<PAGE> 1
File Pursuant to Rule No. 424(B)(3)
File No. 333-74177
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:
May 18, 1999
10:00 a.m., Eastern Time
BenchMark Federal Savings Bank
------------------------
9409 Montgomery Road
Cincinnati, Ohio 45242
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 April 12, 1999, the date before we printed
this prospectus/proxy statement, Winton Financial common shares closed at
$13.00 on the American Stock Exchange. Based on that $13.00 price,
3.35 common shares of Winton Financial would be valued at
$43.55.
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 on pages 22 and 23 of this prospectus/proxy statement 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 April 13, 1999, and first mailed
to shareholders of BenchMark on or about April 15, 1999.
<PAGE> 2
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 May 3, 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 pages 68 and 69 for more
information about the documents referred to in this document.
<PAGE> 3
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Summary...................................................................................................................1
The companies..........................................................................................................1
The merger.............................................................................................................1
Background and 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...............................................................7
Selected consolidated financial data of BenchMark.........................................................................8
Comparative per share data................................................................................................9
Purpose of this document.................................................................................................10
The merger...............................................................................................................10
Background and reasons for the merger.................................................................................10
Opinion of Charles Webb & Company.....................................................................................12
Recommendation of the board of directors of BenchMark.................................................................16
Exchange of BenchMark shares..........................................................................................16
Fractional shares.....................................................................................................16
Exchange of certificates evidencing Winton Financial common shares and BenchMark common shares........................17
Representations, warranties and covenants.............................................................................17
Conditions............................................................................................................18
Effective time........................................................................................................18
Termination and amendment.............................................................................................19
Interests of directors and executive officers.........................................................................20
Board of directors and management of Winton Financial following the merger............................................20
Resale of Winton Financial common shares..............................................................................20
Income tax consequences...............................................................................................20
Accounting treatment..................................................................................................21
Stock option agreement................................................................................................22
Rights of dissenting shareholders........................................................................................22
The special meeting of BenchMark shareholders............................................................................24
Time, date and place..................................................................................................24
Purpose of the meeting................................................................................................24
Shares outstanding and entitled to vote; record date..................................................................24
Votes required........................................................................................................24
Voting and solicitation and revocation of proxies.....................................................................24
Pro forma unaudited condensed combined consolidated statements of financial condition....................................26
Pro forma unaudited condensed combined consolidated statements of earnings...............................................27
Pro forma unaudited condensed combined consolidated statements of earnings...............................................28
BenchMark management's discussion and analysis of financial condition and results of operations..........................29
Financial condition changes from December 31, 1997, to December 31, 1998..............................................29
Results of operations for the years ended December 31, 1998, and December 31, 1997....................................29
Asset/liability management............................................................................................30
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
Effect of recent accounting pronouncements............................................................................34
Business of BenchMark....................................................................................................36
Lending activities....................................................................................................36
Investment activities.................................................................................................44
Deposits and borrowings...............................................................................................46
Competition...........................................................................................................49
Year 2000 considerations..............................................................................................49
Personnel.............................................................................................................49
Security ownership of BenchMark..........................................................................................51
Regulation Of BenchMark..................................................................................................53
Federal taxation.........................................................................................................56
Ohio taxation............................................................................................................58
Description of Winton Financial common shares............................................................................59
Comparison of rights of holders of Winton Financial common shares and holders
of BenchMark common shares...........................................................................................62
Authorized shares.....................................................................................................62
Board of directors....................................................................................................62
Voting rights.........................................................................................................62
Antitakeover provisions...............................................................................................63
Preemptive rights.....................................................................................................63
Dividends.............................................................................................................63
Antitakeover statutes applicable to Winton Financial and BenchMark......................................................64
Director and officer liability and indemnification.......................................................................65
Legal matters............................................................................................................67
Experts..................................................................................................................67
Where you can find more information......................................................................................68
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 Opinion of Charles Webb & Company, a division of Keefe, Bruyette &
- ------- Woods, Inc. dated April 9, 1999
Annex C Office of Thrift Supervision Regulation Section 552.14
- -------
<PAGE> 5
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 pages
68 and 69. Page references are included in this summary to direct you to a more
complete description of topics discussed in this document.
THE COMPANIES
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
April 12, 1999, Winton Financial had 4,015,304 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.
THE MERGER (pages 10 through 22)
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.
We have attached the merger agreement to this document as Annex A and
incorporate it by reference into this prospectus/proxy statement. Please read
the merger agreement. It is the legal document that governs the merger.
-1-
<PAGE> 6
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 April 12, 1999, BenchMark had 112,307 common shares
outstanding.
BACKGROUND AND REASONS FOR THE MERGER (PAGES 10 through 12)
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 16)
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 12 THROUGH 16)
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 April 9, 1999, that the exchange ratio was fair to BenchMark
shareholders, from a financial point of view. The updated opinion is attached as
Annex B to this prospectus/proxy statement. We encourage you to read the
opinion.
TAX CONSEQUENCES OF THE MERGER (PAGES 20 and 21)
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> 7
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 22)
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.
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;
- 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.
RIGHTS OF DISSENTING SHAREHOLDERS (PAGES 22 THROUGH 24)
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 April 12, 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
May 18, 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 19)
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 board of directors of BenchMark may decide not to complete the
merger if the average closing sales price of a Winton Financial common share on
the American Stock Exchange during the 20 trading days ending five trading days
before the merger is completed falls below $10.50. 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 (PAGES 24 AND 25)
The BenchMark special meeting of shareholders will take place at 10:00
a.m. on May 18, 1999. If you owned BenchMark common shares on April 12, 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 April 12, 1999, the directors and the
-3-
<PAGE> 8
President owned, or had voting powers, in the aggregate, with respect to 46,856
BenchMark common shares, or 41.7% of the outstanding shares.
ACCOUNTING TREATMENT (PAGE 21)
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 (PAGES 5 AND 6)
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. On April 12, 1999, the day before we printed this prospectus/proxy
statement, Winton Financial common shares closed at $13.00.
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 $43.55
based on Winton Financial's April 12, 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 April 12, 1999, there were 4,015,304 Winton Financial common
shares outstanding and held by approximately 404 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> 9
<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 April 12, 1999, there were 112,307 common shares of BenchMark
outstanding and held by approximately 80 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
April 12, 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
April 12, 1999 $13.00 $25.10 $43.55
</TABLE>
<PAGE> 10
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> 11
<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> 12
<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 26 and "Pro forma unaudited condensed combined statements of earnings" on
pages 27 and 28. 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> 13
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 April 15, 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 in mid-October 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> 14
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> 15
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 April 9,
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 April 9, 1999, as
Annex C to this document.
-11-
<PAGE> 16
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 April 9, 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 April 9, 1999. Based on the $14.5625
closing price of Winton Financial on December 3, 1998, and the $12.75 closing
price of Winton Financial common stock on April 9, 1999, the 3.35 exchange ratio
represented a per share value of $48.78 per share and $42.72 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> 17
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
transactions, 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.
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<PAGE> 18
<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 price to: (3)
------------ -----------------------------------------------------------------
Core
Tangible Last 12 deposit
book value months EPS Assets Deposit premium
---------- ---------- ------ ------- -------
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 Transaction 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 Transactions
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.
(3) For all transactions since March 31, 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> 19
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, except
shares held by dissenting shareholders, 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
April 12, 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 April 12, 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> 20
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 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 the extent such actions are permitted by law and
are consistent with generally accepted accounting principles:
- 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> 21
- 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.
-17-
<PAGE> 22
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.
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. The board of directors of BenchMark may decide not to complete the
merger if the average closing sales price of Winton Financial shares on the
American Stock Exchange during the 20 trading days ending five trading days
before the merger is completed falls below $10.50. 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 April 12, 1999, the record date for the
BenchMark special meeting of shareholders, the President and directors, as a
group, owned an aggregate of 46,856 BenchMark common shares, or 41.7% 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.
Winton Financial and BenchMark are not aware of any basis for
disapproving the merger but there can be no assurance that all requisite
approvals will be obtained, that such approvals will be received on a timely
basis or that such approvals will not impose conditions or requirements which,
individually, or in the aggregate, would so materially reduce the economic or
business benefits of the transactions contemplated by the merger to Winton
Financial and BenchMark that, had such condition or requirement been known
neither Winton Financial nor BenchMark, in its reasonable judgement, would have
entered into the merger agreement.
-18-
<PAGE> 23
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
-19-
<PAGE> 24
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;
-20-
<PAGE> 25
- 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.
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 C. We
urge you to read Annex C.
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 April 12, 1999;
- you must deliver to BenchMark before the special meeting of
shareholders on May 18, 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> 26
- 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
Winton Savings and Loan 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 10:00
a.m., Eastern Time, on May 18, 1999, at 9409 Montgomery Road, Cincinnati, Ohio.
-22-
<PAGE> 27
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 April 12, 1999, will be entitled to
notice of and to vote at the special meeting of shareholders. At the close of
business on April 12, 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 April 12, 1999,
the directors and the President of BenchMark owned or had voting power, in the
aggregate, with respect to 46,856 BenchMark common shares, or 41.7% 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 28,016 shares, representing an additional 24.9% 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> 28
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> 29
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.
-25-
<PAGE> 30
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.
-26-
<PAGE> 31
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.
-27-
<PAGE> 32
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> 33
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> 34
<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> 35
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> 36
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> 37
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> 38
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> 39
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> 40
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> 41
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> 42
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> 43
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> 44
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> 45
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> 46
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> 47
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> 48
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> 49
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> 50
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> 51
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> 52
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> 53
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> 54
SECURITY OWNERSHIP OF BENCHMARK
The following table sets forth as of April 12, 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 5,690 (3) 5.07%(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) 50,726.172 (4) 45.17%(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> 55
(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. These shares
will be voted at the sole discretion of the trustee.
(4) Includes 4,789,172 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 April 12, 1999, the date before the printing of this prospectus/proxy
statement, 4,015,304 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 provides 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 of any of these transactions:
- 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 61.
PREEMPTIVE RIGHTS
None of the shareholders of Winton Financial or BenchMark have
preemptive rights.
DIVIDENDS
Section 1701.33 of the Ohio Revised Code generally provides that,
subject to any restrictions in a 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 that are intended to discourage takeovers:
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 the Office of
Thrift Supervision or other federal regulators to enforce these restrictions
against persons seeking to obtain control of BenchMark.
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.
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The following Ohio laws apply to Winton Financial and Winton Savings
and Loan and 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.
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 MAY 3, 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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CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION F-3
CONSOLIDATED STATEMENTS OF EARNINGS F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8
</TABLE>
<PAGE> 73
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
F-2
<PAGE> 74
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.
F-3
<PAGE> 75
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.
F-4
<PAGE> 76
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.
F-5
<PAGE> 77
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>
F-6
<PAGE> 78
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.
F-7
<PAGE> 79
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.
F-8
<PAGE> 80
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.
F-9
<PAGE> 81
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.
F-10
<PAGE> 82
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.
F-11
<PAGE> 83
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.
F-12
<PAGE> 84
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>
F-13
<PAGE> 85
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>
F-14
<PAGE> 86
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.
F-15
<PAGE> 87
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>
F-16
<PAGE> 88
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.
F-17
<PAGE> 89
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>
F-18
<PAGE> 90
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>
F-19
<PAGE> 91
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.
F-20
<PAGE> 92
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>
F-21
<PAGE> 93
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.
F-22
<PAGE> 94
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>
F-23
<PAGE> 95
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.
F-24
<PAGE> 96
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> 97
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> 98
<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> 99
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> 100
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> 101
(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> 135
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> 136
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> 137
EXHIBITS A, B, C, D, AND E OMITTED
42
<PAGE> 138
Charles Webb & Company
A Division of
KEEFE, BRUYETTE & WOODS, INC.
Annex B
April 9, 1999
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> 139
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,
/s/ Charles Webb & Company,
A Division of Keefe, Bruyette & Woods, Inc.
Charles Webb & Company
a Division of Keefe, Bruyette & Woods, Inc.
<PAGE> 140
Annex C
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.
