation plan for directors in January 1997. The plan provides for
optional deferral of current directors' fees in a trust which has the
ability to purchase newly issued Savings Bank shares at fair value. During
1997 and 1998 the plan purchased 3,135 and 2,035 shares of common stock.
NOTE M - RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Savings Bank has utilized the
services of a law firm in which a director is employed. During the years
ended December 31, 1998 and 1997, the law firm received professional fees of
approximately $3,000 and $9,000, respectively.
NOTE N - PENDING BUSINESS COMBINATION
In December 1998, the Savings Bank entered into a definitive merger
agreement with Winton Financial Corporation (the "Corporation") wherein the
Savings Bank will merge with an into a wholly-owned thrift subsidiary of the
Corporation. The merger will be accounted for using the pooling of interests
method of accounting, with each share of the Savings Bank exchanged for 3.35
shares of the Corporation's common stock. Consummation of the pending
combination is anticipated in the second quarter of 1999 following the
receipt of required regulatory and stockholder approval.
25
<PAGE> 98
Annex A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (hereinafter referred to as
the "AGREEMENT"), made and entered into this 4th day of December, 1998, by and
among Winton Financial Corporation, a savings and loan holding company
incorporated under the laws of Ohio (hereinafter referred to as "WFC"); The
Winton Savings and Loan Co., a savings and loan association incorporated under
the laws of Ohio (hereinafter referred to as "WSL"); and BenchMark Federal
Savings Bank, a federal savings bank incorporated under the laws of the United
States (hereinafter referred to as "BMF");
WITNESSETH:
WHEREAS, the authorized capital of WFC consists of 5,000,000 common
shares, without par value, 4,014,304 of which are issued and outstanding, and
2,000,000 preferred shares, without par value, none of which is issued or
outstanding;
WHEREAS, the authorized capital of WSL consists of 10,000,000 common
shares, $1.00 par value per share, 406,050 of which are issued and outstanding
and are owned of record by WFC;
WHEREAS, the authorized capital of BMF consists of 2,000,000 common
shares, $1.00 par value per share, 112,307 of which are issued and outstanding
and held of record by approximately 81 shareholders, and 500,000 preferred
shares, par value $1.00 per share, none of which is issued or outstanding; and
WHEREAS, the Boards of Directors of WFC, WSL and BMF believe that the
merger of BMF with and into WSL is in the best interests of each of them and
their shareholders;
NOW THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, WFC, WSL and BMF, each intending
to be legally bound, hereby agree as follows:
ARTICLE ONE
THE MERGER
SECTION 1.01. MERGER OF WSL AND BMF. In accordance with the terms and
subject to the conditions of this AGREEMENT, Chapters 1151 and 1701 of the Ohio
Revised Code (hereinafter referred to as the "ORC") and Section 552.13 of the
Regulations of the Office of Thrift Supervision (hereinafter referred to as the
"OTS"), BMF shall merge with and into WSL at the EFFECTIVE TIME (hereinafter
defined); WSL shall be the continuing, surviving and resulting corporation in
the merger of BMF with and into WSL (hereinafter referred to as the "SURVIVING
CORPORATION"); WSL shall continue to exist as a savings and loan association
<PAGE> 99
incorporated under Ohio law; and WSL shall be the only one of BMF and WSL to
continue its separate corporate existence after the EFFECTIVE TIME.
SECTION 1.02. The name of the SURVIVING CORPORATION in the merger of
BMF with and into WSL (hereinafter referred to as the "MERGER") shall be "The
Winton Savings and Loan Co."
SECTION 1.03. The purposes for which the SURVIVING CORPORATION shall be
formed shall be identical to the purposes for which WSL was formed.
SECTION 1.04. The capital of the SURVIVING CORPORATION shall consist of
10,000,000 common shares, $1.00 par value per share.
SECTION 1.05. The Amended Articles of Incorporation of WSL, as amended,
a copy of which is attached hereto as Exhibit A, shall be the Amended Articles
of Incorporation of the SURVIVING CORPORATION until amended in accordance with
law.
SECTION 1.06. The Amended Constitution of WSL at the EFFECTIVE TIME
shall be the Amended Constitution of the SURVIVING CORPORATION until amended in
accordance with law.
SECTION 1.07. At and after the EFFECTIVE TIME and until changed in
accordance with law, the offices identified on the schedule attached hereto as
Exhibit B shall be the offices of the SURVIVING CORPORATION.
SECTION 1.08. At and after the EFFECTIVE TIME and until changed in
accordance with law, the number of directors of the SURVIVING CORPORATION shall
be eight, the names, residence addresses and office terms of whom are as
follows:
<TABLE>
<CAPTION>
NAMES RESIDENCE ADDRESS TERM EXPIRES
- ----- ----------------- ------------
<S> <C> <C>
Robert J. Bollin 62 Ediburgh Place 2001
North Bend, Ohio 45052
Robert L. Bollin 3358 Kuliga Park Drive 2000
Cincinnati, Ohio 45238
Robert E. Hoeweler 5596 Squirrel Run Lane 1999
Cincinnati, Ohio 45247
William J. Parchman 639 Watch Hill Lane 2000
Cincinnati, Ohio 45230
Henry Schulhoff 7760 Ivygate Lane 2001
Cincinnati, Ohio 45242
</TABLE>
2
<PAGE> 100
<TABLE>
<CAPTION>
NAMES RESIDENCE ADDRESS TERM EXPIRES
- ----- ----------------- ------------
<S> <C> <C>
J. Clay Stinnett 2963 Annwood Street 1999
Cincinnati, Ohio 45206
Thomas H. Humes, Jr. 140 Elm Avenue 2001
Cincinnati, Ohio 45215
Timothy M. Mooney 5588 Squirrel Run Lane 1999
Cincinnati, Ohio 45247
</TABLE>
SECTION 1.09. At and after the EFFECTIVE TIME and until changed in
accordance with law, the following persons shall be the officers of the
SURVIVING CORPORATION and shall hold the offices set forth beside their
respective names and addresses:
<TABLE>
<CAPTION>
NAMES RESIDENCE ADDRESS OFFICE
- ----- ----------------- ------
<S> <C> <C>
Robert L. Bollin 3358 Kuliga Park Drive President/CEO
Cincinnati, Ohio 45238
Gregory J. Bollin 3806 Lincoln Road Executive Vice President
Cincinnati, Ohio 45247
Mary Ellen Lovett 5330 Chatelaine Court Senior Vice President
Cincinnati, Ohio 45247
Robert J. Bollin 62 Ediburgh Place Vice President
North Bend, Ohio 45052
Jill M. Burke 5168 Deeridge Lane Treasurer/Chief Financial Officer
Cincinnati, Ohio 45247
James W. Brigger 123 Bonham Road Vice President/Secretary
Cincinnati, Ohio 45215
Marianne B. Kenner 472 Grandin Avenue Vice President
Cincinnati, Ohio 45246
</TABLE>
SECTION 1.10. Robert L. Bollin, whose address is 5511 Cheviot Road,
Cincinnati, Ohio 45247, a natural person and resident of Hamilton County, the
county in which the principal office of the SURVIVING CORPORATION is to be
located, shall be the statutory agent upon whom any process, notice or demand
against WSL, BMF or the SURVIVING CORPORATION may be served.
SECTION 1.11. CLOSING. (a) The closing of the transactions contemplated
by this AGREEMENT (hereinafter referred to as the "CLOSING") shall take place at
a time and on a
3
<PAGE> 101
date selected by WFC within forty (40) days after the satisfaction or waiver of
the last of the conditions set forth in Article Seven of this AGREEMENT to be
satisfied or waived.
(b) On the day of the CLOSING, WSL and BMF shall cause (i) a
Certificate of Merger in respect of the MERGER to be filed by the Superintendent
of the Division of Financial Institutions of the Ohio Department of Commerce
(hereinafter referred to as the "DIVISION") in the Office of the Ohio Secretary
of State in accordance with Chapters 1151 and 1701 of the ORC and (ii) Articles
of Combination in respect of the MERGER to be filed with the OTS in accordance
with Section 552.13(j) of the OTS Regulations. The MERGER shall become effective
at 11:58 p.m. on the date of such filing (herein referred to as the "EFFECTIVE
TIME").
ARTICLE TWO
CONVERSION AND CANCELLATION OF
SHARES IN THE MERGER
SECTION 2.01. CONVERSION AND CANCELLATION OF SHARES IN THE MERGER. At
the EFFECTIVE TIME and as a result of the MERGER, automatically and without
further act of WFC, WSL, BMF, or the holders of WFC shares or BMF shares, the
following shall occur:
(a) Each BMF common share shall be cancelled and
extinguished and, in substitution and exchange
therefor, the holders thereof shall be entitled,
subject to and upon compliance with Section 2.02 of
this AGREEMENT, to receive 3.35 common shares of WFC
(hereinafter referred to as the "EXCHANGE RATE");
provided, however, that in the event of the payment
by WFC of any stock dividends, stock splits or
distributions in, or combinations or subdivisions of,
WFC common shares between the date of this AGREEMENT
and the EFFECTIVE TIME, the EXCHANGE RATE shall be
adjusted appropriately;
(b) The issued and outstanding common shares of WSL
before the EFFECTIVE TIME shall remain issued and
outstanding after the EFFECTIVE TIME and shall be and
constitute the issued and outstanding shares of
SURVIVING CORPORATION; and
(c) The issued and outstanding common shares of WFC
before the EFFECTIVE TIME shall remain issued and
outstanding after the EFFECTIVE TIME.
SECTION 2.02. SHARE CERTIFICATES IN THE MERGER. (a) As soon as
practicable after the EFFECTIVE TIME, WFC shall mail to each holder of record of
BMF common shares a form letter of transmittal and instructions for use in
effecting the surrender for exchange of the certificates evidencing the BMF
common shares cancelled and extinguished as a result of the MERGER (hereinafter
referred to collectively as the "CERTIFICATES" and individually as the
"CERTIFICATE"). Upon surrender of a CERTIFICATE for cancellation, together with
such
4
<PAGE> 102
letter of transmittal, duly executed, the holder of such CERTIFICATE shall be
entitled to receive in exchange therefor a certificate evidencing the WFC common
shares to which the holder is entitled in accordance with the provisions of this
AGREEMENT, and the CERTIFICATE so surrendered shall thereafter be cancelled
forthwith.
(b) In the event that any holder of BMF common shares
cancelled and extinguished in accordance with this AGREEMENT is unable to
deliver the CERTIFICATE which evidences such shares of the holder, WFC, in the
absence of actual notice that any shares theretofore evidenced by any such
CERTIFICATE have been acquired by a bona fide purchaser, shall deliver to such
holder the amount to which such holder is entitled in accordance with the
provisions of this AGREEMENT upon the presentation of all of the following:
(i) Evidence to the reasonable satisfaction of WFC that
any such CERTIFICATE has been lost, wrongfully taken
or destroyed;
(ii) Such security or indemnity as may be reasonably
requested by WFC to indemnify and hold WFC harmless;
and
(iii) Evidence to the reasonable satisfaction of WFC that
such person is the owner of the shares theretofore
represented by each CERTIFICATE claimed by him to be
lost, wrongfully taken or destroyed and that he is
the person who would be entitled to present each such
CERTIFICATE for exchange pursuant to this AGREEMENT.
(c) In the event that the issuance of WFC shares or payment in
lieu of fractional shares in accordance with this AGREEMENT is to be made to a
person other than the person in whose name the CERTIFICATE surrendered is
registered, the CERTIFICATE so surrendered shall be properly endorsed or
otherwise in proper form for transfer and the person requesting such issuance or
payment shall pay any transfer or other taxes required by reason of the issuance
or payment to a person other than the registered holder of the CERTIFICATE
surrendered or establish to the satisfaction of WFC that such tax has been paid
or is not applicable. Until surrendered in accordance with the provisions of
this Section 2.02, each CERTIFICATE shall represent for all purposes the right
to receive the number of whole WFC shares and cash in lieu of fractional shares
as determined pursuant to this AGREEMENT.
(d) No dividends or other distributions declared after the
EFFECTIVE TIME with respect to WFC common shares and payable to the holders of
record thereof after the EFFECTIVE TIME shall be paid to the holder of any
unsurrendered CERTIFICATE until the holder thereof shall surrender such
CERTIFICATE. Subject to the effect, if any, of applicable law, after the
subsequent surrender and exchange of a CERTIFICATE, the record holder thereof
shall be entitled to receive any such dividends or other distributions, without
any interest thereon, which theretofore had become payable with respect to WFC
common shares represented by such CERTIFICATE.
5
<PAGE> 103
(e) No certificates or scrip representing fractional shares of
WFC common shares shall be issued upon the surrender for exchange of
CERTIFICATES. No dividend or distribution with respect to WFC common shares
shall be payable on or with respect to any such fractional shares and such
fractional shares shall not entitle the owner thereof to vote or to any other
rights of a WFC shareholder. In lieu of any such fractional share, WFC shall pay
to each former holder of BMF common shares who otherwise would be entitled to
receive a fraction of a WFC common share an amount in cash equal to the product
of (i) the closing sale price of a share of WFC on the American Stock Exchange
(hereinafter referred to as the "AMEX") on the day of the EFFECTIVE TIME,
multiplied by (ii) such fraction.
(f) The certificate evidencing the issued and outstanding
common shares of WSL before the EFFECTIVE TIME shall evidence the issued and
outstanding common shares of the SURVIVING CORPORATION after the EFFECTIVE TIME.
SECTION 2.03. COMPLIANCE WITH SECTION 2.02. No WFC shares or payment in
lieu of fractional shares shall be delivered by WFC to any former holder of BMF
common shares in accordance with this AGREEMENT until any such holder shall have
complied with paragraphs (a) through (e) of Section 2.02 of this AGREEMENT.
SECTION 2.04. PAYMENT IN SATISFACTION OF RIGHTS. All payments made upon
the surrender of CERTIFICATES pursuant to this Article Two shall be deemed to
have been made in full satisfaction of all rights pertaining to the shares
evidenced by such CERTIFICATES.
SECTION 2.05. NO FURTHER REGISTRATION OF TRANSFER. After the EFFECTIVE
TIME, there shall be no further registration of transfer of BMF common shares on
the stock transfer books of BMF. In the event that, after the EFFECTIVE TIME,
CERTIFICATES evidencing such shares are presented for transfer, they shall be
cancelled and exchanged as provided in this Article Two.
SECTION 2.06. DISSENTING SHARES. Notwithstanding anything in this
AGREEMENT to the contrary, the BMF common shares which are outstanding
immediately before the EFFECTIVE TIME and which are held by shareholders who
shall not have voted such shares in favor of this AGREEMENT, who shall have
delivered to WFC or BMF a written demand for appraisal of such shares in the
manner provided in Section 552.14 of the OTS Regulations and who shall have
otherwise complied fully with all of the requirements of Section 552.14 of the
OTS Regulations shall not be converted into or be exchangeable for the right to
receive the consideration provided in this AGREEMENT; provided, however, that
(i) each of such shares (hereinafter referred to as the "DISSENTING SHARES")
shall nevertheless be cancelled and extinguished in accordance with this
AGREEMENT; (ii) the holder of DISSENTING SHARES, upon full compliance with the
requirements of Section 552.14 of the OTS Regulations, shall be entitled to
payment of the appraised value of such shares in accordance with the provisions
of Section 552.14 of the OTS Regulations; and (iii) in the event (I) any holder
of DISSENTING SHARES shall subsequently withdraw such holder's demand for
appraisal of such shares within sixty days after the EFFECTIVE TIME or shall
fail to establish such holder's entitlement to appraisal rights in accordance
with Section 552.14 of the OTS Regulations or (II) any holder of
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DISSENTING SHARES has not filed a petition demanding a determination of the
value of such shares within the period provided in Section 552.14 of the OTS
Regulations, such holder shall forfeit the right to appraisal of such shares and
such shares shall thereupon be deemed to have been converted into and to have
become exchangeable for the right to receive the consideration provided in this
AGREEMENT.
SECTION 2.07. SEPARATE EXISTENCE. At and after the EFFECTIVE TIME, the
separate existence of BMF shall cease; provided, however, that whenever a
conveyance, assignment, transfer, deed or other instrument or act is necessary
to vest property or rights in the SURVIVING CORPORATION, the officers of WSL and
BMF shall execute, acknowledge and deliver such instruments and do such acts.
SECTION 2.08. PROPERTY. At and after the EFFECTIVE TIME, all of the
assets and property of every kind and character, real, personal and mixed,
tangible and intangible, chooses in action, rights and credits owned by WSL and
BMF at the EFFECTIVE TIME, or which would inure to any of them, shall
immediately, by operation of law and without any conveyance or transfer and
without any further act or deed, be vested in and become the property of the
SURVIVING CORPORATION, which shall have, hold and enjoy the same in its own
right as fully and to the same extent as the same were possessed, held and
enjoyed by WSL and BMF before the EFFECTIVE TIME. The SURVIVING CORPORATION
shall be deemed to be and shall be a continuation of the entity and identity of
WSL. All of the rights and obligations of WSL or BMF shall not revert or in any
way be impaired by reason of the MERGER. Any claim existing, or action or
proceeding pending, by or against either WSL or BMF, may be prosecuted to
judgment with right of appeal as if the MERGER had not taken place or the
SURVIVING CORPORATION may be substituted in its place.
SECTION 2.09. CREDITOR'S RIGHTS. At and after the EFFECTIVE TIME, all
the rights of creditors of each of WSL and BMF shall be preserved unimpaired,
and all liens upon the property of WSL and BMF shall be preserved unimpaired on
only the property affected by any such lien immediately before the EFFECTIVE
TIME.
SECTION 2.10. SAVINGS DEPOSITS. At the EFFECTIVE TIME and as a result
of the MERGER, each BMF savings deposit or other account then existing shall,
automatically and without further act of WSL or BMF or the holder thereof, be
cancelled and extinguished. In substitution and exchange for each BMF passbook
savings deposit so cancelled and extinguished, the holder thereof shall
automatically receive from the SURVIVING CORPORATION a WSL passbook savings
account with a beginning balance equal in dollar amount to the dollar amount of
the BMF passbook savings deposit account so cancelled and extinguished and
otherwise on the same terms as other WSL passbook savings accounts accepted by
WSL at the EFFECTIVE TIME. In substitution for each BMF savings deposit, other
than a passbook savings deposit, so cancelled and extinguished, the holder
thereof shall automatically receive from the SURVIVING CORPORATION a WSL savings
account with a beginning balance equal in dollar amount to the dollar amount of
the BMF savings deposit account so cancelled and extinguished and otherwise
having the same terms as the BMF savings deposit so cancelled and extinguished.
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SECTION 2.11. ACCOUNTS. The holder of each BMF savings deposit or other
account cancelled and extinguished in accordance with Section 2.10 of this
Agreement shall forthwith be entered on the records of the SURVIVING CORPORATION
as the holder of an appropriate WSL savings deposit or other account in an
amount determined as provided in Section 2.10 and, until Section 2.12 of this
Agreement shall have been complied with, each passbook, certificate of deposit
or other document issued by BMF and evidencing a BMF savings deposit or other
document issued by the EFFECTIVE TIME shall be deemed, for all purposes, to
evidence a savings deposit or other like account of the SURVIVING CORPORATION.
SECTION 2.12. SURRENDER OF DEPOSIT. Each person who, as a result of the
MERGER, holds a passbook, certificate of deposit or other document issued by BMF
which theretofore evidenced a BMF savings deposit or other account shall
surrender each such passbook, certificate or other document to the SURVIVING
CORPORATION. Upon such surrender, the SURVIVING CORPORATION shall deliver in
substitution therefor an account book or other document evidencing the WSL
savings deposit or other account received by such person in accordance with
Section 2.12 of this Agreement.
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES OF BMF
BMF represents and warrants to WFC and WSL that each of the following
is true and accurate in all material respects:
SECTION 3.01. ORGANIZATION AND STANDING. (a) BMF is a federal savings
bank duly organized, validly existing and in good standing under the laws of the
United States; has the corporate power and authority to own or hold under lease
all of its properties and assets and to conduct its business and operations as
presently conducted; and is a member of the Federal Home Loan Bank of Cincinnati
(hereinafter referred to as the "FHLB of Cincinnati"). The savings accounts and
deposits of BMF are insured up to applicable limits by the Federal Deposit
Insurance Corporation (hereinafter referred to as the "FDIC"). Except as set
forth in Section 3.01 of the schedule delivered by BMF to WFC on December 4,
1998 (hereinafter referred to as the "DISCLOSURE SCHEDULE"), BMF is in
compliance in all material respects with all applicable local, state or federal
laws and regulations, including, without limitation, the regulations of the FDIC
and the OTS.
SECTION 3.02. QUALIFICATION. BMF is either duly qualified to do
business and in good standing in each jurisdiction in which such qualification
is required or the failure to so qualify would not have a material adverse
effect on the business of BMF.
SECTION 3.03. AUTHORITY. (a) Subject to the approval of this AGREEMENT
and the transactions contemplated hereby, including the MERGER, by the BMF
shareholders and by the OTS, (i) BMF has all of the requisite corporate power
and authority to enter into this AGREEMENT and to perform all of its obligations
hereunder; (ii) the execution and delivery of this AGREEMENT and the
consummation of the transactions contemplated hereby have been
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duly authorized by all necessary corporate action by BMF; and (iii) this
AGREEMENT is the valid and binding agreement of BMF, enforceable against BMF in
accordance with its terms, (I) subject to applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws of general applicability
affecting the enforcement of creditors' rights generally and the effect of rules
of law governing specific performance, injunctive relief and other equitable
remedies on the enforceability of such documents and (II) except to the extent
such enforceability may be limited by laws relating to safety and soundness of
insured depository institutions as set forth in 12 U.S.C. Section 1818(b) or by
the appointment of a conservator by the FDIC. This AGREEMENT has been duly
executed and delivered by BMF.
(b) The OTS Regulations and the Charter and Bylaws of BMF
require the approval of this AGREEMENT and the transactions contemplated hereby,
including the MERGER, by the affirmative vote of the holders of two-thirds of
the outstanding common shares of BMF. Neither the OTS Regulations, the Charter
or the Bylaws of BMF, nor any other law or regulation, require any other vote of
the holders of BMF shares in respect of this AGREEMENT or the transactions
contemplated hereby.
(c) BMF has all of the requisite corporate power and authority
to enter into the Stock Option Agreement dated the date hereof by and between
WFC and BMF (hereafter referred to as the "OPTION AGREEMENT"); the execution and
delivery of the OPTION AGREEMENT and the consummation of the transactions
contemplated thereby have been duly authorized by all necessary corporate action
by BMF; and the OPTION AGREEMENT is the valid and binding agreement of BMF,
enforceable against BMF in accordance with its terms, (i) subject to applicable
bankruptcy, insolvency, reorganization and moratorium laws and other laws of
general applicability affecting the enforcement of creditors' rights generally
and the effect of rules of law governing specific performance, injunctive relief
and other equitable remedies on the enforceability of such documents and (ii)
except to the extent such enforceability may be limited by laws relating to
safety and soundness of insured depository institutions as set forth in 12
U.S.C. Section 1818(b) or by the appointment of a conservator by the FDIC. The
OPTION AGREEMENT has been duly executed and delivered by BMF.
SECTION 3.04. GOVERNING DOCUMENTS. BMF has made available or will
promptly make available to WFC true and accurate copies of its Charter and
Bylaws and has granted WFC access to all records of all meetings and other
corporate actions by the shareholders, Board of Directors and Committees of the
Board of Directors of BMF. The minute books of BMF contain, in all material
respects, complete and accurate records of all meetings and other corporate
actions of the BMF shareholders, Board of Directors and Committees of the Board
of Directors.
SECTION 3.05. NO CONFLICTS. The execution and delivery of this
AGREEMENT, the consummation of the transactions contemplated hereby, including
the MERGER (subject to the approval of this AGREEMENT and the transactions
contemplated hereby, including the MERGER, by the BMF shareholders and the OTS),
and the execution and delivery of the OPTION AGREEMENT and the consummation of
the transactions contemplated thereby, will not (a) conflict with or violate any
provision of or result in the breach of any provision of the Charter or Bylaws
of BMF; (b) conflict with or violate any provision of or result in the breach or
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the acceleration of or entitle any party to accelerate (whether upon or after
the giving of notice of lapse of time or both) any obligation under, or
otherwise materially affect the terms of, any mortgage, lien, lease, agreement,
license, instrument, order, arbitration award, judgment or decree to which BMF
is a party or by which BMF or its property or assets is bound; (c) require the
consent of any party to any agreement or commitment to which BMF is a party or
by which BMF or its property or assets is bound, the failure to obtain which
could, individually or in the aggregate with all the other failures to obtain
required consents, have a material adverse effect on the business, operations,
condition (financial or otherwise) or prospects of BMF; (d) result in the
creation or imposition of any lien, charge, pledge, security interest or other
encumbrance upon any property or assets of BMF or give rise to any meritorious
cause of action against BMF; or (e) violate or conflict with any applicable law,
ordinance, rule or regulation, including, without limitation, the OTS
Regulations and the rules and regulations of the FDIC.
SECTION 3.06. CONSENTS. No consent, approval, order or authorization
of, or registration, declaration or filing with, any governmental authority is
required by BMF in connection with the execution and delivery of this AGREEMENT
by BMF or the consummation by BMF of the transactions contemplated hereby,
including the MERGER, except for filings, authorizations, consents or approvals
required by the OTS. No consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental authority is required
by BMF in connection with the execution and delivery of the OPTION AGREEMENT.
SECTION 3.07. AUTHORIZED CAPITAL. (a) The authorized capital of BMF
consists of 2,000,000 common shares, $1.00 par value per share, 112,307 of which
are issued and outstanding and held of record by approximately 81 shareholders,
and 500,000 preferred shares, $1.00 par value per share, none of which is issued
or outstanding. All of the outstanding common shares of BMF are duly authorized,
validly issued, fully paid and nonassessable; were issued in full compliance
with all applicable laws and regulations, including, but not limited to, the
conversion regulations of the OTS; and were not issued in violation of the
preemptive right of any depositor or shareholder of BMF. BMF has no outstanding
class of capital stock other than such common shares. There are no outstanding
subscription rights, options, conversion rights, warrants or other agreements or
commitments of any nature whatsoever (either firm or conditional) obligating BMF
(i) to issue, deliver or sell, cause to be issued, delivered or sold, or
restricting BMF from selling any additional BMF shares, or (ii) to grant, extend
or enter into any such agreement or commitment. Without limiting the generality
of the foregoing sentence, (I) all of the 10,100 BMF common shares reserved for
issuance upon exercise of stock options granted in accordance with the 1991
Stock Option Plan of BMF (hereinafter referred to as the "1991 Plan") have been
issued and are outstanding as a result of the due and valid exercise of options
duly and validly granted under the 1991 Plan and (II) no options have been
granted under the 1997 Stock Option and Incentive Plan of BMF (hereinafter
referred to as the "1997 Plan") or are outstanding. The BMF Employee Stock
Ownership Plan (hereinafter referred to as the "ESOP") owns of record 10,000
common shares of BMF, all of which have been allocated to the accounts of ESOP
participants. The BenchMark Federal Savings Bank Deferred Compensation Trust
dated December 18, 1997, by and between BMF and The Northside Bank & Trust Co.
(hereinafter referred to as the "TRUST"), owns of record 5,170 common shares of
BMF and holds such common shares for the benefit of five members of the Board of
Directors of BMF,
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each of whom elected to participate in the TRUST by deferring directors' fees in
accordance with the Amended and Restated Deferred Compensation Agreements dated
December 18, 1997, by and between such directors and BMF.
(b) On September 24, 1994, BMF filed a Form 15 with the OTS to
deregister the BMF common shares under the Securities Exchange Act of 1934, as
amended. All of the BMF common shares issued after such deregistration were
issued in accordance and compliance with Section 563g of the OTS Regulations and
were exempt from registration with the Securities and Exchange Commission
(hereinafter referred to as the "SEC") in accordance with Section 3(a)(2) of the
Securities Act of 1933, as amended.
SECTION 3.08. FINANCIAL STATEMENTS. (a) The consolidated statements of
financial condition as of December 31, 1997 and 1996, of BMF and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years then ended, examined and reported upon by Grant Thornton
LLP, certified public accountants, complete copies of which have previously been
delivered to WFC (hereinafter referred to as the "AUDITED FINANCIALS"), have
been prepared in conformity with generally accepted accounting principles
applied on a consistent basis and fairly present the consolidated financial
position of BMF at such dates and the consolidated results of its operations and
cash flows for such periods.
(b) The balance sheet as of September 30, 1998, of BMF and the
related income statement for the nine months then ended, complete copies of
which have previously been delivered to WFC (hereinafter referred to as the
"INTERIM FINANCIALS"), fairly present the financial position of BMF at such date
and the results of its operations for such period and have been prepared in
accordance with generally accepted accounting principles as applicable to
condensed consolidated financial statements and as applied on a consistent basis
with the AUDITED FINANCIALS. All adjustments which are necessary for a fair
statement of the INTERIM FINANCIALS have been made.
(c) The Thrift Financial Reports of BMF for the three-month
periods ended March 31, June 30 and September 30, 1998, together with the
schedules and supplements attached thereto, each as filed with the OTS and
copies of which were previously delivered to WFC by BMF (hereinafter referred to
as the "TFRs"), have been prepared in accordance with accounting practices
permitted by the OTS applied on a consistent basis, are true, complete and
correct in all material respects and fairly present the financial position of
BMF at such dates.
(d) Except as disclosed in the INTERIM FINANCIALS, the TFRs
and Section 3.08(d) of the DISCLOSURE SCHEDULE, as of September 30, 1998, BMF
had no liabilities or obligations material to the business condition (financial
or otherwise) of BMF, whether accrued, absolute, contingent or otherwise, and
whether due or to become due.
(e) The AUDITED FINANCIALS, the INTERIM FINANCIALS and the
TFRs did not, as of the dates thereof, contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
information contained therein, in light of the circumstances under which they
were made, not misleading.
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SECTION 3.09. CONDUCT OF BUSINESSES. Since December 31, 1997, BMF has
conducted its businesses only in the ordinary and usual course, there have been
no material adverse changes in the financial condition, assets, liabilities,
obligations, properties, business or prospects of BMF and, except as set forth
in any of the AUDITED FINANCIALS, the INTERIM FINANCIALS, the TFRs and Section
3.09 of the DISCLOSURE SCHEDULE, BMF has not:
(a) Authorized the creation or issuance of, issued, sold
or disposed of, or created any obligation to issue,
sell or dispose of, any stock, notes, bonds or other
securities (including, without limitation, the grant
of any options under the 1997 Plan), or any
obligation convertible into or exchangeable for, any
shares of its capital stock;
(b) Declared, set aside, paid or made any dividend or
other distributions on its capital stock or directly
or indirectly redeemed, purchased or acquired any
shares or entered into any agreement in respect of
the foregoing;
(c) Effected any stock split, recapitalization,
combination, exchange of shares, readjustment or
other reclassification;
(d) Amended its Charter or Bylaws;
(e) Purchased, sold, assigned or transferred any material
tangible asset or any material patent, trademark,
trade name, copyright, license, franchise, design or
other intangible asset or property;
(f) Mortgaged, pledged or granted or suffered to exist
any lien or other encumbrance or charge on any assets
or properties, tangible or intangible, except for
liens for taxes not yet due and payable and such
other liens, encumbrances or charges which do not
materially adversely affect its financial position;
(g) Waived any rights of material value or
cancelled any material debts or claims;
(h) Incurred any material obligation or liability
(absolute or contingent), including, without
limitation, any tax liability or any liability for
borrowings from the FHLB of Cincinnati, or paid any
material liability or obligation (absolute or
contingent) other than liabilities and obligations
incurred in the ordinary course of business;
(i) Experienced any material change in the amount or
general composition of its deposit liabilities or its
loan portfolio;
(j) Entered into or amended any employment contract with
any of its officers, increased the compensation
payable to any officer or director or any relative of
any such officer or director, or become obligated to
increase
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any such compensation, adopted or amended in any
material respect any employee benefit plans,
severance plan or collective bargaining agreement or
made any awards or distributions under any employee
benefit plans not consistent with past practice or
custom;
(k) Incurred any damage, destruction or similar loss, not
covered by insurance, materially affecting its
businesses or properties;
(l) Acquired any stock or other equity interest in any
corporation, partnership, trust, joint venture or
other entity;
(m) Made any (I) material investment (except investments
made in the ordinary course of business) or (II)
material capital expenditure or commitment for any
material addition to property, plant or equipment;
(n) Taken or permitted any action which would prevent WFC
from accounting for the MERGER as a "pooling of
interests";
(o) Authorized any allocation by the ESOP of any BMF
common shares to the accounts of participants; or
(p) Agreed, whether in writing or otherwise, to take any
action described in this Section 3.09.
SECTION 3.10. PROPERTIES. (a) A description of all personal property
and fixed assets owned by BMF is set forth in Section 3.10(a) of the DISCLOSURE
SCHEDULE (hereinafter referred to as the "PERSONAL PROPERTY"). All PERSONAL
PROPERTY has been maintained in good working order, ordinary wear and tear
excepted. BMF owns and has good title to all of the PERSONAL PROPERTY, free and
clear of any mortgage, lien, pledge, charge, claim, conditional sales or other
agreement, lease, right or encumbrance, except (i) as set forth in Section
3.10(a) of the DISCLOSURE SCHEDULE, (ii) to the extent stated or reserved
against in the AUDITED FINANCIALS or the INTERIM FINANCIALS and (iii) such other
exceptions which are not material in character or amount and do not materially
detract from the value of or interfere with the use of the properties or assets
subject thereto or affected thereby.
(b) The documentation (hereinafter referred to as "LOAN
DOCUMENTATION") governing or relating to the loan and credit-related assets
(hereinafter referred to as the "LOAN ASSETS") included within the loan
portfolio of BMF is legally sufficient in all material respects for the purposes
intended thereby and creates enforceable rights in favor of BMF in accordance
with the terms of such LOAN DOCUMENTATION, subject to applicable bankruptcy,
insolvency, reorganization and moratorium laws and other laws of general
applicability affecting the enforcement of creditors' rights generally, and the
effect of rules of law governing specific performance, injunctive relief and
other equitable remedies on the enforceability of such documents. The LOAN
DOCUMENTATION is in compliance with, and each of the loans included within the
loan portfolio of BMF has been processed, closed and administered in conformance
with, all applicable federal consumer protection statutes and
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regulations, including without limitation, the Truth in Lending Act, the Equal
Credit Opportunity Act and the Real Estate Settlement Procedures Act. Except as
set forth in Section 3.10(b) of the DISCLOSURE SCHEDULE, to the best knowledge
of BMF, no debtor under any of the LOAN DOCUMENTATION has asserted any claim or
defense with respect to the subject matter thereof.
(c) A description of each parcel of real property owned by BMF
is set forth in Section 3.10(c) of the DISCLOSURE SCHEDULE (hereinafter referred
to individually as a "PARCEL" and collectively as the "REAL PROPERTIES"). BMF is
the owner of each PARCEL in fee simple and has good and marketable title to each
such PARCEL, free of any liens, claims, charges, encumbrances or security
interests of any kind, except (i) as set forth in Section 3.10(c) of the
DISCLOSURE SCHEDULE, (ii) liens for real estate taxes and assessments not yet
delinquent and (iii) utility, access and other easements, rights of way,
restrictions and exceptions which have been disclosed to BMF in writing, none of
which impair the REAL PROPERTIES for the use and business being conducted
thereon.
(d) Except as set forth in Section 3.10(d) of the DISCLOSURE
SCHEDULE, no party leasing any of the REAL PROPERTIES from BMF is in material
default with respect to any of its obligations (including payment obligations)
under the governing lease. BMF has not received notification from any
governmental entity within the two year period immediately preceding the date
hereof of contemplated improvements to the REAL PROPERTIES or surrounding area
or community by public authority, the costs of which are to be assessed as
special taxes against the REAL PROPERTIES in the future.
(e) A description of all real property leased by BMF is set
forth in Section 3.10(e) of the DISCLOSURE SCHEDULE (hereinafter referred to as
the "LEASED REAL PROPERTY"). True and correct copies of all leases in respect of
the LEASED REAL PROPERTY (hereinafter referred to as the "REAL PROPERTY LEASES")
and all attachments, amendments and addendums thereto have been delivered to
WFC. Except as set forth in Section 3.10(e) of the DISCLOSURE SCHEDULE, the REAL
PROPERTY LEASES create, in accordance with their terms, valid, binding and
assignable leasehold interests of BMF in all of the LEASED REAL PROPERTY, free
and clear of all liens, claims, charges, encumbrances or security interests of
any kind. BMF has complied in all material respects with all of the provisions
of the REAL PROPERTY LEASES required on its part to be complied with and is not
in default with respect to any of its obligations (including payment
obligations) under any of the REAL PROPERTY LEASES.
(f) A description of all personal property leased by BMF is
set forth in Section 3.10(f) of the DISCLOSURE SCHEDULE (hereinafter referred to
as the "LEASED PERSONAL PROPERTY"). True and correct copies of the leases in
respect of the LEASED PERSONAL PROPERTY (hereinafter referred to as the
"PERSONAL PROPERTY LEASES") and all attachments, amendments and addendums
thereto have been delivered to WFC. Except as set forth in Section 3.10(f) of
the DISCLOSURE SCHEDULE, the PERSONAL PROPERTY LEASES create, in accordance with
their terms, valid, binding and assignable leasehold interests of BMF in all of
the LEASED PERSONAL PROPERTY, free and clear of all liens, claims,
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charges, encumbrances or security interests of any kind. BMF has complied in all
material respects with all of the provisions under the PERSONAL PROPERTY LEASES
required on its part to be complied with and is not in default with respect to
any of its obligations (including payment obligations) under any of the PERSONAL
PROPERTY LEASES.
(g) Section 3.10(g) of the DISCLOSURE SCHEDULE contains a
complete list of all contracts (hereinafter referred to as the "LOAN SALE
CONTRACTS") pursuant to which BMF has sold loans to third party investors at any
time within the last twenty-four months. Except as otherwise set forth in
Section 3.10(g) of the DISCLOSURE SCHEDULE, (i) no purchaser under any LOAN SALE
CONTRACT has requested, or notified BMF that it may be requesting, that BMF
repurchase any loan pursuant to the terms of the LOAN SALE CONTRACT and (ii) no
facts exist that would require BMF to repurchase any loans previously sold under
any LOAN SALE CONTRACT.
SECTION 3.11. ALLOWANCE FOR LOAN LOSSES. Except as set forth in Section
3.11 of the DISCLOSURE SCHEDULE, there is no loan which was made by BMF and
which is reflected as an asset of BMF on the AUDITED FINANCIALS or the INTERIM
FINANCIALS that (i) is sixty (60) days or more delinquent or (ii) has been
classified by examiners (regulatory or internal) as "Substandard," "Doubtful" or
"Loss".
SECTION 3.12. INVESTMENTS. (a) Section 3.12(a) of the DISCLOSURE
SCHEDULE contains (i) a true, accurate and complete list of all investments,
other than investments in the LOAN ASSETS and REAL PROPERTIES, owned by BMF
(hereinafter referred to as the "INVESTMENTS") as of the date hereof, the name
of the registered holder thereof, the location of the certificates therefor or
other evidence thereof and any stock powers or other authority for transfer
granted with respect thereto and (ii) a true, accurate and complete list of the
names of each bank or other depository in which BMF has an account or safe
deposit box, including, without limitation, accounts with the FHLB of
Cincinnati, and the names of all persons authorized to draw thereon or to have
access thereto. Except as set forth in Section 3.12(a) of the DISCLOSURE
SCHEDULE, the INVESTMENTS, other than any such investments disposed of in the
ordinary course of business prior to the date hereof, are owned by BMF, free and
clear of all liens, pledges, claims, security interests, encumbrances, charges
or restrictions of any kind and may be freely disposed of by BMF at any time.
BMF is not a party to and has no interest in any repurchase agreement, reverse
repurchase agreement, collateralized mortgage obligation or any other derivative
security.
(b) With the exception of equity interests in the FHLB of
Cincinnati and Celestial Service Corporation, an Ohio corporation (hereinafter
referred to as "CSC"), BMF does not own of record or beneficially the
outstanding shares of, or any equity interest in, any corporation or other
business entity.
(c) CSC is a corporation duly organized, validly existing and
in good standing under the laws of Ohio; has the corporate power and authority
to conduct its business as presently conducted; and is duly and validly formed
as a service corporation under, and is in full compliance with, Section 545.72
of the OTS Regulations. All of the issued and outstanding and
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are owned of record and beneficially by BMF. All of the outstanding shares of
CSC are duly authorized, validly issued, fully paid and nonassessable and were
issued in full compliance with all applicable laws and regulations. CSC has no
outstanding class of capital stock other than common shares. There are no
outstanding subscription rights, options, conversion rights, warrants or other
guarantees or commitments of any nature whatsoever obligating CSC to issue,
deliver or sell, cause to be issued, delivered or sold, or obligating BMF to
grant, extend or enter into any such agreement or commitment. CSC has not
engaged in any business activity since December 31, 1990; does not own of record
or beneficially any real or personal property or any other assets of any kind;
does not have any liabilities of any kind, whether accrued, contingent or
remote; and is not a party to any agreement, contract, commitment or other
obligation.
SECTION 3.13. REPORTS AND RECORDS. BMF has filed all reports and
maintained all records required to be filed or maintained by it under various
rules and regulations of the OTS and the FDIC. All such documents and reports
complied in all material respects with applicable requirements of law and
regulations in effect at the time of filing such documents and contained in all
material respects the information required to be stated therein. None of such
documents, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
SECTION 3.14. TAXES. Except as set forth in Section 3.14 of the
DISCLOSURE SCHEDULE, BMF has duly and timely filed all federal, state, county
and local income, profits, franchise, excise, sales, customs, property, use,
occupation, withholding, social security and other tax and information returns
and reports required to have been filed by BMF through the date hereof, and has
paid or accrued all taxes and duties (and all interest and penalties with
respect thereto) due or claimed to be due. BMF has no liability for any taxes or
duties (or interest or penalties with respect thereto) of any nature whatsoever
and there is no basis for any additional material claims or assessments, other
than with respect to liabilities for taxes and duties which are reflected in the
INTERIM FINANCIALS or which may have accrued since September 30, 1998, in the
ordinary course of business. The federal income tax returns of BMF for all
taxable years through and including the year ended December 31, 1994, have been
examined by the federal tax authorities or the applicable statute of limitations
has expired in respect thereof. No proposed additional taxes, interest or
penalties have been asserted by applicable taxing authorities with respect to
such years or later years, except for claims which have been fully reserved for
in the AUDITED FINANCIALS and the INTERIM FINANCIALS. True copies of the
federal, state and local income tax returns of BMF for each of the three (3) tax
years ended December 31, 1995, 1996 and 1997 have been delivered to WFC.
SECTION 3.15. MATERIAL CONTRACTS. (a) Except as set forth in Section
3.15(a) of the DISCLOSURE SCHEDULE, BMF is not a party to or bound by any
written or oral (i) contract or commitment for capital expenditures in excess of
$5,000 for any one project or $10,000 in the aggregate; (ii) contract or
commitment made in the ordinary course of business for the purchase of materials
or supplies or for the performance of services involving payments to or by BMF
of an amount exceeding $5,000 in the aggregate or extending for more than six
(6) months from the date hereof; (iii) contract or option for the purchase of
any property, real or personal; (iv) letter of
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credit or indemnity calling for payment, upon the conditions stated therein, of
more than $10,000; (v) guarantee agreement; (vi) instrument granting any person
authority to transact business on behalf of BMF; (vii) contracts or commitments
relating to outstanding loans and/or commitments to make loans (including
unfunded commitments and lines of credit) to any one person (together with
"affiliates" of that person) in excess of $150,000 in the aggregate; (viii)
employment, management, consulting, deferred compensation, severance or other
similar contract with any director, officer or employee of BMF; (ix) note,
debenture or loan agreement pursuant to which BMF has incurred indebtedness,
other than deposit liabilities and advances from the FHLB of Cincinnati; (x)
loan participation agreement; (xi) loan servicing agreement; (xii) contract or
commitment relating to a real estate development project consisting of the
development of more than one single family dwelling; (xiii) commitment to make
any acquisition, development or construction loan; (xiv) commitment or agreement
to do any of the foregoing; or (xv) other contract, agreement or commitment made
outside the ordinary course of business (contracts set forth in Section 3.15 of
the DISCLOSURE SCHEDULE are hereinafter collectively referred to as the
"CONTRACTS"). BMF previously delivered to WFC (i) all of the CONTRACTS and (ii)
all form lending agreements and deposit forms used by BMF in the ordinary course
of business.
(b) BMF is not in material default under any of the contracts
or agreements to which either is a party and no claim of such default by any
party has been made or is now threatened. There does not exist any event which,
with notice or the passing of time or both, would constitute a material default
under, or would excuse performance by any party thereto from, any contract or
agreement to which BMF is a party.
SECTION 3.16. INSURANCE. All material properties and operations of BMF
are adequately insured for its benefit. The performance by the officers and
employees of BMF of their duties is bonded in such amounts and against such
risks as are usually insured against or bonded by entities similarly situated,
under valid and enforceable policies of insurance or bonds issued by insurers or
bonding companies of recognized responsibility, financial or otherwise.
SECTION 3.17. ACTIONS AND SUITS. Except as set forth in Section 3.17 of
the DISCLOSURE SCHEDULE, there are no actions, suits or proceedings or
investigations pending or, to the knowledge of BMF, threatened against or
affecting the business, operations or financial condition of BMF in any court or
before any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, and management of BMF has
no knowledge of any basis for any such action, suit, proceeding or
investigation. Except as set forth in Section 3.17 of the DISCLOSURE SCHEDULE,
BMF is not in default in respect of any judgment, order, writ, injunction or
decree of any court or any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality.
SECTION 3.18. PERMITS AND LICENSES. BMF has all material permits,
licenses, orders and approvals of all federal, state or local governmental or
regulatory bodies required for BMF to conduct its business as presently
conducted, and all such material permits, licenses, orders and approvals are in
full force and effect, without the threat of suspension or cancellation. None of
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such permits, licenses, orders or approvals will be adversely affected by the
consummation of the transactions contemplated by this AGREEMENT.
SECTION 3.19. EMPLOYEE BENEFIT PLANS; ERISA. (a) Section 3.19 of the
DISCLOSURE SCHEDULE contains a true and complete list of all qualified pension
or profit-sharing plans, deferred compensation, consulting, bonus, group
insurance plans or agreements and all other incentive, welfare or employee
benefit plans or agreements maintained for the benefit of employees or former
employees of BMF (hereinafter collectively referred to as the "PLANS"). Copies
of such PLANS, together with copies of (i) the most recent actuarial and
financial reports prepared with respect to any qualified plans, (ii) the most
recent annual reports filed with any governmental agency and (iii) all rulings
and determination letters and any open requests for rulings or letters that
pertain to any qualified plan, have been delivered to WFC.
(b) Each PLAN which constitutes an "employee pension plan," as
defined in Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended (hereinafter referred to as "ERISA"), is and has been administered in
material compliance with its governing documents and the applicable provisions
of ERISA and any such employee pension plan which is intended to be qualified
under the provisions of Section 401(a) of the Internal Revenue Code of 1986, as
amended (hereinafter referred to as the "CODE"), is and has been administered in
material compliance with the applicable provisions of the CODE.
(c) Each PLAN which constitutes an "employee welfare benefit
plan," as defined in Section 3(1) of ERISA, is and has been administered in
material compliance with its governing documents and the applicable provisions
of ERISA and each PLAN which constitutes a "group health plan," as defined in
Section 5000(b)(1) of the CODE, is and has been administered in material
compliance with the continuation of coverage provisions contained in Section
4980B of the CODE.
(d) Each PLAN which is not an "employee benefit plan," as
defined in Section 3(3) of ERISA, is and has been administered in material
compliance with its governing documents and with any and all state or federal
laws applicable to such PLAN.
(e) BMF does not maintain any "employee pension plan" (as
defined above) which is subject to the provisions of Title IV of ERISA.
(f) BMF does not maintain any PLAN which provides
post-retirement medical, dental or life insurance benefits to any former
employee of BMF obligated to provide any such benefit to any current employee
upon his or her retirement.
(g) BMF does not participate in, nor incurred any liability
under, Section 4201 of ERISA for a complete or partial withdrawal from a
multiemployer plan as such term is defined in Section 3(37) of ERISA.
(h) Neither BMF, nor any PLAN maintained by BMF, nor any
fiduciary of any such PLAN, has incurred any material liability to the Pension
Benefit Guaranty Corporation,
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the United States Department of Labor or to the Internal Revenue Service
(hereinafter referred to as the "IRS") with respect to a PLAN.
(i) No prohibited transaction (which shall mean any
transaction prohibited by Section 406 of ERISA and not exempt under Section 408
of ERISA) has occurred with respect to any "employee benefit plan" (as defined
above) maintained by BMF (i) which would result in the imposition, directly or
indirectly, of an excise tax under Section 4975 of the CODE or (ii) the
correction of which would have a material adverse effect on the financial
condition, results of operations or business of BMF.
(j) Each employee pension plan (as defined above) which is
intended to be an employee stock ownership plan, as defined in Section
4975(e)(7) of the CODE, is and has been administered in substantial compliance
with the applicable provisions of Sections 4975 and 409 of the CODE and the
regulations promulgated by the IRS thereunder; and, any outstanding loan to
which any such employee stock ownership plan is a party constitutes an "exempt
loan," as described in Section 54.4975-7 of the regulations promulgated by the
IRS.
SECTION 3.20. ENVIRONMENTAL PROTECTION. (a) Except as set forth in
Section 3.20 of the DISCLOSURE SCHEDULE, (i) each of BMF, the BMF PROPERTY
(hereinafter defined) and the COLLATERAL PROPERTY (hereinafter defined) is, and
has been at all times, in full compliance with all applicable ENVIRONMENTAL LAWS
(hereinafter defined); (ii) no investigations, inquiries, orders, hearings,
actions or other proceedings by or before any court or governmental agency have
been issued, are pending or, to the knowledge of BMF, threatened against BMF or
in connection with the BMF PROPERTY or the COLLATERAL PROPERTY; (iii) no claims
have been made or, to the knowledge of BMF, threatened at any time against BMF
or in connection with the BMF PROPERTY or the COLLATERAL PROPERTY relating to
actual or alleged violation of any ENVIRONMENTAL LAW or relating to damage,
contribution, cost recovery, compensation, loss or injury resulting from any
HAZARDOUS SUBSTANCE (hereinafter defined) and no past or present actions,
activities, conditions, events or incidents, including, without limitation, the
release, emission, discharge or disposal of, or exposure to, any HAZARDOUS
SUBSTANCE have occurred that could reasonably form the basis of any such claims
against BMF or in connection with the BMF PROPERTY or the COLLATERAL PROPERTY;
(iv) no HAZARDOUS SUBSTANCES have been integrated into any BMF PROPERTY or
COLLATERAL PROPERTY or any component thereof in violation of ENVIRONMENTAL LAWS,
or which will in the future require remediation during renovation or demolition,
or in such quantities and manner as may or do pose a threat to human health; (v)
no portion of any BMF PROPERTY or COLLATERAL PROPERTY is located within 2000
feet of (I) a release of HAZARDOUS SUBSTANCES which has been reported or is
required to be reported under any ENVIRONMENTAL LAW or (II) the location of any
site used, in the past or presently, for the disposal of any HAZARDOUS
SUBSTANCES; (vi) neither the BMF PROPERTY nor the COLLATERAL PROPERTY has been
used for the storage, disposal or treatment of HAZARDOUS SUBSTANCES, has been
contaminated by HAZARDOUS SUBSTANCES, or has been used for the storage or use of
any underground or aboveground storage tanks; and (vii) all permits,
registrations and other authorizations necessary for BMF, the BMF PROPERTY and
the COLLATERAL PROPERTY to operate in full compliance with all ENVIRONMENTAL
LAWS are currently in force and are identified in Section 3.20 of the DISCLOSURE
SCHEDULE.
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(b) Section 3.20 of the DISCLOSURE SCHEDULE sets forth an
accurate and complete list of all outstanding loans of BMF as to which the
borrower has submitted to BMF, the borrower or another person is required to
submit, or which BMF otherwise has in its possession, any environmental audits,
site assessments, analyses, studies or surveys of environmental conditions on
any matter, including, but not limited to, any COLLATERAL PROPERTY. BMF shall
make available to WFC all such documents within ten (10) business days after the
effective date of this Agreement.
(c) As used in this Section 3.20:
(i) "BMF PROPERTY" means all real and person
property now or previously owned, leased,
occupied or managed by BMF or any person or
entity whose liability for any matter has or
may have been related or assumed by BMF
either contractually or by operation of law.
(ii) "COLLATERAL PROPERTY" means all real and
personal property in which BMF holds a
security interest in connection with a loan
or loan participation.
(iii) "ENVIRONMENTAL LAWS" means all federal,
state, local and other laws, regulations,
rules, standards, ordinances, orders,
decrees, and judgments relating to
pollution, the environment, occupational
health and safety, or the protection of
human health, all as may be from time to
time amended.
(iv) "HAZARDOUS SUBSTANCES" means any and all
substances or materials which are classified
or considered to be hazardous or toxic to
human health or the environment under any
applicable ENVIRONMENTAL LAWS and shall
include, without limitation, any "hazardous
substances" as defined in Section 101(14) of
CERCLA (42 USC Section 9601(14)) or
regulations promulgated thereunder, any
"toxic and hazardous substances" as defined
in 29 CFR Part 1910, petroleum and its
byproducts, asbestos, polychlorinated
biphenyls, nuclear fuel or materials, lead
and lead-containing substances, and
urea-formaldehyde.
SECTION 3.21. EMPLOYMENT MATTERS. BMF is in compliance with all
federal, state or other applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including,
but not limited to, Title VII of the Civil Rights Act of 1964 (as amended by the
Equal Employment Opportunity Act of 1972), the Civil Rights Act of 1991, the Age
Discrimination in Employment Act of 1967, the Employee Retirement Income
Security Act, 29 U.S.C. Section 1001 et seq., 42 U.S.C. Section 1981, the Older
Workers Benefit Protection
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Act, the Americans with Disabilities Act, Ohio Revised Code Sections 4112.01 et
seq., and the Fair Labor Standards Act; and has not and is not engaged in any
unfair labor practice, except where such failure to comply would not have, or
such practice would not have, a material adverse effect on the financial
condition, results of operations, business or prospects of BMF. No unfair labor
practice complaint against BMF is pending before any governmental agency or
court and there is no labor strike, dispute, slowdown or stoppage actually
pending or, to the knowledge of BMF, threatened against or involving BMF. No
representation question exists in respect of the employees of BMF and no labor
grievance which might have a material adverse effect upon BMF or the conduct of
its businesses is pending or, to the knowledge of BMF, threatened. No
arbitration proceeding arising out of or under any collective bargaining
agreement is pending and no claim therefore has been asserted against BMF. No
collective bargaining agreement is currently being negotiated by BMF. BMF has
not experienced any material labor difficulty during the last three years.
SECTION 3.22. UNTRUE STATEMENTS AND OMISSIONS. The certificates,
statements and other information furnished to WFC in writing by or on behalf of
BMF in connection with the transactions contemplated hereby, including, but not
limited to, disclosures and information set forth in the DISCLOSURE SCHEDULE, do
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
SECTION 3.23. PROXY MATERIALS. None of the information relating to BMF
included in any proxy statement which is to be mailed to the shareholders of BMF
in connection with any meeting of shareholders convened in accordance with
Section 6.04 of this AGREEMENT (hereinafter referred to as the "PROXY
STATEMENT") will, at the time the PROXY STATEMENT is mailed or at the time of
the meeting of shareholders to which the PROXY STATEMENT relates, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements therein not false or misleading, or at
the time of the meeting of shareholders to which the PROXY STATEMENT relates,
necessary to correct any statement which has become false or misleading. The
legal responsibility for the contents of the PROXY STATEMENT (other than
information supplied by WFC or WSL concerning WFC or WSL) shall be and remain
with BMF.
SECTION 3.24. BROKERS. All negotiations relating to this AGREEMENT and
the transactions contemplated hereby have been carried on without the
intervention of any person, other than Charles Webb & Company, a division of
Keefe, Bruyette & Woods, Inc. (hereinafter referred to as "WEBB"), acting on
behalf of BMF in such manner as to give rise to any valid claim against BMF for
any broker's or finder's fee or similar compensation.
SECTION 3.25. STOCK OWNERSHIP. Neither BMF nor any of its "affiliates"
or "associates", as the terms "affiliates" and "associates" are defined in
Section 1704.01(C)(1) of the ORC, are "beneficial owners", as the term
"beneficial owners" is defined in Section 1704.01(C)(4) of the ORC, of any of
the outstanding shares of any class of shares of WFC.
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SECTION 3.26. YEAR 2000. (a) All devices, systems, machinery,
information technology, computer software and hardware, and other date sensitive
technology owned or leased by BMF (hereinafter referred to as the "Systems")
necessary for BMF to carry on its business as presently conducted and as
contemplated to be conducted in the future either (i) are a Year 2000 Compliant
(hereinafter defined) or (ii) will be Year 2000 Compliant within a period of
time calculated to result in no material disruption of any of BMF's business
operations. For purposes of this Section 3.26, "Year 2000 Compliant" means that
such Systems are designed to be used prior to, during and after the Gregorian
calendar year 2000 A.D. and will operate during each such time period without
error relating to date data, specifically including any error relating to, or
the product of, date data which represents or references different centuries or
more than one century.
(b) BMF has (i) undertaken a detailed inventory, review and
assessment of all areas within its business and operations that could be
adversely affected by the failure of BMF to be Year 2000 Compliant on a timely
basis; (ii) developed a detailed plan and time line for becoming Year 2000
Compliant on a timely basis; and (iii) to date, implemented that plan in
accordance with that timetable in all material respects.
(c) BMF has made inquiry of each of its key suppliers, vendors
and customers and has obtained confirmations from all such persons as to whether
such persons have initiated programs to become Year 2000 Compliant and on the
basis of such confirmations, BMF reasonably believes that all such persons will
be or try to become so compliant or make other suitable arrangements so as not
to likely cause a material disruption of business. For purposes of this
paragraph, "key customers of BMF whose business failure would, with reasonable
probability, result in a material adverse financial change in the business,
properties, or condition of BMF.
ARTICLE FOUR
REPRESENTATIONS AND WARRANTIES OF WFC AND WSL
WFC and WSL represent and warrant to BMF that each of the following is
true and accurate in all material respects:
SECTION 4.01. ORGANIZATION AND STANDING. (a) WFC is a corporation duly
organized, validly existing and in good standing under the laws of Ohio and has
the corporate power and authority to conduct its business and operations as
presently conducted. WFC is registered as a savings and loan holding company
under the Home Owners' Loan Act.
(b) WSL is a savings and loan association duly organized,
validly existing and in good standing under the laws of Ohio; has the corporate
power and authority to conduct its business and operations as presently
conducted; and is a member of the FHLB of Cincinnati. The savings accounts and
deposits of WSL are insured up to applicable limits by the FDIC.
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(c) WFC and WSL are in compliance in all material respects
with all applicable local, state or federal laws and regulations, including,
without limitation, the regulations of the OTS.
SECTION 4.02. QUALIFICATION. WFC and WSL are either duly qualified to
do business and in good standing in each jurisdiction in which such
qualification is required or the failure to so qualify would not have a material
adverse effect on the business of WFC and WSL.
SECTION 4.03. AUTHORITY. Subject to the approval of the MERGER by the
OTS and the DIVISION, (a) WFC and WSL have all requisite corporate power and
authority to enter into this AGREEMENT and to perform their obligations
hereunder; (b) the execution and delivery of this AGREEMENT and the consummation
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action by WFC and WSL; and (c) this AGREEMENT is a valid and
binding agreement of WFC and WSL, enforceable against them in accordance with
its terms, (i) subject to applicable bankruptcy, insolvency, reorganization and
moratorium laws and other laws of general applicability affecting the
enforcement of creditors' rights generally, and the effect of rules of law
governing specific performance, injunctive relief and other equitable remedies
on the enforceability of such documents and (ii) except to the extent such
enforceability may be limited by laws relating to safety and soundness of
insured depository institutions as set forth in 12 U.S.C. Section 1818(b) or by
the appointment of a conservator by the FDIC. This AGREEMENT has been duly
executed and delivered by WFC and WSL.
SECTION 4.04. GOVERNING DOCUMENTS. WFC has made available or will
promptly make available to BMF true and accurate copies of the WFC Articles of
Incorporation, as amended, and Code of Regulations and the WSL Amended Articles
of Incorporation and Amended Constitution and has granted BMF access to all
records of all meetings and other corporate actions occurring before the
EFFECTIVE TIME by the shareholders, Board of Directors and Committees of the
Board of Directors of WFC and WSL. The minute books of WFC and WSL contain, in
all material respects, complete and accurate records of all meetings and other
corporate actions of their shareholders, Boards of Directors and Committees of
the Boards of Directors.
SECTION 4.05. NO CONFLICTS. The execution and delivery of this
AGREEMENT and, subject to the approval of the MERGER by the OTS and the
DIVISION, the consummation of the transactions contemplated hereby will not (a)
conflict with or violate any provision of or result in the breach of any
provision of the Articles of Incorporation, as amended, or Code of Regulations
of WFC or the Amended Articles of Incorporation or Amended Constitution of WSL;
(b) conflict with or violate any provision of or result in the breach or the
acceleration of or entitle any party to accelerate (whether upon or after the
giving of notice of lapse of time or both) any obligation under, or otherwise
materially affect the terms of, any mortgage, lien, lease, agreement, license,
instrument, order, arbitration award, judgment or decree to which WFC or WSL is
a party or by which WFC or WSL or their property or assets is bound; (c) require
the consent of any party to any agreement or commitment to which WFC or WSL is a
party or by which WFC or WSL or their property or assets is bound, the failure
to obtain which could, individually or in the aggregate with all the other
failures to obtain required consents, have a
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material adverse effect on the business, operations, condition (financial or
otherwise) or prospects of WFC or WSL; (d) result in the creation or imposition
of any lien, charge, pledge, security interest or other encumbrance upon any
property or assets of WFC or WSL or give rise to any meritorious cause of action
against WFC or WSL; or (e) violate or conflict with any applicable law,
ordinance, rule or regulation, including, without limitation, the rules and
regulations of the OTS, the DIVISION and/or the FDIC.
SECTION 4.06. CONSENTS. No consent, approval, order or authorization
of, or registration, declaration or filing with, any governmental authority is
required in connection with the execution and delivery of this AGREEMENT by WFC
or WSL or the consummation by WFC or WSL of the transactions contemplated
hereby, except for filings, authorizations, consents or approvals required by
the SEC, the OTS, the Ohio Secretary of State and the DIVISION.
SECTION 4.07. AUTHORIZED CAPITAL OF WFC. On the date hereof, the
authorized capital of WFC consists of (a) 5,000,000 common shares, without par
value, 4,014,304 of which are issued and outstanding and 481,000 of which are
reserved for issuance upon exercise of outstanding stock options (hereinafter
referred to as the "WINTON OPTIONS"), and (b) 2,000,000 preferred shares,
without par value, none of which is issued or outstanding. All of the
outstanding common shares of WFC are duly authorized, validly issued, fully paid
and nonassessable; were issued in full compliance with all applicable laws; and
were not issued in violation of the preemptive right of any shareholder of WFC.
WFC has no outstanding class of capital stock other than such common shares.
Except for the WINTON OPTIONS and as disclosed in writing on the date of this
AGREEMENT to BMF (hereinafter referred to as the "WFC LETTER"), there are no
outstanding subscription rights, options, conversion rights, warrants or other
agreements or commitments of any nature whatsoever (either firm or conditional)
obligating WFC to issue, deliver or sell, cause to be issued, delivered or sold,
or restricting WFC from selling any additional WFC shares, or obligating WFC to
grant, extend or enter into any such agreement or commitment.
SECTION 4.08. SEC REPORTS. WFC has delivered to BMF copies of the
following documents, each of which has been filed with the SEC (hereinafter
referred to as the "SEC FILINGS"):
(a) The WFC Annual Reports on Form 10-K for the fiscal
years ended September 30, 1997, 1996 and 1995;
(b) The Annual Reports to Shareholders for the fiscal
years ended September 30, 1997, 1996 and 1995;
(c) The Proxy Statements for use in connection with the
1998, 1997 and 1996 Annual Meetings of Shareholders;
and
(d) The Quarterly Reports on Form 10-Q for the quarters
ended December 31, 1997 and March 31 and June 30,
1998.
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The SEC FILINGS did not, as of the dates on which such reports were filed with
the SEC, contain any untrue statement of a material fact or omit any material
fact required to be stated therein or necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading.
SECTION 4.09. FINANCIAL STATEMENTS. (a) The consolidated statements of
financial condition as of September 30, 1997 and 1996, of WFC and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the three years then ended, examined and reported upon by Grant Thornton
LLP, certified public accountants, complete copies of which have previously been
delivered to BMF (hereinafter referred to as the "WFC AUDITED FINANCIALS"), have
been prepared in conformity with generally accepted accounting principles
applied on a consistent basis and fairly present the financial position of WFC
at such dates and the results of its operations and cash flows for such periods.
(b) The consolidated statement of financial condition as of
June 30, 1998, of WFC and the related consolidated statements of earnings,
shareholders' equity and cash flows for the nine months then ended, complete
copies of which have previously been delivered to BMF (hereinafter referred to
as the "WFC INTERIM FINANCIALS"), fairly present the financial position of WFC
at such date and the results of its operations and cash flows for such period
and have been prepared in accordance with generally accepted accounting
principles as applicable to condensed consolidated financial statements and as
applied on a consistent basis with the WFC AUDITED FINANCIALS. All adjustments
which are necessary for a fair statement of the WFC INTERIM FINANCIALS have been
made.
(c) Except as disclosed in the WFC INTERIM FINANCIALS, as of
June 30, 1998, WFC had no liabilities or obligations material to the business
condition (financial or otherwise) of WFC taken as a whole, whether accrued,
absolute, contingent or otherwise, and whether due or to become due.
(d) The WFC AUDITED FINANCIALS and the WFC INTERIM FINANCIALS
did not, as of the dates thereof, contain any untrue statement of a material
fact or omit to state any material fact necessary to make the information
contained therein, in light of the circumstances under which they were made, not
misleading.
SECTION 4.10. CONDUCT OF BUSINESS. Except as disclosed in the WFC
LETTER, since June 30, 1998, WFC and WSL have conducted their business only in
the ordinary and usual course and there have been no material adverse changes in
the financial condition, assets, liabilities, obligations, properties, business
or prospects of WFC and WSL.
SECTION 4.11. REPORTS AND RECORDS. WFC and WSL have filed all reports
and maintained all records required to be filed or maintained by them under
various rules and regulations of the SEC, OTS, FDIC and the DIVISION. All such
documents and reports complied in all material respects with applicable
requirements of law and regulations in effect at the time of the filing of such
documents and contained in all material respects the information required to be
stated therein. None of such documents, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or
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necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
SECTION 4.12. ACTIONS AND SUITS. Except as set forth in the SEC FILINGS
and in the WFC LETTER, there are no material actions, suits or proceedings or
investigations pending or, to the knowledge of WFC, threatened against or
affecting the business, operations or financial condition of WFC or WSL in any
court or before any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality and management of WFC and
WSL have no knowledge of any basis for any such action, suit, proceeding or
investigation. Except as set forth in the SEC FILINGS and the WFC LETTER,
neither WFC nor WSL is in default in respect of any judgment, order, writ,
injunction or decree of any court or any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality.
SECTION 4.13. PERMITS AND LICENSES. WFC and WSL have all material
permits, licenses, orders and approvals of all federal, state or local
governmental or regulatory bodies required for them to conduct their business as
presently conducted and all such material permits, licenses, orders and
approvals are in full force and effect, without the threat of suspension or
cancellation. None of such permits, licenses, orders or approvals will be
adversely affected by the consummation of the transactions contemplated by this
AGREEMENT.
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ARTICLE FIVE
COVENANTS
SECTION 5.01. CONDUCT OF BUSINESSES. From the date of this AGREEMENT
until the EFFECTIVE TIME, BMF:
(a) Except with the prior written consent of WFC, will
conduct its business only in the ordinary course, in
accordance with past practices and policies and in
compliance with all applicable statutes, rules and
regulations;
(b) Without the prior written consent of WFC, will not:
(i) Authorize the creation or issuance of,
issue, sell or dispose of, or create any
obligation to issue, sell or dispose of, any
stock, notes, bonds or other securities of
which BMF is the issuer (including, without
limitation, the grant of options under the
1997 Plan), or any obligations convertible
into or exchangeable for, any shares of its
capital stock. Without limiting the
generality of the foregoing, BMF shall not
permit any BMF common shares to be issued to
the TRUST;
(ii) Declare, set aside, pay or make any dividend
or other distribution on capital stock, or
directly or indirectly redeem, purchase or
otherwise acquire any shares or enter into
any agreement in respect to the foregoing;
provided, however, that BMF may pay a
regular quarterly cash dividend of no more
than $0.125 per share in each of the
calendar quarters ending March 31, June 30
and September 30, 1999; provided further,
however, that WFC and BMF will coordinate
such dividend in the quarter of the
EFFECTIVE TIME to prevent any shareholder of
BMF from receiving two dividends in such
quarter as a result of the MERGER;
(iii) Effect any stock split, recapitalization,
combination, exchange of shares,
readjustment or other reclassification;
(iv) Amend its Charter or Bylaws or Constitution;
(v) Purchase, sell, assign or transfer any
material tangible asset or any material
patent, trademark, trade name, copyright,
license, franchise, design or other
intangible assets or property;
(vi) Mortgage, pledge or grant or suffer to exist
any lien or other encumbrance or charge on
any assets or properties, tangible or
intangible, except for liens for taxes not
yet delinquent, assets pledged as collateral
to secure borrowings from the FHLB
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of Cincinnati and such other liens,
encumbrances or charges which do not
materially or adversely affect its financial
position;
(vii) Waive any rights of material value or cancel
any material debts or claims;
(viii) Incur any material obligation or liability
(absolute or contingent), including, without
limitation, any tax liability, or pay any
material liability or obligation (absolute
or contingent), other than liabilities and
obligations incurred in the ordinary course
of business and borrowings from the FHLB of
Cincinnati;
(ix) Cause any material adverse change in the
amount or general composition of its deposit
liabilities or its loan portfolio;
(x) Enter into or amend any employment contract
with any of its officers, increase the
compensation payable to any officer or
director or any relative of any such officer
or director, or be obligated to increase any
such compensation, adopt or amend in any
material respect any employee benefit plans,
severance plan or collective bargaining
agreement or make awards or distributions
under any employee benefit plans not
consistent with past practice or custom;
provided, however, that BMF may grant pay
raises for current BMF employees for the
1999 calendar year in an aggregate maximum
of $12,000;
(xi) Acquire any stock or other equity interest
in any corporation, partnership, trust,
joint venture or other entity;
(xii) Make any (I) material investment (except in
the ordinary course of business) or (II)
material capital expenditure or commitment
for any material addition to property,
plant, or equipment;
(xiii) Permit the allocation by the ESOP of any BMF
common shares to the accounts of
participants; or
(xiv) Agree, whether in writing or otherwise, to
take any action described in this Section
5.01.
SECTION 5.02. ACQUISITION PROPOSALS. BMF shall not, and shall cause the
officers, directors, employees and other agents of BMF not to, directly or
indirectly, take any action to solicit, initiate, engage or negotiate any
proposals or offers from any person or entity, other than WFC, or discuss or
negotiate with any such person or entity, other than WFC, any acquisition or
purchase of all or a material amount of the assets of, any equity securities of,
or any merger, consolidation or business combination with, BMF (hereinafter
collectively referred to as "ACQUISITION TRANSACTIONS"); provided, however, that
nothing contained in this Section
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5.02 shall prohibit BMF from furnishing information to, or entering into
discussions or negotiations with, any person or entity which makes an
unsolicited proposal of an ACQUISITION TRANSACTION if and to the extent that (a)
the Board of Directors of BMF, after consultation with and based upon the
written advice of counsel, determines in good faith that such action is required
to fulfill its fiduciary duties to the shareholders of BMF under applicable law
and (b) before furnishing such information to, or entering into discussions or
negotiations with, such person or entity, BMF provides immediate written notice
to WFC of such action.
SECTION 5.03. ACCOUNTING POLICIES. Before the EFFECTIVE TIME and at the
request of WFC, BMF shall promptly establish and take such reserves and accruals
to conform the loan, accrual and reserve policies of BMF to WSL's policies;
shall promptly establish and take such accruals, reserves and charges in order
to implement such policies in respect of excess facilities and equipment
capacity, severance costs, litigation matters, write-off or write-down of
various assets and other appropriate accounting adjustments; and shall promptly
recognize for financial accounting purposes such expenses of the MERGER and
restructuring charges related to or to be incurred in connection with the
MERGER, to the extent permitted by law and consistent with generally accepted
accounting principles.
ARTICLE SIX
FURTHER AGREEMENTS
SECTION 6.01. APPLICATION FOR APPROVAL OF MERGER. As soon as
practicable after the date of this AGREEMENT, WFC and BMF shall submit to the
OTS and the DIVISION such documents as are required by the OTS and the DIVISION
to be filed in connection with or related to the MERGER.
SECTION 6.02. REGISTRATION STATEMENT. (a) WFC shall, as soon as
reasonably practicable, prepare in accordance with the Securities Act of 1933,
as amended (hereinafter referred to as the "ACT"), and file with the SEC a
Registration Statement in respect of the WFC common shares to be issued to the
holders of BMF common shares in accordance with ARTICLE TWO of this AGREEMENT
(hereinafter referred to as the "REGISTRATION STATEMENT"), and shall use all
reasonable efforts to have the REGISTRATION STATEMENT, as amended, declared
effective by the SEC as promptly as practicable.
(b) The information included in the REGISTRATION STATEMENT in
respect of WFC or WSL will not, at the time the REGISTRATION STATEMENT becomes
effective, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading.
(c) Within five days before the effective date of the
REGISTRATION STATEMENT and within five days before the CLOSING, BMF shall cause
its certified independent accountants to issue to WFC, and WFC shall cause its
certified independent accountants to issue to BMF, a letter in form and
substance satisfactory to BMF and WFC and in
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relation to the audited and unaudited financial and statistical information set
forth in the REGISTRATION STATEMENT.
SECTION 6.03. AFFILIATES COMPLIANCE WITH THE SECURITIES ACT. (a) Within
30 days after the date of this AGREEMENT, BMF shall identify to WFC all persons
whom BMF reasonably believes to be "affiliates," as defined in paragraphs (c)
and (d) of Rule 145 under the ACT (hereinafter referred to as the "AFFILIATES").
Thereafter and until the EFFECTIVE TIME, BMF shall identify to WFC each
additional person whom it reasonably believes to have thereafter become its
AFFILIATE.
(b) BMF shall cause each person who is identified as an
AFFILIATE to deliver to WFC before the EFFECTIVE DATE a written agreement in the
form of the written agreement attached hereto as Exhibit C in which such
AFFILIATE confirms that the WFC common shares received by such AFFILIATE in the
MERGER shall not be transferable until the expiration of the time period
specified in Section 201.01 of the Codification of Financial Reporting Policies
of the SEC.
SECTION 6.04. SPECIAL MEETING OF SHAREHOLDERS. BMF shall take all steps
necessary to duly call, give notice of, convene and hold a meeting of its
shareholders for the purpose of voting upon the AGREEMENT and the transactions
contemplated hereby, including the MERGER. BMF shall use its reasonable efforts
to hold such meetings as soon as practicable following the date of this
AGREEMENT. The Board of Directors of BMF shall (i) recommend to the shareholders
in the PROXY STATEMENT the approval of this AGREEMENT and the transactions
contemplated hereby, including the MERGER, and the other matters to be submitted
to the shareholders in connection therewith and (ii) use their reasonable
efforts to obtain the necessary approvals by the shareholders of this AGREEMENT,
any amendments hereto, and the transactions contemplated hereby, including the
MERGER.
SECTION 6.05. ACCESS. Until the EFFECTIVE TIME, BMF shall afford to
WFC, and WFC shall afford to BMF, and to their respective officers and
representatives (including, without limitation, counsel, financial advisers and
independent accountants), reasonable access to their properties, personnel,
books, records and affairs. Each party shall furnish the other party with such
additional financial and operating data and other information as to its
businesses and properties as may be reasonably requested. Such access shall
include, but shall not be limited to, (i) permitting verification, by audit or
otherwise, of any representation or warranty made hereunder; (ii) authorizing
release of any information (including the work papers of such independent
auditors) and financial consultants; (iii) consistent with applicable
regulations or procedures, furnishing regular and special examination reports
since the date of this AGREEMENT to the EFFECTIVE TIME; and (iv) delivering
copies of all documents or reports or correspondence filed and any
correspondence with any federal regulatory or supervisory agency from the date
of this AGREEMENT until the EFFECTIVE TIME.
SECTION 6.06. DISSOLUTION OF CSC. On or before the date of the
dissemination of the PROXY STATEMENT, BMF shall dissolve CSC and wind up the
business of CSC in accordance with Chapter 1701 of the ORC.
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SECTION 6.07. CONFIDENTIALITY. BMF, WFC and WSL shall hold confidential
any information obtained hereunder which is not otherwise public knowledge or
ascertainable from public information and all non-public documents (including
copies thereof) obtained hereunder by either party from the other party shall be
returned to such party.
SECTION 6.08. PRESS RELEASES. WFC and BMF shall consult with each other
before issuing any press release or otherwise making any public statements with
respect to the MERGER and shall not issue any such press release or make any
such public statement without obtaining the prior consent of the other party,
except as may be required by law or by obligations pursuant to any listing
agreement with any national securities association.
SECTION 6.09. COSTS, EXPENSES AND FEES. (a) Subject to paragraph (b) of
this Section 6.09, whether or not the MERGER is consummated, all costs and
expenses incurred in connection with this AGREEMENT, the PROXY STATEMENT, the
REGISTRATION STATEMENT and the transactions contemplated hereby shall be paid by
the party incurring such costs and expenses.
(b) In the event that BMF accepts in any manner an ACQUISITION
TRANSACTION at any time before March 31, 2000, BMF shall pay to WFC a fee of
$200,000 in immediately available federal funds upon the execution of any
agreement in respect of an ACQUISITION TRANSACTION.
SECTION 6.10. REASONABLE EFFORTS. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use all reasonable efforts
to take, or cause to be taken, all action, and to do or cause to be done all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this AGREEMENT.
SECTION 6.11. NOTIFICATION OF EVENTS. At all times from the date of
this AGREEMENT until the EFFECTIVE TIME, each party shall promptly notify the
other in writing of any adverse business conditions threatening its normal
business operations or of the occurrence of any event or the failure of any
event to occur which might result in a breach of or a failure to comply with any
representation, warranty, covenant, condition or agreement contained in this
AGREEMENT or of the commencement of any action, suit, proceeding, or
investigation against it.
SECTION 6.12. INDEMNIFICATION. (a) For a period of three years after
the EFFECTIVE TIME, WFC shall indemnify persons who served as directors and
officers of BMF on or before the EFFECTIVE TIME to the fullest extent permitted
under the Articles of Incorporation, as amended, and Code of Regulations of WFC
and applicable provisions of Ohio law. Any such indemnification shall be made by
WFC only as authorized in a specific case upon a determination by WFC's Board of
Directors that the applicable standard of conduct under the Articles of
Incorporation, as amended, and Code of Regulations of WFC and applicable
provisions of Ohio law has been met and that such indemnification is permissible
under applicable law. As a condition to receiving such indemnification, the
party claiming indemnification shall assign to WFC, by separate writing, all
right, title and interest in and to the proceeds of the claiming party's
applicable insurance coverage, if any, including insurance
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maintained or provided by BMF or WFC, to the extent of such indemnity. No person
shall be entitled to such indemnification who shall (i) fail to cooperate in the
defense and investigation of any claims as to which indemnification may be made,
(ii) make, or who shall be a general partner, executive officer, director,
trustee, beneficiary or person in control of any partnership, corporation, trust
or other enterprise that shall make, any claim against BMF, WFC or WSL or any
stockholder, director, officer, employee, or agent of any thereof, in any
action, suit or proceeding arising out of or in connection with this AGREEMENT,
the transactions contemplated hereby or the conduct of the business of WFC, WSL
or BMF or (iii) fail to deliver such notices as may be required under any
applicable directors and officers liability insurance policy to preserve any
possible claims of which the claiming party is aware.
(b) WFC shall, at its discretion, either (i) pay up to a
maximum of $10,000 to obtain directors' and officers' liability insurance in the
policy amount of $1,000,000 for the officers and directors of BMF to take effect
at the EFFECTIVE TIME and for a period of three years thereafter (provided,
however, that in the event the cost of such insurance exceeds $10,000, the
officers and directors of BMF may elect to pay the amount in excess of such
$10,000) or (ii) have each of the officers and directors of BMF covered as an
insured under WFC's directors' and officers' liability insurance for acts
committed prior to the EFFECTIVE TIME for a period of six years after the
EFFECTIVE TIME (provided that such insurance is in a policy amount of at least
$2,000,000).
SECTION 6.13. LIQUIDATION ACCOUNT. The MERGER shall have
no effect upon the BMF Liquidation Account which shall be assumed by
WSL at the EFFECTIVE TIME in accordance with 12 C.F.R. Section 563b.3(j).
ARTICLE SEVEN
CLOSING MATTERS
SECTION 7.01. CONDITIONS TO OBLIGATIONS OF WFC, WSL AND BMF.
Notwithstanding any other provision of this AGREEMENT, the obligations of WFC,
WSL and BMF to effect the MERGER shall be subject to the fulfillment of each of
the following conditions:
(a) This AGREEMENT shall have been validly adopted by the
affirmative vote of the holders of at least the
number of outstanding BMF shares required under
federal law and the BMF Charter and Bylaws to adopt
such agreements;
(b) All permits, approvals, consents, authorizations,
exemptions or waivers of any federal or state
governmental body or agency necessary or appropriate
for consummation of the MERGER shall have been
obtained;
(c) All waivers, consents and approval of every person,
in addition to those required under subsections (a)
and (b) of this Section 7.01, necessary or
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appropriate for the consummation of the MERGER shall
have been obtained;
(d) BMF shall have received a written opinion of WEBB,
dated the date of this AGREEMENT, to the effect that
the EXCHANGE RATE is fair to the holders of the BMF
common shares from a financial point of view;
(e) There shall not be in effect an order or decision of
a court of competent jurisdiction which prevents or
materially delays the consummation of the MERGER;
(f) There shall not be in effect any federal or state
law, rule or regulation which prevents or materially
delays consummation of the MERGER;
(g) WFC and BMF shall have received an opinion of counsel
to the effect that the MERGER, when consummated in
accordance with the terms hereof, will constitute a
reorganization within the meaning of Section 368(a)
of the CODE; and
(h) The REGISTRATION STATEMENT (including any
post-effective amendment thereto) shall be effective
under the ACT and no proceeding shall be pending or,
to the knowledge of WFC, threatened by the SEC to
suspend the effectiveness of the REGISTRATION
STATEMENT.
SECTION 7.02. CONDITIONS TO OBLIGATIONS OF WFC AND WSL. In addition to
the conditions contained in Section 7.01 of this AGREEMENT, the obligations of
WFC and WSL to effect the MERGER shall also be subject to the fulfillment of
each of the following conditions:
(a) The representations and warranties of BMF contained
in Article Three of this AGREEMENT shall be true in
all material respects at and as of the date hereof
and at and as of the EFFECTIVE TIME as if made at and
as of such time;
(b) BMF shall have duly performed and complied in all
material respects with all agreements, covenants and
conditions required by this AGREEMENT to be performed
or complied with by it before or at the EFFECTIVE
TIME;
(c) There shall not have been a material adverse change
in the financial condition, assets, liabilities,
obligations, properties, business or prospects of BMF
after the date of this AGREEMENT, except changes
resulting from action taken by BMF pursuant to
Section 5.03 of this AGREEMENT;
(d) The consolidated shareholders' equity of BMF at the
EFFECTIVE TIME and as calculated in accordance with
generally accepted accounting
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principles shall not be less than $3,497,000,
exclusive of up to $130,000 in expenses recognized by
BMF in connection with the MERGER and exclusive of
reserves, accruals and charges taken or established
by BMF at the request of WFC in accordance with
Section 5.03 of this AGREEMENT;
(e) CSC shall have been dissolved and the CSC business
wound up;
(f) BMF shall not have incurred any damage, destruction
or similar loss, not covered by insurance, materially
affecting its businesses or properties;
(g) The holders of not more than 5% of the BMF common
shares shall have delivered a written demand for
appraisal of such shares in the manner provided in
Section 2.06 of this AGREEMENT;
(h) BMF shall have delivered to WFC a certificate dated
the EFFECTIVE TIME and signed by the President and
Treasurer of BMF to the effect set forth in
subsections (a), (b), (c), (d), (e), (f) and (g) of
this Section 7.02;
(i) WFC shall have received a written opinion of McDonald
Investment Inc., dated the date of this AGREEMENT and
the date of the PROXY STATEMENT, to the effect that,
as of such dates, the EXCHANGE RATE is fair to the
holders of WFC common shares from a financial point
of view;
(j) WFC shall have received an opinion of BMF's counsel
dated the date of the EFFECTIVE TIME and to the
effect set forth in the form attached hereto as
Exhibit D;
(k) BMF shall have obtained all consents, authorizations
or approvals of, or exemptions or waivers by, any
federal or state governmental body or agency required
to be obtained by it in connection with the MERGER or
the taking of any action contemplated hereby;
(l) There shall not be any action or proceeding commenced
by or before any court or governmental agency or
authority in the United States, or threatened by any
governmental agency or authority in the United
States, that challenges or seeks to prevent or delay
the consummation of the MERGER or seeks to impose
material limitations on the ability of WFC or WSL to
exercise full rights of ownership of the assets or
business of BMF;
(m) There shall not have been proposed, nor shall there
be in effect, any federal or state law, rule,
regulation, order or statement of policy that, in the
reasonable judgment of WFC, would: (i) prevent or
delay the consummation of the MERGER or interfere
with the reasonable operation of the business of BMF,
(ii) materially adversely affect the ability of WFC
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to enjoy the economic or other benefits of the
MERGER; or (iii) impose any material adverse
condition, limitation or requirement on WFC in
connection with the MERGER;
(n) WFC shall have received the advice of Grant Thornton
LLP that the MERGER will qualify for the pooling of
interests method of accounting; and
(o) BMF shall have obtained all consents to, or
authorizations or approvals of, the transactions
contemplated by this AGREEMENT of any party to any
contract, obligation, lease or other agreement to
which BMF is a party and which requires such consent,
authorization or approval.
SECTION 7.03. CONDITIONS TO OBLIGATIONS OF BMF. In addition to the
conditions contained in Section 7.01 of this AGREEMENT, the obligation of BMF to
effect the MERGER shall also be subject to the fulfillment of each of the
following conditions:
(a) The representations and warranties of WFC and WSL
contained in Article Four of this AGREEMENT shall be
true in all material respects at and as of the date
hereof and as of the EFFECTIVE TIME as if made at and
as of such time, except to the extent that such
representations and warranties are made as of a
specific date;
(b) WFC and WSL shall have duly performed and complied in
all material respects with all agreements, covenants
and conditions required by this AGREEMENT to be
performed or complied with by them before or at the
EFFECTIVE TIME;
(c) There shall not have been a material adverse change
in the financial condition, assets, liabilities,
obligations, properties, business or prospects of WFC
and WSL after the date of this AGREEMENT;
(d) WFC and WSL shall have delivered to BMF a certificate
dated the EFFECTIVE TIME and signed by the Chairman
and the President of WFC and WSL to the effect set
forth in subsections (a), (b) and (c) of this Section
7.03;
(e) BMF shall have received an opinion of WFC's counsel
dated the date of the EFFECTIVE TIME and to the
effect set forth in the form attached hereto as
Exhibit E;
(f) WFC shall have obtained all consents, authorizations
or approvals of, or exemptions or waivers by any
federal or state governmental body or agency required
to be obtained by it in connection with the MERGER or
the taking of any action contemplated thereby;
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(g) WFC shall not have incurred any damage, destruction
or similar loss, not covered by insurance, materials
affecting its business or properties;
(h) There shall not be any action or proceeding commenced
by or before any court or governmental agency or
authority in the United States, or threatened by any
governmental agency or authority in the United
States, that challenges or seeks to prevent or delay
the consummation of the MERGER; and
(i) The average of the closing sales prices of WFC on the
American Stock Exchange during the twenty trading
days ending five trading days before the CLOSING
shall not be less than $10.50.
ARTICLE EIGHT
TERMINATION
SECTION 8.01. TERMINATION. This AGREEMENT may be terminated at any time
prior to the EFFECTIVE TIME, whether before or after approval by the
shareholders of BMF:
(a) By mutual consent of the Boards of Directors of BMF
and WFC; or
(b) By the Board of Directors of BMF or WFC if:
(i) The MERGER shall not have been consummated
on or before September 30, 1999; or
(ii) Any event occurs which, in the reasonable
opinion of either Board, would preclude
satisfaction of any of the conditions set
forth in Section 7.01 of this AGREEMENT; or
(c) By the Board of Directors of WFC if any event occurs
which, in the reasonable opinion of such Board, would
preclude compliance with any of the conditions set
forth in Section 7.02 of this AGREEMENT; or
(d) By the Board of Directors of BMF if any event occurs
which, in the reasonable opinion of such Board, would
preclude compliance with any of the conditions set
forth in Section 7.03 of this AGREEMENT.
SECTION 8.02. WRITTEN NOTICE OF TERMINATION. In order to terminate this
AGREEMENT pursuant to Section 8.01 of this AGREEMENT, the party so acting shall
give written notice of such termination to the other party. This AGREEMENT shall
terminate on the date such notice is given.
SECTION 8.03. EFFECT OF TERMINATION. In the event of the termination of
this AGREEMENT, the provisions of this AGREEMENT shall become void and have no
effect;
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provided, however, that (a) the provisions set forth in Sections 6.07 and 6.09
of this AGREEMENT shall survive such termination and shall remain in full force
and effect and (b) a termination of this AGREEMENT shall not affect the
liability of any party for an uncured and material breach of any term or
condition of this AGREEMENT.
SECTION 8.04. AMENDMENT. This AGREEMENT may only be amended by the
unanimous consent of WFC, WSL and BMF by action taken by their respective Boards
of Directors, at any time before or after approval of this AGREEMENT by the
shareholders of BMF, but after such approval no amendment shall be made which
materially and adversely affects the rights of such shareholders without the
further approval of such shareholders. This AGREEMENT may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto.
SECTION 8.05. WAIVER. Any termor provision of this AGREEMENT (other
than the requirement for shareholder approval) may be waived in writing at any
time by the party which is, or whose shareholders are, entitled to the benefits
thereof.
ARTICLE NINE
MISCELLANEOUS
SECTION 9.01. SURVIVAL OF REPRESENTATIONS AND Warranties. All
representations, warranties and covenants in this AGREEMENT shall expire on, and
be terminated and extinguished at, the EFFECTIVE TIME, other than covenants
which by their terms are to survive or be performed after the EFFECTIVE TIME;
provided, however, that no such representations, warranties or covenants shall
be deemed to be terminated or extinguished so as to deprive WFC or WSL (or any
director, officer or controlling person thereof) of any defense in law or equity
which otherwise would be available against the claims of any person, including,
without limitation, any shareholder or former shareholder of either WFC or BMF.
SECTION 9.03. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or mailed
by registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
If addressed to WFC or WSL:
Robert L. Bollin
President
Winton Financial Corporation
5511 Cheviot Road
Cincinnati, Ohio 45247
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If addressed to BMF:
Robin C. McNulty
President
BenchMark Federal Savings Bank
8670 Winton Road
Cincinnati, OH 45231-4935
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with a copy to:
Douglas L. Westendorf, Esq.
Wood & Lamping
2500 Cincinnati Commerce Center
600 Vine Street
Cincinnati, OH 45202-2409
SECTION 9.04. ENTIRE AGREEMENT. This AGREEMENT (including the exhibits,
documents and instruments referred to herein or therein) (a) constitutes the
entire agreement and supersedes all other prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof; (b) is not intended to and shall not confer any rights or
remedies hereunder upon any person other than WFC, WSC or BMF; (c) shall not be
assigned by operation of law or otherwise; and (d) shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of Ohio.
SECTION 9.05. EXECUTION IN COUNTERPARTS. This AGREEMENT may be executed
in two or more counterparts which together shall constitute a single AGREEMENT.
SECTION 9.06. HEADINGS. The headings of articles and sections herein
are for convenience of reference only, do not constitute a part of this
AGREEMENT and shall not be deemed to limit or affect any of the provisions
hereof.
39
<PAGE> 137
IN WITNESS WHEREOF, WFC, WSL and BMF have caused this AGREEMENT to be
signed by their respective duly authorized officers on the date first above
written.
ATTEST: WINTON FINANCIAL CORPORATION
/s/ James W. Brigger By: /s/ Robert L. Bollin
- -------------------------- ----------------------------
Secretary Robert L. Bollin
its President
ATTEST: THE WINTON SAVINGS AND LOAN CO.
/s/ James W. Brigger By: /s/ Robert L. Bollin
- -------------------------- ----------------------------
Secretary Robert L. Bollin
its President
ATTEST: BENCHMARK FEDERAL SAVINGS BANK
/s/ Anthony Schement By: /s/ Robin C. McNulty
- -------------------------- ----------------------------
Secretary Robin C. McNulty
its President
40
<PAGE> 138
ACKNOWLEDGMENT
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
BE IT REMEMBERED that on this 4th day of December, 1998, personally
came before me, a Notary Public in and for the State and County aforesaid,
Robert L. Bollin, President of Winton Financial Corporation, a savings and loan
holding company incorporated under the laws of Ohio, and duly executed the
Agreement and Plan of Reorganization before me and acknowledged the same to be
his act and deed and the act and deed of said Corporation and that the facts
therein are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 4th day
of December, 1998.
/s/ Douglas L. Westendorf
-----------------------------------
Notary Public
BE IT REMEMBERED that on this 4th day of December, 1998, personally
came before me, a Notary Public in and for the State and County aforesaid,
Robert L. Bollin, President of Winton Savings and Loan Co., a savings and loan
association incorporated under the laws of Ohio, and duly executed the Agreement
and Plan of Reorganization before me and acknowledged the same to be his act and
deed and the act and deed of said Corporation and that the facts therein are
true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 4th day
of December, 1998.
/s/ Douglas L. Westendorf
-----------------------------------
Notary Public
BE IT REMEMBERED that on this 4th day of December, 1998, personally
came before me, a Notary Public in and for the State and County aforesaid, Robin
C. McNulty, President of BenchMark Federal Savings Bank, a savings bank
incorporated under the laws of the United States, and duly executed the
Agreement and Plan of Reorganization before me and acknowledged the same to be
his act and deed and the act and deed of said Corporation and that the facts
therein are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 4th day
of December, 1998.
/s/ Douglas L. Westendorf
-----------------------------------
Notary Public
41
<PAGE> 139
EXHIBITS A, B, C, D, AND E OMITTED
42
<PAGE> 140
Annex B
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT (hereinafter referred to as the
"AGREEMENT"), made and entered into this 4th day of December, 1998, by and
between Winton Financial Corporation, an Ohio corporation (hereinafter referred
to as "WFC"), and BenchMark Federal Savings bank, a federal savings bank
(hereinafter referred to as "BMF");
WITNESSETH:
Whereas, BMF and WFC are in the process of negotiating a definitive
agreement in respect of the merger of BMF with and into a wholly owned
subsidiary of WFC; and
Whereas, as an inducement for BMF and WFC to complete such process, BMF
and WFC desire that BMF grant an option to WFC for the purchase of BMF common
shares upon the terms and subject to the conditions of this AGREEMENT;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, WFC and BMF, intending to be
legally bound, hereby agree as follows:
1. Definitions. As used in this AGREEMENT, the following terms shall
have the corresponding meaning:
(a) "Applicable Price" shall mean the higher of (i) the highest
price per share of BMF Common Shares paid for any such share
by the person or groups described in a Purchase Event or (ii)
the price per share of BMF Common Shares received by holders
of BMF Common Shares in connection with any merger or other
business combination transaction which is a Purchase Event;
provided, however, that in the event of a sale of less than
all of BMF's assets, the Applicable Price shall be the sum of
the price paid in such sale for such assets and the current
market value of the remaining assets of BMF, as determined by
a nationally recognized investment banking firm selected by
WFC, divided by the number of shares of BMF Common Shares
outstanding at the time of such sale. In the event that the
consideration offered, paid or received pursuant to either of
the foregoing clauses (i) or (ii) shall be other than in cash,
the value of such consideration shall be determined in good
faith by an independent nationally recognized investment
banking firm selected by WFC and reasonably acceptable to BMF,
which determination shall be conclusive for all purposes of
this Agreement.
(b) "BMF Common Shares" shall mean the Common Shares, $1.00 per
value per share, of BMF.
<PAGE> 141
(c) "Burdensome Condition" shall mean, in connection with the
grant of a requisite regulatory approval or otherwise, the
imposition by a governmental entity of any condition or
restriction upon the party which would reasonably be expected
to either (i) have a material adverse effect after the
effective time of the Merger Agreement on the present or
prospective consolidated financial condition, business or
operating results of the party or (ii) prevent WFC from
realizing the economic benefits of the transaction
contemplated by the Merger Agreement that they currently
anticipate obtaining.
(d) "CLOSING" shall mean the closing of the exercise of the OPTION
in accordance with Section 3(b) of this AGREEMENT.
(e) "Commission" shall mean the Securities and Exchange
Commission.
(f) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(g) "EXERCISE PERIOD" shall mean the period during which the
OPTION is exercisable in accordance with Section 3(c) of this
AGREEMENT.
(h) "Merger Agreement" shall mean the Agreement and Plan of
Reorganization pursuant to which BMF intends to merge into a
wholly owned subsidiary of WFC, as fully executed.
(i) "Option" shall mean the option granted by BMF under this
Agreement.
(j) "Person" shall have the meanings specified in Sections 3(a)(9)
and 13(d)(3) of the Exchange Act.
(k) "Purchase Event" shall mean any of the following events or
transactions occurring after the date of this AGREEMENT with
respect to BMF:
(i) BMF, without having received WFC's prior written
consent, shall have entered into an agreement with
any person (I) to merge, consolidate or enter into
any similar transaction, (II) to purchase, lease or
otherwise acquire all or substantially all of the
assets of BMF, or (III) to purchase or otherwise
acquire (including by way of merger, consolidation,
share exchange or any similar transaction) securities
representing 20% or more of the voting power of BMF;
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<PAGE> 142
(ii) Any person (other than BMF in a fiduciary capacity or
WFC in a fiduciary capacity) shall have acquired
beneficial ownership or the right to acquire
beneficial ownership of 20% or more of the
outstanding BMF Common Shares after the date of this
Agreement (the term "beneficial ownership" for
purposes of this Agreement having the meaning
assigned thereto in Section 13(d) of the Exchange Act
and the regulations promulgated thereunder);
(iii) Any person shall have made a Takeover Proposal to BMF
by public announcement or written communication which
is or becomes the subject of public disclosure; or
(iv) In the event of a TAKEOVER PROPOSAL, BMF shall have
breached the Merger Agreement before or after such
Takeover Proposal, which breach would entitle WFC to
terminate the Merger Agreement (without regard to the
cure periods provided for therein) and such breach
shall not have been cured.
If more than one of the transactions giving rise to a Purchase
Event under this Agreement is undertaken or effected, then all
such transactions shall be deemed to give rise only to one
Purchase Event with respect to the Option, which Purchase
Event shall be deemed continuing for all purposes hereunder
until all such transactions are abandoned.
(l) "Repurchase Event" shall mean the event which occurs when (i)
any person (other than WFC or any subsidiary of WFC) shall
have acquired actual ownership or control, or any "group" (as
such term is defined under the Exchange Act) shall have been
formed which group shall have acquired actual ownership or
control, of 50% or more of the then outstanding shares of BMF
Common Shares, or (ii) any Purchase Event shall have been
consummated.
(m) "Takeover Proposal" shall mean any tender or exchange offer,
proposal for a merger, consolidation or other business
combination involving BMF or any proposal or offer to acquire
in any manner 20% or more of the outstanding shares of any
class of voting securities, or 15% or more of the consolidated
assets, of BMF, other than the transactions contemplated by
this AGREEMENT. If BMF receives an unsolicited Takeover
Proposal, BMF shall notify WFC as soon as possible of the
receipt of such TAKEOVER PROPOSAL.
3
<PAGE> 143
2. Grant of Option. Upon the terms and subject to the conditions of
this AGREEMENT, BMF hereby grants to WFC an irrevocable option to purchase up to
19.9% of the outstanding BMF Common Shares at an exercise price of $38.50 per
share payable in cash as provided in Section 4; provided, however that in the
event BMF issues or agrees to issue any BMF Common Shares (other than as
permitted under the MERGER AGREEMENT) at a price less than the exercise price
per share set forth in this section (as adjusted pursuant to Section 6), the
respective exercise price shall be such lesser price.
3. Exercise of Option.
(a) Upon the occurrence of a PURCHASE EVENT, WFC may exercise
the Option, in whole or part, at any time or from time to time during the
EXERCISE PERIOD; provided, however, that, to the extent the OPTION shall not
have been exercised, the OPTION shall terminate and be of no further force or
effect (i) on the effective date of the merger as set forth in the MERGER
AGREEMENT or (ii) upon the termination of the MERGER AGREEMENT in accordance
with the provisions thereof, other than a termination on the basis of a breach
by BMF of the MERGER AGREEMENT or on the basis of the failure of BMF's
shareholders to approve the MERGER AGREEMENT after the occurrence of a PURCHASE
EVENT by the vote required under applicable law or under the BMF Charter. Any
exercise of an OPTION shall be subject to compliance with applicable provisions
of law.
(b) In the event that WFC desires to exercise the OPTION, WFC
shall send to BMF a written notice specifying (i) the total number of shares WFC
will purchase pursuant to such exercise and (ii) a place and date for the
CLOSING of such purchase. The date of such purchase shall not be earlier than
three business days, nor later than 60 business days, after the date of such
notice. In the event that prior notification to, or approval of, any federal or
state regulatory agency is required in connection with such purchase, WFC shall
promptly file the required notice or application for approval and shall
expeditiously process the same and the period of time that otherwise would run
pursuant to this section shall run instead from the date on which any required
notification period has expired or been terminated or any requisite approval has
been obtained and any requisite waiting period shall have passed.
(c) The EXERCISE PERIOD shall commence upon the occurrence of
a PURCHASE EVENT and shall end on the date upon which this AGREEMENT terminates.
4. Payment and Delivery of Certificates.
(a) At the CLOSING, WFC shall pay to BMF the aggregate
purchase price for the BMF Common Shares purchased pursuant to the exercise of
the OPTION in immediately available funds by a wire transfer to a bank account
designated by BMF.
(b) At the CLOSING, simultaneously with the delivery of funds
as provided in Section 4(a), BMF shall deliver to WFC a certificate or
certificates evidencing the number of BMF Common Shares purchased by WFC and WFC
shall deliver to BMF a letter agreeing that WFC will not offer to sell or
otherwise dispose of such shares in violation of applicable law or the
provisions of this AGREEMENT.
4
<PAGE> 144
(c) Certificates for BMF Common Shares delivered at a closing
hereunder shall be endorsed with a restrictive legend which shall read
substantially as follows:
The transfer of the shares represented by this certificate is
subject to certain provisions of a Stock Option Agreement
dated _______, 1998, between the registered holder hereof and
BMF (a copy of which agreement is on file at the principal
office of BMF). A copy of such agreement will be provided to
the holder hereof without charge within five days after
receipt by BMF of a written request therefor. The shares
evidenced by this certificate may not be sold, pledged,
transferred or hypothecated unless they are covered by an
offering circular in accordance with applicable law and
regulations of the Office of Thrift Supervision (the "OTS") or
unless such sale, pledge, transfer or hypothecation is, in the
opinion of counsel reasonably satisfactory to BMF, exempt
under applicable law and OTS regulation.
5. Representations. BMF represents, warrants and covenants to WFC as
follows:
(a) BMF has, and shall at all times maintain, sufficient
authorized but unissued BMF Common Shares so that the OPTION may be exercised
without authorization of additional shares of BMF Common Shares.
(b) The shares to be issued upon exercise, in whole or in
part, of the Option, when paid for as provided herein, will be duly authorized,
validly issued, fully paid and nonassessable.
(c) BMF has full corporate power and authority to execute,
deliver and perform this AGREEMENT and all corporate action necessary for
execution, delivery and performance of this AGREEMENT has been duly taken by
BMF.
(d) Neither the execution and delivery of this AGREEMENT, nor
the consummation of the transactions contemplated hereby (assuming all
appropriate shareholder and regulatory approvals), will violate or result in any
violation of or be in conflict with or constitute a default under any term of
the Charter or Bylaws of BMF or any agreement, instrument, judgment, decree,
statute, rule or order applicable to BMF.
6. Adjustment Upon Changes in Capitalization.
In the event of any change in BMF Common Shares by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations, reverse stock
split, recombinations, reclassifications, exchanges of shares or the like, the
type and number of shares subject to the Option, and the purchase price per
share shall be adjusted appropriately. BMF agrees that, in the event that any
additional BMF Common Shares are issued or otherwise become outstanding after
the date of this AGREEMENT (other than pursuant to this AGREEMENT), the number
of BMF Common Shares subject to the OPTION shall be adjusted so that, after such
issuance, such
5
<PAGE> 145
number equals the same percentage (as that on the date of this AGREEMENT) of the
number of BMF Common Shares then issued and outstanding without giving effect to
any shares subject to or issued pursuant to the OPTION. Nothing contained in
this Section 6 shall be deemed to authorize BMF to breach any provision of the
MERGER AGREEMENT.
7. Registration Rights.
If requested by WFC after exercise of the OPTION, BMF shall as
expeditiously as possible take any action necessary, including, but not limited
to, filing any applicable document with regulatory agencies, in order to permit
the sale or other disposition of the shares of BMF Common Shares acquired upon
exercise of the OPTION in accordance with the intended method of sale or other
disposition requested by WFC. WFC shall provide all information reasonably
requested by BMF for inclusion in any such document, including any offering
circular required under Part 563g of the Regulations of the Office of Thrift
Supervision. BMF will use its best efforts to cause such document first to
become effective and then to remain effective for such period not in excess of
270 days from the day such document first becomes effective as may be reasonably
necessary to effect such sales or other dispositions. The first filing effected
under this Section 7 shall be at BMF's expense, except for underwriting
commissions and the fees and disbursements of WFC's counsel attributable to the
preparation of any document in respect of such BMF Common Shares. A second
filing may be requested hereunder at WFC's expense. In no event shall BMF be
required to effect more than two filings. The filing of any document hereunder
may be delayed for such period of time as may reasonably be required to
facilitate any public distribution by BMF Common Shares or for up to 90 days if
BMF's Board of Directors determines that such delay is reasonably necessary to
avoid disruption of the BMF's affairs. If requested by WFC, BMF will become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in such
underwriting agreements in respect of issuers of shares being sold by a selling
shareholder. Upon receiving any request from WFC or permitted assignee thereof
under this Section 7, BMF agrees to send a copy of any document, including any
offering circular and any amendment thereunto, to WFC and to any permitted
assignee thereof known to BMF, in each case by promptly mailing the same,
postage prepaid, to the address of record of the persons entitled to receive
such copies.
8. Repurchase at the Option of WFC.
(a) At the request of WFC at any time commencing upon the
first occurrence of a REPURCHASE EVENT and ending 12 months immediately
thereafter, BMF shall repurchase from WFC (i) the OPTION and/or (ii) BMF Common
Shares purchased by WFC pursuant hereto with respect to which WFC then has
beneficial ownership. Such repurchase shall be at an aggregate price equal to
the greater of the following:
(i) The sum of:
(I) For BMF Common Shares acquired pursuant
to the OPTION, the product of the number of
such shares, multiplied by the APPLICABLE
PRICE;
6
<PAGE> 146
(II) For BMF Common Shares subject to an
unexercised OPTION, the difference between
(x) the product of the number of such
shares, multiplied by the APPLICABLE PRICE,
less (y) the product of the number of such
shares, multiplied by the per share exercise
price of the OPTION (subject to adjustment
under Section 6); and
(III) For BMF Common Shares as to which the
OPTION has been exercised, but the CLOSING
has not occurred, the difference between (x)
the product of the number of such shares,
multiplied by the APPLICABLE PRICE, less (y)
the product of the number of such shares,
multiplied by the per share exercise price
of the OPTION (subject to adjustment
pursuant to Section 6).
OR
(ii) $150,000.
(b) If WFC exercises its rights under this section, BMF shall,
within 10 business days after such exercise, pay the amount calculated in
accordance with Section 8(a) to WFC in immediately available funds and,
contemporaneously with such payment, WFC shall surrender to BMF the OPTION and
the certificates evidencing BMF Common Shares purchased thereunder with respect
to which WFC then has beneficial ownership.
9. Termination.
This AGREEMENT shall terminate on the date of the termination of the
OPTION in accordance with Section 3(a) and may be terminated as follows:
(a) By mutual consent of BMF and WFC;
(b) By WFC if the Office of Thrift Supervision shall have issued
an order denying approval of the transaction set forth in the
MERGER AGREEMENT or if any governmental entity of competent
jurisdiction shall have issued a final nonapplicable permanent
order enjoining or otherwise prohibiting the consummation of
the transactions contemplated by this AGREEMENT or the MERGER
AGREEMENT, or imposing a BURDENSOME CONDITION, and in any such
case the time for appeal or petition for reconsideration of
such order shall have expired without such appeal or petition
being granted; and
(c) By BMF or WFC if the OPTION is not exercised on or before
March 31, 2000.
7
<PAGE> 147
10. Effect of Termination.
In the event of termination of this AGREEMENT by any party as provided
in Section 9, this AGREEMENT shall forthwith become void and there shall be no
liability or obligation on the part of any party or their respective officers or
directors except (i) in the event the OPTION is exercised, Sections 7 and 8
shall survive the termination, and (ii) with respect to any liabilities or
damages incurred or suffered by a party as a result of the breach by another
party of any of its representations, warranties, covenants or agreements set
forth in this AGREEMENT.
11. Costs.
Except as otherwise expressly agreed, each party will be responsible
for and bear all of its own costs and expenses (including any broker's or
finder's fees and the expenses of its representatives) incurred at any time in
connection with pursuing or consummating the MERGER AGREEMENT.
12. Severability.
If any term, provision, covenant or restriction contained in this
AGREEMENT is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that applicable law will not permit WFC to acquire the full number of BMF Common
Shares provided in Section 2 (as adjusted pursuant to Section 6), it is the
express intention of BMF to allow WFC to acquire such lesser number of shares as
may be permissible, without any amendment or modification hereof.
13. Miscellaneous.
(a) Third Parties. Nothing in this AGREEMENT, expressed or
implied, is intended to confer upon any party, other than the parties hereto,
and their respective permitted successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided herein.
(b) Entire Agreement. Except as otherwise expressly provided
herein or in the MERGER AGREEMENT, this AGREEMENT contains the entire agreement
among the parties with respect to the transactions contemplated hereunder and
supersedes all prior arrangements or understandings with respect thereto,
written or oral. The terms and conditions of this AGREEMENT shall inure to the
benefit of and be binding upon the parties hereto and their respective permitted
successors and assigns.
(c) Assignment. Neither of the parties hereto may assign any
of its rights or obligations under this AGREEMENT or the OPTION created
hereunder to any other person, without the express written consent of the other
party, except that in the event a PURCHASE EVENT shall have occurred and be
continuing WFC may assign in whole or in part its rights and
8
<PAGE> 148
obligations hereunder; provided, however, that to the extent required by
applicable regulatory authorities, WFC may not assign its rights under the
OPTION except in (i) a widely dispersed public distribution, (ii) a private
placement in which no one party acquires the right to purchase in excess of 2%
of the voting shares of BMF, (iii) an assignment to a single party (e.g., a
broker or investment banker) for the purpose of conducting a widely dispersed
public distribution on WFC's behalf, or (iv) any other manner approved by
applicable regulatory authorities.
(d) Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
by registered or certified mail, postage prepaid, express service, personal
delivery, telecopy or telefacsimile to the following addresses:
If to BMF, to:
Robin C. McNulty
President
BenchMark Federal Savings Bank
8670 Winton Road
Cincinnati, Ohio 45231-4935
with a copy to:
Douglas L. Westendorf, Esq.
Wood & Lamping
2500 Cincinnati Commerce Center
600 Vine Street
Cincinnati, OH 45202-2409
If to WFC, to:
Robert L. Bollin
President
The Winton Financial Corporation
5511 Cheviot Road
Cincinnati, Ohio 45247
with a copy to:
John C. Vorys, Esq.
Vorys, Sater, Seymour and Pease LLP
52 East Gay Street
P.O. Box 1008
Columbus, Ohio 43216
9
<PAGE> 149
(e) Counterparts. This AGREEMENT may be executed in any number
of counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
(f) Specific Performance. The parties agree that damages would
be an inadequate remedy for a breach of the provisions of this AGREEMENT by any
party hereto and that this Agreement may be enforced by a party hereto through
injunctive or other equitable relief.
(g) Governing Law. This AGREEMENT shall be governed by and
construed in accordance with the laws of Ohio applicable to agreements made and
entirely to be performed within such state and such federal laws as may be
applicable.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement to be effective as of the day and year set forth in the first
paragraph above.
WINTON FINANCIAL CORPORATION
By: /s/ Robert L. Bollin
---------------------------
Robert L. Bollin
its President
BENCHMARK FEDERAL SAVINGS BANK
By: /s/ Robin C. McNulty
---------------------------
Robin C. McNulty
its President
10
<PAGE> 150
Annex C
December 4, 1998
Board of Directors
BenchMark Federal Savings Bank
8670 Winton Road
Cincinnati, Ohio 45231-4979
Dear Gentlemen:
You have requested our opinion as an independent banking firm regarding the
fairness, from a financial point of view, to the stockholders of BenchMark
Federal Savings Bank (the "Company"), of the consideration to be received by
such stockholders in the merger (the "Merger") between the Company and Winton
Financial Corporation, ("WFC"). We have not been requested to opine as to, and
our opinion does not in any manner address, the Company's underlying business
decision to proceed with or effect the Merger.
Pursuant to the Agreement and Plan of Merger, dated December 4, 1998, by and
among the Company and WFC (the "Agreement"), at the Effective Time of the
Merger, WFC will acquire all of the Company's issued and outstanding shares of
common stock. The holders of the Company's common stock will receive in exchange
for each share of Company common stock, shares of WFC common stock based on an
Exchange Ratio of 3.35 shares WFC common stock for each share of Company common
stock pursuant to Section 2.01 of the Agreement. The complete terms of the
proposed transaction are described in the Agreement, and this summary is
qualified in its entirety by reference thereto.
Charles Webb & Company, a Division of Keefe, Bruyette & Woods, Inc., as part of
its investment banking business, is regularly engaged in the evaluation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, and distributions of listed and unlisted securities.
We are familiar with the market for common stocks of publicly traded banks,
savings institutions and bank and savings institution holding companies.
In connection with this opinion we reviewed certain financial and other business
data supplied to us by the Company including (i) Annual Reports and Proxy
Statements for the years ended December 31, 1995, 1996 and 1997, (ii) internally
prepared financial statements for the quarter ended September 30, 1998, and
other information we deemed relevant. We discussed with senior management and
the board of directors of the Company the current position and prospective
outlook for the Company. We reviewed financial and stock market data of other
savings institutions, particularly in the Midwestern region of the United
States, and the financial and structural terms of several other recent
transactions involving mergers and acquisitions of savings institutions or
proposed changes of control of comparably situated companies.
For WFC, we reviewed the audited financial statements for the fiscal years ended
September 30, 1997, 1996 and 1995, internally prepared financial statements for
the year ended September 30, 1998, and certain other information deemed
relevant.
<PAGE> 151
Board of Directors
BenchMark Federal Savings Bank
December 4, 1998
Page 2
For purposes of this opinion we have relied, without independent verification,
on the accuracy and completeness of the material furnished to us by the Company
and WFC and the material otherwise made available to us, including information
from published sources, and we have not made any independent effort to verify
such data. With respect to the financial information, including asset valuations
we received from the Company, we assumed (with your consent) that they had been
reasonably prepared reflecting the best currently available estimates and
judgment of the Company's management. In addition, we have not made or obtained
any independent appraisals or evaluations of the assets or liabilities, and
potential and/or contingent liabilities of the Company or WFC. We have further
relied on the assurances of management of the Company and WFC that they are not
aware of any facts that would make such information inaccurate or misleading. We
express no opinion on matters of a legal, regulatory, tax or accounting nature
or the ability of the Merger, as set forth in the Agreement, to be consummated.
In rendering our opinion, we have assumed that in the course of obtaining the
necessary approvals for he Merger, no restrictions or conditions will be imposed
that would have a material adverse effect on the contemplated benefits of the
Merger to the Company or the ability to consummate the Merger. Our opinion is
based on the market, economic and other relevant considerations as they exist
and can be evaluated on the date hereof.
Consistent with the engagement letter with you, we have acted as financial
advisor to the Company in connection with the Merger and will receive a fee for
such services, a portion of which is contingent upon the consummation of the
Merger. In addition, the Company has agreed to indemnify us for certain
liabilities arising out of our engagement by the Company in connection with the
Merger.
Based upon and subject to the foregoing, as outlined in the foregoing paragraphs
and based on such other matters as we considered relevant, it is our opinion
that as of the date hereof, the consideration to be received by the stockholders
of the Company in the Merger is fair, from a financial point of view, to the
stockholders of the Company.
This opinion may not, however, be summarized, excerpted from or otherwise
publicly referred to without our prior written consent, although this opinion
may be included in its entirety in the proxy statement of the Company used to
solicit stockholder approval of the Merger. It is understood that this letter is
directed to the Board of Directors of the Company in its consideration of the
Agreement, and is not intended to be and does not constitute a recommendation to
any stockholder as to how such stockholder should vote with respect to the
Merger.
Very truly yours,
Charles Webb & Company
a Division of Keefe, Bruyette & Woods, Inc.
<PAGE> 152
Annex D
12 CFR 552.14
Section 552.14 Dissenter and appraisal rights.
(a) RIGHT TO DEMAND PAYMENT OF FAIR OR APPRAISED VALUE. Except as
provided in paragraph (b) of this section, any stockholder of a Federal stock
association combining in accordance with section 552.13 of this part shall have
the right to demand payment of the fair or appraised value of his stock:
Provided, That such stockholder has not voted in favor of the combination and
complies with the provisions of paragraph (c) of this section.
(b) EXCEPTIONS. No stockholder required to accept only qualified
consideration for his or her stock shall have the right under this section to
demand payment of the stock's fair or appraised value, if such stock was listed
on a national securities exchange or quoted on the National Association of
Securities Dealers' Automated Quotation System ("NASDAQ") on the date of the
meeting at which the combination was acted upon or stockholder action is not
required for a combination made pursuant to Section 552.13(h) (2) of this part.
"Qualified consideration" means cash, shares of stock of any association or
corporation which at the effective date of the combination will be listed on a
national securities exchange or quoted on NASDAQ, or any combination of such
shares of stock and cash.
(c) PROCEDURE.
(1) NOTICE. Each constituent Federal stock association shall
notify all stockholders entitled to rights under this section, not less than
twenty days prior to the meeting at which the combination agreement is to be
submitted for stockholder approval, of the right to demand payment of appraised
value of shares, and shall include in such notice a copy of this section. Such
written notice shall be mailed to stockholders of record and may be part of
management's proxy solicitation for such meeting.
(2) DEMAND FOR APPRAISAL AND PAYMENT. Each stockholder
electing to make a demand under this section shall deliver to the Federal stock
association, before voting on the combination, a writing identifying himself or
herself and stating his or her intention thereby to demand appraisal of and
payment for his or her shares. Such demand must be in addition to and separate
from any proxy or vote against the combination by the stockholder.
(3) NOTIFICATION OF EFFECTIVE DATE AND WRITTEN OFFER. Within
ten days after the effective date of the combination, the resulting association
shall:
(i) Give written notice by mail to stockholders of
constituent Federal stock associations who have complied with the provisions of
paragraph (c) (2) of this section and have not voted in favor of the
combination, of the effective date of the combination;
(ii) Make a written offer to each stockholder to pay
for dissenting shares at a specified price deemed by the resulting association
to be the fair value thereof; and
(iii) Inform them that, within sixty days of such
date, the respective requirements of paragraphs (c) (5) and (c) (6) of this
section (set out in the notice) must be satisfied.
<PAGE> 153
The notice and offer shall be accompanied by a balance sheet and
statement of income of the association the shares of which the dissenting
stockholder holds, for a fiscal year ending not more than sixteen months before
the date of notice and offer, together with the latest available interim
financial statements.
(4) ACCEPTANCE OF OFFER. If within sixty days of the effective
date of the combination the fair value is agreed upon between the resulting
association and any stockholder who has complied with the provisions of
paragraph (c)(2) of this section, payment there for shall be made within ninety
days of the effective date of the combination.
(5) PETITION TO BE FILED IF OFFER NOT ACCEPTED. If within
sixty days of the effective date of the combination the resulting association
and any stockholder who has complied with the provisions of paragraph (c) (2) of
this section do not agree as to the fair value, then any such stockholder may
file a petition with the Office, with a copy by registered or certified mail to
the resulting association, demanding a determination of the fair market value of
the stock of all such stockholders. A stockholder entitled to file a petition
under this section who fails to file such petition within sixty days of the
effective date of the combination shall be deemed to have accepted the terms
offered under the combination.
(6) STOCK CERTIFICATES TO BE NOTED. Within sixty days of the
effective date of the combination, each stockholder demanding appraisal and
payment under this section shall submit to the transfer agent his certificates
of stock for notation thereon that an appraisal and payment have been demanded
with respect to such stock and that appraisal proceedings are pending. Any
stockholder who fails to submit his or her stock certificates for such notation
shall no longer be entitled to appraisal rights under this section and shall be
deemed to have accepted the terms offered under the combination.
(7) WITHDRAWAL OF DEMAND. Notwithstanding the foregoing, at
any time within sixty days after the effective date of the combination, any
stockholder shall have the right to withdraw his or her demand for appraisal and
to accept the terms offered upon the combination.
(8) VALUATION AND PAYMENT. The Director shall, as he or she
may elect, either appoint one or more independent persons or direct appropriate
staff of the Office to appraise the shares to determine their fair market value,
as of the effective date of the combination, exclusive of any element of value
arising from the accomplishment or expectation of the combination. Appropriate
staff of the Office shall review and provide an opinion on appraisals prepared
by independent persons as to the suitability of the appraisal methodology and
the adequacy of the analysis and supportive data. The Director after
consideration of the appraisal report and the advice of the appropriate staff
shall, if he or she concurs in the valuation of the shares, direct payment by
the resulting association of the appraised fair market value of the shares, upon
surrender of the certificates representing such stock. Payment shall be made,
together with interest from the effective date of the combination, at a rate
deemed equitable by the Director.
(9) COSTS AND EXPENSES. The costs and expenses of any
proceeding under this section may be apportioned and assessed by the Director as
he or she may deem equitable against all or some of the parties. In making this
determination the Director shall
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<PAGE> 154
consider whether any party has acted arbitrarily, vexatiously, or not in good
faith in respect to the rights provided by this section.
(10) VOTING AND DISTRIBUTION. Any stockholder who has demanded
appraisal rights as provided in paragraph (c)(2) of this section shall
thereafter neither be entitled to vote such stock for any purpose nor be
entitled to the payment of dividends or other distributions on the stock (except
dividends or other distribution payable to, or a vote to be taken by
stockholders of record at a date which is on or prior to, the effective date of
the combination): Provided, That if any stockholder becomes unentitled to
appraisal and payment of appraised value with respect to such stock and accepts
or is deemed to have accepted the terms offered upon the combination, such
stockholder shall thereupon be entitled to vote and receive the distributions
described above.
(11) STATUS. Shares of the resulting association into which
shares of the stockholders demanding appraisal rights would have been converted
or exchanged, had they assented to the combination, shall have the status of
authorized and unissued shares of the resulting association.
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<PAGE> 155
PART II
Item 20. Indemnification of Directors and Officers.
(a) OHIO REVISED CODE
Division (E) of Section 1701.13 of the Ohio Revised Code
governs indemnification by a corporation and provides as follows:
(E)(1) A corporation may indemnify or agree to indemnify any
person who was or is a party or is threatened to be made a party, to any
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, other than an action by or in the
right of the corporation, by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, against expenses,
including attorney's fees, judgments, fines, and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit, or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit, or proceeding by
judgment, order, settlement, or conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, he had reasonable cause to believe that his
conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any
person who was or is a party or is threatened to be made a party, to any
threatened, pending, or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee, or agent of the corporation, or is or was
serving at the request of the corporation as a director, trustee, officer,
employee or agent of another corporation, domestic or foreign, nonprofit or for
profit, partnership, joint venture, trust, or other enterprise, against
expenses, including attorney's fees, actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification shall be made
in respect of any of the following:
(a) Any claim, issue, or matter as to which such
person is adjudged to be liable for negligence or misconduct
in the performance of his duty to the corporation unless, and
only to the extent that the court of common pleas or the court
in which such action or suit was brought determines upon
application that, despite the adjudication of liability, but
in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses
as the court of common pleas or such other court shall deem
proper;
(b) Any action or suit in which the only liability
asserted against a director is pursuant to section 1701.95 of
the Revised Code.
(3) To the extent that a director, trustee, officer, employee,
or agent has been successful on the merits or otherwise in defense of any
action, suit, or proceeding referred to in divisions (E)(1) and (2) of this
section, or in defense of any claim, issue, or matter therein, he shall be
indemnified against expenses, including attorney's fees, actually and reasonably
incurred by him in connection with the action, suit, or proceeding.
(4) Any indemnification under divisions (E)(1) and (2) of this
section, unless ordered by a court, shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, trustee, officer, employee, or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in divisions
(E)(1) and (2) of this section. Such determination shall be made as follows:
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<PAGE> 156
(a) By a majority vote of a quorum consisting of
directors of the indemnifying corporation who were not and are
not parties to or threatened with any such action, suit, or
proceeding;
(b) If the quorum described in division (E)(4)(a) of
this section is not obtainable or if a majority vote of a
quorum of disinterested directors so directs, in a written
opinion by independent legal counsel other than an attorney,
or a firm having associated with it an attorney, who has been
retained by or who has performed services for the corporation
or any person to be indemnified within the past five years;
(c) By the shareholders; or
(d) By the court of common pleas or the court in
which such action, suit, or proceeding was brought.
Any determination made by the disinterested directors under
division (E)(4)(a) or by independent legal counsel under division (E)(4)(b) of
this section shall be promptly communicated to the person who threatened or
brought the action or suit by or in the right of the corporation under division
(E)(2) of this section, and within ten days after receipt of such notification,
such person shall have the right to petition the court of common pleas or the
court in which action or suit was brought to review the reasonableness of such
determination.
(5)(a) Unless at the time of a director's act or omission that
is the subject of an action, suit, or proceeding referred to in divisions (E)(1)
and (2) of this section, the articles or the regulations of a corporation state
by specific reference to this division that the provisions of this division do
not apply to the corporation and unless the only liability asserted against a
director in an action, suit, or proceeding referred to in divisions (E)(1) and
(2) of this section is pursuant to section 1701.95 of the Revised Code,
expenses, including attorney's fees, incurred by a director in defending the
action, suit, or proceeding shall be paid by the corporation as they are
incurred, in advance of the final disposition of the action, suit, or proceeding
upon receipt of an undertaking by or on behalf of the director in which he
agrees to do both of the following:
(i) Repay such amount if it is proved by clear and
convincing evidence in a court of competent jurisdiction that
his action or failure to act involved an act or omission
undertaken with deliberate intent to cause injury to the
corporation or undertaken with reckless disregard for the best
interests of the corporation;
(ii) Reasonably cooperate with the corporation
concerning the action, suit, or proceeding.
(b) Expenses, including attorney's fees, incurred by a
director, trustee, officer, employee, or agent in defending any action, suit, or
proceeding referred to in divisions (E)(1) and (2) of this section, may be paid
by the corporation as they are incurred, in advance of the final disposition of
the action, suit, or proceeding as authorized by the directors in the specific
case upon receipt of an undertaking by or on behalf of the director, trustee,
officer, employee, or agent to repay such amount, if it ultimately is determined
that he is not entitled to be indemnified by the corporation.
(6) The indemnification authorized by this section shall not
be exclusive of, and shall be in addition to, any other rights granted to those
seeking indemnification under the articles, the regulations or any agreement,
vote of shareholders or disinterested directors, or otherwise, both as to action
in their official capacities and as to action in another capacity while holding
their offices and positions, and shall continue as to a person who has ceased to
be a director, trustee, officer, employee, or agent and shall inure to the
benefit of the heirs, executors, and administrators of such a person.
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<PAGE> 157
(7) A corporation may purchase and maintain insurance or
furnish similar protection, including but not limited to trust funds, letters of
credit, or self-insurance, on behalf of or for any person who is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a director, trustee, officer, employee, or
agent of another corporation, domestic or foreign, nonprofit or profit,
partnership, joint venture, trust, or other enterprise, against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under this section. Insurance may be
purchased from or maintained with a person in which the corporation has a
financial interest.
(8) The authority of a corporation to indemnify persons
pursuant to divisions (E)(1) and (2) of this section does not limit the payment
of expenses as they are incurred, indemnification, insurance, or other
protection that may be provided pursuant to divisions (E)(5), (6), and (7) of
this section. Divisions (E)(1) and (2) of this section do not create any
obligation to repay or return payments made by the corporation pursuant to
division (E)(5), (6), or (7).
(9) As used in this division, references to "corporation"
include all constituent corporations in a consolidation or merger and the new or
surviving corporation, so that any person who is or was a director, officer,
employee, or agent of such a constituent corporation, or is or was serving at
the request of such constituent corporation as a director, trustee, officer,
employee, or agent of another corporation, domestic or foreign, nonprofit or for
profit, partnership, joint venture, trust, or other enterprise, shall stand in
the same position under this section with respect to the new or surviving
corporation as he would if he had served the new or surviving corporation in the
same capacity.
(b) WINTON FINANCIAL'S CODE OF REGULATIONS
The Code of Regulations of Winton Financial provide that
Winton Financial shall indemnify its directors or officers against expenses
(including, without limitation, attorneys' fees, filing fees, court reporters'
fees and transcript costs), judgments, fines, and amounts paid in settlement by
reason of the fact that they are or were directors, officers, employees or
agents of the corporation or, at the request of Winton Financial, were serving
another organization in a similar capacity, if the directors or officers acted
in good faith and in a manner they reasonably believed to be in the best
interest of the corporation. With regard to criminal matters, directors and
officers must be indemnified by the corporation if the directors or officers had
no reasonable cause to believe their conduct was unlawful. Directors or officers
claiming indemnification shall be presumed to have acted in good faith and in a
manner they reasonably believed to be not opposed to the best interests of the
corporation and, with respect to any criminal matter, to have had no reasonable
cause to believe their conduct was unlawful.
Winton Financial shall not indemnify any officer or director
of the corporation who was a party to any completed action or suit instituted by
(or in the right of) the corporation for any matter asserted in such action as
to which the officer or director shall have been adjudged to be liable for
acting with reckless disregard for the best interests of the corporation or
misconduct (other than negligence) in the performance of his duty to the
corporation. However, should the court in which such action was brought
determine that the officer or director is fairly and reasonably entitled to such
indemnity, Winton Financial shall indemnify such officer or director to the
extent permitted by the court.
Any indemnification not precluded by judgment shall be made by
the corporation only upon a determination that the director has met the
applicable standard of conduct. Such determination may be made only (a) by a
majority vote of a quorum of disinterested directors, (b) if such a quorum is
not obtainable or if a majority of a quorum of disinterested directors so
directs, in a written opinion by independent legal counsel, (c) by the
shareholders or (d) by the court, if any, in which such action was brought.
Expenses incurred in defending any action, suit or proceeding shall be paid by
Winton Financial in advance upon receipt of an undertaking by or on behalf of
the director or officer to repay such amount if the director or officer is not
entitled to be indemnified by the corporation.
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<PAGE> 158
In addition, Winton Financial has agreed to indemnify each of
its directors and officers against expenses (including, without limitation,
attorneys' fees, filing fees, court reporters' fees and transcript costs),
judgments, fines, and amounts paid in settlement by reason of the fact that he
is or was a director, officer, employee or agent of the corporation or, at the
request of Winton Financial, was serving another organization in a similar
capacity, if the director or officer acted in good faith and in a manner he
reasonably believed to be in the best interest of the corporation and if, with
respect to any criminal action or proceeding, such director or officer had no
reason to believe that his conduct was unlawful. Such indemnification shall be
made, however, only upon a determination by the directors or shareholders of
Winton Financial, the Court of Common Pleas of Hamilton County or written
opinion of legal counsel appointed by Winton Financial that the director or
officer has adhered to the appropriate standard of conduct.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits
Exhibit No. Description
----------- -----------
2 Agreement and Plan of Reorganization dated December 4, 1998,
by and among Winton Financial, Winton Savings and Loan and
BenchMark
3.1 Articles of Incorporation, as amended through January 29,
1999, of Winton Financial
3.2 Regulations of Winton Financial
4 Articles Fourth, Sixth, Eighth, Ninth and Eleventh of the
Articles of Incorporation of Winton Financial and Sections
1.02, 1.04, 1.05, 1.06, 1.10 and 1.11 of Article One,
Section 2.02 of Article Two, and Section 4.04 of Article
Four of the Regulations of Winton Financial, defining the
rights of Winton Financial shareholders
5 Opinion of Vorys, Sater, Seymour and Pease regarding the
legality of the shares of Winton Financial being registered
8 Opinion of Vorys, Sater, Seymour and Pease regarding the tax
consequences of the merger
10.1 The Winton Savings and Loan Co. Employee Stock Ownership
Plan
10.2 Amendment No. 1 to the Winton Savings and Loan Co. Employee
Stock Ownership Plan
10.3 Amendment No. 2 to The Winton Savings and Loan Co. Employee
Stock Ownership Plan
10.4 The Winton Savings and Loan Co. 1988 Employee Stock Option
and Incentive Plan
10.5 Employment Agreement between Winton Financial, Winton
Savings and Loan and Robert L. Bollin, dated May 22, 1998
10.6 Employment Agreement between Winton Financial, Winton
Savings and Loan and Gregory J. Bollin, dated May 22, 1998
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<PAGE> 159
Exhibit No. Description
----------- -----------
10.7 Employment Agreement between Winton Financial, Winton
Savings and Loan and James M. Brigger, dated May 1, 1996
10.8 Employment Agreement between Winton Financial, Winton
Savings and Loan and Jill M. Burke, dated May 1, 1996
10.9 Employment Agreement between Winton Financial, Winton
Savings and Loan and Mary Ellen Lovett
10.10 Employment Agreement between Winton Financial, Winton
Savings and Loan and Anthony G. Gerstner, dated May 1, 1996
10.11 Severance Agreement between Winton Financial and Jill M.
Burke, dated May 22, 1998
13.1 Annual Report on Form 10-K for the year ended September 30,
1998
13.2 Quarterly Report on Form 10-Q for the quarter ended
December 31, 1998
21 Subsidiaries of the Registrant
23.1 Consent of Grant Thornton LLP regarding the report on Winton
Financial's financial statements
23.2 Consent of Grant Thornton LLP regarding the report on
BenchMark's financial statements
23.3 Consent of Charles Webb & Company
23.4 Consent of Vorys, Sater, Seymour and Pease LLP
27 Financial Data Schedule
99.1 Form of Proxy for BenchMark
99.2 Winton Financial Proxy Statement for the 1999 Annual Meeting
(b) Financial Statement Schedules
All schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission are
not required under related instructions or are inapplicable and, therefore, have
been omitted.
(c) Opinion of Charles Webb & Company
The Opinion of Charles Webb & Company has been
provided as part of the Prospectus/Proxy Statement as Annex C.
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<PAGE> 160
Item 22. UNDERTAKINGS
1. The undersigned registrant hereby undertakes:
(a) 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, as amended (the "Act");
(ii) To reflect in the prospectus any facts
or events arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of 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 a 20% change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(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.
(b) That, for the purpose of determining any
liability under the Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) 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.
2. The undersigned registrant hereby undertakes as follows:
that prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
3. The registrant undertakes that every prospectus (i) that is
filed pursuant to paragraph 2 immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
4. Insofar as indemnification for liabilities arising under
the Act, as amended 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,
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<PAGE> 161
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
5. The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
6. The undersigned registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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<PAGE> 162
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cincinnati, State of Ohio
on February 26, 1999.
Winton Financial Corporation
By:/s/ Robert L. Bollin
------------------------
Robert L. Bollin,
President and a Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been duly signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
By: /s/ Jill M. Burke By: /s/ J. Clay Stinnett
------------------------------------------- --------------------------------------
Jill M. Burke, Principal Financial Officer J. Clay Stinnett, Director
and Principal Accounting Officer
Date: February 26, 1999 Date: February 26, 1999
By: /s/ Thomas H. Humes By:
------------------------------------------- --------------------------------------
Director Thomas H. Humes, Director William J. Parchman, Director
Date: February 26, 1999 Date: February ___, 1999
By: /s/ Henry L. Schulhoff By: /s/ Robert E. Hoeweler
------------------------------------------- --------------------------------------
Henry L. Schulhoff, Director Robert E. Hoeweler, Director
Date: February 26, 1999 Date: February 25, 1999
By: /s/ Timothy M. Mooney
-------------------------------------------
Timothy M. Mooney, Director
Date: February 26, 1999
</TABLE>
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<PAGE> 163
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER
<S> <C> <C>
2 Agreement and Plan of Reorganization dated December 4, Included as Annex A to the Prospectus/
1998, by and among Winton Financial, Winton Savings and Proxy Statement.
Loan and BenchMark
3.1 Articles of Incorporation, as amended through January 29,
1999, of Winton Financial
3.2 Regulations of Winton Financial Incorporated by reference to the current
annual report on the 8-K filed by Winton
Financial with the SEC, Exhibit 4b
4 Articles Fourth, Sixth, Eighth, Ninth and Eleventh of the Included in Exhibits 3.1 and 3.2.
Articles of Incorporation of Winton Financial and Sections
1.02, 1.04, 1.05, 1.06, 1.10 and 1.11 of Article One,
Section 2.02 of Article Two, and Section 4.04 of Article
Four of the Regulations of Winton Financial, defining the
rights of Winton Financial shareholders
5 Opinion of Vorys, Sater, Seymour and Pease regarding the
legality of the shares of Winton Financial being registered
8 Opinion of Vorys, Sater, Seymour and Pease regarding the
tax consequences of the merger
10.1 The Winton Savings and Loan Co. Employee Incorporated by reference to the Form S-4
Stock Ownership Plan Registration Statement filed by Winton
Financial with the SEC on November 30, 1989
(the "1989 Form S-4")
10.2 Amendment No. 1 to the Winton Savings and Incorporated by reference to the Current
Loan Co. Employee Stock Ownership Plan Report on Form 10-K for the year ended
September 30, 1998, filed by Winton
Financial with the SEC in December 1998
(the "10-K"), Exhibit 10.2
10.3 Amendment No. 2 to The Winton Savings and Incorporated by reference to the
Loan Co. Employee Stock Ownership Plan 10-K, Exhibit 10.3
10.4 The Winton Savings and Loan Co. 1988 Incorporated by reference to the definitive
Employee Stock Option and Incentive Plan Proxy Statement for the 1995 Annual Meeting
of Shareholders filed by Winton Financial
with the SEC on January 6, 1995
</TABLE>
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<PAGE> 164
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER
<S> <C> <C>
10.5 Employment Agreement between Winton Financial, Winton Incorporated by reference to Quarterly
Savings and Loan and Robert L. Bollin, dated May 22, 1998 Report on Form 10-QSB for the quarter
ended June 30, 1998, filed by Winton
Financial with the SEC in August 1998
(the "6/98 10-QSB"), Exhibit 10.2
10.6 Employment Agreement between Winton Financial, Winton Incorporated by reference to the 6/98
Savings and Loan and Gregory J. Bollin, dated May 22, 1998 10-QSB, Exhibit 10.1
10.7 Employment Agreement between Winton Financial, Winton Incorporated by reference to Quarterly
Savings and Loan and James M. Brigger, dated May 1, 1996 Report Form 10-QSB for the quarter ended
June 30, 1996 filed by Winton Financial
with the SEC in August, 1996 (the "6/96
10-QSB")
10.8 Employment Agreement between Winton Financial, Winton Incorporated by reference to the 6/96 10-QSB
Savings and Loan and Jill M. Burke, dated May 1, 1996
10.9 Employment Agreement between Winton Financial, Winton Incorporated by reference to the 6/96 10-QSB
Savings and Loan and Mary Ellen Lovett
10.10 Employment Agreement between Winton Financial, Winton Incorporated by reference to the 6/96 10-QSB
Savings and Loan and Anthony G. Gerstner, dated May 1, 1996
10.11 Severance Agreement between Winton Financial and Jill M. Incorporated by reference to the 6/98
Burke, dated May 22, 1998 10-QSB, Exhibit 10.3
13.1 Annual Report on Form 10-K for the year ended September
30, 1998
13.2 Quarterly Report on Form 10-Q for the quarter ended
December 31, 1998
21 Subsidiaries of the Registrant Incorporated by reference to the Annual
Report on Form 10-KSB for the fiscal year
ended September 30, 1996, filed by Winton
Financial with the SEC on December 24,
1996, Exhibit 21
23.1 Consent of Grant Thornton LLP regarding the report on
Winton Financial's financial statements
23.2 Consent of Grant Thornton LLP regarding the report on
BenchMark's financial statements
23.3 Consent of Charles Webb & Company
23.4 Consent of Vorys, Sater, Seymour and Pease LLP
</TABLE>
-11-
<PAGE> 165
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER
<S> <C> <C>
27 Financial Data Schedule
99.1 Form of Proxy for BenchMark
99.2 Winton Financial Proxy Statement for the 1999 Annual Incorporated by reference to the Definitive
Meeting Proxy Statement for the 1999 Annual Meeting
filed by Winton Financial with the SEC on
January 4, 1999.
</TABLE>
-12-
<PAGE> 1
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
WINTON FINANCIAL CORPORATION
The undersigned, desiring to form a corporation for profit under
Chapter 1701 of the Ohio Revised Code, does hereby certify:
FIRST: The name of the corporation shall be Winton Financial
Corporation.
SECOND: The place in Ohio where the principal office of the corporation
is to be located is the City of Cincinnati, County of Hamilton.
THIRD: The purpose for which the corporation is formed is to engage in
any lawful act or activity for which corporations may be formed under Section
1701.01 to 1701.98, inclusive, of the Ohio Revised Code.
FOURTH: The authorized number of shares of the corporation shall be
750, all of which shall be common shares, each without par value.
FIFTH: The directors of the corporation shall have the power to cause
the corporation from time to time and at any time to purchase, hold, sell,
transfer or otherwise deal with (A) shares of any class or series issued by it,
(B) any security or other obligation of the corporation which may confer upon
the holder thereof the right to convert the same into shares of any class or
series authorized by the articles of the corporation and (C) any security or
other obligation which may confer upon the holder thereof the right to purchase
shares of any class or series authorized by the articles of the corporation. The
corporation shall have the right to repurchase, if and when any shareholder
desires to sell, or on the happening of any event is required to sell, shares of
any class or series issued by the corporation. The authority granted in this
Article Fifth of these articles shall not limit the plenary authority of the
directors to purchase, hold, sell, transfer or otherwise deal with shares of any
class or series, securities, or other obligations issued by the corporation or
authorized by its articles.
SIXTH: Notwithstanding any provision of the Ohio Revised Code requiring
for any purpose the vote, consent, waiver or release of the holders of shares of
the corporation entitling them to exercise any proportion of the voting power of
the corporation or of any class or classes thereof, such action, unless
expressly otherwise provided by statute, may be taken by the vote, consent,
waiver or release of the holders of shares entitling them to exercise not less
than a majority of the voting power of the corporation or of such class or
classes; provided, however, that if the Board of Directors shall recommend
against the approval of any of the following matters, the affirmative vote of
the holders of shares entitling them to exercise not less than seventy-five
percent (75%) of the voting power of any class or classes of shares of the
corporation which entitle the holders thereof to vote in the respect of any such
matter as a class, shall be required to adopt:
1
<PAGE> 2
(A) A proposed amendment to the Articles of Incorporation of the
corporation;
(B) Proposed new Regulations or an amendment of the Regulations of
the corporation;
(C) A proposal to change the number of directors by action of the
shareholders;
(D) An agreement of merger or consolidation providing for the
proposed merger or consolidation of the corporation with or
into one or more other corporations;
(E) A proposed combination or majority share acquisition involving
the issuance of shares of the corporation and requiring
shareholder approval;
(F) A proposal to sell, exchange, transfer or otherwise dispose of
all, or substantially all, the assets, with or without the
goodwill, of the corporation; or
(G) A proposed dissolution of the corporation.
SEVENTH: The directors of the corporation may adopt an amendment to the
articles in respect of any unissued or treasury shares of any class and thereby
fix or change: the division of such shares into series and the designation and
authorized number of shares of each series; the dividend rate; the dates of
payment of dividends and the dates from which they are cumulative; liquidation
price; redemption rights and price; sinking fund requirements; conversion
rights; and restrictions on the issuance of shares of any class or series.
EIGHTH: No shareholder of the corporation shall have, as a matter of
right, the pre-emptive right to purchase or subscribe for shares of any class,
now or hereafter authorized, or to purchase or subscribe for securities or other
obligations convertible into or exchangeable for such shares or which by
warrants or otherwise entitle the holders thereof to subscribe for or purchase
any such share.
NINTH: (A) In addition to any affirmative vote required by any
provision of the Ohio Revised Code or by any other provision of these Articles,
the affirmative vote or consent of the holders of the greater of (1) four-fifths
(4/5) of the outstanding common shares of the corporation entitled to vote
thereon or (2) that fraction of such outstanding common shares having as the
numerator a number equal to the sum of (i) the number of outstanding common
shares Beneficially Owned (hereinafter defined) by the Controlling Person
(hereinafter defined), plus (ii) two-thirds (2/3) of the remaining number of
outstanding common shares, and as the denominator a number equal to the total
number of outstanding common shares entitled to vote, shall be required for the
adoption or authorization of a Business Combination (hereinafter defined),
unless:
2
<PAGE> 3
(I) The Business Combination will result in an involuntary sale,
redemption, cancellation or other termination of ownership of all
common shares of the corporation owned by shareholders who do not vote
in favor of, or consent in writing to, the Business Combination and the
cash or fair value of other readily marketable consideration to be
received by such shareholders for such shares shall at least be equal
to the Minimum Price Per Share (hereinafter defined); and (II) A proxy
statement responsive to the requirements of the Securities Exchange Act
of 1934, as amended, shall be mailed to the shareholders of the
corporation for the purpose of soliciting shareholder approval for the
proposed Business Combination.
(B) For purposes of this Article Ninth, the following
definitions shall apply:
(1) "Affiliate" shall mean a Person that
directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is
under common control with, another Person.
(2) "Associate" shall mean (i) any
corporation or organization of which a Person is an
officer or partner or is, directly or indirectly, the
Beneficial Owner of ten percent (10%) or more of any
class of equity securities, (ii) any trust or other
estate in which a Person has a ten percent (10%) or
greater individual interest of any nature or as to
which a Person serves as trustee or in a similar
fiduciary capacity, (iii) any spouse of a Person, and
(iv) any relative of a Person, any relative of a
spouse of a Person, who has the same residence as
such Person or spouse.
(3) "Beneficial Owner" shall include,
without limitation, (i) all shares directly or
indirectly owned by a Person, by an Affiliate of such
Person or by an Associate of such Person, Affiliate
or Associate has the right to acquire through the
exercise of any option, warrant or right (whether or
not currently exercisable), through the conversion of
a security, pursuant to the power to revoke a trust,
discretionary account or similar arrangement, and
(iii) all shares as to which such Person, Affiliate
or Associate directly or indirectly through any
contract, arrangement, understanding, relationship or
otherwise (including without limitation any written
or unwritten agreement to act in concert) has or
shares voting power (which includes the power to vote
or to direct the voting of such shares) or investment
power (which includes the power to dispose or to
direct the disposition of such shares) or both.
(4) "Business Combination" shall mean (i)
any merger or consolidation of the corporation with
or into a Controlling Person or an Affiliate of a
Controlling Person or an Associate of such
Controlling Person or Affiliate, (ii) any sale,
lease, exchange, transfer or other disposition,
including without limitation a mortgage or any other
security device of all or any substantial part of
3
<PAGE> 4
the assets of the corporation, including without
limitation any voting securities of a subsidiary, or
of the assets of a subsidiary, to a Controlling
Person or Affiliate of a Controlling Person or
Associate of such Controlling Person or Affiliate,
(iv) any sale, lease, exchange, transfer or other
disposition to the corporation or a subsidiary of all
or any part of the assets of a Controlling Person or
Affiliate of a Controlling Person or Associate of
such Controlling Person or Affiliate but not
including any disposition of assets which, if
included with all other dispositions consummated
during the same fiscal year of the corporation by the
same controlling Person, Affiliates thereof and
Associates of such Controlling Person or Affiliates,
would not result in dispositions during such year by
all such Persons of assets having an aggregate fair
value (determined at the time of disposition of the
respective assets) in excess of one percent (1%) of
the total consolidated assets of the corporation (as
shown on its certified balance sheet as of the end of
the fiscal year preceding the proposed disposition);
provided, however, that in no event shall any
disposition of assets be excepted from shareholder
approval by reason of the preceding exclusion if such
disposition when included with all other dispositions
consummated during the same and immediately preceding
four (4) fiscal years for the corporation be the same
Controlling Person, Affiliate thereof and Associates
of such Controlling Person or Affiliates, would
result in disposition by all such Persons of assets
having an aggregate fair value (determined at the
time of disposition of the respective assets) in
excess of two percent (2%) of the total consolidated
assets of the corporation (as shown on its certified
balance sheet as of the end of the fiscal year
preceding the proposed disposition), (v) any
reclassification of the common shares of the
corporation, consummated within five (5) years after
a Controlling Person becomes a Controlling Person,
and (vi) any agreement, contract or other arrangement
providing for any of the transactions described in
the definition of Business Combination.
(5) "Control" shall mean the possession,
directly or indirectly, of the power to direct or
cause the direction of the management and policies of
a Person, whether through the ownership of voting
securities, by contract or otherwise.
(6) "Controlling Person" shall mean any
Person who Beneficially Owns shares of the
corporation entitling that Person to exercise twenty
percent (20%) or more of the voting power of the
corporation entitled to vote in the election of
directors.
(7) "Minimum Price Per Share" shall mean the
sum of (i) the higher of (I) the highest gross per
share price paid or agreed to be paid to acquire any
common shares of the corporation Beneficially Owned
by a Controlling Person, provided such payment or
agreement to make payment was made within five (5)
years immediately prior to the record date set to
determine the shareholders entitled to vote or
consent to the Business Combination in question,
4
<PAGE> 5
or (II) the highest per share closing public market
price for such common shares during such five (5)
year period, plus (ii) the aggregate amount, if any,
by which five percent (5%) for each year, beginning
on the date on which such Controlling Person became a
Controlling Person, of such higher per share price
exceeds the aggregate amount of all common shares
dividends per share paid in cash since the date on
which such Person became a Controlling Person. The
calculation of the Minimum Price Per Share shall
require appropriate adjustments for capital changes,
including without limitation stock splits, stock
dividends and reverse stock splits.
(8) "Person" shall mean an individual, a
corporation, a partnership, an association, a
joint-stock company, a trust, any unincorporated
organization, a government or political subdivision
thereof, and any other entity.
(9) "Securities Exchange Act of 1934" shall
mean the Securities Exchange Act of 1934, as amended
from time to time as well as any successor or
replacement statute.
TENTH: Until August 11, 1993, no Person (hereinafter defined) shall
directly or indirectly Offer (hereinafter defined) to Acquire (hereinafter
defined) or Acquire the Beneficial Ownership (hereinafter defined) of more than
10% of any class of any equity security of the corporation, provided, however,
that such prohibition shall not apply to the purchase of shares by underwriters
in connection with a public offering. In the event that any shares of the
corporation are Acquired in violation of this Article TENTH, all shares
Beneficially owned by any person in excess of 10% shall not be counted as shares
entitled to vote, and shall not be voted by any Person and shall not be counted
as voting shares in connection with any matter submitted to the stockholders for
a vote. For purposes of this Article TENTH, the following terms shall have the
meaning set forth below:
(1) "Person" includes an individual, a group acting in concert, a
corporation, a partnership, an association, a joint stock
company, a trust, an unincorporated organization or similar
company, a syndicate or any other group formed for the purpose
of acquiring or disposing of the equity securities of the
corporation, but does not include The Winton Savings and Loan
Co. Employee Stock Ownership Plan or its successor.
(2) "Offer" includes every offer to buy or otherwise acquire,
solicitations of an offer to sell, tender offer for, or
request or invitation for tenders of, a security or interest
in a security for value.
(3) "Acquire" includes every type of acquisition, whether effected
by purchase, exchange, operation of law or otherwise.
(4) "Acting in concert" means (a) knowing participation in a joint
activity or conscious parallel action towards a common goal,
whether or not pursuant
5
<PAGE> 6
to an express agreement, or (b) 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.
(5) "Beneficial Ownership" shall include, without limitation, (a)
all shares directly or indirectly owned by a Person, by an
Affiliate (hereinafter defined) of such Person or by an
Associate of such Person or such Affiliate, (b) all shares
which such Person, Affiliate or Associate has the right to
acquire through the exercise of any option, warrant or right
(whether or not currently exercisable), through the conversion
of a security, pursuant to the power to revoke a trust,
discretionary account or similar arrangement, or pursuant to
the automatic termination of a trust, discretionary account or
similar arrangement, and (c) all shares as to which such
Person, Affiliate or Associate directly or indirectly through
any contract, arrangement, understanding, relationship or
otherwise (including, without limitation, any written or
unwritten agreement to act in concert) has or shares voting
power (which includes the power to vote or to direct the
voting of such shares) or investment power (which includes the
power to dispose or to direct the deposition of such shares)
or both.
(6) "Affiliate" shall mean a Person that directly or indirectly,
through one or more intermediaries, controls or is controlled
by, or is under common control with, another Person.
IN WITNESS WHEREOF, I have hereunto signed my name this 22nd day of
November, 1989.
/s/ Henry L. Schulhoff
-------------------------------
Henry L. Schulhoff, Incorporator
6
<PAGE> 7
CERTIFICATE OF AMENDMENT
By Shareholders
to the Articles of Incorporation of
WINTON FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Corporation)
<TABLE>
<CAPTION>
<S> <C> <C>
Robert L. Bollin , who is [ ] Chairman of the Board [X] President [ ] Vice President (Check One)
- -----------------------------------
and James W. Brigger , who is [X] Secretary [ ] Assistant Secretary (Check One)
----------------------------------------
</TABLE>
of the above named Ohio corporation for profit with its principal location at
5511 Cheviot Road, Cincinnati, Ohio 45247, Ohio do hereby certify that: (check
the appropriate box and complete the appropriate statements)
[ ] a meeting of the shareholders was duly called for the purpose of adopting
this amendment and held on ________, 19___, at which meeting a quorum of the
shareholders was present in person or by proxy, and by the affirmative voice
of the holders of shares entitling them to exercise ___% of the voting power
of the corporation.
[X] in a writing signed by all of the shareholders who would be entitled to
notice of a meeting held for the purpose,
the following resolution to amend the articles was adopted:
RESOLVED, that Article Fourth of the Articles of Incorporation
of Winton Financial Corporation be, and it hereby is, amended
to read as follows:
FOURTH: The authorized number of shares of the corporation
shall be 5,000,000, all of which shall be common shares, each
without par value.
IN WITNESS WHEREOF, the above named officers, acting for and on the
behalf of the corporation, have hereto subscribed their names this 29th day of
June, 1990.
By: /s/ Robert L. Bollin
-----------------------------------------
President
By: /s/James W. Brigger
-----------------------------------------
Secretary
NOTE: Ohio law does not permit one officer to sign in two capacities. Two
separate signatures are required, even if this necessitates the election
of a second officer before the filing can be made.
<PAGE> 8
CERTIFICATE OF AMENDMENT
By Shareholders
to the Articles of Incorporation of
WINTON FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Corporation)
<TABLE>
<CAPTION>
<S> <C> <C>
Robert L. Bollin , who is [ ] Chairman of the Board [X] President [ ] Vice President (Check One)
- -----------------------------------
and James W. Brigger , who is [X] Secretary [ ] Assistant Secretary (Check One)
----------------------------------------
</TABLE>
of the above named Ohio corporation for profit with its principal location at
5511 Cheviot Road, Cincinnati, Ohio 45247, Ohio do hereby certify that: (check
the appropriate box and complete the appropriate statements)
[X] a meeting of the shareholders was duly called for the purpose of adopting
this amendment and held on January 24, 1992, at which meeting a quorum of
the shareholders was present in person or by proxy, and by the affirmative
voice of the holders of shares entitling them to exercise 67.26% of the
voting power of the corporation.
[ ] in a writing signed by all of the shareholders who would be entitled to
notice of a meeting held for the purpose,
the following resolution to amend the articles was adopted:
RESOLVED, that Article of Incorporation of Winton Financial Corporation
be, and they hereby are, amended by adding the following Article
Eleven:
ELEVENTH: No shareholder of the corporation shall have the right
to vote cumulatively in the election of directors.
IN WITNESS WHEREOF, the above named officers, acting for and on the
behalf of the corporation, have hereto subscribed their names this 29th day of
June, 1990.
By: /s/ Robert L. Bollin
-----------------------------------------
President
By: /s/James W. Brigger
-----------------------------------------
Secretary
NOTE: Ohio law does not permit one officer to sign in two capacities. Two
separate signatures are required, even if this necessitates the election
of a second officer before the filing can be made.
<PAGE> 9
CERTIFICATE OF AMENDMENT
BY SHAREHOLDERS TO THE ARTICLES OF INCORPORATION OF
WINTON FINANCIAL CORPORATION
(Name of Corporation)
Robert L. Bollin , who is
- ------------------------------------
[ ] Chairman of the Board [X] President [ ] Vice President (Check One)
and
<TABLE>
<CAPTION>
<S> <C> <C>
James W. Brigger , who is [X] Secretary [ ] Assistant Secretary (Check One)
- ---------------------------------
</TABLE>
of the above named Ohio corporation for profit do hereby certify that: (check
the appropriate box and complete the appropriate statements)
[X] a meeting of the shareholders was duly called for the purpose of adopting
this amendment and held on January 27, 1995 , at which meeting a quorum
of the shareholders was present in person or by proxy, and by the
affirmative voice of the holders of shares entitling them to exercise 68.5%
of the voting power of the corporation.
[ ] in a writing signed by all of the shareholders who would be entitled to
notice of a meeting held for the purpose, the following resolution to amend
the articles was adopted:
See Annex A attached hereto and incorporated herein.
IN WITNESS WHEREOF, the above named officers, acting for and on the
behalf of the corporation, have hereto subscribed their names this 30th day of
January, 1995.
By: /s/ Robert L. Bollin
-----------------------------------------
President
By: /s/James W. Brigger
-----------------------------------------
Secretary
NOTE: Ohio law does not permit one officer to sign in two capacities. Two
separate signatures are required, even if this necessitates the election
of a second officer before the filing can be made.
<PAGE> 10
ANNEX A
RESOLVED, THAT ARTICLE NINTH, SECTION (B) (3) OF THE ARTICLES OF INCORPORATION
OF WINTON FINANCIAL CORPORATION, AS AMENDED, SHALL BE AMENDED TO READ AS
FOLLOWS:
(3) "Beneficial Owner" shall include, without limitation, (i) all
shares directly or indirectly owned by a Person, by an Affiliate of such Person
or by an Associate of such Person or such Affiliate, (ii) all shares which such
Person, Affiliate or Associate has the right to acquire through the exercise of
any option, warrant or right (whether or not currently exercisable), through the
conversion of a security, pursuant to the power to revoke a trust, discretionary
account or similar arrangement, or pursuant to the automatic termination of a
trust, discretionary account or similar arrangement, and (iii) all shares as to
which such Person, Affiliate or Associate directly or indirectly through any
contract, arrangement, understanding, relationship or otherwise (including
without limitation any written or unwritten agreement to act in concert) has or
shares voting power (which includes the power to vote or to direct the voting of
such shares) or investment power (which includes the power to dispose or to
direct the disposition of such shares) or both.
RESOLVED THAT ARTICLE FOURTH OF THE ARTICLES OF INCORPORATION OF WINTON
FINANCIAL CORPORATION, AS AMENDED, SHALL BE AMENDED TO READ AS FOLLOWS:
FOURTH: The authorized number of shares of the corporation shall be
7,000,000, 5,000,000 of which shall be common shares, each without par
value, and 2,000,000 of which shall be preferred shares, each without
par value.
The directors of the corporation are authorized to adopt amendments to
the Articles of Incorporation in respect of any unissued or treasury
common and preferred shares and thereby to fix or change, to the full
extent now or hereafter permitted by Ohio law: the division of such
shares into series and the designation and authorized number of shares
of each series; the dividend rate; the dates of payment of dividends
and the dates from which they are cumulative; liquidation price;
redemption rights and price; sinking fund requirements; conversion
rights; restrictions on the issuance of shares of any class or series;
and such other rights, preferences and limitations as shall not be
inconsistent with this Article Fourth.
1
<PAGE> 11
ANNEX A - CONTINUED
Except as hereinafter provided and as may otherwise be required by the
laws of the State of Ohio, all voting power of the corporation for all
purposes is vested exclusively in the holders of the common shares. The
holders of common shares shall be entitled to one vote for each common
share held. The holders of the preferred shares shall not be entitled
to vote at meetings of the shareholders of the corporation or to
receive notices of such meetings; provided, however, that in the event
dividends on the preferred shares, if any, shall at any time become in
arrears, the holders of the preferred shares shall thereupon become
entitled to one vote for each preferred share held and to notice of all
meetings of the shareholders. Such voting and notice rights of the
preferred shareholders shall continue until all dividends in arrears on
the preferred shares shall have been paid in full, whereupon such
voting and notice rights of the preferred shareholders shall cease and
terminate.
2
<PAGE> 12
CERTIFICATE OF AMENDMENT
BY SHAREHOLDERS TO THE ARTICLES OF INCORPORATION OF
WINTON FINANCIAL CORPORATION
(Name of Corporation)
Robert L. Bollin , who is
- ------------------------------------
[ ] Chairman of the Board [X] President [ ] Vice President (Check One)
and
<TABLE>
<CAPTION>
<S> <C> <C>
James W. Brigger , who is [X] Secretary [ ] Assistant Secretary (Check One)
- ---------------------------------
</TABLE>
of the above named Ohio corporation for profit do hereby certify that: (check
the appropriate box and complete the appropriate statements)
[X] a meeting of the shareholders was duly called for the purpose of adopting
this amendment and held on January 29, 1999 , at which meeting a quorum of
the shareholders was present in person or by proxy, and by the affirmative
voice of the holders of shares entitling them to exercise 82.6% of the
voting power of the corporation.
[ ] in a writing signed by all of the shareholders who would be entitled to
notice of a meeting held for the purpose, the following resolution to amend
the articles was adopted:
See Exhibit A.
IN WITNESS WHEREOF, the above named officers, acting for and on the
behalf of the corporation, have hereto subscribed their names this 29th day of
January, 1999.
By: /s/ Robert L. Bollin
-----------------------------------------
President
By: /s/James W. Brigger
-----------------------------------------
Secretary
NOTE: Ohio law does not permit one officer to sign in two capacities. Two
separate signatures are required, even if this necessitates the election
of a second officer before the filing can be made.
<PAGE> 13
EXHIBIT A
RESOLVED, that Article Fourth of the Amended Articles of Incorporation
of Winton Financial Corporation be, and it hereby is, deleted in its
entirety and replaced with the following new Article Fourth:
FOURTH: The authorized number of shares of the corporation
shall be twenty million (20,000,000), eighteen million
(18,000,000) of which shall be common shares, each without par
value, and two million (2,000,000) of which shall be preferred
shares, each without par value.
The directors of the corporation are authorized to adopt
amendments to the Articles of Incorporation in respect of any
unissued or treasury common and preferred shares and thereby
to fix or change, to the full extent now or hereafter
permitted by Ohio law: the division of such shares into series
and the designation and authorized number of shares of each
series; the dividend rate; the dates of payment of dividends
and the dates from which they are cumulative; the liquidation
price; the redemption rights and price; the sinking fund
requirements; the conversion rights; the restrictions on the
issuance of shares of any class or series; and such other
rights, preferences and limitations as shall not be
inconsistent with this Article Fourth.
Except as hereinafter provided and as may otherwise be
required by the laws of the State of Ohio, all voting power of
the corporation for all purposes is vested exclusively in the
holders of the common shares. The holders of common shares
shall be entitled to one vote for each common share held. The
holders of the preferred shares shall not be entitled to vote
at meetings of the shareholders of the corporation or to
receive notices of such meetings; provided, however, that in
the event dividends on the preferred shares, if any, shall at
any time become in arrears, the holders of the preferred
shares shall thereupon become entitled to one vote for each
preferred share held and to notice of all meetings of the
shareholders. Such voting and notice rights of the preferred
shareholders shall continue until all dividends in arrears on
the preferred shares shall have been paid in full, whereupon
such voting and notice rights of the preferred shareholders
shall cease and terminate.
<PAGE> 1
Exhibit 5
(513) 723-4000
March 3, 1999
Board of Directors
Winton Financial Corporation
5511 Cheviot Road
Cincinnati, Ohio 45247
Gentlemen:
We are familiar with the proceedings taken and proposed to be taken by
Winton Financial Corporation ("WFC") in connection with the issuance and sale by
WFC of up to 376,228 of its common shares, without par value (the "Shares"), in
connection with the merger of BenchMark Federal Savings Bank ("BMF") with and
into The Winton Savings and Loan Co. ("WSL"), a wholly-owned subsidiary of WFC
(the "Merger").
We have collaborated in the preparation of the Registration Statement
on Form S-4 (the "Registration Statement") filed by WFC with the Securities and
Exchange Commission for registration of the Shares under the Securities Act of
1933, as amended. In connection therewith, we have examined, among other things,
such records and documents as we have deemed necessary in order to express the
opinions hereinafter set forth.
Based upon the foregoing, we are of the opinion that WFC is a duly
organized and legally existing corporation under the laws of the State of Ohio .
In addition, we are of the opinion that the Shares will be legally issued,
fully-paid and non-assessable assuming: (i) the Merger has been declared
effective, (ii) all applicable state and federal securities laws have been
complied with and (iii) certificates representing the Shares have been duly
executed, countersigned and
<PAGE> 2
Board of Directors
Winton Financial Corporation
Page 2
registered and duly delivered in accordance with the Agreement and Plan of
Reorganization dated December 4, 1998, by and among WFC, WSL and BMF.
Very truly yours,
Vorys, Sater, Seymour and Pease LLP
<PAGE> 1
Exhibit 8
(513) 723-4000
March 3, 1999
Board of Directors Board of Directors
Winton Financial Corporation BenchMark Federal Savings Bank
5511 Cheviot Road 8670 Winton Road
Cincinnati, Ohio 45247 Cincinnati, Ohio 45231-4935
Gentlemen:
We have acted as special counsel to Winton Financial
Corporation, a savings and loan holding company incorporated under the laws of
Ohio ("WFC"), in connection with the transactions described in the Agreement and
Plan of Reorganization dated as of December 4, 1998 (the "Agreement"), by and
among BenchMark Federal Savings Bank, a savings and loan association
incorporated under the laws of the United States ("BMF"), The Winton Savings and
Loan Co., a savings and loan association incorporated under the laws of Ohio and
a wholly owned subsidiary of WFC ("WSL") and WFC. As a condition to the closing
of the merger by and between WSL and BMF pursuant to the terms of the Agreement
(the "Merger"), you have requested our opinion regarding certain of the federal
income tax consequences of the Merger. Unless otherwise specified, all
capitalized terms in this opinion have the meanings assigned to them in the
Agreement.
In rendering this opinion, we have examined the originals or
certified, conformed, or reproduction copies of, and have relied upon the
accuracy of, without independent verification or investigation, (1) the
Agreement, (2) the BMF Officer's Certificate dated as of March 2, 1999 and (3)
the WFC and WSL Corporation Officers' Certificate dated as of March 2, 1999.
In connection with our review of the Agreement and the
officers' certificates described above (collectively, the "Officers'
Certificates"), we have assumed the genuineness of all signatures, the
authenticity of all items submitted to us as originals, the uniformity with
authentic originals of all items submitted to us as copies, and the conformity
to final versions of
<PAGE> 2
Board of Directors of Winton Financial Corporation
Board of Directors of BenchMark Federal Savings Bank
Page 2
all items submitted to us in draft version. We also have assumed, without
independent verification or investigation, that (1) we have been provided with
true, correct, and complete copies of all such documents, (2) none of such
documents has been amended or modified, (3) all such documents are in full force
and effect in accordance with the terms thereof, (4) there are no other
documents which affect the opinions hereinafter set forth, and (5) the documents
reviewed by us reflect the entire agreement of the parties thereto with respect
to the subject matter thereof.
THE MERGER
The Agreement provides that the Merger will constitute a
merger, both under the laws of the United States and under the laws of the State
of Ohio, of BMF with and into WSL. At the Effective Time of the Merger, BMF's
separate corporate existence will cease, and WSL will be the surviving
corporation.
Pursuant to Section 2.01 of the Agreement, the Merger will
have the following effects:
1. Subject to Section 2.06 of the Agreement (governing the
treatment of Dissenting Shares), each WFC common share issued
and outstanding immediately prior to the Effective Time will
be unchanged and will remain issued and outstanding.
2. Each WSL common share that is issued and outstanding
immediately prior to the Effective Time will be unchanged and
will remain issued and outstanding;
3. Each BMF common share that is issued and outstanding
immediately prior to the Effective Time will be converted into
the right to receive 3.35 WFC common shares (subject to any
adjustment to the Exchange Ratio by reason of any
reclassification, recapitalization, split-up, combination,
exchange of shares, readjustment or stock dividend).
Notwithstanding the foregoing, no fractional shares of WFC
common stock will be issued, and any shareholder who would
otherwise have received a fractional WFC common shares will
have a right to receive an amount of cash (without interest)
equal to the product of such fraction and the closing price of
a WFC common shares on the American Stock Exchange on the day
of the Effective Time; and
4. Each outstanding certificate theretofore representing BMF
common shares will be deemed, for all purposes, to evidence
only the right to receive, upon surrender of
<PAGE> 3
Board of Directors of Winton Financial Corporation
Board of Directors of BenchMark Federal Savings Bank
Page 3
such certificate, WFC common shares into which such shares BMF
common shares are convertible.
In connection with the Merger, the Officers' Certificates set
forth the following representations:
1. The Merger is being effected for bona fide business reasons.
2. The fair market value of the WFC common shares to be received
by the shareholders of BMF will be approximately equal to the
fair market value of the BMF common shares surrendered by each
such shareholder pursuant to the Merger.
3. To the best knowledge of the management of BMF, there is no
plan or intention by the BMF shareholders to sell, exchange,
or otherwise transfer a number of WFC common shares received
in the transaction to WFC or a person related to WFC that
would reduce the BMF shareholders' ownership of WFC common
shares to a number of shares having a value, as of the date of
the transaction, of less than fifty percent (50%) of the value
of all formerly outstanding common shares of BMF as of the
same date. For purposes of this representation, any BMF common
shares exchanged for cash in lieu of fractional WFC common
shares will be treated as outstanding on the date of the
transaction. Furthermore, any redemptions or extraordinary
distributions by BMF, prior to and in connection with the
Merger, will be considered in making this representation.
Finally, any acquisitions of BMF common shares by a person
related to BMF, prior to and in connection with the Merger,
with consideration other than stock of either the acquired
corporation or the acquiring corporation, will be considered
in making this representation.
4. WSL will acquire at least 90 percent of the fair market value
of the net assets and at least 70 percent of the fair market
value of the gross assets held by BMF immediately prior to the
Merger. For purposes of this representation, assets of BMF
used to pay its expenses attributable to the Merger, and all
redemptions and distributions (except for regular, normal
dividends) made by BMF immediately preceding the Merger, will
be included as assets of BMF held immediately prior to the
Merger.
5. No dividends or distributions will be made with respect to any
BMF common shares prior to the Merger, with the exception of
normal quarterly dividends.
<PAGE> 4
Board of Directors of Winton Financial Corporation
Board of Directors of BenchMark Federal Savings Bank
Page 4
6. The liabilities of BMF assumed by WSL and the liabilities to
which the transferred assets of BMF are subject were incurred
by BMF in the ordinary course of its business.
7. Prior to the Merger, WFC will be in control of WSL within the
meaning of Section 368(c) of the Internal Revenue Code of
1986, as amended (the "Code").
8. Following the Merger, WSL will not issue additional shares of
its stock that would result in WFC losing control of WSL
within the meaning of Code Section 368(c).
9. Neither WFC nor a related person has any plan or intention to
reacquire any WFC common shares issued in the Merger.
10. WFC has no plan or intention to (a) liquidate WSL, (b) merge
WSL with and into another corporation, (c) sell or otherwise
dispose of the stock of WSL, or (d) cause WSL to sell or
otherwise dispose of any of the assets of BMF acquired in the
Merger, except for dispositions made in the ordinary course of
business or transfers described in Code Section 368(a)(2)(C).
11. Following the Merger, WSL will continue the historic business
of BMF or use a significant portion of BMF's historic business
assets in a business.
12. BMF, the BMF shareholders, WFC, and WSL will pay their
respective expenses, if any, incurred in connection with the
Merger.
13. There is no intercorporate indebtedness existing between WFC
and BMF, or between WSL and BMF, that was issued, acquired, or
will be settled at a discount.
14. No parties to the Merger are "investment companies" as defined
in Code Section 368(a)(2)(F)(iii) and (iv).
15. BMF is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Code Section 368(a)(3)(A).
16. The fair market value of the assets of BMF transferred to WSL
will equal or exceed the sum of the liabilities assumed by
WSL, plus the amount of liabilities, if any, to which the
transferred assets are subject.
17. No stock of WSL will be issued pursuant to the Merger.
<PAGE> 5
Board of Directors of Winton Financial Corporation
Board of Directors of BenchMark Federal Savings Bank
Page 5
18. The payment of cash in lieu of fractional shares of WFC is
solely for the purpose of avoiding the expense and the
inconvenience to WFC of issuing fractional shares and does not
represent separately bargained for consideration. The total
cash that will be paid in the Merger to the shareholders of
BMF instead of issuing fractional WFC common shares will not
exceed one percent (1%) of the total consideration that will
be issued in the Merger to the BMF shareholders in exchange
for their BMF common shares. The fractional share interests of
each BMF shareholder will be aggregated, and no shareholder
will receive cash in an amount equal to or greater than the
value of one full WFC share.
19. None of the compensation received by any shareholder who is an
employee of BMF will be separate consideration for, or
allocable to, any of his BMF common shares. None of the WFC
common shares received by any shareholder who is an employee
of BMF will be separate consideration for, or allocable to,
any employment agreement. Furthermore, the compensation paid
to any shareholder who is an employee of BMF will be for
services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's length for
similar services.
20. The Merger will be effected in accordance with the applicable
provisions of the laws of the State of Ohio.
21. After the Merger, no dividends or distributions will be made
by WFC to WFC shareholders, other than regular or normal
dividend distributions made with regard to all WFC common
shares.
DISCUSSION OF LEGAL AUTHORITIES
Code Section 368(a)(1)(A) defines a tax-free reorganization to
include a statutory merger. Code Section 368(a)(2)(D) further provides that:
The acquisition by one corporation, in exchange for stock of a
corporation [referred to as "controlling corporation"] which
is in control of the acquiring corporation, of substantially
all of the properties of another corporation shall not
disqualify a transaction under [Code Section 368(a)](1)(A) ...
if -- (i) no stock of the
<PAGE> 6
Board of Directors of Winton Financial Corporation
Board of Directors of BenchMark Federal Savings Bank
Page 6
acquiring corporation is used in the transaction, and (ii) in
the case of a transaction under [Code Section 368(a)](1)(A),
such transaction would have qualified under [Code Section
368(a)](1)(A) had the merger been into the controlling
corporation.
In accordance with the safe harbor provided by the Internal Revenue Service (the
"Service"), "substantially all" of the properties of a corporation means at
least 90 percent of the fair market value of the net assets and at least 70
percent of the fair market value of the gross assets of the acquired
corporation. Rev. Proc. 77-37, 1977-1 C.B. 568 (Section 3.01). The courts
generally have been less rigid in their application of the "substantially all"
test, instead focusing on the nature of the assets, if any, retained by the
acquired corporation. See, e.g., Western Industries Co. v. Helvering, 82 F.2d
461 (D.C. Cir. 1936); The Southland Ice Co. v. Commissioner, 5 T.C. 842 (1945),
acq., 1946-1 C.B. 4.
Other non-statutory requirements have been imposed by the
courts and by the Service in determining whether reorganizations are in
compliance with Code Section 368. These requirements are that (1) there be a
business purpose for the reorganization, (2) there be a continuity of the
business enterprise of the acquired corporation, and (3) the shareholders of the
acquired corporation emerge with a continuing proprietary interest in the entity
resulting from the merger.
Section 1.368-2(g) of the Treasury Regulations (the
"Regulations") provides that a reorganization must be undertaken for reasons
germane to the continuance of the business of a corporation which is a party to
the reorganization. As indicated in the Officers' Certificates, the Merger is
being effected for bona fide business reasons. Accordingly, the Merger satisfies
the business purpose requirement as set forth in the Regulations.
Regulations Section 1.368-1(b) provides that a continuity of
business enterprise is a prerequisite to a reorganization. Regulations Section
1.368-1(d) (as modified by T.D. 8760) provides that continuity of business
enterprise requires that the acquiring corporation or a related person either
continue the acquired corporation's historic business or use a significant
portion of the acquired corporation's historic assets in a business. Revenue
Ruling 85-197, 1985-2 C.B. 120, provides that for purposes of the continuity of
business enterprise requirement, the historic business of a holding company is
the business of its operating subsidiary. Similarly, Revenue Ruling 85-198,
1985-2 C.B. 120, held that the continuity of business enterprise requirement was
met where the business of a former subsidiary of the acquired holding company
was continued through a subsidiary of the acquiring corporation. Accordingly,
the continuity of business enterprise requirement is met with regard to the
Merger because WSL will continue the business formerly conducted by BMF.
<PAGE> 7
Board of Directors of Winton Financial Corporation
Board of Directors of BenchMark Federal Savings Bank
Page 7
Generally, the continuity of interest test requires the owners
of the acquired corporation to receive and maintain a meaningful equity in the
surviving entity. The Service has issued final and temporary regulations (T.D.
8760 and 8761) providing rules for satisfying the continuity of interest
requirement. These regulations substantially liberalize the historic rules,
generally providing that continuity of interest is satisfied if a substantial
part of the value of the proprietary interest in the acquired corporation is
preserved in the reorganization. In determining whether a substantial part of
the value of the proprietary interest is preserved, the following transactions,
in connection with the reorganization, are considered. First, under Regulations
Section 1.368-1, any acquisition by the acquiring corporation of acquired
corporation stock for consideration other than stock, or, in connection with the
reorganization, the redemption of acquiring corporation stock received by the
shareholders of the acquired corporation (or the purchase of such acquiring
corporation stock by a person related to the acquiring corporation), will be
considered in determining whether a substantial proprietary interest is
preserved. Second, under Regulations Section 1.368-1T, the acquisition by the
acquired corporation, prior to and in connection with the plan of
reorganization, of the stock of the acquired corporation with consideration
other than stock of the acquired corporation or an extraordinary distribution
made by the acquired corporation with respect to its stock, will be considered
in determining whether a substantial proprietary interest is preserved. Third,
under Regulations Section 1.368-1T, the acquisition by a person related to the
acquired corporation, prior to and in connection with the plan of
reorganization, of the stock of the acquired corporation with consideration
other than stock of the acquired corporation or stock of the acquiring
corporation, will be considered in determining whether a substantial proprietary
interest is preserved. Generally, two corporations are related persons either if
the corporations are members of the same affiliated group (without regard to the
exceptions in Code Section 1504(b)) or the purchase of stock of one corporation
by another corporation would result in the purchase being treated as a
redemption of stock of the first corporation under Code Section 304(a)(2)
(determined without regard to Regulations Section 1.1502-80(b)). Sales by the
shareholders of the acquired corporation of stock of the acquiring corporation
received in the transaction to unrelated persons occurring before or after a
reorganization are disregarded.
The Merger will satisfy the continuity of interest
requirement. WFC and WSL have represented that all the BMF common shares
outstanding immediately prior to the Merger will be exchanged solely for WFC
common shares, except for cash paid in lieu of fractional shares. As a condition
precedent to the obligations of the parties under the Agreement, such cash paid
in lieu of fractional shares or to WFC shareholders who have demanded the
appraised value of their WFC common shares will constitute, in the aggregate,
less than ten percent (10%) of the total consideration payable in connection
with the Merger. WFC and WSL have represented further that neither WFC nor a
related person has any plan or intention, in connection with the plan of
reorganization, to reacquire any WFC common shares issued in the Merger, other
than to acquire a small amount of WFC common shares in ordinary business
transactions (including, but
<PAGE> 8
Board of Directors of Winton Financial Corporation
Board of Directors of BenchMark Federal Savings Bank
Page 8
not limited to, open market purchases in brokers' transactions). In addition,
BMF has represented that neither BMF nor a related person has any plan or
intention, prior to and in connection with the plan of reorganization, to
redeem, acquire, or make an extraordinary distribution with respect to BMF's
common shares for consideration other than common shares (or in the case of a
related person, for consideration other than BMF common shares WFC common
shares), that would cause a substantial part of the value of the proprietary
interest in the acquired corporation not to be preserved.
Even though a merger may qualify as a tax-free reorganization
under Code Sections 368(a)(1)(A) and 368(a)(2)(D), the acquired corporation's
shareholders receive tax free only the stock of the controlling corporation.
Code Section 354. Code Section 356(a)(1) provides that if a shareholder of the
acquired corporation receives "boot" (i.e., cash) in a reorganization as well as
nonrecognition property (i.e., stock of the controlling corporation), his gain,
if any, is to be recognized, but not in excess of the boot. In no event may the
shareholder recognize a loss. Code Section 356(c).
Furthermore, Code Section 356(a)(2) prescribes rules for
determining whether any such recognized gain will be taxed as a dividend or as
capital gain. Specifically, if the exchange has the "effect of the distribution
of a dividend" to a shareholder of the acquired corporation, the recognized gain
of such shareholder must be treated as a dividend (and, therefore, as ordinary
income and without any offset for such shareholder's adjusted basis in his
shares), to the extent of such shareholder's ratable share of earnings and
profits.
Where the payment of cash to a shareholder of the acquired
corporation in lieu of fractional share interests in the controlling corporation
is solely for the purpose of avoiding the expense and inconvenience of issuing
fractional shares and does not represent separately bargained-for consideration,
the cash payment will be treated as having been received as a distribution
subject to the provisions of Code Section 302. Rev. Rul. 66-365, 1966-2 C.B.
116. Where, as a result of such distribution, a shareholder owns no shares of
the controlling corporation, either directly or through the application of the
constructive ownership rules of Code Section 318, the redemption will be a
"complete termination" of the shareholder's interest within the meaning of
Section Code 302(b)(3), resulting in capital gain or loss equal to the
difference between the cash received and such shareholder's adjusted basis in
his shares.
<PAGE> 9
Board of Directors of Winton Financial Corporation
Board of Directors of BenchMark Federal Savings Bank
Page 9
OPINIONS
Therefore, based on the description of the Merger in the
Agreement, the representations set forth in the Officers' Certificates, the
foregoing legal authorities, and the assumptions stated above, it is our opinion
that:
1. The Merger should constitute a "reorganization"
within the meaning of Code Sections 368(a)(1)(A) and
368(a)(2)(D). BMF, WFC, and WSL each should be a
"party to the reorganization" within the meaning of
Code Section 368(b).
2. No gain or loss should be recognized (a) to BMF on
the transfer of substantially all of its properties
to WSL in exchange for WFC common shares, or (b) to
either WFC or WSL upon WSL's receipt of substantially
all of the properties of BMF in exchange for WFC
common shares.
3. The adjusted basis of the properties of BMF in the
hands of WSL should be the same as the adjusted basis
of such properties in the hands of BMF immediately
prior to the Merger. The holding period of the
properties of BMF to be received by WSL will include
the period during which such properties were held by
BMF.
4. Payment of cash to a BMF shareholder in lieu of
fractional share interests in WFC should be treated
as having been received by such shareholder as a
distribution subject to the provisions of Code
Section 302.
5. The adjusted basis of the WFC common shares to be
received by the BMF shareholders should be the same
as the adjusted basis of BMF common shares
surrendered in exchange therefor, decreased by the
amount of cash received and increased by the amount
of gain, if any, recognized on the exchange. The
holding period of WFC common shares to be received by
the BMF shareholders should be the same as the
holding period of the BMF common shares surrendered
in exchange therefor.
<PAGE> 10
Board of Directors of Winton Financial Corporation
Board of Directors of BenchMark Federal Savings Bank
Page 10
This opinion is not binding on the Service and no ruling has
been, or will be, requested from the Service as to any federal income tax
consequence described above. Although this opinion is based upon our best
interpretation of current provisions of the Code and the Regulations promulgated
thereunder, as well as existing court decisions and administrative rulings and
procedures, and sets forth the conclusions we believe would be reached by a
court if the issues were properly briefed and presented to it, no assurance can
be provided that a court in fact would agree with our interpretation. Further,
no assurance can be provided that the applicable law will not change in a manner
that will adversely affect these consequences, and any such adverse change could
be retroactive.
No opinion is expressed as to any federal income tax
consequence other than as specifically set forth herein, and no opinion is
expressed with respect to the federal income tax consequences to any particular
shareholder. Further, no opinion is expressed with respect to any tax issue
arising under state, local, or foreign tax provisions. Finally, any change in
the facts as set forth herein or in the Agreement or the Officers' Certificates
could affect this opinion, and possibly in an adverse manner.
The opinion expressed herein is furnished specifically for the
benefit of the BMF shareholders, and may not be relied upon, assigned, quoted,
or otherwise used in any manner or for any purpose by any other person or entity
without our specific prior written consent.
Very truly yours,
Vorys, Sater, Seymour and Pease LLP
<PAGE> 1
Exhibit 13.1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________to___________________
Commission File Number: 0-18993
---------
WINTON FINANCIAL CORPORATION
----------------------------------------------
(Name of small business issuer in its charter)
Ohio 31-1303854
- ------------------------------ ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5511 Cheviot Road, Cincinnati, Ohio 45247
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (513) 385-3880
-----------------
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
--------
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Shares, without par value
-----------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
------- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the issuer's revenues for its most recent fiscal year: $29.3 million
Based upon the last sale price quoted by The American Stock Exchange as of
December 10, 1998, the aggregate market value of the voting stock held by
non-affiliates of the Registrant, on that date was $35.3 million.
At December 3, 1998, there were 4,015,304 of the Registrant's Common Shares
issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part I of Form 10-KSB: Safe Harbor Under the Private Securities Litigation
Reform Act of 1995 in Exhibit 99.1.
Part II of Form 10-KSB: Portions of the Annual Report to Shareholders for the
fiscal year ended September 30, 1998, in Exhibit 13.
Part III of Form 10-KSB: Proxy Statement for 1999 Annual Meeting of
Shareholders in Exhibit 20.
<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Winton Financial Corporation ("WFC") was incorporated as an Ohio
corporation in 1989 and, in 1990, acquired all of the issued and outstanding
common shares of The Winton Savings and Loan Co. ("Winton"), a savings and loan
association incorporated under the laws of the State of Ohio, in connection with
the holding company reorganization of Winton. As a unitary savings and loan
holding company, WFC, through Winton, is engaged in the savings and loan
business.
On January 5, 1996, Blue Chip Savings Bank ("Blue Chip") merged with and
into Winton (the "Merger"). As a result of the Merger, Winton acquired $33.9
million in assets, $27.3 million in deposits and a downtown Cincinnati branch.
The Merger was accounted for as a pooling of interests.
WFC's activities have been limited primarily to holding the common
shares of Winton. Consequently, the following discussion focuses primarily on
the business of Winton.
Winton is principally engaged in the business of making first mortgage
loans to finance the purchase, construction or improvement of one- to
four-family residential real estate or other real property located in Winton's
primary market area. Loan funds are obtained primarily from savings deposits,
which are insured up to applicable limits by the Federal Deposit Insurance
Corporation (the "FDIC") in the Savings Association Insurance Fund ("SAIF"),
loan repayments, Federal Home Loan Bank ("FHLB") advances and the sale of loans.
Interest earned on loans is Winton's primary source of revenue. In addition to
originating loans, Winton invests in U.S. Government and agency obligations,
interest-bearing deposits in other financial institutions and mortgage-backed
securities.
Winton conducts business from its five full-service offices in Hamilton
County, Ohio, and serves a market area which includes the Ohio counties of
Hamilton, Butler, Clinton, Clermont, Montgomery, Brown, Adams, Franklin and
Warren, the Indiana counties of Ripley, Franklin, Union and Dearborn and the
Kentucky counties of Boone, Campbell, Gallatin and Kenton. In August 1998,
Winton opened its first loan production office, located in Western Hills.
As a savings and loan holding company, WFC is subject to regulation,
supervision and examination by the Office of Thrift Supervision of the United
States Department of the Treasury (the "OTS"). As a savings and loan association
incorporated under the laws of the State of Ohio, Winton is subject to
regulation, supervision and examination by the OTS, the FDIC and the Ohio
Division of Financial Institutions (the "Division"). Winton is also a member of
the FHLB of Cincinnati.
FORWARD-LOOKING STATEMENTS
When used in this Form 10-K, the words or phrases "will likely result,"
"are expected to," "will continue," "is anticipated," "estimated," "projected,"
or similar expressions are intended to identify "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties, including changes in
economic conditions in Winton's market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in Winton's market
area and competition. Such risks and uncertainties could cause actual results to
differ materially from historical earnings and those presently anticipated or
projected. Factors listed above could affect WFC's financial performance and
could cause WFC's actual results for future periods to differ materially from
any statements expressed with respect to future periods. See Exhibit 99 hereto,
"Safe Harbor Under the Private Securities Litigation Reform Act of 1995," which
is incorporated herein by reference.
WFC does not undertake, and specifically disclaims any obligation, to
publicly revise any forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
-2-
<PAGE> 3
LENDING ACTIVITIES
GENERAL. Winton's principal lending activity is the origination of
conventional fixed-rate and variable-rate mortgage loans for the acquisition or
construction of one- to four-family residences located in Winton's primary
market area, as well as loans secured by nonresidential properties and loans
secured by multifamily properties, including construction and permanent mortgage
loans on condominiums and multi-unit properties. Winton also originates loans
insured by the Federal Housing Administration and guaranteed by the Veterans
Administration, both of which Winton sells into the secondary market. Loans
secured by nonresidential properties, including retail, office and other types
of business facilities, are also originated by Winton. In addition to
residential and nonresidential real estate lending, Winton originates consumer
loans, including passbook, automobile, secured, unsecured, home improvement and
home equity line of credit loans.
Winton maintains a portfolio of mortgage-backed pass-through securities
in the form of Federal Home Loan Mortgage Corporation ("FHLMC"), Federal
National Mortgage Association ("FNMA") and Government National Mortgage
Association ("GNMA") participation certificates. Mortgage-backed pass-through
securities generally entitle Winton to receive a portion of the cash flows from
an identified pool of mortgages and gives Winton an interest in the pool of
mortgages. FHLMC, FNMA and GNMA securities are each guaranteed by their
respective agencies as to principal and interest. See "Mortgage-Backed
Securities."
Winton's portfolio of loans, loans held for sale and mortgage-backed
securities totaled approximately $318.3 million, in the aggregate, at September
30, 1998, and represented 90% of total assets.
LOAN AND MORTGAGE-BACKED SECURITIES MATURITY SCHEDULE. The following
table sets forth certain information, as of September 30, 1998, regarding the
dollar amount of loans and mortgage-backed securities maturing in Winton's
portfolio based on their contractual terms to maturity, before giving effect to
net items. Demand loans, loans having no stated schedule of repayments or
without stated maturity and overdrafts are reported as due in one year or less.
<TABLE>
<CAPTION>
Due over Due over
3 years to 5 years to
Due in Due in Due in 5 years after 10 years after Due over
1999 2000 2001 9/30/98 9/30/98 10 years Totals
--------- ---------- ---------- -------------- -------------- ------------ ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans (1):
One- to-four family
residential (2)(3) $ 13,806 $ 456 $ 703 $ 1,979 $ 10,690 $114,154 $141,788
Multifamily residential 1,357 3 595 3,505 10,889 59,093 75,442
Land and lot 3,495 122 1,170 681 197 276 5,941
Nonresidential 329 166 502 1,259 14,274 38,251 54,781
Construction 27,187 2,100 -- -- -- -- 29,287
Mortgage-backed securities -
held to maturity -- -- 2 7 12 12,397 12,418
Mortgage-backed securities -
available for sale -- -- -- -- -- 565 565
Nonmortgage loans:
Consumer and other
loans (4) 5,170 358 767 1,616 214 51 8,176
-------- -------- -------- -------- -------- -------- --------
Total loans and
mortgage-backed securities $ 51,344 $ 3,205 $ 3,739 $ 9,047 $ 36,276 $224,787 $333,278
======== ======== ======== ======== ======== ======== ========
</TABLE>
- ------------------------
(1) Includes second mortgages.
(2) Includes home equity line of credit loans underwritten on the same
basis as first mortgage loans.
(3) Includes loans held for sale, which are recorded at the lower of cost
or market value.
(4) Includes lines of credit made to businesses which are secured by assets
other than real estate.
-3-
<PAGE> 4
The following table sets forth, at September 30, 1998, the dollar amount
of all loans and mortgage-backed securities, before net items, which have
predetermined interest rates and floating or adjustable interest rates:
<TABLE>
<CAPTION>
Predetermined Floating or
rates adjustable rates
-------------- ----------------
(In thousands)
<S> <C> <C>
Real estate mortgage loans $173,768 $130,172
Loans held for sale 8,253 -
Consumer and other loans (1) 8,102 -
Mortgage-backed securities - held to maturity 26 12,392
Mortgage-backed securities - held for sale - 565
-------- --------
Total $190,149 $143,129
======== ========
</TABLE>
- -----------------------------
(1) Includes lines of credit in the aggregate amount of $3.6 million made
to businesses which are secured by assets other than real estate.
-4-
<PAGE> 5
LOAN AND MORTGAGE-BACKED SECURITIES PORTFOLIO COMPOSITION. The
following table sets forth certain information concerning the composition of
Winton's loan and mortgage-backed securities portfolio at the dates indicated:
<TABLE>
<CAPTION>
At September 30,
1998 1997 1996
----- ----- ----
Amount % Amount % Amount %
----------- -------- ------------ -------- ----------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Type of loan or investment:
Conventional real estate loans:
One- to four-family
Interim construction $ 17,790 5.6% $ 13,536 4.6% $ 15,049 5.6%
Loans on existing properties (1) 138,415 43.5 145,039 49.0 144,306 53.5
Loans held for sale 8,253 2.6 4,210 1.4 2,735 1.0
Multifamily
Interim construction 1,715 .5 1,500 .5 2,475 .9
Loans on existing properties 75,442 23.7 71,798 24.3 55,507 20.6
Land and lot 5,941 1.9 5,024 1.7 2,326 .9
Nonresidential real estate
Interim construction 9,782 3.1 1,401 .5 450 .1
Loans on existing properties 54,781 17.2 42,950 14.5 37,001 13.7
Mobile home loans 74 - 17 - 3 -
Consumer and other loans (2) 8,102 2.5 4,986 1.7 2,405 .9
Mortgage-backed securities - held
to maturity 12,418 3.9 14,614 4.9 16,414 6.1
Mortgage-backed securities - available
for sale 565 .2 799 .3 2,942 1.1
----------- -------- ------------ -------- ----------- -------
333,278 104.7 305,874 103.4 281,613 104.4
Less:
Loans in process (13,616) (4.2) (8,364) (2.8) (10,150) (3.8)
Deferred loan origination fees (529) (.2) (726) (.3) (760) (.3)
Allowance for loan losses (842) (.3) (827) (.3) (857) (.3)
----------- ----- ----------- -------- ----------- --------
Total loans and mortgage-backed
securities $318,291 100.0% $295,957 100.0% $269,846 100.0%
======== ===== ======== ===== ======== =====
Type of security:
Residential
One- to four-family $156,205 49.1% $158,575 53.6% $159,355 59.1%
Multifamily residential 77,157 24.2 73,298 24.8 57,982 21.5
Loans held for sale 8,253 2.6 4,210 1.4 2,735 1.0
Nonresidential real estate 64,563 20.3 44,351 15.0 37,451 13.9
Land and lot 5,941 1.9 5,024 1.7 2,326 .9
Mortgage-backed securities 12,983 4.1 15,413 5.2 19,356 7.2
Deposit accounts 299 .1 467 .2 389 .1
Other 7,877 2.4 4,536 1.5 2,019 .7
---------- ------- ---------- ------- ---------- --------
333,278 104.7 305,874 103.4 281,613 104.4
Less:
Loans in process (13,616) (4.2) (8,364) (2.8) (10,150) (3.8)
Deferred loan origination fees (529) (.2) (726) (.3) (760) (.3)
Allowance for loan losses (842) (.3) (827) (.3) (857) (.3)
----------- -------- ----------- ------- ----------- -------
Total loans and mortgage-backed securities $318,291 100.0% $295,957 100.0% $269,846 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
- -----------------------------
(1) Includes first and second mortgage loans and home equity lines of
credit.
(2) Includes lines of credit in the aggregate amount of $3.6 million made
to businesses which are secured by assets other than real estate.
-5-
<PAGE> 6
ONE- TO FOUR-FAMILY RESIDENTIAL REAL ESTATE LOANS. The primary lending
activity of Winton has been the origination of conventional loans for the
acquisition or construction of one- to four-family residential properties
located within Winton's primary market area. Each of such loans is secured by a
mortgage on the underlying real estate and improvements thereon. At September
30, 1998, $146.7 million, or 46.1% of Winton's total outstanding loans and
mortgage-backed securities (excluding construction loans) consisted of loans
secured by first and second mortgage loans and home equity lines of credit
secured by one- to four-family residential real estate, including loans held for
sale. Second mortgages and home equity lines of credit are subject to a higher
degree of risk than first mortgage loans, because, in the event of default or
foreclosure, amounts due on first mortgages have a prior claim to available
funds. Most of the second mortgages and home equity lines of credit made by
Winton are secured by property on which Winton holds the first mortgage.
OTS regulations and Ohio law limit the amount which Winton may lend in
relationship to the appraised value of the real estate and improvements thereon
at the time of loan origination. In accordance with such regulations, Winton
makes loans on single-family residences up to 95% of the value of the real
estate and improvements (the "Loan-to-Value Ratio" or "LTV"). Winton also makes
loans over the 95% LTV, though most of those loans are sold in the secondary
market with recourse. Generally, Winton requires private mortgage insurance
and/or charges premium interest rates for loans over 80% LTV.
Winton offers adjustable-rate mortgage loans ("ARMs") with interest rate
adjustment periods of generally one or three years. The interest rates initially
charged on ARMs and the new rate at each adjustment date are determined by
adding a stated margin to the one-year or three-year United States Treasury bill
rate at the time the loan is originated. The initial interest rate for a
three-year ARM is set slightly higher than for the one-year ARM to compensate
Winton for the increased exposure to risk resulting from interest-rate
fluctuations during the adjustment period. The maximum adjustment at each
adjustment date for one-year ARMs is usually 2%, with a maximum adjustment of 6%
over the term of the loan. The maximum adjustment on three-year ARMs presently
originated by Winton is 2% at each adjustment date, with a maximum adjustment of
6% over the life of the loan. None of Winton's ARMs have negative amortization
features. Of the total mortgage loans originated by Winton during the fiscal
year ended September 30, 1998, 12.7% were ARMs and 87.3% were fixed-rate.
Residential mortgage loans offered by Winton are usually for terms of 10
to 30 years. Due to the general long-term nature of an investment in mortgage
loans, such loans could have an adverse effect upon the earnings spread of an
association if such loans do not reprice as quickly as the association's cost of
funds. To minimize such effect, Winton emphasizes the origination of ARMs.
Furthermore, experience during recent years reveals that, as a result of
prepayments in connection with refinancings and sales of the underlying
properties, residential loans generally remain outstanding for periods which are
substantially shorter than the maturity of such loans.
At September 30, 1998, Winton had nonperforming loans totaling $204,000
in its one- to four-family portfolio. Winton considers a loan nonperforming
when, in the opinion of management, the collection of additional interest on the
loan is unlikely, the loan meets non-accrual criteria as established by
regulatory authorities, or the loan is accruing interest but is more than 90
days past due. One- to four-family loans constituted $129.3 million, or 56.8%,
of the $227.8 million of loans originated in fiscal 1998.
MULTIFAMILY RESIDENTIAL REAL ESTATE LOANS. In addition to loans on one-
to four-family properties, Winton makes adjustable- and fixed-rate loans secured
by multifamily properties containing over four units. At September 30, 1998,
loans secured by multifamily properties (excluding construction loans) totaled
approximately $75.4 million, or 23.7% of total loans and mortgage-backed
securities.
Multifamily 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. Winton
attempts to reduce the risk associated with multifamily 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. Winton requires that the borrower agrees to submit rent rolls and
financial statements annually to enable Winton to monitor the loan.
Multifamily loans generally have terms of up to 25 years and a maximum
LTV of 75%, although a higher LTV occasionally is approved for an established
borrower. Adjustable-rate multifamily residential loans are currently made with
-6-
<PAGE> 7
the same adjustment schedules, indexes and caps as for one- to four-family
residential ARMs, with a margin of 3% over the index.
Winton had $495,000 in nonperforming loans secured by multifamily
properties at September 30, 1998, which were classified as real estate owned.
Multifamily loans constituted $29.3 million, or 12.9%, of the $227.8 million of
loans originated in fiscal 1998.
LAND AND LOT LOANS. Winton originates loans to individuals and to
builders secured by mortgages on unimproved developed real estate upon which
residential properties will be constructed. The $5.9 million in land loans
outstanding at September 30, 1998, consisted of loans to a large residential
subdivision developer, and loans to individuals and builders used for the
acquisition of residential building lots. Such land and lot loans comprised
approximately 1.9% of the total loans and mortgage-backed securities portfolio
at September 30, 1998. The largest land and lot loan outstanding at September
30, 1998, was a $3.2 million loan secured by property to be developed for
multifamily, condominium and single-family dwellings.
Loans on unimproved developed real estate are generally considered to be
subject to a higher degree of risk because the borrower typically depends on a
sale of the property or the later improvement of the property to cover debt
service. The ability to sell or develop unimproved real estate is affected by
economic conditions, government policies and other factors beyond the control of
the borrower. These risks are increased if the unimproved real estate is for an
entire subdivision rather than a single residential lot. Winton reviews the
viability of the unimproved real estate for improvement and sale and evaluates
the credit-worthiness of the borrowers for these loans.
A developed building lot loan is generally made for a 20-year term with
a five-year balloon payment of principal due upon expiration of the loan term
and generally a maximum LTV of 75%.
Winton had no nonperforming loans secured by unimproved developed real
estate at September 30, 1998. Land and lot loans constituted $5.2 million, or
2.3%, of the $227.8 million of loans originated in fiscal 1998.
NONRESIDENTIAL REAL ESTATE LOANS. At September 30, 1998, Winton has
nonresidential real estate loans in its portfolio, all in its primary market
area, including loans secured by retail, office and other types of business
facilities. The largest nonresidential real estate loan outstanding at September
30, 1998, was a $1.8 million loan secured by a warehouse. Nonresidential
permanent loans (excluding construction loans) comprised $54.8 million, or 17.2%
of total loans and mortgage-backed securities at September 30, 1998.
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. Winton 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.
In recent years, nonresidential real estate loans have been made
primarily on an adjustable-rate basis, with loan terms generally up to a maximum
of 25 years, although Winton has made a limited number of fixed-rate
nonresidential real estate loans during that period. These loans are typically
made at a maximum 75% LTV, although a higher Loan-to-Value Ratio is occasionally
approved for established borrowers. Adjustable-rate nonresidential real estate
loans have the same adjustment schedules, index and caps as the residential ARMs
described above in "One- to Four-Family Residential Real Estate Loans."
Winton had no nonperforming loans in its nonresidential loan portfolio
at September 30, 1998. Nonresidential loans constituted $16.8 million, or 7.4%,
of the $227.8 million of loans originated in fiscal 1998.
Federal regulations limit the amount of nonresidential mortgage loans
which an association may make to 400% of its capital. At September 30, 1998,
Winton's nonresidential permanent mortgage loans totaled 207.3% of Winton's
capital.
CONSTRUCTION LOANS. Winton offers residential construction loans both to
owner-occupants and to builders for loans being built under contract with
owner-occupants. To a very limited extent, Winton also makes construction loans
to persons
-7-
<PAGE> 8
constructing projects for investment purposes. At September 30, 1998, a total of
$29.3 million, or approximately 9.2%, of Winton's total loans and
mortgage-backed securities, consisted of construction loans.
Construction loans 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, such loans are more difficult to evaluate
and monitor. Loan funds are advanced upon the security of the project under
construction, which is more difficult to value before the completion of
construction. Moreover, because of the uncertainties inherent in estimating
construction costs, it is relatively difficult to evaluate accurately the LTVs
and the total loan funds required to complete a project. In the event a default
on a construction loan occurs and foreclosure follows, Winton would have to take
control of the project and attempt either to arrange for completion of
construction or dispose of the unfinished project. Almost all of Winton's
construction loans are secured by properties in Hamilton County; the other Ohio
counties of Clinton, Clermont, Warren, Butler, Montgomery, Brown, Adams and
Franklin; the Indiana counties of Ripley, Franklin, Union and Dearborn; and the
Kentucky counties of Boone, Campbell, Gallatin and Kenton. The economy of such
lending area has been relatively stable over the three years ended September 30,
1998.
Generally, construction loans have terms ranging from 6 to 12 months at
fixed rates of interest over the construction period. Residential construction
loans and nonresidential construction loans are interim loans which are replaced
by permanent fixed- or adjustable-rate loans at the end of the construction
period. Such permanent loans may or may not be obtained from Winton.
At September 30, 1998, Winton had nonperforming loans totaling $859,000
in construction loans. Construction loans constituted $30.5 million, or 13.4%,
of the $227.8 million of loans originated in fiscal 1998.
MOBILE HOME LOANS. To a very limited extent, Winton originates loans on
both new and used mobile homes. At September 30, 1998, the aggregate outstanding
principal balance of mobile home loans in Winton's portfolio was approximately
$74,000, or less than .1% of total loans and mortgage-backed securities. Such
loans are generally made at fixed rates of interest, with the rate charged on
loans for used mobile homes generally set higher than for new mobile homes. The
maximum term of mobile home loans is 10 years for new homes and seven years for
used homes. Winton usually obtains a security interest in the mobile home to
which the loan pertains.
Loans that are secured by rapidly depreciating assets such as mobile
homes may entail greater risk than residential loans. The repossessed collateral
may not provide an adequate source of repayment of the outstanding loan balance.
The risk of default on such loans increases during periods of recession, high
unemployment and other adverse economic conditions.
Federal regulations permit an association to invest without limitation
in mobile home loans.
CONSUMER AND OTHER LOANS. Winton makes various types of consumer loans,
including loans made to depositors on the security of their savings deposits,
automobile loans, commercial loans, loans secured by stock of entities other
than WFC, lines of credit to businesses secured by non-real estate assets and
unsecured personal loans. At September 30, 1998, consumer and other loans
constituted 2.5% of Winton's total loans and mortgage-backed securities and 2.3%
of total assets.
Consumer loans are generally made at fixed rates of interest tied to the
prime rate, generally for terms of from 90 days to five years. Consumer loans,
particularly consumer loans that are unsecured or are secured by rapidly
depreciating assets such as automobiles, may entail greater risk than
residential loans. Repossessed collateral for a defaulted consumer loan may not
provide an adequate source of repayment of the outstanding loan balance. The
risk of default on consumer loans increases during periods of recession, high
unemployment and other adverse economic conditions.
Although Winton has not had significant delinquencies on consumer loans,
no assurance can be provided that delinquencies will not increase. At September
30, 1998, Winton had nonperforming loans totaling $4,000 in its consumer loan
portfolio. Consumer loans constituted $16.7 million, or 7.2%, of the $227.8
million of loans originated in fiscal 1998.
MORTGAGE-BACKED SECURITIES. In the recent past, Winton has purchased
mortgage-backed securities insured or guaranteed by government agencies in order
to improve Winton's asset portfolio yield by profitably investing excess funds.
Winton intends to continue to purchase such mortgage-backed securities when
conditions favor such a portfolio investment. At September 30, 1998,
mortgage-backed securities totaled approximately $13.0 million, or 4.1% of total
loans and
-8-
<PAGE> 9
mortgage-backed securities. All but $565,000 of Winton's mortgage-backed
securities at September 30, 1998, were designated as being held to maturity. In
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
those mortgage-backed securities designated as being held to maturity are
carried on Winton's balance sheet at cost. The market value of the $12.4 million
in mortgage-backed securities held to maturity at September 30, 1998, was $12.3
million. The remaining $565,000 in mortgage-backed securities at September 30,
1998, was designated as available for sale. In accordance with SFAS No. 115, the
mortgage-backed securities available for sale are carried on Winton's balance
sheet at market value, with unrealized gains or losses carried as an adjustment
to shareholders' equity, net of applicable taxes.
Winton maintains a portfolio of mortgage-backed pass-through securities
in the form of FHLMC, FNMA and GNMA participation certificates. Mortgage-backed
pass-through securities generally entitle Winton to receive a portion of the
cash flows from an identified pool of mortgages and gives Winton an interest in
the pool of mortgages. FHLMC, FNMA and GNMA securities are each guaranteed by
their respective agencies as to principal and interest.
Winton has also invested in collateralized mortgage obligations
("CMOs"). CMOs are mortgage derivative products, secured by an underlying pool
of mortgages. Winton has no ownership interest in the mortgages, except to the
extent they serve as collateral. Payment streams from the mortgages serving as
collateral are reconfigured with varying terms and timing of payment to the CMO
investor. Though they can be used for hedging and investment, CMOs can expose
investors to higher risk of loss than direct investments in mortgage-backed
pass-through securities, particularly with respect to price volatility and the
lack of a broad secondary market in such securities. The OTS has deemed certain
CMOs and other mortgage derivative products to be "high-risk." None of Winton's
CMOs are in such "high-risk" category.
Although mortgage-backed securities and CMOs generally yield less than
individual loans originated by Winton, they present less credit risk, because
mortgage-backed securities are guaranteed as to principal repayment by the
issuing agency and CMOs are secured by the underlying collateral. Because CMOs
and other mortgage-backed securities have a lower yield relative to current
market rates, retention of such investments could adversely affect Winton's
earnings, particularly in a rising interest rate environment. Although CMOs and
other mortgage-backed securities designated as available for sale are a
potential source of liquid funds for loan originations and deposit withdrawals,
the prospect of a loss on the sale of such investments limits the usefulness of
these investments for liquidity purposes.
In addition, Winton has purchased adjustable-rate mortgage-backed
securities and CMOs as part of its effort to reduce its interest rate risk. In a
period of declining interest rates, Winton is subject to prepayment risk on such
adjustable-rate mortgage-backed securities and CMOs. Winton attempts to mitigate
this prepayment risk by purchasing mortgage-backed securities at or near par. If
interest rates rise in general, the interest rates on the loans backing the
mortgage-backed securities and CMOs will also adjust upward, subject to the
interest rate caps in the underlying adjustable-rate mortgage loans. However,
Winton is still subject to interest rate risk on such securities if interest
rates rise faster than the 1% to 2% maximum annual interest rate adjustments on
the underlying loans.
At September 30, 1998, $13.0 million, or 99.8%, of Winton's
mortgage-backed securities and CMOs had adjustable rates. Although
adjustable-rate securities generally have a lower yield at the time of
origination than fixed-rate securities, the interest rate risk associated with
adjustable-rate securities is lower. See "Asset/Liability Management." The
following table sets forth certain information regarding Winton's investment in
mortgage-backed securities at the dates indicated:
<TABLE>
<CAPTION>
At September 30, 1998 At September 30, 1997
------------------------------------------------ ------------------------------------------
Gross Gross Gross Gross
Amortized unrealized unrealized Estimated Amortized unrealized unrealized Estimated
cost gains losses fair value cost gains losses fair value
-------- ----- ------ ------- -------- ----- ------ ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgaged-backed securities held to
maturity:
FHLMC participation
certificates $ 4,402 $11 $ (68) $ 4,345 $ 5,371 $34 $ (92) $ 5,313
FNMA participation
certificates 2,912 1 (65) 2,848 3,449 5 (63) 3,391
GNMA participation
certificates 598 9 - 607 811 25 - 836
CMOs 4,506 - (40) 4,466 4,983 - (178) 4,805
-------- ----- ------ ------- -------- ----- ------ ---------
12,418 21 (173) 12,266 14,614 64 (333) 14,345
Mortgage-backed securities
available for sale:
GNMA participation
certificates 561 4 - 565 782 17 - 799
--------- ---- -------- --------- ---------- ---- -------- ----------
$12,979 $25 $(173) $12,831 $15,396 $81 $(333) $15,144
======= === ===== ======= ======= === ===== =======
</TABLE>
-9-
<PAGE> 10
The combined amortized cost of mortgage-backed and related securities
designated as held to maturity or available for sale at September 30, 1998 and
1997, by contractual terms to maturity are shown below. Actual maturities may
differ from contractual maturities because borrowers generally may prepay
obligations without prepayment penalties. Also, the timing of cash flows will be
affected by management's intent to sell securities designated as available for
sale under certain economic conditions.
<TABLE>
<CAPTION>
Amortized cost at Amortized cost at
September 30, 1998 September 30, 1997
------------------- ------------------
(In thousands)
<S> <C> <C>
Due after one through three years $ 2 $ -
Due after three years through five years 7 3
Due after five years through ten years 12 26
Due after ten years through twenty years 2,943 1,841
Due after twenty years 10,015 13,526
-------- -------
$12,979 $15,396
======= =======
</TABLE>
LOAN SOLICITATION AND PROCESSING. Loan originations are developed from a
number of sources, including commissioned loan originators, loan brokers,
continuing business with depositors, other borrowers and real estate developers,
solicitations by Winton's directors, officers and lending staff and walk-in
customers.
Loan applications for permanent mortgage loans are taken by loan
personnel. Winton 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 generally prepared by an independent fee appraiser approved by the Board
of Directors. An environmental study is conducted only if the appraiser or
management has reason to believe that an environmental problem may exist. For
multifamily and nonresidential mortgage loans, a personal guarantee is generally
required. Winton also obtains information with respect to prior projects
completed by the borrower. Upon the completion of the appraisal and the receipt
of information on the borrower, the application for a loan is submitted either
to the Loan Committee and/or the Board of Directors or to the secondary market
for approval or rejection. Any loan applications which are not accepted by the
secondary market are reviewed and accepted or rejected by Winton's Loan
Committee.
If a mortgage loan application is approved, an attorney's opinion of
title or a title insurance policy is obtained on the real estate which will
secure the mortgage loan. Borrowers are required to carry fire and casualty
insurance and flood insurance, if applicable, and to name Winton 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. Winton also
evaluates the feasibility of the proposed construction project and the
experience and record of the builder.
Consumer loans are underwritten on the basis of the borrower's credit
history and an analysis of the borrower's income and expenses, ability to repay
the loan and the value of the collateral, if any.
Winton's loans carry provisions that the entire balance of the loan is
due upon sale of the property securing the loan.
LOAN ORIGINATIONS, PURCHASES AND SALES. Winton has been actively
originating new 30-year, 20-year and 15-year fixed-rate and adjustable-rate
loans. Virtually all residential fixed-rate loans made by Winton are originated
on documentation which will permit a possible sale of such loans to FHLMC or
other secondary mortgage market participants. When mortgage loans are sold to
FHLMC or other secondary mortgage market participants, Winton generally retains
the servicing on such loans by collecting monthly payments of principal and
interest and forwarding such payments to the FHLMC or other secondary mortgage
market participants, net of a servicing fee; though certain loans originated
with the assistance of loan brokers are sold with the servicing rights released.
Fixed-rate loans not sold in the secondary market and generally all of the ARMs
originated by Winton are held in Winton's loan portfolio.
-10-
<PAGE> 11
Management sold $104.1 million of fixed-rate loans during fiscal 1998,
as compared to sales of $42.4 million and $34.6 million of fixed- and
adjustable-rate loans in fiscal 1997 and fiscal 1996, respectively. Management
believes secondary market activities will continue to increase if interest rates
decline.
From time to time, Winton sells participation interests in mortgage
loans originated by Winton or purchases participation interests in loans
originated by other lenders. During the fiscal years ended September 30, 1998,
1997 and 1996, Winton sold participation interests in loans totaling $6.3
million, $11.4 million and $1.7 million, respectively. Winton held
participations in loans originated by other lenders of approximately $1.7
million at September 30, 1998. Loans in which Winton purchases participation
interests must meet or exceed the underwriting standards for the loans which
Winton originates.
The following table presents Winton's mortgage loan origination,
purchase, sale and principal repayment activity for the periods indicated:
<TABLE>
<CAPTION>
Year ended September 30,
----------------------------------------------------------------------------
1998 1997 1996
-------------------- -------------------- ----------------------
Amount % Amount % Amount %
--------- ------- --------- ------ ----------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans originated:
Conventional real estate loans:
One- to four-family
Construction (1) $ 24,336 10.7% $ 22,877 15.5% $ 21,013 17.3%
Fixed-rate loans on existing property 116,103 51.0 38,268 25.9 50,975 41.9
Adjustable-rate loans on existing
property 9,761 4.3 12,645 8.6 15,127 12.5
FHA/VA 3,478 1.5 - - - -
Multifamily
Construction 1,000 0.4 1,500 1.0 1,075 0.9
Fixed-rate loans on existing property 15,455 6.8 11,564 7.8 1,252 1.0
Adjustable-rate loans on existing
property 13,886 6.1 23,957 16.2 14,637 12.0
Nonresidential real estate, land and
lot loans
Construction 5,161 2.3 1,367 0.9 330 0.3
Fixed-rate loans on existing property 16,879 7.4 9,801 6.7 5,021 4.1
Adjustable-rate loans on existing
property 5,128 2.3 7,682 5.2 8,524 7.0
Consumer and other loans (2) 16,653 7.2 18,003 12.2 3,589 3.0
-------- ----- -------- ----- -------- -----
Total loans originated $227,840 100.0% $147,664 100.0% $121,543 100.0%
======== ===== ======== ===== ======== =====
Loans and mortgage-backed securities
purchased
Mortgage-backed securities $ - -% $ - -% $ 3,380 100.0%
======== ===== ======== ===== ======== =====
Loans and mortgage-backed securities sold:
Loans $104,144 94.3% $ 42,413 78.8% $ 34,645 91.7%
Participations 6,329 5.7 11,385 21.2% 1,732 4.6
Mortgage-backed securities - - - 1,397 3.7
-------- ----- -------- ----- -------- -----
- -
Total $110,473 100.0% $ 53,798 100.0% $ 37,774 100.0%
======== ===== ======== ===== ======== =====
Principal Repayments:
Loans $ 92,741 97.5% $ 63,990 94.2% $ 40,475 95.2%
Mortgage-backed securities 2,389 2.5 3,950 5.8 2,040 4.8
-------- ----- -------- ----- -------- -----
Total $ 95,130 100.0% $ 67,940 100.0% $ 42,515 100.0%
========= ===== ======== ===== ======== =====
</TABLE>
- ----------------------------
(1) Includes construction loans for which Winton has committed to a
permanent end-loan.
(2) Consists primarily of auto and line of credit disbursements and change
in loans in process.
-11-
<PAGE> 12
FEDERAL LENDING LIMIT. OTS regulations impose a lending limit on the
aggregate amount that a savings association can lend to one borrower to an
amount equal to 15% of the association's total capital for risk-based capital
purposes plus any loan reserves not already included in total capital (the
"Lending Limit Capital"). A savings association may loan to one borrower an
additional amount not to exceed 10% of the association's Lending Limit Capital,
if the additional amount is fully secured by certain forms of "readily
marketable collateral." Real estate is not considered "readily marketable
collateral." In applying this limit, the regulations require that loans to
certain related or affiliated borrowers be aggregated. An exception to this
limit permits loans of any type to one borrower of up to $500,000. In addition,
the OTS, under certain circumstances, may permit exceptions to the lending limit
on a case-by-case basis.
Based on the 15% limit, Winton was able to lend approximately $4.1
million to one borrower at September 30, 1998. Winton had no outstanding loans
in excess of such limit at September 30, 1998.
LOAN ORIGINATION AND OTHER FEES. Winton realizes loan origination fee
and other fee income from its lending activities and also realizes income from
late payment charges, application fees, and fees for other miscellaneous
services.
Loan origination fees and other fees are a volatile source of income,
varying with the volume of lending, loan repayments and general economic
conditions. All nonrefundable loan origination fees and certain direct loan
origination costs are deferred and recognized in accordance with SFAS No. 91, as
an adjustment to yield over the life of the related loan.
DELINQUENT LOANS, NONPERFORMING ASSETS AND CLASSIFIED ASSETS. When a
borrower fails to make a required payment on a loan, Winton attempts to cause
the deficiency to be cured by contacting the borrower. In most cases,
deficiencies are cured promptly.
Winton attempts to minimize loan delinquencies through the assessment of
late charges and adherence to its established collection procedures. After a
mortgage loan payment is 15 days delinquent, a late charge of 5% of the amount
of the payment is assessed and Winton will contact the borrower by mail or phone
to request payment. In certain limited instances, Winton may modify the loan or
grant a limited moratorium on loan payments to enable the borrower to reorganize
his financial affairs. If the loan continues in a delinquent status for 90 days
or more, Winton generally will initiate foreclosure proceedings.
Real estate acquired by Winton as a result of foreclosure or by deed in
lieu of foreclosure is classified as "real estate owned" until it is sold. When
property is so acquired, it is recorded at the lower of the loan's unpaid
principal balance or fair value at the date of foreclosure less estimated
selling expenses. Periodically, real estate owned is reviewed to ensure that
fair value is not less than carrying value, and any allowance resulting
therefrom is charged to earnings as a provision for losses on real estate
acquired through foreclosure. All costs incurred from the date of acquisition
are expensed in the period paid.
The following table reflects the amount of loans in delinquent status as
of the dates indicated:
<TABLE>
<CAPTION>
At September 30,
-----------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans delinquent
30 to 59 days $6,925 $1,909 $3,186 $2,350 $1,905
60 to 89 days 629 672 692 337 348
90 or more days 1,067 472 923 602 432
------- -------- -------- -------- --------
Total delinquent loans $8,621 $3,053 $4,801 $3,289 $2,685
====== ====== ====== ====== ======
Ratio of total delinquent loans to total
loans (1) 2.69% 1.05% 1.83% 1.52% 1.29%
==== ==== ==== ==== ====
</TABLE>
(1) Includes loans held for sale.
-12-
<PAGE> 13
All delinquent loans are reviewed on a regular basis and are placed on
non-accrual status when, in the opinion of management, the collection of
additional interest is doubtful. Residential mortgage loans are placed on
non-accrual status when either principal or interest is considered
uncollectible. Consumer loans generally are charged off when the loan becomes
over 120 days delinquent. Nonresidential real estate loans are evaluated for
non-accrual status when the loan is 90 days or more past due. Interest accrued
and unpaid at the time a loan is placed on non-accrual status is charged against
interest income. Subsequent payments are either applied to the outstanding
principal balance or recorded as interest income, depending on the assessment of
the ultimate collectibility of the loan. The amount of interest which would have
been earned on nonaccruing loans, had such loans been current, for the year
ended September 30, 1998, is approximately $31,000.
The following table sets forth information with respect to Winton's
nonperforming assets for the periods indicated. During the periods shown, Winton
had no restructured loans within the meaning of SFAS No. 15. In addition, as of
September 30, 1998, Winton had no loans which were not reflected in the table as
non-accrual, 90 days past due or restructured, which may become so in the near
future because management has concerns as to the ability of the borrowers to
comply with repayment terms.
<TABLE>
<CAPTION>
At September 30,
-----------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- -------- -------- ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a
non-accrual
basis:(1)
Real estate:
Construction $ 859 $ - $ - $ - $ -
Residential 77 214 548 130 311
Nonresidential and land - 179 57 448 -
Consumer and other - - - - -
------ ---- ---- ---- ----
Total 936 393 605 578 311
Accruing loans which are
contractually past due 90 days
or
more:
Real estate:
Construction - - - - -
Residential 127 77 132 - 114
Nonresidential - - 182 24 -
Consumer and other 4 2 4 - 7
------ ---- ---- ---- ----
Total 131 79 318 24 121
------ ---- ---- ---- ----
Total of non-accrual and 90 days
past $1,067 $472 $923 $602 $432
====== ==== ==== ==== ====
due loans
Percentage of total loans 0.35% 0.16% 0.35% 0.28% 0.21%
==== ==== ==== ==== ====
Other nonperforming assets(2) $495 $513 $561 $343 $206
==== ==== ==== ==== ====
</TABLE>
- ----------------------------
(1) Non-accrual status denotes loans on which, in the opinion of
management, the collection of additional interest is unlikely, or loans
that meet non-accrual criteria as established by regulatory
authorities. Payments received on a non-accrual loan are either applied
to the outstanding principal balance or recorded as interest income,
depending on management's assessment of the collectibility of the loan.
(2) Consists of real estate acquired through foreclosure which is carried
at the lower of cost or fair value less estimated selling expenses.
The 39% increase in nonperforming assets to $602,000 at the end of fiscal 1995
was primarily attributable to one delinquent commercial loan of approximately
$448,000 which was paid current in October 1995. The 53% increase in
nonperforming loans at the end of fiscal 1996 resulted from the increased size
of the loan portfolio and increased loan delinquencies. The
-13-
<PAGE> 14
49% decline in nonperforming loans during fiscal 1997 resulted primarily from
collections on loan accounts acquired through the Blue Chip merger. The 126%
increase in nonperforming loans at the end of fiscal 1998 resulted primarily
from construction loans to one borrower of approximately $859,000.
OTS regulations require that each thrift institution classify its own
assets on a regular basis. Problem assets are classified as "substandard,"
"doubtful" or "loss." "Substandard" assets have one or more defined weaknesses
and are characterized by the distinct possibility that the insured institution
will sustain some loss if the deficiencies are not corrected. "Doubtful" assets
have the same weaknesses as "substandard" assets, with the additional
characteristics that (i) the weaknesses make collection or liquidation in full
on the basis of currently existing facts, conditions and values questionable and
(ii) there is a high possibility of loss. An asset classified "loss" is
considered uncollectible and of such little value that its continuance as an
asset of the institution is not warranted. The regulations also contain a
"special mention" category, consisting of assets which do not currently expose
an institution to a sufficient degree of risk to warrant classification but
which possess credit deficiencies or potential weaknesses deserving management's
close attention.
Generally, Winton classifies as "substandard" all loans that are
delinquent more than 60 days, unless management believes the delinquency status
is short-term due to unusual circumstances. Loans delinquent fewer than 60 days
may also be classified if the loans have the characteristics described above
rendering classification appropriate.
The aggregate amount of Winton's classified assets at September 30, 1998
was as follows:
<TABLE>
<CAPTION>
At September 30, 1998
---------------------
(In thousands)
<S> <C>
Substandard $2,102
Doubtful 174
Loss -
------
Total classified assets $2,276
======
</TABLE>
Federal examiners are authorized to classify an association's assets. If
an association does not agree with an examiner's classification of an asset, it
may appeal this determination to the appropriate Regional Director of the OTS.
Winton had no disagreements with the examiners regarding the classification of
assets at the time of the last examination.
OTS regulations require that Winton establish prudent general allowances
for loan losses for any loan classified as substandard or doubtful. If an asset,
or portion thereof, is classified as loss, the association must either establish
specific allowances for losses in the amount of 100% of the portion of the asset
classified loss, or charge off such amount.
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 nonperforming
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 the Board of Directors 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, 1998,
Winton's allowance for loan losses totaled $842,000.
-14-
<PAGE> 15
The following table sets forth an analysis of Winton's allowance for
losses on loans for the periods indicated.
<TABLE>
<CAPTION>
Year ended September 30,
--------------------------------------------------------------------------
1998 1997 1996 1995 1994
------ ---- ------ ------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $827 $857 $654 $582 $742
Charge-offs:
One- to four-family (36) (47) (28) (18) (84)
Multifamily and nonresidential
real estate - - (12) (104) (36)
Construction (4) - - - -
Consumer (7) (4) (10) - (143)
------ ---- ------ ------- ----
Total (47) (51) (50) (122) (263)
Total recoveries 2 21 - 106 58
------ ----- ------- ----- -----
Net charge-offs (45) (30) (50) (16) (205)
Provision for loan losses 60 - 253 88 45
----- ----- ----- ------ -----
Balance at end of period $842 $827 $857 $654 $582
==== ==== ==== ==== ====
Ratio of net charge-offs during
the period to average loans
outstanding during the period (1) .02% .01% .02% .01% .11%
=== === === === ===
</TABLE>
--------------------------
(1) During the respective periods there were $299.6 million, $263.3
million, $225.2 million, $202.8 million and $184.8 million in average
loans outstanding.
-15-
<PAGE> 16
The following table provides an allocation of Winton's allowance for
loan losses as of each of the following dates:
<TABLE>
<CAPTION>
At September 30,
--------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------ ------- ------- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
Specific allowances
One- to four-family $ 53 $ 40 $ 80 $ - $ -
Multifamily and
nonresidential real estate - - - - -
Construction and development
- - - - -
Consumer - - - - -
Commercial business - 24 25 - -
------- ------ ------- ------- -----
Total specific allowances 53 64 105 - -
General allowances
One- to four-family 321 310 308 268 204
Multifamily and
nonresidential real estate 350 346 339 308 276
Construction and development
10 - - - -
Consumer 100 100 100 75 100
Commercial business 8 7 5 3 2
------- ------- ------- ------- --------
Total general allowances 789 763 752 654 582
----- ----- ----- ----- -----
Total allowance for
possible loan losses $842 $827 $857 $654 $582
==== ==== ==== ==== ====
</TABLE>
INVESTMENT ACTIVITIES
The OTS requires minimum levels of liquid assets. OTS regulations
presently require Winton to maintain specified levels of "liquid" investments in
qualifying types of United States Government and agency obligations and other
permissible investments having certain maturity limitations and marketability
requirements. Such minimum requirement which was revised by the OTS in fiscal
1998, is an amount equal to 4% of the sum of Winton's average daily balance of
net withdrawable deposit accounts and borrowings payable in one year or less.
The liquidity requirement, which may be changed from time to time by the OTS to
reflect changing economic conditions, is intended to provide a source of
relatively liquid funds upon which Winton may rely if necessary to fund deposit
withdrawals and other short-term funding need.
The liquidity of Winton, as measured by the ratio of cash, cash
equivalents (not committed, pledged or required to liquidate specific
liabilities) and qualifying investments, mortgage-backed securities and loans to
the sum of net withdrawable savings plus borrowings payable within one year was
19.3% at September 30, 1998. At September 30, 1998, Winton's "liquid" assets
totaled approximately $37.4 million, which was approximately $29.5 million in
excess of the current OTS minimum requirement. Winton believes that its
liquidity posture at September 30, 1998, was adequate to meet outstanding loan
commitments and other cash requirements.
-16-
<PAGE> 17
The following table presents the amortized cost and market values of
Winton's investment securities, including those designated as available for
sale, at the dates indicated:
<TABLE>
<CAPTION>
September 30,
---------------------------------------------------------------------------------------
1998 1997 1996
------------------------- ------------------------- ------------------------
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
---------- ---------- ---------- ---------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Held to maturity:
U.S. government and agency
obligations $14,858 $15,185 $12,585 $12,679 $9,593 $9,623
Available for sale:
U.S. government and agency
obligations 4,587 4,855 3,088 3,149 2,098 2,120
Corporate equity securities 103 724 103 482 189 461
---------- ---------- ---------- ---------- --------- ---------
4,690 5,579 3,191 3,631 2,287 2,581
--------- --------- --------- --------- -------- --------
Total $19,548 $20,764 $15,776 $16,310 $11,880 $12,204
======= ======= ======= ======= ======= =======
</TABLE>
The following table presents the contractual maturities or terms to
repricing of U.S. Government and agency obligations at carrying value and the
weighted-average yields at September 30, 1998:
<TABLE>
<CAPTION>
Maturing within Maturing within
one year after one to five years
September 30, 1998 after September 30, 1998 Total
-------------------------- ------------------------- -------------------------
Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield
-------- ---- --------- ---- --------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Held to maturity $6,049 6.21% $ 8,809 5.89% $14,858 6.02%
Available for sale 100 5.13 4,487 6.24 4,587 6.22
-------- ---- --------- ---- --------- ----
Total $6,149 6.20% $13,296 6.01 $19,445 6.07%
====== ==== ======= ==== ======= ====
</TABLE>
DEPOSITS AND BORROWINGS
GENERAL. Deposits have traditionally been the primary source of Winton's
funds for use in lending and other investment activities. In addition to
deposits, Winton derives funds from interest payments and principal repayments
on loans and mortgage-backed securities, advances from the FHLB, income on
earning assets, service charges and gains on the sale of assets. Loan payments
are a relatively stable source of funds, while deposit inflows and outflows
fluctuate more in response to general interest rates and money market
conditions. FHLB advances are used on a short-term basis to compensate for
reductions in the availability of funds from other sources or on a longer term
basis for general business purposes.
DEPOSITS. Historically, deposits have been attracted principally from
within Winton's primary market area through the offering of a broad selection of
deposit instruments, including negotiable order of withdrawal ("NOW") accounts,
regular passbook savings accounts, Christmas Club accounts, term certificate
accounts and individual retirement accounts. In the recent past Winton has
utilized the services of deposit brokers to market certificates of deposit. At
September 30, 1998, the total amount of brokered deposits equaled approximately
$28.5 million, or 10.7% of total deposits.
Interest rates paid, maturity terms, service fees and withdrawal
penalties for the various types of accounts are established periodically by
management of Winton based on Winton's liquidity requirements, growth goals and
interest rates paid by competitors. In a rising interest rate environment,
Winton attempts to manage its interest rate risk by lengthening the term to
maturity or repricing of more of its deposit liabilities.
-17-
<PAGE> 18
At September 30, 1998, Winton's certificates of deposit totaled $199.3
million, or 74.9% of total deposits. Of such amount, approximately $118.1
million in certificates of deposit mature within one year. Based on past
experience and Winton's prevailing pricing strategies, management believes that
a substantial percentage of such certificates will renew with Winton at
maturity, although brokered deposits are less likely to renew than other
certificates of deposit. If there is a significant deviation from historical
experience, Winton can, to a limited extent, utilize additional borrowings from
the FHLB as an alternative to this source of funds. See "Borrowings" and
"REGULATION - Federal Home Loan Banks."
During fiscal 1998, 1997 and 1996, Winton offered certificates of
deposit with terms from 18 months to five years at rates which adjust monthly
with designated market indices, which were the prime rate or the three-year
Treasury rate. Approximately $13.3 million of these certificates of deposit were
outstanding at September 30, 1998. Because these certificates of deposit are
market rate sensitive, they increase Winton's interest rate risk. See
"Asset/Liability Management."
The following table sets forth the dollar amount of deposits in the
various types of savings programs offered by Winton at September 30, 1998:
<TABLE>
<CAPTION>
Percent
of total
Amount deposits
------ --------
(In thousands)
<S> <C> <C>
Transaction accounts:
Passbook accounts (1) $ 48,175 18.1%
Christmas Club accounts (2) 187 .1
NOW accounts (3) 18,338 6.9
--------- -----
Total transaction accounts 66,700 25.1
Certificates of deposit (4):
2.00 - 3.99% 100 -
4.00 - 5.99% 115,466 43.4
6.00 - 7.99% 83,353 31.3
8.00 - 9.99% 388 .2
--------- ----
Total certificates of deposit 199,307 74.9
--------- ----
Total deposits $266,007 100.0%
======== =====
</TABLE>
- -----------------------------
(1) Winton's weighted average interest rate on passbook accounts fluctuates
with the general movement of interest rates. The weighted average
interest rate on passbook accounts was 3.59% at September 30, 1998.
(2) Winton's weighted average interest rate paid on Christmas Club accounts
fluctuates with the general movement of interest rates. At September
30, 1998, the weighted average rate on club accounts was 3.25%.
(3) Winton's weighted average interest rate paid on NOW accounts fluctuates
with the general movement of interest rates. At September 30, 1998, the
weighted average rate on NOW accounts was .95%.
(4) Includes Individual Retirement Accounts and jumbo certificates of
deposit (those with balances in excess of $100,000). Terms of
certificates of deposit offered range from 30 days to 15 years, with
the average accounts ranging from 90 days to 5 years.
-18-
<PAGE> 19
The following table shows rate and maturity information for Winton's
certificates of deposit as of September 30, 1998:
<TABLE>
<CAPTION>
Amount Due
-----------------------------------------------------------
Over Over
Up to 1 year to 2 years to Over
Rate one year 2 years 3 years 3 years Total
---- -------- - -------- -- --------- -- --------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
2.00 - 3.99% $ - $ 100 $ - $ - $ 100
4.00 - 5.99 86,285 24,076 4,974 131 115,466
6.00 - 7.99 31,652 28,433 18,001 5,267 83,353
8.00 - 9.99 142 239 - 7 388
-------- ------- ------- ------ --------
Total certificates of
deposit $118,079 $52,848 $22,975 $5,405 $199,307
======== ======= ======= ====== ========
</TABLE>
The following table presents the amount of Winton's certificates of
deposit of $100,000 or more, by the time remaining until maturity at September
30, 1998:
<TABLE>
<CAPTION>
Maturity At September 30, 1998
-------- ---------------------
(In thousands)
<S> <C>
Three months or less $ 9,135
Over 3 months to 6 months 9,645
Over 6 months to 12 months 16,605
Over twelve months 29,343
--------
Total $64,728
=======
</TABLE>
BORROWINGS. During the year ended September 30, 1998, Winton's only
borrowings were FHLB advances. See "REGULATION - Federal Home Loan Banks." The
following table sets forth the maximum amount of Winton's FHLB advances
outstanding at any month-end, during the periods shown, and the average
aggregate balances of FHLB advances for such periods:
<TABLE>
<CAPTION>
Year ended September 30,
-------------------------------------------------
1998 1997 1996
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Maximum amount of FHLB advances $77,882 $57,897 $46,376
======= ======= =======
Average amount of FHLB advances outstanding during period $61,136 $51,146 $35,292
======= ======= =======
</TABLE>
The following table sets forth certain information as to Winton's FHLB
advances at the dates indicated:
<TABLE>
<CAPTION>
At September 30,
---------------------------------------------------
1998 1997 1996
------- ------- -------
(In thousands)
<S> <C> <C> <C>
FHLB advances $56,899 $57,425 $46,376
======= ======= =======
Weighted average interest cost of FHLB advances during
period based on month end balances 5.94% 5.92% 5.66%
==== ==== ====
</TABLE>
-19-
<PAGE> 20
ASSET/LIABILITY MANAGEMENT. Winton's earnings depend primarily upon its
net interest income, which is the difference between its interest income on its
interest-earning assets, such as mortgage loans, investment securities and
mortgage-backed securities, and its interest expense paid on its
interest-bearing liabilities, consisting of deposits and borrowings. As market
interest rates change, asset yields and liability costs do not change
simultaneously. Due to maturity, repricing and timing differences of
interest-earning assets and interest-bearing liabilities, earnings will be
affected differently under various interest rate scenarios. Winton has sought to
limit these net earnings fluctuations and manage interest rate risk by
originating adjustable-rate loans and purchasing relatively short-term and
variable-rate investments and securities.
-20-
<PAGE> 21
The following table sets forth certain information relating to Winton's
average balance sheet information and reflects the average yield on
interest-earning assets and the average cost of interest-bearing liabilities for
the years indicated. Such yields and costs are derived by dividing income or
expense by the average monthly balance of interest-earning assets or
interest-bearing liabilities, respectively, for the years presented. Average
balances are derived from month-end balances, which include nonaccruing loans in
the loan portfolio, net of the allowance for loan losses. Management does not
believe that the use of month-end balances instead of daily balances has caused
any material differences in the information presented.
<TABLE>
<CAPTION>
Year ended September 30,
--------------------------------------------------------------------------------
1998 1997
----------------------------------- ----------------------------------
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 (1) $299,643 $24,813 8.28% $263,344 $22,086 8.37%
Mortgage-backed securities -
available for sale 687 46 6.70 1,948 119 6.11
Mortgage-backed securities - held
to maturity 13,654 829 6.07 15,552 942 6.06
Investment securities - held to
maturity 13,424 826 6.15 11,785 757 6.42
Investment securities - available
for sale 4,889 279 5.71 2,007 122 6.08
Other interest-earning assets 4,331 278 6.42 3,544 207 5.84
---------- --------- ---- ----------- ---------- ----
Total interest-earning assets 336,628 27,071 8.04 298,180 24,233 8.13
Non-interest-earning assets 4,920 7,970
---------- -----------
Total assets $341,548 $306,150
======== ========
Interest-bearing liabilities:
Deposits $251,393 13,118 5.22 $229,708 12,009 5.23
FHLB advances 61,136 3,630 5.94 51,146 3,027 5.92
--------- -------- ---- --------- --------- ----
Total interest-bearing
liabilities 312,529 16,748 5.36 280,854 15,036 5.35
-------- ------- ---- --------- -------- ----
Non-interest-bearing liabilities 3,786 3,275
---------- -----------
Total liabilities 316,315 284,129
Shareholders' equity 25,233 22,021
--------- ----------
Total liabilities and
shareholders' equity $341,548 $306,150
======== ========
Net interest income/
Interest rate spread $10,323 2.68% $ 9,197 2.78%
======= ==== ======== ====
Net interest margin (net interest
income as a percent of average
interest-earning assets) 3.05% 3.08%
==== ====
Average interest-earning assets to
interest-bearing liabilities 107.71% 106.17%
====== ======
<CAPTION>
Year ended September 30,
-------------------------------------
1996
-------------------------------------
Average Interest
outstanding earned/ Yield/
balance paid rate
-------- ------- ----
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $225,164 $18,627 8.27%
Mortgage-backed securities -
available for sale 2,400 113 4.71
Mortgage-backed securities - held
to maturity 17,311 1,070 6.18
Investment securities - held to
maturity 9,927 636 6.41
Investment securities - available
for sale 3,228 185 5.73
Other interest-earning assets 3,049 199 6.53
----------- ---------- ----
Total interest-earning assets 261,079 20,830 7.98
Non-interest-earning assets 7,283
-----------
Total assets $268,362
========
Interest-bearing liabilities:
Deposits $209,879 10,700 5.10
FHLB advances 35,292 1,996 5.66
--------- --------- ----
Total interest-bearing
liabilities 245,171 12,696 5.18
--------- -------- ----
Non-interest-bearing liabilities 2,349
----------
Total liabilities 247,520
Shareholders' equity 20,842
---------
Total liabilities and
shareholders' equity $268,362
========
Net interest income/
Interest rate spread $ 8,134 2.80%
======== ====
Net interest margin (net interest
income as a percent of average
interest-earning assets) 3.02%
====
Average interest-earning assets to
interest-bearing liabilities 106.49%
======
</TABLE>
- ---------------------------
(1) Includes loans held for sale and non-accrual loans.
-21-
<PAGE> 22
The table below describes the extent to which changes in interest rates
and changes in volume of interest-earning assets and interest-bearing
liabilities have affected Winton's interest income and expense during the
periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (change in volume multiplied by prior year rate), (ii)
changes in rate (change in rate multiplied by prior year volume) and (iii) total
changes in rate and volume. The combined effects of changes in both volume and
rate, which cannot be separately identified, have been allocated proportionately
to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
1998 vs. 1997 1997 vs. 1996
---------------------------- -----------------------------
Increase (Decrease) Increase (Decrease)
due to due to
------------------------------ -----------------------------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income attributable to:
Loans receivable(1) $2,968 $(241) $2,727 $3,244 $251 $3,495
Mortgage-backed securities- available for sale (83) 10 (73) (18) 24 6
Mortgage-backed securities- held to maturity (115) 2 (113) (107) (21) (128)
Investment securities - available for sale 165 (8) 157 (73) 10 (63)
Investment securities - held to maturity 101 (32) 69 120 1 121
Other interest-earning assets(2) 49 22 71 29 (21) 8
--------- -------- --------- -------- ------ ---------
Total interest-earning assets 3,085 (247) 2,838 3,195 244 3,439
Interest expense attributable to:
Deposits 1,132 (23) 1,109 1,031 278 1,309
Borrowings 593 10 603 933 98 1031
-------- ------- -------- ------- ------ -------
Total interest-bearing liabilities 1,725 (13) 1,712 1,964 376 2,340
------- -------- ------- ------- ------ -------
Increase in net interest income $1,360 $(234) $1,126 $1,231 $(132) $1,099
====== ===== ====== ====== ===== ======
</TABLE>
- ------------------------------
(1) Includes loans held for sale.
(2) Includes interest-bearing deposits and certificates of deposit in other
financial institutions.
Winton'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. The
management and Board of Directors of Winton attempt to manage Winton's exposure
to interest rate risk in a manner to maintain the projected four-quarter
percentage change in net interest income and the projected change in the market
value of portfolio equity within the limits established by the Board of
Directors, assuming a permanent and instantaneous parallel shift in interest
rates.
As a part of its effort to monitor its interest rate risk, Winton
reviews the reports of the OTS which set forth the application of the "net
portfolio value" ("NPV") methodology, adopted by the OTS as part of its capital
regulations, to the assets and liabilities of Winton. Although Winton is not
currently subject to the NPV regulation, because its implementation has been
delayed by the OTS, the application of the NPV methodology may illustrate
Winton's level of interest rate risk.
Generally, NPV is the discounted present value of the difference between
incoming cash flows on interest-earning and other assets and outgoing cash flows
on interest-bearing liabilities. The application of the methodology attempts to
quantify interest rate risk as the change in the NPV which would result from a
theoretical 200 basis point (100 basis points equals 1%) change in market
interest rates. Both a 200 basis point increase in market interest rates and a
200 basis point decrease in market interest rates are considered. If the NPV
would decrease more than 2% of the present value of the institution's assets
with either an increase or a decrease in market rates, the institution would
have to deduct 50% of the amount of the decrease in excess of such 2% in the
calculation of the institution's risk-based capital, if the regulations were in
-22-
<PAGE> 23
effect. Even before the regulation is in effect, OTS could increase Winton's
risk-based capital requirement on an individualized basis to address excess
interest rate risk. See "Regulation - Office of Thrift Supervision -- Regulatory
Capital Requirements."
At September 30, 1998, 2% of the present value of Winton's assets was
approximately $7.2 million. Because the interest rate risk of a 200 basis point
increase in market interest rates (which was greater than the interest rate risk
of a 200 basis point decrease) was $5.9 million at September 30, 1998, Winton
would not have been required to deduct approximately $650,000 (50% of the $1.3
million difference) from its capital in determining whether Winton met its
risk-based capital requirement, if the regulation had been in effect for Winton.
Presented below, as of September 30, 1998, is an analysis of Winton's
interest rate risk as measured by changes in NPV for instantaneous and sustained
parallel shifts of 100 basis points in market interest rates.
<TABLE>
<CAPTION>
September 30, 1998
-------------------
Change in Interest Rate Board Limit $ Change % Change
(Basis Points) % change In NPV in NPV
------------------------- ----------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
+300 (75)% $(9,674) (33)%
+200 (50) (5,907) (20)
+100 (20) (2,680) (9)
0 - - -
-100 (15) 2,311 8
-200 (25) 4,847 17
-300 (35) 8,105 28
</TABLE>
As illustrated in the table, NPV is more sensitive to rising rates than
declining rates. Such difference in sensitivity occurs principally because, as
rates rise, borrowers do not prepay fixed-rate loans as quickly as they do when
interest rates are declining. Thus, in a rising interest rate environment, the
amount of interest Winton would receive on its loans would increase relatively
slowly as loans are slowly prepaid and new loans at higher rates are made.
Moreover, the interest Winton would pay on its deposits would increase rapidly
because Winton's deposits generally have shorter periods to repricing.
Assumptions used in calculating the amounts in this table are OTS assumptions.
As with any method of measuring interest rate risk, certain shortcomings
are inherent in the NPV approach. For example, although certain assets and
liabilities may have similar maturities or periods of repricing, they may react
in different degrees to changes in market interest rates. Also, the interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other types may lag
behind changes in market rates. Further, in the event of a change in interest
rates, expected rates of prepayment on loans and mortgage-backed securities and
early withdrawal levels from certificates of deposit would likely deviate
significantly from those assumed in making the risk calculations.
In the event that interest rates rise, Winton's net interest income
could be expected to be negatively affected. Moreover, rising interest rates
could negatively affect Winton's earnings due to diminished loan demand.
-23-
<PAGE> 24
The following table sets forth at the date indicated, the weighted
average yields on Winton's interest-earning assets, the weighted average
interest rates on interest-bearing liabilities, the interest rate spread and the
net interest margin on interest-earning assets.
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Weighted average yield on loan portfolio 8.28% 8.35% 8.18%
Weighted average yield on mortgage-backed securities 6.43 6.43 6.18
Weighted average yield on investment securities 6.11 6.50 6.43
Weighted average yield on other interest-earning assets 6.46 6.59 7.00
Weighted average yield on all interest-earning assets 8.05 8.14 7.96
Weighted average interest rate paid on deposits 5.18 5.31 5.18
Weighted average interest rate paid on borrowings 5.98 6.22 6.15
Weighted average interest rate paid on all interest-bearing 5.32 5.48 5.34
liabilities
Interest rate spread (spread between weighted average interest rate
on all interest-earning assets and all interest-bearing 2.73 2.66 2.62
liabilities)
</TABLE>
COMPETITION
Winton competes for deposits with other savings 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, Winton competes with other savings associations, commercial banks,
consumer finance companies, credit unions, leasing companies, mortgage brokers
and other lenders. Winton 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 Winton's size relative to the many other financial institutions
in its market area, management believes that Winton does not have a substantial
share of the deposit and loan markets.
The size of financial institutions competing with Winton 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 Winton.
YEAR 2000 CONSIDERATIONS
WFC is addressing the potential problems associated with the possibility
that the computers which control or operate Winton's operating systems may not
be programmed to read four-digit date codes and, upon arrival of the year 2000,
may recognize the two-digit code "00" as the year 1900, causing systems to fail
to function or to generate erroneous date. Other concerns have been raised
regarding February 29, 2000, as well as September 9, 1999, which are new
calculations challenges that may result in further problems.
Most significantly affected are all forms of financial accounting,
including interest computations, due dates, pensions, personnel benefits,
investments, legal commitments, valuations, fixed asset depreciation schedules,
tax filings and financial models. Additional problems may occur on other systems
using computers for processing, vault openings, check protectors and gas and
electric. The total impact is currently unknown; however, it is projected that
failure to address these programming code issues and make appropriate changes
may expose an institution to all types of risks, including credit, transaction,
liquidity, interest rate, compliance, reputation, strategic, price and foreign
exchange.
Winton has established a Year 2000 team, headed by the systems analyst,
to analyze the risk of potential problems that might arise from the failures of
computer programming to recognize the year 2000 and to develop a plan to
mitigate any such risk. Research by the team indicates that the greatest
potential impact upon Winton is the risk related to vendors used
-24-
<PAGE> 25
by Winton, particularly its data processing service bureau. Quarterly progress
reports from the service bureau indicated levels of manpower and expertise
sufficient to amend and test the adequacy of their computer programming and
systems prior to the arrival of the year 2000. All other vendors and commercial
customer's have been identified and requests for year 2000 certificates have
been forwarded by Winton.
The year 2000 team submits quarterly progress reports to the Board of
Directors and has established a target date of December 31, 1998, for all
required internal testing of each system utilized, which is expected to be
minimal. The team estimates that the impact upon the Company's results of
operations, liquidity and capital resources will be immaterial.
Management has developed a contingency plan which includes manual
procedures along with certain off-line canned programs. Management has set a
budget of approximately $100,000 to ensure WFC and Winton are year 2000
compliant.
In addition, financial institutions may experience increases in problem
loans and credit losses in the event that borrowers fail to prepare properly for
Year 2000, and higher funding costs could result if consumers react to publicity
about the issue by withdrawing deposits. Winton is assessing such risks among
its customers. WFC could also be materially adversely affected if other third
parties, such as governmental agencies, clearing houses, telephone companies,
utilities and other service providers fail to prepare properly. Winton is
therefore attempting to assess these risks and take action to minimize their
effect.
SUBSIDIARY ACTIVITIES
Winton has no subsidiaries. WFC's only subsidiary is Winton.
PERSONNEL
As of September 30, 1998, Winton had 93 full-time equivalent employees.
Winton believes that relations with its employees are excellent. Winton offers
health, disability, life and dependent care benefits. None of the employees of
Winton are represented by a collective bargaining unit.
REGULATION
GENERAL
WFC is a savings and loan holding company within the meaning of the
Home Owners Loan Act, as amended (the "HOLA"). Consequently, WFC is subject to
regulation, examination and oversight by the OTS and must submit periodic
reports to the OTS concerning its activities and financial condition. In
addition, as a corporation organized under Ohio law, WFC is subject to
provisions of the Ohio Revised Code applicable to corporations generally.
As a savings and loan association chartered under the laws of Ohio,
Winton is subject to regulation, examination and oversight by the Superintendent
of the Division (the "Ohio Superintendent"). Because Winton's deposits are
insured by the FDIC, Winton also is subject to regulatory oversight by the FDIC.
Winton must file periodic reports with the OTS concerning its activities and
financial condition. Examinations are conducted periodically by federal and
state regulators to determine whether Winton is in compliance with various
regulatory requirements and is operating in a safe and sound manner. Winton is a
member of the FHLB and is subject to certain regulations promulgated by the
Board of Governors of the Federal Reserve System (the "FRB").
Congress is considering legislation to eliminate the federal savings
and loan charter and the separate federal regulation of savings and loan
associations. Pursuant to such legislation, Congress may eliminate the OTS and
Winton may be regulated under federal law as a bank or be required to change its
charter. Such change in regulation or charter would likely change the range of
activities in which Winton may engage and would probably subject Winton to more
regulation by the FDIC. In addition, WFC might become subject to a different set
of holding company regulations limiting the activities in which WFC may engage
and subjecting WFC to additional regulatory requirements, including separate
capital requirements. At this time, WFC cannot predict when or whether Congress
may actually pass legislation regarding WFC's and Winton's regulatory
requirements or charter. Although such legislation, if enacted, may change the
activities in which WFC or Winton
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<PAGE> 26
are authorized to engage, it is not anticipated that the current activities of
either WFC or Winton will be materially affected by those activity limits.
OHIO CORPORATION LAW
MERGER MORATORIUM STATUTE. Chapter 1704 of the Ohio Revised Code
regulates certain takeover bids affecting certain public corporations which have
significant ties to Ohio. This statute prohibits, with some exceptions, any
merger, combination or consolidation and any of certain other sales, leases,
distributions, dividends, exchanges, mortgages or transfers between an Ohio
corporation and any person who has the right to exercise, alone or with others,
10% or more of the voting power of such corporation (an "Interested
Shareholder"), for three years following the date on which such person first
becomes an Interested Shareholder. Such a business combination is permitted only
if, prior to the time such person first becomes an Interested Shareholder, the
Board of Directors of the issuing corporation has approved the purchase of
shares which resulted in such person first becoming an Interested Shareholder.
After the initial three-year moratorium, such a business combination
may not occur unless (1) one of the specified exceptions applies, (2) the
holders of at least two-thirds of the voting shares, and of at least a majority
of the voting shares not beneficially owned by the Interested Shareholder,
approve the business combination at a meeting called for such purpose, or (3)
the business combination meets certain statutory criteria designed to ensure
that the issuing public corporation's remaining shareholders receive fair
consideration for their shares.
An Ohio corporation may, under certain circumstances, "opt out" of the
statute by specifically providing in its articles of incorporation that the
statute does not apply to any business combination of such corporation. However,
the statute still prohibits for twelve months any business combination that
would have been prohibited but for the adoption of such an opt-out amendment.
The statute also provides that it will continue to apply to any business
combination between a person who became an Interested Shareholder prior to the
adoption of such an amendment as if the amendment had not been adopted. Neither
WFC nor Winton has opted out of the protection afforded by Chapter 1704.
CONTROL SHARE ACQUISITION. Section 1701.831 of the Ohio Revised Code
(the "Control Share Acquisition Statute") requires that, with certain
exceptions, acquisitions of voting securities which would result in the
acquiring shareholder owning 20%, 33-1/3% or 50% of the outstanding voting
securities of an Ohio corporation (a "Control Share Acquisition") must be
approved in advance by the holders of at least a majority of the outstanding
voting shares of such corporation represented at a meeting at which a quorum is
present and a majority of the portion of the outstanding voting shares
represented at such a meeting excluding the voting shares owned by the acquiring
shareholder, by certain other persons who acquire or transfer voting shares
after public announcement of the acquisition or by certain officers of the
corporation or directors of the corporation who are employees of the
corporation. The Control Share Acquisition Statute was intended, in part, to
protect shareholders of Ohio corporations from coercive tender offers.
TAKEOVER BID STATUTE. Ohio law provides that an offeror may not make
not make a tender offer or request or invitation for tenders that would result
in the offeror beneficially owning more than ten percent of any class of the
target company's equity securities unless such offeror files certain information
with the Ohio Division of Securities (the "Securities Division") and provides
such information to the target company and the offerees within Ohio. The
Securities Division may suspend the continuation of the control bid if the
Securities Division determines that the offeror's filed information does not
provide full disclosure to the offerees of all material information concerning
the control bid. The statue also provides that an offeror may not acquire any
equity security of a target company within two years of the offeror's previous
acquisition of any equity security of the same target company pursuant to a
control bid unless the Ohio offerees may sell such security to the offeror on
substantially the same terms as provided by the previous control bid. The
statute does not apply to a transaction if either the offeror or the target
company is a savings and loan holding company and the proposed transaction
requires federal regulatory approval.
OHIO SAVINGS AND LOAN REGULATION
The Ohio Superintendent is responsible for the regulation and
supervision of Ohio savings and loan associations in accordance with the laws of
the State of Ohio and imposes assessments on Ohio associations based on their
asset size to cover the costs of supervision and examination. Ohio law
prescribes the permissible investments and activities of Ohio savings and loan
associations, including the types of lending that such associations may engage
in and the investments in real estate, subsidiaries and corporate or government
securities that such associations may make. The ability of Ohio associations
-26-
<PAGE> 27
to engage in these state-authorized investments and activities is subject to
oversight and approval by the FDIC, if such investments or activities are not
permissible for a federally-chartered savings association. The Ohio
Superintendent also has approval authority over any mergers involving, or
acquisitions of control of, Ohio savings and loan associations. The Ohio
Superintendent may initiate certain supervisory measures or formal enforcement
actions against Ohio associations. Ultimately, if the grounds provided by law
exist, the Superintendent may place an Ohio association in conservatorship or
receivership.
In addition to being governed by the laws of Ohio specifically
governing savings and loan associations, Winton is also governed by Ohio
corporate law, to the extent such law does not conflict with the laws
specifically governing savings and loan associations.
OFFICE OF THRIFT SUPERVISION
GENERAL. The OTS is an office of the Department of the Treasury and is
responsible for the regulation and supervision of all federally-chartered
savings associations and all other savings associations the deposits of which
are insured by the FDIC in the SAIF. The OTS issues regulations governing the
operation of savings associations, regularly examines such associations and
imposes assessments on savings associations based on their asset size to cover
the costs of general supervision and examination. The OTS also may initiate
enforcement actions against savings associations and certain persons affiliated
with them for violations of laws or regulations or for engaging in unsafe or
unsound practices. If the grounds provided by law exist, the OTS may appoint a
conservator or receiver for a savings association.
Savings associations are subject to regulatory oversight under various
consumer protection and fair lending laws. These laws govern, among other
things, truth-in-lending disclosures, equal credit opportunity, fair credit
reporting and community reinvestment. Failure to abide by federal laws and
regulations governing community reinvestment could limit the ability of an
association to open a new branch or engage in a merger. Community reinvestment
regulations evaluate how well and to what extent an institution lends and
invests in its designated service area, with particular emphasis on low- to
moderate-income communities and borrowers in that area.
REGULATORY CAPITAL REQUIREMENTS. Winton is required by OTS regulations
to meet certain minimum capital requirements. The tangible capital requirement
requires savings associations to maintain "tangible capital" of not less than
1.5% of their adjusted total assets. Tangible capital is defined in OTS
regulations as core capital minus any intangible assets.
"Core capital" is comprised of common stockholders' equity (including
retained earnings), noncumulative preferred stock and related surplus, minority
interests in consolidated subsidiaries, certain nonwithdrawable accounts and
pledged deposits of mutual associations. OTS regulations require savings
associations to maintain core capital of at least 3% of their total assets. The
OTS has proposed to amend the core capital requirement so that those
associations that do not have the highest examination rating and exceed an
acceptable level of risk will be required to maintain core capital of from 4% to
5%, depending on the association's examination rating and overall risk. Winton
does not anticipate that it will be adversely affected if the core capital
requirement regulation is amended as proposed.
OTS regulations require that savings associations maintain "risk-based
capital" in an amount not less than 8% of their risk-weighted assets. Risk-based
capital is defined as core capital plus certain additional items of capital,
which in the case of Winton includes a general loan loss allowance of $789,000
at September 30, 1998.
Winton met all of its capital requirements at September 30, 1998. See
"Management's Discussion and Analysis - Liquidity and Capital Resources."
The OTS has adopted an interest rate risk component to the risk-based
capital requirement, though the implementation of that component has been
delayed. Pursuant to the interest rate risk component, a savings association
will have to measure the effect of an immediate 200 basis point change in
interest rates on the value of its portfolio as determined under the methodology
of the OTS. If the measured interest rate risk is above the level deemed normal
under the regulation, the association will be required to deduct one-half of
such excess exposure from its total capital when determining its risk-based
capital. In general, an association with less than $300 million in assets and a
risk-based capital ratio in excess of 12% will not be subject to the interest
rate risk component. Pending implementation of the interest rate risk component,
the OTS has the authority to impose a higher individualized capital requirement
on any savings association it deems to have excess
-27-
<PAGE> 28
interest rate risk. The OTS also may adjust the risk-based capital requirement
on an individualized basis to take into account risks due to concentrations of
credit and non-traditional activities.
The OTS has adopted regulations governing prompt corrective action to
resolve the problems of capital deficient and otherwise troubled savings
associations. At each successively lower defined capital category, an
association is subject to more restrictive and more numerous mandatory or
discretionary regulatory actions or limits, and the OTS has less flexibility in
determining how to resolve the problems of the institution. In addition, the OTS
generally can downgrade an association's capital category, notwithstanding its
capital level, if, after notice and opportunity for hearing, the association is
deemed to be engaging in an unsafe or unsound practice because it has not
corrected deficiencies that resulted in it receiving a less than satisfactory
examination rating on matters other than capital or it is deemed to be in an
unsafe or unsound condition. All undercapitalized associations must submit a
capital restoration plan to the OTS within 45 days after becoming
undercapitalized. Such associations will be subject to increased monitoring and
asset growth restrictions and will be required to obtain prior approval for
acquisitions, branching and engaging in new lines of business. Furthermore,
critically undercapitalized institutions must be placed in conservatorship or
receivership within 90 days of reaching that capitalization level, except under
limited circumstances. Under such regulations, unless an association has
received the highest possible examination rating, the association will be
subject to restrictive action by the OTS if it does not maintain core capital of
at least 4%. Winton's capital at September 30, 1998, met the standards for the
highest category, a "well-capitalized" institution.
Federal law prohibits a savings association from making a capital
distribution to anyone or paying management fees to any person having control of
the association if, after such distribution or payment, the association would be
undercapitalized. In addition, each company controlling an undercapitalized
association must guarantee that the association will comply with its capital
plan until the association has been adequately capitalized on an average during
each of four preceding calendar quarters and must provide adequate assurances of
performance. The aggregate liability pursuant to such guarantee is limited to
the lesser of (a) an amount equal to 5% of the association's total assets at the
time the institution became undercapitalized and (b) the amount that is
necessary to bring the association into compliance with all capital standards
applicable to such association at the time the association fails to comply with
its capital restoration plan.
LIQUIDITY. OTS regulations require that a savings association maintain
an average daily balance of liquid assets (cash, certain time deposits, bankers'
acceptances and specified United States government, state or federal agency
obligations) equal to a monthly average of not less than 4.0% of its net
withdrawable savings deposits payable in one year plus borrowings payable in one
year or less. Monetary penalties may be imposed upon associations failing to
meet these liquidity requirements. The eligible liquidity of Winton at September
30, 1998, was approximately $37.4 million, or 19.3%, and exceeded the 4.0%
liquidity requirement by approximately $29.5 million.
QUALIFIED THRIFT LENDER TEST. Savings associations are required to meet
the QTL test. Prior to September 30, 1996, the QTL test required savings
associations to maintain a specified level of investments in assets that are
designated as qualifying thrift investments ("QTI"), which are generally related
to domestic residential real estate and manufactured housing and include credit
card, student and small business loans and stock issued by any FHLB, the FHLMC
or the FNMA. Under such test, 65% of an institution's "portfolio assets" (total
assets less goodwill and other intangibles, property used to conduct business
and 20% of liquid assets) must consist of QTI on a monthly average basis in nine
out of every 12 months. Effective September 30, 1996, a savings association may
also qualify as a QTL by meeting the definition of "domestic building and loan
association" under the Internal Revenue Code of 1986, as amended (the "Code").
In order for an institution to meet the definition of a "domestic building and
loan association" under the Code, at least 60% of such institution's assets must
consist of specified types of property, including cash loans secured by
residential real estate or deposits, educational loans and certain governmental
obligations. The OTS may grant exceptions to the QTL test under certain
circumstances. If a savings association fails to meet the QTL test, the
association and its holding company become subject to certain operating and
regulatory restrictions. A savings association that fails to meet the QTL test
will not be eligible for new FHLB advances. At September 30, 1998, Winton met
the QTL test.
LENDING LIMIT. OTS regulations generally limit the aggregate amount
that a savings association can lend to one borrower to an amount equal to 15% of
the association's Lending Limit Capital. A savings association may lend to one
borrower an additional amount not to exceed 10% of the association's Lending
Limit Capital, if the additional amount is fully secured by certain forms of
"readily marketable collateral." Real estate is not considered "readily
marketable collateral." Certain types of loans are not subject to the lending
limit. A general exception to the 15% limit provides that an association may
lend to one borrower up to $500,000, for any purpose. In applying the limit on
loans to one borrower, the regulations
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<PAGE> 29
require that loans to certain related borrowers be aggregated. At September 30,
1998, Winton was in compliance with this lending limit.
TRANSACTIONS WITH INSIDERS AND AFFILIATES. Loans to executive officers,
directors and principal shareholders and their related interests must conform to
the lending limit on loans to one borrower, and the total of such loans to
executive officers, directors, principal shareholders and their related
interests cannot exceed the association's Lending Limit Capital (or 200% of
Lending Limit Capital for qualifying institutions with less than $100 million in
deposits). Most loans to directors, executive officers and principal
shareholders must be approved in advance by a majority of the "disinterested"
members of the board of directors of the association, with any "interested"
director not participating. All loans to directors, executive officers and
principal shareholders must be made on terms substantially the same as offered
in comparable transactions with the general public or as offered to all
employees in a company-wide benefit program, and loans to executive officers are
subject to additional limitations. Winton was in compliance with such
restrictions at September 30, 1998.
All transactions between savings associations and their affiliates must
comply with Sections 23A and 23B of the Federal Reserve Act (the "FRA"). An
affiliate of a savings association is any company or entity that controls, is
controlled by or is under common control with the savings association. WFC is an
affiliate of Winton. Generally, Sections 23A and 23B of the FRA (i) limit the
extent to which a savings association or its subsidiaries may engage in "covered
transactions" with any one affiliate to an amount equal to 10% of such
institution's capital stock and surplus, (ii) limit the aggregate of all such
transactions with all affiliates to an amount equal to 20% of such capital stock
and surplus, and (iii) require that all such transactions be on terms
substantially the same, or at least as favorable to the association, as those
provided in transactions with a non-affiliate. The term "covered transaction"
includes the making of loans, purchasing of assets, issuance of a guarantee and
other similar types of transactions. In addition to the limits in Sections 23A
and 23B, a savings association may not make any loan or other extension of
credit to an affiliate unless the affiliate is engaged only in activities
permissible for a bank holding company and may not purchase or invest in
securities of any affiliate except shares of a subsidiary. Winton was in
compliance with these requirements and restrictions at September 30, 1998.
LIMITATIONS ON CAPITAL DISTRIBUTIONS. The OTS imposes various
restrictions or requirements on the ability of associations to make capital
distributions, including dividend payments. An association which has converted
from mutual to stock form is prohibited from declaring or paying any dividends
or from repurchasing any of its stock if, as a result, the net worth of the
association would be reduced below the amount required to be maintained for the
liquidation account established in connection with its mutual to stock
conversion. OTS regulations also establish a three-tier system limiting capital
distributions according to ratings of associations based on their capital level
and supervisory condition.
Tier 1 consists of associations that, before and after the proposed
distribution, meet their fully phased-in capital requirements. Associations in
this category may make capital distributions during any calendar year up to the
greater of (i) 100% of net income, current year-to-date, plus 50% of the amount
by which the lesser of the association's tangible, core or risk-based capital
exceeds its fully phased-in capital requirement for such capital component, as
measured at the beginning of the calendar year, and (ii) the amount authorized
for a Tier 2 association. A Tier 1 association deemed to be in need of more than
normal supervision by the OTS may be downgraded to a Tier 2 or Tier 3
association. Winton meets the requirements for a Tier 1 association and has not
been notified of any need for more than normal supervision.
As a subsidiary of WFC, Winton is required to give the OTS 30 days'
notice prior to declaring any dividend on its stock. The OTS may object to the
distribution during such 30-day period based on safety and soundness concerns.
HOLDING COMPANY REGULATION. WFC is a savings and loan holding company
within the meaning of the HOLA. As such, WFC has registered with the OTS and is
subject to OTS regulations, examination, supervision and reporting requirements.
The HOLA generally prohibits a savings and loan holding company from
controlling any other savings association or savings and loan holding company,
without prior approval of the OTS, or from acquiring or retaining more than 5%
of the voting shares of a savings association or holding company thereof, which
is not a subsidiary. Under certain circumstances, a savings and loan holding
company is permitted to acquire, with the approval of the OTS, up to 15% of the
previously unissued voting shares of an undercapitalized savings association for
cash without such savings association being deemed to be controlled by WFC.
Except with the prior approval of the OTS, no director or officer of a savings
and loan holding company or person owning or controlling by proxy or otherwise
more than 25% of such holding company's stock may also acquire control of any
savings institution, other than a subsidiary institution, or any other savings
and loan holding company.
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<PAGE> 30
As a unitary savings and loan holding company, WFC generally has no
restrictions on its activities. Such companies are the only financial
institution holding companies which may engage in any commercial, securities and
insurance activities without restriction. Congress is considering legislation
which may limit WFC's ability to engage in these activities. It cannot be
predicted whether and in what form these proposals might become law. However,
such limits would not impact WFC's current activities, which consist solely of
holding stock of Winton. The broad latitude to engage in activities under
current law can be restricted. If the OTS determines that there is reasonable
cause to believe that the continuation by a savings and loan holding company of
an activity constitutes a serious risk to the financial safety, soundness or
stability of its subsidiary savings association, the OTS may impose such
restrictions as deemed necessary to address such risk, including limiting (i)
payment of dividends by the savings association, (ii) transactions between the
savings association and its affiliates, and (iii) any activities of the savings
association that might create a serious risk that the liabilities of WFC and its
affiliates may be imposed on the savings association. Notwithstanding the
foregoing rules as to permissible business activities of a unitary savings and
loan holding company, if the savings association subsidiary of a holding company
fails to meet the QTL test, then such unitary holding company would become
subject to the activities restrictions applicable to multiple holding companies.
At September 30, 1998, Winton met both those tests.
If WFC acquired control of another savings institution, other than
through a merger or other business combination with Winton, WFC would become a
multiple savings and loan holding company. Unless the acquisition was an
emergency thrift acquisition and each subsidiary savings association met the QTL
test, the activities of WFC and any of its subsidiaries (other than Winton or
other subsidiary savings associations) would thereafter be subject to activity
restrictions. The HOLA provides that, among other things, no multiple savings
and loan holding company or subsidiary thereof that is not a savings institution
shall commence or continue for a limited period of time after becoming a
multiple savings and loan holding company or subsidiary thereof, any business
activity other than (i) furnishing or performing management services for a
subsidiary savings institution, (ii) conducting an insurance agency or escrow
business, (iii) holding, managing or liquidating assets owned by or acquired
from a subsidiary savings institution, (iv) holding or managing properties used
or occupied by a subsidiary savings institution, (v) acting as trustee under
deeds of trust, (vi) those activities previously directly authorized by federal
regulation as of March 5, 1987, to be engaged in by multiple holding companies,
or (vii) those activities authorized by the FRB as permissible for bank holding
companies, unless the OTS by regulation prohibits or limits such activities for
savings and loan holding companies. Those activities described in (vii) above
must also be approved by the OTS prior to being engaged in by a multiple holding
company.
The OTS may approve acquisitions resulting in the formation of a
multiple savings and loan holding company that controls savings associations in
more than one state only if the multiple savings and loan holding company
involved controls a savings association that operated a home or branch office in
the state of the association to be acquired as of March 5, 1987, or if the laws
of the state in which the institution to be acquired is located specifically
permit institutions to be acquired by state-chartered institutions or savings
and loan holding companies located in the state where the acquiring entity is
located (or by a holding company that controls such state-chartered savings
institutions). As under prior law, the OTS may approve an acquisition resulting
in a multiple savings and loan holding company controlling savings associations
in more than one state in the case of certain emergency thrift acquisitions.
Bank holding companies have had more expansive authority to make interstate
acquisitions than savings and loan holding companies since August 1995.
FEDERAL REGULATION OF ACQUISITIONS OF CONTROL OF WFC AND WINTON. In
addition to the Ohio law limitations on the merger and acquisition of Winton and
WFC, federal limitations generally require regulatory approval of acquisitions
at specified levels. Under pertinent federal law and regulations, no person,
directly or indirectly, or acting in concert with others, may acquire control of
Winton or WFC without 60 days' prior notice to the OTS. "Control" is generally
defined as having more than 25% ownership or voting power; however, ownership or
voting power of more than 10% may be deemed "control" if certain factors are in
place. If the acquisition of control is by a company, the acquiror must obtain
approval, rather than give notice, of the acquisition as a savings and loan
holding company.
In addition, any merger of Winton must be approved by the OTS as well
as the Superintendent. Further, any merger of WFC in which WFC is not the
resulting company must also be approved by both the OTS and the Superintendent.
FEDERAL DEPOSIT INSURANCE CORPORATION
DEPOSIT INSURANCE AND ASSESSMENTS. The FDIC is an independent federal
agency that insures the deposits, up to prescribed statutory limits, of
federally insured banks and savings and loan associations and safeguards the
safety and
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<PAGE> 31
soundness of the banking and savings and loan industries. The FDIC administers
two separate insurance funds, the Bank Insurance Fund ("BIF") for commercial
banks and state savings banks and the SAIF for savings associations. Winton is a
member of the SAIF and its deposit accounts are insured by the FDIC up to the
prescribed limits. The FDIC has examination authority over all insured
depository institutions, including Winton, and has authority to initiate
enforcement actions against federally-insured savings associations if the FDIC
does not believe the OTS has taken appropriate action to safeguard safety and
soundness and the deposit insurance fund.
The FDIC is required to maintain designated levels of reserves in the
SAIF and in the BIF. The FDIC may increase assessment rates for either fund if
necessary to restore the fund's ratio of reserves to insured deposits to its
target level within a reasonable time and may decrease such rates if such target
level has been met. The FDIC has established a risk-based assessment system for
both SAIF and BIF members. Under this system, assessments vary based on the risk
the institution poses to its deposit insurance fund. The risk level is
determined based on the institution's capital level and the FDIC's level of
supervisory concern about the institution.
Prior to September 1996, the SAIF's ratio of reserves to insured
deposits was significantly below the level required by law, while the BIF's
ratio was above the required level. As a result, institutions with SAIF-insured
deposits were paying higher deposit insurance assessments than institutions with
BIF-insured deposits. Federal legislation providing for the recapitalization of
the SAIF became effective in September 1996 and included a special assessment of
$.657 per $100 of SAIF-insured deposits held at March 31, 1995. Winton had
approximately $195.6 million in deposits at March 31, 1995, and paid a special
assessment of $1.3 million.
STATE-CHARTERED ASSOCIATION ACTIVITIES. The ability of state-chartered
associations to engage in any state-authorized activities or make any
state-authorized investments is limited if such activity is conducted or
investment is made in a manner different than that permitted for, or subject to
different terms and conditions than those imposed on, federally chartered
savings associations. Engaging as a principal in any such activity or investment
not permissible for a federal association is subject to approval by the FDIC.
Such approval will not be granted unless certain capital requirements are met
and there is not a significant risk to the FDIC insurance fund. All of Winton'
activities and investments at September 30, 1998, were permissible for a federal
association.
FRB RESERVE REQUIREMENTS
Effective December 1, 1998, FRB regulations require savings
associations to maintain reserves of 3% of net transaction accounts (primarily
NOW accounts) up to $46.5 million (subject to an exemption of up to $4.9
million), and of 10% of net transaction accounts in excess of $46.5 million. At
September 30, 1998, Winton was in compliance with the present reserve
requirements and the requirements then in effect.
FEDERAL HOME LOAN BANKS
The FHLBs provide credit to their members in the form of advances.
Winton is a member of the FHLB of Cincinnati and must maintain an investment in
the capital stock of the FHLB of Cincinnati in an amount equal to the greater of
1.0% of the aggregate outstanding principal amount of Winton's residential
mortgage loans, home purchase contracts and similar obligations at the beginning
of each year, or 5% of its advances from the FHLB of Cincinnati. Winton was in
compliance with this requirement with an investment in stock of the FHLB of
Cincinnati of $4.0 million at September 30, 1998.
FHLB advances to member institutions who meet the QTL Test are
generally limited to the lower of (i) 25% of the member's assets or (ii) 20
times the member's investment in FHLB stock. At September 30, 1998, Winton's
maximum limit on advances was approximately $80.0 million. The granting of
advances is also subject to the FHLB's collateral and credit underwriting
guidelines.
Upon the origination or renewal of a loan or advance, the FHLB is
required by law to obtain and maintain a security interest in collateral in one
or more of the following categories: fully-disbursed, whole first mortgage loans
on improved residential property or securities representing a whole interest in
such loans; securities issued, insured or guaranteed by the United States
Government or an agency thereof; deposits in any FHLB; or other real estate
related collateral (up to 30% of the member association's capital) acceptable to
the FHLB, if such collateral has a readily ascertainable value and the FHLB can
perfect its security interest in the collateral.
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<PAGE> 32
The FHLB is required to establish standards of community investment or
service that its members must maintain for continued access to long-term
advances. The standards take into account a member's performance under the
Community Reinvestment Act and its record of lending to first-time home buyers.
All long-term advances by the FHLB must be made only to provide funds for
residential housing finance.
TAXATION
FEDERAL TAXATION
WFC and Winton are each subject to the federal tax laws and regulations
which apply to corporations generally. In addition to the regular income tax,
WFC and Winton may be subject to an alternative minimum tax. An alternative
minimum tax is imposed at a minimum tax rate of 20% on "alternative minimum
taxable income" (which is the sum of a corporation's regular taxable income,
with certain adjustments, and tax preference items), less any available
exemption. Such tax preference items include interest on certain tax-exempt
bonds issued after August 7, 1986. In addition, 75% of the amount by which a
corporation's "adjusted current earnings" exceeds its alternative minimum
taxable income computed without regard to this preference item and prior to
reduction by net operating losses, is included in alternative minimum taxable
income. Net operating losses can offset no more than 90% of alternative minimum
taxable income. The alternative minimum tax is imposed to the extent it exceeds
the corporation's regular income tax. Payments of alternative minimum tax may be
used as credits against regular tax liabilities in future years. However, the
Taxpayer Relief Act of 1997 repealed the alternative minimum tax for certain
"small corporations" for tax years beginning after December 31, 1997. A
corporation initially qualifies as a small corporation if it had average gross
receipts of $5,000,000 or less for the three tax years ending with its first tax
year beginning after December 31, 1996. Once a corporation is recognized as a
small corporation, it will continue to be exempt from the alternative minimum
tax for as long as its average gross receipts for the prior three-year period
does not exceed $7,500,000. In determining if a corporation meets this
requirement, the first year that it achieved small corporation status is not
taken into consideration.
Winton's average gross receipts for the three tax years ending on
September 30, 1998, is $25.8 million and as a result, Winton does not qualify as
a small corporation exempt from the alternative minimum tax.
Prior to the enactment of the Small Business Jobs Protection Act (the
"Act"), which was signed into law on August 21, 1996, certain thrift
institutions, such as Winton, were allowed deductions for bad debts under
methods more favorable than those granted to other taxpayers. Qualified thrift
institutions could compute deductions for bad debts using either the specific
charge-off method of Section 166 of the Code or one of two reserve methods of
Section 593 of the Code. The reserve methods under Section 593 of the Code
permitted a thrift institution annually to elect to deduct bad debts under
either (i) the "percentage of taxable income" method applicable only to thrift
institutions, or (ii) the "experience" method that also was available to small
banks. Under the "percentage of taxable income" method, a thrift institution
generally was allowed a deduction for an addition to its bad debt reserve equal
to 8% of its taxable income (determined without regard to this deduction and
with additional adjustments). Under the "experience" method, a thrift
institution was generally allowed a deduction for an addition to its bad debt
reserve equal to the greater of (i) an amount based on its actual average
experience for losses in the current and five preceding taxable years, or (ii)
an amount necessary to restore the reserve to its balance as of the close of the
base year. A thrift institution could elect annually to compute its allowable
addition to bad debt reserves for qualifying loans either under the experience
method or the percentage of taxable income method. For tax years 1995, 1994, and
1993, Winton used the percentage of taxable income method.
The Act eliminated the percentage of taxable income method of
accounting for bad debts by thrift institutions, effective for taxable years
beginning after 1995. Thrift institutions that are treated as small banks are
allowed to utilize the experience method applicable to such institutions, while
thrift institutions that are treated as large banks are required to use only the
specific charge off method.
A thrift institution required to change its method of computing
reserves for bad debt will treat such change as a change in the method of
accounting, initiated by the taxpayer and having been made with the consent of
the Secretary of the Treasury. Section 481(a) of the Code requires certain
amounts to be recaptured with respect to such change. Generally, the amounts to
be recaptured will be determined solely with respect to the "applicable excess
reserves" of the taxpayer. The amount of the applicable excess reserves will be
taken into account ratably over a six-taxable year period, beginning with the
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first taxable year beginning after 1995, subject to the residential loan
requirement described below. In the case of a thrift institution that is treated
as a large bank, the amount of the institution's applicable excess reserves
generally is the excess of (i) the balances of its reserve for losses on
qualifying real property loans (generally loans secured by improved real estate)
and its reserve for losses on nonqualifying loans (all other types of loans) as
of the close of its last taxable year beginning before January 1, 1996, over
(ii) the balances of such reserves as of the close of its last taxable year
beginning before January 1, 1988 (i.e., the "pre-1988 reserves"). In the case of
a thrift institution that is treated as a small bank, like Winton, the amount of
the institution's applicable excess reserves generally is the excess of (i) the
balances of its reserve for losses on qualifying real property loans and its
reserve for losses on nonqualifying loans as of the close of its last taxable
year beginning before January 1, 1996, over (ii) the greater of the balance of
(a) its pre-1988 reserves or (b) what the thrift's reserves would have been at
the close of its last year beginning before January 1, 1996, had the thrift
always used the experience method.
For taxable years that begin after December 31, 1995, and before
January 1, 1998, if a thrift meets the residential loan requirement for a tax
year, the recapture of the applicable excess reserves otherwise required to be
taken into account as a Code Section 481(a) adjustment for the year will be
suspended. A thrift meets the residential loan requirement if, for the tax year,
the principal amount of residential loans made by the thrift during the year is
not less than its base amount. The "base amount" generally is the average of the
principal amounts of the residential loans made by the thrift during the six
most recent tax years beginning before January 1, 1996. A residential loan is a
loan as described in Section 7701(a)(19)(C)(v) (generally a loan secured by
residential or church property and certain mobile homes), but only to the extent
that the loan is made to the owner of the property.
The balance of the pre-1988 reserves is subject to the provisions of
Section 593(e), as modified by the Act, which require recapture in the case of
certain excessive distributions to shareholders. The pre-1988 reserves may not
be utilized for payment of cash dividends or other distributions to a
shareholder (including distributions in dissolution or liquidation) or for any
other purpose (except to absorb bad debt losses). Distribution of a cash
dividend by a thrift institution to a shareholder is treated as made: first, out
of the institution's post-1951 accumulated earnings and profits; second, out of
the pre-1988 reserves; and third, out of such other accounts as may be proper.
To the extent a distribution by Winton to WFC is deemed paid out of its pre-1988
reserves under these rules, the pre-1988 reserves would be reduced and the gross
income of Winton for tax purposes would be increased by the amount which, when
reduced by the income tax, if any, attributable to the inclusion of such amount
in its gross income, equals the amount deemed paid out of the pre-1988 reserves.
As of September 30, 1998, the pre-1988 reserves of Winton for tax purposes
totaled approximately $1.1 million. Winton believes it had approximately $19.7
million of accumulated earnings and profits for tax purposes as of September 30,
1998, which would be available for dividend distributions, provided regulatory
restrictions applicable to the payment of dividends are met. No representation
can be made as to whether Winton will have current or accumulated earnings and
profits in subsequent years.
The tax returns of Winton have been audited or closed without audit
through fiscal year 1994. In the opinion of management, any examination of open
returns would not result in a deficiency which could have a material adverse
effect on the financial condition of Winton.
OHIO TAXATION
WFC is subject to the Ohio corporation franchise tax, which, as applied
to WFC, 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. For tax years beginning after December 31, 1998, the rate of
tax is the greater of (i) 5.1% on the first $50,000 of computed Ohio taxable
income and 8.5% of computed Ohio taxable income in excess of $50,000 or (ii)
.400% times taxable net worth.
A special litter tax is also applicable to all corporations, including
WFC, subject to the Ohio corporation franchise tax other than "financial
institutions." If the franchise tax is paid on the net income basis, the litter
tax is equal to .11% of the first $50,000 of computed Ohio taxable income and
.22% of computed Ohio taxable income in excess of $50,000. If the franchise tax
is paid on the net worth basis, the litter tax is equal to .014% times taxable
net worth.
Winton is a "financial institution" for State of Ohio tax purposes. As
such, it is subject to the Ohio corporate franchise tax on "financial
institutions," which is imposed annually at a rate of 1.5% of the taxable book
net worth of Winton determined in accordance with generally accepted accounting
principles. For tax year 1999, however, the franchise tax on financial
institutions will be 1.4% of the taxable book net worth and for tax year 2000
and years thereafter the tax will be
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1.3% of the taxable book net worth. As a "financial institution," Winton is not
subject to any tax based upon net income or net profits imposed by the State of
Ohio.
ITEM 2. DESCRIPTION OF PROPERTY
The following table sets forth certain information at September 30,
1998, regarding the properties on which the main office and each branch office
of Winton is located:
<TABLE>
<CAPTION>
Owned Date Square Net
Location or leased acquired footage book value (1)
- -------- --------- -------- ------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Main office:
5511 Cheviot Road owned/leased (2) 1967 8,600 $853
Cincinnati, Ohio 45247
Branch offices:
601 Main Street leased N/A 4,100 -
Cincinnati, Ohio 45202
4517 Vine Street
Cincinnati, Ohio 45217 owned 1932 2,600 $ 75
10575 Harrison Avenue
Harrison, Ohio 45030 owned 1981 4,800 $367
7014 Vine Street
Cincinnati, Ohio 45216 owned 1897 3,200 $ 91
</TABLE>
- -----------------------------
(1) Net book value amounts are for land, building and improvements.
(2) In January 1990, Winton entered into a lease agreement pursuant to
which it leases a building containing approximately 3,750 square feet
adjacent to Winton's main office on Cheviot Road. The initial term of
the lease was three years, renewable for seven successive three year
periods. Winton has the right to purchase the building during the term
of the lease. In January 1996 the lease was renewed for an additional
three year period.
Winton also owns furniture, fixtures and various bookkeeping and
accounting equipment. The net book value of Winton's investment in office
premises and equipment totaled $2.9 million at September 30, 1998.
ITEM 3. LEGAL PROCEEDINGS
A class action complaint was filed against Winton on September 28, 1998,
in the Court of Common Pleas of Hamilton County Ohio. The case is styled Spencer
v. Winton Savings & Loan Co., et al., Case # A9805495 and alleges that Winton
violated Ohio Revised Code. 5301.36 by failing to record mortgage
satisfactions within 90 days from the date of satisfaction. Currently, only
David and Kellie Spencer, a single mortgagor of Winton's, have sued; however,
there are class action allegations in the complaint. To date, there has been no
motion to certify the class. Ohio Revised Code ss.5301.35 states that a
mortgagor may recover $250 in a civil action if the 90-day provision is
violated, but does not preclude any other legal remedies to which an aggrieved
mortgagor may be entitled. In this case, plaintiffs seek statutory damages in
the amount of $250, and all other relief to which they may be entitled. Until
the class is certified, management cannot predict Winton's total exposure.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the shareholders of WFC
during the last quarter of fiscal year ended September 30, 1998.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information contained in those portions of the Annual Report to
Shareholders for the fiscal year ended September 30, 1998 (the "Annual Report"),
which are included in Exhibit 13 hereto under the caption "MARKET PRICE OF
WINTON FINANCIAL'S COMMON SHARES AND RELATED SECURITY HOLDER MATTERS" is
incorporated herein by reference.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The information contained in those portions of the Annual Report
included in Exhibit 13 hereto under the caption "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" is incorporated
herein by reference.
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS
The Consolidated Financial Statements contained in those portions of the
Annual Report included in Exhibit 13 hereto are incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This information is included under the heading "Asset/Liability
Management" in Item 1, "Description of Business," on pages 20 through 24 of this
document.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information contained in the definitive Proxy Statement for the 1998
Annual Meeting of Shareholders of Winton Financial Corporation (the "Proxy
Statement"), which is included in Exhibit 20 hereto, under the captions "BOARD
OF DIRECTORS," "EXECUTIVE OFFICERS" and "VOTING SECURITIES AND OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information contained in the Proxy Statement, which is included in
Exhibit 20 hereto, under the caption "COMPENSATION OF EXECUTIVE OFFICERS AND
DIRECTORS" is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in the Proxy Statement, which is included in
Exhibit 20 hereto, under the caption "VOTING SECURITIES AND OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT" is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable
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<PAGE> 36
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Item 3 Amended Articles of Incorporation and
Code of Regulations
Item 10 Material Contracts
Item 13 Portions of the 1998 Annual Report to
Shareholders
Item 20 Proxy Statement for 1999 Meeting of
Shareholders
Item 21 Subsidiaries of the Registrant
Item 23 Consent of Grant Thornton LLP regarding
WFC's Consolidated Financial Statements
and Forms S-8 for WFC's 1988 Stock Option
Plan and 401(k) Profit Sharing Plan
Item 27 Financial Data Schedule
Item 99.1 Safe Harbor Under the Private Securities
Litigation Reform Act of 1995
Item 99.2 Form 5500 for fiscal year ended
September 30, 1997, for the Winton
Savings & Loan Company 401(k) Profit
Sharing Plan
(b) No current report on Form 8-K was filed by WFC during the
last quarter of the fiscal year covered by this Report.
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<PAGE> 37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on December 18, 1998.
WINTON FINANCIAL CORPORATION
By /s/ Robert L. Bollin
-------------------------------
Robert L. Bollin,
President, Chief Executive
Officer and a Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been duly signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
By /s/ Jill M. Burke By /s/ Robert J. Bollin
----------------------------------- -------------------------------
Jill M. Burke, Robert J. Bollin,
Principal Financial Officer Director
and Principal Accounting
Officer
Date: December 18, 1998 Date: December 18, 1998
By /s/ Robert E. Hoeweler By /s/ Thomas H. Humes
----------------------------------- -------------------------------
Robert E. Hoeweler, Thomas H. Humes,
Director Director
Date: December 18, 1998 Date: December 18, 1998
By /s/ Timothy M. Mooney By /s/ William J. Parchman
----------------------------------- -------------------------------
Timothy M. Mooney, William J. Parchman,
Director Director
Date: December 18, 1998 Date: December 18, 1998
By /s/ Henry L. Schulhoff By /s/ J. Clay Stinnett
----------------------------------- -------------------------------
Henry L. Schulhoff, J. Clay Stinnett,
Director Director
Date: December 18, 1998 Date: December 18, 1998
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<PAGE> 38
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER
<S> <C>
3.1 Articles of Incorporation, as amended through February 1, Incorporated by reference to the
1995, of Winton Financial Current Corporation Report on Form
8-K dated June 21, 1995 and filed by
WFC (the "8-K") with the Securities
and Exchange Commission (the "SEC"),
Exhibit 4a
3.2 Regulations of Winton Financial Corporation Incorporated by reference to the
current annual report on the 8-K
filed by WFC with the SEC, Exhibit
4b
10.1 The Winton Savings and Loan Co. Employee Incorporated by reference to the Form S-4
Stock Ownership Plan Registration Statement filed by WFC with
the SEC on November 30, 1989 (the "1989
Form S-4")
10.2 Amendment No. 1 to the Winton Savings and
Loan Co. Employee Stock Ownership Plan
10.3 Amendment No. 2 to The Winton Savings and
Loan Co. Employee Stock Ownership Plan
10.4 The Winton Savings and Loan Co. 1988 Incorporated by reference to the definitive
Employee Stock Option and Incentive Plan Proxy Statement for the 1995 Annual Meeting
of Shareholders filed by WFC with the SEC
on January 6, 1995
10.5 Employment Agreement between WFC, Winton and Robert L. Incorporated by reference to Quarterly
Bollin, dated May 22, 1998 Report on Form 10-QSB for the quarter ended
June 30, 1998, filed by WFC with the
SEC in August 1998 (the "6/98
10-QSB"), Exhibit 10.2
10.6 Employment Agreement between WFC, Winton and Gregory J. Incorporated by reference to the 6/98
Bollin, dated May 22, 1998 10-QSB, Exhibit 10.1
10.7 Employment Agreement between WFC, Winton and James M. Incorporated by reference to Quarterly
Brigger, dated May 1, 1996 Report Form 10-QSB for the quarter ended
June 30, 1996 filed by WFC with the
SEC in August, 1996 (the "6/96
10-QSB")
10.8 Employment Agreement between WFC, Winton and Jill M. Burke, Incorporated by reference to the 6/96 10-QSB
dated May 1, 1996
10.9 Employment Agreement between WFC, Winton and Mary Ellen Incorporated by reference to the 6/96 10-QSB
Lovett
</TABLE>
-38-
<PAGE> 39
<TABLE>
<S> <C>
10.10 Employment Agreement between WFC, Winton and Anthony G. Incorporated by reference to the 6/96 10-QSB
Gerstner, dated May 1, 1996
10.11 Severance Agreement between WFC and Jill M. Burke, dated Incorporated by reference to the 6/98
May 22, 1998 10-QSB, Exhibit 10.3
13 Portions of the Winton Financial Corporation 1998 Annual
Report to Shareholders
20 Proxy Statement for the 1999 Annual Meeting of Shareholders
of Winton Financial Corporation
21 Subsidiaries of the Registrant Incorporated by reference to the Annual
Report on Form 10-KSB for the fiscal year
ended September 30, 1996, filed by WFC with
the SEC on December 24, 1996, Exhibit 21
23.1 Consent of Grant Thornton LLP regarding WFC's Consolidated
Financial Statements and Forms S-8 for WFC's 1988 Stock
Option Plan and 401(k) Profit Sharing Plan
27 Financial Data Schedule
99.1 Safe Harbor Under the Private Securities Litigation
Reform Act of 1995
99.2 Form 5500 for fiscal year ended September 30, 1997, for the
Winton Savings & Loan Company 401(k) Plan
</TABLE>
-39-
<PAGE> 40
Exhibit 10.2
AMENDMENT NO. 1
TO THE
WINTON SAVINGS & LOAN CO.
EMPLOYEE STOCK OWNERSHIP PLAN
WHEREAS, Winton Savings & Loan Co. ("Employer") has adopted an Employee
Stock Ownership Plan ("Plan"); and
WHEREAS, the Plan provides that the Employer may amend the Plan from
time to time; and
WHEREAS, the Employer desires to amend the plan in certain respects;
NOW, THEREFORE, the Plan is amended as follows:
1. Section 2.03 shall be amended by deleting it in its entirety and
substituting the following therefor:
"2.03. LIMITATIONS ON ANNUAL ADDITIONS
ANNUAL ADDITIONS to each PARTICIPANT'S ACCOUNTS shall not
exceed the lesser of (a) $30,000 (or if greater, 1/4th of the defined
benefit dollar limitation in effect under CODE Section 415(b)(1) for
the LIMITATION YEAR); or (b) 25% of the PARTICIPANT'S compensation for
the LIMITATION YEAR. For any PLAN YEAR in which the conditions of CODE
Section 415(c)(6) are satisfied by the PLAN, the limitations contained
in this Section 2.03 shall be adjusted to the maximum amount permitted
under such section of the CODE. For purposes of this section, the
portion of such EMPLOYER contribution which is deemed to be allocated
to a PARTICIPANT'S ACCOUNT shall be an amount which bears the same
ratio to the total contribution made by or on behalf of the EMPLOYER
for such PLAN YEAR which is used to repay principal on one or more PLAN
loans, or to purchase EMPLOYER SHARES, as the number of EMPLOYER SHARES
allocated to such PARTICIPANT'S ACCOUNT on the anniversary date of such
PLAN YEAR bears to the total number of EMPLOYER SHARES allocated to the
ACCOUNTS of all PARTICIPANTS on the anniversary date of such PLAN YEAR.
Notwithstanding the provisions of Section 24.01, the term 'ANNUAL
ADDITIONS' shall not include any amounts credited to the PARTICIPANT'S
ACCOUNT (a) due to EMPLOYER contributions relating to interest payments
on a PLAN loan; or (b) attributable to a FORFEITURE of EMPLOYER SHARES
acquired with the proceeds of a PLAN loan.
<PAGE> 41
For purposes of this Section 2.03, 'compensation' shall mean
compensation as defined in Treasury Regulation Section 1.415-2(d) and
shall include wages, salaries, fees for professional services,
percentage of profits, earned income in the case of a self-employed
PARTICIPANT, disability payments under CODE Section 105(d), paid or
reimbursed moving expenses to the extent not deductible by the
PARTICIPANT, medical reimbursement items and the value of a
non-qualified stock option to the extent includable in an EMPLOYEE'S
gross income upon making the election under CODE Section 83(b).
Specifically excluded are salary deferral contributions; contributions
to the distributions from most deferred compensation plans; amounts
realized from the sale of a non-qualified stock option plan or from the
sale, exchange or other disposition of stock acquired under a qualified
stock option plan and most amounts which receive special tax benefits."
2. Section 12.02 shall be amended by deleting it in its entirety and
substituting the following therefor:
"12.02. TIMING OF PAYMENTS
(a) Unless the PARTICIPANT or BENEFICIARY elects otherwise,
the payment of retirement, death and disability benefits shall begin no
later than 60 days after the latest of the close of the PLAN YEAR in
which (i) the PARTICIPANT attains his NORMAL RETIREMENT AGE; (ii)
occurs the tenth anniversary of the year in which the PARTICIPANT
commenced participation in the PLAN; or (iii) the PARTICIPANT
terminates service with the EMPLOYER.
(b) Any termination benefits not paid in accordance with
Section 12.05 shall be deferred, unless otherwise elected by the
PARTICIPANT, until the 60th day after the beginning of the PLAN YEAR
following the earlier of (i) the PARTICIPANT'S NORMAL RETIREMENT AGE;
or (ii) the fifth anniversary of the date on which the PARTICIPANT
terminated his employment with the EMPLOYER.
Notwithstanding any other provisions in this PLAN, benefit
payments shall commence under this PLAN by the April 1 following the
end of the calendar year in which the PARTICIPANT attains age 70 1/2.
For purposes of this PLAN, benefits are considered to have commenced as
of the first day on which all events have occurred which entitle the
PARTICIPANT to such benefit."
3. Section 12.05 shall be amended by deleting the first two paragraphs
thereof and substituting the following therefor:
"If a PARTICIPANT terminates service and the value of his
nonforfeitable ACCOUNT never exceeded $3,500, the PARTICIPANT
shall receive a
distribution of the value of the entire nonforfeitable portion of such
ACCOUNT on the first day of the month coincident with or following the
date on which he has incurred a ONE-YEAR
2
<PAGE> 42
BREAK IN SERVICE; and the remainder of such ACCOUNT will be treated as
a FORFEITURE.
If a PARTICIPANT terminates service and the value of his
nonforfeitable ACCOUNT ever exceeded $3,500 and he elects to receive
the value of his nonforfeitable ACCOUNT, he shall receive such
nonforfeitable ACCOUNT on the first day of the month coincident with or
following the date on which he has incurred a ONE-YEAR BREAK IN
SERVICE; and the remainder of such ACCOUNT will be treated as a
FORFEITURE."
4. Section 12 shall be amended by adding a new paragraph 12.07 to the
end thereof:
"12.07. RIGHT OF FIRST REFUSAL
(a) During any period when EMPLOYER SHARES are not publicly
traded, all distributions of such SHARES from ACCOUNTS to any
PARTICIPANT or his BENEFICIARY by the PLAN shall be subject to a 'right
of first refusal' upon the terms and conditions hereinafter set forth.
The 'right of first refusal' shall provide that prior to any transfer
(as determined by the PLAN ADMINISTRATOR) of the SHARES, the
PARTICIPANT or BENEFICIARY must first offer to sell such SHARES to the
PLAN; and if the PLAN refuses to exercise its right to purchase the
SHARES, then the EMPLOYER shall have a 'right of first refusal' to
purchase such SHARES. Neither the PLAN nor the EMPLOYER shall be
required to exercise the 'right of first refusal'. This Section 12.07
shall not be operative unless and until the Board of Directors of the
EMPLOYER so directs.
(b) The terms and conditions of the 'right of first refusal'
shall be determined as follows:
(i) If the PARTICIPANT or BENEFICIARY receives a bona
fide offer for the purchase of all or any part of his EMPLOYER SHARES
from a third party, the PARTICIPANT or BENEFICIARY shall forthwith
deliver (by registered mail, return receipt requested) a copy of any
such offer to the PLAN ADMINISTRATOR. The TRUSTEE (as directed by the
PLAN ADMINISTRATOR) or the EMPLOYER, as the case may be, shall then
have 14 days after receipt by the PLAN ADMINISTRATOR of the written
offer to exercise the right to purchase all or any portion of the
SHARES.
(ii) The selling price and other terms under the
'right of first refusal' must not be less favorable to the PARTICIPANT
or BENEFICIARY than the purchase price and other terms offered by a
buyer other than the EMPLOYER or the PLAN, making a good faith offer to
purchase the security."
3
<PAGE> 43
IN WITNESS WHEREOF, the undersigned has executed the amendment
effective as of June 8, 1988.
WINTON SAVINGS & LOAN CO.
By /s/ James W. Brigger
--------------------------
Title: Vice President
Date: 6/27/90
4
<PAGE> 44
Exhibit 10.3
AMENDMENT NO. 2
TO THE
WINTON SAVINGS & LOAN CO.
EMPLOYEE STOCK OWNERSHIP PLAN
WHEREAS, Winton Savings & Loan Co. ("Employer") has adopted an Employee
Stock Ownership Plan ("Plan"); and
WHEREAS, the Plan provides that the Employer may amend the Plan from
time to time; and
WHEREAS, the Employer desires to amend the Plan in certain respects;
NOW, THEREFORE, the Plan is amended as follows:
1. The name of the Plan shall be amended to read The Winton Financial
Corporation Employee Stock Ownership Plan.
2. Section 24.10 shall be amended by deleting it in its entirety and
substituting the following therefor:
"'EMPLOYER' means the Winton Financial Corporation and any other member
of a controlled group."
3. Section 24.24 shall be amended by deleting it in its entirety and
substituting the following therefor:
"'PLAN' means The Winton Financial Corporation
Employee Stock Ownership Plan and any amendments made hereto."
IN WITNESS WHEREOF, the undersigned has executed the amendment
effective as of October 1, 1990.
WINTON SAVINGS & LOAN CO.
By James W. Brigger
----------------------------
Title: Vice President
----------------------------
Date: 10/1/90
<PAGE> 45
Exhibit 13
WINTON FINANCIAL CORPORATION
BUSINESS OF WINTON FINANCIAL
Winton Financial Corporation, an Ohio corporation ("Winton Financial"), is a
unitary savings and loan holding company which owns all of the outstanding
common shares of The Winton Savings and Loan Co. ("Winton Savings" or the
"Company").
The activities of Winton Financial have been limited primarily to holding the
stock of Winton Savings. Organized in 1887 under the laws of the state of Ohio
as a mutual savings and loan association, Winton Savings completed its
conversion to stock form in fiscal 1988 and completed a merger with Blue Chip
Savings Bank ("Blue Chip") in January 1996. Winton Savings conducts business
from its principal office in the Monfort Heights area of Cincinnati, Ohio, and
its four branch offices in Hamilton County, Ohio, and is principally engaged in
the business of making first mortgage loans to finance the purchase,
construction or improvement of residential or other real property. In August
1998, Winton Savings opened its first loan production office in Western Hills.
Winton Savings' primary business activity, mortgage lending, had another year of
strong growth in fiscal 1998, which can be attributed to its strong lending
operation, to an aggressive marketing and selling effort of its lending products
and services to the communities in its market area and to the continued
development and retirement of new and innovative lending programs that give
Winton Savings a more competitive advantage. Looking ahead, Winton Savings
believes that this new lending office will be a great opportunity to enhance its
already strong lending operation.
Winton Savings also invests in U.S. government guaranteed mortgage-backed and
investment securities issued by the U.S. government and agencies thereof. Funds
for lending and investment are obtained primarily from savings deposits, loan
principal and interest repayments, mortgage sales and borrowings from the
Federal Home Loan Bank (the "FHLB") of Cincinnati, of which Winton Savings is a
member.
Winton Financial is subject to regulation, supervision and examination by the
Office of Thrift Supervision of the U.S. Department of Treasury (the "OTS").
Winton Savings is subject to regulation, supervision and examination by the OTS,
the Federal Deposit Insurance Corporation (the "FDIC") and the Ohio Division of
Financial Institutions. Deposits in Winton Savings are insured up to applicable
limits by the FDIC.
MARKET PRICE OF WINTON FINANCIAL'S
COMMON SHARES AND RELATED SECURITY HOLDER MATTERS
As of December 3, 1998, Winton Financial had 4,015,304 common shares outstanding
and held of record by approximately 402 shareholders. The number of shareholders
does not reflect the number of persons or entities who may hold stock in nominee
or "street" name through brokerage firms or others. From April 1993 to July
1997, Winton Financial's common shares were listed on The Nasdaq SmallCap Market
("Nasdaq"). In July 1997, Winton Financial's common shares were listed on the
American Stock Exchange, Inc. ("Amex").
Presented on the next page are the high and low sales prices for Winton
Financial's common shares, as well as the amount of cash dividends paid on the
common shares for each quarter of the last three fiscal years. Such sales prices
do not include retail financial markups, markdowns, or commissions. Information
relating to sales prices has been obtained from Nasdaq or Amex, as applicable.
1
<PAGE> 46
WINTON FINANCIAL CORPORATION
<TABLE>
<CAPTION>
CASH
FISCAL YEAR ENDING SEPTEMBER 30, HIGH(1) LOW(1) DIVIDENDS(1)
1998
<S> <C> <C> <C>
Quarter ending December 31, 1997 $ 10.31 $ 8.81 $ .0625
Quarter ending March 31, 1998 15.13 10.19 .0625
Quarter ending June 30, 1998 20.63 14.75 .0625
Quarter ending September 30, 1998 16.44 9.75 .0625
1997
Quarter ending December 31, 1996 $ 6.75 $ 5.63 $.0525
Quarter ending March 31, 1997 7.00 5.75 .0575
Quarter ending June 30, 1997 7.50 6.00 .0575
Quarter ending September 30, 1997 8.75 7.88 .0575
1996
Quarter ending December 31, 1995 $ 7.50 $ 5.50 $ .0500
Quarter ending March 31, 1996 7.50 5.50 .0525
Quarter ending June 30, 1996 7.13 6.00 .0525
Quarter ending September 30, 1996 6.88 5.63 .0525
</TABLE>
(1) Share prices and dividend amounts have been adjusted to give effect to
Winton Financial's two-for-one stock split in the form of a stock dividend
effected during fiscal 1998.
The earnings of Winton Financial consist primarily of dividends from Winton
Savings. In addition to certain federal income tax considerations, regulations
issued by the OTS impose limitations on the payment of dividends and other
capital distributions by savings associations. Under the regulations, a savings
association that, immediately prior to, and on a pro forma basis after giving
effect to, a proposed capital distribution, has total capital (as defined by OTS
regulations) that is equal to or greater than the amounts of its fully phased-in
capital requirement, is generally permitted, without OTS approval (but
subsequent to 30 days' prior notice of the planned dividend to the OTS) to make
capital distributions during a calendar year in an amount not to exceed the
greater of (1) the sum of 100% of its net earnings to date during the calendar
year, plus an amount equal to one-half of the amount by which its total capital
to assets ratio exceeded its fully phased-in capital to assets ratio at the
beginning of the calendar year or (2) 75% of its net earnings over the most
recent four-quarter period. Savings associations which have total capital in
excess of the fully phased-in capital requirement, and which have been notified
by the OTS that they are in need of more than normal supervision will be subject
to greater restrictions on dividends. In addition, a savings association that
fails to meet current minimum capital requirements is prohibited from making any
capital distributions without the prior approval of the OTS. Winton Savings
currently meets its fully phased-in capital requirements and, unless the OTS
determines that Winton Savings is an institution requiring more than normal
supervision, may pay dividends in accordance with the foregoing provisions of
the OTS regulations.
2
<PAGE> 47
WINTON FINANCIAL CORPORATION
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables set forth certain information concerning Winton Financial's
consolidated financial position and results of operations at the dates and for
the periods indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
STATEMENT OF FINANCIAL CONDITION DATA: 1998 1997 1996 1995 1994
(In thousands)
Total amount of:
<S> <C> <C> <C> <C> <C>
Assets $354,193 $324,488 $292,241 $250,180 $239,513
Interest-bearing deposits in other financial
institutions 2,607 1,419 - 2,360 1,712
Investment securities (1) 20,437 16,216 12,174 13,080 9,316
Mortgage-backed securities (1) 12,983 15,413 19,356 19,442 20,624
Loans receivable, net (2) 305,308 280,544 250,490 205,964 198,879
Deposits 266,007 240,317 221,533 197,905 185,327
FHLB advances 56,899 57,425 46,376 29,830 33,671
Shareholders' equity - net, restricted 26,892 23,277 20,831 20,397 18,879
YEAR ENDED SEPTEMBER 30,
STATEMENT OF EARNINGS DATA: 1998 1997 1996 1995 1994
(In thousands, except share data)
Total interest income $ 27,071 $ 24,233 $ 20,830 $ 18,713 $ 16,966
Total interest expense 16,748 15,036 12,696 10,959 9,130
-------- -------- -------- -------- --------
Net interest income 10,323 9,197 8,134 7,754 7,836
Provision for loan losses (60) - (253) (88) (45)
-------- -------- -------- -------- --------
Net interest income after provision for
loan losses 10,263 9,197 7,881 7,666 7,791
Other income 2,180 1,619 1,419 818 628
General, administrative and other expense (6,321) (5,907) (7,491) (5,529) (5,497)
-------- -------- -------- -------- --------
Earnings before income taxes 6,122 4,909 1,809 2,955 2,922
Federal income taxes (2,065) (1,683) (628) (994) (971)
-------- -------- -------- -------- --------
Net earnings $ 4,057 $ 3,226 $ 1,181 $ 1,961 $ 1,951
======== ======== ======== ======== ========
Earnings per share
Basic (3) $1.01 $.81 $.30 $.50 $.50
===== ==== ==== ==== ====
Diluted (3) $ .96 $.80 $.30 $.50 $.50
===== === ==== ==== ====
</TABLE>
(1) Includes securities designated as available for sale. See Note A-2 of the
Consolidated Financial Statements for additional information regarding
Statement of Financial Accountings Standards ("SFAS") No. 115.
(2) Includes loans held for sale.
(3) Basic and diluted earnings per share for 1994 through 1997 have been
adjusted to give effect to the two-for-one stock split in fiscal 1998.
3
<PAGE> 48
WINTON FINANCIAL CORPORATION
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
OTHER DATA: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Interest rate spread 2.68% 2.78% 2.80% 3.06% 3.39%
Return on average equity 16.08 14.65 5.67 9.94 10.58
Return on average assets 1.19 1.05 .44 .80 .85
Shareholders' equity to assets 7.59 7.17 7.13 8.15 7.88
Number of:
Loans outstanding 5,871 5,576 5,146 4,604 4,329
Deposit accounts 21,128 20,410 20,735 20,209 19,278
Full service offices 5 5 5 5 5
</TABLE>
4
<PAGE> 49
WINTON FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
- -------
Since 1990, Winton Financial's activities primarily have been limited to owning
the outstanding common shares of Winton Savings. Therefore, the discussion that
follows focuses on the comparison of Winton Savings' operations in fiscal 1998,
fiscal 1997 and fiscal 1996.
Forward-Looking Statements
- --------------------------
In the following pages, management presents an analysis of Winton Financial's
financial condition as of September 30, 1998, and the results of operations for
fiscal 1998, compared to prior years. In addition to this historical
information, the following discussion contains forward-looking statements that
involve risks and uncertainties. Economic circumstances, Winton Financial's
operations and Winton 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 in Winton
Financial's general market area.
Without limiting the foregoing, some of the statements in the following
referenced sections of this discussion and analysis are forward-looking and are
therefore, subject to such risks and uncertainties:
1. Management's analysis of the interest rate risk of Winton Savings as set
forth under "Asset/Liability Management;"
2. Management's discussion of the liquidity of Winton Savings' assets and the
regulatory capital of Winton Savings as set forth under "Liquidity and
Capital Resources;"
3. The discussion of the anticipated effect of legislation that may be enacted
as set forth under "Charter Unification Legislation;" and
4. Management's determination of the amount and adequacy of the allowance for
loan losses as set forth under "Discussion of Changes in Financial
Condition from September 30, 1997 to September 30, 1998," "Comparison of
Results of Operations for the Fiscal Years Ended September 30, 1998 and
1997" and "Comparison of Results of Operations for the Fiscal Years Ended
September 30, 1997 and 1996."
5. Management's determination of the effects of the year 2000 on Winton
Financial's information technology systems as set forth under "Year 2000
Compliance Issues".
6. Management's estimate as to the effects of recent accounting pronouncements
as set forth under "Effects of Recent Accounting Pronouncements".
5
<PAGE> 50
WINTON FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Discussion of Changes in Financial Condition from September 30, 1997 to
September 30, 1998
- ------------------------------------------------------------------------
Winton Financial's consolidated assets totaled $354.2 million at September 30,
1998, an increase of $29.7 million, or 9.2%, over September 30, 1997 levels. The
current year's growth followed an increase in assets of $32.2 million, or 11.0%,
during fiscal 1997. Winton Financial's growth over the last two years is
generally indicative of management's efforts to increase net interest income
levels by effectively levering the capital base. Fiscal 1998 growth was
primarily funded by growth in deposits of $25.7 million and an increase in
shareholders' equity of $3.6 million, which were partially offset by a decrease
in advances from the FHLB of $526,000.
Cash and interest-bearing deposits increased during fiscal 1998 by $1.4 million,
or 51.3%, to a total of $4.2 million at September 30, 1998. Investment
securities totaled $20.4 million at September 30, 1998, an increase of $4.2
million, or 26.0%, over 1997 levels. This increase resulted from purchases
totaling $10.4 million during fiscal 1998, which were partially offset by
maturities of $6.7 million.
Loans receivable, including loans held for sale, increased by $24.8 million, or
8.8%, during fiscal 1998 to a total of $305.3 million. The increase is generally
indicative of the favorable interest rate spreads that were available on the
Company's portfolio loans during the year ended September 30, 1998. During
fiscal 1998, loan origination volume totaled $227.8 million, an increase of
$80.2 million, or 54.3%, over fiscal 1997. The growth in the loan portfolio
consisted primarily of $3.6 million of multi-family residential loans, $4.5
million of residential construction, $21.1 million of nonresidential real
estate, construction and land loans and $3.2 million of consumer loans, offset
by a decrease of $6.6 million in one- to four-family residential loans and a
$5.3 million increase in the level of undisbursed loans in process. Loan sales
volume totaled $110.5 million during fiscal 1998, an increase of $56.7 million,
or 105.3%, over fiscal 1997 levels.
At September 30, 1998, the allowance for loan losses of Winton Savings totaled
$842,000, an increase of $15,000 over the level maintained at September 30,
1997. At September 30, 1998, the allowance represented approximately .27% of the
total loan portfolio and 78.9% of total non-performing loans. At that date, the
ratio of total non-performing loans to total loans amounted to .34% as compared
to .16% at September 30, 1997. Although management believes that its allowance
for loan losses at September 30, 1998, 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 Winton
Financial's results of operations.
Deposits totaled $266.0 million at September 30, 1998, an increase of $25.7
million, or 10.7%, over 1997 levels. This increase was comprised of $23.2
million of growth in certificates of deposit and an increase of $2.5 million in
transaction accounts. During fiscal 1997, management elected to employ a
strategy to achieve growth in the deposit portfolio that included acquisition of
brokered certificates of deposit. Such brokered deposits totaled $28.5 million
at September 30, 1998.
6
<PAGE> 51
WINTON FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Discussion of Changes in Financial Condition from September 30, 1997 to
September 30, 1998 (continued)
- -----------------------------------------------------------------------
Advances from the FHLB totaled $56.9 million at September 30, 1998, a decrease
of $526,000, or 0.9%, from the amount outstanding at September 30, 1997.
Management generally utilizes such advances as an alternative source of funding
for loan origination volume.
Shareholders' equity totaled $26.9 million at September 30, 1998, an increase of
$3.6 million, or 15.5%, over the September 30, 1997 total. The increase resulted
from net earnings of $4.1 million, coupled with a $288,000 increase in the net
unrealized gains on securities designated as available for sale and $274,000 in
proceeds from the exercise of stock options, which were partially offset by
dividends on common shares totaling $1.0 million.
Comparison of Results of Operations for the Fiscal Years Ended September 30,
1998 and 1997
- -----------------------------------------------------------------------------
General
- -------
Net earnings for fiscal 1998 totaled $4.1 million, an increase of $831,000, or
25.8%, over the $3.2 million in net earnings recorded in fiscal 1997. The
increase in net earnings was primarily attributable to a $1.1 million increase
in net interest income, and a $561,000 increase in other income, which were
partially offset by an increase of $60,000 in the provision for losses on loans,
an increase of $414,000 in general, administrative and other expense and an
increase of $382,000 in the provision for federal income taxes.
Net Interest Income
- -------------------
Total interest income amounted to $27.1 million for fiscal 1998, an increase of
$2.8 million, or 11.7%, over fiscal 1997. The increase resulted primarily from a
$38.5 million, or 12.9%, increase in average interest-earning assets year to
year. Interest income on loans and mortgage-backed securities totaled $25.7
million in fiscal 1998, an increase of $2.5 million, or 11.0%, over fiscal 1997.
This increase resulted primarily from a $33.1 million, or 11.8%, increase in the
average balance outstanding, offset by a decrease in yield, from 8.24% in 1997
to 8.18% in 1998. Interest income on investment securities and interest-bearing
deposits totaled $1.4 million, a $297,000, or 27.3%, increase over fiscal 1997,
due primarily to a $5.3 million increase in the average balance outstanding,
offset by a decrease in yield from 6.27% in 1997 to 6.11% in 1998.
Interest expense on deposits totaled $13.1 million for fiscal 1998, an increase
of $1.1 million, or 9.2%, over fiscal 1997. The increase resulted primarily from
a $21.7 million, or 9.4%, increase in the average balance outstanding. Interest
expense on borrowings totaled $3.6 million, an increase of $603,000, or 19.9%,
from fiscal 1997, due primarily to a $10.0 million, or 19.5%, increase in the
average balance outstanding, coupled with an increase of 2 basis points in the
average cost of borrowings to 5.94% in fiscal 1998.
7
<PAGE> 52
WINTON FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Results of Operations for the Fiscal Years Ended September 30,
1998 and 1997 (continued)
- ----------------------------------------------------------------------------
Net Interest Income (continued)
- -------------------------------
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $1.1 million, or 12.2%, to a total of $10.3
million for fiscal 1998, as compared to fiscal 1997. The interest rate spread
declined by 10 basis points, from 2.78% for fiscal 1997 to 2.68% for fiscal
1998. The net interest margin amounted to 3.07% for fiscal 1998, as compared to
3.08% for fiscal 1997.
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
Company, the status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to the Company's
market area, and other factors related to the collectibility of the Company's
loan portfolio. As a result of such analysis, management recorded a $60,000
provision for losses on loans during fiscal 1998, due primarily to growth in the
loan portfolio during the year. There can be no assurance that the allowance for
loan losses of the Company will be adequate to cover losses on nonperforming
assets in the future.
Other Income
- ------------
Other income totaled $2.2 million for the fiscal year ended September 30, 1998,
an increase of $561,000, or 34.7%, compared to fiscal 1997, due primarily to a
$728,000 increase in gain on sale of loans and a $53,000 increase in other
operating income, which were partially offset by a $152,000 decrease in mortgage
servicing fees, a $36,000 decrease in the gain on sale of investments and
mortgage-backed securities designated as available for sale and a $32,000
decrease in the gain on sale of real estate acquired through foreclosure. The
increase in the gain on sale of loans was due primarily to the aforementioned
increase in the volume of loan sales during fiscal 1998.
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense totaled $6.3 million for fiscal 1998,
an increase of $414,000, or 7.0%, over fiscal 1997. The increase resulted
primarily from an increase of $170,000, or 5.8%, in employee compensation and
benefits, a $95,000, or 7.8%, increase in occupancy and equipment, a $38,000, or
14.4%, increase in franchise taxes, a $69,000, or 40.8%, increase in advertising
and a $98,000, or 9.2%, increase in other operating expense, which were
partially offset by a $56,000, or 27.2%, decrease in federal deposit insurance
premiums.
8
<PAGE> 53
WINTON FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Results of Operations for the Fiscal Years Ended September 30,
1998 and 1997 (continued)
- -----------------------------------------------------------------------------
General, Administrative and Other Expense (continued)
- ------------------------------------------
The increase in employee compensation and benefits resulted primarily from
normal merit increases coupled with an increase in staffing levels year to year.
The increase in other operating expenses was due primarily to an increase in
costs generally related to the increased loan origination volume and an increase
in overall operating costs related to the Corporation's growth year to year.
Federal Income Taxes
- --------------------
The provision for federal income taxes increased by $382,000, or 22.7%, for the
fiscal year ended September 30, 1998, as compared to fiscal 1997. This increase
resulted primarily from the increase in net earnings before taxes of $1.2
million, or 24.7%. Winton Financial's effective tax rates amounted to 33.7% and
34.3% for the fiscal years ended September 30, 1998 and 1997, respectively.
Comparison of Results of Operations for the Fiscal Years Ended September 30,
1997 and 1996
- ----------------------------------------------------------------------------
General
- -------
Net earnings for fiscal 1997 totaled $3.2 million, a $2.0 million, or 173.2%,
increase over the $1.2 million in net earnings recorded in fiscal 1996. The
increase in net earnings was primarily attributable to a $1.3 million charge
recorded in fiscal 1996 related to the recapitalization of the Savings
Association Insurance Fund ("SAIF"), coupled with a $1.1 million increase in net
interest income, a $253,000 decline in the provision for losses on loans, a
$200,000 increase in other income and a decrease of $296,000 in general,
administrative and other expense (after consideration of the SAIF assessment),
which were partially offset by an increase of $1.1 million in the provision for
federal income taxes.
Net Interest Income
- -------------------
Total interest income amounted to $24.2 million for fiscal 1997, an increase of
$3.4 million, or 16.3%, over fiscal 1996. The increase resulted primarily from a
$37.1 million, or 14.2%, increase in average interest-earning assets year to
year. Interest income on loans and mortgage-backed securities totaled $23.1
million in fiscal 1997, an increase of $3.3 million, or 16.8%, over fiscal 1996.
This increase resulted primarily from a $36.0 million, or 14.7%, increase in the
average balance outstanding, coupled with an increase in yield, from 8.09% in
1996 to 8.24% in 1997. Interest income on investment securities and
interest-bearing deposits totaled $1.1 million, a $66,000, or 6.5%, increase
over fiscal 1996, due primarily to a $1.1 million increase in the average
balance outstanding.
9
<PAGE> 54
WINTON FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Results of Operations for the Fiscal Years Ended September 30,
1997 and 1996 (continued)
- -----------------------------------------------------------------------------
Net Interest Income (continued)
- --------------------
Interest expense on deposits totaled $12.0 million for fiscal 1997, an increase
of $1.3 million, or 12.2%, over fiscal 1996. The increase resulted primarily
from a $19.8 million increase in the average balance outstanding, coupled with a
13 basis point increase in the average cost of deposits, to 5.23% in fiscal
1997. Interest expense on borrowings increased by $1.0 million, or 51.7%, due
primarily to a $15.9 million increase in the average balance outstanding coupled
with a 26 basis point increase in the average cost of borrowings year to year.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $1.1 million, or 13.1%, to a total of $9.2
million for fiscal 1997, as compared to fiscal 1996. The interest rate spread
declined by 2 basis points, from 2.80% for fiscal 1996 to 2.78% for fiscal 1997.
The net interest margin increased by 6 basis points, to 3.08% for fiscal 1997,
as compared to 3.02% for fiscal 1996.
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
Company, the status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to the Company's
market area, and other factors related to the collectibility of the Company's
loan portfolio. As a result of such analysis, management determined that the
allowance was adequate and, therefore, a provision for losses on loans was not
necessary during the fiscal year ended September 30, 1997.
Other Income
- ------------
Other income totaled $1.6 million for the fiscal year ended September 30, 1997,
an increase of $200,000, or 14.1%, compared to fiscal 1996, due primarily to a
$95,000, or 12.8%, increase in gain on sale of loans, a $32,000 gain on sale of
real estate acquired through foreclosure, and a $27,000 increase in the gain on
sale of investments and mortgage-backed securities. The increase in the gain on
sale of loans is due primarily to the aforementioned increase in the volume of
loan sales during fiscal 1997.
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense totaled $5.9 million for fiscal 1997,
a decrease of $1.6 million, or 21.1%, from fiscal 1996. The decrease resulted
primarily from the absence of a one-time $1.3 million charge recorded in 1996 in
connection with the assessment to recapitalize the SAIF and the resulting
decline in premiums for fiscal 1997, coupled with a $615,000 provision for
merger costs recorded in 1996, which were partially offset by a $291,000, or
11.1%, increase in employee compensation and benefits and a $194,000, or 22.2%,
increase in other operating expenses.
10
<PAGE> 55
WINTON FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Results of Operations for the Fiscal Years Ended September 30,
1997 and 1996 (continued)
- -----------------------------------------------------------------------------
General, Administrative and Other Expense (continued)
- ------------------------------------------
Legislation to recapitalize the SAIF provided for a special assessment of $.657
per $100 of SAIF deposits held at March 31, 1995, in order to increase SAIF
reserves to the level required by law. Winton Savings had $195.6 million in SAIF
deposits at March 31, 1995 (including $11.5 million in deposits acquired in an
acquisition in April 1995 which are attributed to Winton Savings at March 31,
1995), resulting in an assessment of approximately $1.3 million, or $850,000
after tax, which was recorded as a charge in the quarter ended September 30,
1996, and was paid on November 27, 1996.
The increase in employee compensation and benefits resulted primarily from
normal merit increases coupled with an increase in staffing levels year to year.
The increase in other operating expenses is due primarily to an increase in
costs generally related to the increased loan origination volume and an increase
in overall operating costs related to Winton Financial's growth year to year.
Federal Income Taxes
- --------------------
The provision for federal income taxes increased by $1.1 million, or 168.0%, for
the fiscal year ended September 30, 1997, as compared to fiscal 1996. This
increase resulted primarily from the increase in net earnings before taxes of
$3.1 million, or 171.4%. Winton Financial's effective tax rates amounted to
34.3% and 34.7% for the fiscal years ended September 30, 1997 and 1996,
respectively.
11
<PAGE> 56
AVERAGE BALANCE, YIELD, RATE AND VOLUME DATA
The following table sets forth certain information relating to Winton Savings'
average balance sheet information and reflects the average yield on
interest-earning assets and the average cost of interest-bearing liabilities for
the years indicated. Such yields and costs are derived by dividing income or
expense by the average monthly balance of interest-earning assets or
interest-bearing liabilities, respectively, for the years presented. Average
balances are derived from month-end balances, which include nonaccruing loans in
the loan portfolio, net of the allowance for loan losses. Management does not
believe that the use of month-end balances instead of daily balances has caused
any material differences in the information presented.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1998 1997
AVERAGE INTEREST AVERAGE INTEREST
OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/
BALANCE PAID RATE BALANCE PAID
(Dollars in thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C>
Loans receivable (1) $299,643 $24,813 8.28% $263,344 $22,086
Mortgage-backed securities - available for sale 687 46 6.70 1,948 119
Mortgage-backed securities - held to maturity 13,654 829 6.07 15,552 942
Investment securities - held to maturity 13,424 826 6.15 11,785 757
Investment securities - available for sale 4,889 279 5.71 2,007 122
Interest-bearing deposits and other 4,331 278 6.42 3,544 207
--------- -------- -------- --------- --------
Total interest-earning assets 336,628 27,071 8.04 298,180 24,233
Non-interest-earning assets 4,920 7,970
--------- ---------
Total assets $341,548 $306,150
======= ========
Interest-bearing liabilities:
Deposits $251,393 13,118 5.22 $229,708 12,009
FHLB advances 61,136 3,630 5.94 51,146 3,027
-------- ------- -------- -------- -------
Total interest-bearing liabilities 312,529 16,748 5.36 280,854 15,036
------- -------- -------
Non-interest-bearing liabilities 3,786 3,275
--------- --------
Total liabilities 316,315 284,129
Shareholders' equity 25,233 22,021
-------- --------
Total liabilities and shareholders' equity $341,548 $306,150
======= ========
Net interest income/Interest rate spread $10,323 2.68% $ 9,197
======= ======== =======
Net interest margin (net interest income as a
percent of average interest-earning assets) 3.07%
========
Average interest-earning assets to interest-bearing liabilities 107.71%
========
- ---------------------------
YEAR ENDED SEPTEMBER 30,
1996
1997 AVERAGE INTEREST
YIELD/ OUTSTANDING EARNED/ YIELD/
RATE BALANCE PAID RATE
Interest-earning assets:
<S> <C> <C> <C> <C>
Loans receivable (1) 8.37% $225,164 $18,627 8.27%
Mortgage-backed securities - available for sale 6.11 2,400 113 4.71
Mortgage-backed securities - held to maturity 6.06 17,311 1,070 6.18
Investment securities - held to maturity 6.42 9,927 636 6.41
Investment securities - available for sale 6.08 3,228 185 5.73
Interest-bearing deposits and other 5.84 3,049 199 6.53
-------- --------- --------
Total interest-earning assets 8.13 261,079 20,830 7.98
Non-interest-earning assets 7,283
---------
Total assets $268,362
=========
Interest-bearing liabilities:
Deposits 5.23 $209,879 10,700 5.10
FHLB advances 5.92 35,292 1,996 5.66
-------- --------- ------- --------
Total interest-bearing liabilities 5.35 245,171 12,696 5.18
-------- ------- --------
Non-interest-bearing liabilities 2,349
---------
Total liabilities 247,520
Shareholders' equity 20,842
---------
Total liabilities and shareholders' equity $268,362
=========
Net interest income/Interest rate spread 2.78% $ 8,134 2.80%
======== ======= ========
Net interest margin (net interest income as a
percent of average interest-earning assets) 3.08% 3.02%
======== ========
Average interest-earning assets to interest-bearing
liabilities 106.17% 106.49%
======== ========
- ---------------------------
</TABLE>
(1) Includes loans held for sale and non-accrual loans.
<PAGE> 57
WINTON FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Rate/Volume Table
- -----------------
The table below describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected WFC's interest income and expense during the periods indicated.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (change
in volume multiplied by prior year rate), (ii) changes in rate (change in rate
multiplied by prior year volume) and (iii) total changes in rate and volume. The
combined effects of changes in both volume and rate, which cannot be separately
identified, have been allocated proportionately to the change due to volume and
the change due to rate.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1998 VS. 1997 1997 VS. 1996
INCREASE INCREASE
(DECREASE) (DECREASE)
DUE TO DUE TO
VOLUME RATE TOTAL VOLUME RATE TOTAL
(In thousands)
Interest income attributable to:
<S> <C> <C> <C> <C> <C> <C>
Loans receivable (1) $2,968 $(241) $2,727 $3,244 $ 251 $3,495
Mortgage-backed securities - available
for sale (83) 10 (73) (18) 24 6
Mortgage-backed securities - held to
maturity (115) 2 (113) (107) (21) (128)
Investment securities - available for sale 165 (8) 157 (73) 10 (63)
Investment securities - held to maturity 101 (32) 69 120 1 121
Other interest-earning assets (2) 49 22 71 29 (21) 8
------- ----- ------ ------ ----- ------
Total interest income 3,085 (247) 2,838 3,195 244 3,439
Interest expense attributable to:
Deposits 1,132 (23) 1,109 1,031 278 1,309
Borrowings 593 10 603 933 98 1,031
------- ----- ------ ------ ----- ------
Total interest expense 1,725 (13) 1,712 1,964 376 2,340
------- ----- ------ ------ ----- ------
Increase in net interest income $1,360 $(234) $1,126 $1,231 $(132) $1,099
======= ===== ====== ====== ===== ======
</TABLE>
- ------------------------------
(1) Includes loans held for sale.
(2) Includes interest-bearing deposits and certificates of deposit in other
financial institutions.
13
<PAGE> 58
WINTON FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Asset/Liability Management
- --------------------------
WFC's earnings depend primarily upon its net interest income, which is the
difference between its interest income on interest-earning assets, such as
mortgage loans, investment securities and mortgage-backed securities, and its
interest expense paid on interest-bearing liabilities, consisting of deposits
and borrowings. As market interest rates change, asset yields and liability
costs do not change simultaneously. Due to maturity, repricing and timing
differences between such interest-earning assets and such interest-bearing
liabilities, WFC's earnings will be affected differently under various interest
rate scenarios. Management believes that the steps which have been taken in
asset/liability management may reduce the overall vulnerability of WFC's to
interest rate risk. For example, Winton Savings has sought to limit these net
earnings fluctuations and manage interest rate risk by originating
adjustable-rate loans and by purchasing relatively short-term and variable-rate
investments and securities. However, in order to better compete for deposits,
Winton Savings has offered market-sensitive certificates of deposit, which
result in increased interest expense in rising rate environments. At September
30, 1998, approximately $143.1 million, or 39.7%, of Winton Savings' portfolio
of interest-earning assets had adjustable rates.
WFC's principal financial objective is to enhance long-term profitability while
reducing exposure to increases in interest rates. To accomplish this objective,
WFC has formulated an asset and liability management policy, the principal
elements of which are (1) to increase the interest-rate sensitivity of the
assets of Winton Savings by emphasizing the origination of adjustable-rate
mortgage loans, (2) to maintain its investment portfolio with a relatively short
term to maturity, (3) to shorten asset maturities, (4) to lengthen the
maturities of liabilities to the extent practicable by marketing longer term
certificates of deposit, and (5) to meet the consumer preference for fixed-rate
loans in periods of low interest rates by selling the preponderance of such
loans in the secondary market. Because interest-rate-sensitive liabilities
continue to exceed interest-rate-sensitive assets, Winton Savings would be
negatively affected by a rising or protracted high interest rate environment and
would be beneficially affected by a declining interest rate environment.
The management and Board of Directors of Winton Savings attempt to manage Winton
Savings' exposure to interest rate risk (the sensitivity of an institution's
earnings and net asset values to changes in interest rates) in a manner to
maintain the projected four-quarter percentage change in net interest income and
the projected change in the market value of portfolio equity within the limits
established by the Board of Directors, assuming a permanent and instantaneous
parallel shift in interest rates.
As a part of its effort to monitor its interest rate risk, Winton Savings
reviews the reports of the OTS which set forth the application of the "net
portfolio value" ("NPV") methodology, adopted by the OTS as part of its capital
regulations, to the assets and liabilities of Winton Savings. Although Winton
Savings is not currently subject to the NPV regulation, because its
implementation has been delayed by the OTS, the application of the NPV
methodology may illustrate Winton Savings' level of interest rate risk.
14
<PAGE> 59
WINTON FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Asset and Liability Management (continued)
- ------------------------------------------
Generally, NPV is the discounted present value of the difference between
incoming cash flows on interest-earning and other assets and outgoing cash flows
on interest-bearing liabilities. The application of the methodology attempts to
quantify interest rate risk as the change in the NPV which would result from a
theoretical 200 basis point (100 basis points equals 1%) change in market
interest rates. Both a 200 basis point increase in market interest rates and a
200 basis point decrease in market interest rates are considered. If the NPV
would decrease more than 2% of the present value of the institution's assets
with either an increase or a decrease in market rates, the institution would
have to deduct 50% of the amount of the decrease in excess of such 2% in the
calculation of the institution's risk-based capital, if the regulations were in
effect. Even before the regulation is in effect, OTS could increase Winton
Savings' risk-based capital requirement on an individualized basis to address
excess interest rate risk.
At September 30, 1998, 2% of the present value of Winton Savings' assets was
approximately $7.2 million. Because the interest rate risk of a 200 basis point
increase in market interest rates (which was greater than the interest rate risk
of a 200 basis point decrease) was $5.9 million at September 30, 1998, Winton
Savings would not have been required to reduce its capital in determining
whether Winton Savings met its risk-based capital requirement, if the regulation
had been in effect for Winton Savings.
Presented below, as of September 30, 1998, is an analysis of Winton Savings'
interest rate risk as measured by changes in NPV for instantaneous and sustained
parallel shifts of 100 basis points in market interest rates.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
CHANGE IN INTEREST RATE BOARD LIMIT $ CHANGE % CHANGE
(BASIS POINTS) % CHANGE IN NPV IN NPV
(In thousands)
<S> <C> <C> <C>
+300 (75)% $(9,674) (33)%
+200 (50) (5,907) (20)
+100 (20) (2,680) (9)
- - - -
-100 (15) 2,311 8
-200 (25) 4,847 17
-300 (35) 8,105 28
</TABLE>
15
<PAGE> 60
WINTON FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Asset and Liability Management (continued)
- -------------------------------
As illustrated in the table, NPV is more sensitive to rising rates than
declining rates. Such difference in sensitivity occurs principally because, as
rates rise, borrowers do not prepay fixed-rate loans as quickly as they do when
interest rates are declining. Thus, in a rising interest rate environment, the
amount of interest Winton Savings would receive on its loans would increase
relatively slowly as loans are slowly prepaid and new loans at higher rates are
made. Moreover, the interest Winton Savings would pay on its deposits would
increase rapidly because Winton Savings' deposits generally have shorter periods
to repricing. Assumptions used in calculating the amounts in the above table are
OTS assumptions.
As with any method of measuring interest rate risk, certain shortcomings are
inherent in the NPV approach. For example, although certain assets and
liabilities may have similar maturities or periods of repricing, they may react
in different degrees to changes in market interest rates. Also, the interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other types may lag
behind changes in market rates. Further, in the event of a change in interest
rates, expected rates of prepayment on loans and mortgage-backed securities and
early withdrawal levels from certificates of deposit would likely deviate
significantly from those assumed in making the risk calculations.
In the event that interest rates rise, Winton Savings' net interest income could
be expected to be negatively affected. Moreover, rising interest rates could
negatively affect Winton Savings' earnings due to diminished loan demand.
16
<PAGE> 61
WINTON FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources
- -------------------------------
Winton Savings, like other financial institutions, is required under applicable
federal regulations to maintain sufficient funds to meet deposit withdrawals,
loan commitments and expenses. Control of the Company's cash flow requires the
anticipation of deposit flows and loan payments. The Company's primary sources
of funds are deposits, borrowings, principal and interest repayments on loans
and proceeds from the sale of mortgage loans.
At September 30, 1998, Winton Savings had $118.1 million of certificates of
deposit maturing within one year. It has been the Company's historic experience
that such certificates of deposit will be renewed at market rates of interest.
It is management's belief that maturing certificates of deposit over the next
year will similarly be renewed at market rates of interest without a material
adverse effect on results of operations.
In the event that certificates of deposit cannot be renewed at prevailing market
rates, the Company can obtain up to $18.3 million in additional advances from
the FHLB of Cincinnati. At September 30, 1998, the Company had $56.9 million of
outstanding FHLB advances. The Company also obtains brokered deposits as a
supplement to its local deposits when such funds are attractively priced in
relation to the local market. As of September 30, 1998, the Company had $28.5
million in brokered deposits.
The Company's liquidity, represented by cash and cash-equivalents, is a function
of its operating, investing and financing activities. These activities are
summarized below for the periods indicated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Net earnings $ 4,057 $ 3,226 $ 1,181
Adjustments to reconcile net earnings to net
cash used in operating activities (3,798) (1,971) (194)
------- ------ --------
Net cash provided by operating activities 259 1,255 987
Net cash used in investing activities (23,463) (29,012) (42,513)
Net cash provided by financing activities 24,632 29,039 39,440
------ ------ ------
Net increase (decrease) in cash and
cash equivalents 1,428 1,282 (2,086)
Cash and cash equivalents at beginning of year 2,786 1,504 3,590
------- ------- -------
Cash and cash equivalents at end of year $ 4,214 $ 2,786 $ 1,504
======= ======= =======
</TABLE>
The OTS requires minimum levels of liquid assets. OTS regulations presently
require Winton Savings to maintain specified levels of "liquid" investments in
qualifying types of United States Government and agency obligations and other
permissible investments having certain maturity limitations and marketability
requirements. Such minimum requirement, which was revised by the OTS in fiscal
1998, is an amount equal to 4% of the sum of the Company's average daily balance
of net withdrawable deposit accounts and borrowings payable in one year or less.
The liquidity requirement, which may be changed from time to time by the OTS to
reflect changing economic conditions, is intended to provide a source of
relatively liquid funds upon which the Company may rely, if necessary, to fund
deposit withdrawals and other short-term funding needs.
17
<PAGE> 62
WINTON FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources (continued)
- --------------------------------
The liquidity of Winton Savings, as measured by the ratio of cash, cash
equivalents (not committed, pledged or required to liquidate specific
liabilities) and qualifying investments, mortgage-backed securities and loans to
the sum of net withdrawable savings plus borrowings payable within one year was
19.3% at September 30, 1998. At September 30, 1998, the Company's "liquid"
assets totaled approximately $37.4 million, which was approximately $29.5
million in excess of the current OTS minimum requirement. Winton Financial
believes that the Company's liquidity posture at September 30, 1998, was
adequate to meet outstanding loan commitments and other cash requirements.
Winton Savings is subject to minimum capital standards promulgated by the OTS.
Such capital standards generally require the maintenance of regulatory capital
sufficient to meet each of the following three requirements: the tangible
capital requirement, the core capital requirement and the risk-based capital
requirement. At September 30, 1998, Winton Savings' tangible capital of $25.6
million, or 7.3% of adjusted total assets, exceeded the 1.5% requirement by
$20.3 million; its core capital of $25.6 million, or 7.3% of adjusted total
assets, exceeded the minimum 3.0% requirement by $15.1 million; and, its
risk-based capital of $26.4 million, or 10.6% of risk-weighted assets, exceeded
the 8% requirement by $6.4 million.
In fiscal 1993, the OTS adopted an amendment to the regulatory risk-based
capital requirement to include an interest rate risk component, though
implementation of the component has been delayed. Additionally, the OTS has
proposed an amendment to the core capital requirement that would increase the
minimum requirement to 4% of adjusted total assets for substantially all savings
associations. Management anticipates that Winton Savings' regulatory capital
will continue to meet the minimum requirements should the interest rate risk
component or the core capital proposal be adopted in their present form.
Potential Impact on Future Results of Operations of Current and
Pending Legislation
- ----------------------------------------------------------------
Legislation repealing the percentage of earnings bad debt reserve provisions of
the Internal Revenue Code previously applicable to qualifying thrift
institutions was enacted into law in fiscal 1997. The legislation, which is part
of The Small Business Job Protection Act of 1996 (the "Jobs Act"), requires all
thrift institutions to pay tax on or recapture their excess bad debt reserves
accumulated since 1988. The legislation substantially equalizes the taxation of
banks and thrift institutions, but is protects thrifts from taxes on "bad debt
reserves" established prior to 1988. The Jobs Act eliminates the percentage of
taxable income method for deducting bad debt reserves for all thrifts for tax
years beginning after December 31, 1995 (1996, as to Winton Financial). Under
the legislation, Winton Financial is required to recapture approximately
$980,000 of its bad debt reserves as taxable income, which represents the
post-1987 additions to the reserves, and is unable to utilize the percentage of
earnings method to compute its reserves in the future. Winton Financial has
provided deferred taxes for this amount and will be permitted to amortize the
recapture of its bad debt reserves over six years, beginning in fiscal 1999.
18
<PAGE> 63
WINTON FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Potential Impact on Future Results of Operations of Current and Pending
Legislation (continued)
- ------------------------------------------------------------------------
Legislation had been introduced in Congress to eliminate the federal regulation
of savings and loan associations and to develop a common charter for all
financial institutions. As a result, Winton Financial might become subject to a
different form of holding company regulation, which may limit the activities in
which it may engage and subject it to other additional regulatory requirements,
including separate capital requirements. In addition, Congress may eliminate the
OTS, and Winton Savings may be regulated under federal law as a bank or may be
required to change its charter. Such change in regulation or charter would
likely change the range of activities in which Winton Savings may engage and
would probably subject Winton Savings to more regulation by the FDIC. Winton
Financial and Winton Savings cannot predict when or whether Congress may
actually pass such legislation or whether such legislation will actually change
the regulation and permissible activities of Winton Financial and Winton
Savings. Although such legislation may change the activities in which both
Winton Financial and Winton Savings may engage, it is not anticipated that
current activities will be materially affected by those activity limits.
Effects of Recent Accounting Pronouncements
- -------------------------------------------
In June 1996, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
that provides accounting guidance on transfers of financial assets, servicing of
financial assets, and extinguishment of liabilities. SFAS No. 125 introduces an
approach to accounting for transfers of financial assets that provides a means
of dealing with more complex transactions in which the seller disposes of only a
partial interest in the assets, retains rights or obligations, makes use of
special purpose entities in the transaction, or otherwise has continuing
involvement with the transferred assets. The new accounting method, the
financial components approach, provides that the carrying amount of the
financial assets transferred be allocated to components of the transaction based
on their relative fair values. SFAS No. 125 provides criteria for determining
whether control of assets has been relinquished and whether a sale has occurred.
If the transfer does not qualify as a sale, it is accounted for as a secured
borrowing. Transactions subject to the provisions of SFAS No. 125 include, among
others, transfers involving repurchase agreements, securitizations of financial
assets, loan participations, factoring arrangements, and transfers of
receivables with recourse.
An entity that undertakes an obligation to service financial assets recognizes
either a servicing asset or liability for the servicing contract (unless related
to a securitization of assets, and all the securitized assets are retained and
classified as held-to-maturity). A servicing asset or liability that is
purchased or assumed is initially recognized at its fair value. Servicing assets
and liabilities are amortized in proportion to and over the period of estimated
net servicing income or net servicing loss and are subject to subsequent
assessments for impairment based on fair value.
19
<PAGE> 64
WINTON FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Effects of Recent Accounting Pronouncements (continued)
- -------------------------------------------------------
SFAS No. 125 provides that a liability is removed from the balance sheet only if
the debtor either pays the creditor and is relieved of its obligation for the
liability or is legally released from being the primary obligor.
SFAS No. 125 is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1997, and is to be
applied prospectively. Earlier or retroactive application is not permitted.
Management adopted SFAS No. 125 during fiscal 1998, as required, without
material effect on Winton Financial's consolidated financial position or results
of operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. SFAS No. 130 requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. It does not require a
specific format for that financial statement but requires that an enterprise
display an amount representing total comprehensive income for the period in that
financial statement.
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. SFAS No. 130 is not expected to
have a material effect on Winton Financial's financial position or results of
operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 significantly changes the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about reportable segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 uses a
"management approach" to disclose financial and descriptive information about an
enterprise's reportable operating segments which is based on reporting
information the way that management organizes the segments within the enterprise
for making operating decisions and assessing performance. For many enterprises,
the management approach will likely result in more segments being reported. In
addition, SFAS No. 131 requires significantly more information to be disclosed
for each reportable segment than is presently being reported in annual financial
statements and requires that selected information be reported in interim
financial statements. SFAS No. 131 is effective for financial statements for
periods beginning after December 15, 1997. SFAS No. 131 is not expected to have
a material effect on Winton Financial's financial position or results of
operations.
20
<PAGE> 65
WINTON FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Effects of Recent Accounting Pronouncements (continued)
- -------------------------------------------------------
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires entities to recognize all
derivatives in their financial statements as either assets or liabilities
measured at fair value. SFAS No. 133 also specifies new methods of accounting
for hedging transactions, prescribes the items and transactions that may be
hedged, and specifies detailed criteria to be met to qualify for hedge
accounting.
The definition of a derivative financial instrument is complex, but in general,
it is an instrument with one or more underlyings, such as an interest rate or
foreign exchange rate, that is applied to a notional amount, such as an amount
of currency, to determine the settlement amount(s). It generally requires no
significant initial investment and can be settled net or by delivery of an asset
that is readily convertible to cash. SFAS No. 133 applies to derivatives
embedded in other contacts, unless the underlying of the embedded derivative is
clearly and closely related to the host contract.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. On
adoption, entities are permitted to transfer held-to-maturity debt securities to
the available-for-sale or trading category without calling into question their
intent to hold other debt securities to maturity in the future. SFAS No. 133 is
not expected to have a material impact on Winton Financial's financial position
or results of operations.
The foregoing discussion of the effects of recent accounting pronouncements
contains forward-looking statements that involve risks and uncertainties.
Changes in economic circumstances, interest rates or the balance of loan
servicing rights sold and retained by Winton Savings could cause the effects of
the accounting pronouncements to differ from management's foregoing assessment.
Year 2000 Compliance Issues
- ---------------------------
The Year 2000 issue is a serious operational problem which is widespread and
complex, affecting all industries. The Federal Financial Institution Examination
Council (the "FFIEC"), representing the views of each of the primary financial
institution regulators, has focused on the risk that programming codes in
existing computer systems will fail to properly recognize the new millennium
when it occurs in the year 2000. Winton Savings is addressing the potential
problems associated with the possibility that the computers which control or
operate the Company's operating systems may not be programmed to read four-digit
date codes and, upon arrival of the year 2000, may recognize the two-digit code
"00" as the year 1900, causing systems to fail to function or to generate
erroneous data. Other concerns have been raised regarding February 29, 2000, as
well as September 9, 1999, which are new calculation challenges that may result
in further problems.
21
<PAGE> 66
WINTON FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Year 2000 Compliance Issues (continued)
- ---------------------------------------
Most significantly affected are all forms of financial accounting, including
interest computations, due dates, pensions, personnel benefits, investments,
legal commitments, valuations, fixed asset depreciation schedules, tax filings
and financial models. Additional problems may occur on other systems using
computers for processing, vault openings, check protectors and gas and electric.
The total impact is currently unknown; however, it is projected that failure to
address these programming code issues and make appropriate changes may expose an
institution to all types of risks, including credit, transaction, liquidity,
interest rate, compliance, reputation, strategic, price and foreign exchange.
Winton Savings has established a Year 2000 team, headed by the systems analyst,
to analyze the risk of potential problems that might arise from the failures of
computer programming to recognize the year 2000 and to develop a plan to
mitigate any such risk. Research by the team indicates that the greatest
potential impact upon Winton Savings is the risk related to vendors used by
Winton Savings, particularly the Company's data processing service bureau.
Quarterly progress reports from the service bureau indicated levels of manpower
and expertise sufficient to amend and test the adequacy of their computer
programming and systems prior to the arrival of the year 2000. All other vendors
and commercial customer's have been identified and requests for year 2000
certificates have been forwarded by Winton Savings.
The year 2000 team submits quarterly progress reports to the Board of Directors
and has established a target date of December 31, 1998 for all required internal
testing of each system utilized, which is expected to be minimal. The team
estimates that the impact upon the Company's results of operations, liquidity
and capital resources will be immaterial.
Management has developed a contingency plan which includes manual procedures
along with certain off-line canned programs. Management has set a budget of
approximately $100,000 to ensure Winton Financial and Winton Savings are year
2000 compliant.
In addition, financial institutions may experience increases in problem loans
and credit losses in the event that borrowers fail to prepare properly for Year
2000, and higher funding costs could result if consumers react to publicity
about the issue by withdrawing deposits. Winton Savings is assessing such risks
among its customers. WFC could also be materially adversely affected if other
third parties, such as governmental agencies, clearing houses, telephone
companies, utilities and other service providers fail to prepare properly.
Winton Savings is therefore attempting to assess these risks and take action to
minimize their effect.
22
<PAGE> 67
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Winton Financial Corporation
We have audited the accompanying consolidated statements of financial condition
of Winton Financial Corporation as of September 30, 1998 and 1997, and the
related consolidated statements of earnings, shareholders' equity and cash flows
for each of the years in the three year period ended September 30, 1998. 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 Winton Financial
Corporation as of September 30, 1998 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended September 30, 1998, in conformity with generally accepted accounting
principles.
/S/Grant Thornton LLP
Cincinnati, Ohio
November 19, 1998 (except for Note O, as to which the date is December 4, 1998)
23
<PAGE> 68
WINTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30,
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS 1998 1997
<S> <C> <C>
Cash and due from banks $ 1,607 $ 1,367
Interest-bearing deposits in other financial institutions 2,607 1,419
-------- --------
Cash and cash equivalents 4,214 2,786
Investment securities available for sale - at market 5,579 3,631
Investment securities - at amortized cost, approximate market
value of $15,185 and $12,679 at September 30, 1998 and 1997 14,858 12,585
Mortgage-backed securities available for sale - at market 565 799
Mortgage-backed securities - at cost, approximate market
value of $12,266 and $14,345 at September 30, 1998 and 1997 12,418 14,614
Loans receivable - net 297,055 276,334
Loans held for sale - at lower of cost or market 8,253 4,210
Office premises and equipment - at depreciated cost 2,945 2,627
Real estate acquired through foreclosure 495 513
Federal Home Loan Bank stock - at cost 4,033 2,998
Accrued interest receivable on loans 2,407 2,185
Accrued interest receivable on mortgage-backed securities 91 109
Accrued interest receivable on investments and interest-bearing deposits 285 241
Prepaid expenses and other assets 488 393
Intangible assets - net of amortization 402 463
Prepaid federal income taxes 105 -
-------- --------
Total assets $354,193 $324,488
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $266,007 $240,317
Advances from the Federal Home Loan Bank 56,899 57,425
Accounts payable on mortgage loans serviced for others 912 842
Advance payments by borrowers for taxes and insurance 610 412
Other liabilities 1,342 1,137
Accrued federal income taxes - 85
Deferred federal income taxes 1,531 993
-------- --------
Total liabilities 327,301 301,211
Commitments - -
Shareholders' equity
Preferred stock - 2,000,000 shares without par value authorized;
no shares issued - -
Common stock - 5,000,000 shares without par value authorized;
4,014,304 and 1,986,152 shares outstanding - -
Additional paid-in capital 8,782 6,501
Retained earnings - restricted 17,520 16,474
Unrealized gains on securities designated as available for sale,
net of related tax effects 590 302
-------- --------
Total shareholders' equity 26,892 23,277
-------- --------
Total liabilities and shareholders' equity $354,193 $324,488
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
24
<PAGE> 69
WINTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended September 30,
(In thousands, except share data)
<TABLE>
<CAPTION>
1998 1997 1996
Interest income
<S> <C> <C> <C>
Loans $24,813 $22,086 $18,627
Mortgage-backed securities 875 1,061 1,183
Investment securities 1,105 879 821
Interest-bearing deposits and other 278 207 199
-------- ------- -------
Total interest income 27,071 24,233 20,830
Interest expense
Deposits 13,118 12,009 10,700
Borrowings 3,630 3,027 1,996
-------- ------- -------
Total interest expense 16,748 15,036 12,696
-------- ------- -------
Net interest income 10,323 9,197 8,134
Provision for losses on loans 60 - 253
-------- ------- -------
Net interest income after provision for losses on loans 10,263 9,197 7,881
Other income
Gain on sale of mortgage loans 1,565 837 742
Gain on sale of investment and mortgage-backed securities
designated as available for sale - 36 9
Gain on sale of real estate acquired through foreclosure - 32 -
Mortgage servicing fees, net 168 320 284
Other operating 447 394 384
-------- ------- -------
Total other income 2,180 1,619 1,419
General, administrative and other expense
Employee compensation and benefits 3,086 2,916 2,625
Occupancy and equipment 1,320 1,225 1,154
Federal deposit insurance premiums 150 206 1,773
Franchise taxes 302 264 254
Amortization of intangible assets 61 61 61
Advertising 238 169 137
Other operating 1,164 1,066 872
Merger related costs - - 615
-------- ------- -------
Total general, administrative and other expense 6,321 5,907 7,491
-------- ------- -------
Earnings before income taxes 6,122 4,909 1,809
Federal income taxes
Current 1,675 972 844
Deferred 390 711 (216)
-------- ------- -------
Total federal income taxes 2,065 1,683 628
-------- ------- -------
NET EARNINGS $ 4,057 $ 3,226 $ 1,181
======== ======= =======
EARNINGS PER SHARE
Basic $1.01 $ .81 $ .30
======== ======= =======
Diluted $.96 $ .80 $ .30
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
25
<PAGE> 70
WINTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended September 30, 1998, 1997 and 1996
(In thousands, except share data)
<TABLE>
<CAPTION>
UNREALIZED
GAINS ON
ADDITIONAL SECURITIES
COMMON PAID-IN AVAILABLE RETAINED
STOCK CAPITAL FOR SALE EARNINGS TOTAL
<S> <C> <C> <C> <C> <C>
Balance at October 1, 1995 $- $6,444 $178 $13,775 $20,397
Proceeds from exercise of stock options - 57 - - 57
Net earnings for the year ended September 30, 1996 - - - 1,181 1,181
Unrealized gains on securities designated as available for
sale, net of related tax effects - - 10 - 10
Cash dividends of $.2075 per share - - - (814) (814)
-- ------ --- ------- -------
Balance at September 30, 1996 - 6,501 188 14,142 20,831
Net earnings for the year ended September 30, 1997 - - - 3,226 3,226
Unrealized gains on securities designated as available for
sale, net of related tax effects - - 114 - 114
Cash dividends paid of $.225 per share - - - (894) (894)
-- ------ --- ------- -------
Balance at September 30, 1997 - 6,501 302 16,474 23,277
Stock dividend effected in the form of a 2-for-1 stock split - 2,007 - (2,007) -
Proceeds from exercise of stock options - 274 - - 274
Net earnings for the year ended September 30, 1998 - - - 4,057 4,057
Unrealized gains on securities designated as available for
sale, net of related tax effects - 288 - 288
Cash dividends of $.25 per share - - - (1,004) (1,004)
-- ------ --- ------- -------
Balance at September 30, 1998 $- $8,782 $590 $17,520 $26,892
== ====== === ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 71
WINTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended September 30,
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings for the year $ 4,057 $ 3,226 $ 1,181
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Amortization of premiums on investments and mortgage-backed
securities 29 17 52
Amortization of deferred loan origination fees (198) (198) (149)
Depreciation and amortization 409 393 355
Amortization of intangible assets 61 61 61
Gain on sale of investment securities designated as available for sale - (36) -
Gain on sale of mortgage-backed securities designated as available
for sale - - (9)
Gain on sale of real estate acquired through foreclosure - (32) -
Provision for losses on loans 60 - 253
Gain on sale of mortgage loans (1,199) (517) (420)
Loans disbursed for sale in the secondary market (108,187) (43,888) (36,301)
Proceeds from sale of loans in the secondary market 105,343 42,930 35,065
Federal Home Loan Bank stock dividends (248) (188) (155)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans (222) (277) (329)
Accrued interest receivable on mortgage-backed securities 18 17 9
Accrued interest receivable on investments (44) (78) 24
Prepaid expenses and other assets (95) 16 (73)
Accounts payable on mortgage loans serviced for others 70 156 64
Other liabilities 205 (1,136) 1,666
Federal income taxes
Current (190) 78 (91)
Deferred 390 711 (216)
---------- ---------- --------
Net cash provided by operating activities 259 1,255 987
Cash flows provided by (used in) investing activities:
Principal repayments on mortgage-backed securities 2,389 3,950 2,040
Purchase of mortgage-backed securities designated as available for sale - - (3,087)
Purchase of mortgage-backed securities designated as held to maturity - - (293)
Proceeds from the sale of mortgage-backed securities designated as
available for sale - - 1,406
Proceeds from the maturity of investment securities 6,650 3,500 2,250
Proceeds from the sale of investment securities designated as
available for sale - 122 -
Purchase of investment securities designated as held to maturity (8,928) (2,491) (1,350)
Purchase of investment securities designated as available for sale (1,495) (4,988) -
Loan principal repayments 92,741 63,990 40,475
Loan disbursements (119,653) (103,776) (85,242)
Sale of loan participations 6,329 11,385 1,732
Proceeds from the sale of real estate acquired through foreclosure - 94 -
Purchase and renovation of office premises and equipment (709) (334) (246)
Additions to real estate acquired through foreclosure - (13) (157)
Purchase of Federal Home Loan Bank stock (787) (451) (41)
---------- ---------- --------
Net cash used in investing activities (23,463) (29,012) (42,513)
---------- ---------- --------
Net cash used in operating and investing activities
(subtotal carried forward) (23,204) (27,757) (41,526)
---------- ---------- --------
</TABLE>
27
<PAGE> 72
WINTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Year ended September 30,
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
Net cash used in operating and investing activities
<S> <C> <C> <C>
(balance brought forward) $(23,204) $(27,757) $(41,526)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts, including
purchased deposits 25,690 18,784 23,628
Proceeds from Federal Home Loan Bank advances 68,039 37,107 65,262
Repayment of Federal Home Loan Bank advances (68,565) (26,058) (48,716)
Advances by borrowers for taxes and insurance 198 100 23
Proceeds from exercise of stock options 274 - 57
Dividends paid on common stock (1,004) (894) (814)
-------- -------- --------
Net cash provided by financing activities 24,632 29,039 39,440
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 1,428 1,282 (2,086)
Cash and cash equivalents at beginning of year 2,786 1,504 3,590
-------- -------- --------
Cash and cash equivalents at end of year $ 4,214 $ 2,786 $ 1,504
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes $ 1,805 $ 894 $ 809
======== ======== ========
Interest on deposits and borrowings $ 16,643 $ 14,808 $ 12,650
======== ======== ========
Supplemental disclosure of noncash investing activities:
Transfer from loans to real estate acquired through
foreclosure $ 52 $ 200 $ 61
======== ======== ========
Unrealized gains on securities designated as
available for sale, net of related tax effects $ 288 $ 114 $ 10
======== ======== ========
Recognition of mortgage servicing rights in
accordance with SFAS No. 125 $ 366 $ 320 $ 322
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
28
<PAGE> 73
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Winton Financial Corporation ("Winton Financial", or the "Corporation") is a
savings and loan holding company whose activities are primarily limited to
holding the stock of The Winton Savings and Loan Company ("Winton Savings",
or the "Company"). The Company conducts a general banking business in
southwestern Ohio which 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. 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 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
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 consolidated financial statements and
revenues and expenses during the reporting period. Actual results could
differ from such estimates.
During fiscal 1996, Winton Financial merged Blue Chip Savings Bank ("Blue
Chip") with and into its subsidiary, Winton Savings, in a transaction which
was accounted for as a pooling-of-interests. In connection with the business
combination, Winton Financial issued 361,952 shares of common stock.
1. Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the
Corporation and the Company. Condensed financial statements of the
Corporation are presented in Note M as of September 30, 1998 and 1997, and
for the fiscal years ended September 30, 1998, 1997 and 1996. All
significant intercompany balances and transactions have been eliminated in
the accompanying consolidated financial statements.
29
<PAGE> 74
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 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 available for sale are carried at fair value with resulting
unrealized gains or losses recorded to operations or shareholders' equity,
respectively. At September 30, 1998 and 1997, the Corporation's shareholders
equity reflected net unrealized gains on securities designated as available
for sale totaling $590,000 and $302,000, respectively.
Realized gains and losses on the sale of investment and mortgage-backed
securities are recognized using the specific identification method.
3. Loans Receivable
----------------
Loans held in portfolio are stated at the principal amount outstanding,
adjusted for deferred loan origination fees, the allowance for loan losses
and premiums and discounts on loans purchased and sold. Premiums and
discounts on loans purchased and sold are amortized and accreted to
operations using the interest method over the average life of the underlying
loans.
Interest is accrued as earned unless the collectibility of the loan is in
doubt. Uncollectible 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 principal is
in doubt, in whole or in part, all payments received on nonaccrual loans are
applied to reduce principal until such doubt is eliminated.
Loans held for sale are carried at the lower of cost or market, determined
in the aggregate. In computing cost, deferred loan origination fees are
deducted from the principal balances of the related loans. At September 30,
1998 and 1997, loans held for sale were carried at cost.
Winton Savings accounts for mortgage servicing rights pursuant to the
provisions of SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," which requires that
Winton Savings recognize as separate assets, rights to service mortgage
loans for others, regardless of how those servicing rights are acquired. An
institution that acquires mortgage servicing rights through either the
purchase or origination of mortgage loans and sells those loans with
servicing rights retained would allocate some of the cost of the loans to
the mortgage servicing rights.
30
<PAGE> 75
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
3. Loans Receivable (continued)
-----------------
SFAS No. 125 requires that securitization of mortgage loans be accounted for
as sales of mortgage loans and acquisitions of mortgage-backed securities.
Additionally, SFAS No. 125 requires that capitalized mortgage servicing
rights and capitalized excess servicing receivables be assessed for
impairment. Impairment is measured based on fair value.
The mortgage servicing rights recorded by the Company, calculated in
accordance with the provisions of SFAS No. 125, were segregated into pools
for valuation purposes, using as pooling criteria the loan term and coupon
rate. Once pooled, each grouping of loans was evaluated on a discounted
earnings basis to determine the present value of future earnings that a
purchaser could expect to realize from each portfolio. Earnings were
projected from a variety of sources including loan servicing fees, interest
earned on float, net interest earned on escrows, miscellaneous income, and
costs to service the loans. The present value of future earnings is the
"economic" value for the pool, i.e., the net realizable present value to an
acquirer of the acquired servicing.
The Company recorded amortization related to mortgage servicing rights
totaling approximately $213,000, $32,000 and $6,000 for the years ended
September 30, 1998, 1997 and 1996, respectively. At September 30, 1998 and
1997, the fair value of the Company's mortgage servicing rights totaled
approximately $790,000 and $636,000, respectively.
4. Loan Origination and Commitment Fees
------------------------------------
The Company accounts for loan origination fees in accordance with the
provisions of 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 interest 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. Fees received
for loan commitments that are expected to be drawn upon, based on the
Company's experience with similar commitments, are deferred and amortized
over the life of the related loan using the interest method. Fees for other
commitments are deferred and amortized over the loan commitment period on a
straight-line basis.
5. Allowance for Loan Losses
-------------------------
It is the Company's policy to provide valuation allowances for estimated
losses on loans based on past loss experience, current trends in the level
of delinquent and problem loans, loan concentrations to single borrowers,
changes in the composition of the loan portfolio, 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 its
primary lending
31
<PAGE> 76
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
5. Allowance for Loan Losses (continued)
--------------------------
areas. When the collection of a loan becomes doubtful, or otherwise
troubled, the Company records a 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 Company accounts for impaired loans in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan." SFAS No. 114 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.
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
installment loans to be homogeneous and therefore excluded from separate
identification for evaluation of impairment. With respect to the Company's
investment in nonresidential and multi-family residential real estate loans,
and its evaluation of impairment thereof, such loans are generally
collateral dependent and, as a result, are carried as a practical expedient
at the lower of cost or fair value.
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, 1998 and 1997, the Company had no loans that would be
defined as impaired under SFAS No. 114.
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
thirty to forty years for buildings, five to fifteen years for building
improvements and three to fifteen years for furniture and equipment. An
accelerated depreciation method is used for tax reporting purposes.
32
<PAGE> 77
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 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 considered. 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 pursuant to SFAS No. 109,
"Accounting for Income Taxes." In accordance with 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 temporary differences
between the tax basis of an asset or liability and its reported amount in
the consolidated financial statements that will result in net 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.
Deferral of income taxes results primarily from different methods of
accounting for deferred loan origination fees, Federal Home Loan Bank stock
dividends, mortgage servicing rights, the general loan loss allowance and
the percentage of earnings bad debt deduction. Additionally, a temporary
difference is recognized for depreciation utilizing accelerated methods for
federal income tax purposes.
9. Amortization of Intangible Assets
---------------------------------
Goodwill and other intangible assets arising from the acquisition of
deposits from another financial institution are being amortized on the
straight-line method over a ten year period.
33
<PAGE> 78
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
10. Employee Benefit Plans
----------------------
The Corporation has an Employee Stock Ownership Plan ("ESOP") which provides
retirement benefits for substantially all employees who have completed one
year of service. Contributions of $98,000, $90,000 and $65,000 were made to
the ESOP for the years ended September 30, 1998, 1997 and 1996,
respectively. At September 30, 1998, the ESOP held 321,992 shares (adjusted)
of the Corporation's common stock, all of which had been allocated to
participants as of that date. All share totals and per share amounts have
been adjusted to give effect to the two-for-one stock split in the form of a
stock dividend effected during fiscal 1998.
The Company has a contributory 401(k) plan covering all employees who have
attained the age of 21 and have completed one year of service. Contributions
to the plan are voluntary and are matched at the discretion of the Board of
Directors. Contributions to the plan totaled $29,000, $25,000 and $23,000,
for the years ended September 30, 1998, 1997 and 1996, respectively.
11. Earnings Per Share
------------------
Basic earnings per share is computed based upon 4,012,605, 3,972,304 and
3,970,034 weighted-average shares outstanding for the fiscal years ended
September 30, 1998, 1997 and 1996, 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
4,205,030, 4,026,996 and 3,989,657 for the fiscal years ended September 30,
1998, 1997 and 1996, respectively.
Effective during the fiscal year ended September 30, 1998, the Corporation
began presenting earnings per share pursuant to the provisions of SFAS No.
128, "Earnings per Share." Accordingly, the fiscal 1997 and 1996 earnings
per share presentation has been revised to conform to SFAS No. 128, and to
give effect to the two-for-one stock split effected during fiscal 1998.
12. Cash and Cash Equivalents
-------------------------
For purposes of reporting cash flows, cash and cash equivalents includes
cash and due from banks and interest-bearing deposits due from other
financial institutions with original maturities of less than ninety days.
34
<PAGE> 79
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
13. 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.
When quoted market prices are not available for financial instruments, 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, 1998 and 1997:
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.
INVESTMENTS 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.
FEDERAL HOME LOAN BANK STOCK: The carrying amount presented in
the consolidated statements of financial condition is deemed
to approximate fair value.
DEPOSITS: The fair value of NOW accounts, passbook and club
accounts, advance payments and amounts due on loans serviced
for others are 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.
35
<PAGE> 80
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
13. Fair Value of Financial Instruments (continued)
-----------------------------------------------
ADVANCES FROM THE FEDERAL HOME LOAN BANK: The fair value of
these advances is estimated using the interest rates currently
offered for advances of similar remaining maturities or, when
available, quoted market prices.
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. The difference between the fair
value and notional amount of outstanding loan commitments at
September 30, 1998 and 1997, was not material.
Based on the foregoing methods and assumptions, the carrying value and fair
value of the Corporation's financial instruments are as follows at September 30:
<TABLE>
<CAPTION>
1998 1997
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(In thousands)
Financial assets
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 4,214 $ 4,214 $ 2,786 $ 2,786
Investment securities designated
as available for sale 5,579 5,579 3,631 3,631
Investment securities - at cost 14,858 15,185 12,585 12,679
Mortgage-backed securities designated
as available for sale 565 565 799 799
Mortgage-backed securities - at cost 12,418 12,266 14,614 14,345
Loans receivable - net 305,308 317,216 280,544 283,594
Federal Home Loan Bank stock 4,033 4,033 2,998 2,998
---------- ---------- ---------- ----------
$ 346,975 $ 359,058 $ 317,957 $ 320,832
========== ========== ========== ==========
Financial liabilities
Deposits $ 266,007 $ 266,556 $ 240,317 $ 240,875
Advances from Federal Home Loan Bank 56,899 56,905 57,425 57,428
Advance payments and amounts due on loans
serviced for others 1,522 1,522 1,254 1,254
---------- ---------- ---------- ----------
$ 324,428 $ 324,983 $ 298,996 $ 299,557
========== ========== ========== ==========
</TABLE>
<PAGE> 81
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
14. Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform to the 1998
consolidated financial statement presentation.
NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES
Amortized cost, gross unrealized gains, gross unrealized losses, and
estimated fair values of investment securities at September 30 are summarized as
follows:
<TABLE>
<CAPTION>
1998 1997
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
(In thousands)
HELD TO MATURITY:
<S> U.S. Government and agency <C> <C> <C> <C>
obligations $14,858 $15,185 $12,585 $12,679
AVAILABLE FOR SALE:
U.S. Government and agency obligations 4,587 4,855 3,088 3,149
Corporate equity securities 103 724 103 482
------- ------- ------- -------
4,690 5,579 3,191 3,631
------- ------- ------- -------
Total investment securities $19,548 $20,764 $15,776 $16,310
======= ======= ======= =======
</TABLE>
At September 30, 1998, the fair value appreciation of the Corporation's
investment securities in excess of cost totaled $1,216,000, which was
comprised solely of gross unrealized gains.
At September 30, 1997, the fair value appreciation of the Corporation's
investment securities in excess of cost totaled $534,000, which was
comprised of gross unrealized gains of $549,000 and gross unrealized losses
of $15,000.
The amortized cost and estimated fair value of U.S. Government and agency
obligations, including those designated as available for sale, at September
30, 1998, by term to maturity are shown below.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
(In thousands)
<S> <C> <C>
Due in one year or less $ 6,149 $ 6,193
Due in one to three years 4,710 4,770
Due in three to five years 8,586 9,077
-------- --------
$ 19,445 $ 20,040
======== ========
</TABLE>
<PAGE> 82
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
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, 1998
and 1997, are shown below.
<TABLE>
<CAPTION>
1998
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(In thousands)
HELD TO MATURITY:
<S> Federal Home Loan Mortgage Corporation <C> <C> <C> <C>
Participation certificates $ 4,402 $ 11 $ (68) $ 4,345
Government National Mortgage Association
Participation certificates 598 9 - 607
Federal National Mortgage Association
Participation certificates 2,912 1 (65) 2,848
Collateralized mortgage obligations 1,181 - (12) 1,169
CMC Securities Corporation
Collateralized mortgage obligations 3,137 - (24) 3,113
Residential Funding Corporation
Collateralized mortgage obligations 188 - (4) 184
-------- ----- ------ --------
Total mortgage-backed securities
held to maturity 12,418 21 (173) 12,266
AVAILABLE FOR SALE:
Government National Mortgage Corporation
Participation Certificates 561 4 - 565
-------- ----- ------ --------
Total mortgage-backed securities $ 12,979 $ 25 $ (173) $ 12,831
======== ===== ====== ========
</TABLE>
38
<PAGE> 83
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)
<TABLE>
<CAPTION>
1997
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(In thousands)
HELD TO MATURITY:
<S> Federal Home Loan Mortgage Corporation <C> <C> <C> <C>
Participation certificates $ 5,371 $ 34 $ (92) $ 5,313
Government National Mortgage Association
Participation certificates 811 25 - 836
Federal National Mortgage Association
Participation certificates 3,449 5 (63) 3,391
Collateralized mortgage obligations 1,657 - (67) 1,590
CMC Securities Corporation
Collateralized mortgage obligations 3,137 - (106) 3,031
Residential Funding Corporation
Collateralized mortgage obligations 189 - (5) 184
-------- ----- ------ --------
Total mortgage-backed securities
held to maturity 14,614 64 (333) 14,345
AVAILABLE FOR SALE:
Government National Mortgage Corporation
Participation Certificates 782 17 - 799
-------- ----- ------ --------
Total mortgage-backed securities $ 15,396 $ 81 $ (333) $ 15,144
======== ===== ====== ========
</TABLE>
39
<PAGE> 84
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)
The amortized cost of mortgage-backed securities, including those designated
as available for sale at September 30, 1998, 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>
AMORTIZED COST
(In thousands)
<S> <C>
Due within three years $ 2
Due after three years through five years 7
Due after five years through ten years 12
Due after ten years through twenty years 2,943
Due after twenty years 10,015
------
$12,979
=======
</TABLE>
Mortgage-backed securities with an approximate carrying value of $3.2
million were pledged to secure public deposits at September 30, 1998.
NOTE C - LOANS RECEIVABLE
The composition of the loan portfolio at September 30 is as follows:
<TABLE>
<CAPTION>
1998 1997
(In thousands)
<S> Residential real estate <C> <C>
One- to four-family residential $138,415 $145,039
Multi-family residential 75,442 71,798
Construction 19,505 15,036
Nonresidential real estate and land 60,722 47,974
Nonresidential construction 9,782 1,401
Consumer and other 8,176 5,003
-------- --------
312,042 286,251
Less:
Undisbursed portion of loans in process 13,616 8,364
Deferred loan origination fees 529 726
Allowance for loan losses 842 827
-------- --------
$297,055 $276,334
======== ========
</TABLE>
40
<PAGE> 85
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE C - LOANS RECEIVABLE (continued)
The Company's lending efforts have historically focused on one- to
four-family residential and multi-family residential real estate loans,
which comprise approximately $223.0 million, or 75%, of the total loan
portfolio at September 30, 1998, and $223.5 million, or 81%, of the total
loan portfolio at September 30, 1997. 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 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 Company's primary lending area are
presently stable.
As discussed previously, the Company has sold whole loans and participating
interests in loans in the secondary market, generally retaining servicing on
the loans sold. Loans sold and serviced for others totaled approximately
$163.0 million, $145.2 million and $116.6 million at September 30, 1998,
1997 and 1996, respectively. At September 30, 1998, loans sold with recourse
totaled $7.7 million.
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>
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Beginning balance $ 827 $857 $654
Provision for losses on loans 60 - 253
Charge-off of loans (47) (51) (50)
Recoveries of loan losses 2 21 -
----- ---- ----
Ending balance $ 842 $827 $857
===== ==== ====
</TABLE>
41
<PAGE> 86
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE D - ALLOWANCE FOR LOAN LOSSES (continued)
At September 30, 1998, the Company's allowance for loan losses was comprised
of a general loan loss allowance of $789,000, which is includible as a
component of regulatory risk-based capital, and a specific loan loss
allowance totaling $53,000.
Nonperforming and nonaccrual loans at September 30, 1998, 1997 and 1996,
totaled $1.1 million, $472,000 and $923,000, respectively. Interest income
that would have been recognized had nonaccrual loans performed pursuant to
contractual terms totaled approximately $31,000, $26,000 and $53,000 for the
years ended September 30, 1998, 1997 and 1996, respectively.
NOTE E - OFFICE PREMISES AND EQUIPMENT
Office premises and equipment is comprised of the following at September 30:
<TABLE>
<CAPTION>
1998 1997
(In thousands)
<S> <C> <C>
Land $ 336 $ 336
Office buildings and improvements 2,466 2,413
Furniture, fixtures and equipment 2,979 2,323
------- -------
5,781 5,072
Less accumulated depreciation and
amortization 2,836 2,445
------- -------
$ 2,945 $ 2,627
======= =======
</TABLE>
The Company leases part of the main office facility and the adjacent real
property under three-year operating lease agreements at an annual cost of
$46,000 per year. The lease for the main office facility is renewable for
seven additional three-year terms at market rates. The lease for the
adjacent real property is renewable for six additional three-year terms at
market rates. The Company may purchase the land and property at any time
after the first three-year term for total consideration of $500,000.
Additionally, a lease was assumed as part of the Blue Chip merger. The lease
expires on December 1, 1999, with two five year renewal options and has a
minimum commitment of approximately $45,000 for each of the fiscal years
ended December 31, 1998 and 1999, and $7,000 for fiscal 2000. Further, the
Company has entered into a lease agreement during fiscal 1998 on a new loan
origination office, which provides for annual lease payments of $21,000
through fiscal 2002 and a commitment of $18,000 for fiscal 2003. The Company
has an option to extend the lease term for an additional five year period at
market rates.
42
<PAGE> 87
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE F - DEPOSITS
Deposits consist of the following major classifications at September 30:
<TABLE>
<CAPTION>
DEPOSIT TYPE AND WEIGHTED-AVERAGE INTEREST RATE 1998 1997
(In thousands)
<S> NOW accounts and money market deposits <C> <C>
1998 - 0.95% $ 18,338
1997 - 1.65% $ 13,575
Passbook and Club accounts
1998 - 3.59% 48,362
1997 - 3.70% 50,622
--------- ---------
Total demand, transaction and passbook deposits 66,700 64,197
Certificates of deposit
Original maturities of:
Less than 12 months
1998 - 5.66% 60,188
1997 - 5.66% 49,356
12 months to 36 months
1998 - 5.98% 89,966
1997 - 6.14% 80,730
More than 36 months
1998 - 6.24% 17,470
1997 - 6.25% 15,758
Individual Retirement and Keogh
1998 - 6.05% 31,683
1997 - 6.16% 30,276
--------- ---------
Total certificates of deposit 199,307 176,120
--------- ---------
Total deposit accounts $ 266,007 $ 240,317
========= =========
</TABLE>
The Company had certificate of deposit accounts with balances equal to or in
excess of $100,000 totaling $64.7 million and $54.7 million at September 30,
1998 and 1997, respectively.
43
<PAGE> 88
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE F - DEPOSITS (continued)
Interest expense on deposits at September 30 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Passbook and money market deposit accounts $ 1,813 $ 1,843 $ 1,735
NOW accounts 191 218 206
Certificates of deposit 11,114 9,948 8,759
------- -------- --------
$13,118 $ 12,009 $ 10,700
======= ======== ========
</TABLE>
Maturities of outstanding certificates of deposit at September 30 are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997
(In thousands)
<S> <C> <C>
Less than one year $118,079 $101,627
One year to three years 75,823 68,954
More than three years 5,405 5,539
--------- ---------
$199,307 $176,120
</TABLE>
NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank, collateralized at September 30,
1998, by pledges of certain residential mortgage loans totaling $85.3
million, and the Company's investment in Federal Home Loan Bank stock, are
summarized as follows:
<TABLE>
<CAPTION>
MATURING FISCAL
INTEREST RATE YEAR ENDING IN 1998 1997
(In thousands)
<S> <C> <C> <C>
5.15% - 7.20% 1998 $ - $25,500
5.67% - 7.20% 1999 8,500 8,500
6.17% - 8.35% 2000 11,000 11,000
6.23% - 7.20% 2001 4,000 4,000
6.05% - 7.20% 2002 8,256 8,318
5.87% 2003 2,000 -
2.50% - 5.95% Thereafter 23,143 107
------ -------
$56,899 $57,425
====== =======
Weighted-average interest rate 5.98% 6.22%
====== =======
</TABLE>
44
<PAGE> 89
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE H - FEDERAL INCOME TAXES
Federal income taxes differ from the amounts computed at the statutory
corporate tax rate for the years ended September 30 as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Federal income taxes computed at statutory rate $2,081 $1,669 $615
Increase (decrease) in taxes resulting from:
Nondeductible expenses 11 11 11
Nontaxable dividend income (4) (4) (4)
Low income housing investment tax credits (42) - -
Other 19 7 6
------ ------ ----
Federal income tax provision per consolidated
financial statements $2,065 $1,683 $628
====== ====== ====
Effective tax rate 33.7% 34.3% 34.7%
====== ====== ====
The composition of the Corporation's net deferred tax liability at September 30 is as follows:
Taxes (payable) refundable on temporary 1998 1997
differences at statutory rate: (In thousands)
Deferred tax assets:
General loan loss allowance $ 286 $ 281
Amortization of intangible assets 42 43
------ ----
Total deferred tax assets 328 324
Deferred tax liabilities:
Federal Home Loan Bank stock dividends (529) (444)
Difference between book and tax depreciation (50) (76)
Percentage of earnings bad debt deduction (331) (331)
Unrealized gains on securities designated as available for sale (303) (155)
Deferred loan origination costs (366) (68)
Mortgage servicing rights (269) (216)
Other (11) (27)
------ -----
Total deferred tax liabilities (1,859) (1,317)
------ ------
Net deferred tax liability $(1,531) $(993)
====== =====
</TABLE>
45
<PAGE> 90
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE H - FEDERAL INCOME TAXES (continued)
The Company was allowed a special bad debt deduction generally limited to 8%
of otherwise taxable income, subject to certain limitations based on
aggregate loans and savings 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 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. This percentage of earnings bad
debt deduction had accumulated to approximately $2.0 million as of September
30, 1998. The amount of the unrecognized deferred tax liability relating to
the cumulative bad debt deduction was approximately $400,000 at September
30, 1998. See Note K for additional information regarding future percentage
of earnings bad debt deductions.
NOTE I - LOAN COMMITMENTS
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers including commitments to extend credit. Such commitments involve,
to varying degrees, elements of credit and interest-rate risk in excess of
the amount recognized in the consolidated 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, 1998, the Company had total outstanding commitments of
approximately $18.8 million to originate residential one- to four-family and
multi-family real estate loans on the basis of an 80% loan-to-value ratio,
of which $1.6 million were comprised of adjustable-rate loans at rates
ranging from 6.875% to 8.00%, and $17.2 million were comprised of fixed-rate
loans at rates ranging from 6.375% to 9.00%. The Company also had total
outstanding commitments of approximately $2.4 million to originate
nonresidential real estate and land loans, of which $2.3 million were
comprised of fixed-rate loans at interest rates ranging from 7.125% to
8.75%, and $65,000 were comprised of adjustable rate loans at 8.00%. The
Company also had total outstanding commitments of approximately $717,000 to
originate lines of credit. Additionally, the Company had unused lines of
credit related to home equity loans and commercial loans totaling $12.0
million and $3.3 million, respectively. In the opinion of management, all
loan commitments equaled or exceeded prevalent market interest rates as of
September 30, 1998, and such commitments have been underwritten on the same
basis as that of the existing loan portfolio. Management believes that all
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.
46
<PAGE> 91
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE J - REGULATORY CAPITAL
The Company is subject to minimum regulatory capital standards promulgated
by the Office of Thrift Supervision ("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 its financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, Winton
Savings must meet specific capital guidelines that involve quantitative
measures of Winton Savings' assets, liabilities and certain off-balance
sheet items as calculated under regulatory accounting practices. Winton
Savings' capital amounts and classifications 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 shareholders' equity 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. The risk-based capital
requirement currently provides for the maintenance of core capital plus
general loan loss allowances equal to 8.0% of risk-weighted assets as of
September 30, 1998. In computing risk-weighted assets, Winton Savings
multiplies the value of each asset on its statement of financial condition
by a defined risk-weighted factor, e.g., one- to four-family residential
loans carry a risk-weighted factor of 50%.
The OTS has proposed an amendment to the core capital requirement that would
increase the minimum 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 if the
proposal is adopted in its present form.
As of September 30, 1998 and 1997, management believes that the Company met
all capital adequacy requirements to which it is subject.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
FOR CAPITAL
ACTUAL ADEQUACY PURPOSES
--------------- -----------------
AMOUNT RATIO AMOUNT RATIO
(Dollars in thousands)
<S> <C> <C> <C> <C>
Tangible capital $25,633 7.3% Greater than or equal to $ 5,291 Greater than or equal to 1.5%
Core capital $25,633 7.3% Greater than or equal to $10,582 Greater than or equal to 3.0%
Risk-based capital $26,422 10.6% Greater than or equal to $20,001 Greater than or equal to 8.0%
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
TO BE "WELL-
CAPITALIZED" UNDER
PROMPT CORRECTIVE
ACTION PROVISIONS
-----------------
AMOUNT RATIO
<S> <C> <C>
Tangible capital Greater than or equal to $17,637 Greater than or equal to 5.0%
Core capital Greater than or equal to $21,164 Greater than or equal to 6.0%
Risk-based capital Greater than or equal to $25,001 Greater than or equal to 10.0%
</TABLE>
47
<PAGE> 92
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE J - REGULATORY CAPITAL (continued)
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
FOR CAPITAL
ACTUAL ADEQUACY PURPOSES
---------------- -----------------
AMOUNT RATIO AMOUNT RATIO
(Dollars in thousands)
<S> <C> <C> <C> <C>
Tangible capital $22,252 6.9% Greater than or equal to $ 4,852 Greater than or equal to 1.5%
Core capital $22,252 6.9% Greater than or equal to $ 9,704 Greater than or equal to 3.0%
Risk-based capital $23,015 10.8% Greater than or equal to $ 17,129 Greater than or equal to 8.0%
* Greater than equal to
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
TO BE "WELL-
CAPITALIZED" UNDER
PROMPT CORRECTIVE
ACTION PROVISIONS
-----------------
AMOUNT RATIO
<S> <C> <C>
Tangible capital Greater than or equal to $16,173 Greater than or equal to 5.0%
Core capital Greater than or equal to $19,408 Greater than or equal to 6.0%
Risk-based capital Greater than or equal to $21,412 Greater than or equal to 10.0%
* Greater than 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 regulatory capital
requirements.
NOTE K - LEGISLATIVE MATTERS
The deposit accounts of Winton Savings and of other savings associations are
insured by the Federal Deposit Insurance Corporation ("FDIC") through the
Savings Association Insurance Fund ("SAIF"). The reserves of the SAIF were
below the level required by law, because a significant portion of the
assessments paid into the fund were used to pay the cost of prior thrift
failures. The deposit accounts of commercial banks are insured by the FDIC
through the Bank Insurance Fund ("BIF"), except to the extent such banks
have acquired SAIF deposits. The reserves of the BIF met the level required
by law in May 1995.
Legislation was enacted to recapitalize the SAIF that provided for a special
assessment totaling $.657 per $100 of SAIF deposits held at March 31, 1995,
in order to increase SAIF reserves to the level required by law. Winton
Savings held $195.6 million in deposits at March 31, 1995, resulting in an
assessment of approximately $1.3 million, or $850,000 after-tax, which was
charged to operations in fiscal 1996.
Under separate legislation related to the recapitalization plan, Winton
Savings is required to recapture as taxable income approximately $980,000 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. Winton Savings has provided
deferred taxes for this amount and will be permitted to amortize the
recapture of the bad debt reserve in taxable income over six years
commencing in fiscal 1999.
48
<PAGE> 93
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE L - STOCK OPTION PLAN
The Corporation has a Stock Option and Incentive Plan that provides for the
issuance of 523,000 shares (adjusted) of authorized but unissued common shares.
In 1996, the Corporation adopted 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 Accounting Principles Board 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 been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C> <C>
Net earnings (In thousands) As reported $4,057 $3,226 $1,181
===== ===== =====
Pro-forma $3,966 $3,226 $ 910
===== ===== =====
Earnings per share
Basic As reported $ 1.01 $ .81 $ .30
===== ===== =====
Pro-forma $ .99 $ .81 $ .26
===== ===== =====
Diluted As reported $ .96 $ .80 $ .30
===== ===== =====
Pro-forma $ .94 $ .80 $ .26
===== ===== =====
</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
assumptions used for grants in fiscal 1998 and 1996: dividend yield of 3.4%,
expected volatility of 20.0%, risk-free interest rate of 6.0% and expected
lives of ten years.
49
<PAGE> 94
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE L - STOCK OPTION PLAN (continued)
A summary of the status of the Corporation's stock option plan as of
September 30, 1998, 1997 and 1996, and changes during the periods ending on
those dates is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
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 493,000 $5.80 493,000 $5.80 252,000 $5.00
Granted 30,000 $9.94 - $ - 241,000 $6.66
Exercised (42,000) $9.84 - $ - - $ -
Forfeited - $ - - $ - - $ -
------- ----- ------- ----- ------- ----
Outstanding at end of year 481,000 $6.13 493,000 $5.80 493,000 $5.80
======= ==== ======= ==== ======= ====
Options exercisable at year-end 481,000 $6.13 493,000 $5.80 241,000 $6.66
======= ==== ======= ==== ======= ====
Weighted-average fair value of
options granted during the year $1.99 N/A $1.71
==== === ====
The following information applies to options outstanding at September 30, 1998:
Number outstanding 481,000
Range of exercise prices $5.00 - $9.94
Weighted-average exercise price $6.13
Weighted-average remaining contractual life 6.7 years
</TABLE>
50
<PAGE> 95
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE M - CONDENSED FINANCIAL STATEMENTS OF WINTON FINANCIAL
CORPORATION
The following condensed financial statements summarize the financial
position of the Corporation as of September 30, 1998 and 1997, and the
results of its operations and its cash flows for each of the years ended
September 30, 1998, 1997 and 1996.
WINTON FINANCIAL CORPORATION
STATEMENTS OF FINANCIAL CONDITION
September 30,
<TABLE>
<CAPTION>
ASSETS 1998 1997
(In thousands)
<S> <C> <C>
Cash $ 265 $ 313
Investment in The Winton Savings and Loan Co. 26,294 22,830
Corporate equity securities - at fair value 724 482
Prepaid expenses and other assets 9 9
Prepaid federal income tax 61 -
--------- --------
Total assets $ 27,353 $ 23,634
====== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued expenses and other liabilities $ 250 $ 228
Deferred federal income taxes 211 129
--------- --------
Total liabilities 461 357
Shareholders' equity
Additional paid-in capital 8,782 6,501
Retained earnings 17,520 16,474
Unrealized gains on securities designated as
available for sale, net of related tax effects 590 302
--------- --------
Total shareholders' equity 26,892 23,277
--------- --------
Total liabilities and shareholders' equity $ 27,353 $ 23,634
========= ========
</TABLE>
51
<PAGE> 96
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE M - CONDENSED FINANCIAL STATEMENTS OF WINTON FINANCIAL
CORPORATION (continued)
WINTON FINANCIAL CORPORATION
STATEMENTS OF EARNINGS
Year ended September 30,
<TABLE>
<CAPTION>
1998 1997 1996
(In thousands)
Revenue
<S> <C> <C> <C>
Interest and dividends on investments $ 15 $ 13 $ 17
Gain on sale of investment securities
designated as available for sale - 36 -
Dividends received from subsidiary 773 894 904
Equity in undistributed earnings of subsidiary 3,335 2,400 346
------- -------- --------
4,123 3,343 1,267
Expenses
General and administrative 66 117 86
------- -------- --------
Net earnings $ 4,057 $ 3,226 $ 1,181
======= ======== ========
</TABLE>
WINTON FINANCIAL CORPORATION
STATEMENTS OF CASH FLOWS
Year ended September 30,
<TABLE>
<CAPTION>
1998 1997 1996
(In thousands)
Cash flows provided by (used in) operating activities:
<S> <C> <C> <C>
Net earnings for the year $4,057 $3,226 $1,181
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Undistributed earnings of consolidated subsidiary (3,335) (2,400) (346)
Gain on sale of investment securities
designated as available for sale - (36) -
Increases (decreases) in cash due to changes in:
Prepaid expenses and other assets (61) 23 (18)
Other 21 20 16
------ ------ ------
Net cash provided by operating activities 682 833 833
Cash flows provided by investing activities:
Proceeds from sale of investment securities
designated as available for sale - 122 -
Cash flows provided by (used in) financing activities:
Payment of dividends on common stock (1,004) (894) (814)
Proceeds from exercise of stock options 274 - 57
------ ------ ------
Net cash used in financing activities (730) (894) (757)
------ ------ ------
Net increase (decrease) in cash and cash equivalents (48) 61 76
Cash and cash equivalents at beginning of year 313 252 176
------ ------ ------
Cash and cash equivalents at end of year $ 265 $ 313 $ 252
====== ====== ======
</TABLE>
52
<PAGE> 97
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE M - CONDENSED FINANCIAL STATEMENTS OF WINTON FINANCIAL
CORPORATION (continued)
Regulations of the OTS impose limitations on the payment of dividends and
other capital distributions by savings associations. Under such
regulations, a savings association that, immediately prior to, and on a pro
forma basis after giving effect to a proposed capital distribution, has
total capital (as defined by OTS regulation) that is equal to or greater
than the amount of its fully phased-in capital requirement is generally
permitted without OTS approval (but subsequent to 30 days prior notice to
the OTS of the planned dividend) to make capital distributions during a
calendar year in the amount of up to the greater of (i) 100% of its net
earnings to date during the year plus an amount equal to one-half of the
amount by which its total capital-to-assets ratio exceeded its fully
phased-in capital to assets ratio at the beginning of the year or (ii) 75%
of its net earnings for the most recent four quarters. Pursuant to such OTS
dividend regulations, Winton Savings had the ability to pay dividends of
approximately $6.3 million to Winton Financial at September 30, 1998.
NOTE O - BUSINESS COMBINATION
On December 4, 1998, the Corporation's Board of Directors approved a
business combination whereby BenchMark Federal Savings Bank ("BenchMark")
would merge with and into Winton Savings. The merger is expected to be
completed during fiscal 1999 pending regulatory and BenchMark shareholder
approval. The business combination will be accounted for as a
pooling-of-interests and, accordingly, the assets, liabilities and capital
of the respective combining companies will be added together at historic
carrying value. Unaudited pro-forma condensed, combined financial
information of the Corporation and BenchMark as of and for the year ended
September 30, 1998, is as follows:
<TABLE>
<CAPTION>
WINTON PRO-FORMA
FINANCIAL BENCHMARK COMBINED
(unaudited) (unaudited)
(In thousands, except share data)
<S> <C> <C> <C>
Total assets $ 354,193 $ 54,710 $408,903
========= ======== ========
Total liabilities $ 327,301 $ 51,215 $378,516
========= ======== ========
Shareholders' equity $ 26,892 $ 3,495 $ 30,387
========= ======== ========
Total revenue $ 29,251 $ 3,923 $ 33,174
Total expense 25,194 3,845 29,039
--------- -------- --------
Net earnings $ 4,057 $ 78 $ 4,135
========= ======== ========
Basic earnings per share $ 1.01 $ .69 $. 94
========= ======== ========
</TABLE>
53
<PAGE> 98
WINTON FINANCIAL CORPORATION
SHAREHOLDER SERVICES. Star Bank, N.A. serves as primary transfer agent and as
dividend disbursing agent for the common shares of Winton Financial.
Communications regarding changes of address, transfer of shares, lost
certificates and dividends should be sent to:
Star Bank, N.A.
Corporate Trust Services
425 Walnut Street
Cincinnati, Ohio 45201-1118
MARKET SPECIALIST. Cohen Specialists L.L.C./Palbro Partners L.L.C. serve as
market specialists for Winton Financial's common shares.
ANNUAL MEETING. The Annual Meeting of Shareholders of Winton Financial will be
held on January 29, 1999, at 10:00 a.m. Eastern Standard Time, at Shuller's
Wigwam, 6210 Hamilton Avenue, Cincinnati, Ohio 45224.
FORM 10-K ANNUAL REPORT. A copy of Winton Financial's Annual Report on Form
10-K, as filed with the Securities and Exchange Commission, will be available at
no charge to shareholders upon request to:
Winton Financial Corporation
5511 Cheviot Road
Cincinnati, Ohio 45247
Attention: Jill M. Burke, Treasurer
54
<PAGE> 99
WINTON FINANCIAL CORPORATION
<TABLE>
<CAPTION>
<S> <C>
WINTON FINANCIAL CORPORATION THE WINTON SAVINGS AND LOAN CO.
BOARD OF DIRECTORS BOARD OF DIRECTORS
William J. Parchman William J. Parchman
Chairman of the Board Chairman of the Board
Retired real estate executive
Robert L. Bollin
Robert L. Bollin President
President of Winton Financial Corporation
and The Winton Savings and Loan Co. Robert J. Bollin
Robert J. Bollin Robert E. Hoeweler
Vice President of The Winton Savings
and Loan Company Henry L. Schulhoff
Robert E. Hoeweler Thomas H. Humes
President, Hoeweler Group, Inc.
Timothy M. Mooney
Henry L. Schulhoff
President, Schulhoff and Company, Inc. J. Clay Stinnett
Thomas H. Humes
President, Great Traditions Land & OFFICERS
Development Co.
Robert L. Bollin
Timothy M. Mooney President
Vice President and Chief Financial Officer
of Kendle International Inc. Gregory J. Bollin
Executive Vice President
J. Clay Stinnett
President, J.R. Concepts, Inc. Mary Ellen Lovett
Senior Vice President/Savings
OFFICERS
Robert J. Bollin
Robert L. Bollin Vice President
President
Jill M. Burke
James W. Brigger Treasurer and Chief Financial Officer
Secretary
James W. Brigger
Jill M. Burke Vice President/Secretary
Treasurer and Chief Financial Officer
Marianne B. Kenner
Gregory J. Bollin Vice President/Manager of Carthage Office
Vice President
Mary Ellen Lovett
Vice President
</TABLE>
55
<PAGE> 100
WINTON FINANCIAL CORPORATION
5511 CHEVIOT ROAD
CINCINNATI, OHIO 45247
(513) 385-3880
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Notice is hereby given that the Annual Meeting of Shareholders of
Winton Financial Corporation ("WFC") will be held at Shuller's Wigwam
Restaurant, 6210 Hamilton Ave., Cincinnati, Ohio 45224, on January 29, 1999, at
10:00 a.m., Eastern Standard Time (the "Annual Meeting"), for the following
purposes, all of which are more completely set forth in the accompanying Proxy
Statement:
1. To reelect three directors of WFC for terms expiring in
2002;
2. To consider and vote upon a proposed amendment to Article
Fourth of the amended Articles of Incorporation of WFC to
increase the authorized number of shares from 7,000,000 to
20,000,000, 18,000,000 of which will be common shares,
each without par value, and 2,000,000 of which will be
preferred shares, each without par value;
3. To consider and vote upon the Winton Financial Corporation
1999 Stock Option and Incentive Plan, a copy of which is
attached hereto as Exhibit A;
4. To consider and vote upon the ratification of the
selection of Grant Thornton LLP as the auditors of WFC for
the current fiscal year; and
5. To transact such other business as may properly come
before the Annual Meeting or any adjournments thereof.
Only shareholders of WFC of record at the close of business on December
11, 1998, will be entitled to receive notice of and to vote at the Annual
Meeting and at any adjournments thereof.
Whether or not you expect to attend the Annual Meeting, we urge you to
consider the accompanying Proxy Statement carefully and to SIGN, DATE AND
PROMPTLY RETURN THE ENCLOSED PROXY SO THAT YOUR SHARES MAY BE VOTED IN
ACCORDANCE WITH YOUR WISHES AND THE PRESENCE OF A QUORUM MAY BE ASSURED. The
giving of a Proxy does not affect your right to vote in person in the event you
attend the Annual Meeting.
By Order of the Board of Directors
Cincinnati, Ohio Robert L. Bollin
December 28, 1998 President
<PAGE> 101
WINTON FINANCIAL CORPORATION
5511 CHEVIOT ROAD
CINCINNATI, OHIO 45247
(513) 385-3880
PROXY STATEMENT
PROXIES
The enclosed Proxy is being solicited by the Board of Directors of
Winton Financial Corporation, an Ohio corporation ("WFC"), for use at the 1999
Annual Meeting of Shareholders of WFC to be held at Shuller's Wigwam Restaurant,
6210 Hamilton Ave., Cincinnati, Ohio 45224, on January 29, 1999, at 10:00 a.m.,
Eastern Standard Time, and at any adjournments thereof (the "Annual Meeting").
Without affecting any vote previously taken, the Proxy may be revoked by a
shareholder before exercise by executing a later-dated Proxy or by giving notice
of revocation to WFC in writing or in open meeting. Attendance at the Annual
Meeting will not, of itself, revoke a Proxy.
Each properly executed Proxy received prior to the Annual Meeting and
not revoked will be voted as specified thereon or, in the absence of specific
instructions to the contrary, will be voted:
FOR the reelection of Messrs. Robert E. Hoeweler, Timothy M. Mooney
and J. Clay Stinnett as directors of WFC for terms expiring in 2002;
FOR the adoption of an amendment to Article Fourth of the amended
Articles of Incorporation of WFC (the "Amended Articles") to increase
the authorized number of shares from 7,000,000 to 20,000,000,
18,000,000 of which will be common shares, each without par value, and
2,000,000 of which will be preferred shares, each without par value
(the "Amendment");
FOR the approval of the Winton Financial Corporation 1999 Stock
Option and Incentive Plan (the "1999 Stock Option Plan"), a copy of
which is attached hereto as Exhibit A; and
FOR the ratification of the selection of Grant Thornton LLP ("Grant
Thornton") as the auditors of WFC for the current fiscal year.
Proxies may be solicited by the directors, officers and other employees
of WFC and The Winton Savings and Loan Co., the wholly-owned subsidiary of WFC
("Winton"), in person or by telephone, telegraph, telecopy or mail. WFC may
reimburse brokerage firms and other custodians, nominees and fiduciaries for
reasonable expenses incurred by them in sending proxy materials to beneficial
owners. The cost of soliciting proxies will be borne by WFC.
Only shareholders of record as of the close of business on December 11,
1998 (the "Voting Record Date"), are eligible to vote at the Annual Meeting and
will be entitled to cast one vote for each share of WFC (the "Common Shares")
owned. WFC's records disclose that, as of the Voting Record Date, there were
4,015,304 votes entitled to be cast at the Annual Meeting.
This Proxy Statement is first being mailed to shareholders of WFC on or
about December 28, 1998.
<PAGE> 102
VOTE REQUIRED
ELECTION OF DIRECTORS
Under Ohio law and the Code of Regulations of WFC (the "Regulations"),
the three nominees receiving the greatest number of votes will be elected as
directors. Common Shares as to which the authority to vote is withheld and
shares held by a nominee for a beneficial owner that are represented in person
or by proxy at the Annual Meeting, but not voted with respect to the election of
directors ("Non-votes"), are not counted toward the election of directors or
toward the individual nominees specified in the enclosed Proxy. If the enclosed
Proxy is signed and dated by the shareholder, but no vote is specified thereon,
the Common Shares held by such shareholder will be voted FOR the reelection of
the three nominees.
ADOPTION OF AMENDMENT, APPROVAL OF 1999 STOCK OPTION PLAN AND RATIFICATION OF
SELECTION OF AUDITORS
The affirmative vote of the holders of at least a majority of the
outstanding Common Shares, voting in person or by proxy, is necessary to approve
the Amendment and the 1999 Stock Option Plan and to ratify the selection of
Grant Thornton as the auditors of WFC for the current fiscal year. The effect of
an abstention or a Non-vote is the same as a vote against the Amendment, against
the 1999 Stock Option Plan and against ratification. If the accompanying Proxy
is signed and dated by the shareholder, but no vote is specified thereon, the
Common Shares held by such shareholder will be voted FOR the adoption of the
Amendment, FOR the approval of the 1999 Stock Option Plan and FOR the
ratification of the selection of Grant Thornton as auditors.
VOTING SECURITIES AND OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
only persons known to WFC to own beneficially more than five percent of the
Common Shares as of December 1, 1998:
<TABLE>
<CAPTION>
Amount and Nature Percentage of Common
Name and Address of Beneficial Ownership (1) Shares Outstanding (2)
- ---------------- ----------------------- -----------------------
<S> <C> <C>
Star Bank, N.A., as Trustee 321,992 (3) 8.02%
P.O. Box 1118
Cincinnati, Ohio 45201
Daniel P. Randolph 239,608 (4) 5.97%
Suite 700
105 East Fourth Street
Cincinnati, Ohio 45202
Henry L. Schulhoff 289,800 (5) 7.13%
7 West Seventh Street
Cincinnati, Ohio 45202
</TABLE>
- -----------------------------
(1) A person is the beneficial owner of Common Shares if such person,
directly or indirectly, has sole or shared voting or investment power
over such shares directly or indirectly or has the right to acquire
such voting or investment power within 60 days. All Common Shares are
owned directly with sole voting or investment power, unless otherwise
indicated by footnote. All stock options granted under the Winton
Financial Corporation Stock Option and Incentive Plan, as amended (the
"1988 Option Plan"), are currently exercisable.
(2) For each person, assumes a total of 4,015,304 Common Shares
outstanding, plus the number of Common Shares such person may acquire
pursuant to the 1988 Option Plan, if any.
(Footnotes continue on next page)
-2-
<PAGE> 103
(3) The Common Shares are held by Star Bank, N.A., as trustee under The
Winton Financial Corporation Employee Stock Ownership Plan (the
"ESOP"). Star Bank, N.A., has investment power with respect to all of
such common shares and voting power with respect to the unallocated
common shares.
(4) Based on a Schedule 13G filed with the Securities and Exchange
Commission by Daniel P. Randolph. Includes 42,144 Common Shares held by
Daniel P. Randolph in an individual retirement account; 178,164 Common
Shares owned as trustee under a trust for the benefit of R. Irene
Randolph; 10,800 Common Shares owned as trustee under a trust for the
benefit of Ronald I. Oldiges; and 8,500 Common Shares owned as trustee
under a trust for the benefit of Charles Randolph.
(5) Includes 50,000 Common Shares that may be acquired upon the exercise of
options; 17,600 Common Shares owned by Mr. Schulhoff's spouse as to
which Mr. Schulhoff disclaims beneficial ownership; and 14,200 Common
Shares owned by Schulhoff & Company, Inc., a corporation of which Mr.
Schulhoff is a major shareholder.
The following table sets forth certain information with respect to the
number of Common Shares beneficially owned by each director of WFC and by all
directors and executive officers of WFC as a group as of December 1, 1998:
<TABLE>
<CAPTION>
Amount and Nature of Percent of Common
Name and Address (1) Beneficial Ownership (2) Shares Outstanding (3)
- ----------------- --------------------- -------------------
<S> <C> <C> <C>
Robert J. Bollin 92,940 (4) 2.29%
Robert L. Bollin 193,508 (5) 4.73
Robert E. Hoeweler 181,200 (6) 4.46
Thomas H. Humes 12,000 (7) 0.30
Timothy M. Mooney 12,000 (8) 0.30
William J. Parchman 181,835 (9) 4.48
Henry L. Schulhoff 289,800 (10) 7.13
J. Clay Stinnett 11,000 (11) 0.27
All directors and executive officers
of WFC as a group (12 persons) 1,290,789 (12) 29.15%
</TABLE>
- ----------------------------
(1) Each of the persons listed in this table may be contacted at the
address of WFC, 5511 Cheviot Road, Cincinnati, Ohio 45247.
(2) A person is the beneficial owner of Common Shares if such person,
directly or indirectly, has sole or shared voting or investment power
over such shares directly or indirectly or has the right to acquire
such voting or investment power within 60 days. All Common Shares are
owned directly with sole voting and investment power, unless otherwise
indicated by footnote. All stock options granted under the 1988 Option
Plan are currently exercisable.
(3) For each person, assumes a total of 4,015,304 Common Shares
outstanding, plus the number of Common Shares such person may acquire
pursuant to the 1988 Option Plan, if any.
(4) Includes 40,000 Common Shares that may be acquired upon the exercise of
options and 52,940 Common Shares held in the individual retirement
account of Robert J. Bollin, the trustee of which is A. G. Edwards,
Inc.
(5) Includes 80,000 Common Shares that may be acquired upon the exercise of
options; 37,453 Common Shares held for the benefit of Robert L. Bollin
in The Winton Savings and Loan Co. Cash and Deferred Plan (the
"Deferred Plan"), the trustees of which are James W. Brigger, Robert L.
Bollin and Mary Ellen Lovett, executive officers of WFC; 34,415 Common
Shares held for the benefit of Robert L. Bollin in the ESOP; 1,360
Common Shares held by the individual retirement account of Robert L.
Bollin, the trustee of which is Merrill Lynch; 36,080 Common Shares
held jointly with Mr. Bollin's spouse; 4,000 Common Shares held by A.
G. Edwards, Inc., for the benefit of Elaine Bollin; and 200 Common
Shares held by Elaine Bollin as custodian for Anthony Bollin.
(Footnotes continue on next page)
-3-
<PAGE> 104
(6) Includes 50,000 Common Shares that may be acquired upon the exercise of
options; 51,600 Common Shares held jointly with Mr. Hoeweler's spouse;
39,800 Common Shares owned as trustee under a trust for the benefit of
Brian Hoeweler; and 39,800 Common Shares owned as trustee under a trust
for the benefit of Jennifer Hoeweler.
(7) Includes 10,000 Common Shares that may be acquired upon the exercise of
an option and 2,000 Common Shares held by Prudential Securities for the
benefit of Thomas H. and Marcia Humes.
(8) Includes 10,000 Common Shares that may be acquired upon the exercise of
an option and 2,000 Common Shares held by PaineWebber for the benefit
of Timothy M. Mooney.
(9) Includes 40,000 Common Shares that may be acquired upon the exercise of
options; 114,480 Common Shares held in the individual retirement
account of William J. Parchman, the trustee of which is Alex Brown &
Sons, Inc.; and 14,075 Common Shares owned by Mr. Parchman's spouse.
(10) Includes 50,000 Common Shares that may be acquired upon the exercise of
options; 17,600 Common Shares owned by Mr. Schulhoff's spouse, as to
which Mr. Schulhoff disclaims beneficial ownership; and 14,200 Common
Shares owned by Schulhoff & Company, Inc., a corporation of which Mr.
Schulhoff is a major shareholder.
(11) Includes 10,000 Common Shares that may be acquired upon the exercise of
an option and 1,000 Common Shares held by Merrill Lynch for the benefit
of J. Clay Stinnett.
(12) Includes 414,000 Common Shares that may be acquired upon the exercise
of options and 111,135 Common Shares held in the ESOP.
PROPOSAL ONE - REELECTION OF DIRECTORS
The Regulations provide for a Board of Directors consisting of nine
persons, divided into three classes of three directors each. Each class serves
for a three-year period. Each of the directors of WFC is also a director of
Winton.
The entire Board of Directors of WFC acts as a nominating committee for
selecting nominees for election as directors. In accordance with Section 2.03 of
the Regulations, nominees for election as directors may be proposed only by the
directors or by a shareholder entitled to vote for directors if such shareholder
has submitted a written nomination to the Secretary of WFC by the later of the
February 1st immediately preceding the annual meeting of shareholders or the
sixtieth day before the first anniversary of the most recent annual meeting of
shareholders held for the election of directors. Each such written nomination
must state the name, age, business or residence address of the nominee, the
principal occupation or employment of the nominee, the number of Common Shares
owned either beneficially or of record by each such nominee and the length of
time such Common Shares have been so owned.
The Board of Directors proposes the reelection of the following
directors to terms which will expire in 2002:
<TABLE>
<CAPTION>
Name Age (1) Position(s) Held Director Since
---- ---- ---------------- --------------
<S> <C> <C> <C>
Robert E. Hoeweler 51 Director 1989
Timothy M. Mooney 51 Director 1996
J. Clay Stinnett 47 Director 1996
</TABLE>
- -----------------------------
(1) As of December 1, 1998.
If any nominee is unable to stand for election, the Proxies will be
voted for such substitute as the Board of Directors recommends. At this time,
the Board of Directors knows of no reason why any nominee would be unable to
serve if elected. No shareholder may cumulate votes in the election of
directors. There is presently one vacancy on the Board of Directors in the class
of directors which will stand for election in January 2000, which resulted from
the decision of a director not to stand for re-election in 1997.
-4-
<PAGE> 105
The following directors will continue to serve after the Annual Meeting
for the terms indicated:
<TABLE>
<CAPTION>
Position(s) Director Term
Name Age(1) Held Since Expires
- ---- ------ ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
Robert J. Bollin (2) 76 Director 1989 2001
Robert L. Bollin (2) 46 Director and President 1989 2000
Thomas H. Humes 49 Director 1996 2001
William J. Parchman 79 Director and 1989 2000
Chairman of the Board
Henry L. Schulhoff 54 Director 1989 2001
</TABLE>
- -----------------------------
(1) As of December 1, 1998.
(2) Robert L. Bollin, a director and the President of WFC, is the son of
Robert J. Bollin, a director of WFC, and a brother of Gregory J.
Bollin, a Vice President of WFC.
ROBERT E. HOEWELER was elected to the Board of Directors of Winton in
1988. Mr. Hoeweler is a certified public accountant. Since 1972, Mr. Hoeweler
has been active in the management of a group of family-owned companies which
includes Aluminum Extruded Shapes, Inc.
TIMOTHY M. MOONEY has served as Vice President and Chief Financial
Officer of Kendle International Inc., a clinical research organization in
Cincinnati, since 1996. From 1994 to 1995, he served as Vice President, Chief
Financial Officer and Treasurer of The Future Now, Inc., a computer reseller
located in Cincinnati. From 1988 to 1994, Mr. Mooney served as Senior Vice
President and Chief Financial Officer of Hook-SupRx, Inc., a retail drug store
chain.
J. CLAY STINNETT has served since 1993 as President and a director of
J.R. Concepts, Inc., a direct mail advertising company in Cincinnati. Prior to
1993, Mr. Stinnett spent almost 20 years in the banking business, including
serving as President and Chief Operating Officer of PNC Bank, N.A. (formerly The
Central Trust Co., N.A.), until 1992.
ROBERT J. BOLLIN began his banking career in 1947 as an office manager
for Cincinnati Federal Savings Association in Price Hill. He then moved to the
O'Bryonville Savings and Loan Association, where he served as Assistant
Secretary and Chief Executive Officer. In 1955, Mr. Bollin joined Winton as
Secretary and Chief Executive Officer. He has since retired from his positions
as Secretary and Chief Executive Officer, but still participates in Winton's
business as a Vice President and an appraiser of construction loans. Mr. Bollin
has been active in the McAuley High School Development Board and the LaSalle
High School Advisory Board.
ROBERT L. BOLLIN has been the President and a director of Winton since
1988 and the President and a director of WFC since incorporation in November
1989. Mr. Bollin joined Winton in 1969, initially working part time while
completing a degree in Business Management at Miami University. In 1979, he was
promoted to Secretary and Assistant Managing Officer of Winton, responsible for
managing Winton's accounting operations, developing and implementing Winton's
investment policy in consultation with the Board of Directors and managing the
day-to-day operations of Winton.
THOMAS H. HUMES has served as President of Great Traditions Land and
Development Co., a real estate and land development company in Cincinnati, for
the past six years.
WILLIAM J. PARCHMAN has served as a director of Winton for 43 years. A
graduate of the University of Cincinnati, he received his law degree and was
admitted to the practice of law in Ohio in 1949. Mr. Parchman was the founder of
Parchman & Oyler Company Realtors which, at its peak, was Cincinnati's largest
residential real estate company. Mr. Parchman served as National Alumni
President of the University of Cincinnati and more recently as Chairman of the
Board of the University of Cincinnati Foundation. He was also a director of the
Cincinnati Metropolitan Housing Authority for 18 years, past president of the
Cincinnati Board of Realtors and President of Clovernook Country Club. Mr.
Parchman was the first recipient of the Carl H. Lindner Medal for Outstanding
Business Achievement presented by the College of Business Administration Alumni
Association, University of Cincinnati.
-5-
<PAGE> 106
HENRY L. SCHULHOFF became a director of Winton in February 1988. Since
1976, Mr. Schulhoff has been the President of Schulhoff and Company, Inc., a
local investment counseling firm.
MEETINGS OF DIRECTORS
The Board of Directors of WFC met 12 times for regularly scheduled and
special meetings during the fiscal year ended September 30, 1998. Each director
attended at least 75% of the aggregate of such meetings.
The Board of Directors of Winton met 12 times for regularly scheduled
and special meetings during the fiscal year ended September 30, 1998. Each
director attended at least 75% of the aggregate of such meetings.
COMMITTEES OF DIRECTORS
The Board of Directors of WFC has no standing committees. Nominations
for election of directors are determined by the entire Board of Directors. See
"Election of Directors."
The committees of the Board of Directors of Winton includes an Audit
Committee, an Executive Committee, a Loan Committee, a Compensation Committee,
an ESOP Committee and a Stock Option Committee. Each director attended at least
75% of the aggregate of all meetings of each committee on which he served as a
regular member.
The members of Winton's Audit Committee are Thomas H. Humes, Timothy M.
Mooney and J. Clay Stinnett. The function of the Audit Committee is to
communicate with WFC outside auditors and to recommend to the Board of Directors
a firm of accountants to serve as independent auditors for WFC. The Audit
Committee met twice during the fiscal year ended September 30, 1998.
The members of the Executive Committee are Robert L. Bollin, Robert E.
Hoeweler, William J. Parchman and Henry L. Schulhoff. The function of the
Executive Committee is to examine, together with management, levels and methods
of investment, to review and evaluate alternative and additional investment
programs and to consider and establish interest rates on the various forms of
savings deposits and mortgage loans. The Executive Committee met 32 times during
the fiscal year ended September 30, 1998.
Winton's Loan Committee is comprised of Robert J. Bollin, William J.
Parchman and Henry L. Schulhoff. Robert L. Bollin serves as alternate. The
function of the Loan Committee is to approve loan applications and exercise the
authority of the Board of Directors when the Board is not in session, subject to
certain limitations. The Loan Committee met 37 times during the fiscal year
ended September 30, 1998.
Winton's Compensation Committee consists of Thomas H. Humes, Timothy M.
Mooney and J. Clay Stinnett. The function of the Compensation Committee is to
confer with management and make recommendations to the Board of Directors
regarding the compensation of Winton's executive officers and employees. The
Compensation Committee met once during the fiscal year ended September 30, 1998.
The ESOP is administered by a committee of at least three directors
designated by the Board of Directors. The ESOP committee presently consists of
Robert J. Bollin, Robert E. Hoeweler and William J. Parchman. The ESOP Committee
did not meet during the fiscal year ended September 30, 1998.
The Stock Option Committee is responsible for administering the 1988
Option Plan, including interpreting the 1988 Option Plan and awarding options
pursuant to its terms. The 1988 Stock Option Committee did not meet during the
fiscal year ended September 30, 1998. The current members of the Stock Option
Committee are Robert L. Bollin, Robert E. Hoeweler, William J. Parchman and
Henry L. Schulhoff.
-6-
<PAGE> 107
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
current executive officers of WFC, other than those who are also directors:
Name Age(1) Position(s) Held
Gregory J. Bollin 44 Vice President
Jill M. Burke 36 Treasurer and Chief
Financial Officer
James W. Brigger 50 Secretary
Mary Ellen Lovett 60 Vice President
- -----------------------------
(1) As of December 1, 1998.
GREGORY J. BOLLIN is a Vice President of WFC, a position he has held
since January 1994. Mr. Bollin also serves as Executive Vice President of
Winton, a position he has held since January 1993. Mr. Bollin served as Vice
President of Winton from 1988 until January 1993. Mr. Bollin is the brother of
Robert L. Bollin and the son of Robert J. Bollin.
JILL M. BURKE is the Treasurer and Chief Financial Officer of WFC, a
position she has held since 1989. Ms. Burke also serves as Treasurer and
Controller of Winton, a position she has held since 1989.
JAMES W. BRIGGER is the Secretary of WFC, a position he has held since
1989. Mr. Brigger also serves as Vice President of Winton.
MARY ELLEN LOVETT is a Vice President of WFC, a position she has held
since January 1994. Ms. Lovett also serves as Senior Vice President of Winton, a
position she has held since January 1993. Ms. Lovett served as Vice President of
Winton from 1988 to May 1993.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTOR COMPENSATION
WFC does not pay directors fees. Each director of Winton receives
$12,000 annually for monthly meetings and $100 for each meeting attended of a
committee of the Board of Directors of Winton, except for meetings of the
Executive Committee for which members receive $200 per meeting.
EXECUTIVE COMPENSATION
WFC does not pay any compensation to its executive officers. Executive
officers of Winton are compensated by Winton for services rendered to Winton.
Except for the President and Executive Vice President of Winton, no director or
executive officer of WFC received more than $100,000 in salary and bonus
payments from Winton during the year ended September 30, 1998.
-7-
<PAGE> 108
The following table sets forth certain information with respect to
compensation paid to the President and Executive Vice President of Winton:
Summary Compensation Table
--------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Long Term
Annual Compensation Compensation Awards All Other
- ---------------------------------------------------------------------------------------------------------------------
Options/SARs Compensation
Name and Principal Position Year Salary($) Bonus($) (#)(1) ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Bollin, President 1998 $165,330 $52,000 - $8,567 (2)
1997 $158,599 $16,000 - $8,352 (2)
1996 $153,649 $16,000 20,000 $6,929 (2)
Gregory J. Bollin, Executive 1998 $120,669 $39,000 - $7,034 (3)
Vice President 1997 $115,569 $13,000 - $6,293 (3)
1996 $109,838 $13,000 12,000 $4,789 (3)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------------
(1) These figures represent the number of Common Shares underlying options
granted to the named individuals during the year indicated pursuant to
the 1988 Option Plan. Mr. Robert L. Bollin's and Mr. Gregory J.
Bollin's outstanding options were adjusted for the two 2-for-1 stock
splits in the form of stock dividends effective in 1993, 1994 and 1998.
WFC has no restricted stock awards or stock appreciation rights
("SARs").
(2) Consists of cash or stock contributions to the ESOP or the reallocation
of forfeited shares in the ESOP of $6,157, $6,202 and $4,862 allocated
to Mr. Robert L. Bollin's account and $2,410, $2,150 and $2,067 in
matching contributions to the Deferred Plan for Mr. Robert L. Bollin's
account for the years ended September 30, 1998, 1997 and 1996,
respectively.
(3) Consists of cash or stock contributions to the ESOP or the reallocation
of forfeited shares in the ESOP of $6,144, $5,316 and $3,982 allocated
to Mr. Gregory J. Bollin's account and $890, $977 and $807 in matching
contributions to the Deferred Plan for Mr. Gregory J. Bollin's account
for the years ended September 30, 1998, 1997 and 1996, respectively.
OPTION PLAN
In 1988, Winton converted from mutual to stock form (the "Conversion").
In connection with the Conversion, the shareholders of Winton approved the 1988
Stock Option Plan. In 1990, the shareholders of Winton approved the
reorganization of Winton into a holding company structure, as a result of which
the shareholders of Winton became shareholders of WFC and Winton became a
wholly-owned subsidiary of WFC. The shareholders of WFC approved certain
amendments to the 1988 Stock Option Plan at the 1995 Annual Meeting of
Shareholders.
Pursuant to the 1988 Stock Option Plan, WFC has reserved 523,000 Common
Shares for issuance upon the exercise of options granted to directors and
employees of WFC. On December 1, 1998, options to purchase 480,000 Common Shares
were outstanding and exercisable. On August 8, 1998, the ten-year anniversary of
the effective date of the Conversion, the 1988 Stock Option Plan terminated. No
additional options may be granted under the 1988 Stock Option Plan.
Options granted to employees of Winton may be "incentive stock options"
("ISOs") within the meaning of Section 422 of the Internal Revenue Code (the
"Code"), while options granted to non-employee directors do not qualify as ISOs.
See "PROPOSAL THREE - APPROVAL OF WINTON FINANCIAL CORPORATION 1999 STOCK OPTION
AND INCENTIVE PLAN - Tax Treatment of Incentive Stock Options."
-8-
<PAGE> 109
No option granted under the 1988 Stock Option Plan may be exercised
after the expiration of ten years from the date of grant, and an option
recipient generally cannot transfer or assign an option other than by will or in
accordance with the laws of descent and distribution.
The following table sets forth information regarding the number and
value of unexercised options granted pursuant to the 1988 Stock Option Plan held
by the persons listed in the Summary Compensation Table. No stock appreciation
rights have been granted under the 1988 Stock Option Plan.
<TABLE>
<CAPTION>
Aggregate Option/SAR Exercises in Last Fiscal Year and 9/30/98 Option/SAR Values
-------------------------------------------------- -----------------------------
Value of Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options/SARs
Options/SARs at 9/30/98(#) at 9/30/98($)(1)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized ($) Unexercisable Unexercisable
- ---- ------------------ ------------ ------------- ---------------
<S> <C> <C> <C> <C>
Robert L. Bollin - - 80,000/ - $950,000/ -
Gregory J. Bollin - - 48,000/ - $570,000/ -
</TABLE>
- ------------------------
(1) An option is "in-the-money" if the fair value of the underlying stock
exceeds the market price of the option. The figure represents the value
of such unexercised options, determined by multiplying the number of
unexercised options by the difference between the exercise price of
such options and the $11.875 closing bid price for the Common Shares
reported by the American Stock Exchange ("AMEX"), on September 30,
1998.
EMPLOYMENT CONTRACTS
WFC and Winton have entered into employment agreements with Robert L.
Bollin, President of WFC and Winton, and Gregory J. Bollin, Vice President of
WFC and Executive Vice President of Winton, which expire on April 30, 2001. The
employment agreements have a term of three years and provide for an annual
salary of not less than $182,000 for Robert L. Bollin and $134,000 for Gregory
J. Bollin and an annual salary and performance review by the Board of Directors.
The employment agreements require the inclusion of Robert L. and Gregory J.
Bollin in any formally established employee benefit, bonus, pension and profit
sharing plans for which senior management personnel are eligible and also
provide for vacation and sick leave.
The employment agreements are terminable by WFC and Winton at any time.
If the employment of either Robert L. Bollin or Gregory J. Bollin is terminated
at any time during such three-year term for any reason other than "just cause"
(as defined in the agreements), he will be entitled to receive his annual
compensation for the remainder of the three-year term of the agreement and a
continuation of benefits substantially equal to those being provided at the date
of termination of employment until the earliest to occur of the expiration of
the term of the employment agreement or the date on which the employee becomes
employed full-time by another employer.
If such employment is terminated, or if the position or
responsibilities of the employee is changed, in connection with or within one
year of a change in control of WFC or Winton, he will be entitled to receive an
amount equal to his then current annual compensation, multiplied by three,
subject to reduction to the extent necessary to comply with certain provisions
of the Internal Revenue Code of 1986, as amended, and regulations of the Office
of Thrift Supervision. Assuming employment termination in connection with such a
change of control, the maximum payment to Robert L. Bollin would be $546,000 and
to Gregory J. Bollin would be $402,000 or three times the greater of the minimum
salary levels in the agreements or the salary levels for fiscal 1998 reflected
in the Summary Compensation Table above.
-9-
<PAGE> 110
PERSONNEL AND SALARY COMMITTEE REPORT ON EXECUTIVE COMPENSATION
As a unitary savings and loan holding company, the business of WFC
consists principally of holding the stock of Winton. The functions of the
executive officers of WFC, who are also the executive officers of Winton,
pertain primarily to the operations of Winton. The executive officers receive
their compensation, therefore, from Winton, rather than from WFC. The
Compensation Committee of Winton has furnished the following report concerning
executive compensation:
Process for Determining Compensation
WFC has not paid any cash compensation to its executive officers since
its formation. All executive officers of WFC also currently hold positions with
Winton and receive cash compensation from Winton. Decisions on cash compensation
of Winton's executives are made by the three-member Compensation Committee of
Winton's Board of Directors.
The Compensation Committee reviews the compensation levels of the
executive officers, including the CEO, each year. The Compensation Committee
utilizes independent surveys of compensation of officers in the thrift industry,
taking into account comparable asset bases and geographic locations. The
Compensation Committee also assesses each particular executive officer's
contribution to WFC and Winton, the skills and experiences required by his/her
position and the potential of the executive officer. Based on the foregoing
factors, recommendations are made by the Compensation Committee to the Board of
Directors of Winton. Such recommendations are reviewed by the Board of Directors
of Winton, except that Board members who are also executive offices do not
participate in deliberations regarding their own respective compensation.
Compensation Policies toward Executive Officers Generally
The Compensation Committee's executive compensation policies are
designed to provide competitive levels of compensation that will attract and
retain qualified executives and will reward individual performance, initiative
and achievement, while enhancing overall corporate performance and shareholder
value. The cash compensation program for executive officers consists of three
elements, a base salary component, a discretionary cash bonus, and an incentive
component payable under an incentive plan (the "Incentive Plan").
The objectives of the discretionary cash bonuses are to motivate and
reward the executive officers based on each individual's contribution to the
total performance of Winton and WFC and to reinforce a strong performance
orientation.
The objectives of the Incentive Plan are to motivate and reward the
executive officers in connection with the accomplishment of annual objectives of
Winton and WFC, to reinforce a strong performance orientation with
differentiation and variability in individual awards based on contribution to
annual and long range business results and to provide a competitive compensation
package which will attract, reward and retain individuals of the highest
quality. For the President and the Executive Vice President of Winton and the
President and Vice President of WFC, incentive awards are determined as a
percentage of gross income, which percentage is calculated utilizing a corporate
goal factor and a performance factor. The corporate goal factor is based upon
WFC's achievement of certain levels of earnings and a predetermined return on
equity. The performance factor is based upon the particular executive officer's
performance during the preceding year.
Determination of CEO's Compensation
The Compensation Committee based the compensation of Mr. Robert L.
Bollin in 1998 on the policies described above for executive officers. The
corporate profitability measurements considered were return on equity, net
income, earnings per share and return on assets. Additional corporate goals
considered were merger and acquisition activities, continued updating and
implementation of Winton's strategic plan and subsidiary oversight and progress.
The Compensation Committee believes that the level of compensation paid to Mr.
Robert L. Bollin in 1998 was fair and reasonable when compared with compensation
levels in the thrift industry reported in various independent surveys. The
compensation earned by Mr. Robert L. Bollin in 1998 reflects the significant
management and leadership responsibilities required of him and the effective
manner in which those responsibilities were fulfilled.
-10-
<PAGE> 111
Submitted by the Compensation Committee of Winton's Board of Directors
Thomas H. Humes
Timothy M. Mooney
J. Clay Stinnett
PERSONNEL AND SALARY COMMITTEE INTERLOCKS
During fiscal 1998, no member of the Compensation Committee was a
current or former executive officer or employee of WFC or Winton or had a
reportable business relationship with WFC or Winton.
PERFORMANCE GRAPH
The following graph compares the cumulative total return on WFC's
common shares for the fiscal year ended September 30, 1998, with the cumulative
total return of the SNL Index, which is an index of banks whose shares are
traded on The New York Stock Exchange, AMEX or The Nasdaq Stock Market, and the
cumulative total return of the Standard and Poor's 500 for the same period.
CERTAIN TRANSACTIONS WITH WINTON
Some of the directors and officers of WFC and Winton were customers of
and had transactions with Winton in the ordinary course of Winton's business
during the two years ended September 30, 1998. All loans and commitments to loan
included in such transactions were made in the ordinary course of business on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons and, in
the opinion of the management of WFC, do not involve more than a normal risk of
collectibility or present other unfavorable features. Winton had no loans
outstanding to directors and executive officers at December 1, 1998.
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PROPOSAL TWO - APPROVAL OF AMENDMENT TO ARTICLES
On November 20, 1998, the Board of Directors of WFC unanimously
approved and recommended that the shareholders consider and approve an amendment
to Article Fourth of the Amended Articles that would increase the number of
WFC's authorized Common Shares from 5,000,000 shares to 18,000,000 shares.
The Amended Articles currently authorize 7,000,000 shares, consisting
of 5,000,000 Common Shares, each without par value, and 2,000,000 preferred
shares, each without par value. As of the Voting Record Date, there were
4,015,304 Common Shares issued and outstanding, 480,000 Common Shares reserved
for issuance upon the exercise of options and no preferred shares issued. On
December 4, 1998, WFC and BenchMark Federal Savings Bank, a federal savings bank
("BenchMark"), jointly announced the execution of a merger agreement (the
"Merger Agreement") that provides for the merger of BenchMark with and into
Winton (the "Merger"). Pursuant to the terms of the Merger Agreement, WFC will
issue 3.35 of its Common Shares for each of the 112,307 outstanding shares of
BenchMark, or an aggregate of 376,228 Common Shares. Following the consummation
of the Merger, therefore, only 128,468 Common Shares will be available for
future acquisitions, stock dividends, stock options or other corporate purposes.
In considering the Amendment, the Board of Directors concluded that it
would be advisable for the additional Common Shares to be available for issuance
at the discretion of the Board in connection with acquisitions, stock dividends,
stock splits and for any other purpose determined by the Board to be in the best
interests of WFC, without the delay attendant upon obtaining shareholder
approval prior to each issuance. Where approval by shareholders is otherwise
required for the issuance of Common Shares, whether by Ohio law, the rules of
the AMEX or other applicable requirement, such approval by shareholders will be
sought.
THE BOARD OF DIRECTORS OF WFC RECOMMENDS THAT THE SHAREHOLDERS APPROVE
THE AMENDMENT. Accordingly, the shareholders of WFC will be asked to approve the
following resolution at the Annual Meeting:
RESOLVED, that Article Fourth of the Amended Articles of Incorporation
of Winton Financial Corporation be, and it hereby is, deleted in its
entirety and replaced with the following new Article Fourth:
FOURTH: The authorized number of shares of the corporation
shall be twenty million (20,000,000), eighteen million
(18,000,000) of which shall be common shares, each without par
value, and two million (2,000,000) of which shall be preferred
shares, each without par value.
The directors of the corporation are authorized to adopt
amendments to the Articles of Incorporation in respect of any
unissued or treasury common and preferred shares and thereby
to fix or change, to the full extent now or hereafter
permitted by Ohio law: the division of such shares into series
and the designation and authorized number of shares of each
series; the dividend rate; the dates of payment of dividends
and the dates from which they are cumulative; the liquidation
price; the redemption rights and price; the sinking fund
requirements; the conversion rights; the restrictions on the
issuance of shares of any class or series; and such other
rights, preferences and limitations as shall not be
inconsistent with this Article Fourth.
Except as hereinafter provided and as may otherwise be
required by the laws of the State of Ohio, all voting power of
the corporation for all purposes is vested exclusively in the
holders of the common shares. The holders of common shares
shall be entitled to one vote for each common share held. The
holders of the preferred shares shall not be entitled to vote
at meetings of the shareholders of the corporation or to
receive notices of such meetings; provided, however, that in
the event dividends on the preferred shares, if any, shall at
any time become in arrears, the holders of the preferred
shares shall thereupon become entitled to one vote for each
preferred share held and to notice of all meetings of the
shareholders. Such voting and notice rights of the preferred
shareholders shall continue until all dividends in arrears on
the preferred shares shall have been paid in full, whereupon
such voting and notice rights of the preferred shareholders
shall cease and terminate.
All Common Shares, including those now authorized and those which would
be authorized by the Amendment, are equal in rank and have the same voting,
dividend and liquidation rights. Holders of WFC shares do not have pre-emptive
rights. Any increase in the number of authorized Common Shares will have no
immediate dilutive effect on the
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proportionate voting power of shareholders. However, the future issuance of
additional Common Shares or preferred shares could have a dilutive effect on the
proportionate voting power, earnings per share and book value per share of
present shareholders. Under some circumstances, the issuance of new shares may
discourage certain potential business combinations which some shareholders may
believe to be in their best interest and make more difficult management changes
which might occur if the potential business combination were successful.
PROPOSAL THREE - APPROVAL OF WINTON FINANCIAL CORPORATION
1999 STOCK OPTION AND INCENTIVE PLAN
GENERAL
The following is a summary of the terms of the 1999 Stock Option Plan
and is qualified in its entirety by reference to the full text of the 1999 Stock
Option Plan, a copy of which is attached hereto as Exhibit A.
PURPOSE, ADMINISTRATION AND ELIGIBILITY
The purpose of the Stock Option Plan is to promote and advance the
interests of WFC and its shareholders by enabling WFC to attract, retain and
reward directors, managerial and other key employees of WFC and any subsidiary,
including Winton, and to strengthen the mutuality of interests between such
directors and employees and WFC's shareholders by providing such persons with a
proprietary interest in pursuing the long-term growth, profitability and
financial success of WFC. Pursuant to the Stock Option Plan, 401,530 Common
Shares have been reserved for issuance by WFC upon the exercise of options to be
granted to certain directors, officers and employees of WFC and Winton from time
to time under the 1999 Stock Option Plan. At December 1, 1998, approximately 20
persons were eligible to receive options granted under the 1999 Stock Option
Plan.
The Stock Option Plan will be administered by the Stock Option
Committee, a committee of directors composed of at least three directors of WFC.
The Stock Option Committee may grant options under the 1999 Stock Option Plan at
such times as they deem most beneficial to Winton and WFC on the basis of the
individual participant's position and duties and the value of the individual's
services and responsibilities to Winton and WFC.
Without further approval of the shareholders, the Board of Directors
may at any time terminate the 1999 Stock Option Plan or may amend it from time
to time in such respects as the Board of Directors may deem advisable, except
that the Board of Directors may not, without the approval of the shareholders,
make any amendment which would (a) increase the aggregate number of Common
Shares that may be issued under the 1999 Stock Option Plan (except for
adjustments to reflect certain changes in the capitalization of WFC), (b)
materially modify the requirements as to eligibility for participation in the
1999 Stock Option Plan, or (c) materially increase the benefits accruing to
participants under the 1999 Stock Option Plan. Notwithstanding the foregoing,
the Board of Directors may amend the 1999 Stock Option Plan to take into account
changes in applicable securities, federal income tax and other applicable laws.
OPTION TERMS
Options granted to the officers and employees under the 1999 Stock
Option Plan may be ISOs within the meaning of Section 422 of the Code, or may be
options which do not qualify under Section 422 of the Code ("Non-Qualified Stock
Options"). Options granted under the 1999 Stock Option Plan to directors who are
not employees of WFC or Winton will be Non-Qualified Stock Options.
The exercise price of each option granted under the 1999 Stock Option
Plan will be determined by the Stock Option Committee at the time the option is
granted. However, the exercise price of an option may not be less than 100% of
the fair market value of the shares on the date of the grant. In addition, the
exercise price of an ISO may not be less than 110% of the fair market value of
the shares on the date of the grant if the recipient owns more than 10% of the
outstanding common shares of WFC. Subject to certain exceptions specified in the
1999 Stock Option Plan or as otherwise specified by the Stock Option Committee
at the time of grant, stock options are immediately exercisable in full. No
stock option will be exercisable after the expiration of ten years from the date
of the grant. However, if a recipient of an ISO owns a number of shares
representing more than 10% of WFC shares outstanding at the time the ISO is
granted, the term of the ISO will not exceed five years. If the fair market
value of shares awarded pursuant to ISOs that are exercisable for the first time
during any
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calendar year by a participant under the 1999 Stock Option Plan exceeds
$100,000, the ISOs will be considered Non-Qualified Stock Options to the extent
of such excess.
An option recipient cannot transfer or assign an option other than by
will or in accordance with the laws of descent and distribution. Termination of
an option recipient's employment for cause, as defined in the 1999 Stock Option
Plan, will result in the annulment of any outstanding exercisable options. Any
outstanding options that have not yet been exercised will terminate upon the
resignation, removal or retirement of a director of WFC or Winton, or upon the
termination of employment of an officer or employee of WFC or Winton, except in
the case of death or disability of the option recipient or a change in control
of WFC or Winton.
WFC will receive no monetary consideration for the granting of options
under the Stock Option Plan. Upon the exercise of options, WFC will receive
payment of cash or, if acceptable to the Stock Option Committee, Common Shares
or outstanding awarded stock options. The market value of the Common Shares
underlying the options reserved for the 1999 Stock Option Plan is approximately
$5.4 million, based upon the number of shares reserved, multiplied by the $13.50
per share closing sales price of the Common Shares on December 10, 1998, as
quoted on AMEX.
PURCHASE RIGHT
The Stock Option Committee may include as a term of any option granted
under the 1999 Stock Option Plan the right (a "Purchase Right"), but not the
obligation, of WFC to purchase all or any amount of the Common Shares acquired
by an optionee pursuant to the exercise of any such options. The Purchase Right
will provide for, among other terms, a specified duration of the Purchase Right,
a specified price per Common Share to be paid upon the exercise of the Purchase
Right and a restriction on the disposition of the Common Shares by the optionee
during the period of the Purchase Right.
STOCK APPRECIATION RIGHT
The Stock Option Committee may include a stock appreciation right (a
"Stock Appreciation Right") as a component of an option or independent of an
option. The Stock Appreciation Right would entitle the recipient to receive a
number of Common Shares or cash, or combination thereof, as the Stock Option
Committee shall determine, equal to the amount by which the fair market value of
the Common Shares subject to the Stock Appreciation Right exceeds the exercise
price of the Stock Appreciation Right.
TAX TREATMENT OF INCENTIVE STOCK OPTIONS
An optionee who is granted an ISO will not recognize taxable income
either on the date of grant or on the date of exercise, although the difference
between the fair market value of the shares at the time of exercise and the
exercise price is a tax preference item potentially subject to the alternative
minimum tax.
Upon disposition of shares acquired from the exercise of an ISO,
capital gain or loss is generally recognized in an amount equal to the
difference between the amount realized on the sale or disposition and the
exercise price. However, if the optionee disposes of the shares within two years
of the date of grant or within one year from the date of the issuance of the
shares to the optionee (a "Disqualifying Disposition"), then the optionee will
recognize ordinary income, as opposed to capital gain, at the time of
disposition. In general, the amount of ordinary income recognized will be equal
to the lesser of (i) the amount of gain realized on the disposition, or (ii) the
difference between the fair market value of the shares received on the date of
exercise and the exercise price. Any remaining gain or loss is treated as a
short-term, mid-term or long-term capital gain or loss, depending upon the
period of time the shares have been held.
WFC will not be entitled to a tax deduction upon either the exercise of
an ISO or the disposition of shares acquired pursuant to such exercise, except
to the extent that the optionee recognizes ordinary income in a Disqualifying
Disposition. Ordinary income from a Disqualifying Disposition will constitute
compensation but will not be subject to tax withholding, nor will it be
considered wages for payroll tax purposes.
If the holder of an ISO pays the exercise price, in whole or in part,
with previously acquired shares, the exchange should not affect the ISO tax
treatment of the exercise. Upon such exchange, and except for Disqualifying
Dispositions, no gain or loss is recognized by the optionee upon delivering
previously acquired shares to WFC, and shares received by the optionee equal in
number to the previously acquired common shares exchanged therefor will have the
same basis and holding period for long-term or mid-term capital gain purposes as
the previously acquired shares. (The optionee, however,
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<PAGE> 115
will not be able to utilize the prior holding period for the purpose of
satisfying the ISO statutory holding period requirements for avoidance of a
Disqualifying Disposition.) Shares received by the optionee in excess of the
number of shares previously acquired will have a basis of zero and a holding
period which commences as of the date the shares are transferred to the optionee
upon exercise of the ISO. If an ISO is exercised using shares previously
acquired through the exercise of an ISO, the exchange of such previously
acquired shares will be considered a disposition of such shares for the purpose
of determining whether a Disqualifying Disposition has occurred.
TAX TREATMENT OF NON-QUALIFIED STOCK OPTIONS
A recipient of a Non-Qualified Stock Option does not recognize taxable
income on the date of grant of the option, provided that the option does not
have a readily ascertainable fair market value at the time it is granted. In
general, the optionee must recognize ordinary income at the time of exercise of
a Non-Qualified Stock Option in the amount of the difference between the fair
market value of the shares on the date of exercise and the option exercise
price. The ordinary income recognized will constitute compensation for which tax
withholding by WFC generally will be required. The amount of ordinary income
recognized by an optionee will be deductible by WFC in the year that the
optionee recognizes the income if WFC complies with any applicable withholding
requirement.
If the sale of the shares could subject the optionee to liability under
Section 16(b) of the Securities Exchange Act of 1934, the optionee generally
will recognize ordinary income only on the date that the optionee is no longer
subject to such liability in an amount equal to the fair market value of the
shares on such date less the option exercise price. Nevertheless, the optionee
may elect under Section 83(b) of the Code, within 30 days of the date of
exercise, to recognize ordinary income as of the date of exercise, without
regard to the restriction of Section 16(b).
Shares acquired upon the exercise of a Non-Qualified Stock Option will
have a tax basis equal to their fair market value on the exercise date or other
relevant date on which ordinary income is recognized, and the holding period for
the shares generally will begin on the date of exercise or such other relevant
date. Upon subsequent disposition of the shares, the optionee will recognize
long-term capital gain or loss if the optionee has held the shares for more than
eighteen months prior to disposition, mid-term capital gain or loss if the
optionee has held the shares for more than one year but less than eighteen
months prior to disposition, or short-term capital gain or loss if the optionee
has held the shares for one year or less prior to disposition.
If an optionee with a Non-Qualified Stock Option pays the exercise
price, in whole or in part, with previously acquired shares, the optionee will
recognize ordinary income in the amount by which the fair market value of the
shares received exceeds the exercise price. The optionee will not recognize gain
or loss upon delivering such previously acquired shares to WFC. Shares received
by an optionee equal in number to the previously acquired shares exchanged
therefor will have the same basis and holding period as such previously acquired
shares. Shares received by an optionee in excess of the number of such
previously acquired shares will have a basis equal to the fair market value of
such additional shares as of the date ordinary income is recognized. The holding
period for such additional shares will commence as of the date of exercise or
such other relevant date.
TAX TREATMENT OF STOCK APPRECIATION RIGHTS
A participant in the 1999 Stock Option Plan is not taxed upon the grant
of Stock Appreciation Rights. Instead, participants will generally be taxed on
the exercise date, at ordinary income rates, on the amount of each received and
the fair market value of any Common Shares received. However, if the sale of
Common Shares could subject a participant to liability under Section 16(b) of
the Exchange Act, such participant generally will not recognize ordinary income
with respect to such Common Shares until the participant is no longer subject to
such liability, at which time the participant will recognize ordinary income in
an amount equal to the fair market value of Common Shares on such date.
The Stock Option Committee may grant options under the 1999 Stock
Option Plan to the directors, officers and employees of WFC and Winton in the
future at such times as they deem most beneficial to WFC and Winton on the basis
of the individual participant's responsibility, tenure and future potential.
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THE BOARD OF DIRECTORS OF WFC RECOMMENDS THAT THE SHAREHOLDERS OF WFC
APPROVE THE 1999 STOCK OPTION PLAN. Accordingly, the shareholders of WFC will be
asked to approve the following resolution at the Annual Meeting:
RESOLVED, that the Winton Financial Corporation 1999 Stock Option and
Incentive Plan be, and it hereby is, approved.
PROPOSAL FOUR - SELECTION OF AUDITORS
The Board of Directors has selected Grant Thornton LLP ("Grant
Thornton") as the auditors of WFC for the current fiscal year and recommends
that the shareholders ratify the selection. Grant Thornton has audited the
financial statements of WFC or Winton since 1985. Management expects that a
representative of Grant Thornton will be present at the Annual Meeting, will
have the opportunity to make a statement if he or she so desires and will be
available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
SELECTION OF GRANT THORNTON AS AUDITORS FOR THE CURRENT FISCAL YEAR.
PROPOSALS OF SECURITY HOLDERS AND OTHER MATTERS
Any proposals of qualified shareholders intended to be included in the
proxy statement for the 2000 Annual Meeting of Shareholders of WFC should be
sent to WFC by certified mail and must be received by WFC not later than August
30, 1999. In addition, if a shareholder intends to present a proposal at the
2000 Annual Meeting without including the proposal in the proxy materials
related to that meeting, and if the proposal is not received by November 13,
1999, then the proxies designated by the Board of Directors of WFC for the 2000
Annual Meeting of Shareholders of WFC may vote in their discretion on any such
proposal any shares for which they have been appointed proxies without mention
of such matter in the proxy statement or on the proxy card for such meeting.
Management knows of no other business which may be brought before the
Annual Meeting, including matters incident to the conduct of the Annual Meeting.
It is the intention of the persons named in the enclosed Proxy to vote such
Proxy in accordance with their best judgment on any other matters which may be
brought before the Annual Meeting.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. WHETHER OR NOT YOU
EXPECT TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO FILL IN, SIGN AND
RETURN THE PROXY IN THE ENCLOSED SELF-ADDRESSED ENVELOPE.
By Order of the Board of Directors
Cincinnati, Ohio Robert L. Bollin
December 28, 1998 President
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EXHIBIT A
WINTON FINANCIAL CORPORATION
1999 STOCK OPTION AND INCENTIVE PLAN
1. PURPOSE. The purpose of the Winton Financial Corporation 1999 Stock
Option and Incentive Plan (this "Plan") is to promote and advance the interests
of Winton Financial Corporation (the "Company") and its shareholders by enabling
the Company to attract, retain and reward directors, managerial and other
employees of the Company and any Subsidiary (hereinafter defined) and to
strengthen the mutuality of interests between such directors and employees and
the Company's shareholders by providing such persons with a proprietary interest
in pursuing the long-term growth, profitability and financial success of the
Company.
2. DEFINITIONS. For purposes of this Plan, the following terms shall
have the meanings set forth below:
(a) "Award" means the grant by the Committee of an Incentive
Stock Option, a Non-Qualified Stock Option or a Stock Appreciation
Right, or any combination thereof, as provided in the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as
amended, or any successor thereto, together with rules, regulations and
interpretations promulgated thereunder.
(d) "Committee" means the Committee of the Board constituted
as provided in Section 3 of this Plan.
(e) "Common Shares" means the common shares, without par
value, of the Company or any security of the Company issued in
substitution, in exchange or in lieu thereof.
(f) "Company" means Winton Financial Corporation, an Ohio
corporation, or any successor corporation.
(g) "Employment" means regular employment with the Company or
a Subsidiary and does not include service as a director only.
(h) "ERISA" means the Employment Retirement Income Security
Act, as amended, or any successor thereto, together with rules,
regulations and interpretations promulgated thereunder.
(i) "Exchange Act" means the Securities Exchange Act of 1934,
as amended, or any successor statute.
(j) "Fair Market Value" shall mean the average of the highest
and the lowest selling price on the American Stock Exchange, Inc. on
the date such Stock Option is granted or, if there were no sales on
such date, then on the next prior business day on which there was a
sale.
(k) "Incentive Stock Option" means any Stock Option granted
pursuant to the provisions of Section 6 of this Plan which is intended
to be and is specifically designated as an "incentive stock option"
within the meaning of Section 422 of the Code.
(l) "Non-Qualified Stock Option" means any Stock Option
granted pursuant to the provisions of Section 6 of this Plan which is
not an Incentive Stock Option.
(m) "OTS" means the Office of Thrift Supervision, Department
of the Treasury.
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(n) "Participant" means an employee or director of the Company
or a Subsidiary who is granted a Stock Option under this Plan.
Notwithstanding the foregoing, for the purposes of the granting of any
Incentive Stock Option under this Plan, the term "Participant" shall
include only employees of the Company or a Subsidiary.
(o) "Plan" means the Winton Financial Corporation 1999 Stock
Option and Incentive Plan, as set forth herein and as it may be
hereafter amended from time to time.
(p) "Related" means (i) in the case of a Stock Appreciation
Right, a Stock Appreciation Right which is granted in connection with,
and to the extent exercisable, in whole or in part, in lieu of, an
Option and (ii) in the case of an Option, an Option with respect to
which and to the extent to which a Stock Appreciation Right is
exercisable, in whole or in part, in lieu thereof has been granted.
(q) "Repurchase Right" means the right defined in Section 10
of this Plan.
(r) "Stock Appreciation Right" means a Stock Appreciation
Right with respect to shares granted by the Committee pursuant to
Section 11 hereof.
(s) "Stock Option" means an award to purchase Common Shares
granted pursuant to the provisions of Section 6 of this Plan.
(t) "Subsidiary" means any corporation or entity in which the
Company directly or indirectly controls 50% or more of the total voting
power of all classes of its stock having voting power and includes,
without limitation, The Winton Savings and Loan Co.
(u) "Terminated for Cause" means any removal of a director or
discharge of an employee for personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of a
material provision of any law, rule or regulation (other than traffic
violations or similar offenses), a material violation of a final
cease-and-desist order or any other action of a director or employee
which results in a substantial financial loss to the Company or a
Subsidiary.
3. ADMINISTRATION.
(a) This Plan shall be administered by the Committee, which
shall be comprised of not fewer than three of the members of the Board.
The members of the Committee shall be appointed from time to time by
the Board. Members of the Committee shall serve at the pleasure of the
Board, and the Board may from time to time remove members from, or add
members to, the Committee. A majority of the members of the Committee
shall constitute a quorum for the transaction of business. An action
approved in writing by a majority of the members of the Committee then
serving shall be fully as effective as if the action had been taken by
unanimous vote at a meeting duly called and held.
(b) The Committee is authorized to construe and interpret this
Plan and to make all other determinations necessary or advisable for
the administration of this Plan. The Committee may designate persons
other than members of the Committee to carry out its responsibilities
under such conditions and limitations as it may prescribe. Any
determination, decision or action of the Committee in connection with
the construction, interpretation, administration, or application of
this Plan shall be final, conclusive and binding upon all persons
participating in this Plan and any person validly claiming under or
through persons participating in this Plan. The Company shall effect
the granting of Stock Options under this Plan in accordance with the
determinations made by the Committee, by execution of instruments in
writing in such form as approved by the Committee.
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4. DURATION OF, AND COMMON SHARES SUBJECT TO, THIS PLAN.
(a) Term. This Plan shall terminate on the date which is ten
(10) years from the date on which this Plan is adopted by the Board,
except with respect to Stock Options then outstanding. Notwithstanding
the foregoing, no Incentive Stock Option may be granted under this Plan
after the date which is ten (10) years from the date on which this Plan
is adopted by the Board or the date on which this Plan is approved by
the shareholders of the Company, whichever is earlier.
(b) Common Shares Subject to Plan. The maximum number of
Common Shares in respect of which Awards may be granted under this
Plan, subject to adjustment as provided in Section 9 of this Plan,
shall be 401,530 Common Shares.
For the purpose of computing the total number of Common Shares
available for Awards under this Plan, there shall be counted against the
foregoing limitations the number of Common Shares subject to issuance upon
exercise or settlement of Stock Options as of the dates on which such Stock
Options are granted. If any Stock Options or Stock Appreciation Rights are
forfeited, terminated or exchanged for other Stock Appreciation Rights or Stock
Options, or expire unexercised, the Common Shares which were theretofore subject
to such Awards shall again be available for Awards under this Plan to the extent
of such forfeiture, termination or expiration of such Awards.
Common Shares which may be issued under this Plan may be either
authorized and unissued shares or issued shares which have been reacquired by
the Company. No fractional shares shall be issued under this Plan.
5. ELIGIBILITY AND GRANTS. Persons eligible for Awards under this Plan
shall consist of directors and managerial and other key employees of the Company
or a Subsidiary who hold positions with significant responsibilities or whose
performance or potential contribution, in the judgment of the Committee, will
benefit the future success of the Company or a Subsidiary. In selecting the
directors and employees to whom Awards will be made and the number of shares
subject to such Awards, the Committee shall consider the position, duties and
responsibilities of the eligible directors and employees, the value of their
services to the Company and the Subsidiaries and any other factors the Committee
may deem relevant.
6. STOCK OPTIONS. Stock Options granted under this Plan may be in the
form of Incentive Stock Options or Non-Qualified Stock Options, and such Stock
Options shall be subject to the following terms and conditions and in such form
as the Committee may from time to time approve and shall contain such additional
terms and conditions as the Committee shall deem desirable, not inconsistent
with the express provisions of the Plan:
(a) Grant. Stock Options may be granted under this Plan on
terms and conditions not inconsistent with the provisions of this Plan.
(b) Stock Option Price. The option exercise price per Common
Share purchasable under a Stock Option shall be determined by the
Committee at the time of grant; provided, however, that in no event
shall the exercise price of an Incentive Stock Option be less than 100%
of the Fair Market Value of the Common Shares on the date of the grant
of such Incentive Stock Option, and in the case of a Participant who
owns Common Shares representing more than 10% of the outstanding Common
Shares at the time an Incentive Stock Option is granted, the option
exercise price shall in no event be less than 110% of the Fair Market
Value of the Common Shares at the time the Incentive Stock Option is
granted to such Participant.
(c) Stock Option Terms. Subject to the right of the Company to
provide for earlier termination in the event of any merger, acquisition
or consolidation involving the Company, the term of each Stock Option
shall be fixed by the Committee; provided, however, that the term of an
Incentive Stock Option will not exceed ten years after the date the
Incentive Stock Option is granted; provided further, however, that in
the case of a Participant who owns a number of Common Shares
representing more than
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10% of the Common Shares outstanding at the time the Incentive Stock
Option is granted, the term of the Incentive Stock Option shall not
exceed five years.
(d) Exercisability. Except as set forth in this Plan or as
designated by the Committee at the time of grant, Stock Options awarded
under this Plan shall be immediately exercisable in full.
(e) Method of Exercise. A Stock Option may be exercised, in
whole or in part, by giving written notice of exercise to the Company
specifying the number of Common Shares to be purchased. Such notice
shall be accompanied by payment in full of the purchase price in cash
or, if acceptable to the Committee in its sole discretion, in Common
Shares already owned by the Participant, or by surrendering outstanding
Stock Options. The Committee may also permit Participants, either on a
selective or aggregate basis, to simultaneously exercise Stock Options
and sell Common Shares thereby acquired, pursuant to a brokerage or
similar arrangement, approved in advance by the Committee, and use the
proceeds from such sale as payment of the purchase price of such
shares.
(f) Special Rule for Incentive Stock Options. With respect to
Incentive Stock Options granted under this Plan, to the extent the
aggregate Fair Market Value (determined as of the date the Incentive
Stock Option is granted) of the number of shares with respect to which
Incentive Stock Options are exercisable under all plans of the Company
or a Subsidiary for the first time by a Participant during any calendar
year exceeds $100,000, or such other limit as may be required by the
Code, such Stock Options shall be Non-Qualified Stock Options to the
extent of such excess.
7. EFFECT OF TERMINATION OF EMPLOYMENT, DISABILITY, DEATH OR CHANGE IN
CONTROL.
(a) Except in the event of the death or disability of a
Participant or in the event a Participant is Terminated for Cause, upon
the resignation, removal or retirement from the board of directors of
any Participant who is a director of the Company or a Subsidiary or
upon the termination of Employment of a Participant who is not a
director of the Company or a Subsidiary, all Stock Options which have
not yet become exercisable shall thereupon terminate and be of no
further force or effect, and, unless the Committee shall specifically
state otherwise at the time a Stock Option is granted, all Stock
Options which have become exercisable shall terminate if they are not
exercised by the earlier of (i) the respective dates of such Stock
Options or (ii) the date which is three (3) months after such
resignation, removal, retirement or termination of Employment.
(b) Unless the Committee shall specifically state otherwise at
the time a Stock Option is granted, all Stock Options granted under
this Plan shall become exercisable in full on the date of termination
of a Participant's employment or directorship with the Company or a
Subsidiary because of his death or disability, and, subject to
extension by the Committee, all Stock Options shall terminate if not
exercised by the earlier of (i) the respective expiration dates of any
such Stock Options or (ii) the date which is twelve (12) months after
the Participant's death or disability.
(c) Unless the Committee shall specifically state otherwise at
the time a Stock Option is granted, in the event the Employment or the
directorship of a Participant is Terminated for Cause, any Stock Option
which has not been exercised shall terminate and be of no further force
or effect as of the date the Participant is Terminated for Cause.
(d) All outstanding Stock Options shall become immediately
exercisable in the event of a change in control or imminent change in
control of the Company or any Subsidiary, as determined by the
Committee. For purposes of this Section 7, "change in control" shall
mean: (i) the execution of an agreement for the sale of all, or a
material portion of, the assets of the Company or The Winton Savings
and Loan Co.; (ii) the execution of an agreement for a merger or
recapitalization of the Company or The Winton Savings and Loan Co. or
any merger or recapitalization whereby the Company or The Winton
Savings and Loan Co. is not the surviving entity; (iii) a change of
control of the Company or The Winton Savings and Loan Co., as defined
or determined by the OTS; or (iv) the acquisition, directly or
indirectly,
A-4
<PAGE> 121
of the beneficial ownership (within the meaning of the term "beneficial
ownership" as defined under Section 13(d) of the Exchange Act and the
rules promulgated thereunder) of twenty-five percent (25%) or more of
the outstanding voting securities of the Company or The Winton Savings
and Loan Co. by any person, trust, entity or group. For purposes of
this Section 7, "imminent change in control" shall refer to any offer
or announcement, oral or written, by any person or any persons acting
as a group, to acquire control of the Company or The Winton Savings and
Loan Co. as to which an application or notice has been filed with the
OTS and such application has been approved or such notice has not been
disapproved.
8. NON-TRANSFERABILITY OF STOCK OPTIONS. No Stock Option under this
Plan, and no rights or interests therein, shall be assignable or transferable by
a Participant except by will or the laws of descent and distribution. During the
lifetime of a Participant, Stock Options are exercisable only by, and payments
in settlement of Stock Options will be payable only to, the Participant or his
or her legal representative.
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) The existence of this Plan and the Awards granted
hereunder shall not affect or restrict in any way the right or power of
the Board or the shareholders of the Company to make or authorize the
following: any adjustment, recapitalization, reorganization or other
change in the Company's capital structure or its business; any merger,
acquisition or consolidation of the Company; any issuance of bonds,
debentures, preferred or prior preference stocks ahead of or affecting
the Company's capital stock or the rights thereof; the dissolution or
liquidation of the Company or any sale or transfer of all or any part
of its assets or business; or any other corporate act or proceeding,
including any merger or acquisition which would result in the exchange
of cash, stock of another company or options to purchase the stock of
another company for any Awards outstanding at the time of such
corporate transaction or which would involve the termination of all
Awards outstanding at the time of such corporate transaction.
(b) In the event of any change in capitalization affecting the
Common Shares of the Company, such as a stock dividend, stock split,
recapitalization, merger, consolidation, spin-off, split-up,
combination or exchange of shares or other form of reorganization, or
any other change affecting the Common Shares, such proportionate
adjustments, if any, as the Board in its discretion may deem
appropriate to reflect such change shall be made with respect to the
aggregate number of Common Shares for which Awards in respect thereof
may be granted under this Plan, the maximum number of Common Shares
which may be sold or awarded to any Participant, the number of Common
Shares covered by each outstanding Award, and the exercise price per
share in respect of outstanding Awards.
10. RIGHT OF REPURCHASE AND RESTRICTIONS ON DISPOSITION. The Committee,
in its sole discretion, may include, as a term of any Incentive Stock Option or
Non-Qualified Stock Option, the right (hereinafter the "Repurchase Right"), but
not the obligation, to repurchase all or any amount of the Common Shares
acquired by a Participant pursuant to the exercise of any such options. The
Repurchase Right shall provide for, among other terms, a specified duration of
the Repurchase Right, a specified price per Common Share to be paid upon the
exercise of the Repurchase Right and a restriction on the disposition of the
Common Shares by the Participant during the period of the Repurchase Right. The
Repurchase Right may permit the Company to transfer or assign such right to
another party. The Company may exercise the Repurchase Right only to the extent
permitted by applicable law.
11. STOCK APPRECIATION RIGHTS. A Stock Appreciation Right shall, upon
its exercise, entitle the Participant to whom such Stock Appreciation Right is
granted, to receive a number of Common Shares or an amount of cash or
combination thereof, as the Committee in its discretion shall determine, the
aggregate value of which (i.e., the sum of the amount of cash and/or the fair
market value of such Common Shares on the date of exercise) shall equal (as
nearly as possible) the amount by which the Fair Market Value per Common Share
on the date of such exercise shall exceed the exercise price of such Stock
Appreciation Right, multiplied by the number of Common Shares with respect to
which such Stock Appreciation Right shall have been exercised. A Stock
Appreciation Right may be Related to an option or may be granted independently
of any option and the Committee shall determine whether and to what extent a
Related Stock Appreciation Right shall be granted with respect therein;
A-5
<PAGE> 122
provided, however, that notwithstanding any other provision of this Plan, in the
event that the Related Option is an Incentive Stock Option, the Related Stock
Appreciation Right shall satisfy all the applicable restrictions and limitations
of Section 6 hereof as if such Related Stock Appreciation Right were an
Incentive Stock Option. In the case of a Related Stock Option, such Related
Stock Option shall cease to be exercisable to the extent of the Common Shares to
which the Related Stock Appreciation Right was exercised. Upon the exercise or
termination of a Related Stock Option, any Related Stock Appreciation Right
shall terminate to the extent of the Common Shares with respect to which the
Related Stock Option was exercised or terminated.
12. AMENDMENT AND TERMINATION OF THIS PLAN. Without further approval of
the shareholders, the Board may at any time terminate this Plan, or may amend it
from time to time in such respects as the Board may deem advisable, except that
the Board may not, without approval of the shareholders, make any amendment
which would (a) increase the aggregate number of Common Shares which may be
issued under this Plan (except for adjustments pursuant to Section 9 of this
Plan), (b) materially modify the requirements as to eligibility for
participation in this Plan, or (c) materially increase the benefits accruing to
Participants under this Plan. The above notwithstanding, the Board may amend
this Plan to take into account changes in applicable securities, federal income
tax and other applicable laws.
13. MODIFICATION OF OPTIONS. The Board may authorize the Committee to
direct the execution of an instrument providing for the modification of any
outstanding Stock Option which the Board believes to be in the best interests of
the Company; provided, however, that no such modification, extension or renewal
shall confer on the holder of such Stock Option any right or benefit which could
not be conferred on him by the grant of a new Stock Option at such time and
shall not materially decrease the Participant's benefits under the Stock Option
without the consent of the holder of the Stock Option, except as otherwise
permitted under this Plan.
14. MISCELLANEOUS.
(a) Tax Withholding. The Company shall have the right to
deduct from any settlement made under this Plan, including the delivery
or vesting of Common Shares, any federal, state or local taxes of any
kind required by law to be withheld with respect to such payments or to
take such other action as may be necessary in the opinion of the
Company to satisfy all obligation for the payment of such taxes. If
Common Shares are used to satisfy tax withholding, such shares shall be
valued based on the Fair Market Value when the tax withholding is
required to be made.
(b) No Right to Employment. Neither the adoption of this Plan
nor the granting of any Award shall confer upon any employee of the
Company or a Subsidiary any right to continued Employment with the
Company or a Subsidiary, as the case may be, nor shall it interfere in
any way with the right of the Company or a Subsidiary to terminate the
Employment of any of its employees at any time, with or without cause.
(c) Annulment of Stock Options. The grant of any Stock Option
under this Plan payable in cash is provisional until cash is paid in
settlement thereof. The grant of any Stock Option under this Plan
payable in Common Shares is provisional until the Participant becomes
entitled to the certificate in settlement thereof. In the event the
Employment or the directorship of a Participant is Terminated for
Cause, any Stock Option which is provisional shall be annulled as of
the date of such termination.
(d) Other Company Benefit and Compensation Programs. Payments
and other benefits received by a Participant under an Award made
pursuant to this Plan shall not be deemed a part of a Participant's
regular, recurring compensation for purposes of the termination
indemnity or severance pay law of any country and shall not be included
in, nor have any effect on, the determination of benefits under any
other employee benefit plan or similar arrangement provided by the
Company or a Subsidiary unless expressly so provided by such other plan
or arrangement, or except where the Committee expressly determines that
an Award or portion of an Award should be included to accurately
reflect competitive compensation practices or to recognize that an
Award has been made in lieu of a portion of competitive
A-6
<PAGE> 123
annual cash compensation. An Award under this Plan may be made in
combination with or in tandem with, or as an alternative to, grants,
stock options or payments under any other plans of the Company or a
Subsidiary. This Plan notwithstanding, the Company or any Subsidiary
may adopt such other compensation programs and additional compensation
arrangements as it deems necessary to attract, retain and reward
directors and employees for their service with the Company and its
Subsidiaries.
(e) Securities Law Restrictions. No Common Shares shall be
issued under this Plan unless counsel for the Company shall be
satisfied that such issuance will be in compliance with applicable
federal and state securities laws. Certificates for Common Shares
delivered under this Plan may be subject to such stop-transfer orders
and other restrictions as the Committee may deem advisable under the
rules, regulations and other requirements of the Securities and
Exchange Commission, any stock exchange upon which the Common Shares
are then listed, and any applicable federal or state securities law.
The Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
(f) Award Agreement. Each Participant receiving an Award under
this Plan shall enter into an agreement with the Company in a form
specified by the Committee agreeing to the terms and conditions of the
Award and such related matters as the Committee shall, in its sole
discretion, determine.
(g) Cost of Plan. The costs and expenses of administering this
Plan shall be borne by the Company.
(h) Governing Law. This Plan and all actions taken hereunder
shall be governed by and construed in accordance with the laws of the
State of Ohio, except to the extent that federal law shall be deemed
applicable.
(i) Effective Date. This Plan shall be effective upon the
later of adoption by the Board and approval by the Company's
shareholders. This Plan shall be submitted to the shareholders of the
Company for approval at an annual or special meeting of shareholders
held within twelve (12) months of the adoption of the Plan by the
Board.
A-7
<PAGE> 124
Exhibit 23.1
ACCOUNTANT'S CONSENT
We have issued our report dated November 19, 1998 (except for Note O,
as to which the date is December 4, 1998), accompanying the consolidated
financial statements of Winton Financial Corporation which are incorporated
within the Annual Report on Form 10-K for the year ended September 30, 1998. We
hereby consent to the incorporation by reference of said report in Winton's Form
S-8 (333-34177) regarding the 1998 Stock Option Plan and Winton's Form S-8
(333-42251) regarding Winton's 401(k) Plan.
Grant Thornton LLP
Cincinnati, Ohio
December 22, 1998
<PAGE> 125
Exhibit 99.1
SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward-looking statements to encourage companies to provide
prospective information about their companies, so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could because actual results to
differ material from those discussed in the statement. Winton Financial
Corporation desires to take advantage of the "safe harbor" provisions of the
Act. Certain information, particularly information regarding future economic
performance and finances and plans and objectives of management, contained or
incorporated by reference in Winton Financial Corporation's Annual Report on
Form 10-K for fiscal year 1998 is forward-looking. In some cases, information
regarding certain important factors that could cause actual results of
operations or outcomes of other events to differ materially from any such
forward-looking statement appear together with such statement. In addition,
forward-looking statement s are subject to other risks and uncertainties
affecting the financial institutions industry, including, but not limited to,
the following:
INTEREST RATE RISK
Winton Financial Corporation's operating results are dependent to a significant
degree on its net interest income, which is the difference between interest
income from loans and investments and interest expense on deposits and
borrowings. The interest income and interest expense of Winton Financial
Corporation change as the interest rates on mortgages, securities and other
assets and on deposits and other liabilities change. Interest rates may change
because of general economic conditions, the policies of various regulatory
authorities and other factors beyond Winton Financial Corporation's control. The
interest rates on specific assets and liabilities of Winton Financial
Corporation will change or "reprice" in accordance with the contractual terms of
the asset or liability instrument and in accordance with customer reaction to
general economic trends. In a rising interest rate environment, loans tend to
prepay slowly and new loans at higher rates increase slowly, while interest paid
on deposits increases rapidly because the terms to maturity of deposits tend to
be shorter than the terms to maturity or prepayment of loans. Such differences
in the adjustment of interest rates on assets and liabilities may negatively
affect Winton Financial Corporation income. Moreover, rising interest rates tend
to decrease loan demand in general, negatively affecting Winton Financial
Corporation income.
POSSIBLE INADEQUACY OF THE ALLOWANCE FOR LOAN LOSSES
The Winton Savings and Loan Co. maintains an allowance for loan losses based
upon a number of relevant factors, including, but not limited to, trends in the
level of nonperforming assets and classified loans, current and anticipated
economic conditions in the primary lending area, past loss experience, possible
losses arising from specific problem assets and changes in the composition of
the loan portfolio. While the Board of Directors of The Winton Savings and Loan
Co. believes that it uses the best information available to determine the
allowance for loan losses, unforeseen market conditions could result in material
adjustments, and net earnings could
<PAGE> 126
be significantly adversely affected if circumstances differ substantially from
the assumptions used in making the final determination.
Loans not secured by one- to four-family residential real estate are generally
considered to involve greater risk of loss than loans secured by one- to
four-family residential real estate due, in part, to the effects of general
economic conditions. The prepayment of multifamily residential and
nonresidential real estate loans generally depends upon the cash flow from the
operation of the property, which may be negatively affected by national and
local economic conditions that cause leases not to be renewed or that negatively
affect the operations of a commercial borrower. Construction loans may also be
negatively affected by such economic conditions, particularly loans made to
developers who do not have a buyer for a property before the loan is made. The
risk of default on consumer loans increases during periods of recession, higher
unemployment and other adverse economic conditions. When consumers have trouble
paying their bills, they are more likely to pay mortgage loans than consumer
loans, and the collateral securing such loans, if any, may decrease in value
more rapidly than the outstanding balance of the loan.
COMPETITION
The Winton Savings and Loan Co. competes for deposits with other savings
associations, commercial banks and credit unions and 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, The Winton Savings and Loan Co. competes with other
savings associations, commercial banks, consumer finance companies, credit
unions, leasing companies, mortgage companies and other lenders. Competition is
affected by, among other things, the general availability of lendable funds,
general and local economic conditions, current interest rate levels and other
factors which are not readily predictable. The size of financial institutions
competing with The Winton Savings and Loan Co. 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 Winton Financial Corporation.
LEGISLATION AND REGULATION THAT MAY ADVERSELY AFFECT THE WINTON SAVINGS AND LOAN
CO.'S EARNINGS
The Winton Savings and Loan Co. is subject to extensive regulation by the Office
of Thrift Supervision (the "OTS") and the Federal Deposit Insurance Corporation
(the "FDIC") and is periodically examined by such regulatory agencies to test
compliance with various regulatory requirements. As a savings and loan holding
company, Winton Financial Corporation is also subject to regulation and
examination by the OTS. Such supervision and regulation of The Winton Savings
and Loan Co. and Winton Financial Corporation are intended primarily for the
protection of depositors and not for the maximization of shareholder value and
may affect the ability of the company to engage in various business activities.
The assessments, filing fees and other costs associated with reports,
examinations and other regulatory matters are significant and may have an
adverse effect on Winton Financial Corporation's net earnings.
The FDIC is authorized to establish separate annual assessment rates for deposit
insurance of members of the Bank Insurance fund (the "BIF") and the Savings
Association Insurance Fund (the "SAIF") . The FDIC may increase assessment rates
for either fund if necessary to restore the fund's ratio of reserves to insured
deposits to the target level within a reasonable time and may decrease such
rates if such target level has been met. The FDIC has established a risk-based
assessment system for both SAIF and BIF members. Under such system, assessments
may vary depending on the risk the institution poses to its deposit insurance
fund. Such risk level is
<PAGE> 127
determined by reference to the institution's capital level and the FDIC's level
of supervisory concern about the institution.
Congress is considering legislation to eliminate the federal thrift charter and
the separate federal regulation of savings and loan associations, and the
Department of the Treasury is preparing a report for Congress on the development
of a common charter for all financial institutions. As a result, The Winton
Savings and Loan Co. may have to convert to a different financial institution
charter or might be regulated under federal law as a bank. If The Winton Savings
and Loan Co. becomes a bank or is regulated as a bank, it would become subject
to the more restrictive activity limitations imposed on national banks.
Moreover, Winton Financial Corporation might become subject to more restrictive
holding company requirements, including activity limits and capital requirements
similar to those imposed on The Winton Savings and Loan Co. Winton Financial
Corporation cannot predict the impact of the conversion of The Winton Savings
and Loan Co. to, or regulation of The Winton Savings and Loan Co. as, a bank
until any legislation requiring such change is enacted.
SPECIFIC REFERENCES
In addition to the foregoing, some of the matters, which are addressed in the
Form 10-K and Forms 10-Q's filed by Winton Financial Corporation and contain
forward-looking statements, include the following.
Pending legislation or proposals regarding changes in charter or regulation.
Management's determination of the amount of the allowance for loan losses and
expectations regarding its adequacy.
Management's efforts to reduce the higher degree of risk in second mortgage,
multifamily residential real estate, developed building lot,
nonresidential real estate and construction loans.
Management's expectation that secondary market activities will continue to
increase if interest rates decline.
Management's efforts to manage delinquencies.
Management's efforts to manage interest rate risk.
Management's characterization of its competition.
Pending regulatory proposals.
Levels of deposit insurance assessments.
<PAGE> 128
<TABLE>
<CAPTION>
Exhibit 99.2
CMB Nos. 1210-0016
1210-0089
Form 5500-C/R RETURN/REPORT OF EMPLOYEE BENEFIT PLAN
<S> <C> <C>
With fewer than 100 participants)
Department of the Treasury This form is required to be filed under 1995
Internal Revenue Service sections 104 and 4065 of the Employee
Department of Labor Retirement Income Security Act of 1974 and sections 6038D, 6047(e),
Pension and Welfare Benefits 6057(b), and 6058(a) of the Internal Revenue Code. THIS FORM IS OPEN
Pension Benefit Guaranty Corporation - See separate instructions TO PUBLIC INSPECTION.
- -----------------------------------------------------------------------------------------------------------------------------------
FOR THE CALENDAR PLAN YEAR 1995 OR FISCAL PLAN YEAR BEGINNING OCTOBER 1, 1995, AND ENDING SEPTEMBER 30, 1996.
- -----------------------------------------------------------------------------------------------------------------------------------
If A(1) through A(4), B, C, and/or D do not apply to this year's FOR IRS USE ONLY
return/report, leave the boxes unmarked. EP-ID
----------------------------------------------
You must check either box A(5) or A(6), whichever is applicable. See
instructions.
[ ]
A This report/return is: (5) FORM 5500-C FILER CHECK HERE.................
(1) the first return/report filed for the plan; (Complete only pages 1 and 3 through 6.)
(2) an amended return/report; (Code section 6039D filers see instructions
(3) the final return/report filed for the plan; or on page 5.) [ ]
(4) a short plan year return/report (less than 12 months). (6) FORM 5500-R FILER CHECK HERE.................
(Complete only pages 1 and 2. Detach pages 3
through 6 before filing.) If you checked
box (1) or (3), you must file a Form 5500-C.
(See page 6 of the instructions.)
IF ANY INFORMATION ON A PREPRINTED PAGE 1 IS INCORRECT, CORRECT IT. IF ANY INFORMATION IS MISSING, ADD IT. PLEASE USE
RED INK WHEN MAKING THESE CHANGES AND INCLUDE THE PREPRINTED PAGE 1 WITH YOUR COMPLETED RETURN/REPORT.
B Check here if any information reported in 1a, 2a, 2b, or 5a changed since the last return/report for this plan .......... [ ]
C If your plan year changed since the last return/report, check here ...................................................... [ ]
D If you filed for an extension of time to file this return/report, check here and attach a copy of the approved extension [ ]
- ------------------------------------------------------------------------------------------ ----------------------------------------
1a Name and address of plan sponsor (employer, if for a single-employer plan) 1b Employer identification number (EIN)
(Address should include room or suite no.) 31 1303854
---------------------------------------------------
1c Sponsor's telephone number
WINTON FINANCIAL CORPORATION (513) 385-3880
---------------------------------------------------
5511 CHEVIOT ROAD 1d Business code (see instructions, page 19)
CINCINNATI, OH 45247 6120
---------------------------------------------------
1e cusip issuer number
- -----------------------------------------------------------------------------------------------------------------------------------
2a Name and address of plan administrator (if same as plan sponsor, 2b Administrator's EIN
enter "same")
SAME
---------------------------------------------------
2c Administrator's telephone number
- ------------------------------------------------------------------------------------------ ----------------------------------------
3a If you are filing this page without the preprinted historical plan information and the name, address, and EIN of the plan
sponsor or plan administrator has changed since the last return/report filed for this plan, enter the information from the last
return/report in lines 3a and/or 3b and complete line 3c.
a Sponsor.................................................... EIN .................... Plan number .......................
b Administrator.............................................. EIN ..........................................................
c If line 3a indicates a change in the sponsor's name, address, and EIN, is this a change in sponsorship only? (See line 3c on
page 9 of the instructions for the definition of sponsorship.) Enter "Yes" or "No."
- -----------------------------------------------------------------------------------------------------------------------------------
4 ENTITY CODE. (If not shown, enter the applicable code from page 9 of the A
instructions.)
- -----------------------------------------------------------------------------------------------------------------------------------
5a Name of plan WINTON SAVINGS & LOAN CASH & DEFERRED PLAN................ 5b Effective date of plan (mo., day, yr.)
.............................................................................. 01/01/83
- ------------------------------------------------------------------------------- ---------------------------------------------------
ALL FILERS MUST COMPLETE 6a THROUGH 6d, AS APPLICABLE. 5c Three-digit
6a [ ] Welfare benefit plan 6b [X] Pension benefit plan. plan number 002
----- ---- ----- ---- ----- ---- ----- ----
(If the correct codes are not preprinted below, enter the applicable codes 2
from page 9 of the instructions in the boxes.) ----- ---- ----- ---- ----- ---- ----- ----
----- ---- ----- ---- ----- ---- ----- ----
6c Pension plan features. (If the correct codes are not preprinted below, enter ----- ---- ----- ---- ----- ---- ----- ----
the applicable pension plan feature codes from page 9 of the C G
instructions in the boxes.) ----- ---- ----- ---- ----- ---- ----- ----
6d Fringe benefit plan. Attach Schedule F (Form 5500). See instructions.
- -----------------------------------------------------------------------------------------------------------------------------------
CAUTION: A penalty for the late or incomplete filing of this return/report will be assessed unless reasonable cause is established.
- -----------------------------------------------------------------------------------------------------------------------------------
Under penalties or perjury and other penalties set forth in the instructions, I declare that I have examined this return/report,
including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct, and complete.
Signature of employer/plan sponsor .................................................................. Date .................
Type or print name of individual signing for employer/plan sponsor JAMES W BRIGGER, SECRETARY ..................................
Signature of plan administrator ..................................................................... Date .................
Type or print name of individual signing for plan sponsor JAMES W BRIGGER, SECRETARY
- -----------------------------------------------------------------------------------------------------------------------------------
FOR PAPERWORK REDUCTION ACT NOTICE, SEE PAGE 1 OF THE INSTRUCTIONS. Form 5500-C/R (1995)
HLA
</TABLE>
<PAGE> 129
<TABLE>
<S> <C>
Form 5500-C/R (1995) 5500-R filers, complete pages 1 and 2 only. Form 5500-C filers, complete page 1,
skip page 2, and complete pages 3 through 6. Page 2
- ------------------------------------------------------------------------------------------------------------- ----- ------- -------
6e Check investment YES NO
arrangement(s): (1)[ ] Master trust (2) [ ] Common/Collective trust (3) [ ] Pooled separate account
- ------------------------------------------------------------------------------------------------------------- ----- ------- ------
7a Total participants: (1) At the beginning of plan year 72.....(2) At the end of plan year 66............
b Enter number of participants with account balances at the end of the plan year
(defined benefit plans do not complete this item) 66....................................................
c (1) Were any participants in the pension benefit plan separated from service with a
deferred vested benefit for which a Schedule SSA (Form 5500) is required to be
attached? (See instructions) ...................................................................... 7c(1) X
-------- ------- --------
(2) If "Yes," enter the number of separated participants required to be reported
- ------------------------------------------------------------------------------------------------------------------------------------
8a Was this plan terminated during this plan year or any prior plan year? If "Yes," enter the year .... 8a X
-------- ------- -------
b Were all the plan assets either distributed to participants or beneficiaries, transferred
to another plan, or brought under the control of PBGC? 8b X
------- ------- --------
c If line 8a is "Yes," and the plan is covered by PBGC, is the plan continuing to file PBGC Form 1
and pay premiums until the end of the plan year in which assets are distributed or brought
under the control of PBGC? 8c N/A
- ------------------------------------------------------------------------------------------------------------ -------- ------- ------
9 Is this a plan established or maintained pursuant to one or more collective bargaining agreements?... 9 X
- --------------------------------------------------------------------------------------------------------------------- ------- ------
10 If any benefits are provided by an insurance company, insurance service, or similar organization, enter
the number of Schedules A (Form 5500), Insurance Information, that are attached. If none, enter -0-. 0
- ------------------------------------------------------------------------------------------------------------------------------------
11a (1) Were any plan amendments adopted during this plan year?........................................... 11a(1) X
(2) Enter the date the most recent amendment was adopted Month 7.......Day 1....Year 89...
-------- ------- ------
b If line 11a is "Yes," did any amendment result in a retroactive reduction of accrued benefits for any
participant?............................................................................................ 11b
-------- ------- ------
c If line 11A is "Yes," did any amendment change the information contained in the latest summary
plan description or summary description of modifications available at the time of the amendment? 11c
-------- ------- -----
d If line 11C is "Yes," has a summary plan description or summary description of modifications that
reflects the plan amendments referred to on line 11c been both furnished to participants and filed with
the Department of Labor?................................................................................. 11d
- ------------------------------------------------------------------------------------------------------------------------------------
12a If this is a pension benefit plan subject to the minimum funding standards,
has the plan experienced a funding deficiency for this plan year? (See instructions)................... 12a N/A
-------- ------- -----
b If line 12a is "Yes," have you filed Form 5330 to pay the excise tax?............................ 12b
-------- ------- -----
c Is the plan administrator making an election under section 412(c)(8) for an amendment adopted after 12c N/A
the end of the plan year? (See instructions.) -------- ------- -----
d If a change in the actuarial funding method was made for the plan year
pursuant to a Revenue Procedure providing automatic approval for the change, indicate
whether the plan sponsor/administrator agrees to the change. 12d N/A
- -----------------------------------------------------------------------------------------------------------------------------------
13 a Total plan assets as of the beginning 1,444,341 and end 1,577,706 of the plan year
b Total liabilities as of the beginning 0 and end 0 of the plan year
c Net assets as of the beginning 1,444,341 and end 1,577,706 of the plan year
- -----------------------------------------------------------------------------------------------------------------------------------
14 For this plan year, enter: a Plan income 221,219 d Plan contributions 155,907
b Expenses 87,854 e Total benefits paid 87,854
c Net income (loss) (subtract 14b from 14a) 133,365
- ------------------------------------------------------------------------------------------------------------------------------------
15 You may NOT use N/A in response to lines 15a through 15o. If you check YES NO AMOUNT
"Yes," you must enter a a dollar amount in the amount column. DURING THIS ----------------------------------------------------
PLAN YEAR:
a Was this plan covered by a fidelity bond? 15a X 2,000,000
----------------------------------------------------
b If line 15a is "Yes," enter the name of the surety company, OHIO
CASUALTY
c Was there any loss to the plan, whether or not reimbursed, caused by
fraud or di shonesty? 15c X
---------------------------------------------------
d Was there any sale, exchange, or lease of any property between the
plan and the employer, any fiduciary, any of the five most highly paid
employees of the employer, any owner of a 10% or more interest in the
employer, or relatives of any such persons?.......................... 15d X
---------------------------------------------------
e Was there any loan or extension of credit by the plan to the employer,
any fiduciary, any of the five most highly paid employees of the
employer, any owner of a 10% or more interest in the employer, or
relatives of any such persons? 15e X
---------------------------------------------------
f Did the plan acquire or hold any employer security or employer real
property?..... 15f X 799,538
---------------------------------------------------
g Has the plan granted an extension on any delinquent loan owed to the
plan?................................................................ 15g X
---------------------------------------------------
h Were any participant contributions transmitted to the plan more than
31 days after receipt or withholding by the employer?................ 15h X
---------------------------------------------------
i Were any loans by the plan or fixed income obligations due the plan
classified as uncollectible or in default as of the close of the plan
year?.................... 15i X
---------------------------------------------------
j Has any plan fiduciary had a financial interest in excess of 10% in
any party providing services to the plan or received anything of value
from any such party? 15j X
---------------------------------------------------
k Did the plan at any time hold 20% or more of its assets in any single
security, debt, mortgage, parcel of real estate, or partnership/joint
venture interests? 15k X 799,638
---------------------------------------------------
l Did the plan at any time engage in any transaction or series of
related transactions involving 20% or more of the current value of
plan assets? 15l X
---------------------------------------------------
m Were there any noncash contributions made to the plan the value of
which was not without an appraisal by an independent third party? 15m X
---------------------------------------------------
n Were there any purchases of nonpublicly traded securities by the plan
the value of which was set without an appraisal by an independent
third party 15n X
---------------------------------------------------
o Has the plan reduced or failed to provide any benefit when due under
the plan because of insufficient assets? 15o X
- -----------------------------------------------------------------------------------------------------------------------------------
16a If the plan covered under the Pension Benefit Guaranty Corporation termination insurance program? [ ] Yes [X]No
[ ] Not determined [ ]
b If line 16a is "Yes" or "Not determined," enter the employer identification number and the plan number used to identify it.
Employer identification number Plan number
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
Exhibit 13.2
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
--------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission File No. 0-18993
--------
WINTON FINANCIAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-1303854
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5511 Cheviot Road
Cincinnati, Ohio 45247
- ------------------------------ ----------
(Address of principal (Zip Code)
executive office)
Registrant's telephone number, including area code: (513) 385-3880
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of February 8, 1999, the latest practicable date, 4,015,304 shares of the
registrant's common stock, no par value, were issued and outstanding.
Page 1 of 18 pages
<PAGE> 2
Winton Financial Corporation and Subsidiary
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial
Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Other Comprehensive
Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
PART II - OTHER INFORMATION 16
SIGNATURES 17
</TABLE>
<PAGE> 3
WINTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
ASSETS 1998 1998
<S> <C> <C>
Cash and due from banks $ 1,478 $ 1,607
Interest-bearing deposits in other financial institutions 1,306 2,607
-------- --------
Cash and cash equivalents 2,784 4,214
Investment securities available for sale - at market 5,405 5,579
Investment securities - at cost, approximate market
value of $15,858 and $15,185 at December 31,
1998 and September 30, 1998 15,636 14,858
Mortgage-backed securities available for sale - at market 517 565
Mortgage-backed securities - at cost, approximate market
value of $11,834 and $12,266 at December 31,
1998 and September 30, 1998 11,859 12,418
Loans receivable - net 318,357 297,055
Loans held for sale - at lower of cost or market 6,344 8,253
Office premises and equipment - net 2,940 2,945
Real estate acquired through foreclosure 491 495
Federal Home Loan Bank stock - at cost 4,104 4,033
Accrued interest receivable on loans 2,325 2,407
Accrued interest receivable on mortgage-
backed securities 86 91
Accrued interest receivable on investments 257 285
Prepaid expenses and other assets 401 488
Intangible assets - net 386 402
Prepaid federal income taxes -- 105
-------- --------
Total assets $371,892 $354,193
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $264,186 $266,007
Advances from the Federal Home Loan Bank 74,882 56,899
Accounts payable on mortgage loans serviced for others 910 912
Advance payments by borrowers for taxes and insurance 1,161 610
Other liabilities 1,220 1,342
Accrued federal income taxes 501 --
Deferred federal income taxes 1,385 1,531
-------- --------
Total liabilities 344,245 327,301
Shareholders' equity
Preferred stock - 2,000,000 shares without par value
authorized; no shares issued -- --
Common stock - 5,000,000 shares without par value
authorized; 4,015,304 and 4,014,304 shares issued and outstanding -- --
Additional paid-in capital 8,789 8,782
Retained earnings - substantially restricted 18,318 17,520
Unrealized gains on securities designated as available for sale, net 540 590
-------- --------
Total shareholders' equity 27,647 26,892
-------- --------
Total liabilities and shareholders' equity $371,892 $354,193
======== ========
</TABLE>
3
<PAGE> 4
WINTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended December 31,
(In thousands, except share data)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Interest income
Loans $ 6,275 $ 5,952
Mortgage-backed securities 189 230
Investment securities 299 262
Interest-bearing deposits and other 136 61
------- -------
Total interest income 6,899 6,505
Interest expense
Deposits 3,355 3,243
Borrowings 903 783
------- -------
Total interest expense 4,258 4,026
------- -------
Net interest income 2,641 2,479
Provision for losses on loans 23 --
------- -------
Net interest income after provision
for losses on loans 2,618 2,479
Other income
Gain on sale of mortgage loans 674 247
Mortgage servicing fees (8) 94
Other operating 156 103
------- -------
Total other income 822 444
General, administrative and other expense
Employee compensation and benefits 829 740
Occupancy and equipment 362 310
Federal deposit insurance premiums 37 37
Franchise taxes 78 68
Amortization of intangible assets 16 15
Advertising 62 48
Other operating 385 241
------- -------
Total general, administrative and other expense 1,769 1,459
------- -------
Earnings before income taxes 1,671 1,464
Federal income taxes
Current 691 541
Deferred (120) (37)
------- -------
Total federal income taxes 571 504
------- -------
NET EARNINGS $ 1,100 $ 960
======= =======
EARNINGS PER SHARE
Basic $ .27 $ .24
------- -------
Diluted $ .26 $ .23
------- -------
DIVIDENDS PAID PER COMMON SHARE $ .0750 $ .0625
======= =======
</TABLE>
4
<PAGE> 5
WINTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
For the three months ended December 31,
(In thousands)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net earnings $ 1,100 $ 960
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities
during the period (50) 145
------- -------
Comprehensive income $ 1,050 $ 1,105
======= =======
</TABLE>
5
<PAGE> 6
WINTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended December 31,
(In thousands)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 1,100 $ 960
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:
Amortization of premiums and discounts on investment and
mortgage-backed securities 10 10
Amortization of deferred loan origination fees (33) (90)
Depreciation and amortization 110 99
Amortization of intangible assets 16 15
Provision for losses on loans 23 --
Gain on sale of mortgage loans (535) (214)
Loans originated for sale in the secondary market (38,002) (18,774)
Proceeds from sale of loans in the secondary market 40,446 16,171
Federal Home Loan Bank stock dividends (71) (54)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans 82 60
Accrued interest receivable on mortgage-backed securities 5 3
Accrued interest receivable on investments 28 1
Prepaid expenses and other assets 87 29
Accounts payable on mortgage loans serviced for others (2) 11
Other liabilities (122) (35)
Federal income taxes
Current 606 180
Deferred (120) (37)
-------- --------
Net cash provided by (used in) operating activities 3,628 (1,665)
Cash flows from investing activities:
Principal repayments on mortgage-backed securities 598 483
Proceeds from the maturity of investment securities 2,100 3,500
Purchase of investment securities designated as held to maturity (2,781) (4,008)
Purchase of investment securities designated as available for sale -- (748)
Loan principal repayments 30,383 20,869
Loan disbursements (51,675) (23,019)
Sale of loan participations -- 2,499
Purchase of office premises and equipment (101) (113)
-------- --------
Net cash used in investing activities (21,476) (537)
-------- --------
Net cash used in operating and investing
activities (balance carried forward) (17,848) (2,202)
-------- --------
</TABLE>
6
<PAGE> 7
WINTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the three months ended December 31,
(In thousands)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net cash used in operating and investing
activities (balance brought forward) $(17,848) $ (2,202)
Cash flows from financing activities:
Net increase (decrease) in deposit accounts (1,821) 7,753
Repayments of Federal Home Loan Bank advances (17) (13,016)
Proceeds from Federal Home Loan Bank advances 18,000 9,000
Advances by borrowers for taxes and insurance 551 364
Proceeds from exercise of stock options 7 261
Dividends paid on common stock (302) (252)
-------- --------
Net cash provided by financing activities 16,418 4,110
-------- --------
Net increase (decrease) in cash and cash equivalents (1,430) 1,908
Cash and cash equivalents at beginning of period 4,214 2,786
-------- --------
Cash and cash equivalents at end of period $ 2,784 $ 4,694
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 85 $ 300
======== ========
Interest on deposits and borrowings $ 4,144 $ 3,942
======== ========
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects $ (50) $ 145
======== ========
Recognition of mortgage servicing rights in accordance with
SFAS No. 125 $ 139 $ 33
======== ========
</TABLE>
7
<PAGE> 8
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three month periods ended December 31, 1998 and 1997
1. Basis of Presentation
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-Q and, therefore,
do not include information or footnotes necessary for a complete
presentation of financial position, results of operations, and cash
flows in conformity with generally accepted accounting principles.
Accordingly, these financial statements should be read in conjunction
with the consolidated financial statements and notes thereto of Winton
Financial Corporation (the "Corporation" or "Winton Financial")
included in the Annual Report on Form 10-K for the year ended September
30, 1998. However, all adjustments (consisting of only normal recurring
accruals) which, in the opinion of management, are necessary for a fair
presentation of the consolidated financial statements have been
included. The results of operations for the three month period ended
December 31, 1998, are not necessarily indicative of the results which
may be expected for the entire fiscal year.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Winton Financial and The Winton Savings and Loan Co. (the "Company"
or "Winton Savings"). All significant intercompany items have been
eliminated.
3. Effects of Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards
for reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-purpose
financial statements. SFAS No. 130 requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. It
does not require a specific format for that financial statement but
requires that an enterprise display an amount representing total
comprehensive income for the period in that financial statement.
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided
for comparative purposes is required. SFAS No. 130 is not expected to
have a material impact on Winton Financial's financial position or
results of operations.
8
<PAGE> 9
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three month periods ended December 31, 1998 and 1997
3. Effects of Recent Accounting Pronouncements (continued)
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 significantly
changes the way that public business enterprises report information
about operating segments in annual financial statements and requires
that those enterprises report selected information about reportable
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and
services, geographic areas and major customers. SFAS No. 131 uses a
"management approach" to disclose financial and descriptive information
about the way that management organizes the segments within the
enterprise for making operating decisions and assessing performance.
For many enterprises, the management approach will likely result in
more segments being reported. In addition, SFAS No. 131 requires
significantly more information to be disclosed for each reportable
segment than is presently being reported in annual financial statements
and also requires that selected information be reported in interim
financial statements. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 is not expected to have
a material impact on Winton Financial's financial position or results
of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires entities to
recognize all derivatives in their financial statements as either
assets or liabilities measured at fair value. SFAS No. 133 also
specifies new methods of accounting for hedging transactions,
prescribes the items and transactions that may be hedged, and specifies
detailed criteria to be met to qualify for hedge accounting.
The definition of a derivative financial instrument is complex, but in
general, it is an instrument with one or more underlyings, such as an
interest rate or foreign exchange rate, that is applied to a notional
amount, such as an amount of currency, to determine the settlement
amount(s). It generally requires no significant initial investment and
can be settled net or by delivery of an asset that is readily
convertible to cash. SFAS No. 133 applies to derivatives embedded in
other contracts, unless the underlying of the embedded derivative is
clearly and closely related to the host contract.
SFAS No. 133 is effective for fiscal years beginning after June 15,
1999. On adoption, entities are permitted to transfer held-to-maturity
debt securities to the available-for-sale or trading category without
calling into question their intent to hold other debt securities to
maturity in the future. SFAS No. 133 is not expected to have a material
impact on Winton Financial's financial position or results of
operations.
The foregoing discussion of the effects of recent accounting
pronouncements contains forward-looking statements that involve risks
and uncertainties. Changes in economic circumstances could cause the
effects of the accounting pronouncements to differ from management's
foregoing assessment.
9
<PAGE> 10
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three month periods ended December 31, 1998 and 1997
4. Year 2000 Compliance Issues
The Year 2000 issue is a serious operational problem which is
widespread and complex, affecting all industries. The Federal Financial
Institution Examination Council (the "FFIEC"), representing the views
of each of the primary financial institution regulators, has focused on
the risk that programming codes in existing computer systems will fail
to properly recognize the new millennium when it occurs in the year
2000. Winton Savings is addressing the potential problems associated
with the possibility that the computers which control or operate the
Company's operating systems may not be programmed to read four-digit
date codes and, upon arrival of the year 2000, may recognize the
two-digit code "00" as the year 1900, causing systems to fail to
function or to generate erroneous data. Other concerns have been raised
regarding February 29, 2000, as well as September 9, 1999, which are
new calculation challenges that may result in further problems.
Most significantly affected are all forms of financial accounting,
including interest computations, due dates, pensions, personnel
benefits, investments, legal commitments, valuations, fixed asset
depreciation schedules, tax filings and financial models. Additional
problems may occur on other systems using computers for processing,
vault openings, check protectors and gas and electric. The total impact
is currently unknown; however, it is projected that failure to address
these programming code issues and make appropriate changes may expose
an institution to all types of risks, including credit, transaction,
liquidity, interest rate, compliance, reputation, strategic, price and
foreign exchange.
Winton Savings has established a Year 2000 team, headed by its systems
analyst, to analyze the risk of potential problems that might arise
from the failures of computer programming to recognize the year 2000
and to develop a plan to mitigate any such risk. Research by the team
indicates that the greatest potential impact upon Winton Savings is the
risk related to vendors used by Winton Savings, particularly the
Company's data processing service bureau. Quarterly progress reports
from the service bureau indicated levels of manpower and expertise
sufficient to amend and test the adequacy of its computer programming
and systems prior to the arrival of the year 2000. All other vendors
and commercial customers have been identified and requests for year
2000 certificates have been forwarded by Winton Savings.
The year 2000 team submits quarterly progress reports to the Board of
Directors and continues to perform all required internal testing of
each system utilized, which is expected to be minimal. The team
estimates that the impact upon the Company's results of operations,
liquidity and capital resources will be immaterial.
10
<PAGE> 11
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three month periods ended December 31, 1998 and 1997
4. Year 2000 Compliance Issues (continued)
Management has developed a contingency plan which includes manual
procedures along with certain off-line canned programs. Management has
set a budget of approximately $100,000, of which approximately $25,000
has been expensed at December 31, 1998, to ensure Winton Financial and
Winton Savings are year 2000 compliant.
In addition, financial institutions may experience increases in problem
loans and credit losses in the event that borrowers fail to prepare
properly for Year 2000, and higher funding costs could result if
consumers react to publicity about the issue by withdrawing deposits.
Winton Savings is assessing such risks among its customers. WFC could
also be materially adversely affected if other third parties, such as
governmental agencies, clearing houses, telephone companies, utilities
and other service providers fail to prepare properly. Winton Savings is
therefore attempting to assess these risks and take action to minimize
their effect.
5. Earnings Per Share
Basic earnings per share for the three month period ended December 31,
1998 is computed based on 4,014,847 weighted-average shares
outstanding.
Basic earnings per share for the three month period ended December 31,
1997, is computed based on 4,007,738 weighted-average shares
outstanding.
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 4,196,039 for the three month period ended December
31, 1998, and 4,138,807 for the three month period ended December 31,
1997, respectively.
Basic and diluted earnings per share for the three month period ended
December 31, 1997 have been restated to give effect to the
Corporation's two-for-one stock split which was effected on March 31,
1998.
11
<PAGE> 12
WINTON FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Statements
In the following pages, management presents an analysis of the Corporation's
financial condition as of December 31, 1998, and the results of operations for
the three month period ended December 31, 1998, compared to the same period in
1997. In addition to this historical information, the following discussion
contains forward-looking statements that involve risks and uncertainties.
Economic circumstances, Winton Financial's operations and Winton 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 in Winton Financial's general market area.
Without limiting the foregoing, some of the statements in the following
referenced sections of this discussion and analysis are forward looking and are,
therefore, subject to such risks and uncertainties.
1. Management's determination of the amount and adequacy of the allowance for
loan losses as set forth under "Discussion of Changes in Financial Condition
from September 30, 1998 to December 31, 1998" and "Comparison of Results of
Operations for the Three Months Ended December 31, 1998 and 1997."
2. Management's determination of the effects of the year 2000 on Winton
Financial's information technology systems as set forth under "Year 2000
Compliance Issues."
3. Management's estimate as to the effects of recent accounting pronouncements
as set forth under "Effects of Recent Accounting Pronouncements."
Discussion of Financial Condition Changes from September 30, 1998 to December
31, 1998
At December 31, 1998, the Corporation had total assets of $371.9 million, an
increase of approximately $17.7 million, or 5.0%, over the level at September
30, 1998. The growth in assets was funded primarily by an increase in Federal
Home Loan Bank advances of $18.0 million and undistributed net earnings of
$798,000, partially offset by a decrease of $1.8 million in deposits.
Investment securities totaled approximately $21.0 million at December 31, 1998,
an increase of approximately $604,000, or 3.0%, over September 30, 1998 levels,
as purchases of $2.8 million exceeded maturities and called securities of $2.1
million during the period.
Mortgage-backed securities totaled approximately $12.4 million at December 31,
1998, a decrease of approximately $607,000, or 4.7%, since September 30, 1998,
primarily attributable to regular principal repayments during the period.
Loans receivable and loans held for sale totaled $324.7 million at December 31,
1998, an increase of approximately $19.4 million, or 6.4%, over the level at
September 30, 1998. Proceeds from loan sales increased by $24.3 million during
the current period to $40.4 million, loan originations totaled $89.7 million and
principal repayments amounted to $30.4 million.
12
<PAGE> 13
WINTON FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Discussion of Financial Condition Changes from September 30, 1998 to December
31, 1998 (continued)
At December 31, 1998, the allowance for loan losses of Winton Savings totaled
$865,000, an increase of $23,000 from the level maintained at September 30,
1998. At December 31, 1998, the allowance represented approximately .25% of the
total loan portfolio and 64% of total nonperforming loans. At December 31, 1998,
the ratio of total nonperforming loans to total loans amounted to .40% as
compared to .35% at September 30, 1998. Although management believes that its
allowance for loan losses at December 31, 1998 is 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 Winton Financial's results of operations.
Deposits totaled $264.2 million at December 31, 1998, a decrease of $1.8
million, or .7%, from September 30, 1998 levels. The decrease in deposits was
primarily the result of management's decision not to renew brokered
certificates. Such brokered deposits totaled $23.7 million and $28.5 million at
December 31, 1998 and September 30, 1998, respectively.
Advances from the Federal Home Loan Bank totaled $74.9 million at December 31,
1998, an increase of $18.0 million, or 31.6%, over September 30, 1998 levels.
Proceeds from such advances have generally been utilized to fund the growth in
the loan portfolio.
The Company is required to meet minimum capital standards promulgated by the
Office of Thrift Supervision (the "OTS"). At December 31, 1998, the Company's
regulatory capital was well in excess of such minimum capital requirements.
Comparison of Operating Results for the Three Month Periods ended December 31,
1998 and 1997
General
Net earnings totaled $1.1 million for the three months ended December 31, 1998,
compared to $960,000 for the same period in 1997, an increase of $140,000, or
14.6%. The increased earnings resulted primarily from a $162,000, or 6.5%,
increase in net interest income and a $378,000 increase in other income, which
were partially offset by an increase of $23,000 in the provision for losses on
loans, a $310,000, or 21.2%, increase in general, administrative and other
expense, and a $67,000, or 13.3%, increase in the provision for federal income
taxes.
Net Interest Income
Interest income on loans and mortgage-backed securities increased by $282,000,
or 4.6%, for the three months ended December 31, 1998, compared to the same
period in 1997. The increase resulted primarily from a $28.3 million increase in
the weighted-average portfolio outstanding year to year, offset by a 39 basis
point decrease in yield, to 7.99% for three months ended December 31, 1998.
13
<PAGE> 14
WINTON FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three Month Periods ended December 31,
1998 and 1997 (continued)
Net Interest Income (continued)
Interest income on investment securities and interest-bearing deposits and other
increased by $112,000, or 34.7%, for the three months ended December 31, 1998,
compared to the comparable period in 1997. The increase resulted from a $6.2
million increase in the average balance outstanding, and an increase in yield,
to 6.26% for the three months ended December 31, 1998.
Interest expense on deposits increased by $112,000, or 3.5%, for the three
months ended December 31, 1998 compared to the comparable period in 1997. The
increase was primarily attributable to a $19.8 million increase in
weighted-average deposits outstanding year to year. The weighted-average cost of
deposits decreased during the periods, amounting to 5.07% and 5.30% for the
three months ended December 31, 1998 and 1997, respectively.
Interest expense on borrowings increased by $120,000, or 15.3%, during the three
months ended December 31, 1998, compared to the same period in 1997, primarily
due to an increase of $9.7 million in the weighted-average balances of Federal
Home Loan Bank advances outstanding, while the weighted-average cost of Federal
Home Loan Bank advances decreased to 5.81% from 5.97% during the three month
periods ended December 31, 1998 and 1997.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $162,000, or 6.5%, to a total of $2.6 million
for the three months ended December 31, 1998, compared to the same period in
1997. The interest rate spread decreased by 16 basis points, to 2.64% for the
three months ended December 31, 1998, while the net interest margin decreased by
12 basis points, to 3.01% for the three months ended December 31, 1998, compared
to 3.13% for the comparable period in 1997.
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
Company, the status of past due principal and interest payments, and general
economic conditions, particularly as such conditions relate to the Company's
loan portfolio. As a result of such analysis, management elected to record a
$23,000 provision for loan losses during the three-month period ended December
31, 1998. There can be no assurance that the allowance for loan losses of the
Company will be adequate to cover losses on nonperforming assets in the future.
Other Income
Other income increased by $378,000, or 85.1%, for the three months ended
December 31, 1998, compared to the 1997 period, primarily due to an increase of
$427,000, or 172.9%, in gain on sale of mortgage loans and a $53,000, or 51.5%,
increase in other income, which were partially offset by a $102,000, or 108.5%,
decrease in mortgage servicing fees.
14
<PAGE> 15
WINTON FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three Month Periods ended December 31,
1998 and 1997 (continued)
General, Administrative and Other Expense
General, administrative and other expense increased by $310,000, or 21.2%, for
the three months ended December 31, 1998, compared to the same period in 1997.
The increase consisted primarily of a $89,000, or 12.0%, increase in employee
compensation and benefits, a $52,000, or 16.8%, increase in occupancy and
equipment, a $10,000, or 14.7%, increase in franchise taxes, a $14,000, or
29.2%, increase in advertising expense and a $144,000, or 59.8%, increase in
other operating expenses. The increase in employee compensation and benefits
resulted primarily from increased staffing levels coupled with normal merit
increases, which were partially offset by an increase in deferred loan
origination costs due to the increased lending volume. The increase in occupancy
and equipment expense resulted from costs associated with the new loan
production office location in Western Hills. The increase in other operating
expense resulted primarily from an increase in computer technology costs along
with additional training expense related to implementation of new loan software
which will streamline the loan production process, coupled with costs related to
the year 2000 compliance initiative.
Federal Income Taxes
The provision for federal income taxes amounted to $571,000 for the three months
ended December 31, 1998, an increase of $67,000, or 13.3%, over the same period
in 1997. The increase resulted primarily from a $207,000, or 14.1%, increase in
pretax earnings. The effective tax rates were 34.2% and 34.4% for the three
month periods ended December 31, 1998 and 1997, respectively.
15
<PAGE> 16
Winton Financial Corporation
PART II
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities and Use of Proceeds
Not applicable
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
On January 29, 1999, the Annual Meeting of the Shareholders of Winton
Financial Corporation was held. Three directors were nominated for
re-election and were re-elected for terms expiring in 2002, pursuant to
the following respective votes:
<TABLE>
<CAPTION>
<S> <C> <C>
Robert E. Hoeweler For: 3,565,939 Withheld: 23,200
Timothy M. Mooney For: 3,565,739 Withheld: 23,400
J. Clay Stinnett For: 3,565,739 Withheld: 23,400
</TABLE>
Three other matters were voted upon by the shareholders, as follows:
1) Ratification of amendment to the amended Articles of Incorporation
of Winton Financial Corporation to increase the authorized number
of shares from 7,000,000 to 20,000,000, 18,000,000 of which will be
common shares, each without par value, and 2,000,000 of which will
be preferred shares, each without par value.
For: 3,315,077 Against: 234,601 Abstain: 39,460
2) Ratification of the Winton Financial Corporation 1999 Stock Option
and Incentive Plan:
For: 2,587,406 Against: 267,324 Abstain: 52,978
3) Ratification of the selection of Grant Thornton LLP as the auditors
of Winton Financial Corporation for the current fiscal year,
pursuant to the following vote:
For: 3,515,951 Against: 68,548 Abstain: 4,640
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
On December 14, 1998, Winton Financial filed a Form 8-K reporting in
Item 5 that it had signed an Agreement and Plan of Reorganization with
BenchMark Federal Savings Bank which provided for the merger of
BenchMark into Winton Savings.
Exhibits
27: Financial Data Schedule for the Three Months Ended December
31, 1998.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 9, 1999 By:
--------------------------------- ----------------------------
Robert L. Bollin
President
Date: February 9, 1999 By:
--------------------------------- ----------------------------
Jill M. Burke
Chief Financial Officer
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 9, 1999 By:/s/Robert L. Bollin
--------------------------------- -----------------------------
Robert L. Bollin
President
Date: February 9, 1999 By:/s/Jill M. Burke
--------------------------------- ------------------------------
Jill M. Burke
Chief Financial Officer
18
<PAGE> 1
Exhibit 23.1
ACCOUNTANT'S CONSENT
We have issued our report dated November 19, 1998 (except for Note O,
as to which the date is December 4, 1998), accompanying the consolidated
financial statements of Winton Financial Corporation for the year ended
September 30, 1998 which are incorporated by reference in the Corporation's Form
S-4 to be filed with the Securities and Exchange Commission on or about March 5,
1999. We hereby consent to the incorporation by reference of said report in the
Prospectus/Proxy Statement.
Grant Thornton LLP
Cincinnati, Ohio
March 1, 1999
<PAGE> 1
Exhibit 23.2
ACCOUNTANT'S CONSENT
We have issued our report dated February 1, 1999, accompanying the
consolidated financial statements of BenchMark Federal Savings Bank for the year
ended December 31, 1998 which are included in the Form S-4 to be filed with the
Securities and Exchange Commission, by Winton Financial Corporation on or about
March 5, 1999. We hereby consent to inclusion of said report in the
Prospectus/Proxy Statement.
Grant Thornton LLP
Cincinnati, Ohio
March 1, 1999
<PAGE> 1
Exhibit 23.3
CONSENT OF CHARLES WEBB & COMPANY
We consent to the inclusion in the Prospectus/Proxy Statement of Winton
Financial Corporation and BenchMark Federal Savings Bank of the use of the form
of our opinion dated December 4, 1998, and to the summarization of our opinion
in the Prospectus/Proxy Statement under the caption "Opinion of Charles Webb &
Company." Further, we consent to all references to our firm in such
Prospectus/Proxy Statement.
Charles Webb & Company,
a division of Keefe, Bruyette & Woods, Inc.
Dublin, Ohio
March 2, 1999
<PAGE> 1
Exhibit 23.4
CONSENT
Board of Directors
Winton Financial Corporation
5511 Cheviot Road
Cincinnati, Ohio 45247
Gentlemen:
We hereby consent to the use of our firm's name in the
Registration Statement on Form S-4 (the "Registration Statement") filed by
Winton Financial Corporation ("WFC") with the Securities and Exchange Commission
for registration of up to 376,228 shares of its common stock, each without par
value (the "Shares"), in connection with WFC's acquisition of BenchMark Federal
Savings Bank ("BMF"); to the statements with respect to our firm appearing under
the heading "Legal matters" in the Prospectus/Proxy Statement which is included
in the Form S-4 (the "Prospectus"); to the reference to our firm name under the
heading "The Merger - Income tax consequences" in the Prospectus/Proxy
Statement; and to the filing of our opinions which concern tax matters and the
legality of the Shares being registered, as exhibits to the Form S-4.
Very truly yours,
Vorys, Sater, Seymour and Pease LLP
Cincinnati, Ohio
March 4, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 864
<INT-BEARING-DEPOSITS> 1,175
<FED-FUNDS-SOLD> 50
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 3,659
<INVESTMENTS-MARKET> 3,590
<LOANS> 47,668
<ALLOWANCE> 53
<TOTAL-ASSETS> 55,303
<DEPOSITS> 39,919
<SHORT-TERM> 0
<LIABILITIES-OTHER> 953
<LONG-TERM> 11,120
0
0
<COMMON> 112
<OTHER-SE> 3,399
<TOTAL-LIABILITIES-AND-EQUITY> 55,303
<INTEREST-LOAN> 3,416
<INTEREST-INVEST> 244
<INTEREST-OTHER> 156
<INTEREST-TOTAL> 3,816
<INTEREST-DEPOSIT> 1,936
<INTEREST-EXPENSE> 2,435
<INTEREST-INCOME-NET> 1,381
<LOAN-LOSSES> 26
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,267
<INCOME-PRETAX> 142
<INCOME-PRE-EXTRAORDINARY> 142
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 103
<EPS-PRIMARY> .94
<EPS-DILUTED> .94
<YIELD-ACTUAL> 2.64
<LOANS-NON> 72
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 77
<CHARGE-OFFS> 50
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 53
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 53
</TABLE>
<PAGE> 1
Exhibit 99.1
REVOCABLE PROXY
BENCHMARK FEDERAL SAVINGS BANK
SPECIAL MEETING OF SHAREHOLDERS
______ __, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF BENCHMARK FEDERAL SAVINGS BANK
The undersigned shareholder of BenchMark Federal Savings Bank
("BenchMark") hereby nominates, constitutes and appoints ___________________, ,
and _______________, acting singly in the absence of the others, or by majority
if more than one is present, as proxy or proxies for the undersigned, each with
full power of substitution and resubstitution, to vote all of the shares of
common stock of BenchMark that the undersigned is entitled to vote at the
Special Meeting of the Shareholders of BenchMark to be held at __________,
Cincinnati, Ohio, on ______________, 1999, at ___:___ __.m., and at any
adjournments thereof (the "Special Meeting"), on the following proposal which is
described in the accompanying Proxy Statement:
The approval and adoption of the Agreement and Plan of
Reorganization dated December 4, 1998, by and amony Winton
Financial Corporation ("Winton Financial"), The Winton Savings and
Loan Co. ("Winton Savings and Loan") and BenchMark, pursuant to
which, upon the satisfaction or the waiver of certain conditions,
(a) BenchMark will merge with and into Winton Savings and Loan,
and (b) each outstanding share of common stock of BenchMark will
be converted into the right to receive 3.35 shares of common stock
of Winton Financial.
FOR AGAINST ABSTAIN
THE BOARD OF DIRECTORS OF BENCHMARK UNANIMOUSLY RECOMMENDS A VOTE FOR
THE PROPOSAL.
PLEASE SIGN AND DATE THIS REVOCABLE PROXY ON THE REVERSE SIDE.
UNLESS THIS PROXY IS REVOKED, THE SHARES OF COMMON STOCK REPRESENTED BY THIS
PROXY WILL BE VOTED AS DIRECTED. WHERE NO INSTRUCTIONS ARE INDICATED, PROXIES
SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED FOR THE PROPOSAL.
<PAGE> 2
All Proxies previously given by the undersigned are hereby revoked.
Receipt of the Notice of the Special Meeting of Shareholders of BenchMark and of
the accompanying Proxy Statement is hereby acknowledged.
Please sign exactly as your name appears on your Stock Certificate(s).
Executors, Administrators, Trustees, Guardians, Attorneys and Agents should give
their full titles. If shares are held jointly, each shareholder named should
sign.
- ---------------------------- ------------------------------
Signature Signature
- ---------------------------- ------------------------------
Print or Type Name Print or Type Name
Dated: _____________________ Dated: _______________________
TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE URGED TO VOTE, SIGN, DATE
AND RETURN THIS PROXY AS PROMPTLY AS POSSIBLE IN THE POSTAGE PAID ENVELOPE
ENCLOSED FOR THAT PURPOSE. FAILURE TO VOTE OR AN ABSTENTION WILL, IN EFFECT, BE
A VOTE AGAINST THE PROPOSAL. EVEN IF YOU HAVE GIVEN YOUR PROXY, THE PROXY MAY BE
REVOKED AT ANY TIME PRIOR TO EXERCISE BY (1) FILING WITH BENCHMARK WRITTEN
NOTICE OF REVOCATION, (2) EXECUTING AND RETURNING A LATER-DATED PROXY OR (3)
ATTENDING THE SPECIAL MEETING AND GIVING NOTICE OF REVOCATION IN PERSON.