<PAGE> 1
As filed with the Securities and Exchange Commission on September 23, 1996
Registration No. ______________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
HOME CITY FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
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OHIO 6036 34-1839475
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(State or other jurisdiction of (Primary Standard Industrial (I.R.S. employer
incorporation or organization) Classification Code Number) identification number)
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63 WEST MAIN STREET
SPRINGFIELD, OHIO 45502
(513) 324-5736
(Address, including Zip Code, and telephone number, including
area code, of registrant's principal executive offices)
DOUGLAS L. ULERY
HOME CITY FINANCIAL CORPORATION
63 WEST MAIN STREET
SPRINGFIELD, OHIO 45502
(513) 324-5736
(Name, address, including Zip Code, and telephone number,
including area code, of agent for service)
With copies to:
John C. Vorys, Esq.
Rick J. Landrum, Esq.
Vorys, Sater, Seymour and Pease
Atrium Two, 221 East Fourth Street
Cincinnati, Ohio 45202
(513) 723-4059
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 of the Securities
Act of 1933, check the following box: /X/
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CALCULATION OF REGISTRATION FEE
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Title of each class Proposed maximum Proposed maximum
of securities to be Amount to offering price aggregate Amount of
registered be registered per share offering price(1) registration fee
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Common shares,
without par value 952,200 shares $10.00 $9,522,000 $3,283
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(1) Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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CROSS REFERENCE SHEET
Showing the location in the Prospectus of the Items of Form S-1
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Form S-1 Item and Caption Prospectus Heading
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1. Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus ............................... Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus ............................................. Cover Page, Back Cover Page
3. Summary Information, Risk Factors and Ratio of Earnings to
Fixed Charges .......................................... PROSPECTUS SUMMARY; RISK FACTORS
4. Use of Proceeds .......................................... USE OF PROCEEDS
5. Determination of Offering Price .......................... Cover Page; THE CONVERSION - Pricing and Number of
Common Shares to be Sold
6. Dilution ................................................. Not Applicable
7. Selling Security Holders ................................. Not Applicable
8. Plans of Distribution .................................... Cover Page; THE CONVERSION - General;
- Subscription Offering;
- Community Offering; and
- Plan of Distribution
9. Description of Securities to be Registered ............... DESCRIPTION OF AUTHORIZED SHARES
10.Interest of Named Experts and Counsel .................... Not Applicable
11.Information with Respect to the Registrant
(a) Description of Business ............................. HOME CITY FINANCIAL CORPORATION; HOME CITY FEDERAL
SAVINGS BANK OF SPRINGFIELD; THE BUSINESS OF HOME CITY
THE BUSINESS OF HOME CITY
(b) Description of Property ............................. THE BUSINESS OF HOME CITY - Properties
(c) Legal Proceedings ................................... THE BUSINESS OF HOME CITY - Legal
Proceedings
(d) Market Price and Dividends .......................... Cover Page; MARKET FOR THE COMMON
SHARES; DIVIDEND POLICY
(e) Financial Statements ................................ Index to Financial Statements
(f) Selected Financial Data ............................. SELECTED CONSOLIDATED FINANCIAL
INFORMATION AND OTHER DATA
(g) Supplementary Financial Information ................. Not Applicable
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(h) Management's Discussion and Analysis of Financial
Condition and Results of Operations ............... MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF HOME CITY
(i) Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ............... Not Applicable
(j) Directors and Executive Officers .................... MANAGEMENT OF HCFC;
MANAGEMENT OF HOME CITY
(k) Executive Compensation .............................. MANAGEMENT OF HOME CITY - Compensation; Stock Option
Plan; Employee Stock Ownership Plan; Recognition and
Retention Plan; Retirement Benefit Plans; and
Employment Agreements
(l) Security Ownership of Certain Beneficial Owners and
Management ........................................ THE CONVERSION - Shares to be Purchased by Management
Pursuant to Subscription Rights
(m) Certain Relationships and Related
Transactions ....................................... MANAGEMENT OF HOME CITY -
Certain Transactions with Home City
12.Disclosure of Commission Position on Indemnification for
Securities Act Liability ............................... Not Applicable
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PROSPECTUS HOME CITY FINANCIAL CORPORATION
(HOLDING COMPANY FOR HOME CITY FEDERAL SAVINGS BANK OF SPRINGFIELD)
UP TO 828,000 COMMON SHARES
$10 PURCHASE PRICE PER SHARE
Home City Financial Corporation, an Ohio corporation ("HCFC"), is
hereby offering for sale up to 828,000 common shares, without par value (the
"Common Shares"), in connection with its acquisition of all of the capital stock
to be issued by Home City Federal Savings Bank of Springfield, a federal savings
bank ("Home City"), upon the conversion of Home City from a mutual savings bank
to a permanent capital stock savings bank chartered under the laws of the United
States (the "Conversion"). The consummation of the Conversion and the sale of
the Common Shares are subject to the approval of Home City's Plan of Conversion
(the "Plan") and the adoption of the Federal Stock Charter of Home City at a
Special Meeting of the members of Home City to be held at ____ p.m., Eastern
Time, on ___________, 1996, at the office of Home City at 63 West Main Street,
Springfield, Ohio (the "Special Meeting").
THE COMMON SHARES OFFERED HEREBY HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC"), THE OFFICE OF
THRIFT SUPERVISION OF THE DEPARTMENT OF THE TREASURY (THE "OTS"), THE FEDERAL
DEPOSIT INSURANCE CORPORATION (THE "FDIC"), OR THE SECURITIES COMMISSION OF ANY
STATE, NOR HAS THE SEC, THE OTS, THE FDIC OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
Based on an independent appraisal of the pro forma market value
of Home City, as converted, as of September 6, 1996, the aggregate purchase
price of the Common Shares offered in connection with the Conversion ranges from
a minimum of $6,120,000 to a maximum of $8,280,000 (the "Valuation Range"),
resulting in a range of 612,000 to 828,000 Common Shares at $10.00 per share.
The actual number of Common Shares sold in connection with the Conversion will
be determined in the sole discretion of HCFC's Board of Directors and will be
based upon the final valuation of Home City, as converted. The final valuation
will be determined by the independent appraiser upon the completion of this
offering. If the final valuation is within the Valuation Range, or does not
exceed the maximum of the Valuation Range by more than 15%, the number of Common
Shares to be issued in connection with the Conversion will not be less than
612,000, nor more than 828,000. If, due to changing market or regulatory
conditions, the final valuation is not between the minimum of the Valuation
Range and 15% above the maximum of the Valuation Range, subscribers will be
given notice of such final valuation and the right to affirm, increase, decrease
or rescind their subscriptions. Any such subscriber who does not affirmatively
elect to continue his subscription or elects to rescind his subscription before
the date specified in the notice will have all of his funds promptly refunded
with interest. Any person who elects to decrease his subscription will have the
appropriate portion of his funds promptly refunded with interest. See "THE
CONVERSION - Pricing and Number of Common Shares to be Sold." Any upward or
downward adjustment in the number of Common Shares sold will have a
corresponding effect on the estimated net proceeds of the Conversion and the pro
forma capitalization and book value per share of HCFC. See "USE OF PROCEEDS,"
"CAPITALIZATION" and "PRO FORMA DATA."
THE COMMON SHARES BEING OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS
OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION (THE "FDIC") OR ANY OTHER GOVERNMENT AGENCY.
FOR A DISCUSSION OF CERTAIN RISKS AND OTHER FACTORS THAT SHOULD
BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON SHARES, SEE "RISK FACTORS"
BEGINNING AT PAGE ___ OF THIS PROSPECTUS.
FOR INFORMATION ON HOW TO SUBSCRIBE, CALL THE CONVERSION
INFORMATION CENTER AT (513) 324-3830.
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Estimated Underwriting
Subscription Commissions Estimated Net
Price And Other Expenses(1) Proceeds
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Per share Minimum $10.00 $0.58 $9.42
Per share Mid-Point $10.00 $0.52 $9.48
Per share Maximum $10.00 $0.47 $9.53
Per share Maximum, as adjusted (2) $10.00 $0.42 $9.58
Total Minimum $6,120,000 $357,000 $5,763,000
Total Mid-point $7,200,000 $372,000 $6,828,000
Total Maximum $8,280,000 $387,000 $7,893,000
Total Maximum, as adjusted (2) $9,522,000 $404,000 $9,118,000
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(1) Consists of estimated printing, postage, legal, accounting, filing fee,
appraisal and miscellaneous costs to Home City and HCFC in connection with
the Conversion, including estimated fees, sales commissions and reimbursable
expenses to be paid to Charles Webb & Company ("Webb"), a division of Keefe,
Bruyette & Woods, Inc., a company which has been engaged by Home City to
consult, advise and assist in the sale of the Common Shares on a best
efforts basis. Actual Conversion expenses may be more or less than estimated
amounts. See "THE CONVERSION - Plan of Distribution."
(2) Gives effect to the increase in the number of Common Shares sold in
connection with the Conversion of up to 15% above the maximum of the
Valuation Range. Such shares may be offered without the resolicitation of
persons who subscribe for Common Shares. See "THE CONVERSION - Pricing and
Number of Common Shares to be Sold."
The date of this Prospectus is _______, 1996.
CHARLES WEBB & COMPANY
A Division of
Keefe, Bruyette & Woods, Inc.
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In accordance with the Plan, nontransferable subscription rights
to purchase Common Shares are offered hereby in a subscription offering to (a)
each account holder who, as of June 30, 1995 (the "Eligibility Record Date"),
had deposit accounts with deposit balances, in the aggregate, of $50 or more (a
"Qualifying Deposit") with Home City; (b) the Home City Financial Corporation
Employee Stock Ownership Plan (the "ESOP"); (c) each account holder who, as of
September 30, 1996 (the "Supplemental Eligibility Record Date"), had a
Qualifying Deposit with Home City; and (d) certain other depositors and
borrowers of Home City (the "Subscription Offering"). All subscription rights to
purchase Common Shares in the Subscription Offering are nontransferable and will
expire at 4:00 p.m., Eastern Time, on _______________ (the "Subscription
Expiration Date"), unless extended. PERSONS FOUND TO BE TRANSFERRING
SUBSCRIPTION RIGHTS WILL BE SUBJECT TO FORFEITURE OF SUCH RIGHTS AND POSSIBLE
FURTHER PENALTIES IMPOSED BY THE OTS. See "THE CONVERSION - Subscription
Offering."
To the extent that all of the Common Shares are not subscribed
for in the Subscription Offering, the remaining shares are hereby concurrently
being offered to the general public in a direct community offering in which
preference will be given to natural persons residing in Clark County, Ohio (the
"Community Offering"). See "THE CONVERSION - Community Offering." If the
Community Offering extends beyond ________, 1996, 45 days after the Subscription
Expiration Date, persons who have subscribed for Common Shares in the
Subscription Offering or in the Community Offering will receive a notice that,
until a date specified in the notice, they have the right to affirm, increase,
decrease or rescind their subscriptions for Common Shares. Any person who does
not affirmatively elect to continue his subscription or elects to rescind his
subscription during any such extension will have all of his funds promptly
refunded with interest. Any person who elects to decrease his subscription will
have the appropriate portion of his funds promptly refunded with interest. See
"THE CONVERSION - Effect of Extension of Community Offering." The Community
Offering may end at any time after orders for at least 952,200 Common Shares
have been received, but in no event later than 45 days after the Subscription
Expiration Date or __________, 1996, unless extended by HCFC and Home City with
the approval of the OTS, if necessary. In accordance with the Plan, the
Subscription Offering and the Community Offering may not be extended beyond
___________, 1997. See "THE CONVERSION - Subscription Offering; and - Plan of
Distribution."
Home City has engaged Webb to consult, advise and assist in the
sale of the Common Shares on a best efforts basis in the Subscription Offering
and the Community Offering (together, the "Offering"). See "THE CONVERSION -
Plan of Distribution."
The Plan and federal regulations limit the number of Common
Shares which may be purchased by various categories of persons, including the
limitation that no person may purchase fewer than 25 shares, nor more than 1%,
in the Subscription Offering or the Community Offering, of the total number of
Common Shares sold in connection with the Conversion (9,522 Common Shares at the
maximum of the Valuation Range, as adjusted). In addition, no person together
with such person's Associates (hereinafter defined) and persons Acting in
Concert (hereinafter defined) with such person, may purchase more than 2% of the
total number of Common Shares sold in connection with the Conversion (19,044
Common Shares at the maximum of the Valuation Range, as adjusted). Such
limitations do not apply to the ESOP. SUBJECT TO APPLICABLE OTS REGULATIONS, THE
LIMITATIONS SET FORTH IN THE PLAN MAY BE CHANGED AT ANY TIME IN THE SOLE
DISCRETION OF THE BOARD OF DIRECTORS OF HOME CITY AND HCFC. See "THE CONVERSION
- - Limitations on Purchases of Common Shares."
Common Shares may be subscribed for in the Subscription Offering
or ordered in the Community Offering only by returning the accompanying Stock
Order Form and Certification Form (the "Stock Order Form"), along with full
payment of the subscription or order price per share for all shares for which
subscription is made or order is submitted, no later than 4:00 p.m., Eastern
Time, _________, 1996. See "THE CONVERSION - Use of Stock Order Forms." Payment
may be made in cash or by check or money order and will be held in a segregated
account at Home City, insured by the FDIC up to the applicable limit and earning
interest at Home City's passbook rate, currently 2.5% annual percentage yield,
from the date of receipt until the completion of the Conversion. Payment may
also be made by authorized withdrawal from an existing Home City savings
account, the amount in which will continue to earn interest until completion of
the Conversion at the rate normally in effect from time to time for such
account. Neither payments made in cash or by check or money order, nor payments
made by authorized withdrawal from an account at Home City will be available
during the Subscription Offering and the Community Offering. See "THE CONVERSION
- - Payment for Common Shares." Payment by wire will not be accepted. AN EXECUTED
STOCK ORDER FORM, ONCE RECEIVED BY HCFC, MAY NOT BE MODIFIED, AMENDED OR
RESCINDED WITHOUT THE CONSENT OF HCFC UNLESS THE COMMUNITY OFFERING IS NOT
COMPLETED WITHIN 45 DAYS AFTER THE SUBSCRIPTION EXPIRATION DATE.
There is presently no market for the Common Shares. The aggregate
offering price for the Common Shares is based upon an independent appraisal of
Home City performed by Keller & Company, Inc. ("Keller"). The appraisal is not a
recommendation as to the advisability of purchasing Common Shares. See "THE
CONVERSION - Pricing and Number of Common Shares to be Sold." No assurance can
be given that persons purchasing Common Shares will thereafter be able to sell
such shares at a price at or above the offering price. See "RISK FACTORS -
Limited Market for the Common Shares."
In connection with the completion of the Conversion, HCFC will
register the Common Shares with the SEC under the Securities Exchange Act of
1934 (the "Exchange Act"). The Exchange Act requires that HCFC file an Annual
Report on Form 10-KSB with the SEC containing audited consolidated financial
statements and other information concerning the consolidated financial condition
and operations of HCFC and its subsidiaries. HCFC will also be subject to the
proxy solicitation rules of the SEC, including the requirement that HCFC provide
its shareholders with an Annual Report containing audited consolidated financial
statements and management's discussion and analysis of financial condition and
results of operations. OTS regulations require that the Common Shares remain
registered for at least three years after the completion of the Conversion. In
the unlikely event that HCFC has fewer than 300 shareholders of record at the
expiration of such three-year period, HCFC may deregister the Common Shares.
THE CONVERSION OF HOME CITY FROM A MUTUAL SAVINGS BANK TO A
PERMANENT CAPITAL STOCK SAVINGS BANK IS CONTINGENT UPON (i) THE APPROVAL OF THE
PLAN AND THE ADOPTION OF THE FEDERAL STOCK CHARTER AND FEDERAL STOCK BYLAWS BY
HOME CITY'S VOTING MEMBERS, (ii) THE SALE OF THE REQUISITE NUMBER OF COMMON
SHARES, AND (iii) THE SATISFACTION OR WAIVER OF CERTAIN OTHER CONDITIONS. SEE
"THE CONVERSION."
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HOME CITY FEDERAL SAVINGS BANK OF SPRINGFIELD
SPRINGFIELD, OHIO
<PAGE> 7
PROSPECTUS SUMMARY
The following information is not complete and is qualified in its
entirety by the detailed information and the financial statements and
accompanying notes appearing elsewhere in this Prospectus:
HOME CITY FINANCIAL CORPORATION
HCFC was incorporated under Ohio law in August 1996 at the
direction of Home City for the purpose of purchasing all of the capital stock of
Home City to be issued in connection with the Conversion. HCFC has not conducted
and will not conduct any business before the completion of the Conversion other
than business related to the Conversion. Upon the consummation of the
Conversion, HCFC will be a unitary savings and loan holding company, the
principal assets of which initially will be the capital stock of Home City, a
loan made to the ESOP for the purchase of Common Shares and the investments made
with 50% of the net proceeds retained from the sale of HCFC shares in connection
with the Conversion. See "USE OF PROCEEDS."
The main office of HCFC is located at 63 West Main Street,
Springfield, Ohio 45502-1309, and its telephone number is (513) 324-5736.
HOME CITY FEDERAL SAVINGS BANK OF SPRINGFIELD
Home City is a federal mutual savings bank which has served the
Springfield, Ohio, area since 1925. Originally formed under the name "Home City
Savings and Loan Association," Home City changed its name on May 1, 1996, to
"Home City Savings Bank."
As a federal savings bank, Home City is subject to supervision
and regulation by the OTS and the FDIC and is a member of the Federal Home Loan
Bank (the "FHLB") of Cincinnati. The deposits of Home City are insured up to
applicable limits by the FDIC in the Savings Association Insurance Fund (the
"SAIF"). See "REGULATION." At June 30, 1996, $31.9 million, or approximately 66%
of Home City's loan portfolio, consisted of loans secured by first mortgages on
one- to four-family homes, virtually all of which were located within Clark
County, Ohio, and adjacent counties. See "THE BUSINESS OF HOME CITY - Lending
Activities -- One- to Four-Family Real Estate Loans."
Home City's capital exceeds by a substantial margin all
regulatory requirements. At June 30, 1996, Home City's tangible and core capital
both equaled $5.4 million, or 9.8% of assets, an amount which exceeded the
minimum tangible and core capital requirements by approximately $4.4 million and
$3.6 million, respectively. On a pro forma basis, assuming the sale of 720,000
Common Shares (the mid-point of the Valuation Range) and the retention by HCFC
of 50% of the net proceeds from such sale, Home City's tangible and core capital
ratios will both equal 13.45%. See "REGULATORY CAPITAL COMPLIANCE,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF HOME CITY - Liquidity and Capital Resources," and "REGULATION -
OTS Regulations -- Regulatory Capital Requirements."
Home City conducts business from its office in Springfield, Ohio.
Home City's primary market area consists of Clark County, Ohio, and adjacent
counties. The office of Home City is located at 63 West Main Street,
Springfield, Ohio, and its telephone number is (513) 324-5736.
THE CONVERSION
On September 3, 1996, the Board of Directors of Home City
unanimously approved the Plan of Conversion. The OTS approved the Plan, subject
to the approval of the Plan by Home City's voting members at the Special
Meeting, to be held at ____ p.m., Eastern Time, on ___________, 1996, at the
offices of Home City at 63 West Main Street, Springfield, Ohio.
THE SUBSCRIPTION AND COMMUNITY OFFERINGS
The Plan provides for the formation of HCFC for the purpose of
acquiring all of the capital stock to be issued by Home City in the Conversion.
Pursuant to the Plan, subscription rights to purchase Common Shares are hereby
offered at a price of $10 per share to (a) depositors of Home City with
Qualifying Deposits as of June 30, 1995 ("Eligible Account Holders"), (b) the
ESOP, (c) depositors of Home City with Qualifying Deposits as of September 30,
1996 ("Supplemental
<PAGE> 8
Eligible Account Holders"), and (d) account holders of Home City having savings
deposits of record on ______________, 1996 (the "Voting Record Date"), and
borrowers of record on the Voting Record Date whose loans were outstanding on
May 1, 1996 (such depositors and borrowers as of ______________, collectively,
the "Voting Members"). See "THE CONVERSION Subscription Offering." Common Shares
not subscribed for in the Subscription Offering are hereby being concurrently
offered to those members of the general public receiving this Prospectus in the
Community Offering, in which preference will be given to natural persons
residing in Clark County, Ohio. See "THE CONVERSION - Community Offering."
The Plan authorizes the Boards of Directors of HCFC and Home City
to establish limits on the number of Common Shares that may be purchased by
various categories of persons. The Plan also permits the Board of Directors of
HCFC and Home City, subject to any required regulatory approval and the
requirements of applicable laws and regulations, to increase or decrease such
purchase limitations in their sole discretion. Pursuant to such authority, the
Boards of Directors have established the limitation that, generally, an Eligible
Account Holder or a Supplemental Eligible Account Holder may purchase in the
Subscription Offering a number of Common Shares equal to the greater of (i) 1%
of the Common Shares sold in connection with the Conversion (9,522 Common Shares
at the maximum of the Valuation Range, as adjusted) or (ii) 15 times the product
(rounded down to the next whole number) obtained by multiplying the total number
of Common Shares to be sold in connection with the Conversion by a fraction, the
numerator of which is the amount of such Eligible Account Holder's or
Supplemental Eligible Account Holder's Qualifying Deposit and the denominator of
which is the total amount of Qualifying Deposits of all Eligible Account Holders
or Supplemental Eligible Account Holders, as the case may be. A Voting Member
may purchase in the Subscription Offering 1% of the Common Shares sold in
connection with the Conversion (9,522 Common Shares at the maximum of the
Valuation Range, as adjusted).
The Board of Directors has also established the limitation that
any person may purchase in the Community Offering a number of Common Shares
equal to 1% of the total number of Common Shares sold in connection with the
Conversion (9,522 Common Shares at the maximum of the Valuation Range, as
adjusted).
Subscriptions and orders for Common Shares in the Conversion are
also subject to the limitation that no person, together with any Associates or
persons Acting in Concert, may purchase more than 2% of the Common Shares sold
in connection with the Conversion (19,044 Common Shares at the maximum of the
Valuation Range, as adjusted). Such limitation does not apply to the ESOP, which
intends to purchase 8% of the Common Shares sold in connection with the
Conversion. The ESOP may purchase Common Shares if shares remain available after
satisfying the subscriptions of Eligible Account Holders up to $8,280,000, the
maximum of the Valuation Range. If Common Shares in excess of the maximum of the
Valuation Range are sold, the ESOP will have the first right to purchase such
excess Common Shares. If the ESOP is unable to purchase all or part of the
Common Shares for which it subscribes, the ESOP may purchase Common Shares in
the open market or may purchase authorized but unissued Common Shares from HCFC.
If the ESOP purchases authorized but unissued Common Shares from HCFC, such
purchases could have a dilutive effect on the interest of HCFC's shareholders.
Subject to applicable regulations, the purchase limitations may be increased or
decreased after the commencement of the Offering in the sole discretion of the
Boards of Directors. See "THE CONVERSION - Limitations on Purchases of Common
Shares" and "RESTRICTIONS ON ACQUISITION OF HCFC AND HOME CITY." The sale of
Common Shares pursuant to subscriptions or orders received in the Offering will
be subject to the approval of the Plan by the voting members of Home City at the
Special Meeting, to the sale of the requisite number of Common Shares and to
certain other conditions. See "THE CONVERSION - Subscription Offering; -
Community Offering; and - Pricing and Number of Common Shares to be Sold."
Home City has retained Webb to consult, advise and assist in the
sale of the Common Shares in the Subscription Offering and in the Community
Offering. Webb has been paid a management fee of $25,000 and will receive a
commission equal to 1.5% of the aggregate amount received by HCFC in the
Offering, excluding any amounts paid for Common Shares by Home City's directors,
executive officers and employees (and members of their immediate families) and
by the ESOP. Home City will reimburse Webb for legal and out-of-pocket expenses.
See "THE CONVERSION - Plan of Distribution."
The Subscription Offering will terminate at 4:00 p.m., Eastern
Time, on _________, 1996. The Community Offering may be terminated at any time
after orders for at least 952,200 shares have been received, but in no event
later than __________, 1996, unless extended. If the Community Offering extends
beyond 45 days after the Subscription Expiration Date, persons who have
subscribed for Common Shares in the Subscription Offering or in the Community
Offering will receive a notice that, until a date specified in the notice, they
have the right to affirm, increase, decrease or rescind their subscriptions or
orders for Common Shares. Any person who does not affirmatively elect to
continue his subscription or order or elects to rescind his subscription or
order during such time will have all of his funds promptly
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<PAGE> 9
refunded with interest. Any person who elects to decrease his subscription or
order will have the appropriate portion of his funds promptly refunded with
interest. The sale of Common Shares pursuant to subscriptions or orders received
in the Offering will be subject to the approval of the Plan by the voting
members of Home City at the Special Meeting, to the determination by the Board
of Directors of HCFC of the total number of Common Shares to be sold and to the
satisfaction or waiver of certain other conditions. See "THE CONVERSION -
Subscription Offering; - Community Offering; and - Pricing and Number of Common
Shares to be Sold."
Assuming 720,000 Common Shares are sold in connection with the
Conversion, all directors and executive officers of HCFC and Home City and their
Associates intend to purchase an aggregate amount of ______ Common Shares in
connection with the Conversion, which would constitute ____% of the Common
Shares sold. The aggregate number of Common Shares proposed to be purchased by
the directors, the executive officers and the ESOP is _______, which would
constitute _____% of the Common Shares sold. Such percentages may increase or
decrease if more or less than 720,000 Common Shares are sold in the Conversion.
See "THE CONVERSION -- Shares to be Purchased by Management Pursuant to
Subscription Rights."
NON-TRANSFERABILITY OF SUBSCRIPTION RIGHTS
Federal regulations prohibit any person from transferring or
entering into any agreement or understanding before the completion of the
Conversion to transfer the ownership of the subscription rights issued in the
Conversion or the shares to be issued upon the exercise of such subscription
rights. Persons attempting to violate such provision may lose their rights to
purchase Common Shares in the Conversion and may be subject to penalties imposed
by the OTS. Each person exercising subscription rights will be required to
certify that a purchase of Common Shares is solely for the subscriber's own
account and that there is no agreement or understanding regarding the sale or
transfer of such Common Shares.
PRICING OF THE COMMON SHARES
Keller, an independent firm experienced in valuing thrift
institutions, has prepared a valuation of the estimated pro forma market value
of Home City, as converted. Keller's valuation of the estimated pro forma market
value of Home City, as converted, is $7,200,000 as of September 6, 1996 (the
"Pro Forma Value"). HCFC will issue the Common Shares at a fixed price of $10
per share and, by dividing the price per share into the Pro Forma Value, will
determine the number of shares to be issued. Applicable regulations require,
however, that Home City establish a range of 15% above and below the Pro Forma
Value to allow for fluctuations in the aggregate value of the Common Shares due
to changes in the market for thrift shares and other factors from the time of
the commencement of the Subscription Offering until the completion of the
offering of the Common Shares. Based on the Pro Forma Value of Home City as of
September 6, 1996, the Valuation Range is $6,120,000 to $8,280,000, resulting in
the offer of between 612,000 and 828,000 Common Shares at a purchase price of
$10 per share.
The actual number of Common Shares sold in connection with the
Conversion will be determined in the discretion of HCFC's Board of Directors
upon the completion of the Subscription Offering and the Community Offering, if
any, and will be based upon the final valuation of Home City, as converted. The
final valuation will be determined by Keller at the time of the closing of the
Offering. If the final valuation is within the Valuation Range, or does not
exceed the maximum of the Valuation Range by more than 15%, the number of Common
Shares to be issued in connection with the Conversion will not be less than
612,000 or more than 952,200. If, due to changing market conditions, the final
valuation is not between the minimum of the Valuation Range and 15% above the
maximum of the Valuation Range, subscribers will be given the opportunity to
affirm, increase, decrease or rescind their subscriptions. See "THE CONVERSION -
Pricing and Number of Common Shares to be Sold."
USE OF PROCEEDS
HCFC will retain 50% of the net proceeds from the sale of the
Common Shares, or approximately $3,414,000 at the mid-point of the Valuation
Range, including the value of a promissory note from the ESOP, which HCFC
intends to accept in exchange for the issuance of Common Shares to the ESOP.
Such proceeds will be used to fund the Home City Financial Corporation
Recognition and Retention Plan (the "RRP") and will be invested in short-term
and intermediate-term government securities.
The remainder of the net proceeds received from the sale of the
Common Shares, $3,414,000 at the mid-point of the Valuation Range, will be
invested by HCFC in the capital stock to be issued by Home City to HCFC as a
result of the
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<PAGE> 10
Conversion. Such investment will increase the regulatory capital of Home City
and will permit Home City to expand its lending and investment activities. Home
City anticipates that such net proceeds initially will be invested in short-term
interest-bearing deposits. Eventually, however, Home City will attempt to use
such net proceeds to originate mortgage, consumer and other loans in Home City's
market area and Home City may also use the proceeds from the Conversion to
expand operations through the establishment of a branch office, which would
include space for administrative operations. Home City estimates that the cost
of establishing a new branch will be approximately $1.25 million, including land
acquisition and construction costs. Neither HCFC nor Home City has, however,
entered into any agreements concerning the establishment of a branch office.
Although HCFC and Home City could use the proceeds from the Conversion to
acquire other financial institutions or for HCFC to purchase its own outstanding
shares, HCFC and Home City have no current intentions to do so. See "USE OF
PROCEEDS."
OFFICER AND DIRECTOR BENEFITS
In connection with the Conversion, HCFC will establish the ESOP.
Common Shares will be purchased by the ESOP in the Conversion with a loan from
HCFC. The ESOP intends to repay the loan with discretionary contributions made
by Home City to the ESOP. As the loan is repaid, the Common Shares held by the
ESOP will be allocated to the accounts of employees of Home City and HCFC,
including executive officers. See "MANAGEMENT OF HOME CITY - Employee Stock
Ownership Plan."
At a meeting of the shareholders of HCFC to be held at least six
months after the consummation of the Conversion, the Boards of Directors of HCFC
and Home City intend to present to the shareholders for approval both the RRP
and the Home City Financial Corporation 1997 Stock Option and Incentive Plan
(the "Stock Option Plan"). If the RRP is approved at such meeting, HCFC will
form a trust (the "RRP Trust") to which HCFC will contribute sufficient amounts
for the purchase by the RRP Trust of an unspecified number of HCFC common shares
equal to up to 4% of the number of Common Shares sold in the Conversion. Such
HCFC common shares may be purchased after shareholder approval of the RRP in the
open market or from the authorized, but unissued, common shares of HCFC, and
will be awarded by a committee of the HCFC Board of Directors to the officers
and directors of HCFC and Home City for services rendered to Home City. See
"MANAGEMENT OF HOME CITY - Stock Option Plan; and - Recognition and Retention
Plan and Trust."
If the Stock Option Plan is approved at a meeting of shareholders
following the Conversion, directors, officers and employees of HCFC and Home
City will be granted options to purchase, in the aggregate, a number of Common
Shares equal to up to 10% of the Common Shares sold in the Conversion. The
exercise price for options granted will equal the HCFC market price on the date
of grant. The grant of such options, in combination with purchases of Common
Shares by such officers and directors and certain anti-takeover provisions in
the Articles of Incorporation and Code of Regulations of HCFC and the Amended
Charter of Home City, may facilitate the perpetuation of current management and
discourage proxy contests and takeover attempts. See "RESTRICTIONS ON
ACQUISITIONS OF HOME CITY AND HCFC AND RELATED ANTI- TAKEOVER PROVISIONS."
Assuming the purchase by directors and executive officers of
____% of the Common Shares sold in the Conversion, the purchase by the RRP of a
number of Common Shares equal to 4% of the Common Shares sold in the Conversion,
the exercise by directors and executive officers of all options authorized
pursuant to the Stock Option Plan and the control by directors and executive
officers of the 8% of the Common Shares purchased by the ESOP in the Conversion,
directors and executive officers could own or control up to _____% of the
outstanding common shares of HCFC. See "RISK FACTORS-Controlling Influence of
Management and Anti-Takeover Provisions Which May Discourage Sales of Common
Shares for Premium Prices."
MARKET FOR THE COMMON SHARES
There is presently no market for the Common Shares. The aggregate
offering price for the Common Shares is based upon an independent appraisal of
Home City. The appraisal is not a recommendation as to the advisability of
purchasing Common Shares. See "THE CONVERSION - Pricing and Number of Common
Shares to be Sold." No assurance can be given that persons purchasing Common
Shares will thereafter be able to sell such shares at a price at or above the
$10 offering price.
HCFC has received approval to have the Common Shares quoted on T
he Nasdaq Small Cap Market under the symbol "__________" upon the closing of the
Conversion, subject to certain conditions which HCFC and Home City believe will
be satisfied, although no assurance can be provided that the conditions will be
met. In connection with such approval, Webb has informed Home City that Keefe,
Bruyette & Woods, Inc., intends to make a market in the Common Shares. No
assurance can be given, however, that an active or liquid market for the Common
Shares will develop after the completion of the Conversion or, if such a market
does develop, that such market will continue. Investors should consider,
therefore,
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<PAGE> 11
the potentially illiquid and long-term nature of an investment in the Common
Shares. See "RISK FACTORS - Market for the Common Shares."
DIVIDEND POLICY
The declaration and payment of dividends by HCFC will be subject
to the discretion of the Board of Directors of HCFC and will be based on the
earnings and financial condition of HCFC and general economic conditions. Other
than the earnings on the investment of proceeds retained by HCFC, the only
source of income of HCFC will be dividends periodically declared and paid by the
Board of Directors of Home City on the common shares of Home City owned by HCFC.
The payment of dividends by Home City to HCFC will be subject to various
regulatory restrictions. On a pro forma basis, as of June 30, 1996, assuming (i)
receipt by Home City of $3.4 million of net conversion proceeds, (ii) the
investment of such net proceeds in assets having a risk weighting of 20% and
(iii) the establishment of a Liquidation Account (hereinafter defined) in the
amount of $5.4 million (the regulatory capital of Home City at June 30, 1996),
Home City would have $4.19 million available for the payment of dividends to
HCFC.
In an effort to manage the capital of HCFC, the Board of
Directors of HCFC may determine that the payment of a regular or a special cash
dividend or both may be prudent. No assurance can be given, however, that any
dividend will be declared, what the amount will be or whether such dividends, if
declared, will continue in the future. See "DIVIDEND POLICY."
INVESTMENT RISKS
Special attention should be given to the matters discussed under
"RISK FACTORS."
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<PAGE> 12
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
The following tables set forth certain information concerning the
consolidated financial condition, earnings and other data regarding Home City
at the dates and for the periods indicated. The financial information should be
read in conjunction with the consolidated financial statements and notes
thereto included elsewhere herein. However, in the opinion of management of
Home City, all adjustments necessary for a fair presentation of such financial
data have been included. All such adjustments are of a normal recurring nature.
<TABLE>
<CAPTION>
At June 30,
--------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION
AND OTHER DATA:
Total amount of:
Assets $55,728 $48,578 $39,680 $40,769 $42,325
Cash and cash equivalents (1) 2,904 2,737 987 3,358 5,889
Investment securities available for sale 2,188 259 314 1,398 20
Investment securities held to maturity -- 1,901 2,098 2,473 4,484
Mortgage-backed securities
available for sale 2,975 -- -- -- --
Mortgage-backed securities
held to maturity -- 3,667 4,257 5,314 2,064
Loans receivable -- net 45,225 38,960 31,103 28,648 28,875
FHLB stock -- at cost 394 288 248 216 205
Deposits 47,174 40,936 34,816 36,688 39,398
FHLB advances 2,903 2,618 424 460 --
Retained earnings, substantially
restricted-net (2) 5,271 4,757 4,202 3,497 2,832
Number of offices, all full service 1 1 1 1 1
</TABLE>
<TABLE>
<CAPTION>
At June 30,
--------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
SUMMARY OF EARNINGS:
Interest and dividend income $4,507 $3,835 $3,542 $3,565 $3,439
Interest expense 2,542 1,942 1,446 1,710 2,370
------ ------ ------ ------ ------
Net interest income 1,965 1,893 2,096 1,855 1,069
Provision for loan losses 50 109 113 83 52
------ ------ ------ ------ ------
Net interest income after
provision for loan losses 1,915 1,784 1,983 1,772 1,017
Noninterest income 58 9 12 44 1
Noninterest expense 1,216 998 923 727 845
------ ------ ------ ------ ------
Income before income tax 757 795 1,072 1,089 173
Income tax expense (2) 243 240 367 424 73
------ ------ ------ ------ ------
Net income (2) $ 514 $ 555 $ 705 $ 665 $ 100
====== ====== ====== ====== ======
</TABLE>
- -------------------------
(Footnotes on next page)
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<PAGE> 13
<TABLE>
<CAPTION>
At or for the year ended June 30,
----------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS:
Return on assets (3) 0.98% 1.24% 1.69% 1.66% 0.26%
Return on equity (4) 10.46 12.20 17.23 21.08 3.52
Interest rate spread (5) 3.42 3.95 4.88 4.58 3.12
Net interest margin (6) 3.86 4.36 5.28 4.81 2.92
Noninterest expense to average assets (7) 2.31 2.22 2.28 1.82 2.21
Average equity to average assets 9.55 10.21 10.09 7.88 7.42
Equity to assets at period end 9.69 10.06 10.87 8.58 6.69
Nonperforming loans to total loans 0.41 0.53 0.11 1.35 0.17
Nonperforming assets to total assets 0.44 0.43 0.09 0.96 0.12
Allowance for loan losses to total loans 0.79 0.81 0.73 0.69 0.38
Allowance for loan losses to
nonperforming loans 146.56 154.11 673.53 50.77 222.00
Net charge-offs to average loans 0.02 0.05 0.27 (0.01) --
</TABLE>
- -------------------------
(1) Includes cash and amounts due from depository institutions and interest-
bearing deposits in other financial institutions.
(2) Effective January 1, 1993, Home City adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". The
effect of adopting SFAS No. 109 on income tax expense in 1994 and 1993
was not material.
(3) Net income divided by average total assets.
(4) Net income divided by average total equity.
(5) Average yield on interest-earning assets less average cost of
interest-bearing liabilities.
(6) Net interest income as a percentage of average interest-earning assets.
(7) Noninterest divided by average total assets.
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<PAGE> 14
REGULATORY CAPITAL COMPLIANCE
The following table sets forth the historical and pro forma regulatory
capital of Home City at June 30, 1996, based on the receipt of proceeds for the
number of Common Shares indicated, less estimated expenses of $357,000,
$372,000, $387,000 and $404,000 at the minimum, mid-point, maximum and maximum,
as adjusted, of the Valuation Range, respectively, assuming all of such shares
are sold in the Subscription Offering.
<TABLE>
<CAPTION>
Pro forma capital at June 30, 1996, assuming the sale of
-------------------------------------------------------------------------------
612,000 720,000 828,000 952,200
Common Shares Common Shares Common Shares Common Shares
Historical at (offering price (offering price (offering price (offering price
June 30, 1996 (1) of (10 per share) of $10 per share) of $10 per share) of $10 per share)
----------------- ----------------- ----------------- ----------------- -----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital under generally
accepted accounting
principles, before
adjustments (2)(3) $5,398 9.68% $7,545 13.07% $7,948 13.67% $8,351 14.27% $8,847 14.99%
Current tangible
capital (2)(3):
Capital level $5,271 9.48% $7,418 12.85% $7,821 13.45% $8,224 14.05% $8,720 14.77%
Requirement 834 1.50 866 1.50 872 1.50 878 1.50 886 1.50
Excess $4,437 7.98% $6,552 11.35% $6,949 11.95% $7,346 12.55% $7,834 13.27%
Current core
capital (2)(3):
Capital level $5,271 9.48% $7,418 12.85% $7,821 13.45% $8,224 14.88% $8,720 15.83%
Requirement 1,668 3.00 1,732 3.00 1,744 3.00 1,756 3.00 1,771 3.00
Excess $3,603 6.48% $5,686 9.85% $6,077 10.45% $6,468 11.05% $6,949 11.77%
Current risk-based
capital (4):
Capital level $5,633 18.77% $7,780 25.57% $8,183 26.82% $8,586 28.07% $9,082 29.59%
Requirement 2,400 8.00 2,434 8.00 2,441 8.00 2,447 8.00 2,455 8.00
Excess $3,233 10.77% $5,346 17.56% $5,742 18.82% $6,139 20.06% $6,627 21.59%
</TABLE>
- ----------------------
(1) See Note N of the Notes to Financial Statements.
(2) Pro forma amounts assume Home City will receive 50% of the conversion
proceeds before reduction for the ESOP loan. Also reflects a deduction from
capital for unearned ESOP shares equal to 8% of the shares offered and
unearned RRP shares equal to 4% of the shares offered.
(3) Historical tangible and core capital percentages are based on adjusted
total assets of $56.0 million. Pro forma tangible and core capital
percentages are based on adjusted total assets of $52.7 million, $58.1
million, $58.5 million, and $59.0 million, which assumes the receipt by
Home City of net proceeds from the sale of Common Shares of $2.9 million,
$3.4 million, $3.9 million and $4.6 million, at the minimum, mid-point
maximum and maximum, as adjusted, of the Valuation Range, respectively. The
OTS has proposed a new regulation which would increase the core capital
requirement to between 4% and 5% of adjusted total assets, with the
specific requirement to be determined on a case-by-case basis. See
"REGULATION--OTS Regulations--Regulatory Capital Requirements."
(4) Historical risk-based capital percentages are based on risk-weighted assets
of $30.0 million. Pro forma risk-based capital percentages are based on the
receipt by Home City of net proceeds of $2.9 million, $3.4 million, $3.9
million and $4.6 million, and assumes the net proceeds will be invested in
short-term interest bearing deposits having a risk weighting of 20%.
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<PAGE> 15
RISK FACTORS
Investment in the Common Shares involves certain risks. Before
investing, prospective purchasers should consider carefully the following
matters:
INTEREST RATE RISK
Home City's operating results are dependent to a significant
degree on its net interest income, which is the difference between interest
income from loans and investments and interest expense on deposits. Like most
thrift institutions, the interest income and interest expense of Home City
change as the interest rates on mortgages, securities and other assets and on
deposits and other liabilities change. Interest rates may change because of
general economic conditions, the policies of various regulatory authorities and
other factors beyond Home City's control. The interest rates on specific assets
and liabilities of Home City will change or "reprice" in accordance with the
contractual terms of the asset or liability instrument and in accordance with
customer reaction to general economic trends.
Home City, like other financial institutions, is subject to
interest rate risk to the extent that its interest-earning assets reprice
differently than its interest-bearing liabilities. As part of its effort to
monitor and manage interest rate risk, Home City uses the "net portfolio value"
("NPV") methodology recently adopted by the OTS as part of its capital
regulations. Although Home City is not currently subject to the NPV regulation
because such regulation does not apply to institutions with less than $300
million in assets and risk-based capital in excess of 12%, the application of
the NPV methodology may illustrate Home City's interest rate risk.
Generally, NPV is the difference between incoming cash flows on
interest-earning and other assets and outgoing cash flows on interest-bearing
and other liabilities, discounted to their economic value. The application of
the methodology attempts to quantify interest rate risk as the change in the NPV
which would result from a theoretical 200 basis point (1 basis point equals
.01%) change in market interest rates. Both a 200 basis point increase in market
interest rates and a 200 basis point decrease in market interest rates are
considered. If the NPV would decrease more than 2% of the economic value of the
institution's assets with either an increase or a decrease in market rates, the
institution must, in determining its risk-based capital, deduct from its capital
50% of the amount of the decrease in excess of such 2%.
At June 30, 1996, 2% of the economic value of Home City's assets
was approximately $1.2 million. Because the interest rate risk of a 200 basis
point increase in market interest rates (which was greater than the interest
rate risk of a 200 basis point decrease) was $1.6 million at June 30, 1996, Home
City would have been required to deduct approximately $200,000 (half of the
approximate $400,000 difference) from its capital in determining whether Home
City met its risk-based capital requirement. Regardless of such reduction,
however, Home City's risk-based capital at June 30, 1996, would still have
exceeded the regulatory requirement by approximately $ 3.0 million.
Home City's NPV is more sensitive to rising rates than declining
rates. Such difference in sensitivity occurs principally because, as rates rise,
borrowers do not prepay fixed-rate loans as quickly as they do when interest
rates are declining. As a result, in a rising interest rate environment, the
amount of interest Home City would receive on its loans would increase
relatively slowly as loans are slowly prepaid and new loans at higher rates are
made. Moreover, the interest Home City would pay on its deposits would increase
rapidly because Home City's deposits generally have shorter periods to
repricing.
As with any method of measuring interest rate risk, certain
shortcomings are inherent in the NPV approach. For example, although certain
assets and liabilities may have similar maturities or periods of repricing, they
may react in different degrees to changes in market interest rates. Also, the
interest rates on certain types of assets and liabilities may fluctuate in
advance of changes in market interest rates, while interest rates on other types
may lag behind changes in market rates. Further, in the event of a change in
interest rates, expected rates of prepayment on loans and mortgage-backed
securities and early withdrawal levels from certificates of deposit would likely
deviate significantly from those assumed in making the risk calculations. For
further discussion of the NPV methodology, the risks to Home City and the steps
Home City is taking to reduce such risks, see "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF HOME CITY - Asset
and Liability Management."
If interest rates continue to rise from the recent levels, Home
City's net interest income will be negatively affected. Moreover, rising
interest rates may negatively affect Home City's earnings due to diminished loan
demand. A negative effect on interest income and earnings will adversely affect
the value of an investment in the Common Shares.
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<PAGE> 16
LIMITED MARKET FOR THE COMMON SHARES
There is presently no market for the Common Shares. The aggregate
offering price for the Common Shares is based upon an independent appraisal of
Home City. The appraisal is not a recommendation as to the advisability of
purchasing Common Shares. See "THE CONVERSION - Pricing and Number of Common
Shares to be Sold." No assurance can be given that persons purchasing Common
Shares will thereafter be able to sell such shares at a price at or above the
offering price.
HCFC has received approval to have the Common Shares quoted on
The Nasdaq Small Cap Market under the symbol "_______" upon the closing of the
Conversion, subject to certain conditions which HCFC and Home City believe will
be satisfied, although no assurance can be provided that the conditions will be
met. In connection with such approval, Webb has informed Home City that Keefe,
Bruyette & Woods, Inc., intends to make a market in the Common Shares. No
assurance can be given, however, that an active or liquid market for the Common
Shares will develop after the completion of the Conversion or, if such a market
does develop, that it will continue. Investors should consider, therefore, the
potentially illiquid and long-term nature of an investment in the Common Shares.
POSSIBLE INADEQUACY OF THE ALLOWANCE FOR LOAN LOSSES
Home City maintains an allowance for loan losses based upon a
number of relevant factors, including, but not limited to, trends in the level
of non-performing assets and classified loans, current and anticipated economic
conditions in the lending area, past loss experience, possible losses arising
from specific problem assets and changes in the composition of the loan
portfolio. While the Board of Directors believes that it uses the best
information available to determine the amount of the allowance for loan losses,
unforeseen market conditions could result in material adjustments, and net
income could be significantly adversely affected, if circumstances differ
substantially from the assumptions used in making the determination of the
allowance for loan losses.
LEGISLATION AND REGULATION WHICH MAY ADVERSELY AFFECT HOME CITY'S EARNINGS
Home City is subject to extensive regulation by the OTS and the
FDIC and is periodically examined by such regulatory agencies to test compliance
with various regulatory requirements. As a savings and loan holding company,
HCFC will also be subject to regulation and examination by the OTS. Such
supervision and regulation of Home City and HCFC are intended primarily for the
protection of depositors and not for the maximization of shareholder value and
may affect the ability of HCFC to engage in various business activities. The
assessments, filing fees and other costs associated with reports, examinations
and other regulatory matters are significant and may have an adverse effect on
HCFC's net earnings. See "REGULATION."
The FDIC is authorized to establish separate annual assessment
rates for deposit insurance each for members of the Bank Insurance Fund (the
"BIF") and the SAIF. The FDIC may increase assessment rates for either fund if
necessary to restore the fund's ratio of reserves to insured deposits to its
target level within a reasonable time and may decrease such rates if such target
level has been met. The reserves of the SAIF are below the level required by law
because a significant portion of the assessments paid into the SAIF are used to
pay the cost of prior thrift failures.
The BIF has, however, met its required reserve level. The
assessments paid by healthy savings associations exceeded those paid by healthy
BIF members by approximately $.19 per $100 in deposits for 1995, and no BIF
assessments will be required of healthy commercial banks in 1996 except a $2,000
minimum fee. The disparity in the premiums paid between savings associations and
commercial banks could have a negative competitive impact on Home City and other
savings associations.
Congress is considering legislation to recapitalize the SAIF and
eliminate the significant premium disparity. Currently, the recapitalization
plan provides for a special assessment of approximately $.69 to $.71 per $100 of
SAIF deposits held at some date in 1995, currently March 31, 1995, in order to
increase SAIF reserves to the level required by law. Certain associations
holding SAIF-insured deposits would pay a lower special assessment. In addition,
the cost of prior thrift failures would be shared by both the SAIF and the BIF,
which might increase BIF assessments by $.02 to $.025 per $100 in deposits. SAIF
assessments for healthy savings associations would initially be set at a
significantly lower level, but could never be reduced below the level set for
healthy BIF institutions.
-10-
<PAGE> 17
Home City had $40.4 million in deposits at March 31, 1995. If a
special assessment of $.69 to $.71 per $100 in deposits is imposed, Home City
will pay an additional assessment of between approximately $279,000 and 287,000.
Although such assessment should be tax-deductible, earnings and capital will be
reduced for the quarter in which it is recorded.
The recapitalization plan also provides for the merger of the
SAIF and BIF and for the elimination of the federal thrift charter or of the
separate federal regulation of thrifts. Under the legislation, the OTS would
cease to exist and Home City would be regulated under federal law as a bank and,
as a result, would become subject to the more restrictive activity limitations
imposed on national banks. Recently passed legislation eliminates the deduction
for income tax purposes of amounts designated as reserved for bad debts. See
Note 12 of the Notes to the Financial Statements. Such legislation requires,
generally, that bad debt reserves taken by savings associations after 1987 using
the percentage of taxable income method be included in future taxable income of
Home City over a six-year period, beginning in the 1996 tax year. The
requirement that Home City convert to a bank charter and the proposed tax
legislation could have an adverse effect on HCFC and Home City, although until
such proposals are acted upon by Congress, the extent of such effect is
uncertain.
No assurance can be given that the SAIF recapitalization plan or
the proposed tax legislation will be enacted into law or in what form either may
be enacted. Moreover, Home City can give no assurance that the disparity between
BIF and SAIF assessments will be eliminated. Finally, Home City cannot predict
the impact of conversion to, or regulation as, a bank until the legislation
requiring such change is enacted.
CONTROLLING INFLUENCE OF MANAGEMENT AND ANTI-TAKEOVER PROVISIONS WHICH MAY
DISCOURAGE SALES OF COMMON SHARES FOR PREMIUM PRICES
The Articles of Incorporation and Code of Regulations of HCFC and
the Charter of Home City contain certain provisions that could deter or prohibit
non-negotiated changes in the control of HCFC and Home City. Such provisions
include a restriction on the acquisition of more than 10% of the outstanding
shares of HCFC by any person during the five-year period following the effective
date of the Conversion, the ability to issue additional common shares and a
supermajority voting requirement for certain transactions. See "DESCRIPTION OF
AUTHORIZED SHARES" and "RESTRICTIONS ON ACQUISITION OF HOME CITY AND HCFC AND
RELATED ANTI-TAKEOVER PROVISIONS."
The Articles of Incorporation of HCFC provide that for five years
after the effective date of the Conversion, no person, except the ESOP, may
acquire the beneficial ownership of more than 10% of any class of outstanding
equity securities of HCFC. If such a prohibited acquisition occurs, the
securities owned by such person in excess of the 10% limit may not be voted on
any matter submitted to the shareholders of HCFC. Such provision may not be
waived by management. The ability of management or any other person to solicit
revocable proxies from shareholders and vote on behalf of such shareholders will
not be restricted by such 10% limit.
The Articles of Incorporation of HCFC also provide that if the
Board of Directors recommends that shareholders approve certain matters,
including mergers, acquisitions of a majority of the shares of HCFC or the
transfer of substantially all of the assets of HCFC, the affirmative vote of the
holders of only a majority of the voting shares of HCFC is required to approve
such matter. If, however, the Board of Directors recommends against the approval
of any such matter, the affirmative vote of the holders of at least 75% of the
voting shares of HCFC is required to approve such matters. The existence of such
75% provision in the Articles of Incorporation of HCFC may make more difficult
actions which certain shareholders deem to be in their best interests.
Officers and directors of HCFC are expected to purchase
approximately ____% of the shares issued in connection with the Conversion at
the mid-point of the Valuation Range. In addition, the ESOP intends to purchase
approximately 8% of the shares issued in connection with the Conversion. The
ESOP trustee must vote shares allocated under the ESOP as directed by the
participants to whom the shares are allocated and vote unallocated shares in his
sole discretion in the best interest of the participants. The RRP may acquire
Common Shares in the open market or acquire authorized but unissued common
shares from HCFC following approval of the RRP by the shareholders of HCFC at a
meeting of the shareholders in an amount equal to up to 4% of the Common Shares
issued in connection with the Conversion. The RRP trustees, who are expected to
be two directors of HCFC, will vote shares awarded but not distributed under the
RRP in their discretion.
In view of the various provisions of the Articles of
Incorporation and the stock benefit plans of HCFC and Home City, the aggregate
ownership by the ESOP, the RRP and the directors and officers of HCFC and Home
City may have the effect of facilitating the perpetuation of current management
and discouraging proxy contests and takeover attempts. Thus,
-11-
<PAGE> 18
officers and directors, who are anticipated to be allocated or awarded shares
under such plans, will have a significant influence over the vote on such a
transaction and may be able to defeat such a proposal. The Boards of Directors
of HCFC and Home City believe that such provisions will be in the best interests
of shareholders by encouraging prospective acquirers to negotiate a proposed
acquisition with the directors. Such provisions could, however, adversely affect
the market value of the Common Shares or deprive shareholders of the opportunity
to sell their shares for premium prices.
Federal and Ohio law also restrict the acquisition of control of
HCFC and Home City. Any or all of these provisions may facilitate the
perpetuation of current management and discourage proxy contests or takeover
attempts not first negotiated with the Board of Directors. See "RESTRICTIONS ON
ACQUISITION OF HOME CITY AND HCFC AND RELATED ANTI-TAKEOVER PROVISIONS."
Regulations of the OTS also restrict the ability of any person to
acquire the beneficial ownership of more than 10% of any class of voting equity
security of Home City or HCFC without the prior written approval of or lack of
objection by the OTS. Such restrictions could restrict the use of revocable
proxies. See "RESTRICTIONS ON ACQUISITION OF HOME CITY AND HCFC AND RELATED
ANTI-TAKEOVER PROVISIONS."
POSSIBLE ADVERSE EFFECTS IF PREFERRED SHARES ARE ISSUED
The HCFC Articles of Incorporation authorize the issuance of one
million preferred shares. The Board of Directors is authorized to issue, without
shareholder approval, preferred shares and to fix the designations, preferences
or other special rights of such shares and the qualifications, limitations and
restrictions thereof. If preferred shares are issued, each holder of preferred
shares will be entitled to one vote for each preferred share held of record on
all matters submitted to a vote of shareholders. The issuance of preferred
shares and any conversion rights which may be specified by the Board of
Directors for the preferred shares could adversely affect the voting power of
holders of the Common Shares. In addition, if the purchase price of the
preferred shares is less than the book value of the Common Shares, the book
value of the Common Shares could be adversely affected. No preferred shares will
be issued in connection with the Conversion, and the Board of Directors has no
present intention to issue any of the preferred shares. See "DESCRIPTION OF
AUTHORIZED SHARES" and "RESTRICTIONS ON ACQUISITION OF HOME CITY AND HCFC AND
RELATED ANTI-TAKEOVER PROVISIONS - Articles of Incorporation of HCFC -- Ability
of the Board of Directors to Issue Additional Shares."
RISK OF DELAYED OFFERING
HCFC and Home City expect to complete the Conversion by December
31, 1996. It is possible, however, that adverse market, economic or other
factors could delay the completion of the Conversion. If the Community Offering
is extended beyond ______________, each subscriber will be given a notice of
such delay and the right to affirm, increase, decrease or rescind his
subscription. In such event, any person who does not affirmatively elect to
continue his subscription or elects to rescind his subscription will have all of
his funds promptly refunded with interest. Any person who elects to decrease his
subscription will have the appropriate portion of his funds promptly refunded
with interest. If the Community Offering is extended, the cost of the Conversion
could increase and the valuation of Home City could change. Extensions of the
Community Offering will not extend past ____________, 1998.
DILUTIVE EFFECT OF INCREASE IN VALUATION RANGE
The number of Common Shares to be sold in the Conversion may be
as much as 15% greater than the maximum of the Valuation Range due to changes in
market and financial conditions following the commencement of the Offering. An
increase in the number of Common Shares sold will decrease net earnings per
share and shareholders' equity per share on a pro forma basis. See
"CAPITALIZATION" and "PRO FORMA DATA."
DILUTIVE EFFECT OF PURCHASES BY THE ESOP AND THE RRP
If the ESOP is unable to purchase Common Shares in the Conversion
due to an oversubscription by Eligible Account Holders, the ESOP may purchase
authorized but unissued shares from HCFC or purchase in the open market a number
of shares equal to up to 8% of the Common Shares issued in connection with the
Conversion. If the ESOP shares are purchased from authorized but unissued
shares, shareholders would experience a dilution of their ownership interests of
up to 7.4%. In addition, the RRP may purchase authorized but unissued shares
from HCFC or purchase in the open market a number of shares equal to 4% of the
Common Shares issued in connection with the Conversion. The purchase of
-12-
<PAGE> 19
authorized but unissued shares by the RRP would have a dilutive effect on the
ownership interests of HCFC's shareholders of up to 3.85%. See "CAPITALIZATION"
and "PRO FORMA DATA."
HOME CITY FINANCIAL CORPORATION
HCFC was incorporated under Ohio law in August 1996 at the
direction of Home City for the purpose of serving as the holding company for
Home City. HCFC has not conducted and will not conduct any business other than
business related to the Conversion prior to the completion of the Conversion.
HCFC has received approval of the OTS to acquire the capital stock to be issued
by Home City in the Conversion. Upon the consummation of the Conversion, HCFC
will be a unitary savings and loan holding company, the principal assets of
which will initially be the capital stock of Home City, a loan to the ESOP for
the purchase of Common Shares and the investments made with the proceeds
retained by HCFC from the sale of Common Shares. See "USE OF PROCEEDS." As a
savings and loan holding company, HCFC will be required to register with, and
will be subject to examination and supervision by, the OTS. See "REGULATION -
OTS Regulations -- Holding Company Regulation." The types of business activities
in which a unitary savings and loan holding company may engage are virtually
unrestricted. See, however, "RISK FACTORS - Legislation and Regulation Which May
Adversely Affect Home City's Earnings."
The office of HCFC is located at 63 West Main Street,
Springfield, Ohio 45502-1309, and its telephone number is (513) 324-5736.
HOME CITY FEDERAL SAVINGS BANK OF SPRINGFIELD
Home City is a federal mutual savings bank which has served the
Springfield, Ohio, area since 1925. Originally formed under the name "Home City
Savings and Loan Association," Home City changed its name to "Home City Federal
Savings Bank" on May 1, 1996. As a federal savings bank chartered under the laws
of the United States, Home City is subject to supervision and regulation by the
OTS and the FDIC and is a member of the FHLB of Cincinnati. The deposits of Home
City are insured up to applicable limits by the FDIC in the SAIF. See
"REGULATION."
Home City is principally engaged in the business of making
conventional first mortgage loans secured by one- to four-family residential
real estate located within Clark County, Ohio, and adjacent counties and
investing in U.S. Government agency obligations, interest-bearing deposits in
other financial institutions and mortgage-backed securities. Home City also
makes loans secured by multifamily real estate (over four units) and
nonresidential real estate and construction, consumer and commercial loans. Loan
funds are obtained primarily from savings deposits, loan repayments and
borrowings from the FHLB of Cincinnati. See "THE BUSINESS OF HOME CITY - Lending
Activities; and - Investment Activities."
Interest on loans and mortgage-backed securities is Home City's
primary source of income. The principal expense of Home City is interest paid on
deposit accounts. Operating results are dependent to a significant degree on the
net interest income of Home City, which is the difference between interest
earned on loans and mortgage-backed securities and interest paid on deposits.
Like most thrift institutions, Home City's interest income and interest expense
are significantly affected by general economic conditions and by the policies of
various regulatory authorities. See "RISK FACTORS" and "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF HOME CITY."
Home City conducts business from its office at 63 West Main
Street, Springfield, Ohio 45502-1309. The telephone number of Home City is (513)
324-5736. See "THE BUSINESS OF HOME CITY."
-13-
<PAGE> 20
USE OF PROCEEDS
The following table presents the estimated gross and net proceeds
from the sale of the Common Shares in connection with the Conversion based on
the Valuation Range:
<TABLE>
<CAPTION>
Maximum ,
Minimum Mid-point Maximum as adjusted
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Gross proceeds $6,120,000 $7,200,000 $8,280,000 $9,522,000
Less estimated expenses 357,000 372,000 387,000 404,000
---------- ---------- ---------- ----------
Total net proceeds $5,763,000 $6,828,000 $7,893,000 $9,118,000
========== ========== ========== ==========
</TABLE>
The net proceeds from the sale of the Common Shares may be outside the Valuation
Range, depending upon financial and market and regulatory conditions at the time
of the completion of the Offering. See "THE CONVERSION - Pricing and Number of
Common Shares to be Sold." The expenses are estimated assuming that (a) all of
the indicated number of Common Shares are sold in the Subscription Offering; (b)
the directors, officers and their Associates purchase ______, ______, ______ and
_______ shares at the minimum, mid-point, maximum and maximum, as adjusted, of
the Valuation Range; and (c) the ESOP purchases 8% of the Common Shares sold.
Actual expenses may be more or less than estimated. See "THE CONVERSION - Plan
of Distribution."
HCFC will retain 50% of the net proceeds from the sale of the
Common Shares, or approximately $3,414,000 at the mid-point of the Valuation
Range, including the value of a promissory note from the ESOP which HCFC intends
to accept in exchange for the issuance of Common Shares to the ESOP. Such
proceeds will be used to fund the RRP and will be invested in short-term and
intermediate-term government securities. The remainder of the net proceeds
received from the sale of the Common Shares, $3,414,000 at the mid-point of the
Valuation Range, will be invested by HCFC in the capital stock to be issued by
Home City to HCFC as a result of the Conversion. Such investment will increase
the regulatory capital of Home City and will permit Home City to expand its
lending and investment activities and to enhance customer services.
Home City anticipates that such net proceeds initially will be
invested in short-term interest-bearing deposits in other financial
institutions. Eventually, however, Home City will attempt to use the net
proceeds to originate mortgage, consumer and other loans in Home City's market
areas and may also use the proceeds from the Conversion to expand operations
through the establishment of a branch office, which would include space for
administrative operations. Home City estimates that the cost of establishing a
new branch would be approximately $1.25 million, including land acquisition and
construction costs. Although HCFC and Home City could use the increase in
capital which will result from the Conversion to acquire other financial
institutions or for HCFC to repurchase its own outstanding shares, HCFC and Home
City have no current plans or agreements, written or oral, and are not
negotiating, to acquire any other institution and have no current plans for HCFC
to repurchase any of its shares. See "THE BUSINESS OF HOME CITY."
MARKET FOR COMMON SHARES
There is presently no market for the Common Shares. The aggregate
offering price for the Common Shares is based upon an independent appraisal of
Home City. The appraisal is not a recommendation as to the advisability of
purchasing Common Shares. See "THE CONVERSION - Pricing and Number of Common
Shares to be Sold." No assurance can be given that persons purchasing Common
Shares will thereafter be able to sell such shares at a price at or above the
offering price.
HCFC has received approval to have the Common Shares quoted on
The Nasdaq Small Cap Market under the symbol "____" upon the closing of the
Conversion, subject to certain conditions which HCFC and Home City believe will
be satisfied, although no assurance can be provided that the conditions will be
met. In connection with such approval, Webb has informed Home City that Keefe,
Bruyette & Woods, Inc., intends to make a market in the Common Shares. No
assurance can be given, however, that an active or liquid market for the Common
Shares will develop after the completion of the Conversion or, if such a market
does develop, that such market will continue. Investors should consider,
therefore,
-14-
<PAGE> 21
the potentially illiquid and long-term nature of an investment in the Common
Shares. See "RISK FACTORS - Limited Market for the Common Shares."
DIVIDEND POLICY
The declaration and payment of dividends by HCFC will be subject
to the discretion of the Board of Directors of HCFC and will be based on the
earnings and financial condition of HCFC and general economic conditions. In an
effort to manage the capital of HCFC, the Board of Directors may determine that
the payment of a regular or special cash dividend or both may be prudent. No
assurance can be given that any dividend will be declared or that any dividend,
if declared, will continue in the future.
Other than earnings on the investment of the proceeds retained by
HCFC, the only source of income of HCFC will be dividends periodically declared
and paid by the Board of Directors of Home City on the common stock of Home City
held by HCFC. The declaration and payment of dividends by Home City to HCFC will
be subject to the discretion of the Board of Directors of Home City, to the
earnings and financial condition of Home City, to general economic conditions
and to federal restrictions on the payment of dividends by thrift institutions.
Under regulations of the OTS applicable to converted associations, Home City
will not be permitted to pay a cash dividend on its capital stock after the
Conversion if its regulatory capital would, as a result of the payment of such
dividend, be reduced below the amount required for the Liquidation Account or
the applicable regulatory capital requirement prescribed by the OTS. See "THE
CONVERSION - Principal Effects of the Conversion -- Liquidation Account" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF HOME CITY - Liquidity and Capital Resources." Home City may not
pay a dividend unless such dividend also complies with a regulation of the OTS
limiting capital distributions by savings associations.
Capital distributions, for purposes of such regulation, include,
without limitation, payments of cash dividends, repurchases and certain other
acquisitions by an association of its shares and payments to stockholders of
another association in an acquisition of such other association. The capital
distribution regulation adopts a 3-tier classification of associations based
upon their capital immediately before and, on a pro forma basis, after giving
effect to the capital distribution. A tier 1 association is an association which
has capital immediately before and after giving effect to a proposed capital
distribution that is equal to or greater than the amount of its fully phased-in
capital requirement. A tier 2 association is an association which has capital
immediately before and after giving effect to a capital distribution which is
equal to or in excess of its minimum capital requirement, but is less than the
amount of its fully phased-in capital requirement. A tier 3 association is an
association which fails to meet its minimum capital requirement immediately
before or after giving effect to a capital distribution.
A tier 1 association may make capital distributions equal to up
to the higher of (1) 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 (2) 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. A tier 2 association may make capital distributions up to 75% of its net
earnings over the most recent four-quarter period, if the association meets the
current risk-based capital standard. A tier 3 association may make capital
distributions only with the prior written approval of the Regional Director of
the OTS or in accordance with an approved capital plan.
If an association meeting the tier 1 criteria has been notified
by the OTS that the association requires more than normal supervision, such
association will be treated as a tier 2 or tier 3 association, unless the OTS
determines that such treatment is not necessary to ensure the association's safe
and sound operation. Moreover, the OTS may prohibit any capital distribution
otherwise permitted by the regulation if the OTS determines that such
distribution would constitute an unsafe or unsound practice. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF HOME
CITY - Liquidity and Capital Resources."
At June 30, 1996, Home City met the fully phased-in capital
requirement. Other than the earnings on the investment of proceeds retained by
HCFC, the only source of income of HCFC will be dividends periodically declared
and paid by the Board of Directors of Home City on the common stock of Home City
held by HCFC. The payment of dividends by Home City will be subject to various
regulatory restrictions. On a pro forma basis, as of June 30, 1996, assuming (i)
receipt by Home City of $3.4 million of net conversion proceeds, (ii) the
investment of such net proceeds in assets having
-15-
<PAGE> 22
a risk weighting of 20% and (iii) the establishment of a Liquidation Account in
the amount of $5.4 million (the regulatory capital of Home City at June 30,
1996), Home City would have $4.19 million available for the payment of dividends
to HCFC. See "REGULATORY CAPITAL COMPLIANCE."
CAPITALIZATION
Set forth below is the capitalization of Home City as of June 30,
1996, and the consolidated pro forma capitalization of HCFC, as adjusted to give
effect to the sale of Common Shares based on the Valuation Range and estimated
expenses. A change in the number of Common Shares sold in the Conversion would
materially affect such pro forma capitalization. See "USE OF PROCEEDS" and "THE
CONVERSION - Pricing and Number of Common Shares to be Sold."
<TABLE>
<CAPTION>
Pro forma capitalization of HCFC at June 30, 1996,
assuming the sale of:
-----------------------------------------------------------------------
612,000 720,000 828,000 952,200
Home City's Common Common Common Common
historical Shares Shares Shares Shares
capitalization (offering (offering (offering (offering
at price of price of price of price of
June 30, 1996 $10 per share) $10 per share) $10 per share) $10 per share)
------------- ------------- ------------- ------------- --------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Deposits(1) $ 47,174 $ 47,174 $ 47,174 $ 47,174 $ 47,174
Borrowings 2,903 2,903 2,903 2,903 2,903
Preferred shares, no par value:
authorized - 1,000,000 shares; -- -- -- -- --
assumed outstanding - none
Common Shares, no par value:
authorized - _________ shares; -- -- -- -- --
assumed outstanding - as shown(2)
Additional paid-in capital -- 5,763 6,828 7,893 9,118
Unrealized gain on securities 127 127 127 127 127
Less Common Shares acquired by the
ESOP(3) -- (490) (576) (662) (762)
Less Common Shares acquired by the
RRP(4) -- (245) (288) (331) (381)
Retained earnings(5) $ 5,271 $ 5,271 $ 5,271 $ 5,271 $ 5,271
Total capital and retained earnings $ 5,398 $ 10,426 $ 11,362 $ 12,298 $ 13,373
</TABLE>
- ----------------------------------
(1) Withdrawals from deposit accounts for the purchase of Common Shares have not
been reflected in these adjustments. Any deposit withdrawals will reduce pro
forma deposits by the amount of such withdrawals.
(2) The number of Common Shares to be issued will be determined on the basis of
the final valuation of Home City. See "THE CONVERSION - Pricing and Number
of Common Shares to be Sold." Common Shares assumed to be outstanding does
not reflect the issuance of any Common Shares reserved for issuance under
the Stock Option Plan. See "MANAGEMENT OF HOME CITY - Stock Option Plan."
(3) Assumes that 8% of the Common Shares sold in connection with the Conversion
will be acquired by the ESOP trust, a separate entity, and that the funds
used to acquire such shares will be borrowed by the ESOP trust from HCFC,
with repayment thereof secured solely by the Common Shares purchased by the
ESOP trust. Home City has agreed, however, to use its best efforts to fund
the ESOP based on future earnings, which best efforts funding will reduce
the total capital and retained earnings, as reflected in the table. See
"MANAGEMENT OF HOME CITY - Employee Stock Ownership Plan."
(4) Assumes the establishment of the RRP and its acquisition of Common Shares
equal to 4% of the shares sold in the Conversion. The pro forma table
assumes the Common Shares for the RRP will be purchased in the open market
at a price of $10 per share. The Board of Directors may elect, however, to
issue the RRP shares from authorized but unissued shares. In the event the
RRP shares are obtained from authorized but unissued shares or in the event
the RRP is not ratified by the shareholders of HCFC, pro forma shareholders'
equity would increase by $245,000, $288,000, $331,000 and $381,000 at the
minimum, mid-point, maximum and 15% above the maximum of the Valuation
Range, respectively. The issuance of shares to the RRP would have the effect
of diluting the percentage interest of existing shareholders by 2.34%.
(5) Retained earnings are substantially restricted. See "THE CONVERSION -
Principal Effects of the Conversion -- Liquidation Account" for information
concerning the Liquidation Account to be established in connection with the
Conversion and "TAXATION - Federal Taxation" for information concerning
restricted retained earnings for federal tax purposes.
-16-
<PAGE> 23
PRO FORMA DATA
Set forth below are the pro forma consolidated net earnings of
HCFC for the year ended June 30, 1996, and the pro forma shareholders' equity of
HCFC at such date, along with the related pro forma per share amounts, giving
effect to the sale of the Common Shares in connection with the Conversion. The
computations are based on the assumed issuance of 612,000 Common Shares (minimum
of the Valuation Range), 720,000 Common Shares (mid-point of the Valuation
Range), 828,000 Common Shares (maximum of the Valuation Range) and 952,200
Common Shares (15% above the maximum of the Valuation Range). See "THE
CONVERSION - Pricing and Number of Common Shares to be Sold." The pro forma data
is based on the following assumptions: (i) the sale of the Common Shares
occurred at the beginning of the periods and yielded the net proceeds indicated;
(ii) such net proceeds were invested by HCFC and Home City at the beginning of
the specified periods at 5.78%; (iii) no withdrawals from existing deposit
accounts were made to purchase the Common Shares; (iv) HCFC will accept a
promissory note from the ESOP in exchange for the issuance of Common Shares; and
(v) the cash proceeds retained by HCFC will be used to fund the RRP and, pending
such investment, will be invested in short-term and intermediate-term government
securities. The assumed return is based upon the market rate for FHLB 90-day
deposits because management intends to invest the initial cash proceeds in
short-term interest-bearing deposits with the FHLB. In calculating pro forma net
earnings, a statutory federal income tax rate of 34% has been assumed for the
period, resulting in an after-tax yield of 3.81%. In the opinion of management,
the assumed after-tax yield does not differ materially from the estimated
after-tax yield which will be obtained on the initial investment of the cash
proceeds in short-term, interest-bearing deposits and is viewed as being more
relevant in the current low interest rate environment than the use of an
arithmetic average of the fiscal year 1996 weighted average yield on
interest-earning assets and weighted average rates paid on deposits during such
period. Management also believes that utilization of savings withdrawals to fund
stock purchases would not have a material impact on the pro forma data
presented.
NO ASSURANCE CAN BE PROVIDED THAT THE YIELDS OR RESULTS SET FORTH
IN THE PRO FORMA DATA WILL BE ACHIEVED ON INVESTMENT OF THE CONVERSION PROCEEDS.
MOREOVER, THE PRO FORMA NET EARNINGS AMOUNTS DERIVED FROM THE ASSUMPTIONS SET
FORTH HEREIN SHOULD NOT BE CONSIDERED INDICATIVE OF THE ACTUAL RESULTS OF
OPERATIONS OF HCFC THAT WOULD HAVE BEEN ATTAINED FOR ANY PERIOD IF THE
CONVERSION HAD BEEN ACTUALLY CONSUMMATED AT THE BEGINNING OF SUCH PERIOD.
FURTHER, THE RATIO OF SHARE OFFERING PRICE TO THE PRO FORMA BOOK VALUE IS NOT
REPRESENTATIVE OF ANY POTENTIAL PRICE APPRECIATION ON THE COMMON SHARES. NO
EFFECT HAS BEEN GIVEN IN THE PRO FORMA SHAREHOLDERS' EQUITY FOR ANY ASSUMED
EARNINGS ON THE NET PROCEEDS OF THE CONVERSION.
-17-
<PAGE> 24
<TABLE>
<CAPTION>
At or for the year ended June 30, 1996
----------------------------------------------------------------------------
612,000 720,000 828,000 952,200
Common Shares Common Shares Common Shares Common Shares
(offering price of (offering price of (offering price of offering price of
$10 per share) $10 per share) $10 per share) $10 per share)(1)
-------------- -------------- -------------- -----------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds $6,120 $7,200 $8,280 $9,522
Less offering expenses and commissions (357) (372) (387) (404)
------ ------ ------ ------
Estimated conversion proceeds 5,763 6,828 7,893 9,118
Less common shares acquired by ESOP (490) (576) (662) (762)
Less common shares acquired by RRP (245) (288) (331) (381)
------ ------ ------ ------
Net cash proceeds $5,029 $5,964 $6,899 $7,975
Consolidated net income:
Historical net income $514 $514 $514 $514
Pro forma income on net proceeds (2) 220 260 301 347
Pro forma ESOP adjustment (3) (19) (22) (25) (29)
Pro forma RRP adjustment (4) (9) (11) (13) (15)
------ ------ ------ ------
Pro forma net income $706 $741 $777 $817
Per share net income: (5)
Historical net income (6) $ .84 $ .71 $ .62 $ .54
Pro forma income on net proceeds (2) .36 .36 .36 .36
Pro forma ESOP adjustment (3) (.03) (.03) (.03) (.03)
Pro forma RRP adjustment (4) (.02) (.02) (.02) (.02)
------ ------ ------ ------
Pro forma net income per share $1.15 $1.03 $ . 94 $ .86
Offering price to pro forma net income per share
("P/E Ratio") 10.09X 11.52X 12.87X 14.34X
Shareholders' equity: (7)
Historical $5,398 $5,398 $5,398 $5,398
Estimated conversion proceeds 5,763 6,828 7,893 9,118
Less Common Shares acquired by:
ESOP (3) (490) (576) (662) (762)
RRP (4) (245) (288) (331) (381)
------ ------ ------ ------
Pro forma shareholders' equity $10,426 $11,362 $12,298 $13,373
Shareholders' equity per share:
Historical (6) $8.82 $7.49 $6.51 $5.66
Estimated conversion proceeds 9.42 9.48 9.53 9.58
Less Common Shares acquired by:
ESOP (8) (0.80) (0.80) (0.80) (0.80)
RRP (4) (0.40) (0.40) (0.40) (0.40)
------ ------ ------ ------
Pro forma shareholders' equity per share $17.04 $15.77 $14.84 $14.04
Offering price as a percentage of pro forma
shareholders' equity per share 58.70% 63.37% 67.33% 71.20%
</TABLE>
- -------------------------------------
(1) Reflects an increase in the number of shares which could occur due to an
increase in the Valuation Range of up to 15% to reflect changes in market
and financial conditions following the commencement of the Subscription and
Community Offerings.
(2) Pro forma net income is calculated using pro forma income earned on net cash
proceeds, as discussed above.
(3) It is assumed that 8% of the Common Shares sold in connection with the
Conversion will be acquired by the ESOP trust from HCFC, with repayment
thereof secured solely by the Common Shares purchased by the ESOP trust.
Home City intends to make contributions to the ESOP in amounts equal to the
principal and interest requirement of the debt. Home City's payment of the
ESOP debt is based upon equal installments of principal over a seven-year
period, plus interest. Interest income earned by HCFC on the ESOP debt
offsets the interest paid by Home City on the ESOP loan. Accordingly, only
the principal payments on the ESOP debt are recorded as an expense
(tax-effected) to HCFC on a consolidated basis. The amount borrowed is
reflected as a reduction of shareholders' equity. No reinvestment is assumed
on proceeds contributed to fund the ESOP. The ESOP expense has been computed
in accordance with the American Institute of Certified Public Accountants'
Statement of Position 93-6 ("SOP 93-6"), which requires recognition of
expense based upon shares committed to be released as security for the loan.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF HOME CITY - Impact of New Accounting Standards." The
valuation of shares committed to be released is based upon the average
market value of the shares during the year, which for purposes of this
calculation was assumed to be equal to the $10 per share offering price. See
"MANAGEMENT OF HOME CITY -- Employee Stock Ownership Plan."
(Footnotes continued on next page)
-18-
<PAGE> 25
(4) Assumes the establishment of the RRP and its acquisition of Common Shares
equal to 4% of the shares sold in the Conversion. The pro forma table
assumes the Common Shares for the RRP will be purchased in the open market
at a price of $10 per share. The effect reported on pro forma consolidated
net income includes the expense related to the vested RRP shares as well as
the reduction in income due to a decline in cash proceeds available for
investment. The Board of Directors may elect, however, to issue to the RRP
authorized but unissued shares. In the event RRP shares are obtained from
authorized but unissued shares, pro forma net income per share would
decrease $.02 at each level of the Valuation Range. See "MANAGEMENT OF HOME
CITY - Recognition and Retention Plan and Trust." The issuance of shares to
the RRP would have the effect of diluting the percentage interest of
existing shareholders by 3.3%. In the event the RRP is not approved by the
shareholders of HCFC, pro forma net income per share would increase $.02 at
each level of the Valuation Range. In the event RRP shares are obtained from
authorized but unissued shares or in the event the RRP is not ratified by
shareholders, pro forma book value per share would increase by $.40 per
share at each level of Valuation Range. No effect has been given to the
shares reserved for issuance under the Stock Option Plan.
(5) Per share amounts are based upon the weighted average number of shares
outstanding of 612,000, 720,000, 828,000 and 952.200 at the minimum,
mid-point, maximum and 15% above the maximum of the Valuation Range,
respectively.
(6) Historical per share amounts have been computed as if the Common Shares
expected to be issued in the Conversion had been outstanding during the
period or on the dates shown, but without any adjustments of historical net
income or historical retained earnings to reflect the investment of the
estimated net proceeds of the sale of shares in the Conversion or the
additional ESOP or RRP expense. At June 30, 1996, per share amounts are
based upon shares outstanding of 612,000, 720,000, 828,000 and 952,200 at
the minimum, mid-point, maximum and 15% above the maximum of the Valuation
Range, respectively.
(7) The effect of the Liquidation Account is not included in these computations.
For additional information concerning the Liquidation Account, see "THE
CONVERSION -- Principal Effects of the Conversion -- Liquidation Account."
The amounts shown do not reflect the federal income tax consequences of the
potential restoration of the bad debt reserves to income for tax purposes,
which would be required in the event of liquidation. See "TAXATION --
Federal Taxation."
(8) Not intended to represent or suggest possible future appreciation or
depreciation of Common Shares.
-19-
<PAGE> 26
SUMMARY CONSOLIDATED STATEMENTS OF INCOME
The following Summary Consolidated Statements of Income set forth
information concerning Home City for the periods indicated:
<TABLE>
<CAPTION>
Year ended June 30
-------------------------------
1996 1995 1994
---- ---- -----
Interest income:
<S> <C> <C> <C>
Interest on loans $4,094 $3,344 $3,074
Interest on mortgage-backed securities 209 274 314
Interest on investments and deposits 204 217 154
------ ------ ------
4,507 3,835 3,542
Interest expense:
Interest on deposits 2,370 1,835 1,408
Interest on borrowing 172 107 38
------ ------ ------
2,542 1,942 1,446
Net interest income 1,965 1,893 2,096
Provision for loan losses 50 109 113
------ ------ ------
Interest income after provision for loan losses 1,915 1,784 1,983
Noninterest income:
Service charges 9 2 1
Life insurance 46 -- --
Other income 3 7 11
------ ------ ------
58 9 12
Noninterest expense:
Compensation and benefits 532 398 311
Occupancy and equipment 102 104 120
Deposit insurance 96 83 83
Professional fees 110 83 70
Other taxes 72 63 53
Other expense 304 267 286
------ ------ ------
1,216 998 923
Income before income tax 757 795 1,072
Income tax expense 243 240 367
------ ------ ------
Net income $ 514 $ 555 $ 705
====== ====== ======
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF HOME CITY
Home City is primarily engaged in the business of attracting
savings deposits from the general public and investing such funds in permanent
mortgage loans secured by one to four-family residential real estate located
primarily within Clark County, Ohio, and adjacent counties and in U. S.
Government obligations, interest-bearing deposits of other financial
institutions, mortgage-backed securities, municipal securities and other
investments permitted by applicable law. Home City also originates loans for the
construction of one to four-family residential real estate, loans secured by
multifamily (over four units) and nonresidential real estate, and commercial and
consumer loans.
-20-
<PAGE> 27
ANALYSIS OF FINANCIAL CONDITION
GENERAL. Home City's assets totaled $55.8 million at June 30,
1996, an increase of $7.2 million, or 14.8%, from $48.6 million at June 30,
1995. The principal factor in such growth was an increase in loans receivable,
offset by decreases in mortgage-backed securities, investments and cash and cash
equivalents.
CASH AND CASH EQUIVALENTS, INVESTMENT SECURITIES AND
MORTGAGE-BACKED SECURITIES. Cash and cash equivalents, investment securities,
mortgage-backed securities and FHLB stock decreased to $8.5 million at June 30,
1996, from $8.9 million at June 30, 1995. The decrease in cash and cash
equivalents and mortgage-backed securities at June 30, 1996, is directly related
to the increase in mortgage lending during the past several years. See "THE
BUSINESS OF HOME CITY - General." Mortgage-backed securities include Federal
Home Loan Mortgage Corporation ("FHLMC") and Government National Mortgage
Association ("GNMA") securities. Investment securities are composed of U. S.
Government and federal agency securities, municipal securities, FHLB common
stock, an $18,000 investment in a joint venture and a $20,000 investment in a
service corporation.
At June 30, 1996, all of Home City's investment securities were
classified as available-for-sale. During the three months ended December 31,
1995, management reclassified certain investment securities, with total
amortized costs of $1.4 million at December 31, 1995, from held-to-maturity to
available-for-sale. Such securities had an unrealized gain of approximately
$6,000. The market value of the investments classified as available-for-sale
increased by a net amount of $49,000, due to an increase of $270,000 in the
value of Home City's FHLMC stock.
At June 30, 1996, all of Home City's $3.0 million in
mortgage-backed securities were fixed-rate securities. Home City did not sell
any mortgage-backed securities during the fiscal year ended June 30, 1996, 1995
or 1994.
LOANS RECEIVABLE. Net loans receivable equaled $45.2 million at
June 30, 1996, an increase of $6.2 million, or 16.2%, from $39.0 million at June
30, 1995. Such growth was primarily attributable to an increase in one- to
four-family real estate loans which resulted from high loan demand in Home
City's market area. Of the $6.2 million in loan growth, $1.4 million occurred in
consumer lending. Home City originated approximately $15.8 million in loans
during the fiscal year ended June 30, 1996. Principal payments during the same
period were approximately $8.8 million. During the quarter ended December 31,
1995, Home City expanded its loan product line to include consumer loans for
other than real estate related purchases. Management plans, however, to continue
emphasizing single-family residential lending, which has traditionally been Home
City's strength.
DEPOSITS. Loan growth during the fiscal year ended June 30, 1996,
was primarily funded by an increase of $6.2 million, or 15.2%, in savings
deposits, from $40.9 million at June 30, 1995, to $47.2 million at June 30,
1996. As the interest rate environment changed during 1995 and 1996, impacting
the rates paid on Home City's deposits, customers moved their deposits into
certificate accounts from passbook accounts. As a result, total passbook
accounts decreased $939,000, or 8.9%, from $10.5 million at June 30, 1995, to
$9.6 million at June 30, 1996. Customers also began to take advantage of new
deposit product offerings, namely NOW accounts and interest-bearing checking.
Deposit balances in the 1-3 year and 3-5 year certificate categories increased
$500,000 and $1.8 million, respectively, at June 30, 1996, compared to June 30,
1995, and at June 30, 1995, compared to June 30, 1994. Short-term certificate
accounts also increased $5.3 million at June 30, 1996, compared to June 30,
1995. The change in the deposit mix did not significantly affect Home City's
interest rate risk at June 30, 1996. See "Asset and Liability Management."
Total retained earnings increased $546,000, from $4.9 million at
June 30, 1995, to $5.4 million at June 30, 1996. Such increase resulted from net
income of $514,000 in fiscal 1996.
COMPARISON OF RESULTS OF OPERATIONS
GENERAL. Home City had net income of $514,000 for the fiscal year
ended June 30, 1996, compared to $555,000 in fiscal 1995 and $705,000 in fiscal
1994. The decrease in net income from June 30, 1995 to June 30, 1996, was
primarily attributable to an increase in other operating expenses of $218,000,
offset by a decrease in provision for loan losses from $109,000 to $50,000 and
an increase of $72,000 in net interest income. Home City's net income is
primarily dependent upon net interest income, which is a function of the
difference, or spread, between the average yield earned on loans and other
investments and the average rate paid on deposits and advances, as well as the
related amounts of such assets and liabilities. The interest rate spread is
affected by economic and competitive factors that influence interest rates, loan
-21-
<PAGE> 28
demand and deposit flows. Home City, like other financial institutions, is
subject to interest rate risk to the degree that its interest-bearing
liabilities mature or reprice at different times, or on a different basis, than
its interest-earning assets. See "RISK FACTORS - Interest Rate Risk" and "Asset
and Liability Management."
The decrease in net income during the fiscal year ended June 30,
1995, was primarily attributable to a $203,000 decrease in net interest income
and an increase of $75,000 in other operating expenses, which were partially
offset by a reduction of $127,000 in federal income taxes.
NET INTEREST INCOME. Home City's net interest income increased
$72,000 for the fiscal year ended June 30, 1996, compared to the fiscal year
ended June 30, 1995, and decreased $203,000 for the fiscal year ended June 30,
1995, compared to the same period in 1994. The increase in fiscal 1996 was
primarily attributable to the increase in loan volume exceeding the increase in
deposit volume, even though the interest rate spread decreased from 3.95% to
3.42%. The decrease in the interest rate spread was due primarily to the
increasing interest cost on certificates of deposit and FHLB advances. The
increases in deposits and FHLB advances, combined with the increases in deposit
interest rates, resulted in an increase in the average rate paid on deposits
from 4.81% at June 30, 1995, to 5.37% at June 30, 1996, and on FHLB advances
from 6.57% to 6.66% at such dates. The average yield on interest-earning assets
increased slightly, from 8.83% during the fiscal year ended June 30, 1995, to
8.86% in fiscal 1996, due primarily to the increased demand to fund loans, both
new and existing, at lower rates and a change in the mix of interest-earning
assets.
The decrease in net interest income for the fiscal year ended
June 30, 1995, compared to fiscal 1994, was primarily caused by a decrease in
the yields on interest-earning assets from 8.92% to 8.83%. The decrease in such
yields was due to lower market interest rates, coupled with increasing demand to
fund loans. The decrease in asset yields was accompanied by an increase in the
cost of deposits from 3.98% to 4.81% and a decrease in the cost of borrowed
funds from 8.74% to 6.57%. The decrease in net interest income was partially
offset by a decrease in the provision for loan losses of $4,000.
Gross interest income increased $672,000, or 17.5%, for the
fiscal year ended June 30, 1996, compared to the fiscal year ended June 30,
1995, due primarily to the average loan balance increasing by $8.6 million, or
24.4%. The average yield on loans was 9.37% and 9.52% in fiscal 1996 and 1995,
respectively. Home City's loan portfolio is composed primarily of loans secured
by real estate, with either fixed or adjustable interest rates. At June 30,
1996, approximately 48% of the loans outstanding had adjustable interest rates,
providing for repricing at one, three or ten years (a fixed rate for ten years
followed by one-year adjustment periods) intervals. Home City's interest income
on interest-bearing deposits, investment securities, and mortgage-backed
securities decreased by $78,000, or 15.9%, for the fiscal year ended June 30,
1996, compared to the same period in 1995. Such decrease resulted from
reallocation of investable funds to loan originations, due primarily to
increased loan demand.
Gross interest income increased $293,000, or 8.3%, for the fiscal
year ended June 30, 1995, compared to the same period in 1994, due primarily to
a $4.8 million, or 15.9%, increase in the average outstanding loan balances. Of
such increase in interest income, $468,000 was attributable to an increase in
loan volume and $288,000 was the result of an increase in interest-bearing
deposits, primarily for liquidity purposes. Such increases were offset by a
$218,000 decrease in interest income, caused by a decrease in the loan portfolio
yield to 9.52% from 10.14%, and further offset by decreases of $211,000 and
$590,000 in investments and mortgage-backed securities, respectively.
Total interest expense increased $600,000, or 30.9%, for the
fiscal year ended June 30, 1996, compared to the fiscal year ended June 30,
1995, and increased $490,000, or 33.9%, for fiscal 1995, compared to fiscal
1994. The increase in fiscal 1996 was primarily attributable to a $7.3 million
increase in average interest-bearing liabilities and an increase in the weighted
average interest rate to 5.44% in fiscal 1996 from 4.88% in fiscal 1995. The
increase in the weighted average rate can be attributed to an increase in
certificate account rates to 6.19% from 5.65% in fiscal 1996, compared to fiscal
1995, as a result of competitive rates offered throughout the year and special
rates offered to obtain funds for loans. The $490,000 increase in fiscal 1995,
compared to fiscal 1994, was attributable to rising interest rates and rising
interest-bearing liability volume. Average deposits increased $4.5 million and
advances increased $1.2 million in fiscal 1995, compared to fiscal 1994. The
weighted average interest rate also increased in fiscal 1995, to 4.88% from
4.04% in fiscal 1994.
PROVISION FOR LOAN LOSSES. Home City maintains an allowance for
loan losses account which, in management's judgment, is adequate to absorb
reasonably foreseeable losses inherent in the loan portfolio. See "THE BUSINESS
OF HOME CITY - Lending Activities--Allowance for Loan Loses." While management
utilizes its best judgment and
-22-
<PAGE> 29
information available, the ultimate adequacy of the allowance is dependent upon
a variety of factors, including the performance of Home City's loan portfolio,
the economy, changes in real estate values and interest rates and regulatory
requirements regarding asset classifications. The provision for loan losses is
determined by management as the amount to be added to the allowance for loan
losses, after net charge-offs have been deducted, to bring the allowance to a
level which is considered adequate to absorb losses inherent in the loan
portfolio in accordance with generally accepted accounting principles ("GAAP").
The amount of the provision is based on management's regular review of the loan
portfolio and consideration of such factors as historical loss experience,
general prevailing economic conditions, changes in the size and composition of
the loan portfolio and considerations relating to specific loans, including the
ability of the borrower to repay the loan and the estimated value of the
underlying collateral. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review Home City's allowance for
loan losses. Such agencies may require Home City to provide additions to the
allowance based on judgments different from those of management. Although
management uses the best information available, future adjustments to the
allowance may be necessary due to economic, operating, regulatory, and other
conditions that may be beyond Home City's control. There can be no assurance
that the amount of past or future provisions for loan losses or the balance of
the allowance for loan losses account will be adequate to absorb actual loan
losses in the future.
Home City has had a history of low charge-offs, including net
charge-offs of $7,000, $19,000 and $82,000 during the fiscal years ended June
30, 1996, 1995 and 1994, respectively. Home City's low charge-off history is a
product of a variety of factors, including Home City's underwriting guidelines
and the composition of it's loan portfolio. Loans secured by real estate make up
96% of Home City's loan portfolio, and loans secured by first mortgages on one-
to four-family residential real estate make up 66% of total loans at June 30,
1996. Such loans typically present less risk to a lender than loans which are
not secured by real estate. Substantially all of Home City's loans are secured
by properties in its primary market area. The provision for loan losses was
$50,000, $109,000 and $113,000 for the fiscal years ended June 30, 1996, 1995,
and 1994, respectively. The ratio of nonperforming loans to total loans
decreased to 0.41% in fiscal 1996 from 0.53% in fiscal 1995, following an
increase of 0.11% in fiscal 1994. At June 30, 1996, 1995, and 1994,
respectively, Home City had a ratio of allowance for loan losses to total loans
of 0.79%, 0.81% and 0.73% and a ratio of allowance for loan losses to
non-performing loans of 146.56%, 154.11% and 673.53%. Due to low ratios of
non-performing loans to total loans, low historical charge-offs and low
delinquency history, provisions of $109,000 and $113,000 were made in 1995 and
1994. Primarily as a result of the recent addition of consumer installment loan
products to Home City's product line and the greater risk to a lender inherent
in consumer lending, compared to loans secured by real estate, management
determined that a $50,000 provision for loan losses was prudent for the year
ended June 30, 1996.
At June 30, 1996, Home City had no real estate owned and acquired
through foreclosure.
NONINTEREST INCOME. Noninterest income increased by $49,000, or
544.4%, in fiscal 1996, compared to fiscal 1995 and decreased $3,000, or 25.0%,
in fiscal 1995, compared to fiscal 1994. An increase in the cash surrender value
of life insurance policies which Home City maintains on each director accounted
for $46,000 of the total increase in fiscal 1996. Service charge income also
increased by $7,000 and other miscellaneous income decreased by $4,000 during
fiscal 1996. The $3,000 decrease in fiscal 1995 was attributable to a $4,000
decline in miscellaneous income, offset by a $1,000 increase in service charge
income.
NONINTEREST EXPENSE. Compensation and benefits expenses increased
$134,000, or 33.7%, for the year ended June 30, 1996, compared to the year ended
June 30, 1995, as a result of the adoption of a deferred compensation plan for
directors' fees, staff expansion and normal pay raises of 2% to 3%. Federal
deposit insurance premiums increased $13,000, to $96,000, in fiscal 1996,
primarily as a result of an increase in Home City's deposit base. State
franchise taxes increased by 14.3%, or $9,000, in fiscal 1996, compared to
fiscal 1995, as a result of earnings and the related equity growth. Fees paid to
professionals for legal, tax accounting and general management consulting
increased $27,000, or 32.5%, during fiscal 1996. A number of such professional
fees were associated with Home City's product and service expansion.
Compensation and benefits expenses increased by $87,000, or 28.0%, for the
fiscal year ended June 30, 1995, compared to the same period in 1994, as a
result of staff expansion, increases in profit sharing bonus payments and normal
wage increases. State franchise taxes increased $10,000 in fiscal 1995, compared
to fiscal 1994, as a result of earnings and equity growth and occupancy and
equipment expenses decreased $16,000, or 13.3%. Management expects that Home
City will experience some increase in non-interest expense relating to
compliance with securities laws, ESOP and RRP expenses, and other monetary
consequences of the Conversion. With the exception of expenses associated with
the ESOP and RRP, such expenses cannot be quantified at this time, although
management does not expect that such expenses will have a material effect on
non-interest expenses. See "PRO FORMA DATA."
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<PAGE> 30
INCOME TAX EXPENSE. Effective January 1, 1993, Home City adopted
SFAS 109, "Accounting for Income Taxes." The cumulative effect of the change in
accounting for income taxes was immaterial to fiscal 1994 and 1993 income tax
expense. Federal income tax expense increased $3,000, or 1.3%, in fiscal 1996
compared to fiscal 1995. Federal income tax expense decreased by $127,000, or
34.6%, in fiscal 1995 compared to fiscal 1994, due to a decrease in income
before federal income taxes of $277,000, or 25.8%. The effective tax rate of
Home City was 32.1% in 1996, 30.2% in 1995 and 34.2% in 1994.
YIELDS EARNED AND RATES PAID. The net interest rate spread
decreased from 3.95% in for the fiscal year ended June 30, 1995, to 3.42% for
the fiscal year ended June 30, 1996. The yield on average interest-earning
assets remained almost constant increasing only 3 basis points, from 8.83% for
fiscal 1995 to 8.86% for fiscal 1996, primarily as a result of loans receivable
yielding less in fiscal 1996 than in fiscal 1995, even though loan volume
increased. The decrease in the interest rate spread was caused by an increase in
the cost of funds, primarily due to an increase in certificate account rates
from 5.65% in fiscal 1995 to 6.19% in fiscal 1996. The interest rate spread
decreased from 4.88% in fiscal 1994 to 3.95% in fiscal 1995. The yield on
average interest-earning assets decreased from 8.92% in fiscal 1994 to 8.83% in
fiscal 1995, primarily as a result of a decrease in the yield on loans
receivable. The average rate paid on deposits increased from 3.98% to 4.81%
during the same period, as a result of an increase in certificate account rates.
The average rate paid on advances also decreased from 8.74% to 6.57% during the
same period. The net interest margin for the three year period ending June 30,
1996, has decreased from 5.28% at June 30, 1994, to 3.86%.
-24-
<PAGE> 31
The following table presents certain information relating to Home City's average
balance sheet information and reflects the average yield on interest-earning
assets and the average cost of customer deposits for the periods indicated. Such
yields and costs are derived by dividing annual income or expense by the average
monthly balance of interest-earning assets or customer deposits, respectively,
for the years presented. Average balances are derived from daily balances, which
include nonaccruing loans in the loan portfolio, net of the allowance for loan
losses.
<TABLE>
<CAPTION>
Year ended June 30,
--------------------------------------------------------------------------
1996 1995
---------------------------------------- -------------------------
Average Interest Average Interest
outstanding earned/ Yield/ outstanding earned/
balance paid rate balance paid
-------- ------ ----- --------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits $ 1,373 $ 61 4.44% $ 1,344 $ 72
Investment securities 2,396 143 5.97 2,996 145
Mortgage-backed securities 3,367 209 6.21 3,947 274
Loans receivable (2) 43,711 4,094 9.37 35,139 3,344
------- ------- ---- -------- ---------
Total interest-earning assets 50,847 4,507 8.86 43,426 3,835
Non-interest-earning assets:
Cash and amounts due from depository
institutions 742 6721
Less: Allowance for loan losses (320) (283)
Premises and equipment, net 829 468
Other nonearning assets 829 575
------- -------
Total assets $52,577 $44,213
======= =======
Interest-bearing liabilities:
NOW accounts $ 146 $ 2 1.37% $ - $ -
Money market accounts 48 1 2.08 - -
Passbook savings accounts 9,748 251 2.57 12,678 395
Certificates of deposit 34,189 2,116 6.19 25,504 1,440
------- ------- ---- ------- ---------
Total deposits 44,131 2,370 5.37 38,182 1,835
FHLB advances 2,582 172 6.66 1,628 107
------- ------- ---- ------- ---------
Total interest-bearing liabilities 46,713 2,542 5.44 39,810 1,942
Non-interest-bearing liabilities 842 467
------- -------
Total liabilities 47,555 40,277
Unrealized gains on securities 109 32
Retained earnings 4,913 4,549
------- -------
Total liabilities and retained earnings $52,577 $44,858
======= =======
Net interest income; net interest rate spread $1,965 3.42% $ 1,893
------- ---- ---------
Net interest margin (net interest income as a
percent of average interest-earning assets) 3.86%
----
Average interest-earning assets to interest-
bearing liabilities 108.85%
------
</TABLE>
<TABLE>
<CAPTION>
Year ended June 30,
1994
------ ---------------------------------------
Average Interest
Yield/ outstanding earned/ Yield/
rate balance paid rate
------ --------- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits 5.36% $ 1,233 $ 51 4.14%
Investment securities 4.84 3,395 103 3.03
Mortgage-backed securities 6.94 4,753 314 6.61
Loans receivable (2) 9.52 30,317 3,074 10.14
---- ------- ------- ------
Total interest-earning assets 8.83 39,698 3,542 8.92
Non-interest-earning assets:
Cash and amounts due from depository
institutions 131
Less: Allowance for loan losses (213)
Premises and equipment, net 440
Other nonearning assets 506
-------
Total assets $40,562
=======
Interest-bearing liabilities:
NOW accounts - $ - $ - -
Money market accounts - - - -
Passbook savings accounts 3.12 18,756 609 3.25
Certificates of deposit 5.65 16,629 799 4.80
---- ------- ------- ------
Total deposits 4.81 35,385 1,408 3.98
FHLB advances 6.57 435 38 8.74
---- ------- ------- ------
Total interest-bearing liabilities 4.88 35,820 1,446 4.04
Non-interest-bearing liabilities 650
-------
Total liabilities 36,470
Unrealized gains on securities -
Retained earnings 4,092
-------
Total liabilities and retained earnings $40,562
=======
Net interest income; net interest rate spread 3.95% $2,096 4.88%
---- ------- ------
Net interest margin (net interest income as a
percent of average interest-earning assets) 4.36% 5.28%
---- -----
Average interest-earning assets to interest-
bearing liabilities 109.08% 110.83%
------ ------
</TABLE>
- ------------------------------------
(1) Annualized
(2) Calculated net of deferred loan fees, loan discounts, loans in process and
allowance for loan losses.
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<PAGE> 32
The following table sets forth, for the periods indicated, the
weighted average yields earned on Home City's interest-earning assets, the
weighted average interest rates paid on interest-bearing liabilities, the
interest rate spread and the net interest margin on interest-earning assets.
Such yields and costs are derived by dividing income or expense by the average
balances of assets or liabilities, respectively, for the periods presented.
<TABLE>
<CAPTION>
Year ended June 30,
--------------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Weighted average yield on loan portfolio 9.37% 9.52% 10.14%
Weighted average yield on mortgage-backed securities 6.21 6.94 6.61
Weighted average yield on investment securities 5.97 4.84 3.03
Weighted average yield on interest-bearing deposits 4.44 5.36 4.14
Weighted average yield on all interest-earning assets 8.86 8.83 8.92
Weighted average interest rate paid on all interest-bearing liabilities 5.44 4.88 4.04
Interest rate spread (spread between weighted average interest rate on all
interest-bearing assets and all interest-bearing liabilities) 3.42 3.95 4.88
Net interest margin (net interest income as a percentage of average interest-
earning assets) 3.86 4.36 5.28
</TABLE>
The table below describes the extent to which changes in interest
rates and changes in volume of interest-earning assets and interest-bearing
liabilities have affected Home City's interest income and expense during the
years indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (change in volume multiplied by prior year rate), (ii)
changes in rate (change in rate multiplied by prior year volume) and (iii) total
changes in rate and volume. The combined effects of changes in both volume and
rate, which cannot be separately identified, have been allocated proportionately
to the change due to volume and the change due to rate:
<TABLE>
<CAPTION>
Year ended June 30,
------------------------------------------------------------------
1996 vs. 1995 1995 vs. 1994
-------------------------------- ----------------------------
Increase Increase
(decrease) (decrease)
due to due to
------------------- -----------------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income attributable to:
Interest-bearing deposits $ 2 $ (13) $ (11) $ 5 $ 16 $ 21
Investment securities (29) 27 (2) (12) 54 42
Mortgage-backed securities (40) (25) (65) (53) 13 (40)
Loans receivable 816 (66) 750 488 (218) 270
---- ----- ---- ----- ----- ------
Total interest income 749 (77) 672 428 (135) 293
---- ----- ---- ----- ----- ------
Interest expense attributable to:
NOW accounts 2 - 2 - - -
Money market accounts 1 - 1 - - -
Passbook savings accounts (91) (53) (144) (197) (17) (214)
Certificates of deposit 491 185 676 426 215 41
Borrowed funds 63 2 65 104 (35) 69
---- ----- ---- ----- ----- ------
Total interest expense 466 134 600 333 163 496
---- ----- ---- ----- ----- ------
Increase (decrease) in net interest $283 $(211) $ 72 $ 95 $(298) $ (203)
income ==== ===== ===== ===== ===== ======
</TABLE>
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<PAGE> 33
ASSET AND LIABILITY MANAGEMENT
Home City, like other financial institutions, is subject to
interest rate risk to the extent that its interest-earning assets reprice
differently than its interest-bearing liabilities. As part of its effort to
monitor and manage interest rate risk, Home City uses the NPV methodology
recently adopted by the OTS as part of its capital regulations. Although Home
City is not currently subject to the NPV regulation because such regulation does
not apply to institutions with less than $300 million in assets and risk-based
capital in excess of 12%, the application of the NPV methodology may illustrate
Home City's interest rate risk.
Generally, NPV is the discounted economic value of the difference
between incoming cash flows on interest-earning and other assets and outgoing
cash flows on interest-bearing and other liabilities. The application of the
methodology attempts to quantify interest rate risk as the change in the NPV
which would result from a theoretical 200 basis point (1 basis point equals
.01%) change in market interest rates. Both a 200 basis point increase in market
interest rates and a 200 basis point decrease in market interest rates are
considered. If the NPV would decrease more than 2% of the economic value of the
institution's assets with either an increase or a decrease in market rates, the
institution must deduct 50% of the amount of the decrease in excess of such 2%
in the calculation of the institution's risk-based capital. See "Liquidity and
Capital Resources."
At June 30, 1996, 2% of the economic value of Home City's assets
was approximately $1.2 million. Because the interest rate risk of a 200 basis
point increase in market interest rates (which was greater than the interest
rate risk of a 200 basis point decrease) was $1.6 million at June 30, 1996, Home
City would have been required to deduct approximately $200,000 (half of the
approximate $400,000 difference) from its capital in determining whether Home
City met its risk-based capital requirement. Regardless of such reduction,
however, Home City's risk-based capital at June 30, 1996, would still have
exceeded the regulatory requirement by approximately $ 3.0 million.
Presented below, as of June 30, 1996, is an analysis of Home
City's interest rate risk as measured by changes in NPV for instantaneous and
sustained parallel shifts of 100 basis points in market interest rates. The
table also contains the policy limits set by the Board of Directors of Home City
as the maximum change in NPV that the Board of Directors deems advisable in the
event of various changes in interest rates. Such limits have been established
with consideration of the dollar impact of various rate changes and Home City's
strong capital position.
As illustrated in the table, Home City's NPV is more sensitive to
rising rates than declining rates. Such difference in sensitivity occurs
principally because, as rates rise, borrowers do not prepay fixed-rate loans as
quickly as they do when interest rates are declining. Because Home City has not
originated loans in accordance with traditional secondary market guidelines, the
sale of fixed-rate loans may be difficult. As a result, in a rising interest
rate environment, the amount of interest Home City would receive on its loans
would increase relatively slowly as loans are slowly prepaid and new loans at
higher rates are made. Moreover, the interest Home City would pay on its
deposits would increase rapidly because Home City's deposits generally have
shorter periods to repricing. Assumptions used in calculating the amounts in
this table are OTS assumptions.
<TABLE>
<CAPTION>
June 30, 1996
------------------------
Change in interest rate Board limit $ change % change
(basis points) % change in NPV in NPV
- ------------------------ ----------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
+400 (50)% $(3,482) (52)%
+300 (35) (2,562) (38)
+200 (25) (1,643) (25)
+100 (10) (772) (12)
0 0 0 0
-100 10 573 9
-200 25 918 14
-300 35 1,394 21
-400 50 1,986 30
</TABLE>
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<PAGE> 34
The NPV table indicates that at each 100 basis point increment,
the change in Home City's NPV that would have been caused by an increase in
interest rates would have exceeded the policy limits set by the Board of
Directors. The Board of Directors will consider the June 30, 1996, analysis and
will factor such information into its decisions in adjusting the pricing of
loans and deposits in the future.
As with any method of measuring interest rate risk, however,
certain shortcomings are inherent in the NPV approach. For example, although
certain assets and liabilities may have similar maturities or periods of
repricing, they may react in different degrees to changes in market interest
rates. Also, the interest rates on certain types of assets and liabilities may
fluctuate in advance of changes in market interest rates, while interest rates
on other types may lag behind changes in market rates. Further, in the event of
a change in interest rates, expected rates of prepayment on loans and
mortgage-backed securities and early withdrawal levels from certificates of
deposit would likely deviate significantly from those assumed in making the risk
calculations.
If interest rates continue to rise from the recent levels, Home
City's net interest income will be negatively affected. Moreover, rising
interest rates may negatively affect Home City's earnings due to diminished loan
demand.
LIQUIDITY AND CAPITAL RESOURCES
Home City's liquidity, primarily represented by cash equivalents,
is a result of its operating, investing and financing activities. These
activities are summarized below for the periods presented.
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------
1996 1995 1994
------ ------ -----
(In thousands)
<S> <C> <C> <C>
Net income $ 514 $ 555 $ 705
Adjustments to reconcile net income to net cash from
operating activities 29 43 50
------- ------- --------
Net cash provided by operating activities 543 598 755
Net cash provided by (used in) investing activities (7,585) (7,522) (97)
Net cash provided by (used in) financing activities 6,508 8,314 (1,908)
------- ------- --------
Net change in cash and cash equivalents (534) 1,390 (1,250)
Cash and cash equivalents at beginning of period 2,377 987 2,237
------- ------- --------
Cash and cash equivalents at end of period $ 1,843 $ 2,377 $ 987
======= ======= ========
</TABLE>
Home City's principal sources of funds are deposits, loan and
mortgage-backed securities repayments, maturities of securities and other funds
provided by operations. Home City also has the ability to borrow from the FHLB
of Cincinnati. While scheduled loan repayments and maturing investments are
relatively predictable, deposit flows and early loan and mortgage-backed
security prepayments are more influenced by interest rates, general economic
conditions and competition. Home City maintains investments in liquid assets
based upon management's assessment of (i) the need for funds, (ii) expected
deposit flows, (iii) the yields available on short-term liquid assets and (iv)
the objectives of the asset/liability management program.
OTS regulations presently require Home City to maintain an
average daily balance of investments in United States Treasury, federal agency
obligations and other investments having maturities of five years or less in an
amount equal to 5% of the sum of Home City's average daily balance of net
withdrawable deposit accounts and borrowings payable in one year or less. The
liquidity requirement, which may be changed from time to time by the OTS to
reflect changing economic conditions, is intended to provide a source of
relatively liquid funds upon which Home City may rely if necessary to fund
deposit withdrawals or other short-term funding needs. At June 30, 1996, Home
City's regulatory liquidity ratio was 8.45%. At such date, Home City had
commitments to originate loans totaling $1.3 million and no commitments to
purchase or sell loans. Home City considers its liquidity and capital reserves
sufficient to meet its outstanding short and long-term needs. See Note O of the
Notes to the Consolidated Financial Statements.
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<PAGE> 35
Home City is required by applicable law and regulations to meet
certain minimum capital standards. Such capital standards include a tangible
capital requirement, a core capital requirement or leverage ratio and a
risk-based capital requirement. See "REGULATION - OTS Regulations -- Regulatory
Capital Requirements." Home City exceeded all of its capital requirements at
June 30, 1996, June 30, 1995, and at June 30, 1994.
Savings associations are required to maintain "tangible capital"
of not less than 1.5% of such association's adjusted total assets. Tangible
capital is defined in OTS regulations as core capital and intangible assets.
"Core capital" is comprised of common stockholders' equity
(including retained earnings), noncumulative preferred stock and related
surplus, minority interests in consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits of mutual associations. OTS
regulations require savings associations to maintain core capital of at least 3%
of the association's total assets. The OTS has proposed to increase such
requirement to 4% to 5%, except for those associations with the highest
examination rating and acceptable levels of risk. See "REGULATION - OTS
Regulations -- Regulatory Capital Requirements."
OTS regulations require that savings associations maintain
"risk-based capital" in an amount not less that 8% of risk-weighted assets.
Risk-based capital is defined as core capital plus certain additional items of
capital, which in the case of Home City includes a general loan loss allowance
of $362,000, at June 30, 1996.
The following table summarizes Home City's regulatory capital
requirements and actual capital (see Note _ of the Notes to Financial Statements
for a reconciliation of capital under GAAP and regulatory capital amounts) at
June 30, 1996.
<TABLE>
<CAPTION>
Excell of actual
capital over current
Actual capital Current requirement requirement
----------------------- ------------------- -------------------- Applicable
Amount Percent Amount Percent Amount Percent asset total
------ ------- ------- -------- ------- -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Tangible Capital $5,271 9.48% $ 834 1.5% $4,437 7.98% $55,585
Core Capital 5,271 9.48 1,688 3.0 3,603 6.48 55,585
Risk-based Capital 5,633 18.77 2,400 8.0 3,233 10.77 29,999
</TABLE>
For information concerning regulatory capital on a pro forma
basis after the Conversion, see "REGULATORY CAPITAL COMPLIANCE."
At June 30, 1996, Home City had no material commitments for
capital expenditures.
PROPOSED ONE-TIME SAIF ASSESSMENT
The FDIC is authorized to establish separate annual assessment
rates for deposit insurance each for members of the BIF or the SAIF. The FDIC
may increase assessment rates for either fund if necessary to restore the fund's
ratio of reserves to insured deposits to its target level within a reasonable
time and may decrease such rates if such target level has been met. The reserves
of the SAIF are below the level required by law because a significant portion of
the assessments paid into the SAIF are used to pay the cost of prior thrift
failures.
The BIF has, however, met its required reserve level. The
assessments paid by healthy savings associations exceeded those paid by healthy
BIF members by approximately $.19 per $100 in deposits for 1995, and no BIF
assessments will be required of healthy commercial banks in 1996 except a $2,000
minimum fee. The disparity in the premiums paid between savings associations and
commercial banks could have a negative competitive impact on Home City and other
savings associations.
Congress is considering legislation to recapitalize the SAIF and
eliminate the significant premium disparity. Currently, the recapitalization
plan provides for a special assessment of approximately $.69 to $.71 per $100 of
SAIF deposits held at some date in 1995, currently March 31, 1995, in order to
increase SAIF reserves to the level required by law. Certain associations
holding SAIF-insured deposits would pay a lower special assessment. In addition,
the cost of prior thrift failures would be shared by both the SAIF and the BIF,
which might increase BIF assessments by $.02 to $.025
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<PAGE> 36
per $100 in deposits. SAIF assessments for healthy savings associations would
initially be set at a significantly lower level but could never be reduced below
the level set for healthy BIF institutions.
Home City had $40.4 million in deposits at March 31, 1995. If a
special assessment of $.69 to $.71 per $100 in deposits is imposed, Home City
will pay an additional assessment of between approximately $279,000 and 287,000.
Although such assessment should be tax-deductible, earnings and capital will be
reduced for the quarter in which it is recorded.
The recapitalization plan also provides for the merger of the
SAIF and BIF and for the elimination of the federal thrift charter or of the
separate federal regulation of thrifts. Under the legislation, the OTS would
cease to exist and Home City would be regulated under federal law as a bank and,
as a result, would become subject to the more restrictive activity limitations
imposed on national banks. Recently passed legislation eliminates the deduction
for income tax purposes of amounts designated as reserved for bad debts. See
Note K of the Notes to the Financial Statements. Such legislation requires,
generally, that bad debt reserves taken by savings associations after 1987 using
the percentage of taxable income method be included in future taxable income of
Home City over a six-year period, beginning in the 1996 tax year. The
requirement that Home City convert to a bank charter and the proposed tax
legislation could have an adverse effect on HCFC and Home City, although until
such proposals are acted upon by Congress, the extent of such effect is
uncertain.
No assurance can be given that the SAIF recapitalization plan or
the proposed tax legislation will be enacted into law or in what form they may
be enacted. Moreover, Home City can give no assurance that the disparity between
BIF and SAIF assessments will be eliminated. Finally, Home City cannot predict
the impact of conversion to, or regulation as, a bank until the legislation
requiring such change is enacted.
IMPACT OF NEW ACCOUNTING STANDARDS
In May 1993, the FASB issued SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which revised the accounting
treatment, classification and carrying value of investment securities. This new
accounting standard results in adjusting certain investment securities to market
value. Under SFAS No. 115, investment securities are classified for balance
sheet purposes based on whether such securities are either held in trading
accounts, available for sale or strictly to be held to maturity. Under the new
standard, trading account securities are marked to market and the corresponding
unrealized gains and losses are reflected in income. Investment securities
"available for sale" are adjusted to market value with the corresponding
unrealized gain or loss shown as an adjustment to shareholders' equity net of
deferred income taxes. Investment securities earmarked to be held to maturity
are carried at amortized cost. Home City adopted SFAS No. 115 for the fiscal
year beginning July 1, 1994. The effect of adoption was to initially increase
retained earnings by approximately $91,000 on July 1, 1994, representing the
unrealized market value appreciation of Home City's securities net of applicable
deferred federal income taxes. As of June 30, 1996, the amount of unrealized
gains on securities designated as available for sale had increased to
approximately $127,000, which is reflected in Home City's equity accounts.
In November 1995, the FASB issued a "Special Report" on
implementation of SFAS No. 115 (the "Special Report"). The Special Report
allowed an entity to reclassify securities, including held-to-maturity debt
securities, without calling into question the intent of the entity to hold debt
securities to maturity in the future. Any transfers from the held-to- maturity
category to an available-for-sale classification would result in unrealized
gains or losses being recognized as a separate component of equity, net of
related tax effects. Pursuant to the provisions of the Special Report,
management transferred approximately $1.4 million of securities to an
available-for-sale classification.
In May 1993, the FASB issued SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," which further clarifies the accounting
treatment, classification and valuation of impaired loans. SFAS No. 114, as
amended by SFAS No. 118 in December 1994 as to certain income recognition and
financial statement disclosure provisions, will result in applying discounted
cash flow analysis and other valuation techniques to impaired or other
nonperforming loans as those terms are defined in the Statement. Based upon the
composition of Home City's loan portfolio, SFAS No. 114 did not have a material
effect on Home City's financial position at the implementation date of October
1, 1995.
In November 1993, the American Institute of Certified Public
Accountants issued SOP 93-6, "Employers' Accounting for Employee Stock Ownership
Plans." SOP 93-6 addresses the accounting for shares of stock issued to
employees by an employee stock ownership plan ("Employee Plan"). SOP 93-6
requires that the employer record compensation expense in an amount equal to the
fair value of shares committed to be released to employees from the Employee
Plan to employees. SOP 93-6 is effective for fiscal years beginning after
December 31, 1993, and relates to
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<PAGE> 37
shares purchased by an Employee Plan after December 31, 1992. Assuming the
Common Shares appreciate in value over time, the adoption of SOP 93-6 will
likely increase compensation expense relative to the ESOP, as compared with
prior guidance which required the recognition of compensation expense based on
the cost of shares acquired by the ESOP. However, the amount of the increase has
not been determined as the expense will be based on the fair value of the shares
committed to be released to employees, which is not yet determinable.
In December 1994, the Accounting Standards Division of the AICPA
approved SOP 94-6, "Disclosure of Certain Significant Risks and Uncertainties."
SOP 94-6 requires disclosures in the financial statements beyond those now being
required or generally made in the financial statements about the risk and
uncertainties existing as of the date of those financial statements in the
following areas: nature of operation, use of estimates in the preparation of
financial statements, certain significant estimates, and current vulnerability
due to certain concentrations. The standard is effective for financial
statements issued for fiscal years ending after December 15, 1995.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
SFAS No. 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those assets to
be held and used and for long-lived assets and certain identifiable intangibles
to be disposed of. The standard requires an impairment loss to be recognized
when the carrying amount of the asset exceeds the fair value of the asset. The
fair value of an asset is the amount at which the asset could be bought or sold
in a current transaction between willing parties, that is, other than in a
forced liquidation sale. An entity that recognizes an impairment loss shall
disclose additional information in the financial statements related to the
impaired asset. All long-lived assets and certain identifiable intangibles to be
disposed of and for which management has committed to a plan to dispose of the
assets, whether by sale or abandonment, shall be reported at the lower of the
carrying amount or fair value less cost to sell. Subsequent revisions in
estimates of fair value less cost to sell shall be reported as adjustments to
the carrying amount of assets to be disposed of, provided that the carrying
amount of the asset does not exceed the carrying amount of the asset before an
adjustment was made to reflect the decision to dispose of the asset. The
statement requires additional disclosure in the footnotes regarding assets to be
disposed of. SFAS No. 121 is effective for fiscal years beginning after December
15, 1995. Home City does not anticipate that SFAS No. 121 will have a material
effect on Home City's financial condition or results of operations.
In May 1995, the FASB issued SFAS No. 122, "Accounting for
Mortgage Servicing Rights and Excess Servicing Receivables and for
Securitization of Mortgage Loans." SFAS No. 122, which is effective for years
beginning after December 15, 1995, will require Home City, to the extent it
services mortgage loans for others in return for servicing fees, to recognize
these servicing rights as assets, regardless of how such assets were acquired.
Additionally, Home City would be required to assess the fair value of these
assets at each reporting date to determine any potential impairment. Management
of Home City does not expect the adoption of SFAS No. 122 to have a material
effect on financial condition or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation," establishing financial accounting and reporting
standards for stock-based employee compensation plans. SFAS No. 123 encourages
all entities to adopt a new method of accounting to measure compensation cost of
all employee stock compensation plans based on the estimated fair value of the
award at the date it is granted. Companies are, however, allowed to continue to
measure compensation cost for those plans using the intrinsic value based method
of accounting, which generally does not result in compensation expense
recognition for most plans. Companies that elect to remain with the existing
accounting are required to disclose in a footnote to the financial statements
pro forma net income and, if presented, earnings per share, as if SFAS No. 123
had been adopted. The accounting requirements of SFAS No. 123 are effective for
transactions entered into during fiscal years that begin after December 15,
1995; however, companies are required to disclose information for awards granted
in their first fiscal year beginning after December 15, 1994. As Home City is
currently a mutual savings and loan association, management of Home City cannot
complete an analysis of the potential effects of SFAS No. 123 on its financial
condition or results of operations.
IMPACT OF INFLATION AND CHANGING PRICES
The Financial Statements and Notes included herein have been
prepared in accordance with GAAP. GAAP requires Home City to measure financial
position and operating results in terms of historical dollars, and changes in
the relative value of money due to inflation or recession are generally not
considered.
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<PAGE> 38
In management's opinion, changes in interest rates affect the
financial condition of a financial institution to a far greater degree than
changes in the inflation rate. While interest rates are greatly influenced by
changes in the inflation rate, they do not change at the same rate or in the
same magnitude as the inflation rate. Rather, interest rate volatility is based
on changes in the expected rate of inflation, as well as on changes in monetary
and fiscal policies.
THE BUSINESS OF HOME CITY
GENERAL
Home City is principally engaged in the business of making
permanent first and second mortgage loans secured by one to four-family
residential real estate locations in Home City's primary lending area and
investing in U.S. Government and agency obligations, interest-bearing deposits
in other financial institutions, mortgage-backed securities, and municipal
securities. Home City also originates loans for the construction of residential
real estate and loans secured by multifamily real estate (over four units),
commercial, consumer and nonresidential real estate. The origination of consumer
loans, including unsecured loans and loans secured by deposits, constitutes a
growing portion of Home City's lending activities. Loan funds are obtained
primarily from deposits, which are insured up to applicable limits by the FDIC,
and loan and mortgage-backed securities repayments.
MARKET AREA
Home City conducts business from its main office, located in
Springfield, Ohio. Springfield is located 25 miles east of Dayton, 40 miles west
of Columbus and 80 miles north of Cincinnati. Home City's primary market area
consists of Clark County, Ohio, and adjacent counties.
LENDING ACTIVITIES
GENERAL. Home City's primary lending activity is the origination
of conventional mortgage loans secured by one to four-family homes located in
Home City's primary lending area and home equity loans secured by first or
second mortgages. Loans for the construction of one to four-family homes and
mortgage loans on multifamily properties containing five units or more and
nonresidential properties are also offered by Home City. Home City does not
originate loans insured by the Federal Housing Administration or loans
guaranteed by the Veterans Administration. In addition to mortgage lending, Home
City makes unsecured loans and consumer loans secured by deposits. Home City
does not originate its loans in accordance with traditional secondary market
guidelines and has not sold any loans.
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<PAGE> 39
LOAN PORTFOLIO COMPOSITION. The following table presents certain
information with respect to the composition of Home City's loan portfolio at the
dates indicated:
<TABLE>
<CAPTION>
At June 30,
-----------------------------------------------------------------------------
1996 1995 1994
----------------------- --------------------- ----------------------
Percent Percent Percent
of total of total of total
Amount loans Amount loans Amount loans
------ -------- --------- -------- ------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential real estate loans:
One- to four-family (first mortgage) $31,580 64.89% $24,724 58.85% $19,784 57.63%
Multifamily 3,233 6.64 3,288 7.82 2,581 7.52
Home equity (second mortgage) 313 0.64 232 0.55 121 0.35
Nonresidential real estate loans 7,255 14.91 7,309 17.39 5,197 15.14
Land loans 2,223 4.57 1,684 4.01 1,020 2.97
Construction loans 2,350 4.83 4,582 10.90 5,444 15.86
------- ----- ------- ------ ------ ------
Total real estate loans 46,954 96.48 4,819 99.52 34,147 99.47
Commercial loans 73 0.15 - - - -
Consumer loans:
Loans on deposits 160 0.33 201 0.48 183 0.53
Other consumer loans 1,481 3.04 - - - -
------- ----- ------- ------ ------ ------
Total consumer loans 1,641 3.37 201 0.48 183 0.53
------- ----- ------- ------ ------ ------
Total loans 48,668 100.00% 42,020 100.00% 34,330 100.00%
Less: ------ ------ ------
Unearned and deferred (income)
expense, net (447) (420) (324)
Loans in process (2,634) (2,321) (2,674)
Allowance for loan losses (362) (319) (229)
------- ------- ------
Net loans $45,225 $38,960 $31,103
======= ======= =======
</TABLE>
LOAN MATURITY SCHEDULE. The following table sets forth certain
information as of June 30, 1996, regarding the dollar amount of loans maturing
in Home City's portfolio based on their contractual terms to maturity. Demand
loans and loans having no stated schedule of repayments and no stated maturity
are reported as due in one year or less.
<TABLE>
<CAPTION>
Due during the
year ending June 30, Due 4-5 Due 6-10 Due 11-20 Due more than
------------------------------ years after years after years after 20 years
1997 1998 1999 6/30/96 6/30/96 6/30/96 after Total
------ ------ ------ ----------- ----------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Residential $1,004 $8,092 $8,223 $205 $ 721 $ 9,309 $3,549 $31,103
Nonresidentia 283 585 364 129 3,082 6,465 1,814 12,722
Consumer loans 213 101 151 652 344 200 28 1,689
Commercial loans 50 - 10 13 - - - 73
------ ------ ------ ---- ------ ------- ------ -------
Total loans $1,550 $8,778 $8,748 $999 $4,147 $15,974 $5,391 $45,587
====== ====== ====== ==== ====== ======= ====== =======
</TABLE>
Of the loans due more than one year after June 30, 1996, loans
with aggregate balances of $22.7 million have fixed rates of interest, and loans
with aggregate balances of $21.3 million have adjustable interest rates.
ONE- TO FOUR-FAMILY RESIDENTIAL REAL ESTATE LOANS. The primary
lending activity of Home City has been the origination of permanent conventional
loans secured by one- to four-family residences, primarily single-family
residences, located within Home City's designated lending area. Home City also
originates loans for the construction of one- to four-
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<PAGE> 40
family residences and home equity loans. Each of such loans is secured by a
mortgage on the underlying real estate and improvements thereon, if any.
OTS regulations limit the amount that Home City may lend in
relationship to the appraised value of the real estate and improvements at the
time of loan origination. In accordance with such regulations, Home City makes
fixed-rate first mortgage loans on one- to four-family, owner occupied
residences up to 95% of the value of the real estate and improvements (the
"Loan-to-Value Ratio" or "LTV"). Low-to-moderate income loans are granted up to
95% on one- to four-family, owner occupied residences. Home City makes
adjustable-rate first mortgage loans for investment purposes on one- to
four-family, non-owner occupied residences in amounts up to 75% LTV. Home City
generally requires private mortgage insurance ("PMI") for the amount of a loan
in excess of 80% of the value of the real estate securing such loan. PMI is
required for the amount of any loan in excess of 85% of the value of the real
estate and improvements for low-to-moderate income loans. Fixed-rate residential
real estate loans are offered by Home City for terms of up to 15 years.
Home City has been originating adjustable-rate mortgage loans ("ARMs")
for several years. ARMs are offered by Home City for terms of up to 30 years and
with various alternative features. The interest rate adjustment periods on the
ARMs are either one year, three years or a fixed rate for 10 years followed by
one-year adjustment periods. The interest rate adjustments on ARMs presently
originated by Home City are tied to changes in the weekly average yield on the
one and three-year U.S. Treasury constant maturities index, respectively. Rate
adjustments are computed by adding a stated margin, typically 2.75% to the
index. The maximum allowable adjustment at each adjustment date had been 1% with
a maximum adjustment of 3% over the term of the loan, although Home City now
offers an ARM with a 2% maximum adjustment at each adjustment date and a maximum
adjustment of 6% over the term of the loan. The initial rate is dependent, in
part, on how often the rate can be adjusted. Home City also offers ARMs on one-
to four-family properties with a margin of 3.5% over the index and 2% and 6%
maximum adjustments at each adjustment date and over the term of the loan,
respectively. Home City originates ARMs which have initial interest rates lower
than the sum of the index plus the margin. Such loans are subject to increased
risk of delinquency or default due to increasing monthly payments as the
interest rates on such loans increase to the fully-indexed level, although such
increase is generally lower than industry standards and is considered in Home
City's underwriting of any such loans with a one-year adjustment period. See
"USE OF PROCEEDS."
The aggregate amount of Home City's one- to four-family residential
real estate loans equaled approximately $31.8 million at June 30, 1996, and
represented 68% of loans at such date. The largest individual loan balance on a
one- to four-family loan at such date was $299,000. At such date, loans secured
by one-to-four- family residential real estate with outstanding balances of
$247,000, or .54% of its one- to four-family residential real estate loan
balance, were more than 90 days delinquent or nonaccruing. See "Delinquent
Loans, Non-performing Assets and Classified Assets."
MULTIFAMILY RESIDENTIAL REAL ESTATE LOANS. In addition to loans on one-
to four-family properties, Home City makes loans secured by multifamily
properties containing over four units. Such loans are made with adjustable
interest rates, maximum LTVs of 75% and maximum terms of 15 years.
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 property 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. Home
City attempts to reduce the risk associated with multifamily lending by
evaluating the creditworthiness of the borrower and the projected income from
the project and by obtaining personal guarantees on loans made to corporations
and partnerships. Home City currently requires that borrowers agree to submit
financial statements, rent rolls and tax returns annually to enable Home City to
monitor the loans.
At June 30, 1996, loans secured by multifamily properties totaled
approximately $3.2 million, all of which were secured by property located within
Home City's primary market area, and all of which were performing in accordance
with their terms. The largest loan secured by a multifamily propery had a
balance at June 30, 1996, of approximately $332,000.
HOME EQUITY LOANS. Home City offers home equity loans secured by second
mortgages on one- to four-family residential real estate located in Clark
County, Ohio, and adjacent counties. Such loans are made for various purposes,
including home improvement, debt consolidation and consumer purchases. The
interest rates on loans secured by such second mortgages are fixed, with a
maximum combined LTV for the first and second mortgage of 100%.
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<PAGE> 41
At June 30, 1996, home equity loans totalled approximately $313,000,
0.64% of Home City's total loan portfolio. All of such loans were secured by
property located within Home City's primary market area and all were performing
in accordance with their terms. The balance of the largest single home equity
loan was $39,200 at June 30, 1996.
NONRESIDENTIAL REAL ESTATE LOANS. Home City also makes loans secured by
nonresidential real estate consisting of retail stores, office buildings and
businesses. Such loans generally are originated with terms of up to 15 years, a
minimum loan amount of $10,000 and a maximum loan amount of $800,000. Such loans
have a maximum LTV of 75%. Home City makes loans for land development in amounts
up to 75% LTV and a maximum term of three years. Home City also makes loans on
undeveloped land in amounts up to 75% LTV and a maximum term of three years.
Nonresidential real estate lending is generally considered to involve a
higher degree of risk than residential lending due to the relatively larger loan
amounts and the effects of general economic conditions on the successful
operation of income-producing properties. If the cash flow on the property is
reduced, for example, as leases are not obtained or renewed, the borrower's
ability to repay may be impaired. Home City has endeavored to reduce such risk
by evaluating the credit history and past performance of the borrower, the
location of the real estate, the quality of the management constructing and
operating the property, the debt service ratio, the quality and characteristics
of the income stream generated by the property and appraisals supporting the
property's valuation. Home City also requires personal guarantees on such loans.
At June 30, 1996, Home City had a total of $7.3 million invested in
nonresidential real estate loans, all of which were secured by property located
within Home City's primary market area. Such loans comprised approximately 15%
of Home City's total loans at such date. At such date, Home City had $197,000 in
delinquent nonresidential real estate loans, or 0.43% of total loans. See
"Delinquent Loans, Non-performing Assets and Classified Assets."
Federal regulations limit the amount of nonresidential mortgage loans
which a savings bank may make to 400% of its tangible capital. At June 30, 1996,
Home City's nonresidential mortgage loans totaled 138% of Home City's tangible
capital.
LAND LOANS. Home City makes two varieties of land loans. Loans are made
for the acquisition of land to be developed for construction. Such loans are
made for relatively short periods of time, generally not more than three years.
Loans are also made to borrowers who purchase and hold land for various reasons,
such as the future construction of a residence. Land loans are secured by the
land being purchased with the loan proceeds and have maximum LTVs of 75%.
At June 30, 1996, land loans totaled approximately $2.2 million, 4.57%
of Home City's total loan portfolio. All of which were secured by property
located within Home City's primary market area and all were performing in
accordance with their terms. The largest land loan at June 30, 1996, had a
balance of approximately $421,100.
CONSTRUCTION LOANS. Home City makes loans for the construction of
residential and nonresidential real estate. Such loans are structured as
permanent loans with fixed rates of interest and for terms of up to 15 years.
Most of the construction loans originated by Home City have historically been
made to owner-occupants for the construction of single-family homes by a general
contractor.
Construction loans generally involve greater underwriting and default
risks than do loans secured by mortgages on existing properties due to the
concentration of principal in a limited number of loans and borrowers and the
effects of general economic conditions on real estate developments, developers,
managers and builders. In addition, such loans are more difficult to evaluate
and monitor. Loan funds are advanced upon the security of the project under
construction, which is more difficult to value before the completion of
construction. Moreover, because of the uncertainties inherent in estimating
construction costs, it is relatively difficult to evaluate accurately the LTV
and the total loan funds required to complete a project. In the event a default
on a construction loan occurs and foreclosure follows, Home City must take
control of the project and attempt either to arrange for completion of
construction or dispose of the unfinished project. Additional risk exists with
respect to loans made to developers who do not have a buyer for the property, as
the developer may lack funds to pay the loan if the property is not sold upon
completion. Home City attempts to reduce such risks on loans to developers by
requiring personal guarantees and reviewing current personal financial
statements and tax returns and other projects undertaken by the developers.
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<PAGE> 42
At June 30, 1996, a total of $2.3 million, or approximately 4.8% of
Home City's total loans, consisted of construction loans. All of Home City's
construction loans are secured by property located within Home City's primary
market area, and the economy of such lending area had been relatively stable. At
June 30, 1996, all of such loans were performing in accordance with their terms.
COMMERCIAL LOANS. Home City occasionally makes loans for commercial
purposes. Such loans may be secured by nonresidential real estate or by assets
of the borrower other than real estate, such as equipment or receivables. At
June 30, 1996, Home City had three commercial loans in the aggregate amount of
$73,000, each of which was performing in accordance with its terms.
CONSUMER LOANS. Home City makes various types of loans, including
unsecured loans and loans secured by deposits. Such loans are made only at fixed
rates of interest for terms of up to 10 years. Home City has been attempting to
increase its consumer loan portfolio as part of its interest rate risk
management efforts and because a higher rate of interest is received on consumer
loans. See "RISK FACTORS" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF HOME CITY."
Consumer loans may entail greater credit risk than do residential
mortgage loans. The risk of default on consumer loans increases during periods
of recession, high unemployment and other adverse economic conditions. Although
Home City has not had significant delinquencies on consumer loans, no assurance
can be provided that delinquencies will not increase.
At June 30, 1996, Home City had approximately $1.6 million, or 3.4% of
its total loans, invested in consumer loans, and none of such loans were more
than 90 days delinquent or nonaccruing. See "Delinquent Loans, Non-performing
Assets and Classified Assets."
LOAN SOLICITATION AND PROCESSING. Loan originations are developed from
a number of sources, including continuing business with depositors, borrowers
and real estate developers, periodic newspaper solicitations by Home City's
lending staff and walk-in customers.
Loan applications for permanent mortgage loans are taken by loan
personnel. Home City obtains a credit report, verification of employment and
other documentation concerning the credit-worthiness of the borrower. Home City
limits the ratio of mortgage loan payments to the borrower's income to 25% and
the ratio of the borrower's total debt payments to income to 35-42%. An
appraisal of the fair market value of the real estate on which Home City will be
granted a mortgage to secure the loan is prepared by an independent fee
appraiser approved by the Board of Directors.
Unless Home City is aware of factors which may lead to an environmental
concern, Home City generally does not require any form of specific environmental
study at the time a loan secured by one- to four-family residential real estate
is made. If, however, Home City is aware of any such factor at the time of loan
origination, Home City requires the completion and satisfactory review of a
Phase I Environmental Assessment before such loan is made. For loans secured by
multifamily and nonresidential real estate, a Phase I Environmental Assessment
is generally required before the loan is made.
Upon the completion of the appraisal and the receipt of information on
the borrower, the application for a loan is submitted to various management
officials for approval or rejection if the loan amount does not exceed $300,000.
If the loan amount exceeds $300,000, or if the application does not conform in
all respects with Home City's underwriting guidelines, the application is
submitted to the Executive Loan Committee or the Board of Directors for review
and for final disposition. If a mortgage loan application is approved, an
attorney's opinion of title is obtained on the title to the real estate which
will secure the mortgage loan. Borrowers are required to carry satisfactory fire
and casualty insurance and flood insurance, if applicable, and to name Home City
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 specification and estimates of construction costs. Home City 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.
Commercial loans are underwritten on the basis of the source of the cash flow
required to service the debt and the value of-the security for the loan.
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<PAGE> 43
Home City's loans carry no pre-payment penalties, but do provide the
entire balance of the loan is due upon sale of the property securing the loan.
Home City generally enforces such due-on-sale provisions.
LOAN ORIGINATIONS, PURCHASES AND SALES. Home City originates an almost
equal number of fixed and adjustable rate loans. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF HOME CITY -
Asset and Liability Management." Home City occasionally participates in loans by
other institutions. For a discussion of Home City's strategy for loan
originations, see "THE BUSINESS OF HOME CITY - General."
The following table presents Home City's mortgage loan origination
activity for the periods indicated:
<TABLE>
<CAPTION>
Year ended June 30,
-----------------------------------------------------
1996 1995 1994
-------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Loans originated:
One- to four-family residential (1) $14,091 $ 9,269 $11,599
Multifamily residential 280 1,468 516
Nonresidential 2,210 3,303 2,478
Consumer 1,797 37 96
Commercial 133 - -
-------- ---------- ----------
Total loans originated 18,511 14,077 14,689
------ ------ ------
Reductions:
Principal repayments (9,287) (5,623) (11,804)
Loans sold (2,760) (338) (131)
Increase (decrease) in other items, net (2) (149) (148) (186)
---------- ---------- ----------
Net increase (decrease) $ 6,315 $ 7,968 $ 2,568
======= ======= ========
</TABLE>
- -----------------------------
(1) Includes construction loans.
(2) Consists of unearned and deferred fees, costs and the allowance for loan
losses.
OTS regulations generally limit the aggregate amount that a savings
association may lend to any one borrower to an amount equal to 15% of the
association's 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 additional reserves if the additional amount is fully secured by certain
forms of "readily marketable collateral." Real estate is not considered "readily
marketable collateral." In addition, the regulations require that loans to
certain related or affiliated borrowers be aggregated for purposes of such
limits. An exception to these limits permits loans to one borrower of up to
$500,000 "for any purpose."
Based on such limits, Home City was able to lend approximately $842,000
to one borrower at June 30, 1996. The largest amount Home City had outstanding
to one borrower at June 30, 1996, was $653,000. Such loans were secured by
several 1-4 family residential loans and a property under construction. All of
such loans were current at June 30, 1996.
DELINQUENT LOANS, NON-PERFORMING ASSETS AND CLASSIFIED ASSETS. When a
borrower fails to make a required payment on a loan, Home City attempts to cause
the delinquency to be cured by contacting the borrower. In most cases,
delinquencies are cured promptly.
When a loan is fifteen days or more delinquent, the borrower is sent a
delinquency notice. When a loan is thirty days delinquent, Home City generally
telephones the borrower. Depending upon the circumstances, Home City may also
inspect the property and inform the borrower of the availability of credit
counseling from Home City and counseling agencies. Before a loan becomes 90 days
delinquent, Home City will make further contact with the borrower and, depending
upon the circumstances, may arrange appropriate alternative payment
arrangements. After a loan becomes 90
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<PAGE> 44
days delinquent, Home City may refer the matter to an attorney for foreclosure.
A decision as to whether and when to initiate foreclosure proceedings is based
on such factors as the amount of the outstanding loan in relation to the
original indebtedness, the extent of the delinquency and the borrower's ability
and willingness to cooperate in curing delinquencies. If a foreclosure occurs,
the real estate is sold at public sale and may be purchased by Home City.
Real estate acquired, or deemed acquired, by Home City as a result of
foreclosure proceedings is classified as real estate owned ("REO") until it is
sold. When property is so acquired, or deemed to have been acquired, it is
initially recorded by Home City at the lower of cost or fair value of the real
estate, less estimated costs to sell. Any reduction in fair value is reflected
in a valuation allowance account established by a charge to income. Costs
incurred to carry other real estate are charged to expense.
Home City places a loan on nonaccrual status when the principal and
interest is delinquent 90 days or more and deducts from income the interest
previously accrued.
The following table reflects the amount of loans in a delinquent status
as of the dates indicated:
<TABLE>
<CAPTION>
June 30,
----------------------------------------------------------------------------------------------
1996 1995 1994
----------------------------- ----------------------------- ----------------------------
Percent Percent Percent
of total of total of total
Number Amount loans Number Amount loans Number Amount loans
------ ------ -------- ------ ------ -------- ------ ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans delinquent for (1):
30 - 59 days 17 $565 1.24% 11 $296 1.01% 26 $804 2.57%
60 - 89 days 4 170 0.37 4 83 0.28 5 152 0.49
90 days and over 14 247 0.54 14 207 0.71 4 34 0.11
-- ---- ---- -- ---- ---- -- ----- ----
Total delinquent loans 35 $982 2.15% 29 $586 2.00% 35 $990 3.17%
== ==== ==== == ==== ==== == ==== ====
</TABLE>
----------------------------
(1) The number of days a loan is delinquent is measured from the day the payment
was due under the terms of the loan agreement.
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<PAGE> 45
The following table sets forth information with respect to the accrual
and nonaccrual status of Home City's loans which are 90 days or more past due
and other non-performing assets at the dates indicated:
<TABLE>
<CAPTION>
At June 30,
-------------------------------------------------
1996 1995 1994
----- ------ ------
(Dollars in thousands)
<S> <C> <C> <C>
Loans accounted for on a nonaccrual basis:
Real estate:
Residential $247 $207 $34
Nonresidential - - -
Commercial - - -
Consumer - - -
----- ------ ------
Total nonperforming loans 247 207 34
Real estate owned - - -
----- ------ ------
Total non-performing assets $247 $207 $ 34
----- ------ ------
Total loan loss allowance $362 $319 $229
Total non-performing assets as a
percentage of total assets 0.44% 0.43% 0.09%
Loan loss allowance as a percent of
non-performing loans 146.56% 154.11% 673.53%
</TABLE>
During the year ended June 30, 1996, $16,000 would have been recorded
as interest income on nonaccruing loans had such loans been accruing pursuant to
contractual terms. During such period, no interest income was recorded on
nonaccruing loans. During the periods shown, Home City had no restructured loans
within the meaning of SFAS No. 115. There are no loans which are not currently
classified as nonaccrual, more than 90 days past due or restructured but which
may be so classified in the near future because management has concerns as to
ability of the borrowers to comply with repayment terms.
OTS regulations require that each thrift institution classify its own
assets on a regular basis. Problem assets are classified as "substandard,"
"doubtful" or "loss." "Substandard" assets have one or more defined weaknesses
and are characterized by the distinct possibility that the insured institution
will sustain some loss if the deficiencies are not corrected. "Doubtful" assets
have the same weaknesses as "substandard" assets, with the additional
characteristics that (i) the weaknesses make collection or liquidation in full
on the basis of currently existing facts, conditions and values questionable and
(ii) there is a high possibility of loss. An asset classified "loss" is
considered uncollectible and of such little value that its continuance as an
asset of the institution is not warranted. The regulations also contain a
"special mention" category, consisting of assets which do not currently expose
an institution to a sufficient degree of risk to warrant classification but
which possess credit deficiencies or potential weaknesses deserving management's
close attention.
Generally, Home City classifies as "substandard" all loans that are
delinquent more than 90 days, unless management believes the delinquency status
is short-term due to unusual circumstances. Loans delinquent fewer than 90 days
may also be classified if the loans have the characteristics described above
rendering classification appropriate.
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<PAGE> 46
The aggregate amount of Home City's classified assets at the dates
indicated were as follows:
<TABLE>
<CAPTION>
At June 30,
------------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Classified assets:
Substandard $518 $349 $515
Doubtful 19 - -
Loss 102 106 106
---- ---- ----
Total classified assets $639 $455 $621
==== ==== ====
</TABLE>
Federal examiners are authorized to classify an association's assets.
If an association does not agree with an examiner's classification of an asset,
it may appeal this determination to the Regional Director of the OTS. Home City
had no disagreements with the examiners regarding the classification of assets
at the time of the last examination.
OTS regulations require that Home City establish prudent general
allowances for loan losses for any loan classified as substandard or doubtful.
If an asset, or portion thereof, is classified as loss, the association must
either establish specific allowances for losses in the amount of 100% of the
portion of the asset classified loss, or charge-off such amount.
ALLOWANCE FOR LOAN LOSSES. Home City maintains an allowance for loan
losses based upon a number of relevant factors, including but not limited to,
trends in the level of non-performing assets and classified loans, current and
anticipated economic conditions in the primary lending area, past loss
experience, possible losses arising from specific problem assets and changes in
the composition of the loan portfolio.
The single largest component of Home City's loan portfolio consists of
one- to four-family residential real estate loans. Substantially all of these
loans are secured by residential real estate and require down payments of 20% of
the lower of the sales price or appraisal value of the real estate. In addition,
such loans are secured by property in Home City's primary lending area. Home
City's practice of making loans only in the market area and requiring a 20% down
payment have contributed to a low historical charge-off history.
In addition to one- to four-family residential real estate loans, Home
City makes additional real estate loans including home equity, multifamily
residential real estate, nonresidential real estate and construction loans.
These real estate loans are secured by property in Home City's lending area and
also require the borrower to provide a down payment. Home City has not
experienced any charge-offs from these other real estate loan categories.
The allowance for loan losses is reviewed quarterly by the Board of
Directors. 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 material adjustments, and net earnings could
be significantly adversely affected, if circumstances differ substantially from
the assumptions used in marketing the final determination.
The following table sets forth an analysis of Home City's allowance for
loan losses for the periods indicated.
<TABLE>
<CAPTION>
For the year ended June 30,
-------------------------------------------
1996 1995 1994
----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of period $ 319 $ 229 $ 198
Charge-offs (7) (19) (107)
Recoveries - - 25
Provision for loan losses (charged to operations) 50 109 113
----- ----- -----
Balance at end of period $ 362 $ 319 $ 229
===== ===== =====
Ratio of net charge-offs (recoveries) to average
net loans outstanding during the period 0.02% 0.05% 0.27%
Ratio of allowance for loan losses to total loans 0.79% 0.81% 0.73%
</TABLE>
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<PAGE> 47
MORTGAGE-BACKED SECURITIES
Home City maintains a portfolio of mortgage-backed securities in the
form of FHLMC and GNMA participation certificates, as well as two
mortgage-backed securities not issued by government agencies. Mortgage-backed
securities generally entitle Home City to receive a portion of the cash flows
from an identified pool of mortgages. FHLMC and GNMA securities are each
guaranteed by their respective agencies as to principal and interest.
The FHLMC is a corporation chartered by the U.S. Government and
guarantees the timely payment of interest and the ultimate return of principal
on participation certificates. Although FHLMC securities are not backed by the
full faith and credit of the U.S. Government, these securities are generally
considered among the highest quality investments with minimal credit risk. GNMA
is a government agency. GNMA securities are backed by Federal Housing Authority
insured and Veterans Administration guaranteed loans. The timely payment of
principal and interest on GNMA securities is guaranteed by GNMA and backed by
the full faith and credit of the U.S. Government.
The following table sets forth the book value of Home City's
mortgage-backed securities (which is also the market value because all of such
securities are available for sale) at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
--------------------------------
1996 1995
---- ----
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
GNMA certificates $3,020 $2,946 $3,635 $3,567
FHLMC certificates 26 29 32 36
------ ------ ------ ------
Total mortgage-backed securities $3,046 $2,975 $3,667 $3,603
====== ====== ====== ======
</TABLE>
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<PAGE> 48
The following table sets forth information regarding scheduled
maturities, amortized costs, market value and weighted average yields of Home
City's mortgage-backed securities at June 30, 1996. Expected maturities will
differ from contractual maturities due to scheduled repayments and because
borrowers may have the right to call or prepay obligations with or without
prepayment penalties. The following table does not take into consideration the
effects of scheduled repayments or the effects of possible prepayments.
<TABLE>
<CAPTION>
At June 30, 1996
----------------------------------------------
One year or less After one to five years
------------------- -----------------------
(Dollars in thousands)
Carrying Average Carrying Average
value yield value yield
-------- ------- -------- -------
<S> <C> <C> <C> <C>
GNMA certificates $ - -% $ - -%
FHLMC certificates - - - -
--- -- --- --
Total $ - -% $ - -%
=== == === ==
</TABLE>
<TABLE>
<CAPTION>
At June 30, 1996
-----------------------------------------------------------------------------------------
Total mortgage-backed
After five to ten years After ten years portfolio
------------------- ----------------------- -------------------------------------
Carrying Average Carrying Average Carrying Market Average
value yield value yield value value yield
-------- ------- -------- ------- -------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
GNMA certificates $ 904 7.51% $2,042 7.67% $2,946 $2,946 7.62%
FHLMC certificates - - 29 10.35 29 29 10.35
------ ---- ------ ----- ------ ------ -----
Total $ 904 7.51% $2,071 7.70% $2,975 $2,975 7.64%
====== ==== ====== ===== ====== ====== =====
</TABLE>
For additional information, see Note __ of the Notes to Financial
Statements.
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<PAGE> 49
INVESTMENT ACTIVITIES
OTS regulations require that Home City maintain a minimum amount of
liquid assets, which may be invested in U. S. Treasury obligations, securities
of various federal agencies, certificates of deposit at insured banks, bankers'
acceptances and federal funds. Home City is also permitted to make investments
in certain commercial paper, corporate debt securities rated in one of the four
highest rating categories by one or more nationally recognized statistical
rating organizations, and mutual funds, as well as other investments permitted
by federal regulations. See "REGULATION" and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF HOME CITY."
The following table sets forth the composition of Home City's
investment securities at the dates indicated:
<TABLE>
<CAPTION>
At June 30,
-------------------------------------------------
1996
-------------------------------------------------
Carrying % of Market % of
value Total value Total
-------- ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest-bearing demand
deposits in other
financial institutions $ 588 12.70% $ 588 12.72%
Federal funds sold 400 8.64 400 8.65
Time deposits in other
financial institutions 1,061 22.91 1,053 22.78
Investment securities:
U.S. government and
federal agency 997 21.53 997 21.57
securities
Municipal securities(1) 883 19.07 883 19.10
Equity securities 270 5.83 270 5.84
Investment in joint
venture (2) 18 0.39 18 0.39
Service corporation (3) 20 0.43 20 0.43
FHLB stock 394 8.51 394 8.52
------ ------ ------ ------
Total investments $4,631 100.00% $4,623 100.00%
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
At June 30,
-------------------------------------------------
1995
-------------------------------------------------
Carrying % of Market % of
value Total value Total
-------- ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest-bearing demand
deposits in other
financial institutions $ 307 6.65% $ 307 6.64%
Federal funds sold 1,500 32.50 1,500 32.45
Time deposits in other
financial institutions 360 7.80 360 7.79
Investment securities:
U.S. government and
federal agency 1,496 32.42 1,496 32.36
securities
Municipal securities(1) 405 8.78 413 8.93
Equity securities 221 4.79 221 4.78
Investment in joint
venture (2) 18 0.39 18 0.39
Service corporation (3) 20 0.43 20 0.43
FHLB stock 288 6.24 288 6.23
------ ------ ------ ------
Total investments $4,615 100.00% $4,623 100.00%
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
At June 30,
-------------------------------------------------
1994
-------------------------------------------------
Carrying % of Market % of
value Total value Total
-------- ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest-bearing demand
deposits in other
financial institutions $ 77 2.42% $ 77 2.42%
Federal funds sold 450 14.12 450 14.15
Time deposits in other
financial institutions - - - -
Investment securities:
U.S. government and
federal agency 2,098 65.83 2,092 65.77
securities
Municipal securities(1) - - - -
Equity securities 273 8.57 273 8.58
Investment in joint
venture (2) 18 0.56 18 0.57
Service corporation (3) 23 0.72 23 0.72
FHLB stock 248 7.78 248 7.80
Total investments $3,187 100.00% $3,181 100.00%
</TABLE>
- ------------------------
(1) Bonds issued by local school districts.
(2) Home City has a 50% ownership interest in a joint venture that is primarily
involved in the development of low income housing.
(3) Home City owns 100% of Homciti Service Corp, a holding company whose assets
consist of common shares of Intreive, a data service provider, and a 0.875%
interest in a joint venture which owns The Springfield Inn, a hotel in
Springfield, Ohio.
-43-
<PAGE> 50
The following tables set forth the contractual maturities, carrying
values, market values and average yields for Home City's investment securities
at June 30, 1996.
<TABLE>
<CAPTION>
At June 30, 1996
----------------------------------------------------------------------------
One year or less After one to five years After five years
--------------------- --------------------- ---------------------
Carrying Average Carrying Average Carrying Average
value yield value yield value yield
-------- ------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing demand deposits
in other financial
institutions $ 588 5.10% - -% $ - -%
Federal funds sold 400 5.07 - - - -
Time deposits in other financial
institutions 1,038 5.23 - - 23 1.25
Investment securities:
U.S. government and federal
agency securities - - 997 6.10% - -
Municipal securities 134 5.04 568 5.36 181 5.36
Equity securities - - - - 270 1.44
Investment in joint venture - - - - 18 -
Service corporation - - - - 20 -
FHLB stock - - - - 394 6.43
------ ---- ------ ---- ------ ----
Total investments $2,160 5.15% $1,565 5.83% $ 906 4.90%
====== ==== ====== ==== ====== ====
</TABLE>
<TABLE>
<CAPTION>
At June 30, 1996
------------------------------------------------------------
Average Weighted
life Carrying Market average
in years value value yield
-------- -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Certificates of .33 $1,061 $1,053 4.57%
deposit in FHLB
and other financial
institutions
Investment
securities:
U.S. government
and federal 2.11 997 997 -
agency
securities
FHLB and FHLMC - 650 650 -
stock
Municipal
securities 3.52 883 883 5.31
-------- --------
Total $3,591 $3,583
====== ======
</TABLE>
DEPOSITS AND BORROWINGS
GENERAL. Deposits have traditionally been the primary source of Home
City's funds for use in lending and other investment activities. In addition to
deposits, Home City derives funds from FHLB advances, interest payments and
principal repayments on loans and mortgage-backed securities, income on earning
assets, service charges and gains on the sale of assets. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF HOME
CITY." 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. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF HOME CITY - Financial Condition."
DEPOSITS. Deposits are attracted principally from within Home City's
primary market area through the offering of a broad selection of deposit
instruments, including NOW accounts, money market accounts, passbook savings
accounts and term certificate accounts. Home City also offers individual
retirement accounts ("IRA"), both in passbook and certificate
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<PAGE> 51
form. Interest rates paid, maturity terms, service fees and withdrawal penalties
for the various types of accounts are established periodically by the management
of Home City based on Home City's liquidity requirements, growth goals and
interest rates paid by competitors. Home City does not use brokers to attract
deposits.
At June 30, 1996, Home City's certificates of deposit totaled $37.0
million, or 78% of total deposits. Of such amount, approximately $5.7 million in
certificates of deposit mature within one year. Based on past experience and
Home City's prevailing pricing strategies, management believes that a
substantial percentage of such certificates will renew with Home City at
maturity. If there is a significant deviation from historical experience, Home
City can utilize borrowings from the FHLB as an alternative to this source of
funds.
The following table sets forth the dollar amount of deposits in the
various types of savings programs offered by Home City at the dates indicated:
<TABLE>
<CAPTION>
At June 30,
--------------------------------------------------------------------------------
1996 1995 1994
---------------------- --------------------- ----------------------
Percent Percent Percent
of total of total of total
Amount deposits Amount deposits Amount deposits
------ -------- ------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Transaction accounts:
Demand $ 302 0.64% $ - -% $ - -%
NOW accounts (1) 395 0.84 - - - -
Money market accounts (2) - - - - - -
Passbook savings accounts (3) 9,561 20.27 10,500 25.65 15,128 43.45
------- ------- -------- ------- ------- --------
Total transaction accounts 10,258 21.75 10,500 25.65 15,128 43.45
Certificates of deposit:
2.01 - 4.00% - - 600 1.47 5,873 16.87
4.01 - 6.00% 15,810 33.51 13,287 32.46 10,849 31.16
6.01 - 8.00% 21,106 44.74 16,549 40.42 2,966 8.52
Total certificates of deposit 36,916 78.25 30,436 74.35 19,688 56.55
-------- ------- -------- ------- -------- -------
Total deposits (4) $47,174 100.00% $40,936 100.00% $34,816 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
- -----------------------------
(1) Home City's weighted average interest rate paid on NOW accounts fluctuates
with the general movement of interest rates. At June 30, 1996, the weighted
average rate on NOW accounts was 1.41%.
(2) Home City's weighted average interest rate paid on money market accounts
fluctuates with the general movement of interest rates. At June 30, 1996,
the weighted average rate on money market accounts was 2.08%.
(3) Home City's weighted average rate on passbook savings accounts fluctuates
with the general movement of interest rates. The weighted average interest
rate on passbook accounts was 2.52%, 2.97% and 3.41%, at June 30, 1996, 1995
and 1994, respectively.
(4) IRAs are included in the various certificates of deposit balances. IRAs
totaled $5.5 million, $4.4 million and $2.7 million as of June 30, 1996,
1995 and 1994.
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<PAGE> 52
The following table shows rate and maturity information for Home City's
certificates of deposit as of June 30, 1996:
<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>
2.01 - 4.00% $ - $ - $ - $ - $ -
4.01 - 6.00 10,409 2,913 2,304 184 15,810
6.01 - 8.00 5,000 13,660 1,950 496 21,106
Total certificates
of deposit $15,409 $16,573 $4,254 $680 $36,916
======= ======= ====== ==== =======
</TABLE>
The following table presents the amount of Home City's certificates of
deposit of $100,000 or more by the time remaining until maturity as of June 30,
1996:
Maturity Amount
-------- ------
(In thousands)
Three months or less $1,244
Over 3 months to 6 months 782
Over 6 months to 12 months 661
Over 12 months 4,529
-------
Total $7,216
=======
The following table sets forth Home City's deposit account balance
activity for the periods indicated:
<TABLE>
<CAPTION>
Year ended June 30,
------------------------------------
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Beginning balance $40,936 $34,816 $36,688
Deposits 42,110 24,327 15,447
Withdrawals (38,242) (20,052) (18,727)
--------- --------- ---------
Net increases (decreases) before
interest credited 3,868 4,275 (3,280)
Interest credited 2,370 1,845 1,408
-------- --------- --------
Ending balance $ 47,174 $ 40,936 $ 34,816
======== ======== ========
Net increase (decrease) $ 6,238 $ 6,120 ($1,872)
Percent increase (decrease) 15.24% 17.58% (5.10)%
</TABLE>
BORROWINGS. The FHLB System functions as a central reserve bank
providing credit for its member institutions and certain other financial
institutions. See "REGULATION - Federal Home Loan Banks." As a member in good
standing of the FHLB of Cincinnati, Home City is authorized to apply for
advances from the FHLB of Cincinnati, provided certain standards of
creditworthiness have been met. Under current regulations, an association must
meet certain qualifications to be eligible for FHLB advances. The extent to
which an association is eligible for such advances will depend upon whether it
meets the Qualified Thrift Lender Test (the "QTL Test"). See "REGULATION - OTS
Regulations -- Qualified Thrift
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<PAGE> 53
Lender Test." If an association meets the QTL Test, it will be eligible for 100%
of the advances it would otherwise be eligible to receive. If an association
does not meet the QTL Test, it will be eligible for such advances only to the
extent it holds specified QTL Test assets. At June 30, 1996, Home City was in
compliance with the QTL Test.
Home City obtained advances from the FHLB of Cincinnati as set forth in
the following table:
<TABLE>
<CAPTION>
June 30,
------------------------------
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Average balance outstanding $2,582 $1,628 $ 435
Maximum amount outstanding at any month
during the period 3,564 2,715 457
Balance outstanding at end of period 2,903 2,618 424
Weighted average interest rate during the period 6.66% 6.57% 8.74%
Weighted average interest rate at end of period 6.49% 6.69% 5.91%
</TABLE>
COMPETITION
Home City 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, Home City competes with other savings associations,
commercial banks, consumer finance companies, credit unions, leasing companies,
mortgage companies and other lenders. Home City competes for loan originations
primarily through the interest rates and loan fees offered and through the
efficiency and quality of services provided. Competition is affected by, among
other things, the general availability of lendable funds, general and local
economic conditions, current interest rate levels and other factors which are
not readily predictable. Three savings associations, seven banks and seven
credit unions have offices in Clark County. At June 30, 1995, Home City had
approximately 3.22% of all financial institution deposits in Clark County.
The size of financial institutions competing with Home City is likely
to increase as a result of changes in statutes and regulations eliminating
various restrictions on interstate and inter-industry branching and
acquisitions. Such increased competition may have an adverse effect upon Home
City.
SUBSIDIARIES
Home City owns all of the outstanding shares of Homciti Service
Corporation, an Ohio corporation ("Homciti"). Homciti owns common stock in
Intrieve, a data processing company which serves Home City, and an .875%
ownership interest in a joint venture which owns the Springfield Inn, a local
hotel. At June 30, 1996, the aggregate value of the Intrieve stock and the joint
venture investment equaled approximately $38,000.
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<PAGE> 54
PROPERTIES
The following table sets forth certain information at June 30, 1996,
regarding the ownership by Home City of the land and improvements at 63 West
Main Street, Springfield, Ohio, the office of Home City:
Year Square Net
acquired footage book value(1)
-------- ------- -------------
1975 5,839 $367,000
- -----------------------------
(1) At June 30, 1996, Home City's office premises and equipment had a total net
book value of $121,000. For additional information regarding Home City's
office premises and equipment, see Notes A and F of Notes to Financial
Statements.
PERSONNEL
As of June 30, 1996, Home City had 11 full-time employees and three
part-time employees. Home City believes that relations with its employees are
good. Home City offers health and life insurance benefits. None of the employees
of Home City are represented by a collective bargaining unit.
LEGAL PROCEEDINGS
Home City is not presently involved in any legal proceedings of a
material nature. From time to time, Home City is a party to legal proceedings
incidental to its business to enforce its security interest in collateral
pledged to secure loans made by Home City.
MANAGEMENT OF HCFC
The Board of Directors of HCFC consists of five members. Each of the
directors of Home City is also a director of HCFC. See "MANAGEMENT OF HOME CITY"
for information on each of such directors. The term of each of the directors
expires in 1997.
The following persons serve as the officers of HCFC:
Name Office
---- ------
Douglas L. Ulery President
P. Clark Engelmeier Chairman of the Board
Jo Ann Holdeman Secretary
Gary E. Brown Treasurer
MANAGEMENT OF HOME CITY
DIRECTORS AND EXECUTIVE OFFICERS
The Charter of Home City provides for a Board of Directors consisting
of not less than five nor more than 15 directors, such number to be fixed or
changed in the Bylaws or by the members. The Board of Directors currently
consists of five directors, divided into three classes. One class of directors
is elected each year. Each director serves for a three-year term. The Board of
Directors met 12 times during the fiscal year ended June 30, 1996, for regular
and special meetings. No director attended fewer than 75% of the aggregate of
such meetings and all meetings of the committees of which such director was a
member.
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<PAGE> 55
The following table presents certain information with respect to the
present directors and executive officers of Home City:
<TABLE>
<CAPTION>
Name Age(1) Position with Home City Director since Term expires
- ---- --- ----------------------- -------------- ------------
<S> <C> <C> <C> <C>
John D. Conroy 46 Director 1988 1998
P. Clark Engelmeier 65 Director, Chairman of the Board 1977 1997
James Foreman 56 Director 1995 1997
Terry A. Hoppes 47 Director 1994 1999
Douglas L. Ulery 49 Director, President, CEO 1993 1999
Gary E. Brown 56 Vice President and Treasurer N/A N/A
JoAnn Holdeman 40 Vice President and Secretary N/A N/A
</TABLE>
- ------------------------------
(1) At June 30, 1996.
Since 1971, Mr. Conroy has been the owner and President of Conroy Funeral Home,
Inc., in Springfield, Ohio. Mr. Conroy is a licensed funeral director and
embalmer.
Mr. Engelmeier has been a self-employed life insurance agent and
securities broker during the past 40 years and is a Chartered Life Underwriter.
Mr. Engelmeier retired from the U.S. Army in 1991 as a lieutenant colonel.
Mr. Foreman has been president and chief executive officer of Jim
Foreman Pontiac-Nissan and president of SKDP Insurance Agency for the past 26
years. Mr. Foreman is a member of the Board of Directors of the Springfield
Chamber of Commerce.
Mr. Hoppes is a professional engineer and surveyor and has been owner
and president of Hoppes Engineering and Surveying Company since 1977 and
president Hoppes Builders and Development Company since 1981.
Mr. Ulery has been president and chief executive officer of Home City
since 1992 and a director of Home City since 1994. From 1985 until joining Home
City, Mr. Ulery was vice president of Regional Banking Offices Operation with
Society Corporation.
Mr. Brown has been employed at Home City since 1995. Prior to coming to
Home City, Mr. Brown was employed at Huntington Bank.
Ms. Holdeman has been employed at Home City since 1986.
COMMITTEES OF DIRECTORS
The full Board of Directors of Home City serves as the Audit Committee.
The Audit Committee recommends audit firms to the full Board of Directors and
reviews and approves the annual independent audit report. There are currently no
separate committees of the Board of Directors.
The Board of Directors of HCFC has no separate committees.
COMPENSATION
Each director of Home City receives a retainer fee of $1,000 per month
for service as a director of Home City. In addition, the Chairman of the Board
of Directors receives an additional fee of $150 per month. Edgar Witten, a
Director Emeritus, receives a fee of $200 per month.
Four of Home City's directors participate in a deferred compensation
plan whereby payment of part or all of such their directors' fees is deferred.
Home City records the deferred fees as expenses and in a liability account.
Interest is periodically credited on each account. Each director is fully vested
in his account and the balance is payable upon termination of directorship prior
to death or retirement. Home City has provided for the contingent liability
created by the
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<PAGE> 56
deferred compensation plan by purchasing a single-premium universal life
insurance policy on each director. Upon retirement or death, a director or his
estate will receive the benefits payable pursuant to the policy on his life.
The following table presents certain information regarding the cash
compensation received by the President and Chief Executive Officer of Home City.
No other executive officer of Home City received compensation exceeding $100,000
during the fiscal year ended June 30, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Annual Compensation
---------------------------------
Name and Principal Fiscal Year All Other
Position ended June 30 Salary ($) Bonus ($) Compensation(1)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Douglas L. Ulery 1996 $88,000 $30,000 $15,338
President and Chief
Executive Officer
-------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------------
(1) Includes directors' fees of $12,000 and Home City's contribution to Mr.
Ulery's 401(k) defined contribution plan account in the amount of
$3,338. Does not include amounts attributable to other miscellaneous
benefits received by executive officers. The cost to Home City of
providing such benefits to Mr. Ulery was less than 10% of his cash
compensation
EMPLOYEE STOCK OWNERSHIP PLAN
HCFC has established the ESOP for the benefit of employees of HCFC and
Home City age 21 or older who have completed at least one year of full-time
service with HCFC or Home City. The establishment of the ESOP and the purchase
by the ESOP of the Common Shares of HCFC are subject to the receipt of a
favorable determination letter on the qualified status of the ESOP under
applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), from the Commissioner of Internal Revenue ("Commissioner"). HCFC will
submit to the Commissioner an application for a favorable determination letter
on the qualified status of the ESOP. Although no assurances can be given, HCFC
expects that the ESOP will receive a favorable determination letter from the
Commissioner.
HCFC intends to accept a promissory note from the ESOP in payment for
8% of the Common Shares sold in connection with the Conversion. The loan will be
secured by the shares purchased with the loan proceeds and will be repaid by the
ESOP with funds from Home City's discretionary contributions to the ESOP and
earnings on ESOP assets. Shares purchased with such loan proceeds will be held
in a suspense account for allocation among participants as the loan is repaid.
As payments are made and the shares are released from the suspense account, such
shares will be validly issued, fully paid and non-assessable.
Contributions to the ESOP and shares released from the suspense account
will be allocated pro rata to participants on the basis of compensation. Except
for participants who retire, become disabled or die during the plan year, all
other participants must have completed at least 1,000 hours of service and be
employed on the last day of the plan year in order to receive an allocation.
Benefits become vested at a rate of 20% per year commencing after three years of
service and are fully vested after seven years of service. Vesting will be
accelerated upon retirement at or after age ___, death, disability or
termination of the ESOP. Forfeitures will be reallocated among remaining
participating employees. Benefits may be paid either in HCFC Common Shares or in
cash. Benefits may be payable upon retirement, death, disability or separation
from service. Benefits payable under the ESOP cannot be estimated.
A committee appointed by the Board of Directors of HCFC will administer
the ESOP. The Common Shares and other ESOP funds will be held and invested by a
trustee (the "ESOP Trustee"). The ESOP Committee may instruct the ESOP Trustee
regarding investments of funds contributed to the ESOP. The ESOP Trustee must
vote all allocated shares held in the ESOP in accordance with the instructions
of the participating employees. Shares for which employees do not give
instructions and unallocated shares will be voted by the ESOP Trustee in its
sole discretion.
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<PAGE> 57
From time to time, the ESOP may purchase additional Common Shares of
HCFC through purchases in the market or directly from HCFC. No such purchases
are currently contemplated. If the ESOP purchases newly issued shares from HCFC,
such purchases would have a dilutive effect on the interests of HCFC's
shareholders.
STOCK OPTION PLAN
The Board of Directors of HCFC expects to adopt the Stock Option Plan,
subject to the approval by the shareholders of HCFC. A number of Common Shares
equal to 10% of the Common Shares to be issued in connection with the Conversion
is expected to be reserved for issuance by HCFC upon the exercise of options to
be granted to certain directors, officers and employees of Home City and HCFC
from time to time under the Stock Option Plan. The purposes of the Stock Option
Plan include retaining and providing incentives to the directors, officers and
employees of HCFC and Home City by facilitating their purchase of a stock
interest in HCFC.
Options granted to the officers and employees under the Stock Option
Plan may be "incentive stock options" within the meaning of Section 422 of the
Code (an "ISO"). Options granted under the Stock Option Plan to directors who
are not full-time employees of HCFC or Home City will not qualify under the Code
and thus will not be incentive stock options ("non-qualified stock options").
Although any eligible director, officer or employee of Home City and HCFC may
receive non-qualified stock options, Home City anticipates that the non-employee
directors of Home City and HCFC will receive non-qualified stock options, and
other eligible participants will receive incentive stock options.
The option exercise price of each option granted under the Stock Option
Plan will be determined by the committee of directors appointed to administer
the Stock Option Plan at the time of grant, with the exception that the exercise
price for an option must not be less than 100% of the fair market value of the
shares on the date of the grant. No stock option will be exercisable after the
expiration of ten years from the date that it is granted, except that in the
case of an ISO granted to an employee who owns more than 10% of HCFC's
outstanding Common Shares at the time an ISO is granted under the Stock Option
Plan, the exercise price of such an ISO may not be less than 110% of the fair
market value of the shares on the date of the grant, and the ISO shall not be
exercisable after the expiration of five years from the date it is granted.
An option recipient cannot transfer or assign an option other than by
will or in accordance with the laws of descent and distribution. "Termination
for cause," as defined in the Stock Option Plan, will result in the annulment of
any outstanding options.
HCFC will receive no monetary consideration for the granting of options
under the Stock Option Plan. Upon the exercise of options, HCFC will receive
payment of cash, HCFC Common Shares or a combination of cash and Common Shares
from option recipients in exchange for shares issued.
The Stock Option Plan will be administered by a committee of directors
composed of at least three directors of HCFC (the "Committee"). The Committee
may grant options under the Stock Option Plan at such times as the committee
members deem most beneficial to Home City and HCFC on the basis of the
individual participant's position, duties and responsibilities, the value of his
or her services to Home City and HCFC and any other factors deemed relevant. A
grant of options under the Stock Option Plan is expected to occur on the date of
approval of the Stock Option Plan by the shareholders of HCFC. The members of
the Committee have not yet been appointed, and specific grants have not been
proposed. The directors of HCFC intend, however, to make such grants in
accordance with OTS regulations which provide that no individual may receive
options to purchase more than 25% of the shares which may be the subject of
options pursuant to the Stock Option Plan, and directors who are not employees
of HCFC or Home City may not receive options to purchase more than 5% of such
shares individually or 30% in the aggregate.
Pursuant to OTS regulations, the Stock Option Plan may not be approved
by the shareholders of HCFC until at least six months after the Conversion is
completed. It is expected that options will be granted immediately after the
shareholders approve the Stock Option Plan.
RECOGNITION AND RETENTION PLAN AND TRUST
The Board of Directors of Home City intends to adopt the RRP, subject
to approval of the shareholders of HCFC, as a means of providing directors and
certain key employees of Home City with an ownership interest in HCFC in a
manner designed to compensate such directors and key employees for services to
Home City. Home City expects to contribute sufficient funds to enable the RRP to
purchase Common Shares in the open market or to purchase authorized but unissued
-51-
<PAGE> 58
shares from HCFC in an amount equal to up to 4% of the Common Shares sold in
connection with the Conversion. Assuming the sale of 720,000 shares in
connection with the Conversion, 28,800 shares would be purchased by the RRP. The
purchase of authorized but unissued shares would have a dilutive effect on the
interests of HCFC's shareholders. See "CAPITALIZATION" and "PRO FORMA DATA."
While no specific awards have yet been proposed, the directors of Home City
intend to make such awards in accordance with OTS regulations which provide that
no individual may receive more than 25% of the shares awarded pursuant to the
RRP, and directors who are not employees of HCFC or Home City may not receive
more than 5% of such shares individually or 30% in the aggregate.
Until shares awarded are earned by the participant, such shares will be
forfeited in the event that the employment of the employee is terminated for
cause. One-fifth of such shares will be earned and nonforfeitable on each of the
first five anniversaries of the date of the awards. In the event of the death or
disability of a participant, however, the participant's shares will be deemed to
be earned and nonforfeitable upon such date. A committee to be appointed by the
Board of Directors of Home City will administer the RRP and determine the number
of shares to be awarded to eligible participants. Two directors of Home City are
expected to serve as the trustees of the RRP Trust. Each participant will be
entitled to the benefit of any dividends or other distributions paid on shares
awarded but not yet earned, but such unearned shares will be voted by the
trustees in their discretion. Compensation expense in the amount of the fair
market value of the Common Shares at the date of the award to the employee will
be recognized as the shares are earned. In the event of a termination of a
participant's employment following a change in control of Home City or HCFC, all
shares awarded to such participant in the RRP become earned and nonforfeitable.
The RRP must be approved by the shareholders of HCFC. Pursuant to OTS
regulations, the shareholders may not approve the RRP until six months after the
completion of the Conversion. It is expected that the RRP will purchase shares
of HCFC and that awards will be made immediately after shareholder approval of
the RRP.
EMPLOYMENT AGREEMENTS
Home City intends to enter into an employment agreement with Douglas L.
Ulery (the "Employment Agreement"). Home City currently has no employment
agreements with any of its officers. The Employment Agreement, which will become
effective upon completion of the Conversion, provides for a term of three years
and a salary and performance review by the Board of Directors not less often
than annually, as well as inclusion of the employee in any formally established
employee benefit, bonus, pension and profit-sharing plans for which senior
management personnel are eligible. The Employment Agreement also provides for
vacation and sick leave.
The Employment Agreement is terminable by Home City at any time. In the
event of termination by Home City for "just cause," as defined in the Employment
Agreement, Mr. Ulery will have no right to receive any compensation or other
benefits for any period after such termination. In the event of termination by
Home City other than for just cause, at the end of the term of the Employment
Agreement or in connection with a "change of control," as defined in the
Employment Agreement, Mr. Ulery will be entitled to a continuation of salary
payments for a period of time equal to the term of the Employment Agreement and
a continuation of benefits substantially equal to those being provided at the
date of termination of employment until the earliest to occur of the end of the
term of the Employment Agreement or the date the employee becomes employed
full-time by another employer.
The Employment Agreement also contains provisions with respect to the
occurrence within one year of a "change of control" of (1) the termination of
employment of Mr. Ulery for any reason other than just cause, retirement or
termination at the end of the term of the agreement, (2) a change in the
capacity or circumstances in which he is employed or (3) a material reduction in
his responsibilities, authority, compensation or other benefits provided under
the Employment Agreement without his written consent. In the event of any such
occurrence, Mr. Ulery will be entitled to payment of an amount equal to (a) the
amount of compensation to which he would be entitled for the remainder of the
term of the Employment Agreement, plus (b) the difference between (i) three
times his average annual compensation for the three taxable years immediately
preceding the termination of employment, less (ii) the amount paid to Mr. Ulery
as compensation for the remainder of the employment term. In addition, Mr. Ulery
would be entitled to continued coverage under all benefit plans until the
earliest of the end of the term of the Employment Agreement or the date on which
he is included in another employer's benefit plans as a full-time employee. The
maximum he may receive, however, is limited to an amount which will not result
in the imposition of a penalty tax pursuant to Section 280G(b)(3) of the Code or
exceed limitations imposed by the OTS. "Control," as defined in the Employment
Agreement, generally refers to the acquisition by any person or entity of the
ownership or power to vote 10% or more of the voting stock of Home City or HCFC,
the control of the election of a
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<PAGE> 59
majority of Home City's or HCFC's directors or the exercise of a controlling
influence over the management or policies of Home City or HCFC.
The aggregate payment that would have been made to Mr. Ulery assuming
his termination at June 30, 1996, following a change of control, would have been
approximately $264,000.
CERTAIN TRANSACTIONS WITH HOME CITY
In accordance with OTS regulations, Home City makes loans to executive
officers and directors of Home City in the ordinary course of business and on
the same terms and conditions, including interest rates and collateral, as those
of comparable loans to other persons. All outstanding loans to executive
officers and directors were made pursuant to such policy, do not involve more
than the normal risk of collectibility or present other unfavorable features and
are current in their payments. Loans to all directors and executive officers of
Home City and their immediate family members totaled $822,000 at June 30, 1996,
which would equal less than eight percent of HCFC's shareholder's equity
assuming completion of the Conversion at the mid-point of the Valuation Range.
PROXY HOLDERS
When a deposit account is established at Home City, a general proxy is
typically obtained from the depositor, authorizing the Board of Directors to
cast all votes which the depositor is entitled to cast on all matters to be
submitted to a vote of Home City's members. In the past, the proxyholders
appointed by the Board of Directors have been able to elect all members of the
Board of Directors and otherwise control the affairs of Home City. After the
Conversion, only HCFC, as the sole shareholder of Home City, will be entitled to
vote on matters requiring approval by the shareholders of Home City.
REGULATION
GENERAL
As a savings association organized under the laws of the United States,
Home City is subject to regulatory oversight by the OTS. Because Home City's
deposits are insured by the FDIC, Home City is also subject to examination and
regulation by the FDIC. Home City must file periodic reports with the OTS
concerning its activities and financial condition. Examinations are conducted
periodically by the OTS to determine whether Home City is in compliance with
various regulatory requirements and is operating in a safe and sound manner.
Home City is a member of the FHLB of Cincinnati.
HCFC also will be subject to regulation, examination and oversight by
the OTS as the holding company of Home City and will be required to submit
periodic reports to the OTS.
Congress is considering legislation to recapitalize the SAIF. See "FDIC
Regulations-Assessments." In connection with such legislation, Congress may
eliminate the OTS and may require that Home City be regulated under federal law
in the same fashion as a bank. As a result, Home City may become subject to
additional regulation, examination and oversight by the FDIC. In addition, HCFC
might become a bank holding company subject to examination, regulation and
oversight by the Board of Governors of the Federal Reserve ("FRB"), including
greater activity and capital requirements than imposed on it by the OTS.
OTS REGULATIONS
GENERAL. The OTS is an office in the Department of the Treasury and is
responsible for the regulation and supervision of all savings associations the
deposits of which are insured by the FDIC in the SAIF and all federally
chartered savings institutions. The OTS issues regulations governing the
operation of savings associations, regularly examines such institutions and
imposes assessments on savings associations based on their asset size to cover
the costs of this 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 such associations may
engage in and the investments in real estate, subsidiaries and securities they
may make. The OTS also may initiate enforcement actions against savings
associations and certain persons affiliated with them for violations of laws or
regulations or for engaging in unsafe or
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unsound practices. If the grounds provided by law exist, the OTS may appoint a
conservator or receiver for a savings association.
Federally chartered savings associations are subject to regulatory
oversight by the OTS under various consumer protection and fair lending laws.
These laws govern, among other things, 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 areas and borrowers. Home City has
received a "Satisfactory" examination rating under those regulations.
REGULATORY CAPITAL REQUIREMENTS. Home City is required by OTS
regulations to meet certain minimum capital requirements. These requirements
call for tangible capital of 1.5% of adjusted total assets, core capital (which
for Home City is equal to tangible capital) of 3% of adjusted total assets, and
risk-based capital (which for Home City consists of core capital and general
valuation allowances) equal to 8% of risk-weighted assets. Assets and certain
off balance sheet items are weighted at percentage levels ranging from 0% to
100% depending on their relative risk.
The OTS has proposed to amend the core capital requirement so that
those associations that do not have the highest examination rating and 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. Home
City does not anticipate that it will be adversely affected if the core capital
requirement regulation is amended as proposed. Home City's core capital ratio at
June 30, 1996, was 9.48% and will increase to 13.45% on a pro forma basis at
June 30, 1996, assuming the receipt of approximately $3.4 million in net
proceeds from the sale of the Common Shares at the mid-point of the Valuation
Range and the investment of 50% of the net proceeds by HCFC in Home City. For
information concerning Home City's capital, see "REGULATORY CAPITAL COMPLIANCE."
The OTS has adopted an interest rate risk component to the risk-based
capital requirement, though the implementation of that component has been
delayed. Pursuant to that requirement, a savings association would have to
measure the effect of an immediate 200 basis point change in interest rates on
the value of its portfolio as determined under the methodology of the OTS. If
the measured interest rate risk is above the level deemed normal under the
regulation, the association will be required to deduct one-half of such excess
exposure from its total capital when determining its risk-based capital. In
general, an association with less than $300 million in assets and a risk-based
capital ratio in excess of 12% will not be subject to the interest rate risk
component, and Home City currently qualifies for such exemption. Pending
implementation of the interest rate risk component, the OTS has the authority to
impose a higher individualized capital requirement on any savings association it
deems to have excess interest rate risk. The OTS also may adjust the risk-based
capital requirement on an individualized basis to take into account risks due to
concentrations of credit and non-traditional activities.
The OTS has adopted regulations governing prompt corrective action to
resolve the problems of capital deficient and otherwise troubled savings
associations. At each successively lower capital category, an institution is
subject to more restrictive and numerous mandatory or discretionary regulatory
actions or limits, and the OTS has less flexibility in determining how to
resolve the problems of the institution. In addition, the OTS can downgrade an
association's designation notwithstanding its capital level, based on less than
satisfactory examination ratings in areas other than capital or, after notice
and an opportunity for hearing, if the institution is deemed to be in an unsafe
or unsound condition or to be engaging in an unsafe or unsound practice. Each
undercapitalized association must submit a capital restoration plan to the OTS
within 45 days after it becomes undercapitalized. Such institution will be
subject to increased monitoring and asset growth restrictions and will be
required to obtain prior approval for acquisitions, branching and engaging in
new lines of business. A critically undercapitalized institution must be placed
in conservatorship or receivership within 90 days after reaching such
capitalization level, except under limited circumstances. Home City's capital at
June 30, 1996, meets the standards for a well-capitalized association.
Federal law prohibits an insured institution from making a capital
distribution to anyone or paying management fees to any person having control of
the institution if, after such distribution or payment, the institution would be
undercapitalized. In addition, each company controlling an undercapitalized
institution must guarantee that the institution will comply with the terms of an
OTS-approved capital plan until the institution has been adequately capitalized
on an average during each of four consecutive calendar quarters and must provide
adequate assurances of performance. The
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aggregate liability pursuant to such guarantee is limited to the lesser of (a)
an amount equal to 5% of the institution's total assets at the time the
institution became undercapitalized or (b) the amount which is necessary to
bring the institution into compliance with all capital standards applicable to
such institution at the time the institution fails to comply with its capital
restoration plan.
LIMITATIONS ON CAPITAL DISTRIBUTIONS. The OTS imposes various
restrictions or requirements on the ability of associations to make capital
distributions according to ratings of associations based on their capital level
and supervisory condition. Capital distributions, for purposes of such
regulation, include, without limitation, payments of cash dividends, repurchases
and certain other acquisitions by an association of its shares and payments to
stockholders of another association in an acquisition of such other association.
The first rating category is Tier 1, consisting of associations that,
before and after the proposed capital distribution, meet their fully phased-in
capital requirement. Associations in this category may make capital
distributions during any calendar year equal to the greater of 100% of its net
income, current year-to-date, plus 50% of the amount by which the lesser of the
association's tangible, core or risk-based capital exceeds its fully phased-in
capital requirement for such capital component, as measured at the beginning of
the calendar year, or the amount authorized for a Tier 2 association. The second
category, Tier 2, consists of associations that, before and after the proposed
capital distribution, meet their current minimum, but not fully phased-in
capital requirement. Associations in this category may make capital
distributions up to 75% of their net income over the most recent four quarters.
Tier 3 associations do not meet their current minimum capital requirement and
must obtain OTS approval of any capital distribution. A Tier 1 association
deemed to be in need of more than normal supervision by the OTS may be treated
as a Tier 2 or a Tier 3 association.
Home City meets the requirements for a Tier 1 association and has not
been notified of any need for more than normal supervision. As a subsidiary of
HCFC, Home City will also be required to give the OTS 30 days' notice prior to
declaring any dividend on its common shares. The OTS may object to the dividend
during that 30-day period based on safety and soundness concerns. Moreover, the
OTS may prohibit any capital distribution otherwise permitted by regulation if
the OTS determines that such distribution would constitute an unsafe or unsound
practice.
In December 1994, the OTS issued a proposal to amend the capital
distribution limits. Under that proposal, an association not owned by a holding
company and having a CAMEL examination rating of 1 or 2 could make a capital
distribution without notice to the OTS, if it remains adequately capitalized, as
described above, after the distribution is made. Any other association seeking
to make a capital distribution that would not cause the association to fall
below the capital levels to qualify as adequately capitalized or better would
have to provide notice to the OTS. Except under limited circumstances and with
OTS approval, no capital distribution would be permitted if it would cause the
association to become undercapitalized or worse.
LIQUIDITY. OTS regulations require that each savings association
maintain an average daily balance of liquid assets (cash, certain time deposits,
bankers' acceptances and specified United States government, state or federal
agency obligations) equal to a monthly average of not less than 5% of its net
withdrawable savings deposits plus borrowings payable in one year or less.
Federal regulations also require each member institution to maintain an average
daily balance of short-term liquid assets of 1% of the total of its net
withdrawable savings accounts and borrowings payable in one year or less.
Monetary penalties may be imposed upon member institutions failing to meet these
liquidity requirements. The eligible liquidity of Home City, as computed under
current regulations, at June 30, 1996, was approximately $4.0 million, or 8.5%,
and exceeded the then applicable 5% liquidity requirement by approximately $1.6
million, or 3.5%.
QUALIFIED THRIFT LENDER TEST. Savings associations are required to
maintain a specified level of investments in assets that are designated as
qualifying thrift investments. Such investments are generally related to
domestic residential real estate and manufactured housing and include stock
issued by any FHLB, the FHLMC or the FNMA. The QTL test requires that 65% of an
institution's "portfolio assets" (total assets less goodwill and other
intangibles, property used to conduct business and 20% of liquid assets) consist
of qualified thrift investments on a monthly average basis in 9 out of every 12
months. The OTS may grant exceptions to the QTL test under certain
circumstances. If a savings association fails to meet the QTL Test, the
association and its holding company will be subject to certain operating
restrictions. A savings association that fails to meet the QTL Test will not be
eligible for FHLB advances to the fullest possible extent. See "Federal Home
Loan Banks." At June 30, 1996, Home City had QTL investments equal to
approximately 78.3% of its total portfolio assets.
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LENDING LIMIT. OTS regulations generally limit the aggregate amount
that a savings association can lend to one borrower to an amount equal to 15% of
the association's 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
certain forms of "readily marketable collateral." Real estate is not considered
"readily marketable collateral." Certain types of loans are not subject to these
limits. In applying these limits, loans to certain borrowers may be aggregated.
Based on such limits, Home City is able to lend up to $834,000 to one borrower.
Notwithstanding the specified limits, an association may lend to one borrower up
to $500,000 "for any purpose." See "THE BUSINESS OF HOME CITY - Lending
Activities -- Loan Originations, Purchases and Sales."
TRANSACTIONS WITH INSIDERS AND AFFILIATES. Loans to executive officers,
directors and principal shareholders and their related interests must conform to
the lending limits on loans to one borrower and the total of such loans cannot
exceed the association's total regulatory capital plus additional loan reserves
(or 200% of such capital amount for qualifying institutions with less than $100
million in assets). Most loans to directors, executive officers and principal
shareholders must be approved in advance by a majority of the "disinterested"
members of the board of directors of the association with any "interested"
director not participating. All loans to directors, executive officers and
principal shareholders must be made on terms substantially the same as offered
in comparable transactions to the general public. Loans to executive officers
are subject to additional limitations. Home City was in compliance with such
restrictions at June 30, 1996. See "MANAGEMENT OF HOME CITY - Certain
Transactions with Home City."
Savings associations must comply with Sections 23A and 23B of the
Federal Reserve Act (the "FRA") pertaining to transactions with affiliates. 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. After the
Conversion, HCFC will be an affiliate of Home City. Generally, Sections 23A and
23B of the FRA (i) limit the extent to which the savings institution or its
subsidiaries may engage in "covered transactions" with any one affiliate to an
amount equal to 10% of such institution's capital stock and surplus, (ii) limit
the aggregate of all such transactions with all affiliates to an amount equal to
20% of such capital stock and surplus, and (iii) require that all such
transactions be on terms substantially the same, or at least as favorable to the
institution, as those provided in transactions with a non-affiliate. The term
"covered transaction" includes the making of loans, purchase of assets, issuance
of a guarantee and other similar types of transactions. In addition to the
limits in Sections 23A and 23B, a savings association may not make any loan or
other extension of credit to an affiliate unless the affiliate is engaged only
in activities permissible for a bank holding company and may not purchase or
invest in securities of any affiliate except shares of a subsidiary. Home City
was in compliance with these requirements and restrictions at June 30, 1996.
HOLDING COMPANY REGULATION. Upon consummation of the Conversion, HCFC
will be a savings and loan holding company within the meaning of the Home
Owners' Loan Act (the "HOLA"). As such, HCFC will register with the OTS and will
be subject to OTS regulations, examination, supervision and reporting
requirements, in addition to the reporting requirements of the Securities and
Exchange Commission (the "SEC"). Congress is considering legislation which may
require that HCFC become a bank holding company regulated by the FRB. Bank
holding companies with more than $150 million in assets are subject to capital
requirements similar to those imposed on Home City and have more extensive
interstate acquisition authority than savings and loan holding companies. They
are also subject to more restrictive activity and investment limits than savings
and loan holding companies. No assurances can be given that such legislation
will be enacted, and HCFC cannot be certain of the legislation's impact on its
future operations until it is enacted.
The HOLA generally prohibits a savings and loan holding company from
controlling any other savings association or savings and loan holding company
without prior approval of the OTS, or from acquiring or retaining more than 5%
of the voting shares of a savings association or holding company thereof which
is not a subsidiary. Under certain circumstances, a savings and loan holding
company is permitted to acquire, with the approval of the OTS, up to 15% of the
previously unissued voting shares of an undercapitalized savings association for
cash without such savings association being deemed to be controlled by the
holding company. Except with the prior approval of the OTS, no director or
officer of a savings and loan holding company or person owning or controlling by
proxy or otherwise more than 25% of such company's stock may also acquire
control of any savings institution, other than a subsidiary institution, or any
other savings and loan holding company.
The Board of Directors presently intends to operate HCFC as a unitary
savings and loan holding company. There are generally no restrictions on the
activities of a unitary savings and loan holding company, and such companies are
the
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only financial institution holding companies which may engage in commercial,
securities and insurance activities without limitation. Congress is considering,
however, either limiting unitary savings and loan holding companies to the same
activities as other financial institution holding companies or permitting
certain bank holding companies to engage in commercial activities and expanded
securities and insurance activities. HCFC cannot predict if and in what form
these proposals might become law. The broad latitude to engage in activities
under current law can be restricted, however, if the OTS determines that there
is reasonable cause to believe that the continuation by a savings and loan
holding company of an activity constitutes a serious risk to the financial
safety, soundness or stability of its subsidiary savings association. The OTS
may impose such restrictions as deemed necessary to address such risk, including
limiting (i) payment of dividends by the savings association, (ii) transactions
between the savings association and its affiliates, and (iii) any activities of
the savings association that might create a serious risk that the liabilities of
the holding company and its affiliates may be imposed on the savings
association. Notwithstanding the foregoing rules as to permissible business
activities of a unitary savings and loan holding company, if the savings
association subsidiary of a holding company fails to meet the QTL Test, then
such unitary holding company would become subject to the activities restrictions
applicable to multiple holding companies. At June 30, 1996, Home City met the
QTL Test. See "Qualified Thrift Lender Test."
If HCFC were to acquire control of another savings institution other
than through a merger or other business combination with Home City, HCFC would
thereupon become a multiple savings and loan holding company. Except where such
acquisition is pursuant to the authority to approve emergency thrift
acquisitions and where each subsidiary savings association meets the QTL Test,
the activities of HCFC and any of its subsidiaries (other than Home City or
other subsidiary savings associations) would thereafter be subject to further
restrictions. The HOLA provides that, among other things, no multiple savings
and loan holding company or subsidiary thereof which is not a savings
institution shall commence, or shall continue after becoming a multiple savings
and loan holding company or subsidiary thereof, any business activity other than
(i) furnishing or performing management services for a subsidiary savings
institution, (ii) conducting an insurance agency or escrow business, (iii)
holding, managing or liquidating assets owned by or acquired from a subsidiary
savings institution, (iv) holding or managing properties used or occupied by a
subsidiary savings institution, (v) acting as trustee under deeds of trust, (vi)
those activities previously directly authorized by federal regulation as of
March 5, 1987, to be engaged in by multiple holding companies, or (vii) those
activities authorized by the FRB as permissible for bank holding companies,
unless the OTS by regulation prohibits or limits such activities for savings and
loan holding companies. Those activities described in (vii) above must also be
approved by the OTS prior to being engaged in by a multiple holding company.
The OTS may also approve acquisitions resulting in the formation of a
multiple savings and loan holding company that controls savings associations in
more than one state, if the multiple savings and loan holding company involved
controls a savings association which operated a home or branch office in the
state of the association to be acquired as of March 5, 1987, or if the laws of
the state in which the institution to be acquired is located specifically permit
institutions to be acquired by state-chartered institutions or savings and loan
holding companies located in the state where the acquiring entity is located (or
by a holding company that controls such state-chartered savings institutions).
As under prior law, the OTS may approve an acquisition resulting in a multiple
savings and loan holding company controlling savings associations in more than
one state in the case of certain emergency thrift acquisitions.
FDIC REGULATIONS
DEPOSIT INSURANCE. The FDIC is an independent federal agency that
insures the deposits, up to prescribed statutory limits, of federally insured
banks and thrifts and safeguards the safety and soundness of the bank and thrift
industries. The FDIC administers two separate insurance funds, the BIF for
commercial banks and state savings banks and the SAIF for savings associations
and banks that have acquired deposits from savings associations. The FDIC is
required to maintain designated levels of reserves in each fund. The reserves of
the SAIF are below the level required by law because a significant portion of
the assessments paid into the fund are used to pay the cost of prior thrift
failures. The reserves of the BIF met the level required by law in May 1995.
Depository institutions are generally prohibited from converting from
one insurance fund to the other until the SAIF meets its designated reserve
level, except with the prior approval of the FDIC in certain limited cases,
provided applicable exit and entrance fees are paid. The insurance fund
conversion provisions do not prohibit a SAIF member from converting to a bank
charter or merging with a bank during the moratorium, as long as the resulting
bank continues to pay the applicable insurance assessments to the SAIF during
that period and certain other conditions are met.
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Home City is a member of the SAIF and its deposit accounts are insured
by the FDIC up to the prescribed limits. The FDIC has examination authority over
all insured depository institutions, including Home City, and has authority to
initiate enforcement actions against federally insured savings associations if
the FDIC does not believe the OTS has taken appropriate action to safeguard
safety and soundness and the deposit insurance fund.
ASSESSMENTS. The FDIC is authorized to establish separate annual
assessment rates for deposit insurance each for members of the BIF and the SAIF.
The FDIC may increase assessment rates for either fund if necessary to restore
the fund's ratio of reserves to insured deposits to its target level within a
reasonable time and may decrease such rates if such target level has been met.
The reserves of the SAIF are below the level required by law because a
significant portion of the assessments paid into the SAIF are used to pay the
cost of prior thrift failures.
The BIF has, however, met its required reserve level. The assessments
paid by healthy savings associations exceeded those paid by healthy BIF members
by approximately $.19 per $100 in deposits for 1995, and no BIF assessments will
be required of healthy commercial banks in 1996 except a $2,000 minimum fee. The
disparity in the premiums paid between savings associations and commercial banks
could have a negative competitive impact on Home City and other savings
associations.
Congress is considering legislation to recapitalize the SAIF and
eliminate the significant premium disparity. Currently, the recapitalization
plan provides for a special assessment of approximately $.69 to .71 per $100 of
SAIF deposits held at some date in 1995, currently March 31, 1995, in order to
increase SAIF reserves to the level required by law. Certain associations
holding SAIF-insured deposits would pay a lower special assessment. In addition,
the cost of prior thrift failures would be shared by both the SAIF and the BIF,
which might increase BIF assessments by $.02 to $.025 per $100 in deposits. SAIF
assessments for healthy savings associations would initially be set at a
significantly lower level but could never be reduced below the level set for
healthy BIF institutions.
Home City had $40.4 million in deposits at March 31, 1995. If a special
assessment of $.69 to $.71 per $100 in deposits is imposed, Home City will pay
an additional assessment of between approximately $279,000 and 287,000. Although
such assessment should be tax-deductible, earnings and capital will be reduced
for the quarter in which it is recorded.
The recapitalization plan also provides for the merger of the SAIF and
BIF and for the elimination of the federal thrift charter or of the separate
federal regulation of thrifts. Under the legislation, the OTS would cease to
exist and Home City would be regulated under federal law as a bank and, as a
result, would become subject to the more restrictive activity limitations
imposed on national banks. Recently passed legislation eliminates the deduction
for income tax purposes of amounts designated as reserved for bad debts. See
Note __ of the Notes to the Financial Statements. Such legislation requires,
generally, that bad debt reserves taken by savings associations after 1987 using
the percentage of taxable income method be included in future taxable income of
Home City over a six-year period, beginning in the 1996 tax year. The
requirement that Home City convert to a bank charter and the tax legislation
could have an adverse effect on HCFC and Home City.
No assurance can be given that the SAIF recapitalization plan or the
proposed tax legislation will be enacted into law or in what form they may be
enacted. Moreover, Home City can give no assurance that the disparity between
BIF and SAIF assessments will be eliminated. Finally, Home City cannot predict
the impact of conversion to, or regulation as, a bank until the legislation
requiring such change is enacted.
FRB REGULATIONS
RESERVE REQUIREMENTS. FRB regulations require savings associations to
maintain reserves against their transaction accounts (primarily NOW accounts) of
3% of deposits in net transaction accounts for that portion of accounts in
excess of $4.3 million up to $52 million, and to maintain reserves of 10% of
deposits in net transaction accounts against that portion of total transaction
accounts in excess of $52 million. These percentages are subject to adjustment
by the FRB. At June 30, 1996, Home City was in compliance with its reserve
requirements.
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FEDERAL HOME LOAN BANKS
The FHLBs, under the regulatory oversight of the Federal Housing
Financing Board, provide credit to their members in the form of advances. Home
City is a member of the FHLB of Cincinnati and must maintain an investment in
the capital stock of the FHLB of Cincinnati in an amount equal to the greater of
1.0% of the aggregate outstanding principal amount of Home City's residential
mortgage loans, home purchase contracts and similar obligations at the beginning
of each year, or 5% of its advances from the FHLB. Home City is in compliance
with this requirement with an investment in FHLB of Cincinnati stock of $394,000
at June 30, 1996.
FHLB advances to members such as Home City who meet the QTL test are
generally limited to the lower of (i) 25% of the member's assets and (ii) 20
times the member's investment in FHLB stock. At June 30, 1996, Home City's
maximum limit on advances was approximately $7.9 million. The granting of
advances is subject also to the FHLB's collateral and credit underwriting
guidelines. At June 30, 1996, the FHLB of Cincinnati offered advances with fixed
and variable interest rates ranging from 5.6% to 8.3%, which included the
following types of borrowings: short-term advances with terms ranging from one
day to one year, including cash management accounts and lines of credit;
fixed-rate, long-term advances with terms ranging from seven months to 20 years;
and various customized advances with terms ranging from one month to 30 years
and with call, balloon or mortgage-matching features.
Upon the origination or renewal of a loan or advance, the FHLB of
Cincinnati is required by law to obtain and maintain a security interest in
collateral in one or more of the following categories: fully disbursed, whole
first mortgage loans on improved residential property or securities representing
a whole interest in such loans; securities issued, insured or guaranteed by the
United States government or an agency thereof; deposits in any FHLB; or other
real estate related collateral (up to 30% of the member association's capital)
acceptable to the applicable FHLB, if such collateral has a readily
ascertainable value and the FHLB can perfect its security interest in the
collateral.
Each FHLB is required to establish standards of community investment or
service that its members must maintain for continued access to long-term
advances from the FHLBs. The standards take into account a member's performance
under the Community Reinvestment Act and its record of lending to first-time
home buyers. All long-term advances by each FHLB must be made only to provide
funds for residential housing finance. The FHLBs have established an "Affordable
Housing Program" to subsidize the interest rate of advances to member
associations engaged in lending for long-term, low- and moderate-income,
owner-occupied and affordable rental housing at subsidized rates. The FHLB of
Cincinnati reviews and accepts proposals for subsidies under that program twice
a year. Home City has participated in such program.
TAXATION
FEDERAL TAXATION
HCFC is subject to the federal tax laws and regulations which
apply to corporations generally. Home City is also subject to the federal tax
laws and regulations which apply to corporations generally. However, certain
thrift institutions such as Home City were, prior to the enactment of the Small
Business Jobs Protection Act, which was signed into law on August 21, 1996,
allowed deductions for bad debts under methods more favorable to 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 the reserve method of Section 593 of the Code.
Under Section 593, a thrift institution annually could elect
to deduct bad debts under either (i) the "percentage of taxable income" method
applicable only to thrift institutions, or (ii) the "experience" method that
also was available to small banks. Under the "percentage of taxable income"
method, a thrift institution generally was allowed a deduction for an addition
to its bad debt reserve equal to 8% of its taxable income (determined without
regard to this deduction and with additional adjustments). Under the experience
method, a thrift institution was generally allowed a deduction for an addition
to its bad debt reserve equal to the greater of (i) an amount based on its
actual average experience for losses in the current and five preceding taxable
years, or (ii) an amount necessary to restore the reserve to its balance as of
the close of the base year. A thrift institution could elect annually to compute
its allowable addition to bad debt reserves for qualifying loans either under
the experience method or the percentage of taxable income method. For tax years
1993, 1992 and 1991, Home City used the percentage of taxable income method
because such method provided a higher bad debt deduction than the experience
method.
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Section 1616(a) of the Small Business Job Protection Act
repealed the Section 593 reserve method of accounting for bad debts by thrift
institutions, effective for taxable years beginning after 1995. Thrift
institutions that would be treated as small banks are allowed to utilize the
experience method applicable to such institutions, while thrift institutions
that are treated as large banks are required to use only the specific charge off
method. The percentage of taxable income method of accounting for bad debts is
no longer available for any financial institution.
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. Any adjustments under Section 481(a) of the
Code required to be recaptured with respect to such change generally will be
determined solely with respect to the "applicable excess reserves" of the
taxpayer. The amount of the applicable excess reserves will be taken into
account ratably over a six-taxable year period, beginning with the first taxable
year beginning after 1995, subject to the residential loan requirement described
below. In the case of a thrift institution that becomes a large bank, the amount
of the institution's applicable excess reserves generally is the excess of (i)
the balances of its reserve for losses on qualifying real property loans
(generally loans secured by improved real estate) and its reserve for losses on
nonqualifying loans (all other types of loans) as of the close of its last
taxable year beginning before January 1, 1996, over (ii) the balances of such
reserves as of the close of its last taxable year beginning before January 1,
1988 (i.e., the "pre-1988 reserves"). In the case of a thrift institution that
becomes a small bank, like Home City, the amount of the institution's applicable
excess reserves generally is the excess of (i) the balances of its reserve for
losses on qualifying real property loans and its reserve for losses on
nonqualifying loans as of the close of its last taxable year beginning before
January 1, 1996, over (ii) the greater of the balance of (a) its pre-1988
reserves or (b) what the thrift's reserves would have been at the close of its
last year beginning before January 1, 1996, had the thrift always used the
experience method.
For taxable years that begin after December 31, 1995, and
before January 1, 1998, if a thrift meets the residential loan requirement for a
tax year, the recapture of the applicable excess reserves otherwise required to
be taken into account as a Code Section 481(a) adjustment for the year will be
suspended. A thrift meets the residential loan requirement if, for the tax year,
the principal amount of residential loans made by the thrift during the year is
not less then its base amount. The "base amount" generally is the average of the
principal amounts of the residential loans made by the thrift during the six
most recent tax years beginning before January 1, 1996.
A residential loan is a loan as described in Section
7701(a)(19)(C)(v) (generally a loan secured by residential real and church
property and certain mobile homes), but only to the extent that the loan is made
to the owner of the property to acquire, construct, or improve the property.
In addition to the regular income tax, HCFC and Home City are
subject to a minimum tax. An alternative minimum tax is imposed at a minimum tax
rate of 20% on "alternative minimum taxable income" (which is the sum of a
corporation's regular taxable income, with certain adjustments, and tax
preference items), less any available exemption. Such tax preference items
include interest on certain tax-exempt bonds issued after August 7, 1986. In
addition, 75% of the amount by which a corporation's "adjusted current earnings"
exceeds its alternative minimum taxable income computed without regard to this
preference item and prior to reduction by net operating losses, is included in
alternative minimum taxable income. Net operating losses can offset no more than
90% of alternative minimum taxable income. The alternative minimum tax is
imposed to the extent it exceeds the corporation's regular income tax. Payments
of alternative minimum tax may be used as credits against regular tax
liabilities in future years. In addition, for taxable years after 1986 and
before 1996, HCFC and Home City are also subject to an environmental tax equal
to 0.12% of the excess of alternative minimum taxable income for the taxable
year (determined without regard to net operating losses and the deduction for
the environmental tax) over $2.0 million.
The balance of the pre-1988 reserves is subject to the
provisions of Section 593(e) as modified by the Small Business Job Protection
Act which requires recapture in the case of certain excessive distributions to
shareholders. The pre-1988 reserves may not be utilized for payment of cash
dividends or other distributions to a shareholder (including distributions in
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses). Distribution of a cash dividend by a thrift institution to a
shareholder is treated as made: first, out of the institution's post-1951
accumulated earnings and profits; second, out of the pre-1988 reserves; and
third, out of such other accounts as may be proper. To the extent a distribution
by Home City to HCFC is deemed paid out of its pre-1988 reserves under these
rules, the pre-1988 reserves would be reduced and Home City's gross income for
tax purposes would be increased by the amount which, when reduced by the income
tax, if any, attributable to the inclusion of such amount in its gross income,
equals the amount
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deemed paid out of the pre-1988 reserves. As of June 30, 1996, Home City's
pre-1988 reserves for tax purposes totaled approximately $1.1 million. Home City
believes it had approximately $4.2 million of accumulated earnings and profits
for tax purposes as of June 30, 1996, 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 Home City will
have current or accumulated earnings and profits in subsequent years.
The tax returns of Home City have been audited or closed
without audit through fiscal year 1992. In the opinion of management, any
examination of open returns would not result in a deficiency which could have a
material adverse effect on the financial condition of Home City.
OHIO TAXATION
HCFC is subject to the Ohio corporation franchise tax, which, as
applied to HCFC, is a tax measured by both net earnings and net worth. The rate
of tax is the greater of (i) 5.1% on the first $50,000 of computed Ohio taxable
income and 8.9% of computed Ohio taxable income in excess of $50,000 or (ii)
0.582% times taxable net worth.
In computing its tax under the net worth method, HCFC may exclude 100%
of its investment in the capital stock of Home City after the Conversion, as
reflected on the balance sheet of HCFC, in computing its taxable net worth as
long as it owns at least 25% of the issued and outstanding capital stock of Home
City. The calculation of the exclusion from net worth is based on the ratio of
the excludable investment (net of any appreciation or goodwill included in such
investment) to total assets multiplied by the net value of the stock. As a
holding company, HCFC may be entitled to various other deductions in computing
taxable net worth that are not generally available to operating companies.
A special litter tax is also applicable to all corporations, including
HCFC, subject to the Ohio corporation franchise tax other than "financial
institutions." If the franchise tax is paid on the net income basis, the litter
tax is equal to .11% of the first $50,000 of computed Ohio taxable income and
.22% of computed Ohio taxable income in excess of $50,000. If the franchise tax
is paid on the net worth basis, the litter tax is equal to .014% times taxable
net worth.
Home City is a "financial institution" for State of Ohio tax purposes.
As such, it is subject to the Ohio corporate franchise tax on "financial
institutions," which is imposed annually at a rate of 1.5% of Home City's book
net worth determined in accordance with GAAP. As a "financial institution," Home
City is not subject to any tax based upon net income or net profits imposed by
the State of Ohio.
THE CONVERSION
THE OTS HAS APPROVED THE PLAN, SUBJECT TO THE APPROVAL OF THE PLAN BY
THE MEMBERS OF HOME CITY ENTITLED TO VOTE ON THE PLAN AND SUBJECT TO THE
SATISFACTION OF CERTAIN OTHER CONDITIONS IMPOSED BY THE OTS. OTS APPROVAL DOES
NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN.
GENERAL
On September 3, 1996, the Board of Directors of Home City unanimously
adopted a Plan of Conversion and recommended that the voting members of Home
City approve the Plan at the Special Meeting to be held on ___________, 1996.
During and upon completion of the Conversion, Home City will continue to provide
the services presently offered to depositors and borrowers, will maintain its
existing offices and will retain its existing management and employees.
Based on the current Valuation Range, between 612,000 and 952,200
Common Shares are expected to be offered in the Subscription Offering and the
Community Offering in which preference will be given to natural persons residing
in Clark County, Ohio, at a price of $10 per share. Federal regulations require,
with certain exceptions, that shares offered in connection with the Conversion
must be sold up to at least the minimum point of the Valuation Range in order
for the Conversion to become effective. The actual number of shares sold in
connection with the Conversion will be determined upon completion of the
Conversion in the sole discretion of the Board of Directors based upon the final
determination of the pro forma market value of Home City at the completion of
the Subscription Offering and the Community Offering. See "Pricing and Number of
Common Shares to be Sold."
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The Common Shares will be offered in the Subscription Offering to (1)
each account holder of Home City who, as of June 30, 1995, had a Qualifying
Deposit ("Eligible Account Holders"), (2) the ESOP, (3) each account holder of
Home City who, as of September 30, 1996, had a Qualifying Deposit ("Supplemental
Eligible Account Holders"), and (4) each account holder of Home City having a
savings deposit of record with Home City on _____________ (the "Voting Record
Date"), and each borrower of record on the Voting Record Date whose loan was
outstanding on May 1, 1996 (such depositors and borrowers as of ______________,
collectively, the "Voting Members"). Any Common Shares not subscribed for in the
Subscription Offering may be sold to the general public in the Community
Offering in a manner which will seek to achieve the widest distribution of the
Common Shares, but which will give preference to natural persons residing in
Clark County, Ohio. Under OTS regulations, the Community Offering must be
completed within 45 days after completion of the Subscription Offering, unless
such period is extended by Home City with the approval of the OTS. If the
Community Offering is determined not to be feasible, an occurrence that is not
currently anticipated, the Board of Directors of Home City will consult with the
OTS to determine an appropriate alternative method of selling unsubscribed
Common Shares. No alternative sales methods are currently planned.
OTS regulations require the completion of the Conversion within 24
months after the date of the approval of the Plan by the Voting Members of Home
City. The commencement and completion of the Conversion will be subject to
market conditions and other factors beyond Home City's control. Due to changing
economic and market conditions, no assurance can be given as to the length of
time that will be required to complete the sale of the Common Shares. If delays
are experienced, significant changes may occur in the estimated pro forma market
value of Home City, together with corresponding changes in the aggregate
offering price and the net proceeds realized by HCFC from the sale of the Common
Shares. In such circumstances, Home City may also incur substantial additional
printing, legal and accounting expenses in completing the Conversion. In the
event the Conversion is not successfully completed, Home City will be required
to charge all Conversion expenses against current earnings.
The following is a summary of the material aspects of the Conversion.
The summary is qualified in its entirety by reference to the provisions of the
Plan, a copy of which may be inspected at each office of Home City and at the
office of the OTS. The Plan is also filed as an exhibit to the Registration
Statement of which this Prospectus is a part, and copies of the Registration
Statement may be obtained from the SEC. See "ADDITIONAL INFORMATION."
PRINCIPAL EFFECTS OF THE CONVERSION
VOTING RIGHTS. Savings account holders who are members of Home City in
its mutual form will have no voting rights in Home City as converted and will
not participate, therefore, in the election of directors or otherwise control
Home City's affairs. After the Conversion, voting rights in Home City will be
vested exclusively in HCFC as the sole shareholder of Home City. Voting rights
in HCFC will be held exclusively by its shareholders. Each holder of HCFC's
Common Shares will be entitled to one vote for each Common Share owned on any
matter to be considered by HCFC's shareholders. See "DESCRIPTION OF AUTHORIZED
SHARES."
SAVINGS ACCOUNTS AND LOANS. Savings accounts in Home City, as
converted, will be equivalent in amount, interest rate and other terms to the
present savings accounts in Home City, and the existing FDIC insurance on such
deposits will not be affected by the Conversion. The Conversion will not affect
the terms of loan accounts or the rights and obligations of borrowers under
their individual contractual arrangements with Home City.
TAX CONSEQUENCES. The consummation of the Conversion is expressly
conditioned on receipt by Home City of a private letter ruling from the Internal
Revenue Service (the "IRS") or an opinion of counsel to the effect that the
Conversion will constitute a tax-free reorganization as defined in Section
368(a) of the Code. Home City intends to proceed with the Conversion based upon
an opinion rendered by its special counsel, Vorys, Sater, Seymour and Pease,
addressing the following federal tax consequences, which are all of the material
federal tax consequences of the Conversion:
(1) The Conversion constitutes a reorganization within the meaning of
Section 368(a)(1)(F) of the Code, and no gain or loss will be
recognized by Home City in its mutual form or in its stock form as a
result of the Conversion. Home City in its mutual form and Home City in
its stock form will each be a "party to a reorganization" within the
meaning of Section 368(B) of the Code;
(2) No gain or loss will be recognized by Home City upon the receipt of
money from HCFC in exchange for the capital stock of Home City, as
converted;
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(3) The assets of Home City will have the same basis in its hands
immediately after the Conversion as it had in its hands immediately
prior to the Conversion, and the holding period of the assets of Home
City after the Conversion will include the period during which the
assets were held by Home City before the Conversion;
(4) No gain or loss will be recognized to the deposit account holders
of Home City upon the issuance to them, in exchange for their
respective withdrawable deposit accounts in Home City immediately prior
to the Conversion, of withdrawable deposit accounts in Home City
immediately after the Conversion, in the same dollar amount as their
withdrawable deposit accounts in Home City immediately prior to the
Conversion, plus, in the case of Eligible Account Holders and
Supplemental Eligible Account Holders, the interests in the Liquidation
Account of Home City, as described below;
(5) The basis of the withdrawable deposit accounts in Home City held by
its deposit account holders immediately after the Conversion will be
the same as the basis of their deposit accounts in Home City
immediately prior to the Conversion. The basis of the interests in the
Liquidation Account received by the Eligible Account Holders and
Supplemental Eligible Account Holders will be zero. The basis of the
nontransferable subscription rights received by Eligible Account
Holders, Supplemental Eligible Account Holders and Other Eligible
Members (hereinafter defined) will be zero (assuming that at
distribution such rights have no ascertainable fair market value);
(6) No gain or loss will be recognized to Eligible Account Holders,
Supplemental Eligible Account Holders or Other Eligible Members upon
the distribution to them of nontransferable subscription rights to
purchase Common Shares (assuming that at distribution such rights have
no ascertainable fair market value), and no taxable income will be
realized by such Eligible Account Holders, Supplemental Eligible
Account Holders or Other Eligible Members as a result of their exercise
of such nontransferable subscription rights;
(7) The basis of the Common Shares purchased by members of Home City
pursuant to the exercise of subscription rights will be the purchase
price thereof (assuming that such rights have no ascertainable fair
market value and that the purchase price is not less than the fair
market value of the shares on the date of such exercise), and the
holding period of such shares will commence on the date of such
exercise. The basis of the Common Shares purchased other than by the
exercise of subscription rights will be the purchase price thereof
(assuming in the case of the other subscribers that the opportunity to
buy in the Subscription Offering has no ascertainable fair market
value), and the holding period of such shares will commence on the day
after the date of the purchase;
(8) For purposes of Section 381 of the Code, Home City will be treated
as if there had been no reorganization. The taxable year of Home City
will not end on the effective date of the Conversion and, immediately
after the Conversion, Home City in its stock form will succeed to and
take into account the tax attributes of Home City in its mutual form
immediately prior to the Conversion, including Home City's earnings and
profits or deficit in earnings and profits;
(9) The bad debt reserves of Home City in its mutual form immediately
prior to the Conversion will not be required to be restored to the
gross income of Home City in its stock form as a result of the
Conversion, and immediately after the Conversion such bad debt reserves
will have the same character in the hands of Home City in its stock
form as they would have had if there had been no Conversion. Home City
in its stock form will succeed to and take into account the dollar
amounts of those accounts of Home City in its mutual form which
represent bad debt reserves in respect of which Home City in its mutual
form has taken a bad debt deduction for taxable years ending on or
before the Conversion; and
(10) Regardless of book entries made for the creation of the
Liquidation Account, the Conversion will not diminish the accumulated
earnings and profits of Home City available for the subsequent
distribution of dividends within the meaning of Section 316 of the
Code. The creation of the Liquidation Account on the records of Home
City will have no effect on its taxable income, deductions for
additions to reserves for bad debts under Section 593 of the Code or
distributions to stockholders under Section 593(e) of the Code.
Home City has received an opinion from Keller to the effect that the
subscription rights have no ascertainable fair market value because the rights
are received by specified persons at no cost, may not be transferred and are of
short duration. The IRS could challenge the assumption that the subscription
rights have no ascertainable fair market value.
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For Ohio tax purposes, the tax consequences of the Conversion will be
as follows:
(1) Home City is a "financial institution" for State of Ohio tax
purposes, and the Conversion will not change such status;
(2) Home City is subject to the Ohio corporate franchise tax on
"financial institutions," which is imposed annually at a rate of 1.5%
of Home City's equity capital determined in accordance with GAAP, and
the Conversion will not change such status;
(3) As a "financial institution," Home City is not subject to any tax
based upon net income or net profit imposed by the State of Ohio, and
the Conversion will not change such status;
(4) The Conversion will not be a taxable transaction to Home City in
its mutual or stock form for purposes of the Ohio corporate franchise
tax; however, as a consequence of the Conversion, the annual Ohio
corporate franchise tax liability of Home City will increase if the
taxable net worth of Home City (i.e., book net worth computed in
accordance with GAAP at the close of Home City's taxable year for
federal income tax purposes) increases thereby; and
(5) The Conversion will not be a taxable transaction to any deposit
account holder or borrower member of Home City in its mutual or stock
form for purposes of the Ohio corporate franchise tax and the Ohio
personal income tax.
Each Eligible Account Holder, Supplemental Eligible Account Holder and
Other Eligible Member is urged to consult his or her own tax advisor with
respect to the effect of such tax consequences on his or her own particular
facts and circumstances.
LIQUIDATION ACCOUNT. In the unlikely event of a complete liquidation of
Home City in its present mutual form, each depositor in Home City would receive
a pro rata share of any assets of Home City remaining after payment of the
claims of all creditors, including the claims of all depositors to the
withdrawable value of their savings accounts. A depositor's pro rata share of
such remaining assets would be the same proportion of such assets as the value
of such depositor's savings deposits bears to the total aggregate value of all
savings deposits in Home City at the time of liquidation.
In the event of a complete liquidation of Home City in its stock form
after the Conversion, each savings depositor as of June 30, 1995, and September
30, 1996, would have a claim of the same general priority as the claims of all
other general creditors of Home City. Except as described below, each
depositor's claim would be solely in the amount of the balance in such
depositor's savings account plus accrued interest. The depositor would have no
interest in the assets of Home City above that amount. Such assets would be
distributed to HCFC as the sole shareholder of Home City.
For the purpose of granting a limited priority claim to the assets of
Home City in the event of a complete liquidation thereof to Eligible Account
Holders and Supplemental Eligible Account Holders who continue to maintain
savings accounts at Home City after the Conversion, Home City will, at the time
of Conversion, establish the Liquidation Account in an amount equal to the
regulatory capital of Home City as of the latest practicable date prior to the
Conversion at which such regulatory capital can be determined. For this purpose,
Home City shall use the regulatory capital figure no later than that set forth
in its latest statement of financial condition contained in the Prospectus. The
Liquidation Account will not operate to restrict the use or application of any
of the regulatory capital of Home City.
Each Eligible Account Holder and Supplemental Eligible Account Holder
will have a separate inchoate interest (the "Subaccount") in a portion of the
Liquidation Account for Qualifying Deposits held on the Eligibility Record Date
or the Supplemental Eligibility Record Date, as the case may be.
The balance of each initial Subaccount shall be an amount determined by
multiplying the amount in the Liquidation Account by a fraction, the numerator
of which is the closing balance in the account holder's account as of the close
of business on the Eligibility Record Date or the Supplemental Eligibility
Record Date, as the case may be, and the denominator of which is the total
amount of Qualifying Deposits of all Eligible Account Holders and Supplemental
Eligible Account Holders on the corresponding record date. The balance of each
Subaccount may be decreased but will never be increased. If, at the close of
business on any annual closing date of Home City subsequent to the respective
record dates the
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balance in the savings account to which a Subaccount relates is less than the
lesser of (i) the deposit balance in such savings account at the close of
business on any other annual closing date subsequent to the Eligibility Record
Date or Supplemental Eligibility Record Date or (ii) the amount of the
Qualifying Deposit as of the Eligibility Record Date or the Supplemental
Eligibility Record Date, the balance of the Subaccount for such savings account
shall be adjusted proportionately to the reduction in such savings account
balance. In the event of any such downward adjustment, such Subaccount balance
shall not be subsequently increased notwithstanding any increase in the deposit
balance of the related savings account. If any savings account is closed, its
related Subaccount shall be reduced to zero upon such closing.
In the event of a complete liquidation of the converted Home City (and
only in such event), each Eligible Account Holder and Supplemental Eligible
Account Holder shall receive from the Liquidation Account a distribution equal
to the current balance in each of such account holder's Subaccounts before any
liquidation distribution may be made to HCFC as the sole shareholder of Home
City. Any assets remaining after satisfaction of such liquidation rights and the
claims of Home City's creditors would be distributed to HCFC as the sole
shareholder of Home City. No merger, consolidation, purchase of bulk assets or
similar combination or transaction with another institution, the deposits of
which are insured by the FDIC, will be deemed to be a complete liquidation for
this purpose and, in any such transaction, the Liquidation Account shall be
assumed by the surviving institution.
COMMON SHARES. SHARES ISSUED UNDER THE PLAN CANNOT AND WILL NOT BE
INSURED BY THE FDIC. For a description of the characteristics of the Common
Shares, see "DESCRIPTION OF AUTHORIZED SHARES."
INTERPRETATION AND AMENDMENT OF THE PLAN
The Boards of Directors of Home City and HCFC will interpret the Plan.
To the extent permitted by law, all interpretations of the Plan by the Boards of
Directors of Home City and HCFC will be final. The Plan may be amended by the
Boards of Directors of Home City and HCFC at any time before completion of the
Conversion with the concurrence of the OTS. If Home City and HCFC determine upon
advice of counsel and after consultation with the OTS that any such amendment is
material, subscribers will be notified of the amendment and will be provided the
opportunity to affirm, increase, decrease or cancel their subscriptions. Any
person who does not affirmatively elect to continue his subscription or elects
to rescind his subscription before the date specified in the notice will have
all of his funds promptly refunded with interest. Any person who elects to
decrease his subscription will have the appropriate portion of his funds
promptly refunded with interest.
CONDITIONS AND TERMINATION
The completion of the Conversion requires the approval of the Plan and
the adoption of the Federal Stock Charter and Federal Stock Bylaws by the Voting
Members of Home City at the Special Meeting and the sale of the requisite amount
of Common Shares within 24 months following the date of such approval. If these
conditions are not satisfied, the Plan will automatically terminate and Home
City will continue its business in the mutual form of organization. The Plan may
be voluntarily terminated by the Board of Directors at any time before the
Special Meeting and at any time thereafter with the approval of the OTS.
SUBSCRIPTION OFFERING
THE SUBSCRIPTION OFFERING WILL EXPIRE AT 4:00 P.M., EASTERN TIME, ON
THE SUBSCRIPTION EXPIRATION DATE. SUBSCRIPTION RIGHTS NOT EXERCISED BEFORE THE
SUBSCRIPTION EXPIRATION DATE WILL BE VOID, WHETHER OR NOT HCFC HAS BEEN ABLE TO
LOCATE EACH PERSON ENTITLED TO SUCH SUBSCRIPTION RIGHTS.
Nontransferable subscription rights to purchase Common Shares are being
issued at no cost to all eligible persons and entities in accordance with the
preference categories established by the Plan, as described below. Each
subscription right may be exercised only by the person to whom it is issued and
only for his or her own account. Each person subscribing for shares must
represent to HCFC that he or she is purchasing such shares for his or her own
account and that he or she has no agreement or understanding with any other
person for the sale or transfer of such shares.
The number of Common Shares which a person who has subscription rights
may purchase will be determined, in part, by the total number of Common Shares
to be issued and the availability of such shares for purchase under the
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preference categories set forth in the Plan and certain other limitations. See
"Limitations on Purchases of Common Shares." The sale of any Common Shares
pursuant to subscriptions received is contingent upon approval of the Plan by
the Voting Members of Home City at the Special Meeting.
The preference categories for the allocation of Common Shares, which
have been established by the Plan in accordance with applicable regulations, are
as follows:
Category 1. Eligible Account Holders will receive, without
payment, nontransferable subscription rights to purchase up to the
greater of (i) the amount permitted to be purchased in the Community
Offering, (ii) .10% of the total number of Common Shares sold in
connection with the Conversion, or (iii) 15 times the product (rounded
down to the next whole number) obtained by multiplying the total number
of Common Shares sold in connection with the Conversion by a fraction of
which the numerator is the amount of the Eligible Account Holder's
Qualifying Deposit and the denominator of which is the total amount of
Qualifying Deposits of all Eligible Account Holders, in each case on the
Eligibility Record Date, subject to the overall purchase limitations set
forth in Section 10 of the Plan. See "Limitations on Purchases of Common
Shares."
If the exercise of subscription rights in this Category 1
results in an over-subscription, Common Shares will be allocated among
subscribing Eligible Account Holders in a manner which will, to the
extent possible, make the total allocation of each subscriber equal 100
shares or the amount subscribed for, whichever is less. Any Common
Shares remaining after such allocation has been made will be allocated
among the subscribing Eligible Account Holders whose subscriptions
remain unfilled in the proportion which the amount of their respective
Qualifying Deposits on the Eligibility Record Date bears to the total
Qualifying Deposits of all subscribing Eligible Account Holders on such
date. No fractional shares will be issued. The subscription rights of
the Eligible Account Holders are subordinate to the limited priority
right of the ESOP set forth in the following paragraph.
Category 2. The ESOP will receive, without payment,
nontransferable subscription rights to purchase up to 10% of the Common
Shares sold in connection with the Conversion. The subscription rights
of the ESOP will be subordinate to the subscription rights in Category
1, except that if the final pro forma market value of Home City exceeds
the maximum of the Valuation Range, the ESOP shall have first priority
with respect to the amount sold in excess of the maximum of the
Valuation Range. If the ESOP is unable to purchase all or part of the
Common Shares for which it subscribes due to an oversubscription in
Category 1, the ESOP may purchase Common Shares on the open market or
may purchase authorized but unissued shares of HCFC. If the ESOP
purchases authorized but unissued shares from HCFC, such purchases would
have a dilutive effect on the interests of HCFC's shareholders.
Category 3. Supplemental Eligible Account Holders, will
receive, without payment, non-transferable subscription rights to
purchase up to the greater of (i) the amount permitted to be purchased
in the Community Offering, (ii) .10% of the total number of Common
Shares sold in connection with the Conversion, or (iii) 15 times the
product (rounded down to the next whole number) obtained by multiplying
the total number of Common Shares sold in connection with the Conversion
by a fraction of which the numerator is the amount of the Supplemental
Eligible Account Holder's Qualifying Deposit and the denominator of
which is the total amount of Qualifying Deposits of all Supplemental
Eligible Account Holders, in each case on the Supplemental Eligibility
Record Date, subject to the overall purchase limitations set forth in
Section 10 of the Plan. See "Limitations on Purchases of Common Shares."
If the exercise of subscription rights in this Category 3
results in an over-subscription, Common Shares will be allocated among
subscribing Supplemental Eligible Account Holders in a manner which
will, to the extent possible, make the total allocation of each
subscriber equal 100 shares or the amount subscribed for, whichever is
lesser. Any Common Shares remaining after such allocation has been made
will be allocated among the subscribing Supplemental Account Holders
whose subscriptions remain unfilled in the proportion which the amount
of their respective Qualifying Deposits on the Supplemental Eligibility
Record Date bears to the total Qualifying Deposits of all subscribing
Supplemental Eligible Account Holders on such date. No fractional shares
will be issued.
Subscription rights received in this Category 3 will be
subordinate to the subscription rights in Categories 1 and 2.
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Category 4. All Voting Members who are not Eligible Account
Holders or Supplemental Eligible Account Holders ("Other Eligible
Members") will receive nontransferable subscription rights to purchase
Common Shares in an amount up to the greater of the amount permitted to
be purchased in the Community Offering or .10% of the total number of
Common Shares sold in connection with the Conversion, subject to the
overall purchase limitations set forth in Section 10 of the Plan. See
"Limitations on Purchases of Common Shares." In the event of an
oversubscription in this Category 4, the available shares will be
allocated among subscribing Other Eligible Members on an equitable basis
in the same proportion that their respective subscriptions bear to the
total amount of all subscriptions in this Category 4.
Subscription rights received in this Category 4 will be
subordinate to the subscription rights in Categories 1 through 3.
The Board of Directors may reject any one or more subscriptions if,
based upon the Board of Directors' interpretation of applicable regulations,
such subscriber is not entitled to the shares for which he or she has subscribed
or if the sales of the shares subscribed for would be in violation of any
applicable statutes, regulations or rules.
HCFC will make reasonable efforts to comply with the securities laws of
all states in the United States in which persons having subscription rights
reside. However, no such person will be offered or receive any Common Shares
under the Plan who resides in a foreign country or in a state of the United
States with respect to which all of the following apply: (i) a small number of
persons otherwise eligible to subscribe for shares under the Plan resides in
such country or state; (ii) under the securities laws of such country or state,
the granting of subscription rights or the offer or sale of Common Shares to
such persons would require HCFC or its officers or directors, to register as a
broker or dealer or to register or otherwise qualify its securities for sale in
such country or state; and (iii) such registration or qualification would be
impracticable for reasons of cost or otherwise.
The term "resident" as used herein with respect to the Subscription
Offering means any person who, on the date of submission of a stock order form,
maintained a bona fide residence within a jurisdiction in which the Common
Shares are being offered for sale. If a person is a business entity, the
person's residence shall be the location of the principal place of business. If
the person is a personal benefit plan, the residence of the beneficiary shall be
the residence of the plan. In the case of all other benefit plans, the residence
of the trustee shall be the residence of the plan. In all cases, the
determination of a subscriber's residency shall be in the sole discretion of
Home City and HCFC.
COMMUNITY OFFERING
Concurrently with the Subscription Offering, HCFC is hereby offering
Common Shares in the Community Offering, subject to the limitations set forth
below, to the extent such shares remain available after the satisfaction of all
orders received in the Subscription Offering. If subscriptions are received in
the Subscription Offering for at least 952,200 Common Shares, Common Shares may
not be available for purchase in the Community Offering. All sales of Common
Shares in the Community Offering will be at the same price per share as in the
Subscription Offering. THE COMMUNITY OFFERING MAY BE TERMINATED AT ANY TIME
AFTER ORDERS FOR AT LEAST 952,200 COMMON SHARES HAVE BEEN RECEIVED, BUT IN NO
EVENT LATER THAN ___________, 1996 (THE "COMMUNITY EXPIRATION DATE"), WITHOUT
THE CONSENT OF THE OTS.
In the event shares are available in the Community Offering, members of
the general public may purchase up to 1% of the Common Shares sold, which is
9,522 Common Shares at the maximum of the Valuation Range, as adjusted. See
"Limitations on Purchases of Common Shares." If an insufficient number of shares
is available to fill all of the orders received in the Community Offering, the
available shares will be allocated in a manner to be determined by the Board of
Directors of HCFC, subject to the following:
(i) Preference will be given to natural persons who are residents of
Clark County, Ohio, the county in which the offices of Home City are
located;
(ii) Orders received in the Community Offering will first be filled up
to a maximum of 2% of the total number of Common Shares offered, with
any remaining shares allocated on an equal number of shares per order
basis until all orders have been filled;
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(iii) No person, together with any Associate and persons Acting in
Concert, may purchase more than 2% of the Common Shares; and
(iv) The right of any person to purchase Common Shares in the Community
Offering is subject to the right of HCFC and Home City to accept or
reject such purchases in whole or in part.
The term "resident" as used herein with respect to the Community
Offering means any natural person who, on the date of submission of a stock
order form, maintained a bona fide residence within, as appropriate, Clark
County or a jurisdiction in which the Common Shares are being offered for sale.
LIMITATIONS ON PURCHASES OF COMMON SHARES
The Plan provides for certain additional limitations to be placed upon
the purchase of Common Shares. To the extent such shares are available, the
minimum number of shares that may be purchased by any party is 25. No fractional
shares will be issued.
No person, together with Associates and persons Acting in Concert, may
purchase more than 2% of the Common Shares. Subject to any required regulatory
approval and the requirements of applicable laws and regulations, but without
further approval of the members of Home City, purchase limitations may be
increased or decreased at the sole discretion of the Boards of Directors of HCFC
and Home City at any time. If such amount is increased, persons who subscribed
for the maximum amount will be given the opportunity to increase their
subscriptions up to the then applicable limit, subject to the rights and
preferences of any person who has priority subscription rights. The Boards of
Directors of HCFC and Home City may, in their sole discretion, increase the
maximum purchase limitation referred to above up to 10%, provided that orders
for shares exceeding 5% of the shares to be issued in the Conversion shall not
exceed, in the aggregate, 10% of the shares to be issued in the Conversion. In
the event that the purchase limitation is decreased after commencement of the
Subscription Offering, the order of any person who subscribed for the maximum
number of Common Shares shall be decreased by the minimum amount necessary so
that such person shall be in compliance with the then maximum number of shares
permitted to be subscribed for by such person.
"Acting in Concert" is defined as "knowing participation in a joint
activity or independent conscious parallel action towards a common goal" or "a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose." Persons shall be presumed to be Acting in Concert
with each other if: (i) both are purchasing Common Shares in the Conversion and
are (a) executive officers, directors, trustees, or any one who performs, or
whose nominee or representative performs, a similar policy making function at a
company (other than Home City or HCFC) or principal business units or
subsidiaries of a company, or (b) any person who directly or indirectly owns or
controls 10% or more of the stock of a company (other than Home City or HCFC);
or (ii) one person provides credit to the other for the purchase of Common
Shares or is instrumental in obtaining that credit. In addition, if a person is
presumed to be Acting in Concert with another person, then the person is
presumed to Act in Concert with anyone else who is, or is presumed to be, Acting
in Concert with that other person.
For purposes of the Plan, (i) the directors of Home City are not deemed
to be Acting in Concert solely by reason of their membership on the Board of
Directors of Home City; (ii) an associate of a person (an "Associate") is (a)
any corporation or organization (other than Home City) of which such person is
an officer, partner or, directly or indirectly, the beneficial owner of 10% or
more of any class of equity securities; (b) any trust or other estate in which
such person has a substantial beneficial interest or as to which such person
serves as trustee or in a similar fiduciary capacity; and (c) any relative or
spouse of such person, or relative of such spouse, who either has the same home
as such person or who is a director or officer of Home City. Executive officers
and directors of Home City and their Associates may not purchase, in the
aggregate, more than 34.9% of the total number of Common Shares sold in the
Conversion. Shares acquired by the ESOP will not, pursuant to regulations
governing the Conversion, be aggregated with the shares purchased by the
directors, officers and employees of Home City.
Purchases of Common Shares are also subject to the change in control
regulations of the OTS. Such regulations restrict direct and indirect purchases
of 10% or more of the stock of any savings association by any person or group of
persons Acting in Concert. See "RESTRICTIONS ON ACQUISITION OF HOME CITY AND
HCFC AND RELATED ANTI-TAKEOVER PROVISIONS - Federal Law and Regulation."
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After the Conversion, Common Shares, except for shares purchased by
officers and directors of HCFC, will be freely transferable, subject to OTS
regulations. See "Restrictions on Transferability of Common Shares by Directors
and Officers."
PLAN OF DISTRIBUTION
The offering of the Common Shares is made only pursuant to this
Prospectus, which is available to all eligible subscribers by mail. See
"ADDITIONAL INFORMATION." Additional copies are available at the offices of Home
City. Sales of Common Shares will be made primarily by registered
representatives affiliated with Webb. HCFC will rely on Rule 3a4-1 under the
Exchange Act, and sales of Common Shares will be conducted within the
requirements of Rule 3a4-1, which will permit officers, directors and employees
of HCFC and Home City to participate in the sale of Common Shares, in clerical
capacities, providing administrative support in effecting sales transactions or
answering questions relating to the proper execution of the Stock Order Form,
except that officers, directors and employees will not participate in the sale
of Common Shares to residents of any state in which such persons have not met
such state's requirements for participation. Management of Home City may answer
questions regarding the business of Home City. Other questions of prospective
purchasers, including questions as to the nature of the investment, will be
directed to registered representatives. Management and the employees of Home
City have been instructed not to solicit offers to purchase Common Shares or to
provide advice regarding the purchase of Common Shares. No officer, director or
employee of HCFC or Home City will be compensated in connection with his
participation by the payment of commissions or other remuneration based either
directly or indirectly on the transactions in the Common Shares.
To assist HCFC in marketing the Common Shares, HCFC has retained Webb,
which are broker-dealers registered with the SEC and members of the National
Association of Securities Dealers, Inc. (the "NASD"). Webb will consult with and
advise HCFC and assist with the sale of the Common Shares on a best efforts
basis in connection with the Conversion. The services to be rendered by Webb
include assisting HCFC in conducting the Subscription Offering and the Community
Offering and educating Home City personnel about the Conversion process. Webb is
not obligated to purchase any of the Common Shares.
For its services, Webb has been paid a management fee in the amount of
$25,000. Webb will also receive a commission equal to 1.5% of the aggregate
purchase price paid for Common Shares sold in the Conversion, excluding
purchases by Home City's directors, executive officers, and Associates of such
directors and executive officers, and the ESOP. If Webb and HCFC deem necessary,
Webb may enter into agreements with other NASD members ("Selected Dealers") for
assistance in the sale of the Common Shares, in which event Webb and such
Selected Dealers will receive a commission not to exceed 5.5% of the purchase
price of Common Shares sold, if any, by the Selected Dealer. In addition, HCFC
will reimburse Webb for certain expenses, including reasonable legal fees. Webb
is not obligated to purchase any Common Shares.
HCFC and Home City have agreed to indemnify Webb and its directors,
officers, employees, agents and any controlling person against any and all loss,
liability, claim, damage or expense arising out of any untrue statement, or
alleged untrue statement, of a material fact contained in the Summary Proxy
Statement or the Prospectus, any application to regulatory authorities, any
"blue sky" application, or any other related document prepared or executed by or
on behalf of HCFC or Home City with its consent in connection with, or in
contemplation of, the Conversion, or any omission therefrom of a material fact
required to be stated therein, unless such untrue statement or omission, or
alleged untrue statement or omission, was made in reliance upon certain
information furnished to Home City by Webb expressly for use in the Summary
Proxy Statement or the Prospectus.
The Common Shares will be offered principally by the distribution of
this Prospectus and through activities conducted at the Conversion Information
Center, which will be located at the office of Home City. The Conversion
Information Center will be staffed by one or more of Webb's employees, who will
be responsible for mailing materials relating to the Offering, responding to
questions regarding the Conversion and the Offering and processing stock orders.
A conspicuous legend that the Common Shares are not a federally-insured
or guaranteed deposit or account appears on all offering documents used in
connection with the Conversion and will appear on the certificates representing
the Common Shares. Any person purchasing Common Shares will be required to
execute the Stock Order Form certifying such person's knowledge that the Common
Shares are not federally-insured or guaranteed and that the purchaser has
received a Prospectus and understands the investment risk involved.
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EFFECT OF EXTENSION OF COMMUNITY OFFERING
If the Community Offering extends beyond 45 days after the Subscription
Expiration Date, persons who have subscribed for Common Shares in the
Subscription Offering or in the Community Offering will receive a written notice
that until a date specified in the notice, they have the right to increase,
decrease or rescind their subscriptions for Common Shares. Any person who does
not affirmatively elect to continue his subscription or elects to rescind his
subscription during any such extension will have all of his funds promptly
refunded with interest. Any person who elects to decrease his subscription
during any such extension shall have the appropriate portion of his funds
promptly refunded with interest.
USE OF STOCK ORDER FORMS
Subscriptions for Common Shares in the Subscription Offering and the
Community Offering may be made only by completing and submitting a Stock Order
Form. Any person who desires to subscribe for Common Shares in the Subscription
Offering must do so by delivering to HCFC at 63 West Main Street, Springfield,
Ohio 45502-1309, by mail or in person, prior to 4:00 p.m., Eastern Time, on
_________, 1996, a properly executed and completed original Stock Order Form,
together with full payment of the subscription price of $10 for each share for
which subscription is made. Photocopies or telecopies of Stock Order Forms will
not be accepted. See "ADDITIONAL INFORMATION." THE FAILURE TO DELIVER A PROPERLY
EXECUTED ORIGINAL ORDER FORM AND FULL PAYMENT IN A MANNER BY WHICH THEY ARE
ACTUALLY RECEIVED BY HCFC NO LATER THAN 4:00 P.M. ON THE SUBSCRIPTION EXPIRATION
DATE WILL PRECLUDE THE PURCHASE OF COMMON SHARES IN THE OFFERING.
AN EXECUTED STOCK ORDER FORM, ONCE RECEIVED BY HCFC, MAY NOT BE
MODIFIED, AMENDED OR RESCINDED WITHOUT THE CONSENT OF HCFC, UNLESS (I) THE
COMMUNITY OFFERING IS NOT COMPLETED WITHIN 45 DAYS AFTER THE SUBSCRIPTION
EXPIRATION DATE, OR (II) THE FINAL VALUATION OF HOME CITY, AS CONVERTED, IS LESS
THAN $6,120,000 OR MORE THAN $9,522,000. IF EITHER OF THOSE EVENTS OCCUR,
PERSONS WHO HAVE SUBSCRIBED FOR COMMON SHARES IN THE SUBSCRIPTION OFFERING OR IN
THE COMMUNITY OFFERING WILL RECEIVE WRITTEN NOTICE THAT UNTIL A DATE SPECIFIED
IN THE NOTICE, THEY HAVE A RIGHT TO AFFIRM, INCREASE, DECREASE OR RESCIND THEIR
SUBSCRIPTIONS. ANY PERSON WHO DOES NOT AFFIRMATIVELY ELECT TO CONTINUE HIS
SUBSCRIPTION OR ELECTS TO RESCIND HIS SUBSCRIPTION DURING ANY SUCH EXTENSION
WILL HAVE ALL OF HIS FUNDS PROMPTLY REFUNDED WITH INTEREST. ANY PERSON WHO
ELECTS TO DECREASE HIS SUBSCRIPTION DURING ANY SUCH EXTENSION WILL HAVE THE
APPROPRIATE PORTION OF HIS FUNDS PROMPTLY REFUNDED WITH INTEREST.
PAYMENT FOR COMMON SHARES
Payment of the subscription price for all Common Shares for which
subscription is made must accompany all completed Stock Order Form in order for
subscriptions to be valid. Payment for Common Shares may be made (i) in cash, if
delivered in person, (ii) by check, bank draft or money order payable to the
order of Home City, or (iii) by authorization of withdrawal from savings
accounts in Home City (other than non-self-directed IRAs). Wire transfers will
not be accepted. Home City cannot lend money or otherwise extend credit to any
person to purchase Common Shares, other than the ESOP.
Payments made in cash or by check, bank draft or money order will be
placed in a segregated savings account insured by the FDIC up to applicable
limits. Interest will be paid by Home City on such accounts at Home City's
passbook rate, currently ____% annual percentage yield, from the date payment is
received until the Conversion is completed or terminated. Payments made by check
will not be deemed to have been received until such check has cleared for
payment.
Instructions for authorizing withdrawals from savings accounts are
provided in the Stock Order Form. Once a withdrawal has been authorized, none of
the designated withdrawal amount may be used by a subscriber for any purpose
other than to purchase Common Shares, unless the Conversion is terminated. All
sums authorized for withdrawal will continue to earn interest at the contract
rate for such account or certificate until the completion or termination of the
Conversion. Interest penalties for early withdrawal applicable to certificate
accounts will be waived in the case of withdrawals authorized for the purchase
of Common Shares. If a partial withdrawal from a certificate account results in
a balance less than the applicable minimum balance requirement, the certificate
will be cancelled and the remaining balance will earn interest at Home City's
passbook rate subsequent to the withdrawal.
Persons who are beneficial owners of IRAs maintained at Home City do
not personally have subscription rights related to such account. The account
itself, however, may have subscription rights. In order to utilize funds in an
IRA
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maintained at Home City, the funds must be transferred to a self-directed
IRA that permits the IRA funds to be invested in stock. The beneficial owner of
the IRA must direct the trustee of the IRA to use funds from such account to
purchase Common Shares in connection with the Conversion. Persons who are
interested in utilizing IRAs at Home City to subscribe for Common Shares should
contact the Home City Conversion Center at (513) 324-3830 for instructions and
assistance.
Subscriptions will not be filled by HCFC until subscriptions have been
received in the Subscription Offering and the Community Offering for up to
612,000 Common Shares, the minimum point of the Valuation Range. If the
Conversion is terminated, all funds delivered to HCFC for the purchase of Common
Shares will be returned with interest, and all charges to savings accounts will
be rescinded. Subscribers and other purchasers will be notified by mail,
promptly on completion of the sale of the Common Shares, of the number of shares
for which their subscriptions have been accepted. Certificates representing
Common Shares will be delivered promptly thereafter.
If the ESOP subscribes for Common Shares in the Subscription Offering,
the ESOP will not be required to pay for the shares subscribed for at the time
it subscribes but may pay for such Common Shares upon consummation of the
Conversion.
SHARES TO BE PURCHASED BY MANAGEMENT PURSUANT TO SUBSCRIPTION RIGHTS
The following table sets forth certain information regarding the
subscription rights intended to be exercised by the directors and executive
officers of Home City and their Associates. For purposes of this table, it has
been assumed that 720,000 Common Shares will be sold in connection with the
Conversion at $10 per share and that a sufficient number of Common Shares will
be available to satisfy the intended purchases by directors and executive
officers. The number of Common Shares purchased may decrease or increase if
fewer than 720,000 Common Shares are sold in connection with the Conversion. See
"Pricing and Number of Common Shares to be Sold."
<TABLE>
<CAPTION>
Percent Aggregate
Total of total purchase
Name shares offering price
- ---- ------ -------- ---------
<S> <C> <C> <C>
John D. Conroy 14,400 2.0% $144,000
P. Clark Engelmeier 14,400 2.0 144,000
James Foreman 14,400 2.0 144,000
Terry A. Hoppes 14,400 2.0 144,000
Douglas L. Ulery 14,400 2.0 144,000
Gary E. Brown .
JoAnn Holdeman ----------- --- ----------
.
----------- --- ----------
% $
Total ----------- --- ---------
</TABLE>
All purchases by executive officers and directors of Home City are made
for investment purposes only and with no intent to resell.
PRICING AND NUMBER OF COMMON SHARES TO BE SOLD
The aggregate offering price of the Common Shares will be based on the
pro forma market value of the shares as determined by an independent appraisal
of Home City. Keller, a firm which evaluates and appraises financial
institutions, was retained by Home City to prepare an appraisal of the estimated
pro forma market value of Home City as converted. Keller will receive a fee of
$15,000 for its appraisal, which amount includes out-of-pocket expenses.
The appraisal was prepared by Keller in reliance upon the information
contained herein. Keller also considered the following factors, among others:
the present and projected operating results and financial condition of Home City
and the economic and demographic conditions in Home City's existing market area;
the quality and depth of Home City's management and personnel; certain
historical financial and other information relating to Home City and a
comparative evaluation of the operating and financial statistics of Home City
with those of other thrift institutions; the aggregate size of the offering; the
impact of the Conversion on Home City's regulatory capital and earnings
potential; the trading market for stock of comparable thrift institutions; the
effect of Home City becoming a subsidiary of HCFC; and general conditions in the
markets for such stocks.
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Keller's valuation of the estimated pro forma market value of Home
City, as converted, is $720,000 as of September 6, 1996 (the "Pro Forma Value").
HCFC will issue the Common Shares at a fixed price of $10 per share and, by
dividing the price per share into the Pro Forma Value, will determine the number
of shares to be issued. Applicable regulations also require, however, that the
appraiser establish the Valuation Range of 15% on either side of the Pro Forma
Value to allow for fluctuations in the aggregate value of the Common Shares due
to changes in the market for thrift shares and other factors from the time of
commencement of the Subscription Offering until the completion of the
Conversion.
As of September 6, 1996, the Valuation Range was from $6,120,000 to
$8,280,000, which, based upon a per share offering price of $10, will result in
the sale of between 612,000 and 828,000 Common Shares. In the event that Keller
determines at the close of the Conversion that the aggregate pro forma value of
Home City is higher or lower than the Pro Forma Value, but is nevertheless
within the Valuation Range, or is not more than 15% above the maximum point of
the Valuation Range, HCFC will make an appropriate adjustment by raising or
lowering the total number of Common Shares sold in the Conversion consistent
with the final Valuation Range. The total number of Common Shares sold in the
Conversion will be determined in the discretion of the Board of Directors
consistent with the Valuation Range. If, due to changing market conditions, the
final valuation is not between the minimum of the Valuation Range and 15% above
the maximum of the Valuation Range, subscribers will be given a notice of such
final valuation and the right to affirm, increase, decrease or rescind their
subscriptions. Any person who does not affirmatively elect to continue his
subscription or elects to rescind his subscription before the date specified in
the notice will have all of his funds promptly refunded with interest. Any
person who elects to decrease his subscription will have the appropriate portion
of his funds promptly refunded with interest.
THE APPRAISAL BY KELLER IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS
A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING COMMON SHARES
OR VOTING TO APPROVE THE CONVERSION. IN PREPARING THE VALUATION, KELLER HAS
RELIED UPON AND ASSUMED THE ACCURACY AND COMPLETENESS OF FINANCIAL AND
STATISTICAL INFORMATION PROVIDED BY HOME CITY AND ITS INDEPENDENT AUDITORS.
KELLER DID NOT INDEPENDENTLY VERIFY THE FINANCIAL STATEMENTS AND OTHER
INFORMATION PROVIDED BY HOME CITY AND ITS INDEPENDENT AUDITORS, NOR DID KELLER
VALUE INDEPENDENTLY THE ASSETS OR LIABILITIES OF HOME CITY OR HCFC. THE
VALUATION CONSIDERS HOME CITY ONLY AS A GOING CONCERN AND SHOULD NOT BE
CONSIDERED AS AN INDICATION OF THE LIQUIDATION VALUE OF HOME CITY. MOREOVER,
BECAUSE SUCH VALUATION IS NECESSARILY BASED UPON ESTIMATES AND PROJECTIONS OF A
NUMBER OF MATTERS, ALL OF WHICH ARE SUBJECT TO CHANGE FROM TIME TO TIME, NO
ASSURANCE CAN BE GIVEN THAT PERSONS PURCHASING COMMON SHARES WILL THEREAFTER BE
ABLE TO SELL SUCH SHARES AT PRICES WITHIN THE ESTIMATED PRICE RANGE.
A copy of the complete appraisal is on file and open for inspection at
the offices of the OTS, 1700 G Street, N.W., Washington, D.C. 20552, at the
Central Regional Office of the OTS, 200 West Madison, Suite 1300, Chicago,
Illinois 60606, and at each of the offices of Home City.
RESTRICTION ON REPURCHASE OF COMMON SHARES
Federal regulations prohibit HCFC from repurchasing any of its capital
stock for three years following the date of completion of the Conversion, except
as part of an open-market stock repurchase program during the second and third
years following the Conversion involving no more than 5% of HCFC's outstanding
capital stock during a twelve-month period. In addition, after such a
repurchase, Home City's regulatory capital must equal or exceed all regulatory
capital requirements. Before commencement of such a program, HCFC must provide
notice to the OTS, and the OTS may disapprove the program if the OTS determines
that it would adversely affect the financial condition of Home City or if it
determines that there is no valid business purpose for such repurchase. Such
repurchase restrictions would not prohibit the ESOP or the RRP from purchasing
Common Shares during the first year following Conversion.
RESTRICTIONS ON TRANSFERABILITY OF COMMON SHARES BY DIRECTORS AND OFFICERS
Common Shares purchased by directors or executive officers of HCFC or
their Associates will be subject to the restriction that such shares may not be
sold for a period of one year following completion of the Conversion, except in
the event of the death of the shareholder. The certificates evidencing Common
Shares issued by HCFC to directors, executive officers and their Associates will
bear a legend giving appropriate notice of the restriction imposed upon the
transfer of such Common Shares. In addition, HCFC will give appropriate
instructions to the transfer agent (if any) for HCFC's Common Shares in respect
of the applicable restriction for transfer of any restricted shares. Any shares
issued as a stock dividend, stock split or otherwise in respect of restricted
shares will be subject to the same restrictions.
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Subject to certain exceptions, for a period of three years following
the Conversion, no director or officer of HCFC or Home City, or any of their
Associates, may purchase any common shares of HCFC without the prior written
approval of the OTS, except through a broker-dealer registered with the SEC.
This restriction will not apply, however, to negotiated transactions involving
more than 1% of a class of outstanding common shares of HCFC or shares acquired
by any stock benefit plan of Home City or HCFC.
The Common Shares, like the stock of most public companies, are subject
to the registration requirements of the Securities Act. Accordingly, the Common
Shares may be offered and sold only in compliance with such registration
requirements or pursuant to an applicable exemption from registration. Common
Shares received in the Conversion by persons who are not "affiliates" of HCFC
may be resold without registration. Common Shares received by affiliates of HCFC
will be subject to resale restrictions. An "affiliate" of HCFC, for purposes of
Rule 144, is a person who directly, or indirectly through one or more
intermediaries, controls, or is controlled by or is under common control with,
HCFC. Rule 144 generally requires that there be publicly available certain
information concerning HCFC and that sales subject to Rule 144 be made in
routine brokerage transactions or through a market maker. If the conditions of
Rule 144 are satisfied, each affiliate (or group of persons acting in concert
with one or more affiliates) is entitled to sell in the public market, without
registration, in any three-month period, a number of shares which does not
exceed the greater of (i) 1% of the number of outstanding shares of HCFC or (ii)
if the shares are admitted to trading on a national securities exchange or
reported through the automated quotation system of a registered securities
association, the average weekly reported volume of trading during the four weeks
preceding the sale.
RIGHTS OF REVIEW
Any person aggrieved by a final action of the OTS which approves, with
or without conditions, or disapproves the Plan may obtain review of such action
by filing in the Court of Appeals of the United States for the circuit in which
the principal office or residence of such person is located or in the United
States Court of Appeals for the District of Columbia, a written petition praying
that the final action of the OTS be modified, terminated or set aside. Such
petition must be filed within 30 days after the date of mailing of proxy
materials to the Voting Members of Home City or within 30 days after the date of
publication in the Federal Register of notice of approval of the Plan by the
OTS, whichever is later.
RESTRICTIONS ON ACQUISITION OF HOME CITY AND HCFC
AND RELATED ANTI-TAKEOVER PROVISIONS
GENERAL
Federal law and regulation, Ohio law, the Articles of Incorporation and
Code of Regulations of HCFC, the Amended Charter of Home City and certain
employee benefit plans to be adopted by Home City and HCFC contain certain
provisions which may deter or prohibit a change of control of Home City or HCFC.
Such provisions are intended to encourage any acquiror to negotiate the terms of
an acquisition with the Board of Directors of HCFC, thereby reducing the
vulnerability of HCFC to takeover attempts and certain other transactions which
have not been negotiated with and approved by the Board of Directors.
Anti-takeover devices and provisions may have the effect, however, of
discouraging sudden or hostile takeover attempts, even under circumstances in
which shareholders may deem such takeovers to be in their best interests or in
which shareholders may receive a substantial premium for their shares over then
current market prices. As a result, shareholders who might desire to participate
in such a transaction may not have an opportunity to participate because of such
devices and provisions. Moreover, such devices and provisions may also benefit
management by discouraging changes of control in which incumbent management
would be removed from office.
The following is a summary of certain provisions of such laws,
regulations and documents.
FEDERAL LAW AND REGULATION
FEDERAL DEPOSIT INSURANCE ACT. The FDIA provides that no person, acting
directly or indirectly or in concert with one or more persons, may acquire
control of any insured savings association or holding company unless both (i) 60
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days' prior written notice has been given to the OTS and (ii) the OTS has not
issued a notice disapproving the proposed acquisition. Control, for purposes of
the FDIA, means the power, directly or indirectly, to direct the management or
policies of an insured institution or to vote 25% or more of any class of
securities of such institution. This provision of the FDIA is implemented by the
OTS in accordance with the Regulations for Acquisition of Control of an Insured
Institution, 12 C.F.R. Part 574 (the "Control Regulations"). Control, for
purposes of the Control Regulations, exists in situations in which either (a)
the acquiring party has direct or indirect voting control of at least 25% of the
institution's voting shares or controls in any manner the election of a majority
of the directors of such institution or (b) the Director of the OTS determines
that such person exercises a controlling influence over the management or
policies of such institution. In addition, control is presumed to exist, subject
to rebuttal, if the acquiring party (which includes a group "acting in concert")
has voting control of at least 10% of the institution's voting stock and any of
eight control factors specified in the Control Regulations exists. There are
also rebuttable presumptions in the Control Regulations concerning whether a
group "acting in concert" exists, including presumed action in concert among
members of an "immediate family." The Control Regulations apply to acquisitions
of Common Shares in connection with the Conversion and to acquisitions after the
Conversion.
CHANGE IN CONTROL OF CONVERTED ASSOCIATIONS. A regulation of the OTS
provides that, for a period of three years after the date of the completion of
the Conversion, no person shall, directly or indirectly, offer to acquire or
acquire beneficial ownership of more than 10% of any class of equity security of
Home City or HCFC without the prior written approval of the OTS. In addition to
the actual ownership of more than 10% of a class of equity securities, a person
is deemed to have acquired beneficial ownership of more than 10% of the equity
securities of HCFC or Home City if the person holds any combination of stock and
revocable and/or irrevocable proxies of HCFC under circumstances that give rise
to a conclusive control determination or rebuttable control determination under
the OTS's change of control regulations. Such circumstances include (i) holding
any combination of voting shares and revocable and/or irrevocable proxies
representing more than 25% of any class of voting stock of HCFC enabling the
acquirer (a) to elect one-third or more of the directors, (b) to cause HCFC's or
Home City's shareholders to approve the acquisition or corporate reorganization
of HCFC or Home City, or (c) to exert a controlling influence over a material
aspect of the business operations of HCFC or Home City, and (ii) acquiring any
combination of voting shares and irrevocable proxies representing more than 25%
of any class of voting shares.
Such three-year restriction does not apply (i) to any offer with a view
toward public resale made exclusively to Home City or HCFC or to any underwriter
or selling group acting on behalf of Home City or HCFC, (ii) unless made
applicable by the OTS by prior written advice, to any offer or announcement of
an offer which, if consummated, would result in the acquisition by any person,
together with all other acquisitions by any such person of the same class of
securities during the preceding 12-month period, of not more than 1% of the
class of securities, or (iii) to any offer to acquire or the acquisition of
beneficial ownership of more than 10% of any class of equity security of Home
City or HCFC by a corporation whose ownership is or will be substantially the
same as the ownership of Home City or HCFC if made more than one year following
the date of the Conversion. The foregoing restriction does not apply to the
acquisition of Home City or HCFC's capital stock by one or more tax-qualified
employee stock benefit plans of HCFC or Home City, provided that the plan or
plans do not have beneficial ownership in the aggregate of more than 25% of any
class of equity security of Home City or HCFC. See "Articles of Incorporation of
Home City" for a discussion of a five-year restriction on direct or indirect
beneficial ownership of 10% of the outstanding common stock of Home City.
HOLDING COMPANY RESTRICTIONS. Federal law generally prohibits a savings
and loan holding company, without prior approval of the Director of the OTS,
from (i) acquiring control of any other savings association or savings and loan
holding company, (ii) acquiring substantially all of the assets of a savings
association or holding company thereof, or (iii) acquiring or retaining more
than 5% of the voting shares of a savings association or holding company thereof
which is not a subsidiary. Acquisitions under the Holding Company Act are
governed by the Control Regulations. See "Federal Deposit Insurance Act."
Under certain circumstances, a savings and loan holding company is
permitted to acquire, with the approval of the Director of the OTS, up to 15% of
the previously unissued voting shares of an undercapitalized savings association
for cash without such savings association being deemed to be controlled by the
holding company. Except with the prior approval of the Director of the OTS, no
director or officer of a savings and loan holding company or person owning or
controlling by proxy or otherwise more than 25% of such company's voting shares
may acquire control of any savings institution, other than a subsidiary
institution or any other savings and loan holding company.
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<PAGE> 81
OHIO LAW
MERGER MORATORIUM STATUTE. Ohio has adopted a merger moratorium statute
regulating certain takeover bids affecting certain public corporations with
significant ties to Ohio. The statute prohibits, with some exceptions, any
merger, combination or consolidation and any of certain other sales, leases,
distributions, dividends, exchanges, mortgages or transfers between such an Ohio
corporation and any person who has the right to exercise, alone or with others,
10% or more of the voting power of such corporation (an "Interested
Shareholder"), for three years following the date on which such person first
becomes an Interested Shareholder. Such a business combination is permitted only
if, prior to the time such person first becomes an Interested Shareholder, the
Board of Directors of the issuing corporation has approved the purchase of
shares that resulted in such person first becoming an Interested Shareholder.
After the initial three-year moratorium, such a business combination
may not occur unless (1) an exception specifically enumerated in the statute is
applicable to the combination, (2) the combination is approved, at a meeting
held for such purpose, by the affirmative vote of the holders of the issuing
public corporation entitling them to exercise at least two-thirds of the voting
power of the issuing public corporation in the election of directors or of such
different proportion as the articles may provide, provided the combination is
also approved by the affirmative vote of the holders of at least a majority of
the disinterested shares, or (3) the business combination meets certain
statutory criteria designed to ensure that the issuing public corporation's
remaining shareholders receive fair consideration for their shares.
An Ohio corporation may, under certain circumstances, "opt out" of the
statute by specifically providing in its articles of incorporation that the
statute does not apply to any business combination of such corporation. However,
the statute still prohibits for twelve months any business combination that
would have been prohibited but for the adoption of such an opt-out amendment.
The statute also provides that it will continue to apply to any business
combination between a person who became an Interested Shareholder prior to the
adoption of such an amendment as if the amendment had not been adopted. The
Articles of Incorporation of HCFC do not opt out of the protection afforded by
Chapter 1704. Therefore, the merger moratorium statute applies to HCFC.
CONTROL SHARE ACQUISITION STATUTE. Section 1701.831 of the Ohio Revised
Code (the "Control Share Acquisition Statute") requires that certain
acquisitions of voting securities that would result in the acquiring shareholder
owning 20%, 33 1/3%, or 50% of the outstanding voting securities of HCFC must be
approved in advance by the holders of at least a majority of the outstanding
voting shares represented at a meeting at which a quorum is present and a
majority of the portion of the outstanding voting shares represented at such a
meeting, excluding the voting shares owned by the acquiring shareholder. The
Control Share Acquisition Statute was intended, in part, to protect shareholders
of Ohio corporations from coercive tender offers.
TAKEOVER BID STATUTE. Ohio law also contains a statute regulating
takeover bids for any Ohio corporation. Such statute provides that no offeror
may make a takeover bid unless (i) at least 20 days prior thereto the offeror
announces publicly the terms of the proposed takeover bid and files with the
Ohio Division of Securities (the "Securities Division") and provides the target
company with certain information in respect of the offeror, his ownership of the
company's shares and his plans for the company, and (ii) within ten days
following such filing either (a) no hearing is required by the Securities
Division, (b) a hearing is requested by the target company within such time but
the Securities Division finds no cause for hearing exists, or (c) a hearing is
ordered and upon such hearing the Securities Division adjudicates that the
offeror proposes to make full, fair and effective disclosure to offerees of all
information material to a decision to accept or reject the offer.
The takeover bid statute also states that no offeror shall make a
takeover bid if he owns 5% or more of the issued and outstanding equity
securities of any class of the target company, any of which were purchased
within one year before the proposed takeover bid, and the offeror, before making
any such purchase, failed to announce his intention to gain control of the
target company or otherwise failed to make full and fair disclosure of such
intention to the persons from whom he acquired such securities. The United
States District Court for the Southern District of Ohio has determined that the
Ohio takeover bid statute is preempted by federal regulation.
ARTICLES OF INCORPORATION OF HCFC
RESTRICTION ON ACQUISITION OF MORE THAN 10% OF THE COMMON SHARES. The
Articles of Incorporation of HCFC provide that for five years after the
effective date of the Conversion, no person, except the ESOP, may offer to
acquire or
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<PAGE> 82
acquire the beneficial ownership of more than 10% of any class of outstanding
equity securities of HCFC. If such a prohibited acquisition occurs, the
securities owned by such person in excess of the 10% limit may not be voted on
any matter submitted to the shareholders of HCFC. The term "person" is defined
as an individual, a group acting in concert, a corporation, a partnership, an
association, a joint stock company, a trust, an unincorporated organization or
similar company, a syndicate or any other group formed for the purpose of
acquiring, holding or disposing of the equity securities of HCFC, but does not
include an employee stock ownership plan for the benefit of the employees of
Home City or HCFC. The term "offer" includes every offer to buy or otherwise
acquire, solicitation of an offer to sell, tender offer for, or request or
invitation for tenders of HCFC's Common Shares. The ability of management or any
other person to solicit revocable proxies from shareholders will not be
restricted by such 10% limit.
ABILITY OF THE BOARD OF DIRECTORS TO ISSUE ADDITIONAL SHARES. The
Articles of Incorporation of HCFC permit the Board of Directors of HCFC to issue
additional common shares and preferred shares. See "DESCRIPTION OF AUTHORIZED
SHARES - General." The ability of the Board of Directors to issue such
additional shares may create impediments to gaining, or otherwise discourage
persons from attempting to gain, control of HCFC.
MATTERS REQUIRING ENLARGED SHAREHOLDER VOTE. Generally, matters
requiring a vote of the shareholders of HCFC may be approved by the holders of a
majority of the voting shares of HCFC. Article Sixth of the Articles of
Incorporation of HCFC provides, however, that, in the event the Board of
Directors recommends against the approval of any of the following matters, the
holders of at least 75% of the voting shares of HCFC are required to adopt any
such matters.
(1) A proposed amendment to the Articles of Incorporation
of HCFC;
(2) A proposed amendment to the Code of Regulations of
HCFC;
(3) A proposal to change the number of directors by
action of the shareholders;
(4) An agreement of merger or consolidation providing for
the proposed merger or consolidation of HCFC with or
into one or more other corporations;
(5) A proposed combination or majority share acquisition
involving the issuance of shares of HCFC and
requiring shareholder approval;
(6) A proposal to sell, exchange, transfer or otherwise
dispose of all, or substantially all, of the assets,
with or without the goodwill of HCFC; or
(7) A proposed dissolution of HCFC.
Officers and directors of HCFC are expected to purchase approximately
____% of the shares issued in connection with the Conversion at the mid-point of
the Valuation Range. In addition, the ESOP intends to purchase approximately 8%
of the Common Shares, and it is anticipated that upon shareholder approval of
the RRP, the RRP will purchase 4% of the outstanding Common Shares. The ESOP
trustee must vote shares allocated under the ESOP as directed by the
participants to whom the shares are allocated and vote unallocated shares in his
sole discretion on mergers, sales of substantially all of HCFC's assets and
similar transactions. The RRP trustees, who are expected to be two directors of
HCFC, will vote shares held by the RRP Trust in their discretion. Thus, officers
and directors will have a significant influence over the vote on such a
transaction and may be able to defeat such a proposal.
ELIMINATION OF CUMULATIVE VOTING. Section 1701.55 of the Ohio Revised
Code provides in substance and effect that shareholders of a for profit
corporation which is not a savings and loan association and which is
incorporated under Ohio law must initially be granted the right to cumulate
votes in the election of directors. The right to cumulate votes in the election
of directors will exist at a meeting of shareholders if notice in writing is
given by any shareholder to the President, a Vice President or the Secretary of
an Ohio corporation, not less than 48 hours before a meeting at which directors
are to be elected, that the shareholder desires that the voting for the election
of directors shall be cumulative and if an announcement of the giving of such
notice is made upon the convening of such meeting by the Chairman or Secretary
or by or on behalf of the shareholder giving such notice. If cumulative voting
is invoked, each shareholder would have a number of votes equal to the number of
directors to be elected, multiplied by the number of shares owned by him, and
would be entitled to distribute his votes among the candidates as he sees fit.
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<PAGE> 83
Section 1701.69 of the Ohio Revised Code provides that an Ohio
corporation may eliminate cumulative voting in the election of directors after
the expiration of 90 days after the date of initial incorporation by filing with
the Ohio Secretary of State an amendment to the articles of incorporation
eliminating cumulative voting. The Articles of Incorporation of HCFC have been
amended to eliminate cumulative voting. The elimination of cumulative voting may
make it more difficult for shareholders to elect as directors persons whose
election is not supported by the Board of Directors.
FEDERAL STOCK CHARTER OF HOME CITY
For a five-year period following the date of the completion of the
Conversion, no person may, directly or indirectly, acquire or offer to acquire
the beneficial ownership of more than 10% of Home City's outstanding common
shares. The acquisition of more than 10% of the Common Shares of HCFC would
constitute an indirect acquisition of the common shares of Home City and would,
therefore, be prohibited by the Federal Stock Charter of Home City. The
beneficial ownership limitation prohibition does not apply, however, to
purchases of Home City's common shares by one or more tax-qualified employee
stock benefit plans of Home City. Any holder of shares of HCFC or Home City
beneficially owned in violation of such prohibition will not be entitled to vote
on matters submitted to a vote of shareholders, and such shares shall not be
voted by any person or be counted as voting shares in connection with any matter
submitted to shareholders for a vote. The term "person" includes an individual,
a group acting in concert, a corporation, a partnership, an association, a joint
stock company, a trust, an unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of acquiring, holding or
disposing of the equity securities of HCFC or Home City. The term "offer"
includes every offer to buy or otherwise acquire, solicitation of an offer to
sell, tender offer for, or request or invitation for tenders of HCFC's Common
Shares or Home City's common shares.
EMPLOYEE BENEFIT PLANS
Adoption of the ESOP may also have an anti-takeover effect. The ESOP
may become the owner of a sufficient percentage of the total outstanding Common
Shares that the decision whether to tender the shares held by the ESOP to a
potential acquirer may prevent a takeover. See "DESCRIPTION OF AUTHORIZED
SHARES" and "MANAGEMENT OF HOME CITY - Employee Stock Ownership Plan."
DESCRIPTION OF AUTHORIZED SHARES
GENERAL
The Articles of Incorporation of HCFC authorize the issuance of ___
million common shares and one million preferred shares. The common shares and
the preferred shares authorized by HCFC's Articles of Incorporation have no par
value. Upon receipt by HCFC of the purchase price therefor and subsequent
issuance thereof, each Common Share will be fully paid and nonassessable. The
Common Shares of HCFC will represent nonwithdrawable capital and will not and
cannot be insured by the FDIC. Each Common Share will have the same relative
rights and will be identical in all respects to every other Common Share.
None of the preferred shares of HCFC will be issued in connection with
the Conversion. The Board of Directors of HCFC is authorized, without
shareholder approval, to issue preferred shares and to fix and state the
designations, preferences or other special rights of such shares and the
qualifications, limitations and restrictions thereof. The preferred shares may
rank prior to the common shares as to dividend rights, liquidation preferences
or both. Each holder of preferred shares will be entitled to one vote for each
preferred share held of record on all matters submitted to a vote of
shareholders. The issuance of preferred shares and any conversion rights which
may be specified by the Board of Directors for the preferred shares could
adversely affect the voting power of holders of the common shares. The Board of
Directors has no present intention to issue any of the preferred shares.
The following is a summary description of the rights of the common
shares of HCFC, including the material express terms of such shares as set forth
in HCFC's Articles of Incorporation.
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<PAGE> 84
LIQUIDATION RIGHTS
In the event of the complete liquidation or dissolution of HCFC, the
holders of the Common Shares will be entitled to receive all assets of HCFC
available for distribution, in cash or in kind, after payment or provision for
payment of (i) all debts and liabilities of HCFC, (ii) any accrued dividend
claims, and (iii) any interests in the Liquidation Account.
VOTING RIGHTS
The holders of the Common Shares will possess exclusive voting rights
in HCFC, unless preferred shares are issued. Each holder of Common Shares will
be entitled to one vote for each share held of record on all matters submitted
to a vote of holders of common shares.
Section 1701.55 of the Ohio Revised Code provides in substance and
effect that shareholders of a for profit corporation which is not a savings and
loan association and which is incorporated under Ohio law must initially be
granted the right to cumulate votes in the election of directors. Section
1701.69 of the Ohio Revised Code provides that an Ohio corporation may eliminate
cumulative voting in the election of directors after the expiration of 90 days
after the date of initial incorporation by filing with the Ohio Secretary of
State an amendment to the articles of incorporation eliminating cumulative
voting. The Articles of Incorporation of HCFC have been amended to eliminate
cumulative voting. See "RESTRICTIONS ON ACQUISITION OF HOME CITY AND HCFC AND
RELATED ANTI-TAKEOVER PROVISIONS - Articles of Incorporation of HCFC --
Elimination of Cumulative Voting."
DIVIDENDS
The holders of the Common Shares will be entitled to the payment of
dividends when, as and if declared by the Board of Directors and paid out of
funds, if any, available under applicable laws and regulations for the payment
of dividends. The payment of dividends is subject to federal and state statutory
and regulatory restrictions. See "DIVIDEND POLICY" and "TAXATION - Federal
Taxation" for a description of restrictions on the payment of cash dividends.
PREEMPTIVE RIGHTS
After the consummation of the Conversion, no shareholder of HCFC will
have, as a matter of right, the preemptive right to purchase or subscribe for
shares of any class, now or hereafter authorized, or to purchase or subscribe
for securities or other obligations convertible into or exchangeable for such
shares or which by warrants or otherwise entitle the holders thereof to
subscribe for or purchase any such share.
RESTRICTIONS ON ALIENABILITY
See "THE CONVERSION - Restrictions on Repurchase of Common Shares" for
a description of the limitations on the repurchase of stock by HCFC; "THE
CONVERSION Restrictions on Transferability of Common Shares by Directors and
Officers" for a description of certain restrictions on the transferability of
Common Shares purchased by officers and directors; and "RESTRICTIONS ON
ACQUISITION OF HOME CITY AND HCFC AND RELATED ANTI-TAKEOVER PROVISIONS" for
information regarding regulatory restrictions on acquiring Common Shares.
REGISTRATION REQUIREMENTS
HCFC will register its common shares with the SEC pursuant to Section
12(g) of the Exchange Act prior to or promptly upon completion of the Conversion
and will not deregister such shares for a period of three years following the
completion of the Conversion. Upon such registration, the proxy and tender offer
rules, insider trading restrictions, annual and periodic reporting and other
requirements of the Exchange Act will apply.
LEGAL MATTERS
Certain legal matters pertaining to the Common Shares and the federal
and Ohio tax consequences of the Conversion will be passed upon for Home City by
Vorys, Sater, Seymour and Pease, 221 E. Fourth Street, Cincinnati, Ohio
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<PAGE> 85
45202. The validity of the Common Shares to be issued in connection with the
Conversion will be passed upon for Webb by its counsel, Silver, Freedman, &
Taff, 1100 New York Avenue, N.W., Washington, D.C. 20005.
EXPERTS
The consolidated financial statements of Home City as of June 30, 1996
and 1995, and for the years ended June 30, 1996, 1995 and 1994, included in this
Prospectus have been audited by Robb, Dixon, Francis, Davis, Oneson & Company,
certified public accountants, as stated in their report appearing herein and
have been so included in reliance upon such report given upon the authority of
that firm as experts in accounting and auditing.
Keller has consented to the publication herein of the summary of its
letter to Home City setting forth its opinion as to the estimated pro forma
market value of Home City as converted and to the use of its name and statements
with respect to it appearing herein.
ADDITIONAL INFORMATION
HCFC has filed with the SEC a Registration Statement on Form S-1 (File
No. ________) under the Securities Act with respect to the Common Shares offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the SEC. Such information may be inspected at the
public reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies may be obtained from the SEC at prescribed
rates.
Home City has filed an Application for Approval of Conversion (the
"Application") with the OTS. This document omits certain information contained
in the Application. The Application, the exhibits and the financial statements
that are part thereof may be inspected at the offices of the OTS, 1700 G Street,
N.W., Washington, D.C. 20552, and the Central Regional Office, 200 W. Madison
Street, Suite 1300, Chicago, Illinois 60606.
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<PAGE> 86
HOME CITY FEDERAL
SAVINGS BANK
SPRINGFIELD, OHIO
AUDIT AS OF THE CLOSE OF BUSINESS
JUNE 30, 1996
F-1
<PAGE> 87
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Home City Federal Savings Bank
Springfield, Ohio
We have audited the accompanying consolidated balance sheets of Home
City Federal Savings Bank as of June 30, 1996 and 1995, and the related
statements of income, changes in equity and cash flows for the years ended June
30, 1996, 1995 and 1994. These financial statements are the responsibility of
the Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Home City Federal
Savings Bank as of June 30, 1996 and 1995, and the results of its operations and
its cash flows for the years ended June 30, 1996, 1995 and 1994, in conformity
with generally accepted accounting principles.
ROBB, DIXON
FRANCIS, DAVIS, ONESON
& COMPANY
Granville, Ohio
July 17, 1996
F-2
<PAGE> 88
HOME CITY FEDERAL SAVINGS BANK
SPRINGFIELD, OHIO
CONSOLIDATED BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
(Dollars in thousands)
June 30,
-----------------------
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents
Cash and amounts due from depository institutions $ 855 $ 570
Interest-bearing deposits in other banks 588 307
Federal Funds sold 400 1,500
------- -------
Total cash and cash equivalents 1,843 2,377
Time deposits 1,061 360
Investment securities
Securities held-to-maturity (fair value of $0 in 1996 and $1,909 in 1995) 0 1,901
Securities available-for-sale, at fair value 2,188 259
Mortgage backed securities
Securities held-to-maturity (fair value of $0 in 1996 and $3,603 in 1995) 0 3,667
Securities available-for-sale, at fair value 2,975 0
Loans, net 45,225 38,960
Accrued Interest receivable 273 169
Premises and equipment, net 488 468
Investment required by law - stock in Federal Home Loan Bank 394 288
Deferred income taxes 0 21
Cash surrender value of life insurance 1,044 0
Other assets 237 108
------- -------
TOTAL ASSETS $55,728 48,578
======= =======
LIABILITIES AND EQUITY
Deposits $47,174 $40,936
Advances from Federal Home Loan Bank 2,903 2,618
Accrued interest payable 49 42
Advance payments by borrowers for taxes and insurance 20 34
Deferred income taxes 68 0
Other liabilities 116 63
------- --------
TOTAL LIABILITIES 50,330 43,693
EQUITY
Retained earnings, substantially restricted 5,271 4,757
Unrealized gain on securities available-for-sale, net of applicable deferred
income taxes 127 128
------- -------
TOTAL EQUITY 5,398 4,885
------- -------
TOTAL LIABILITIES AND EQUITY $55,728 $48,578
======= =======
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes.
F-3
<PAGE> 89
HOME CITY FEDERAL SAVINGS BANK
SPRINGFIELD, OHIO
CONSOLIDATED STATEMENTS OF INCOME
================================================================================
<TABLE>
<CAPTION>
(Dollars in thousands)
Years ended June 30,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $4,094 $3,344 $3,074
Interest on investment securities 143 145 103
Interest on mortgage backed securities 209 274 314
Other interest income 61 72 51
------ ------ ------
TOTAL INTEREST INCOME 4,507 3,835 3,542
------ ------ ------
INTEREST EXPENSE
Interest on interest-bearing checking accounts 3 0 1
Interest on savings accounts 251 395 608
Interest on certificates of deposits 2,116 1,440 799
Interest on advances from Federal Home Loan Bank 172 107 38
------ ------ ------
TOTAL INTEREST EXPENSE 2,542 1,942 1,446
------ ------ ------
NET INTEREST INCOME 1,965 1,893 2,096
Provision for loan losses 50 109 113
------ ------ ------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,915 1,784 1,983
OTHER INCOME
Service charges 9 2 1
Life insurance 46 0 0
Other 3 7 11
------ ------ ------
TOTAL OTHER INCOME 58 9 12
----- ------ -------
OTHER EXPENSES
Salaries and employee benefits 532 398 311
Supplies, telephone and postage 44 29 28
Occupancy and equipment 102 104 120
Deposit insurance 96 83 83
Data processing 54 47 63
Legal, accounting and exam 110 83 70
Franchise tax 72 63 53
Other 206 191 195
------ ------ ------
TOTAL OTHER EXPENSES 1,216 998 923
------ ------ ------
NET INCOME BEFORE FEDERAL INCOME TAX EXPENSE 757 795 1,072
Federal income tax expense 243 240 367
------ ------ ------
NET INCOME $ 514 $ 555 $ 705
====== ====== ======
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes.
F-4
<PAGE> 90
HOME CITY FEDERAL SAVINGS BANK
SPRINGFIELD, OHIO
STATEMENTS OF CHANGES IN EQUITY
(Dollars in thousands)
================================================================================
<TABLE>
<CAPTION>
Unrealized gain
(loss) on securities
available-for-sale
Retained net of applicable Total
earnings deferred income taxes equity
-------- --------------------- ------
<S> <C> <C> <C>
Balances at June 30, 1993 $3,497 $ 0 $3,497
Net income 705 705
Change in accounting principle to adopt SFAS 115,
net of applicable deferred income taxes of $47
91 91
Change in unrealized gain (loss) on securities
available-for-sale, net of applicable
deferred income taxes of $11 22 22
------ ---- ------
Balances at June 30, 1994 4,202 113 4,315
Net income 555 555
Change in unrealized gain on securities
available-for-sale, net of applicable 15 15
deferred income taxes of $8
Balances at June 30, 1995 4,757 128 4,885
Net income 514 514
Change in unrealized gain on securities
available-for-sale, net of applicable (1) (1)
deferred income taxes. ------ ---- ------
Balance of June 30, 1996 $5,271 $127 $5,398
====== ==== ======
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes.
F-5
<PAGE> 91
HOME CITY FEDERAL SAVINGS BANK
SPRINGFIELD, OHIO
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
================================================================================
<TABLE>
<CAPTION>
(Dollars in thousands)
Years ending June 30,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 514 $ 555 $ 705
Adjustments to reconcile net income to net cash provided by
operating activities:
Premium amortization, net of discount accretion 42 (17) (34)
Provision for loan losses 50 109 113
Gain on sale of real estate owned 0 0 1
Depreciation 39 33 32
Deferred income taxes 89 7 (12)
Life insurance income, net of expenses (19) 0 0
Changes in operating assets and liabilities:
Increase in accrued income receivable (103) (52) (47)
Increase in other assets (129) (66) (4)
Increase in accrued interest payable 7 25 8
Increase in other liabilities 53 4 (7)
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 543 598 755
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in time deposits (700) (361) 0
Purchases of held-to-maturity securities 0 (3,880) (3,293)
Proceeds from maturities of held-to-maturity securities 500 4,121 3,750
Purchases of available-for-sale securities (496) (3) (10)
Proceeds from sales of available-for-sale securities 0 78 1,129
Proceeds from maturities of available-for-sale securities 20 0 0
Payments on held-to-maturity mortgage backed securities 278 564 1,009
Payments on available-for-sale mortgage backed securities 319 0 0
Proceeds for sales of loans 2,760 0 0
Net increase in loans (9,075) (7,968) (2,568)
Purchases of premises and equipment (60) (35) (88)
Proceeds from sale of real estate held for investment 0 3 (19)
Proceeds from sale of real estate owned 0 0 25
Purchase of Federal Home Loan Bank stock (106) (41) (32)
Purchase of life insurance contracts (1,025) 0 0
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES (7,585) (7,522) (97)
------- ------- -------
CASH PLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 6,238 6,120 (1,872)
Proceeds from advances from Federal Home Loan Bank 500 2,310 2,200
Payments on advances from Federal Home Loan Bank (216) (116) (2,236)
Net decrease in advance payments by borrowers for tax and
insurance (14) 0 0
------- ------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
6,508 8,314 (1,908)
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(534) 1,390 (1,250)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
2,377 987 2,237
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,843 $ 2,377 $ 987
======= ======= =======
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes.
F-6
<PAGE> 92
HOME CITY FEDERAL SAVINGS BANK
SPRINGFIELD, OHIO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Home City
Federal Savings Bank (the Bank) and its subsidiary, Homciti Service Corp. All
material intercompany balanced and transactions have been eliminated in
consolidation.
NATURE OF OPERATIONS
The Bank provides a variety of financial services to individuals and
corporate customers, through its one office in Springfield, Ohio, which is
primarily a small industrial area. The Bank's primary deposit products are
savings accounts and certificates of deposit Its primary lending products are
single-family residential loans.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for losses on loans. In
connection with the determination of the allowances for losses on loans,
management obtains independent appraisals for significant properties.
A majority of the Bank's loan portfolio consist of single-family
residential loans in the Springfield, Ohio area. The regional economy depends
heavily on some 200 diversified industries. accordingly, the ultimate
collectibility of a substantial portion of the Bank's loan portfolio are
susceptible to changes in local market conditions.
While management uses available information to recognize losses on
loans, fixture additions to the allowances may be necessary based on changes in
local economic conditions. In addition, regulatory agencies, as an integral part
of their examination process, periodically review the Bank's allowances for
losses on loans. Such agencies may require the Bank to recognize additions to
the allowances based on their judgments about information available to them at
the time of their examination. Because of these factors, it is reasonably
possible that the allowances for losses on loans may change materially in the
near term.
INVESTMENT SECURITIES
Investment securities are classified as available-for-sale and are
carried at fair value. Unrealized gains and losses on securities
available-for-sale are recognized as direct increases or decreases in equity,
net of the related deferred taxes. Cost of securities sold is recognized using
the specific identification method.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities represent participating interests in pools
of long-term first mortgage loans originated and serviced by issuers of the
securities. Mortgage-backed securities are carried as available-for-sale and are
carried at fair value. Unrealized gains and losses on securities
available-for-sale are recognized as direct increases or decreases in equity.
Cost of securities sold is recognized using the specific identification method.
LOANS
Loans are stated at unpaid principal balances, less the allowance for
loan losses, net deferred loan fees and loans-in-process.
F-7
<PAGE> 93
Loan origination fees, as well as certain direct origination costs, are
deferred and amortized as a yield adjustment over the lives of the related loans
using the interest method Amortization of deferred loan fees is discontinued
when a loan is placed on nonaccrual status.
Loans are placed on nonaccrual when principal or interest is delinquent
for 90 days or more. Any unpaid interest previously accrued on those loans is
reversed from income. Interest income on nonaccrual loans is recognized only to
the extent of interest payments received.
The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb credit losses inherent in the loan
portfolio. The amount of the allowance is based on management's evaluation of
the collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, and economic conditions. Allowances for impaired loans are generally
determined based on collateral values or the present value of estimated cash
flows. The allowance is increased by a provision for loan losses, which is
charged to expense, and reduced by charge-offs, net of recoveries.
PREMISES AND EQUIPMENT
Depreciation and amortization are provided over the estimated useful
lives of the respective assets. All premises and equipment are recorded at cost
and are depreciated on the straight-line method.
INCOME TAXES
The Bank files a consolidated federal income tax return on a calendar
year basis. Income taxes are provided for the tax effects of the transactions
reported in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the basis of
available-for-sale securities, allowance for loan losses, accumulated
depreciation, partnership income, deferred loan fees, accrued pension expenses,
and non-accrual loans for financial and income tax reporting. The deferred tax
assets and liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled.
PENSION PLAN
The Bank has a pension plan covering substantially all employees. It is
the policy of the Bank to fluid the maximum amount that can be deducted for
federal income tax purposes but in amounts not less than the minimum amounts
required by law.
STATEMENTS OF CASH FLOWS
The Bank considers all cash and amounts due from depository
institutions, interest-bearing deposits in other banks, and federal fluids sold
to be cash equivalents for purposes of the statements of cash flows.
FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about
Fair Value of Financial Instruments. requires disclosure of fair value
information about financial instruments, whether or not recognized in the
statement of financial condition. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instruments. Statement No. 107 excluded certain
financial instruments and all financial instruments from its disclosure
requirements. accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Bank.
The following methods and assumptions were used by the Bank in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the
statement of financial condition for cash and cash equivalents approximate those
assets' fair values.
F-8
<PAGE> 94
Time deposits: Fair values for time deposits are estimated using a
discounted cash flow analysis that applies interest rates currently being
offered on certificates to a schedule of aggregated contractual maturities on
such time deposits.
Investment securities (including mortgage-backed securities): Fair
values for investment securities are based on quoted market prices, where
available. If quoted market prices are not available, fair values are based on
quoted market prices of comparable instruments.
Loans: For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying amounts. The fair
values for other loans (for example, fixed rate commercial real estate and
rental property mortgage loans and commercial and industrial loans) are
estimated using discounted cash flow analysis, based on interest rates currently
being offered for loans with similar terms to borrowers of similar credit
quality. Loan fair value estimates include judgments regarding future expected
loss experience and risk characteristics. The carrying amount of accrued
interest receivable approximates its fair value.
Deposits: The fair values disclosed for demand deposits (for example,
interest-bearing checking accounts and passbook accounts) are, by definition,
equal to the amount payable on demand at the reporting date (that is, their
carrying amounts). The fair values for certificates of deposit are estimated
using a discounted cash flow calculation that applies interest rates currently
being offered on certificates to a schedule of aggregated contractual maturities
on such time deposits. The carrying amount of accrued interest payable
approximates fair value.
Advances from Federal Home Loan Bank: The fair value for FHLB advances are
estimated using a discounted cash flow calculation that applies interest rates
currently being offered on FHLB advances of aggregated contractual maturities of
such advances.
RECLASSIFICATIONS
Certain amounts in 1995 have been reclassified to conform with the 1996
presentation.
NOTE B - INVESTMENT SECURITIES
Securities held-to-maturity consist of the following at June 30, 1995:
<TABLE>
<CAPTION>
(Dollars in thousands)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
U.S. government & federal agencies $1,496 $ 0 $ 0 $1,496
State & local governments 405 8 0 413
------ ---- ---- -----
$1,901 $ 8 $ 0 $1,909
====== ==== ==== ======
</TABLE>
F-9
<PAGE> 95
Securities available-for-sale consist of the following:
<TABLE>
<CAPTION>
June 30. 1996 June 30.1995
----------------------------------------------- ---------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
--------- --------- ---------- ----- --------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government &
federal agencies $1,001 $ 0 $(4) $ 997 $ 0 $ 0 $0 $ 0
State & local
governments 879 6 (2) 883 0 0 0 0
Equity securities 65 243 0 308 65 194 0 259
------ ---- --- ------ --- ---- -- ----
$1,945 $249 $(6) $2,188 $65 $194 $0 $259
====== ==== ==== ====== === ==== == ====
</TABLE>
The following is a summary of maturities of securities and
available-for-sale as of June 30, 1996:
<TABLE>
<CAPTION>
(Dollars in thousands)
Securities available-for-sale
-----------------------------
Amortized Fair
Cost Value
--------- -----
<S> <C> <C>
AMOUNTS MATURING IN:
One year or less $ 134 $ 134
After one year through five years 1,569 1,565
After five years through ten years 177 181
After ten years 65 308
------ ------
$1,945 $2,188
====== ======
</TABLE>
During the year ended June 30, 1996, the Bank sold no securities.
Daring the year ended June 30, 1995, the Bank sold securities available-for-sale
for total proceeds of approximately $78,000, resulting in no gross realized
gains and no gross realized losses. During the year ended June 30, 1994, the
Bank sold securities for total proceeds of approximately $1,129,000, resulting
in no gross realized gains and no gross realized losses.
In the year ended June 30, 1996, debt securities with an amortized cost
of $1,405,000 were transferred from held-to-maturity to available-for-sale to
potentially reduce the Bank's state franchise tax expense. The securities had an
unrealized gain of approximately $6,000. There were no securities transferred
between classifications during the year ended June 30, 1995 and 1994.
No investment securities were pledged to secure deposits as required or
permitted by law.
F-10
<PAGE> 96
NOTE C - MORTGAGE-BACKED SECURITIES
Mortgage-backed securities consist of the following:
<TABLE>
<CAPTION>
(Dollars in thousands)
Available-for-sale Held-to-maturity
June 30, 1996 June 30, 1995
------------------------------------------------- ------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
--------- ---------- ---------- ----- --------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GNMA $3,020 $ 2 $(76) $2,946 $3,635 $ 9 $(77) $3,567
FHLMC 26 3 0 29 32 4 0 36
------ ---- ---- ------ ------ --- ---- ------
$3,046 $ 5 $(76) $2,975 $3,667 $13 $(77) $3,603
====== ==== ==== ====== ====== === ==== ======
</TABLE>
The amortized cost and fair value of mortgage-backed securities at June
30, 1996 by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations without call or prepayment penalties.
<TABLE>
<CAPTION>
(Dollars in thousands)
Amortized Fair
Cost Value
--------- -----
<S> <C> <C>
Mortgage-backed securities:
After five years through ten years $ 915 $ 903
After ten years 2,131 2,072
------- ------
$3,046 $2,975
====== ======
</TABLE>
During the years ended June 30, 1996, 1995 and 1994, the Bank sold no
mortgage-backed securities.
In the year ended June 30, 1996, mortgage-backed securities with an
amortized cost of $3,358,000 were transferred from held-to-maturity to
available-for-sale to potentially reduce the Bank's state franchise tax expense.
The mortgage-backed securities had an unrealized gain of approximately $38,000.
There were no securities transferred between classifications during the year
ended June 30, 1995.
Investment securities with a carrying amount of approximately $906,000
and $500,000 were pledged to secure deposits as required or permitted by law as
of June 30, 1996 and 1995, respectively.
F-11
<PAGE> 97
NOTE D-LOANS
Loans at June 30, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
1996 1995
---- ----
<S> <C> <C>
Loans secured by first mortgages on real estate:
1-4 family dwelling units $31,893 $24,956
5 or more dwelling units 3,233 3,288
Non-residential properties 7,255 7,309
Land 2,223 1,684
Construction 2,350 4,582
Consumer 1,641 201
Commercial 73 0
------- -------
48,668 42,020
------- -------
Allowance for loan losses (362) (319)
Net deferred loan origination fees (447) (420)
Loans in process (2,634) (2,321)
------- -------
Total $45,225 $38,960
======= =======
</TABLE>
An analysis of the allowance for loan losses is as follows:
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $319 $229 $198
Provision for losses 50 109 113
Loans charged off, net (7) (19) (82)
---- ---- ----
Balance, end of year $362 $319 $229
==== ==== ====
</TABLE>
At June 30, 1996 and 1995, the Bank had loans amounting to
approximately $72,000 and $17,000, respectively, that were specifically
classified as impaired. The average balance of these loans amounted to
approximately $104,000 and $16,000 for the years ended June 30, 1996 and 1995,
respectively. The allowance for loan losses related to impaired loans amounted
to approximately $2,000 at June 30, 1996. No portion of the allowance for loan
loss related to impaired loans at June 30, 1995.
In addition at June 30, 1996 and 1995, the Bank had other nonaccrual
loans of approximately $175,000 and $190,000, respectively, for which impairment
had not been recognized If interest on these loans had been recognized at the
original interest rates, interest income would have increased approximately
$16,000, and $12,000 in 1996 and 1995, respectively.
The Bank has no commitments to loan additional funds to the borrowers
of impaired or nonaccrual loans.
At June 30, 1996, the Bank serviced loans for others with a principal
balance of $3,358,000.
In the ordinary course of business, the Bank has and expects to
continue to have transactions, including borrowings, with its officers,
directors, and their affiliates. In the opinion of management, such transactions
were on substantially the same terms, including interest rates and collateral,
as those prevailing at the time of
F-12
<PAGE> 98
comparable transactions with other persons and did not involve more than a
normal risk of collectibility or present any other unfavorable features to the
Bank. Loans to such borrowers are summarized as follows:
<TABLE>
<S> <C> <C> <C>
Balance, at June 30, 1996 $1,085
New loans 0
Payments (23)
------
Balance, at June 30, 1996 $1,062
======
</TABLE>
NOTE E - ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at June 30, 1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
(Dollars in thousands)
1996 1995
----- ----
<S> <C> <C>
Loans $246 $143
Mortgage-backed securities 19 23
Investments and other 8 3
---- ----
Totals $273 $169
==== ====
</TABLE>
NOTE F - PREMISES AND EQUIPMENT
A summary of premises and equipment at June 30, 1996 and 1995 follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C> <C>
Land $ 113 $ 113
Buildings and improvements 424 392
Furniture, fixtures, and equipment 275 249
812 754
Accumulated depreciation (324) (286)
----- -----
Totals $ 488 $ 468
===== =====
</TABLE>
NOTE G - SUPPLEMENTAL DISCLOSURES
The following are supplemental disclosures for the Statement of Cash
Flows for the years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
(Dollars in thousands)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash paid during the year for interest $2,535 $1,927 $1,438
Cash paid during the year for income taxes 283 272 379
Total change in unrealized gain on securities available-for-sale (1) 23 124
</TABLE>
F-13
<PAGE> 99
NOTE H - CASH SURRENDER VALUE OF LIFE INSURANCE
The Bank is the beneficiary of insurance policies on the lives of four
of its directors. At June 30, 1996 there were no notes payable to the insurance
company.
NOTE I - DEPOSITS
Deposit account balances at June 30, 1996 and 1995, are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
------------------------ -----------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Non-interest bearing checking accounts $ 302 0.6% $ 0 0.0%
Now and money market accounts 395 0.8% 0 0.0%
Passbook savings accounts 9,561 20.3% 10,500 25.6%
Certificates of deposit 36,916 78.3% 30,436 74.4%
------- ------ ------- ------
Totals $47,174 100.00% $40,936 100.00%
======= ====== ======= ======
</TABLE>
The aggregate amount of short-term jumbo CD's, each with a minimum
denomination of $100,000, was approximately $7,216,000 and $4,061,000 at June
30, 1996 and 1995, respectively.
At June 30, 1996, the scheduled maturities of CD's are as follows:
<TABLE>
<S> <C>
July 1,1996 to June 30,1997 $15,409
July 1, 1997 to June 30, 1998 16,573
July 1, 1998 to June 30, 1999 4,254
July 1,1999 to June 30,2000 403
After June 30, 2000 277
-------
Totals $36,916
=======
</TABLE>
The Bank held deposits of approximately $806,000 for related parties at
June 30, 1996.
NOTE J - ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank consist of the following at
June 30, 1996 and 1995, respectively:
<TABLE>
<CAPTION>
(Dollars in thousands)
Balance
Current interest --------------------
Rate 1996 1995
---------------- ---- ----
<S> <C> <C> <C>
Fixed rate advance, with monthly interest payments:
Advance due September 25, 1996 5.80% $ 500 $
Fixed rate advances, with monthly principal and
interest payments:
Advance due February 1,2003 6.05% 110 122
Advance due March 1,2003 5.85% 236 263
Advance due December 31,2004 8.35% 510 570
Advance due January 1,2005 8.35% 303 326
Advance due January 1,2005 8.30% 601 671
Advance due February 1,2010 3.30% 643 666
------ ------
Totals $2,903 $2,618
====== ======
</TABLE>
F-14
<PAGE> 100
Federal Home Loan Bank ("FHLB") advances are collateralized by all
shares of FHLB stock owned by the Bank (totaling $394,000) and by 100% of the
Bank's qualified mortgage loan portfolio (totaling approximately $21,759,000).
Based on the carrying amount of FHLB stock owned by the Bank, total FHLB
advances are limited to approximately $7,882,000.
The aggregate minimum future principal payments on borrowings are as
follows:
<TABLE>
<S> <C>
July 1, 1996 to June 30, 1997 $ 719
July 1,1997 to June 30,1998 221
July 1,1998 to June 30,1999 224
July 1, l999 to June 30, 2000 227
After June 30, 2000 1,512
------
Totals $2,903
======
</TABLE>
NOTE K - FEDERAL INCOME TAXES
The consolidated provision for income taxes for the years ended June
30, 1996, 1995 and 1994 consists of the following:
<TABLE>
<CAPTION>
(Dollars in thousands)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current federal tax expense $154 $233 $379
Deferred federal tax expense 89 7 (12)
---- ---- ----
$243 $240 $367
==== ==== ====
</TABLE>
The provision for federal income taxes differs from that computed by
applying federal statutory rates to income (loss) before federal income tax
expense, as indicated in the following analysis:
<TABLE>
<CAPTION>
(Dollars in thousands)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C> <C>
Expected tax provision at a 34% rate $257 $268 $364
Effect of tax-exempt income (31) (11) 0
Other 17 (17) 3
---- ---- ----
$243 $240 $367
==== ==== ====
</TABLE>
Deferred tax liabilities have been provided for taxable temporary
differences related to accumulated depreciation and unrealized gains on
available-for-sale securities. Deferred tax assets have been provided for
deductible temporary differences related to the allowance for loan losses,
deferred loan fees, and accrued employee benefits. The net deferred tax assets
in the accompanying consolidated statements of financial condition include the
following components as of June 30:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets $ 20 $ 94
Deferred tax liabilities (88) (73)
---- ----
Net deferred tax assets (liabilities) $(68) $ 21
==== ====
</TABLE>
Included in retained earnings at June 30, 1996 and 1995 is
approximately $1,084,000 in bad debt reserves for which no deferred federal
income tax liability has been recorded. These amounts represent allocations of
income to bad debt deductions for tax purposes only. Reduction of these reserves
for purposes other than tax bad-
F-15
<PAGE> 101
debt losses or adjustments arising from carryback of net operating losses would
create income for tax purposes, which would be subject to the then-current
corporate income tax rate. The unrecorded deferred liability on these amounts
was approximately $369,000.
NOTE L - PENSION PLAN
In connection with the Financial Institution's Retirement Fund, the
Bank participates with other companies in the financial institution industry in
a defined benefit plan The plan covers all of the Bank's employees who are over
21 years old with at least one year of service. Pension expense amounted to
$25,000, $8,000 and $6,000 for the years ended June 30, 1996, 1995 and 1994,
respectively.
In 1994, the Bank also initiated a 401K Profit Sharing Plan. The plan
covers all of the Bank's employees who are over 21 years old with at least one
year of service. Participants may make salary savings contributions up to 15% of
their compensation, 50% of which will be matched by the Bank; up to 6% of each
employee's salary. Contributions charged to operations for the years ended June
30, 1996, 1995 and 1994 were $8,000, $5,000 and $0, respectively.
NOTE M - INCENTIVE COMPENSATION PLAN
The Bank has an incentive compensation plan that covers all employees
who are normally scheduled to work 1,040 hours or more per year. Contributions
to the plan are based on a formula and are contingent upon the attainment of
certain levels of earnings as defined in the agreement. during the years ended
June 30, 1996, 1995 and 1994, contributions to the plan charged to operations
were $56,000, $38,000 and $0, respectively.
NOTE N - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory--and possibly additional
discretionary--actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework from prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Qualitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of June 30, 1996, that the Bank
meets all adequacy requirements to which it is subject.
As of June 30, 1996, the most recent notification from the Bank's
regulators categorized the Bank as adequately capitalized under the regulatory
framework for prompt corrective action. To be categorized as adequately
capitalized the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.
F-16
<PAGE> 102
The Bank's actual capital amounts and ratios are also presented in the
table.
<TABLE>
<CAPTION>
(Dollars in thousands)
To be well capitalized
under promoted
For capital corrective
Actual adequacy purposes: action provisions
---------------- ----------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1996:
Total Capital
(to Risk Weighted Assets) $5,633 18.8% $2,400 8.0% $2,999 10.0%
Tier I Capital
(to Risk Weighted Assets) 5,271 17.6% 900 3.0% 1,800 6.0%
Tier I Capital
(to Average Assets) 5,271 9.5% 834 1.5% 2,779 5.0%
As of June 30, 1995:
Total Capital
(to Risk Weighted Assets) 5,076 19.2% 2,117 8.0% 2,646 10.0%
Tier I Capital
(to Risk Weighted Assets) 4,757 18.0% 794 3.0% 1,587 6.0%
Tier I Capital
(to Average Assets) 4,757 9.8% 729 1.5% 2,430 5.0%
</TABLE>
NOTE O - COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Bank has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. The principal commitments of the
Bank are as follows:
The Bank had outstanding commitments to originate loans as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
June 30.1996 June 30.1996
-------------------------------------- --------------------------------------
Fixed-rate Variable- rate Total Fixed-rate Variable-rate Total
<S> <C> <C> <C> <C> <C> <C>
First-mortgage $ 837 $169 $1,006 $50 $510 $560
Consumer and other loans 292 0 292 0 0 0
------ ---- ------ --- ---- ----
$1,129 $169 $1,298 $50 $510 $560
====== ==== ====== === ==== ====
</TABLE>
In addition, the Bank is periodically a defendant in various legal
proceedings arising in connection with its business. It is the best judgment of
management that neither the financial position nor results of operations of the
Bank will be materially affected by the final outcome of these legal proceeding.
NOTE P- FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The 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. These financial instruments include commitments to extend credit.
These instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amounts recognized in the statements of financial
condition.
F-17
<PAGE> 103
The Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instruments for commitments to extend credit is
represented by the contractual notional amount of those instruments (see NOTE
P). The Bank uses the same credit policies in making commitments as it does for
on-balance-sheet-instruments.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses.
Since many of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount and type of collateral obtained, if deemed
necessary by the Bank upon extension of credit, varies and is based on
management's credit evaluation of the counterparty.
At June 30, 1996, the Bank had deposits with the following banks in
excess of FDIC insurance of $100,000:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
Huntington National Bank $ 705
Federal Home Loan Bank 1,288
Springfield Federal Savings Bank 700
</TABLE>
NOTE Q - FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Bank's financial instruments are as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
June 30 . 1996
-------------------------------
Carrying
amount Fair value
-------- ----------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 1,843 $ 1,843
Time deposits 1,061 1,053
Investment securities 2,188 2,188
Mortgage-backed securities 2,975 2,975
Loans, net of allowance 45,225 45,364
Financial liabilities:
Deposits 47,174 47,311
Advances from FHLB 2,903 2,954
</TABLE>
The carrying amounts in the preceding table are included in the
statement of financial condition under the applicable captions.
F-18
<PAGE> 104
NOTE R - SELECTED QUARTERLY FINANCIAL INFORMATION
The following table shows quarterly income and expense amounts
<TABLE>
<CAPTION>
(Dollars in thousands)
6/30/96 3/31/96 12/31/95 9/30/95
------- ------- -------- -------
<S> <C> <C> <C> <C>
Interest income $1,102 $1,094 $1,057 $1,027
Interest expense 662 653 633 600
Net interest income 440 441 424 427
Provision for loan loss 50 0 0 0
Security gains, net 0 0 0 0
Net income 121 149 119 125
6/30/95 3/31/95 12/31/94 9/30/94
------- ------- -------- -------
Interest income $1,007 $943 $911 $852
Interest expense 577 516 453 396
Net interest income 430 427 458 456
Provision for loan loss 22 15 63 9
Security gains, net 0 0 0 0
Net income 142 151 113 116
</TABLE>
F-19
<PAGE> 105
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
* Legal Fees and Expenses $ 75,000
* Printing, Postage and Mailing 60,000
Appraisal Fees and Expenses 15,000
* Accounting Fees and Expenses 50,000
* Blue Sky Filing Fees and Expenses 15,000
Federal Filing Fees 15,000
Conversion Agent Fees 7,000
* Other Expenses 15,000
** Underwriting Fees and Expenses 120,000
--------
Total estimated expenses $372,000
========
</TABLE>
- -----------------------------
* Estimated.
** Home City and HCFC have retained Webb, to assist in the marketing of
the Common Shares. Webb will consult with and advise Home City and HCFC
and assist with the sale of the Common Shares in connection with the
Conversion on a best efforts basis. The services to be rendered by Webb
include assisting HCFC in conducting the Offering and educating Home
City personnel about the Conversion process.
Webb will receive a management fee in the amount of $25,000. Webb will
also receive a commission equal to 1.5% of the aggregate purchase price
paid for Common Shares sold in the Conversion, excluding purchases by
directors, officers and associates of such directors and officers, or
the Home City Financial Corporation Employee Stock Ownership Plan. In
addition, HCFC will reimburse Webb for certain expenses, including
reasonable legal fees. If HCFC and Webb deem necessary, Webb may enter
into Selected Dealers Agreements with other National Association of
Securities Dealers, Inc. member firms for assistance in the sale of the
Common Shares. Selected Dealers will receive fees equal to 5.5% of the
aggregate purchase price of the Common Shares sold, if any, pursuant to
Selected Dealer Agreements.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS OF HOME CITY.
(A) FEDERAL REGULATIONS
As a federal savings bank, Home City is subject to 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 (an
"Action"), is brought by reason of the fact that such person is or was a
director, officer or employee of Home City shall be indemnified by Home City for
the following:
(i) Reasonable costs and expenses, including
reasonable attorney's fees actually paid or incurred by such person in
connection with proceedings related to the defense or settlement of an Action:
(ii) Any amount for which such person becomes liable
by reason of any judgment in an Action; and
(iii) Reasonable costs and expenses, including
reasonable attorney's fees, actually paid or incurred in any Action to enforce
his rights under this section if the person attains a final judgment in favor of
such person in such Action.
II-1
<PAGE> 106
Such indemnification shall be made to such officer, director
or employee only if the following requirements are met:
(i) Home City shall make the indemnification in
connection with any Action which results in a final judgment on the merits in
favor of such director, officer or employee; and
(ii) Home City shall make the indemnification in case
of (A) settlement of any Action, (B) final judgment against such director,
officer or employee, or (C) final judgment in favor of such director, officer or
employee other than on the merits, only if a majority of the directors of Home
City determines that such 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 Home
City or its stockholders.
Home City may authorize payment of reasonable costs and expenses,
including reasonable attorney's fees arising from the defense or settlement of
any Action, to any director, officer or employee if a majority of the directors
of Home City conclude that such person may become entitled to indemnification.
The directors of Home City may impose conditions on such payment, and, before
making an advance payment, Home City shall obtain an agreement from such person
that Home City will be repaid if the person on whose behalf payment is made is
later determined not to be entitled to such indemnification.
Home City currently maintains a directors' and officers' liability
policy providing for insurance of directors and officers for liability incurred
in connection with performance of their duties as directors and officers. Such
policy does not, however, provide insurance for losses resulting from willful or
criminal misconduct.
(B) HCFC'S CODE OF REGULATIONS
Article Five of HCFC's Code of Regulations provides for the
indemnification of officers and directors as follows:
Section 5.01. Mandatory Indemnification. The corporation shall
indemnify any officer or director of the corporation who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including, without limitation, any action threatened or instituted by or in the
right of the corporation), by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee or agent of
another corporation (domestic or foreign, nonprofit or for profit), partnership,
joint venture, trust or other enterprise, against expenses (including, without
limitation, attorneys' fees, filing fees, court reporters' fees and transcript
costs), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and with respect to any criminal action
or proceeding, he had no reasonable cause to believe his conduct was unlawful. A
person claiming indemnification under this Section 5.01 shall be presumed, in
respect of any act or omission giving rise to such claim for indemnification, to
have acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and with respect to any
criminal matter, to have had no reasonable cause to believe his conduct was
unlawful, and the termination of any action, suit or proceeding by judgment,
order, settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, rebut such presumption.
II-2
<PAGE> 107
Section 5.02. Court-Approved Indemnification. Anything contained in the
Regulations or elsewhere to the contrary notwithstanding:
(A) the corporation shall not indemnify any officer or director of the
corporation who was a party to any completed action or suit instituted by or in
the right of the corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, trustee, officer, employee or agent of another corporation (domestic
or foreign, nonprofit or for profit), partnership, joint venture, trust or other
enterprise, in respect of any claim, issue or matter asserted in such action or
suit as to which he shall have been adjudged to be liable for acting with
reckless disregard for the best interests of the corporation or misconduct
(other than negligence) in the performance of his duty to the corporation unless
and only to the extent that the Court of Common Pleas of Clark County, Ohio, or
the court in which such action or suit was brought shall determine upon
application that, despite such adjudication of liability, and in view of all the
circumstances of the case, he is fairly and reasonably entitled to such
indemnity as such Court of Common Pleas or such other court shall deem proper;
and
(B) the corporation shall promptly make any such unpaid indemnification
as is determined by a court to be proper as contemplated by this Section 5.02.
Section 5.03. Indemnification for Expenses. Anything contained in the
Regulations or elsewhere to the contrary notwithstanding, to the extent that an
officer or director of the corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section
5.01, or in defense of any claim, issue or matter therein, he shall be promptly
indemnified by the corporation against expenses (including, without limitation,
attorneys' fees, filing fees, court reporters' fees and transcript costs)
actually and reasonably incurred by him in connection therewith.
Section 5.04 Determination Required. Any indemnification required under
Section 5.01 and not precluded under Section 5.02 shall be made by the
corporation only upon a determination that such indemnification of the officer
or director is proper in the circumstances because he has met the applicable
standard of conduct set forth in Section 5.01. Such determination may be made
only (A) by a majority vote of a quorum consisting of directors of the
corporation who were not and are not parties to, or threatened with, any such
action, suit or proceeding, or (B) if such a quorum is not obtainable or if a
majority of a quorum of disinterested directors so directs, in a written opinion
by independent legal counsel other than an attorney, or a firm having associated
with it an attorney, who has been retained by or who has performed services for
the corporation, or any person to be indemnified, within the past five years, or
(C) by the shareholders, or (D) by the Court of Common Pleas of Clark County,
Ohio, or (if the corporation is a party thereto) the court in which such action,
suit or proceeding was brought, if any; any such determination may be made by a
court under division (D) of this Section 5.04 at any time including, without
limitation, any time before, during or after the time when any such
determination may be requested of, be under consideration by or have been denied
or disregarded by the disinterested directors under division (A) or by
independent legal counsel under division (B) or by the shareholders under
division (C) of this Section 5.04; and no failure for any reason to make any
such determination, and no decision for any reason to deny any such
determination, by the disinterested directors under division (A) or by
independent legal counsel under division (B) or by shareholders under division
(C) of this Section 5.04 shall be evidence in rebuttal of the presumption
recited in Section 5.01. Any determination made by the disinterested directors
under division (A) or by independent legal counsel under division (B) of this
Section 5.04 to make indemnification in respect of any claim, issue or matter
asserted in an action or suit threatened or brought by or in the right of the
corporation shall be promptly communicated to the person who threatened or
brought such action or suit, and within ten (10) days after receipt of such
notification such person shall have the right to petition the Court of Common
Pleas of Clark County, Ohio, or the court in which such action or suit was
brought, if any, to review the reasonableness of such determination.
Section 5.05. Advances for Expenses. Expenses (including, without
limitation, attorneys' fees, filing fees, court reporters' fees and transcript
costs) incurred in defending any action, suit or proceeding referred to in
Section 5.01 shall be paid by the corporation in advance of the final
disposition of such action, suit or proceeding to or on behalf of the officer or
director promptly as such expenses are incurred by him, but only if such officer
or director shall first agree, in writing, to repay all amounts so paid in
respect of any claim, issue or other matter asserted in such action, suit or
proceeding in defense of which he shall not have been successful on the merits
or otherwise:
II-3
<PAGE> 108
(A) if it shall ultimately be determined as provided in Section 5.04
that he is not entitled to be indemnified by the corporation as provided under
Section 5.01; or
(B) if, in respect of any claim, issue or other matter asserted by or
in the right of the corporation in such action or suit, he shall have been
adjudged to be liable for acting with reckless disregard for the best interests
of the corporation or misconduct (other than negligence) in the performance of
his duty to the corporation, unless and only to the extent that the Court of
Common Pleas of Clark County, Ohio, or the court in which such action or suit
was brought shall determine upon application that, despite such adjudication of
liability, and in view of all the circumstances, he is fairly and reasonably
entitled to all or part of such indemnification.
Section 5.06. Article Five Not Exclusive. The indemnification provided
by this Article Five shall not be deemed exclusive of any other rights to which
any person seeking indemnification may be entitled under the Articles or the
Regulations or any agreement, vote of shareholders or disinterested directors,
or otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be an officer or director of the corporation and shall inure
to the benefit of the heirs, executors, and administrators of such a person.
Section 5.07. Insurance. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, trustee, officer, employee, or agent of another corporation
(domestic or foreign, nonprofit or for profit), partnership, joint venture,
trust or other enterprise, against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the obligation or the power to
indemnify him against such liability under the provisions of this Article Five.
Section 5.08. Certain Definitions. For purposes of this Article Five,
and as examples and not by way of limitation:
(A) A person claiming indemnification under this Article 5 shall be
deemed to have been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Section 5.01, or in defense of any
claim, issue or other matter therein, if such action, suit or proceeding shall
be terminated as to such person, with or without prejudice, without the entry of
a judgment or order against him, without a conviction of him, without the
imposition of a fine upon him and without his payment or agreement to pay any
amount in settlement thereof (whether or not any such termination is based upon
a judicial or other determination of the lack of merit of the claims made
against him or otherwise results in a vindication of him); and
(B) References to an "other enterprise" shall include employee benefit
plans; references to a "fine" shall include any excise taxes assessed on a
person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee or agent with respect to
an employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the best
interests of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the corporation" within the meaning of that term as used in this Article Five.
Section 5.09. Venue. Any action, suit or proceeding to determine a
claim for indemnification under this Article Five may be maintained by the
person claiming such indemnification, or by the corporation, in the Court of
Common Pleas of Clark County, Ohio. The corporation and (by claiming such
indemnification) each such person consent to the exercise of jurisdiction over
its or his person by the Court of Common Pleas of Clark County, Ohio, in any
such action, suit or proceeding.
The Board of Directors is authorized, at their discretion, to obtain
policies of insurance insuring the Association against loss caused by the acts
of its directors, officers or employees and insuring its directors, officers or
employees for those expenses which an association may indemnify such director,
officer or employee under the authority of Revised Code Section 1151.151.
II-4
<PAGE> 109
(C) INDEMNIFICATION AGREEMENTS
(I) AGREEMENT WITH KELLER & COMPANY, INC.
Home City has agreed to indemnify Keller in connection with
certain matters related to the appraisal. Home City will indemnify Keller, its
employees and affiliates, for certain costs and expenses, including reasonable
legal fees, in connection with claims or litigation relating to the appraisal
and arising out of any misstatement or untrue statement of a material fact in
information supplied to Keller by Home City or by an intentional omission by
Home City to state a material fact in the information so provided, except where
Keller has been negligent or at fault.
(II) AGREEMENT WITH WEBB
Home City has agreed to indemnify and hold harmless Webb. In
general, the agency agreement with Webb (the "Agency Agreement") provides that
Home City will indemnify and hold harmless their directors, officers, employees,
agents and any controlling person against any and all loss, liability, claim,
damage or expense (including the fees and disbursements of counsel reasonably
incurred) arising out of any untrue statement, or alleged untrue statement, of a
material fact contained in the Summary Proxy Statement or the Prospectus, any
application to regulatory authorities, any "blue sky" application, or any other
related document prepared or executed by or on behalf of Home City with its
consent in connection with, or in contemplation of, the transactions
contemplated by the Agency Agreement, or any omission therefrom of a material
fact required to be stated therein, unless such untrue statement or omission, or
alleged untrue statement or omission, was made in reliance upon, and in
conformity with, written information regarding Webb furnished to Home City by
Webb expressly for use in the Summary Proxy Statement or the Prospectus.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
No securities of HCFC have been sold by HCFC without
registration pursuant to the Act, except as follows:
On August 14, 1996, in connection with the incorporation of
HCFC, 100 common shares, without par value, of HCFC (the "Securities") were sold
for an aggregate purchase price of $100 pursuant to Section 4(2) of the Act in a
transaction not involving any public offering. The Securities were sold to
Douglas L. Ulery, the President of HCFC, who had access to all material
information about HCFC. The Securities were offered without the use of any form
of general solicitation or advertising. No underwriter was involved in the
transaction, and no commission, discount or other remuneration was paid or given
in connection with the sale of the Securities. Under the terms of the
Subscription Agreement between HCFC and Mr. Ulery, the Securities will be
repurchased by HCFC on the effective date of the Conversion.
II-5
<PAGE> 110
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
The exhibits filed as a part of this Registration Statement
are as follows:
<TABLE>
<S> <C>
1.1 Engagement letter with Charles Webb & Company
*1.2 Agency Agreement with Charles Webb & Company (proposed)
2 Plan of Conversion
3.1 Articles of Incorporation of Home City Financial Corporation
3.2 Code of Regulations of Home City Financial Corporation
5 Opinion of Vorys, Sater, Seymour and Pease regarding legality of securities
being offered
8 Opinion of Vorys, Sater, Seymour and Pease regarding tax matters
10.1 Home City Financial Corporation 1996 Stock Option Plan (proposed)
10.2 Home City Financial Corporation Recognition and Retention Plan (proposed)
*10.3 Home City Financial Corporation Employee Stock Ownership Plan (proposed)
10.4 Employment Agreement with Douglas L. Ulery (proposed)
10.5 Tax Sharing Agreement (proposed)
10.6 Management Services Agreement (proposed)
23.1 Consent of Robb, Dixon, Francis, Davis, Oneson & Company
23.2 Consent of Keller & Company, Inc.
23.3 Consent of Vorys, Sater, Seymour and Pease
27 Financial Data Schedule
99.1 Summary Proxy Statement
99.2 Order Form and Form of Certification
99.3 Form of Proxy
99.4 Solicitation and Marketing Material
99.5 Appraisal Agreement with Keller & Company, Inc.
*99.6 Appraisal Report prepared by Keller & Company, Inc.
</TABLE>
- -------------------------
* To be filed supplementally or by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
No financial statement schedules are filed because the
required information is not applicable or is included in the consolidated
financial statements or related notes.
II-6
<PAGE> 111
ITEM 17. UNDERTAKINGS.
(a) The undersigned, HCFC, hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required
by Section 10(a)(3) of the Act;
(ii) To reflect in the prospectus any
facts or events arising after the
effective date of the Registration
Statement (or the most recent
post-effective amendment thereof)
which, individually or in the
aggregate, represent a fundamental
change in the information set forth
in the Registration Statement;
(iii) To include any material information
with respect to the plan of
distribution not previously
disclosed in the Registration
Statement or any material change to
such information in the Registration
Statement.
(2) That, for the purpose of determining any
liability under the Act, each such post-effective amendment shall be deemed to
be a new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) Insofar as indemnification for liabilities arising under
the Act may be permitted to directors, officers and controlling persons of HCFC,
pursuant to the foregoing provisions or otherwise, HCFC has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act, and is therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by HCFC of expenses incurred or paid by a director, officer or
controlling person of HCFC in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, HCFC will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-7
<PAGE> 112
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, duly authorized to do so, in the City of
Springfield, State of Ohio, on September 16, 1996.
By: Douglas L. Ulery
President, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed below by the following
persons in the capacities and as of the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
Douglas L. Ulery President, Principal Executive Officer, September 16, 1996
Principal Financial Officer, Principal
Accounting Officer and Director
John D. Conroy Director September 16, 1996
P. Clark Engelmeier Director September 16, 1996
James Foreman Director September 16, 1996
Terry A. Hoppes Director September 16, 1996
</TABLE>
<PAGE> 1
CHARLES WEBB & COMPANY
Investment Bankers and Financial Advisors
August 2, 1996
Mr. Douglas L. Ulery
President & CEO
Home City Federal Savings & Loan
63 West Main Street
Springfield, Ohio 45502
Dear Mr. Ulery:
This proposal is in connection with Home City Federal Savings & Loan's (the
"Bank") intention to convert from a mutual to a capital stock form of
organization (the "Conversion"). In order to effect the Conversion, it is
contemplated that all of the Bank's common stock to be outstanding pursuant to
the Conversion will be issued to a holding company (the "Company") to be formed
by the Bank, and that the Company will offer and sell shares of its common stock
first to eligible persons (pursuant to the Bank's Plan of Conversion) in a
Subscription Offering and then in a Community Offering.
Charles Webb & Company, a Division of Keefe, Bruyette & Woods ("Webb"), will act
as the Bank's and the Company's exclusive financial advisor and marketing agent
in connection with the Conversion. This letter sets forth selected terms and
conditions of our engagement.
1. ADVISORY/CONVERSION SERVICES. As the Bank's and Company's financial
advisor and marketing agent, Webb will provide the Bank and the Company with a
comprehensive program of conversion services designed to promote an orderly,
efficient, cost-effective and long-term stock distribution. Webb will provide
financial and logistical advice to the Bank and the Company concerning the
offering and related issues. Webb will assist in providing of conversion
enhancement services intended to maximize stock sales in the Subscription
Offering and to residents of the Bank's market area, if necessary, in the
Community Offering.
Webb shall provide financial advisory services to the Bank which are
typical in connection with an equity offering and include, but are not limited
to, overall financial analysis of the client with a focus on identifying factors
which impact the valuation of an equity security and provide the appropriate
recommendations for the betterment of the equity valuation.
<PAGE> 2
Mr. Douglas L. Ulery
August 2, 1996
Page 2 of 5
Additionally, post conversion financial advisory services will include advice
on shareholder relations, NASDAQ listing, dividend policy, stock repurchase
strategy and communication with market makers. Prior to the closing of the
offering, Webb shall furnish to client a Post-conversion reference manual which
will include specifics relative to these items. (The nature of the services to
be provided by Webb as the Bank's and the Company's financial advisor and
marketing agent are further described in Exhibit A attached hereto).
2. PREPARATION OF OFFERING DOCUMENTS. The Bank, the Company and their
counsel will draft the Registration Statement, Application for Conversion,
Prospectus and other documents to be used in connection with the Conversion.
Webb will attend meetings to review these documents and advise you on their form
and content. Webb and their counsel will draft appropriate agency agreement and
related documents as well as marketing materials other than the Prospectus.
3. DUE DILIGENCE REVIEW. Prior to filing the Registration Statement,
Application for Conversion or any offering or other documents naming Webb as the
Bank's and the Company's financial advisor and marketing agent, Webb and their
representatives will undertake substantial investigations to learn about the
Bank's business and operations ("due diligence review") in order to confirm
information provided to us and to evaluate information to be contained in the
Bank's and/or the Company's offering documents. The Bank agrees that it will
make available to Webb all relevant information, whether or not publicly
available, which Webb reasonably requests, and will permit Webb to discuss
personnel and the operations and prospects of the Bank with management. Webb
will treat all material non-public information as confidential. The Bank
acknowledges that Webb will rely upon the accuracy and completeness of all
information received from the Bank, its officers, directors, employees, agents
and representatives, accountants and counsel including this letter of intent to
serve as the Bank's and the Company's financial advisor and marketing agent.
4. REGULATORY FILINGS. The Bank and/or the Company will cause appropriate
offering documents to be filed with all regulatory agencies, including the
Securities and Exchange Commission ("SEC"), the National Association of
Securities Dealers ("NASD"), and such state securities commissioners as may be
determined by the Bank.
5. AGENCY AGREEMENT. The specific terms of the conversion services,
conversion offering enhancement and syndicated offering services contemplated in
this letter shall be set forth in an Agency Agreement between Webb and the Bank
and the Company to be executed prior to commencement of the offering, and dated
the date that the Company's Prospectus is declared effective and/or authorized
to be disseminated by the appropriate regulatory agencies, the SEC, the NASD and
such state securities commissioners and other regulatory agencies as required by
applicable law.
<PAGE> 3
Mr. Douglas L. Ulery
August 2, 1996
Page 3 of 5
6. REPRESENTATIONS, WARRANTIES AND COVENANTS. The Agency Agreement will
provide for customary representations, warranties and covenants by the Bank and
Webb, and for the Company to indemnify Webb and their controlling persons (and,
if applicable, the members of the selling group and their controlling persons),
and for Webb to indemnify the Bank and the Company against certain liabilities,
including, without limitation, liabilities under the Securities Act of 1933.
7. FEES. For the services hereunder, the Bank and/or Company shall pay
the following fees to Webb at closing unless stated otherwise:
(a) A Management Fee of $25,000 payable in four consecutive
monthly installments of $6,250 commencing with the signing
of the letter. Such fees shall be deemed to have been earned
when due. Should the Conversion be terminated for any reason
not attributable to the action or inaction of Webb, Webb
shall have earned and be entitled to be paid fees accruing
through the stage at which point the termination occurred.
(b) A Success Fee of 1.50% of the aggregate Purchase Price of
Common Stock sold in the Subscription Offering and Community
Offering excluding shares purchased by the Bank's officers,
directors, or employees (or members of their immediate
families) plus any ESOP, tax-qualified or stock based
compensation plans (except IRA's) or similar plan created by
the Bank for some or all of its directors or employees.
(c) If any shares of the Company's stock remain available after
the subscription offering, at the request of the Bank, Webb
will seek to form a syndicate of registered broker-dealers
to assist in the sale of such common stock on a best efforts
basis, subject to the terms and conditions set forth in the
selected dealers agreement. Webb will endeavor to distribute
the common stock among dealers in a fashion which best meets
the distribution objectives of the Bank and the Plan of
Conversion. Webb will be paid a fee not to exceed 5.5% of
the aggregate Purchase Price of the shares of common stock
sold by them. Webb will pass onto selected broker-dealers,
who assist in the syndicated community, an amount
competitive with gross underwriting discounts charged at
such time for comparable amounts of stock sold at a
comparable price per share in a similar market environment.
Fees with respect to purchases affected with the assistance
of a broker/dealer other than Webb shall be transmitted by
Webb to such broker/dealer. The decision to utilize selected
broker-dealers will be made by the Bank upon consultation
with Webb. In the event, with respect to any stock
purchases, fees are paid pursuant to this subparagraph 7(c),
such fees shall be in lieu of, and not in addition to,
payment pursuant to subparagraph 7(a) and 7(b).
<PAGE> 4
Mr. Douglas L. Ulery
August 2, 1996
Page 4 of 5
8. EXPENSES. The Bank will bear those expenses of the proposed offering
customarily borne by issuers, including, without limitation, regulatory filing
fees, SEC, "Blue Sky," and NASD filing and registration fees; the fees of the
Bank's accountants, attorneys, appraiser, transfer agent and registrar,
conversion agent, printing, mailing and marketing and syndicate expenses
associated with the Conversion; the fees set forth in Section 7; and fees for
"Blue Sky" legal work.
Due to the proximity of Webb to the Client, there will be no out of
pocket expenses for travel, lodging, meals, etc. billed to the Client.
Webb shall be reimbursed for the reasonable fees and expenses of their
Counsel. The selection of such counsel will be done by Webb, with the approval
of the Bank. Such legal fees and expenses shall be agreed upon by both Webb and
Client.
9. CONDITIONS. Webb's willingness and obligation to proceed hereunder
shall be subject to, among other things, satisfaction of the following
conditions in Webb's opinion, which opinion shall have been formed in good faith
by Webb after reasonable determination and consideration of all relevant
factors: (a) full and satisfactory disclosure of all relevant material,
financial and other information in the disclosure documents and a determination
by Webb, in their sole discretion, that the sale of stock on the terms proposed
is reasonable given such disclosures; (b) no material adverse change in the
condition or operations of the Bank subsequent to the execution of the
agreement; and (c) no market conditions at the time of offering which in Webb's
opinion make the sale of the shares by the Company inadvisable.
10. BENEFIT. This Agreement shall inure to the benefit of the parties
hereto and their respective successors and to the parties indemnified hereunder
and their successors, and the obligations and liabilities assumed hereunder by
the parties hereto shall be binding upon their respective successors provided,
however, that this Agreement shall not be assignable by Webb.
11. DEFINITIVE AGREEMENT. This letter reflects Webb's present intention of
proceeding to work with the Bank on its proposed conversion. It does not create
a binding obligation on the part of the Bank, the Company or Webb except as to
the agreement to maintain the confidentiality of non-public information set
forth in Section 3, the payment of certain fees as set forth in Section 7(a) and
7(b) and the assumption of expenses as set forth in Section 9, all of which
shall constitute the binding obligations of the parties hereto and which shall
survive the termination of this Agreement or the completion of the services
furnished hereunder and shall remain operative and in full force and effect. You
further acknowledge that any report or analysis rendered by Webb pursuant to
this engagement is rendered for use solely by the management of the Bank and its
agents in connection with the Conversion. Accordingly, you agree that you will
not provide any such information to any other person without our prior written
consent.
<PAGE> 5
Mr. Douglas L. Ulery
August 2, 1996
Page 5 of 5
Webb acknowledges that in offering the Company's stock no person will be
authorized to give any information or to make any representation not contained
in the offering prospectus and related offering materials filed as part of a
registration statement to be declared effective in connection with the offering.
Accordingly, Webb agrees that in connection with the offering it will not give
any unauthorized information or make any unauthorized representation. We will be
pleased to elaborate on any of the matters discussed in this letter at your
convenience.
If the foregoing correctly sets forth our mutual understanding, please so
indicate by signing and returning the original copy of this letter to the
undersigned.
Sincerely,
CHARLES WEBB & COMPANY,
A DIVISION OF KEEFE, BRUYETTE & WOODS
By: Harold T. Hanley III
Senior Vice President
HOME CITY FEDERAL SAVINGS & LOAN ASSOCIATION
By: Douglas L. Ulery
President & CEO
<PAGE> 6
EXHIBIT A
---------
CONVERSION SERVICES PROPOSAL
TO HOME CITY FEDERAL SAVINGS & LOAN
Charles Webb & Company provides thrift institutions converting from mutual to
stock form of ownership with a comprehensive program of conversion services
designed to promote an orderly, efficient, cost-effective and long-term stock
distribution. The following list is representative of the conversion services,
if appropriate, we propose to perform on behalf of the Bank.
GENERAL SERVICES
- ----------------
Assist management and legal counsel with the design of the transaction
structure.
Analyze and make recommendations on bids from printing, transfer agent, and
appraisal firms.
Assist officers and directors in obtaining bank loans to purchase stock, if
requested.
Assist in drafting and distribution of press releases as required or
appropriate.
CONVERSION OFFERING ENHANCEMENT SERVICES
- ----------------------------------------
Establish and manage Conversion Center at the Bank. Conversion Center personnel
will track prospective investors; record stock orders; mail order confirmations;
provide the Bank's senior management with daily reports; answer customer
inquiries; and handle special situations as they arise.
Assign Webb's personnel to be at the Bank through completion of the Subscription
and Community Offerings to manage the Conversion Center, meet with prospective
shareholders at individual and community information meetings, solicit local
investor interest through a tele-marketing campaign, answer inquiries, and
otherwise assist in the sale of stock in the Subscription and Community
Offerings. This effort will be led by a Principal of Webb.
Create target investor list based upon review of the Bank's depositor base.
Provide intensive financial and marketing input for drafting of the prospectus.
Prepare other marketing materials, including prospecting letters and brochures,
and media advertisements.
Arrange logistics of community information meeting(s) as required.
Prepare audio-visual presentation by senior management for community information
meeting(s).
<PAGE> 7
CONVERSION OFFERING ENHANCEMENT SERVICES-CONTINUED
- --------------------------------------------------
Prepare management for question-and-answer period at community information
meeting(s).
Attend and address community information meeting(s) and be available to answer
questions.
BROKER-ASSISTED SALES SERVICES.
- -------------------------------
Arrange for broker information meeting(s) as required.
Prepare audio-visual presentation for broker information meeting(s).
Prepare script for presentation by senior management at broker information
meeting(s).
Prepare management for question-and-answer period at broker information
meeting(s).
Attend and address broker information meeting(s) and be available to answer
questions.
Produce confidential broker memorandum to assist participating brokers in
selling the Bank's common stock.
AFTERMARKET SUPPORT SERVICES.
- -----------------------------
Webb will use their best efforts to secure market making and on-going research
commitment from at least two NASD firms.
2
<PAGE> 1
HOME CITY FEDERAL SAVINGS BANK OF SPRINGFIELD
PLAN OF CONVERSION
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
1. Introduction.......................................................................................................1
2. Definitions........................................................................................................1
3. Procedures for the Conversion......................................................................................4
4. Purchase Price of Common Shares and Number of Common Shares to be Offered in Connection
with the Conversion...............................................................................................5
5. Subscription Rights of Eligible Account Holders....................................................................5
6. Subscription Rights of Tax-Qualified Employee Stock Benefit Plans..................................................6
7. Subscription Rights of Supplemental Eligible Account Holders.......................................................6
8. Subscription Rights of Other Eligible Members......................................................................6
9. Community Offering.................................................................................................7
10. Additional Limitations on Purchases................................................................................8
11. Procedures for the Subscription Offering and the Community Offering................................................9
12. Payment for Common Shares..........................................................................................9
13. Expiration of Subscription Rights; Undelivered, Defective or Late Order Forms; Insufficient Payment...............10
14. Compliance with Securities Laws...................................................................................11
15. Rights of Shareholders After Completion of Conversion.............................................................11
16. Establishment of Liquidation Account..............................................................................11
17. Accounts in Converted Association.................................................................................12
18. Restrictions on Purchases and Sales of Common Shares by Officers and Directors Following Conversion...............12
19. Restrictions on Acquisition of Home City or the Holding Company...................................................13
20. Amendment or Termination of this Plan.............................................................................13
21. Consummation of Conversion........................................................................................13
22. Tax Rulings/Opinions..............................................................................................13
23. Directors and Officers of Home City...............................................................................13
24. Stock Benefit Plans...............................................................................................13
25. Registration of Common Shares; Market for Common Shares...........................................................14
26. Expenses of Conversion............................................................................................14
27. Mailing of Proxy Materials........................................................................................14
28. Interpretation of the Plan........................................................................................14
</TABLE>
<PAGE> 2
HOME CITY FEDERAL SAVINGS BANK OF SPRINGFIELD
PLAN OF CONVERSION
------------------
1. INTRODUCTION.
This Plan of Conversion, adopted by the Board of Directors of Home City
Federal Savings Bank of Springfield (hereinafter referred to as "Home City") on
September 3, 1996 (hereinafter referred to as this "Plan"), provides for the
conversion of Home City from a mutual savings and loan association to a
permanent capital stock savings association chartered under the laws of the
United States (hereinafter referred to as the "Conversion") and the acquisition
by a holding company to be formed at the direction of Home City of all of the
capital stock to be issued by Home City in the Conversion. The purpose of the
Conversion is to provide Home City with additional capital to increase its
regulatory capital, expand lending and investment activities, enhance customer
services and pursue other lawful activities which the Board of Directors may
deem to be in the best interests of Home City.
After the completion of the Conversion, savings accounts in Home City
will be equivalent in amount, interest rate and other terms to the present
savings accounts in Home City and will continue to be insured by the Federal
Deposit Insurance Corporation to the maximum amount permitted by law. Rights of
account holders with respect to liquidation and voting will change, however, as
a result of the Conversion. As a permanent capital stock savings association,
Home City will succeed to all of the presently existing rights, interests,
duties and obligations of the mutual savings and loan association to the extent
provided by law, including, but not limited to, all rights to and interests in
its assets and properties, both real and personal.
This Plan must be approved at the Special Meeting (hereinafter defined)
of Members (hereinafter defined) by the affirmative vote of a majority of the
total outstanding votes entitled to be cast at the Special Meeting. Before this
Plan may be submitted at the Special Meeting to the members of Home City for
approval, however, this Plan must be approved by the Office of Thrift
Supervision. The Amended Charter and the Amended Bylaws of Home City must also
be approved at the Special Meeting by the affirmative vote of at least a
majority of the total outstanding votes entitled to be cast in person or by
proxy at the Special Meeting.
2. DEFINITIONS.
As used in this Plan, the following terms have the corresponding
meanings:
ACTING IN CONCERT means (a) knowing participation in a joint activity
or interdependent conscious parallel action towards a common goal
whether or not pursuant to an express agreement, or (b) a combination
or pooling of voting or other interests in the securities of an issuer
for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or
otherwise.
AFFILIATE, when used to indicate a relationship with a specified
Person, means a Person that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common
control with, the Person specified.
AMENDED BYLAWS means the Federal Bylaws of Home City in the form which
is attached hereto as Exhibit II and which will be filed with the OTS
on the date on which the Conversion becomes effective.
AMENDED CHARTER means the Federal Stock Charter of Home City in the
form which is attached hereto as Exhibit I and which will be filed with
the OTS on the date on which the Conversion becomes effective.
APPLICATION means the Application for Conversion on Form AC to be filed
by Home City with the OTS pursuant to Title 12, Code of Federal
Regulations, Part 563b.
ASSOCIATE, when used to indicate a relationship with any Person, means
(i) any corporation or organization (other than Home City, the Holding
Company or a majority-owned subsidiary of Home City or the Holding
Company) of which such Person is an officer or partner or is, directly
or indirectly, the beneficial owner of 10% or more of any class of
equity securities, (ii) any trust or other estate in which such Person
has a substantial beneficial interest or as to which such Person serves
as trustee or in a similar fiduciary capacity, except that such term
will not include a Tax-Qualified Employee Stock Benefit Plan, and (iii)
any relative or spouse of such Person, or any relative of such spouse,
who has the
1
<PAGE> 3
same home as such Person or who is a director or Officer of Home City,
the Holding Company or any of their subsidiaries.
BROKER means any Person engaged in the business of effecting
transactions in securities for the account of others.
COMMON SHARES means the common shares of the Holding Company to be
offered and sold by the Holding Company in connection with the
Conversion.
COMMUNITY MEMBER means any natural person who, on the date of
submission of an Order Form, is a Resident of Clark County, the county
in which Home City's office is located.
COMMUNITY OFFERING means the offering of Common Shares to the public
concurrently with or after the completion of the Subscription Offering
in a manner by which Community Members are given preference.
CONVERSION means the change in the form of Home City from the mutual to
the permanent capital stock form upon (i) the filing of the Amended
Charter; (ii) the sale and issuance of Common Shares by the Holding
Company in the Subscription Offering and the Community Offering; and
(iii) the purchase by the Holding Company of the capital stock of Home
City.
DEALER means any Person who engages either for all or part of such
person's time, directly or indirectly, as agent, broker or principal,
in the business of offering, buying, selling or otherwise dealing or
trading in securities issued by another Person.
ELIGIBILITY RECORD DATE means the close of business on June 30, 1995,
the record date set by Home City for determining Eligible Account
Holders.
ELIGIBLE ACCOUNT HOLDER means any person holding a Qualifying Deposit
in Home City on the Eligibility Record Date.
FDIC means the Federal Deposit Insurance Corporation, an agency of the
United States government.
HOLDING COMPANY means a corporation to be formed at the direction of
Home City under Ohio law for the purpose of becoming a savings and loan
holding company through the acquisition of all of the capital stock to
be issued by Home City in connection with the Conversion.
HOME CITY means Home City Federal Savings Bank of Springfield, in its
mutual or stock form, as appropriate.
INDEPENDENT APPRAISER means the firm employed by Home City to make the
estimated pro forma market valuation of Home City which will be used as
the basis for determining the price of the Common Shares.
LIQUIDATION ACCOUNT means the account established in accordance with
Section 16 of this Plan for Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain a Savings Account at
Home City after the Conversion.
MEMBER means any Person qualifying as a member of Home City under its
present Charter and Bylaws.
OFFICER means an executive officer of the Holding Company or Home City,
including the Chairman of the Board of Directors, the President, a Vice
President, the Secretary, the Treasurer or principal financial officer,
or the comptroller or principal accounting officer of the Holding
Company or Home City and any other person performing similar functions
for the Holding Company or Home City.
ORDER FORMS means the original forms which will be sent to the Eligible
Account Holders, Tax-Qualified Employee Stock Benefit Plans,
Supplemental Eligible Account Holders and Other Eligible Members to
enable such Persons to exercise their respective Subscription Rights in
accordance with this Plan and which may be sent to others in the
Community Offering.
2
<PAGE> 4
OTHER ELIGIBLE MEMBERS means those Persons, other than Eligible Account
Holders and Supplemental Eligible Account Holders, who are eligible to
purchase Common Shares pursuant to this Plan by reason of being a
Voting Member.
OTS means the Office of Thrift Supervision, an agency of the United
States government.
PERSON means an individual, a corporation, a partnership, an
association, a joint-stock company, a trust, any unincorporated
organization, or a government or political subdivision thereof.
PROSPECTUS means the document describing the terms and conditions of
the Subscription Offering and the Community Offering, including a
complete description of the business and affairs of Home City and the
Holding Company.
PROXY means the form of authorization by which a Person is, or may be
deemed to be, designated to act for a Voting Member in the exercise of
his or her voting rights in the affairs of Home City.
PROXY MATERIALS means the Notice of Special Meeting, the Proxy
Statement and the form of Proxy used in connection with soliciting
Proxies from Members for use at the Special Meeting.
PURCHASE PRICE means the actual, uniform price per share at which
Common Shares will be sold in the Subscription Offering and may be
offered in the Community Offering. Such price shall be based upon the
appraised estimated pro forma market value of such shares, determined
as provided in Section 4 of this Plan.
QUALIFYING DEPOSIT means the aggregate balance of all Savings Accounts
owned by an Eligible Account Holder or a Supplemental Eligible Account
Holder at the close of business on the Eligibility Record Date or the
Supplemental Eligibility Record Date, respectively; provided, however,
that Savings Accounts with aggregate deposit balances of less than $50
will not constitute a Qualifying Deposit.
RESIDENT means any person who, on the Voting Record Date, maintains a
bona fide residence within Clark County, Ohio, as determined in the
sole discretion of Home City and the Holding Company.
SEC means the Securities and Exchange Commission, an agency of the
United States government.
SAVINGS ACCOUNT has the same meaning as that specified in Title 12,
Code of Federal Regulations, Part 561, as in effect on the date this
Plan is adopted by the Board of Directors of Home City, and includes
certificates of deposit.
SPECIAL MEETING means the meeting of the Voting Members of Home City
called for the specific purpose of submitting this Plan to the Voting
Members for approval.
SUBSCRIPTION OFFERING means the offering of Common Shares to the
holders of Subscription Rights.
SUBSCRIPTION RIGHTS means the nontransferable rights issued by Home
City to the Eligible Account Holders, the Tax-Qualified Employee Stock
Benefit Plans, Supplemental Eligible Account Holders and Other Eligible
Members to purchase Common Shares in the Subscription Offering pursuant
to this Plan.
SUPPLEMENTAL ELIGIBILITY RECORD DATE means the record date used for
determining Supplemental Eligible Account Holders. Such date will be
the last day of the calendar quarter preceding the approval by the OTS
of the Application.
SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER means any person holding a
Qualifying Deposit at the close of business on the Supplemental
Eligibility Record Date, except Officers and directors of Home City and
the Holding Company and their Associates.
TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLAN means any defined benefit
plan or defined contribution plan of the Holding Company or Home City,
such as an employee stock ownership plan, stock bonus plan, profit
sharing plan or other plan which, with its related trust, meets the
requirements to be "qualified" under Section 401 of the Internal
Revenue Code of 1986, as amended.
VOTING MEMBER means any Member of Home City eligible to vote at the
Special Meeting.
3
<PAGE> 5
VOTING RECORD DATE means the record date fixed by the Board of
Directors in accordance with applicable OTS regulations and the Charter
and Bylaws of Home City for determining the eligibility of Members to
vote on this Plan at the Special Meeting.
3. PROCEDURES FOR THE CONVERSION
The following procedures will be followed to effect the Conversion:
(a) Promptly after the adoption of this Plan by a vote of at
least two-thirds of the members of the Board of Directors of Home City,
Home City will publish a notice of the adoption of this Plan in an
English language newspaper having general circulation in each community
in which an office of Home City is located. Copies of such notice will
also be made available for inspection by Members at each office of Home
City.
(b) The Holding Company will be incorporated under Ohio law,
after which the Board of Directors of the Holding Company will consent
to the Plan by at least a two-thirds vote.
(c) Home City will submit this Plan for approval, together with
all other requisite materials, to the OTS in the form of the
Application.
(d) After the filing of the Application with the OTS, Home City
will prominently post in each office of Home City and publish in an
English language newspaper having general circulation in each community
in which an office of Home City is located a notice to the effect that
Home City has filed the Application with the OTS.
(e) After the OTS approves the Application, Home City will mail
Proxy Materials to each of the Voting Members as of the Voting Record
Date at their last known addresses appearing on the records of Home
City for the purpose of soliciting the Proxies of Voting Members for
use at the Special Meeting. The approval of this Plan will require the
affirmative vote, cast in person or by Proxy, of a majority of the
total outstanding votes entitled to be cast at the Special Meeting.
(f) Subject to the approval of this Plan by the Voting
Members at the Special Meeting, the following will occur:
(i) Common Shares will be offered simultaneously to
the Eligible Account Holders, the Tax-Qualified Employee Stock
Benefit Plans, the Supplemental Eligible Account Holders and the
Other Eligible Members in the respective priorities set forth in
Sections 5, 6, 7 and 8 of this Plan. All sales of Common Shares to
Eligible Account Holders, the Tax-Qualified Employee Stock Benefit
Plans, Supplemental Eligible Account Holders and Other Eligible
Members will be completed at the earliest practicable date
following expiration of the Subscription Rights provided for in
this Plan. Notwithstanding anything in this Plan to the contrary,
Home City, in its sole discretion, may commence the Subscription
Offering concurrently with or at any time after the mailing to the
Voting Members of the Proxy Materials and may complete the
Subscription Offering before the Special Meeting if the completion
of the offer and sale of the Common Shares is conditioned upon the
approval of this Plan by the Voting Members. In the event that
Home City elects in its discretion to commence the Subscription
Offering after the Special Meeting, the Subscription Offering will
be commenced not later than 45 days after the date on which the
Special Meeting is adjourned, except as may otherwise be approved
by the OTS.
(ii) Concurrently with, following the commencement of
or following the completion of the Subscription Offering, Home
City may also offer Common Shares in the Community Offering,
subject to the prior satisfaction of the Subscription Rights of
the Eligible Account Holders, Tax-Qualified Employee Stock Benefit
Plans, Supplemental Eligible Account Holders and Other Eligible
Members.
(g) All other steps considered necessary or desirable by the
Board of Directors of Home City and the Board of Directors of the
Holding Company will be taken pursuant to applicable laws and
regulations to effect the Conversion.
4
<PAGE> 6
4. PURCHASE PRICE OF COMMON SHARES AND NUMBER OF COMMON SHARES TO BE
OFFERED IN CONNECTION WITH THE CONVERSION.
The Purchase Price will be determined by the Board of Directors of Home
City and the Board of Directors of the Holding Company before the commencement
of the Subscription Offering, subject to adjustment as described below. The
number of Common Shares to be issued in connection with the Conversion will be
determined by the Board of Directors of the Holding Company and the Board of
Directors of Home City before the completion of all sales of Common Shares
contemplated by this Plan on the basis of the estimated pro forma market value
of Home City, as converted, and the Purchase Price. No fractional shares will be
issued in connection with the Conversion.
The estimated pro forma market value of Home City, as converted, will
be determined for such purpose by the Independent Appraiser, based upon such
factors as the Independent Appraiser deems appropriate and as are consistent
with the regulations of the OTS. Immediately before the commencement of the
Subscription Offering, a range will be established for the aggregate Purchase
Price of Common Shares to be offered in the Subscription Offering and the
Community Offering. The maximum of such range shall be 15% above the pro forma
market value of Home City, and the minimum of such range shall be 15% below the
pro forma market value of Home City. The Independent Appraiser will review, from
time to time as appropriate, or as required by law or regulation, developments
subsequent to its valuation to determine whether the estimated pro forma market
value of Home City, as converted, should be revised. If, after the commencement
of the Subscription Offering, the Independent Appraiser determines that the
estimated pro forma market value of Home City, as converted, has increased or
decreased due to subsequent developments, the Conversion may be completed
without notifying Persons who have subscribed for Common Shares and without a
resolicitation of subscriptions if such pro forma market value is not less than
the minimum of the valuation range approved by the OTS or does not exceed the
maximum point of the valuation range by more than 15%. If, however, as a result
of any such change, the estimated pro forma market value of Home City is less
than the minimum of the valuation range or exceeds the maximum point of such
valuation range by more than 15%, a new estimated pro forma market valuation
range may be established, and the Board of Directors may, with the approval of
the OTS, elect to increase or decrease the number of Common Shares to be issued
in connection with the Conversion or increase or decrease the Purchase Price, in
which case Persons who have subscribed for Common Shares will be notified and
will be given the opportunity to increase, decrease or rescind their
subscriptions.
5. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS.
Eligible Account Holders will have the following rights to subscribe to
and to purchase Common Shares:
(a) Each Eligible Account Holder will receive, without
payment, a nontransferable Subscription Right to purchase a number of
Common Shares up to the greater of (i) the amount permitted to be
purchased in the Community Offering, (ii) .10% of the total number of
Common Shares sold in connection with the Conversion, and (iii) 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of Common Shares sold in connection with
the Conversion by a fraction of which the numerator is the amount of
the Eligible Account Holder's Qualifying Deposit and the denominator of
which is the total amount of Qualifying Deposits of all Eligible
Account Holders, in each case on the Eligibility Record Date, subject
to the overall purchase limitations set forth in Section 10 of this
Plan and subject to adjustment by the Boards of Directors of the
Holding Company and Home City as set forth in Section 10 of this Plan.
(b) In the event that subscriptions for Common Shares are
received from Eligible Account Holders upon the exercise of
Subscription Rights pursuant to paragraph (a) of this Section 5 in
excess of the number of Common Shares available for such subscriptions,
the Common Shares available for purchase will be allocated among the
subscribing Eligible Account Holders in a manner by which each
subscribing Eligible Account Holder, to the extent possible, will be
permitted to subscribe to a number of shares sufficient to make such
Eligible Account Holder's total allocation of Common Shares equal to
the lesser of (i) 100 shares or (ii) the number of shares subscribed
for by such Eligible Account Holder. Any shares remaining after such
allocation will be allocated among the subscribing Eligible Account
Holders whose subscriptions remain unsatisfied in the proportion which
the amount of each Eligible Account Holder's Qualifying Deposit bears
to the total of the Qualifying Deposits of all subscribing Eligible
Account Holders. No fractional shares will, however, be issued in
connection with the Conversion.
(c) Subscription Rights held by Eligible Account Holders who
are also Officers and directors of the Holding Company or Home City,
and their Associates, to the extent that they are attributable to
increased deposits
5
<PAGE> 7
during the one-year period preceding the Eligibility Record Date, will
be subordinated to the Subscription Rights of all other Eligible
Account Holders.
(d) The subscription rights of the Eligible Account Holders
are subordinate to the limited priority right of Home City'
Tax-Qualified Employee Stock Benefit Plans set forth in Section 6 of
this Plan.
6. SUBSCRIPTION RIGHTS OF TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLANS.
The Tax-Qualified Employee Stock Benefit Plans of Home City will
receive non-transferable subscription rights to purchase up to 10% of the Common
Shares offered in connection with the Conversion, subject to adjustment by the
Boards of Directors of the Holding Company and Home City as set forth in Section
10 of this Plan. The Subscription Rights of the Tax-Qualified Employee Stock
Benefit Plans are subordinate to the Subscription Rights of the Eligible Account
Holders pursuant to Section 5 of this Plan, except that if the final pro forma
market value of Home City exceeds the maximum of the valuation range, the ESOP
shall have first priority with respect to the amount sold in excess of the
maximum of the valuation range.
7. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS.
Supplemental Eligible Account Holders will have the following rights to
subscribe to and to purchase Common Shares:
(a) Each Supplemental Eligible Account Holder will receive,
without payment, a nontransferable Subscription Right to purchase a
number of Common Shares up to the greater of (i) the amount permitted
to be purchased in the Community Offering, (ii) .10% of the total
number of Common Shares sold in connection with the Conversion, and
(iii) 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of Common Shares sold in
connection with the Conversion by a fraction of which the numerator is
the amount of the Supplemental Eligible Account Holder's Qualifying
Deposit and the denominator of which is the total amount of Qualifying
Deposits of all Supplemental Eligible Account Holders, in each case on
the Supplemental Eligibility Record Date, subject to the overall
purchase limitations set forth in Section 10 of this Plan and subject
to adjustment by the Boards of Directors of the Holding Company and
Home City as set forth in Section 10 of this Plan.
(b) In the event that subscriptions for Common Shares are
received from Supplemental Eligible Account Holders upon the exercise
of Subscription Rights pursuant to paragraph (a) of this Section 7 in
excess of the number of Common Shares available for such subscriptions,
the Common Shares available for purchase will be allocated among the
subscribing Supplemental Eligible Account Holders in a manner by which
each subscribing Supplemental Eligible Account Holder, to the extent
possible, will be permitted to subscribe to a number of Common Shares
sufficient to make such Supplemental Eligible Account Holder's total
allocation of Common Shares equal to the lesser of (i) 100 shares or
(ii) the number of Common Shares subscribed for by such Supplemental
Eligible Account Holder. Any Common Shares remaining after such
allocation will be allocated among the subscribing Supplemental
Eligible Account Holders whose subscriptions remain unsatisfied in the
proportion which the amount of each such Supplemental Eligible Account
Holder's Qualifying Deposit bears to the total amount of the Qualifying
Deposits of all such subscribing Supplemental Eligible Account Holders.
No fractional shares will be issued, however, in connection with the
Conversion.
(c) Subscription Rights received pursuant to this Section 7
will be subordinate to all the Subscription Rights of Eligible Account
Holders and the Tax-Qualified Employee Stock Benefit Plans pursuant to
Sections 5 and 6 of this Plan. Any nontransferable Subscription Rights
to purchase Common Shares received by an Eligible Account Holder
pursuant to Section 5 of this Plan will be applied in partial
satisfaction of Subscription Rights received pursuant to this Section
7.
8. SUBSCRIPTION RIGHTS OF OTHER ELIGIBLE MEMBERS.
Other Eligible Members will have the following rights to subscribe to
and to purchase Common Shares:
(a) Each Other Eligible Member will receive, without payment,
nontransferable Subscription Rights to purchase a number of Common
Shares up to the greater of (i) the amount permitted to be purchased in
the Community Offering, and (ii) .10% of the total number of Common
Shares sold in connection with the Conversion,
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<PAGE> 8
subject to adjustment by the Boards of Directors of the Holding
Company and Home City as set forth in Section 10 of this Plan.
(b) In the event that subscriptions for Common Shares are
received from Other Eligible Members upon the exercise of Subscription
Rights pursuant to this Section 8 in excess of the number of Common
Shares available for such subscriptions, the Common Shares available
for purchase will be allocated among the Other Eligible Members from
whom subscriptions are received in the same proportion that their
respective subscriptions bear to the total subscriptions of all Other
Eligible Members; provided, however, that, to the extent sufficient
Common Shares are available, each subscribing Other Eligible Member
shall receive 25 Common Shares before the remaining available Common
Shares are allocated.
(c) Subscription Rights received by Other Eligible Members
pursuant to this Section 8 are subordinate to all rights received by
Eligible Account Holders, the Tax-Qualified Employee Stock Benefit
Plans and Supplemental Eligible Account Holders pursuant to Sections 5,
6 and 7 of this Plan.
9. COMMUNITY OFFERING.
Concurrently with or at any time after the commencement or completion
of the Subscription Offering, the Holding Company may offer Common Shares in the
Community Offering in accordance with the following procedures and conditions:
(a) Any Common Shares not subscribed for in the Subscription
Offering may be offered and sold in the Community Offering. If
conducted, the Community Offering will be conducted in a manner which
will give Community Members a preference in the purchase of Common
Shares and will seek to achieve the widest distribution of Common
Shares.
(b) The maximum number of Common Shares which may be
subscribed for or purchased in the Community Offering by any Person,
together with any Associates or group of Persons Acting in Concert,
will be 1% of the Common Shares, subject to the overall purchase
limitations set forth in Section 10 of this Plan and subject to
adjustment by the Board of Directors of the Holding Company and Peoples
as set forth in Section 10 of this Plan.
(c) Orders for Common Shares in the Community Offering will
first be filled up to a maximum of 2% of the Common Shares sold in the
Conversion and thereafter any remaining shares will be allocated on an
equal number of shares per order basis until all orders for Common
Shares have been filled, subject to the limitations provided in Section
10 of this Plan.
(d) Home City or the Holding Company may retain a Broker to
assist in selling the Common Shares in the Community Offering.
(e) Home City and the Holding Company reserve the right to
reject, in whole or in part, any order to purchase Common Shares from
any Person in the Community Offering.
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<PAGE> 9
10. ADDITIONAL LIMITATIONS ON PURCHASES.
The minimum number and maximum number of Common Shares which may be
subscribed for or purchased in connection with the Conversion are as follows:
(a) A minimum of 25 Common Shares must be purchased by each
Person purchasing Common Shares in connection with the Conversion to
the extent Common Shares are available; provided, however, that if the
Purchase Price is greater than $20 per share, the minimum number of
Common Shares to which a Person may subscribe will be adjusted in a
manner by which the aggregate Purchase Price required to be paid for
such minimum number of Common Shares does not exceed $500. No
fractional shares will be issued, however, in connection with the
Conversion.
(b) Eligible Account Holders, Supplemental Eligible Account
Holders and Other Eligible Members may purchase Common Shares in the
Community Offering subject to the purchase limitations set forth in
Section 9 of this Plan, provided that the maximum number of Common
Shares which may be subscribed for or purchased in connection with the
Conversion by any Person, together with any Associate or group of
Persons Acting in Concert, shall not exceed 2% of the total number of
Common Shares sold in connection with the Conversion, except that any
one or more of the Tax-Qualified Employee Stock Benefit Plans may
purchase in the aggregate not more than 10% of the Common Shares sold
in connection with the Conversion and will be entitled to purchase such
amount regardless of the number of Common Shares purchased by other
Persons. Common Shares held by one or more Tax-Qualified Employee Stock
Benefit Plans or non-tax-qualified employee stock benefit plans and
attributed to a Person will not be aggregated with Common Shares
purchased directly by or otherwise attributable to such Person. For the
purpose of this Section 10, the members of the Board of Directors of
the Holding Company and the Board of Directors of Home City will not be
deemed to be Associates or a group of Persons Acting in Concert solely
as a result of their membership on such Boards of Directors.
(c) The maximum number of Common Shares which may be
subscribed for or purchased in connection with the Conversion by
Officers and directors of Home City and their Associates in the
aggregate shall not exceed 34.9% of the total number of Common Shares.
Common Shares held by one or more Tax-Qualified Employee Stock Benefit
Plans or non-tax-qualified employee stock benefit plans and attributed
to a Person will not be aggregated with Common Shares purchased
directly by or otherwise attributable to such Person.
(d) Subject to any required regulatory approval and the
requirements of applicable laws and regulations, but without further
approval of the members of Home City, purchase limitations may be
increased or decreased at the sole discretion of the Boards of
Directors of the Holding Company and Home City at any time. If such
amount is increased, persons who subscribed for the maximum amount will
be given the opportunity to increase their subscriptions up to the then
applicable limit, subject to the rights and preferences of any person
who has priority subscription rights. The Boards of Directors of the
Holding Company and Home City may, in their sole discretion, increase
such maximum purchase limitation up to 9.99%; provided, however, that
orders for Common Shares exceeding 5% of the Common Shares to be issued
in the Conversion shall not exceed, in the aggregate, 10% of the Common
Shares to be issued in the Conversion. In the event that the purchase
limitation is decreased after commencement of the Subscription
Offering, the order of any person who subscribed for the maximum number
of Common Shares shall be decreased by the minimum amount necessary so
that such person shall be in compliance with the then maximum number of
Common Shares permitted to be subscribed for by such person. The
maximum purchase limitation for Eligible Account Holders, Supplemental
Eligible Account Holders and Other Eligible Members shall not be
decreased below 1% of the total number of shares to be sold in the
Conversion.
(e) The Subscription Rights granted under this Plan are
nontransferable. Each Subscription Right may be exercised only by the
Person to whom it is issued and only for such Person's own account.
Each Person exercising Subscription Rights will be required to certify
that he or she is purchasing for his or her own account and that he or
she has no agreement or understanding for the sale or transfer of the
stock to which he or she subscribes. The Board of Directors of Home
City may reject any subscription which such Board reasonably believes
involves an impermissible transfer of a Subscription Right. The Board
of Directors of Home City may require any Person who the Board
reasonably believes to be involved in an impermissible transfer of a
Subscription Right to provide such information or assurances as the
Board may request to verify the validity of a Subscription Right.
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<PAGE> 10
11. PROCEDURES FOR THE SUBSCRIPTION OFFERING AND THE COMMUNITY OFFERING.
The Subscription Offering and the Community Offering shall be conducted
in the following manner:
(a) At the time the Proxy Materials are, pursuant to the
authorization of the OTS, mailed to Voting Members at their last known
addresses appearing on the records of Home City, Home City and the
Holding Company may commence the Subscription Offering and the
Community Offering.
(b) Prior to the commencement of the Subscription Offering,
the Holding Company will file a registration statement with the SEC. No
Prospectus may be distributed to Persons who have Subscription Rights
or to Community Members or others until and unless the SEC has declared
the Prospectus effective.
(c) The offer of Common Shares to Persons who have
Subscription Rights, to Community Members and to others will be
conditioned upon the approval of this Plan by the Voting Members at the
Special Meeting.
(d) The Subscription Offering and the Community Offering may
be closed before the Special Meeting.
(e) Orders for Common Shares received in the Subscription
Offering and the Community Offering will first be filled, in the order
of priority set forth in this Plan, by the orders of Persons holding
Subscription Rights.
(f) The Prospectus will contain all the information required
by the OTS, the SEC and all applicable laws and regulations necessary
to enable the recipients of the Order Forms to make informed investment
decisions regarding the purchase of Common Shares.
(g) The Order Forms will contain all the information required
by the OTS and all applicable laws and regulations.
12. PAYMENT FOR COMMON SHARES.
Common Shares will be paid for in accordance with the following
procedure:
(a) Full payment for all Common Shares subscribed for must be
received by Home City, together with properly completed and executed
original Order Forms therefor, before the expiration time, which will
be specified on the Order Forms, unless such date is extended by Home
City. Photocopied or telecopied Order Forms will not be accepted. The
amount of such required payment will be the amount which equals the
Purchase Price (which will be specified in the Order Forms or
accompanying materials), multiplied by the number of Common Shares
subscribed for in accordance with the terms of this Plan.
(b) Payment for Common Shares ordered in the Subscription
Offering will be permitted to be made:
(i) In cash, if delivered in person;
(ii) By check, bank draft, money order or negotiable
order of withdrawal; provided, however, that any payment by check, bank
draft, money order or negotiable order of withdrawal will be accepted
subject to payment by the drawee of such check, bank draft, money order
or negotiable order of withdrawal; or
(iii) By appropriate authorization of withdrawal
from any Savings Account in Home City.
For the purpose of determining the withdrawal balance of any Savings
Accounts, such withdrawals will be deemed to have been made upon
receipt of appropriate authorization therefor, but interest at the
rates applicable to such accounts will be paid by Home City on the
amounts deemed to have been withdrawn until the date on which the
Conversion is completed or terminated, at which time the authorized
withdrawal actually will be made. Interest will be paid by Home City on
payments for Common Shares paid in cash or by check, negotiable order
of withdrawal or money order at an annual rate equal to Home City'
passbook account rate or such higher rate as may be determined by Home
City. Such interest will be paid from the date payments are received by
Home City until consummation or termination of the Conversion.
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<PAGE> 11
(c) The Order Forms will contain appropriate means by which
authorization of withdrawals from Savings Accounts may be made to pay
for subscribed shares. Once a withdrawal has been authorized, none of
the designated withdrawal amount may be withdrawn from the designated
Savings Account (except by Home City as payment for Common Shares)
while this Plan remains in effect. Savings Accounts will be permitted
to be established for the purpose of making payment for subscribed
Common Shares. Notwithstanding any regulatory provisions regarding
penalties for early withdrawal from certificate accounts and minimum
qualifying balances for such accounts, payment for Common Shares will
be permitted through authorization of withdrawals from such accounts
without the assessment of such penalties. If, after such withdrawal,
the applicable minimum balance requirement ceases to be met, such
certificate account will be canceled and the remaining balance thereof
will earn interest only at Home City' passbook account rate.
(d) Home City will not lend funds or otherwise extend credit
to any Person to purchase Common Shares.
13. EXPIRATION OF SUBSCRIPTION RIGHTS; UNDELIVERED, DEFECTIVE OR LATE
ORDER FORMS; INSUFFICIENT PAYMENT.
Subscription Rights will expire or terminate in accordance with the
following:
(a) All Subscription Rights provided for in this Plan,
including without limitation the Subscription Rights of all Persons
whose Order Forms are returned by the United States Post Office as
undeliverable, will expire at a specified time on a specified date
which will be not less than 20 days nor more than 45 days following the
date on which Order Forms are first sent to Eligible Account Holders,
Supplemental Eligible Account Holders and Other Eligible Members;
provided, however, that Home City will have the power to extend such
expiration time in its discretion only for a reasonable time beyond
such 45-day period.
(b) If Home City is unable to locate particular persons
granted Subscription Rights under this Plan, or if Order Forms (i) are
returned as undeliverable by the United States Post Office, (ii) are
not received by Home City prior to the expiration date specified
thereon, (iii) are defectively filled out or executed, or (iv) are not
accompanied by the full required payment for the Common Shares
subscribed for (including cases in which Savings Accounts from which
withdrawals are authorized are insufficient to cover the amount of the
required payment or the check, bank draft, negotiable order of
withdrawal or money order does not clear by the expiration time), the
Subscription Rights will lapse as though the Person to whom such rights
have been granted failed to return the completed Order Form within the
time period specified thereon. In any such case as discussed in this
paragraph (b), all payments accompanying the Order Forms will be
refunded and, in the case of payments authorized through withdrawal
from deposits as permitted by Section 12 above, such withdrawals will
not be made.
(c) The Bank may, but will not be obligated to, waive any
irregularity on any Order Form or require the submission of a corrected
Order Form or waive the remittance of full payment for shares
subscribed for by such date as it may specify. An executed Order Form,
once received by the Bank, may not be modified, amended or rescinded
without the consent of the Bank, unless (i) the Community Offering is
not completed within 45 days after the expiration of the Subscription
Offering, or (ii) the final valuation of the Bank, as converted, is
less than the minimum of the valuation range established by the
Independent Appraiser before the commencement of the Subscription
Offering or exceeds the maximum of such valuation range by more than
15%. If either of those events occurs, persons who have subscribed for
Common Shares in the Subscription Offering will receive written notice
that they have a right to affirm, increase, decrease or rescind their
subscriptions. Subject to the authority of the OTS and the Division,
all interpretations by the Bank and the Holding Company of the terms
and conditions of this Plan and of the Order Forms will be final.
(d) The sale of all Common Shares must be completed within 45
days after the termination of the Subscription Offering, unless
extended by Home City with the consent of the OTS, and within 24 months
of approval of this Plan by the Voting Members at the Special Meeting.
The 24-month period may not be extended by Home City or the OTS.
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14. COMPLIANCE WITH SECURITIES LAWS.
Home City and the Holding Company will make reasonable efforts to
comply with the securities laws of the United States and all other jurisdictions
in which Eligible Account Holders, Supplemental Eligible Account Holders and
Other Eligible Members reside. No person, however, will be offered any
Subscription Rights or sold any Common Shares under this Plan in the event such
Person resides in a foreign country or in any jurisdiction of the United States
in respect of which (a) the granting of Subscription Rights or the offer or sale
of Common Shares under this Plan to such persons would require Home City, the
Holding Company or their directors, officers or employees to register under the
securities laws of such jurisdiction as a Broker, Dealer or agent or to register
or otherwise qualify the Common Shares for sale in such state or (b) Home City
determines that compliance with the securities laws of such jurisdiction would
be impracticable for reasons of cost or otherwise. No payments will be made in
lieu of the granting of Subscription Rights to such persons.
15. RIGHTS OF SHAREHOLDERS AFTER COMPLETION OF CONVERSION.
After the Conversion, the Holding Company will be the sole shareholder
of Home City and will exercise all rights attendant to owning the stock of Home
City. Persons owning common shares of the Holding Company will have the
following rights after the Conversion:
(a) Voting rights in respect of the Holding Company will be
held and exercised exclusively by the holders of the issued and
outstanding capital stock of the Holding Company. Neither borrowers
from Home City nor holders of Savings Accounts in Home City will have
any voting rights in Home City or the Holding Company on the basis of
such borrowings or Savings Accounts.
(b) The Holding Company will have the exclusive rights,
subject to the rights of Eligible Account Holders and Supplemental
Eligible Account Holders in the Liquidation Account provided for in
Section 16 of this Plan, to receive the distribution of any assets
remaining after payment of creditors' claims, including the claims of
Savings Account holders to the withdrawal value of their accounts, in
the event of any voluntary or involuntary liquidation of Home City
after the Conversion. The shareholders of the Holding Company will have
the exclusive right to receive the distribution of any assets remaining
after the payment of creditors' claims.
16. ESTABLISHMENT OF LIQUIDATION ACCOUNT.
A Liquidation Account will be established on the effective date of the
Conversion in accordance with the following:
(a) For purposes of granting a limited priority claim to the
assets of Home City in the event of a complete liquidation thereof to
Eligible Account Holders and Supplemental Eligible Account Holders who
continue to maintain a Savings Account at Home City after the
Conversion, Home City will, at the time of Conversion, establish the
Liquidation Account in an amount equal to the regulatory capital of
Home City as set forth in its latest statement of financial condition
contained in its Prospectus for the sale of Common Shares. The
Liquidation Account will not operate to restrict the use or application
of any of the regulatory capital of Home City.
(b) Each Eligible Account Holder and Supplemental Eligible
Account Holder will have a separate inchoate interest in a portion of
the Liquidation Account for each Savings Account making up such account
holder's Qualifying Deposit (herein referred to as the "Subaccount").
(c) The initial balance of each Subaccount will be an amount
determined by multiplying the amount in the Liquidation Account by a
fraction, the numerator of which is the amount of the account holder's
Qualifying Deposits as of the close of business on the Eligibility
Record Date or the Supplemental Eligibility Record Date, as the case
may be, and the denominator of which is the total amount of all
Qualifying Deposits of Eligible Account Holders and Supplemental
Eligible Account Holders on the corresponding record date. For Savings
Accounts in existence on both the Eligibility Record Date and the
Supplemental Eligibility Record Date, separate Subaccounts will be
determined on the basis of the Qualifying Deposits in such Savings
Accounts on each such date. The balance of each Subaccount will never
be increased above the initial balance. If the balance in the Savings
Account to which a Subaccount relates, at the close of business on the
last day of each fiscal year of the Holding Company subsequent to the
respective record dates, is less than the lesser of (i) the deposit
balance in such Savings Account at the close of business on the last
day of each fiscal year of the Holding Company subsequent to the
Eligibility Record Date or
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Supplemental Eligibility Record Date or (ii) the amount of the
Qualifying Deposit as of the Eligibility Record Date or the
Supplemental Eligibility Record Date, the balance of the Subaccount
for such Savings Account will be adjusted proportionate to the
reduction in such Savings Account balance. In the event of any such
downward adjustment, such Subaccount balance will not be subsequently
increased notwithstanding any increase in the deposit balance of the
related Savings Account. If any Savings Account is closed, its related
Subaccount will be reduced to zero upon such closing. The Subaccount
of an account holder will be maintained for as long as the account
holder maintains an account with the same Social Security or tax
identification number.
(d) In the event of a complete liquidation of the converted
Home City (and only in such event), each Eligible Account Holder and
Supplemental Eligible Account Holder will be entitled to receive from
the Liquidation Account a distribution equal to the current adjusted
balance in each of such account holder's Subaccounts before any
liquidation distribution may be made to any holders of the capital
stock of Home City. No merger, consolidation, sale of bulk assets or
similar combination or transaction with another savings association,
the accounts of which are insured by the FDIC, will be deemed to be a
complete liquidation for this purpose and, in any such transaction, the
Liquidation Account will be assumed by the surviving insured
institution.
17. ACCOUNTS IN CONVERTED ASSOCIATION.
Each Savings Account in Home City at the time of the Conversion will
constitute, without payment or further action by the account holder, a Savings
Account in Home City as converted, equal in withdrawable amount to the
withdrawal value, and subject to the same terms and conditions, except as to
voting and liquidation rights, as such Savings Account in Home City immediately
before the Conversion.
18. RESTRICTIONS ON PURCHASES AND SALES OF COMMON SHARES BY OFFICERS AND
DIRECTORS FOLLOWING CONVERSION.
Purchases and sales of shares of the Holding Company after the
Conversion will be restricted in accordance with the following:
(a) All Common Shares purchased by Officers or directors of
the Holding Company or Home City or their Associates pursuant to this
Plan will be subject to the restriction that no such shares will be
sold for a period of one year following the date of purchase of such
shares, except in the event of the death of the Officer, director or
Associate.
(b) With respect to all Common Shares subject to restriction
on subsequent disposition pursuant to paragraph (a) of this Section 18,
each of the following provisions will apply:
(i) Each certificate representing such
shares will bear the following legend prominently stamped
thereon giving notice of such restriction on transfer:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD BY
THE REGISTERED HOLDER HEREOF FOR A PERIOD OF NOT LESS THAN ONE
YEAR FROM THE DATE OF ISSUANCE HEREOF, EXCEPT IN THE EVENT OF
THE DEATH OF THE REGISTERED HOLDER OF SUCH SHARES.
(ii) Instructions will be given to the
transfer agent for the Holding Company, if any, not to
recognize or effect any transfer of any certificates
representing such shares, or any change of record ownership
thereof, in violation of such restriction on transfer; and
(iii) Any shares of capital stock of
the Holding Company issued as a stock dividend, stock split
or otherwise with respect to outstanding Common Shares
subject to restrictions on transfer hereunder will be
subject to the same restrictions as are applicable to the
Common Shares with respect to which such shares of stock are
issued.
(c) For a period of three years following the Conversion, no
Officer or director of Home City or the Holding Company, or any
Associates of such Officer or director shall, without the prior written
approval of the OTS, purchase the capital stock of the Holding Company
other than from a Broker or Dealer registered with the SEC. This
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provision will not apply to (i) negotiated transactions involving more
than 1% of a class of outstanding capital stock of the Holding Company
or (ii) purchases of shares of capital stock made by and held by any
one or more tax-qualified or non-tax-qualified employee stock benefit
plans which may be attributable to individual Officers or directors of
the Holding Company or Home City.
19. RESTRICTIONS ON ACQUISITION OF HOME CITY OR HOLDING COMPANY.
Acquisition of capital stock of Home City or the Holding Company after
the Conversion will be subject to various restrictions contained in the Amended
Charter and Amended Bylaws of Home City, the articles of incorporation and the
code of regulations of the Holding Company and various state and federal laws
and regulations. In addition, the articles of incorporation of the Holding
Company or the Amended Charter of Home City may include the limitation that, for
a period of up to five years from the date of completion of the Conversion of
Home City from mutual to stock form, no Person may directly or indirectly offer
to acquire or acquire the beneficial ownership of more than 10% of any class of
an equity security of Home City or the Holding Company.
20. AMENDMENT OR TERMINATION OF THIS PLAN.
If deemed necessary or desirable by the Board of Directors of Home City
and the Holding Company, this Plan may be amended by the Board of Directors of
Home City and the Holding Company in their sole discretion at any time prior to
the solicitation of Proxies from Voting Members entitled to vote on this Plan
and at any time thereafter with the concurrence of the OTS. The Conversion
pursuant to this Plan may be terminated by the Board of Directors of Home City
and the Board of Directors of the Holding Company in their sole discretion at
any time prior to the Special Meeting and at any time thereafter with the
concurrence of the OTS.
21. CONSUMMATION OF CONVERSION.
The Conversion of the mutual Home City into the stock Home City will be
deemed to have taken place and to be effective at the time and date provided in
the regulations of the OTS. The Conversion must be completed within 24 months of
the approval of this Plan by the Members.
22. TAX RULINGS/OPINIONS.
The Conversion is expressly conditioned upon the prior receipt by Home
City and the Holding Company of either rulings from the Internal Revenue Service
and the appropriate Ohio taxing authorities or opinions of legal counsel or
other tax advisors to Home City in form and substance satisfactory to Home City
and to the effect, among other things, that the Conversion will constitute a
tax-free "reorganization" as defined in Section 368(a) of the Internal Revenue
Code of 1986, as amended, and comparable provisions of applicable state law, or
that consummation of the transactions provided for in this Plan will not
otherwise result in any federal, state or other tax consequences to Home City or
the converted Home City deemed materially adverse by the Board of Directors of
Home City or the Board of Directors of the Holding Company.
23. DIRECTORS AND OFFICERS OF HOME CITY.
It is not intended that the Conversion will result in any change in the
directors or Officers of Home City. The persons serving as Officers on the date
the Application is filed with the OTS will continue to serve at the discretion
of the Board of Directors of Home City in their respective capacities as
Officers of the converted Home City. The persons serving as directors of Home
City on the date the Application is filed with the OTS will continue to serve as
directors following the Conversion until their terms expire or their earlier
death, resignation or removal from office.
24. STOCK BENEFIT PLANS.
Following the completion of the Conversion, Home City or the Holding
Company may establish one or more stock option plans and management recognition
plans to the extent permitted by OTS regulations. Home City and the Holding
Company may make scheduled or discretionary contributions to one or more stock
benefit plans maintained by Home City or the Holding Company for the benefit of
the directors, officers or employees of Home City or the Holding Company,
provided such contributions do not cause Home City to fail to meet its
regulatory capital requirement.
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25 . REGISTRATION OF COMMON SHARES; MARKET FOR COMMON SHARES.
(a) Before or promptly following the Conversion, the Holding
Company will register with the SEC the Common Shares issued in
connection with the Conversion pursuant to the Securities Exchange Act
of 1934 and will not deregister such shares for a period of three years
thereafter.
(b) While there is no assurance that an active market for the
Common Shares will develop following the Conversion, the Holding
Company will use its best efforts to encourage and assist a market
maker to establish and maintain a market for the Common Shares and will
use its best efforts to cause such shares to be quoted on The Nasdaq
Stock Market (or any comparable quotation system which may hereafter be
developed) or listed on a national or regional securities exchange.
26. EXPENSES OF CONVERSION.
Home City and the Holding Company will use their best efforts to assure
that the expenses incurred in connection with the Conversion will be reasonable.
27. MAILING OF PROXY MATERIALS.
The Proxy Materials will only be sent to Voting Members as of the
Voting Record Date.
28. INTERPRETATION OF THE PLAN.
The Boards of Directors of Home City and the Holding Company will
interpret this Plan. To the extent permitted by law, all interpretations of this
Plan by the Boards of Directors of Home City and the Holding Company will be
final.
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EXHIBIT 1
HOME CITY FEDERAL SAVINGS BANK OF SPRINGFIELD
FEDERAL STOCK CHARTER
SECTION 1. CORPORATE TITLE. The full corporate title of the
association is Home City Federal Savings Bank of Springfield.
SECTION 2. OFFICE. The home office shall be located at 63 West Main
Street, Springfield, Ohio.
SECTION 3. DURATION. The duration of the association is perpetual.
SECTION 4. PURPOSE AND POWERS. The purpose of the association is to pursue any
or all of the lawful objectives of a federal savings association chartered under
Section 5 of the Home Owners' Loan Act and to exercise all of the express,
implied, and incidental powers conferred thereby and by all acts amendatory
thereof and supplemental thereto, subject to the Constitution and laws of the
United States as they are now in effect, or as they may hereafter be amended,
and subject to all lawful and applicable rules, regulations, and orders of the
Office of Thrift Supervision ("Office").
SECTION 5. CAPITAL STOCK. The total number of shares of all classes of the
capital stock which the association has the authority to issue is
_______________, all of which shall be common stock with no par value. The
shares may be issued from time to time as authorized by the board of directors
without the approval of its shareholders, except as otherwise provided in this
Section 5 or to the extent that such approval is required by governing law,
rule, or regulation. The consideration for the issuance of the shares shall be
paid in full before their issuance. Neither promissory notes nor future services
shall constitute payment or part payment for the issuance of shares of the
association. The consideration for the shares shall be cash, tangible or
intangible property (to the extent direct investment in such property would be
permitted to the association), labor, or services actually performed for the
association, or any combination of the foregoing. In the absence of actual fraud
in the transaction, the value of such property, labor, or services, as
determined by the board of directors of the association, shall be conclusive.
Upon payment of such consideration, such shares shall be deemed to be fully paid
and nonassessable. In the case of a stock dividend, that part of the surplus of
the association which is transferred to stated capital upon the issuance of
shares as a share dividend shall be deemed to be the consideration for their
issuance.
Except for shares issuable in connection with the conversion of the
association from the mutual to the stock form of capitalization, no shares of
common stock (including shares issuable upon conversion, exchange, or exercise
of other securities) shall be issued, directly or indirectly, to officers,
directors, or controlling persons of the Association other than as part of a
general public offering or as qualifying shares to a director, unless the
issuance or the plan under which they would be issued has been approved by a
majority of the total votes eligible to be cast at a legal meeting.
The holders of the common stock shall exclusively possess all voting
power. Each holder of shares of common stock shall be entitled to one vote for
each share held by such holder, except as to the cumulation of votes for the
election of directors. Subject to any provision for a liquidation account, in
the event of any liquidation, dissolution, or winding up of the association, the
holders of the common stock shall be entitled, after payment or provision for
payment of all debts and liabilities of the association, to receive the
remaining assets of the association available for distribution, in cash or in
kind. Each share of common stock shall have the same relative rights as and be
identical in all respects with all the other shares of common stock.
SECTION 6. PREEMPTIVE RIGHTS. Holders of the capital stock of the association
shall not be entitled to preemptive rights with respect to any shares of the
association which may be issued.
SECTION 7. LIQUIDATION ACCOUNT. Pursuant to the requirements of the Office's
Regulations (12 C.F.R. Subchapter D), the association shall establish and
maintain a liquidation account for the benefit of its savings account holders as
of March 31, 1995 and October 31, 1996 ("eligible savers"). In the event of a
complete liquidation of the association, it shall comply with such regulations
with respect to the amount and the priorities on liquidation of each of the
association's eligible saver's inchoate interest in the liquidation account, to
the extent it is still in existence; provided, that an eligible saver's
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inchoate interest in the liquidation account shall not entitle such eligible
saver to any voting rights at meetings of the association's shareholders.
SECTION 8. CERTAIN PROVISIONS APPLICABLE FOR FIVE YEARS. Notwithstanding
anything contained in the association's charter or bylaws to the contrary, for a
period of five years from the date of completion of the conversion of the
association from mutual to stock form, the following provisions shall apply:
A. BENEFICIAL OWNERSHIP LIMITATION. No person shall directly or
indirectly offer to acquire or acquire the beneficial ownership of more
than 10% of any class of an equity security of the association. This
limitation shall not apply to a transaction in which the association
forms a holding company without change in the respective beneficial
ownership interests of its shareholders other than pursuant to the
exercise of any dissenter and appraisal rights, the purchase of shares
by underwriters in connection with a public offering, or the purchase
of shares by a tax-qualified employee stock benefit plan which is
exempt from the approval requirements under ss.574.3(c)(1)(vi) of the
Office's regulations.
In the event shares are acquired in violation of
this Section 8, all shares beneficially owned by any person in excess
of 10% shall be considered "excess shares" and shall not be counted as
shares entitled to vote and shall not be voted by any person or counted
as voting shares in connection with any matters submitted to the
shareholders for a vote.
For purposes of this Section 8, the following definitions
apply:
(1) The term "person" includes an individual, a group acting
in concert, a corporation, a partnership, an association, a joint stock
company, a trust, an unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of acquiring,
holding, or disposing of the equity securities of the association.
(2) The term "offer" includes every offer to buy or to
otherwise acquire, solicitation of an offer to sell, tender offer for,
or request or invitation for tenders of, a security or interest in a
security for value.
(3) The term "acquire" includes every type of acquisition,
whether effected by purchase, exchange, operation of law or otherwise.
(4) The term "acting in concert" means (a) knowing
participation in a joint activity or conscious parallel action towards
a common goal whether or not pursuant to an express agreement, or (b) a
combination or pooling of voting or other interests in the securities
of an issuer for a common purpose pursuant to any contract,
understanding, relationship, agreement, or other arrangements, whether
written or otherwise.
B. CUMULATIVE VOTING LIMITATION. Shareholders shall not be permitted
to cumulate their votes for election of directors.
C. CALL FOR SPECIAL MEETINGS. Special meetings of shareholders relating
to changes in control of the association or amendments to its charter
shall be called only upon direction of the board of directors.
SECTION 9. DIRECTORS. The association shall be under the direction of
a board of directors. The authorized number of directors, as stated in the
association's bylaws, shall not be fewer than five nor more than fifteen except
when a greater number is approved by the Director of the Office.
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SECTION 10. AMENDMENT OF CHARTER. Except as provided in Section 5, no
amendment, addition, alteration, change, or repeal of this charter shall be
made, unless such is first proposed by the board of directors of the
association, then preliminarily approved by the Office, which preliminary
approval may be granted by the Office pursuant to regulations specifying
preapproved charter amendments, and thereafter approved by the shareholders by a
majority of the total votes eligible to be cast at a legal meeting. Any
amendment, addition, alteration, change, or repeal so acted upon shall be
effective upon filing with the Office in accordance with regulatory procedures
or on such other date as the Office may specify in its preliminary approval.
Attest: _______________________________ By: ________________________________
Secretary President
Home City Federal Savings Home City Federal Savings
Bank of Springfield Bank of Springfield
Attest: _______________________________ By: ________________________________
Corporate Secretary of the Office Acting Director of the Office
of Thrift Supervision of Thrift Supervision
(Declared effective this ____ day of __________________, 1996.)
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EXHIBIT II
HOME CITY FEDERAL SAVINGS BANK OF SPRINGFIELD
FEDERAL STOCK BYLAWS
ARTICLE I - HOME OFFICE
The home office of Home City Federal Savings Bank of Springfield shall
be at 63 West Main Street, Springfield, Ohio 45502, in the County of Clark, in
the State of Ohio.
ARTICLE II - SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual and special meetings of
shareholders shall be held at the home office of the association or at such
other place in the state in which the principal place of business of the
association is located as the board of directors may determine.
SECTION 2. ANNUAL MEETING. A meeting of the shareholders of the
association for the election of directors and for the transaction of any other
business of the association shall be held annually within 120 days after the end
of the association's fiscal year on the ________________, if not a legal
holiday, and if a legal holiday, then on the next day following which is not a
legal holiday, at ______ .m., or at such other date and time within such 120-day
period as the board of directors may determine.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders for
any purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision ("Office"), may be called at any time by the
chairman of the board, the president, or a majority of the board of directors,
and shall be called by the chairman of the board, the president, or the
secretary upon the written request of the holders of not less than one-tenth of
all of the outstanding capital stock of the association entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the meeting
and shall be delivered to the home office of the association addressed to the
chairman of the board, the president, or the secretary.
SECTION 4. CONDUCT OF MEETINGS. Annual and special meetings shall be
conducted in accordance with rules and procedures adopted by the board of
directors. The board of directors shall designate, when present, either the
chairman of the board or the president to preside at such meetings.
SECTION 5. NOTICE OF MEETINGS. Written notice stating the place, day,
and hour of the meeting and the purpose(s) for which the meeting is called shall
be delivered not fewer than 15 nor more than 45 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, or the secretary, or the directors calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the mail,
addressed to the shareholder at the address as it appears on the stock transfer
books or records of the association as of the record date prescribed in Section
6 of this Article II with postage prepaid. When any shareholders' meeting,
either annual or special, is adjourned for 30 days or more, notice of the
adjourned meeting shall be given as in the case of an original meeting. It shall
not be necessary to give any notice of the time and place of any meeting
adjourned for less than 30 days or of the business to be transacted at the
meeting, other than an announcement at the meeting at which such adjournment is
taken.
SECTION 6. FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more than
60 days and, in case of a meeting of shareholders, not fewer than 10 days prior
to the date on which the particular action, requiring such determination of
shareholders, is to be taken. When a determination of shareholders entitled to
vote at any meeting of the shareholders has been made as provided in this
section, such determination shall apply to any adjournment.
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SECTION 7. VOTING LISTS. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the association shall make a complete list of the shareholders
entitled to vote at such meeting, or any adjournment, arranged in alphabetical
order, with the address and the number of shares held by each. This list of
shareholders shall be kept on file at the home office of the association and
shall be subject to inspection by any shareholder at any time during usual
business hours for a period of 20 days prior to such meeting. Such list shall
also be produced and kept open at the time and place of the meeting and shall be
subject to inspection by any shareholder during the entire time of the meeting.
The original stock transfer book shall constitute prima facie evidence of the
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders.
In lieu of making the shareholder list available for inspection by
shareholders as provided in the preceding paragraph, the board of directors may
elect to follow the procedures prescribed in section 552.6(d) of the Office's
regulations as now or hereafter in effect.
SECTION 8. QUORUM. A majority of the outstanding shares of the
association entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of the
outstanding shares is represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. The shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough shareholders to constitute less than a quorum.
SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his or her duly
authorized attorney in fact. Proxies solicited on behalf of the management shall
be voted as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid more
than eleven months from the date of its execution except for a proxy coupled
with an interest.
SECTION 10. VOTING OF SHARES IN THE NAME OF TWO OR MORE PERSONS. When
ownership stands in the name of two or more persons, in the absence of written
directions to the association to the contrary, at any meeting of the
shareholders of the association, any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes to
which those persons are entitled shall be cast as directed by a majority of
those holding such stock and present in person or by proxy at such meeting, but
no votes shall be cast for such stock if a majority cannot agree.
SECTION 11. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her name.
Shares standing in the name of a receiver may be voted by such receiver, and
shares held by or under the control of a receiver may be voted by such receiver
without the transfer into his or her name if authority to do so is contained in
an appropriate order of the court or other public authority by which such
receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the association nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the
association, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
SECTION 12. CUMULATIVE VOTING. Subject to the provisions of Section
8.B. of the Charter of the association prohibiting cumulative voting in the
election of directors for a period of five years from the date of completion of
the conversion of the association from mutual to stock form, every shareholder
entitled to vote at an election for directors shall have the right to vote, in
person or by proxy, the number of shares owned by the shareholder for as many
persons as there
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are directors to be elected and for whose election the shareholder has a right
to vote, or to cumulate the votes by giving one candidate as many votes as the
number of such directors to be elected multiplied by the number of shares shall
equal or by distributing such votes on the same principle among any number of
candidates.
SECTION 13. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the board of directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting or at the meeting by the chairman of the
board or the president.
Unless otherwise prescribed by regulations of the Office, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity and effect of proxies; receiving votes,
ballots or consents; hearing and determining all challenges and questions in any
way arising in connection with the rights to vote; counting and tabulating all
votes or consents; determining the result; and such acts as may be proper to
conduct the election or vote with fairness to all shareholders.
SECTION 14. NOMINATING COMMITTEE. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the association. No nominations for
directors except those made by the nominating committee shall be voted upon at
the annual meeting unless other nominations by shareholders are made in writing
and delivered to the secretary of the association at least five days prior to
the date of the annual meeting. Upon delivery, such nominations shall be posted
in a conspicuous place in each office of the association. Ballots bearing the
names of all persons nominated by the nominating committee and by shareholders
shall be provided for use at the annual meeting. However, if the nominating
committee shall fail or refuse to act at least 20 days prior to the annual
meeting, nominations for directors may be made at the annual meeting by any
shareholder entitled to vote and shall be voted upon.
SECTION 15. NEW BUSINESS. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the secretary of the
association at least five days before the date of the annual meeting, and all
business so stated, proposed, and filed shall be considered at the annual
meeting; but no other proposal shall be acted upon at the annual meeting. Any
shareholder may make any other proposal at the annual meeting and the same may
be discussed and considered, but unless stated in writing and filed with the
secretary at least five days before the meeting, such proposal shall be laid
over for action at an adjourned, special, or annual meeting of the shareholders
taking place 30 days or more thereafter. This provision shall not prevent the
consideration and approval or disapproval at the annual meeting of reports of
officers, directors and committees; but in connection with such reports, no new
business shall be acted upon at such annual meeting unless stated and filed as
herein provided.
SECTION 16. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III - BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the association
shall be under the direction of its board of directors. The board of directors
shall annually elect a chairman of the board and a president from among its
members and shall designate, when present, either the chairman of the board or
the president to preside at its meetings.
SECTION 2. NUMBER AND TERM. The board of directors shall consist of
five members and shall be divided into two classes as nearly equal in number as
possible. The members of each class shall be elected for a term of two years and
until their successors are elected and qualified. One class shall be elected by
ballot annually.
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SECTION 3. REGULAR MEETINGS. A regular meeting of the board of
directors shall be held without other notice than this bylaw immediately after,
and at the same place as, the annual meeting of shareholders. The board of
directors may provide, by resolution, the time and place, within the
association's normal lending territory, for the holding of additional regular
meetings without other notice than such resolution.
SECTION 4. QUALIFICATION. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the association
unless the association is a wholly owned subsidiary of a holding company.
SECTION 5. SPECIAL MEETINGS. Special meetings of the board of directors
may be called by or at the request of the chairman of the board, the president,
or one-third of the directors. The persons authorized to call special meetings
of the board of directors may fix any place, within the association's normal
lending territory, as the place for holding any special meeting of the board of
directors called by such persons.
Members of the board of directors may participate in special meetings
by means of conference telephone or similar communications equipment by which
all persons participating in the meeting can hear each other. Such
participations shall constitute presence in person but shall not constitute
attendance for the purpose of compensation pursuant to Section 12 of this
Article.
SECTION 6. NOTICE. Written notice of any special meeting shall be given
to each director at least two days prior thereto when delivered personally or by
telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed or when delivered to the telegraph company if sent by
telegram. Any director may waive notice of any meeting by a writing filed with
the secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
SECTION 7. QUORUM. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors; but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall be
given in the same manner as prescribed by Section 6 of this Article III.
SECTION 8. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by regulation of the Office
or by these bylaws.
SECTION 9. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken by the board of directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors.
SECTION 10. RESIGNATION. Any director may resign at any time by sending
a written notice of such resignation to the home office of the association
addressed to the chairman of the board or the president. Unless otherwise
specified, such resignation shall take effect upon receipt by the chairman of
the board or the president. More than three consecutive absences from regular
meetings of the board of directors, unless excused by resolution of the board of
directors, shall automatically constitute a resignation, effective when such
resignation is accepted by the board of directors.
SECTION 11. VACANCIES. Any vacancy occurring on the board of directors
may be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve until the next election of directors by
the shareholders. Any directorship to be filled by reason of an increase in the
number of directors may be filled by election by the board of directors for a
term of office continuing only until the next election of directors by the
shareholders.
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SECTION 12. COMPENSATION. Directors, as such, may receive a stated
salary for their services. By resolution of the board of directors, a reasonable
fixed sum, and reasonable expenses of attendance, if any, may be allowed for
actual attendance at each regular or special meeting of the board of directors.
Members of either standing or special committees may be allowed such
compensation for actual attendance at committee meetings as the board of
directors may determine.
SECTION 13. PRESUMPTION OF ASSENT. A director of the association who is
present at a meeting of the board of directors at which action on any
association matter is taken shall be presumed to have assented to the action
taken unless his or her dissent or abstention shall be entered in the minutes of
the meeting or unless he or she shall file a written dissent to such action with
the person acting as the secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered mail to the secretary of the
association within five days after the date a copy of the minutes of the meeting
is received. Such right to dissent shall not apply to a director who voted in
favor of such action.
SECTION 14. REMOVAL OF DIRECTORS. At a meeting of shareholders called
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. If less than the entire board is to be removed, no one of the
directors may be removed if the votes cast against the removal would be
sufficient to elect a director if then cumulatively voted at an election of the
class of directors of which such director is a part. Whenever the holders of the
shares of any class are entitled to elect one or more directors by the
provisions of the charter or supplemental sections thereto, the provisions of
this section shall apply, in respect to the removal of a director or directors
so elected, to the vote of the holders of the outstanding shares of that class
and not to the vote of the outstanding shares as a whole.
ARTICLE IV - EXECUTIVE AND OTHER COMMITTEES
SECTION 1. APPOINTMENT. The board of directors, by resolution adopted
by a majority of the full board, may designate the chief executive officer and
two or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
SECTION 2. AUTHORITY. The executive committee, when the board of
directors is not in session, shall have and may exercise all of the authority of
the board of directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the board of
directors with reference to: the declaration of dividends; the amendment of the
charter or bylaws of the association, or recommending to the stockholders a plan
of merger, consolidation, or conversion; the sale, lease, or other disposition
of all or substantially all of the property and assets of the association
otherwise than in the usual and regular course of its business; a voluntary
dissolution of the association; a revocation of any of the foregoing; or the
approval of a transaction in which any member of the executive committee,
directly or indirectly, has any material beneficial interest.
SECTION 3. TENURE. Subject to the provisions of Section 8 of this
Article IV, each member of the executive committee shall hold office until the
next regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
SECTION 4. MEETINGS. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one day's notice stating the
place, date, and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
SECTION 5. QUORUM. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken by the executive committee at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the members of the executive committee.
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SECTION 7. VACANCIES. Any vacancy in the executive committee
may be filled by a resolution adopted by a majority of the full board of
directors.
SECTION 8. RESIGNATIONS AND REMOVAL. Any member of the executive
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full board of directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the president or secretary of the association. Unless otherwise
specified, such resignation shall take effect upon its receipt; the acceptance
of such resignation shall not be necessary to make it effective.
SECTION 9. PROCEDURE. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
SECTION 10. OTHER COMMITTEES. The board of directors may by resolution
establish an audit, loan, or other committee composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
association and may prescribe the duties, constitution, and procedures thereof.
ARTICLE V - OFFICERS
SECTION 1. POSITIONS. The officers of the association shall be a
president, one or more vice presidents, a secretary and a treasurer, each of
whom shall be elected by the board of directors. The board of directors may also
designate the chairman of the board as an officer. The president shall be the
chief executive officer, unless the board of directors designates the chairman
of the board as chief executive officer. The president shall be a director of
the association. The offices of the secretary and treasurer may be held by the
same person and a vice president may also be either the secretary or the
treasurer. The board of directors may designate one or more vice presidents as
executive vice president or senior vice president. The board of directors may
also elect or authorize the appointment of such other officers as the business
of the association may require. The officers shall have such authority and
perform such duties as the board of directors may from time to time authorize or
determine. In the absence of action by the board of directors, the officers
shall have such powers and duties as generally pertain to their respective
offices.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the association
shall be elected annually at the first meeting of the board of directors held
after each annual meeting of the stockholders. If the election of officers is
not held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been duly elected
and qualified or until the officer's death, resignation, or removal in the
manner hereinafter provided. Election or appointment of an officer, employee, or
agent shall not of itself create contractual rights. The board of directors may
authorize the association to enter into an employment contract with any officer
in accordance with regulations of the Office; but no such contract shall impair
the right of the board of directors to remove any officer at any time in
accordance with Section 3 of this Article V.
SECTION 3. REMOVAL. Any officer may be removed by the board of
directors whenever in its judgment the best interests of the association will be
served thereby, but such removal, other than for cause, shall be without
prejudice to the contractual rights, if any, of the person so removed.
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the
board of directors for the unexpired portion of the term.
SECTION 5. REMUNERATION. The remuneration of the officers shall
be fixed from time to time by the board of directors.
I-9
<PAGE> 25
ARTICLE VI - CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. To the extent permitted by regulations of the
Office, and except as otherwise prescribed by these bylaws with respect to
certificates for shares, the board of directors may authorize any officer,
employee, or agent of the association to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the association. Such
authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the
association and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or confined
to specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the association shall be signed by one or more officers, employees or
agents of the association in such manner as shall from time to time be
determined by the board of directors.
SECTION 4. DEPOSITS. All funds of the association not otherwise
employed shall be deposited from time to time to the credit of the association
in any duly authorized depositories as the board of directors may select.
ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of
capital stock of the association shall be in such form as shall be determined by
the board of directors and approved by the Office. Such certificates shall be
signed by the chief executive officer or by any other officer of the association
authorized by the board of directors, attested by the secretary or an assistant
secretary, and sealed with the corporate seal or a facsimile thereof. The
signatures of such officers upon a certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent or a registrar
other than the association itself or one of its employees. Each certificate for
shares of capital stock shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares are issued, with the
number of shares and date of issue, shall be entered on the stock transfer books
of the association. All certificates surrendered to the association for transfer
shall be cancelled and no new certificate shall be issued until the former
certificate for a like number of shares has been surrendered and cancelled,
except that in the case of a lost or destroyed certificate, a new certificate
may be issued upon such terms and indemnity to the association as the board of
directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital stock of
the association shall be made only on its stock transfer books. Authority for
such transfer shall be given only by the holder of record or by his or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the association. Such transfer shall be made only on surrender for cancellation
of the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the association shall be deemed by the association
to be the owner for all purposes.
ARTICLE VIII - FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the association shall end on the 30th day of
September of each year. The association shall be subject to an annual audit as
of the end of its fiscal year by independent public accountants appointed by and
responsible to the board of directors. The appointment of such accountants shall
be subject to annual ratification by the shareholders.
ARTICLE IX - DIVIDENDS
Subject to the terms of the association's charter and the regulations
and orders of the Office, the board of directors may, from time to time,
declare, and the association may pay, dividends on its outstanding shares of
capital stock.
I-10
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ARTICLE X - CORPORATE SEAL
The board of directors shall provide a association seal which shall be
two concentric circles between which shall be the name of the association. The
year of incorporation or an emblem may appear in the center.
ARTICLE XI - AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of
the Office at any time by a majority of the full board of directors or by a
majority of the votes cast by the shareholders of the association at any legal
meeting.
EFFECTIVE DATE:__________________, 1996
I-11
<PAGE> 1
ARTICLES OF INCORPORATION
OF
HOME CITY FINANCIAL CORPORATION
FIRST: The name of the corporation shall be Home City
Financial Corporation.
SECOND: The place in Ohio where the principal office of the
corporation is to be located is the City of Springfield, County of Clarke.
THIRD: The purpose for which the corporation is formed is to
engage in any lawful act or activity for which corporations may be formed under
Section 1701.01 to 1701.98, inclusive, of the Ohio Revised Code.
FOURTH: The authorized shares of the corporation shall be
eight hundred fifty (850) common shares, each without par value. The directors
of the corporation may adopt an amendment to the Articles of Incorporation of
the corporation in respect of any unissued or treasury shares of any class and
thereby fix or change: the division of such shares into series and the
designation and authorized number of each series; the dividend rate; the dates
of payment of dividends and the dates from which they are cumulative; the
liquidation price; the redemption rights and price; the sinking fund
requirements; the conversion rights; and the restrictions on the issuance of
shares of any class or series.
FIFTH: (A) The board of directors of the corporation shall
have the power to cause the corporation from time to time and at any time to
purchase, hold, sell, transfer or otherwise deal with (i) shares of any class or
series issued by it, (ii) any security or other obligation of the corporation
which may confer upon the holder thereof the right to convert the same into
shares of any class or series authorized by the articles of the corporation, and
(iii) any security or other obligation which may confer upon the holder thereof
the right to purchase shares of any class or series authorized by the Articles
of Incorporation of the corporation.
(B) The corporation shall have the right to repurchase, if and
when any shareholder desires to sell, or on the happening of any event is
required to sell, shares of any class or series issued by the corporation.
(C) The authority granted in this Article Fifth shall not
limit the plenary authority of the directors to purchase, hold, sell, transfer
or otherwise deal with shares of any class or series, securities or other
obligations issued by the corporation or authorized by the Articles of
Incorporation of the corporation.
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<PAGE> 2
SIXTH: Notwithstanding any provision of the Ohio Revised Code
requiring for any purpose the vote, consent, waiver or release of the holders of
shares of the corporation entitling them to exercise any proportion of the
voting power of the corporation or of any class or classes thereof, such action,
unless expressly otherwise provided by statute, may be taken by the vote,
consent, waiver or release of the holders of shares entitling them to exercise
not less than a majority of the voting power of the corporation or of such class
or classes; provided, however, that if the board of directors of the corporation
shall recommend against the approval of any of the following matters, the
affirmative vote of the holders of shares entitling them to exercise not less
than seventy-five percent (75%) of the voting power of any class or classes of
shares of the corporation which entitle the holders thereof to vote in respect
of any such matter as a class shall be required to adopt:
(A) A proposed amendment to the Articles of Incorporation
of the corporation;
(B) A proposed amendment to the Code of Regulations of
the corporation;
(C) A proposal to change the number of directors by
action of the shareholders;
(D) An agreement of merger or consolidation providing for
the proposed merger or consolidation of the
corporation with or into one or more other
corporations;
(E) A proposed combination or majority share acquisition
involving the issuance of shares of the corporation
and requiring shareholder approval;
(F) A proposal to sell, exchange, transfer or otherwise
dispose of all, or substantially all, of the assets,
with or without the goodwill, of the corporation; or
(G) A proposed dissolution of the corporation.
SEVENTH: Until the expiration of five years from the date of
the acquisition by the corporation of the capital stock of Home City Federal
Savings Bank of Springfield (the "Bank") to be issued in connection with the
conversion of the Bank from mutual to stock form, no Person (hereinafter
defined) shall directly or indirectly Offer (hereinafter defined) to Acquire
(hereinafter defined) or Acquire the Beneficial Ownership (hereinafter defined)
of more than 10% of any class of any equity security of the corporation;
provided, however, that such prohibition shall not apply to the purchase of
shares by underwriters in connection with a public offering or the power of
trustees to vote shares of the corporation held by an employee stock ownership
plan for the benefit of employees of the Bank or the corporation. In the event
that any shares of the corporation are Acquired in violation of this Article
Seventh, all shares Beneficially Owned by any Person in excess of 10% of any
class of equity security of the corporation shall
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<PAGE> 3
not be counted as shares entitled to vote, shall not be voted by any Person and
shall not be counted as voting shares in connection with any matter submitted to
the shareholders for a vote. For purposes of this Article Seventh, the following
terms shall have the meanings set forth below:
(A) "Person" includes an individual, a group acting in
concert, a corporation, a partnership, an association,
a joint stock company, a trust, an unincorporated
organization or similar company, a syndicate or any
other group formed for the purpose of acquiring or
disposing of the equity securities of the corporation,
but does not include an employee stock ownership plan
for the benefit of employees of the Bank or the
corporation.
(B) "Offer" includes every offer to buy or otherwise
acquire, solicitations or an offer to sell, tender
offer for, or request or invitation for tenders of, a
security or interest in a security for value.
(C) "Acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or
otherwise.
(D) "Acting in concert" means (i) participation in a joint
activity or conscious parallel action towards a common
goal, whether or not pursuant to an express agreement,
or (ii) a combination or pooling of voting or other
interests in the securities of an issuer for a common
purpose pursuant to any contracts, understanding,
relationship, agreement or other arrangement, whether
written or otherwise.
(E) "Beneficial Ownership" shall include, without
limitation, (i) all shares directly or indirectly owned
by a Person, by an Affiliate (hereinafter defined) of
such Person or by an Associate (hereinafter defined) of
such Person or such Affiliate, (ii) all shares which
such Person, Affiliate or Associate has the right to
acquire through the exercise of any option, warrant or
right (whether or not currently exercisable), through
the conversion of a security, pursuant to the power to
revoke a trust, discretionary account or similar
arrangement, or pursuant to the automatic termination
of a trust, discretionary account or similar
arrangement, and (iii) all shares as to which such
Person, Affiliate or Associate directly or indirectly
through any contract, arrangement, understanding,
relationship or otherwise (including, without
limitation, any written or unwritten agreement to act
in concert) has or shares voting power (which includes
the power to dispose or to direct the disposition of
such shares) or both.
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<PAGE> 4
(F) "Affiliate" shall mean a Person that directly or
indirectly, through one or more intermediaries,
controls or is controlled by, or is under common
control with, another Person.
(G) "Associate" of a Person shall mean (i) any corporation
or organization (other than the corporation or a
subsidiary of the corporation) of which the Person is
an officer or partner or is, directly or indirectly,
the beneficial owner of ten percent or more of any
class of equity securities, (ii) any trust or other
estate in which the Person has a substantial beneficial
interest or as to which the Person serves as trustee or
in a similar fiduciary capacity, except a tax-qualified
employee stock benefit plan in which the Person has a
substantial beneficial interest or serves as a trustee
or in a similar fiduciary capacity or a tax-qualified
employee stock benefit plan, and (iii) any relative or
spouse of the Person, or any relative of such spouse,
who has the same home as the Person or is a director or
officer of the corporation or any of its parents or
subsidiaries.
EIGHTH: No shareholder of the corporation shall have, as a
matter of right, the pre-emptive right to purchase or subscribe for shares of
any class, now or hereafter authorized, or to purchase or subscribe for
securities or other obligations convertible into or exchangeable for such shares
or which by warrants or otherwise entitle the holders thereof to subscribe for
or purchase any such shares.
IN WITNESS WHEREOF, I have hereunto signed my name this 12th
day of August, 1996.
Douglas L. Ulery, Incorporator
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<PAGE> 1
REGULATIONS
OF
HOME CITY FINANCIAL CORPORATION
INDEX
<TABLE>
<CAPTION>
SECTION CAPTION PAGE NO.
- ------- ------- --------
ARTICLE ONE
MEETINGS OF SHAREHOLDERS
<S> <C> <C>
1.01 Annual Meetings..................................................................1
1.02 Calling of Meetings..............................................................1
1.03 Place of Meetings................................................................1
1.04 Notice of Meetings...............................................................1
1.05 Waiver of Notice.................................................................2
1.06 Quorum...........................................................................2
1.07 Votes Required...................................................................2
1.08 Order of Business................................................................2
1.09 Shareholders Entitled to Vote....................................................2
1.10 Cumulative Voting................................................................3
1.11 Proxies..........................................................................3
1.12 Inspectors of Election...........................................................3
ARTICLE TWO
DIRECTORS
2.01 Authority and Qualifications.....................................................3
2.02 Number of Directors and Term of Office...........................................4
2.03 Nomination and Election..........................................................4
2.04 Election.........................................................................5
2.05 Removal..........................................................................5
2.06 Vacancies........................................................................5
2.07 Meetings.........................................................................6
2.08 Notice of Meetings...............................................................6
2.09 Waiver of Notice.................................................................6
2.10 Quorum...........................................................................6
2.11 Executive Committee..............................................................7
2.12 Compensation.....................................................................7
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
<S> <C> <C>
2.13 By-Laws......................................................................... 7
ARTICLE THREE
OFFICERS
3.01 Officers........................................................................ 7
3.02 Tenure of Office................................................................ 8
3.03 Duties of the Chairman of the Board............................................. 8
3.04 Duties of the President......................................................... 8
3.05 Duties of the Vice Presidents................................................... 8
3.06 Duties of the Secretary......................................................... 8
3.07 Duties of the Treasurer......................................................... 8
ARTICLE FOUR
SHARES
4.01 Certificates.................................................................... 9
4.02 Transfers....................................................................... 9
4.03 Transfer Agents and Registrars..................................................10
4.04 Lost, Wrongfully Taken or Destroyed
Certificates..................................................................10
4.05 Uncertificated Shares...........................................................10
ARTICLE FIVE
INDEMNIFICATION AND INSURANCE
5.01 Mandatory Indemnification.......................................................10
5.02 Court-Approved Indemnification..................................................11
5.03 Indemnification for Expenses....................................................11
5.04 Determination Required..........................................................12
5.05 Advances for Expenses...........................................................12
5.06 Article Five Not Exclusive......................................................13
5.07 Insurance.......................................................................13
5.08 Certain Definitions.............................................................13
5.09 Venue...........................................................................14
</TABLE>
<PAGE> 3
ARTICLE SIX
MISCELLANEOUS
<TABLE>
<CAPTION>
<S> <C> <C>
6.01 Amendments......................................................................14
6.02 Action by Shareholders or Directors
Without a Meeting.............................................................14
</TABLE>
<PAGE> 4
CODE OF REGULATIONS
OF
HOME CITY FINANCIAL CORPORATION
ARTICLE ONE
MEETINGS OF SHAREHOLDERS
SECTION 1.01. ANNUAL MEETINGS. The annual meeting of the
shareholders for the election of directors, for the consideration of reports to
be laid before such meeting and for the transaction of such other business as
may properly come before such meeting shall be held on the third Wednesday of
October in each year at 2:00 p.m., or on such other date and at such other time
as may be fixed from time to time by the directors.
SECTION 1.02. CALLING OF MEETINGS. Meetings of the
shareholders may be called only by the chairman of the board, the president, or,
in case of the president's absence, death, or disability, the vice president
authorized to exercise the authority of the president; the secretary; the
directors by action at a meeting, or a majority of the directors acting without
a meeting; or the holders of at least twenty-five percent of all shares
outstanding and entitled to vote thereat.
SECTION 1.03. PLACE OF MEETINGS. All meetings of shareholders
shall be held at the principal office of the corporation, unless otherwise
provided by action of the directors. Meetings of shareholders may be held at any
place within or without the State of Ohio.
SECTION 1.04. NOTICE OF MEETINGS. (A) Written notice stating
the time, place and purposes of a meeting of the shareholders shall be given
either by personal delivery or by mail not less than seven nor more than sixty
days before the date of the meeting (1) to each shareholder of record entitled
to notice of the meeting, (2) by or at the direction of the president or the
secretary. If mailed, such notice shall be addressed to the shareholder at his
address as it appears on the records of the corporation. Notice of adjournment
of a meeting need not be given if the time and place to which it is adjourned
are fixed and announced at such meeting. In the event of a transfer of shares
after the record date for determining the shareholders who are entitled to
receive notice of a meeting of shareholders, it shall not be necessary to give
notice to the transferee. Nothing herein contained shall prevent the setting of
a record date in the manner provided by law, the Articles or the Regulations for
the determination of shareholders who are entitled to receive notice of or to
vote at any meeting of shareholders or for any purpose required or permitted by
law.
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(B) Following receipt by the president or the secretary of a
request in writing, specifying the purpose or purposes for which the persons
properly making such request have called a meeting of the shareholders,
delivered either in person or by registered mail to such officer by any persons
entitled to call a meeting of shareholders, such officer shall cause to be given
to the shareholders entitled thereto notice of a meeting to be held on a date
not less than seven nor more than sixty days after the receipt of such request,
as such officer may fix. If such notice is not given within fifteen days after
the receipt of such request by the president or the secretary, then, and only
then, the persons properly calling the meeting may fix the time of meeting and
give notice thereof in accordance with the provisions of the Regulations.
SECTION 1.05. WAIVER OF NOTICE. Notice of the time, place and
purpose or purposes of any meeting of shareholders may be waived in writing,
either before or after the holding of such meeting, by any shareholders, which
writing shall be filed with or entered upon the records of such meeting. The
attendance of any shareholder, in person or by proxy, at any such meeting
without protesting the lack of proper notice, prior to or at the commencement of
the meeting, shall be deemed to be a waiver by such shareholder of notice of
such meeting.
SECTION 1.06. QUORUM. At any meeting of shareholders, the
holders of a majority of the voting shares of the corporation then outstanding
and entitled to vote thereat, present in person or by proxy, shall constitute a
quorum for such meeting. The holders of a majority of the voting shares
represented at a meeting, whether or not a quorum is present, or the chairman of
the board, the president, or the officer of the corporation acting as chairman
of the meeting, may adjourn such meeting from time to time, and if a quorum is
present at such adjourned meeting any business may be transacted as if the
meeting had been held as originally called.
SECTION 1.07. VOTES REQUIRED. At all elections of directors
the candidates receiving the greatest number of votes shall be elected. Any
other matter submitted to the shareholders for their vote shall be decided by
the vote of such proportion of the shares, or of any class of shares, or of each
class, as is required by law, the Articles or the Regulations.
SECTION 1.08. ORDER OF BUSINESS. The order of business at any
meeting of shareholders shall be determined by the officer of the corporation
acting as chairman of such meeting unless otherwise determined by a vote of the
holders of a majority of the voting shares of the corporation then outstanding,
present in person or by proxy, and entitled to vote at such meeting.
SECTION 1.09. SHAREHOLDERS ENTITLED TO VOTE. Each shareholder
of record on the books of the corporation on the record date for determining the
shareholders who are entitled to vote at a meeting of shareholders shall be
entitled at such meeting to one vote for each share of the corporation standing
in his name on the books of the corporation on such record date. The directors
may fix a record date for the determination of the shareholders who are entitled
to receive notice of and to vote at a meeting of shareholders, which record date
shall not be a date earlier than the date on which the record date is fixed and
which record date may be a maximum of sixty days preceding the date of the
meeting of shareholders.
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<PAGE> 6
SECTION 1.10. CUMULATIVE VOTING. If notice in writing shall be
given by a shareholder to the president, a vice president or the secretary of
the corporation, not less than forty-eight hours before the time fixed for
holding a meeting of the shareholders for the purpose of electing directors if
notice of such meeting shall have been given at least ten days prior thereto,
and otherwise not less than twenty-four hours before such time, that such
shareholder desires that the voting at such election shall be cumulative, and if
an announcement of the giving of such notice is made upon the convening of the
meeting by the chairman or secretary or by or on behalf of the shareholder
giving such notice, each shareholder shall have the right to cumulate such
voting power as he possesses and to give one candidate as many votes as is
determined by multiplying the number of directors to be elected by the number of
votes to which such shareholder is entitled, or to distribute such number of
votes on the same principle among two or more candidates, as he sees fit.
SECTION 1.11. PROXIES. At meetings of the shareholders, any
shareholder of record entitled to vote thereat may be represented and may vote
by a proxy or proxies appointed by an instrument in writing signed by such
shareholder, but such instrument shall be filed with the secretary of the
meeting before the person holding such proxy shall be allowed to vote
thereunder. No proxy shall be valid after the expiration of eleven months after
the date of its execution, unless the shareholder executing it shall have
specified therein the length of time it is to continue in force.
SECTION 1.12. INSPECTORS OF ELECTION. In advance of any
meeting of shareholders, the directors may appoint inspectors of election to act
at such meeting or any adjournment thereof; if inspectors are not so appointed,
the officer of the corporation acting as chairman of any such meeting may make
such appointment. In case any person appointed as inspector fails to appear or
act, the vacancy may be filled only by appointment made by the directors in
advance of such meeting or, if not so filled, at the meeting by the officer of
the corporation acting as chairman of such meeting. No other person or persons
may appoint or require the appointment of inspectors of election.
ARTICLE TWO
DIRECTORS
SECTION 2.01. AUTHORITY AND QUALIFICATIONS. Except where
the law, the Articles or the Regulations otherwise provide, all authority of the
corporation shall be vested in and exercised by its directors. Directors need
not be shareholders of the corporation.
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SECTION 2.02. NUMBER OF DIRECTORS AND TERM OF OFFICE.
(A) Until changed in accordance with the provisions of the
Regulations, the number of directors of the corporation shall be five. Directors
shall be elected for such terms that the terms of an equal number of directors,
as nearly as possible, will expire each year. A term may not exceed three years.
Directors shall serve until their successors are duly elected and qualified or
until their earlier resignation, removal from office, or death.
(B) The number of directors may be fixed or changed at a
meeting of the shareholders called for the purpose of electing directors at
which a quorum is present, only by the affirmative vote of the holders of not
less than a majority of the voting shares which are represented at the meeting,
in person or by proxy, and entitled to vote on such proposal.
(C) The directors may fix or change the number of directors
and may fill any director's office that is created by an increase in the number
of directors; provided, however, that the directors may not increase the number
of directors to greater than fifteen nor reduce the number of directors to fewer
than five.
(D) No reduction in the number of directors shall of itself
have the effect of shortening the term of any incumbent director.
SECTION 2.03. NOMINATION AND ELECTION.
(A) Any nominee for election as a director of the corporation
may be proposed only by the directors or by any shareholder entitled to vote for
the election of directors. No person, other than a nominee proposed by the
directors, may be nominated for election as a director of the corporation unless
such person shall have been proposed in a written notice, delivered or mailed by
first class United States mail, postage prepaid, to the Secretary of the
corporation at the principal offices of the corporation. In the case of a
nominee proposed for election as a director at an annual meeting of
shareholders, such written notice of a proposed nominee shall be received by the
Secretary of the corporation on or before the sixtieth (60th) day before the
first anniversary of the most recent annual meeting of shareholders of the
corporation held for the election of directors; provided, however, that if the
annual meeting for the election of director in any year is not held on or before
the thirty-first (31st) day next following such anniversary, then the written
notice required by this subparagraph (A) shall be received by the Secretary
within a reasonable time prior to the date of such annual meeting. In the case
of a nominee proposed for election as a director at a special meeting of
shareholders at which directors are to be elected, such written notice of a
proposed nominee shall be received by the Secretary of the corporation no later
than the close of business on the seventh day following the day on which notice
of the special meeting was mailed to shareholders. Each such written notice of a
proposed nominee shall set forth (1) the name, age, business or residence
address of each nominee proposed in such notice, (2) the principal occupation or
employment of each such nominee, and (3) the number of common shares of the
corporation owned beneficially and/or of record by each such nominee and the
length of time any such shares have been so owned.
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<PAGE> 8
(B) If a shareholder shall attempt to nominate one or more
persons for election as a director at any meeting at which directors are to be
elected without having identified each such person in a written notice given as
contemplated by, and/or without having provided therein the information
specified in, subparagraph (A) of this Section, each such attempted nomination
shall be invalid and shall be disregarded unless the person acting as Chairman
of the meeting determines that the facts warrant the acceptance of such
nomination.
(C) The election of directors shall be by ballot whenever
requested by the person acting as Chairman of the meeting or by the holders of a
majority of the voting shares outstanding, entitled to vote at such meeting and
present in person or by proxy, but unless such request is made, the election
shall be by voice vote.
SECTION 2.04. ELECTION. At each annual meeting of shareholders
for the election of directors, the successors to the directors whose term shall
expire in that year shall be elected, but if the annual meeting is not held or
if one or more of such directors are not elected thereat, they may be elected at
a special meeting called for that purpose. The election of directors shall be by
ballot whenever requested by the presiding officer of the meeting or by the
holders of a majority of the voting shares outstanding, entitled to vote at such
meeting and present in person or by proxy, but unless such request is made, the
election shall be viva voce.
SECTION 2.05. REMOVAL. A director or directors may be removed
from office, with or without assigning any cause, only by the vote of the
holders of shares entitling them to exercise not less than a majority of the
voting power of the corporation to elect directors in place of those to be
removed, provided that unless all the directors, or all the directors of a
particular class (if the directors of the corporation are divided into classes),
are removed, no individual director shall be removed in case the votes of a
sufficient number of shares are cast against his removal that, if cumulatively
voted at an election of all directors, or all the directors of a particular
class, as the case may be, would be sufficient to elect at least one director.
In case of any such removal, a new director may be elected at the same meeting
for the unexpired term of each director removed. Failure to elect a director to
fill the unexpired term of any director removed shall be deemed to create a
vacancy in the board.
SECTION 2.06. VACANCIES. The remaining directors, though less
than a majority of the whole authorized number of directors, may, by the vote of
a majority of their number, fill any vacancy in the board for the unexpired
term. A vacancy in the board exists within the meaning of this Section 2.06 in
case the shareholders increase the authorized number of directors but fail at
the meeting at which such increase is authorized, or an adjournment thereof, to
elect the additional directors provided for, or in case the shareholders fail at
any time to elect the whole authorized number of directors.
SECTION 2.07. MEETINGS. A meeting of the directors shall be
held immediately following the adjournment of each annual meeting of
shareholders at which directors are elected, and notice of such meeting need not
be given. The directors shall hold such other meetings as may
5
<PAGE> 9
from time to time be called, and such other meetings of directors may be called
only by the chairman of the board, the president, or any two directors. All
meetings of directors shall be held at the principal office of the corporation
or at such other place as the directors may from time to time determine by
resolution. Meetings of the directors may be held through any communications
equipment if all persons participating can hear each other, and participation in
a meeting pursuant to this provision shall constitute presence at such meeting.
SECTION 2.08. NOTICE OF MEETINGS. Notice of the time and place
of each meeting of directors for which such notice is required by law, the
Articles, the Regulations or the By-Laws shall be given to each of the directors
by at least one of the following methods:
(A) In a writing mailed not less than three days before
such meeting and addressed to the residence or usual
place of business of a director, as such address
appears on the records of the corporation; or
(B) By telegraph, cable, radio, wireless, or a writing
sent or delivered to the residence or usual place of
business of a director as the same appears on the
records of the corporation, not later than the day
before the date on which such meeting is to be held;
or
(C) Personally or by telephone not later than the day
before the date on which such meeting is to be held.
Notice given to a director by any one of the methods specified in the
Regulations shall be sufficient, and the method of giving notice to all
directors need not be uniform. Notice of any meeting of directors may be given
only by the chairman of the board, the president or the secretary of the
corporation. Any such notice need not specify the purpose or purposes of the
meeting. Notice of adjournment of a meeting of directors need not be given if
the time and place to which it is adjourned are fixed and announced at such
meeting.
SECTION 2.09. WAIVER OF NOTICE. Notice of any meeting of
directors may be waived in writing, either before or after the holding of such
meeting, by any director, which writing shall be filed with or entered upon the
records of the meeting. The attendance of any director at any meeting of
directors without protesting, prior to or at the commencement of the meeting,
the lack of proper notice, shall be deemed to be a waiver by him of notice of
such meeting.
SECTION 2.10. QUORUM. A majority of the whole authorized
number of directors shall be necessary to constitute a quorum for a meeting of
directors, except that a majority of the directors in office shall constitute a
quorum for filling a vacancy in the board. The act of a majority of the
directors present at a meeting at which a quorum is present is the act of the
board, except as otherwise provided by law, the Articles or the Regulations.
SECTION 2.11. EXECUTIVE COMMITTEE. The directors may create an
executive committee or any other committee of directors, to consist of not less
than three directors, and may
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<PAGE> 10
authorize the delegation to such executive committee or other committees of any
of the authority of the directors, however conferred, other than that of filling
vacancies among the directors or in the executive committee or in any other
committee of the directors.
Such executive committee or any other committee of directors
shall serve at the pleasure of the directors, shall act only in the intervals
between meetings of the directors, and shall be subject to the control and
direction of the directors. Such executive committee or other committee of
directors may act by a majority of its members at a meeting or by a writing or
writings signed by all of its members.
Any act or authorization of any act by the executive committee
or any other committee within the authority delegated to it shall be as
effective for all purposes as the act or authorization of the directors. No
notice of a meeting of the executive committee or of any other committee of
directors shall be required. A meeting of the executive committee or of any
other committee of directors may be called only by the president or by a member
of such executive or other committee of directors. Meetings of the executive
committee or of any other committee of directors may be held through any
communications equipment if all persons participating can hear each other and
participation in such a meeting shall constitute presence thereat.
SECTION 2.12. COMPENSATION. Directors shall be entitled to
receive as compensation for services rendered and expenses incurred as directors
such amounts as the directors may determine.
SECTION 2.13. BY-LAWS. The directors may adopt and amend from
time to time, By-Laws for their own government, which By-Laws shall not be
inconsistent with the law, the Articles or the Regulations.
ARTICLE THREE
OFFICERS
SECTION 3.01. OFFICERS. The officers of the corporation to be
elected by the directors shall be a president, a secretary, a treasurer, and, if
desired, one or more vice presidents and such other officers and assistant
officers as the directors may from time to time elect. The directors may elect a
chairman of the board, who must be a director. Officers need not be shareholders
of the corporation and may be paid such compensation as the board of directors
may determine. Any two or more offices may be held by the same person, but no
officer shall execute, acknowledge or verify any instrument in more than one
capacity if such instrument is required by law, the Articles, the Regulations or
the By-Laws to be executed, acknowledged or verified by two or more officers.
SECTION 3.02. TENURE OF OFFICE. The officers of the
corporation shall hold office at the pleasure of the directors. Any officer of
the corporation may be removed, either with or without
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cause, at any time, by the affirmative vote of a majority of all the directors
then in office; such removal, however, shall be without prejudice to the
contract rights, if any, of the person so removed.
SECTION 3.03. DUTIES OF THE CHAIRMAN OF THE BOARD. The
chairman of the board, if any, shall preside at all meetings of the directors.
He shall have such other powers and duties as the directors shall from time to
time assign to him.
SECTION 3.04. DUTIES OF THE PRESIDENT. The president shall be
the chief executive officer of the corporation, shall exercise supervision over
the business of the corporation and shall have, among such additional powers and
duties as the directors may from time to time assign to him, the power and
authority to sign all certificates evidencing shares of the corporation and all
deeds, mortgages, bonds, contracts, notes and other instruments requiring the
signature of the president of the corporation. It shall be the duty of the
president to preside at all meetings of shareholders.
SECTION 3.05. DUTIES OF THE VICE PRESIDENTS. In the absence of
the president or in the event of his inability or refusal to act, the vice
president, if any (or in the event there be more than one vice president, the
vice presidents in the order designated, or in the absence of any designation,
then in the order of their election), shall perform the duties of the president,
and when so acting, shall have all the powers of and be subject to all
restrictions upon the president. The vice presidents shall perform such other
duties and have such other powers as the directors may from time to time
prescribe.
SECTION 3.06. DUTIES OF THE SECRETARY. It shall be the duty of
the secretary, or of an assistant secretary, if any, in case of the absence or
inability to act of the secretary, to keep minutes of all the proceedings of the
shareholders and the directors and to make a proper record of the same; to
perform such other duties as may be required by law, the Articles or the
Regulations; to perform such other and further duties as may from time to time
be assigned to him by the directors or the president; and to deliver all books,
paper and property of the corporation in his possession to his successor, or to
the president.
SECTION 3.07. DUTIES OF THE TREASURER. The treasurer, or an
assistant treasurer, if any, in case of the absence or inability to act of the
treasurer, shall receive and safely keep in charge all money, bills, notes,
choses in action, securities and similar property belonging to the corporation,
and shall do with or disburse the same as directed by the president or the
directors; shall keep an accurate account of the finances and business of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, stated capital and shares, together with such
other accounts as may be required and hold the same open for inspection and
examination by the directors; shall give bond in such sum with such security as
the directors may require for the faithful performance of his duties; shall,
upon the expiration of his term of office, deliver all money and other property
of the corporation in his possession or custody to his successor or the
president; and shall perform such other duties as from time to time may be
assigned to him by the directors.
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ARTICLE FOUR
SHARES
SECTION 4.01. CERTIFICATES. Certificates evidencing ownership
of shares of the corporation shall be issued to those entitled to them. Each
certificate evidencing shares of the corporation shall bear a distinguishing
number; the signatures of the chairman of the board, the president, or a vice
president, and of the secretary or an assistant secretary (except that when any
such certificate is countersigned by an incorporated transfer agent or
registrar, such signatures may be facsimile, engraved, stamped or printed); and
such recitals as may be required by law. Certificates evidencing shares of the
corporation shall be of such tenor and design as the directors may from time to
time adopt and may bear such recitals as are permitted by law.
SECTION 4.02. TRANSFERS. Where a certificate evidencing a
share or shares of the corporation is presented to the corporation or its proper
agents with a request to register transfer, the transfer shall be registered as
requested if:
(1) An appropriate person signs on each certificate so
presented or signs on a separate document an assignment or transfer of shares
evidenced by each such certificate, or signs a power to assign or transfer such
shares, or when the signature of an appropriate person is written without more
on the back of each such certificate; and
(2) Reasonable assurance is given that the indorsement of each
appropriate person is genuine and effective; the corporation or its agents may
refuse to register a transfer of shares unless the signature of each appropriate
person is guaranteed by a commercial bank or trust company having an office or a
correspondent in the City of New York or by a firm having membership in the New
York Stock Exchange; and
(3) All applicable laws relating to the collection of transfer
or other taxes have been complied with; and
(4) The corporation or its agents are not otherwise required
or permitted to refuse to register such transfer.
SECTION 4.03. TRANSFER AGENTS AND REGISTRARS. The directors
may appoint one or more agents to transfer or to register shares of the
corporation, or both.
SECTION 4.04. LOST, WRONGFULLY TAKEN OR DESTROYED
CERTIFICATES. Except as otherwise provided by law, where the owner of a
certificate evidencing shares of the corporation claims that such certificate
has been lost, destroyed or wrongfully taken, the directors must cause the
corporation to issue a new certificate in place of the original certificate if
the owner:
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(1) So requests before the corporation has notice that such
original certificate has been acquired by a bona fide purchaser; and
(2) Files with the corporation, unless waived by the
directors, an indemnity bond, with surety or sureties satisfactory to the
corporation, in such sums as the directors may, in their discretion, deem
reasonably sufficient as indemnity against any loss or liability that the
corporation may incur by reason of the issuance of each such new certificate;
and
(3) Satisfies any other reasonable requirements which may be
imposed by the directors, in their discretion.
SECTION 4.05. UNCERTIFICATED SHARES. Anything contained in
this Article Fourth to the contrary notwithstanding, the directors may provide
by resolution that some or all of any or all classes and series of shares of the
corporation shall be uncertificated shares, provided that such resolution shall
not apply to (A) shares of the corporation represented by a certificate until
such certificate is surrendered to the corporation in accordance with applicable
provisions of Ohio law or (B) any certificated security of the corporation
issued in exchange for an uncertificated security in accordance with applicable
provisions of Ohio law. The rights and obligations of the holders of
uncertificated shares and the rights and obligations of the holders of
certificates representing shares of the same class and series shall be
identical, except as otherwise expressly provided by law.
ARTICLE FIVE
INDEMNIFICATION AND INSURANCE
SECTION 5.01. MANDATORY INDEMNIFICATION. The corporation shall
indemnify any officer or director of the corporation who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including, without limitation, any action threatened or instituted by or in the
right of the corporation), by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee or agent of
another corporation (domestic or foreign, nonprofit or for profit), partnership,
joint venture, trust or other enterprise, against expenses (including, without
limitation, attorneys' fees, filing fees, court reporters' fees and transcript
costs), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and with respect to any criminal action
or proceeding, he had no reasonable cause to believe his conduct was unlawful. A
person claiming indemnification under this Section 5.01 shall be presumed, in
respect of any act or omission giving rise to such claim for indemnification, to
have acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and with respect to any
criminal matter, to have had
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<PAGE> 14
no reasonable cause to believe his conduct was unlawful, and the termination of
any action, suit or proceeding by judgment, order, settlement or conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, rebut
such presumption.
SECTION 5.02. COURT-APPROVED INDEMNIFICATION. Anything
contained in the Regulations or elsewhere to the contrary notwithstanding:
(A) the corporation shall not indemnify any officer or
director of the corporation who was a party to any completed action or suit
instituted by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, trustee, officer, employee or agent of another corporation
(domestic or foreign, nonprofit or for profit), partnership, joint venture,
trust or other enterprise, in respect of any claim, issue or matter asserted in
such action or suit as to which he shall have been adjudged to be liable for
acting with reckless disregard for the best interests of the corporation or
misconduct (other than negligence) in the performance of his duty to the
corporation unless and only to the extent that the Court of Common Pleas of
Clark County, Ohio, or the court in which such action or suit was brought shall
determine upon application that, despite such adjudication of liability, and in
view of all the circumstances of the case, he is fairly and reasonably entitled
to such indemnity as such Court of Common Pleas or such other court shall deem
proper; and
(B) the corporation shall promptly make any such unpaid
indemnification as is determined by a court to be proper as contemplated by this
Section 5.02.
SECTION 5.03. INDEMNIFICATION FOR EXPENSES. Anything contained
in the Regulations or elsewhere to the contrary notwithstanding, to the extent
that an officer or director of the corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in Section
5.01, or in defense of any claim, issue or matter therein, he shall be promptly
indemnified by the corporation against expenses (including, without limitation,
attorneys' fees, filing fees, court reporters' fees and transcript costs)
actually and reasonably incurred by him in connection therewith.
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SECTION 5.04 DETERMINATION REQUIRED. Any indemnification
required under Section 5.01 and not precluded under Section 5.02 shall be made
by the corporation only upon a determination that such indemnification of the
officer or director is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 5.01. Such determination may
be made only (A) by a majority vote of a quorum consisting of directors of the
corporation who were not and are not parties to, or threatened with, any such
action, suit or proceeding, or (B) if such a quorum is not obtainable or if a
majority of a quorum of disinterested directors so directs, in a written opinion
by independent legal counsel other than an attorney, or a firm having associated
with it an attorney, who has been retained by or who has performed services for
the corporation, or any person to be indemnified, within the past five years, or
(C) by the shareholders, or (D) by the Court of Common Pleas of Clark County,
Ohio, or (if the corporation is a party thereto) the court in which such action,
suit or proceeding was brought, if any; any such determination may be made by a
court under division (D) of this Section 5.04 at any time including, without
limitation, any time before, during or after the time when any such
determination may be requested of, be under consideration by or have been denied
or disregarded by the disinterested directors under division (A) or by
independent legal counsel under division (B) or by the shareholders under
division (C) of this Section 5.04; and no failure for any reason to make any
such determination, and no decision for any reason to deny any such
determination, by the disinterested directors under division (A) or by
independent legal counsel under division (B) or by shareholders under division
(C) of this Section 5.04 shall be evidence in rebuttal of the presumption
recited in Section 5.01. Any determination made by the disinterested directors
under division (A) or by independent legal counsel under division (B) of this
Section 5.04 to make indemnification in respect of any claim, issue or matter
asserted in an action or suit threatened or brought by or in the right of the
corporation shall be promptly communicated to the person who threatened or
brought such action or suit, and within ten (10) days after receipt of such
notification such person shall have the right to petition the Court of Common
Pleas of Clark County, Ohio, or the court in which such action or suit was
brought, if any, to review the reasonableness of such determination.
SECTION 5.05. ADVANCES FOR EXPENSES. Expenses (including,
without limitation, attorneys' fees, filing fees, court reporters' fees and
transcript costs) incurred in defending any action, suit or proceeding referred
to in Section 5.01 shall be paid by the corporation in advance of the final
disposition of such action, suit or proceeding to or on behalf of the officer or
director promptly as such expenses are incurred by him, but only if such officer
or director shall first agree, in writing, to repay all amounts so paid in
respect of any claim, issue or other matter asserted in such action, suit or
proceeding in defense of which he shall not have been successful on the merits
or otherwise:
(A) if it shall ultimately be determined as provided in
Section 5.04 that he is not entitled to be indemnified by the corporation as
provided under Section 5.01; or
(B) if, in respect of any claim, issue or other matter
asserted by or in the right of the corporation in such action or suit, he shall
have been adjudged to be liable for acting with reckless disregard for the best
interests of the corporation or misconduct (other than negligence) in the
performance of his duty to the corporation, unless and only to the extent that
the Court of
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Common Pleas of Clark County, Ohio, or the court in which such action or suit
was brought shall determine upon application that, despite such adjudication of
liability, and in view of all the circumstances, he is fairly and reasonably
entitled to all or part of such indemnification.
SECTION 5.06. ARTICLE FIVE NOT EXCLUSIVE. The indemnification
provided by this Article Five shall not be deemed exclusive of any other rights
to which any person seeking indemnification may be entitled under the Articles
or the Regulations or any agreement, vote of shareholders or disinterested
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be an officer or director of the corporation and shall
inure to the benefit of the heirs, executors, and administrators of such a
person.
SECTION 5.07. INSURANCE. The corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, trustee, officer, employee, or agent of another
corporation (domestic or foreign, nonprofit or for profit), partnership, joint
venture, trust or other enterprise, against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the obligation or the power to
indemnify him against such liability under the provisions of this Article Five.
SECTION 5.08. CERTAIN DEFINITIONS. For purposes of this
Article Five, and as examples and not by way of limitation:
(A) A person claiming indemnification under this Article 5
shall be deemed to have been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Section 5.01, or in defense of any
claim, issue or other matter therein, if such action, suit or proceeding shall
be terminated as to such person, with or without prejudice, without the entry of
a judgment or order against him, without a conviction of him, without the
imposition of a fine upon him and without his payment or agreement to pay any
amount in settlement thereof (whether or not any such termination is based upon
a judicial or other determination of the lack of merit of the claims made
against him or otherwise results in a vindication of him); and
(B) References to an "other enterprise" shall include employee
benefit plans; references to a "fine" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee or agent with respect to
an employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the best
interests of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the corporation" within the meaning of that term as used in this Article Five.
SECTION 5.09. VENUE. Any action, suit or proceeding to
determine a claim for indemnification under this Article Five may be maintained
by the person claiming such
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<PAGE> 17
indemnification, or by the corporation, in the Court of Common Pleas of Clark
County, Ohio. The corporation and (by claiming such indemnification) each such
person consent to the exercise of jurisdiction over its or his person by the
Court of Common Pleas of Clark County, Ohio, in any such action, suit or
proceeding.
MISCELLANEOUS
SECTION 6.01. AMENDMENTS. The Regulations may be amended, or
new regulations may be adopted, at a meeting of shareholders held for such
purpose, only by the affirmative vote of the holders of shares entitling them to
exercise not less than a majority of the voting power of the corporation on such
proposal, or without a meeting by the written consent of the holders of shares
entitling them to exercise not less than a majority of the voting power of the
corporation on such proposal.
SECTION 6.02. ACTION BY SHAREHOLDERS OR DIRECTORS WITHOUT A
MEETING. Anything contained in the Regulations to the contrary notwithstanding,
except as provided in Section 6.01, any action which may be authorized or taken
at a meeting of the shareholders or of the directors or of a committee of the
directors, as the case may be, may be authorized or taken without a meeting with
the affirmative vote or approval of, and in a writing or writings signed by, all
the shareholders who would be entitled to notice of a meeting of the
shareholders held for such purpose, or all the directors, or all the members of
such committee of the directors, respectively, which writings shall be filed
with or entered upon the records of the corporation.
14
<PAGE> 1
(513) 723-4000
September 18, 1996
Board of Directors
Home City Financial Corporation
63 West Main Street
Springfield, Ohio 45502
Gentleman:
We are familiar with the proceedings taken and proposed to be
taken by Home City Financial Corporation ("HCFC") in connection with the
issuance and sale by HCFC of up to 952,200 of its common shares, without par
value (the "Common Shares"). The Common Shares are being offered by HCFC in
connection with the conversion of Home City Federal Savings Bank of Springfield
("Home City") from a mutual savings bank to a permanent capital stock savings
bank chartered under the laws of the United States (the "Conversion").
HCFC has been incorporated at the direction of Home City for
the purpose of purchasing all of the capital stock to be issued by Home City in
connection with the Conversion. We have assisted Home City with matters related
to the incorporation and organization of HCFC. In addition, we have collaborated
in the preparation of the Registration Statement on Form S-1 (the "Registration
Statement") to be filed by HCFC with the Securities and Exchange Commission for
the registration of the Common Shares under the Securities Act of 1933, as
amended. In connection therewith, we have examined, among other things, such
records and documents as we have deemed necessary in order to express the
opinions hereinafter set forth.
Based upon the foregoing, we are of the opinion that HCFC is a
duly organized and legally existing corporation under the laws of the State of
Ohio. Assuming compliance with applicable federal and state securities laws, we
are also of the opinion that the Common Shares to be issued and sold by HCFC,
when purchase orders have been accepted and the purchase price for the Common
Shares has been
<PAGE> 2
Board of Directors
Home City Financial Corporation
September 18, 1996
Page 2
paid in money as specified in the Registration Statement when it
shall become effective, will be validly issued and outstanding, fully paid and
non-assessable. Notwithstanding the foregoing, until payments are received by
HCFC from the Home City Financial Corporation Employee Stock Ownership Plan (the
"ESOP") in accordance with the terms of a loan agreement to be entered into by
and between HCFC and the ESOP, shares for which payment in money has not been
received will not be fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to us in the Prospectus
included therein.
Very truly yours,
Vorys, Sater, Seymour and Pease
<PAGE> 1
(513) 723-4000
September 19, 1996
Board of Directors
Home City Financial Corporation
63 West Main Street
Springfield, Ohio 45502-1309
Board of Directors
Home City Federal Savings Bank of Springfield
63 West Main Street
Springfield, Ohio 45502-1309
Re: Conversion from a Federal Mutual Savings Bank to a Federal
Permanent Capital Stock Savings Bank - Federal and State Tax
Matters
Gentlemen:
You have requested our opinion regarding certain federal
income tax and state tax consequences resulting from the proposed conversion
(the "Conversion") of Home City Federal Savings Bank of Springfield (the
"Bank"), from a mutual savings bank to a permanent capital stock savings bank
(the "Stock Bank") incorporated under the laws of the United States and the
simultaneous acquisition by Home City Financial Corporation, an Ohio corporation
(the "Holding Company"), of all of the capital stock to be issued by the Stock
Bank upon the Conversion.
We have reviewed the Plan of Conversion adopted by the Bank's
Board of Directors on September 3, 1996 (the "Plan"), the Application for
Conversion on Form AC (the "Application") filed with the Office of Thrift
Supervision (the "OTS"), the Summary Proxy Statement, the Prospectus and other
solicitation materials included in the Application, and have examined such other
legal and factual matters we have considered appropriate. Unless otherwise
indicated, defined terms in this letter have the same meaning as in the Plan and
the Prospectus.
We have not requested on your behalf nor have we received any
rulings from the Internal Revenue Service ("IRS") in connection with the
Conversion or the attendant federal income tax consequences.
<PAGE> 2
Board of Directors
September 19, 1996
Page 2
FACTS
-----
A. HOME CITY FEDERAL SAVINGS BANK OF SPRINGFIELD
---------------------------------------------
The Bank is a mutual savings bank which was incorporated in
1925 as a savings and loan association under the name "Home City Savings and
Loan Association." The Bank changed its name to "Home City Federal Savings Bank"
on May 1, 1996. As a mutual savings bank chartered under the laws of the United
States, the Bank is subject to supervision and regulation by the OTS and the
Federal Deposit Insurance Corporation (the "FDIC"). The Bank is a member of the
Federal Home Loan Bank ("FHLB") of Cincinnati. The deposits of the Bank are
insured up to applicable limits by the Savings Association Insurance Fund
("SAIF") administered by the FDIC.
The Bank is principally engaged in the business of originating
loans secured by first mortgages on one- to four-family residential real estate
located in the Bank's primary market area. The Bank also originates loans for
the construction of residential real estate and loans secured by multifamily
real estate and nonresidential real estate. The origination of consumer loans,
including unsecured loans, passbook loans, loans secured by motor vehicles and
home improvement loans, constitutes a small portion of the Bank's lending
activities. The Bank also invests in mortgage-backed securities, U.S. Government
agency obligations, deposits in other financial institutions, and other
investments permitted by applicable law. Funds for lending and other investment
activities are obtained primarily from savings deposits, which are insured up to
applicable limits by the FDIC, and principal repayments on loans and
mortgage-backed securities.
The Bank conducts business from its office located at 63 West
Main Street, Springfield, Ohio 45502-1309. The Bank's primary market area
consists of Clark County, Ohio, and adjacent counties.
HOME CITY FINANCIAL CORPORATION
- -------------------------------
The Holding Company was incorporated under Ohio law in August,
1996, at the direction of the Bank for the purpose of becoming the holding
company of the Stock Bank after the Conversion. The Holding Company has not
conducted and will not conduct any business other than business related to the
Conversion prior to the completion of the Conversion. The Holding Company has
applied to the OTS for approval to acquire the capital stock to be issued by the
Stock Bank in the Conversion. Upon the consummation of the Conversion, the
Holding Company will be a unitary savings and loan holding company, and its
principal asset will be the
<PAGE> 3
Board of Directors
September 19, 1996
Page 3
capital stock of the Stock Bank. As a savings and loan holding company, the
Holding Company will be required to register with, and be subject to,
examination and supervision by the OTS.
B. THE PLAN OF CONVERSION
----------------------
On September 3, 1996, the Board of Directors of the Bank
unanimously adopted the Plan and recommended that the voting members of the Bank
approve the Plan at a special meeting of members of the Bank to be held after
the Bank receives approval of the Application from the OTS (the "Special
Meeting"). Under the Plan, (i) the Bank will be converted from a federal mutual
savings bank to a federal stock savings bank, (ii) all of the capital stock of
the Stock Bank, which will be one class of voting common shares, will be issued
to the Holding Company, and (iii) the Holding Company will offer for sale and
issue common shares of the Holding Company (the "Common Shares") to eligible
persons in a subscription offering (the "Subscription Offering") and to the
general public in a direct community offering (the "Community Offering").
The aggregate purchase price at which the Common Shares will
be offered and sold pursuant to the Plan will be based upon the estimated pro
forma market value of the Bank, as determined by an independent appraiser.
Keller & Company ("Keller"), a firm experienced in valuing thrift institutions,
has prepared an independent appraisal of the pro forma market value of the Bank.
Keller's valuation of the estimated pro forma market value of the Bank, as
converted, is $720,000 as of September 6, 1996 (the "Pro Forma Value"). The
Bank will issue the Common Shares at a fixed price of $10 per share and, by
dividing the price per share into the Pro Forma Value, will determine the number
of Common Shares to be issued. Applicable regulations require, however, that the
Bank establish a range of 15% above and below the Pro Forma Value (the
"Valuation Range") to allow for fluctuations in the aggregate value of the
Common Shares due to changes in the market for bank shares and other factors
from the time of commencement of the Subscription Offering until the completion
of the Community Offering. Based on the Pro Forma Value of the Bank as of
September 6, 1996, the Valuation Range is $6,120,000 to $8,280,000, resulting
in the sale of between 612,000 and 828,000 Common Shares at a purchase price
of $10 per share.
C. LIQUIDATION ACCOUNT
-------------------
In the event of a complete liquidation of the Bank in its
present mutual form, each depositor in the Bank would receive a pro rata share
of any assets of the Bank remaining after payment of the claims of all
creditors, including the claims of all depositors to the withdrawable value of
their savings accounts. A depositor's pro rata share of such remaining assets
would be the same proportion of such assets as the value of such depositor's
savings deposits bears to the total aggregate value of all savings deposits in
the Bank at the time of liquidation.
<PAGE> 4
Board of Directors
September 19, 1996
Page 4
In the event of a complete liquidation of the Stock Bank after
the Conversion, each depositor in the Stock Bank would have a claim of the same
general priority as the claims of all other general creditors of the Stock Bank.
Except as described below, each depositor's claim would be solely in the amount
of the balance in such depositor's savings account plus accrued interest. The
depositor would have no interest in the assets of the Stock Bank above that
amount. Such assets would be distributed to the Holding Company as the sole
shareholder of the Bank.
For the purpose of granting a limited priority claim to the
assets of the Stock Bank in the event of a complete liquidation thereof to
Eligible Account Holders and Supplemental Eligible Account Holders who continue
to maintain savings accounts at the Stock Bank after the Conversion, the Bank
will, at the time of the Conversion, establish the Liquidation Account in an
amount equal to the regulatory capital of the Bank as of the latest practicable
date prior to the Conversion at which such regulatory capital can be determined.
The Liquidation Account will not operate to restrict the use or application of
any of the regulatory capital of the Stock Bank.
Each Eligible Account Holder and Supplemental Eligible Account
Holder will have a separate inchoate interest (the "Subaccount") in a portion of
the Liquidation Account for Qualifying Deposits held on the Eligibility Record
Date or the Supplemental Eligibility Record Date, as the case may be.
The balance of each initial Subaccount shall be an amount
determined by multiplying the amount in the Liquidation Account by a fraction,
the numerator of which is the closing balance in the account holder's account as
of the close of business on the Eligibility Record Date or the Supplemental
Eligibility Record Date, as the case may be, and the denominator of which is the
total amount of all Qualifying Deposits of Eligible Account Holders or
Supplemental Eligible Account Holders on the Eligibility Record Date or the
Supplemental Eligibility Record Date, as the case may be. The balance of each
Subaccount may be decreased but will never be increased. If, at the close of
business on the last day of any fiscal year subsequent to the Eligibility Record
Date or the Supplemental Eligibility Record Date, as the case may be, the
balance in the savings account to which a Subaccount relates is less than the
lesser of (i) the deposit balance in such savings account at the close of
business on any other annual closing date subsequent to the Eligibility Record
Date or the Supplemental Eligibility Record Date, as the case may be, or (ii)
the amount of the Qualifying Deposit as of the Eligibility Record Date or the
Supplemental Eligibility Record Date, as the case may be, the balance of the
Subaccount for such savings account shall be adjusted proportionately to the
reduction in such savings account balance. In the event of any such downward
adjustment, such Subaccount balance shall not be subsequently increased
notwithstanding any increase in the deposit balance of the related savings
account. If any savings account is closed, its related Subaccount shall be
reduced to zero upon such closing.
<PAGE> 5
Board of Directors
September 19, 1996
Page 5
In the event of a complete liquidation of the Stock Bank (and
only in such event), each Eligible Account Holder and Supplemental Eligible
Account Holder shall receive from the Liquidation Account a distribution equal
to the current balance in each of such account holder's Subaccounts before any
liquidation distribution may be made to the shareholders of the Stock Bank. Any
assets remaining after satisfaction of such liquidation rights and the claims of
the Bank's creditors would be distributed to the Holding Company as the sole
shareholder of the Bank. No merger, consolidation, purchase of bulk assets or
similar combination or transaction with another financial institution, the
deposits of which are insured by the FDIC, will be deemed to be a complete
liquidation for this purpose and, in any such transaction, the Liquidation
Account shall be assumed by the surviving institution.
D. ISSUANCE OF SHARES
------------------
1. SUBSCRIPTION OFFERING.
----------------------
Nontransferable subscription rights to purchase Common Shares
will be issued at no cost to all eligible persons and entities in accordance
with the preference categories established by the Plan, as described below. Each
subscription right may be exercised only by the person to whom it is issued and
only for his or her own account. Each person subscribing for shares must
represent to the Bank that he or she is purchasing such shares for his or her
own account and that he or she has no agreement or understanding with any other
person for the sale or transfer of such shares
The number of Common Shares which a person who has
subscription rights may purchase will be determined, in part, by the total
number of Common Shares to be issued and the availability of such shares for
purchase under the preference categories set forth in the Plan and certain other
limitations. The sale of any Common Shares pursuant to subscriptions received is
contingent upon approval of the Plan by the voting members of the Bank at the
Special Meeting.
The preference categories and the preliminary purchase
limitations which have been established by the Plan, in accordance with
applicable regulations, for the allocation of Common Shares are as follows:
CATEGORY 1. Eligible Account Holders will receive, without
payment, nontransferable subscription rights to purchase up to the greater of
(i) the amount permitted to be purchased in the Community Offering, (ii) .10% of
the total number of Common Shares sold in connection with the Conversion, or
(iii) 15 times the product (rounded down to the next whole number) obtained by
multiplying the total number of Common Shares sold in connection with the
Conversion by a fraction of which the numerator is the amount of the Eligible
Account
<PAGE> 6
Board of Directors
September 19, 1996
Page 6
Holder's Qualifying Deposit and the denominator of which is the total
amount of Qualifying Deposits of all Eligible Account Holders, in each case on
the Eligibility Record Date, subject to the overall purchase limitations set
forth in Section 10 of the Plan.
If the exercise of subscription rights in this Category 1
results in an over-subscription, Common Shares will be allocated among
subscribing Eligible Account Holders in a manner which will, to the extent
possible, make the total allocation of each subscriber equal 100 shares or the
amount subscribed for, whichever is lesser. Any Common Shares remaining after
such allocation has been made will be allocated among the subscribing Eligible
Account Holders whose subscriptions remain unfilled in the proportion which the
amount of their respective Qualifying Deposits on the Eligibility Record Date
bears to the total Qualifying Deposits of all Eligible Account Holders on such
date. No fractional shares will be issued. The subscription rights of the
Eligible Account Holders are subordinate to the limited priority right of the
ESOP set forth in the following paragraph.
CATEGORY 2. The ESOP will receive, without payment, the
nontransferable subscription rights to purchase up to 10% of the Common Shares
sold in connection with the Conversion. The subscription rights of the ESOP are
subordinate to the subscription rights in Category 1, except that if the final
pro forma value of the Bank exceeds the maximum of the Valuation Range, the ESOP
shall have first priority with respect to the amount sold in excess of the
maximum of the Valuation Range. If the ESOP is unable to purchase all or part of
the Common Shares for which it subscribes due to an oversubscription in Category
1, the ESOP may purchase Common Shares on the open market or may purchase
authorized but unissued shares of Holding Company. If the ESOP purchases
authorized but unissued shares from Holding Company, such purchases would have
dilutive effect on the interests of Holding Company's shareholders.
CATEGORY 3. Supplemental Eligible Account Holders, will
receive, without payment, nontransferable subscription rights to purchase up to
the greater of (i) the amount permitted to be purchased in the Community
Offering, (ii) .10% of the total number of Common Shares sold in connection with
the Conversion, or (iii) 15 times the product (rounded down to the next whole
number) obtained by multiplying the total number of Common Shares sold in
connection with the Conversion by a fraction of which the numerator is the
amount of the Supplemental Eligible Account Holder's Qualifying Deposit and the
denominator of which is the total amount of Qualifying Deposits of all
Supplemental Eligible Account Holders, in each case on the Supplemental
Eligibility Record Date, subject to the overall purchase limitations set forth
in Section 10 of the Plan.
If the exercise of subscription rights in Category 3 results
in an over-subscription, Common Shares will be allocated among the subscribing
Supplemental Eligible Account Holders in a manner which will, to the extent
possible, make the total allocation of each subscriber equal
<PAGE> 7
Board of Directors
September 19, 1996
Page 7
100 shares or the amount subscribed for, whichever is lesser. Any Common Shares
remaining after such allocation has been made will be allocated among the
subscribing Supplemental Account Holders whose subscriptions remain unfilled in
the proportion which the amount of their respective Qualifying Depositions on
the Supplemental Eligibility Record Date bears to the total Qualifying Deposits
of all Supplemental Eligible Account Holders on such date. No fractional shares
will be issued.
Subscription rights received in Category 3 will be subordinate
to the subscription rights in Categories 1 and 2.
CATEGORY 4. All Voting Members who are not Eligible Account
Holders or Supplemental Eligible Account Holders ("Other Eligible Members") will
receive nontransferable subscription rights to purchase Common Shares in an
amount up to the greater of the amount permitted to be purchased in the
Community Offering or .10% of the total number of Common Shares sold in
connection with the Conversion, subject to the overall purchase limitations set
forth in Section 10 of the Plan. In the event of an oversubscription in Category
4, the available shares will be allocated among subscribing Other Eligible
Members on an equitable basis in the same proportion that their respective
subscriptions bear to the total amount of all subscriptions in Category 4.
Subscription rights received under Category 4 will be
subordinate to the subscription rights under Categories 1 through 3.
2. COMMUNITY OFFERING.
-------------------
Concurrently with the Subscription Offering, Holding Company
will offer Common Shares in the Community Offering, subject to the limitations
set forth below, to the extent such shares remain available after the
satisfaction of all orders received in the Subscription Offering. If
subscriptions are received in the Subscription Offering for at least 952,200
Common Shares, Common Shares may not be available for purchase in the Community
Offering. If subscriptions for at least 952,200 Common Shares have not been
received by the Subscription Expiration Date, Holding Company anticipates
selling Common Shares in the Community Offering to the extent such shares remain
available after the satisfaction of all orders received in the Subscription
Offering. All sales of Common Shares in the Community Offering will be at the
same price per share as the sales of Common Shares in the Subscription Offering.
<PAGE> 8
Board of Directors
September 19, 1996
Page 8
In the event shares are available in the Community Offering,
members of the general public may purchase up to 1% of the Common Shares sold,
which is 9,522 Common Shares at the maximum of the Valuation Range, as adjusted.
If an insufficient number of shares is available to fill all of the orders
received in the Community Offering, the available shares will be allocated in a
manner to be determined by the Board of Directors of Holding Company, subject to
the following:
(i) Preference will be given to natural persons who are
residents of Clark County, Ohio, the county in which the
offices of Bank are located;
(ii) Orders received in the Community Offering will first be
filled up to a maximum of 2% of the total number of Common
Shares offered, with any remaining shares allocated on an
equal number of shares per order basis until all orders have
been filled;
(iii) No person, together with any Associate and persons
Acting in Concert, may purchase more than 2% of the Common
Shares; and
(iv) The right of any person to purchase Common Shares in the
Community Offering is subject to the right of Holding Company
and Bank to accept or reject such purchases in whole or in
part.
The term "resident" as used herein with respect to the
Community Offering means any natural person who, on the date of submission of a
stock order form, maintained a bona fide residence within, as appropriate, Clark
County or a jurisdiction in which the Common Shares are being offered for sale.
E. RESULTS OF CONVERSION
---------------------
Depositors who are members of the Bank will have no voting
rights in the Stock Bank and will not participate, therefore, in the election of
directors or otherwise control the Stock Bank's affairs. After the Conversion,
voting rights in the Stock Bank will be vested exclusively in the Holding
Company as the sole shareholder of the Bank. Each holder of Common Shares will
be entitled to one vote for each share owned on any matter to be considered by
the shareholders of the Holding Company.
The Conversion will not interrupt the business of the Bank.
During and upon completion of the Conversion, the Bank will continue to provide
the services presently offered to depositors and borrowers, will maintain its
existing offices and will retain its existing management and employees. All
deposit accounts in the Stock Bank will be equivalent in
<PAGE> 9
Board of Directors
September 19, 1996
Page 9
amount, interest rate and other terms to the present deposit accounts in the
Bank, and the existing FDIC insurance on such deposits will not be affected by
the Conversion. The Conversion will not affect the terms of loan accounts or the
rights and obligations of borrowers under their individual contractual
arrangements with the Bank.
ADDITIONAL REPRESENTATIONS
--------------------------
You have made the following additional representations upon
which we have relied:
(1) The Holding Company and the Bank have no current plan or
intention to redeem or otherwise acquire any of the Common Shares to be issued
in connection with the Conversion.
(2) Immediately following the consummation of the Conversion,
the Stock Bank will possess the same assets and liabilities as the Bank held
immediately prior to the Conversion, plus proceeds from the sale of the Common
Shares to the Holding Company in exchange for approximately 50% of the net
proceeds of the Conversion. Assets used to pay expenses of the Conversion and
all distributions (except for regular, normal interest payments made by the Bank
immediately preceding the Conversion) will in the aggregate constitute less than
one percent of the net assets of the Bank and any such expenses and
distributions will be paid by the Bank and the Holding Company from the proceeds
of the Subscription Offering.
(3) Following the Conversion, the Stock Bank will continue to
engage in its business in substantially the same manner as engaged in by the
Bank prior to the Conversion, and it has no plan or intention to sell or
otherwise dispose of any of its assets except in the ordinary course of
business.
(4) The Bank is not under the jurisdiction of a court in any
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the
Internal Revenue Code of 1986, as amended (the "Code").
(5) The aggregate fair market value of the Qualifying Deposits
held by Eligible Account Holders and Supplemental Eligible Account Holders as of
the close of business on the Eligibility Record Date and the Supplemental
Eligibility Record Date, respectively, will equal or exceed ninety-nine percent
(99%) of the aggregate fair market value of all deposit accounts (including
those accounts with less than $50) in the Bank as of the close of business on
such dates. No Common Shares will be issued directly to or purchased by
depositor-employees at a discount.
<PAGE> 10
Board of Directors
September 19, 1996
Page 10
(6) No cash or property will be given to Eligible Account
Holders, Supplemental Eligible Account Holders or Other Eligible Members in lieu
of (a) nontransferable subscription rights, or (b) an interest in the
Liquidation Account of the Bank.
(7) Until January 1, 1996, the Bank utilized a reserve for bad
debts in accordance with Section 593 of the Code. From January 1, 1996, until
the date of Conversion, the Bank utilized the experience method of computing its
bad debt deduction. Following the Conversion, the Stock Bank shall likewise
utilize the experience method of computing its bad debt deduction.
(8) The Holding Company has no plan or intention to sell or
otherwise dispose of the shares of the Stock Bank purchased by it in the
Conversion.
(9) The Bank's depositors will pay the expenses of the
Conversion solely attributable to them, if any. The Holding Company will pay the
expenses of the transaction and will not pay any expenses solely attributable to
the depositors or to the Holding Company's shareholders.
(10) No Qualifying Deposits as of the Eligibility Record Date
or the Supplemental Eligibility Record Date will be excluded from participation
in the Liquidation Account.
(11) The fair market value of the withdrawable deposit
accounts plus interests in the Liquidation Account of the Stock Bank to be
constructively received under the Plan will in each instance be equal to the
fair market value of the withdrawable deposit accounts of the Bank surrendered
in exchange therefore. All proprietary rights in the Bank form an integral part
of the withdrawable deposit accounts being surrendered in the exchange.
(12) The Board, as defined in Section 368(a)(3)(D)(iii) of the
Code, has not made the certification described in Section 368(a)(3)(D)(ii), nor
will such certification be made prior to or otherwise in connection with the
Conversion.
STATEMENT OF LAW
----------------
In Revenue Ruling 80-105, 1980-1 C.B. 78, the IRS ruled that a
conversion of a federal mutual savings and loan association into a state stock
savings and loan association constituted a tax-free reorganization under Section
368(a)(1)(F) of the Code. Subsequently, the IRS consistently issued private
letter rulings that conversions of savings and loans qualify as tax-
<PAGE> 11
Board of Directors
September 19, 1996
Page 11
free reorganizations under the code, with the attendant tax consequences to the
depositors and shareholders that follow from such transactions. Although private
letter rulings may not be relied upon by taxpayers other than those to whom the
ruling is directed, such rulings do indicate the administrative position of the
Service.
OPINION OF COUNSEL
------------------
Based upon both our understanding of the facts and your
representations set forth above, and in reliance thereon, we are of the opinion
that for federal income tax purposes:
(1) The Conversion of the Bank from a federal mutual savings
bank to a federal stock savings bank constitutes a reorganization within the
meaning of Section 368(a)(1)(F) of the Code, and no gain or loss will be
recognized to the Bank or the Stock Bank as a result of the Conversion. The Bank
and the Stock Bank will each be a "party to a reorganization" within the meaning
of Section 368(b) of the Code.
(2) The assets of the Stock Bank will have the same basis in
its hands immediately after the Conversion as they had in the hands of the Bank
immediately prior to the Conversion, and the holding period of the assets of the
Stock Bank after the Conversion will include the period during which the assets
were held by the Bank before the Conversion.
(3) No gain or loss will be recognized to the deposit account
holders upon the issuance to them, in exchange for their respective withdrawable
deposit accounts in the Bank immediately prior to the Conversion, of
withdrawable deposit accounts in the Stock Bank immediately after the
Conversion, in the same dollar amount as their withdrawable deposit accounts in
the Bank immediately prior to the Conversion, plus, in the case of Eligible
Account Holders and Supplemental Eligible Account Holders, the interests in the
Liquidation Account of the Stock Bank, as described above.
(4) The basis of the withdrawable deposit accounts in the
Stock Bank held by its deposit account holders immediately after the Conversion
will be the same as the basis of their deposit accounts in the Bank immediately
prior to the Conversion. The basis of the interests in the Liquidation Account
received by the Eligible Account Holders and Supplemental Eligible Account
Holders will be zero. The basis of the nontransferable subscription rights
received by Eligible Account Holders, Supplemental Eligible Account Holders and
Other Eligible Members will be zero (assuming that at distribution such rights
have no ascertainable fair market value).
<PAGE> 12
Board of Directors
September 19, 1996
Page 12
(5) No gain or loss will be recognized to Eligible Account
Holders, Supplemental Eligible Account Holders or Other Eligible Members upon
the distribution to them of nontransferable subscription rights to purchase
Common Shares (assuming that at distribution such rights have no readily
ascertainable fair market value), and no taxable income will be realized by such
Eligible Account Holders, Supplemental Eligible Account Holders and Other
Eligible Members as a result of their exercise of such nontransferable
subscription rights.
(6) The basis of the Common Shares purchased by Eligible
Account Holders, Supplemental Eligible Account Holders and Other Eligible
Members pursuant to the exercise of subscription rights will be the purchase
price thereof (assuming that such rights have no ascertainable fair market value
and that the purchase price is not less than the fair market value of the shares
on the date of such exercise), and the holding period of such Common Shares will
commence on the date of such exercise. The basis of the Common Shares purchased
in the Community Offering will be the purchase price thereof and the holding
period of such shares will commence on the day after the date of the purchase.
(7) For purposes of Section 381 of the Code, the Bank will be
treated as if there had been no reorganization. The taxable year of the Bank
will not end on the effective date of the Conversion and, immediately after the
Conversion, the Stock Bank will succeed to and take into account the tax
attributes of the Bank immediately prior to the Conversion, including the Bank's
earnings and profits or deficit in earnings and profits.
(8) The pre-1988 bad debt reserves of the Bank immediately
prior to the Conversion will not be required to be restored to the gross income
of the Stock Bank as a result of the Conversion, and immediately after the
Conversion such pre-1988 bad debt reserves will have the same character in the
hands of the Stock Bank that they would have had if there had been no
Conversion. The Stock Bank will succeed to and take into account the dollar
amounts of those accounts of the Bank which represent pre-1988 bad debt reserves
in respect of which the Bank has taken a bad debt deduction for taxable years
ending before January 1, 1988.
(9) Regardless of book entries made for the creation of the
Liquidation Account, the Conversion will not diminish the accumulated earnings
and profits of the Stock Bank available for the subsequent distribution of
dividends within the meaning of Section 316 of the Code. The creation of the
Liquidation Account on the records of the Stock Bank will have no effect on its
taxable income, deductions for additions to reserves for bad debts under Section
593 of the Code or distribution to shareholders under Section 593(e) of the
Code.
<PAGE> 13
Board of Directors
September 19, 1996
Page 13
For Ohio Tax Purposes, we are of the opinion that:
(1) The Bank is a "financial institution" for State of Ohio
tax purposes, and the Conversion will not change such status.
(2) The Bank is subject to the Ohio corporate franchise tax on
"financial institutions," which is currently imposed annually at a rate of 1.5%
of the Bank's equity capital determined in accordance with generally accepted
accounting principles ("GAAP"), and the Conversion will not change such status.
(3) As a "financial institution," the Bank is not subject to
any tax based upon net income or net profit imposed by the State of Ohio, and
the Conversion will not change such status.
(4) The Conversion will not be a taxable transaction to the
Bank or the Stock Bank for purposes of the Ohio corporate franchise tax;
however, as a consequence of the Conversion, the annual Ohio corporate franchise
tax liability of the Bank will increase if the taxable net worth of the Bank
(i.e., book net worth computed in accordance with GAAP at the close of the
Bank's taxable year for federal income purposes) increases thereby.
(5) The Conversion will not be a taxable transaction to any
deposit account holder or borrower member of the Bank or the Stock Bank for
purposes of the Ohio corporate franchise tax and the Ohio personal income tax.
Unlike private rulings, an opinion of counsel is not binding
on the IRS, and the IRS could disagree with the conclusions reached in this
opinion. In the event of such disagreement, there can be no assurance that the
IRS would not prevail in a judicial proceeding, although counsel believes that
the positions expressed in its opinion should prevail if the matters are
litigated.
Very truly yours,
Vorys, Sater, Seymour and Pease
<PAGE> 1
HOME CITY FINANCIAL CORPORATION
1997 STOCK OPTION AND INCENTIVE PLAN
1. PURPOSE. The purpose of the Home City Financial Corporation 1997 Stock
Option and Incentive Plan (this "Plan") is to promote and advance the interests
of Home City Financial Corporation (the "Company") and its shareholders by
enabling the Company to attract, retain and reward directors, managerial and
other key employees of the Company and any Subsidiary (hereinafter defined), and
to strengthen the mutuality of interests between such directors and employees
and the Company's shareholders by providing such persons with a proprietary
interest in pursuing the long-term growth, profitability and financial success
of the Company.
2. DEFINITIONS. For purposes of this Plan, the following terms shall have
the meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended, or any
successor thereto, together with rules, regulations and interpretations
promulgated thereunder.
(c) "Committee" means the Committee of the Board constituted as
provided in Section 3 of this Plan.
(d) "Common Shares" means the common shares, without par value, of the
Company or any security of the Company issued in substitution, in exchange
or in lieu thereof.
(e) "Company" means Home City Financial Corporation, an Ohio
corporation, or any successor corporation.
(f) "Conversion" means the conversion of Home City Federal Savings
Bank of Springfield from a federally-chartered mutual savings bank to a
permanent capital stock savings bank chartered under federal law.
(g) "Employment" means regular employment with the Company or a
Subsidiary and does not include service as a director only.
(h) "ERISA" means the Employment Retirement Income Security Act, as
amended, or any successor thereto, together with rules, regulations and
interpretations promulgated thereunder.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute.
<PAGE> 2
(j) "Fair Market Value" shall be determined as follows:
(i) If the Common Shares are traded on a national securities
exchange at the time of grant of the Stock Option, then the Fair
Market Value shall be the average of the highest and the lowest
selling price on such exchange on the date such Stock Option is
granted or, if there were no sales on such date, then on the next
prior business day on which there was a sale.
(ii) If the Common Shares are quoted on The Nasdaq Stock Market
at the time of the grant of the Stock Option, then the Fair Market
Value shall be the mean between the closing high bid and low asked
quotation with respect to a Common Share on such date on The Nasdaq
Stock Market.
(iii) If the Common Shares are not traded on a national
securities exchange or quoted on The Nasdaq Stock Market, then the
Fair Market Value shall be as determined by the Committee.
(k) "Incentive Stock Option" means any Stock Option granted pursuant
to the provisions of Section 6 of this Plan that is intended to be and is
specifically designated as an "incentive stock option" within the meaning
of Section 422 of the Code.
(l) "Non-Qualified Stock Option" means any Stock Option granted
pursuant to the provisions of Section 6 of this Plan that is not an
Incentive Stock Option.
(m) "OTS" means the Office of Thrift Supervision, Department of the
Treasury.
(n) "Participant" means an employee or director of the Company or a
Subsidiary who is granted an Award under this Plan. Notwithstanding the
foregoing, for the purposes of the granting of any Incentive Stock Option
under this Plan, the term "Participant" shall include only employees of the
Company or a Subsidiary.
(o) "Plan" means the Home City Financial Corporation 1997 Stock Option
and Incentive Plan, as set forth herein and as it may be hereafter amended
from time to time.
(p) "Stock Option" means an award to purchase Common Shares granted
pursuant to the provisions of Section 6 of this Plan.
(q) "Subsidiary" means any corporation or entity in which the Company
directly or indirectly controls 50% or more of the total voting power of
all classes of its stock having voting power and includes, without
limitation, Home City Federal Savings Bank of Springfield.
-2-
<PAGE> 3
(r) "Terminated for Cause" means any removal of a director or
discharge of an employee for the personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of a material provision
of any law, rule or regulation (other than traffic violations or similar
offenses), a material violation of a final cease-and-desist order or any
other action of a director or employee which results in a substantial
financial loss to the Company or a Subsidiary.
3. ADMINISTRATION.
(a) This Plan shall be administered by the Committee to be comprised
of not fewer than three of the members of the Board. The members of the
Committee shall be appointed from time to time by the Board. Members of the
Committee shall serve at the pleasure of the Board, and the Board may from
time to time remove members from, or add members to, the Committee. A
majority of the members of the Committee shall constitute a quorum for the
transaction of business. An action approved in writing by a majority of the
members of the Committee then serving shall be fully as effective as if the
action had been taken by unanimous vote at a meeting duly called and held.
(b) The Committee is authorized to construe and interpret this Plan
and to make all other determinations necessary or advisable for the
administration of this Plan. The Committee may designate persons other than
members of the Committee to carry out its responsibilities under such
conditions and limitations as it may prescribe. Any determination, decision
or action of the Committee in connection with the construction,
interpretation, administration, or application of this Plan shall be final,
conclusive and binding upon all persons participating in this Plan and any
person validly claiming under or through persons participating in this
Plan. The Company shall effect the granting of Stock Options under this
Plan in accordance with the determinations made by the Committee, by
execution of instruments in writing in such form as approved by the
Committee.
4. DURATION OF, AND COMMON SHARES SUBJECT TO, THIS PLAN.
(a) Term. This Plan shall terminate on the date which is ten (10)
years from the date on which this Plan is adopted by the Board, except with
respect to Stock Options then outstanding. Notwithstanding the foregoing,
no Incentive Stock Option may be granted under this Plan after the date
which is ten (10) years from the date on which this Plan is adopted by the
Board or the date on which this Plan is approved by the shareholders of the
Company, whichever is earlier.
(b) Common Shares Subject to Plan. The maximum number of Common Shares
in respect of which Stock Options may be granted under this Plan, subject
to adjustment as provided in Section 9 of this Plan, shall be ten percent
of the total Common Shares sold in connection with the conversion of Home
City Federal Savings Bank of Springfield from mutual to stock form.
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For the purpose of computing the total number of Common Shares available
for Stock Options under this Plan, there shall be counted against the foregoing
limitations the number of Common Shares subject to issuance upon exercise or
settlement of Stock Options as of the dates on which such Stock Options are
granted. If any Stock Options are forfeited, terminated or exchanged for other
Stock Options, or expire unexercised, the Common Shares which were theretofore
subject to such Stock Options shall again be available for Stock Options under
this Plan to the extent of such forfeiture, termination or expiration of such
Stock Options, to the extent permissible under Rule 16b-3 promulgated under the
Exchange Act, or any successor rule or regulation thereto as in effect from time
to time.
Common Shares which may be issued under this Plan may be either authorized
and unissued shares or issued shares which have been reacquired by the Company.
No fractional shares shall be issued under this Plan.
5. ELIGIBILITY AND GRANTS. Persons eligible for Stock Options under this
Plan shall consist of directors and managerial and other key employees of the
Company or a Subsidiary who hold positions with significant responsibilities or
whose performance or potential contribution, in the judgment of the Committee,
will benefit the future success of the Company or a Subsidiary. In selecting the
directors and employees to whom Stock Options will be awarded and the number of
shares subject to such Stock Options, the Committee shall consider the position,
duties and responsibilities of the eligible directors and employees, the value
of their services to the Company and the Subsidiaries and any other factors the
Committee may deem relevant.
6. STOCK OPTIONS. Stock Options granted under this Plan may be in the form
of Incentive Stock Options or Non-Qualified Stock Options, and such Stock
Options shall be subject to the following terms and conditions and in such form
as the Committee may from time to time approve and shall contain such additional
terms and conditions as the Committee shall deem desirable, not inconsistent
with the express provisions of the Plan:
(a) Grant. Stock Options may be granted under this Plan on terms and
conditions not inconsistent with the provisions of this Plan; provided,
however, that no more than 25% of the shares subject to Stock Options may
be awarded to any individual who is an employee of the Company or a
Subsidiary, no more than 5% of such shares may be awarded to any director
who is not an employee of the Company or a Subsidiary and no more than 30%
of such shares may be awarded to non-employee directors in the aggregate.
(b) Stock Option Price. The option exercise price per Common Share
purchasable under a Stock Option granted to a non-employee director shall
be the Fair Market Value of the Common Shares on the date of grant. The
option exercise price for Common Shares purchasable under a Stock Option
granted to an employee shall be determined by the Committee at the time of
grant; provided, however, that in no event shall the exercise price of a
Stock Option be less than 100% of the Fair Market Value of the Common
Shares on the date of the grant of such Stock Option. Notwithstanding the
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<PAGE> 5
foregoing, in the case of a Participant who owns Common Shares representing
more than 10% of the outstanding Common Shares at the time an Incentive
Stock Option is granted, the option exercise price shall in no event be
less than 110% of the Fair Market Value of the Common Shares at the time
the Incentive Stock Option is granted.
(c) Stock Option Terms. Subject to the right of the Company to provide
for earlier termination in the event of any merger, acquisition or
consolidation involving the Company, the term of each Stock Option shall be
fixed by the Committee; provided, however, that the term of Incentive Stock
Options will not exceed ten years after the date the Incentive Stock Option
is granted; provided further, however, that in the case of a Participant
who owns a number of Common Shares representing more than 10% of the Common
Shares outstanding at the time the Incentive Stock Option is granted, the
term of the Incentive Stock Option shall not exceed five years.
(d) Exercisability. Except as set forth in Section 6(f) and Section 7
of this Plan, Stock Options awarded under this Plan shall become
exercisable at the rate of one-fifth per year commencing on the date that
is one year after the date of the grant of the Stock Option and shall be
subject to such other terms and conditions as shall be determined by the
Committee at the date of grant.
(e) Method of Exercise. A Stock Option may be exercised, in whole or
in part, by giving written notice of exercise to the Company specifying the
number of Common Shares to be purchased. Such notice shall be accompanied
by payment in full of the purchase price in cash or, if acceptable to the
Committee in its sole discretion, in Common Shares already owned by the
Participant, or by surrendering outstanding Stock Options. The Committee
may also permit Participants, either on a selective or aggregate basis, to
simultaneously exercise Options and sell Common Shares thereby acquired,
pursuant to a brokerage or similar arrangement, approved in advance by the
Committee, and use the proceeds from such sale as payment of the purchase
price of such shares.
(f) Special Rule for Incentive Stock Options. With respect to
Incentive Stock Options granted under this Plan, to the extent the
aggregate Fair Market Value (determined as of the date the Incentive Stock
Option is granted) of the number of shares with respect to which Incentive
Stock Options are exercisable under all plans of the Company or a
Subsidiary for the first time by a Participant during any calendar year
exceeds $100,000, or such other limit as may be required by the Code, such
Stock Options shall be Non-Qualified Stock Options to the extent of such
excess.
7. TERMINATION OF EMPLOYMENT OR DIRECTORSHIP.
(a) Except in the event of the death or disability of a Participant,
upon the resignation, removal or retirement from the board of directors of
any Participant who is a director of the Company or a Subsidiary or upon
the termination of Employment of a Participant who is not a director of the
Company or a Subsidiary, any Stock Option which
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<PAGE> 6
has not yet become exercisable shall thereupon terminate and be of no
further force or effect, and, subject to extension by the Committee, any
Stock Option which has become exercisable shall terminate if it is not
exercised within 12 months of such resignation, removal or retirement.
(b) Unless the Committee shall specifically state otherwise at the
time an Option is granted, all Options granted under this Plan shall become
exercisable in full on the date of termination of a Participant's
employment or directorship with the Company or a Subsidiary because of his
death or disability, and, subject to extension by the Committee, all
Options shall terminate if not exercised within 12 months of the
Participant's death or disability.
(c) In the event the Employment or the directorship of a Participant
is Terminated for Cause (hereinafter defined), any Option which has not
been exercised shall terminate as of the date of such termination for
cause.
8. NON-TRANSFERABILITY OF STOCK OPTIONS. No Stock Option under this Plan,
and no rights or interests therein, shall be assignable or transferable by a
Participant except by will or the laws of descent and distribution or pursuant
to a qualified domestic relations order as defined by the Code or Title I of
ERISA. During the lifetime of a Participant, Stock Options are exercisable only
by, and payments in settlement of Stock Options will be payable only to, the
Participant or his or her legal representative.
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) The existence of this Plan and the Stock Options granted hereunder
shall not affect or restrict in any way the right or power of the Board or
the shareholders of the Company to make or authorize the following: any
adjustment, recapitalization, reorganization or other change in the
Company's capital structure or its business; any merger, acquisition or
consolidation of the Company; any issuance of bonds, debentures, preferred
or prior preference stocks ahead of or affecting the Company's capital
stock or the rights thereof; the dissolution or liquidation of the Company
or any sale or transfer of all or any part of its assets or business; or
any other corporate act or proceeding, including any merger or acquisition
which would result in the exchange of cash, stock of another company or
options to purchase the stock of another company for any Stock Option
outstanding at the time of such corporate transaction or which would
involve the termination of all Stock Options outstanding at the time of
such corporate transaction.
(b) In the event of any change in capitalization affecting the Common
Shares of the Company, such as a stock dividend, stock split,
recapitalization, merger, consolidation, spin-off, split-up, combination or
exchange of shares or other form of reorganization, or any other change
affecting the Common Shares, such proportionate adjustments, if any, as the
Board in its discretion may deem appropriate to reflect such change shall
be made with respect to the aggregate number of Common Shares for which
Stock Options in respect thereof may be granted under this Plan, the
maximum number of Common Shares
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<PAGE> 7
which may be sold or awarded to any Participant, the number of Common
Shares covered by each outstanding Stock Option, and the exercise price per
share in respect of outstanding Stock Options.
10. AMENDMENT AND TERMINATION OF THIS PLAN. Without further approval of the
shareholders, the Board may at any time terminate this Plan, or may amend it
from time to time in such respects as the Board may deem advisable, except that
the Board may not, without approval of the shareholders, make any amendment
which would (a) increase the aggregate number of Common Shares which may be
issued under this Plan (except for adjustments pursuant to Section 9 of this
Plan), (b) materially modify the requirements as to eligibility for
participation in this Plan, or (c) materially increase the benefits accruing to
Participants under this Plan. The above notwithstanding, the Board may amend
this Plan to take into account changes in applicable securities, federal income
tax and other applicable laws.
11. MODIFICATION OF OPTIONS. The Board may authorize the Committee to
direct the execution of an instrument providing for the modification of any
outstanding Stock Option which the Board believes to be in the best interests of
the Company; provided, however, that no such modification, extension or renewal
shall confer on the holder of such Stock Option any right or benefit which could
not be conferred on him by the grant of a new Stock Option at such time and
shall not materially decrease the Participant's benefits under the Stock Option
without the consent of the holder of the Stock Option, except as otherwise
permitted under this Plan.
12. MISCELLANEOUS.
(a) Tax Withholding. The Company shall have the right to deduct from
any settlement, including the delivery or vesting of Common Shares, made
under this Plan any federal, state or local taxes of any kind required by
law to be withheld with respect to such payments or to take such other
action as may be necessary in the opinion of the Company to satisfy all
obligation for the payment of such taxes. If Common Shares are used to
satisfy tax withholding, such shares shall be valued based on the Fair
Market Value when the tax withholding is required to be made.
(b) No Right to Employment. Neither the adoption of this Plan nor the
granting of any Stock Option shall confer upon any employee of the Company
or a Subsidiary any right to continued Employment with the Company or a
Subsidiary, as the case may be, nor shall it interfere in any way with the
right of the Company or a Subsidiary to terminate the Employment of any of
its employees at any time, with or without cause.
(c) Annulment of Stock Options. The grant of any Stock Option under
this Plan payable in cash is provisional until cash is paid in settlement
thereof. The grant of any Stock Option payable in Common Shares is
provisional until the Participant becomes entitled to the certificate in
settlement thereof. In the event the Employment or the directorship of a
Participant is Terminated for Cause, any Stock Option which is provisional
shall be annulled as of the date of such termination.
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<PAGE> 8
(d) Other Company Benefit and Compensation Programs. Payments and
other benefits received by a Participant under a Stock Option made pursuant
to this Plan shall not be deemed a part of a Participant's regular,
recurring compensation for purposes of the termination indemnity or
severance pay law of any country and shall not be included in, nor have any
effect on, the determination of benefits under any other employee benefit
plan or similar arrangement provided by the Company or a Subsidiary unless
expressly so provided by such other plan or arrangement, or except where
the Committee expressly determines that a Stock Option or portion of a
Stock Option should be included to accurately reflect competitive
compensation practices or to recognize that a Stock Option has been made in
lieu of a portion of competitive annual cash compensation. Stock Options
under this Plan may be made in combination with or in tandem with, or as
alternatives to, grants, stock options or payments under any other plans of
the Company or a Subsidiary. This Plan notwithstanding, the Company or any
Subsidiary may adopt such other compensation programs and additional
compensation arrangements as it deems necessary to attract, retain and
reward directors and employees for their service with the Company and its
Subsidiaries.
(e) Securities Law Restrictions. No Common Shares shall be issued
under this Plan unless counsel for the Company shall be satisfied that such
issuance will be in compliance with applicable federal and state securities
laws. Certificates for Common Shares delivered under this Plan may be
subject to such stop-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange
upon which the Common Shares are then listed, and any applicable federal or
state securities law. The Committee may cause a legend or legends to be put
on any such certificates to make appropriate reference to such
restrictions.
(f) Stock Option Agreement. Each Participant receiving a Stock Option
under this Plan shall enter into an agreement with the Company in a form
specified by the Committee agreeing to the terms and conditions of the
Stock Option and such related matters as the Committee shall, in its sole
discretion, determine.
(g) Cost of Plan. The costs and expenses of administering this Plan
shall be borne by the Company.
(h) Governing Law. This Plan and all actions taken hereunder shall be
governed by and construed in accordance with the laws of the State of Ohio,
except to the extent that federal law shall be deemed applicable.
(i) Effective Date. This Plan shall be effective upon the later of
adoption by the Board and approval by the Company's shareholders. This Plan
shall be submitted to the shareholders of the Company for approval at an
annual or special meeting of shareholders to be held no sooner than six
months after the effective date of the Conversion.
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HOME CITY FINANCIAL CORPORATION
RECOGNITION AND RETENTION PLAN
AND TRUST AGREEMENT
ARTICLE I
DEFINITIONS
The following words and phrases, when used in this Agreement with an
initial capital letter, shall have the meanings set forth below, unless the
context clearly indicates otherwise. Wherever appropriate, the masculine pronoun
shall include the feminine pronoun and the singular shall include the plural:
1.01 "Agreement" means the Home City Financial Corporation Recognition and
Retention Plan and Trust Agreement.
1.02 "Award" means a right granted to a Director or an Employee under this
Plan to receive Plan Shares.
1.03 "Bank" means Home City Federal Savings Bank of Springfield, a savings
bank chartered under the laws of the United States.
1.04 "Beneficiary" means the person or persons designated by a Recipient to
receive any benefits payable under this Plan in the event of such Recipient's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's estate.
1.05 "Board" means the Board of Directors of the Corporation.
1.06 "Committee" means the Recognition and Retention Plan Committee
appointed by the Board pursuant to Article IV hereof.
1.07 "Common Shares" means common shares of the Corporation.
1.08 "Conversion" means the conversion of the Bank from mutual to stock
form.
1.09 "Corporation" means Home City Financial Corporation, a savings and
loan holding company incorporated under the laws of the State of Ohio for the
purpose of holding all of the common shares of the Bank issued in connection
with the Conversion, or any successor thereto.
1.10 "Director" means any person who is a member of the Board of Directors
of the Corporation, the Bank or a Subsidiary.
<PAGE> 2
1.11 "Employee" means any person who is employed by the Corporation, the
Bank or a Subsidiary.
1.12 "Person" means an individual, corporation, partnership, trust,
association, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization or any other form of entity not specifically listed herein.
1.13 "Plan" means the Recognition and Retention Plan established by this
Agreement.
1.14 "Plan Shares" means the Common Shares held pursuant to the Trust and
which are awarded or issuable to a Recipient pursuant to the Plan.
1.15 "Plan Share Reserve" means the Common Shares held by the Trustee
pursuant to Sections 5.02 and 5.03 of this Agreement.
1.16 "Recipient" means any Director or Employee who receives an Award under
the Plan.
1.17 "Subsidiaries" means subsidiaries of the Corporation or the Bank
which, with the consent of the Board, agree to participate in the Plan.
1.18 "Trust" means the trust established by this Agreement.
1.19 "Trustee(s)" means the person(s) or entity approved by the Board
pursuant to Sections 4.01 and 4.02 to hold legal title to the Plan assets for
the purposes set forth herein.
ARTICLE II
ESTABLISHMENT OF THE PLAN AND TRUST
2.01 The Corporation hereby establishes a Recognition and Retention Plan
and Trust upon the terms and subject to the conditions set forth in this
Agreement.
2.02 The Trustee hereby accepts the Trust and agrees to hold the Trust
assets existing on the date of this Agreement and all additions and accretions
thereto upon the terms and conditions of this Agreement.
ARTICLE III
PURPOSE OF THE PLAN
3.01 The purpose of the Plan is to reward and retain the Directors and
Employees of the Corporation, the Bank and the Subsidiaries who are in key
positions of responsibility by providing such Directors and Employees with an
equity interest in the Corporation as reasonable compensation for their
contributions to the Corporation, the Bank and the Subsidiaries.
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<PAGE> 3
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 ROLE OF THE COMMITTEE. The Plan shall be administered and interpreted
by the Committee, which shall consist of not less than three members of the
Board. The Committee shall have all of the powers set forth in this Plan. The
interpretation and construction by the Committee of any provisions of this
Agreement or of any Award granted hereunder shall be final, conclusive and
binding. The Committee shall act by the vote, or the written consent, of a
majority of its members. The Committee shall report actions and decisions with
respect to the Plan to the Board upon request by the Board.
4.02 ROLE OF THE BOARD. The members of the Committee and the Trustee(s)
shall be appointed or approved by and will serve at the pleasure of the Board.
The Board may in its discretion from time to time remove members from or add
members to the Committee and may remove, replace or add Trustee(s).
4.03 LIMITATION ON LIABILITY. No member of the Board or the Committee, nor
any Trustee, shall be liable for any determination made in good faith with
respect to the Plan or any Plan Shares or Awards granted under the Plan. If a
member of the Board or of the Committee or any Trustee is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of anything done or not done by such member in such capacity under or
with respect to this Plan, the Corporation shall indemnify such member against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such member in connection with
such action, suit or proceeding if such member acted in good faith and in a
manner such member reasonably believed to be in or not opposed to the best
interests of the Corporation, the Bank and the Subsidiaries and, with respect to
any criminal action or proceeding, had no reasonable cause to believe such
member's conduct was unlawful.
ARTICLE V
CONTRIBUTIONS; PLAN SHARE RESERVE
5.01 AMOUNT AND TIMING OF CONTRIBUTIONS. The Board shall determine the
amounts (or the method of computing the amounts) to be contributed by the
Corporation to the Trust. Such amounts shall be paid to the Trustee at the time
of contribution. No contributions to the Trust by Directors or Employees shall
be permitted.
5.02 INVESTMENT OF TRUST ASSETS. Except as otherwise permitted by Section
8.02 of this Agreement, the Trustee shall invest all of the Trust's assets,
after providing for any required withholding as needed for tax purposes,
exclusively in Common Shares; provided, however, that the Trust shall not
purchase a number of Common Shares equal to more than 3% of the number of Common
Shares issued in connection with the Conversion, except that if the Bank's
tangible
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capital exceeds 10%, the Trust may purchase a number of Common Shares equal to
up to 4% of the Common Shares issued in connection with the Conversion. After
such investment, the Common Shares shall be held by the Trustee in the Plan
Share Reserve until such Common Shares are subject to one or more Awards. Any
funds held by the Trust before purchasing Common Shares shall be invested by the
Trustee in such interest-bearing account or accounts at the Bank as the Trustee
shall determine to be appropriate.
5.03 EFFECT OF ALLOCATIONS, RETURNS AND FORFEITURES UPON PLAN SHARE
RESERVES. Upon the allocation of Awards under Section 6.02 of this Agreement, or
the decision of the Committee to return Plan Shares to the Corporation, the Plan
Share Reserve shall be reduced by the number of Plan Shares so allocated or
returned. Any Plan Shares subject to an Award which is subject to forfeiture by
the Recipient pursuant to Section 7.01 of this Agreement shall be retained in
the Plan Share Reserve.
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 ELIGIBILITY. Directors and Employees are eligible to receive Awards
within the sole discretion of the Committee.
6.02 ALLOCATIONS. The Committee will determine which of the Directors and
Employees will be granted Awards and the number of Plan Shares covered by each
Award; provided, however, that the aggregate number of Plan Shares covered by
Awards to any one Employee shall not exceed 25% of the total number of Plan
Shares and Directors who are not Employees may not be awarded more than 5% of
the total number of Plan Shares individually or more than 30% in the aggregate.
No Award shall be granted if such grant would result in a violation or
possible violation of federal or state securities laws. In the event Plan Shares
are forfeited for any reason or additional Plan Shares are purchased by the
Trustee, the Committee may, from time to time, determine which of the Directors
and Employees will be granted additional Awards to be awarded from forfeited or
additional Plan Shares.
In selecting the Directors and Employees to whom Awards will be granted and
the number of shares covered by such Awards, the Committee shall consider the
position, duties and responsibilities of the eligible Directors and Employees,
the value of their services to the Corporation, the Bank and the Subsidiaries
and any other factors the Committee may deem relevant.
6.03 FORM OF ALLOCATION. As promptly as practicable after a determination
is made pursuant to Section 6.02 of this Agreement that an Award is to be made,
the Committee shall notify the Recipient in writing of the grant of the Award,
the number of Plan Shares covered by the Award and the terms upon which the Plan
Shares subject to the Award may be earned. The date on which the Committee
determines that an Award is to be made or a later date designated
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<PAGE> 5
by the Committee shall be considered the date of grant of the Awards. The
Committee shall maintain records as to all grants of Awards under the Plan.
6.04 ALLOCATIONS NOT REQUIRED. None of the Directors or Employees, either
individually or as a group, shall have any right or entitlement to receive an
Award under the Plan. The Committee may, with the approval of the Board, and
shall, if so directed by the Board, return all Common Shares and other assets in
the Plan Share Reserve to the Corporation at any time and thereafter cease
issuing Awards.
6.05 SHAREHOLDER APPROVAL. This Agreement shall be submitted to the
shareholders of the Corporation at an annual or special meeting to be held no
sooner than six months after the effective date of the Conversion.
Notwithstanding anything to the contrary in this Agreement, no Awards shall be
granted hereunder until the shareholders of the Corporation approve this
Agreement.
ARTICLE VII
EARNING AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 EARNING PLAN SHARES; FORFEITURES.
(a) GENERAL RULES. Unless the Committee shall specifically state a longer
period of time over which Awards shall be earned and non-forfeitable at the time
an Award is granted, Plan Shares shall be earned and non-forfeitable by a
Recipient over a period of five years at the rate of one-fifth per year
commencing on the date which is one year after the date of the grant of such
Award. As Plan Shares become earned and non-forfeitable, any cash dividends,
returned capital and earnings thereon shall also be earned and non-forfeitable.
(b) REVOCATION. Unless otherwise permitted by applicable laws and
regulations, any Plan Shares and any cash dividends, returned capital and
earnings thereon that have not been earned and are not non-forfeitable in
accordance with Section 7.01(a) of this Agreement shall be forfeited in the
event that (i) a Recipient who is a Director ceases to serve on the Board of
Directors of both the Corporation and the Bank or (ii) a Recipient who is not a
Director of the Corporation or the Bank ceases to be an Employee of the
Corporation or the Bank, except as otherwise provided in subsection (c) of this
Section 7.01.
(c) EXCEPTION FOR TERMINATIONS DUE TO DEATH OR DISABILITY. All Plan
Shares and cash dividends, returned capital and earnings thereon subject to an
Award held by a Recipient whose service as a Director or Employee of the
Corporation, the Bank or a Subsidiary terminates due to (i) death or (ii)
disability (as determined by the Committee) shall be deemed fully earned and
non-forfeitable as of the later of the Recipient's last day of service as a
Director or as an Employee and shall be distributed as soon as practicable
thereafter.
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<PAGE> 6
7.02 DISTRIBUTION OF PLAN SHARES.
(a) TIMING OF DISTRIBUTIONS: GENERAL RULE. Except as otherwise provided
in this Agreement, Plan Shares shall be distributed to the Recipient or his
Beneficiary, as the case may be, as soon as practicable after they have been
earned, together with any cash dividends, returned capital and earnings thereon
with respect to Plan Shares that have been earned.
(b) FORM OF DISTRIBUTION. All distributions of Plan Shares, together with
any shares representing stock dividends, shall be distributed in the form of
Common Shares. No fractional shares shall be distributed. Payments representing
cash dividends, returned capital and earnings thereon shall be made in cash.
(c) WITHHOLDING. The Trustee may withhold from any cash payment made
under this Plan sufficient amounts to cover any applicable withholding and
employment taxes and, if the amount of such cash payment is not sufficient, the
Trustee may require the Recipient or Beneficiary to pay to the Trustee the
amount required to be withheld as a condition of delivering the Plan Shares. The
Trustee shall pay over to the Corporation, the Bank or the Subsidiary which
employs or employed such Recipient or which the Recipient serves or served as a
Director, any such amount withheld from or paid by the Recipient or Beneficiary.
(d) REGULATORY EXCEPTIONS. Notwithstanding anything to the contrary in
this Agreement, no Plan Shares, upon becoming fully earned and non-forfeitable,
shall be distributed unless and until all of the requirements of all applicable
laws and regulations shall have been met.
7.03 VOTING OF PLAN SHARES. All Common Shares held by the Trustee in the
Plan Share Reserve which have not yet been earned by a Recipient pursuant to
Section 7.01 of this Agreement shall be voted by the Trustee. A Recipient shall
be entitled to direct the voting of Plan Shares which have been earned pursuant
to Section 7.01 of this Agreement but have not yet been distributed to him.
ARTICLE VIII
TRUST
8.01 TRUST. The Trustee shall receive, hold, administer, invest and make
distributions and disbursements from the Trust in accordance with the provisions
of the Plan and the Trust and the applicable directions, rules, regulations,
procedures and policies established by the Committee pursuant to this Agreement.
8.02 MANAGEMENT OF TRUST. The Trustee shall have complete authority and
discretion with respect to the management, control and investment of the Trust,
and the Trustee shall invest all assets of the Trust, except those attributable
to cash dividends paid with respect to Plan Shares not held in the Plan Share
Reserve, in Common Shares to the fullest extent practicable, and except to the
extent that the Trustee determines that the holding of monies in cash or cash
equivalents is necessary to meet the obligations of the Trust. The Trustee shall
have
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<PAGE> 7
the power to do all things and execute such instruments as may be deemed
necessary or proper, including the following powers:
(a) To invest up to 100% of all Trust assets in Common Shares without
regard to any law now or hereafter in force limiting investments for
Trustees or other fiduciaries. The investment authorized herein may
constitute the only investment of the Trust, and, in making such
investment, the Trustee is authorized to purchase Common Shares from the
Corporation or from any other source. Such Common Shares so purchased may
be outstanding, newly issued or treasury shares;
(b) To invest any Trust assets not otherwise invested in accordance
with Section 8.02(a) of this Agreement in such deposit accounts and
certificates of deposit (including those issued by the Bank), obligations
of the United States government or its agencies or such other investments
as shall be considered the equivalent of cash;
(c) To sell, exchange or otherwise dispose of any property at any time
held or acquired by the Trust;
(d) To cause stocks, bonds or other securities to be registered in the
name of a nominee, without the addition of words indicating that such
security is an asset of the Trust (but accurate records shall be maintained
showing that such security is an asset of the Trust);
(e) To hold cash without interest in such amounts as may be
reasonable, in the opinion of the Trustee, for the proper operation of the
Plan and the Trust;
(f) To employ brokers, agents, custodians, consultants and
accountants;
(g) To hire counsel to render advice with respect to the Trustee's
rights, duties and obligations hereunder, and such other legal services or
representation as the Trustee may deem desirable; and
(h) To hold funds and securities representing the amounts to be
distributed to a Recipient or his Beneficiary as a consequence of a dispute
as to the disposition thereof, whether in a segregated account or held in
common with other assets of the Trust.
Notwithstanding anything herein contained to the contrary, the Trustee shall not
be required to make any inventory, appraisal or settlement or report to any
court, or to secure any order of court for the exercise of any power herein
contained, or to give bond.
8.03 RECORDS AND ACCOUNTS. The Trustee shall maintain accurate and detailed
records and accounts of all transactions of the Trust, which shall be available
at all reasonable times for inspection by any legally entitled person or entity
to the extent required by applicable law, or any other person determined by the
Committee.
7
<PAGE> 8
8.04 EARNINGS. All earnings, gains and losses with respect to Trust
assets shall be allocated, in accordance with a reasonable procedure adopted by
the Committee, to bookkeeping accounts for Recipients or to the general account
of the Trust, depending on the nature and allocation of the assets generating
such earnings, gains and losses. Without limiting the generality of the
foregoing, any earnings on cash dividends or returned capital received with
respect to Common Shares shall be allocated (a) to accounts for Recipients, if
such shares are the subject of outstanding Awards, and shall become earned and
be distributed as specified in Article VII of this Agreement, or (b) otherwise
to the Plan Share Reserve if such Plan Shares are not the subject of outstanding
awards.
8.05 EXPENSES. All costs and expenses incurred in the operation and
administration of the Plan shall be paid by the Bank.
ARTICLE IX
MISCELLANEOUS
9.01 ADJUSTMENTS FOR CAPITAL CHANGES. The aggregate number of Plan Shares
available for issuance pursuant to the Awards and the number of Plan Shares to
which any Award relates shall be proportionately adjusted for any increase or
decrease in the total number of outstanding Common Shares issued subsequent to
the effective date of the Plan if such increase or decrease resulted from any
split, subdivision or consolidation of shares or other capital adjustment, or
other increase or decrease in such shares effected without receipt or payment of
consideration by the Corporation.
9.02 AMENDMENT AND TERMINATION OF PLAN. The Board may, by resolution, at
any time amend or terminate the Plan; provided, however, that in no event shall
the provisions of the Plan with respect to the number of Plan Shares which may
be subject to Awards and the timing of grants of Awards be amended more often
than once every six (6) months, other than to comport with changes in the
Internal Revenue Code of 1986, as amended (the "Code"), the Employee Retirement
Income Security Act, as amended, or the rules and regulations promulgated
thereunder. The power to amend or terminate the Plan shall include the power to
direct the Trustee to return to the Corporation all or any part of the assets of
the Trust, including Common Shares held in the Plan Share Reserve, as well as
Common Shares and other assets subject to Awards which have not yet been earned
by the Directors or Employees to whom they are allocated; provided, however,
that the termination of the Trust shall not affect a Recipient's right to earn
Awards and to the distribution of Common Shares relating thereto, including
earnings thereon, in accordance with the terms of this Agreement and the grant
by the Committee or the Board.
9.03 NONTRANSFERABLE. Awards shall not be transferable by a Recipient.
During the lifetime of the Recipient, an Award may only be earned by and paid to
the Recipient who was notified in writing of the Award by the Committee pursuant
to Section 6.03 of this Agreement. No Recipient or Beneficiary shall have any
right in or claim to any assets of the Plan or the Trust,
8
<PAGE> 9
nor shall the Corporation, the Bank or any Subsidiary be subject to any claim
for benefits hereunder.
9.04 DIRECTORSHIP RIGHTS. Neither this Agreement nor any grant of an Award
hereunder nor any action taken by the Trustee, the Committee or the Board in
connection with the Plan shall create any right, either express or implied, on
the part of any Director to continue to serve as a Director of the Bank or a
Subsidiary.
9.05 EMPLOYMENT RIGHTS. Neither this Agreement nor any grant of an Award
hereunder nor any action taken by the Trustee, the Committee or the Board in
connection with the Plan shall create any right, either express or implied, on
the part of any Employee to continue in the employ of the Corporation, the Bank
or a Subsidiary.
9.06 VOTING AND DIVIDEND RIGHTS. No Recipient shall have any voting or
dividend rights or other rights of a shareholder in respect of any Plan Shares
covered by an Award, except as expressly provided in Sections 7.01, 7.02 and
7.03 of this Agreement, prior to the time such Plan Shares are actually
distributed to such Recipient.
9.07 GOVERNING LAW. This Agreement shall be governed by and construed under
the laws of the State of Ohio, except to the extent that federal law shall be
deemed applicable.
9.08 EFFECTIVE DATE. Subject to Section 6.05 of this Agreement, this
Agreement shall be effective as of the ___ day of ____________, 1997.
9.09 TERM OF PLAN. The Plan shall remain in effect until the earlier of (a)
the termination of the Plan by the Board or (b) the distribution of all assets
from the Trust. The termination of the Plan shall not affect any Awards
previously granted and such Awards shall remain valid and in effect until they
have been earned and paid or by their terms expire or are forfeited.
9.10 TAX STATUS OF TRUST. It is intended that the trust established hereby
be treated as a grantor trust of the Bank under the provisions of Section 671,
ET SEQ., of the Internal Revenue Code of 1986, as amended (26 U.S.C. section
671 ET SEQ.).
9
<PAGE> 10
IN WITNESS WHEREOF, the following Trustees execute this Agreement,
accepting and binding themselves to undertake and perform the obligations and
duties of the Trustee hereunder and consenting to the foregoing Agreement
effective the ___ day of ____________, 1997.
By: ___________________________ (Trustee)
By: ___________________________ (Trustee)
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officer and duly attested, all as of the ___ day
of ____________, 1997.
HOME CITY FINANCIAL CORPORATION
By: ______________________________
Douglas L. Ulery
its President
ATTEST:
- -----------------------
Jo Ann Holdeman
its Secretary
10
<PAGE> 1
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (hereinafter referred to as this "AGREEMENT")
is entered into as of the ___ day of ___________, 1996, by and between Home City
Federal Savings Bank of Springfield, a savings bank chartered under the laws of
the United States (hereinafter referred to as the "EMPLOYER"), and Douglas L.
Ulery, an individual (hereinafter referred to as the "EMPLOYEE");
WITNESSETH:
WHEREAS, the EMPLOYEE is currently employed as the President and Chief
Executive Officer of the EMPLOYER;
WHEREAS, as a result of the skill, knowledge and experience of the
EMPLOYEE, the Board of Directors of the EMPLOYER desires to retain the services
of the EMPLOYEE as the President and Chief Executive Officer of the EMPLOYER;
WHEREAS, the EMPLOYEE desires to continue to serve as the President and
Chief Executive Officer of the EMPLOYER; and
WHEREAS, the EMPLOYEE and the EMPLOYER desire to enter into this
AGREEMENT to set forth the terms and conditions of the employment relationship
between the EMPLOYER and the EMPLOYEE;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the EMPLOYER and the EMPLOYEE hereby agree as follows:
1. EMPLOYMENT AND TERM.
--------------------
(a) TERM. Upon the terms and subject to the conditions of this
AGREEMENT, the EMPLOYER hereby employs the EMPLOYEE, and the EMPLOYEE hereby
accepts employment, as the President and Chief Executive Officer of the
EMPLOYER. The TERM of this AGREEMENT shall commence on the effective date of the
EMPLOYER's conversion from mutual to stock form and shall end thirty-six (36)
months thereafter, subject to extension pursuant to subsection (b) of this
Section 1 (hereinafter, including any such extensions, referred to as the
"TERM"), and to earlier termination as provided herein.
(b) EXTENSION. Prior to each anniversary of the date of this AGREEMENT,
the Board of Directors of the EMPLOYER shall review this AGREEMENT and document
its approval of this AGREEMENT in the board minutes. In connection with such
annual review, the TERM shall be extended for a one-year period beyond the
then-effective expiration date, provided the Board of Directors of the EMPLOYER
determines in a duly adopted resolution that this AGREEMENT should be extended.
Any such extension shall be subject to the written consent of the EMPLOYEE.
<PAGE> 2
2. DUTIES OF EMPLOYEE.
-------------------
(a) GENERAL DUTIES AND RESPONSIBILITIES. The EMPLOYEE shall serve as
the President and Chief Executive Officer of the EMPLOYER. Subject to the
direction of the Board of Directors of the EMPLOYER, the EMPLOYEE shall have
responsibility for the general management and control of the business and
affairs of the EMPLOYER and shall perform all duties and shall have all powers
which are commonly incident to the office of President and Chief Executive
Officer or which, consistent therewith, are delegated to him by the Board of
Directors. Such duties shall include, but not be limited to, (1) managing the
day-to-day operations of the EMPLOYER, (2) managing the efforts of the EMPLOYER
to comply with applicable laws and regulations, (3) marketing of the EMPLOYER
and its services, (4) supervising other employees of the EMPLOYER, (5) providing
prompt and accurate reports to the Board of Directors of the EMPLOYER regarding
the affairs and conditions of the EMPLOYER, and (6) making recommendations to
the Board of Directors of the EMPLOYER concerning the strategies, capital
structure, tactics, and general operations of the EMPLOYER.
(b) DEVOTION OF ENTIRE TIME TO THE BUSINESS OF THE EMPLOYER. The
EMPLOYEE shall devote his entire productive time, ability and attention during
normal business hours throughout the TERM to the faithful performance of his
duties under this AGREEMENT. The EMPLOYEE shall not directly or indirectly
render any services of a business, commercial or professional nature to any
person or organization other than the EMPLOYER and its subsidiaries and
affiliates without the prior written consent of the Board of Directors of the
EMPLOYER; provided, however, that the EMPLOYEE shall not be precluded from (i)
reasonable participation in community, civic, charitable or similar
organizations; or (ii) the pursuit of personal investments which do not
interfere or conflict with the performance of the EMPLOYEE's duties to the
EMPLOYER. Nothing in this section shall limit the EMPLOYEE's right to invest in
securities of any business that does not provide services or products of the
type or competing with those provided by the EMPLOYER or its subsidiaries or
affiliates.
3. COMPENSATION, BENEFITS AND REIMBURSEMENTS.
------------------------------------------
(a) SALARY. The EMPLOYEE shall receive during the TERM an annual salary
payable in equal installments not less often than monthly. The amount of such
annual salary shall be $88,000 until changed by the Board of Directors of the
EMPLOYER in accordance with Section 3(b) of this AGREEMENT.
(b) ANNUAL SALARY REVIEW. On or before each anniversary of the
effective date of this AGREEMENT, the annual salary of the EMPLOYEE shall be
reviewed by the Board of Directors of the EMPLOYER and may be maintained or
increased, in its discretion, based upon the EMPLOYEE's individual performance
and the overall profitability and financial condition of the EMPLOYER. The
results of the annual salary review shall be reflected in the minutes of the
appropriate meetings of the Board of Directors of the EMPLOYER.
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<PAGE> 3
(c) EXPENSES. In addition to any compensation received under Section
3(a) or (b) of this AGREEMENT, the EMPLOYER shall pay or reimburse the EMPLOYEE
for all reasonable travel, entertainment and miscellaneous expenses incurred in
connection with the performance of his duties under this AGREEMENT. Such
reimbursement shall be made in accordance with the existing policies and
procedures of the EMPLOYER pertaining to reimbursement of expenses to senior
management officials.
(d) EMPLOYEE BENEFIT PROGRAMS.
(i) During the TERM, the EMPLOYEE shall be entitled to
participate in all formally established employee benefit, bonus, pension and
profit-sharing plans and similar programs that are maintained by the EMPLOYER
from time to time, including programs in respect of group health, disability or
life insurance, and all employee benefit plans or programs hereafter adopted in
writing by the Board of Directors of the EMPLOYER, for which senior management
personnel are eligible, including any employee stock ownership plan, stock
option plan or other stock benefit plan (hereinafter collectively referred to as
the "BENEFIT PLANS"). Notwithstanding any statement to the contrary contained
elsewhere in this Agreement, the EMPLOYER may discontinue or terminate at any
time any such BENEFIT PLANS, now existing or hereafter adopted, to the extent
permitted by the terms of such plans and applicable law, and shall not be
required to compensate the EMPLOYEE for such discontinuance or termination; and
(ii) After the termination of the employment of the EMPLOYEE
in accordance with Section 4(a) of this AGREEMENT, for any reason other than
JUST CAUSE (as defined hereinafter), the EMPLOYER shall provide, until both the
EMPLOYEE and his spouse become sixty-five (65) years of age, or the earlier date
the EMPLOYEE obtains substantially equivalent coverage from another full-time
employer, substantially the same health insurance benefits as are available to
retired employees of the EMPLOYER on the date of this AGREEMENT; provided,
however, that all premiums for such benefits shall be paid by the EMPLOYEE
and/or his spouse after the EMPLOYEE's termination; provided further, however,
that the EMPLOYER'S obligation under this Section 3(d)(ii) shall terminate in
the event that the EMPLOYER no longer makes available an employee group health
insurance program which permits the EMPLOYER to make coverage available for
retirees.
(e) VACATION AND SICK LEAVE. The EMPLOYEE shall be entitled,
without loss of pay, to be absent voluntarily from the performance of his
duties under this AGREEMENT, subject to the following conditions:
(i) The EMPLOYEE shall be entitled to annual vacation and
annual sick leave in accordance with the policies periodically
established by the Board of Directors of the EMPLOYER for senior
management officials of the EMPLOYER; and
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<PAGE> 4
(ii) In addition to paid vacations and sick leave, the
EMPLOYEE shall be entitled, without loss of pay, to absent himself
voluntarily from the performance of his employment with the EMPLOYER
for such additional period of time and for such valid and legitimate
reasons as the Board may, in its discretion, determine, and the Board
may grant to the EMPLOYEE a leave or leaves of absence, with or without
pay, at such time or times and upon such terms and conditions as such
Board, in its discretion, may determine.
4. TERMINATION OF EMPLOYMENT.
--------------------------
(a) GENERAL. The employment of the EMPLOYEE shall terminate at any time
during the TERM (i) at the option of the EMPLOYER upon the delivery by the
EMPLOYER of written notice of employment termination to the EMPLOYEE, or (ii) at
the option of the EMPLOYEE upon the delivery by the EMPLOYEE of written notice
of termination to the EMPLOYER if, unless consented to in writing by the
EMPLOYEE, (A) the present capacity or circumstances in which the EMPLOYEE is
employed are materially changed (including, without limitation, a material
reduction in responsibilities or authority, or the assignment of duties or
responsibilities substantially inconsistent with those normally associated with
EMPLOYEE's position described in Section 2(a) of this AGREEMENT), (B) the
EMPLOYEE is not elected a member of the Board of Directors of the EMPLOYER or
Home City Financial Corporation ("HCFC") or any other savings and loan holding
company for the EMPLOYER or the EMPLOYEE is no longer the President and Chief
Executive Officer of the EMPLOYER and HCFC, (C) the EMPLOYEE is required to move
his personal residence, or perform his principal executive functions, more than
thirty-five (35) miles from his primary office as of the date of the
commencement of the TERM of this AGREEMENT, or (D) the EMPLOYER otherwise
breaches this AGREEMENT in any material respect.
(b) TERMINATION FOR JUST CAUSE. In the event that the EMPLOYER
terminates the employment of the EMPLOYEE before the expiration of the TERM
because of the EMPLOYEE's personal dishonesty, incompetence, willful misconduct,
breach of fiduciary duty involving personal profit, intentional failure or
refusal to perform the duties and responsibilities assigned in this AGREEMENT,
willful violation of any law, rule, regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, conviction of a felony or for
fraud or embezzlement, or material breach of any provision of this AGREEMENT
(hereinafter collectively referred to as "JUST CAUSE"), the EMPLOYEE shall not
receive, and shall have no right to receive, any compensation or other benefits
for any period after such termination.
(c) TERMINATION IN CONNECTION WITH A CHANGE OF CONTROL.
(i) In the event that, in connection with a CHANGE OF CONTROL
(including, without limitation, a termination other than for JUST CAUSE within
six months prior to a CHANGE OF CONTROL) or after a CHANGE OF CONTROL, the
employment of the EMPLOYEE is terminated by the EMPLOYER for any reason other
than JUST CAUSE before the expiration of the TERM, then the following shall
occur:
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<PAGE> 5
(A) The EMPLOYER shall promptly pay to the EMPLOYEE
or to his beneficiaries, dependents or estate an amount equal to the
product of three multiplied by the greater of the annual salary set
forth in Section 3(a) of this AGREEMENT or the annual salary payable to
the EMPLOYEE as a result of any annual salary review in accordance with
Section 3 (b) of this AGREEMENT;
(B) The EMPLOYEE, his dependents, beneficiaries and
estate shall continue to be covered under all BENEFIT PLANS in which
the EMPLOYEE is a participant immediately prior to the CHANGE OF
CONTROL of the EMPLOYER at the EMPLOYER's expense as if the EMPLOYEE
were still employed under this AGREEMENT until the earliest of the
expiration of the TERM or the date on which the EMPLOYEE is included in
another employer's benefit plans as a full-time employee and shall be
entitled thereafter to the benefits described in Section 3(d)(ii) of
this AGREEMENT; and
(C) The EMPLOYEE shall not be required to mitigate
the amount of any payment provided for in this AGREEMENT by seeking
other employment or otherwise, nor shall any amounts received from
other employment or otherwise by the EMPLOYEE offset in any manner the
obligations of the EMPLOYER hereunder, except as specifically stated in
subparagraph (B).
(ii) In the event that, within six months prior to or within
one year after a CHANGE OF CONTROL, the employment of the EMPLOYEE is terminated
by the EMPLOYEE in accordance with Section 4(a)(ii) of this AGREEMENT before the
expiration of the TERM, then the following shall occur:
(A) The EMPLOYER shall promptly pay to the EMPLOYEE
or to his beneficiaries, dependents or estate an amount equal to the
product of three multiplied by the greater of the annual salary set
forth in Section 3(a) of this AGREEMENT or the annual salary payable to
the EMPLOYEE as a result of any annual salary review in accordance with
Section 3 (b) of this AGREEMENT;
(B) The EMPLOYEE, his dependents, beneficiaries and
estate shall continue to be covered under all BENEFIT PLANS in which
the EMPLOYEE is a participant immediately prior to the CHANGE OF
CONTROL of the EMPLOYER at the EMPLOYER's expense as if the EMPLOYEE
were still employed under this AGREEMENT until the earliest of the
expiration of the TERM or the date on which the EMPLOYEE is included in
another employer's benefit plans as a full-time employee and shall be
entitled thereafter to the benefits described in Section 3(d)(ii) of
this AGREEMENT; and
-5-
<PAGE> 6
(C) The EMPLOYEE shall not be required to mitigate
the amount of any payment provided for in this AGREEMENT by seeking
other employment or otherwise, nor shall any amounts received from
other employment or otherwise by the EMPLOYEE offset in any manner the
obligations of the EMPLOYER hereunder, except as specifically stated in
subparagraph (B).
In the event that payments pursuant to this subsection (c) would result
in the imposition of a penalty tax pursuant to Section 280G(b) (3) of the
Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder (hereinafter collectively referred to as "SECTION 280G"), such
payments shall be reduced to the maximum amount which may be paid under SECTION
280G without exceeding such limits. Payments pursuant to this subsection (c)
also may not exceed applicable limits established by the Office of Thrift
Supervision (hereinafter referred to as the "OTS"). In the event a reduction in
payments is necessary in order to comply with the requirements of this AGREEMENT
relating to the limitations of SECTION 280G or applicable OTS limits, the
EMPLOYEE may determine, in his sole discretion, which categories of payments are
to be reduced or eliminated.
(d) TERMINATION WITHOUT CHANGE OF CONTROL. In the event that the
employment of the EMPLOYEE is terminated by the EMPLOYER or is terminated by the
EMPLOYEE in accordance with Section 4(a)(ii) of this AGREEMENT before the
expiration of the TERM other than (i) for JUST CAUSE or (ii) in connection with
or after a CHANGE OF CONTROL, the EMPLOYER shall be obligated (A) to pay to the
EMPLOYEE, his designated beneficiaries or his estate, for the remainder of the
TERM, the salary set forth in Section 3(a) of this AGREEMENT or the salary
payable to the EMPLOYEE as a result of any annual salary review in accordance
with Section 3(b) of this AGREEMENT; (B) to provide to the EMPLOYEE, at the
EMPLOYER's expense, health, life, disability, and other benefits as provided in
Section 3(d)(i) of this Agreement, until the expiration of the TERM or until the
earlier date the EMPLOYEE obtains substantially equivalent coverage from another
full-time employer; and (C) to provide to the EMPLOYEE the benefits set forth
under Section 3(d)(ii) of this AGREEMENT. In the event that payments pursuant to
this subsection (d) would result in the imposition of a penalty tax pursuant to
SECTION 280G, such payments shall be reduced to the maximum amount which may be
paid under SECTION 280G without exceeding those limits. Payments pursuant to
this subsection also may not exceed the applicable limits established by the
OTS. In the event a reduction in payments is necessary in order to comply with
the requirements of this AGREEMENT relating to the limitations of SECTION 280G
or applicable OTS limits, the EMPLOYEE may determine, in his sole discretion,
which categories of payments are to be reduced or eliminated.
(e) DEATH OF THE EMPLOYEE. The TERM shall automatically terminate upon
the death of the EMPLOYEE. In the event of such death, the EMPLOYEE's estate
shall be entitled to receive the compensation due the EMPLOYEE through the last
day of the calendar month in which the death occurred, except as otherwise
specified herein.
-6-
<PAGE> 7
(f) "GOLDEN PARACHUTE" PROVISION. Any payments made to the
EMPLOYEE pursuant to this AGREEMENT or otherwise are subject to and
conditioned upon their compliance with 12 U.S.C. Section 1828(k) and any
regulations promulgated thereunder.
(g) DEFINITION OF "CHANGE OF CONTROL". A "CHANGE OF CONTROL" shall mean
any one of the following events; (i) the acquisition of ownership or power to
vote more than 25% of the voting stock of the EMPLOYER or HCFC; (ii) the
acquisition of the ability to control the election of a majority of the
directors of the EMPLOYER or HCFC; (iii) during any period of two consecutive
years, individuals who at the beginning of such period constitute the Board of
Directors of the EMPLOYER or HCFC cease for any reason to constitute at least
two-thirds thereof; provided, however, that any individual whose election or
nomination for election as a member of the Board of Directors was approved by a
vote of at least two-thirds of the directors then in office shall be considered
to have continued to be a member of the Board of Directors; or (iv) the
acquisition by any person or entity of "conclusive control" of the EMPLOYER
within the meaning of 12 C.F.R. Section 574.4(a), or the acquisition by any
person or entity of "rebuttable control" within the meaning of 12 C.F.R.
Section 574.4(b) that has not been rebutted in accordance with 12 C.F.R.
Section 574.4(c). For purposes of this paragraph, the term "person" refers to
an individual or corporation, partnership, trust, association, or other
organization, but does not include the EMPLOYEE and any person or persons with
whom the EMPLOYEE is "acting in concert" within the meaning of 12 C.F.R.
Part 574.
(h) LEGAL FEES. EMPLOYER shall promptly pay all legal fees and expenses
which EMPLOYEE may incur as a result of EMPLOYEE or EMPLOYER contesting the
validity or enforceability of this AGREEMENT if a court of competent
jurisdiction renders a final decision in favor of EMPLOYEE with respect to any
such contest, or to the extent agreed to by EMPLOYER and EMPLOYEE in an
agreement of settlement with respect to any such contest.
5. SPECIAL REGULATORY EVENTS. Notwithstanding Section 4 of this
AGREEMENT, the obligations of the EMPLOYER to the EMPLOYEE shall be as
follows in the event of the following circumstances:
(a) If the EMPLOYEE is suspended and/or temporarily prohibited from
participating in the conduct of the EMPLOYER's affairs by a notice served under
Section 8(e) (3) or (g) (1) of the Federal Deposit Insurance Act (hereinafter
referred to as the "FDIA"), the EMPLOYER's obligations under this AGREEMENT
shall be suspended as of the date of service of such notice, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
EMPLOYER shall (i) pay the EMPLOYEE all of the compensation withheld while the
obligations in this AGREEMENT were suspended and (ii) reinstate any of the
obligations that were suspended.
(b) If the EMPLOYEE is removed and/or permanently prohibited from
participating in the conduct of the EMPLOYER's affairs by an order issued under
Section 8(e) (4) or (g) (1) of the FDIA, all obligations of the EMPLOYER under
this AGREEMENT shall terminate as of the effective date of such order; provided,
however, that vested rights of the EMPLOYEE shall not be affected by such
termination.
-7-
<PAGE> 8
(c) If the EMPLOYER is in default as defined in Section 3(x)(1) of the
FDIA, all obligations under this AGREEMENT shall terminate as of the date of
default; provided, however, that vested rights of the EMPLOYEE shall not be
affected.
(d) All obligations under this AGREEMENT shall be terminated, except to
the extent of a determination that the continuation of this AGREEMENT is
necessary for the continued operation of the EMPLOYER, (i) by the Director of
the OTS, or his or her designee at the time that the Federal Deposit Insurance
Corporation enters into an agreement to provide assistance to or on behalf of
the EMPLOYER under the authority contained in Section 13(c) of the FDIA or (ii)
by the Director of the OTS, or his or her designee, at any time the Director of
the OTS, or his or her designee, approves a supervisory merger to resolve
problems related to the operation of the EMPLOYER or when the EMPLOYER is
determined by the Director of the OTS to be in an unsafe or unsound condition.
No vested rights of the EMPLOYEE shall be affected by any such action.
6. CONSOLIDATION, MERGER OR SALE OF ASSETS. Nothing in this AGREEMENT shall
preclude the EMPLOYER from consolidating with, merging into, or transferring
all, or substantially all, of its assets to another corporation that assumes all
of the EMPLOYER's obligations and undertakings hereunder. Upon such a
consolidation, merger or transfer of assets, the term "EMPLOYER" as used herein,
shall mean such other corporation or entity, and this AGREEMENT shall continue
in full force and effect.
7. CONFIDENTIAL INFORMATION. The EMPLOYEE acknowledges that during his
employment he will learn and have access to confidential information regarding
the EMPLOYER and its customers and businesses. The EMPLOYEE agrees and covenants
not to disclose or use for his own benefit, or the benefit of any other person
or entity, any confidential information, unless or until the EMPLOYER consents
to such disclosure or use or such information becomes common knowledge in the
industry or is otherwise legally in the public domain. The EMPLOYEE shall not
knowingly disclose or reveal to any unauthorized person any confidential
information relating to the EMPLOYER, its parent, subsidiaries or affiliates, or
to any of the businesses operated by them, and the EMPLOYEE confirms that such
information constitutes the exclusive property of the EMPLOYER. The EMPLOYEE
shall not otherwise knowingly act or conduct himself (a) to the material
detriment of the EMPLOYER, its subsidiaries, or affiliates, or (b) in a manner
which is inimical or contrary to the interests of the EMPLOYER.
8. NONASSIGNABILITY. Neither this AGREEMENT nor any right or interest hereunder
shall be assignable by the EMPLOYEE, his beneficiaries, or legal representatives
without the EMPLOYER's prior written consent; provided, however, that nothing in
this Section 8 shall preclude (a) the EMPLOYEE from designating a beneficiary to
receive any benefits payable hereunder upon his death, or (b) the executors,
administrators, or other legal representatives of the EMPLOYEE or his estate
from assigning any rights hereunder to the person or persons entitled thereto.
-8-
<PAGE> 9
9. NO ATTACHMENT. Except as required by law, no right to receive payment under
this AGREEMENT shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge or hypothecation or to execution,
attachment, levy, or similar process of assignment by operation of law, and any
attempt, voluntary or involuntary, to effect any such action shall be null, void
and of no effect.
10. INDEMNIFICATION; INSURANCE.
---------------------------
(a) INDEMNIFICATION. The EMPLOYER agrees to indemnify the EMPLOYEE and
his heirs, executors, and administrators to the fullest extent permitted under
applicable law and regulations, including, without limitation 12 U.S.C. Section
1828(k), against any and all expenses and liabilities reasonably incurred by the
EMPLOYEE in connection with or arising out of any action, suit or proceeding in
which the EMPLOYEE may be involved by reason of his having been a director or
officer of the EMPLOYER or any of its subsidiaries, whether or not the EMPLOYEE
is a director or officer at the time of incurring any such expenses or
liabilities. Such expenses and liabilities shall include, but shall not be
limited to, judgments, court costs and attorney's fees and the cost of
reasonable settlements. The EMPLOYEE shall be entitled to indemnification in
respect of a settlement only if the Board of Directors of the EMPLOYER has
approved such settlement. Notwithstanding anything herein to the contrary, (i)
indemnification for expenses shall not extend to matters for which the EMPLOYEE
has been terminated for JUST CAUSE, and (ii) the obligations of this Section 10
shall survive the TERM of this AGREEMENT. Nothing contained herein shall be
deemed to provide indemnification prohibited by applicable law or regulation.
(b) INSURANCE. During the TERM, the EMPLOYER shall provide the EMPLOYEE
(and his heirs, executors, and administrators) with coverage under a directors'
and officers' liability policy at the EMPLOYER's expense, at least equivalent to
such coverage provided to directors and senior officers of the EMPLOYER.
11. BINDING AGREEMENT. This AGREEMENT shall be binding upon, and inure
to the benefit of, the EMPLOYEE and the EMPLOYER and their respective permitted
successors and assigns.
12. AMENDMENT OF AGREEMENT. This AGREEMENT may not be modified or
amended, except by an instrument in writing signed by the parties hereto.
13. WAIVER. No term or condition of this AGREEMENT shall be deemed to have been
waived, nor shall there be an estoppel against the enforcement of any provision
of this AGREEMENT, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver,
unless specifically stated therein, and each waiver shall operate only as to the
specific term or condition waived and shall not constitute a waiver of such term
or condition for the future or as to any act other than the act specifically
waived.
14. SEVERABILITY. If, for any reason, any provision of this AGREEMENT is held
invalid, such invalidity shall not affect the other provisions of this AGREEMENT
not held so invalid, and
-9-
<PAGE> 10
each such other provision shall, to the full extent consistent with applicable
law, continue in full force and effect. If this AGREEMENT is held invalid or
cannot be enforced, then any prior Agreement between the EMPLOYER (or any
predecessor thereof) and the EMPLOYEE shall be deemed reinstated to the full
extent permitted by law, as if this AGREEMENT had not been executed.
15. HEADINGS. The headings of the paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this AGREEMENT.
16. GOVERNING LAW; REGULATORY AUTHORITY. This AGREEMENT has been executed and
delivered in the State of Ohio and its validity, interpretation, performance,
and enforcement shall be governed by the laws of the State of Ohio, except to
the extent that federal law is governing. References to the OTS included herein
shall include any successor primary federal regulatory authority of the
EMPLOYER.
17. EFFECT OF PRIOR AGREEMENTS. This AGREEMENT contains the entire understanding
between the parties hereto and supersedes any prior employment agreement between
the EMPLOYER or any predecessor of the EMPLOYER and the EMPLOYEE.
18. NOTICES. Any notice or other communication required or permitted pursuant to
this AGREEMENT shall be deemed delivered if such notice or communication is in
writing and is delivered personally or by facsimile transmission or is deposited
in the United States mail, postage prepaid, addressed as follows:
If to the EMPLOYER:
Home City Federal Savings Bank of Springfield
63 West Main Street
Springfield, Ohio 45502
If to the EMPLOYEE:
Mr. Douglas L. Ulery
2548 Erter Drive
Springfield, Ohio 45503
-10-
<PAGE> 11
IN WITNESS WHEREOF, the EMPLOYER has caused this AGREEMENT to be
executed by its duly authorized officer, and the EMPLOYEE has signed this
AGREEMENT, each as of the day and year first above written.
Attest: HOME CITY FEDERAL SAVINGS BANK
OF SPRINGFIELD
________________________________ By_________________________________
Attest:
________________________________ ___________________________________
Douglas L. Ulery
-11-
<PAGE> 1
TAX ALLOCATION AGREEMENT
This Tax Allocation Agreement (the "Agreement") is made between Home
City Financial Corporation, a savings association holding company incorporated
under the laws of the State of Ohio (the "Company"), and Home City Federal
Savings Bank of Springfield, a savings bank incorporated under the laws of the
United States (the "Bank").
WHEREAS, the Company owns all of the issued and outstanding shares of
capital stock of the Bank;
WHEREAS, the Bank has become a member of an affiliated group (the
"Group") within the meaning of Section 1504(a) of the Internal Revenue Code of
1986, as amended (the "Code"), of which the Company is the common parent
corporation;
WHEREAS, the Company proposes to include the Bank in filing
consolidated federal income tax returns for its tax years; and
WHEREAS, the Company and the Bank have considered that the Bank should
be liable to the Company for taxes as if the Bank filed a separate tax return
and desire to formalize the method for allocating the consolidated tax liability
of the Group among its members and establish the procedure for future payments
to the Company of such tax liability attributable to members of the Group other
than the Company;
NOW, THEREFORE, the Company and the Bank agree as follows:
1. Consolidated Return Election.
-----------------------------
If at any time and from time to time the Company is required
to file a consolidated federal tax return with the Bank or is permitted
to do so and so elects, the Bank will join in the filing of such
consolidated federal income tax return for any taxable period for which
the Group is required or permitted to file such a return under the
rules of Section 1502-1552 of the Code and the Treasury regulations
promulgated thereunder. The Bank agrees to file such consents,
elections, and other required documents and take such other action as
may be necessary or appropriate to carry out the purpose of this
Section 1. Any period for which the Bank is included in a consolidated
federal income tax return filed by the Company is referred to in this
Agreement as a "Consolidated Return Year."
2. Bank Liability to the Company for Consolidated Return Years.
------------------------------------------------------------
(a) For each Consolidated Return Year, the Bank shall compute
the amount which would have been its tax liability for such period as
though the Bank filed a separate return for such Consolidated Return
Year. The separate return of the Bank shall mean a return for the Bank
consolidated with its subsidiaries includable in a consolidated return,
unless (if such consolidation is not otherwise required) the Company
and the Bank mutually agree that for any Consolidated Return Year the
separate return shall mean an
<PAGE> 2
unconsolidated, Bank-only return or any other permissible return.
(b) The Bank shall pay to the Company, as provided in Section
4 below, the amount computed pursuant to paragraph (a) of this Section.
(c) Notwithstanding any provision of this Agreement to the
contrary, at no time shall the Bank pay or become obligated to pay to
the Company deferred income taxes and at no time shall the Company
forgive any portion of the Bank's deferred tax liability.
3. Tax Benefits of the Bank.
-------------------------
To the extent that a taxable loss, tax credit or other tax
attribute ("Tax Attribute") is incurred by the Bank for a Consolidated
Return Year, as computed pursuant to paragraph (a) of Section 2, and to
the extent a tax benefit arising from such Bank Tax Attribute could be
achieved by the Bank if it filed a separate return, the Company shall
pay to the Bank the amount of such tax benefit. The Company shall pay
the benefit as provided in Section 4 below as if the benefit could be
achieved in the current Consolidated Return Year. Notwithstanding the
above, the Company is not obligated to pay benefits to the Bank which
the Bank can obtain directly from the Internal Revenue Service (the
"Service").
4. Payments
--------
(a) Prior to the end of any Consolidated Return Year, the Bank
shall advance to the Company, at the approximate time estimated federal
income taxes are to be submitted, the amount of such estimated tax for
any such Consolidated Return Year period attributable to the Bank as
computed in accordance with Section 2 of this Agreement. The payment of
the amount of such estimated tax to the Company by the Bank shall not
be made significantly prior to the payment date on which the Company's
consolidated federal tax liability is required to be paid.
(b) After the end of any Consolidated Return Year, the Bank
shall pay to the Company, at the approximate time federal income taxes
are to be submitted: (i) the amount of tax for such Consolidated Return
Year attributable to the Bank as computed in accordance with Section 2
of this Agreement minus (ii) the amount of any estimated tax payments
for such Consolidated Return Year previously advanced to the Company
pursuant to paragraph (a) of this Section. If the amount of estimated
payments or advances (i.e., (ii) above) is greater than the tax
obligations of the Bank (i.e., (i) above), then the Company shall pay
the amount of such excess of estimated payments over actual obligation
to the Bank as soon as reasonably determined and possible after the end
of the Consolidated Return Year.
(c) For tax benefits of the Bank governed by Section 3 of this
Agreement, the Company shall make advances or payments for estimated
tax benefits to the Bank in the
2
<PAGE> 3
same manner and at the same time as the Bank would make advances or
payments to the Company for tax liability under paragraphs (a) and (b)
above, and the Bank shall repay to the Company any excess of such
advances for estimated tax benefits paid to it by the Company over the
amount of the tax benefit for the Consolidated Return Year in the
manner and at the same time as the Company would make repayments to
the Bank for excess estimated advances under paragraph (b) above.
(d) The Company shall confirm to the Bank the payment of taxes
and estimated taxes to the Service within five days after such payment
is made.
5. Tax Adjustments.
----------------
In the event of any adjustment to the tax returns of the
Company and the Bank as filed (by reason of an amended return, claim
for refund, or an audit by the Service), the liability of the Company
and the Bank under Sections 2, 3, and 4 shall be redetermined to give
effect to any such adjustment as if it had been made as part of the
original computation of tax liability, and payments between the Company
and the Bank shall be made at the approximate time such payments are
made or refunds are received from the Service.
6. State and Local Taxes.
----------------------
To the extent required by applicable state law or permitted
thereby and so elected by the Company, the Bank will also join in the
filing of any state or local consolidated income tax return of the
Company in the same manner as for a federal income tax return pursuant
to Section 1 and, in such case, the state and local income tax
liability shall be allocated and payments made between the Company and
the Bank in accordance with the rules provided in this Agreement with
regard to federal income taxes.
7. Liability to the Service or State Authorities.
----------------------------------------------
This Agreement does not affect the liability of any party
under the applicable provisions of the Code or State law; it merely
allocates how the members of the Group share among the Group such tax
liabilities and benefits. To the extent the Bank has made tax or
estimated tax payments to the Company, the Company is obligated to the
Bank to pay to the Internal Revenue Service the tax liability of the
Bank.
8. Consolidated Returns Not Filed.
-------------------------------
Where a consolidated income tax return of the Company which
includes the Bank is not filed, the Bank is responsible for the filing
of its individual income tax returns and payment of related income
taxes, the Company is responsible for the filing of its own return.
3
<PAGE> 4
9. Successors.
-----------
This Agreement shall be binding on and inure to the benefit of
any successor, by merger, acquisition of assets or otherwise, to any of
the parties hereto to the same extent as if such successor had been an
original party to the Agreement.
10. Termination.
------------
Either party may terminate this Agreement upon thirty days
prior written notice to the other party.
IN WITNESS WHEREOF, the Company and the Bank have executed
this Agreement by the authorized officers thereof as of _________________, 1996.
HOME CITY FINANCIAL CORPORATION
By:_______________________________
Douglas L. Ulery
its: President
HOME CITY FEDERAL SAVINGS BANK
OF SPRINGFIELD
By:_______________________________
Douglas L. Ulery
its: President
4
<PAGE> 1
MANAGEMENT SERVICES AGREEMENT
This Management Services Agreement (this "AGREEMENT") is made
this _____ day of _______________, 1996, by and between Home City Financial
Corporation, an Ohio corporation (the "COMPANY"), and Home City Federal Savings
Bank of Springfield, a savings bank chartered under the laws of the United
States (the "BANK").
WHEREAS, the COMPANY owns 100% of the outstanding common
shares of the BANK;
WHEREAS, the BANK provides certain management services for the
COMPANY and certain officials of the BANK perform services for the COMPANY
without receiving compensation from the COMPANY;
WHEREAS, certain of these services provided to the COMPANY
also benefit the BANK; and
WHEREAS, the COMPANY desires to reimburse or compensate the
BANK for its pro rata share of the cost of these services;
NOW THEREFORE, in consideration of the premises and for other
good and valuable consideration, the adequacy and receipt of which is hereby
acknowledged, the COMPANY and the BANK agree as follows:
1. At various times, as needed or requested, the BANK or its
management and staff will provide services for or expend funds on behalf of the
COMPANY with respect to:
(a) reporting by the COMPANY as a savings and loan
holding company;
(b) reporting by the COMPANY under the federal securities
laws;
(c) meetings of shareholders of the COMPANY;
(d) preparation of audited financial statements; and
(e) preparation of consolidated tax returns of the
COMPANY.
2. Officers and directors of the COMPANY, all of whom also
serve as officers and directors of the BANK, receive no separate
compensation from the COMPANY.
3. The COMPANY will pay or reimburse the BANK on a quarterly
basis for (1) services rendered by the BANK or its management and staff on the
COMPANY's behalf; (2)
<PAGE> 2
its pro-rata share of expenses incurred by the BANK for matters referred to in
Paragraph 1, and (3) its pro-rata share of the compensation paid to officers and
directors of the BANK who also serve in such capacities for the COMPANY.
4. The BANK shall bill the COMPANY quarterly for any amounts
due under this AGREEMENT. To the extent such amounts relate to matters
benefiting both the COMPANY and the BANK, such amounts may be determined based
on the BANK'S good faith estimate of the appropriate pro-rata share of costs
properly attributable to the COMPANY. These bills will reflect how the amount
owed was determined.
5. This AGREEMENT shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
This AGREEMENT shall be governed by and construed in
accordance with the laws of the State of Ohio, except to the extent federal law
may be applicable.
IN WITNESS WHEREOF, the COMPANY and the BANK have executed
this AGREEMENT as of the day and year first written above.
HOME CITY FINANCIAL CORPORATION
By:
-------------------------------
Douglas L. Ulery
its: President
HOME CITY FEDERAL SAVINGS BANK
OF SPRINGFIELD
By:
-------------------------------
Douglas L. Ulery
its: President
<PAGE> 1
CONSENT
We have issued our report dated July 17, 1996, accompanying the financial
statements of Home City Federal Savings Bank of Springfield in Forms S-1 and AC
and the Prospectus to be filed with the Securities and Exchange Commission and
the Office of Thrift Supervision on or about September 20, 1996. We consent to
the use of the aforementioned report in the Registration Statement and
Prospectus, and all amendments, thereto, and to the use of our name as it
appears under the caption "Experts".
ROBB, DIXON, FRANCIS, DAVIS,
ONESON & COMPANY
Granville, Ohio
September 19, 1996
<PAGE> 1
KELLER & COMPANY, INC.
555 METRO PLACE NORTH
SUITE 524
DUBLIN, OHIO 43017
(614) 766-1426
(614) 766-1459 FAX
September 19, 1996
Re: Valuation Appraisal of Home City Financial Corporation
Home City Federal Savings Bank of Springfield
Springfield, Ohio
We hereby consent to the use of our firm's name, Keller & Company,
Inc., and the reference to our firm as experts in the Application for Conversion
on Form AC to be filed by Home City Federal Savings Bank with the Office of
Thrift Supervision and the Registration Statement on Form S-1 to be filed by
Home City Financial Corporation with the Securities and Exchange Commission and
any amendments thereto, and to the statements with respect to us and the
references to our Valuation Appraisal Report in the Prospectus, in the said Form
AC and in the said Form S-1 and any amendments thereto.
Very truly yours,
KELLER & COMPANY, INC.
By: Michael R. Keller
President
<PAGE> 1
(513) 723-4000
CONSENT
-------
Board of Directors
Home City Federal Savings Bank of Springfield
63 West Main Street
Springfield, Ohio 45502
Gentlemen:
We hereby consent to the use of our firm's name in the
Registration Statement on Form S-1 (the "Form S-1"), including all amendments
thereto, filed by Home City Financial Corporation (the "Company") to register
828,000 common shares, without par value, of the Company, pursuant to the
Securities Act of 1933; to the statements with respect to our firm appearing
under the headings "Prospectus Summary", "Legal Matters" and "Principal Effects
of the Conversion" in the Prospectus which is included in the Form S-1; and to
the filing of our opinion regarding the legality of the common shares, included
as Exhibit 5 to the Form S-1, and our opinion regarding federal and state tax
matters, included as Exhibit 8 to the Form S-1.
Very truly yours,
VORYS, SATER, SEYMOUR AND PEASE
Cincinnati, Ohio
September 19, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996, AND THE RELATED CONSOLIDATED
INCOME STATEMENT FOR THE YEAR ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-1-1995
<PERIOD-END> JUN-30-1996
<CASH> 855
<INT-BEARING-DEPOSITS> 1,649
<FED-FUNDS-SOLD> 400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,163
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 45,587
<ALLOWANCE> 362
<TOTAL-ASSETS> 55,728
<DEPOSITS> 47,174
<SHORT-TERM> 500
<LIABILITIES-OTHER> 253
<LONG-TERM> 2,403
0
0
<COMMON> 0
<OTHER-SE> 5,398
<TOTAL-LIABILITIES-AND-EQUITY> 55,728
<INTEREST-LOAN> 4,303
<INTEREST-INVEST> 143
<INTEREST-OTHER> 61
<INTEREST-TOTAL> 4,507
<INTEREST-DEPOSIT> 2,370
<INTEREST-EXPENSE> 172
<INTEREST-INCOME-NET> 1,965
<LOAN-LOSSES> 50
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,216
<INCOME-PRETAX> 757
<INCOME-PRE-EXTRAORDINARY> 514
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 514
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.86
<LOANS-NON> 247
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 525
<ALLOWANCE-OPEN> 319
<CHARGE-OFFS> 7
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 362
<ALLOWANCE-DOMESTIC> 362
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 263
</TABLE>
<PAGE> 1
HOME CITY FEDERAL SAVINGS BANK OF SPRINGFIELD
63 WEST MAIN STREET
SPRINGFIELD, OHIO 45502
(513) 324-5736
NOTICE OF SPECIAL MEETING OF MEMBERS
Notice is hereby given that a Special Meeting of Members of Home City
Federal Savings Bank of Springfield ("Home City") will be held at the office of
Home City, 63 West Main Street, Springfield, Ohio, on ____________, 1996, at
_____ p.m., local time (the "Special Meeting"), for the following purposes, all
of which are more completely set forth in the accompanying Summary Proxy
Statement:
1. To consider and act upon a resolution to approve the Plan of
Conversion (the "Plan"), a copy of which is attached to the Summary
Proxy Statement as Exhibit A, pursuant to which Home City would convert
from a mutual savings bank chartered under the laws of the United States
to a permanent capital stock savings bank chartered under the laws of
the United States (the "Conversion") and become a wholly-owned
subsidiary of Home City Financial Corporation, an Ohio corporation
organized for the purpose of acquiring all of the capital stock to be
issued by Home City in the Conversion;
2. To consider and act upon a resolution to adopt the Federal
Stock Charter of Home City, a copy of which is attached to the Plan as
Exhibit I;
3. To consider and act upon a resolution to adopt the Federal
Stock Bylaws of Home City, a copy of which is attached to the Plan as
Exhibit II; and
4. To transact such other business as may properly come before
the Special Meeting and any adjournments thereof.
Only those members of Home City who have a savings deposit at Home City
at the close of business on _________, 1996, and borrowers of record on May 1,
1996, whose loans remain outstanding on _________, 1996, are members of Home
City entitled to notice of and to vote at the Special Meeting and any
adjournments thereof. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING,
WE URGE YOU TO CONSIDER THE ACCOMPANYING SUMMARY PROXY STATEMENT CAREFULLY, TO
COMPLETE THE ENCLOSED PROXY CARD(S) AND TO RETURN THE COMPLETED PROXY CARD(S) TO
HOME CITY IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE AS SOON AS POSSIBLE TO
ASSURE THAT YOUR VOTE(S) WILL BE COUNTED.
By Order of the Board of Directors
Douglas L. Ulery,
President
Springfield, Ohio
__________________, 1996
<PAGE> 2
HOME CITY FEDERAL SAVINGS BANK OF SPRINGFIELD
63 WEST MAIN STREET
SPRINGFIELD, OHIO 45502
(513) 324-5736
SUMMARY PROXY STATEMENT
INTRODUCTION
The enclosed proxy (the "Proxy") is being solicited by the Board of
Directors of Home City Federal Savings Bank of Springfield (the "Bank") for use
at a Special Meeting of Members of Home City to be held at the office of Home
City, 63 West Main Street, Springfield, Ohio, on ______________, 1996, at
________ p.m., local time, and at any adjournments thereof (the "Special
Meeting"). The Special Meeting is being held for the following purposes:
1. To consider and act upon a resolution to approve the Plan of
Conversion (the "Plan"), a copy of which is attached to the Summary
Proxy Statement as Exhibit A, pursuant to which Home City would convert
from a mutual savings bank chartered under the laws of the United States
to a permanent capital stock savings bank chartered under the laws of
the United States (the "Conversion") and become a wholly-owned
subsidiary of Home City Financial Corporation, an Ohio corporation
organized for the purpose of acquiring all of the capital stock to be
issued by Home City in the Conversion (the "Holding Company");
2. To consider and act upon a resolution to adopt the Federal
Stock Charter of Home City, a copy of which is attached to the Plan as
Exhibit I;
3. To consider and act upon a resolution to adopt the Federal
Stock Bylaws of Home City, a copy of which is attached to the Plan as
Exhibit II; and
4. To transact such other business as may properly come before
the Special Meeting and any adjournments thereof.
The Board of Directors of Home City has unanimously adopted the Plan.
The Plan has also been approved by the Office of Thrift Supervision (the "OTS"),
subject to the approval of the Plan by the members of Home City at the Special
Meeting and the satisfaction of certain other conditions.
The approval of the Plan will have the effect of (i) terminating the
voting rights of the present members of Home City and (ii) modifying, and
eventually eliminating, their right to receive any surplus in the event of a
complete liquidation of Home City. Except for certain rights in the special
liquidation account established by the Plan (the "Liquidation Account"), such
voting and liquidation rights after the Conversion will vest exclusively in the
holders of the common shares of HCFC. See "THE CONVERSION - Principal Effects of
the Conversion."
During and upon the completion of the Conversion, Home City will
continue to provide services to depositors and borrowers pursuant to its current
policies, at its existing office. In addition, Home City will continue to be a
member of the Federal Home Loan Bank (the "FHLB") of Cincinnati and savings
accounts at Home City will continue to be insured up to applicable limits by the
Federal Deposit Insurance Corporation (the "FDIC").
This Summary Proxy Statement is dated ___________, 1996, and is first
being mailed to members of Home City, together with the Prospectus of HCFC dated
____________, 1996 (the "Prospectus"), in respect of the common shares of HCFC
to be issued in connection with the Conversion (the "Common Shares"), on or
about ______________, 1996.
1
<PAGE> 3
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
All depositors, including beneficiaries of Individual Retirement
Accounts ("IRAs") at Home City, having a savings account of record with Home
City on ___________________, 1996 (the "Voting Record Date"), and all borrowers
of record on the Voting Record Date whose loans were outstanding on May 1, 1996,
are members of Home City eligible to vote at the Special Meeting and at any
adjournments thereof ("Voting Members"). Voting Members who are depositors will
be entitled to cast one vote for each $100, or fraction thereof, of the
withdrawable value of their savings accounts on the Voting Record Date. Voting
Members who are borrowers will be entitled to cast one vote each. No Voting
Member may cast more than 1,000 votes.
A savings account or a loan account in which one or more persons has an
interest shall be deemed to be held by only one Voting Member for the purpose of
voting at the Special Meeting. Any questions as to the eligibility of a member
to vote, the number of votes allocated to each Voting Member or any other matter
relating to voting will be resolved at the time of the Special Meeting by
reference to the records of Home City.
Home City records disclose that, as of the Voting Record Date, there
were _______________ votes entitled to be cast at the Special Meeting, a
majority of which are required to approve the Plan. A majority of the votes cast
at the Special Meeting are also necessary to adopt the Federal Stock Charter and
Federal Stock Bylaws of Home City.
PROXIES
Voting Members may vote in person or by proxy at the Special Meeting.
For Voting Members wishing to vote in person, ballots will be distributed at the
Special Meeting. For Voting Members wishing to vote by proxy at the Special
Meeting, the enclosed Proxy may be completed and given in accordance with this
Summary Proxy Statement. Any other proxy held by Home City will not be used by
Home City for the Special Meeting.
A Proxy will be voted in the manner indicated thereon or, in the absence
of specific instructions, will be voted FOR the approval of the Plan, FOR the
adoption of the Amended Articles and FOR the adoption of the Amended
Constitution. Without affecting any vote previously taken, a Voting Member may
revoke a Proxy at any time before such proxy is exercised by executing and
delivering a later dated proxy or by giving Home City notice of revocation in
writing or in open meeting at the Special Meeting. Attendance at the Special
Meeting will not, of itself, revoke a Proxy.
Proxies may be solicited by the directors, officers and employees of
Home City in person or by telephone, telegraph or mail, for use only at the
Special Meeting and any adjournments thereof and will not be used for any other
meeting. The cost of soliciting Proxies will be borne by Home City.
MANAGEMENT'S RECOMMENDATIONS AND REASONS FOR CONVERSION
THE BOARD OF DIRECTORS RECOMMENDS THAT MEMBERS VOTE FOR THE APPROVAL OF
THE PLAN AND FOR THE ADOPTION OF THE FEDERAL STOCK CHARTER AND FEDERAL STOCK
BYLAWS.
In unanimously adopting the Plan, the Board of Directors determined
that Home City will derive substantial benefits from the Conversion and that the
Conversion is in the best interests of Home City, its members and the public.
The principal factors considered by Home City's Board of Directors in reaching
the decision to pursue a mutual-to-stock conversion are the numerous competitive
disadvantages which Home City faces if it continues in mutual form. These
disadvantages relate to a variety of factors, including growth opportunities,
employee retention and regulatory uncertainty. If Home City is to continue to
grow and prosper, the mutual form of organization is the least desirable from a
competitive standpoint. Although Home City does not have any specific
acquisitions planned at this time, the Conversion will position Home City to
take advantage of any acquisition opportunities which may present themselves.
Because a conversion to stock form is a time-consuming and complex process, Home
City cannot wait until an acquisition is imminent to begin the conversion
process.
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As an increasing number of Home City's competitors convert to stock
form and can use stock based compensation programs, Home City, as a mutual, is
at a disadvantage when it comes to attracting and retaining qualified
management. Home City believes that the ESOP for all employees and the Home City
Financial Corporation 1997 Stock Option and Incentive Plan (the "Stock Option
Plan") and the Home City Financial Corporation Recognition and Retention Plan
(the "RRP") for directors and management are important tools, even though Home
City will be required to wait until after the Conversion to implement the Stock
Option Plan and the RRP.
Another benefit of the Conversion will be an increase in capital.
Notwithstanding Home City's current capital position, the importance of higher
levels of capital cannot be ignored. As has been amply demonstrated in the past,
changing accounting principles, interest rate shifts and changing regulations
can threaten even well-capitalized institutions. As a mutual institution, Home
City can only increase capital through retained earnings or the issuance of
subordinated debentures, which do not count as Tier I capital for regulatory
capital purposes. Capital that may seem unnecessary now may support future
growth and help Home City withstand future threats to its capital.
In view of the competitive disadvantages and the ongoing debate about
the future of mutual institutions in the wake of regulatory consolidation and
other forces, Home City is choosing to reject the uncertainty inherent in the
mutual structure in favor of the more widely used, recognized and understood
stock form of ownership.
The Conversion will also give members of Home City, at their option,
the opportunity to become shareholders of HCFC. No member of Home City will be
obligated to subscribe or not to subscribe to common shares of HCFC (the "Common
Shares") by voting on the Plan, nor will any member's deposit account be
converted into Common Shares by such vote. After completion of the Conversion,
Home City will continue to provide the services presently offered to depositors
and borrowers, will maintain its existing offices and will retain its existing
management and employees.
Upon the consummation of the Conversion the Federal Stock Charter of
Home City, a copy of which is attached to the Plan as Exhibit I, and the Federal
Stock Bylaws, a copy of which is attached to the Plan as Exhibit II, will be the
Charter and Bylaws of Home City as a stock savings bank.
THE BUSINESS OF HCFC
HCFC was incorporated under Ohio law in August 1996 at the direction of
Home City for the purpose of serving as the holding company for Home City. HCFC
has not conducted and will not conduct any business other than business related
to the Conversion prior to the completion of the Conversion. HCFC has received
approval of the OTS to acquire the capital stock to be issued by Home City in
the Conversion. Upon the consummation of the Conversion, HCFC will be a unitary
savings and loan holding company, the principal assets of which will initially
be the capital stock of Home City, a loan to the ESOP for the purchase of Common
Shares and the investments made with the proceeds retained by HCFC from the sale
of Common Shares. See "USE OF PROCEEDS." As a savings and loan holding company,
HCFC will be required to register with, and will be subject to examination and
supervision by, the OTS. See "REGULATION - OTS Regulations -- Holding Company
Regulation" in the Prospectus. The types of business activities in which a
unitary savings and loan holding company may engage are virtually unrestricted.
See, however, "RISK FACTORS - Legislation and Regulation Which May Adversely
Affect Home City's Earnings" in the Prospectus.
The office of HCFC is located at 63 West Main Street,
Springfield, Ohio 45502, and its telephone number is (513) 324-5736.
THE BUSINESS OF HOME CITY
Home City is a federal mutual savings bank which has served the
Springfield, Ohio, area since 1925. Originally formed under the name "Home City
Savings and Loan Association," Home City changed its name to "Home City Federal
Savings Bank" on May 1, 1996. As a federal savings bank chartered under the laws
of the United States, Home City is subject to supervision and regulation by the
OTS and the FDIC and is a member of the FHLB of Cincinnati. The deposits of Home
City are insured up to applicable limits by the FDIC in the SAIF. See
"REGULATION" in the Prospectus.
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Home City is principally engaged in the business of making conventional
first mortgage loans secured by one- to four-family residential real estate
located within Clark County, Ohio, and adjacent counties and investing in U.S.
Government agency obligations, interest-bearing deposits in other financial
institutions and mortgage-backed securities. Home City also makes loans secured
by multifamily real estate (over four units) and nonresidential real estate and
construction, consumer and commercial loans. Loan funds are obtained primarily
from savings deposits, loan repayments and borrowings from the FHLB of
Cincinnati. See "THE BUSINESS OF HOME CITY - Lending Activities; and -
Investment Activities" in the Prospectus.
Interest on loans and mortgage-backed securities is Home City's primary
source of income. The principal expense of Home City is interest paid on deposit
accounts. Operating results are dependent to a significant degree on the net
interest income of Home City, which is the difference between interest earned on
loans and mortgage-backed securities and interest paid on deposits. Like most
thrift institutions, Home City's interest income and interest expense are
significantly affected by general economic conditions and by the policies of
various regulatory authorities. See "RISK FACTORS" and "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF HOME CITY" in
the Prospectus.
Home City conducts business from its office at 63 West Main Street,
Springfield, Ohio 45502. The telephone number of Home City is (513) 324-5736.
See "THE BUSINESS OF HOME CITY" in the Prospectus.
THE CONVERSION
THE OTS HAS APPROVED THE PLAN, SUBJECT TO THE APPROVAL OF THE PLAN BY
THE MEMBERS OF HOME CITY ENTITLED TO VOTE ON THE PLAN AND SUBJECT TO THE
SATISFACTION OF CERTAIN OTHER CONDITIONS IMPOSED BY THE OTS. OTS APPROVAL DOES
NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN.
GENERAL
On September 3, 1996, the Board of Directors of Home City unanimously
adopted a Plan of Conversion and recommended that the voting members of Home
City approve the Plan at the Special Meeting to be held on ___________, 1996.
During and upon completion of the Conversion, Home City will continue to provide
the services presently offered to depositors and borrowers, will maintain its
existing offices and will retain its existing management and employees.
Based on the current Valuation Range, between 612,000 and 952,200
Common Shares are expected to be offered in the Subscription Offering and the
Community Offering in which preference will be given to natural persons residing
in Clark County, Ohio, at a price of $10 per share. Federal regulations require,
with certain exceptions, that shares offered in connection with the Conversion
must be sold up to at least the minimum point of the Valuation Range in order
for the Conversion to become effective. The actual number of shares sold in
connection with the Conversion will be determined upon completion of the
Conversion in the sole discretion of the Board of Directors based upon the final
determination of the pro forma market value of Home City at the completion of
the Subscription Offering and the Community Offering. See "Pricing and Number of
Common Shares to be Sold."
The Common Shares will be offered in the Subscription Offering to (1)
each account holder of Home City who, as of June 30, 1995, had a Qualifying
Deposit ("Eligible Account Holders"), (2) the ESOP, (3) each account holder of
Home City who, as of September 30, 1996, had a Qualifying Deposit ("Supplemental
Eligible Account Holders"), and (4) each account holder of Home City having a
savings deposit of record with Home City on _____________ (the "Voting Record
Date"), and each borrower of record on the Voting Record Date whose loan was
outstanding on May 1, 1996 (such depositors and borrowers as of ______________,
collectively, the "Voting Members"). Any Common Shares not subscribed for in the
Subscription Offering may be sold to the general public in the Community
Offering in a manner which will seek to achieve the widest distribution of the
Common Shares, but which will give preference to natural persons residing in
Clark County, Ohio. Under OTS regulations, the Community Offering must be
completed within 45 days after completion of the Subscription Offering, unless
such period is extended by Home City with the approval of the OTS. If the
Community Offering is determined not to be feasible, an occurrence that is not
currently anticipated, the Board of Directors of Home
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City will consult with the OTS to determine an appropriate alternative method
of selling unsubscribed Common Shares. No alternative sales methods are
currently planned.
OTS regulations require the completion of the Conversion within 24
months after the date of the approval of the Plan by the Voting Members of Home
City. The commencement and completion of the Conversion will be subject to
market conditions and other factors beyond Home City's control. Due to changing
economic and market conditions, no assurance can be given as to the length of
time that will be required to complete the sale of the Common Shares. If delays
are experienced, significant changes may occur in the estimated pro forma market
value of Home City, together with corresponding changes in the aggregate
offering price and the net proceeds realized by HCFC from the sale of the Common
Shares. In such circumstances, Home City may also incur substantial additional
printing, legal and accounting expenses in completing the Conversion. In the
event the Conversion is not successfully completed, Home City will be required
to charge all Conversion expenses against current earnings.
The following is a summary of the material aspects of the Conversion.
The summary is qualified in its entirety by reference to the provisions of the
Plan, a copy of which may be inspected at each office of Home City and at the
office of the OTS. The Plan is also filed as an exhibit to the Registration
Statement of which this Prospectus is a part, and copies of the Registration
Statement may be obtained from the SEC. See "ADDITIONAL INFORMATION."
PRINCIPAL EFFECTS OF THE CONVERSION
VOTING RIGHTS. Savings account holders who are members of Home City in
its mutual form will have no voting rights in Home City as converted and will
not participate, therefore, in the election of directors or otherwise control
Home City's affairs. After the Conversion, voting rights in Home City will be
vested exclusively in HCFC as the sole shareholder of Home City. Voting rights
in HCFC will be held exclusively by its shareholders. Each holder of HCFC's
Common Shares will be entitled to one vote for each Common Share owned on any
matter to be considered by HCFC's shareholders. See "DESCRIPTION OF AUTHORIZED
SHARES."
SAVINGS ACCOUNTS AND LOANS. Savings accounts in Home City, as
converted, will be equivalent in amount, interest rate and other terms to the
present savings accounts in Home City, and the existing FDIC insurance on such
deposits will not be affected by the Conversion. The Conversion will not affect
the terms of loan accounts or the rights and obligations of borrowers under
their individual contractual arrangements with Home City.
TAX CONSEQUENCES. The consummation of the Conversion is expressly
conditioned on receipt by Home City of a private letter ruling from the Internal
Revenue Service (the "IRS") or an opinion of counsel to the effect that the
Conversion will constitute a tax-free reorganization as defined in Section
368(a) of the Code. Home City intends to proceed with the Conversion based upon
an opinion rendered by its special counsel, Vorys, Sater, Seymour and Pease,
addressing the following federal tax consequences, which are all of the material
federal tax consequences of the Conversion:
(1) The Conversion constitutes a reorganization within the
meaning of Section 368(a)(1)(F) of the Code, and no gain or loss will be
recognized by Home City in its mutual form or in its stock form as a
result of the Conversion. Home City in its mutual form and Home City in
its stock form will each be a "party to a reorganization" within the
meaning of Section 368(B) of the Code;
(2) No gain or loss will be recognized by Home City upon the
receipt of money from HCFC in exchange for the capital stock of Home
City, as converted;
(3) The assets of Home City will have the same basis in its
hands immediately after the Conversion as it had in its hands
immediately prior to the Conversion, and the holding period of the
assets of Home City after the Conversion will include the period during
which the assets were held by Home City before the Conversion;
(4) No gain or loss will be recognized to the deposit account
holders of Home City upon the issuance to them, in exchange for their
respective withdrawable deposit accounts in Home City immediately prior
to the Conversion, of withdrawable deposit accounts in Home City
immediately after the Conversion, in the same dollar amount as their
withdrawable deposit accounts in Home City immediately prior to the
Conversion, plus, in the case
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of Eligible Account Holders and Supplemental Eligible Account Holders,
the interests in the Liquidation Account of Home City, as described
below;
(5) The basis of the withdrawable deposit accounts in Home City
held by its deposit account holders immediately after the Conversion
will be the same as the basis of their deposit accounts in Home City
immediately prior to the Conversion. The basis of the interests in the
Liquidation Account received by the Eligible Account Holders and
Supplemental Eligible Account Holders will be zero. The basis of the
nontransferable subscription rights received by Eligible Account
Holders, Supplemental Eligible Account Holders and Other Eligible
Members (hereinafter defined) will be zero (assuming that at
distribution such rights have no ascertainable fair market value);
(6) No gain or loss will be recognized to Eligible Account
Holders, Supplemental Eligible Account Holders or Other Eligible Members
upon the distribution to them of nontransferable subscription rights to
purchase Common Shares (assuming that at distribution such rights have
no ascertainable fair market value), and no taxable income will be
realized by such Eligible Account Holders, Supplemental Eligible Account
Holders or Other Eligible Members as a result of their exercise of such
nontransferable subscription rights;
(7) The basis of the Common Shares purchased by members of Home
City pursuant to the exercise of subscription rights will be the
purchase price thereof (assuming that such rights have no ascertainable
fair market value and that the purchase price is not less than the fair
market value of the shares on the date of such exercise), and the
holding period of such shares will commence on the date of such
exercise. The basis of the Common Shares purchased other than by the
exercise of subscription rights will be the purchase price thereof
(assuming in the case of the other subscribers that the opportunity to
buy in the Subscription Offering has no ascertainable fair market
value), and the holding period of such shares will commence on the day
after the date of the purchase;
(8) For purposes of Section 381 of the Code, Home City will be
treated as if there had been no reorganization. The taxable year of Home
City will not end on the effective date of the Conversion and,
immediately after the Conversion, Home City in its stock form will
succeed to and take into account the tax attributes of Home City in its
mutual form immediately prior to the Conversion, including Home City's
earnings and profits or deficit in earnings and profits;
(9) The bad debt reserves of Home City in its mutual form
immediately prior to the Conversion will not be required to be restored
to the gross income of Home City in its stock form as a result of the
Conversion, and immediately after the Conversion such bad debt reserves
will have the same character in the hands of Home City in its stock form
as they would have had if there had been no Conversion. Home City in its
stock form will succeed to and take into account the dollar amounts of
those accounts of Home City in its mutual form which represent bad debt
reserves in respect of which Home City in its mutual form has taken a
bad debt deduction for taxable years ending on or before the Conversion;
and
(10) Regardless of book entries made for the creation of the
Liquidation Account, the Conversion will not diminish the accumulated
earnings and profits of Home City available for the subsequent
distribution of dividends within the meaning of Section 316 of the Code.
The creation of the Liquidation Account on the records of Home City will
have no effect on its taxable income, deductions for additions to
reserves for bad debts under Section 593 of the Code or distributions to
stockholders under Section 593(e) of the Code.
Home City has received an opinion from Keller to the effect that the
subscription rights have no ascertainable fair market value because the rights
are received by specified persons at no cost, may not be transferred and are of
short duration. The IRS could challenge the assumption that the subscription
rights have no ascertainable fair market value.
For Ohio tax purposes, the tax consequences of the Conversion will be
as follows:
(1) Home City is a "financial institution" for State of Ohio
tax purposes, and the Conversion will not change such status;
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(2) Home City is subject to the Ohio corporate franchise tax on
"financial institutions," which is imposed annually at a rate of 1.5% of
Home City's equity capital determined in accordance with GAAP, and the
Conversion will not change such status;
(3) As a "financial institution," Home City is not subject to
any tax based upon net income or net profit imposed by the State of
Ohio, and the Conversion will not change such status;
(4) The Conversion will not be a taxable transaction to Home
City in its mutual or stock form for purposes of the Ohio corporate
franchise tax; however, as a consequence of the Conversion, the annual
Ohio corporate franchise tax liability of Home City will increase if the
taxable net worth of Home City (i.e., book net worth computed in
accordance with GAAP at the close of Home City's taxable year for
federal income tax purposes) increases thereby; and
(5) The Conversion will not be a taxable transaction to any
deposit account holder or borrower member of Home City in its mutual or
stock form for purposes of the Ohio corporate franchise tax and the Ohio
personal income tax.
Each Eligible Account Holder, Supplemental Eligible Account Holder and
Other Eligible Member is urged to consult his or her own tax advisor with
respect to the effect of such tax consequences on his or her own particular
facts and circumstances.
LIQUIDATION ACCOUNT. In the unlikely event of a complete liquidation of
Home City in its present mutual form, each depositor in Home City would receive
a pro rata share of any assets of Home City remaining after payment of the
claims of all creditors, including the claims of all depositors to the
withdrawable value of their savings accounts. A depositor's pro rata share of
such remaining assets would be the same proportion of such assets as the value
of such depositor's savings deposits bears to the total aggregate value of all
savings deposits in Home City at the time of liquidation.
In the event of a complete liquidation of Home City in its stock form
after the Conversion, each savings depositor as of June 30, 1995, and September
30, 1996, would have a claim of the same general priority as the claims of all
other general creditors of Home City. Except as described below, each
depositor's claim would be solely in the amount of the balance in such
depositor's savings account plus accrued interest. The depositor would have no
interest in the assets of Home City above that amount. Such assets would be
distributed to HCFC as the sole shareholder of Home City.
For the purpose of granting a limited priority claim to the assets of
Home City in the event of a complete liquidation thereof to Eligible Account
Holders and Supplemental Eligible Account Holders who continue to maintain
savings accounts at Home City after the Conversion, Home City will, at the time
of Conversion, establish the Liquidation Account in an amount equal to the
regulatory capital of Home City as of the latest practicable date prior to the
Conversion at which such regulatory capital can be determined. For this purpose,
Home City shall use the regulatory capital figure no later than that set forth
in its latest statement of financial condition contained in the Prospectus. The
Liquidation Account will not operate to restrict the use or application of any
of the regulatory capital of Home City.
Each Eligible Account Holder and Supplemental Eligible Account Holder
will have a separate inchoate interest (the "Subaccount") in a portion of the
Liquidation Account for Qualifying Deposits held on the Eligibility Record Date
or the Supplemental Eligibility Record Date, as the case may be.
The balance of each initial Subaccount shall be an amount determined by
multiplying the amount in the Liquidation Account by a fraction, the numerator
of which is the closing balance in the account holder's account as of the close
of business on the Eligibility Record Date or the Supplemental Eligibility
Record Date, as the case may be, and the denominator of which is the total
amount of all Qualifying Deposits of Eligible Account Holders and Supplemental
Eligible Account Holders on the corresponding record date. The balance of each
Subaccount may be decreased but will never be increased. If, at the close of
business on any annual closing date of Home City subsequent to the respective
record dates the balance in the savings account to which a Subaccount relates is
less than the lesser of (i) the deposit balance in such savings account at the
close of business on any other annual closing date subsequent to the Eligibility
Record Date or Supplemental Eligibility Record Date or (ii) the amount of the
Qualifying Deposit as of the Eligibility Record Date or the Supplemental
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Eligibility Record Date, the balance of the Subaccount for such savings account
shall be adjusted proportionately to the reduction in such savings account
balance. In the event of any such downward adjustment, such Subaccount balance
shall not be subsequently increased notwithstanding any increase in the deposit
balance of the related savings account. If any savings account is closed, its
related Subaccount shall be reduced to zero upon such closing.
In the event of a complete liquidation of the converted Home City (and
only in such event), each Eligible Account Holder and Supplemental Eligible
Account Holder shall receive from the Liquidation Account a distribution equal
to the current balance in each of such account holder's Subaccounts before any
liquidation distribution may be made to HCFC as the sole shareholder of Home
City. Any assets remaining after satisfaction of such liquidation rights and the
claims of Home City's creditors would be distributed to HCFC as the sole
shareholder of Home City. No merger, consolidation, purchase of bulk assets or
similar combination or transaction with another institution, the deposits of
which are insured by the FDIC, will be deemed to be a complete liquidation for
this purpose and, in any such transaction, the Liquidation Account shall be
assumed by the surviving institution.
COMMON SHARES. SHARES ISSUED UNDER THE PLAN CANNOT AND WILL NOT BE
INSURED BY THE FDIC. For a description of the characteristics of the Common
Shares, see "DESCRIPTION OF AUTHORIZED SHARES."
INTERPRETATION AND AMENDMENT OF THE PLAN
The Boards of Directors of Home City and HCFC will interpret the Plan.
To the extent permitted by law, all interpretations of the Plan by the Boards of
Directors of Home City and HCFC will be final. The Plan may be amended by the
Boards of Directors of Home City and HCFC at any time before completion of the
Conversion with the concurrence of the OTS. If Home City and HCFC determine upon
advice of counsel and after consultation with the OTS that any such amendment is
material, subscribers will be notified of the amendment and will be provided the
opportunity to affirm, increase, decrease or cancel their subscriptions. Any
person who does not affirmatively elect to continue his subscription or elects
to rescind his subscription before the date specified in the notice will have
all of his funds promptly refunded with interest. Any person who elects to
decrease his subscription will have the appropriate portion of his funds
promptly refunded with interest.
CONDITIONS AND TERMINATION
The completion of the Conversion requires the approval of the Plan and
the adoption of the Federal Stock Charter and Federal Stock Bylaws by the Voting
Members of Home City at the Special Meeting and the sale of the requisite amount
of Common Shares within 24 months following the date of such approval. If these
conditions are not satisfied, the Plan will automatically terminate and Home
City will continue its business in the mutual form of organization. The Plan may
be voluntarily terminated by the Board of Directors at any time before the
Special Meeting and at any time thereafter with the approval of the OTS.
SUBSCRIPTION OFFERING
THE SUBSCRIPTION OFFERING WILL EXPIRE AT 4:00 P.M., EASTERN TIME, ON
THE SUBSCRIPTION EXPIRATION DATE. SUBSCRIPTION RIGHTS NOT EXERCISED BEFORE THE
SUBSCRIPTION EXPIRATION DATE WILL BE VOID, WHETHER OR NOT HCFC HAS BEEN ABLE TO
LOCATE EACH PERSON ENTITLED TO SUCH SUBSCRIPTION RIGHTS.
Nontransferable subscription rights to purchase Common Shares are being
issued at no cost to all eligible persons and entities in accordance with the
preference categories established by the Plan, as described below. Each
subscription right may be exercised only by the person to whom it is issued and
only for his or her own account. Each person subscribing for shares must
represent to HCFC that he or she is purchasing such shares for his or her own
account and that he or she has no agreement or understanding with any other
person for the sale or transfer of such shares.
The number of Common Shares which a person who has subscription rights
may purchase will be determined, in part, by the total number of Common Shares
to be issued and the availability of such shares for purchase under the
preference categories set forth in the Plan and certain other limitations. See
"Limitations on Purchases of Common
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Shares." The sale of any Common Shares pursuant to subscriptions received is
contingent upon approval of the Plan by the Voting Members of Home City at
the Special Meeting.
The preference categories for the allocation of Common Shares, which
have been established by the Plan in accordance with applicable regulations, are
as follows:
CATEGORY 1. Eligible Account Holders will receive, without
payment, nontransferable subscription rights to purchase up to the
greater of (i) the amount permitted to be purchased in the Community
Offering, (ii) .10% of the total number of Common Shares sold in
connection with the Conversion, or (iii) 15 times the product (rounded
down to the next whole number) obtained by multiplying the total number
of Common Shares sold in connection with the Conversion by a fraction of
which the numerator is the amount of the Eligible Account Holder's
Qualifying Deposit and the denominator of which is the total amount of
Qualifying Deposits of all Eligible Account Holders, in each case on the
Eligibility Record Date, subject to the overall purchase limitations set
forth in Section 10 of the Plan. See "Limitations on Purchases of Common
Shares."
If the exercise of subscription rights in this Category 1
results in an over-subscription, Common Shares will be allocated among
subscribing Eligible Account Holders in a manner which will, to the
extent possible, make the total allocation of each subscriber equal 100
shares or the amount subscribed for, whichever is lesser. Any Common
Shares remaining after such allocation has been made will be allocated
among the subscribing Eligible Account Holders whose subscriptions
remain unfilled in the proportion which the amount of their respective
Qualifying Deposits on the Eligibility Record Date bears to the total
Qualifying Deposits of all Eligible Account Holders on such date. No
fractional shares will be issued. The subscription rights of the
Eligible Account Holders are subordinate to the limited priority right
of the ESOP set forth in the following paragraph.
CATEGORY 2. The ESOP will receive, without payment,
nontransferable subscription rights to purchase up to 10% of the Common
Shares sold in connection with the Conversion. The subscription rights
of the ESOP will be subordinate to the subscription rights in Category
1, except that if the final pro forma market value of Home City exceeds
the maximum of the Valuation Range, the ESOP shall have first priority
with respect to the amount sold in excess of the maximum of the
Valuation Range. If the ESOP is unable to purchase all or part of the
Common Shares for which it subscribes due to an oversubscription in
Category 1, the ESOP may purchase Common Shares on the open market or
may purchase authorized but unissued shares of HCFC. If the ESOP
purchases authorized but unissued shares from HCFC, such purchases would
have a dilutive effect on the interests of HCFC's shareholders.
CATEGORY 3. Supplemental Eligible Account Holders, will
receive, without payment, non-transferable subscription rights to
purchase up to the greater of (i) the amount permitted to be purchased
in the Community Offering, (ii) .10% of the total number of Common
Shares sold in connection with the Conversion, or (iii) 15 times the
product (rounded down to the next whole number) obtained by multiplying
the total number of Common Shares sold in connection with the Conversion
by a fraction of which the numerator is the amount of the Supplemental
Eligible Account Holder's Qualifying Deposit and the denominator of
which is the total amount of Qualifying Deposits of all Supplemental
Eligible Account Holders, in each case on the Supplemental Eligibility
Record Date, subject to the overall purchase limitations set forth in
Section 10 of the Plan. See "Limitations on Purchases of Common Shares."
If the exercise of subscription rights in this Category 3
results in an over-subscription, Common Shares will be allocated among
subscribing Supplemental Eligible Account Holders in a manner which
will, to the extent possible, make the total allocation of each
subscriber equal 100 shares or the amount subscribed for, whichever is
lesser. Any Common Shares remaining after such allocation has been made
will be allocated among the subscribing Supplemental Account Holders
whose subscriptions remain unfilled in the proportion which the amount
of their respective Qualifying Deposits on the Supplemental Eligibility
Record Date bears to the total Qualifying Deposits of all Supplemental
Eligible Account Holders on such date. No fractional shares will be
issued.
Subscription rights received in this Category 3 will be
subordinate to the subscription rights in Categories 1 and 2.
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CATEGORY 4. All Voting Members who are not Eligible Account
Holders or Supplemental Eligible Account Holders ("Other Eligible
Members") will receive nontransferable subscription rights to purchase
Common Shares in an amount up to the greater of the amount permitted to
be purchased in the Community Offering or .10% of the total number of
Common Shares sold in connection with the Conversion, subject to the
overall purchase limitations set forth in Section 10 of the Plan. See
"Limitations on Purchases of Common Shares." In the event of an
oversubscription in this Category 4, the available shares will be
allocated among subscribing Other Eligible Members on an equitable basis
in the same proportion that their respective subscriptions bear to the
total amount of all subscriptions in this Category 4.
Subscription rights received in this Category 4 will be
subordinate to the subscription rights in Categories 1 through 3.
The Board of Directors may reject any one or more subscriptions if,
based upon the Board of Directors' interpretation of applicable regulations,
such subscriber is not entitled to the shares for which he or she has subscribed
or if the sales of the shares subscribed for would be in violation of any
applicable statutes, regulations or rules.
HCFC will make reasonable efforts to comply with the securities laws of
all states in the United States in which persons having subscription rights
reside. However, no such person will be offered or receive any Common Shares
under the Plan who resides in a foreign country or in a state of the United
States with respect to which all of the following apply: (i) a small number of
persons otherwise eligible to subscribe for shares under the Plan resides in
such country or state; (ii) under the securities laws of such country or state,
the granting of subscription rights or the offer or sale of Common Shares to
such persons would require HCFC or its officers or directors, to register as a
broker or dealer or to register or otherwise qualify its securities for sale in
such country or state; and (iii) such registration or qualification would be
impracticable for reasons of cost or otherwise.
The term "resident" as used herein with respect to the Subscription
Offering means any person who, on the date of submission of a stock order form,
maintained a bona fide residence within a jurisdiction in which the Common
Shares are being offered for sale. If a person is a business entity, the
person's residence shall be the location of the principal place of business. If
the person is a personal benefit plan, the residence of the beneficiary shall be
the residence of the plan. In the case of all other benefit plans, the residence
of the trustee shall be the residence of the plan. In all cases, the
determination of a subscriber's residency shall be in the sole discretion of
Home City and HCFC.
COMMUNITY OFFERING
Concurrently with the Subscription Offering, HCFC is hereby offering
Common Shares in the Community Offering, subject to the limitations set forth
below, to the extent such shares remain available after the satisfaction of all
orders received in the Subscription Offering. If subscriptions are received in
the Subscription Offering for at least 952,200 Common Shares, Common Shares may
not be available for purchase in the Community Offering. All sales of Common
Shares in the Community Offering will be at the same price per share as in the
Subscription Offering. THE COMMUNITY OFFERING MAY BE TERMINATED AT ANY TIME
AFTER ORDERS FOR AT LEAST 952,200 COMMON SHARES HAVE BEEN RECEIVED, BUT IN NO
EVENT LATER THAN ___________, 1996 (THE "COMMUNITY EXPIRATION DATE"), WITHOUT
THE CONSENT OF THE OTS.
In the event shares are available in the Community Offering, members of
the general public may purchase up to 1% of the Common Shares sold, which is
9,522 Common Shares at the maximum of the Valuation Range, as adjusted. See
"Limitations on Purchases of Common Shares." If an insufficient number of shares
is available to fill all of the orders received in the Community Offering, the
available shares will be allocated in a manner to be determined by the Board of
Directors of HCFC, subject to the following:
(i) Preference will be given to natural persons who are residents
of Clark County, Ohio, the county in which the offices of Home City are
located;
10
<PAGE> 12
(ii) Orders received in the Community Offering will first be filled up
to a maximum of 2% of the total number of Common Shares offered, with
any remaining shares allocated on an equal number of shares per order
basis until all orders have been filled;
(iii) No person, together with any Associate and persons Acting in
Concert, may purchase more than 2% of the Common Shares; and
(iv) The right of any person to purchase Common Shares in the Community
Offering is subject to the right of HCFC and Home City to accept or
reject such purchases in whole or in part.
The term "resident" as used herein with respect to the Community
Offering means any natural person who, on the date of submission of a stock
order form, maintained a bona fide residence within, as appropriate, Clark
County or a jurisdiction in which the Common Shares are being offered for sale.
LIMITATIONS ON PURCHASES OF COMMON SHARES
The Plan provides for certain additional limitations to be placed upon
the purchase of Common Shares. To the extent such shares are available, the
minimum number of shares that may be purchased by any party is 25. No fractional
shares will be issued.
Currently, no person, together with Associates and persons Acting in
Concert, may purchase more than 2% of the Common Shares. Subject to any required
regulatory approval and the requirements of applicable laws and regulations, but
without further approval of the members of Home City, purchase limitations may
be increased or decreased at the sole discretion of the Boards of Directors of
HCFC and Home City at any time. If such amount is increased, persons who
subscribed for the maximum amount will be given the opportunity to increase
their subscriptions up to the then applicable limit, subject to the rights and
preferences of any person who has priority subscription rights. The Boards of
Directors of HCFC and Home City may, in their sole discretion, increase the
maximum purchase limitation referred to above up to 10%, provided that orders
for shares exceeding 5% of the shares to be issued in the Conversion shall not
exceed, in the aggregate, 10% of the shares to be issued in the Conversion. In
the event that the purchase limitation is decreased after commencement of the
Subscription Offering, the order of any person who subscribed for the maximum
number of Common Shares shall be decreased by the minimum amount necessary so
that such person shall be in compliance with the then maximum number of shares
permitted to be subscribed for by such person.
"Acting in Concert" is defined as "knowing participation in a joint
activity or independent conscious parallel action towards a common goal" or "a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose." Persons shall be presumed to be Acting in Concert
with each other if: (i) both are purchasing Common Shares in the Conversion and
are (a) executive officers, directors, trustees, or any one who performs, or
whose nominee or representative performs, a similar policy making function at a
company (other than Home City or HCFC) or principal business units or
subsidiaries of a company, or (b) any person who directly or indirectly owns or
controls 10% or more of the stock of a company (other than Home City or HCFC);
or (ii) one person provides credit to the other for the purchase of Common
Shares or is instrumental in obtaining that credit. In addition, if a person is
presumed to be Acting in Concert with another person, then the person is
presumed to Act in Concert with anyone else who is, or is presumed to be, Acting
in Concert with that other person.
For purposes of the Plan, (i) the directors of Home City are not deemed
to be Acting in Concert solely by reason of their membership on the Board of
Directors of Home City; (ii) an associate of a person (an "Associate") is (a)
any corporation or organization (other than Home City) of which such person is
an officer, partner or, directly or indirectly, the beneficial owner of 10% or
more of any class of equity securities; (b) any trust or other estate in which
such person has a substantial beneficial interest or as to which such person
serves as trustee or in a similar fiduciary capacity; and (c) any relative or
spouse of such person, or relative of such spouse, who either has the same home
as such person or who is a director or officer of Home City. Executive officers
and directors of Home City and their Associates may not purchase, in the
aggregate, more than 34.9% of the total number of Common Shares sold in the
Conversion. Shares acquired by the ESOP will not, pursuant to regulations
governing the Conversion, be aggregated with the shares purchased by the
directors, officers and employees of Home City.
11
<PAGE> 13
Purchases of Common Shares are also subject to the change in control
regulations of the OTS. Such regulations restrict direct and indirect purchases
of 10% or more of the stock of any savings association by any person or group of
persons Acting in Concert. See "RESTRICTIONS ON ACQUISITION OF HOME CITY AND
HCFC AND RELATED ANTI-TAKEOVER PROVISIONS Federal Law and Regulation" in the
Prospectus.
After the Conversion, Common Shares, except for shares purchased by
officers and directors of HCFC, will be freely transferable, subject to OTS
regulations. See "Restrictions on Transferability of Common Shares by Directors
and Officers."
PLAN OF DISTRIBUTION
The offering of the Common Shares is made only pursuant to this
Prospectus, which is available to all eligible subscribers by mail. See
"ADDITIONAL INFORMATION." Additional copies are available at the offices of Home
City. Sales of Common Shares will be made primarily by registered
representatives affiliated with Webb. HCFC will rely on Rule 3a4-1 under the
Exchange Act, and sales of Common Shares will be conducted within the
requirements of Rule 3a4-1, which will permit officers, directors and employees
of HCFC and Home City to participate in the sale of Common Shares, in clerical
capacities, providing administrative support in effecting sales transactions or
answering questions relating to the proper execution of the Stock Order Form,
except that officers, directors and employees will not participate in the sale
of Common Shares to residents of any state in which such persons have not met
such state's requirements for participation. Management of Home City may answer
questions regarding the business of Home City. Other questions of prospective
purchasers, including questions as to the nature of the investment, will be
directed to registered representatives. Management and the employees of Home
City have been instructed not to solicit offers to purchase Common Shares or to
provide advice regarding the purchase of Common Shares. No officer, director or
employee of HCFC or Home City will be compensated in connection with his
participation by the payment of commissions or other remuneration based either
directly or indirectly on the transactions in the Common Shares.
To assist HCFC in marketing the Common Shares, HCFC has retained Webb,
which are broker-dealers registered with the SEC and members of the National
Association of Securities Dealers, Inc. (the "NASD"). Webb will consult with and
advise HCFC and assist with the sale of the Common Shares on a best efforts
basis in connection with the Conversion. The services to be rendered by Webb
include assisting HCFC in conducting the Subscription Offering and the Community
Offering and educating Home City personnel about the Conversion process. Webb is
not obligated to purchase any of the Common Shares.
For its services, Webb will receive a management fee in the amount of
$25,000. Webb will also receive a commission equal to 1.5% of the aggregate
purchase price paid for Common Shares sold in the Conversion, excluding
purchases by Home City's directors, executive officers, and Associates of such
directors and executive officers, and the ESOP. If Webb and HCFC deem necessary,
Webb may enter into agreements with other NASD members ("Selected Dealers") for
assistance in the sale of the Common Shares, in which event Webb and such
Selected Dealers will receive a commission not to exceed 5.5% of the purchase
price of Common Shares sold, if any, by the Selected Dealer. In addition, HCFC
will reimburse Webb for certain expenses, including reasonable legal fees. Webb
is not obligated to purchase any Common Shares.
HCFC and Home City have agreed to indemnify Webb and its directors,
officers, employees, agents and any controlling person against any and all loss,
liability, claim, damage or expense arising out of any untrue statement, or
alleged untrue statement, of a material fact contained in the Summary Proxy
Statement or the Prospectus, any application to regulatory authorities, any
"blue sky" application, or any other related document prepared or executed by or
on behalf of HCFC or Home City with its consent in connection with, or in
contemplation of, the Conversion, or any omission therefrom of a material fact
required to be stated therein, unless such untrue statement or omission, or
alleged untrue statement or omission, was made in reliance upon certain
information furnished to Home City by Webb expressly for use in the Summary
Proxy Statement or the Prospectus.
The Common Shares will be offered principally by the distribution of
this Prospectus and through activities conducted at the Conversion Information
Center, which will be located at the office of Home City. The Conversion
12
<PAGE> 14
Information Center will be staffed by one or more of Webb's employees, who will
be responsible for mailing materials relating to the Offering, responding to
questions regarding the Conversion and the Offering and processing stock orders.
A conspicuous legend that the Common Shares are not a federally-insured
or guaranteed deposit or account appears on all offering documents used in
connection with the Conversion and will appear on the certificates representing
the Common Shares. Any person purchasing Common Shares will be required to
execute the Stock Order Form certifying such person's knowledge that the Common
Shares are not federally-insured or guaranteed and that the purchaser has
received a Prospectus and understands the investment risk involved.
EFFECT OF EXTENSION OF COMMUNITY OFFERING
If the Community Offering extends beyond 45 days after the Subscription
Expiration Date, persons who have subscribed for Common Shares in the
Subscription Offering or in the Community Offering will receive a written notice
that until a date specified in the notice, they have the right to increase,
decrease or rescind their subscriptions for Common Shares. Any person who does
not affirmatively elect to continue his subscription or elects to rescind his
subscription during any such extension will have all of his funds promptly
refunded with interest. Any person who elects to decrease his subscription
during any such extension shall have the appropriate portion of his funds
promptly refunded with interest.
USE OF STOCK ORDER FORMS
Subscriptions for Common Shares in the Subscription Offering and the
Community Offering may be made only by completing and submitting a Stock Order
Form. Any person who desires to subscribe for Common Shares in the Subscription
Offering must do so by delivering to HCFC at 63 West Main Street, Springfield,
Ohio 45502-1309, by mail or in person, prior to 4:00 p.m., Eastern Time, on
_________, 1996, a properly executed and completed original Stock Order Form,
together with full payment of the subscription price of $10 for each share for
which subscription is made. Photocopies or telecopies of Stock Order Forms will
not be accepted. See "ADDITIONAL INFORMATION." THE FAILURE TO DELIVER A PROPERLY
EXECUTED ORIGINAL ORDER FORM AND FULL PAYMENT IN A MANNER BY WHICH THEY ARE
ACTUALLY RECEIVED BY HCFC NO LATER THAN 4:00 P.M. ON THE SUBSCRIPTION EXPIRATION
DATE WILL PRECLUDE THE PURCHASE OF COMMON SHARES IN THE OFFERING.
AN EXECUTED STOCK ORDER FORM, ONCE RECEIVED BY HCFC, MAY NOT BE
MODIFIED, AMENDED OR RESCINDED WITHOUT THE CONSENT OF HCFC, UNLESS (I) THE
COMMUNITY OFFERING IS NOT COMPLETED WITHIN 45 DAYS AFTER THE SUBSCRIPTION
EXPIRATION DATE, OR (II) THE FINAL VALUATION OF HOME CITY, AS CONVERTED, IS LESS
THAN $6,120,000 OR MORE THAN $9,522,000. IF EITHER OF THOSE EVENTS OCCUR,
PERSONS WHO HAVE SUBSCRIBED FOR COMMON SHARES IN THE SUBSCRIPTION OFFERING OR IN
THE COMMUNITY OFFERING WILL RECEIVE WRITTEN NOTICE THAT UNTIL A DATE SPECIFIED
IN THE NOTICE, THEY HAVE A RIGHT TO AFFIRM, INCREASE, DECREASE OR RESCIND THEIR
SUBSCRIPTIONS. ANY PERSON WHO DOES NOT AFFIRMATIVELY ELECT TO CONTINUE HIS
SUBSCRIPTION OR ELECTS TO RESCIND HIS SUBSCRIPTION DURING ANY SUCH EXTENSION
WILL HAVE ALL OF HIS FUNDS PROMPTLY REFUNDED WITH INTEREST. ANY PERSON WHO
ELECTS TO DECREASE HIS SUBSCRIPTION DURING ANY SUCH EXTENSION WILL HAVE THE
APPROPRIATE PORTION OF HIS FUNDS PROMPTLY REFUNDED WITH INTEREST.
PAYMENT FOR COMMON SHARES
Payment of the subscription price for all Common Shares for which
subscription is made must accompany all completed Stock Order Form in order for
subscriptions to be valid. Payment for Common Shares may be made (i) in cash, if
delivered in person, (ii) by check, bank draft or money order payable to the
order of Home City, or (iii) by authorization of withdrawal from savings
accounts in Home City (other than non-self-directed IRAs). Wire transfers will
not be accepted. Home City cannot lend money or otherwise extend credit to any
person to purchase Common Shares, other than the ESOP.
Payments made in cash or by check, bank draft or money order will be
placed in a segregated savings account insured by the FDIC up to applicable
limits. Interest will be paid by Home City on such accounts at Home City's
passbook rate, currently ____% annual percentage yield, from the date payment is
received until the Conversion is completed or terminated. Payments made by check
will not be deemed to have been received until such check has cleared for
payment.
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<PAGE> 15
Instructions for authorizing withdrawals from savings accounts are
provided in the Stock Order Form. Once a withdrawal has been authorized, none of
the designated withdrawal amount may be used by a subscriber for any purpose
other than to purchase Common Shares, unless the Conversion is terminated. All
sums authorized for withdrawal will continue to earn interest at the contract
rate for such account or certificate until the completion or termination of the
Conversion. Interest penalties for early withdrawal applicable to certificate
accounts will be waived in the case of withdrawals authorized for the purchase
of Common Shares. If a partial withdrawal from a certificate account results in
a balance less than the applicable minimum balance requirement, the certificate
will be cancelled and the remaining balance will earn interest at Home City's
passbook rate subsequent to the withdrawal.
Persons who are beneficial owners of IRAs maintained at Home City do
not personally have subscription rights related to such account. The account
itself, however, may have subscription rights. In order to utilize funds in an
IRA maintained at Home City, the funds must be transferred to a self-directed
IRA that permits the IRA funds to be invested in stock. The beneficial owner of
the IRA must direct the trustee of the IRA to use funds from such account to
purchase Common Shares in connection with the Conversion. Persons who are
interested in utilizing IRAs at Home City to subscribe for Common Shares should
contact the Home City Conversion Center at (513) 324-3830 for instructions and
assistance.
Subscriptions will not be filled by HCFC until subscriptions have been
received in the Subscription Offering and the Community Offering for up to
612,000 Common Shares, the minimum point of the Valuation Range. If the
Conversion is terminated, all funds delivered to HCFC for the purchase of Common
Shares will be returned with interest, and all charges to savings accounts will
be rescinded. Subscribers and other purchasers will be notified by mail,
promptly on completion of the sale of the Common Shares, of the number of shares
for which their subscriptions have been accepted. Certificates representing
Common Shares will be delivered promptly thereafter.
If the ESOP subscribes for Common Shares in the Subscription Offering,
the ESOP will not be required to pay for the shares subscribed for at the time
it subscribes but may pay for such Common Shares upon consummation of the
Conversion.
SHARES TO BE PURCHASED BY MANAGEMENT PURSUANT TO SUBSCRIPTION RIGHTS
The following table sets forth certain information regarding the
subscription rights intended to be exercised by the directors and executive
officers of Home City and their Associates. For purposes of this table, it has
been assumed that 720,000 Common Shares will be sold in connection with the
Conversion at $10 per share and that a sufficient number of Common Shares will
be available to satisfy the intended purchases by directors and executive
officers. The number of Common Shares purchased may decrease or increase if
fewer than 720,000 Common Shares are sold in connection with the Conversion. See
"Pricing and Number of Common Shares to be Sold."
<TABLE>
<CAPTION>
Percent Aggregate
Total of total purchase
Name shares offering price
- ---- -------- -------- -----------
<S> <C> <C> <C>
John D. Conroy 14,400 2.0% $144,000
P. Clark Engelmeier 14,400 2.0 144,000
James Foreman 14,400 2.0 144,000
Terry A. Hoppes 14,400 2.0 144,000
Douglas L. Ulery 14,400 2.0 144,000
Gary E. Brown .
--------- --- -----------
JoAnn Holdeman .
--------- --- -----------
Total . % $
</TABLE>
All purchases by executive officers and directors of Home City are made
for investment purposes only and with no intent to resell.
PRICING AND NUMBER OF COMMON SHARES TO BE SOLD
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<PAGE> 16
The aggregate offering price of the Common Shares will be based on the
pro forma market value of the shares as determined by an independent appraisal
of Home City. Keller, a firm which evaluates and appraises financial
institutions, was retained by Home City to prepare an appraisal of the estimated
pro forma market value of Home City as converted. Keller will receive a fee of
$15,000 for its appraisal, which amount includes out-of-pocket expenses.
The appraisal was prepared by Keller in reliance upon the information
contained herein. Keller also considered the following factors, among others:
the present and projected operating results and financial condition of Home City
and the economic and demographic conditions in Home City's existing market area;
the quality and depth of Home City's management and personnel; certain
historical financial and other information relating to Home City and a
comparative evaluation of the operating and financial statistics of Home City
with those of other thrift institutions; the aggregate size of the offering; the
impact of the Conversion on Home City's regulatory capital and earnings
potential; the trading market for stock of comparable thrift institutions; the
effect of Home City becoming a subsidiary of HCFC; and general conditions in the
markets for such stocks.
Keller's valuation of the estimated pro forma market value of Home
City, as converted, is $720,000 as of September 6, 1996 (the "Pro Forma Value").
HCFC will issue the Common Shares at a fixed price of $10 per share and, by
dividing the price per share into the Pro Forma Value, will determine the number
of shares to be issued. Applicable regulations also require, however, that the
appraiser establish the Valuation Range of 15% on either side of the Pro Forma
Value to allow for fluctuations in the aggregate value of the Common Shares due
to changes in the market for thrift shares and other factors from the time of
commencement of the Subscription Offering until the completion of the
Conversion.
As of September 6, 1996, the Valuation Range was from $6,120,000 to
$8,280,000, which, based upon a per share offering price of $10, will result in
the sale of between 612,000 and 828,000 Common Shares. In the event that Keller
determines at the close of the Conversion that the aggregate pro forma value of
Home City is higher or lower than the Pro Forma Value, but is nevertheless
within the Valuation Range, or is not more than 15% above the maximum point of
the Valuation Range, HCFC will make an appropriate adjustment by raising or
lowering the total number of Common Shares sold in the Conversion consistent
with the final Valuation Range. The total number of Common Shares sold in the
Conversion will be determined in the discretion of the Board of Directors
consistent with the Valuation Range. If, due to changing market conditions, the
final valuation is not between the minimum of the Valuation Range and 15% above
the maximum of the Valuation Range, subscribers will be given a notice of such
final valuation and the right to affirm, increase, decrease or rescind their
subscriptions. Any person who does not affirmatively elect to continue his
subscription or elects to rescind his subscription before the date specified in
the notice will have all of his funds promptly refunded with interest. Any
person who elects to decrease his subscription will have the appropriate portion
of his funds promptly refunded with interest.
THE APPRAISAL BY KELLER IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS
A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING COMMON SHARES
OR VOTING TO APPROVE THE CONVERSION. IN PREPARING THE VALUATION, KELLER HAS
RELIED UPON AND ASSUMED THE ACCURACY AND COMPLETENESS OF FINANCIAL AND
STATISTICAL INFORMATION PROVIDED BY HOME CITY AND ITS INDEPENDENT AUDITORS.
KELLER DID NOT INDEPENDENTLY VERIFY THE FINANCIAL STATEMENTS AND OTHER
INFORMATION PROVIDED BY HOME CITY AND ITS INDEPENDENT AUDITORS, NOR DID KELLER
VALUE INDEPENDENTLY THE ASSETS OR LIABILITIES OF HOME CITY OR HCFC. THE
VALUATION CONSIDERS HOME CITY ONLY AS A GOING CONCERN AND SHOULD NOT BE
CONSIDERED AS AN INDICATION OF THE LIQUIDATION VALUE OF HOME CITY. MOREOVER,
BECAUSE SUCH VALUATION IS NECESSARILY BASED UPON ESTIMATES AND PROJECTIONS OF A
NUMBER OF MATTERS, ALL OF WHICH ARE SUBJECT TO CHANGE FROM TIME TO TIME, NO
ASSURANCE CAN BE GIVEN THAT PERSONS PURCHASING COMMON SHARES WILL THEREAFTER BE
ABLE TO SELL SUCH SHARES AT PRICES WITHIN THE ESTIMATED PRICE RANGE.
A copy of the complete appraisal is on file and open for inspection at
the offices of the OTS, 1700 G Street, N.W., Washington, D.C. 20552, at the
Central Regional Office of the OTS, 200 West Madison, Suite 1300, Chicago,
Illinois 60606, and at each of the offices of Home City.
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<PAGE> 17
RESTRICTION ON REPURCHASE OF COMMON SHARES
Federal regulations prohibit HCFC from repurchasing any of its capital
stock for three years following the date of completion of the Conversion, except
as part of an open-market stock repurchase program during the second and third
years following the Conversion involving no more than 5% of HCFC's outstanding
capital stock during a twelve-month period. In addition, after such a
repurchase, Home City's regulatory capital must equal or exceed all regulatory
capital requirements. Before commencement of such a program, HCFC must provide
notice to the OTS, and the OTS may disapprove the program if the OTS determines
that it would adversely affect the financial condition of Home City or if it
determines that there is no valid business purpose for such repurchase. Such
repurchase restrictions would not prohibit the ESOP or the RRP from purchasing
Common Shares during the first year following Conversion.
RESTRICTIONS ON TRANSFERABILITY OF COMMON SHARES BY DIRECTORS AND OFFICERS
Common Shares purchased by directors or executive officers of HCFC or
their Associates will be subject to the restriction that such shares may not be
sold for a period of one year following completion of the Conversion, except in
the event of the death of the shareholder. The certificates evidencing Common
Shares issued by HCFC to directors, executive officers and their Associates will
bear a legend giving appropriate notice of the restriction imposed upon the
transfer of such Common Shares. In addition, HCFC will give appropriate
instructions to the transfer agent (if any) for HCFC's Common Shares in respect
of the applicable restriction for transfer of any restricted shares. Any shares
issued as a stock dividend, stock split or otherwise in respect of restricted
shares will be subject to the same restrictions.
Subject to certain exceptions, for a period of three years following
the Conversion, no director or officer of HCFC or Home City, or any of their
Associates, may purchase any common shares of HCFC without the prior written
approval of the OTS, except through a broker-dealer registered with the SEC.
This restriction will not apply, however, to negotiated transactions involving
more than 1% of a class of outstanding common shares of HCFC or shares acquired
by any stock benefit plan of Home City or HCFC.
The Common Shares, like the stock of most public companies, are subject
to the registration requirements of the Securities Act. Accordingly, the Common
Shares may be offered and sold only in compliance with such registration
requirements or pursuant to an applicable exemption from registration. Common
Shares received in the Conversion by persons who are not "affiliates" of HCFC
may be resold without registration. Common Shares received by affiliates of HCFC
will be subject to resale restrictions. An "affiliate" of HCFC, for purposes of
Rule 144, is a person who directly, or indirectly through one or more
intermediaries, controls, or is controlled by or is under common control with,
HCFC. Rule 144 generally requires that there be publicly available certain
information concerning HCFC and that sales subject to Rule 144 be made in
routine brokerage transactions or through a market maker. If the conditions of
Rule 144 are satisfied, each affiliate (or group of persons acting in concert
with one or more affiliates) is entitled to sell in the public market, without
registration, in any three-month period, a number of shares which does not
exceed the greater of (i) 1% of the number of outstanding shares of HCFC or (ii)
if the shares are admitted to trading on a national securities exchange or
reported through the automated quotation system of a registered securities
association, the average weekly reported volume of trading during the four weeks
preceding the sale.
RIGHTS OF REVIEW
Any person aggrieved by a final action of the OTS which approves, with
or without conditions, or disapproves the Plan may obtain review of such action
by filing in the Court of Appeals of the United States for the circuit in which
the principal office or residence of such person is located or in the United
States Court of Appeals for the District of Columbia, a written petition praying
that the final action of the OTS be modified, terminated or set aside. Such
petition must be filed within 30 days after the date of mailing of proxy
materials to the Voting Members of Home City or within 30 days after the date of
publication in the Federal Register of notice of approval of the Plan by the
OTS, whichever is later.
16
<PAGE> 18
USE OF PROCEEDS
The following table presents the estimated gross and net proceeds from
the sale of the Common Shares in connection with the Conversion based on the
Valuation Range:
<TABLE>
<CAPTION>
Maximum ,
Minimum Mid-point Maximum as adjusted
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Gross proceeds $6,120,000 $7,200,000 $8,280,000 $9,522,000
Less estimated expenses 357,000 372,000 387,000 404,000
---------- ---------- ---------- -----------
Total net proceeds $5,763,000 $6,828,000 $7,893,000 $9,118,000
========== ========== ========== ===========
</TABLE>
The net proceeds from the sale of the Common Shares may be outside the Valuation
Range, depending upon financial and market and regulatory conditions at the time
of the completion of the Offering. See "THE CONVERSION - Pricing and Number of
Common Shares to be Sold." The expenses are estimated assuming that (a) all of
the indicated number of Common Shares are sold in the Subscription Offering; (b)
the directors, officers and their Associates purchase ______, ______, ______ and
_______ shares at the minimum, mid-point, maximum and maximum, as adjusted, of
the Valuation Range; and (c) the ESOP purchases 8% of the Common Shares sold.
Actual expenses may be more or less than estimated. See "THE CONVERSION - Plan
of Distribution."
HCFC will retain 50% of the net proceeds from the sale of the Common
Shares, or $3,414,000 at the mid-point of the Valuation Range, including the
value of a promissory note from the ESOP which HCFC intends to accept in
exchange for the issuance of Common Shares to the ESOP. Such proceeds will be
used to fund the RRP and will be invested in short-term and intermediate-term
government securities. The remainder of the net proceeds received from the sale
of the Common Shares, $3,414,000 at the mid-point of the Valuation Range, will
be invested by HCFC in the capital stock to be issued by Home City to HCFC as a
result of the Conversion. Such investment will increase the regulatory capital
of Home City and will permit Home City to expand its lending and investment
activities and to enhance customer services.
Home City anticipates that such net proceeds initially will be invested
in short-term interest-bearing deposits in other financial institutions.
Eventually, however, Home City will attempt to use the net proceeds to originate
mortgage, consumer and other loans in Home City's market areas. See "THE
BUSINESS OF HOME CITY - General" in the Prospectus.
HCFC and Home City may also use the proceeds from the Conversion to
expand operations through the establishment of a branch office. The cost of
establishing a new branch is estimated to be $1.25 million, including land
acquisition and construction costs. Although HCFC and Home City could use the
increase in capital which will result from the Conversion to acquire other
financial institutions or for HCFC to repurchase its own outstanding shares,
HCFC and Home City have no current plans or agreements, written or oral, and are
not negotiating, to acquire any other institution and have no current plans for
HCFC to repurchase any of its shares.
MARKET FOR COMMON SHARES
There is presently no market for the Common Shares. The aggregate
offering price for the Common Shares is based upon an independent appraisal of
Home City. The appraisal is not a recommendation as to the advisability of
purchasing Common Shares. See "THE CONVERSION - Pricing and Number of Common
Shares to be Sold." No assurance can be given that persons purchasing Common
Shares will thereafter be able to sell such shares at a price at or above the
offering price.
HCFC has received approval to have the Common Shares quoted on The
Nasdaq Small Cap Market under the symbol "____" upon the closing of the
Conversion, subject to certain conditions which HCFC and Home City believe will
be satisfied, although no assurance can be provided that the conditions will be
met. In connection with such approval, Webb has informed Home City that Keefe,
Bruyette & Woods, Inc., intends to make a market in the Common Shares. No
assurance can be given, however, that an active or liquid market for the Common
Shares will develop after the completion
17
<PAGE> 19
of the Conversion or, if such a market does develop, that such market will
continue. Investors should consider, therefore, the potentially illiquid and
long-term nature of an investment in the Common Shares. See "RISK FACTORS -
Limited Market for the Common Shares" in the Prospectus.
DIVIDEND POLICY
The declaration and payment of dividends by HCFC will be subject to the
discretion of the Board of Directors of HCFC and will be based on the earnings
and financial condition of HCFC and general economic conditions. In an effort to
manage the capital of HCFC, the Board of Directors may determine that the
payment of a regular or special cash dividend or both may be prudent. No
assurance can be given that any dividend will be declared or that any dividend,
if declared, will continue in the future.
Other than earnings on the investment of the proceeds retained by HCFC,
the only source of income of HCFC will be dividends periodically declared and
paid by the Board of Directors of Home City on the common stock of Home City
held by HCFC. The declaration and payment of dividends by Home City to HCFC will
be subject to the discretion of the Board of Directors of Home City, to the
earnings and financial condition of Home City, to general economic conditions
and to federal restrictions on the payment of dividends by thrift institutions.
Under regulations of the OTS applicable to converted associations, Home City
will not be permitted to pay a cash dividend on its capital stock after the
Conversion if its regulatory capital would, as a result of the payment of such
dividend, be reduced below the amount required for the Liquidation Account or
the applicable regulatory capital requirement prescribed by the OTS. See "THE
CONVERSION Principal Effects of the Conversion -- Liquidation Account," and see
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF HOME CITY - Liquidity and Capital Resources" in the Prospectus.
Home City may not pay a dividend unless such dividend also complies with a
regulation of the OTS limiting capital distributions by savings associations.
Capital distributions, for purposes of such regulation, include,
without limitation, payments of cash dividends, repurchases and certain other
acquisitions by an association of its shares and payments to stockholders of
another association in an acquisition of such other association. The capital
distribution regulation adopts a 3-tier classification of associations based
upon their capital immediately before and, on a pro forma basis, after giving
effect to the capital distribution. A tier 1 association is an association which
has capital immediately before and after giving effect to a proposed capital
distribution that is equal to or greater than the amount of its fully phased-in
capital requirement. A tier 2 association is an association which has capital
immediately before and after giving effect to a capital distribution which is
equal to or in excess of its minimum capital requirement, but is less than the
amount of its fully phased-in capital requirement. A tier 3 association is an
association which fails to meet its minimum capital requirement immediately
before or after giving effect to a capital distribution.
A tier 1 association may make capital distributions equal to up to the
higher of (1) 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 (2) 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. A tier 2
association may make capital distributions up to 75% of its net earnings over
the most recent four-quarter period, if the association meets the current
risk-based capital standard. A tier 3 association may make capital distributions
only with the prior written approval of the Regional Director of the OTS or in
accordance with an approved capital plan.
If an association meeting the tier 1 criteria has been notified by the
OTS that the association requires more than normal supervision, such association
will be treated as a tier 2 or tier 3 association, unless the OTS determines
that such treatment is not necessary to ensure the association's safe and sound
operation. Moreover, the OTS may prohibit any capital distribution otherwise
permitted by the regulation if the OTS determines that such distribution would
constitute an unsafe or unsound practice. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF HOME CITY -
Liquidity and Capital Resources" in the Prospectus.
18
<PAGE> 20
At June 30, 1996, Home City met the fully phased-in capital
requirement. Other than the earnings on the investment of proceeds retained by
HCFC, the only source of income of HCFC will be dividends periodically declared
and paid by the Board of Directors of Home City on the common stock of Home City
held by HCFC. The payment of dividends by Home City will be subject to various
regulatory restrictions. On a pro forma basis, as of June 30, 1996, assuming (i)
receipt by Home City of $3.4 million of net conversion proceeds, (ii) the
investment of such net proceeds in assets having a risk weighting of 20% and
(iii) the establishment of a Liquidation Account in the amount of $5.4 million
(the regulatory capital of Home City at June 30, 1996), Home City would have
$4.19 million available for the payment of dividends to HCFC. See "REGULATORY
CAPITAL COMPLIANCE" in the Prospectus.
DESCRIPTION OF AUTHORIZED SHARES
GENERAL
The Articles of Incorporation of HCFC authorize the issuance of ___
million common shares and one million preferred shares. The common shares and
the preferred shares authorized by HCFC's Articles of Incorporation have no par
value. Upon receipt by HCFC of the purchase price therefor and subsequent
issuance thereof, each Common Share will be fully paid and nonassessable. The
Common Shares of HCFC will represent nonwithdrawable capital and will not and
cannot be insured by the FDIC. Each Common Share will have the same relative
rights and will be identical in all respects to every other Common Share.
None of the preferred shares of HCFC will be issued in connection with
the Conversion. The Board of Directors of HCFC is authorized, without
shareholder approval, to issue preferred shares and to fix and state the
designations, preferences or other special rights of such shares and the
qualifications, limitations and restrictions thereof. The preferred shares may
rank prior to the common shares as to dividend rights, liquidation preferences
or both. Each holder of preferred shares will be entitled to one vote for each
preferred share held of record on all matters submitted to a vote of
shareholders. The issuance of preferred shares and any conversion rights which
may be specified by the Board of Directors for the preferred shares could
adversely affect the voting power of holders of the common shares. The Board of
Directors has no present intention to issue any of the preferred shares.
The following is a summary description of the rights of the common
shares of HCFC, including the material express terms of such shares as set forth
in HCFC's Articles of Incorporation.
LIQUIDATION RIGHTS
In the event of the complete liquidation or dissolution of HCFC, the
holders of the Common Shares will be entitled to receive all assets of HCFC
available for distribution, in cash or in kind, after payment or provision for
payment of (i) all debts and liabilities of HCFC, (ii) any accrued dividend
claims, and (iii) any interests in the Liquidation Account.
VOTING RIGHTS
The holders of the Common Shares will possess exclusive voting rights
in HCFC, unless preferred shares are issued. Each holder of Common Shares will
be entitled to one vote for each share held of record on all matters submitted
to a vote of holders of common shares.
Section 1701.55 of the Ohio Revised Code provides in substance and
effect that shareholders of a for profit corporation which is not a savings and
loan association and which is incorporated under Ohio law must initially be
granted the right to cumulate votes in the election of directors. Section
1701.69 of the Ohio Revised Code provides that an Ohio corporation may eliminate
cumulative voting in the election of directors after the expiration of 90 days
after the date of initial incorporation by filing with the Ohio Secretary of
State an amendment to the articles of incorporation eliminating cumulative
voting. The Articles of Incorporation of HCFC have been amended to eliminate
cumulative voting. See "RESTRICTIONS ON ACQUISITION OF HOME CITY AND HCFC AND
RELATED ANTI-TAKEOVER PROVISIONS Articles of Incorporation of HCFC --
Elimination of Cumulative Voting" in the Prospectus.
19
<PAGE> 21
DIVIDENDS
The holders of the Common Shares will be entitled to the payment of
dividends when, as and if declared by the Board of Directors and paid out of
funds, if any, available under applicable laws and regulations for the payment
of dividends. The payment of dividends is subject to federal and state statutory
and regulatory restrictions. See "DIVIDEND POLICY," and see "TAXATION - Federal
Taxation" in the Prospectus for a description of restrictions on the payment of
cash dividends.
PREEMPTIVE RIGHTS
After the consummation of the Conversion, no shareholder of HCFC will
have, as a matter of right, the preemptive right to purchase or subscribe for
shares of any class, now or hereafter authorized, or to purchase or subscribe
for securities or other obligations convertible into or exchangeable for such
shares or which by warrants or otherwise entitle the holders thereof to
subscribe for or purchase any such share.
RESTRICTIONS ON ALIENABILITY
See "THE CONVERSION - Restrictions on Repurchase of Common Shares" for
a description of the limitations on the repurchase of stock by HCFC; "THE
CONVERSION - Restrictions on Transferability of Common Shares by Directors and
Officers" for a description of certain restrictions on the transferability of
Common Shares purchased by officers and directors; and "RESTRICTIONS ON
ACQUISITION OF HOME CITY AND HCFC AND RELATED ANTI-TAKEOVER PROVISIONS" in the
Prospectus for information regarding regulatory restrictions on acquiring Common
Shares.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Each director of Home City receives a retainer fee of $1,000 per month
for service as a director of Home City. In addition, the Chairman of the Board
of Directors receives an additional fee of $150 per month. Edgar Witten, a
Director Emeritus, receives a fee of $200 per month.
Four of Home City's directors participate in a deferred compensation
plan whereby payment of part or all of such their directors' fees is deferred.
Home City records the deferred fees as expenses and in a liability account.
Interest is periodically credited on each account. Each director is fully vested
in his account and the balance is payable upon termination of directorship prior
to death or retirement. Home City has provided for the contingent liability
created by the deferred compensation plan by purchasing a single-premium
universal life insurance policy on each director. Upon retirement or death, a
director or his estate will receive the benefits payable pursuant to the policy
on his life.
20
<PAGE> 22
The following table presents certain information regarding the cash
compensation received by the President and Chief Executive Officer of Home City.
No other executive officer of Home City received compensation exceeding $100,000
during the fiscal year ended June 30, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Annual Compensation
------------------------------
Name and Principal Fiscal Year All Other
Position ended June 30 Salary ($) Bonus ($) Compensation(1)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Douglas L. Ulery 1996 $88,000 $30,000 $15,338
President and Chief
Executive Officer
-------------------------------------------------------------------------------------------------
<FN>
(1) Includes directors' fees of $12,000 and Home City's contribution to Mr.
Ulery's 401(k) defined contribution plan account in the amount of
$3,338. Does not include amounts attributable to other miscellaneous
benefits received by executive officers. The cost to Home City of
providing such benefits to Mr. Ulery was less than 10% of his cash
compensation.
</TABLE>
EXPERTS
The consolidated financial statements of Home City as of June 30, 1996
and 1995, and for the years ended June 30, 1996, 1995 and 1994, included in this
Prospectus have been audited by Robb, Dixon, Francis, Davis, Oneson & Company,
certified public accountants, as stated in their report appearing herein and
have been so included in reliance upon such report given upon the authority of
that firm as experts in accounting and auditing.
Keller has consented to the publication herein of the summary of its
letter to Home City setting forth its opinion as to the estimated pro forma
market value of Home City as converted and to the use of its name and statements
with respect to it appearing herein.
LEGAL PROCEEDINGS
Home City is not presently involved in any material legal proceedings.
From time to time, Home City is a party to legal proceedings incidental to its
business to enforce its security interest in collateral pledged to secure loans
made by Home City.
ADDITIONAL INFORMATION AND ORDER FORMS
The Prospectus contains the following: audited financial statements of
Home City, including statements of income and retained earnings, for the three
fiscal years ended June 30, 1996, 1995 and 1994; management's discussion and
analysis of financial condition and results of operations of Home City; selected
financial information of Home City for the five fiscal years ended June 30,
1996, 1995, 1994, 1993 and 1992; information concerning the capitalization of
Home City; a description of Home City's lending, savings and investment
activities; and additional information about the business and financial
condition of Home City. A copy of the Prospectus accompanies this Summary Proxy
Statement. To obtain an additional copy of the Prospectus, contact Home City's
Conversion Information Center at (513) 324-5736.
The Subscription Offering will commence on ______________, 1996, and end
at 4:00 p.m., Eastern Time, on _______________, 1996. Stock Order Forms for
purchases of Common Shares in the Subscription Offering must be received by Home
City on or before 4:00 p.m. Eastern Time, _______________, 1996.
21
<PAGE> 1
Exhibit 99.2
STOCK ORDER FORM & Home City
CERTIFICATION FORM Financial Corporation
Note: Please read the Stock Order Form Guide and Instructions on the back of
this form before completion.
- --------------------------------------------------------------------------------
DEADLINE
The Subscription and Community Offering ends at 5:00 p.m., Springfield, Ohio
time, XXXX xx, 1996. Your Stock Order Form and Certification Form, properly
executed and with the correct payment, must be received at the address on the
bottom of this form by this deadline, or it will be considered void.
- --------------------------------------------------------------------------------
NUMBER OF SHARES
(1) Number of Shares Price Per Share (2) Total Amount Due
x $10.00
--------------------- ---------------------
The minimum number of shares that a person may subscribe for is 25 and the
maximum purchase is 1% of the total number of shares sold in the Offering (up to
xx,xxx shares, based on anticipated sales of xxx,xxx shares). No person,
together with his Associates and other persons acting in concert with him, may
purchase in the Community Offering more than 1% of the total shares sold in the
Offering and no person, together with his associates and other persons acting in
concert with him, may purchase in the Subscription Offering more than 2% of the
total Common Shares sold in the offering (up to xx,xxx shares, based on
anticipated sales of xxx,xxx shares).
- --------------------------------------------------------------------------------
METHOD OF PAYMENT
(3) / / Enclosed is a check, bank draft or money order payable to Home City
Federal Savings Bank of Springfield for $_____________ (or cash if
presented in person).
(4) / / I authorize Home City Federal Savings Bank of Springfield to make
withdrawals from my Home City Federal Savings Bank of Springfield
account(s) shown below, and understand that the amounts will not
otherwise be available for withdrawal (there is no penalty for an early
CD withdrawal):
<TABLE>
<CAPTION>
ACCOUNT NUMBER(S) AMOUNT(S)
------------------------------------- ----------
<S> <C> <C>
------------------------------------- ----------
------------------------------------- ----------
------------------------------------- ----------
------------------------------------- ----------
TOTAL WITHDRAWAL
----------
</TABLE>
- --------------------------------------------------------------------------------
PURCHASER INFORMATION
(5) / / Check here if you are a director, officer or employee of Home City
Federal Savings Bank of Springfield or a member of such person's
immediate family.
/ / Check here if you are a depositor or a borrower and enter below
information for all accounts you had at the Eligibility Record Date
(June 30, 1995), Supplemental Eligibility Record Date (September 30,
1996) or the Voting Record Date (XXXX, 1996). If additional space is
needed, please utilize the back of this form. Please confirm account(s)
by initialing here. ____________
ACCOUNT TITLE (NAMES ON ACCOUNTS) ACCOUNT NUMBER
- ---------------------------------------- --------------------
- - - - - - - - - - - - - - - - - -
- ---------------------------------------- --------------------
- - - - - - - - - - - - - - - - - -
- ---------------------------------------- --------------------
- --------------------------------------------------------------------------------
(6) STOCK REGISTRATION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
/ / Individual / / Uniform Transfer to Minors / / Partnership
/ / Joint Tenants / / Uniform Gift to Minors / / Individual Retirement Account
/ / Tenants in Common / / Corporation / / Fiduciary/Trust (Under Agreement Dated_____________)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
------------------------------------------------------------------- ------------------------------------------
Name Social Security or Tax I.D.
------------------------------------------------------------------- ------------------------------------------
Name Daytime Telephone
------------------------------------------------------------------- ------------------------------------------
Street Address Evening Telephone
------------------------------------------------------------------- ------------------------------------------
City State Zip Code County of Residence
------------------------------------------------------------------- ------------------------------------------
</TABLE>
NASD Affiliation (This section only applies to those individuals who meet the
delineated criteria)
/ / Check here if you are a member of the National Association of Securities
Dealers, Inc. ("NASD"), a person associated with an NASD member, a member of the
immediate family of any such person to whose support such person contributes,
directly or indirectly, or the holder of an account in which an NASD member or
person associated with an NASD member has a beneficial interest. To comply with
conditions under which an exemption from the NASD's Interpretation With Respect
to Free-Riding and Withholding is available, you agree, if you have checked the
NASD affiliation box: (1) not to sell, transfer or hypothecate the stock for a
period of 90 days following the issuance, and (2)to report this subscription in
writing to the applicable NASD member within one day of the payment therefor.
- --------------------------------------------------------------------------------
ACKNOWLEDGMENT By signing below, I acknowledge receipt of the Prospectus dated
XXXX xx, 1996, and that I have reviewed all provisions therein and understand I
may not change or revoke my order once it is received by Home City Federal
Savings Bank of Springfield. I also certify that this stock order is for my
account an there is no agreement or understanding regarding any further sale or
transfer of these shares. Federal regulations prohibit any persons from
transferring, or entering into any agreement directly or indirectly to transfer,
the legal or beneficial ownership of conversion subscription rights or the
underlying securities to the account of another person. Home City Federal
Savings Bank of Springfield will pursue any and all legal and equitable remedies
in the event it becomes aware of the transfer of subscription rights and will
not honor orders known by it to involve such transfer. Under penalties of
perjury, I further certify that: (1) the social security number or taxpayer
identification number given above is correct; and (2) 1 am not subject to backup
withholding. You must cross out his item, (2) above, if you have been notified
by the Internal Revenue Service that you are subject to backup withholding
because of underreporting interest or dividends on your tax return.
- --------------------------------------------------------------------------------
SIGNATURE Sign and date this form. When purchasing as a
custodian, corporate officer, etc., include your full title.
An additional signature is required only if payment is by
withdrawal from an account that requires more than one
signature to withdraw funds. YOUR ORDER WILL BE FILLED IN
ACCORDANCE WITH THE PROVISIONS OF THE PROSPECTUS. THIS ORDER
IS NOT VALID IF THE STOCK ORDER FORM AND CERTIFICATION FORM
ARE NOT BOTH SIGNED. If you need help completing this Form,
you may call the Conversion Information Center at (xxx)
xxx-xxxx.
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------------------------------------------------
Signature Title (if applicable) Date
- ------------------------------------------------------------------------
Signature Title (if applicable) Date
- ------------------------------------------------------------------------
</TABLE>
THE COMMON SHARES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS AND ARE NOT INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS ASSOCIATION INSURANCE
FUND OR ANY OTHER GOVERNMENTAL AGENCY.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Date Rec'd __/__/__ Order # ________ Batch # _______ CONVERSION INFORMATION CENTER
63 West Main Street
OFFICE USE Check # ___________ Category _______ Springfield, Ohio
Amount $ __________ Initials _______ (513) XXX-XXXX
</TABLE>
<PAGE> 2
HOME CITY FINANCIAL
CORPORATION
STOCK OWNERSHIP GUIDE
- --------------------------------------------------------------------------------
Instructions: See your legal advisor if you are unsure about the correct
registration of your shares.
INDIVIDUAL- The shares are to be registered in an individual's name only. You
may not list beneficiaries for this ownership.
JOINT TENANTS- Joint tenants with right of survivorship identifies two or more
owners. When shares are held by joint tenants with rights of survivorship,
ownership automatically passes to the surviving joint tenant(s) upon the death
of any joint tenant. You may not list beneficiaries for this ownership.
TENANTS IN COMMON- Tenants in common may also identify two or more owners. When
shares are to be held by tenants in common, upon the death of one co-tenant,
ownership of the shares will be held by the surviving co-tenant(s) and by the
heirs of the deceased co-tenant. All parties must agree to the transfer or sale
of shares held by tenants in common. You may not list beneficiaries for this
ownership.
INDIVIDUAL RETIREMENT ACCOUNT- Individual Retirement Account ("IRA") holders may
make purchases from their deposits through a pre-arranged "trustee-to-trustee"
transfer. Shares may only be held in a self-directed IRA. Home City Federal
Savings Bank of Springfield does not offer a self-directed IRA. Please contact
the Conversion Information Center you have any questions about your IRA account
or to obtain a list of local brokers who will open a self-directed IRA, or check
with your broker. There will be no early withdrawal or IRS penalties incurred by
these transactions.
UNIFORM GIFT TO MINORS- For residents of many states, shares may be held in the
name of a custodian for the benefit of a minor under the Uniform Transfer to
Minors Act. For residents in other states, shares may be held in a similar type
of ownership under the Uniform Gift to Minors Act of the Individual states. For
either ownership, the minor is the actual owner of the shares with the adult
custodian being responsible for the investment until the child reaches legal
age.
On the first line, print the first name, middle initial and last name of the
custodian, with the abbreviation "CUST" and "Unif Tran Min Act" or "Unif Gift
Min Act" after the name. Standard U.S. Postal Service state abbreviation should
be used to describe the appropriate state. For example, shares held by John Doe
as custodian for Susan Doe under the Ohio Uniform Transfer to Minors Act will be
abbreviated John Doe, CUST Susan Doe Unif Tran Min Act OH. Use the minor's
Social Security Number. Print the first name, middle initial and last name of
the minor on the second "NAME" line. Only one custodian and one minor may be
designated.
CORPORATION/PARTNERSHIP- Corporations/Partnerships may purchase shares. Please
provide the Corporation/Partnership's legal name and Tax I.D. To have depositor
rights, the Corporation/Partnership must have an account in the legal name.
Please contact the Conversion Information Center to verify depositor rights and
purchase limitations.
FIDUCIARY/TRUST- Generally, fiduciary relationships (such as Trusts, Estates,
Guardianships, etc.) are established under a form of trust agreement or are
pursuant to a court order. Without a legal document establishing a fiduciary
relationship, your shares may not be registered in a fiduciary capacity.
Instructions: On the first "NAME" line, print the first name, middle initial and
last name of the fiduciary if the fiduciary is an individual. If the fiduciary
is a corporation, list the corporate title on the first "NAME" line. Following
the name, print the fiduciary "title" such as trustee, executor, personal
representative, etc.
On the second "NAME" line, print either the name of the maker, donor or testator
OR the name of the beneficiary. Following the name, indicate the type of legal
document establishing the fiduciary relationship (agreement, court order, etc.).
In the blank after "Under Agreement Dated", fill in the date of the document
governing the relationship. The date of the document need not be provided for a
trust created by a will.
An example of fiduciary ownership of shares in the case of a trust is: John D.
Smith, Trustee for Thomas A. Smith Under Agreement Dated 06/09/87.
DEFINITION OF ASSOCIATE
- --------------------------------------------------------------------------------
The term "associate" of a person is defined to mean (a) any corporation or other
organization (other than Home City) of which such person is an officer, partner,
or directly or indirectly, the beneficial owner of 10% or more of any class of
equity securities; (b) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves a trustee or
in a similar fiduciary capacity, and (c) any relative or spouse of such person,
or any relative of such spouse, who either has the same home as such person or
who is a director or officer of Home City.
<PAGE> 3
CERTIFICATION FORM
(This Form Must Accompany A Signed Stock Order Form)
I ACKNOWLEDGE THAT THE COMMON SHARES, NO PAR VALUE PER SHARE ("COMMON
SHARES"), OF HOME CITY FEDERAL SAVINGS BANK OF SPRINGFIELD ("HOME CITY")
ARE NOT FEDERALLY INSURED AND ARE NOT GUARANTEED BY HOME CITY OR THE
FEDERAL GOVERNMENT.
If anyone asserts that the Common Shares are federally insured or
guaranteed, or are as safe as an insured deposit, I should call the Office
of Thrift Supervision Central Regional Director, Ronald N.
Karr, at (312) 917-5000.
I further certify that, before purchasing the Common Shares of Home
City, I received a copy of the Prospectus dated, XXXXX xx, 1996 which
discloses the nature of the Common Shares being offered thereby and
describes the following risks involved in an investment in the Common
Shares under the heading "Risk Factors" beginning on page X of the
Prospectus:
1. Interest Rate Risk
2. Limited Market for the Common Shares
3. Possible Inadequacy of the Allowance for Loan Losses
4. Legislation and Regulation Which May Adversely Affect Home
City's Earnings
5. Controlling Influence of Management and Anti-Takeover
Provisions Which May Discourage Sales of Common Shares for
Premium Prices
6. Possible Adverse Effects if Preferred Shares Are Issued
7. Risk of Delayed Offering
8. Dilutive Effect of Increase in Valuation Range
9. Dilutive Effect of Purchases by the ESOP and the RRP
Signature Signature
----------------------- ------------------------
(NOTE: IF SHARES ARE TO BE HELD JOINTLY, BOTH PARTIES MUST SIGN)
Date:
------------------
<PAGE> 4
HOME CITY FINANCIAL
CORPORATION
ITEM INSTRUCTION
- --------------------------------------------------------------------------------
ITEMS 1 AND 2-
Fill in the number of shares that you wish to purchase and the total
payment due. The amount due is determined by multiplying the number of
shares by the subscription price of $10.00 per share. The minimum purchase
is 25 shares. The maximum purchase by any person is 1% of the total number
of shares sold in the Offering (up to xx,xxx shares, based on anticipated
sales of xxx,xxx). No person, together with associates of and persons
acting in concert with such person, may purchase in the Subscription
Offering more than 2% of the total number of shares in the Offering (up to
xx,xxx shares, based on anticipated sales of xxx,xxx) and no person,
together with Associates of and persons acting in concert with such
person, may purchase in the Community Offering more than 1% of the total
number of shares sold in the Offering (up to xx,xxx shares, based on
anticipated sales of xxx,xxx).
The Home City Federal Savings Bank of Springfield has reserved the right
to reject the subscription of any order received in the Community
Offering, in whole or in part.
ITEM 3- Payment for shares may be made in cash (only if delivered by you
in person) or by check, bank draft or money order made payable to Home
City Federal Savings Bank of Springfield. DO NOT MAIL CASH. If you choose
to make a cash payment, take your Stock Order Form, signed Certification
Form and payment in person to Home City Federal Savings Bank of
Springfield. Your funds will earn interest at Home City Federal Savings
Bank of Springfield's passbook rate, currently xxx% per annum.
ITEM 4- To pay by withdrawal from a savings account or certificate at Home
City Federal Savings Bank of Springfield, insert the account number(s) and
the Amount(s) you wish to withdraw from each account. If more than one
signature is required to withdraw, each must sign in the Signature box on
the front of this form. To withdraw from an account with checking
privileges, please write a check. No early withdrawal penalty will be
charged on funds used to purchase shares. A hold will be placed on the
account(s) for the amount(s) you show. Payments will remain in certificate
account(s) until the offering closes. However, if a partial withdrawal
reduces the balance of a certificate account to less than the applicable
minimum, the remaining balance will thereafter earn interest at the
passbook rate.
ITEM 5- Please check this box if you were a depositor on the Eligibility
Record Date (June 30, 1995), and/or a depositor on the Supplemental
Eligibility Record Date (September 30, 1996) or a depositor or borrower on
the Voting Record Date (XXXX XX, 1996) and list all names on the
account(s) and all account number(s) of those accounts you had at these
dates to ensure proper identification of your purchase rights.
ITEMS 6 AND 7- The stock transfer industry has developed a uniform system
of shareholder registrations that we will use in the issuance of Home City
Financial Corporation common shares. Print the name(s) in which you want
the shares registered and the mailing address of the registration. Include
the first name, middle initial and last name of the shareholder. Avoid the
use of two initials. Please omit words that do not affect ownership
rights, such as "Mrs.", "Mr.", "Dr.", "special account", etc.
Subscription rights are not transferable. If you are a qualified member,
to protect your priority over other purchasers as described in the
Prospectus, you must take ownership in at least one of the account
holder's name.
Enter the Social Security or Tax I.D. number of one registered owner. This
registered owner must be listed on the first "NAME" line. Be sure to
include your telephone number because we will need to contact you if we
cannot execute your order as given. Review the Stock Ownership Guide on
this page and refer to the instructions for Uniform Gift to Minors/Uniform
Transfer to Minors and Fiduciaries.
<TABLE>
<CAPTION>
<S> <C> <C>
ACCOUNT TITLE (NAMES ON ACCOUNTS) ACCOUNT NUMBER
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- - - - - - - - - - - - - - - - - - - - - -
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- - - - - - - - - - - - - - - - - - - - - -
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</TABLE>
<PAGE> 1
REVOCABLE PROXY
HOME CITY FEDERAL SAVINGS BANK OF SPRINGFIELD
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF HOME CITY FEDERAL SAVINGS BANK OF SPRINGFIELD
The undersigned member of Home City Federal Savings Bank of
Springfield, a savings bank chartered under the laws of the United States (the
"Bank"), hereby nominates, constitutes and appoints _____________ and
_____________, or either one of them, as proxy or proxies for the undersigned
member, each with full power of substitution and resubstitution, to vote all of
the votes which the undersigned member is entitled to cast at the Special
Meeting of the Members of the Bank to be held at ____ _.m., local time, on
_____________, 1996, at the office of the Bank, 63 West Main Street,
Springfield, Ohio, and at any adjournments thereof (the "Special Meeting"), on
the following matters and in the manner specified below:
1. The approval of the Plan of Conversion, a copy of which is
attached as Exhibit A to the Summary Proxy Statement mailed to the
undersigned member in connection with the Special Meeting,
pursuant to which the Bank would convert from a mutual savings
bank chartered under the laws of the United States to a permanent
capital stock savings bank chartered under the laws of the United
States and become a wholly-owned subsidiary of Home City Financial
Corporation., an Ohio corporation organized for the purpose of
purchasing all of the capital stock to be issued by the Bank in
connection with the Conversion.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. The adoption of the Federal Stock Charter of the Bank, a copy of
which is attached to the Plan of Conversion as Exhibit I.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. The adoption of the Federal Stock Bylaws of the Bank, a copy of
which is attached to the Plan of Conversion as Exhibit II.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. In their discretion, upon such other matters as may properly come
before the Special Meeting.
This Revocable Proxy will be voted as directed by the undersigned
member. IF NO DIRECTION IS GIVEN, THIS REVOCABLE PROXY WILL BE VOTED FOR THE
APPROVAL OF THE PLAN OF CONVERSION AND FOR THE ADOPTION OF THE FEDERAL STOCK
CHARTER AND THE FEDERAL STOCK BYLAWS.
Without affecting any vote previously taken, this Revocable Proxy may
be revoked by the undersigned at any time before it is exercised by (i)
executing and delivering to the Bank a later dated proxy, or (ii) giving notice
of revocation in writing to the Secretary of the Bank or in open meeting to the
inspectors of election.
IMPORTANT: PLEASE SIGN AND DATE THIS
REVOCABLE PROXY ON THE REVERSE SIDE.
<PAGE> 2
PROXY
Receipt of the Summary Proxy Statement of the Bank and the Prospectus
of Home City Financial Corporation dated ____________, 1996, is hereby
acknowledged by the undersigned.
-----------------------------------
Signature
Dated: _____________________, 1996
NOTE: Please sign your name exactly as it appears on this Proxy. Joint accounts
require only one signature. If you are signing this Proxy as an attorney,
administrator, agent, corporation, officer, executor, trustee or guardian, etc.,
please add your full title to your signature.
IMPORTANT: IF YOU RECEIVE MORE THAN ONE CARD, PLEASE SIGN AND RETURN ALL CARDS
IN THE ACCOMPANYING ENVELOPE.
<PAGE> 1
EXHIBIT 99.4
[LOGO] Charles Webb & Company [LOGO]
A Division of
KEEFE, BRUYETTE & WOODS, INC.
TO MEMBERS AND FRIENDS OF
HOME CITY FEDERAL SAVINGS BANK OF SPRINGFIELD
Charles Webb & Company, a Division of Keefe, Bruyette & Woods, Inc., members of
the National Association of Securities Dealers, Inc. ("NASD"), is assisting Home
City Federal Savings Bank of Springfield ("Home City") in its conversion from a
mutual savings bank to a capital stock savings bank and the concurrent offering
of common shares by Home City Financial Corporation (the "Holding Company"), the
newly formed corporation that will serve as holding company for Home City
following the conversion.
At the request of the Holding Company, we are enclosing materials explaining
this process and your options, including an opportunity to invest in common
shares of the Holding Company being offered to customers and the community
through XXXX XX, 1996. Please read the enclosed offering materials carefully.
The Holding Company has asked us to forward these documents to you in view of
certain requirements of the securities laws in your state.
If you have any questions, please visit our Conversion Information Center at 63
West Main Street, Springfield, Ohio or feel free to call the Conversion
Information Center at (513) xxx-xxxx.
Very truly yours,
Charles Webb & Company
Investment Bankers and Financial Advisors
<PAGE> 2
[LOGO] Charles Webb & Company [LOGO]
A Division of
KEEFE, BRUYETTE & WOODS, INC.
STOCK OFFERING QUESTIONS
AND ANSWERS
- -------------------------------------------------------------------------------
Home City Financial Corporation
THE COMMON SHARES BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND,
THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY. THIS IS
NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SHARES. THE OFFER IS
MADE ONLY BY THE PROSPECTUS.
Facts About Conversion
The Board of Directors of Home City Federal Savings Bank of Springfield ("Home
City") unanimously adopted a Plan of Conversion (the "Conversion") to convert
from a mutual savings bank to a capital shares savings bank.
This brochure answers some of the most frequently asked questions about the
Conversion and about your opportunity to invest in Home City Financial
Corporation, (the "Holding Company"), the newly formed corporation that will
serve as the holding company for Home City following the Conversion.
Investment in the common shares of Home City Financial Corporation involves
certain risks. For a discussion of these risks and other factors, investors are
urged to read the accompanying Prospectus, especially the discussion under the
heading "Risk Factors".
Why is Home City converting to shares form?
The shares form of ownership is used by most business corporations and an
increasing number of savings institutions. Through the sale of shares, Home City
will raise additional capital enabling it to:
SUPPORT AND EXPAND ITS CURRENT FINANCIAL AND OTHER SERVICES.
Investment Bankers and Financial Advisors
<PAGE> 3
[LOGO] Charles Webb & Company [LOGO]
A Division of
KEEFE, BRUYETTE & WOODS, INC.
ALLOW CUSTOMERS AND FRIENDS TO PURCHASE SHARES OF THE HOLDING COMPANY AND
SHARE IN THE HOLDING COMPANY'S AND HOME CITY'S FUTURE.
Will the Conversion affect any of my deposit accounts or loans?
No. The Conversion will have no effect on the balance or terms of any savings
account or loan, and your deposits will continue to be federally insured by the
Federal Deposit Insurance Corporation ("FDIC") to the maximum legal limit. YOUR
SAVINGS ACCOUNT IS NOT BEING CONVERTED TO SHARES.
Who is eligible to purchase shares in the subscription and community offerings?
Certain past and present depositors and borrowers of Home City, the Holding
Company's Employee Shares Ownership Plan and members of the general public.
How many shares are being offered and at what price?
Home City Financial Corporation is offering up to 828,000 common shares, subject
to adjustment as described in the Prospectus, at a price of $10.00 per share
through the Prospectus.
How many shares may I buy?
The minimum order is 25 shares. No person, together with associates of and
persons acting in concert with such person, may purchase more than 2% of the
common shares sold.
Do members have to buy shares?
No. However, the Conversion will allow Home City's depositors an opportunity to
buy shares and become charter shareholders of the Holding Company for the local
financial institution with which they do business.
How do I order shares?
You must complete the enclosed Shares Order Form and the Certification Form.
Instructions for completing your Shares Order Form and Certification Form are
contained in this packet. Your order must be received by 5:00 p.m.
on xxxx xx, 1996.
How may I pay for my shares?
First, you may pay for shares by check, cash or money order. Interest will be
paid by on these funds at the passbook rate, which is currently x.x% per annum,
from the day the funds are received until the completion or termination of the
Conversion. Second, you may authorize us to withdraw funds from your Home City
savings account or certificate of deposit for the amount of funds you specify
for payment. You will not have access to these funds from the day we receive
your order until completion or termination of the Conversion. There is no
penalty for an early withdrawal from a certificate of deposit.
Investment Bankers and Financial Advisors
<PAGE> 4
[LOGO] Charles Webb & Company [LOGO]
A Division of
KEEFE, BRUYETTE & WOODS, INC.
Can I purchase shares using funds in my Home City IRA account?
Federal regulations do not permit the purchase of shares in the Conversion with
funds from your existing Home City IRA account. To accommodate our depositors
however, we have made arrangements with an outside trustee to allow such
purchases. Please call our Conversion Information Center for additional
information.
Will the shares be insured?
No. Like any other common shares, the Holding Company's shares will not be
insured.
Will dividends be paid on the shares?
The Board of Directors of the Holding Company will consider whether to pay a
cash dividend in the future, subject to regulatory limits and requirements. No
decision has been made as to the amount or timing of such dividends, if any.
How will the shares be traded?
The Holding Company's shares will trade on the Nasdaq SmallCap under the symbol
"XXXX". However, no assurance can be given that an active and liquid market will
develop.
Are officers and directors of Home City planning to purchase shares?
Yes! Home City's officers and directors plan to purchase, in the aggregate,
$XXX,XXX worth of shares or approximately X.X% of the shares offered at the
midpoint of the offering range.
Must I pay a commission?
No. You will not be charged a commission or fee on the purchase of shares
in the Conversion.
Should I vote?
Yes. Your "YES" vote is very important!
PLEASE VOTE, SIGN AND RETURN ALL PROXY CARDS!
Why did I get several proxy cards?
If you have more than one account, you could receive more than one proxy card,
depending on the ownership structure of your accounts.
How many votes do I have?
Your proxy card(s) show(s) the number of votes you have. Every depositor
entitled to vote may cast one vote for each $100, or fraction thereof, on
deposit as of the voting record date.
Investment Bankers and Financial Advisors
<PAGE> 5
[LOGO] Charles Webb & Company [LOGO]
A Division of
KEEFE, BRUYETTE & WOODS, INC.
May I vote in person at the special meeting?
Yes, but we would still like you to sign and mail your proxy today. If you
decide to revoke your proxy you may do so by giving notice at the special
meeting.
FOR ADDITIONAL INFORMATION YOU MAY CALL OUR CONVERSION INFORMATION CENTER
BETWEEN 9:00 A.M. AND 5:00 P.M. MONDAY THROUGH FRIDAY.
CONVERSION INFORMATION CENTER
63 WEST MAIN STREET
SPRINGFIELD, OH 45502-1309
(513) XXX-XXXX
Investment Bankers and Financial Advisors
<PAGE> 6
[LOGO] Charles Webb & Company [LOGO]
A Division of
KEEFE, BRUYETTE & WOODS, INC.
XXXX XX, 1996
Dear Prospective Investor:
We are pleased to announce that Home City Federal Savings Bank of
Springfield ("Home City") is converting from a mutual savings bank to a capital
stock savings bank (the "Conversion"). In conjunction with the Conversion, Home
City Financial Corporation, the newly-formed corporation that will serve as
holding company for Home City, is offering common shares in a subscription
offering and community offering (the "Offering"). The sale of shares in
connection with the Conversion will enable Home City to raise additional capital
to support and enhance its current operations.
We have enclosed the following materials which will help you learn more
about the merits of Home City Financial Corporation's common shares as an
investment. Please read and review the materials carefully.
PROSPECTUS: This document provides detailed information about
operations at Home City and the proposed Offering.
QUESTIONS AND ANSWERS: Key questions and answers about the Offering
are found in this pamphlet.
STOCK ORDER FORM: This form is used to purchase shares by returning it
with your payment in the enclosed business reply envelope. The deadline
for ordering shares is 5:00 p.m., XXXX XX, 1996.
CERTIFICATION FORM: This form must be completed and returned with the
Stock Order Form in the enclosed business reply envelope if you wish to
purchase shares.
We invite our loyal customers and local community members to become
charter shareholders of Home City Financial Corporation. Through this Offering
you have the opportunity to buy shares directly from Home City Financial
Corporation, without commission or fee. The board of directors and senior
management of Home City fully support the Offering.
If you have additional questions regarding the Conversion and Offering,
please call us at (513) XXX-XXXX, Monday through Friday from 9:00 a.m. to 5:00
p.m. or stop by the Conversion Information Center located at 63 West Main Street
in Springfield, Ohio.
Sincerely,
Douglas L. Ulery
President
THE COMMON SHARES BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND,
THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY. THIS IS
NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SHARES. THE OFFER IS
MADE ONLY BY THE PROSPECTUS.
Investment Bankers and Financial Advisors
<PAGE> 7
[LOGO] Charles Webb & Company [LOGO]
A Division of
KEEFE, BRUYETTE & WOODS, INC.
XXXXX XX, 1996
Dear Member:
We are pleased to announce that Home City Federal Savings Bank of
Springfield is converting from a mutual savings bank to a capital stock savings
bank (the "Conversion"). In conjunction with the Conversion, Home City Financial
Corporation, the newly-formed corporation that will serve as holding company for
Home City, is offering common shares in a subscription offering and community
offering.
Unfortunately, Home City Financial Corporation is unable to either
offer or sell its common shares to you because the small number of eligible
subscribers in your jurisdiction makes registration or qualification of the
common shares under the securities laws of your jurisdiction impractical, for
reasons of cost or otherwise. Accordingly, this letter should not be considered
an offer to sell or a solicitation of an offer to buy the common shares of Home
City Financial Corporation.
However, as a member of Home City, you have the right to vote on the
Plan of Conversion at the Special Meeting of Members to be held on XXXX XX,
1996. Therefore, enclosed is a proxy card, a Proxy Statement (which includes the
Notice of the Special Meeting), Prospectus (which contains information
incorporated into the Proxy Statement) and a return envelope for your proxy
card.
I invite you to attend the Special Meeting on XXXX XX, 1996. However,
whether or not you are able to attend, please complete the enclosed proxy card
and return it in the enclosed envelope.
Sincerely,
Douglas L. Ulery
President
Investment Bankers and Financial Advisors
<PAGE> 8
[LOGO] Charles Webb & Company [LOGO]
A Division of
KEEFE, BRUYETTE & WOODS, INC.
XXXXX XX, 1996
Dear Member:
We are pleased to announce that Home City Federal Savings Bank of
Springfield ("Home City") is converting from a mutual savings bank to a capital
stock savings bank (the "Conversion"). In conjunction with the Conversion, Home
City Financial Corporation, the newly-formed corporation that will serve as
holding company for Home City, is offering common shares in a subscription
offering and community offering (the "Offering") to certain of our depositors,
to our Employee Stock Ownership Plan and some members of the general public
pursuant to a Plan of Conversion.
To accomplish this Conversion, we need your participation in an
important vote. Enclosed is a proxy statement describing the Plan of Conversion
and your voting and subscription rights. Home City's Plan of Conversion has been
approved by the Office of Thrift Supervision and now must be approved by you.
YOUR VOTE IS VERY IMPORTANT.
Enclosed, as part of the proxy material, is your proxy card located
behind the window of your mailing envelope. This proxy should be signed and
returned to us prior to the Special Meeting scheduled for XXXX XX, 1996. Please
take a moment to sign the enclosed proxy card and return it to us in the
postage-paid envelope provided. FAILURE TO VOTE HAS THE SAME EFFECT AS VOTING
AGAINST THE CONVERSION.
The Board of Directors of Home City feels that the Conversion will
offer a number of advantages, such as an opportunity for depositors and
customers of Home City to become shareholders. Please remember:
Your accounts at Home City will continue to be insured up to the
maximum legal limit by the Federal Deposit Insurance Corporation
("FDIC").
There will be no change in the balance, interest rate, or maturity of
any deposit accounts because of the Conversion.
Members have a right, but no obligation, to buy shares before they are
offered to the public.
Like all shares, the shares issued in this Offering will not be
insured by the FDIC.
Enclosed are materials describing the Offering. We urge you to read
these materials carefully. If you are interested in purchasing common shares of
Home City Financial Corporation, you must submit your Stock Order Form,
Certification Form, and payment prior to 5:00 p.m. XXXX XX, 1996.
If you have additional questions regarding the Offering, please call us
at (513) XXX-XXXX, Monday through Friday from 9:00 a.m. to 5:00 p.m., or stop by
the Conversion Information Center located at 63 West Main Street in Springfield,
Ohio.
Sincerely,
Douglas L. Ulery
President
THE COMMON SHARES BEING OFFERED IN THIS OFFERING ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
BANK INSURANCE FUND OR THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER
GOVERNMENT AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY SHARES. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS.
Investment Bankers and Financial Advisors
<PAGE> 9
[LOGO] Charles Webb & Company [LOGO]
A Division of
KEEFE, BRUYETTE & WOODS, INC.
XXXXX XX, 1996
Dear Friend:
We are pleased to announce that Home City Federal Savings Bank of
Springfield, ("Home City") is converting from a mutual savings bank to a capital
stock savings bank (the "Conversion"). In conjunction with the Conversion, Home
City Financial Corporation, the newly-formed corporation that will serve as
holding company for Home City, is offering common shares in a subscription
offering and community offering (the "Offering"). The sale of shares in
connection with the Conversion will enable Home City to raise additional capital
to support and enhance its current operations.
Because we believe you may be interested in learning more about the
merits of Home City Financial Corporation's shares as an investment, we are
sending you the following materials which describe the Offering.
PROSPECTUS: This document provides detailed information about
operations at Home City and the proposed Offering.
QUESTIONS AND ANSWERS: Key questions and answers about the Offering are
found in this pamphlet.
STOCK ORDER FORM: This form is used to purchase shares by returning it
with your payment in the enclosed business reply envelope. The deadline
for ordering shares is 5:00 p.m., XXXX X, 1996.
CERTIFICATION FORM: This form must be completed and returned with the
Stock Order Form and Certification Form in the enclosed business reply
envelope if you wish to purchase shares.
As a friend of Home City, you will have the opportunity to buy shares
directly from Home City Financial Corporation in the Conversion without
commission or fee. If you have additional questions regarding the Conversion and
Offering, please call us at (513) XXX-XXXX, Monday through Friday from 9:00 a.m.
to 5:00 p.m. or stop by the Conversion Information Center at 63 West Main
Street, Springfield, Ohio.
We are pleased to offer you this opportunity to become a charter
shareholder of Home City Financial Corporation.
Sincerely,
Douglas L. Ulery
President
THE COMMON SHARES BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND,
THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY. THIS IS
NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SHARES. THE OFFER IS
MADE ONLY BY THE PROSPECTUS.
Investment Bankers and Financial Advisors
<PAGE> 10
STOCK GRAM
We are pleased to announce that Home City Federal Savings Bank of Springfield,
("Home City") is offering common shares in a subscription and community
offering. The sale of shares in connection with the offering will enable Home
City to raise additional capital to support and enhance its current franchise.
We previously mailed to you a PROSPECTUS providing detailed information about
Home City's operations and the proposed offering. We urge you to read the
Prospectus carefully.
We invite our loyal customers and community members to become shareholders of
HOME CITY FINANCIAL CORPORATION (THE PROPOSED HOLDING COMPANY FOR HOME CITY). If
you are interested in purchasing common shares of Home City Financial
Corporation, you must submit you Stock Order Form, Certification Form and
payment prior to 5:00 P.M., SPRINGFIELD, OHIO TIME, ON XXXX X, 1996.
Should you have additional questions regarding the offering or need additional
materials, please call the Conversion Information Center at (513) XXX-XXXX or
stop by the Conversion Information Center at 63 West Main Street in Springfield.
The common shares being offered are not savings accounts or deposits and are not
insured by the Federal Deposit Insurance Corporation, the Bank Insurance Fund,
the Savings Association Insurance Fund or any other governmental agency. This is
not an offer to sell or a solicitation of an offer to buy shares. The offer is
made only by the Prospectus.
<PAGE> 11
PROXY GRAM
We recently forwarded to you a proxy statement and related materials regarding
a proposal to convert Home City Federal Savings Bank of Springfield from a
mutual savings bank to a capital stock savings bank.
YOUR VOTE ON OUR PLAN OF CONVERSION HAS NOT YET BEEN RECEIVED. FAILURE TO VOTE
HAS THE SAME EFFECT AS VOTING AGAINST CONVERSION.
Your vote is important to us, and we, therefore, are requesting that you sign
the enclosed proxy card and return it promptly in the enclosed postage-paid
envelope.
Voting for the Conversion does not obligate you to purchase shares or affect
the terms or insurance on your accounts.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS YOU VOTE "FOR" THE CONVERSION.
HOME CITY FEDERAL SAVINGS BANK OF SPRINGFIELD
Springfield, Ohio
Douglas L. Ulery
President and Chief Executive Officer
If you mailed the proxy, please accept our thanks and disregard this request.
For further information call the Conversion Information Center (513) xxx-xxx
- -------------------------------------------------------------------------------
The common shares being offered are not savings accounts or deposits and are
not insured by the Federal Deposit Insurance Corporation, the Bank Insurance
Fund, the Savings Association Insurance Fund or any other governmental agency.
This is not an offer to sell or a solicitation of an offer to buy shares. The
offer is made by the Prospectus.
<PAGE> 1
KELLER & COMPANY, INC.
555 METRO PLACE NORTH
SUITE 524
DUBLIN, OHIO 43017
(614) 766-1426
(614) 766-1459 FAX
August 5, 1996
The Board of Directors
Home City Federal Savings
and Loan Association
63 W. Main Street
Springfield, OH 45502
Re: Conversion Valuation Agreement
Attn: Douglas L. Ulery, President
Keller & Company, Inc. (hereinafter referred to as KELLER) hereby
proposes to prepare an independent conversion appraisal of Home City Federal
Savings and Loan Association, Springfield, Ohio (hereinafter referred to as HOME
CITY FEDERAL), relating to the conversion of HOME CITY FEDERAL from a mutual to
a stock institution. KELLER will provide a pro forma valuation of the market
value of the shares to be sold in the proposed conversion of HOME CITY FEDERAL.
KELLER is a financial consulting firm that primarily serves the
financial institution industry. KELLER is experienced in evaluating and
appraising thrift institutions and thrift institution holding companies. KELLER
is an experienced conversion appraiser for filings with the Federal Deposit
Insurance Corporation ("FDIC") and the Office of Thrift Supervision ("OTS"), and
is also approved by the Internal Revenue Service as an expert in thrift stock
valuations.
KELLER agrees to prepare the conversion appraisal in the format
required by the OTS in a timely manner for prompt filing with the OTS and the
Securities and Exchange Commission. KELLER will provide any additional
information as requested and will complete appraisal updates in accordance with
regulatory requirements. KELLER will also be available to meet with any
regulatory agency to review the appraisal.
<PAGE> 2
The appraisal report will provide a detailed description of HOME CITY
FEDERAL, including its financial condition, operating performance, asset
quality, rate sensitivity position, liquidity level and management
qualifications. The appraisal will include a description of HOME CITY FEDERAL's
market area, including both economic and demographic characteristics and trends.
An analysis of other publicly-traded thrift institutions will be performed to
determine a comparable group and adjustments to the appraised value will be made
based on a comparison of HOME CITY FEDERAL with the comparable group.
In making its appraisal, KELLER will rely upon the information in the
Subscription and Community Offering Circular (Prospectus), including the
financial statements. Among other factors, KELLER will also consider the
following: the present and projected operating results and financial condition
of HOME CITY FEDERAL; the economic and demographic conditions in HOME CITY
FEDERAL'S existing marketing area; pertinent historical financial and other
information relating to HOME CITY FEDERAL; a comparative evaluation of the
operating and financial statistics of HOME CITY FEDERAL with those of other
thrift institutions; the proposed price per share; the aggregate size of the
offering of Common Stock; the impact of the Conversion on HOME CITY FEDERAL's
capital position and earnings potential; HOME CITY FEDERAL's proposed dividend
policy; and the trading market for securities of comparable institutions and
general conditions in the market for such securities. In preparing the
appraisal, KELLER will rely solely upon, and assume the accuracy and
completeness of, financial and statistical information provided by HOME CITY
FEDERAL, and will not independently value the assets or liabilities of HOME CITY
FEDERAL in order to prepare the appraisal.
Upon completion of the conversion appraisal, KELLER will make a
presentation to the Board of Directors of HOME CITY FEDERAL to review the
content of the appraisal, the format and the assumptions. A written presentation
will be provided to each board member. KELLER will attend any special members
meeting, if requested, and will be available to attend community meetings and
meet with the management and directorate to provide status presentations of the
conversion appraisal.
For its services in making this appraisal, KELLER's fee will be a flat
fee of $15,000, including out-of-pocket expenses. The appraisal fee will include
the preparation of one valuation update. All additional valuation updates will
be subject to an additional fee of $1,000 each. Upon the acceptance of this
proposal, KELLER shall be paid a retainer of $3,000 to be applied to the total
appraisal fee of $15,000, the balance of which will be payable at the time of
the completion of the appraisal.
HOME CITY FEDERAL agrees, by the acceptance of this proposal, to
indemnify KELLER and its employees and affiliates for certain costs and
expenses, including reasonable legal fees, in connection with claims or
litigation relating to the appraisal and arising out of any misstatement or
untrue statement of a material fact in information supplied to KELLER by HOME
CITY FEDERAL or by an intentional omission by HOME CITY FEDERAL to state a
material fact in the information so provided, except where KELLER has been
negligent or at fault.
2
<PAGE> 3
This proposal will be considered accepted upon the execution of the two
enclosed copies of this agreement and the return of one executed copy to KELLER,
accompanied by the specified retainer.
KELLER & COMPANY, INC.
By: Michael R. Keller, President
HOME CITY FEDERAL SAVINGS
AND LOAN ASSOCIATION
By: Douglas L. Ulery, President
Date: August 12, 1996
3
