<PAGE> 1
As filed with the Securities and Exchange Commission on June 30, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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OAK HILL FINANCIAL, INC.
(Exact name of Registrant as specified in its charter)
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Ohio 6712 31-1010517
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
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14621 State Route 93
Jackson, Ohio 45640
(614) 286-3283
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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John D. Kidd
President and Chief Executive Officer
Oak Hill Financial, Inc.
14621 State Route 93
Jackson, Ohio 45640
(614) 286-3283
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies of Correspondence to:
H. Grant Stephenson, Esq. Roger A. Yurchuck, Esq.
Porter, Wright, Morris & Arthur Vorys, Sater, Seymour and Pease
41 South High Street 221 East Fourth Street
Columbus, Ohio 43215 Cincinnati, Ohio 45202
(614) 227-2155 (513)723-4000
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Approximate date of commencement of proposed sale of the
securities to the public: As soon as practicable after this Registration
Statement becomes effective and all other conditions to the proposed merger (the
"Merger") of Unity Savings Bank with and into a wholly owned subsidiary of the
Registrant pursuant to the Agreement and Plan of Merger and Supplemental
Agreement, both dated as of April 28, 1997, attached as Appendix A to the
enclosed Prospectus/Proxy Statement have been satisfied or waived.
If any securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box. [ ]
If the securities being registered on this Form are being
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price Aggregate Offering Registration
Securities to be Registered Registered Per Share* Price* Fee*
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Common stock, without par value.......... 792,625 $9.42 $7,466,528 $2,263.00
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* Pursuant to Rule 457(f)(2) of Regulation C, based on the exchange ratio of
0.1176 of a Common Share of Unity Savings Bank with a book value of $80.10 per
share on March 31, 1997 for each share of Oak Hill Financial, Inc. registered
hereunder.
This Registration Statement shall be deemed to cover an indeterminate number of
additional shares of Oak Hill Financial, Inc. Common Stock, without par value,
as may be issuable pursuant to future stock dividends, stock splits or similar
transactions.
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UNITY SAVINGS BANK
115 West Main Street
McArthur, Ohio 45651
____________ __, 1997
Dear Fellow Shareholders:
You are cordially invited to attend the Special Meeting of Shareholders of
Unity Savings Bank ("Unity") to be held at ____________, on ______________, __,
1997, at _____.m. local time (the "Unity Special Meeting").
On April 28, 1997, Unity entered into an Agreement and Plan of Merger and
Supplemental Agreement (collectively the "Merger Agreement") with Oak Hill Banks
(the "Bank"), a wholly owned subsidiary of Oak Hill Financial, Inc. ("the
Company"), pursuant to which Unity will merge with and into the Bank (the
"Merger"). As a result of the Merger, Unity's shareholders will be entitled to
receive 8.5 shares of the Company's common stock, as such number of shares may
be reduced in accordance with the terms of the Merger Agreement (the "Exchange
Ratio"), in exchange for each common share of Unity.
McDonald & Company Securities, Inc., the financial advisor to Unity with
respect to the proposed Merger, has delivered to Unity its written opinion to
the Board of Directors of Unity that, as of the date hereof, the Exchange
Ratio is fair, from a financial point of view, to the shareholders of Unity.
UNITY'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF UNITY'S SHAREHOLDERS
AND THEREFORE RECOMMENDS THAT YOU VOTE IN FAVOR OF THE APPROVAL OF THE MERGER
AND THE MERGER AGREEMENT.
Please read carefully the accompanying Prospectus/Proxy Statement which
explains in detail the terms of the Merger and contains information relating to
the Company's common stock to be issued in the Merger. It also contains pro
forma financial information and other information concerning the Company, Unity,
and the Merger.
The affirmative vote of two-thirds of the common shares of Unity
outstanding as of the record date for the Unity Special Meeting is required to
approve the Merger. Accordingly, your vote is important no matter how large or
how small your holdings may be. Whether or not you plan to attend the Unity
Special Meeting, you are urged to complete, sign, and promptly return the
enclosed proxy card to assure that your shares will be voted at the Unity
Special Meeting. If you plan to attend the Unity Special Meeting, you may revoke
your proxy and vote in person if you wish.
Very truly yours,
D. Bruce Knox
President
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UNITY SAVINGS BANK
115 West Main Street
McArthur, Ohio 45651
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
____________ ____, 1997
Notice is hereby given that a Special Meeting of Shareholders of Unity
Savings Bank ("Unity") has been called by the Board of Directors and will be
held at _________________________________ ________________, , , on _________,
__________ __, 1997, at _____ _.m. local time (the "Unity Special Meeting"), for
the following purposes:
1. To consider and adopt the Agreement and Plan of Merger and
Supplemental Agreement, both dated as of April 28, 1997 (collectively,
the "Merger Agreement"). Pursuant to the Merger Agreement, Unity will
be merged with and into Oak Hill Banks, an Ohio banking corporation
(the "Bank") and a wholly owned subsidiary of Oak Hill Financial, Inc.
(the "Company") and each shareholder of Unity will receive 8.5 shares
of the Company's common stock (the "Oak Hill Common Stock"), as such
number of shares may be reduced in accordance with the terms of the
Merger Agreement (the "Exchange Ratio"), in exchange for each common
share of Unity, as more fully described in the accompanying
Prospectus/Proxy Statement; and
2. To transact any other business which may properly come before the
Unity Special Meeting or any adjournment or adjournments thereof. (The
Board of Directors is not currently aware of any other business to
come before the Unity Special Meeting.)
Only holders of common shares of Unity of record at the close of
business on July ____, 1997, the record date for the Unity Special Meeting, are
entitled to notice of and to vote at the Unity Special Meeting and any
adjournments thereof.
THE BOARD OF DIRECTORS OF UNITY UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
We urge you to execute and return the enclosed proxy as soon as
possible in order to ensure that your shares will be represented at the Unity
Special Meeting. Your proxy may be revoked in the manner described in the
accompanying Prospectus/Proxy Statement at any time before it has been voted at
the Unity Special Meeting. If you attend the Unity Special Meeting, you may
revoke your proxy and vote in person.
Dated: July __, 1997 By Order of the Board of Directors
D. Bruce Knox
President
WHETHER OR NOT YOU PLAN TO ATTEND THE UNITY SPECIAL
MEETING, PLEASE SIGN AND MAIL THE ENCLOSED PROXY IN THE
ACCOMPANYING ENVELOPE. NO POSTAGE IS NECESSARY IF MAILED
IN THE UNITED STATES.
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OAK HILL FINANCIAL, INC.
14621 State Route 93
Jackson, Ohio 45640
__________ __, 1997
Dear Fellow Shareholders:
You are cordially invited to attend the Special Meeting of
Shareholders (the "Oak Hill Special Meeting") of Oak Hill Financial, Inc. (the
"Company"), to be held on _________, __________ __, 1997, at _____ _.m., local
time, at the Ohio State University Extension South District Office, 17 Standpipe
Road, Jackson, Ohio.
On April 28, 1997, the Company and Oak Hill Banks, a wholly owned
subsidiary of the Company (the "Bank"), entered into an Agreement and Plan of
Merger and a Supplemental Agreement (collectively the "Merger Agreement") with
Unity Savings Bank ("Unity") pursuant to which Unity will merge with and into
the Bank (the "Merger"). As a result of the Merger, Unity's shareholders will
receive 8.5 shares of Company common stock, as such number of shares may be
adjusted downward in accordance with the terms of the Merger Agreement, in
exchange for each share of capital stock of Unity (the "Merger Consideration").
At the Oak Hill Special Meeting, shareholders of the Company will be asked to
consider and adopt the Merger Agreement and the issuance of Company common stock
pursuant thereto. A copy of the Merger Agreement is attached as Appendix A to
the Prospectus/Proxy Statement enclosed herewith.
Unity is a savings bank corporation chartered under the laws of Ohio.
Unity has four branches located in Southeastern Ohio.
Trident Financial Corporation, the financial advisor to the Company
with respect to the proposed Merger, has delivered its written opinion to the
Board of Directors of the Company that, as of the date hereof, the Merger
Consideration is fair, from a financial point of view, to the Company.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND THE
ISSUANCE OF THE MERGER CONSIDERATION, AND RECOMMENDS THAT YOU VOTE IN FAVOR OF
THE PROPOSAL.
The affirmative vote of the holders of a majority of the shares of
Company common stock outstanding as of the record date for the Oak Hill Special
Meeting is required to adopt the Merger Agreement and the issuance of the Merger
Consideration pursuant thereto. Accordingly, your vote is important no matter
how large or how small your holdings may be. Whether or not you plan to attend
the Oak Hill Special Meeting, you are urged to complete, sign, and promptly
return the enclosed proxy to assure that your shares will be voted at the Oak
Hill Special Meeting. If you attend the Oak Hill Special Meeting, you may revoke
your proxy card and vote in person.
Very truly yours,
John D. Kidd
President
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OAK HILL FINANCIAL, INC.
14621 State Route 93
Jackson, Ohio 45640
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
__________ ___, 1997
Notice is hereby given that a Special Meeting of Shareholders (the "Oak
Hill Special Meeting") of Oak Hill Financial, Inc. (the "Company") has been
called by the Board of Directors and will be held at __m., local time, at the
Ohio State University Extension South District Office, 17 Standpipe Road,
Jackson, Ohio, on _________, __________ __, 1997, at _____ _.m., local time, for
the following purposes:
1. To consider and adopt the Agreement and Plan of Merger and
Supplemental Agreement, both dated as of April 28, 1997 (collectively
the "Merger Agreement"), pursuant to which Unity Savings Bank, an Ohio
savings bank ("Unity") will be merged with and into Oak Hill Banks, an
Ohio banking corporation, and a wholly owned subsidiary of this
Company, and each shareholder of Unity will receive 8.5 shares of
common stock, without par value, of the Company (the "Oak Hill Common
Stock"), as such number of shares may be adjusted downward in
accordance with the terms of the Merger Agreement, in exchange for
each common share of Unity, as more fully described in the
accompanying Prospectus/Proxy Statement; and
2. To transact any other business which may properly come before the
meeting or any adjournment or adjournments thereof. (The Board of
Directors is not currently aware of any other business to come before
the Oak Hill Special Meeting.)
Only holders of Oak Hill Common Stock of record at the close of business on
July ____, 1997, the record date for the Oak Hill Special Meeting, are entitled
to notice of and to vote at the Oak Hill Special Meeting and any adjournments
thereof.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT AND THE ISSUANCE OF OAK
HILL COMMON STOCK PURSUANT THERETO.
We urge you to execute and return the enclosed proxy as soon as possible in
order to ensure that your shares will be represented at the Oak Hill Special
Meeting. Your proxy may be revoked in the manner described in the accompanying
Prospectus/Proxy Statement at any time before it has been voted at the Oak Hill
Special Meeting. If you attend the Oak Hill Special Meeting, you may revoke your
proxy and vote in person.
Dated: ______, 1997 By Order of the Board of Directors
John D. Kidd
President
WHETHER OR NOT YOU PLAN TO ATTEND THE OAK HILL SPECIAL
MEETING, PLEASE SIGN AND MAIL THE ENCLOSED PROXY IN THE
ACCOMPANYING ENVELOPE. NO POSTAGE IS NECESSARY IF MAILED
IN THE UNITED STATES.
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<PAGE> 10
PROSPECTUS
OAK HILL FINANCIAL, INC.
COMMON STOCK
(WITHOUT PAR VALUE)
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This Prospectus/Proxy Statement is being furnished to the shareholders of
Unity Savings Bank, a savings bank chartered under the law of Ohio ("Unity"),
and to the shareholders of Oak Hill Financial, Inc., an Ohio corporation (the
"Company"), in connection with the merger (the "Merger") of Unity, with and into
Oak Hill Banks, a banking corporation chartered under the law of Ohio (the
"Bank"), and a wholly owned subsidiary of the Company, pursuant to the Agreement
and Plan of Merger and Supplemental Agreement, each dated as of April 28, 1997,
among the Company, Unity and the Bank (collectively, the "Merger Agreement").
This Prospectus also serves as a Proxy Statement for the Special Meeting of
Shareholders of Unity to be held on _________________, 1997 (the "Unity Special
Meeting") and as a Proxy Statement for the Special Meeting of Shareholders of
the Company to be held on _____________ __, 1997 (the "Oak Hill Special
Meeting").
Upon consummation of the Merger (the "Effective Time"), each outstanding
common share, $1.00 par value, of Unity ("Unity Common Shares") shall be
converted, in accordance with the Merger Agreement, into the right to receive
8.5 shares of common stock, without par value, of the Company (the "Oak Hill
Common Stock"), as such number of shares may be adjusted downward in accordance
with the terms of the Merger Agreement (the "Merger Consideration"). A copy of
the Merger Agreement is attached to this Prospectus/Proxy Statement as Appendix
A and is incorporated herein by reference. See "THE MERGER."
The closing price per share of Oak Hill Common Stock on The Nasdaq National
Market on June 25, 1997 was $19.25.
SEE "RISK FACTORS" AT PAGE 10 FOR A DISCUSSION OF FACTORS THAT SHOULD BE
CONSIDERED BY UNITY SHAREHOLDERS IN DETERMINING WHETHER TO ACQUIRE THE OAK HILL
COMMON STOCK OFFERED HEREBY BY VOTING FOR ADOPTION OF THE MERGER AGREEMENT.
THE SHARES OF COMMON STOCK TO BE REGISTERED ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
(THE "FDIC"), OR ANY OTHER GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS/PROXY STATEMENT AND ANY INFORMATION OR REPRESENTATION NOT CONTAINED
HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS
PROSPECTUS/PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED BY THIS
PROSPECTUS/PROXY STATEMENT IN ANY JURISDICTION OR TO ANY PERSON TO WHOM IT WOULD
BE UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. THE DELIVERY OF THIS
PROSPECTUS/PROXY STATEMENT AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF, HOWEVER, THE
COMPANY AND UNITY HAVE AN OBLIGATION TO ADVISE SHAREHOLDERS OF ANY MATERIAL
CHANGE AFFECTING THE COMPANY AND UNITY.
------------
The date of this Prospectus/Proxy Statement is July __, 1997.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder (the
"Exchange Act"), and in accordance therewith files reports, proxy statements,
and other information with the Securities and Exchange Commission (the
"Commission"). Copies of such reports, proxy statements, and other information
filed by the Company can be inspected and copied at the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 or at the
public reference facilities of the regional offices of the Commission at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material also can
be obtained by mail from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, upon payment of the fees prescribed
by the rules and regulations of the Commission. Such materials may also be
accessed electronically by means of the Commission's home page on the Internet
at http:\\www.sec.gov.
Oak Hill Common Stock is listed on The Nasdaq National Market, and
accordingly such reports and other information concerning the Company also
should be available for inspection and copying at the offices of The Nasdaq
Stock Market, 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission under the Securities Act of 1933,
as amended, and the rules and regulations thereunder (the "Securities Act"), a
Registration Statement on Form S-4, as it may be amended (the "Registration
Statement"), with respect to the shares of Oak Hill Common Stock issuable in
connection with the Merger. This Prospectus/Proxy Statement does not contain all
of the information contained in the Registration Statement, certain portions of
which have been omitted pursuant to the rules and regulations of the Commission
and to which reference is hereby made. Any statements contained herein or in any
document incorporated by reference herein concerning the provisions of any
contract or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or other document, each such statement
being qualified in its entirety by such reference. The Registration Statement
(and exhibits thereto) should be available for inspection at the offices of the
Commission at 450 Fifth Street, N.W., Washington D.C. 20549, and copies thereof
may be obtained from the Commission at prescribed rates. Such materials may also
be accessed electronically by means of the Commission's home page on the
Internet at http:\\www.sec.gov.
The Company shall promptly furnish, without charge, a copy of any and all
of the information that has been incorporated by reference in the
Prospectus/Proxy Statement upon written or oral request to: David B. Ratz, 14621
State Route 93, Jackson, Ohio 45640.
Unity is a privately-held banking company that does not file reports or
information with the Commission.
All information contained herein or incorporated herein by reference with
respect to the Company and the Bank was supplied by the Company and all
information contained herein with respect to Unity was supplied by Unity.
Neither the Company nor Unity can warrant the accuracy or completeness of
information relating to the other party.
INFORMATION INCORPORATED BY REFERENCE
All documents filed by the Company, pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus/Proxy Statement
and prior to the Oak Hill Special Meeting shall be deemed to be incorporated by
reference in this Prospectus/Proxy Statement and to be a part hereof from the
date of filing of such documents. Any statement incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this
Prospectus/Proxy Statement to the extent that a statement contained herein or in
any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus/Proxy Statement.
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TABLE OF CONTENTS
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Page
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AVAILABLE INFORMATION......................................... 2
INFORMATION INCORPORATED BY REFERENCE......................... 2
TABLE OF CONTENTS............................................. 3
INTRODUCTION.................................................. 4
The Company................................................ 4
Record Date; Shares Entitled to Vote....................... 4
Unity...................................................... 4
SUMMARY....................................................... 5
The Company and Oak Hill Banks............................. 5
Unity Savings Bank......................................... 5
The Oak Hill Special Meeting, Record Date
and Vote Required.......................................... 5
The Unity Special Meeting: Record Date and
Vote Required.............................................. 6
The Merger; General Terms.................................. 6
Recommendation of the Company's Board of Directors
and the Unity Board of Directors........................... 7
Restrictions on Transfer of Oak Hill Common Stock.......... 7
Certain Related Transactions............................... 7
Regulatory Requirements.................................... 8
Comparative Per Share Information.......................... 8
Market Price Data; Dividend Policy......................... 9
RISK FACTORS.................................................. 10
THE MERGER.................................................... 11
Background of the Merger................................... 11
The Company's Reasons for the Merger;
Recommendation of the Company's
Board of Directors..................................... 11
Unity's Reasons for the Merger; Recommendation of
Unity's Board of Directors................................. 12
Opinion of the Company's Financial Advisor................. 13
Opinion of Unity's Financial Advisor....................... 15
Required Vote.............................................. 18
The Merger Agreement....................................... 18
Dissenters' Rights ........................................ 20
Exchange of Certificates................................... 21
Stock Exchange Listing..................................... 21
Regulatory Approvals....................................... 21
Anticipated Accounting Treatment........................... 21
Certain Federal Income Tax Consequences.................... 22
Resales by Affiliates; Registration Rights................. 22
CERTAIN RELATED TRANSACTIONS.................................. 23
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION.............................. 25
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION.............................. 31
OAK HILL FINANCIAL, INC....................................... 32
General.................................................... 32
Lending Activities ........................................ 32
Nonperforming Loans ....................................... 34
Source of Funds ........................................... 38
Personnel ................................................. 40
Executive Offices.......................................... 40
Subsidiary ................................................ 40
Regulation ................................................ 40
Properties ................................................ 41
Legal Proceedings.......................................... 41
Voting Securities.......................................... 41
Description of Capital Stock............................... 41
Ownership of Common Stock By
Principal Shareholders .................................... 42
Ownership of Common Stock By Management.................... 42
Directors.................................................. 43
Director Meetings.......................................... 44
Executive Officers......................................... 44
Executive Compensation..................................... 44
Certain Transactions....................................... 46
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION.......................... 46
UNITY SAVINGS BANK............................................ 54
General.................................................... 54
Lending Activities ........................................ 54
Investment Activities...................................... 57
Deposits on Borrowings..................................... 59
Properties................................................. 61
Legal Proceedings.......................................... 61
Employees.................................................. 61
Market Price, Dividends, Other Shareholder
Information.............................................. 61
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS......................... 61
COMPARISON OF CERTAIN RIGHTS OF
SHAREHOLDERS OF THE COMPANY AND UNITY....................... 69
Capital Stock.............................................. 69
Voting Power............................................... 69
Payment of Dividends and Other Distributions............... 69
Meetings of Shareholders................................... 69
Shareholder Nominations and Proposals...................... 69
Amendment of Articles of Incorporation
and Code of Regulations.................................... 71
Dissenters' Rights......................................... 71
Action by Written Consent.................................. 71
Size and Classification of Board of Directors; Removal
of Directors; Filling Vacancies.......................... 72
Indemnification of Officers and Directors.................. 72
Interested Stockholder Transactions........................ 72
Preemptive Rights.......................................... 73
Repurchase and Redemption of Stock......................... 73
EXPERTS....................................................... 73
LEGAL OPINION................................................. 73
INDEX TO FINANCIAL STATEMENTS................................. F-1
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APPENDICES
APPENDIX A - AGREEMENT AND PLAN OF MERGER AND SUPPLEMENTAL AGREEMENT
APPENDIX B - OPINION OF MCDONALD & COMPANY SECURITIES, INC.
APPENDIX C - OPINION OF TRIDENT FINANCIAL CORPORATION
APPENDIX D - SECTION 1701. 85 OF THE OHIO REVISED CODE
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OAK HILL FINANCIAL, INC.
AND
UNITY SAVINGS BANK
PROSPECTUS/PROXY STATEMENT
INTRODUCTION
THE COMPANY
This Prospectus/Proxy Statement and the accompanying proxy card are
being furnished to the shareholders of the Company in connection with the
solicitation of proxies by the Board of Directors of the Company for the Oak
Hill Special Meeting to be held at _____ _.m., local time, on ________,
_____________ __, 1997, at the Ohio State University Extension South District
Office, 17 Standpipe Road, Jackson, Ohio, and any adjournments or postponements
thereof, to adopt the Merger Agreement, pursuant to which 792,625 shares of Oak
Hill Common Stock, as such number may be adjusted downward in accordance with
the terms of the Merger Agreement, will be issued to the shareholders of Unity
Savings Bank ("Unity"). This Prospectus/Proxy Statement and accompanying proxy
card are first being mailed to the shareholders of the Company on or about
________ __, 1997.
This Prospectus/Proxy Statement also constitutes a prospectus of the
Company with respect to the issuance of 792,625 shares of Oak Hill Common Stock
pursuant to the Merger Agreement (as such number of shares may be adjusted
downward in accordance with the terms of the Merger Agreement) in order to
effect the proposed acquisition of Unity by the Company.
The shares represented by the accompanying proxy card will be voted as
directed if the proxy is properly signed and received by the Company prior to
the Oak Hill Special Meeting. If no directions are made to the contrary on a
duly executed and returned proxy, then the proxy will be voted FOR the adoption
of the Merger Agreement, pursuant to which 792,625 shares of Oak Hill Common
Stock, as such number of shares may be adjusted downward in accordance with the
terms of the Merger Agreement, will be issued to the shareholders of Unity. The
proxy also grants discretionary authority to vote on other matters which may
arise at the Oak Hill Special Meeting. While management is presently unaware of
any such matters, the person or persons designated to vote the shares will cast
votes according to their best judgment if any such matters properly come before
the Oak Hill Special Meeting. Any shareholder giving the enclosed proxy has the
power to revoke it at any time prior to the Oak Hill Special Meeting by filing
with the Secretary of the Company a written notice of revocation or a subsequent
proxy relating to the same shares, or by attending the Oak Hill Special Meeting
and voting in person. Shareholders who attend the meeting may vote in person and
their proxies will not then be used.
A majority of the outstanding shares of Oak Hill Common Stock,
represented in person or by proxy, will constitute a quorum at the meeting.
Abstentions and broker non-votes will be counted for purposes of determining the
presence of a quorum at the Oak Hill Special Meeting. The affirmative vote of
the holders of a majority of the shares of Oak Hill Common Stock present in
person or by proxy and entitled to vote (assuming the presence of a quorum) at
the Oak Hill Special Meeting is required to approve the issuance of shares of
Oak Hill Common Stock pursuant to the Merger Agreement. Because approval of the
Merger requires the affirmative vote of a particular percentage of the shares of
Oak Hill Common Stock voting, an abstention or a broker non-vote will have the
same effect as a vote against the Merger.
RECORD DATE; SHARES ENTITLED TO VOTE
Only the Company's shareholders of record at the close of business on
July ___, 1997 (the "Oak Hill Record Date"), will be entitled to vote at the Oak
Hill Special Meeting. At that date, the Company had 2,873,500 shares of Oak Hill
Common Stock outstanding and entitled to vote on all matters requiring a vote of
the shareholders. These shares were held by approximately ____ holders of
record. Each share of Oak Hill Common Stock entitles the holder to one vote,
exercisable in person or by properly executed proxy, on each matter that comes
before the shareholders at the Oak Hill Special Meeting.
The Company will bear the cost of the solicitation of proxies, including
the charges and expenses of brokerage firms and others, if any, for forwarding
solicitation material to beneficial owners of stock. Representatives of the
Company may solicit proxies by mail, telegram, telephone, or personal interview.
UNITY
This Prospectus/Proxy Statement is being furnished to the shareholders
of Unity in connection with the solicitation of proxies by the Board of
Directors of Unity for the Unity Special Meeting to be held at__.m., local time,
on_____, 1997, at______________________________________,__________ ,__________ ,
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<PAGE> 14
and any adjournments or postponements thereof, to adopt the Merger Agreement,
pursuant to which Unity will be merged with and into the Bank and the
shareholders of Unity will become shareholders of the Company. This
Prospectus/Proxy Statement and accompanying proxy card will be first sent or
given to the shareholders of Unity on or about July __, 1997.
The shares represented by the accompanying proxy card will be voted as
directed if the proxy is properly signed, dated and received by Unity prior to
the Unity Special Meeting. If no directions are made to the contrary on a duly
executed and returned proxy, then the proxy will be voted FOR the adoption of
the Merger Agreement, pursuant to which each Unity Common Share will be
exchanged for 8.5 shares of Oak Hill Common Stock, as such number may be
adjusted downward pursuant to the Merger Agreement. The proxy also grants
discretionary authority to vote on other matters which may arise at the Unity
Special Meeting. While management is presently unaware of any such matters, the
person or persons designated to vote the shares will cast votes according to
their best judgment if any such matters properly come before the Unity Special
Meeting. Any Unity shareholder giving the enclosed proxy has the power to revoke
it at any time prior to the Unity Special Meeting by a later dated proxy
received by Unity or by giving notice of revocation to Unity in writing or in
open meeting. Shareholders who attend the meeting may revoke their proxies and
vote in person.
The Unity Common Shares represented in person or by proxy at the Unity
Special Meeting will constitute a quorum at the meeting. The affirmative vote of
the holders of two-thirds of the Unity Common Shares outstanding on the record
date for the Unity Special Meeting is required to adopt the Merger Agreement.
SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Prospectus/Proxy Statement. This summary is not intended to be
complete and is qualified in its entirety by reference to, and should be read in
conjunction with, the detailed information and financial statements contained
herein and in the exhibits hereto.
THE COMPANY AND OAK HILL BANKS
The Company is a bank holding company incorporated under the laws of the
State of Ohio in 1981, and is headquartered in Jackson, Ohio. At March 31, 1997,
the Company had total assets of $262.8 million, total deposits of $227.2 million
and shareholders' equity of $23.6 million. The Company owns all of the
outstanding stock of Oak Hill Banks, an Ohio state chartered bank (the "Bank"),
which was founded in 1902. The Company, through the Bank, is principally engaged
in the commercial banking business which includes lending, investment, deposit
and borrowing activities. The Bank operates twelve full-service offices in
Jackson, Pickaway, Butler, Ross, Scioto and Warren Counties, Ohio.
In October of 1995, the Company, in an effort to foster further growth
of the Company and to enhance the Company's operating flexibility, made an
initial public offering of 747,500 shares of the Oak Hill Common Stock. Of the
747,500 shares offered, 457,500 shares were sold by the Company and 290,000
shares were sold by shareholders of the Company. The initial public offering
price was $9.75 per share.
The principal executive offices of the Company are located at 14621
State Route 93, Jackson, Ohio 45640 (telephone number 614-286-3283).
UNITY SAVINGS BANK
Unity is a savings bank incorporated under the law of Ohio, with
executive offices located at 115 West Main Street, McArthur, Ohio 45651. The
principal business of Unity is the origination of permanent mortgage loans
secured by first mortgages on one- to four-family residential real estate
located in Unity's primary market area, which consists of Vinton, Gallia and
Jackson Counties, Ohio. To a lesser extent, Unity also originates mortgage loans
secured by multifamily real estate and nonresidential real estate in its market
area. In addition to real estate lending, Unity originates secured and unsecured
consumer loans. Funds for lending and other investment activities are obtained
primarily from savings deposits and principal repayment on loans. Advances from
the Federal Home Loan Bank ("FHLB") of Cincinnati are utilized from time to time
as an alternative source of funds to satisfy loan demand, to fund deposit
withdrawals or to pursue other investment strategies.
THE OAK HILL SPECIAL MEETING; RECORD DATE AND VOTE REQUIRED
The Oak Hill Special Meeting will be held at ________ _.m., local time,
on ________, ________ __, 1997, at the Ohio State University Extension South
District Office, 17 Standpipe Road, Jackson, Ohio. The close of business on July
__, 1997, has been set as the record date for determining the shareholders of
record of the Company entitled to notice of and to vote at the Oak Hill Special
Meeting and any adjournments or postponements thereof (the "Oak Hill Record
Date"). At the Oak Hill Special Meeting, the shareholders of the Company will be
asked to adopt the Merger Agreement and the issuance of the Oak Hill Common
Stock pursuant thereto. The presence, in person or by proxy, of the holders of a
majority of the outstanding shares entitled to vote at the Oak Hill Special
Meeting is necessary to constitute a quorum at the Oak Hill Special Meeting.
Abstentions and broker non-votes will be counted for purposes of determining the
presence of a quorum at the Oak Hill Special Meeting. The affirmative vote of
the holders of a majority of the shares of Oak Hill Common Stock present in
person or by proxy and entitled to vote at the Oak Hill Special Meeting is
required to approve each matter to be voted upon at the Oak Hill Special
Meeting. Because approval
-5-
<PAGE> 15
of the Merger requires the affirmative vote of a majority of the shares of Oak
Hill Common Stock voting, an abstention or a broker non-vote will have the same
effect as a vote against the Merger.
THE UNITY SPECIAL MEETING; RECORD DATE AND VOTE REQUIRED
The Unity Special Meeting will be held at ________ _.m., local time, on
________, ________ __, 1997, at _______________________________________________
The close of business on July __, 1997, has been set as the record date for
determining the shareholders of record of Unity entitled to notice of and to
vote at the Unity Special Meeting and any adjournments or postponements thereof
(the "Unity Record Date"). At the Unity Special Meeting, the shareholders of
Unity will be asked to adopt the Merger Agreement. The affirmative vote of the
holders of two-thirds of the issued and outstanding Unity Common Shares is
required to adopt the Merger Agreement.
THE MERGER; GENERAL TERMS
At the Effective Time, pursuant to the Merger Agreement, Unity will be
merged with and into the Bank, with the Bank being the surviving corporation of
the Merger and continuing as a wholly-owned subsidiary of the Company. It is
currently anticipated that, assuming all conditions to the Merger have been
satisfied or waived, the Effective Time will occur on or about ____________ __,
1997.
MERGER CONSIDERATION. In the Merger, each Unity Common Share shall be
converted into the right to receive 8.5 fully paid and nonassessable shares of
Oak Hill Common Stock, as such number of shares may be adjusted downward in
accordance with the terms of the Merger Agreement (the "Exchange Ratio"). See
"THE MERGER -- The Merger Agreement." The closing price per share of Oak Hill
Common Stock on The Nasdaq National Market on July __, 1997 was $[_________].
VOTE REQUIRED. Under the terms of the Company's listing agreement with
The Nasdaq National Market, the affirmative vote of the holders of a majority of
the shares of Oak Hill Common Stock present in person or by proxy and entitled
to vote at the Oak Hill Special Meeting is necessary to adopt the Merger
Agreement and the issuance of the Oak Hill Common Stock pursuant thereto. As of
the Oak Hill Record Date, the directors and executive officers of the Company
and their affiliates beneficially owned 1,816,623 shares of Oak Hill Common
Stock (excluding shares subject to stock options), which represent approximately
63.2% of the total issued and outstanding shares of such stock entitled to vote
at the Oak Hill Special Meeting. See "THE MERGER -- Required Vote."
Adoption of the Merger Agreement requires the affirmative vote of at
least two-thirds of the outstanding Unity Common Shares. As of the Unity Record
Date, the directors, executive officers and holders of 5% or more of the Unity
Common Shares and their affiliates beneficially owned 63,526 Unity Common
Shares, which represent 68.1% of the total issued and outstanding shares.
DISSENTERS' RIGHTS. Under the Ohio General Corporation Law (the "OGCL"),
shareholders of record of Unity who properly exercise and perfect dissenters'
rights with respect to the Merger will have the right to receive the "fair cash
value" of their shares (excluding any appreciation or depreciation in the market
value resulting from the Merger). See "THE MERGER-Dissenters' Rights."
CONDITIONS TO THE MERGER. The respective obligations of the Company and
Unity to consummate the Merger are subject to the satisfaction of certain
conditions, including, among others, the adoption of the Merger Agreement by the
shareholders of Unity; the approval of the issuance of 792,625 shares of Oak
Hill Common Stock pursuant to the Merger Agreement, as such number of shares may
be adjusted downward in accordance with the terms of the Merger Agreement, by
the holders of the requisite number of shares of Oak Hill Common Stock; the
compliance by each of the parties to the Merger Agreement with its obligations
thereunder in all material respects and the truth of the representations and
warranties made by each of the parties as of the date of the Merger Agreement;
the effectiveness of the Registration Statement of which this Prospectus/Proxy
Statement forms a part and the absence of any stop order with respect thereto at
the Effective Time; the approval of the Federal Deposit Insurance Corporation
(the "FDIC"), Federal Reserve Board and other regulatory authorities; the
absence of any injunction, order, statute or rule preventing the consummation of
the Merger as contemplated by the Merger Agreement; the Oak Hill Common Stock to
be issued in the Merger having been approved for listing on The Nasdaq National
Market, subject to notice of issuance; the total number of Unity shareholders
exercising dissenters' rights not exceeding 5% of the total number of Unity
Common Shares outstanding; and each of the Company and Unity having received an
opinion from each other's respective legal counsel. See "THE MERGER -- The
Merger Agreement (Conditions to Consummation of the Merger)."
TERMINATION. Unless otherwise agreed in writing by all the parties, the
Merger Agreement shall terminate on December 31, 1997 if the transaction is not
completed. In addition, the Merger Agreement may be terminated by: (i) the
mutual written consent of the Boards of Directors of the Company, the Bank, and
Unity; (ii) by the Board of Directors of the Company, by giving written notice
thereof to Unity, which notice shall specify in reasonable detail the grounds
therefor: (a) if any condition precedent to performance by the Company and the
Bank has not been satisfied or waived; (b) if Unity has not fully performed its
obligations and agreements under the Merger Agreement; or (c) if any of the
representations of Unity set forth in the Merger Agreement are untrue or
incorrect in any material respect; and (iii) by the Board of Directors of Unity,
by giving written notice thereof to the Company, which notice shall specify in
reasonable detail the grounds therefor: (a) if any condition precedent to
performance by Unity has not been satisfied or waived; (b) if the Company and
Bank have not fully performed their obligations and agreements under the Merger
-6-
<PAGE> 16
Agreement; or (c) if any of the representations of the Company set forth in the
Merger Agreement are untrue or incorrect in any material respect. See "THE
MERGER -- The Merger Agreement (Termination)."
STOCK EXCHANGE LISTING. The shares of Oak Hill Common Stock to be issued
in the Merger are expected to be listed on The Nasdaq National Market. Approval
of such listing is a condition to the completion of the Merger. See "THE MERGER
- -- Stock Exchange Listing."
ACCOUNTING TREATMENT. The Company intends to account for the Merger
using the pooling of interests method of accounting under generally accepted
accounting principles and the rules and regulations of the Commission. See "THE
MERGER -- Anticipated Accounting Treatment."
FEDERAL INCOME TAX CONSEQUENCES. It is anticipated that the Merger will
be a tax-free reorganization for federal income tax purposes and that no gain or
loss will be recognized by the shareholders of Unity upon conversion of their
Unity Common Shares into Oak Hill Common Stock, except with respect to cash
received in lieu of fractional shares. Income, gain or loss may be recognized in
connection with the dissenters' right under the applicable law.
The shareholders of the Company are advised to consult with their own
tax advisers concerning the federal income tax consequences of the Merger, as
well as the applicable state, local, foreign or other tax consequences, based
upon their particular facts and circumstances. See "THE MERGER -- Certain
Federal Income Tax Consequences."
RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS AND UNITY'S BOARD OF
DIRECTORS
The Board of Directors of the Company has unanimously determined that
the Merger Agreement and the Merger are advisable and fair and in the best
interests of the Company and its shareholders and unanimously recommends that
the shareholders of the Company vote in favor of the adoption of the Merger
Agreement. See "THE MERGER -- Background of the Merger" and "-- Reasons for the
Merger."
The Board of Directors of Unity has unanimously determined that the
Merger Agreement and the Merger are advisable and fair and in the best interests
of Unity and its shareholders and unanimously recommends that the shareholders
of Unity vote in favor of the adoption of the Merger Agreement. See "THE MERGER
- -- Background of the Merger," "-- Reasons for the Merger."
RESTRICTIONS ON TRANSFER OF OAK HILL COMMON STOCK
Certain shareholders of Unity are deemed "affiliates" of Unity for
purposes of Rule 145 under the Securities Act ("Rule 145") and therefore will
not be permitted to transfer their shares of Oak Hill Common Stock issued in the
Merger except (i) pursuant to an effective registration statement; (ii) in
compliance with Rule 145; or (iii) pursuant to an exemption from the
registration requirements of the Securities Act. This Prospectus/Proxy Statement
does not cover resales of Oak Hill Common Stock by such shareholders subject to
Rule 145. It is a condition to the consummation of the Merger that those
shareholders of Unity deemed to be affiliates deliver to the Company a written
undertaking to the effect that no sale, pledge, transfer, or other disposition
will be made of any Oak Hill Common Stock received in the Merger except in
accordance with the above restrictions.
CERTAIN RELATED TRANSACTIONS
The chief executive officer of Unity, David Bruce Knox, has entered into
an employment agreement with the Company for a period of three years (the
"initial period") which is contingent on the consummation of the Merger. He will
be employed as a Senior Vice President and will be appointed to the Boards of
Directors of the Company and the Bank. His base salary will be $100,000 and he
will be entitled to participate in the Company's employee benefit plans. Upon
the consummation of the Merger, he will receive options under the Company's 1995
Stock Option Plan as specified in his employment agreement. The employment
agreement also provides that if he is terminated without cause during the
initial period, the Company will pay to him a sum equal to the remaining unpaid
salary for the initial period, in equal monthly installments which commence on
the date of his termination and continue until the termination of the initial
period. See "CERTAIN RELATED TRANSACTIONS."
Executive salary continuation agreements were entered into between Unity
and George Knox and Unity and D. Bruce Knox in 1994. The salary continuation
agreements contain provisions which vest the benefits thereunder upon a change
in control of the ownership of Unity. The salary continuation agreement entered
into by George Knox and Unity provides for the institution of the retirement
benefits contemplated by the agreement, effective June 30, 1997. Consummation of
the Merger requires that the salary continuation agreement entered into by D.
Bruce Knox be terminated and all claims thereunder be released as consideration
for a payment by Unity to Mr. Knox of $206,000. See "CERTAIN RELATED
TRANSACTIONS."
REGULATORY REQUIREMENTS
The Company has filed a request to the Board of Governors of the Federal
Reserve System (together with the Federal Reserve Bank of Cleveland, the
"Federal Reserve Board") for an exemption from the Federal Reserve Board's
general requirement of an application for bank holding company mergers. The
Company expects that this waiver will be granted and that only a 30-day prior
notice to the Federal Reserve Bank of Cleveland will be required. The Merger
must be approved by the Federal Deposit Insurance Corporation (the "FDIC") and
the Ohio Superintendent of Financial
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<PAGE> 17
Institutions. The notices and applications required to be filed with these
agencies were submitted or filed on June 30, 1997. See "THE MERGER - Regulatory
Approvals."
RISK FACTORS
The acquisition of Oak Hill Common Stock by Unity shareholders in the
Merger involves certain risks, including, but not limited to the following: (i)
management of growth; (ii) rising interest rates affecting the Company's
cumulative interest rate gap; (iii) share ownership of management; (iv) credit
risk and economic conditions; (v) intense competition; and (vi) dependence on
management.
Shareholders of the Company should consider Unity's financial
performance and the integration of Unity into the Company in deciding whether or
not to approve the Merger.
For a fuller discussion of these and other risks affecting the Company,
its business, and the Merger, see "RISK FACTORS."
COMPARATIVE PER SHARE INFORMATION
The following table represents certain historical and unaudited pro
forma per share data for the Company and Unity. The following historical
information should be read in conjunction with the historical financial
statements and accompanying notes of the Company and Unity included in this
Prospectus/Proxy Statement. See "Index to Financial Statements." The following
unaudited pro forma financial information should be read in conjunction with the
unaudited pro forma financial statements and accompanying notes of the Company
and Unity included in this Prospectus/Proxy Statement. See "Unaudited Condensed
Combined Financial Information."
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
------------ ----------
ENDED MARCH 31, DECEMBER 31,
--------------- ------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
OAK HILL FINANCIAL(1)
<S> <C> <C> <C> <C> <C>
Earnings Per $ .31 $ .27 $ 1.12 $ .92 $ .81
Common Share
Cash Dividend Paid $ .06 $ .05 $ .21 $ .10 $ .06
Per Common Share
Book Value Per $ 8.20 $ 7.27 $ 7.99 $ 7.11 $ 5.86
Common Share (at
period end)
UNITY SAVINGS BANK(2)
Earnings Per $ 2.12 $ 1.43 $ 5.39 $ 5.68 $ 6.13
Common Share
Cash Dividend Paid -- -- $ 2.00 $ 1.20 $ .36
Per Common Share
Book Value Per $ 80.06 $ 76.91 $ 79.21 $ 75.88 $ 65.94
Common Share (at
period end)
UNAUDITED PRO
FORMA COMBINED
CONSOLIDATED
Earnings Per $ .30 $ .25 $ 1.01 $ 0.86 $ 0.79
Common Share
Cash Dividend Paid $ .05 $ .04 $ .22 $ .11 $ .06
Per Common Share
Book Value Per $ 8.46 $ 7.67 $ 8.28 $ 7.50 $ 6.38
Common Share (at
period end)
</TABLE>
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<PAGE> 18
(1) Weighted average common shares outstanding totaled 2,873,500 and
2,872,500 for the three month periods ended March 31, 1997 and 1996,
and 2,873,000, 2,444,400 and 2,300,200 for the years ended December 31,
1996, 1995 and 1994, respectively. Book value per share is computed
based upon shares outstanding totaling 2,873,500, 2,872,500, 2,873,500,
2,872,500 and 2,872,500 at March 31, 1997 and 1996 and at December 31,
1996, 1995 and 1994 respectively.
(2) Earnings per common share, cash dividends per common share, and book
value per common share are computed based upon 93,250 shares
outstanding as of and for all periods presented.
MARKET PRICE DATA; DIVIDEND POLICY
The Oak Hill Common Stock is traded in the over-the-counter market on
The Nasdaq National Market under the symbol "OAKF." The following table sets
forth, for the periods indicated, the high and low sales prices for the Oak Hill
Common Stock, as reported on the Nasdaq National Market. Information with
respect to the Oak Hill Common Stock commences on October 12, 1995, when the Oak
Hill Common Stock was first offered to the public.
<TABLE>
<CAPTION>
OAK HILL COMMON STOCK
-----------------------------------------
Calendar Period HIGH LOW
--------------------------------------------------- ------------------ -------------------
<S> <C> <C>
Fiscal 1995:
------------
Fourth Quarter (commencing on October 12, $11.00 $9.25
1995)
Fiscal 1996:
------------
First Quarter $10.00 $9.25
Second Quarter $12.25 $9.50
Third Quarter $12.25 $11.00
Fourth Quarter $13.00 $11.50
Fiscal 1997:
First Quarter $14.25 $12.25
Second Quarter (through June 25, 1997) $19.25 $13.50
</TABLE>
The ability of the Company to pay cash dividends to shareholders is
limited by its ability to receive dividends from its subsidiary. As discussed in
Note K of Notes to the Consolidated Financial Statements, the State of Ohio
places certain limitations on the payment of dividends by Ohio state-chartered
banks. The Company paid a split-adjusted cash dividend of $.064 per share during
the six-month period ended June 30, 1995. Commencing with the fourth quarter of
1995, the Company has declared the following quarterly cash dividends:
<TABLE>
<CAPTION>
Quarter Dividend
Ended Declared
<S> <C>
12/31/95 $0.04
3/31/96 0.05
6/30/96 0.05
9/30/96 0.05
12/31/96 0.06
3/31/97 0.06
6/30/97 0.06
</TABLE>
Future cash and stock dividends will be subject to determination and declaration
by the Board of Directors. In determining any future dividend the Board will
consider, among other factors, the Company's financial condition and results of
operations, investment opportunities, capital requirements, and regulatory
limitations.
On April 25, 1997, the last full trading day prior to the public
announcement of the Merger Agreement, the last sale price per share of Oak Hill
Common Stock on The Nasdaq National Market was $14.50. The closing price per
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<PAGE> 19
share of Oak Hill Common Stock on The Nasdaq National Market on June 25, 1997
was $19.25. The number of record holders of Oak Hill Common Stock as of June 25,
1997, was approximately 1,400.
Shareholders of the Company and the shareholders of Unity are advised to
obtain current market quotations for shares of Oak Hill Common Stock. No
assurance can be given concerning the market price of shares of Oak Hill Common
Stock before or after the Effective Time. The market price of Oak Hill Common
Stock will fluctuate between the date of this Prospectus/Proxy Statement and the
Effective Time and thereafter.
Unity has approximately 31 shareholders of record at June 25, 1997.
There is no established public trading market for Unity Common Shares and,
accordingly, market price information is not available for Unity Common Shares.
Commencing with the six-month period ending June 15, 1995, Unity has declared
the following cash dividends:
<TABLE>
<CAPTION>
<S> <C>
6/15/95 $ .20
12/15/95 $1.00
6/15/96 $1.00
12/15/96 $1.00
6/15/97 $1.00
</TABLE>
RISK FACTORS
The Company desires to take advantage of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Many of
the important factors discussed below have been discussed in the Company's prior
filings with the Commission. In addition to the other information in this
Prospectus/Proxy Statement, shareholders of the Company and the shareholders of
Unity should carefully consider the following factors in evaluating the Company
and its business before making a decision regarding the vote on the Merger. The
following important factors, among others, in some cases have affected, and in
the future could affect, the Company's actual results and could cause the
Company's actual consolidated results of operations to differ materially from
those expressed in any forward-looking statements made by, or on behalf of, the
Company.
Growth Strategy. The Company has pursued and continues to pursue a
strategy of growth. The success of the Company's growth strategy will depend
largely upon its ability to manage its credit risk and control its costs while
providing competitive products and services. This growth strategy may present
special risks, such as the risk that the Company will not efficiently handle
growth with its present operations, the risk of dilution of book value and
earnings per share as a result of an acquisition, the risk that earnings will be
adversely affected by the start-up costs associated with establishing new
products and services, the risk that the Company will not be able to attract and
retain qualified personnel needed for expanded operations, and the risk that its
internal monitoring and control systems may prove inadequate.
Potential Impact of Changes In Interest Rates. The Company's results of
operations are dependent to a large degree on net interest income, the
difference between interest income from loans and investments and interest
expense on deposits and borrowings. One common measurement of interest rate
risk, known as the interest rate gap, is the difference between interest-earning
assets and interest-bearing liabilities repricing or maturing within various
time frames, expressed as a percentage of total assets. At December 31, 1996,
the Company had a negative cumulative interest rate gap of 1.56% for one year.
As a result of this cumulative negative interest rate gap position, the rate of
increase in the costs associated with the Company's deposits could be expected
to increase more rapidly than the rate of increase in the Company's income from
loans and investments in a period of rising interest rates. Consequently, a
significant increase in market rates of interest could adversely affect net
interest income.
Control by Management; Anti-Takeover Provisions. Evan E. Davis, John D.
Kidd, and D. Bruce Knox (the "Principal Shareholders") will own in the aggregate
approximately 57% of the outstanding shares of the Oak Hill Common Stock after
the Merger. Accordingly, because holders of Oak Hill Common Stock are not
permitted to vote their shares cumulatively in the election of directors, the
Principal Shareholders will retain the power to elect the entire Board of
Directors of the Company and to determine the outcome of any other matters
submitted to the Company's shareholders for approval. In addition to Ohio and
federal laws and regulations governing changes in control of insured depository
institutions, the Company's Articles of Incorporation and Code of Regulations
contain certain provisions which may delay or make more difficult an acquisition
of control of the Company. For example, the Company's Articles of Incorporation
do not exempt the Company from the provisions of Ohio's "control share
acquisition" and "merger moratorium" statutes. Assuming that the Principal
Shareholders continue to retain at least a majority of the outstanding voting
shares of the Company, such ownership position could be expected to deter any
prospective acquiror from seeking to acquire ownership or control of the
Company, and the Principal Shareholders would be able to defeat any acquisition
proposal that requires approval of the Company's shareholders. In addition, the
Principal Shareholders may make a private sale of shares of Oak Hill Common
Stock which they own, including to a person seeking to acquire ownership or
control of the Company. The Company has 3,000,000 shares of authorized but
unissued preferred stock, par value $ .01 per share, which may be issued in the
future with such rights, privileges and preferences as are determined by the
Board of Directors of the Company These shares may have the effect of making
more difficult or discouraging any acquisition of the Company which is
determined to be undesirable by the Board of Directors.
-10-
<PAGE> 20
Credit Risk; Exposure To Economic Conditions in Jackson, Scioto and Ross
Counties, Ohio. A significant risk facing lenders generally is credit risk, that
is, the risk of losing principal and accrued interest if borrowers fail to
perform according to the terms of the loan agreements. The Bank's concentration
of loans in Jackson, Scioto, and Ross Counties, Ohio, exposes it to risks
resulting from changes in the local economies. Per capita income in Jackson,
Scioto and Ross Counties is typically less than the statewide average, while
unemployment in the same three counties is typically higher than the statewide
unemployment level. While the Bank's market area for loans extends throughout
most of southeastern Ohio and Butler County, Pickaway County and Warren County,
Ohio, its lending operations are concentrated in Jackson, Scioto, and Ross
Counties, Ohio.
Competition. Banking institutions operate in a highly competitive
environment. The Company competes with other commercial banks, credit unions,
savings institutions, finance companies, mortgage companies, mutual funds, and
other financial institutions, many of which have substantially greater financial
resources than the Company. Certain of these competitors offer products and
services that are not offered by the Company and certain competitors are not
subject to the same extensive laws and regulations as the Company. Additionally,
consolidation of the financial services industry in Ohio and in the Midwest in
recent years has increased the level of competition. Recent and proposed
regulatory changes may further intensify competition in the Company's market
area.
Shares Eligible for Future Sale. The market price of the Oak Hill Common
Stock could be adversely affected by the sale of additional shares of Oak Hill
Common Stock owned by the Company's current shareholders. The Principal
Shareholders are permitted to sell certain limited amounts of Oak Hill Common
Stock without registration, pursuant to Rule 144 under the Securities Act.
Dependence on Management. The Company's success depends to a great
extent on its senior management, including its Chairman, Evan E., Davis,
President, John D. Kidd, Executive Vice President, Richard P. LeGrand and H. Tim
Bichsel, Secretary and Treasurer. The loss of their individual services could
have a material adverse impact on the Company's financial stability and its
operations. In addition, the Company's future performance depends on its ability
to attract and retain key personnel and skilled employees, particularly at the
senior management level. The Company's financial stability and its operations
could be adversely affected if, for any reason, one or more key executive
officers ceased to be active in the Company's management. The Company does not
own or currently plan to acquire "key man" life insurance on the lives of any of
its key employees.
Unity's Financial Performance and Integration. As a savings bank, Unity
is subject to many of the same risks as the Company, including interest rate
risk, credit risk and competition. Although Unity has been profitable to date,
there is no guarantee that Unity will continue to be profitable and that the
integration of Unity and the Company will be successful.
THE MERGER
BACKGROUND OF THE MERGER
The Company, an Ohio corporation, is a bank holding company that engages
directly in the business of commercial banking and other permissible activities
closely related to banking, through its wholly owned subsidiary, the Bank. The
Company and the Bank have twelve banking locations in Southeastern Ohio. The
Company faces strong competition from other banking institutions, including
local and regional banks and bank holding companies, as well as some of the
largest banking organizations in the United States. As of March 31, 1997, the
Company had approximately $262.8 million in total assets.
Unity is an Ohio savings bank with four banking locations in
Southeastern Ohio. As of March 31, 1997, Unity had approximately $65.1 million
in total assets.
The Company and Unity believe that the combination of Unity with the
Bank will enable the Company to reach a wider customer base and thus strengthen
its position in the banking industry in Southeastern Ohio.
The terms and conditions of the Merger were determined in arms' length
negotiations between the management teams and Boards of Directors of the Company
and Unity with advice from their respective financial advisors and lawyers,
after evaluations of the current financial condition, earnings potential and
market position of the Company and Unity, as well as the business prospects of
the combined company.
THE COMPANY'S REASONS FOR THE MERGER; RECOMMENDATION OF THE COMPANY'S BOARD OF
DIRECTORS
The management of the Company believes that the Merger offers
significant benefits to the Company. In approving the Merger and the Merger
Agreement, the Company's Board considered a number of factors. The Company's
Board did not assign any relative or specific weight to any of the factors. The
factors considered included:
1. Financial Terms of the Merger. The Company's Board of Directors
evaluated the information it received from Trident Financial Corporation,
indicating that the terms of the transaction were fair to the Company's
shareholders.
-11-
<PAGE> 21
2. Certain Financial and Other Information. The financial and other
information concerning the Company and Unity considered by the Company's Board
included, but was not limited to, information with regard to recent stock
performance, valuation analysis, pro forma analysis, and comparative financial
and operating performance.
3. Economic and Competitive Environment. The Company's Board took into
account the current and prospective economic environment facing the financial
services industry generally, and the respective capacities of the Company and
Unity to compete effectively given the rapid changes in the industry.
4. Regulatory Approvals. The Company's Board evaluated the likelihood of
obtaining the regulatory approvals that would be required with respect to the
Merger.
Based upon the above analysis, the Company's Board of Directors
concluded that the Merger was favorable to its shareholders and would allow the
Company to enhance its ability to meet the financial needs of its customers. The
Company also believes the combination of the Bank and Unity will solidify the
Company's presence in the financial services industry in Southeastern Ohio. For
the reasons described above, the Company's Board of Directors at its meeting
held on March 11, 1997 unanimously determined that the Merger and the Merger
Agreement are advisable and fair and in the best interests of the Company and
its shareholders and approved the Merger and the Merger Agreement and
recommended that holders of Oak Hill Common Stock adopt the Merger Agreement.
UNITY'S REASONS FOR THE MERGER; RECOMMENDATION OF UNITY'S BOARD OF DIRECTORS
Unity has been approached from time to time by other financial
institutions, including the Company, which have expressed an interest in
affiliating with Unity. When faced with such overtures, the Board has carefully
considered Unity's future prospects in view of prevailing and anticipated
regulatory, economic and competitive conditions to determine the course of
action that was in the best interests of its shareholders. In prior years, the
Board has determined, relative to the proposals of interested acquirors, that
the shareholders of Unity would best be served by Unity remaining independent.
In January 1997 the Company again approached Unity to discuss a possible
affiliation. In once again considering the merits of a merger, the Board
considered the many changes that have affected the thrift industry recently as
regulatory matters continue to become increasingly complex and as technology
assumes an ever-increasing role in the delivery of financial products and
services. The Board also discussed the competitive challenges which Unity will
be likely to encounter in the future, as well as the lack of liquidity with
respect to Unity's Common Shares. The Board reached the conclusion that, at this
time, the shareholders and customers of Unity would be best served by
affiliating with a larger financial institution.
Unity engaged McDonald & Company Securities, Inc. ("McDonald &
Company"), an investment banking firm experienced in financial institution
mergers and acquisitions, to advise the Board concerning a possible affiliation.
McDonald & Company performed an analysis of Unity relative to comparable
financial institutions and prepared an extensive comparable merger transaction
analysis to help the Board assess Unity's valuation in an acquisition context.
In conjunction with McDonald & Company, the Board compiled a list of other
financial institutions which had a presence in Southern Ohio as prospective
merger partners, without regard to whether such companies had previously
indicated an interest in acquiring Unity. The Board, with the assistance of
McDonald & Company, evaluated the different characteristics of the institutions
which had been identified to determine their suitability as merger partners. The
Board of Unity considered a number of factors, including, but not limited to,
the market performance of each company's stock, the characteristics of the
market served by the company, the products and services offered by the company
and the prospects for Unity's employees. After considering and weighing various
factors, the Board concluded that the Company was the most suitable acquiror and
decided to enter into negotiations with the Company.
The Company has a strong record of profitability and growth. Since its
initial public offering price of $9.75 per share in October 1995, the Oak Hill
Common Stock has achieved a market value of $19.25 per share as of June 25,
1997. In conjunction with McDonald & Company, the Board evaluated the Company's
prospects for increased profitability and growth.
The Merger presents an opportunity for the shareholders of Unity to
exchange their Unity Common Shares in a non-taxable transaction Oak Hill Common
Stock at a premium relative to Unity's book value per share. Shares of Oak Hill
Common Stock, which will total more than 3,000,000 after the Merger, are listed
on The Nasdaq National Market under the symbol "OAKF" and are beneficially owned
by approximately 1,400 shareholders. These characteristics indicate an
established market for Unity shareholders who want to sell all or part of their
stock after the Merger. Those shareholders who continue to hold their shares,
however, will realize a significant return on their investment while deferring
the tax consequences of that gain.
The asset size of the Company is another important consideration to the
Board. The Company is large enough to support the staff and the technology
necessary to offer products and services that Unity does not offer. Commercial
banking, participation in the secondary market and automated teller machines are
just a few examples of the products and services that will be available to
Unity's customers as a result of the Merger. While its size enables the Company
to conduct these activities effectively and profitably, the Company is not too
large to be compatible with Unity. Like Unity, the Company has served the
financial service needs of small communities throughout Southern Ohio, and there
are many similarities between the business philosophy and customer-service
orientation of Unity and the Company.
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Moreover, because of its size, the Company can offer Unity's employees more
diverse opportunities for career advancement.
Geographically, the Company and Unity fit well together. Jackson, Ohio
is the only market where Unity and the Company both have branches. The proximity
of the Company's headquarters to Unity's offices will facilitate the
communications, employee training and technological support which are necessary
to a smooth transition and to the successful expansion of products and services
in the Unity offices. In addition, a significant number of the Company's
shareholders are residents of Southern Ohio, which the Board believes will help
foster the community orientation that has been the hallmark of Unity's business.
The Board recognized that these features would provide the foundation
for a combination that would benefit Unity's shareholders, its employees, its
customers and the communities it services. On April 28, 1997, at the conclusion
of arm's length negotiations between Unity and the Company, the Board of Unity
met to consider approval of the terms of the Merger Agreement. At that meeting,
representatives of McDonald & Company met with the Board to review the financial
components of the Merger and advised the Board that, in the opinion of McDonald
& Company as of that date, the Exchange Ratio was fair to the Unity shareholders
from a financial point of view.
Based on all the foregoing, the directors of Unity concluded that the
terms of the Merger, as set forth in the Merger Agreement, were in the best
interests of Unity and its shareholders.
OPINION OF FINANCIAL ADVISOR FOR OAK HILL
The Company retained Trident Financial Corporation ( "Trident" ) on
April 4, 1997 to act as the Company's financial advisor in connection with a
possible business transaction with Unity, including rendering its opinion to the
Company's Board of Directors as to the fairness to the Company, from a financial
point of view, of the Merger Consideration. As part of its engagement, Trident
performed a valuation analysis of Unity in an acquisition context. On April 15,
1997, Trident delivered its valuation report to the Company's Board of
Directors. In its report Trident reviewed the terms of the Merger, provided
market information with respect to thrift mergers and acquisitions, compared the
Company's offer to the valuation of Unity, and estimated the pro forma effect of
the Merger. In addition, Trident rendered its written opinion to the Company's
Board of Directors to the effect that, as of that date, the consideration to be
paid by the Company, pursuant to the Merger Agreement, was fair from a financial
point of view to its shareholders. The Merger Consideration was determined
pursuant to a negotiated process conducted by Unity and its advisors. Trident
did not advise the Company during the negotiation process.
Trident delivered its updated written opinion to the Company's Board of
Directors as of the date of this Prospectus/Proxy Statement stating that, as of
such date, the consideration to be paid by the Company in the Merger is fair
from a financial point of view to its shareholders. Trident has consented to the
inclusion of such opinion and the related disclosure in this Prospectus/Proxy
Statement.
TRIDENT'S OPINION IS DIRECTED TO THE BOARD OF DIRECTORS OF THE COMPANY
AND IS DIRECTED ONLY TO THE FAIRNESS TO THE COMPANY'S SHAREHOLDERS, FROM A
FINANCIAL POINT OF VIEW, OF THE MERGER CONSIDERATION TO BE PAID BY THE COMPANY
BASED ON CONDITIONS AS THEY EXISTED AND COULD BE EVALUATED AS OF THE DATE OF THE
OPINION. TRIDENT'S OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE SPECIAL MEETING, NOR
DOES TRIDENT'S OPINION ADDRESS THE UNDERLYING BUSINESS DECISION TO EFFECT THE
MERGER. THIS SUMMARY OF TRIDENT'S OPINION IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION, WHICH IS ATTACHED TO THIS
PROSPECTUS/PROXY STATEMENT AS APPENDIX C. THE COMPANY'S SHAREHOLDERS ARE URGED
TO READ TRIDENT'S OPINION IN ITS ENTIRETY FOR A DESCRIPTION OF THE ASSUMPTIONS
MADE AND MATTERS CONSIDERED AND THE LIMITS ON THE REVIEW UNDERTAKEN IN RENDERING
SUCH OPINION.
In connection with rendering its opinion, Trident reviewed and analyzed,
among other things, the following: (i) the Merger Agreement; (ii) this
Prospectus/Proxy Statement; (iii) certain publicly available information
concerning Unity, including the audited financial statements of Unity for each
of the years in the three-year period ended December 31, 1996, and unaudited
financial statements for the three months ended March 31, 1997; (iv) certain
publicly available information concerning the Company, including the audited
financial statements of the Company for each of the years in the three-year
period ended December 31, 1996, and unaudited financial statements for the three
months ended March 31, 1997; (v) certain other internal information, primarily
financial in nature, concerning the business and operations of Unity and the
Company furnished to Trident by Unity and the Company for purposes of Trident's
analysis; (vi) certain information with respect to the limited trading market
for Unity Common Stock; (vii) certain information with respect to the pricing
and trading of Oak Hill Common Stock; (viii) certain publicly available
information with respect to other companies that Trident believed to be
comparable to Unity and the Company and the trading markets for such other
companies' securities; and (ix) certain publicly available information
concerning the nature and terms of other transactions that Trident considered
relevant. Trident had discussions with certain officers and employees of Unity
and the Company to review the foregoing, as well as other matters which it
believed relevant to its inquiry, such as: (i) the current business operations,
financial condition, and future prospects of the Company and Unity; (ii) the
results of Trident's due diligence examination of Unity; and (iii) the expected
cost savings and revenue enhancements resulting from the Merger. Trident also
took into account its assessment of general economic, market, financial and
regulatory
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<PAGE> 23
conditions and trends, as well as its knowledge of the financial institutions
industry, its experience in connection with similar transactions, and its
knowledge of securities valuation generally.
In its review and analysis, and in arriving at its opinion, Trident
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided to it, or that was publicly available, and did
not attempt independently to verify any such information. Trident did not
conduct a physical inspection of the properties or facilities of the Company or
Unity, nor did it make or obtain any independent valuations or appraisals of any
of such properties or facilities.
The following is a summary of the material valuation, financial and
comparative analyses performed by Trident in arriving at its fairness opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial or summary description. Trident believes that
its analyses and the summary set forth below must be considered as a whole and
that selecting portions of its analyses without considering all of the analyses,
or the summary without considering all factors and analyses, would create an
incomplete view of the processes underlying the analyses set forth in Trident's
report and its opinion. Therefore, the ranges of valuations resulting from any
single analysis described below should not be taken to be Trident's view of the
actual value of Unity or the combined company. In performing its analyses,
Trident made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond the
control of the Company or Unity. The results of the specific analyses performed
by Trident may differ from the Company's or Unity's actual values or actual
future results as a result of changing economic conditions, changes in company
strategy and policies, as well as a number of other factors. Such individual
analyses were prepared to provide valuation guidance solely as part of Trident's
overall valuation analysis and the determination of the fairness of the
consideration to be paid by the Company's shareholders, and were provided to the
Company's Board of Directors in connection with the delivery of Trident's
opinion. The analyses do not purport to be appraisals or to reflect the prices
at which a company might actually be sold or the prices at which any securities
may trade at the present time or at any time in the future. In addition, as
described above, Trident's opinion and report to the Company's Board of
Directors were among the many factors taken into consideration by the Company's
Board of Directors in making its determination to approve the Merger Agreement.
Financial Analysis of Unity. Trident examined Unity's financial
performance for the period December 31, 1992 through December 31, 1996 by
analyzing the composition of its balance sheet, adjusting and normalizing its
earnings, and calculating a variety of operating and financial ratios for Unity.
Peer Group Analysis. Trident evaluated Unity's strengths and weaknesses
by comparing its financial performance to that of the following groups of
state-chartered savings banks: (i) all United States institutions; (ii) all
institutions in the Midwest; (iii) all Ohio institutions; (iv) all United States
institutions with total assets between $50 million and $100 million; and (v)
Ohio institutions with total assets between $50 million and $100 million (the
"Aggregates"). This analysis compared a number of Unity's historical financial
ratios at September 30, 1996 to those of the Aggregates, including but not
limited to: (i) the balance sheet composition as a percentage of total assets;
(ii) the loan portfolio as a percentage of total assets; (iii) the investment
portfolio as a percentage of total assets; and (iv) asset quality. Trident also
compared Unity's growth rates between December 31, 1993 and September 30, 1996,
its yields on assets and costs of liabilities and its income and expense data
for 1995 and the nine months ended September 30, 1996 to those of the
Aggregates.
Valuation of Unity. Trident estimated the fair market value of Unity in
an acquisition context using three different approaches to value: the asset
approach, the income approach and the market approach.
The asset approach considers the market value of a company's assets and
liabilities, as well as any intangible value the company may have. Trident
estimated Unity's net asset value by adjusting the carrying value of its assets
and liabilities to reflect current market values. In addition, the net asset
value of Unity was adjusted downward based on an estimate of transaction and
other costs. Based on those adjustments, Trident estimated Unity's fully diluted
net asset value to be approximately $6.7 million or $71.82 per share. After
determining Unity's net asset value, Trident added an intangible premium to
reflect the estimated value of its customer relationships. According to the
asset approach, the total value of Unity is the sum of its net asset value and
its intangible value. Based on a branch purchase methodology and intangible (
core deposit ) premiums observed in the market for thrift acquisitions, as well
as Trident's knowledge of Unity, Trident applied premiums equal to 6.0% and
11.0% of core deposits to Unity's estimated fully diluted net asset value. Using
the asset approach, Trident established a reference range of $99.50 to $123.00
per share for Unity Common Stock.
Trident also used an income approach in its valuation of Unity by
capitalizing its previous twelve months earnings (adjusted to exclude
non-recurring income and expense items) plus merger cost savings of 25% to 50%
as a result of an acquisition (the "Normalized Earnings"). The Normalized
Earnings were capitalized at rates of 8% to 14%. The capitalization rates chosen
were estimates of the required rates of return for holders or prospective
holders of shares of financial institutions similar to Unity, based on a number
of factors including prevailing interest rates, the pricing ratios of publicly
traded financial institutions, the financial condition and operating results of
Unity, as well as Trident's general knowledge of valuation, the securities
markets, and acquisition values in other mergers of financial institutions.
Trident adjusted the resulting value to reflect certain merger-related expenses.
Using the income approach, Trident established a reference range of $72.00 to
$109.00 per share for Unity Common Stock.
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<PAGE> 24
In the market approach, Trident analyzed certain median pricing ratios
(e.g., price to book value, price to tangible book value, price to reported
earnings, price to assets, and the premium paid over tangible book value as a
percentage of core deposits) resulting from selected completed thrift merger
transactions, as well as recently announced pending transactions. In applying
the market approach, Trident considered the pricing ratios for the following
groups of thrift merger transactions: (i) all pending thrift merger transactions
(40 transactions); (ii) all pending thrift mergers announced during the 90 days
prior to April 1, 1997 (the date of the market data) (22 transactions); (iii)
all pending thrift mergers of Midwestern thrifts (13 transactions); (iv) all
pending thrift mergers in which the aggregate consideration was between $5
million and $15 million (6 transactions); (v) all pending thrift mergers in
which the target thrift had assets between $30 million and $100 million (9
transactions); (vi) all pending thrift mergers in which the target thrift had a
return on assets between 0.75% and 1.00% (8 transactions); (vii) all pending
thrift mergers in which the target thrift had a return on equity between 5.5%
and 9.5% (7 transactions); (viii) all pending thrift mergers in which the target
thrift had a tangible equity ratio between 10% and 13% of assets (7
transactions); and (ix) pending thrift mergers in which the target thrift had a
ratio of non-performing assets to assets between zero and 0.5% (15
transactions). Trident also considered the pricing ratios for ten pending or
completed thrift merger transactions in which the target thrift was of similar
size and capital structure as Unity, and in which the target thrift had similar
profitability and asset quality. Trident then compared a number of financial
ratios for Unity to those of the target thrift institutions.
Based on Unity's financial condition and results of operations, as well
as other factors relative to the groups of thrift mergers noted above, Trident
selected ranges of pricing ratios to apply to Unity. Trident chose price to book
value ratios of 135% to 160%, resulting in per share values of $107.00 to
$126.75; price to tangible book value ratios of 135% to 160%, resulting in per
share values of $106.75 to $126.50; price to earnings multiples of 18 to 26
times earnings, resulting in per share values of $97.00 to $140.25; price to
assets ratios of 16% to 20%, resulting in per share values of $111.50 to
$139.50; and premiums over tangible book value as a percentage of core deposits
of 6% to 11%, resulting in per share values of $107.00 to $130.25. Based on
these derived ranges of value, Trident established a reference range of $105.00
to $130.00 per share using the market approach.
After reviewing the results from the three approaches and considering
all relevant facts, Trident reconciled the acquisition values generated by each
approach and determined a final range of $107.00 to $123.00 per share as the
acquisition value of Unity. Trident did not apply specific weights to the three
individual approaches, but rather applied its judgment and experience in
determining the final range of value for Unity. On April 15, 1997, the Merger
Consideration ($121.13 per share) was within Trident's valuation range for
Unity.
Contribution and Dilution Analysis. Trident presented a pro forma
combined balance sheet as of December 31, 1996 and a pro forma combined income
statement for the four quarters ended December 31, 1996 assuming a pooling of
interests based upon the Exchange Ratio. Trident analyzed the contribution of
each of the Company and Unity (on a fully diluted basis assuming projected cost
savings and revenue enhancements) to the pro forma combined company for, among
other things, ownership, equity, and earnings. Trident also compared the
earnings per share of Oak Hill Common Stock to the earnings per share of the
common stock of the combined company on a pro forma basis. Based on such
analysis and assuming certain projected cost savings and revenue enhancements,
the proposed transaction would be slightly accretive to the Company's book value
and earnings per share.
Trident, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwriting, and valuations for corporate
and other purposes. Trident has extensive experience in the valuation of
financial institutions. The Company's Board of Directors selected Trident to
render a fairness opinion because Trident is a nationally recognized investment
banking firm specializing in financial institutions, with substantial experience
in transactions similar to the Merger. Trident is not affiliated with either the
Company or Unity.
For its services, the Company paid Trident a retainer of $5,000 and a
fee of $10,000 upon delivery of its preliminary fairness opinion. A remaining
balance of $5,000 is due upon delivery of the final fairness opinion. The
Company has also agreed to reimburse Trident for its reasonable out-of-pocket
expenses and to indemnify Trident against certain liabilities, including certain
liabilities under federal securities laws.
OPINION OF FINANCIAL ADVISOR FOR UNITY
Unity has retained McDonald & Company to render its opinion with respect
to the fairness, from a financial point of view, of the Exchange Ratio to the
holders of Unity Common Shares. McDonald & Company rendered its oral opinion to
the Unity Board of Directors on April 28, 1997, which it subsequently confirmed
in writing, that, as of the date of such opinion, the Exchange Ratio was fair,
from a financial point of view, to the holders of Unity Common Shares.
THE FULL TEXT OF THE OPINION OF MCDONALD & COMPANY UPDATED AS OF THE
DATE OF THIS PROSPECTUS/PROXY STATEMENT, WHICH SETS FORTH CERTAIN ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEWS UNDERTAKEN, IS ATTACHED
AS APPENDIX B TO THIS PROSPECTUS/PROXY STATEMENT, AND SHOULD BE READ IN ITS
ENTIRETY. THIS SUMMARY OF THE OPINION OF MCDONALD & COMPANY IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE OPINION. MCDONALD & COMPANY'S OPINION IS DIRECTED
TO THE UNITY BOARD OF DIRECTORS AND ADDRESSES ONLY THE EXCHANGE RATIO.
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<PAGE> 25
In arriving at its opinion, McDonald & Company reviewed, among other
things, the Merger Agreement together with exhibits and schedules thereto,
certain publicly available information relating to the business, financial
condition and operations of Unity and the Company, as well as certain other
non-public information, primarily financial in nature, furnished to it by Unity
and the Company relating to the respective businesses, earnings, assets and
prospects of Unity and the Company. McDonald & Company also held discussions
with members of senior management of Unity and the Company concerning their
respective businesses, assets, financial forecasts and prospects. McDonald &
Company also reviewed certain publicly available information concerning the
trading of, and the trading market for, Unity Common Shares and Oak Hill Common
Stock and certain publicly available information concerning comparable companies
and transactions, all as set forth in McDonald & Company's opinion.
McDonald & Company was not engaged to and did not conduct a physical
inspection of any of the assets, properties, or facilities of either Unity or
the Company and was not engaged to and has not made, obtained or been furnished
with any independent evaluation or appraisal of any of such assets, properties,
or facilities or any of the liabilities of Unity or the Company. McDonald &
Company has assumed and relied, without independent investigation, upon the
accuracy and completeness of the financial and other information provided to it
or publicly available, has relied upon the representations and warranties of
Unity and the Company contained in the Merger Agreement, and has not
independently attempted to verify such information. McDonald & Company has also
assumed that all of the conditions to the Merger as set forth in the Merger
Agreement, including the tax-free treatment of the Merger to the holders of
Unity Common Shares, would be satisfied and that the Merger would be consummated
on a timely basis in the manner contemplated by the Merger Agreement. No
limitations were imposed by Unity upon McDonald & Company with respect to the
scope of McDonald & Company's investigation, nor were any specific instructions
given to McDonald & Company in connection with its fairness opinion.
In connection with rendering its opinion, McDonald & Company considered
a variety of financial analyses, which are summarized below. McDonald & Company
believes that its analyses must be considered as a whole and that selecting
portions of such analyses and of the factors considered by McDonald & Company
without considering all such analyses and factors may create an incomplete view
of the analytical process underlying McDonald & Company's opinion. In its
analyses, McDonald & Company made numerous assumptions with respect to industry
performance, business and economic conditions, and other matters. Any estimates
contained in McDonald & Company's analyses are not necessarily indicative of
future results or values, which may be significantly more or less favorable than
such estimates.
The following is a summary of selected analyses considered by McDonald &
Company and discussed with the Unity Board of Directors, in connection with
McDonald & Company's opinion dated April 28, 1997:
COMPARISON WITH SELECTED COMPANIES. McDonald & Company compared the
financial performance and stock market valuation of the Company with
corresponding data for the following selected financial service companies: ANB
Corporation, Belmont Bancorp., Bryn Mawr Bank Corporation, Cass Commercial
Corporation, Capitol Bancorp, Ltd., Comm Bancorp Inc., Commercial BancShares
Inc., Century Financial Corporation, NSD Bancorp, Inc., Peoples Bank Corporation
of Indianapolis, Southside Bancshares Corp., S.Y. Bancorp, Inc., and United
Bancorp, Inc. In addition, McDonald & Company compared the same data of Unity
with corresponding data for the following selected companies: East Side
Financial, Inc., GF Bancorp, Inc., HFB Financial Corporation, Illinois Community
Bancorp, Inc., Mid-Central Financial Corp., NorthWest Indiana Bancorp, Peoples
Savings Bank of Troy, Pioneer Financial Corporation, TSB Financial Incorporated,
West Town Bancorp, Inc., as well as Community Investors Bancorp, Classic
Bancshares, Inc., Enterprise Federal Bancorp, FFW Corp., Wood Bancorp, Inc.,
Laurel Capital Group, Inc., MFB Corp., OHSL Financial Corp., Pittsburgh Home
Financial Corp, and Three Rivers Financial Corp. At the time, none of the
companies listed above had announced a merger transaction or disclosed an
interest in pursuing a possible merger transaction which would have
significantly affected its stock market valuation.
CONTRIBUTION ANALYSIS. McDonald & Company analyzed the contribution of
each of Unity and the Company to, among other things, the shareholders' equity
and after-tax income of the pro forma combined company. This analysis showed
that, among other factors, Unity would have contributed 24.1% of the stated
shareholders' equity of the pro forma combined company as of March 31, 1997 and
18.7% of the pro forma net income for the combined company for the 12 months
ended March 31, 1997, compared to a proposed ownership of 21.1% of the combined
company to be held by holders of Unity Common Shares.
PRO FORMA MERGER ANALYSIS. McDonald & Company analyzed certain pro forma
effects resulting from the Merger on the pro forma combined company over a
five-year period from 1997 through 2001. This analysis, based upon the financial
forecasts of management of Unity and the Company and including estimates of cost
savings provided by the management of Unity and the Company, showed
approximately 3.1% dilution for the Company in pro forma earnings per share in
1997 and approximately 0.6% dilution in pro forma earnings per share in 1998.
McDonald & Company also analyzed the changes in the per share amount of
earnings, book value and indicated dividend represented by one Unity Common
Share after the Merger. The analysis was performed on the basis of financial
information for both companies as of and for the 12-month periods ended December
31, 1994, 1995 and 1996 and the 12 -month period ended March 31, 1997. The
analysis indicated that, among other things, exchanging one Unity Common Share
at the Exchange Ratio for shares of Oak Hill Common Stock on a pro forma basis
would have resulted in a 48.7% increase in earnings per share for each Unity
Common Share for the 12 months ended March 31, 1997, a 10.1% decrease in fully
diluted book value per share for each Unity Common Shares as of March 31, 1997
and a dividend increase of 2.0% per share of Unity Common Shares based on the
Company's indicated annual dividend rate as of the date of the opinion.
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ANALYSIS OF SELECTED MERGER TRANSITIONS. McDonald & Company reviewed
five groups of selected pending thrift acquisition transactions involving (i)
selling thrifts, headquartered in the Midwest region of Iowa, Illinois, Indiana,
Kansas, Kentucky, Michigan, Minnesota, Missouri, North Dakota, Nebraska, Ohio,
Pennsylvania, South Dakota, West Virginia and Wisconsin, (ii) selling thrifts
with total assets less than $250 million, (iii) selling thrifts with an equity
to assets ratio of between 9.00% and 15.00%, (iv) selling thrifts with a return
on average assets ratio of between 0.50% and 1.00%, and (v) selling thrifts with
a ratio of non-performing assets to total assets of less than 1.00%. McDonald &
Company reviewed the ratios of the offer value to stated book value and tangible
book value, the multiple of the last 12 months earnings of the acquired company
(adjusted for the SAIF charge), and the ratio of offer value to assets in each
such transaction, and computed the mean and median ratios and multiples for each
group. The calculations yielded ranges of median ratios of price to stated book
value and tangible book value of 119% to 152% and 119% to 156%, respectively.
Median multiples of earnings among the five groups ranged from 20.3x to 25.5x;
and median ratios of offer value to assets ranged from 17.0% to 19.5%. This
analysis showed an imputed reference range of $126.00 to $154.00 per Unity
Common Share.
NO COMPANY OR TRANSACTION USED IN THE ABOVE ANALYSES AS A COMPARISON IS
IDENTICAL TO UNITY, THE COMPANY OR THE MERGER. ACCORDINGLY, AN ANALYSIS OF THE
RESULTS OF THE FOREGOING NECESSARILY INVOLVES COMPLEX CONSIDERATIONS AND
JUDGMENTS CONCERNING THE DIFFERENCES IN FINANCIAL AND OPERATING CHARACTERISTICS
OF THE COMPANIES TO WHICH THEY ARE BEING COMPARED. MATHEMATICAL ANALYSIS (SUCH
AS DETERMINING THE MEAN OR MEDIAN) IS NOT, IN ITSELF, A MEANINGFUL METHOD OF
USING COMPARABLE COMPANY OR COMPARABLE TRANSACTION DATA.
DISCOUNTED CASH FLOW ANALYSIS. Using discounted cash flow analysis,
McDonald & Company estimated the present value of the future streams of
after-tax cash flows that Unity could produce over a five-year period from 1997
through 2001, under various assumptions, based upon Unity's management
forecasts. McDonald & Company then estimated the terminal value of Unity after
the five year period by applying an estimated perpetual growth rate to the sixth
year's projected after-tax cash flow and then applied to this value multiples
ranging from 8.1X to 10.1X. The five year cash flow streams and terminal values
were then discounted to present values using different discount rates chosen to
reflect different assumptions regarding the estimated required rates of return
of prospective buyers of Unity. On the basis of such varying assumptions, this
discounted cash flow analysis indicated a reference range of $98.32 to $122.46
per Unity Common Share. This analysis was based upon management forecasts
including variations and assumptions made by McDonald & Company which included
adjustments to reflect the anticipated effects of potential merger related cost
savings estimated by Unity and the Company. Management's forecasts are based
upon many factors and assumptions, many of which are beyond the control of Unity
or the Company.
In addition to performing the analyses summarized above, McDonald &
Company also considered its analyses of the general market for bank and thrift
mergers, Unity's relative share of the deposit market that it serves and the
general economic conditions and prospects of the markets.
In performing its analyses, McDonald & Company made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters. The analyses performed by McDonald & Company are not
necessarily indicative of actual values, which may be significantly more or less
favorable than the values suggested by such analyses. Such analyses were
prepared solely as part of McDonald & Company's opinion.
The term "fair from a financial point of view" is a standard phrase
contained in investment banking fairness opinions and refers to the fact that
McDonald & Company's opinion as to the fairness of the Exchange Ratio is
addressed solely to the financial attributes of the Exchange Ratio. The analyses
do not purport to be appraisals or to reflect the prices at which a company
might actually be sold. In addition, as described above, McDonald & Company's
opinion and related presentation to the Unity Board of Directors were one of
many factors taken into consideration by the Unity Board in making its
determination to approve the Merger Agreement. Consequently, the McDonald &
Company analyses described above should not be viewed as determinative of the
Unity Board's conclusions with respect to the value of Unity or of the decision
of the Unity Board to agree to the Exchange Ratio.
McDonald & Company's opinion is based on economic and market conditions
and other circumstances existing on, and information made available as of, the
date of the opinion. In addition, the opinion does not address the underlying
business decision to effect the Merger or any other terms of the Merger.
McDonald & Company's opinion does not represent its opinion as to what the value
of Unity Common Shares or Oak Hill Common Stock may be at the Effective Time.
In connection with its opinion dated as of the date of this
Prospectus/Proxy Statement, McDonald & Company performed procedures to update
certain of its analyses and reviewed the assumptions on which such analyses were
based and the factors considered herewith.
McDonald & Company, as part of its investment banking business, is
customarily engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. McDonald & Company has
extensive experience with the valuation of financial institutions. Unity's Board
of Directors selected McDonald & Company as its financial advisor because of
McDonald & Company's industry expertise with respect to financial institutions
and because of its substantial experience in transactions similar to the Merger.
McDonald & Company is not affiliated with either Unity or the Company.
In the ordinary course of business, McDonald & Company makes a market in
Oak Hill Common Stock and may actively trade securities of the Company or Unity
for its own account and for the accounts of its customers. At any time and from
time to time, McDonald & Company may hold a short or long position in such
securities. In addition,
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McDonald & Company has provided investment banking services to the Company in
the past, serving as managing underwriter for an initial public offering of Oak
Hill's Common Stock, McDonald & Company received customary fees from the
Company for these services. McDonald & Company may provide other investment
banking services to the Company in the future.
For its services as financial advisor, Unity has paid McDonald & Company
a fee of $40,000 upon rendering of the oral opinion. Assuming the consummation
of the Merger and based upon the value of the Merger assuming a per share merger
price of [price of Oak Hill Common Stock just before printing proxy], additional
fees equal to approximately $160,000 would be payable to McDonald & Company upon
consummation of the Merger. Unity has also agreed to reimburse McDonald &
Company for its reasonable out-of-pocket expenses and to indemnify McDonald &
Company against certain liabilities, including certain liabilities under federal
securities laws.
REQUIRED VOTE
Under the OGCL and Unity's Amended and Restated Articles of
Incorporation ("Unity Articles"), adoption of the Merger Agreement requires the
affirmative vote of the holders of two-thirds of the outstanding Unity Common
Shares. As of the Unity Record Date the directors and executive officers of
Unity and their affiliates beneficially owned 63,525.8 Unity Common Shares,
which represent 68.1% of the total issued and outstanding shares.
The affirmative vote of the holders of a majority of the shares of Oak
Hill Common Stock voting on the Merger Agreement is necessary to adopt the
Merger Agreement. As of the Oak Hill Record Date, the directors and executive
officers of the Company and their affiliates beneficially owned 1,816,623 shares
of Oak Hill Common Stock (excluding shares subject to stock options), which
represent 63.2% of the total issued and outstanding shares of such stock
entitled to vote at the Oak Hill Special Meeting.
THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, a copy of which is attached as Appendix A to this Prospectus/Proxy
Statement and is incorporated herein by reference. Such summary is qualified in
its entirety by reference to the Merger Agreement. Shareholders are urged to
read the Merger Agreement carefully.
The Merger Agreement provides that, following the approval of the
issuance of the Merger Consideration by the shareholders of the Oak Hill Common
Stock and adoption of the Merger Agreement by the shareholders of Unity, and the
satisfaction or waiver of the other conditions to the Merger, Unity will be
merged with and into the Bank, with the Bank continuing as the surviving
corporation of the Merger and continuing as a wholly-owned subsidiary of the
Company.
Upon the satisfaction or waiver of all conditions to the Merger, the
Merger will become effective upon the filing of a certificate of merger by the
Bank and Unity with the Secretary of State of the State of Ohio in accordance
with the OGCL. The Effective Time of the Merger is expected to occur on or about
__________ __, 1997.
MERGER CONSIDERATION GENERALLY. Each outstanding Unity Common Share
shall be converted into the right to receive 8.5 shares of Oak Hill Common Stock
(the "Exchange Ratio"), with the 8.5 shares subject to adjustment downward if
the average of the daily average of the closing bid and asked prices of the Oak
Hill Common Stock, as reported on The Nasdaq National Market, for the 20 most
recent full trading days in which such shares are traded on The Nasdaq National
Market, ending on the date three days prior to Closing of the Merger (the
"Average Closing Price") is greater than $16.01. In that event, each outstanding
share of Unity Common Shares shall be converted into the right to receive such
number of shares as is equal to the product of multiplying 8.5 shares by a
fraction, the numerator of which is $16.01 and the denominator of which is the
Average Closing Price. The Exchange Ratio shall be further adjusted to reflect
any non-cash distribution, stock splits or stock dividends on the Oak Hill
Common Stock occurring or having a record date after the date hereof and prior
to the Effective Time.
FRACTIONAL SHARES. No fractional shares of Oak Hill Common Stock shall
be issued. Each holder of Unity Common Shares who would otherwise be entitled to
receive a fractional part of a share of Oak Hill Common Stock shall instead be
entitled to receive cash in an amount equal to the product resulting from
multiplying such fraction by the Average Closing Price per share of Oak Hill
Common Stock. No interest shall be payable with respect to such cash payment.
COMMON STOCK OF THE BANK. At the Effective Time, each share of common
stock, $1,000 par value, of the Bank that is issued and outstanding immediately
prior to the Effective Time will, by virtue of the Merger, continue to be the
issued and outstanding shares of the Bank without change.
CONDITIONS TO CONSUMMATION OF THE MERGER. The respective obligations of
the Company, the Bank and Unity to consummate the Merger are subject to the
fulfillment or waiver by the parties of certain mutual conditions, including:
(i) the approval and adoption by the requisite vote of the shareholders of Unity
and the shareholders of the Company of the Merger and the Merger Agreement; (ii)
the approval of the applications submitted to the FDIC, the Federal Reserve
Board, and other regulatory authorities; (iii) the absence of any effective
preliminary or permanent injunction or other order, decree or ruling issued by
any court of competent jurisdiction and any statute, rule, regulation or order
entered, promulgated or enacted by any governmental, regulatory or
administrative agency or authority that would prevent the consummation of the
Merger; (iv) the delivery of a fairness opinion from Trident Financial
Corporation
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to the Company and the delivery of a fairness opinion from McDonald & Company
Securities, Inc. to Unity; (viii) receipt of an opinion from Porter, Wright,
Morris & Arthur concerning the tax consequences of the Merger; and (ix) delivery
of a written affirmation from Medical Mutual of Ohio regarding medical insurance
coverage to the Company and the delivery of a written affirmation from Ohio
League Trust to Unity of the continued availability of medical insurance
coverage for certain Unity employees.
The obligation of Unity to consummate the Merger is further subject to
the satisfaction or waiver of certain additional conditions, including the
following: (i) the Company and the Bank shall have performed and complied in all
material respects with all their obligations, covenants, and agreements required
to be performed and complied with by them under the Merger Agreement; (ii) the
representations and warranties made by the Company and the Bank in the Merger
Agreement shall not, as of the date of the Merger Agreement, have been
incorrect, untrue or false in any respect; (iii) Unity shall have received a
certificate from an officer of the Company that the Registration Statement has
been declared effective; (iv) the price of the Oak Hill Common Stock shall not
have fallen below a certain price, as fully described in Section 7.05 of the
Supplemental Agreement; and (v) no material adverse change in the financial
condition of the Company shall have occurred since December 31, 1996; and (vi)
receipt of a legal opinion from Porter, Wright, Morris & Arthur, counsel to the
Company, with respect to certain matters.
The obligations of the Company and the Bank to consummate the Merger are
further subject to the satisfaction or waiver of certain additional conditions,
including the following: (i) Unity shall have performed and complied in all
material respects with all its obligations, covenants, and agreements required
to be performed and complied with by it under the Merger Agreement; (ii) the
representations and warranties made by Unity in the Merger Agreement shall not,
as of April 28, 1997, have been incorrect, untrue or false in any respect; (iii)
the Company and the Bank shall have received the opinion of Vorys, Sater,
Seymour and Pease, counsel to Unity, with respect to certain matters; (iv) each
director and his affiliates, for purposes of Rule 145 of the Securities Act of
1933, as amended (the "Securities Act"), shall have delivered to the Company
agreements with respect to the resale of their shares of Oak Hill Common Stock
received under the Merger; (v) the total number of Unity Common Shares, if any,
as to which the right to dissent has been asserted under 1701.85 of the OGCL,
shall not exceed five percent (5%) of the total number of Unity Common Shares
outstanding; (vi) no material adverse change in the financial condition of Unity
shall have occurred since December 31, 1996; (vii) the Company shall have
received certain assurances regarding various environmental and real estate
issues relating to the property of Unity, as fully described in Sections 8.07,
8.08, and 8.09 of the Supplemental Agreement; (viii) Unity shall have obtained
all necessary consents and approvals; (ix) the Company shall have received
written agreements from all 5% or greater shareholders of Unity regarding
certain matters; (x) total shareholders' equity of Unity for the most recent
fiscal quarter prior to the Effective Time shall not be less than the total
shareholders' equity of Unity as of December 31, 1996; and (xi) Unity shall have
delivered to the Company an executed copy of a written release from Unity's
President, D. Bruce Knox, regarding the extinguishment of a certain Executive
Salary Continuation Agreement.
REPRESENTATIONS AND WARRANTIES. In the Merger Agreement, Unity has made
certain representations and warranties relating to, among other things: (i) its
corporate organization and qualification; (ii) its capitalization; (iii) its
subsidiaries; (iv) its corporate power and authority relative to the Merger
Agreement; (v) the absence of defaults under its articles of incorporation,
regulations, or other charter documents, and note, bond, mortgage, lease,
agreement, or other instrument; (vi) its financial statements (vii) its title to
properties; (viii) the absence of undisclosed liabilities; (ix) its officers and
directors and principal shareholders; (x) absence of certain changes; (xi)
taxes; (xii) labor matters; (xiii) litigation; (xiv) environmental matters; (xv)
Community Reinvestment Act compliance; (xvi) compliance with laws; (xvii)
material contracts; (xviii) employee benefit plans; (xix) insurance policies;
(xx) brokers and certain fees; (xxi) loan loss reserves; (xxii) the tax
treatment of the Merger and of certain payments; and (xxiii) capital
requirements. In the Merger Agreement, the Company and the Bank have made
certain representations and warranties relating to, among other things: (i)
their corporate organization and qualification; (ii) their capitalization; (iii)
their corporate power and authority relative to the Merger Agreement; (iv) the
absence of defaults; (v) material facts; (vi) filing of reports; (vii) insurance
of accounts; (viii) absence of undisclosed liabilities; (ix) absence of certain
changes; (x) taxes; (xi) litigation; (xii) compliance with laws; (xiii)
environmental matters; (xiv) employee benefit plans; (xv) capital requirements;
(xvi) loan loss reserves; and (xvii) tax treatment of the Merger.
NO SOLICITATION OF TRANSACTIONS. In the Merger Agreement , Unity has
agreed that neither it nor any of its subsidiaries nor any of their respective
affiliates, directors, officers, employees, representatives, advisors or agents
shall, directly or indirectly, encourage, solicit or initiate any discussions,
submissions of proposals or offers or negotiations with, or, subject to the
fiduciary obligations of the Board of Directors of Unity under applicable law as
advised by counsel, participate in any negotiations or discussions with, provide
any information or data of any nature whatsoever to, otherwise cooperate in any
other way with, or assist, participate in, facilitate or encourage any effort or
attempt by, any person, other than the Company and its affiliates,
representatives and agents, concerning any merger, consolidation, sale of
substantial assets, sale of shares or capital stock or other equity securities,
recapitalization, debt restructuring or similar transaction involving Unity.
CERTAIN AGREEMENTS AND COVENANTS. Pursuant to the Merger Agreement,
Unity has agreed that it will conduct its business only in the ordinary course
consistent with past practice and has made certain covenants that prohibit or
limit, without the consent of the Company, among other things: (i) Unity from
entering into material contracts, as defined in the Merger Agreement; and (ii)
Unity from entering transactions having a material affect on the operations of
Unity.
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TERMINATION. The Merger Agreement shall terminate on December 31, 1997,
unless a later date is agreed upon in writing by the parties, and may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time as follows:
(a) by the mutual consent, evidenced in writing, of the Boards
of Directors of the Company, the Bank, and Unity;
(b) by the Board of Directors of the Company, by giving
written notice thereof to Unity, which notice shall specify in reasonable detail
the grounds therefor: (i) if any condition precedent to performance by the
Company and the Bank has not been satisfied or waived; (ii) if Unity has not
fully performed its obligations and agreements under the Merger Agreement; or
(iii) if any of the representations of Unity set forth in the Merger Agreement
are untrue or incorrect in any material respect; or
(c) by the Board of Directors of Unity, by giving written
notice thereof to the Company, which notice shall specify in reasonable detail
the grounds therefor: (i) if any condition precedent to performance by Unity has
not been satisfied or waived; (ii) if the Company and the Bank have not fully
performed their obligations and agreements under the Merger Agreement; or (iii)
if any of the representations of the Company set forth in the Merger Agreement
are untrue or incorrect in any material respect.
DISSENTERS' RIGHTS
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW
PERTAINING TO DISSENTING SHAREHOLDER RIGHTS UNDER THE OGCL AND IS QUALIFIED IN
ITS ENTIRETY BY THE FULL TEXT OF SECTION 1701.85 WHICH IS REPRINTED IN ITS
ENTIRETY AS APPENDIX D TO THIS PROSPECTUS.
Shareholders of Unity who (i) are shareholders of record on the Unity
Record Date, (ii) do not vote in favor of adoption of the Merger Agreement, and
(iii) who, within 10 days after the date of the vote on the Merger Agreement is
taken, deliver written demand in compliance with the provisions of Section
1701.85(A)(2) of the OGCL, shall be entitled to receive the fair cash value of
the shares that were not voted in favor of the Merger. The written demand must
set forth the shareholder's address, the number and class of stocks as to which
the shareholder seeks relief (the "Dissenting Shares") and the amount the
shareholder claims as the fair cash value of the Dissenting Shares.
If Unity receives a written demand from a shareholder seeking the fair
cash value of Dissenting Shares, it may request the surrender of the certificate
or certificates that represent the Dissenting Shares. The dissenting shareholder
must deliver the certificate or certificates representing the Dissenting Shares
to Unity within 15 days of the date of its request therefor or the shareholder's
rights with respect to the Dissenting Shares will terminate. If the certificate
or certificates representing the Dissenting Shares are delivered to Unity, it
must promptly endorse the certificates with a legend to the effect that a demand
for the fair cash value for the Dissenting Shares has been made and return the
certificates to the dissenting shareholder.
If Unity and the dissenting shareholder cannot agree on the fair cash
value of the Dissenting Shares, then either may, within three months after the
date of the service of the demand for fair cash value was made by the dissenting
shareholder, file a complaint in the court of common pleas of Vinton County,
Ohio. The court will first make a determination if the dissenting shareholder is
entitled to receive the fair cash value for the Dissenting Shares. If the court
determines that the dissenting shareholder is entitled to fair cash value for
the Dissenting Shares, the court will appoint an appraiser or appraisers to make
a finding as to the fair cash value of the Dissenting Shares.
The fair cash value will be determined based on what a willing seller
who is under no compulsion to sell would be willing to accept and what a willing
buyer who is under no compulsion to purchase would be willing to pay for the
Dissenting Shares. In no event will the fair cash value exceed the amount stated
in the written demand by the dissenting shareholder. In computing the fair cash
value, any appreciation or depreciation in the market value resulting from the
Merger shall be excluded.
The fair cash value that is agreed upon between the parties or that is
determined by the court shall be paid within 30 days after the date of the final
determination of such value or the consummation of the Merger, whichever occurs
last. Payment shall be made only upon and simultaneously with the surrender to
Unity of the certificate or certificates representing the Dissenting Shares.
The costs of the action, including reasonable compensation to the
appraisers, will be fixed by the court and will be assessed or apportioned as
the court considers equitable.
A shareholder's right to receive the fair cash value for the Dissenting
Shares terminates if (i) the dissenting shareholder does not strictly comply
with the requirements of Section 1701.85, (ii) the Merger is abandoned, (iii)
the dissenting shareholder withdraws the demand for fair cash value, or (iv)
Unity and the dissenting shareholder have not come to an agreement regarding the
fair cash value of the Dissenting Shares and neither has filed a complaint with
the Vinton County Court of Common Pleas within the time period described in
Section 1701.85(B).
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 1701.85 OF THE OGCL FOR
PERFECTING DISSENTING SHAREHOLDER RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS
(IN WHICH EVENT THE DISSENTING SHAREHOLDER WILL BE ENTITLED TO RECEIVE THE
MERGER CONSIDERATION IN ACCORDANCE WITH THE MERGER AGREEMENT).
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EXCHANGE OF CERTIFICATES
The Fifth Third Bank (the "Exchange Agent") will deliver to the
shareholders of Unity, a letter of transmittal ("Letter of Transmittal") and
instructions in effecting the surrender of certificates representing Unity
Common Shares in exchange for certificates representing shares of Oak Hill
Common Stock and cash in lieu of fractional shares thereof.
Upon surrender of a certificate to the Exchange Agent, together with a
duly executed Letter of Transmittal and any other required documents, the
shareholders of Unity will be entitled to receive, in exchange therefor, a
certificate representing their proportion of shares of Oak Hill Common Stock and
a check representing cash in lieu of any fractional shares of Oak Hill Common
Stock. No interest will be paid or will accrue on any amount payable upon
surrender of the certificates previously representing Unity Common Shares.
After the Effective Time, each certificate evidencing Unity Common
Shares, until so surrendered and exchanged, will be deemed, for all purposes, to
evidence only the right to receive the consideration into which such shares have
been converted in the Merger.
UNITY SHAREHOLDERS SHOULD NOT SUBMIT ANY STOCK CERTIFICATES NOW BUT
RATHER SHOULD ONLY SUBMIT STOCK CERTIFICATES ONLY UPON RECEIPT OF, AND TOGETHER
WITH, THE LETTER OF TRANSMITTAL AND INSTRUCTIONS ENCLOSED THEREWITH.
STOCK EXCHANGE LISTING
A notification has been filed to list on The Nasdaq National Market the
Oak Hill Common Stock issuable in connection with the Merger. Listing of such
shares of Oak Hill Common Stock to be issued in the Merger, subject to official
notice of issuance, is a condition precedent to consummation of the Merger.
REGULATORY APPROVALS
It is anticipated that the Merger will qualify for an exemption from the
Federal Reserve Board's general requirement of an application for bank holding
company mergers. Such exemptions apply to certain acquisitions that are subject
to the Bank Merger Act, and require, for qualifying transactions, only a 30-day
prior notice to the relevant Federal Reserve Bank, which in this case is the
Federal Reserve Bank of Cleveland. The Merger is subject to the Bank Merger Act
and must be approved by the FDIC and the Ohio Superintendent of Financial
Institutions. An application to the FDIC and the Ohio Superintendent of
Financial Institutions was filed, and a notice to the Federal Reserve Bank of
Cleveland was submitted, on June 30, 1997.
Approval by the FDIC requires that the criteria of the Bank Merger Act
be met. In conducting its review of any application under the Bank Merger Act,
the FDIC is required to take into consideration the financial and managerial
resources and (including the competence, experience, and integrity of the
officers, directors, and principal shareholders), the future prospects of the
existing and proposed institutions, and the convenience and needs of the
communities to be served. In considering financial resources and future
prospects, the FDIC will, among other things, evaluate the adequacy of the
capital levels of the parties to a proposed transaction.
Ohio law and the Bank Merger Act also prohibit the Superintendent of
Financial Institutions and the FDIC from approving a merger if it would result
in a monopoly or be in furtherance of any combination or conspiracy to
monopolize or to attempt to monopolize the business of banking in any part of
the Untied States, or if its effect in any section of the country would be
substantially to lessen competition or tend to create a monopoly, or if it would
in any other manner result in a restraint of trade, unless it is determined that
the anti-competitive effects of a merger are clearly outweighed in the public
interest by the probable effect of the transaction in meeting the convenience
and needs of the communities to be served. In addition, under the Community
Reinvestment Act of 1977, as amended, the FDIC must take into account the record
of performance of the existing institutions in meeting the credit needs of the
entire community, including low- and moderate-income neighborhoods, served by
such institutions.
Ohio law and the Bank Merger Act provide for the publication of notice
of, and the opportunity for administrative hearings relating to, the application
for approval noted and described above. Interested parties may intervene in the
approval proceedings. If an interested party intervenes, such intervention could
substantially delay the regulatory approvals required for consummation of the
Merger. Any merger approved by the FDIC is subject to a statutory waiting period
of 15 to 30 days, during which time the United States Department of Justice may
challenge a merger on antitrust grounds. The commencement of an antitrust action
would stay the effectiveness of the regulatory agency's approval unless a court
specifically ordered otherwise.
The managements of the Company and Unity believe that the FDIC and the
Ohio Superintendent of Financial Institutions will approve the applications
filed with them, that the Federal Reserve Board will waive any application that
would otherwise be required under the Bank Holding Company Act, and that the
Merger will not be subject to challenge by the Department of Justice under the
antitrust laws. However, no assurance can be provided that such approval will be
obtained, that such waiver will be granted, that the Department of Justice will
not challenge the Merger under the antitrust laws, or that the approval by the
FDIC and the Ohio Superintendent of Financial Institutions will not contain
conditions unacceptable to either the Company or Unity. See "THE MERGER -
Conditions to Consummation of the Merger."
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ANTICIPATED ACCOUNTING TREATMENT
The Company intends to account for the Merger using the pooling of
interests method of accounting under generally accepted accounting principles
and the rules and regulations of the Commission.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain material United States federal
income tax consequences of the Merger. This summary is based on the Internal
Revenue Code of 1986, as amended (the "Code"), and is for general information
only. This summary is not a complete description of all the possible tax
consequences of the Merger and the tax treatment of a particular shareholder
will depend upon such shareholder's particular situation. Special tax
considerations not discussed herein may be applicable to particular classes of
taxpayers, such as foreign shareholders, broker-dealers, certain retirement
plans, financial institutions, or insurance companies, or to any shareholder who
does not hold Unity Common Shares as a capital asset or who acquired Unity
Common Shares through the exercise of an employee stock option or otherwise as
compensation. All shareholders should consult with their own tax advisors as to
particular tax consequences of the Merger to them, including the applicability
and effect of state, local and foreign tax laws and possible changes in the tax
law.
Consummation of the Merger is dependent upon receipt by the Company and
Unity of an opinion of Porter, Wright, Morris & Arthur, counsel to the Company,
substantially to the effect that, for federal income tax purposes, the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Code and will result in the tax consequences described below. In rendering such
opinion, Porter, Wright, Morris & Arthur is entitled to rely upon certain
assumptions and representations of the parties and their respective officers,
directors, and shareholders, which representations will not be independently
investigated or verified by Porter, Wright, Morris & Arthur and will be assumed
to be true as of the Effective Time.
Assuming that the Merger constitutes a reorganization within the meaning
of Section 368(a) and that the Company, the Bank and Unity will each be a party
to the reorganization within the meaning of Section 368(b) of the Code, the
following is a summary of the tax consequences which will result:
RECEIPT OF OAK HILL COMMON STOCK. The shareholders of Unity will not
recognize gain or loss upon receipt of Oak Hill Common Stock in the Merger
(except for cash received in lieu of fractional shares as described below) in
exchange for all shares of Unity Common Shares owned by them for federal income
tax purposes. The tax basis of the Oak Hill Common Stock received in such an
exchange will be equal to the basis of the Unity Common Shares exchanged
therefor (except for the basis attributable to any fractional shares of Oak Hill
Common Stock for which cash is paid, as discussed below). The holding period for
tax purposes of the Oak Hill Common Stock to be received by Unity shareholders
will include the holding period of the shares of Unity Common Shares surrendered
in exchange therefor, provided that Unity Common Shares were held as a capital
asset in the hands of the Unity shareholder at the Effective Time.
CASH RECEIVED IN LIEU OF FRACTIONAL SHARES. The shareholders of Unity,
upon receipt of cash in the Merger in lieu of a fractional share interest in Oak
Hill Common Stock, will be treated for federal income tax purposes as having
received such fractional share interest and sold it for the cash received.
Shareholders will recognize gain or loss as of the Effective Time equal to the
difference between the amount of cash received and the portion of the
shareholder's adjusted tax basis in the Unity Common Shares exchanged for the
fractional share interest that is deemed sold. Such gain or loss will be capital
gain or loss if the stockholder holds the Unity Common Shares exchanged for the
fractional share as a capital asset and will be long-term capital gain or loss
if such Unity Common Shares is considered to have been held for more than one
year at the Effective Time.
TAX CONSEQUENCES TO THE COMPANY, THE BANK, AND UNITY. No gain or loss
will be recognized by the Company, the Bank, or Unity (except for the inclusion
in income of amounts resulting from any required changes in accounting methods
or similar items) as a result of the consummation of the Merger.
DISSENTERS' RIGHTS. If a shareholder of Unity dissents to the
transaction and receives solely cash in exchange for the shareholder's Unity
Common Shares, such cash will be treated as having been received as a
distribution in redemption of such shareholders Unity Common Shares, subject to
the provisions and limitations of Section 302 of the Code. Where, as a result of
such distribution, the shareholder owns no Oak Hill Common Stock, either
directly or by reason of the application of Section 318 of the Code, the
redemption will be a complete termination of interest within the meaning of
section 302(b)(3), and such cash will be treated as a distribution in full
payment in exchange for his or her Unity Common Shares as provided in section
302(a) of the Code. Such shareholder will recognize gain or loss (subject to
Section 267 of the Code) under section 1001 of the Code measured by the
difference between the amount of cash received and the adjusted basis of the
Unity Common Shares surrendered.
BACKUP WITHHOLDING. Under federal income tax law concerning "backup
withholding," the Company will be required to withhold, and will withhold, 31%
of any cash payments to which a shareholder of Unity is entitled pursuant to the
Merger unless the holder provides its taxpayer identification number and
certifies that such number is correct or otherwise establishes that the holder
is an exempt holder (such as a corporation or certain foreign individuals,
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partnerships or trusts). Each holder should sign the Substitute Form W-9
included as part of the Transmittal Letter (or in the case of a nonresident
alien or foreign entity, a Form W-8) to prevent backup withholding.
The foregoing discussion is based on currently existing provisions of
the Code, existing and proposed treasury regulations thereunder, and current
administrative rulings and court decisions. The opinion of counsel described
above is not binding on the Internal Revenue Service and no rulings of the
Internal Revenue Service will be sought or obtained in relation to the Merger.
There can be no assurance that the Internal Revenue Service will agree with the
tax consequences of the Merger described above. All of the foregoing discussion
is subject to change and any such change could affect the continuing validity of
such discussion.
SHAREHOLDERS OF UNITY ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISERS
CONCERNING THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER, AS WELL AS THE
APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES, BASED UPON ITS
PARTICULAR FACTS AND CIRCUMSTANCES.
RESALES BY AFFILIATES
Certain shareholders of Unity that are deemed "affiliates" of Unity for
purposes of Rule 145 under the Securities Act ("Rule 145") will not be permitted
to transfer their shares of Oak Hill Common Stock issued in the Merger except
(i) pursuant to an effective registration statement under the Securities Act;
(ii) in compliance with Rule 145; or (iii) pursuant to an exemption from the
registration requirements of the Securities Act. The Company shall be entitled
to place appropriate legends on the certificates evidencing the Oak Hill Common
Stock to be received by Unity's shareholders deemed to be affiliates, and to
issue appropriate stock transfer instructions to the transfer agent for Oak Hill
Common Stock, to the effect that the shares received or to be received by such
Unity shareholders pursuant to the Merger may only be sold, transferred or
otherwise conveyed pursuant to an effective registration statement under the
Securities Act, in accordance with the provisions of paragraph (d) of Rule 145
or pursuant to an exemption from registration provided under the Securities Act.
Pursuant to the terms of the Merger Agreement, it is a condition to consummation
of the Merger that those individuals deemed to be affiliates of Unity deliver a
written agreement to the Company stating that they will not sell, transfer, or
dispose of their shares of Oak Hill Common Stock received in the Merger except
in accordance with the provisions of paragraph (d) of Rule 145 or pursuant to an
exemption from registration provided under the Securities Act. This
Prospectus/Proxy Statement does not cover any resales of Oak Hill Common Stock
received by Unity's shareholders.
CERTAIN RELATED TRANSACTIONS
In considering the recommendation of Unity's and the Company's Boards of
Directors with respect to the Merger, Unity's and the Company's stockholders
should be aware that certain members of Unity management at the time of the
approval of the Merger Agreement and the Merger had, and currently have, certain
interests in related transactions to the Merger.
EMPLOYMENT OF D. BRUCE KNOX
D. Bruce Knox, the President of Unity, has entered into a an employment
agreement with the Bank to serve as its Senior Vice President for a period of
three years (the "initial period") commencing on the effective date of the
Merger and the employment agreement provides that Mr. Knox shall be appointed to
the boards of directors of the Company and the Bank. The employment agreement
may be extended by the mutual agreement of Mr. Knox and the Company. Mr. Knox's
employment may also become an employment "at will" if the agreement is not
extended and he continues in the employment of the Company after the initial
term of the agreement. The agreement provides that he shall have the duties and
responsibilities normally associated with his position and that he shall devote
his full business time and effort to the performance of his duties under the
agreement.
The agreement provides that the Company shall pay Mr. Knox a base salary
of $100,000; that he shall receive directors' fees in addition to other
compensation; that he shall be eligible to participate in the Company's 1997
bonus compensation program; and that he shall receive options to purchase the
Company's common stock at the then-prevailing market prices under the Company's
1995 Stock Option Plan as specified in the agreement. The agreement also
provides that he shall receive reimbursement of business expenses in accordance
with the Company's standard practices, and that he shall be eligible to
participate in all group insurance and other benefit plans and programs made
available by the Company to its employees generally.
The agreement also provides that if he is terminated without cause
during the initial period, the Company will pay to him a sum equal to the
remaining unpaid salary for the initial period, in equal monthly installments
which commence on the date of his termination and continue until the termination
of the initial period. In such event, the Company must also provide health,
life, disability and other benefits to Mr. Knox until the end of the initial
period. Mr. Knox is not required to mitigate the amounts of these payments by
seeking other employment.
-23-
<PAGE> 33
MODIFICATION OF EXECUTIVE SALARY CONTINUATION AGREEMENTS
On December 5, 1994, Unity entered into certain executive salary
continuation agreements with D. Bruce Knox and George Knox. The agreements
provided for annual retirement benefits of $67,473 and $36,000, respectively.
The benefits would begin at retirement (age 65 for D. Bruce Knox and age 70 for
George Knox) and would be payable monthly for 15 years. On September 19, 1995,
the agreements were modified to provided that the benefits did not vest in full
until the stated retirement dates.
The agreements provide that the benefits vest upon a change in control
of Unity which is defined in the agreement to be a cumulative transfer, from the
date of the agreements, to any party other than current shareholders of more
than fifty percent of the common stock of Unity, disregarding transactions
between family members.
In connection with the agreements, in May 1994, Unity purchased single
premium insurance contracts to finance the benefits payable under the
agreements. As of December 31, 1996, the policy related to the agreement with D.
Bruce Knox had a cash surrender value of $138,706, and the policy related to the
agreement with George Knox had a cash surrender value of $437,452. Unity has
established a liability reserve account in connection with the salary
continuation agreements which on March 31, 1997, had a value of approximately
$129,000.
In connection with the execution of the Merger Agreement on April 28,
1997, the salary continuation agreement with George Knox was amended, effective
that date, to provide for his retirement on May 31, 1997 (subsequently amended
to June 30, 1997). The agreement with George Knox, as amended, provides that
monthly benefits shall be payable for 211 months.
The Merger constitutes a change of control for purposes of the salary
continuation agreements. As a result, the Merger Agreement provides, as a
condition to the obligation of the Company to consummate the Merger, that the
salary continuation agreement with D. Bruce Knox is to be terminated and all
claims thereunder released in return for a payment of $206,000.
-24-
<PAGE> 34
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial
information, including the notes thereto, is qualified in its entirety by
reference to, and should be read in conjunction with, the historical
consolidated financial statements of the Company and the historical statements
of Unity which are included elsewhere in this Prospectus/Proxy Statement.
Oak Hill Financial, Inc.
PRO FORMA UNAUDITED CONDENSED COMBINED
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
March 31, 1997
(In thousands)
<TABLE>
<CAPTION>
Pro-Forma Pro-Forma
Oak Hill Unity Savings Adjustments Combined
ASSETS Financial, Inc. Bank Combined Dr(Cr) Total
--------------- ---- -------- ------ -----
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 12,005 $ 1,004 $ 13,009 $ -- $ 13,009
Investment securities designated as
available for sale - at market 46,025 13,736 59,761 -- 59,761
Loans receivable - net 197,140 47,538 244,678 -- 244,678
Other assets 7,594 2,799 10,393 -- 10,393
--------- -------- --------- ---- ---------
Total Assets $ 262,764 $ 65,077 $ 327,841 $ -- $ 327,841
========= ======== ========= ==== =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits $ 227,235 $ 48,111 $ 275,346 $ -- $ 275,346
Borrowings 10,885 8,789 19,674 -- 19,674
Other liabilities 1,080 711 1,791 -- 1,791
--------- -------- --------- ---- ---------
Total Liabilities 239,200 57,611 296,811 -- 296,811
Stockholders' Equity
Common Stock (3,666,125 shares
assumed outstanding) 1,442 93 1,535 93 1,838
(396)
Additional paid-in capital 4,227 -- 4,227 303 3,924
Retained earnings 18,018 7,549 25,567 -- 25,567
Treasury stock (28) -- (28) -- (28)
Unrealized losses on securities
designated as available for sale,
net of related tax effects (95) (176) (271) -- (271)
--------- -------- --------- ---- ---------
Total Stockholders' Equity 23,564 7,466 31,030 -- 31,030
--------- -------- --------- ---- ---------
Total Liabilities and
Stockholders' Equity $ 262,764 $ 65,077 $ 327,841 $ -- $ 327,841
========= ======== ========= ==== =========
</TABLE>
Footnote explanations follow.
-25-
<PAGE> 35
Oak Hill Financial, Inc.
PRO FORMA UNAUDITED CONDENSED COMBINED
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (CONTINUED)
December 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Pro-Forma Pro-Forma
Oak Hill Unity Savings Adjustments Combined
ASSETS Financial, Inc. Bank Combined Dr(Cr) Total
--------------- ---- -------- ------ -----
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 11,513 $ 1,257 $ 12,770 $ -- $ 12,770
Investment securities designated as
available for sale - at market $ 37,501 13,670 51,171 -- 51,171
Loans receivable - net 190,536 47,273 237,809 -- 237,809
Other assets 7,351 2,786 10,137 -- 10,137
--------- -------- --------- ---- ---------
Total Assets $ 246,901 $ 64,986 $ 311,887 $ -- $ 311,887
========= ======== ========= ==== =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits $ 209,593 $ 49,029 $ 258,622 $ -- $ 258,622
Borrowings 13,734 7,833 21,567 -- 21,567
Other liabilities 611 738 1,349 -- 1,349
--------- -------- --------- ---- ---------
Total Liabilities 223,938 57,600 281,538 -- 281,538
Stockholders' Equity
Common Stock (3,666,125 shares
assumed outstanding) 1,442 93 1,535 93 1,838
(396)
Additional paid-in capital 4,227 -- 4,227 303 3,924
Retained earnings 17,290 7,352 24,642 -- 24,642
Treasury stock (28) -- (28) -- (28)
Unrealized gains(losses) on securities
designated as available for sale, net of
related tax effects 32 (59) (27) -- (27)
--------- -------- --------- ---- ---------
Total Stockholders' Equity 22,963 7,386 30,349 -- 30,349
--------- -------- --------- ---- ---------
Total Liabilities and
Stockholders' Equity $ 246,901 $ 64,986 $ 311,887 $ -- $ 311,887
========= ======== ========= ==== =========
</TABLE>
Footnote explanations follow.
-26-
<PAGE> 36
Oak Hill Financial, Inc.
PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF EARNINGS
For the three months ended March 31, 1997
(In thousands except per share data)
<TABLE>
<CAPTION>
Pro-Forma Pro-Forma
Oak Hill Unity Savings Adjustments Combined
Financial, Inc. Bank Combined Dr(Cr) Total
--------------- ---- -------- ------ -----
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans $4,456 $1,078 $5,534 $ -- $5,534
Investment securities 647 262 909 -- 909
Interest-bearing deposits and other 111 8 119 -- 119
------ ------ ------ ------ ------
Total interest income 5,214 1,348 6,562 -- 6,562
INTEREST EXPENSE
Deposits 2,287 625 2,912 -- 2,912
Borrowings 215 122 337 -- 337
------ ------ ------ ------ ------
Total interest expense 2,502 747 3,249 -- 3,249
------ ------ ------ ------ ------
Net interest income 2,712 601 3,313 -- 3,313
Provision for losses on loans 81 25 106 -- 106
------ ------ ------ ------ ------
Net interest income after provision
for losses on loans 2,631 576 3,207 -- 3,207
Other income 312 40 352 -- 352
GENERAL, ADMINISTRATIVE AND OTHER
EXPENSE
Employee compensation and benefits 852 157 1,009 -- 1,009
Occupancy and equipment 275 65 340 -- 340
Federal deposit insurance premiums 13 4 17 -- 17
Franchise taxes 91 23 114 -- 114
Other operating 366 68 434 -- 434
------ ------ ------ ------ ------
Total general, administrative and other
expense 1,597 317 1,914 -- 1,914
------ ------ ------ ------ ------
Earnings before federal income taxes 1,346 299 1,645 -- 1,645
Federal income taxes 446 102 548 -- 548
------ ------ ------ ------ ------
NET EARNINGS $ 900 $ 197 $1,097 $ -- $1,097
====== ====== ====== ====== ======
EARNINGS PER COMMON
SHARE $ .31 $ 2.11
====== ======
PRO FORMA EARNINGS PER
COMMON SHARE $ .30
======
</TABLE>
Footnote explanations follow.
-27-
<PAGE> 37
Oak Hill Financial, Inc.
PRO FORMA UNAUDITED CONDENSED COMBINED CONSOLIDATED STATEMENT OF EARNINGS
(CONTINUED)
For the year ended December 31, 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
Pro-Forma Pro-Forma
Oak Hill Unity Savings Adjustments Combined
Financial, Inc. Bank Combined Dr(Cr) Total
--------------- ---- -------- ------ -----
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans $16,341 $4,079 $20,420 $ -- $20,420
Investment securities 2,288 859 3,147 -- 3,147
Interest-bearing deposits and other 569 33 602 -- 602
------- ------ ------- ------ -------
Total interest income 19,198 4,971 24,169 -- 24,169
INTEREST EXPENSE
Deposits 8,090 2,526 10,616 -- 10,616
Borrowings 785 218 1,003 -- 1,003
------- ------ ------- ------ -------
Total interest expense 8,875 2,744 11,619 -- 11,619
------- ------ ------- ------ -------
Net interest income 10,323 2,227 12,550 -- 12,550
Provision for losses on loans 760 99 859 -- 859
------- ------ ------- ------ -------
Net interest income after provisions for
losses on loans 9,563 2,128 11,691 -- 11,691
Other income 1,203 198 1,401 -- 1,401
GENERAL, ADMINISTRATIVE AND OTHER
EXPENSE
Employee compensation and benefits 3,314 664 3,978 -- 3,978
Occupancy and equipment 867 169 1,036 -- 1,036
Federal deposit insurance premiums 2 393 395 -- 395
Franchise taxes 275 102 377 -- 377
Other operating 1,551 269 1,820 -- 1,820
------- ------ ------- ------ -------
Total general, administrative and
other expense 6,009 1,597 7,606 -- 7,606
------- ------ ------- ------ -------
Earnings before federal income taxes 4,757 729 5,486 -- 5,486
Federal income taxes 1,548 226 1,774 -- 1,774
------- ------ ------- ------ -------
NET EARNINGS $ 3,209 $ 503 $ 3,712 $ -- $ 3,712
======= ====== ======= ====== =======
EARNINGS PER COMMON
SHARE $ 1.12 $5.39
====== =====
PRO FORMA EARNINGS PER
COMMON SHARE $ 1.01
======
</TABLE>
Footnote explanations follow.
-28-
<PAGE> 38
Oak Hill Financial, Inc.
PRO FORMA UNAUDITED CONDENSED COMBINED CONSOLIDATED STATEMENT OF EARNINGS
(CONTINUED)
For the year ended December 31, 1995
(In thousands, except per share data)
<TABLE>
<CAPTION>
Pro-Forma Pro-Forma
Oak Hill Unity Savings Adjustments Combined
Financial, Inc. Bank Combined Dr(Cr) Total
--------------- ---- -------- ------ -----
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans $13,811 $3,834 $17,645 $ -- $17,645
Investment securities 1,949 712 2,661 -- 2,661
Interest-bearing deposits and other 761 30 791 -- 791
------- ------ ------- ----- -------
Total interest income 16,521 4,576 21,097 -- 21,097
INTEREST EXPENSE
Deposits 7,627 2,511 10,138 -- 10,138
Borrowings 653 53 706 -- 706
------- ------ ------- ----- -------
Total interest expense 8,280 2,564 10,844 -- 10,844
------- ------ ------- ----- -------
Net interest income 8,241 2,012 10,253 -- 10,253
Provision for losses on loans 428 153 581 -- 581
------- ------ ------- ----- -------
Net interest income after provision
for losses on loans 7,813 1,859 9,672 -- 9,672
Other income 915 184 1,099 -- 1,099
GENERAL, ADMINISTRATIVE AND
OTHER EXPENSE
Employee compensation and benefits 2,949 627 3,576 -- 3,576
Occupancy and equipment 757 171 928 -- 928
Federal deposit insurance premiums 191 107 298 -- 298
Franchise taxes 235 93 328 -- 328
Other operating 1,183 254 1,437 -- 1,437
------- ------ ------- ----- -------
Total general, administrative and
other expense 5,315 1,252 6,567 -- 6,567
------- ------ ------- ----- -------
Earnings before federal income
taxes 3,413 791 4,204 -- 4,204
Federal income taxes 1,163 262 1,425 -- 1,425
------- ------ ------- ----- -------
NET EARNINGS $ 2,250 $ 529 $ 2,779 $ -- $ 2,779
======= ====== ======= ===== =======
EARNINGS PER COMMON
SHARE $ .92 $ 5.68
===== ======
PRO FORMA EARNINGS PER
COMMON SHARE $ .86
=====
</TABLE>
Footnote explanations follow.
-29-
<PAGE> 39
Oak Hill Financial, Inc.
PRO FORMA UNAUDITED CONDENSED COMBINED CONSOLIDATED STATEMENT OF EARNINGS
(CONTINUED)
For the year ended December 31, 1994
(In thousands, except per share data)
<TABLE>
<CAPTION>
Pro-Forma Pro-Forma
Oak Hill Unity Savings Adjustments Combined
Financial, Inc. Bank Combined Dr(Cr) Total
--------------- ---- -------- ------ -----
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans $11,099 $3,553 $14,652 $ -- $14,652
Investment securities 1,897 639 2,536 -- 2,536
Interest-bearings deposits and other 280 35 315 -- 315
------- ------ ------- ----- -------
Total interest income 13,276 4,227 17,503 -- 17,503
INTEREST EXPENSE
Deposits 5,351 2,118 7,469 -- 7,469
Borrowings 331 28 359 -- 359
------- ------ ------- ----- -------
Total interest expense 5,682 2,146 7,828 -- 7,828
------- ------ ------- ----- -------
Net interest income 7,594 2,081 9,675 -- 9,675
Provision for losses on loans 269 94 363 -- 363
------- ------ ------- ----- -------
Net interest income after provision
for losses on loans 7,325 1,987 9,312 -- 9,312
Other income 704 120 824 -- 824
GENERAL, ADMINISTRATIVE AND OTHER
EXPENSE
Employee compensation and benefits 2,768 578 3,346 -- 3,346
Occupancy and equipment 684 180 864 -- 864
Federal deposit insurance premiums 357 105 462 -- 462
Franchise taxes 207 82 289 -- 289
Other operating 1,229 282 1,511 -- 1,511
------- ------ ------- ----- -------
Total general, administrative and
other expense 5,245 1,227 6,472 -- 6,472
------- ------ ------- ----- -------
Earnings before federal
income taxes 2,784 880 3,664 -- 3,664
Federal income taxes 920 309 1,229 -- 1,229
------- ------ ------- ----- -------
NET EARNINGS $ 1,864 $ 571 $ 2,435 $ -- $ 2,435
======= ====== ======= ===== =======
EARNINGS PER COMMON
SHARE $ .81 $ 6.13
===== ======
PRO FORMA EARNINGS PER
COMMON SHARE $ .79
=====
</TABLE>
Footnote explanations follow.
-30-
<PAGE> 40
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
(1) The Pro Forma Unaudited Condensed Combined Consolidated Statements of
Financial Condition assume that the Merger is accounted for as a
pooling of interests. Accordingly, the Company and Unity's assets,
liabilities and stockholders' equity are added together at the
historical carrying values. Both of the companies utilize the same
accounting methods and there were no intercompany transactions affected
as of or for any of the periods presented.
(2) The Pro Forma Unaudited Condensed Combined Consolidated Statements of
Financial Condition assume an Exchange Ratio of 8.5 common shares of
the Company for each Unity share based on Merger Consideration which
sets forth the issuance of 792,625 of the Company's common shares in
exchange for all 93,250 shares of Unity's $1.00 par value common
shares. The actual Exchange Ratio is subject to adjustment downward in
accordance with the terms of the Merger Agreement. See "THE MERGER -
The Merger Agreement - Merger Consideration Generally."
(3) Merger related expenses are estimated to be $450,000. Such amount has
not been reflected in the pro forma consolidated financial statements.
(4) The Company's historic weighted average shares outstanding totaled
2,884,700 for the three month period ended March 31, 1997. Unity's
historic weighted average shares outstanding totaled 93,250 for the
three month period ended March 31, 1997. The Company's historic
weighted average common shares outstanding totaled 2,873,003, 2,444,400
and 2,300,200 for the years ended December 31, 1996, 1995 and 1994,
respectively. Unity's historic weighted average common shares
outstanding totaled 93,250 for each of the years ended December 31,
1996, 1995 and 1994.
(5) Pro forma earnings per common share is based on Merger Consideration of
8.5 common shares of the Company for each outstanding Unity Share and
3,677,325 weighted average pro forma shares outstanding for the three
months ended March 31, 1997. Pro forma earnings per common share for
the years ended December 31, 1996, 1995 and 1994, is based on Merger
Consideration of 8.5 common shares of the Company for each outstanding
Unity share and 3,665,628, 3,237,025 and 3,092,825 weighted average pro
forma shares outstanding for each of the respective years.
-31-
<PAGE> 41
OAK HILL FINANCIAL, INC.
GENERAL
The Company is a bank holding company that engages indirectly in the
business of commercial banking, and other permissible activities closely related
to banking, through a wholly owned subsidiary, the Bank. The Company provides
management and similar services for the Bank. Since it does not itself conduct
any operating businesses, the Company must depend largely upon the Bank for
funds with which to pay the expenses of its operation and, to the extent
applicable, any dividends on its outstanding shares of stock.
The Company was formed in 1981 for the purpose of becoming the parent
holding company of the Bank. The Company is registered as a bank holding company
under the Bank Holding Company Act of 1956, as amended. As such, the Company is
subject to strict regulation regarding the acquisition of additional financial
institutions and the conduct through subsidiaries of non-banking activities. See
"Regulation," below.
The Company faces strong competition from both banking and non-banking
institutions. Its banking competitors include local and regional banks and bank
holding companies, as well as some of the largest banking organizations in the
United States. In addition, other types of financial institutions, such as
savings and loan associations and credit unions, also offer a wide range of loan
and deposit services that are directly competitive with those offered by the
Bank. The consumer is also served by brokerage firms and mutual funds that
provide checking services, credit cards, and other services similar to those
offered by the Bank. Major stores compete for loans by offering credit cards and
retail installment contracts. It is anticipated that competition from non-bank
and non-savings and loan organizations will continue to grow.
The range of banking services provided by the Bank to its customers
includes commercial lending, real estate lending, consumer credit, credit card,
and other personal loan financing. The Bank operates under the direction of its
own board of directors and officers.
LENDING ACTIVITIES
GENERAL. The Company generally makes loans in the four counties in
which its branches are located. The Company's principal lending activities are
the origination of (i) conventional one- to four-family residential loans, and
(ii) commercial loans, most of which are secured by real estate located in the
Company's primary market area. These loan categories accounted for approximately
83% of the Company's loan portfolio at March 31, 1997. The Company also makes
consumer loans, including installment loans and second mortgages, and offers
credit cards.
LOAN PORTFOLIO COMPOSITION AND ACTIVITY. The following table sets forth
the composition of the Company's loan portfolio, including loans held for sale,
in dollar amounts and in percentages for each of the last five years, along with
a reconciliation to loans receivable, net.
<TABLE>
<CAPTION>
At March 31, At December 31,
--------------------- ---------------------------------------------------------------------------
1997 1996 1995 1994
--------------------- --------------------- --------------------- ---------------------
Amount Percent Amount Percent Amount Percent Amount Percent
--------- --------- --------- --------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Type of loan:
1-4 family residential
loans ................ $ 66,638 33.8% $ 61,433 32.3% $ 49,870 31.6% $ 39,778 28.9%
Commercial and other
loans ................ 97,011 49.2 96,214 50.5 72,863 46.2 70,684 51.4
Consumer loans .......... 35,105 17.8 34,274 18.0 36,052 22.9 28,295 20.5
Credit cards ............ 1,043 0.6 1,111 0.6 958 0.6 788 0.6
--------- ----- --------- ----- --------- ----- --------- -----
Total loans ............... 199,797 101.4 193,032 101.4 159,743 101.3 139,545 101.4
LESS:
Allowance for loan losses (2,727) (1.4) (2,636) (1.4) (2,128) (1.3) (1,897) (1.4)
--------- ----- --------- ----- --------- ----- --------- -----
TOTAL LOANS RECEIVABLE, NET $ 197,070 100% $ 190,396 100% $ 157,615 100% $ 137,648 100%
========= ===== ========= ===== ========= ===== ========= =====
</TABLE>
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------
1993 1992
--------------------- ----------------------
Amount Percent Amount Percent
--------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Type of loan:
1-4 family residential
loans ................ $ 41,260 33.6% $ 41,009 39.1%
Commercial and other
loans ................ 59,862 48.6 48,669 46.4
Consumer loans .......... 22,980 18.7 15,971 15.2
Credit cards ............ 654 0.5 717 0.6
--------- ----- --------- -----
Total loans ............... 124,756 101.4 106,366 101.3
LESS:
Allowance for loan losses (1,671) (1.4) (1,409) (1.3)
--------- ----- --------- -----
TOTAL LOANS RECEIVABLE, NET $ 123,085 100% $ 104,957 100%
========= ===== ========= =====
</TABLE>
-32-
<PAGE> 42
The following is maturity information with respect to commercial loans
at March 31, 1997.
<TABLE>
<CAPTION>
After one year After five years
Less than one year through five years through ten years After ten years
- ---------------------- --------------------- ----------------------- ---------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Amount Yield Amount Yield Amount Yield Amount Yield Total
- --------- ---------- -------- ---------- -------- ---------- -------- ---------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$40,010 9.20% $28,220 9.10% $25,715 9.30% $3,066 9.50% $97,011
</TABLE>
LOANS SECURED BY ONE- TO FOUR-FAMILY REAL ESTATE. A significant portion
of the Company's lending activity is the origination of permanent conventional
loans secured by one- to four-family residences located within the Company's
primary market area. The Company typically makes adjustable rate mortgage loans
and holds the loans in portfolio. More than 73% the Company's portfolio of
permanent conventional mortgage loans secured by one- to four-family residences
are adjustable rate. The Company also underwrites fixed rate, residential
mortgage loans, but then sells those loans in the secondary market to the FHLMC
or on a servicing-released basis to another financial institution.
The Company makes fixed rate loans on one- to four-family residences up
to 95% of the value of the real estate and improvements (the "loan-to-value" or
"LTV") substantially all of which are sold in the secondary market. Residential
real estate loans are offered by the Company for terms of up to 30 years. The
Company requires private mortgage insurance for the amount of such loans in
excess of 80% of the value of the real estate securing such loans.
The aggregate amount of the Company's one- to four-family residential
real estate loans equaled approximately $66.7 million at March 31, 1997 and
represented 33.8% of loans at such date. At such date, loans secured by
residential real estate with outstanding balances of approximately $418,000, or
.6%, of its total one- to four-family residential real estate loan balance, were
more than 90 days delinquent or nonaccruing.
COMMERCIAL LOANS. The Company is also active in commercial lending,
primarily to smaller businesses in the Company's primary market area. These
loans are typically secured by commercial real estate and priced in relation to
the prime rate. Such loans generally have terms of up to 15 years and
loan-to-value ratios of up to 75%. To a much lesser degree, the Company will
also make unsecured commercial loans, which are also typically priced at spreads
to prime and have maturities of up to one year.
Loan officers review the financial statements, appraisals of the
collateral, and other related documents before recommending funding of a
commercial loan. The loan officer and the approving officer or committee then
determines that there is sufficient income to cover this and other loan
payments, that the collateral is of adequate liquidation value, that the
applicant has a good payment history and is capable of performing the
requirements of the loan. Other reviews and analysis are done as appropriate,
depending upon the complexity of the credit request.
Although a risk of nonpayment exists with respect to all loans, certain
specific types of risks are associated with different types of loans. The
primary risks associated with commercial loans are the quality of the borrower's
management and the impact of national and regional economic factors. The Company
mitigates these risks by maintaining a close working relationship with its
borrowers, by obtaining cross-collateralization and personal guarantees of its
loans, and by diversification within its loan portfolio.
Due to the nature of the Company's customer base, real estate is
frequently a material component of the collateral for its loans. The expected
source of repayment of these loans is generally the operations of the borrower's
business, but the real estate provides an additional measure of security.
Risks associated with real estate loans include fluctuating land
values, changes in tax policies, and concentration of loans within the Company's
market area. The Company mitigates these risks by generally providing loans to
experienced commercial real estate owners and developers. The risk is further
mitigated by the number of commercial real estate loans made to the user of the
property.
The aggregate amount of the Company's commercial loans without real
estate as primary or secondary collateral equaled approximately $20.3 million at
March 31, 1997, and represented 10.2% of loans at such date. At such date,
commercial loans that were more than 90 days delinquent or nonaccruing totaled
approximately $206,000, or .21% of its commercial loan portfolio. The aggregate
amount of the Company's commercial loans with real estate as primary or
secondary collateral was approximately $76.7 million at March 31, 1997, and at
such date, approximately $15,000 in outstanding balances, or .02% of such loans
were delinquent or nonaccruing.
CONSUMER LOANS. The Company offers several consumer loan products:
installment loans, home equity loans and credit cards.
-33-
<PAGE> 43
The Company has a good relationship with several car dealerships in its
market area, and as a result is able to do some financing of new and used cars
through these relationships. The Company only finances cars up to six years old
and requires a down payment of 10.0%. These loans generally have fixed rates and
maturities of three to four years.
To a lesser degree, the Company makes small unsecured loans to
creditworthy individuals. These loans are typically between $2,000 and $5,000 at
fixed rates with maturities of less than five years. The Company also offers a
home equity loan product and, as a result of consumer demand, a credit card
product to its customers. Both products are underwritten to the same standards
as any of the Company's other consumer loan products.
Loan officers underwrite installment loan and other consumer loan
requests in such a manner to assure compliance with the various regulations and
the Company's underwriting standards. Payment history on applicants is very
important on these smaller loans, and is checked through in-house records as
well as credit bureaus. Normally collateral, such as an automobile, is taken as
security and the value is checked through the N.A.D.A. book or another valuation
service. Income must be adequate to cover all monthly payments including the
proposed loan.
At March 31, 1997, the Company had approximately $36.1 million in its
consumer loan portfolio, which was 18.4% of the Company's total loans.
Approximately $213,000 of consumer loans were over 90 days delinquent or
nonaccruing on that date, which represented .06% of the consumer loan portfolio.
LOAN SOLICITATION AND PROCESSING. Loan originations are developed from
a number of sources, including continuing business with depositors, other
borrowers and real estate developers, solicitations by the Company's lending
staff and walk-in customers.
Underwriting guidelines for all branches and loan types are set by
senior management at the home office. Loan processing and underwriting, however,
are decentralized. Loan applications are generally processed and underwritten at
the branch level. Loan officers and branch managers review the applications, as
well as credit bureau reports, appraisals, financial information, verifications
of income, and other documentation concerning the credit-worthiness of the
borrower, as applicable to each loan type.
Commercial loans are underwritten at the branch level with oversight by
area managers for each county. This decentralization of the loan underwriting
process allows loan officers and branch managers to respond more quickly to
applicants, and better serve its customers. The Company also benefits from this
decentralization in that every branch manager is well trained to originate all
types of loans, again allowing the branches to better serve their customers and
cross-sell the Company's loan products.
Branch managers have the authority to approve loans which meet the
underwriting criteria set by management up to $120,000, and area managers have
authority for amounts up to $300,000. Any loan over $300,000 must be submitted
for approval by senior management.
INCOME FROM LENDING ACTIVITIES. The Company earns interest and fee
income from its lending activities. The Company earns income from fees for
originating loans and for making commitments to originate loans and loan
participations. Certain of these fees net of origination costs are amortized
over the life of the respective loan. The Company also receives loan fees
related to existing loans, which include late charges. Income from loan
origination and commitment fees and discounts varies with the volume and type of
loans and commitments made and with competitive and economic conditions.
NONPERFORMING LOANS
GENERAL. Late charges on residential mortgages are assessed by the
Company if a payment is not received either by the 10th day following its due
date or 15th day if the loan has been sold in the secondary market and is being
serviced by the Company. Late charges on installment loans and commercial loans
are assessed by the Company if a payment is not received by the 10th day
following its due date. Any borrower whose payment was not received by this time
is mailed a past due notice. If the loan is still delinquent after a second past
due notice is mailed (generally around the 20th day of delinquency), a branch
employee will attempt to contact the customer to resolve any problem that might
exist.
When an advanced stage of delinquency appears (generally around the
60th day of delinquency) and if repayment cannot be expected within a reasonable
amount of time or a repayment agreement has not been entered into, the Bank will
contact an attorney and request that the required 30-day prior notice of
foreclosure or repossession proceedings be prepared and delivered to the
borrower so that, if necessary, foreclosure proceedings may be initiated shortly
after the loan is 90 days delinquent. This procedure has historically aided in
achieving a low level of nonperforming loans and, as of March 31, 1997, only
$852,000 or .43% of the Bank's total loan portfolio was 90 days or more past
due. As of March 31, 1997, the Company's level of nonperforming assets to total
assets was .32%.
If a credit card account becomes 10 days delinquent, a notice is sent
to the account holder demanding that the payment be made so that the card is
current. Another notice is sent to the cardholder if the account becomes 20 days
delinquent. If payment is not received within 30 days, authorization requests
are denied, a message appears on the cardholder's account statement and a
follow-up telephone call is made. These telephone collection efforts and
statement messages continue until the account is deemed uncollectible. Legal
action is considered during this time. As of March 31, 1997, approximately
$18,000 in outstanding balances, or 1.7% of credit card loans were
nonperforming.
-34-
<PAGE> 44
On March 31, 1997, the Bank held no real estate and other repossessed
collateral acquired as a result of foreclosure, voluntary deed, or other means.
When the Bank has such real estate, it is classified as "other real estate
owned" until it is sold. When property is so acquired, it is recorded at the
lower of cost (the unpaid principal balance at the date of acquisition plus
foreclosure and other related costs) or fair value less estimated selling
expenses. Any subsequent write-down resulting therefrom is charged to expense.
Generally, unless the property is a one- to four-family residential dwelling and
well-collateralized, interest accrual ceases in 90 days but no later than the
date of acquisition. All costs incurred from that date in maintaining the
property are expensed. Other real estate owned is appraised during the
foreclosure process prior to the time of acquisition, and losses are recognized
for the amount by which the book value of the related mortgage loan exceeds the
estimated net realizable value of the property.
Not categorized as nonperforming loans are certain potential problem
loans that management believes are adequately secured and for which no material
loss is expected, but as to which certain circumstances may cause the borrowers
to be unable to comply with the present loan repayment terms at some future
date. At March 31, 1997 there were no such potential problem loans.
The following is a summary of the Company's loan loss experience and
selected ratios for the periods presented.
<TABLE>
<CAPTION>
MARCH 31, YEAR ENDED DECEMBER 31,
-------- ------------------------------------------------------------
1997 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Allowance for loan losses
(beginning of period) ................. $ 2,636 $ 2,128 $ 1,897 $ 1,671 $ 1,409 $ 1,095
Loans charged off:
1-4 family residential real estate .... -- 1 29
Multi-family and commercial
real estate ......................... -- -- 5 -- 22 --
Commercial and industrial loans ....... -- 63 72 3 154 72
Consumer loans ........................ 56 282 239 131 121 167
-------- -------- -------- -------- -------- --------
Total loans charged off ............. 56 346 316 134 297 268
-------- -------- -------- -------- -------- --------
Recoveries of loans previously
charged off:
1-4 family residential real estate .... 43 9 1
Multi-family and commercial
real estate ......................... -- -- 33 1 18 --
Commercial and industrial loans ....... -- -- 1 2 34 1
Consumer loans ........................ 23 85 85 88 81 89
-------- -------- -------- -------- -------- --------
Total recoveries .................... 66 94 119 91 133 91
-------- -------- -------- -------- -------- --------
Net loans charged off (recoveries) ........ (10) 252 197 43 164 177
Provision for loan losses ................. 81 760 428 269 426 491
-------- -------- -------- -------- -------- --------
Allowance for loan losses
(end of period) .........................
$ 2,727 $ 2,636 $ 2,128 $ 1,897 $ 1,671 $ 1,409
======== ======== ======== ======== ======== ========
Loans outstanding:
Net Average ...................... $194,343 $168,370 $149,237 $129,524 $113,762 $ 93,165
End of period .................... $199,797 $193,032 $159,743 $139,545 $124,756 $106,366
Ratio of allowance for loan losses to
loans outstanding at end of period ........ 1.36% 1.37% 1.33% 1.36% 1.34% 1.32%
Ratio of net charge-offs (recoveries) to
average loans outstanding................ (0.01)% 0.15% 0.13% 0.03% 0.14% 0.19%
</TABLE>
At March 31, 1997, December 31, 1996, 1995 and 1994 the Company had
nonaccrual loans totaling $713,000, $698,000, $39,000, and $174,000,
respectively. Interest income that would have been recognized if such loans had
performed in accordance with contractual terms totaled approximately $19,000 for
the three months ended March 31, 1997, and $62,000, $1,000, and $15,000
respectively, for the years ended December 31, 1996, 1995 and 1994. There was no
interest income recognized on such loans during any of the periods.
-35-
<PAGE> 45
ALLOWANCE FOR LOAN LOSSES. The amount of the allowance for loan losses
is based on management's analysis of risks inherent in the various segments of
the loan portfolio, management's assessment of known or potential problem
credits which have come to management's attention during the ongoing analysis of
credit quality, historical loss experience, current and anticipated economic
conditions and other factors. If actual circumstances and losses differ
substantially from management's assumptions and estimates, such allowance for
loan losses may not be sufficient to absorb all future losses, and net earnings
could be adversely affected. Loan loss estimates are reviewed periodically, and
adjustments, if any, are reported in earnings in the period in which they become
known. In addition, the Company maintains a portion of the allowance to cover
potential losses inherent in the portfolio which have not been specifically
identified.
Although management believes that it uses the best information
available to make such determinations and that the allowance for loan losses is
adequate at March 31, 1997, future adjustments to the allowance may be
necessary, and net earnings could be affected, if circumstances and/or economic
conditions differ substantially from the assumptions used in making the initial
determinations. A downturn in the Southeastern Ohio economy and employment
levels could result in the Company experiencing increased levels of
nonperforming assets and charge-offs, increased provisions for loan losses and
reductions in income. Additionally, various regulatory agencies, as an integral
part of their examination process, periodically review the Company's allowance
for loan losses. Such agencies may require the recognition of additions to the
allowance based on their judgment of information available to them at the time
of their examination.
The following table summarizes nonperforming assets by category.
<TABLE>
<CAPTION>
MARCH 31, YEAR ENDED DECEMBER 31,
-------- ------------------------------------------------------------
1997 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Real estate:
Nonaccrual ..................... $ 327 $ 235 $ 15 $ -- $ 197 $ 76
Past due 90 days or more (1) ... 91 92 275 76 35 236
Commercial and industrial:
Nonaccrual ..................... 221 246 -- 150 197 284
Past due 90 days or more (1) ... -- -- 680 -- -- --
Consumer and other:
Nonaccrual ..................... 165 217 24 24 25 20
Past due 90 days or more(1) .... 48 18 130 11 37 12
-------- -------- -------- -------- -------- --------
Total nonperforming loans ... 852 808 1,124 261 491 628
Other real estate owned ............ -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total nonperforming assets .. $ 852 $ 808 $ 1,124 $ 261 $ 491 $ 628
======== ======== ======== ======== ======== ========
Loans outstanding .................. $199,797 $193,032 $159,743 $139,545 $124,756 $106,366
Allowance for loan losses
to total loans ................... 1.36% 1.36% 1.33% 1.36% 1.34% 1.32%
Nonperforming loans to total
loans ............................ 0.43 0.42 0.7 0.19 0.39 0.59
Nonperforming assets to total assets 0.32 0.33 0.53 0.14 0.28 0.41
Allowance for loan losses to
nonperforming loans .............. 320.1% 326.2% 189.3% 726.8% 340.3% 224.4%
</TABLE>
- -----------
(1) Represents accruing loans delinquent greater than 90 days which are
considered by management to be well secured and in the process of
collection.
As of March 31, 1997 the Company had no loans that were not included in
the nonaccrual, past due 90 days or more or restructured categories where the
borrowers were experiencing potential credit problems that raised doubts as to
the ability of the borrowers to comply with the present loan repayment terms.
CLASSIFIED ASSETS. The FDIC regulations on classification of assets
require commercial banks to classify their own assets and to establish
appropriate general and specific allowances for losses, subject to FDIC review.
These regulations are designed to encourage management to evaluate assets on a
case-by-case basis and to discourage automatic classifications. Assets
classified as substandard or doubtful must be evaluated by management to
determine a reasonable general loss reserve which is included in total capital
for purposes of the bank's risk-based capital requirement, but which is not
included in core capital or tangible capital or in capital under generally
accepted accounting principles. Assets classified as loss must either be written
off or reserved for by a specific allowance which is not counted toward capital
for purposes of any of the regulatory capital requirements.
INVESTMENTS. Investment securities primarily satisfy the Company's
liquidity needs and provide a return on residual funds after lending activities.
Pursuant to the Company's written investment policy, investments may be in
interest-bearing deposits, U.S. Government and agency obligations, state and
local government obligations and government-guaranteed mortgage-backed
securities. The Company does not make any investments in securities which
-36-
<PAGE> 46
are rated less than investment grade by a nationally recognized statistical
rating organization. A goal of the Company's investment policy is to limit
interest rate risk wherever possible.
All securities-related activity is reported to the Board. General
changes in investment strategy are required to be reviewed and approved by the
Board. The Company's senior management can purchase and sell securities on
behalf of the Company in accordance with the Company's stated investment policy.
The following table sets forth the carrying value of the Company's
investment portfolio at the dates indicated and includes investments designated
as available for sale.
<TABLE>
<CAPTION>
March 31, At December 31
-------- ----------------------------------------
1997 1996 1995 1994 1993
-------- ------- ------- ------- -------
(Dollars In thousands)
<S> <C> <C> <C> <C> <C>
U.S. Government and agency obligations ................ $ -- $ -- $ -- $11,014 $17,226
State and local government obligations ................ -- -- -- 1,927 821
------- ------- ------- ------- -------
Total investment securities held to maturity ... -- -- -- 12,941 18,047
Investment securities designated as available for sale 42,356 33,617 25,755 13,163 --
------- ------- ------- ------- -------
Total investment securities .................... $42,356 $33,617 $25,755 $26,104 $18,047
======= ======= ======= ======= =======
</TABLE>
The following table reflects the maturities of the Company's investment
securities at March 31, 1997.
<TABLE>
<CAPTION>
Due After Five
Due in One Year Due After One Year Years Through
or Less Through Five Years Ten Years Due After Ten Years
------------------- ------------------- --------------- -------------------
Investment Securities Amount Rate Amount Rate Amount Rate Amount Rate Total
--------------------- ------- ---- ------- ---- ------ ---- ------ ---- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Available for Sale:
U.S. Government and
agency obligations .... $11,996 5.97% $24,332 6.22% 2,958 6.88% $25 4.18% $39,311
Municipal obligations ... 1,094 4.22 1,269 4.59 682 5.17% 3,045
------- ---- ------- ---- ------ ---- --- ---- -------
Total investment securities $13,090 5.48% $25,601 6.10% $3,640 6.57% $25 4.18% $42,356
======= ==== ======= ==== ====== ==== === ==== =======
</TABLE>
The following table sets forth the carrying value of the Company's
mortgage-backed securities portfolio, including securities designated as
available for sale, at the dates indicated:
<TABLE>
<CAPTION>
March 31, At December 31
-------- -------------------------------------
1997 1996 1995 1994 1993
-------- ------ ------ ------ -------
(Dollars In thousands)
<S> <C> <C> <C> <C> <C>
Federal National Mortgage
Association (FNMA) .................... $ 453 $ 473 $ 628 $1,972 $ 2,564
Federal Home Loan Mortgage
Corporation (FHLMC) ................... 2,407 2,583 2,493 3,128 4,281
Government National Mortgage Association (GNMA) 809 828 1,025 1,156 1,335
Collateralized mortgage obligations ........... -- -- -- 1,653 4,228
------ ------ ------ ------ -------
Total mortgage-backed securities .............. $3,669 $3,884 $4,146 $7,909 $12,408
====== ====== ====== ====== =======
</TABLE>
The following table sets forth the amount of the Company's
mortgage-backed securities portfolio having fixed rates and the amount having
adjustable rates at the dates indicated:
<TABLE>
<CAPTION>
At March 31, At December 31,
------------------ -------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------ ----------------- ----------------- ------------------ --------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate........ $2,406 65.6% $2,583 66.5% $2,493 60.1% $5,633 71.2% $ 8,771 70.7%
Adjustable rate... 1,263 34.4 1,301 33.5 1,653 39.9 2,276 28.8 3,637 29.3
------ ----- ------ ----- ------ ----- ------ ----- ------- -----
Total mortgage-backed
securities...... $3,669 100.0% $3,884 100.0% $4,146 100.0% $7,909 100.0% $12,408 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ======= =====
</TABLE>
-37-
<PAGE> 47
The following table reflects the estimated principal repayments or
repricing of the Company's mortgage-backed securities at March 31, 1997.
<TABLE>
<CAPTION>
Due After Five
Due in One Year Due After One Year Years Through
or Less Through Five Years Ten Years Due After Ten Years
--------------- ------------------ -------------- --------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Mortgage Backed Securities Amount Rate Amount Rate Amount Rate Amount Rate Total
- -------------------------- ------ ---- ------ ---- ------ ---- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Available for sale:
Fixed rate .......... $412 7.50% $1,525 7.52% $-- --% $ 469 8.00% $ 2,406
Variable rate ..... -- -- -- -- -- -- 1,263 7.70 1,263
---- ---- ------ ---- ------ ---- -----
Total mortgage-backed
securities ........ $412 7.50% $1,525 7.52% -- --% $1,732 7.80% $3,669
==== ==== ====== ==== === == ====== ==== =====
</TABLE>
SOURCE OF FUNDS
DEPOSIT ACCOUNTS. Savings deposits are a major source of the Company's
funds. The Company offers a number of alternatives for depositors designed to
attract both commercial and regular consumer checking and savings including
regular and money market savings accounts, NOW accounts, and a variety of
fixed-maturity, fixed-rate certificates with maturities ranging from seven days
to 120 months. The Company also provides travelers' checks, official checks,
money orders, ATM services and IRA accounts.
Effective January 16, 1995, the Company began offering a large balance
deposit account product known as the Premium Investment Account. The account is
a money market deposit account under applicable FDIC insurance regulations; it
pays an adjustable (quarterly) interest rate equal to a 13-week treasury bill
rate; there is no minimum or maximum interest rate. A minimum balance of $10,000
is required to open the account. Interest is earned on the account only so long
as the balance is greater than $5,000.
The distribution of the Company's deposit accounts by type and rate is
set forth in the following table.
<TABLE>
<CAPTION>
At March 31, December 31,
------------------ --------------------------------------------------------------
1997 1996 1995 1994
------------------ ------------------ ------------------- ------------------
Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Demand deposit accounts...... $ 23,352 10.3% $ 22,531 10.8% $ 19,220 10.6% $ 17,149 10.5%
Savings accounts............. 35,008 15.4 34,169 16.3 34,335 18.9 38,042 23.2
NOW accounts................. 21,453 9.5 20,464 9.8 18,912 10.4 20,012 12.2
Money market deposit accounts 3,897 1.7 4,128 2.0 4,407 2.4 6,076 3.7
Premium investment accounts.. 22,584 9.9 22,696 10.8 14,198 7.8 -- --
Select investment accounts... 4,385 1.9 1,267 0.5 -- -- -- --
-------- ----- -------- ----- -------- ----- -------- -----
Total transaction accounts... 110,679 48.7% 105,255 50.2% 91,072 50.1% 81,279 49.6%
CERTIFICATES:
2.00 - 4.99%.............. 18,438 51.3 19,020 9.1 15,939 8.7 57,005 34.8
5.00 - 6.99%.............. 94,005 41.4 81,104 38.7 67,989 37.4 24,930 15.3
7.00 - 9.00%.............. 4,113 1.8 4,214 2.0 6,889 3.8 506 0.3
-------- ----- -------- ----- -------- ----- -------- -----
Total certificates of deposit 116,556 51.3 104,338 49.8 90,817 49.9 82,441 50.4
-------- ----- -------- ----- -------- ----- -------- -----
Total deposits............... $227,235 100.0% $209,593 100.0% $181,889 100.0% $163,720 100.0%
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
<TABLE>
<CAPTION>
December 31,
-----------------
1993
-----------------
Amount Percent
------ -------
(Dollars in thousands)
<S> <C> <C>
Demand deposit accounts...... $ 16,782 10.5%
Savings accounts............. 39,289 24.7
NOW accounts................. 22,906 14.4
Money market deposit accounts 4,444 2.8
Premium investment accounts.. -- --
Select investment accounts... -- --
-------- -----
Total transaction accounts... 83,421 52.4%
CERTIFICATES:
2.00 - 4.99%.............. 65,760 41.3
5.00 - 6.99%.............. 9,093 5.7
7.00 - 9.00%.............. 950 0.6
-------- -----
Total certificates of deposit 75,803 47.6
-------- -----
Total deposits............... $159,224 100.0%
======== =====
</TABLE>
-38-
<PAGE> 48
The following table presents, by various interest rate categories,
certain information concerning maturities of the Company's certificates of
deposit as of March 31, 1997.
<TABLE>
<CAPTION>
Within One to Over
Certificate of Deposit Accounts One Year Three Years Three Years Total
- ------------------------------- -------- ----------- ----------- --------
(In thousands)
<S> <C> <C> <C> <C>
4.00% and less.............................. $ 2,169 $ 15 $ 5 2,189
4.01% to 5.00%.............................. 12,878 3,544 50 16,472
5.01% to 6.00%.............................. 46,346 28,833 1,732 76,911
6.01% to 7.00%.............................. 1,166 14,993 940 17,099
7.01% to 8.00%.............................. 3,677 143 50 3,870
8.01% to 9.00%.............................. 15 -0- -0- 15
------- ------- ------ --------
Total $66,251 $47,528 $2,777 $116,556
======= ======= ====== ========
</TABLE>
The following table sets forth the amount of the Company's certificates
of deposit that are $100,000 or greater by time remaining until maturity as of
March 31, 1997.
<TABLE>
<CAPTION>
Maturity Period Amount
- --------------- ------
(In thousands)
<S> <C>
Three months or less $10,537
Over three through six months 6,005
Over six through 12 months 6,264
Over 12 months 11,252
-------
Total $34,058
=======
</TABLE>
BORROWINGS. Deposits and repayment of loan principal are the primary
source of funds for the Company's lending activities and other general business
purposes. However, during periods when the supply of lendable funds cannot meet
the demand for loans, the Company can obtain funds necessary through loans
(advances) from the FHLB of Cincinnati. Advances from the FHLB may be on a
secured or unsecured basis depending upon a number of factors, including the
purpose for which the funds are being borrowed and existing advances
outstanding. The Company typically only utilizes FHLB advances to fund long-term
fixed rate commercial loans. As of March 31, 1997, the Bank had outstanding FHLB
advances totaling $10.9 million. See Note F to the consolidated financial
statements for additional information regarding FHLB advances. The Company also
has arrangements to borrow funds from commercial banks. The Company does not
solicit brokered deposits.
The following table sets forth the maximum amount of the Company's FHLB
advances and other borrowings outstanding at any month end during the periods
shown and the average aggregate balances of FHLB advances and other borrowings
for such periods:
<TABLE>
<CAPTION>
March 31, Year ended December 31,
-------- -----------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Maximum amount outstanding:
FHLB advances $10,850 $13,604 $7,529 $5,000 $ --
Other borrowings -- -- -- 2,100 2,100
Average amount of FHLB advances and
other borrowings outstanding 12,902 11,464 7,431 3,138 2,100
Weighted average interest rate of total
borrowings based on quarter end balances 6.70% 6.85% 8.79% 10.55% 11.71%
</TABLE>
-39-
<PAGE> 49
The following table sets forth certain information as to the Company's
FHLB advances and other borrowings at the dates indicated:
<TABLE>
<CAPTION>
March 31, December 31,
-------- -------------------------------------
1997 1996 1995 1994 1993
------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
FHLB advances $10,850 $13,604 $7,529 $4,956 $ --
Other borrowings -- -- -- 2,100 2,100
------- ------- ------ ------ ------
Total borrowings $10,850 $13,604 $7,529 $7,056 $2,100
======= ======= ====== ====== ======
</TABLE>
PERSONNEL
At March 31, 1997, the Company and its subsidiary employed 99 persons
on a full-time basis and 30 persons on a part-time basis.
EXECUTIVE OFFICES
The Company's executive office is located at 14621 State Route 93,
Jackson, Ohio 45640 and its telephone number is (614) 286-3283.
SUBSIDIARY
The Company owns all of the outstanding stock of Oak Hill Banks, an
Ohio state-chartered bank, which was founded in 1902.
REGULATION
The Bank as an Ohio state-chartered bank, is subject to supervision and
regular examination by the Superintendent of Financial Institutions of the State
of Ohio. It is insured by the FDIC and is subject to the provisions of the
Federal Deposit Insurance Act. To the extent that the information below consists
of summaries of certain statutes or regulations it is qualified in its entirety
by reference to the statutory or regulatory provisions described.
The Company is subject to the provisions of the Bank Holding Company
Act of 1956, as amended (the "Act"), which requires a bank holding company to
register under the Act and to be subject to supervision and examination by the
Board of Governors of the Federal Reserve System. As a bank holding company, the
Company is required to file with the Board of Governors an annual report and
such additional information as the Board of Governors may require pursuant to
the Act. The Act requires prior approval by the Board of Governors of the
acquisition by a bank holding company, or any subsidiary thereof, of 5% or more
of the voting stock or substantially all the assets of any bank within the
United States.
As a bank holding company located in the State of Ohio, the Company is
not permitted to acquire a bank or other financial institution located in
another state unless such acquisition is specifically authorized by the statutes
of such state. The Act further provides that the Board of Governors shall not
approve any such acquisition that would result in a monopoly or would be in
furtherance of any combination or conspiracy to monopolize or attempt to
monopolize the business of banking in any part of the United States, or the
effect of which may be to substantially lessen competition or to create a
monopoly in any section of the country, or that in any other manner would be in
restraint of trade, unless the anti-competitive effects of the proposed
transaction are clearly outweighed in the public interest by the probable effect
of the transaction in meeting the convenience and needs of the community to be
served.
The Act also prohibits a bank holding company, with certain exceptions,
from acquiring 5% or more of the voting stock of any company that is not a bank
and from engaging in any business other than banking or performing services for
its banking subsidiary without the approval of the Board of Governors. In
addition, the acquisition of a thrift institution must be approved by the Office
of Thrift Supervision pursuant to the savings and loan holding company
provisions of the Home Owners' Loan Act of 1933, as amended by FIRREA. The Board
of Governors is also authorized to approve, among other things, the ownership of
shares by a bank holding company in any company the activities of which the
Board of Governors has determined to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. The Board of
Governors has, by regulation, determined that certain activities, including
mortgage banking, operating small loan companies, factoring, furnishing certain
data processing operations, holding or operating properties used by banking
subsidiaries or acquired for such future use, providing certain investment and
financial advice, leasing (subject to certain conditions) real or personal
property, providing management consulting advice to certain depository
institutions, providing securities brokerage services, arranging commercial real
estate equity financing, underwriting and dealing in government obligations and
money market instruments, providing consumer financial counseling, operating a
collection agency, owning and operating a savings association, operating a
credit bureau and conducting certain real estate investment activities and
acting as insurance agent for certain types of insurance, are closely related to
banking within the meaning of the Act. It also has determined that certain other
activities, including real estate brokerage and syndication, land development,
and property management are not related to credit transactions and are not
permissible. The Act and the regulations of the Board of Governors prohibit a
bank holding company and
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<PAGE> 50
its subsidiaries from engaging in certain tie-in arrangements in connection with
any extension of credit, lease or sale of property, or furnishing of services.
The Act also imposes certain restrictions upon dealing by affiliated banks with
the holding company and among themselves including restrictions on interbank
borrowing and upon dealings in respect to the securities or obligations of the
holding company or other affiliates.
The earnings of banks, and therefore the earnings of the Company (and
the Bank), are affected by the policies of regulatory authorities, including the
Board of Governors of the Federal Reserve System. An important function of the
Federal Reserve Board is to regulate the national supply of bank credit in an
effort to prevent recession and to restrain inflation. Among the procedures used
to implement these objectives are open market operations in U.S. Government
securities, changes in the discount rate on member bank borrowings, and changes
in reserve requirements against member bank deposits. These procedures are used
in varying combinations to influence overall growth and distribution of bank
loans, investments and deposits, and their use also may affect interest rates
charged on loans or paid for deposits. Monetary policies of the Federal Reserve
Board have had a significant effect on the operating results of commercial banks
in the past and are expected to continue to do so in the future. The effect, if
any, of such policies upon the future business and earnings of the Company
cannot accurately be predicted. The Company makes no attempt to predict the
effect on its revenues and earnings of changes in general economic, industrial,
and international conditions or in legislation and governmental regulations.
PROPERTIES.
The registrant and its subsidiary operate from 13 offices in Ohio,
including the Company's executive office in Jackson, Ohio. Four of the offices
are located in Jackson County, Ohio. The properties in Jackson County are
located on real estate which is owned by the Company. Three offices are located
in Ross County, Ohio; one in Warren County, Ohio; three in Scioto County, Ohio;
one in Pickaway County, Ohio; one in Butler County, Ohio. Four of the offices
(located in Ross County, Butler County and Scioto County) are on leased
locations. All leases are comparable to other leases in the respective market
areas and do not contain provisions detrimental to the registrant or its
subsidiary.
LEGAL PROCEEDINGS.
Except for routine litigation incident to their business, the
registrant and its subsidiary are not a party to any material pending legal
proceedings and none of their property is the subject of any such proceedings.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 5,000,000
shares of Common Stock, without par value, 1,500,000 shares of voting preferred
stock, $.01 par value (the "Voting Preferred Stock") and 1,500,000 shares of
non-voting preferred stock, $.01 par value (the "Non-Voting Preferred Stock").
In addition to the summary below, see "Comparison of Certain Rights of
Shareholders of the Company and Unity."
COMMON STOCK. Upon completion of this offering there will be
approximately 3,666,125 shares of Common Stock outstanding. In addition, 400,000
shares of Common Stock are reserved for issuance upon exercise of stock options
under the Company's Amended and Restated 1995 Stock Option Plan. Holders of Oak
Hill Common Stock are entitled to one vote per share on any matter submitted to
the vote of stockholders. Cumulative voting is prohibited in the election of
directors. The holders of Oak Hill Common Stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. The Oak Hill Common Stock is
not redeemable, does not have any conversion rights and is not subject to call.
Holders of shares of Oak Hill Common Stock have no preemptive rights to maintain
their respective percentage of ownership in future offerings or sales of stock
by the Company.
VOTING PREFERRED STOCK. There is no Voting Preferred Stock outstanding.
Under the Company's Amended and Restated Articles of Incorporation, the Board of
Directors is authorized to establish the number of shares to be issued, and to
fix the attributes of the shares including, among other attributes, the dividend
rate, the dividend payment dates, whether the dividends will be cumulative, the
redemption price, the sinking fund requirements, liquidation preference and
conversion rights.
NON-VOTING PREFERRED STOCK. There is no Non-Voting Preferred Stock
outstanding. Under the Company's Amended and Restated Articles of Incorporation,
the Board of Directors is authorized to establish the number of shares to be
issued, and to fix the attributes of the shares including, among other
attributes, the dividend rate, the dividend payment dates, whether the dividends
will be cumulative, the redemption price, the sinking fund requirements,
liquidation preference and conversion rights.
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<PAGE> 51
OWNERSHIP OF COMMON STOCK BY PRINCIPAL SHAREHOLDERS
As of July __, 1997, persons known by the Company to own beneficially
more than 5% of the outstanding common shares of the Company are set forth
below.
<TABLE>
<CAPTION>
NO. OF SHARES OF COMMON
NAME(1) STOCK BENEFICIALLY OWNED(2) PERCENTAGE OF CLASS(3)
- ------- --------------------------- ----------------------
<S> <C> <C>
Evan E. Davis........... 1,167,200(4) 40.62%
John D. Kidd............ 587,188(4) 20.43%
Donald M. Rice.......... 147,300(4) 5.13%
</TABLE>
- ----------------------
(1) The address of Evan E. Davis, John D. Kidd, and Donald M. Rice is c/o
Oak Hill Financial, Inc., 14621 State Route 93, Jackson, Ohio 45640.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attributes
beneficial ownership of securities to persons who possess sole or
shared voting power and/or investment power with respect to those
securities.
(3) "Percentage of class" is calculated by dividing the number of shares
beneficially owned by the total number of outstanding shares of the
Company on July __, 1997 plus the number of shares such person has the
right to acquire within 60 days of July __, 1997.
(4) Includes 10,000 shares which could be acquired by Messrs. Davis and
Kidd, respectively, and 1,000 shares which could be acquired by Mr.
Rice under stock options exercisable within 60 days of July __, 1997.
Also, includes 2,200 shares held by a Trust as to which Messrs. Davis
and Kidd are Trustees and partial beneficiaries.
OWNERSHIP OF COMMON STOCK BY MANAGEMENT
As of July __, 1997, the directors of the Company, the executive officers
of the Company named in the Summary Compensation Table, and all executive
officers and directors of the Company as a group, beneficially owned common
shares of the Company as set forth below.
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Ownership Percentage
Name of Common Stock(1) of Class
---- --------------------- ----------
<S> <C> <C>
Evan E. Davis, Chairman and Director 1,167,200(3)(4) 40.62%
John D. Kidd, President, Chief Executive Officer and
Director 587,188(3)(4) 20.43%
Richard P. LeGrand, Executive Vice President and Director 57,363(3) 2.00%
H. Tim Bichsel, Secretary and Treasurer 21,100(3) *
David G. Ratz, Vice President 13,350(3) *
Barry M. Dorsey, Ed.D., Director 7,000(3) *
C. Clayton Johnson, Director 0 *
Rick A. McNelly , Director 11,322(3) *
Donald R. Seigneur, Director 4,000(3) *
H. Grant Stephenson, Director 4,700(3) *
All directors and executive officers 1,873,223(5) 65.19%
as a group (10 persons)
</TABLE>
- -------------------
(1) For purposes of the above table, a person is considered to
"beneficially own" any shares with respect to which he exercises sole
or shared voting or investment power or as to which he has the right to
acquire the beneficial ownership within 60 days of July __, 1997.
Unless otherwise indicated, voting power and investment power are
exercised solely by the person named above or shared with a members of
his household.
(2) "Percentages of class" is calculated by dividing the number of shares
beneficially owned by the total number of outstanding shares of the
Company on July __, 1997 plus the number of shares such person has the
right to acquire within 60 days of July __ 1997. An "*" indicates less
than one percent (1%).
(3) Includes 11,600 shares which could be acquired by Mr. Ratz, 10,000
shares which could be acquired by Messrs. Davis and Kidd, respectively,
9,000 shares which could be acquired by Mr. LeGrand, 8,000 shares which
could be acquired by Mr. Bichsel and 2,000 shares which could be
acquired by Messrs. Dorsey, McNelly, Seigneur and Stephenson,
respectively, under stock options exercisable within 60 days of July
__, 1997.
-42-
<PAGE> 52
(4) Also includes 2,200 shares held by Trusts as to which Messrs. Davis and
Kidd are Trustees and partial beneficiaries.
(5) Includes 56,600 shares which may be purchased under stock options
exercisable within 60 days of July __, 1997.
DIRECTORS
The following is a list of the directors of the Company and the
information indicated for each director.
<TABLE>
<CAPTION>
Position with Company and/or Principal Occupation or
Employment For the Last Five Years Director Since
---------------------------------- --------------
<S> <C> <C>
CLASS I DIRECTORS
Evan E. Davis, 63 Chairman of the Company since its formation in 1981. He 1981
served as President of the Company from 1981 to June 1995.
Mr. Davis' family founded Oak Hill Banks (the "Bank") in 1902,
and Mr. Davis has served as a Director of the Bank since 1957.
C. Clayton Johnson, 52 Partner in the law firm of C. Clayton Johnson Co., L.P.A., 1997
Portsmouth, Ohio. He has served as a Director of the Company
since March 1997.
John D. Kidd, 57 President of the Company since June 1995 and as Chief 1981
Executive Officer since 1981. He has served as President of the
Bank since October 1991 and served as Chief Executive Officer
and Executive Vice President since joining the Bank in 1970.
Richard P. LeGrand, 56 Executive Vice President of the Company since October 1991. 1987
He has served as a Director of the Company since January 1987
and as a Director of the Bank since July 1993. Mr. LeGrand
served as Senior Vice President of the Bank from February 1986
to October 1991, and as a Vice President from June 1985 until
February 1986.
CLASS II DIRECTORS
Barry M. Dorsey, Ed.D, 53 President of the University of Rio Grande and Rio Grande 1995
Community College since July 1991. Mr. Dorsey served as
Associate Director from July 1980 to July 1990 and as Deputy
Director from July 1990 to June 1991 of the State Council of
Higher Education for Virginia.
Rick A. McNelly, 39 Secretary and Treasurer of Innovative Financial Services 1995
Agency, Inc., an employee benefits agency, since 1981.
Donald R. Seigneur, 44 Partner in the public accounting firm of Whited & Seigneur, 1995
Sams & Rahes Certified Public Accountants, Chillicothe,
Ohio since 1979.
H. Grant Stephenson, 47 Partner in the law firm of Porter, Wright, Morris & Arthur, 1995
Columbus, Ohio since 1986.
</TABLE>
DIRECTOR MEETINGS AND COMMITTEES
During fiscal year ended December 31, 1996, the Board of Directors held
four regularly scheduled meetings. All of the directors attended more than 75%
of the regularly scheduled meetings during the last fiscal year.
Each director received $500 per meeting attended as a director of the
Company. No compensation is paid for meetings of committees.
Since December 31, 1996, the Board of Directors has held two regularly
scheduled meetings. Each director has attended more than 75% of the regularly
scheduled meetings in 1997.
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<PAGE> 53
The Board of Directors has a standing Audit Committee, and a standing
Stock Option and Compensation Committee. A committee of the whole acts as the
Nominating Committee for the Board.
The Audit Committee makes recommendations to the Board of Directors
concerning the selection and engagement of the Company's independent auditors
and reviews with them the scope and status of the audit, the fees for services
performed by the firm, and the results of the completed audit. The Audit
Committee also reviews and discusses with the internal audit department,
management and the Board of Directors, such matters as accounting policies,
internal controls and procedures for preparation of financial statements. The
members of the Audit Committee are Messrs. Seigneur, Dorsey and Stephenson.
The Stock Option and Compensation Committee (the "Committee") makes
recommendations to the Board of Directors with respect to the compensation of
the executive officers of the Company and with respect to the grant of stock
options. The members of the Committee are Messrs. Seigneur, McNelly and
Stephenson.
EXECUTIVE OFFICERS
The officers of the Company are elected annually by the Board of
Directors and serve at the pleasure of the Board. In addition to Evan E. Davis,
Chairman of the Board; John D. Kidd, President and Chief Executive Officer;
Richard P. LeGrand, Executive Vice President, the following persons are officers
of the Company:
H. Tim Bichsel, age 56, has served as Secretary and Treasurer of the
Company since February 1995. He served as Vice President of the Company from
February 1994 to February 1995. Mr. Bichsel has served as Executive Vice
President and Secretary of the Bank since February 1996. From April 1993 to
February 1996 he served as Senior Vice President and Secretary. From February
1992 to April 1993 he served as a computer software specialist for Peerless
Systems, Inc., a banking computer software company. Prior thereto, Mr. Bichsel
was employed in a variety of positions, most recently Senior Vice President and
Secretary with Fifth Third Bank of Southern Ohio, formerly known as First
Security Bank of Hillsboro, Ohio, from 1973 to November 1991.
David G. Ratz, age 39, has served as Vice President of the Company
since November 1995. From December 1986 to September 1995, he served as a
marketing and human resources consultant to community banking organizations as a
Vice President of Young & Associates, Kent, Ohio.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation
paid during the last three completed fiscal years by the Company and its
subsidiaries to the Chief Executive Officer, and the two other executive
officers of the Company whose total salary and bonus annually exceed $100,000
for services in all capacities for the Company:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensa-
Annual Compensation tion Award
---------------------------------------------------------------------
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary Bonus Compensation(1) Options(2) Compensation(3)
--------------------------- ---- ------ ----- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
JOHN D. KIDD 1996 $151,467 $24,000 $5,900 5,000 $20,554
President and Chief 1995 $147,408 $24,000 $5,600 5,000 $11,612
Executive Officer 1994 $144,340 $48,000 $5,100 -- $15,616
EVAN E. DAVIS 1996 $131,560 $24,000 $5,900 5,000 $11,554
Chairman of the Board 1995 $128,040 $24,000 $5,600 5,000 $ 7,112
1994 $125,375 $48,000 $5,100 -- $13,366
RICHARD P. LEGRAND 1996 $102,806 $20,000 $5,900 5,000 $16,274
Executive Vice President 1995 $100,056 $15,000 $5,600 5,000 $ 8,487
1994 $96,039 $21,000 $5,100 -- $11,441
</TABLE>
- -----------------
(1) Includes amounts paid as director fees for the fiscal years shown.
(2) All shares are subject to an option granted under the 1995 Stock Option
Plan.
(3) Includes matching and profit sharing contributions for the Company's
401(k) plan for the fiscal years shown.
-44-
<PAGE> 54
The following table shows all individual grants of stock options to the
named executive officers of the Company during the fiscal year ended December
31, 1996.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR (1)
<TABLE>
<CAPTION>
Number of % of Total
Securities Options
Underlying Exercise Expiration Granted to
Options Price Date Employees
-------------------------------------------------------
<S> <C> <C> <C> <C>
JOHN D. KIDD
President and Chief Executive
Officer 5,000 $12.50 12/6/06 8.13%
EVAN E. DAVIS
Chairman of the Board 5,000 $12.50 12/6/06 8.13%
RICHARD P. LEGRAND 5,000 $12.50 12/6/06 8.13%
Executive Vice President
</TABLE>
- -----------------
(1) All options are granted at 100% of fair market value on the date of
grant. The options are exercisable one year after the date of grant and
ending on the date specified in the option which, in no event, is later
than 10 years after the date of grant; provided, that the optionee
remained in the employment of the Company or its affiliates. The option
exercise period may be shortened upon an optionee's disability,
retirement or death.
The following table shows aggregate option exercises in the last fiscal
year and year end values.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR IN-THE-MONEY OPTIONS AT
END FISCAL YEAR END ($)(1)
---------------------------- ---------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
JOHN D. KIDD -0- -0- 5,000 5,000 $15,875 $625
President and Chief Executive
Officer
EVAN E. DAVIS -0- -0- 5,000 5,000 $15,875 $625
Chairman
RICHARD P. LEGRAND -0- -0- 4,000 5,000 $13,000 $625
Executive Vice President
</TABLE>
- -----------------
(1) Represents total gain which would have been realized if all in the
money options held at fiscal year-end had been exercised, determined by
multiplying the number of shares underlying the options by the
difference between the per share option exercise price and per share
fair market value at year-end. The fair market value as determined by
the closing price of the Company's common stock on December 31, 1996
was $12.625. An option is in the money if the fair market value of the
underlying shares exceeds the exercise price of the option.
CERTAIN TRANSACTIONS
Some of the officers and directors of the Company and the companies
with which they are associated were customers of the Bank. The loans to such
officers and directors (a) were made in the ordinary course of business, (b)
were made on substantially the same terms, including interest and nature of
collateral, as those prevailing at the time for comparable transactions with
other persons, and (c) did not involve more than the normal risk of
collectibility or present other unfavorable features.
The Bank has had, and expects to have in the future, banking
transactions in the ordinary course of business with directors, officers,
principal shareholders, and their associates on the same terms, including
interest rates and collateral on loans, as those prevailing at the same time for
comparable transactions with others.
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<PAGE> 55
H. Grant Stephenson, a director of the Company, is a partner in the law
firm of Porter, Wright, Morris & Arthur, which provides legal services to the
Company. C. Clayton Johnson, a director of the Company, is a partner in the law
firm of C. Clayton Johnson Co., L.P.A., which provides legal services to the
Company.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
OVERVIEW OF YEAR END RESULTS. The principal asset of the Company is its
ownership of the Bank. Accordingly, the Company's results of operations are
primarily dependent upon the results of operations of the Bank. The Bank
conducts a general commercial banking business that consists of attracting
deposits from the general public and using those funds to originate loans for
commercial, consumer, and residential purposes.
The Bank's profitability depends primarily on its net interest income,
which is the difference between interest income generated from interest-earning
assets (i.e., loans and investments) less the interest expense incurred on
interest-bearing liabilities (i.e., deposits and borrowed funds). Net interest
income is affected by the relative amounts of interest-earning assets and
interest-bearing liabilities, and the interest rates paid on these balances.
Additionally, and to a lesser extent, the Bank's profitability is
affected by such factors as the level of non-interest income and expenses, the
provision for loan losses, and the effective tax rate. Non-interest income
consists primarily of service charges and other fees and income from the sale of
loans. Non-interest expenses consist of compensation and benefits,
occupancy-related expenses, FDIC deposit insurance premiums, and other operating
expenses.
Management's discussion and analysis of earnings and related financial
data are presented herein to assist investors in understanding the consolidated
financial condition and results of operations of the Company as of and for the
years ended December 31, 1996 and 1995. This discussion should be read in
conjunction with the consolidated financial statements and related footnotes
presented elsewhere in this registration statement.
Forward-Looking Statements. In the following pages, management presents
an analysis of the Company's financial condition as of December 31, 1996, and
the results of operations for the year ended December 31, 1996 as compared to
prior periods. The management also presents the Company's financial condition as
of March 31, 1997 and the results of operations for the three months ended March
31, 1997. In addition to this historical information, the following discussion
contains forward-looking statements that involve risks and uncertainties.
Economic circumstances, the Company's operations and the Company's actual
results could differ significantly from those discussed in the forward-looking
statements. Some of the factors that could cause or contribute to such
differences are discussed herein but also include changes in the economy and
interest rates in the nation and in the Company's general market area.
Without limiting the foregoing, some of the forward-looking statements
include the following:
Management's establishment of an allowance for loan losses, and its
statements regarding the adequacy of such allowance for loan losses.
Management's belief that the allowance for loan losses is adequate.
CHANGES IN FINANCIAL CONDITION FOR YEAR ENDED DECEMBER 31, 1996
The Company's total assets amounted to $246.9 million as of December
31, 1996, an increase of $36.6 million, or 17.4%, over the $210.3 million total
at December 31, 1995. The increase was funded primarily through growth in
deposits of $27.7 million, an increase in borrowings of $6.2 million, and an
increase in stockholders' equity of approximately $2.5 million.
Cash and due from banks, federal funds sold, and investment securities
increased by $2.3 million, or 4.9%, to a total of $49.0 million at December 31,
1996, compared to $46.7 million at December 31, 1995. Investment securities
increased by $7.6 million, as purchases of $26.6 million exceeded maturities of
$14.6 million and sales of $3.1 million, while Federal funds sold decreased by
$6.4 million during 1996.
Loans receivable totaled $190.5 million at December 31, 1996, an
increase of $32.7 million, or 20.8%, over the $157.8 million total at December
31, 1995. Loan disbursements totaled $89.8 million during 1996, which were
partially offset by loans sales of $7.8 million and principal repayments of
$48.3 million. Loan origination volume during 1996 exceeded that of 1995 by
$17.7 million and sales volume increased by $1.5 million. The Company's
allowance for loan losses amounted to $2.6 million at December 31, 1996, an
increase of $508,000, or 23.9%, over the total at December 31, 1995. The
allowance for loan losses represented 1.36% of the total loan portfolio at
December 31, 1996, as compared to 1.33% at December 31, 1995. The Company's
allowance represented 326.2% and 189.3% of nonperforming loans, which totaled
$808,000 and $1.1 million at December 31, 1996 and 1995, respectively.
Deposits totaled $209.6 million at December 31, 1996, an increase of
$27.7 million, or 15.2%, over the $181.9 million total at December 31, 1995. The
increase resulted from management's continuing marketing efforts, increased
customer acceptance of the Bank's "premium investment" account, and continued
growth at newer branch facilities.
The Company's stockholders' equity amounted to $23.0 million at
December 31, 1996, an increase of $2.5 million, or 12.4%, over the balance at
December 31, 1995. The increase resulted primarily from net earnings of $3.2
million which were partially offset by dividends to stockholders of $604,000.
-46-
<PAGE> 56
SUMMARY OF EARNINGS. The table on page 53 shows for each category of
interest-earning assets and interest-bearing liabilities, the average amount
outstanding, the interest earned or paid on such amount, and the average rate
earned or paid for the years ended December 31, 1996, 1995, and 1994. The table
also shows the average rate earned on all interest-earning assets, the average
rate paid on all interest-bearing liabilities, the interest rate spread, and the
net interest margin for the same periods.
Changes in net interest income are attributed to either changes in
average balances (volume change) or changes in average rates (rate change) for
interest-earning assets and interest-bearing liabilities. Volume change is
calculated as change in volume times the old rate, while rate change is the
change in rate times the old volume. The table on page 54 indicates the dollar
amount of the change attributable to each factor. The rate/volume change, the
change in rate times the change in volume, is allocated between the volume
change and rate change at the ratio each of the components bears to the absolute
value of their total.
DISCUSSION OF FINANCIAL CONDITION CHANGES FROM DECEMBER 31, 1996 TO MARCH 31,
1997
At March 31, 1997, the Company had total assets of $262.8 million, an
increase of approximately $15.9 million, or 6.4%, over December 31, 1996 levels.
The increase in total assets was funded primarily by growth in the deposit
portfolio of $17.6 million and undistributed net earnings of $728,000, which
were partially offset by a decrease in Federal Home Loan Bank advances of $2.8
million.
Cash, federal funds sold and investment securities totaled $58.0
million at March 31, 1997, an increase of $9.0 million, or 18.4%, over December
31, 1996 levels. During the three months ended March 31, 1997, management
purchased $11.9 million of investment securities, while $3.0 million of
securities matured. Securities purchased consisted primarily of U.S. treasury
notes and U.S. government agency securities. The increase reflects management's
efforts to maintain adequate levels of liquidity while maximizing yield on
short-term investments.
Loans receivable and loans held for sale totaled $197.1 million at
March 31, 1997, an increase of $6.6 million, or 3.5%, over the total at December
31, 1996. Loan disbursements totaled approximately $41.2 million during the 1997
three month period, while principal repayments and sales amounted to $32.8
million and $1.7 million, respectively. Loan disbursements increased by $20.6
million, or 100.3%, during the 1997 period, is compared to the comparable period
in 1996. Loans originated in 1997 were primarily comprised of commercial loans,
1-4 family loans and residential loans.
The Company's allowance for loan losses amounted to $2.7 million at
March 31, 1997, an increase of $91,000 or 3.5% over the total at December 31,
1996. The allowance for loan losses represented 1.36% and 1.37% of the total
loan portfolio at March 31, 1997 and December 31, 1996, respectively. The
Company's allowance represented 320.1% and 326.2% of non-performing loans, which
totaled $852,000 and $808,000 at March 31, 1997 and December 31, 1996,
respectively.
The deposit portfolio totaled $227.2 million at March 31, 1997, an
increase of $17.6 million, or 8.4%, over December 31, 1996 levels. The increase
resulted from management's marketing efforts and continued growth at newer
branch facilities.
The Bank is required to maintain minimum regulatory capital pursuant to
federal regulations. At March 31, 1997, the Bank's regulatory capital
substantially exceeded all regulatory capital requirements.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED MARCH 31,
1997 AND 1996
GENERAL. Net earnings for the three months ended March 31, 1997 totaled
$900,000, an increase of $126,000, or 16.3%, over the $774,000 in net earnings
reported in the comparable 1996 period. The increase in earnings in the 1997
period is primarily attributable to a $394,000 increase in net interest income
after provision for losses on loans, which was partially offset by a $170,000
increase in general, administrative and other expenses and an increase in
federal income tax provision of $100,000.
NET INTEREST INCOME. Total interest income for the three months ended
March 31, 1997 increased by $664,000, or 14.6%, generally reflecting the effects
of growth in interest-earning assets from $212.9 million to $251.5 million for
the three month periods ending March 31, 1996 and 1997, respectively, which was
partially offset by a decrease in the weighted-average yield year-to-year.
Similarly, total interest expense increased for the three months ended March 31,
1997 by $327,000 or 15.0%, primarily reflecting the growth in interest-bearing
liabilities from $181.3 million to $214.8 million year-to-date, which was
partially offset by a decrease in the weighted-average cost of funds from 1996
to 1997.
PROVISION FOR LOSSES ON LOANS. The provision for losses on loans
totaled $81,000 for the three months ended March 31, 1997, a decrease of $57,000
from the comparable 1996 period. The decrease in the provision for 1997 was
primarily attributable to net charge-offs of $77,000 for the three months ended
March 31, 1996, compared to net recoveries of approximately $10,000 for the same
period ending March 31, 1997. The provision was primarily attributable to growth
in the portfolio year-to-year.
Although management believes that it uses the best information
available in providing for possible loan losses and believes that the allowance
is adequate at March 31, 1997, future adjustments to the allowance could be
necessary and net earnings could be affected if circumstances and/or economic
conditions differ substantially from the assumptions used in making the initial
determinations.
-47-
<PAGE> 57
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and
other expense increased for the three months ended March 31, 1997 by $170,000,
or 11.9%. The increase was due primarily to a $69,000, or 8.8%, increase in
employee compensation and benefits, a $54,000, or 24.4%, increase in occupancy
and equipment expense, and an increase in federal deposit insurance premiums and
franchise taxes of $12,000 and $8,000, respectively. Other operating expenses
also increased year-to-year by $27,000 or 8.0%.
The increase in employee compensation and benefits is due primarily to
normal merit increases and the employment of additional staff for a new banking
office which opened during the first quarter, which were partially offset by an
increase in deferred costs related to greater lending volume year-to-year. The
increase in franchise taxes resulted from greater levels of stockholders' equity
in 1996. The increase in federal deposit insurance premiums resulted primarily
from an increase in premium rates assessed in 1997. Other operating expenses
increased due primarily to the opening of a new branch facility during the first
quarter of 1997.
FEDERAL INCOME TAXES. The provision for federal income taxes increased
by $100,000, or 28.9%, during the three months ended March 31, 1997, as compared
to the same period in 1996. The effective tax rates for the three month periods
ended March 31, 1997 and 1996 were 33.1% and 30.9%, respectively.
SUBSEQUENT EVENT. On April 29, 1997, the Company announced the signing
of a definitive agreement for the acquisition of Unity. Under terms of the
agreement, the Company will exchange 8.5 shares of its common stock for each of
the 93,250 shares of Unity stock, resulting in a transaction valued at
approximately $11.7 million. The combination will be accounted for as a pooling
of interests. At March 31, 1997, Unity reported total assets of $65.1 million,
total deposits of $48.1 million and stockholders equity of $7.5 million. The
transaction is expected to be consummated during the third quarter of 1997,
subject to the approval of both the Company's and Unity's shareholders and
subject to regulatory approval.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND
1995
GENERAL. Net earnings for the year ended December 31, 1996 totaled $3.2
million, an increase of $959,000, or 42.6%, over the $2.3 million in net
earnings recorded in 1995. The increase in earnings resulted primarily from a
$2.1 million increase in net interest income and a $288,000 increase in other
income, which were partially offset by a $332,000 increase in the provision for
losses on loans, a $694,000 increase in general, administrative and other
expense and a $385,000 increase in the provision for federal income taxes.
NET INTEREST INCOME. Total interest income for the year ended December
31, 1996, amounted to $19.2 million, an increase of $2.7 million, or 16.2%, over
the $16.5 million recorded for 1995. Interest income on loans totaled $16.3
million, an increase of $2.5 million, or 18.3%, over the 1995 period. This
increase resulted primarily from a $19.1 million, or 12.8%, increase in the
average portfolio balance outstanding year-to-year, coupled with a 45 basis
point increase in the average yield, from 9.26% in 1995 to 9.71% in 1996.
Interest income on investment securities and other interest-earning assets
increased by $147,000, or 5.4%, to a total of $2.9 million in 1996, as compared
to $2.7 million in 1995. This increase resulted primarily from a $2.3 million
increase in the average portfolio balance year-to-year, combined with a 3 basis
point increase in the average yield, from 5.72% in 1995 to 5.75% in 1996.
Total interest expense amounted to $8.9 million for the year ended
December 31, 1996, an increase of $595,000, or 7.2%, over the $8.3 million
recorded in 1995. Interest expense on deposits increased by $463,000, or 6.1%,
to a total of $8.1 million in 1996. The increase resulted primarily from a $15.5
million, or 9.8%, increase in the average deposit portfolio balance outstanding
year-to-year, which was partially offset by a 15 basis point decrease in the
average cost of deposits, from 4.79% in 1995 to 4.64% in 1996. Interest expense
on borrowings increased by $132,000, or 20.2% during 1996. This increase was due
to a $4.0 million increase in average borrowings outstanding, which was
partially offset by a 194 basis point decrease in the average cost of
borrowings, from 8.79% in 1995 to 6.85% in 1996.
As a result of the foregoing changes in interest income and interest
expense, net interest income increased by $2.1 million, or 25.3%, for the year
ended December 31, 1996, as compared to 1995. The interest rate spread increased
by 61 basis points to 4.04% in 1996 from 3.43% in 1995, while the net interest
margin increased by 55 basis points to 4.74% in 1996 from 4.19% in 1995.
PROVISIONS FOR LOAN LOSSES. The provision for loan losses represents a
charge to earnings to maintain the allowance at a level management believes is
adequate to absorb losses in the loan portfolio. The Company's provision for
loan losses amounted to $760,000 for the year ended December 31, 1996, as
compared to $428,000 for the same period in 1995, an increase of $332,000, or
77.6%. The provision for loan losses in 1996 was increased primarily as a result
of the $32.7 million of growth in the loan portfolio over the year. Net loan
charge-offs amounted to $252,000 in 1996, as compared to $197,000 in 1995.
Although management believes that it uses the best information
available in providing for possible loan losses and believes that the allowance
is adequate at December 31, 1996, future adjustments to the allowance could be
necessary and net earnings could be affected if circumstances and/or economic
conditions differ substantially from the assumptions used in making the initial
determinations.
OTHER INCOME. Other income totaled $1.2 million for the year ended
December 31, 1996, an increase of $288,000, or 31.5%, over the $915,000 in other
income recorded in 1995. The increase resulted primarily from a
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<PAGE> 58
$134,000, or 13.9%, increase in service fees, charges, and other operating
income, coupled with a $28,000 increase in gain on sale of loans, as well as a
$126,000 increase in net gains on securities transactions, to $17,000 during
1996 as compared to the $109,000 net loss on such sales recorded during the 1995
period. The increase in service fees, charges, and other operating income
resulted primarily from growth in the deposit portfolio, coupled with an
increase in service fee rates and management's continued focus on collecting
fees assessed on deposit accounts.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative, and
other expense totaled $6.0 million for the year ended December 31, 1996, an
increase of $694,000, or 13.1%, over the $5.3 million recorded in 1995. The
increase resulted primarily from a $365,000, or 12.4%, increase in employee
compensation and benefits, a $110,000, or 14.5%, increase in occupancy and
equipment, a $40,000, or 17.0% increase in franchise taxes, and a $368,000, or
31.1% increase in other operating expense, which were partially offset by a
$189,000, or 99.0% decrease in federal deposit insurance premiums.
The increase in employee compensation and benefits resulted primarily
from increased staffing levels required as a result of the opening of a new
branch office in Portsmouth, Ohio late in fiscal 1995 and an additional branch
facility in Circleville, Ohio which opened for business during 1996.
Additionally, the opening of such branch facilities as described above was
primarily responsible for the increase in occupancy and equipment expense. The
increase in franchise taxes resulted from the Company's continued growth in
equity during 1996. The increase in other operating expense resulted primarily
from costs attendant to the reporting requirements of a public stock company,
coupled with an increase in expense related to administration of the Bank's
credit card loan portfolio, computer software expenses associated with updating
the Bank's processing systems, as well as increases in expenses related to the
Company's overall growth year-to-year.
FEDERAL INCOME TAXES. The provision for federal income taxes amounted
to $1.5 million for the year ended December 31, 1996, an increase of $385,000,
or 33.1%, over the $1.2 million recorded in 1995. The increase resulted
primarily from a $1.3 million, or 39.4%, increase in earnings before taxes. The
effective tax rates were 32.5% and 34.1% for the years ended December 31, 1996
and 1995, respectively.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND
1994
GENERAL. Net earnings for the year ended December 31, 1995, totaled
$2.3 million, an increase of $386,000, or 20.7%, over the $1.9 million in net
earnings recorded in 1994. The increase in earnings resulted primarily from a
$647,000 increase in net interest income and a $211,000 increase in other
income, which were partially offset by a $159,000 increase in the provision for
losses on loans, a $70,000 increase in general, administrative, and other
expense and a $243,000 increase in the provision for federal income taxes.
NET INTEREST INCOME. Total interest income for the year ended December
31, 1995, amounted to $16.5 million, an increase of $3.2 million, or 24.4%, over
the $13.3 million recorded for 1994. Interest income on loans totaled $13.8
million, an increase of $2.7 million, or 24.4%, over the 1995 period. This
increase resulted primarily from a $19.7 million, or 15.2%, increase in the
average portfolio balance outstanding year-to-year, coupled with a 69 basis
point increase in the average yield, from 8.56% in 1994 to 9.25% in 1995.
Interest income on investment securities and other interest-earning assets
increased by $533,000, or 24.5%, to a total of $2.7 million in 1995, as compared
to $2.2 million in 1994. This increase resulted primarily from a $7.1 million
increase in the average portfolio balance outstanding year-to-year.
Total interest expense amounted to $8.3 million for the year ended
December 31, 1995, an increase of $2.6 million, or 45.7%, over the $5.7 million
recorded in 1994. Interest expense on deposits increased by $2.3 million, or
42.5%, to a total of $7.6 million in 1995. The increase resulted primarily from
a $15.1 million, or 10.5%, increase in the average deposit portfolio balance
outstanding year-to-year, coupled with a 108 basis point increase in the average
cost of deposits, from 3.71% in 1994 to 4.79% in 1995. Interest expense on
borrowings increased by $322,000, or 97.3%, during 1995. This increase was due
primarily to a $4.3 million increase in average borrowings outstanding.
As a result of the foregoing changes in interest income and interest
expense, net interest income increased by $647,000, or 8.5%, for the year ended
December 31, 1995, as compared to 1994. The interest rate spread decreased by 53
basis points to 3.43% in 1995 from 3.96% in 1994, while the net interest margin
decreased by 28 basis points to 4.19% in 1995 from 4.47% in 1994.
PROVISION FOR LOAN LOSSES. The Company's provision for loan losses in
1995 and 1994 was heavily influenced by the $20.2 million of growth in loans
over that period. The provision for loan losses totaled $428,000 in 1995,
compared to $269,000 in 1994. Net charge-offs totaled less than 0.2% of the
portfolio in each year.
OTHER INCOME. Other income totaled $915,000 for the year ended December
31, 1995, an increase of $211,000, or 30.0%, over the $704,000 in other income
recorded in 1994. The increase resulted primarily from a $211,000, or 27.9%,
increase in service fees, charges, and other operating income, coupled with a
$29,000 increase in gain on sale of loans, which were partially offset by a
$29,000 increase in loss on sale of securities. The increase in service fees,
charges, and other operating income resulted primarily from growth in the
deposit portfolio, coupled with an increase in service fee rates and
management's focus on collecting fees assessed on deposit accounts.
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<PAGE> 59
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative, and
other expense totaled $5.3 million for the year ended December 31, 1995, an
increase of $70,000, or 1.3%, over the $5.2 million recorded in 1994. The
increase resulted primarily from a $181,000, or 6.5%, increase in employee
compensation and benefits and a $73,000, or 10.7%, increase in occupancy and
equipment, which were partially offset by a $166,000, or 46.5%, decline in
federal deposit insurance premiums and a $46,000, or 3.7% decrease in other
operating expense.
The increase in employee compensation and benefits resulted primarily
from the cost attendant to the Company's stock option plan, which was partially
offset by an increase in deferred loan origination cost resulting from the
increase in loan volume. The increase in occupancy and equipment resulted
primarily from the addition of a new branch location during the year. The
decline in federal deposit insurance premiums resulted from a decline in federal
insurance rates as the Bank Insurance Fund reached its required reserve level
during 1995. The decline in other operating expense resulted primarily from a
decline in charitable contributions expense, which was partially offset by
increases in expenses related to the opening of a new branch facility.
FEDERAL INCOME TAXES. The provision for federal income taxes amounted
to $1.2 million for the year ended December 31, 1995, an increase of $243,000,
or 26.4%, over the $920,000 total recorded in 1994. The increase resulted
primarily from a $629,000, or 22.6%, increase in earnings before taxes. The
effective tax rates were 34.1% and 33.0% for the years ended December 31, 1995
and 1994, respectively.
LIQUIDITY
Like other financial institutions, the Company must ensure that
sufficient funds are available to meet deposit withdrawals, loan commitments,
and expenses. Control of the Company's cash flow requires the anticipation of
deposit flows and loan payments. The Company's primary sources of funds are
deposits and principal and interest payments on loans. The Company uses funds
from deposit inflows and principal and interest payments on loans primarily to
originate loans, and to purchase short-term investment securities and
interest-bearing deposits.
At March 31, 1997 and December 31, 1996, the Company had $67.1 million
and $58.3 million, respectively, of certificates of deposit maturing within one
year. It has been the Company's historic experience that such certificates of
deposit will be renewed at market rates of interest. It is management's belief
that maturing certificates of deposit over the next year will similarly be
renewed at market rates of interest without a material adverse effect on results
of operations.
In the event that certificates of deposit cannot be renewed at
prevalent market rates, the Company can obtain up to $40.0 million in advances
from the Federal Home Loan Bank of Cincinnati (FHLB). Also, as an operational
philosophy, the Company seeks to obtain advances to help with asset/liability
management and liquidity. At March 31, 1997 and December 31, 1996, the Company
had $10.9 million and $13.6 million of outstanding FHLB advances.
As of March 31, 1997 and December 31, 1996, loan commitments, or loans
committed but not closed, totaled $3.8 million and $3.9 million, respectively.
Additionally, the Bank had unused lines of credit and letters of credit totaling
$5.2 million and $1.2 million at March 31, 1997 and $4.8 and $1.1 million at
December 31, 1996, respectively. Funding for these amounts is expected to be
provided by the sources described above. Management believes the Company has
adequate resources to meet its normal funding requirements.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In October 1994, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards (" SFAS") No. 119,
"Disclosure About Derivative Financial Instruments and Fair Value of Financial
Instruments." SFAS No. 119 requires financial statement disclosure of certain
derivative financial instruments, defined as futures, forwards, swaps, option
contracts, or other financial instruments with similar characteristics. In the
opinion of management, SFAS No. 119 will have no material effect on the
Company's consolidated financial condition or results of operations, as the
Company does not invest in derivative financial instruments, as defined. As a
result, the applicability of SFAS No. 119 relates solely to disclosure
requirements pertaining to fixed-rate and adjustable-rate loan commitments.
In June 1994, the FASB issued SFAS No, 122, "Accounting for Mortgage
Servicing Rights," which requires that the Company recognize as separate assets,
rights to service mortgage loans for others, regardless of how those servicing
rights are acquired. An institution that acquires mortgage servicing rights
through either the purchase or origination of mortgage loans and sells those
loans with servicing rights retained would allocate some of the cost of the
loans to the mortgage servicing rights.
SFAS No. 122 requires that securitizations of mortgage loans be
accounted for as sales of mortgage loans and acquisitions of mortgage-backed
securities. Additionally, SFAS No. 122 requires that capitalized mortgage
servicing rights and capitalized excess servicing receivables be assessed for
impairment. Impairment is based on fair value.
SFAS No. 122 would be applied prospectively to fiscal years beginning
after December 15, 1995 (January 1, 1996, as to the Company) to transactions in
which an entity acquires mortgage servicing rights and to impairment evaluations
of all capitalized mortgage servicing rights and capitalized excess servicing
receivables whenever acquired. Retroactive application is prohibited. Management
adopted SFAS No. 122 effective January 1, 1996 without material effect on the
Company's consolidated financial position or results of operations.
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<PAGE> 60
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 earnings and, if presented, earnings per share, as if SFAS No. 123
has 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 31, 1994. Management has
determined that the Company will continue to account for stock-based
compensation pursuant to Accounting Principles Board Opinion No. 25, and
therefore SFAS No. 123 will have no effect on its consolidated financial
condition or results of operations.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
of Financial Assets, Servicing Rights, and Extinguishment of Liabilities," that
provides accounting guidance on transfers of financial assets, servicing of
financial assets, and extinguishment of liabilities. SFAS No. 125 introduces an
approach to accounting for transfers of financial assets that provides a means
of dealing with more complex transactions in which the seller disposes of only a
partial interest in the assets, retains rights or obligations, makes use of
special purpose entities in the transaction, or otherwise has continuing
involvement with the transferred assets. The new accounting method, referred to
as the financial components approach, provides that the carrying amount of the
financial assets transferred be allocated to components of the transaction based
on their relative fair values. SFAS No. 125 provides criteria for determining
whether control of assets has been relinquished and whether a sale has occurred.
If the transfer does not qualify as a sale, it is accounted for as a secured
borrowing. Transactions subject to the provisions of SFAS No. 125 include among
others, transfers involving repurchase agreements, securitizations of financial
assets, loan participations, factoring arrangements and transfers of receivables
with recourse.
An entity that undertakes an obligation to service financial assets
recognizes either a servicing asset or liability for the servicing contract
(unless related to a securitization of assets, and all the securitized assets
are retained and classified as held-to-maturity). A servicing asset or liability
that is purchased or assumed is initially recognized at its fair value.
Servicing assets and liabilities are amortized in proportion to and over the
period of estimated net servicing income or net servicing loss and are subject
to subsequent assessments for impairment based on fair value.
SFAS No. 125 provides that a liability is removed from the balance
sheet only if the debtor either pays the creditor and is relieved of its
obligation for the liability or is legally released from being the primary
obligor.
SFAS No.125 is effective for transfers and servicing of financial
assets and extinguishment of liabilities occurring after December 31, 1997, and
is to be applied prospectively. Earlier or retroactive application is not
permitted. Management does not believe that adoption of SFAS No. 125 will have a
material adverse effect on the Company's consolidated financial position or
results of operations.
In February 1997, the FASB issued SFAS No. 128 "Earnings Per Share",
which requires companies to present basic earnings per share and, if applicable,
diluted earnings per share, instead of primary and fully diluted earnings per
share, respectively. Basic earnings per share is computed without including
potential common share, i.e. no dilutive effect. Diluted earnings per share is
computed taking into consideration common shares outstanding and dilutive
potential common shares, including options, warrants, convertible securities and
contingent stock agreements. SFAS No. 128 is effective for periods ending after
December 15, 1997. Early application is not permitted. Based upon the provisions
of SFAS No. 128, the Company's basic and diluted earnings per share for three
months ended March 31, 1997 would have been $.31 and $.31, respectively.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related data herein have been
prepared in accordance with generally accepted accounting principles, which
require measurement of financial condition and results of operations in terms of
historical dollars, without considering changes in the relative purchasing power
of money over time due to inflation.
Since the primary assets and liabilities of the Company are monetary in
nature, changes in the general level of prices for goods and services have a
relatively minor impact on the Company's total expenses. Increases in operating
expenses such as salaries and maintenance are in part attributable to inflation.
However, interest rates have a far more significant effect than inflation on the
performance of financial institutions, including the Company.
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<PAGE> 61
Oak Hill Banks Average Balance Table
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------
March 31, 1997 March 31, 1996 Year ended December 31, 1996
------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable:
Real estate mortgage $63,356 $1,457 9.20% $51,791 $1,190 9.19 $54,894 $5,218 9.51%
Commercial and other 98,778 2,211 8.95 79,275 1,892 9.55 83,426 7,978 9.56%
Installment loans 31,177 754 9.67 29,157 747 10.25 29,120 3,007 10.33%
Credit card 1,032 34 13.18 895 33 14.75 930 138 14.84%
Investment securities 40,163 600 5.98 35,646 492 5.52 38,305 2,288 5.97%
Federal funds sold 8,876 110 4.96 11,834 155 5.24 7,950 428 5.38%
Interest-earning deposits 1,695 48 11.33 1,310 41 12.52 3,368 141 4.19%
------------------------------------------------------------------------------------------
Total interest-earning assets 245,077 5,214 8.51 209,908 4,550 8.67 217,993 19,198 8.81%
Non-interest-earning assets 9,209 8,520 9,781
------------------------------------------------------------------------------------------
Total assets $254,286 $218,428 $227,774
==========================================================================================
Interest-bearing liabilities:
Deposits:
Savings accounts 34,427 283 3.29 34,368 290 3.38 $34,488 1,168 3.39%
NOW accounts 20,367 105 2.06 19,485 99 2.03 20,591 351 1.70%
Money market deposits 3,895 30 3.08 4,126 32 3.10 4,267 134 3.14%
Select investment account 2,638 31 4.70 -- -- -- -- -- --
Premium investment accounts 22,323 290 5.20 17,867 212 4.75 23,034 1,131 4.91%
Certificates of deposit 111,504 1,547 5.55 92,232 1,371 5.95 92,380 5,306 5.74%
Borrowings 12,902 216 6.70 9,917 171 6.90 11,464 785 6.85%
------------------------------------------------------------------------------------------
Total interest-bearing liabilities 208,056 2,502 4.81 177,995 2,175 4.89 186,224 8,875 4.77%
Non-interest-bearing liabilities 23,287 19,601 19,996
Stockholders' equity 22,943 20,829 21,554
------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $254,286 $ 218,428 $227,774
==========================================================================================
Net interest income $2,712 $2,375 $10,323
==========================================================================================
Interest rate spread 3.70% 3.78% 4.04%
==========================================================================================
Net interest margin (net interest
income as a percent of average
interest-earning assets) 4.43% 4.53% 4.74%
==========================================================================================
Average interest-earning assets
to average interest-bearing
liabilities 117.79% 117.93% 117.06%
==========================================================================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1995 Year Ended December 31, 1994
---------------------------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable:
Real estate mortgage $50,906 $4,358 8.56% $45,633 $4,025 8.82%
Commercial and other 69,191 6,529 9.44% 59,958 4,838 8.07%
Installment loans 28,314 2,804 9.90% 23,261 2,156 9.27%
Credit card 826 120 14.53% 672 80 11.90%
Investment securities 33,591 1,949 5.80% 33,797 1,897 5.61%
Federal funds sold 10,919 662 6.06% 5,729 233 4.07%
Interest-earning deposits 2,826 99 3.50% 746 47 6.30%
------------------------------------------------------
Total interest-earning assets 196,573 16,521 8.40% 169,796 13,276 7.82%
Non-interest-earning assets 5,246 8,388
------------------------------------------------------
Total assets $201,819 $178,184
======================================================
Interest-bearing liabilities
Deposits:
Savings accounts $34,976 1,257 3.59% $39,056 1,289 3.30%
NOW accounts 19,404 456 2.35% 22,208 576 2.59%
Money market deposits 4,261 170 3.99% 6,083 227 3.73%
Select investment account -- -- -- -- -- --
Premium investment accounts 9,765 486 4.98% - - 0.00%
Certificates of deposit 90,809 5,258 5.79% 76,796 3,259 4.24%
Borrowings 7,431 653 8.79% 3,138 331 10.55%
------------------------------------------------------
Total interest-bearing liabilities 166,646 8,280 4.97% 147,281 5,682 3.86%
Non-interest-bearing liabilities 18,226 18,186
Stockholders' equity 16,947 12,717
------------------------------------------------------
Total liabilities and
stockholders' equity $201,819 $178,184
======================================================
Net interest income $8,241 $7,594
======================================================
Interest rate spread 3.43% 3.96%
======================================================
Net interest margin (net interest
income as a percent of average
interest-earning assets) 4.19% 4.47%
======================================================
Average interest-earning assets
to average interest-bearing
liabilities 117.96% 115.29%
======================================================
</TABLE>
(1) The net interest margin is the net interest income divided by average
interest-earning assets.
<PAGE> 62
Net Interest Income
<TABLE>
<CAPTION>
1996 vs 1995 Total 1995 vs 1994
Increase Increase Increase Total
(Decrease) (Decrease) (Decrease) Increase
Due To Due To (Decrease)
-------------------------- ----------- -------------------------- ----------
Rate Volume Rate Volume
----------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest income attributable to:
Loans receivable $ 698 $ 1,832 $ 2,530 $ 937 $ 1,775 $2,712
Investment securities 59 280 339 65 (13) 52
Federal funds sold (67) (167) (234) 165 264 429
Interest earning deposits 21 21 42 (39) 91 52
------- ------- ------- ------- ------- ------
Total interest earning assets $ 711 $ 1,966 $ 2,677 $ 1,128 $ 2,117 3,245
======= ======= ------- ======= ======= ------
Interest expense attributable to:
Deposits $ (265) $ 728 $ 463 $ 1,470 $ 806 2,276
Borrowings (169) 301 132 (61) 383 322
------- ------- ------- ------- ------- ------
Total interest bearing liabilities $ (434) $ 1,029 595 $ 1,409 $ 1,189 2,598
======= ======= ------- ======= ======= ------
Increase(decrease) in net interest
income $ 2,082 $ 647
======= =======
</TABLE>
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<PAGE> 63
UNITY SAVINGS BANK
GENERAL
Unity is a permanent capital stock savings bank which was organized
under Ohio law in 1889 under the name "The McArthur Building and Loan Company."
As an Ohio-chartered savings bank, Unity is subject to supervision and
regulation by the FDIC and the Ohio Division of Financial Institutions. Unity is
a member of the FHLB of Cincinnati and deposits at Unity are insured up to the
applicable limits by the FDIC in the Savings Association Insurance Fund (the
"SAIF").
Unity conducts business from its main office at 115 W. Main Street,
McArthur, Ohio and its branch offices in Gallipolis, Jackson and Wellston, Ohio.
The principal business of Unity is the origination of permanent mortgage loans
secured by first mortgages on one- to four-family residential real estate
located in Unity's primary market area, Vinton, Gallia and Jackson Counties,
Ohio. Unity also originates mortgage loans secured by multifamily real estate
and nonresidential real estate in its market area. In addition to real estate
lending, Unity originates secured and unsecured consumer loans. Funds for
lending and other investment activities are obtained primarily from savings
deposits and principal repayments on loans. Advances from the FHLB of Cincinnati
are utilized from time to time when additional funds are needed to satisfy loan
demand or to fund deposit withdrawals.
LENDING ACTIVITIES
LOAN PORTFOLIO COMPOSITION. The following table presents certain
information with respect to the composition of Unity's loan portfolio at the
dates indicated:
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------
At March 31, 1997 1996 1995
-------------------------- ----------------------- -----------------------
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>
Real estate - mortgage $ 39,226 82.1% $ 39,000 81.9% $34,914 81.3%
Consumer loans 8,573 17.9 8,627 18.1 8,050 18.7
-------- -------- -------- -------- -------- --------
Total loans 47,799 100.0% 47,627 100.0% 42,964 100.0%
======== ======== ========
Unearned and deferred 129 130 121
expense, net
Loans in process (68) (186) (255)
Allowance for loan losses (322) (298) (256)
-------- -------- --------
Loans receivable, net $ 47,538 $ 47,273 $ 42,574
======== ======== ========
</TABLE>
REAL ESTATE LENDING. Unity makes permanent conventional mortgage loans
on one- to four-family residential properties, multifamily properties and
nonresidential real estate located in its primary market area, which consists of
Vinton, Gallia and Jackson Counties, Ohio. Unity originates fixed-rate and
adjustable-rate mortgage loans secured by real estate with loan-to-value ratios
("LTVs") of up to 80% of the lesser of the appraised value or the purchase price
of the property. Unity's fixed-rate loans typically have maturities of up to 15
years, although Unity occasionally originates fixed-rate mortgage loans with
terms of up to 20 years. Adjustable-rate loans originated by Unity have terms of
up to 30 years. Currently, Unity offers adjustable-rate residential mortgage
loans with adjustment periods of one year and maximum increases per adjustment
period and over the life of the loan. The adjustment limits on Unity's
adjustable-rate loans are 1% per year and 6% over the life of the loan or 2% per
year and 5% over the life of the loan. The rate
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<PAGE> 64
adjustments are based on the Average Contract Interest Rate for Previously
Occupied Single Family Homes, as published by the Federal Housing Finance Board.
Multifamily lending is generally considered to involve a higher degree
of risk than single family lending because the borrower typically depends upon
income generated by the project to cover operating expenses and debt service.
The profitability of a project can be affected by economic conditions,
government policies and other factors beyond the control of the borrower. Unity
attempts to reduce the risk associated with multifamily lending by evaluating
the creditworthiness of the borrower and the project income from the project and
by obtaining personal guarantees on loans made to corporations and partnerships.
Nonresidential real estate lending may entail significant additional
risks compared to residential mortgage lending. Such loans may involve large
loan balances to single borrowers or groups of related borrowers. In addition,
the payment experience on loans secured by income producing properties is
typically dependent on the successful operation of the properties and thus may
be subject, to a greater extent, to adverse conditions in the real estate market
or in the economy generally.
CONSUMER LOANS. Unity offers several consumer loan products, including
loans secured by deposit accounts at Unity, home equity loans, auto, boat and
recreational vehicle loans, mobile home loans and secured and unsecured
installment loans. Secured loans are made at fixed rates of interest for terms
of up to 15 years. Unsecured loans are made to creditworthy individuals in
amounts that generally range from $300 to $5,000 at fixed rates with maturities
of up to five years.
Loan officers underwrite installment loans and other consumer loans in
a manner designed to assure compliance with various regulations and Unity's
underwriting standards. Unity's underwriting guidelines require that a consumer
borrower's income be adequate to service all of the borrower's debts, including
the proposed loan, or an alternative acceptable means of repayment must be
available.
At March 31, 1997, Unity had approximately $8.6 million in its consumer
loan portfolio, or 17.9% of Unity's total loans.
LOAN SOLICITATION AND PROCESSING. Loan originations are developed from
a number of sources, including continuing business with depositors, other
borrowers and walk-in customers.
Underwriting guidelines for all loan types are set by the Board of
Directors and reviewed each year. Loan processing and underwriting are
decentralized, with loan applications generally being processed and underwritten
at the branch where the application is taken. Loan officers and branch managers
review the applications, as well as credit bureau reports, appraisals, financial
information, verification of income, and other documents concerning the
credit-worthiness of the borrower, as applicable to each loan type.
Branch managers and loan officers have the authority to approve loans
which meet the underwriting criteria set by the board, up to $60,000 for
mortgage loans, including home equity loans, and up to $20,000 for other types
of secured consumer loans. The President of Unity has the authority to approve
loans which meet the underwriting criteria set by the board, up to $250,000 for
mortgage loans, including home equity loans, and up to $35,000 for other types
of secured consumer loans. The Executive Committee has the authority to approve
loans, which meet the underwriting criteria set by the board, up to $250,000 for
mortgage loans, including home equity loans, and $45,000 for other types of
unsecured consumer loans.
Interest rates charged by Unity on its loans are primarily determined
by competitive loan rates offered in its lending area and Unity's cost of funds.
These rates reflect prevailing interest rates generally, the availability of
lendable funds and the demand for loans.
In addition to interest earned on loans, Unity earns income from fees
for originating loans. Unity also receives loan fees related to existing loans,
including late charges.
NONPERFORMING LOANS AND CLASSIFIED ASSETS. Late charges on residential
mortgages are assessed by Unity if a payment is not received by the 15th day
following such payment's due date. Late charges on installment loans are
assessed by Unity if a payment is not received by the 10th day following its due
date. If a loan is still delinquent after
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<PAGE> 65
a past due notice is mailed (generally around the 19th day of delinquency), a
branch employee will attempt to contact the customer to resolve any problem that
might exist.
When an advanced stage of delinquency occurs on a real estate loan
(generally around the 90th day of delinquency) and if repayment cannot be
expected within a reasonable amount of time or a repayment agreement has not
been entered into, Unity contacts an attorney and requests that a 30-day prior
notice of foreclosure or repossession proceedings be prepared and delivered to
the borrower so that, if necessary, foreclosure proceedings may be initiated
after the loan is 120 days delinquent. Unity has historically had a low level of
nonperforming loans. As of March 31, 1997, only $373,000 of loans were past due
or accounted for on a nonaccrual basis, and Unity had no real estate acquired
through foreclosure. At March 31, 1997, Unity's ratio of nonperforming assets to
total assets was 0.6%.
When Unity has real estate or other repossessed collateral acquired as
a result of foreclosure, voluntary deed, or other means, it is classified as
"other real estate owned" until it is sold. When property is so acquired, it is
recorded at the lower of cost (the unpaid principal balance at the date of the
acquisition plus foreclosure and other related costs) or fair value less
estimated selling expenses. Any subsequent write-down resulting therefrom is
charged to expense. Generally, unless a loan is secured by a one- to four-family
residential dwelling and well-collateralized, interest accrual ceases when a
loan becomes 90 days past due, but no later than the date of acquisition. All
costs incurred in maintaining a property from the date of acquisition are
expensed. Other real estate owned is appraised during the foreclosure process
prior to the time of acquisition and losses are recognized for the amount by
which the book value of the related mortgage loan exceeds the estimated net
realizable value of the property.
Certain potential problem loans that management believes are adequately
secured and for which no material loss is expected, but as to which certain
circumstances may cause the borrowers to be unable to comply with the loan
repayment terms at some future date, are not included in nonperforming loans. At
March 31, 1997, there were no such potential problem loans.
The following table sets forth information with respect to Unity's
nonperforming loans and other nonperforming assets at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
--------------------------
At March 31, 1997 1996 1995
----------------- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Accruing loans delinquent 90+ days $307 $ 85 $196
Loans accounted for on a nonaccrual basis:
Real estate mortgage 46 85 270
Consumer 20 25 46
------ ------ -----
Total nonperforming loans 373 195 512
Real estate owned - - 58
------ ------ -----
Total nonperforming assets $373 $195 $570
====== ====== ======
Total loan loss allowance $322 $298 $256
Total nonperforming assets as a
percentage of total assets 0.6% 0.3% 1.0%
Loan loss allowance as a percent of 86.3% 152.8% 44.9%
nonperforming loans
</TABLE>
For the three months ended March 31, 1997, no interest income was
recognized on nonaccruing loans and $3,000 would have been recorded as interest
income on nonaccruing loans had such loans been accruing pursuant to contractual
terms.
ALLOWANCE FOR LOAN LOSSES. Unity maintains an allowance with respect to
possible losses on loans. The amount of the allowance is based on past loss
experience, trends in the level of delinquent and problem loans, adverse
situations that may affect the ability of a particular borrower to repay his
loan, the estimated value of the underlying collateral and current and
anticipated economic conditions in the primary lending area. When the collection
of a specific
-56-
<PAGE> 66
loan becomes doubtful or otherwise troubled, Unity records a provision equal to
the difference between the fair value of the property securing the loan and the
loan's carrying value.
The following table sets forth an analysis of Unity's allowance for
loan losses for the periods indicated.
<TABLE>
<CAPTION>
For the three months ended For the year ended
March 31, December 31,
-------------------------- ----------------------
1997 1996 1996 1995
------- ------- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period $ 298 $ 256 $ 256 $ 307
Charge-offs (6) (12) (102) (267)
Recoveries 5 8 45 63
Provision for loan losses 25 21 99 153
----- ----- ----- -----
Balance at end of period $ 322 $ 273 $ 298 $ 256
===== ===== ===== =====
Ratio of net charge-offs to average net loans
outstanding during the period .01% .03% .23% .64%
Ratio of allowance for loan losses to total loans .68% .63% .63% .60%
</TABLE>
The following table sets forth the allocation of Unity's allowance for
loan losses by type of loan at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------
At March 31, 1997 1996 1995
----------------------------- ------------------------- ---------------------------
Percent of loans Percent of Percent of
in each loans in each loans in each
category to category to category to
Amount total loans Amount total loans Amount total loans
------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at year end
applicable to:
Real estate loans $280 82.1% $234 81.9% $209 81.3%
Consumer loans 38 17.9% 61 18.1% 44 18.7%
Unallocated 4 - 3 - 3 -
---- ----- ---- ----- ---- -----
Total $322 100.0% $298 100.0% $256 100.0%
==== ===== ==== ===== ==== =====
</TABLE>
INVESTMENT ACTIVITIES.
Federal regulations and Ohio law permit Unity to invest in various
types of liquid assets. The Board of Directors of Unity has adopted an
investment policy which authorizes management to make investments in U.S.
Government and agency securities, deposits in the FHLB, certificates of deposit
in federally-insured financial institutions, banker's acceptances issued by
major U.S. banks, corporate debt securities rated by a major statistical rating
firm as at least "AA," or equivalent, and municipal or other tax free
obligations. Unity's investment policy is designed primarily to provide and
maintain liquidity within regulatory guidelines, to maintain a balance of high
quality investments to minimize risk and to maximize return without sacrificing
liquidity and safety.
- 57 -
<PAGE> 67
The following table sets forth information
concerning Unity's investments at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------
At March 31, 1997 1996
-------------------------------------------- -------------------------------------------
Carrying % of Market % of Carrying % of Market % of
value total value total value total value total
-------- ------- -------- ------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and
agency securities $ 7,704 53.1% $ 7,351 52.9% $ 7,658 53.8% $ 7,645 54.0%
County bonds 77 0.5 77 0.5 82 0.6 82 0.6
FHLB stock 496 3.4 496 3.5 488 3.4 488 3.4
Equity securities 98 0.7 73 0.5 98 0.7 75 0.5
Mortgage-backed securities 6,140 42.3 6,055 42.5 5,920 41.5 5,868 41.5
------- ----- ------- ----- ------- ----- ------- -----
Total investments $14,515 100.0% $14,232 100.0% $14,246 100.0% $14,158 100.0%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
At December 31,
------------------------------------------
1995
------------------------------------------
Carrying % of Market % of
value total value total
-------- ------- ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Government and
agency securities $ 3,695 32.0% $ 3,689 32.2%
County bonds 107 0.9 107 0.9
FHLB stock 455 4.0 455 4.0
Equity securities 215 1.9 202 1.8
Mortgage-backed securities 7,058 61.2 6,997 61.1
------- ----- ------- -----
Total investments $11,530 100.0% $11,450 100.0%
======= ===== ======= =====
</TABLE>
The following tables sets forth the contractual maturities, carrying
values and average yields for Unity's investments at March 31, 1997.
<TABLE>
<CAPTION>
At March 31, 1997
---------------------------------------------------------------------------------------------------
After one to
One year or less five years After five years After ten years
---------------------- ---------------------- --------------------- -------------------
Carrying Average Carrying Average Carrying Average Carrying Average
value yield value yield value yield value yield
-------- -------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and
agency securities $-- --% $1,999 5.45% $1,500 7.54% $4,205 7.44%
County bonds -- -- -- -- -- -- 77 7.00
FHLB stock 496 6.60 -- -- -- -- -- --
Equity securities 98 4.45 -- -- -- -- -- --
Mortgage-backed securities -- -- 2 7.00 489 8.25 5,649 7.99
---- ---- ------ ---- ------ ---- ------ ----
Total investments $594 6.24% $2,001 5.45% $1,989 7.71% $9,931 7.75%
==== ==== ====== ==== ====== ==== ====== ====
</TABLE>
<TABLE>
<CAPTION>
At March 31, 1997
----------------------------------------
Total
----------------------------------------
Carrying Average Weighted
value yield average yield
-------- -------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
(Dollars in thousands)
U.S. Government and
agency securities $ 7,704 6.81% 6.99%
County bonds 77 7.00 7.00
FHLB stock 496 6.60 6.60
Equity securities 98 4.45 4.45
Mortgage-backed securities 6,140 7.75 8.01
------- ---- ----
Total investments $14,515 6.52% 7.37%
======= ==== ====
</TABLE>
- 58 -
<PAGE> 68
DEPOSITS AND BORROWINGS.
Deposits are the major source of Unity's funds for lending and other
investment purposes. In addition to deposits, Unity derives funds from loan
principal repayments. Loan repayments are a relatively stable source of funds
while deposit inflows and outflows may be significantly influenced by general
interest rates and money market conditions. Unity also has access to advances
from the FHLB of Cincinnati. These advances can be used on a short-term basis to
compensate for reductions in the availability of funds from other sources or
they may be used on a longer-term basis for general business purposes.
DEPOSITS. Local deposits are, and traditionally have been, the primary
source of Unity's funds for use in lending and other general business purposes.
Unity offers a number of deposit accounts, including passbook and certificate
accounts. Deposit accounts vary as to terms, with the principal differences
being the minimum balance required, the time period the funds must remain on
deposit and the interest rate. Unity reviews the interest rates offered on
various savings accounts periodically and adjusts its rates as appropriate to
remain competitive with other financial institutions in its market area.
The following table sets forth the dollar amount of deposits in the
various types of savings programs offered by Unity at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
At March 31, 1997 1996 1995
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:
Interest-bearing checking
accounts (1) $ 4,859 10.1% $ 4,965 10.1% $ 4,887 10.0%
Passbook savings accounts (2) 6,581 13.7 6,440 13.1 6,484 13.3
Total transaction accounts 11,440 23.8 11,405 23.2 11,371 23.3
Certificates of deposit:
6 months or less 12,289 25.5 12,238 25.0 11,984 24.6
Over 6 months to 1 year 15,327 31.8 12,247 25.0 4,105 8.4
Over 1 year to 2 years 6,339 13.2 10,535 21.5 13,854 28.4
Over 2 years to 3 years 424 0.9 613 1.2 7,041 14.4
Over 3 years to 5 years 2,317 4.8 1,987 4.1 397 0.8
Over 5 years to 10 years 5 -- 4 -- 5 --
Total certificates of deposit (3) 36,701 76.2 37,624 76.8 37,386 76.7
Total deposits $48,141 100.0% $49,029 100.0% $48,757 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
(1) The weighted average interest rates on interest-bearing checking
accounts were 2.77%, 2.80% and 2.88% at March 31, 1997, and December
31, 1996 and 1995, respectively.
(2) The weighted average interest rates on passbook savings accounts were
3.18%, 3.18% and 3.36% at March 31, 1997, and December 31, 1996 and
1995, respectively.
(3) The weighted average interest rates on all certificates of deposit were
5.73%, 5.73% and 6.02% at March 31, 1997, and December 31, 1996 and
1995, respectively.
- 59 -
<PAGE> 69
The following table presents the amount of Unity's certificates of
deposit of $100,000 or more by the time remaining until maturity as of March 31,
1997:
<TABLE>
<CAPTION>
Maturity Amount
(In thousands)
<S> <C>
Three months or less $1,037
Over 3 months to 6 months 1,111
Over 6 months to 12 months 2,638
Over 12 months 896
------
Total $5,682
======
</TABLE>
The following table sets forth Unity's deposit account balance activity
for the periods indicated:
<TABLE>
<CAPTION>
Three months ended
March 31, Year ended December 31,
1997 1996 1996 1995
(Dollars in thousands)
<S> <C> <C> <C> <C>
Beginning balance $ 49,029 $ 48,757 $ 48,757 $ 46,085
Deposits 16,742 19,730 58,875 59,444
Withdrawals (18,080) (19,969) (60,385) (58,328)
-------- -------- -------- --------
Net deposits before interest 47,691 48,518 47,247 47,201
credited
Interest credited 450 552 1,782 1,556
-------- -------- -------- --------
Ending balance $ 48,141 $ 49,070 $ 49,029 $ 48,757
======== ======== ======== ========
Net increase (decrease) $ (888) $ 313 $ 272 $ 2,672
======== ======== ======== ========
Percent increase (decrease) (1.8%) 0.6% 0.6% 5.8%
</TABLE>
BORROWINGS. The FHLB system functions as a central reserve bank
providing credit for its member institutions and certain other financial
institutions. As a member in good standing of the FHLB of Cincinnati, Unity is
required to own capital stock in the FHLB and is authorized to apply for
advances on the security of such stock and certain of its home mortgages and
other assets (principally securities which are obligations of, or guaranteed by,
the United States) provided certain standards related to creditworthiness have
been met. Advances are made pursuant to several different programs. Each credit
program has its own interest rate and range of maturities. Depending on the
program, limitations on the amount of advances are based either on a fixed
percentage of an association's regulatory capital or on the FHLB's assessment of
the institution's creditworthiness.
The following table sets forth certain information regarding Unity's FHLB
advances at the dates indicated:
<TABLE>
<CAPTION>
Three months ended Year ended December 31,
March 31, 1997 1996 1995
(Dollars in thousands)
<S> <C> <C> <C>
Average balance outstanding $8,080 $3,542 $ 743
Maximum amount outstanding at any month
during the period 9,061 7,843 2,079
Balance outstanding at end of period 8,789 7,833 1,376
Weighted average interest rate during the period 6.04% 6.15% 7.13%
</TABLE>
- 60 -
<PAGE> 70
PROPERTIES.
Unity operates four full-service offices in Ohio. The main office is
located in McArthur, Ohio, and there are branches located in Gallipolis, Jackson
and Wellston, Ohio. All offices are located on property owned by Unity. Unity
also owns the office building at 109 West Main Street in McArthur, where its
main office was formerly located. This building is currently leased to a third
party.
LEGAL PROCEEDINGS.
Except for routine litigation incident to its business, Unity is not a
party to any material pending legal proceeding and none of its property is the
subject of any such proceeding.
EMPLOYEES.
As of March 31, 1997, Unity had 22 full-time employees and eight
part-time employees. Unity believes that relations with its employees are
excellent. None of the employees of Unity is represented by a collective
bargaining unit.
MARKET PRICE, DIVIDENDS AND OTHER SHAREHOLDER INFORMATION.
There is currently no public trading market for Unity Common Shares. At
March 31, 1997, Unity had approximately 31 shareholders and 93,250 common shares
outstanding.
Unity has historically paid a cash dividend to shareholders of record
on June 15 and December 15. Unity has declared the following semi-annual
dividends since January 1, 1995:
<TABLE>
<CAPTION>
Date Dividend
<S> <C>
June 15, 1995 $ .20
December 15, 1995 $1.00
June 15, 1996 $1.00
December 15, 1996 $1.00
June 15, 1997 $1.00
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Unity is primarily engaged in the business of attracting savings
deposits from the general public and investing such funds in mortgage loans
secured by one- to four-family residential real estate located in its primary
market area. Unity also originates loans for the construction or improvement of
one- to four-family residential real estate loans secured by multi-family
residential real estate (over four units) and nonresidential real estate and
consumer loans, and invests in U.S. Government and agency obligations,
interest-bearing deposits in other financial institutions, mortgage-backed
securities and other investments permitted by law.
The principal determinants of Unity's net income are net interest
income and operating expenses. Net interest income is affected by the relative
amounts of interest-earning assets and interest-bearing liabilities, and the
interest rates earned or paid on these balances. To a lesser extent, Unity's
profitability is affected by such factors as the level of non-interest income
and expenses, the provision for loan losses, and the effective tax rate. Other
income consists primarily of service charges and other fees. General
administrative and other expense consists of employee compensation and benefits,
occupancy expenses, FDIC deposit insurance premiums and other operating
expenses.
The following discussion and analysis of Unity's earnings and related
financial data should be read in conjunction with the financial statements and
related footnotes presented elsewhere in this Prospectus.
- 61 -
<PAGE> 71
CHANGES IN FINANCIAL CONDITION
Unity's total assets increased slightly from $65.0 million at December
31, 1996, to $65.1 million at March 31, 1997. Such growth resulted primarily
from an increase in shareholders' equity. A decrease of $253,000 in cash and
cash equivalents during the 1997 three month period was offset by a $265,000
increase in loans receivable.
Total liabilities increased negligibly. A $956,000 increase in FHLB
advances was used to fund deposit outflows of $918,000 during the quarter.
Shareholders' equity increased $80,000 from December 31, 1996, to March 31,
1997, primarily as a result of net income of $197,000 for the quarter ended
March 31, 1997, which was partially offset by a $117,000 increase in unrealized
loss on securities available for sale.
Total assets increased $7.0 million, or 12.0%, from December 31, 1995,
to December 31, 1996. Increases in loans receivable and investments primarily
accounted for the increase in total assets. Total liabilities increased $6.7
million, or 13.1%, primarily as a result of the increased use of FHLB advances
to fund loan originations and the purchase of investment securities.
During 1996, cash and cash equivalents decreased $461,000, or 26.8%,
investments increased $3.8 million, or 95.1%, and loans receivable increased
$4.7 million, or 11.0%, from December 31, 1995 levels. These changes are a
result of a strategy implemented by Unity in 1996 to more effectively leverage
its capital through the use of FHLB advances and to invest the proceeds in
investment securities at a profitable spread. Increased loan demand during 1996
was funded with cash and cash equivalents and a portion of the FHLB advances.
Deposits increased slightly from $48.8 million at December 31, 1995, to
$49.0 million at December 31, 1996. FHLB advances increased by $6.5 million, or
469.3%, as a result of the leveraging strategy described above.
Shareholders' equity increased $310,000 from December 31, 1995, to
December 31, 1996, primarily as a result of 1996 earnings, which were offset
slightly by a small increase in unrealized loss on securities available for
sale.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996
AND 1997
GENERAL. Unity's net income was $197,000 for the three months ended
March 31, 1997, compared to $135,000 for the three months ended March 31, 1996,
an increase of $62,000, or 45.9%. Unity's net income increased primarily as a
result of an increase in net interest income and a decline in general
administrative and other expenses, which were offset somewhat by an increase in
the provision for loan losses, a decrease in other income and an increase in
federal income taxes.
NET INTEREST INCOME. Net interest income increased $94,000, or 18.5%,
from 1996 to 1997. An increase of $172,000 in total interest income was offset
somewhat by an increase of $78,000 in interest expense.
Interest income on loans increased $112,000, or 11.6%, primarily as a
result of the increase in the average outstanding balance. Interest income on
mortgage-backed securities decreased $15,000, or 12.6%, primarily as a result of
a decrease in the average outstanding balance, which more than offset the
effects of the increase in average yield from 6.67% to 7.04%. Interest income on
investment securities increased $75,000, or 90.4%, primarily as a result of the
increase in the average outstanding balance.
Interest expense, consisting of interest paid on deposits and FHLB
advances, increased $78,000, or 11.7%. Interest paid on deposits declined by
$21,000, primarily a result of the decline in the average rate from 5.30% for
the three months ended March 31, 1996, to 5.14% for the three months ended March
31, 1997. Interest expense on FHLB advances increased $99,000, or 430.4%, as a
result of the increase in the average outstanding balance, which more than
offset the effects of the decline in average rate from 7.26% to 6.04% from
period to period.
PROVISION FOR LOAN LOSSES. The provision for loan losses increased
$4,000, or 19.0%. The increase was principally based on growth in the loan
portfolio.
OTHER INCOME AND GENERAL, ADMINISTRATIVE AND OTHER EXPENSES. Other
income decreased $7,000, or 14.9%, from March 31, 1996, to March 31, 1997.
General, administrative and other expenses decreased $16,000, or 4.8%, during
the period, primarily as a result of a $23,000, or 85.2%, decrease in federal
deposit insurance premiums and a
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<PAGE> 72
$17,000 decrease in other operating expenses. In the fourth quarter of 1996, the
FDIC reduced SAIF premiums from approximately 23 basis points to 6.4 basis
points following the recapitalization of the SAIF. The reduction in deposit
insurance premiums and other operating expenses were offset somewhat by
increases in salaries and employee benefits, occupancy expense, state franchise
taxes, other operating expenses and outside data processing costs.
FEDERAL INCOME TAXES. Federal income taxes for the three months ended
March 31, 1997, increased by $37,000, or 56.9%, as a result of the increase in
income before federal income tax. Unity's effective federal income tax rate was
34.1% for the 1997 period compared to 32.5% for the 1996 period.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND
1995
GENERAL. Unity's net income was $503,000 for 1996, compared to $529,000
for 1995, a decrease of $26,000, or 4.9%. Despite increases in net interest
income and other income, Unity's net income decreased solely as a result of the
payment of a $309,000 special assessment in September 1996 to recapitalize the
SAIF.
NET INTEREST INCOME. Net interest income increased $215,000, or 10.7%,
from 1995 to 1996. An increase of $395,000 in total interest income was offset
somewhat by an increase of $180,000 in total interest expense.
Interest income on loans increased $245,000, or 6.4%, primarily as a
result of the increase in the average outstanding balance. The total increase
due to volume was offset somewhat by a decline in yield from 9.21% for 1995 to
9.13% for 1996. Interest income on mortgage-backed securities increased $11,000,
or 2.6%, primarily as a result of the increase in the average outstanding
balance. The increase due to volume was offset somewhat by a decline in yield
from 7.04% for 1995 to 6.72% for 1996. Interest income on investment securities
increased $139,000, or 46.7%, as a result of the increase in the average
outstanding balance, and an increase in yield from 6.55% for 1995 to 7.51% for
1996.
Interest expense, consisting of interest paid on deposits and FHLB
advances, increased $180,000, or 7.0%. The $15,000 increase in interest paid on
deposits was primarily a result of the increase in the average outstanding
balance of certificates of deposit, which more than offset the effects of a
decline in average rate paid on total deposits from 5.26% for 1995 to 5.16% for
1996. Interest expense on FHLB advances increased $165,000, or 311.3%, as a
result of the increase in average outstanding balance.
PROVISION FOR LOAN LOSSES. The provision for loan losses decreased
$54,000, or 35.3%. The decrease was based on a decline in nonperforming loans
during 1996.
OTHER INCOME. Other income increased $14,000 primarily as a result of
an increase in the cash value of life insurance policies owned by Unity in
connection with a nonqualified retirement plan.
GENERAL ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and
other expense increased $345,000, or 27.6%, primarily as a result of a $286,000,
or 267.3%, increase in federal deposit insurance premiums. Increases in salaries
and employee benefits, state franchise taxes, other operating expenses and
outside data processing costs also contributed to the increase in other
expenses.
FEDERAL INCOME TAXES. Federal income taxes for 1996 decreased by
$36,000, or 13.7%, as a result of the decline in income before federal income
taxes. Unity's effective federal income tax rate was 31.0% for 1996 compared to
33.1% for 1995.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND
1994
GENERAL. Net income decreased $42,000, or 7.4% for the year ended
December 31, 1995 compared to 1994, primarily as a result of a decline in net
interest income and an increase in the provision for loan losses, which were
partially offset by an increase in other income and a decrease in federal income
taxes.
NET INTEREST INCOME. Net interest income decreased $69,000, or 3.3%,
from 1994 to 1995. An increase of $349,000 in total interest income was more
than offset by an increase of $418,000 in total interest expense.
Interest income on loans increased $281,000, or 7.9%, primarily as a
result of the increase in the average outstanding balance. Interest income on
mortgage-backed securities increased $15,000, or 3.7%, as a result of the
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<PAGE> 73
increase in average yield from 6.42% to 7.04%, which more than offset the
effects of the decrease in the average outstanding balance from year to year.
Interest income on investment securities increased $53,000, or 24.9%, primarily
as a result of the increase in the average yield from 5.16% for 1994 to 6.55%
for 1995.
Interest expense increased $418,000, or 19.5%, primarily as a result of
an increase in interest paid on deposits, which increased $393,000, or 18.6%.
The increase in interest paid on deposits was primarily a result of the increase
in the average outstanding balance of certificates of deposit and the increase
in interest paid on certificates of deposits. Although Unity experienced a
slight decline in the average rate paid on interest-bearing checking accounts
and passbook savings accounts, the average rate paid on certificates of deposit
increased from 5.22% for 1994 to 5.94% for 1995. An increase in the average
outstanding balance of certificates of deposit also contributed significantly to
the increase in interest paid on certificate accounts. During 1995, Unity
utilized a pricing strategy designed to attract longer-term certificates of
deposit in anticipation of a rising interest rate environment. Interest expense
on FHLB advances increased $25,000, or 89.3%. The increase in the average
outstanding balance and the increase in the average rate contributed equally to
the increase in interest expense on FHLB advances.
PROVISION FOR LOAN LOSSES. The provision for loan losses increased
$59,000, or 62.8%. The increase was based on an increase in nonperforming loans
which was attributable to one loan.
OTHER INCOME. Other income increased $64,000, or 53.3%, primarily as a
result of an increase in the cash value of life insurance policies.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSES. General, administrative and
other expenses increased $25,000, or 2.0%, primarily as a result of a $49,000,
or 8.5%, increase in salaries and employee benefits and an $11,000 increase in
state franchise taxes. These increases were offset somewhat by decreases in net
occupancy expense and other operating expenses.
FEDERAL INCOME TAXES. Federal income taxes for 1995 decreased by
$47,000, or 15.2%, as a result of the decline in income before federal income
taxes. Unity's effective federal income tax rate was 33.1% for 1995 compared to
35.1% for 1994.
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The following table presents certain information relating to Unity's
average balance sheet information and reflects the average yield on
interest-earning assets and the average cost of interest-bearing liabilities 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
interest-bearing liabilities, respectively, for the periods 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>
Three months ended March 31,
1997 1996
Average Interest Average Interest Average
outstanding earned/ Yield/ outstanding earned/ Yield/ outstanding
balance paid rate balance paid rate balance
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable 47,594 $1,078 9.06% $42,751 $ 966 9.04% $44,661
Investment securities 8,297 166 8.00 4,816 91 7.56 6,126
Mortgage-backed securities 5,913 104 7.04 7,136 119 6.67 6,431
------- ------ ---- ------- ------ ---- -------
Total interest-earning assets 61,804 1,348 8.72 54,703 1,176 8.60 57,218
Non-interest-earning assets:
Cash and amounts due from depository
institutions 1,220 1,263 1,379
Allowance for loan losses (310) (247) (263)
Premises and equipment, net 1,163 1,205 1,188
Other nonearning assets 1,066 1,048 1,044
------- ------- -------
Total assets 64,943 1,348 8.30 $57,972 1,176 8.11 $60,566
======= ======= =======
Interest-bearing liabilities:
Deposits:
Interest-bearing checking accounts 4,813 33 2.74 4,979 37 2.97 5,031
Passbook savings accounts 6,405 48 3.00 6,677 56 3.35 6,707
Certificates of deposit 37,390 544 5.82 37,144 553 5.96 37,194
Total deposits 48,608 625 5.14 48,800 646 5.30 48,932
FHLB advances 8,080 122 6.04 1,267 23 7.26 3,542
Total interest-bearing liabilities 56,688 747 5.27 50,067 669 5.34 52,474
Non-interest-bearing liabilities 737 743 815
Total liabilities 57,425 50,810 53,289
Unrealized losses on securities (60) (53) (79)
Shareholders' equity 7,578 7,215 7,356
Total liabilities and shareholders' equity 64,943 $57,972 $60,566
====== ======= =======
Net interest income; interest rate spread $ 601 3.45% $ 507 3.26%
====== ===== ===== =====
Net interest margin (net interest income as a
percent of average interest-earning assets) 3.66% 3.50%
===== =====
Average interest-earning assets to interest- 109% 109%
bearing liabilities ===== =====
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995
Interest Average Interest
earned/ Yield/ outstanding earned/ Yield/
paid rate balance paid rate
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $4,079 9.13% 41,631 $3,834 9.21%
Investment securities 460 7.5 4,900 321 6.55
Mortgage-backed securities 432 6.72 5,979 421 7.04
------ ---- ------ ------ ----
Total interest-earning assets 4,971 8.69 52,510 4,576 8.71
Non-interest-earning assets:
Cash and amounts due from depository
institutions 1,398
Allowance for loan losses (275)
Premises and equipment, net 1,240
Other nonearning assets 1,165
Total assets 4,971 8.21 $56,038 4,576 8.17
=======
Interest-bearing liabilities:
Deposits:
Interest-bearing checking accounts 141 2.80 4,697 144 3.07
Passbook savings accounts 213 3.18 6,791 214 3.15
Certificates of deposit 2,172 5.84 36,240 2,153 5.94
Total deposits 2,526 5.16 47,728 2,511 5.26
FHLB advances 218 6.15 743 53 7.13
Total interest-bearing liabilities 2,744 5.23 48,471 2,564 5.29
Non-interest-bearing liabilities 635
Total liabilities 49,106
Unrealized losses on securities (49)
Shareholders' equity 6,981
Total liabilities and shareholders' equity $56,038
=======
Net interest income; interest rate spread 2,227 3.46% 20,122 3.42%
===== ===== ====== =====
Net interest margin (net interest income as a
percent of average interest-earning assets) 3.68% 3.59%
===== =====
Average interest-earning assets to interest- 109% 108%
bearing liabilities ===== =====
</TABLE>
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<PAGE> 75
The following table sets forth, for the periods indicated, the weighted
average yields earned on Unity'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 balance of assets or
liabilities, respectively, for the periods presented.
<TABLE>
<CAPTION>
Three months ended Year ended December 31,
March 31, 1997 1996 1995
<S> <C> <C> <C>
Weighted average yield on loans receivable 9.06% 9.13% 9.21%
Weighted average yield on investment securities 8.00% 7.57% 6.55%
Weighted average yield on mortgage-backed securities 7.04% 6.72% 7.04%
Weighted average yield on all interest-earning assets 8.72% 8.69% 8.71%
Weighted average interest rate paid on interest-bearing
liabilities 5.27% 5.23% 5.29%
Interest rate spread (spread between weighted average
interest rate on all interest-earning assets and all interest-
bearing liabilities) 3.45% 3.46% 3.42%
Net interest margin (net interest income as a percentage of
average interest-earning assets) 3.70% 3.68% 3.59%
</TABLE>
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<PAGE> 76
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 Unity's interest income and expense during the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
volume (change in volume multiplied by prior year rate), (ii) changes in rate
(change in rate multiplied by prior year volume) and (iii) total changes in rate
and volume. The combined effects of changes in both volume and rate, which
cannot be separately identified, have been allocated proportionately to the
change due to volume and the change due to rate:
<TABLE>
<CAPTION>
Three months ended March 31, Year ended December 31,
1997 vs. 1996 1996 vs. 1995 1995 vs. 1994
Increase Increase Increase
(decrease) (decrease) (decrease)
due to due to due to
Volume Rate Total Volume Rate Total Volume Rate Total
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income attributable to:
Investment securities $ 70 $ 5 $ 75 $ 88 $ 51 $ 139 $ (2) $ 55 $ 53
Mortgage-backed securities (21) 6 (15) 31 (20) 11 (23) 38 15
Loans receivable 110 2 112 277 (32) 245 254 27 281
Total interest income 159 13 172 396 (1) 395 229 120 349
Interest expense attributable to:
Interest-bearing checking
accounts (1) (3) (4) 10 (13) (3) (14) 7 (7)
Passbook savings accounts (2) (6) (8) (3) 2 (1) (33) 7 (26)
Certificates of deposit 4 (13) (9) 57 (38) 19 174 252 426
Borrowed funds 104 (5) 99 177 (12) 165 14 11 25
----- ---- ----- ----- ---- ----- ----- ----- -----
Total interest expense 105 (27) 78 241 (61) 180 141 277 418
----- ---- ----- ----- ---- ----- ----- ----- -----
Increase (decrease) in net interest
income $ 54 $ 40 $ 94 $ 155 $ 60 $ 215 $ 88 $(157) $ (69)
===== ==== ===== ===== ==== ===== ===== ===== =====
</TABLE>
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<PAGE> 77
LIQUIDITY AND CAPITAL RESOURCES
Unity's principal sources of funds are deposits, loan and
mortgage-backed securities repayments, maturities of securities and other funds
provided by operations. Unity 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
securities prepayments are more influenced by interest rates, general economic
conditions and competition. Unity 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.
Unity maintains investments in United States Treasury securities,
federal agency obligations and other investments having maturities of five years
or less to provide a source of relatively liquid funds upon which Unity may rely
if necessary to fund deposit withdrawals or other short-term funding needs. At
March 31, 1997, Unity had commitments to originate loans totaling approximately
$653,000. Unity considers its liquidity and capital reserves sufficient to meet
its outstanding short- and long-term needs. At March 31, 1997, Unity had no
material commitments for capital expenditures.
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<PAGE> 78
COMPARISON OF CERTAIN RIGHTS OF SHAREHOLDERS OF THE COMPANY AND UNITY
Each of the Company and Unity is incorporated in the State of Ohio. The
rights of Unity's shareholders are currently governed and defined by OGCL and by
the Unity Amended and Restated Articles of Incorporation (the "Unity Articles"),
and the Unity Amended Constitution (the "Unity Constitution"). Upon consummation
of the Merger, the shareholders of Unity will become shareholders of the Company
and their rights will cease to be governed and defined by the Unity Articles,
and the Unity Constitution and will be defined and governed by the Company's
Second Amended and Restated Articles of Incorporation, (the "Oak Hill
Articles"), and the Company's First Amended and Restated Code of Regulations
(the "Oak Hill Regulations"). Certain provisions of the Oak Hill Articles and
the Oak Hill Regulations provide different rights to shareholders from those
that the Unity shareholders have. Certain of these provisions are summarized
below. This summary is not intended to be complete and is qualified in its
entirety by reference to applicable provisions of the OGCL and to the respective
corporate documents of the Company and Unity. For information as to how such
corporate documents may be obtained, see "AVAILABLE INFORMATION."
CAPITAL STOCK
The OGCL requires a corporation's articles of incorporation to set
forth the total number of shares of all classes of stock that the corporation
has authority to issue, and, for each class, the designations, powers,
preferences, rights, qualifications, limitations and restrictions thereof.
The Oak Hill Articles currently authorize 5,000,000 shares of Oak Hill
Common Stock of which 2,873,500 shares were issued and outstanding on July __,
1997; and 1,500,000 shares of voting Oak Hill Preferred Stock, $.01 par value,
of which no shares were issued and outstanding on July __, 1997, and 1,500,000
shares of non-voting Oak Hill Preferred Stock (collectively, the 3,000,000
shares of Preferred Stock are referred to as "Oak Hill Preferred Stock"), of
which no shares were issued and outstanding on July __, 1997.
The Unity Articles currently authorize 2,000,000 common shares, of
which 93,250 shares were issued and outstanding on July __, 1997. Unity has no
shares of preferred stock authorized.
The provisions of the Oak Hill Articles setting the terms of the Oak
Hill Common Stock are generally the same as the comparable provisions for the
Unity Articles. Holders of Oak Hill Common Stock and Unity Common Shares are
entitled to one vote per share on all matters submitted to a vote of
stockholders, have no preemptive rights and no conversion rights, are not
subject to redemption and have no sinking fund. The Oak Hill Articles and Unity
Articles do not provide cumulative voting rights in the election of directors.
The rights, preferences and privileges of holders of Oak Hill Common
Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Oak Hill Preferred Stock that the Company may
designate and issue in the future. In addition, the right of holders of Oak Hill
Common Stock to receive ratably any dividends that may be declared by the
Company's Board of Directors is subject to preferential dividend rights of any
Oak Hill Preferred Stock then outstanding. Additionally, the Company may enter
into bank credit agreements in the future which include financial covenants
restricting the payment of dividends. See "SUMMARY -- Market Price Data;
Dividend Policy."
Although no shares of Oak Hill Preferred Stock are outstanding, the
Company's Board of Directors has the authority, without any further vote or
action by the shareholders, to issue Oak Hill Preferred Stock in one or more
classes or series and to fix the number of shares, designations, powers,
preferences, rights, qualifications, limitations and restrictions thereof. The
ability of the Company's Board of Directors to so issue Oak Hill Preferred
Stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire (or of discouraging a third party from acquiring) a
majority of the outstanding voting stock of the corporation. The Company
currently has no plans to issue any Oak Hill Preferred Stock.
VOTING POWER
Holders of Oak Hill Common Stock and Unity Common Shares are generally
entitled to one vote per share.
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<PAGE> 79
PAYMENT OF DIVIDENDS AND OTHER DISTRIBUTIONS
Holders of both Unity Common Shares and Oak Hill Common Stock are
entitled to receive dividends in such amounts and at such times as declared by
their respective Boards of Directors.
The ability of the Company to pay cash dividends to shareholders is
limited by its ability to receive dividends from the Bank. As discussed in Note
K to the consolidated financial statements, the State of Ohio places certain
limitations on the payment of dividends by Ohio state-chartered banks. The
Company paid a split-adjusted cash dividend of $.064 per share during the
six-month period ended June 30, 1995. Commencing with the fourth quarter of
1995, the Company has declared the following quarterly cash dividends:
<TABLE>
<CAPTION>
Quarter Dividend
Ended Declared
<S> <C>
12/31/95 $0.04
3/31/96 0.05
6/30/96 0.05
9/30/96 0.05
12/31/96 0.06
3/31/97 0.06
</TABLE>
The payment of any future dividends will be at the discretion of the Company's
Board of Directors and will be based on the Company's future earnings, financial
condition, capital requirements and other relevant factors.
Commencing with the six-month period ending June 15, 1995, Unity has
declared the following cash dividends:
<TABLE>
<S> <C>
6/15/95 $ .20
12/15/95 $1.00
6/15/96 $1.00
12/15/96 $1.00
6/15/97 $1.00
</TABLE>
MEETINGS OF SHAREHOLDERS
The Unity Constitution provides that the annual meeting of shareholders
is to be held on the third Monday of January of each year. The Unity
Constitution allows a special meeting of shareholders to be called by the
Chairman of the Board, President, Vice President, a majority of the members of
the Board, or by persons who hold 25% of the voting power of Unity. The Unity
Constitution provides that the shareholders present in person or by proxy
constitute a quorum. The Oak Hill Regulations provide that the annual meeting of
shareholders shall be held each year as the Board of Directors may decide. The
Oak Hill Regulations provide that special meetings of shareholders may be called
by the President or, in case of the President's disability, any officer who is a
member of the Board of Directors, or by the Board of Directors by action at a
meeting or by shareholders holding 50% or more of the voting power of the
Company. Except as otherwise provided by law or by the Oak Hill Articles, a
quorum for any meeting of the Company shareholders is a majority of the capital
stock issued and outstanding and entitled to vote at the meeting.
SHAREHOLDER NOMINATIONS AND PROPOSALS
Unity's Constitution provides that candidates for directors may be
nominated by any shareholder by filing the names of such candidates in writing
with the secretary of Unity at least two weeks prior to the election.
The Oak Hill Regulations provide that shareholders seeking to bring
business before a meeting of shareholders, or to nominate candidates for
election as directors at a meeting of shareholders, must provide timely notice
thereof in writing. To be timely, a shareholder's notice must be delivered to,
or mailed and received at, the principal executive office of the Company, not
less than 30 days nor more than 60 days prior to the scheduled meeting. The Oak
Hill
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<PAGE> 80
Regulations also specify certain requirements pertaining to the form and
substance of a shareholder's notice. These provisions may preclude some
stockholders from making nominations for directors at an annual or special
meeting or from bringing other matters before the stockholders at a meeting.
Although the Company's corporate documents do not give the Company's
Board of Directors any power to approve or disapprove shareholder nominations
for the election of directors or proposals for action, the foregoing provisions
may have the effect of precluding a contest for the election of directors or the
consideration of stockholder proposals if the proper procedures are not
followed, and of discouraging or deterring a third party from conducting a
solicitation of proxies to elect its own slate of directors or to approve its
own proposal, without regard to whether consideration of such nominees or
proposals might be harmful or beneficial to the Company and its stockholders. On
the other hand, by requiring advance notice of nominations by stockholders,
these stockholder notice procedures afford the Company's Board of Directors an
opportunity to consider the qualifications of the proposed nominees and, to the
extent deemed necessary or desirable by the Company's Board of Directors, to
inform stockholders about such qualifications. By requiring advance notice of
other proposed business, the stockholder notice procedures provide a more
orderly procedure for conducting annual meetings of stockholders and, to the
extent deemed necessary or desirable by the Company's Board of Directors,
provide the Board with an opportunity to inform stockholders, prior to such
meeting, of any business proposed to be conducted at the meeting, together with
any recommendations by the Company's Board of Directors or statements as to the
Company's Board of Director's position regarding action to be taken with respect
to such business, so that stockholders can better decide whether to attend the
meeting or to grant a proxy regarding the disposition of any such business.
AMENDMENT OF ARTICLES OF INCORPORATION AND CODE OF REGULATIONS
Unity's Articles provide that its articles may be amended by the
affirmative vote of the holders of at least three-fifths of the voting power of
Unity. The Oak Hill Articles and Oak Hill Regulations are silent as to
amendments to the Articles of Incorporation. Section 1701.70 of the OGCL
provides that directors of a corporation may amend articles in limited
circumstances. Section 1701.71 of the OGCL provides that shareholders may adopt
amendments to the articles by the affirmative vote of two-thirds of the voting
power of the corporation.
The Unity Constitution may be amended at any annual or special meeting
of the shareholders by at least three-fifths of the voting power of Unity.
The Oak Hill Regulations provide that certain provisions in the Oak
Hill Regulations may not be altered, amended or repealed in any respect, and new
provisions inconsistent therewith may not be adopted unless such action is
approved by the affirmative vote of the holders of at least 66 2/3% of all of
the outstanding shares of capital stock of the Company entitled to vote on such
matter at a meeting of shareholders called for that purpose. All of the
amendments may be approved by an affirmative vote of a majority of the voting
power of the Company.
DISSENTERS' RIGHTS
Section 1701.85 of the OGCL provides for dissenters' rights in certain
circumstances to the shareholders of a corporation that is a party to a merger.
In order to exercise such rights, shareholders must comply with the procedural
requirements of Section 1701.85, attached hereto as Appendix D. See "THE MERGER-
Dissenters' Rights."
ACTION BY WRITTEN CONSENT
The OGCL provides that, unless otherwise provided in the articles of
incorporation, any action that is required to be taken at any annual or special
meeting of shareholders, or any action which may be taken at any annual or
special meeting of shareholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by all shareholders who would be entitled to notice of a
meeting held for such purpose. The Unity Constitution and the Oak Hill
Regulations allow for actions by unanimous written consent without a meeting.
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<PAGE> 81
SIZE AND CLASSIFICATION OF BOARD OF DIRECTORS; REMOVAL OF DIRECTORS; FILLING
VACANCIES
Pursuant to the Unity Constitution, the Unity Board of Directors shall
be elected at the annual meeting of shareholders. The directors shall be elected
by the shareholders in such numbers and to serve 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. The number of authorized Unity directors is not
less than five and no more than seven. The Unity Constitution provides that a
director may be removed from office, with or without assigning cause, only by
the vote of the holders of not less than 75% of the Unity Common Shares.
The Oak Hill Articles provide for the Oak Hill Board of Directors to be
divided into two classes of directors, serving staggered two-year terms. As a
result, approximately one-half of the Company's Board of Directors will be
elected each year. Classification of the Company's Board of Directors expands
the time required to change the composition of a majority of directors and may
tend to discourage a proxy contest or other takeover bid for the Company. The
Oak Hill Regulations provide that a director may be removed for cause only.
With respect to both Oak Hill and Unity, holders of a majority of the
shares of common stock entitled to vote in any election of directors of such
corporation may elect all of the directors standing for election. Classification
of the Company's directors has the effect of making it more difficult for
shareholders to change the composition of the Company's Board of Directors. Such
a delay may help ensure that incumbent directors, if confronted by a holder
attempting to force a proxy contest, a tender or exchange offer, or any other
extraordinary corporate transaction, would have sufficient time to review the
proposal as well as any available alternatives to the proposal and to act in
what they believe to be the best interests of the stockholders. See "RISK
FACTORS - Control by Management; Anti-Takeover Provisions."
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 1701.59 of the OGCL provides that a director shall not be found
to have violated his duties under the OGCL unless it is proved by clear and
convincing evidence that the director has not acted in good faith, in a manner
he reasonably believes to be in or not opposed to the best interests of the
corporation, or with the care that an ordinary prudent person in a like position
would use under similar circumstances.
Section 1701.13 of the OGCL allows for corporations to indemnify
officers and directors from actions, suits or proceedings arising out of their
service to the corporation. The Unity Articles require that Unity indemnify any
director, officer, employee, or agent or any former director, officer, employee
or agent of the Company against expenses, reasonably incurred in any threatened,
pending or completed action to which such persons are parties by reason of their
performance of their duties for Unity.
The Company's Regulations provide that the Company shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that he is or was a director of the
Company, or while a director of the Company is or was serving at the request of
the Company as a director, trustee, fiduciary, officer, employee, partner, joint
venturer or agent of another corporation, domestic or foreign, nonprofit or for
profit, partnership, joint venture, trust, employee benefit plan or other
enterprise, and the Company may indemnify or agree to indemnify any person who
is or was a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Company) by
reason of the fact that he is or was an officer, employee or agent of the
Company or while an officer, employee or agent of the Company is or was serving
at the request of the Company as a director, trustee, fiduciary, officer,
employee, partner, joint venturer or agent of another corporation, domestic or
foreign, nonprofit or for profit, partnership, joint venture, trust, employee
benefit plan or other enterprise, against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, and with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement or conviction, or
upon a plea of nolo contendere or its equivalent, shall not,
-72-
<PAGE> 82
of itself, create a presumption that the person did not act in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the Company, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
INTERESTED SHAREHOLDER TRANSACTIONS.
Chapter 1704 of the OGCL prohibits certain transactions between an Ohio
corporation and an "interested shareholder." Chapter 1704 allows for a
corporation to exclude itself from Chapter 1704 by exempting itself in its
Articles of Incorporation. Unity has not excluded itself from Section 1704 and
the Company's Articles expressly provide that Chapter 1704, now or hereafter in
effect, shall be applicable to the Company.
PREEMPTIVE RIGHTS
Neither the Company's nor Unity's shareholders have preemptive rights
to purchase or subscribe for additional securities of the Company upon any
future issuance by such corporation of such securities.
REPURCHASE AND REDEMPTION OF STOCK
Ohio corporations may generally purchase or redeem their own shares of
capital stock. The Unity Articles provide that the Board of Directors has the
right to purchase shares of its own stock. The Oak Hill Articles are silent as
to the repurchase of capital stock.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996 and 1995, and for each of the three years in the period ended December 31,
1996 incorporated in this Prospectus/Proxy Statement have been audited by Grant
Thornton LLP, independent certified public accountants, and have been so
incorporated in reliance upon such report given upon their authority as experts
in accounting and auditing. It is anticipated that representatives of Grant
Thornton LLP will be present at the Oak Hill Special Meeting and will respond to
appropriate questions and to make a statement if such representatives so desire.
The financial statements of Unity at December 31, 1996 and 1995 and for
each of the three years in the period ended December 31, 1996, included in this
Prospectus/Proxy Statement have been audited by Norman, Jones, Enlow and Co.,
independent auditors, as set forth in their report thereon included herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
LEGAL OPINION
The validity of the Oak Hill Common Stock to be issued to the
shareholders of Unity pursuant to the Merger and certain other legal matters in
connection with the Merger will be passed upon for the Company by Porter,
Wright, Morris & Arthur, Columbus, Ohio. Partners of Porter, Wright, Morris &
Arthur who participated in the preparation of this Prospectus/Proxy Statement
beneficially own an aggregate of 2,700 shares of Oak Hill Common Stock
consisting of a combination of stock and options exercisable within 60 days
after the date of this Prospectus/Proxy Statement. See "Oak Hill Financial, Inc.
- - Certain Relationships and Related Transactions."
-73-
<PAGE> 83
INDEX TO FINANCIAL STATEMENTS
Page
Financial Statements of Oak Hill Financial, Inc.
Report of Independent Certified Public Accountants F-3
Consolidated Statements of Financial Condition
(As of March 31, 1997 (unaudited) and December 31, 1996 and
1995) F-4
Consolidated Statements of Earnings
(For the three months ended March 31, 1997 and 1996
(unaudited) and the years ended December 31, 1996, 1995 and
1994) F-5
Consolidated Statements of Stockholders' Equity (For the three
months ended March 31, 1997 and 1996 (unaudited)
and the years ended December 31, 1996, 1995 and 1994) F-6
Consolidated Statements of Cash Flows
(For the three months ended March 31, 1997 and 1996 (unaudited)
and the years ended December 31, 1996, 1995 and 1994) F-7
Notes to Consolidated Financial Statements
(For the three months ended March 31, 1997 and 1996 (unaudited)
and the years ended December 31, 1996, 1995 and 1994) F-9
Financial Statements For Unity Savings Bank
Report of Independent Certified Public Accountants F-31
Statements of Financial Condition F-32
(For the three months ended March 31, 1997 (unaudited)
and the years ended December 31, 1996 and 1995)
Statements of Income F-33
(For the three months ended March 31, 1997 and 1996 (unaudited)
and the years ended December 31, 1996, 1995, and 1994)
Statements of Shareholders' Equity F-34
(For the three months ended March 31, 1997 (unaudited)
and the years ended December 31, 1996, 1995 and 1994)
F-1
<PAGE> 84
Consolidated Statements of Cash Flows F-35
(For the three months ended March 31, 1997 and 1996 (unaudited)
and the years ended December 31, 1996, 1995 and 1994)
Notes to Consolidated Financial Statements F-37
(For the three months ended March 31, 1997 and 1996 (unaudited)
and the years ended December 31, 1996, 1995 and 1994)
SCHEDULES: All financial statement schedules are omitted as the required
information is either not applicable or is included in the financial statements
or notes thereto.
F-2
<PAGE> 85
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Oak Hill Financial, Inc.
We have audited the accompanying consolidated financial statements of Oak Hill
Financial, Inc. as of December 31, 1996 and 1995, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for each of the
three years ended December 31, 1996, 1995 and 1994. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Oak Hill
Financial, Inc. as of December 31, 1996 and 1995, and the consolidated results
of its operations and its cash flows for each of the three years ended December
31, 1996, 1995 and 1994, in conformity with generally accepted accounting
principles.
GRANT THORNTON, LLP
Cincinnati, Ohio
February 12, 1997
F-3
<PAGE> 86
OAK HILL FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1997 1996 1995
(Unaudited)
<S> <C> <C> <C>
Cash and due from banks $ 8,085 $ 7,378 $ 6,250
Federal funds sold 3,920 4,135 10,557
Investment securities designated as available for sale - at
market 46,025 37,501 29,901
Loans receivable - net 197,070 190,396 157,615
Loans held for sale - at lower of cost or market 70 140 177
Office premises and equipment - net 3,341 3,403 2,788
Federal Home Loan Bank stock - at cost 1,612 1,585 914
Accrued interest receivable on loans 979 937 862
Accrued interest receivable on investment securities 573 498 404
Prepaid expenses and other assets 325 156 232
Deferred federal income tax asset 764 772 629
--------- --------- ---------
Total assets $ 262,764 $ 246,901 $ 210,329
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand $ 23,352 $ 22,531 $ 19,220
Savings and time deposits 203,883 187,062 162,669
--------- --------- ---------
Total deposits 227,235 209,593 181,889
Securities sold under agreements to repurchase 35 130 -
Advances from the Federal Home Loan Bank 10,850 13,604 7,529
Accrued interest payable and other liabilities 753 545 456
Federal income taxes payable 327 66 29
--------- --------- ---------
Total liabilities 239,200 223,938 189,903
Commitments - - -
Stockholders' equity
Common stock - $.50 stated value; authorized 5,000,000 shares,
2,884,700 and 2,883,700 shares issued at March 31, 1997,
and December 31, 1996 and 1995 1,442 1,442 1,442
Additional paid-in capital 4,227 4,227 4,217
Retained earnings 18,018 17,290 14,685
Treasury stock (11,200 shares at cost at March 31, 1997 and
December 31, 1996 and 1995) (28) (28) (28)
Unrealized gains on securities designated as available
for sale, net of related tax effects (95) 32 110
--------- --------- ---------
Total stockholders' equity 23,564 22,963 20,426
--------- --------- ---------
Total liabilities and stockholders' equity $ 262,764 $ 246,901 $ 210,329
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 87
OAK HILL FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
1997 1996 1996 1995 1994
(Unaudited)
<S> <C> <C> <C> <C> <C>
Interest income
Loans $ 4,456 $ 3,862 16,341 $ 13,811 $ 11,099
Investments
U. S. Government and agency securities 567 477 2,192 1,861 1,812
Obligations of state and political subdivisions 34 13 96 88 85
Federal funds sold 110 156 428 662 233
Interest-bearing deposits and other 47 42 141 99 47
-------- -------- -------- -------- --------
Total interest income 5,214 4,550 19,198 16,521 13,276
Interest expense
Deposits 2,287 2,005 8,090 7,627 5,351
Borrowings 215 170 785 653 331
-------- -------- -------- -------- --------
Total interest expense 2,502 2,175 8,875 8,280 5,682
-------- -------- -------- -------- --------
Net interest income 2,712 2,375 10,323 8,241 7,594
Provision for losses on loans 81 138 760 428 269
-------- -------- -------- -------- --------
Net interest income after provision
for losses on loans 2,631 2,237 9,563 7,813 7,325
Other income (expense)
Service fees, charges and other operating 298 259 1,101 967 756
Gain on sale of loans 14 24 85 57 28
Gain (loss) on sale of securities - 27 17 (109) (80)
-------- -------- -------- -------- --------
Total other income 312 300 1,203 915 704
General, administrative and other expense
Employee compensation and benefits 852 783 3,314 2,949 2,768
Occupancy and equipment 275 221 867 757 684
Federal deposit insurance premiums 13 1 2 191 357
Franchise taxes 91 83 275 235 207
Other operating 366 339 1,551 1,183 1,229
-------- -------- -------- -------- --------
Total general, administrative and
other expense 1,597 1,427 6,009 5,315 5,245
-------- -------- -------- -------- --------
Earnings before federal income taxes 1,346 1,120 4,757 3,413 2,784
Federal income taxes
Current 372 330 1,650 1,189 1,025
Deferred 74 16 (102) (26) (105)
-------- -------- -------- -------- --------
Total federal income taxes 446 346 1,548 1,163 920
-------- -------- -------- -------- --------
NET EARNINGS $ 900 $ 774 $ 3,209 $ 2,250 $ 1,864
======== ======== ======== ======== ========
EARNINGS PER SHARE $ .31 $ .27 $ 1.12 $ .92 $ .81
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 88
OAK HILL FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three months ended March 31, 1997 (unaudited) and the years ended
December 31, 1996, 1995 and 1994 (In thousands, except share data)
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS
<S> <C> <C> <C> <C>
Balance at January 1, 1994 $ 2 $ 99 $ 923 $ 10,961
Designation of securities as available for sale
upon adoption of SFAS No. 115 - - - -
Redemption of preferred stock (2) - - -
Dividends on common and preferred shares - - - (131)
Sale of 4,900 shares of treasury stock - - 26 -
Purchase of 3,500 shares of treasury stock - - - -
Issuance of 1,400 shares under stock option plan - - 4 -
Unrealized losses on securities designated as available
for sale, net of related tax effects - - - -
Net earnings for the year - - - 1,864
-------- -------- -------- --------
Balance at December 31, 1994 - 99 953 12,694
Sale of 9,100 shares of treasury stock - - 55 -
Issuance of 107,100 shares under stock option plan - 5 684 -
Net proceeds from issuance of common shares - 1,338 2,525 -
Dividends on common shares - - - (259)
Unrealized gains on securities designated as available for sale,
net of related tax effects - - - -
Net earnings for the year - - - 2,250
-------- -------- -------- --------
Balance at December 31, 1995 - 1,442 4,217 14,685
Issuance of 1,000 shares under stock option plan - - 10 -
Dividends on common shares - - - (604)
Unrealized losses on securities designated as available for sale,
net of related tax effects - - - -
Net earnings for the year - - - 3,209
-------- -------- -------- --------
Balance at December 31, 1996 - 1,442 4,227 17,290
Dividends on common shares - - - (172)
Unrealized gains on securities designated as available
for sale, net of related tax effects (unaudited) - - - -
Net earnings for the three months ended March 31, 1997 (unaudited) - - - 900
-------- -------- -------- --------
Balance at March 31, 1997 (unaudited) $ - $ 1,442 $ 4,227 $ 18,018
======== ======== ======== ========
<CAPTION>
UNREALIZED
GAINS (LOSSES)
ON SECURITIES
DESIGNATED AS
TREASURY AVAILABLE
STOCK FOR SALE TOTAL
<S> <C> <C> <C>
Balance at January 1, 1994 $ (18) $- $ 11,967
Designation of securities as available for sale
upon adoption of SFAS No. 115 - 203 203
Redemption of preferred stock - - (2)
Dividends on common and preferred shares - - (131)
Sale of 4,900 shares of treasury stock 4 - 30
Purchase of 3,500 shares of treasury stock (21) - (21)
Issuance of 1,400 shares under stock option plan - - 4
Unrealized losses on securities designated as available
for sale, net of related tax effects - (447) (447)
Net earnings for the year - - 1,864
-------- -------- --------
Balance at December 31, 1994 (35) (244) 13,467
Sale of 9,100 shares of treasury stock 7 - 62
Issuance of 107,100 shares under stock option plan - - 689
Net proceeds from issuance of common shares - - 3,863
Dividends on common shares - - (259)
Unrealized gains on securities designated as available for sale,
net of related tax effects - 354 354
Net earnings for the year - - 2,250
-------- -------- --------
Balance at December 31, 1995 (28) 110 20,426
Issuance of 1,000 shares under stock option plan - - 10
Dividends on common shares - - (604)
Unrealized losses on securities designated as available for sale,
net of related tax effects - (78) (78)
Net earnings for the year - - 3,209
-------- -------- --------
Balance at December 31, 1996 (28) 32 22,963
Dividends on common shares - - (172)
Unrealized gains on securities designated as available
for sale, net of related tax effects (unaudited) - (127) (127)
Net earnings for the three months ended March 31, 1997 (unaudited) - - 900
-------- -------- --------
Balance at March 31, 1997 (unaudited) $ (28) $ (95) $ 23,564
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 89
OAK HILL FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
1997 1996 1996 1995 1994
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 900 $ 774 $ 3,209 $ 2,250 $ 1,864
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 116 84 432 540 361
(Gain) loss on sale of securities - (27) (17) 109 80
Amortization of premium on loans sold - - - - 24
Amortization (accretion) of premiums and discounts
on investment securities - net (6) (23) (98) (14) 118
Proceeds from sale of loans in secondary market 1,673 3,044 7,970 6,472 2,214
Loans disbursed for sale in secondary market (1,589) (3,018) (7,848) (6,562) (1,959)
Gain on sale of loans (14) (24) (85) (57) (28)
Gain on sale of office equipment - (7) (7) - -
Amortization of deferred loan origination costs 32 45 64 - 38
Federal Home Loan Bank stock dividends (27) (18) (91) (56) (8)
Provision for losses on loans 81 138 760 428 269
Increase (decrease) in cash due to changes in:
Prepaid expenses and other assets (170) (128) 76 33 111
Accrued interest receivable (118) 39 (169) (268) (192)
Accrued interest payable and other liabilities 279 208 89 (113) 51
Federal income taxes
Current - 330 37 255 (149)
Deferred 74 16 (102) (26) (105)
-------- -------- -------- -------- --------
Net cash provided by operating activities 1,231 1,433 4,220 2,991 2,689
Cash flows provided by (used in) investing activities:
Loan disbursements (39,570) (17,531) (81,924) (65,531) (57,071)
Principal repayments on loans 32,783 14,714 48,319 44,949 42,145
Principal repayments on mortgage-backed securities 207 221 1,233 1,636 4,970
Proceeds from sale of investment securities
designated as available for sale - 2,000 3,101 7,739 9,262
Proceeds from maturity of investment securities 3,000 4,074 14,649 8,450 7,164
Proceeds from sale of office equipment - 32 32 - -
Purchase of investment securities
designated as held to maturity - - - - (14,536)
Purchase of investment securities designated as
available for sale (11,916) (15,581) (26,587) (13,270) (10,986)
(Increase) decrease in federal funds sold - net 215 1,238 6,422 (9,310) 10,288
Purchase of Federal Home Loan Bank stock - (131) (580) (372) (478)
Purchase of office premises and equipment (54) (20) (1,072) (701) (621)
-------- -------- -------- -------- --------
Net cash used in investing activities (15,335) (10,984) (36,407) (26,410) (9,863)
-------- -------- -------- -------- --------
Net cash used in operating and investing
activities (balance carried forward) (14,009) (9,551) (32,187) (23,419) (7,174)
-------- -------- -------- -------- --------
</TABLE>
F-7
<PAGE> 90
OAK HILL FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
1997 1996 1996 1995 1994
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net cash used in operating and investing
activities (balance brought forward) $(14,104) $ (9,551) $(32,187) $(23,419) $ (7,174)
Cash flows provided by (used in) financing activities:
Proceeds from securities sold under
agreement to repurchase 95 - 130 - -
Net increase in deposit accounts 17,642 9,555 27,704 18,169 4,496
Proceeds from Federal Home Loan Bank advances - 3,000 12,000 7,000 5,000
Repayment of Federal Home Loan Bank advances (2,754) (244) (5,925) (4,427) (44)
Repayment of notes payable - - - (2,100) -
Dividends on common and preferred shares (172) (145) (604) (259) (131)
Proceeds from sale of treasury stock - - - 62 30
Redemption of preferred stock - - - - (2)
Proceeds from issuance of common stock - - - 3,863 -
Purchase of treasury stock - - - - (21)
Proceeds from issuance of shares under stock option plan - - 10 689 4
-------- -------- -------- -------- --------
Net cash provided by financing activities 14,811 12,166 33,315 22,997 9,332
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents 707 2,615 1,128 (422) 2,158
Cash and cash equivalents at beginning of period 7,378 6,250 6,250 6,672 4,514
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ 8,085 $ 8,865 $ 7,378 $ 6,250 $ 6,672
======== ======== ======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ - $ - $ 1,613 $ 858 $ 1,174
======== ======== ======== ======== ========
Interest on deposits and borrowings $ 2,461 $ 2,175 $ 8,926 $ 8,197 $ 5,383
======== ======== ======== ======== ========
Supplemental disclosure of noncash investing activities:
Transfer of securities to an available for sale
classification in accordance with SFAS No. 115 $ - $ - $ - $ 12,539 $ 18,330
======== ======== ======== ======== ========
Unrealized gains (losses) on securities designated as
available for sale, net of related tax effects $ (127) $ (172) $ (78) $ 354 $ (244)
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE> 91
OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three months ended March 31, 1997 and 1996 (unaudited)
and years ended December 31, 1996, 1995 and 1994
NOTE A - SUMMARY OF ACCOUNTING POLICIES
The business activities of Oak Hill Financial, Inc. (the "Company") have
been limited primarily to holding the common shares of Oak Hill Banks (the
"Bank"). Accordingly, the Company's results of operations are dependent upon
the results of the Bank's operations. The Bank conducts a general commercial
banking business in southeastern and south central Ohio which consists of
attracting deposits from the general public and applying those funds to the
origination of loans for commercial, consumer and residential purposes. The
Bank's profitability is significantly dependent on net interest income,
which is the difference between interest income generated from
interest-earning assets (i.e. loans and investments) and the interest
expense paid on interest-bearing liabilities (i.e. customer deposits and
borrowed funds). Net interest income is affected by the relative amount of
interest-earning assets and interest-bearing liabilities and the interest
received or paid on these balances. The level of interest rates paid or
received by the Bank can be significantly influenced by a number of
competitive factors, such as governmental monetary policy, that are outside
of management's control.
The consolidated financial information presented herein has been prepared in
accordance with generally accepted accounting principles ("GAAP") and
general accounting practices within the financial services industry. In
preparing financial statements in accordance with GAAP, management is
required to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and
expenses during the reporting period. Actual results could differ from such
estimates.
The following is a summary of the Company's significant accounting policies
which, with the exception of the policy described in Note A-3, have been
consistently applied in the preparation of the accompanying consolidated
financial statements.
1. Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, the Bank. All significant intercompany
balances and transactions have been eliminated.
2. Investment Securities
The Company accounts for investment securities in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115 requires that
investments be categorized as held to maturity, trading, or available for
sale. Securities classified as held to maturity are carried at cost only if
the Company has the positive intent and ability to hold these securities to
maturity. Trading securities and securities available for sale are carried
at fair value with resulting unrealized
F-9
<PAGE> 92
OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1997 and 1996 (unaudited)
and years ended December 31, 1996, 1995 and 1994
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
2. Investment Securities (continued)
gains or losses charged to operations or stockholders' equity, respectively.
In December 1995, pursuant to the FASB's Implementation Guide on SFAS No.
115, the Company elected to transfer all investment securities previously
identified as held to maturity, to an available for sale classification.
Accordingly, the Company transferred securities totaling approximately $12.5
million to an available for sale classification, and recorded an increase of
$23,000 to stockholders' equity, which represented the unrealized gain on
such securities, net of applicable tax effects. At March 31, 1997 and
December 31, 1996 and 1995, the Company's stockholders' equity reflected
unrealized gains on securities designated as available for sale, net of
applicable tax effects, totaling $(95,000), $32,000 and $110,000,
respectively.
Realized gains and losses on securities are recognized using the specific
identification method.
3. Loans Receivable
Loans held in portfolio are stated at the principal amount outstanding,
adjusted for premiums and discounts on loans purchased and sold and the
allowance for loan losses. Premiums and discounts on loans purchased and
sold are amortized and accreted to operations using the interest method over
the average life of the underlying loans.
Interest is accrued as earned unless the collectibility of the loan is in
doubt. Uncollectible interest on loans that are contractually past due is
charged off, or an allowance is established based on management's periodic
evaluation. The allowance is established by a charge to interest income
equal to all interest previously accrued, and income is subsequently
recognized only to the extent that cash payments are received until, in
management's judgment, the borrower's ability to make periodic interest and
principal payments has returned to normal, in which case the loan is
returned to accrual status.
Loans held for sale are carried at the lower of cost or market, determined
in the aggregate. Loans held for sale are identified at the point of
origination. In computing lower of cost or market, deferred loan origination
fees are deducted from the principal balance of the related loan. All loan
sales are made without further recourse to the Company. At March 31, 1997
and December 31, 1996 and 1995, loans held for sale were carried at cost.
F-10
<PAGE> 93
OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1997 and 1996 (unaudited)
and years ended December 31, 1996, 1995 and 1994
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
3. Loans Receivable (continued)
The Company generally retains the servicing on loans sold and agrees to
remit to the investor loan principal and interest at agreed-upon rates. In
May 1995, Financial Accounting Standards Board (the "FASB") issued SFAS No.
122 "Accounting for Mortgage Servicing Rights," which requires that the
Company recognize as separate assets, rights to service mortgage loans for
others, regardless of how those servicing rights are acquired. An
institution that acquires mortgage servicing rights through either the
purchase or origination of mortgage loans and sells those loans with
servicing rights retained would allocate some of the cost of the loans to
the mortgage servicing rights.
SFAS No. 122 requires that securitization of mortgage loans be accounted for
as sales of mortgage loans and acquisitions of mortgage-backed securities.
Additionally, SFAS No. 122 requires that capitalized mortgage servicing
rights and capitalized excess servicing receivables be assessed for
impairment. Impairment is measured based on fair value.
SFAS No. 122 is applicable to fiscal years beginning after December 15,
1995, (January 1, 1996, as to the Company) to transactions in which an
entity acquires mortgage servicing rights and to impairment evaluations of
all capitalized mortgage servicing rights and capitalized excess servicing
receivables whenever acquired. Retroactive application was prohibited, and
earlier adoption was encouraged. Management adopted SFAS No. 122 as of
January 1, 1996, as required, without material effect on the Company's
consolidated financial condition and results of operations.
4. Loan Origination and Commitment Fees
The Company accounts for loan origination fees and costs in accordance with
SFAS No. 91, "Accounting for Nonrefundable Fees and Costs Associated with
Originating or Acquiring Loans and Initial Direct Costs of Leases". Pursuant
to the provisions of SFAS No. 91, all loan origination fees received, net of
certain direct origination costs, are deferred on a loan-by-loan basis and
amortized to interest income using the interest method, giving effect to
actual loan prepayments. Additionally, SFAS No. 91 generally limits the
definition of loan origination costs to the direct costs attributable to
originating a loan, i.e., principally actual personnel costs.
Fees received for loan commitments are deferred and amortized over the life
of the related loan using the interest method.
F-11
<PAGE> 94
OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1997 and 1996 (unaudited)
and years ended December 31, 1996, 1995 and 1994
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
5. Allowance for Loan Losses
It is the Company's policy to provide valuation allowances for estimated
losses on loans based upon past loss experience, trends in the level of
delinquent and specific problem loans, adverse situations that may affect
the borrower's ability to repay, the estimated value of any underlying
collateral and current and anticipated economic conditions in the primary
market area. When the collection of a loan becomes doubtful, or otherwise
troubled, the Company records a loan loss provision equal to the difference
between the fair value of the property securing the loan and the loan's
carrying value. Major loans and major lending areas are reviewed
periodically to determine potential problems at an early date. The allowance
for loan losses is increased by charges to earnings and decreased by
charge-offs (net of recoveries).
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan". This Statement, which was amended by SFAS No. 118 as
to certain income recognition and financial statement disclosure provisions,
requires that impaired loans be measured based upon the present value of
expected future cash flows discounted at the loan's effective interest rate
or, as an alternative, at the loans observable market price or fair value of
the collateral. The Company adopted SFAS No. 114 effective January 1, 1995,
without material effect on consolidated financial condition or results of
operations.
A loan is defined under SFAS No. 114 as impaired when, based on current
information and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. In applying the provisions of SFAS No. 114, the Company considers
its investment in one-to-four family residential loans, consumer installment
loans and credit card loans to be homogeneous and therefore excluded from
separate identification for evaluation of impairment. With respect to the
Company's investment in impaired commercial loans, such loans are collateral
dependent and as a result are carried as a practical expedient at the lower
of cost or fair value.
It is the Company's policy to charge off unsecured credits that are more
than ninety days delinquent. Similarly, collateral dependent loans which are
more than ninety days delinquent are considered to constitute more than a
minimum delay in repayment and are evaluated for impairment under SFAS No.
114 at that time.
At March 31, 1997 and December 31, 1996 and 1995, the Company had no loans
that would be defined as impaired under SFAS No. 114.
6. Office Premises and Equipment
Depreciation and amortization are provided on the straight-line and
accelerated methods over the estimated useful lives of the assets, estimated
to be ten to fifty years for buildings and improvements and three to
twenty-five years for furniture, fixtures and equipment.
F-12
<PAGE> 95
OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1997 and 1996 (unaudited)
and years ended December 31, 1996, 1995 and 1994
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
7. Real Estate Acquired through Foreclosure
Real estate acquired through foreclosure is carried at the lower of the
loan's unpaid principal balance (cost) or fair value less estimated selling
expenses at the date of acquisition. The loan loss allowance is charged for
any write down in the loan's carrying value to fair value at the date of
acquisition. Real estate loss provisions are recorded if the properties'
fair value subsequently declines below the value determined at the recording
date. In determining the lower of cost or fair value at acquisition, costs
relating to development and improvement of property are considered. Costs
relating to holding real estate acquired through foreclosure, net of rental
income, are charged against earnings as incurred.
8. Federal Income Taxes
The Company accounts for federal income taxes pursuant to SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 established financial accounting
and reporting standards for the effects of income taxes that result from the
Company's activities within the current and previous years. It requires an
asset and liability approach for financial accounting and reporting for
income taxes.
Pursuant to the provisions of SFAS No. 109, a deferred tax liability or
deferred tax asset is computed by applying the current statutory tax rates
to net taxable or deductible temporary differences between the tax basis of
an asset or liability and its reported amount in the consolidated financial
statements that will result in taxable or deductible amounts in future
periods. Deferred tax assets are recorded only to the extent that the amount
of net deductible temporary differences or carryforward attributes may be
utilized against current period earnings, carried back against prior years
earnings, offset against taxable temporary differences reversing in future
periods, or utilized to the extent of management's estimate of future
taxable income. A valuation allowance is provided for deferred tax assets to
the extent that the value of net deductible temporary differences and
carryforward attributes exceeds management's estimates of taxes payable on
future taxable income. Deferred tax liabilities are provided on the total
amount of net temporary differences taxable in the future.
The Company's principal temporary differences between pretax financial
income and taxable income result primarily from the different methods of
accounting for deferred loan origination fees and costs, Federal Home Loan
Bank stock dividends and the allowance for loan losses. A temporary
difference is also recognized for depreciation expense computed using
accelerated methods for federal income tax purposes.
F-13
<PAGE> 96
OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1997 and 1996 (unaudited)
and years ended December 31, 1996, 1995 and 1994
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
9. Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires disclosure of fair value of financial instruments, both assets and
liabilities whether or not recognized in the consolidated statement of
financial condition, for which it is practicable to estimate that value. For
financial instruments where quoted market prices are not available, fair
values are based on estimates using present value and other valuation
methods.
The methods used are greatly affected by the assumptions applied, including
the discount rate and estimates of future cash flows. Therefore, the fair
values presented may not represent amounts that could be realized in an
exchange for certain financial instruments.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments at December 31, 1996
and 1995:
Cash and cash equivalents: The carrying amounts presented in
the consolidated statement of financial condition for cash and
cash equivalents are deemed to approximate fair value.
Federal funds sold: The carrying amounts presented in the
consolidated statement of financial condition for federal
funds sold are deemed to approximate fair value.
Investment securities: For investment securities, fair value
is deemed to equal the quoted market price.
Loans receivable: The loan portfolio has been segregated into
categories with similar characteristics, such as one-to-four
family residential real estate, multi-family residential real
estate, commercial and installment and other. These loan
categories were further delineated into fixed-rate and
adjustable-rate loans. The fair values for the resultant loan
categories were computed via discounted cash flow analysis,
using current interest rates offered for loans with similar
terms to borrowers of similar credit quality. The historical
carrying amount of accrued interest on loans is deemed to
approximate fair value.
Federal Home Loan Bank Stock: The carrying amount presented in
the consolidated statement of financial condition is deemed to
approximate fair value.
Deposits: The fair value of NOW accounts, savings accounts,
demand deposits, money market deposits and other transaction
accounts is deemed to approximate the amount payable on demand
at December 31, 1996 and 1995. Fair values for fixed-rate
certificates of deposit have been estimated using a discounted
cash flow calculation using the interest rates currently
offered for deposits of similar remaining maturities.
F-14
<PAGE> 97
OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1997 and 1996 (unaudited)
and years ended December 31, 1996, 1995 and 1994
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
9. Fair Value of Financial Instruments (continued)
Advances from the Federal Home Loan Bank: The fair value of
advances from the Federal Home Loan Bank has been estimated
using discounted cash flow analysis, based on the interest
rates currently offered for advances of similar remaining
maturities.
Securities sold under agreement to repurchase: The fair value
of securities sold under agreements to repurchase is deemed to
approximate fair value.
Commitments to extend credit: For adjustable-rate loan
commitments, the fair value estimate considers the difference
between current levels of interest rates and committed rates.
Based on the foregoing methods and assumptions, the carrying value and fair
value of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(In thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and due from banks $ 7,378 $ 7,378 $ 6,250 $ 6,250
Federal funds sold 4,135 4,135 10,557 10,557
Investment securities 37,501 37,501 29,901 29,901
Loans receivable 190,536 194,105 157,792 162,707
Federal Home Loan Bank stock 1,585 1,585 914 914
-------- -------- -------- --------
$241,135 $244,704 $205,414 $210,329
======== ======== ======== ========
Financial liabilities
Deposits $209,593 $210,587 $181,889 $182,620
Advances from the Federal
Home Loan Bank 13,604 13,637 7,529 7,893
Securities sold under agreement to repurchase 130 130 - -
-------- -------- -------- --------
$223,327 $224,354 $189,418 $190,513
======== ======== ======== ========
Unrecognized financial instruments
Commitments to extend credit $ - $ 60 $ - $ 43
======== ======== ======== ========
</TABLE>
10. Earnings Per Share
Earnings per share for the three month periods ended March 31, 1997 and
1996, and the years ended December 31, 1996, 1995 and 1994 is computed based
upon 2,873,500, 2,872,500, 2,873,003, 2,444,400 and 2,300,200
weighted-average common shares outstanding, respectively. Weighted-average
common shares outstanding for 1994 were adjusted to reflect a 700 for 1
split in the form of a dividend which was approved in August, 1995.
F-15
<PAGE> 98
OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1997 and 1996 (unaudited)
and years ended December 31, 1996, 1995 and 1994
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
10. Earnings Per Share (continued)
Fully diluted earnings per share is not presented as there is no material
dilutive effect attendant to the Company's stock option plan.
11. Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents are
comprised of cash and due from banks.
12. Basis of Presentation
The consolidated financial statements as of March 31, 1997, and for the
three months ended March 31, 1997 and 1996, including the footnote data
related thereto, are unaudited. However, in the opinion of management, all
adjustments (consisting only of normal recurring accruals) which are
necessary for a fair presentation of consolidated financial position,
results of operations and cash flows have been made.
13. Reclassifications
Certain prior year amounts have been reclassified to conform to the 1996
consolidated financial statement presentation.
NOTE B - INVESTMENT SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair value of investment securities are shown below.
<TABLE>
<CAPTION>
MARCH 31, 1997
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(In thousands)
<S> <C> <C> <C> <C>
U.S. Government and agency obligations $43,108 $ 21 $ 149 $42,980
Obligations of state and political
subdivisions 3,060 20 35 3,045
------- ------- ------- -------
Total investment securities $46,168 $ 41 $ 184 $46,025
======= ======= ======= =======
</TABLE>
F-16
<PAGE> 99
<TABLE>
<CAPTION>
DECEMBER 31, 1996
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(In thousands)
<S> <C> <C> <C> <C>
U.S. Government and agency obligations $34,391 $ 135 $ 72 $34,454
Obligations of state and political
subdivisions 3,061 25 39 3,047
------- ------- ------- -------
Total investment securities $37,452 $ 160 $ 111 $37,501
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(In thousands)
<S> <C> <C> <C> <C>
U.S. Government and agency obligations $28,773 $ 188 $ 36 $28,925
Obligations of state and political
subdivisions 960 23 7 976
------- ------- ------- -------
Total investment securities $29,733 $ 211 $ 43 $29,901
======= ======= ======= =======
</TABLE>
The amortized cost and estimated fair value of U.S. Government and agency
securities and state and political obligations designated as available for sale
by term to maturity are shown below:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996 1995
ESTIMATED ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Due in three years or less $28,306 $28,250 $26,422 $26,448 $26,196 $26,352
Due after three years through five years 12,455 12,378 8,514 8,540 1,103 1,115
Due after five years through ten years 3,633 3,640 675 687 120 137
Due after ten years 1,774 1,757 1,841 1,826 2,314 2,297
------- ------- ------- ------- ------- -------
$46,168 $46,025 $37,452 $37,501 $29,733 $29,901
======= ======= ======= ======= ======= =======
</TABLE>
Proceeds from sales of investment securities designated as available for sale
during the year ended December 31, 1996, totaled $3.1 million, resulting in a
realized gain of $17,000 on such sales.
Proceeds from sales of investment securities designated as available for sale
during the year ended December 31, 1995, totaled $7.7 million, resulting in a
realized loss of $109,000 on such sales.
At March 31, 1997, December 31, 1996 and 1995, investment securities with an
aggregate book value of $35.1 million, $30.1 million and $23.1 million,
respectively, were pledged as collateral for public deposits.
F-17
<PAGE> 100
OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1997 and 1996 (unaudited)
and years ended December 31, 1996, 1995 and 1994
NOTE C - LOANS RECEIVABLE
The composition of the loan portfolio is as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996 1995
(Unaudited)
(In thousands)
<S> <C> <C> <C>
Real estate mortgage (primarily residential) $113,901 $106,668 $ 80,203
Installment, net of unearned interest
of $3,262, $3,317 and $3,483 32,563 30,442 29,276
Commercial and other 52,290 54,811 49,306
Credit card 1,043 1,111 958
-------- -------- --------
199,797 193,032 159,743
Less:
Allowance for loan losses 2,727 2,636 2,128
-------- -------- --------
$197,070 $190,396 $157,615
======== ======== ========
</TABLE>
The Company's lending efforts have historically focused on real estate
mortgages and consumer installment loans which comprise approximately $146.5
million, or 74.3% of the total loan portfolio at March 31, 1997, $137.1
million, or 72%, of the total loan portfolio at December 31, 1996, and
approximately $109.5 million, or 69%, of the total loan portfolio at
December 31, 1995. Historically, such loans have been conservatively
underwritten with sufficient collateral or cash down payments to provide the
Company with adequate collateral coverage in the event of default.
Nevertheless, the Company, as with any lending institution, is subject to
the risk that real estate values or economic conditions could deteriorate in
its primary lending areas within Ohio, thereby impairing collateral values.
However, management is of the belief that real estate values and economic
conditions in the Company's primary lending areas are presently stable.
As stated previously, the Company has sold whole loans and participating
interests in loans in the secondary market, retaining servicing on the loans
sold. Loans sold and serviced for others totaled approximately $29.6
million, $28.8 million and $25.3 million at March 31, 1997, December 31,
1996 and 1995, respectively.
F-18
<PAGE> 101
OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1997 and 1996 (unaudited)
and years ended December 31, 1996, 1995 and 1994
NOTE C - LOANS RECEIVABLE (continued)
The activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
1997 1996 1996 1995 1994
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 2,636 $ 2,128 $ 2,128 $ 1,897 $ 1,671
Provision charged to operations 81 138 760 428 269
Charge-offs (56) (101) (346) (316) (134)
Recoveries 66 24 94 119 91
------- ------- ------- ------- -------
Balance at end of period $ 2,727 $ 2,189 $ 2,636 $ 2,128 $ 1,897
======= ======= ======= ======= =======
</TABLE>
At March 31, 1997 and 1996, December 31, 1996, 1995 and 1994, the Company
had nonaccrual and nonperforming loans totaling approximately $852,000,
$524,000, $808,000, $1.1 million and $261,000, respectively. Interest that
would have been recognized had nonaccrual loans performed pursuant to
contractual terms totaled approximately $19,000 and $12,000 for the three
months ended March 31, 1997 and 1996, and $11,000, $1,000 and $15,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.
NOTE D - OFFICE PREMISES AND EQUIPMENT
Office premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996 1995
(Unaudited)
(In thousands)
<S> <C> <C> <C>
Land and buildings $ 3,968 $ 3,968 $ 3,526
Furniture and equipment 2,513 2,458 2,163
------- ------- -------
6,481 6,426 5,689
Less accumulated depreciation and amortization (3,140) (3,023) (2,901)
------- ------- -------
$ 3,341 $ 3,403 $ 2,788
======= ======= =======
</TABLE>
During 1996, the Company completed construction of a new branch office
facility at a total cost of $465,000.
F-19
<PAGE> 102
OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1997 and 1996 (unaudited)
and years ended December 31, 1996, 1995 and 1994
NOTE E - DEPOSITS
Deposit balances by weighted-average interest rate at December 31, are
summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
DEPOSIT TYPE AND 1997 1996 1995
INTEREST RATE RANGE AMOUNT RATE AMOUNT RATE AMOUNT RATE
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand deposit accounts $ 23,352 - $ 22,531 - $ 19,220 -
Savings accounts 35,008 3.37% 34,169 3.39% 34,335 3.59%
NOW accounts 21,453 1.84% 20,464 2.10% 18,912 2.35%
Money market deposit accounts 3,897 3.20% 4,128 3.00% 4,407 3.63%
Premium investment account 22,584 4.97% 22,696 4.92% 14,198 5.21%
Select investment 4,385 4.55% 1,267 4.47% - -
-------- -------- --------
Total transaction accounts 110,679 105,255 91,072
Certificates of deposit
3.00 - 4.99% 18,438 19,020 15,939
5.00 - 6.99% 94,005 81,104 67,989
7.00 - 9.00% 4,113 4,214 6,889
-------- -------- --------
Total certificates of deposit $116,556 5.56% 104,338 5.74% 90,817 5.79%
-------- -------- --------
Total deposits $227,235 4.18% $209,593 4.23% $181,889 4.31%
======== ======== ==== ======== ====
</TABLE>
The Bank had deposit accounts with balances in excess of $100,000 totaling
$72.7 million, $62.5 million and $51.0 million at March 31, 1997, December
31, 1996 and 1995, respectively.
Interest expense on deposits is summarized as follows for the years ended
December 31:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996 1996 1995 1994
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
NOW accounts $ 105 $ 99 $ 351 $ 456 $ 524
Savings accounts 283 290 1,168 1,257 1,299
Money market deposit accounts 30 32 134 170 215
Premium investment accounts 290 212 1,131 486 -
Select investment 31 -
Certificates of deposit 1,547 1,371 5,306 5,258 3,313
------ ------ ------ ------ ------
$2,286 $2,004 $8,090 $7,627 $5,351
====== ====== ====== ====== ======
</TABLE>
F-20
<PAGE> 103
OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1997 and 1996 (unaudited)
and years ended December 31, 1996, 1995 and 1994
NOTE E - DEPOSITS (continued)
The contractual maturities of outstanding certificates of deposit are
summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996 1995
(Unaudited)
(In thousands)
<S> <C> <C> <C>
Less than one year $ 67,144 $ 58,266 $ 68,761
One year to three years 47,336 43,863 21,030
More than three years 2,076 2,209 1,026
-------- -------- --------
$116,556 $104,338 $ 90,817
======== ======== ========
</TABLE>
NOTE F - ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank, collateralized at March 31, 1997,
and December 31, 1996 and 1995 by pledges of certain residential mortgage
loans totaling $16.3 million, $20.4 million and $11.3 million, respectively,
and the Bank's investment in Federal Home Loan Bank stock, are summarized as
follows:
<TABLE>
<CAPTION>
MATURING IN
INTEREST YEAR ENDED MARCH 31, DECEMBER 31,
RATE DECEMBER 31, 1997 1996 1995
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
5.55% 1997 $ - $ 2,000 $ -
7.25% 1999 1,156 1,253 1,596
6.00% 2000 4,373 4,467 1,799
8.20% 2004 1,756 2,119 2,288
7.40% 2010 1,597 1,778 1,846
6.95% 2011 1,968 1,987 -
----- ------- ----
$10,850 $13,604 $7,529
====== ====== =====
Weighted-average interest rate 6.58% 6.71% 7.30%
==== ==== ====
</TABLE>
F-21
<PAGE> 104
OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1997 and 1996 (unaudited)
and years ended December 31, 1996, 1995 and 1994
NOTE G - FEDERAL INCOME TAXES
The provision for federal income taxes differs from that computed at the
statutory corporate tax rate as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996 1996 1995 1994
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Federal income taxes computed at the statutory rate $ 458 $ 381 $ 1,617 $ 1,160 $ 947
Increase (decrease) in taxes resulting from:
Interest income on municipal loans and obligations
of state and political subdivisions (19) (10) (50) (41) (29)
Other 7 (25) (19) 44 2
----- ----- ------- ------- -----
Federal income tax provision per consolidated
financial statements $ 446 $ 346 $ 1,548 $ 1,163 $ 920
===== ===== ======= ======= =====
</TABLE>
The composition of the Company's net deferred tax asset is as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
TAXES (PAYABLE) REFUNDABLE ON TEMPORARY 1997 1996 1995
(Unaudited)
DIFFERENCES AT STATUTORY RATE: (In thousands)
<S> <C> <C> <C>
Deferred tax asset:
Book/tax difference of loan loss allowance $ 910 $ 896 $ 723
Deferred tax liabilities:
Deferred loan origination costs (137) (57) (17)
Federal Home Loan Bank stock dividends (58) (50) (19)
Unrealized gains on securities designated as available for sale 49 (17) (58)
----- ----- -----
Total deferred tax liabilities (146) (124) (94)
----- ----- -----
Net deferred tax asset $ 764 $ 772 $ 629
===== ===== =====
</TABLE>
The Company had not recorded a valuation allowance for any portion of the
net deferred tax asset at March 31, 1997, December 31, 1996 and 1995. Such
estimate was based, in part, on the amount of income taxes subject to
recovery in carryback years.
F-22
<PAGE> 105
OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1997 and 1996 (unaudited)
and years ended December 31, 1996, 1995 and 1994
NOTE H - RELATED PARTY TRANSACTIONS
In the normal course of business, the Company has made loans to its
directors, officers and key employees, and their related business interests.
In the opinion of management, such loans are consistent with sound banking
practices and are within applicable regulatory lending limitations. The
balance of such loans outstanding at March 31, 1997 and December 31, 1996,
1995 and 1994 totaled approximately $1.5 million, $1.6 million, $2.5 million
and $462,000, respectively.
The Company had also received demand and time deposits of approximately $1.2
million and $1.7 million at March 31, 1997 and 1996, respectively, and $5.4
million, $3.7 million and $3.7 million at December 31, 1996, 1995 and 1994
from directors, officers and their related business interests.
NOTE I - EMPLOYEE BENEFIT PLANS
The Company has a profit-sharing and 401(k) plan covering all employees who
have attained the age of twenty-one and completed one full year of service.
The profit-sharing plan is non-contributory and contributions to the plan
are at the discretion of the Board of Directors. The Company recorded
expense totaling $31,250 and $31,250 in connection with the Plan for the
three month periods ended March 31, 1997 and 1996, respectively. The Company
contributed $125,000, $69,000 and $125,000 to the Plan for the years ended
December 31, 1996, 1995 and 1994, respectively.
The 401(k) plan allows employees to make voluntary, tax deferred
contributions up to 15% of their base annual compensation. The Company
provides, at its discretion, a 50% (25% for 1994) matching of funds for each
participant's contribution, subject to a maximum of 6% of base compensation.
If the participant elects to invest their contributions in the common stock
of Oak Hill Financial, Inc., the Company will provide a 100% matching of
each participants contribution. The Company's matching contributions under
the 401(k) plan totaled $25,000 and $11,500 for the three month periods
ended March 31, 1997 and 1996, and $100,000, $46,000 and $20,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
NOTE J - LOAN COMMITMENTS
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its
customers including commitments to extend credit. Such commitments involve,
to varying degrees, elements of credit and interest-rate risk in excess of
the amount recognized in the statement of financial condition. The contract
or notional amounts of the commitments reflect the extent of the Company's
involvement in such financial instruments.
F-23
<PAGE> 106
OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1997 and 1996 (unaudited)
and years ended December 31, 1996, 1995 and 1994
NOTE J - LOAN COMMITMENTS (continued)
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The
Company uses the same credit policies in making commitments and conditional
obligations as those utilized for on-balance-sheet instruments.
At March 31, 1997 and December 31, 1996, the Company had outstanding
commitments of approximately $3.8 million and $3.9 million to originate
variable rate residential and commercial loans. Also, the Company has unused
lines of credit and letters of credit totaling approximately $5.2 million
and $1.2 million at March 31, 1997, and $4.8 million and $1.1 million,
respectively, as of March 31, 1997 and December 31, 1996. In the opinion of
management, outstanding loan commitments equaled or exceeded prevalent
market interest rates as of December 31, 1996, such commitments were
underwritten in accordance with normal loan underwriting policies, and all
disbursements will be funded via cash flow from operations and existing
excess liquidity.
NOTE K - STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL
The Bank is required to maintain minimum amounts of risk-weighted capital
and leverage capital, as defined by banking regulations. At December 31,
1996, the Bank was required to have minimum leverage capital and total
risk-weighted capital ratios of 4.0% and 8.0%, respectively. The Bank's
actual leverage and risk-weighted capital ratios at March 31, 1997 were 9.3%
and 12.9%, December 31, 1996 were 9.4% and 13.1%, and at December 31, 1995
were 13.7% and 14.9%, respectively. As a result, the Bank met the definition
of a well-capitalized financial institution under federal regulations.
The principal source of the Company's revenues are cash dividends received
from the Bank. The Ohio banking laws impose certain limitations on the
payment of dividends by Ohio state chartered banks, as follows: (1) no
dividends may be paid which would reduce the surplus to less than 20% of
capital; (2) the Ohio Superintendent of Financial Institutions (the
Superintendent) must approve any dividend the total of which exceeds the
total of net profits of that fiscal year combined with net profits of the
preceding two years less any required transfers to surplus or a fund for the
retirement of any preferred stock or capital securities. Pursuant to the
foregoing, at December 31, 1996, the Bank had the capability of paying $4.5
million of dividends to the Company without the Superintendent's approval.
F-24
<PAGE> 107
OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1997 and 1996 (unaudited)
and years ended December 31, 1996, 1995 and 1994
NOTE L - STOCK OPTION PLAN
The Board of Directors of the Company had approved a Stock Option Plan in
1993 (the "1993 Plan"). Pursuant to the 1993 Plan, options to purchase
108,500 shares of common stock were granted to officers at an exercise price
of $2.86 per share, subject to a five year vesting period. Compensation
expense of $211,000 and $62,000 was recognized for the years ended December
31, 1995 and 1994. In contemplation of the Company's common stock offering
in August 1995, the Plan's vesting period was waived. As a result, the
Company's officers exercised all outstanding options during 1995 at a
pre-tax cost of approximately $180,000 to the Company. The 1993 Plan was
terminated in August 1995.
The Company initiated a Stock Option Plan in August 1995 (the "1995 Plan")
that provides for the issuance of 200,000 shares of authorized, but unissued
shares of common stock. The Board of Directors granted stock options to
purchase 22,000 shares of stock at an exercise price of $9.75 per share at
the completion of the Company's common stock offering. During the years
ended December 31, 1996 and 1995, respectively, an additional 65,500 and
18,400 options were granted at exercise prices ranging from $9.25 to $12.50
on the date of grant. During 1996, 1,000 stock options granted were
exercised. At March 31, 1997 and December 31, 1996, unexercised shares under
option in the 1995 Plan totaled 104,900, at exercise prices ranging from
$9.25 to $12.50.
The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock option plan. Accordingly, no
compensation cost has been recognized for the plan. Had compensation cost
for the Company's stock option plan been determined based on the fair value
at the grant dates for awards under the plan consistent with the accounting
method utilized in SFAS No. 123, the Company's net earnings and earnings per
share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net earnings As reported $3,209 $2,250
====== ======
Pro-forma $3,165 $2,238
====== ======
Earnings per share As reported $ 1.12 $ .92
====== ======
Pro-forma $ 1.10 $ .91
====== ======
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the modified Black- Scholes options-pricing model with the following
weighted-average assumptions used for grants in 1996 and 1995, respectively;
dividend yield of 7.5% and expected volatility of 30.0% for all years;
risk-free interest rates of 6.15% and 6.05% and expected lives of eight
years.
F-25
<PAGE> 108
OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1997 and 1996 (unaudited)
and years ended December 31, 1996, 1995 and 1994
NOTE L - STOCK OPTION PLAN (continued)
A summary of the status of the Company's fixed stock option plans as of
December 31, 1996 and 1995, and changes during the periods ending on those
dates is presented below:
<TABLE>
<S> <C> <C> <C> <C>
Outstanding at beginning of year 40,400 $ 9.52 - $ -
Granted 65,500 $ 12.26 40,400 $ 9.52
Exercised (1,000) $ 9.75 - $ -
Forfeited - - - $ -
-------
Outstanding at end of year 104,900 $ 11.23 40,400 $ 9.52
======= ======
Options exercisable at year-end 23,400 20,400
Weighted-average fair value of
options granted during the year $ 1.98 $ 1.53
</TABLE>
The following information applies to options outstanding at December 31,
1996:
<TABLE>
<S> <C>
Number outstanding 104,900
Range of exercise prices $9.25-$12.50
Weighted-average exercise price $ 11.23
Weighted-average remaining contractual life 8 years
</TABLE>
F-26
<PAGE> 109
OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1997 and 1996 (unaudited)
and years ended December 31, 1996, 1995 and 1994
NOTE M - OAK HILL FINANCIAL, INC. CONDENSED FINANCIAL INFORMATION
The following condensed financial statements summarize the financial
position of Oak Hill Financial, Inc. and the results of its operations and
its cash flows as follows:
Oak Hill Financial, Inc.
CONDENSED STATEMENTS OF FINANCIAL CONDITION
(In thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31
ASSETS 1997 1996 1995
(Unaudited)
<S> <C> <C> <C>
Cash and due from banks $ 11 $ 10 $ 244
Interest-bearing deposits in Oak Hill Banks 1,866 2,044 1,003
Investment securities designated as available for sale - - 1,001
Investment in Oak Hill Banks 21,821 21,044 17,921
Prepaid expenses and other assets 38 37 371
-------- -------- --------
Total assets $ 23,736 $ 23,135 $ 20,540
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 172 $ 172 $ 114
Stockholders' equity
Common stock 1,442 1,442 1,442
Additional paid-in capital 4,227 4,227 4,217
Retained earnings 18,018 17,290 14,685
Less cost of treasury stock (28) (28) (28)
Unrealized gains on securities designated as
available for sale, net of related tax effects (95) 32 110
-------- -------- --------
Total stockholders' equity 23,564 22,963 20,426
-------- -------- --------
Total liabilities and stockholders' equity $ 23,736 $ 23,135 $ 20,540
======== ======== ========
</TABLE>
Oak Hill Financial, Inc.
CONDENSED STATEMENTS OF EARNINGS
(In thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996 1996 1995 1994
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue
Interest income $ 19 $ 26 $ 103 $ 14 $ -
Equity in earnings of subsidiary 904 754 3,201 2,506 2,098
----- ----- ------- ------- -------
Total income 923 780 3,304 2,520 2,098
Expenses
Interest on notes payable - - - 89 247
General and administrative 24 38 133 273 107
Federal income tax credits (1) (32) (38) (92) (120)
----- ----- ------- ------- -------
Total expenses 23 6 95 270 234
----- ----- ------- ------- -------
NET EARNINGS $ 900 $ 774 $ 3,209 $ 2,250 $ 1,864
===== ===== ======= ======= =======
</TABLE>
F-27
<PAGE> 110
OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1997 and 1996 (unaudited)
and years ended December 31, 1996, 1995 and 1994
NOTE M - OAK HILL FINANCIAL, INC. CONDENSED FINANCIAL INFORMATION
(continued)
Oak Hill Financial, Inc.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996 1996 1995 1994
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net earnings for the period $ 900 $ 774 $ 3,209 $ 2,250 $ 1,864
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Undistributed earnings of consolidated subsidiary (904) (753) (3,201) (257) (1,740)
Increase (decrease) in cash due to changes in:
Prepaid expenses and other assets 177 307 334 (254) 8
Other liabilities - 30 58 114 (20)
----- ----- ------- ------- -------
Net cash provided by operating activities 173 358 400 1,853 112
Cash flows provided by (used in) investing activities:
Purchase of investment securities - - - (1,001) -
Proceeds from maturity of investment securities - - 1,001 - -
Increase in interest-bearing deposits - - (1,041) (1,003) -
Proceeds from repayment of loans - - - - 2
Capital contributed to Oak Hill Banks - - - (2,000) -
----- ----- ------- ------- -------
Net cash provided by (used in) investing activities - - (40) (4,004) 2
Cash flows provided by (used in) financing activities:
Repayment of notes payable - - - (2,100) -
Proceeds from issuance of common stock - - - 3,863 -
Proceeds from exercise of stock options - - 10 689 4
Proceeds from sale of treasury stock - - - 62 30
Purchase of treasury stock - - - - (21)
Redemption of preferred stock - - - - (2)
Dividends on common and preferred stock (172) (145) (604) (259) (131)
----- ----- ------- ------- -------
Net cash provided by (used in) financing activities (172) (145) (594) 2,255 (120)
----- ----- ------- ------- -------
Net increase (decrease) in cash and cash equivalents 1 213 (234) 104 (6)
Cash and cash equivalents at beginning of period 10 244 244 140 146
----- ----- ------- ------- -------
Cash and cash equivalents at end of period $ 11 $ 457 $ 10 $ 244 $ 140
===== ===== ======= ======= =======
</TABLE>
F-28
<PAGE> 111
OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1997 and 1996 (unaudited)
and years ended December 31, 1996, 1995 and 1994
NOTE N - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table summarizes the Company's quarterly results for the years
ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996: (In thousands, except per share data)
<S> <C> <C> <C> <C>
Total interest income $4,551 $4,691 $4,899 $5,057
Total interest expense 2,175 2,170 2,246 2,284
------ ------ ------ ------
Net interest income 2,376 2,521 2,653 2,773
Provision for losses on loans 138 154 243 225
Other income 311 301 297 294
General, administrative and other expense 1,429 1,478 1,486 1,616
------ ------ ------ ------
Earnings before income taxes 1,120 1,190 1,221 1,226
Federal income taxes 347 394 412 395
------ ------ ------ ------
Net earnings $ 773 $ 796 $ 809 $ 831
====== ====== ====== ======
Earnings per share $ .27 $ .28 $ .28 $ .29
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1995: (In thousands, except per share data)
<S> <C> <C> <C> <C>
Total interest income $3,728 $4,060 $4,194 $4,539
Total interest expense 1,861 2,143 2,140 2,136
------ ------ ------ ------
Net interest income 1,867 1,917 2,054 2,403
Provision for losses on loans - - 200 228
Other income 103 253 275 284
General, administrative and other expense 1,324 1,133 1,344 1,514
------ ------ ------ ------
Earnings before income taxes 646 1,037 785 945
Federal income taxes 260 303 265 335
------ ------ ------ ------
Net earnings $ 386 $ 734 $ 520 $ 610
====== ====== ====== ======
Earnings per share $ .17 $ .32 $ .22 $ .21
====== ====== ====== ======
</TABLE>
F-29
<PAGE> 112
OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended March 31, 1997 and 1996 (unaudited)
and years ended December 31, 1996, 1995 and 1994
NOTE O - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Obligations for securities sold under agreements to repurchase were
collateralized at December 31, 1996, by investment securities with a book
value including accrued interest of approximately $200,000 and a market
value of approximately $200,000. All outstanding repurchase agreements at
December 31, 1996 matured in January 1997. Interest at a rate of 3.50% was
payable at maturity and has been included in interest on borrowings. The
maximum balance of repurchase agreements outstanding at any month-end
during the year ended December 31, 1996 was $130,000 and the average
month-end balance outstanding for the year was $29,000.
NOTE P - BUSINESS COMBINATION
During fiscal 1997, the Corporation's Board of Directors approved a
business combination whereby Unity Savings Bank (Unity), a state-chartered
savings bank, will merge with and into the Company, with the combined
institutions continuing operations as a wholly-owned subsidiary of Oak Hill
Financial Corporation. The merger was approved by regulatory authorities in
fiscal 1997. The business combination will be accounted for as a pooling of
interests and, accordingly, the assets, liabilities and capital of Unity
and the Corporation will be added together at historic carrying value.
Unaudited pro-forma condensed, combined financial information of the
Corporation and Unity as of and for the year ended December 31, 1996 is as
follows:
<TABLE>
<CAPTION>
Oak Hill Unity Savings Pro-forma
Financial, Inc. Bank combined
--------------- --------- --------
<S> <C> <C> <C>
Total assets $246,901 $64,986 $311,887
Total liabilities 233,938 57,600 281,538
-------- ------- --------
Stockholders' equity $ 22,963 $ 7,386 $ 30,349
======== ======= ========
Total revenue $ 20,401 $ 5,169 $ 25,570
Total expense 17,192 4,666 21,855
-------- ------- --------
Net earnings $ 3,209 $ 503 $ 3,712
======== ======= ========
</TABLE>
F-30
<PAGE> 113
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Unity Savings Bank
McArthur, Ohio
We have audited the accompanying statements of financial condition of Unity
Savings Bank as of December 31, 1996 and 1995, and the related statements of
income, shareholders' equity and cash flows for the years then ended. We have
also audited the statements of income, shareholder's equity and cash flows for
the year ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Unity Savings Bank as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for the years ended December 31, 1996, 1995 and 1994, in conformity with
generally accepted accounting principles.
NORMAN JONES ENLOW CO.
Zanesville, Ohio
January 24, 1997
F-31
<PAGE> 114
UNITY SAVINGS BANK
STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 31,
1997 December 31,
(Unaudited) 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 1,004 $ 1,257 $ 1,718
Investments 7,681 7,802 3,999
Mortgage-backed securities 6,055 5,868 6,997
Loans receivable - net 47,538 47,273 42,574
Real estate and other repossessed assets - - 37
Office property and equipment 1,167 1,158 1,211
Federal Home Loan Bank stock 496 488 455
Interest receivable 512 510 366
Prepaid expenses and other assets 35 45 16
Cash surrender value of life insurance 581 576 551
Goodwill and other intangible assets 8 9 14
Prepaid Federal income taxes - - 56
----------- --------- ---------
TOTAL ASSETS $ 65,077 $ 64,986 $ 57,994
=========== ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 48,111 $ 49,029 $ 48,756
Advances from Federal Home Loan Bank 8,789 7,833 1,376
Taxes and insurance prepaid by borrower 30 28 32
Accrued expenses and other liabilities 584 653 693
Federal income tax payable 125 24 -
Deferred income taxes (28) 33 61
----------- --------- ---------
TOTAL LIABILITIES $ 57,611 57,600 50,918
SHAREHOLDERS' EQUITY
Common stock (authorized 1,500,000 shares, $1.00 par value 93 93 93
issued 93,250 shares)
Retained earnings -
restricted 7,549 7,352 7,035
Unrealized losses on marketable securities, net
of deferred tax benefits (176) (59) (52)
----------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY $ 7,466 7,386 7,076
----------- --------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 65,077 $ 64,986 $ 57,994
=========== ========= =========
</TABLE>
F-32
<PAGE> 115
UNITY SAVINGS BANK
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Three months Ended March 31,
1997 1996 Year ended December 31,
(Unaudited) 1996 1995 1994
-------------------------- ---------- ---------- ----------
INTEREST INCOME
<S> <C> <C> <C> <C> <C>
Loans $ 1,078 $ 966 $ 4,079 $ 3,834 $ 3,553
Mortgage-backed securities 104 119 432 421 406
Investment securities 158 83 427 291 233
Dividend FHLB stock 8 8 33 30 24
Time deposits - - - - 11
----------- ---------- ---------- ---------- ----------
1348 1176 4971 4576 4227
INTEREST EXPENSE
Deposit 625 646 2526 2511 2118
Borrowings 122 23 218 53 28
----------- ---------- ---------- ---------- ----------
747 669 2744 2564 2146
----------- ---------- ---------- ---------- ----------
NET INTEREST INCOME 601 507 2227 2012 2081
PROVISION FOR LOAN LOSSES 25 21 99 153 94
----------- ---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 576 486 2128 1859 1987
OTHER INCOME
Gain from sale of real estate - - 8 32 10
Service fees and charges 8 13 35 41 31
Other income 32 34 155 111 79
----------- ---------- ---------- ---------- ----------
40 47 198 184 120
GENERAL, ADMINISTRATIVE
AND OTHER EXPENSE
Salaries and employee benefits 157 144 664 627 578
Net occupancy expense 65 58 169 171 180
Federal deposit insurance premiums 4 27 393 107 105
State franchise tax 23 21 102 93 82
Other operating expenses 46 63 190 179 206
Data processing 22 20 79 75 76
----------- ---------- ---------- ---------- ----------
317 333 1597 1252 1227
----------- ---------- ---------- ---------- ----------
INCOME BEFORE FEDERAL
INCOME TAX 299 200 729 791 880
FEDERAL INCOME TAXES
Current 102 65 251 244 299
Deferred - - (25) 18 10
----------- ---------- ---------- ---------- ----------
TOTAL FEDERAL INCOME TAXES 102 65 226 262 309
----------- ---------- ---------- ---------- ----------
NET INCOME $ 197 $ 135 $ 503 $ 529 $ 571
=========== ========== ========== ========== ==========
INCOME PER SHARE $ 2.11 $ 1.45 $ 5.39 $ 5.67 $ 6.12
=========== ========== ========== ========== ==========
</TABLE>
F-33
<PAGE> 116
UNITY SAVINGS BANK
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Unrealized (Loss) on Total
Common Retained Marketable Securities Shareholders'
Stock Earnings Net of Deferred Taxes Equity
-------- ---------- --------------------- -------------
<S> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1994 $93 $ 6,080 $ (24) $ 6,149
Net income for the year ended
December 31, 1994 -- 571 -- 571
Dividends paid of $.36 per share -- (33) -- (33)
Change in unrealized (loss) on
marketable securities, net of
deferred taxes -- -- (420) (420)
--- ------- ----- -------
BALANCES AT DECEMBER 31, 1994 93 6,618 (444) 6,267
Net income for the year ended
December 31, 1995 -- 529 -- 529
Dividends paid of $1.20 per share -- (112) -- (112)
Change in unrealized loss on
marketable securities,
net of deferred tax benefits -- -- 392 392
--- ------- ----- -------
BALANCES AT DECEMBER 31, 1995 93 7,035 (52) 7,076
Net income for the year ended
December 31, 1996 -- 503 -- 503
Dividends paid of $2.00 per share -- (186) -- (186)
Change in unrealized loss on
marketable securities,
net of deferred tax benefits -- -- (7) (7)
--- ------- ----- -------
BALANCES AT DECEMBER 31, 1996 $93 $ 7,352 $ (59) $ 7,386
Net income for the three
Months ended March 31, 1997
(Unaudited) -- 197 -- 197
Change in unrealized loss on
Marketable securities, net
of deferred tax benefits (Unaudited) -- -- (117) (117)
--- ------- ----- -------
BALANCES AT MARCH 31, 1997 $93 $ 7,549 $(176) 7,466
(Unaudited) === ======= ===== =======
</TABLE>
F-34
<PAGE> 117
UNITY SAVINGS BANK
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three months ended
March 31, Year ended December 31,
1997 1996 1996 1995 1994
----------- ---------- ---------- ---------- ----------
(Unaudited)
-----------------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
Net income for the period $ 197 135 $ 503 $ 529 $ 571
Adjustments for non-cash transactions:
Depreciation 19 17 71 70 71
Deferred federal income tax -- -- (25) 18 10
Amortization of goodwill 1 1 5 5 5
Premiums and discounts on mortgage-
backed and investment securities 3 3 26 5 (7)
Gain on sale of real estate and
real estate owned -- -- -- (32) (10)
Gain on disposition of investment
securities -- (5) (10) --
Loss on disposition of property and equipment -- -- -- -- 12
Provision for loan losses 25 21 99 153 94
Amortization of deferred loan origination costs 22 21 113 94 93
FHLB stock dividends (8) (8) (33) (29) (24)
Adjustments to reconcile net income
to net cash provided (used) by operating
activities:
(Increase) decrease in:
Interest receivable (2) (7) (144) (45) (8)
Prepaid Federal income tax -- (6) 56 2 (58)
Prepaid expenses 10 (34) (30) 3 4
Cash surrender value of life insurance (5) (4) (25) (24) (12)
Increase (decrease) in:
Accrued expenses and other liabilities (69) (143) (40) 157 60
Federal income tax payable 101 65 24 -- (73)
------- ------ -------- -------- --------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES 294 56 590 906 728
CASH FLOWS FROM INVESTING ACTIVITIES
Loan disbursements (4,166) (3,305) 19,059 14,460 (15,479)
Principal repayments on loan 3,854 2,764 14,148 12,208 11,725
Principal repayments on investments
and mortgage-backed securities 292 271 1,205 917 1,435
Proceeds from maturities of investments 706 -- 612 700 1,000
Proceeds from sales of investments -- -- 998 -- --
Proceeds from sale of mortgage-backed
securities -- 505 500 -- --
Proceeds from sale of office property equipment -- -- -- -- 42
Proceeds from disposition of real estate owned -- 37 37 -- --
Purchase of investments (745) -- (5,458) (1,010) (1,588)
Purchase of mortgage-backed securities (500) (548) (556) (1,827) (500)
Purchase of property and equipment (28) (5) (18) (17) (48)
Purchase of cash surrender value
life insurance -- -- -- -- (515)
------- ------ -------- -------- --------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES (587) (281) (7,591) (3,489) (3,928)
</TABLE>
F-35
<PAGE> 118
UNITY SAVINGS BANK
STATEMENT OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three months ended
March 31, Years ended December 31,
1997 1996 1996 1995 1994
---------- ----------- ---------- ----------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits (918) 288 273 2,697 126
Advances from Federal Home Loan Bank 5,755 -- 9,975 4,107 3,114
Repayment of advances from Federal Home Loan
Bank (4,799) (499) (3,518) (3,836) (2,010)
Net increase (decrease) in mortgage escrow funds 2 5 (4) 6 3
Dividends paid on common stock -- -- (186) (112) (33)
------- ------- ------- ------- -------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES 40 (206) 6,540 2,862 1,200
------- ------- ------- ------- -------
NET INCREASE (DECREASE) IN CASH (253) (431) (461) 279 (2,000)
CASH AT BEGINNING OF PERIOD 1,257 1,718 1,718 1,439 3,439
------- ------- ------- ------- -------
CASH AT END OF PERIOD $ 1,004 $ 1,287 $ 1,257 $ 1,718 $ 1,439
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES
Cash Paid During the Period for:
Interest $ 766 $ 783 $ 2,834 $ 2,418 $ 2,101
======= ======= ======= ======= =======
Income taxes $ 24 $ -- $ 250 $ 242 $ 430
======= ======= ======= ======= =======
The following is a schedule of non-cash investing and
financing activity transaction:
Net increase in real estate and other repossessed assets $ -- $ -- $ -- $ 2 $ 38
======= ======= ======= ======= =======
</TABLE>
F-36
<PAGE> 119
UNITY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Method of Accounting
The accrual method of accounting is used and applied consistently for
financial statement and federal income tax reporting purposes.
Business Activity
The Company's activities consist principally of acquiring the savings of
the public and investing in mortgage loans on real estate. Savings are also
invested in marketable securities and other types of loans.
The Company provides these services in Southeastern Ohio.
Cash and Cash Equivalents
For the purpose of the Statement of Cash Flows, cash and cash equivalents
include all debt instruments with original maturities of three months or
less.
Office Property and Equipment
These assets are recorded at cost and depreciated over 5 to 33 1/3 years by
the straight line method for financial statement purposes. Repairs and
maintenance are charged to expense when paid. Gains and losses from the
sale of these assets are included in income.
The estimated useful lives of the respective assets for financial statement
purposes are as follows:
Buildings and Improvements 6 to 33 1/3 Years
Furniture, and Equipment 5 to 12 Years
Discounts and Premiums on Purchased Mortgage Loan
Discounts and premiums on purchased mortgage loans are amortized over the
life of the securities on the interest method basis.
Earnings Per Share
Earnings per share are based upon 93,250 weighted average shares
outstanding during the three months ended March 31, 1997 and each of the
years ended December 31, 1996, 1995, and 1994.
Provision for Losses
Provisions for losses on loans, accrued interest and real estate owned are
charged to earnings when it is determined that the investment in such
assets is greater than estimated net realizable value.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Company's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay the estimated
value of any underlying collateral, current economic conditions, and
recommendations made by Federal regulatory agencies.
An allowance is established for uncollectible interest on loans that are
contractually past due, based on management's periodic evaluation. The
allowance is established by a charge to interest income equal to all
interest previously accrued, and income is subsequently recognized only to
the extent that cash payments are received until, in management's judgment,
the borrower's ability to make periodic interest and principal payments is
back to normal, in which case the loan is returned to accrual status.
F-37
<PAGE> 120
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Provision for Losses (continued)
On January 1, 1996 Unity Savings Bank adopted SFAS No. 114, Accounting by
Creditors for Impairment of a Loan, and SFAS No. 118, Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures (an
amendment of SFAS No. 114). These pronouncements require that impaired
loans be measured based on the present value of expected future cash flows
or at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. If the value computed is
less than the recorded value of the loan, a valuation allowance is recorded
for the difference. The entire change in valuation allowance is reported as
a component of the provision for bad debt expense.
Cash, Federal Funds and Other Investments
In accordance with regulations, the Company must maintain an amount of
cash, U.S. Government securities and other approved debt securities that
are readily convertible to cash, equal to or exceeding a prescribed
percentage of total savings and short-term borrowings. The Company has
satisfied such requirements through December 31, 1996.
Investments
Management has elected to classify investments in debt, equity and mortgage
backed securities as available-for-sale and carry them at fair value.
Unrealized gains and losses on securities, net of deferred income taxes, in
this classification are recognized as direct increases or decreases to
stockholders' equity.
Loans Receivable
Loans receivable are stated at unpaid principal balances, less an allowance
for loan losses and net of deferred loan-origination fees and discounts.
Discounts on mobile home and consumer loans are amortized to income using
the effective interest method over the remaining period to contractual
maturity, adjusted for anticipated prepayments.
Loan Origination Fees and Discounts on Mortgage Loans
Loan fees received are accounted for in accordance with SFAS Statement No.
91, Accounting for Non-refundable Loan Fees and Costs Associated with
Originating or Acquiring Loans and Initial Direct Costs of Leases. Net loan
fees for originating loans are deferred and are amortized by the interest
method over the life of the loan.
Income Taxes
Provisions for income taxes are based on amounts reported in the statements
of income (after exclusion of non-taxable income such as interest on state
and municipal securities) and include deferred taxes on temporary
differences in the recognition of income and expense for tax and financial
statement purposes. Deferred taxes are computed using the asset and
liability approach as prescribed in SFAS Statement No.
109, Accounting for Income Taxes.
For federal income tax reporting purposes, property and equipment are
depreciated over their estimated useful lives ranging from 5 to 33 1/3
years by the straight line and accelerated methods.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
F-38
<PAGE> 121
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates (continued)
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of real estate owned held-for-sale. In connection with the
determination of the allowances for losses on loans and real estate owned
held-for-sale, management obtains independent appraisals for significant
properties.
A majority of the Company's loan portfolio consists of one-to-four family
residential loans in the Southeastern Ohio area. The economy is primarily
dependent upon the timber industry, light manufacturing and agriculture.
Accordingly, the ultimate collectibility of a substantial portion of the
Company's portfolio is susceptible to changes in local market conditions.
While management uses available information to recognize losses on loans,
future changes to the allowance 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 Company's allowances
for losses on loans and foreclosed real estate. Such agencies may require
the Company to make changes to the allowances based on their judgments
about information available to them at the time of their examination.
Because of these factors, the likelihood of a material change in the
allowances for losses on loans and real estate owned held-for-sale is more
than remote.
Real Estate Owned
Real estate properties acquired through, or in lieu of, loan foreclosures
are initially recorded at the lower of cost or fair value at the date of
foreclosure.
Federal Home Loan Bank Stock
Federal Home Loan Bank stock is stated at cost due to limited
marketability. The Company has recorded its minority investment in the
common stock of Intrieve, Incorporated, at cost which at March 31, 1997,
December 31, 1996 and 1995, closely approximates market.
Basis of Presentation
The financial statements as of March 31, 1997, and for the three months
ended March 31, 1997 and 1996, including the footnote data related thereto,
are unaudited. However, in the opinion of management, all adjustments
(consisting only of normal recurring accruals) which are necessary for a
fair presentation of financial position, results of operations and cash
flows have been made.
2. INTEREST RECEIVABLE
Interest receivable consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
---- ---- ----
(Unaudited)
(In thousands)
<S> <C> <C> <C>
Loans 314 $301 $271
Investments 163 180 59
Mortgage-backed securities 35 29 36
---- ---- ----
$512 $510 $366
==== ==== ====
</TABLE>
F-39
<PAGE> 122
3. INVESTMENTS
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair value of investments are shown below.
<TABLE>
<CAPTION>
March 31, 1997
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
U.S. Government and
agencies obligations $7,704 $ - $(173) $7,531
County bond 77 - - 77
Equity securities 98 - (25) 73
------ --------- ----- ------
Total investments $7,879 $ - $(198) $7,681
====== ========= ===== ======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In thousands)
<S> <C> <C> <C> <C>
U.S. Government and
agencies obligations $7,658 $14 $(27) $7,645
County bond 82 - - 82
Equity securities 98 - (23) 75
------ --- ---- ------
Total investments $7,838 $14 $(50) $7,802
====== === ==== ======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In thousands)
<S> <C> <C> <C> <C>
U.S. Government and
agencies obligations $3,695 $15 $(21) $3,689
County bond 107 - - 107
Equity securities 215 - (12) 203
------ --- ---- ------
Total investments $4,017 $15 $(33) $3,999
====== === ==== ======
</TABLE>
F-40
<PAGE> 123
3. INVESTMENTS (CONTINUED)
The amortized cost and estimated fair value of U.S. Government and agencies
securities, county bond and equity securities designated as available for
sale by term to maturity are shown below:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
Estimated Estimated Estimated
Amortized Fair Amortized Fair Amortized Fair
Costs Value Cost Value Cost Value
(Unaudited)
-------------------------------------- ------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Due in one year or less $ 98 $ 73 $ 880 $ 859 $1,818 $1,800
Due after one year through
five years 2,498 2,457 2,998 2,979 2,199 2,199
Due after five years through
ten years 1,500 1,478 1,000 1,000 - -
Due after ten years 3,783 3,673 2,960 2,964 - -
------ ------ ------ ------ ------ ------
Total investments $7,879 $7,681 $7,838 $7,802 $4,017 $3,999
====== ====== ====== ====== ====== ======
</TABLE>
4. LOANS RECEIVABLE
The components of loans receivable in the balance sheets were as
follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
---- ---- ----
(Unaudited)
(in thousands)
<S> <C> <C> <C>
Loans:
Loans on real estate $ 38,909 $ 38,223 $ 34,169
Participation loans 318 777 745
-------- -------- --------
39,227 39,000 34,914
Collateral loans - passbook loans 528 595 706
Other loans:
Mobile home loans, net 338 362 507
Consumer loans 7,706 7,670 6,837
-------- -------- --------
8,044 8,032 7,344
-------- -------- --------
Total loans receivable 47,799 47,627 42,964
Loans in process (68) (186) (255)
Net deferred loan fees 129 130 121
Allowance for loan losses (322) (298) (256)
-------- -------- --------
Loans receivable - net $ 47,538 $ 47,273 $ 42,574
======== ======== ========
</TABLE>
Nonaccrual loans for which interest has been reduced totaled approximately
$66,000, $326,000, $226,000, $196,000, and $168,000, at March 31, 1997 and
1996, December 31, 1996, 1995 and 1994, respectively. Interest that would
have been recognized had nonaccrual loans performed pursuant to
contractual terms totaled approximately $3,000 and $17,000 for the three
months ended March 31, 1997 and 1996 and $4,000, $13,000 and $11,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.
F-41
<PAGE> 124
5. ALLOWANCE FOR LOAN LOSSES
An analysis of the change in the allowance for loan losses for the three
months ended March 31, 1997 and the years ended December 31, 1996, 1995
and 1994, follows:
<TABLE>
<CAPTION>
Three Months Ended Years Ended December 31,
1997 1996 1996 1995 1994
----- ----- ----- ----- -----
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 298 $ 256 $ 256 $ 307 $ 276
Charge-offs (5) (12) (102) (267) (111)
Recoveries 4 28 45 63 48
Provision charged to operations 25 21 99 153 94
----- ----- ----- ----- -----
Balance at end of period $ 322 $ 293 $ 298 $ 256 $ 307
===== ===== ===== ===== =====
</TABLE>
Information related to impaired loans is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
---- ---- ----
(Unaudited)
(In thousands)
<S> <C> <C> <C>
Recorded investment in impaired loans for which a valuation allowance
is provided in accordance with SFAS No. 114 and SFAS No. 118 $ -- $ -- $ 17
Recorded investment in impaired loans for which there is no need for a
valuation allowance in accordance with SFAS No. 114 and SFAS No. 118 541 603 406
---- ---- ----
Total recorded investment in impaired loans $541 $603 $423
==== ==== ====
Average recorded investment in impaired loans during the period $546 $489 $524
==== ==== ====
</TABLE>
6. MORTGAGE BACKED SECURITIES
The amortized cost, gross unrealized gains, gross unrealized
losses and estimated fair value of investments in mortgage-backed
securities are shown below.
<TABLE>
<CAPTION>
March 31, 1997
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
FNMA Certificates $2,760 $24 $ (29) $2,755
GNMA Certificates 542 5 (12) 535
FHLMC Certificates 2,811 35 (83) 2,763
FNMA Interest Only Securities 12 -- (10) 2
------ --- ----- ------
Total $6,125 $64 $(134) $6,055
====== === ===== ======
</TABLE>
F-42
<PAGE> 125
6. MORTGAGE BACKED SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
December 31, 1996
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Costs Gains Losses Value
(In thousands)
<S> <C> <C> <C> <C>
FNMA Certificates $2,943 $29 $ (29) $2,943
GNMA Certificates 571 6 (8) 569
FHLMC Certificates 2,394 39 (79) 2,354
FNMA Interest Only Securities 12 -- (10) 2
------ --- ----- ------
Total $5,920 $74 $(126) $5,868
====== === ===== ======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In thousands)
<S> <C> <C> <C> <C>
FNMA Certificates $3,445 $28 $ (22) $3,451
GNMA Certificates 679 6 (4) 681
FHLMC Certificates 2,921 20 (79) 2,862
FNMA Interest Only Securities 13 -- (10) 3
------ --- ----- ------
Total $7,058 $54 $(115) $6,997
====== === ===== ======
</TABLE>
Certain mortgage backed securities are used as pledged security for
deposits of public funds. On March 31, 1997, $600,000 was pledged.
The amortized cost and estimated fair value of investments in mortgage-backed
securities designated as available for sale by term to maturity are shown below:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
Estimated Estimated Estimated
Amortized fair Amortized fair Amortized fair
cost value cost value cost value
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Due in one year or less $ -- $ -- $ -- $ -- $ -- $ --
Due after one year through five years 2 2 2 2 -- --
Due after five years through ten 489 477 -- -- 3 3
years
Due after ten years 5,634 5,576 5,918 5,866 7,055 6,994
------ ------ ------ ------ ------ ------
$6,125 $6,055 $5,920 $5,868 $7,058 $6,997
====== ====== ====== ====== ====== ======
</TABLE>
F-43
<PAGE> 126
7. OFFICE PROPERTY AND EQUIPMENT
Office property and equipment at March 31, 1997, December 31, 1996 and
1995, are as follows and includes the assets at the McArthur, Wellston,
Gallipolis and Jackson locations:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
------- ------- -------
(Unaudited)
(In thousands)
<S> <C> <C> <C>
Operating:
Building and improvements - McArthur $ 592 $ 591 $ 591
Building and improvements - Wellston 163 163 163
Building and improvements - Gallipolis 127 119 114
Building and improvements - Jackson 426 426 426
Furniture, fixtures & equipment 441 423 410
------- ------- -------
1,749 1,722 1,704
Accumulated depreciation (606) (589) (519)
------- ------- -------
Operating-net 1,143 1,133 1,185
Non-operating:
Building and improvements - McArthur 137 137 137
Accumulated depreciation (113) (112) (111)
------- ------- -------
Non-operating - net 24 25 26
------- ------- -------
Office, property and equipment - net $ 1,167 $ 1,158 $ 1,211
======= ======= =======
</TABLE>
The non-operating property is the Company's former land and office building
in McArthur, Ohio.
F-44
<PAGE> 127
8. RETAINED EARNINGS - SUBSTANTIALLY RESTRICTED
Retained earnings consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
------ ------ ------
(Unaudited)
(In thousands)
<S> <C> <C> <C>
Reserve for qualifying loans $1,757 $1,757 $1,749
Pre 1952 Reserves 85 85 85
------ ------ ------
1,842 1,842 1,834
Retained earnings - unrestricted 5,707 5,510 5,201
------ ------ ------
$7,549 $7,352 $7,035
====== ====== ======
</TABLE>
The Company has qualified under provisions of the Internal Revenue Code to
deduct from taxable income an allowance for bad debts based on the
experience method.
Appropriated and unappropriated retained earnings as of December 31, 1996,
include $1,756,744 of bad debt deductions. A deferred tax liability of
$133,713, was established relating to the increase in the bad debt
deduction of $385,427 from 1987 through 1996. If, in the future, the
Company fails to meet the federal income tax requirements permitting it to
deduct such losses, the effective tax rate would increase to a maximum of
34% under present law. If the amounts that qualify as deductions for
federal income tax purposes are later used for purposes other than for bad
debt losses, including distributions in liquidations, they will be subject
to federal income tax at the corporate rate then in effect. The tax effect
of the loss of the reserve would be $594,625 at rates in effect at December
31, 1996. For effects of Small Business Act of 1996 see Note 10.
9. DEPOSITS
Deposit account balances are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996 December 31, 1995
Weighted Weighted Weighted
Type and Maturity Amount Rate Amount Rate Amount Rate
--------- --------- --------- --------- --------- ---------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing checking accounts $ 4,859 2.77% $ 4,965 2.80% $ 4,887 2.88%
Passbook 6,551 3.18% 6,440 3.18% 6,484 3.36%
--------- --------- --------- --------- --------- ---------
Total transaction accounts 11,410 11,405 11,371
Certificates of deposit:
6 months or less 12,289 5.62% 12,238 5.38% 11,984 5.95%
Over 6 months to 1 year 15,327 5.87% 12,247 6.09% 4,105 5.54%
Over 1 year to 2 years 6,339 5.62% 10,535 5.75% 13,854 6.35%
Over 2 years to 3 years 424 5.73% 613 5.60% 7,041 5.80%
Over 3 years to 5 years 2,317 5.66% 1,987 5.67% 397 5.43%
Over 5 years to 10 years 5 3.95% 4 2.96% 4 4.21%
--------- --------- --------- --------- --------- ---------
Total certificates of deposit 36,701 5.73% 37,624 5.73% 37,385 6.02%
--------- --------- --------- --------- --------- ---------
Total deposits $ 48,111 5.08% $ 49,029 5.10% $ 48,756 5.35%
========= ========= ========= ========= ========= =========
</TABLE>
F-45
<PAGE> 128
9. DEPOSITS (CONTINUED)
The aggregate amount of short-term jumbo certificates of deposit with a
minimum denomination of $100,000 was approximately $4,786,000, $5,736,000
and $4,695,000 at March 31, 1997, December 31, 1996 and 1995, respectively.
Interest expense on certificates of deposit exceeding $100,000 was
approximately $478,000, $298,000, $225,000 and $188,000 for the three
months ended March 31, 1997 and the years ended December 31, 1996, 1995 and
1994, respectively.
The contractual maturities of outstanding certificates of deposit are
summarized as follows:
<TABLE>
<CAPTION>
March 31 December 31,
1997 1996 1995
------- ------- -------
(Unaudited)
(In thousands)
<S> <C> <C> <C>
Less than one year $27,616 $24,485 $16,089
One year to three years 6,763 11,148 20,895
More than three years 2,322 1,991 401
------- ------- -------
$36,701 $37,624 $37,385
======= ======= =======
</TABLE>
Certificates of deposit are shown net of adjustment to market resulting
from the acquisition of Citizens Building and Loan of approximately
$16,000, $18,000 and $26,000 at March 31, 1997, December 31, 1996 and 1995,
respectively.
10. FEDERAL INCOME TAXES
The provisions for income taxes consists of the following:
<TABLE>
<CAPTION>
March 31 December 31,
1997 1996 1995
---- ----- ----
(Unaudited)
(In thousands)
<S> <C> <C> <C>
Current $102 $ 251 $244
Deferred -- (25) 18
---- ----- ----
$102 $ 226 $262
==== ===== ====
</TABLE>
F-46
<PAGE> 129
10. FEDERAL INCOME TAXES (CONTINUED)
The actual tax expense differs from the statutory federal income taxes for
the respective periods, as follows:
<TABLE>
<CAPTION>
March 31 December 31,
1997 1996 1995
---- ----- -----
(Unaudited)
(In thousands)
<S> <C> <C> <C>
Computed statutory federal income tax $102 $ 265 $ 269
Increase (decrease) in federal income tax due to:
Tax-exempt income -- (20) (24)
Bad debt deduction -- (7) (19)
Other -- 13 18
---- ----- -----
Current income tax provision 102 251 244
Deferred tax (benefit) expense -- (25) 18
---- ----- -----
Total Expense $102 $ 226 $ 262
==== ===== =====
</TABLE>
Deferred tax liabilities have been provided for taxable temporary
differences relating to accumulated depreciation and deferred loan fees.
Deferred tax assets have been provided for deductible temporary differences
relating to allowances for loan losses and employee benefits. The net
deferred tax asset and liability in the accompanying statement of financial
condition includes the following components:
<TABLE>
<CAPTION>
March 31 December 31,
1997 1996 1995
----- ----- -----
(Unaudited)
(In thousands)
<S> <C> <C> <C>
Deferred tax liabilities $(243) $(240) $(234)
Deferred tax assets 271 207 173
----- ----- -----
Net deferred tax assets (liabilities) $ 28 $ (33) $ (61)
===== ===== =====
</TABLE>
Included in retained earnings at both December 31, 1996 and 1995, is
approximately $1,363,000 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-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
$463,000 at both December 31, 1996 and 1995.
Prior to 1996, the Company qualified under provisions of the Internal
Revenue Code to deduct from taxable income any allowance for bad debts on
either the percentage of income or the experience method. The Small
Business Act of 1996 eliminated the percentage of income method of
computing bad debts for thrift institutions for years beginning after
December 31, 1995. It further requires recapture of excess bad debt
reserves over a six to eight year period starting with the first tax year
following December 31, 1995. The Company's excess reserve at December 31,
1995 was $385,000. The excess reserve will cause a six year $64,238 annual
recapture into income. This recapture was suspended for one year due to the
Company meeting the "residential loan requirement" of the Act for December
31, 1996. If the Company meets the same provision in 1997, the recapture
can be suspended for an additional year.
F-47
<PAGE> 130
11. RELATED PARTY TRANSACTIONS
At March 31, 1997, December 31, 1996 and 1995, the Company had loans
outstanding to officers and directors of approximately $146,000, $151,000
and $149,000, respectively.
All of the stock of Knox Insurance Agency, Inc. (Knox) is owned by the
Chariman of the Board and Director of Unity Savings Bank. The Company
purchases fire and casualty insurance and a savings and loan blanket bond
from Knox. Total premiums paid from the Company to Knox for the three
months ended March 31, 1997 and 1996, and for the years ended December 31,
1996, 1995 and 1994 were approximately $17,000, $15,000, $15,000, $15,000
and $14,000, respectively. Knox leases office space from the Company for
$2,100 per annum.
12. GOODWILL
Goodwill resulting from the excess of liabilities assumed over the fair
market value of assets acquired from the Citizens Building and Loan
Company, amounted to $48,181. This balance is being amortized on the
straight line method over a ten year period. Accumulated amortization
amounted to approximately $40,000, $39,000 and $34,000, at March 3, 1997,
December 31, 1996 and 1995, respectively.
13. LEASE CONTRACT
The Company entered into an agreement to lease its former office in
McArthur, Ohio on December 1, 1992. The lease was renewed on November 16,
1993 for the term December 1, 1993 to November 30, 1995. The lease was
extended for an additional term from December 1, 1996 to December 15, 1998.
Lease payments amount to $925 per month.
14. REGULATORY CAPITAL
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 for 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.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain 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 March 31, 1997 that
the Bank meets all capital adequacy requirements to which it is subject.
As of March 31, 1997 the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well 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-48
<PAGE> 131
14. REGULATORY CAPITAL (CONTINUED)
<TABLE>
<CAPTION>
For Capital
Actual Adequacy Purposes:
------ ------------------
Amount Ratio Amount Ratio
------ ----- ------ -----
As of March 31, 1997: (In thousands)
<S> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets) $ 7,931 22.5% greater than or equal to $2,814 greater than or equal to 8.0%
Tier I Capital
(to Risk Weighted Assets) $ 7,609 21.6% greater than or equal to $1,407 greater than or equal to 4.0%
Tier I Capital
(to Average Assets) $ 7,609 11.7% greater than or equal to $2,597 greater than or equal to 4.0%
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets) $ 7,694 21.8% greater than or equal to $2,825 greater than or equal to 8.0%
Tier I Capital
(to Risk Weighted Assets) $ 7,396 20.9% greater than or equal to $1,412 greater than or equal to 4.0%
Tier I Capital
(to Average Assets) $ 7,396 11.6% greater than or equal to $2,555 greater than or equal to 4.0%
As of December 31, 1995:
Total Capital
(to Risk Weighted Assets) $ 7,730 22.8% greater than or equal to $2,717 greater than or equal to 8.0%
Tier I Capital
(to Risk Weighted Assets) $ 7,432 21.9% greater than or equal to $1,359 greater than or equal to 4.0%
Tier I Capital
(to Average Assets) $ 7,432 13.6% greater than or equal to $2,185 greater than or equal to 4.0%
</TABLE>
<TABLE>
<CAPTION>
To be Well
Capitalized Under
Prompt Corrective
Action Provisions:
------------------
Amount Ratio
------ -----
As of March 31, 1997:
<S> <C> <C>
Total Capital
(to Risk Weighted Assets) greater than or equal to $3,518 greater than or equal to 10.0%
Tier I Capital
(to Risk Weighted Assets) greater than or equal to $2,111 greater than or equal to 6.0%
Tier I Capital
(to Average Assets) greater than or equal to $3,246 greater than or equal to 5.0%
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets) greater than or equal to $3,531 greater than or equal to 10.0%
Tier I Capital
(to Risk Weighted Assets) greater than or equal to $2,119 greater than or equal to 6.0%
Tier I Capital
(to Average Assets) greater than or equal to $3,193 greater than or equal to 5.0%
As of December 31, 1995:
Total Capital
(to Risk Weighted Assets) greater than or equal to $3,397 greater than or equal to 10.0%
Tier I Capital
(to Risk Weighted Assets) greater than or equal to $2,038 greater than or equal to 6.0%
Tier I Capital
(to Average Assets) greater than or equal to $2,732 greater than or equal to 5.0%
</TABLE>
15. SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
Most of the Company's business activity is with customers located within
the southeastern part of Ohio and, therefore, subject to the risks involved
in economic variances within the area.
16. DEFERRED COMPENSATION PLAN
During 1995, the Company entered into a deferred compensation arrangement
which provides for cash payments to be made after retirement. The
liabilities under these arrangements have been recorded at their present
values using an eight percent interest rate. In connection with the
arrangements the Company has purchased life insurance policies. The Company
is the owner and beneficiary of the policies.
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17. ADVANCES FROM FEDERAL HOME LOAN BANK
Pursuant to a collateral agreement with the Federal Home Loan Bank,
advances are secured by qualifying first mortgage loans. Advances at March
31, 1997, December 31, 1996 and 1995, bear interest ranging from 5.6% to
8.65% and have calendar-year maturity dates as follows:
<TABLE>
<CAPTION>
Maturing March 31 December 31,
Interest year ended 1997 1996 1995
rate(s) December 31, ---- ---- ----
------- ------------ (Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
5.45 - 6.70% 1997 $3,590 $4,299 $69
5.90 - 6.20% 1998 $1,000 500 -
6.25 - 6.45% 1999 1,745 1,000 -
6.15% 2000 446 - 482
6.35% 2001 225 239 -
6.50% 2002 1,000 1,000 -
6.50% 2006 783 795 825
------ ------ ------
$8,789 $7,833 $1,376
====== ====== ======
Weighted average interest rate 6.09% 6.01% 7.26%
====== ====== ======
</TABLE>
18. INSURANCE ASSESSMENT RELATING TO THE RECAPITALIZATION OF THE SAVINGS
ASSOCIATION INSURANCE FUND (SAIF)
In September of 1996, legislation was enacted which required certain
financial institutions to pay a one time special assessment to recapitalize
the SAIF. The Company's share was approximately $309,000 and was paid
during the last half of 1996.
19. REMOVAL OF FAIR VALUE DISCLOSURES FOR FINANCIAL INSTRUMENTS FASB 126
During 1995 the Company adopted FASB 107 which required disclosure of the
fair value of financial instruments in the notes of the financial
statements. The Company adopted FASB 126 immediately upon issuance in
December of 1996. FASB 126 suspends the requirement of disclosing the fair
value of financial instruments for an indefinite period of time.
20. BUSINESS COMBINATION
During fiscal 1997, the company's Board of Directors approved a business
combination whereby the Company will merge with and into Oak Hill Banks,
with the combined institutions continuing operations as a wholly owned
subsidiary of Oak Hill Financial Corporation. Approval for the merger has
been applied for with the regulatory authorities. The business combination
will be accounted for as a pooling of interests and, accordingly, the
assets, liabilities and capital of the Company and Oak Hill Financial, Inc.
will be added together at historic carrying value. Unaudited pro-forma
condensed, combined financial information of the Company and Oak Hill
Financial, Inc. as of and for the year ended December 31, 1996 is as
follows:
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<PAGE> 133
<TABLE>
<CAPTION>
Oak Hill Unity Pro-forma
Financial, Inc. Savings Bank Combined
(In thousands) (Unaudited)
<S> <C> <C> <C>
Total assets $246,901 $64,986 $311,887
Total liabilities $223,938 $57,600 $281,538
Shareholders' equity $ 22,963 $ 7,386 $ 30,947
Total revenue $ 20,401 $ 5,169 $ 25,570
Total expense 17,192 4,666 21,858
-------- ------- --------
Net earnings $ 3,209 $ 503 $ 3,712
======== ======= ========
</TABLE>
F-51
<PAGE> 134
APPENDIX A
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made as of
April 28, 1997, between OAK HILL BANKS, a banking corporation chartered under
the law of Ohio ("Oak Hill Banks"), and UNITY SAVINGS BANK, a savings bank that
is chartered under the law of Ohio ("Unity Savings"). (Oak Hill Banks and Unity
Savings are collectively referred to herein as the "Constituent Corporations.")
RECITALS
--------
A. Oak Hill Banks is a banking corporation organized and existing under
the laws of Ohio and is authorized to issue 1300 shares of common stock,
$1,000.00 par value ("Oak Hill Banks Common"), all of which are issued and
outstanding as of the date hereof and owned by Oak Hill Financial, Inc., an Ohio
corporation ("Oak Hill Financial").
B. Unity Savings is a savings bank organized and existing under the
laws of Ohio and is authorized to issue 2,000,000 shares of common stock, $1.00
par value ("Unity Savings Common"), of which 93,250 shares are issued and
outstanding as of the date hereof, exclusive of treasury shares.
C. The respective Boards of Directors of Oak Hill Banks and Unity
Savings have approved the merger of Unity Savings into Oak Hill Banks
substantially on the terms and conditions contained in this Agreement.
AGREEMENT
---------
In consideration of the foregoing and the mutual promises contained
herein, the parties agree as follows:
1. MERGER. Subject to the terms and conditions hereof, and the terms
and conditions contained in a certain Supplemental Agreement, of even date
herewith, among Oak Hill Financial, Oak Hill Banks, and Unity Savings (the
"Supplemental Agreement"), which is incorporated herein by reference, at the
"Effective Time" (as such term is defined in Section 2 hereof), Unity Savings
shall be merged into Oak Hill Banks (the "Merger"). Oak Hill Banks shall be the
surviving corporation in the Merger (the "Surviving Corporation"), which shall
continue its corporate existence under the laws of Ohio following the
consummation of the Merger. At the Effective Time, the separate existence and
corporate organization of Unity Savings shall cease.
2. EFFECTIVE TIME; EFFECTIVE DATE. The Merger shall be effective at
11:59 p.m., local Ohio time (the "Effective Time"), on (i) the day on which this
Agreement and the related Certificate of Merger have been filed in accordance
with the requirements of the laws of Ohio, or (ii) such later date as may be
specified in such Certificate of Merger (the "Effective Date").
3. NAME. The name of the Surviving Corporation shall be "Oak Hill
Banks".
4. CHARTER. The Articles of Incorporation of Oak Hill Banks in effect
at the Effective Time shall be the articles of incorporation of the Surviving
Corporation, until amended in accordance with law.
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5. DIRECTORS. The directors of the Surviving Corporation shall be H.
Timothy Bichsel, 10762 S. R. 139, Jackson, Ohio 45640, Richard D. Coyan, 265
Missouri Ave, Jackson, Ohio, 45640; Evan E. Davis, 1114 Moriah Road, Oak Hill,
Ohio 45656; John D. Kidd, 264 Missouri Avenue, Jackson, Ohio 45640; D. Bruce
Knox, 301 N. Market Street, McArthur, Ohio 45651; Richard P. LeGrand, 533 Aaron
Avenue, Jackson, Ohio 45640; Barry M. Dorsey, 505 W. College Avenue, Rio Grande,
Ohio 45674; Rick A. McNelly, 408 Redondo Drive, Jackson, Ohio 45640; Donald R.
Seigneur, 46 Fruit Hill Drive, Chillicothe, Ohio 45601; Ronald I. Smittle, 102
Smittle Road, Oak Hill, Ohio 45656; C. Clayton Johnson, 633 Fourth Street,
Portsmouth, Ohio 45662; and H. Grant Stephenson, 5363 Godown Road, Columbus,
Ohio 43235; to serve until their successors are duly elected and qualified in
accordance with the Code of Regulations of the Surviving Corporation and the
laws of Ohio.
6. REGULATIONS. The Code of Regulations of Oak Hill Banks in effect at
the Effective Time shall be the regulations of the Surviving Corporation, until
amended in accordance with law.
7. STATUTORY AGENT. The name and address of the agent upon whom any
process, notice, or demand against any Constituent Corporation or the Surviving
Corporation may be served is H. Grant Stephenson, 41 South High Street, Suite
3100, Columbus, Ohio 43215.
8. CONVERSION OF SHARES.
(a) All shares of Oak Hill Banks Common that are issued and
outstanding immediately prior to the Effective Time shall continue to be issued
and outstanding shares of Oak Hill Banks Common at and after the Effective Time.
(b) At the Effective Time, the shares of Unity Savings Common
issued and outstanding immediately prior to the Effective Time (exclusive of
treasury shares, if any, which shall be cancelled, and any shares as to which
statutory dissenters' rights are properly sought) shall be converted, by virtue
of the Merger and without further action on the part of the holders thereof,
into the right to receive shares of the common stock, without par value, of Oak
Hill Financial ("Oak Hill Financial Common"), as follows:
(i) Each outstanding share of Unity Savings Common shall be
converted into the right to receive 8.5 shares of Oak Hill Financial
Common (the "Exchange Ratio"), provided, that if the Average Closing
Price is greater than 115% of the Starting Price, then each outstanding
share shall be converted into the right to receive such number of
shares as is equal to the product of multiplying 8.5 by a fraction, the
numerator of which is 115% of the Starting Price and the denominator of
which is the Average Closing Price. The Exchange Ratio set forth in the
preceding sentence shall be adjusted to reflect any non-cash
distribution, stock splits or stock dividends on Oak Hill Financial
Common occurring or having a record date after the date hereof and
prior to the Effective Time.
(ii) No fractional shares of Oak Hill Financial Common shall
be issued. Each holder of Unity Savings Common who would otherwise be
entitled to receive a fractional part of a share of Oak Hill Financial
Common shall instead be entitled to receive cash in an amount equal to
the product resulting from multiplying such fraction by the Average
Closing Price Per Share of Oak Hill Financial Common. No interest shall
be payable with respect to such cash payment.
(c) Each outstanding share of Unity Savings Common held by a
person who has demanded and perfected a right to relief as a dissenting
shareholder under Section 1701.85 of the Ohio Revised Code (the "Dissenters'
Rights Law") and who has not effectively withdrawn or lost such right
("Dissenting Shares") shall not be converted into or represent a right to
receive shares of Oak Hill Financial Common pursuant to subsection 8(b) hereof,
but the holder thereof shall be entitled only to such rights as are granted by
the Dissenters' Rights Law. Each holder of Dissenting Shares who becomes
entitled to relief as a dissenting shareholder under the Dissenters' Rights Law
with respect to such holder's shares of Unity Savings Common shall receive
payment therefor from Oak Hill Financial in
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accordance with the provisions of the Dissenters' Rights Law. If any holder of
Unity Savings Common who demands relief as a dissenting shareholder under the
Dissenters' Rights Law with respect to such holder's shares of Unity Savings
Common shall effectively withdraw or lose (through failure to perfect or
otherwise), the right to such relief, each share of Unity Savings Common held by
such holder shall automatically be converted into the right to receive shares of
Oak Hill Financial Common pursuant to subsection 8(b) hereof.
9. EXCHANGE OF CERTIFICATES; PAYMENT FOR FRACTIONAL SHARES.
(a) On the Effective Date, Oak Hill Financial shall deliver to
The Fifth Third Bank (the "Exchange Agent") the amount of cash necessary to pay
for all fractional shares of Oak Hill Financial Common in accordance with
subsection 8(b)(ii) hereof.
(b) As promptly as practicable after the Effective Date, Oak
Hill Financial shall cause the Exchange Agent to prepare and mail to each holder
of record on the Effective Date of any shares of Unity Savings Common a letter
of transmittal containing instructions for the surrender of all certificates for
shares of Unity Savings Common. Upon the surrender by such holder of a
certificate or certificates for shares of Unity Savings Common standing in such
holder's name to the Exchange Agent in accordance with the instructions set
forth in the letter of transmittal, such holder shall be entitled to receive in
exchange therefor a certificate representing the number of whole shares of Oak
Hill Financial Common into which the shares represented by the certificate or
certificates so surrendered shall have been converted and, if applicable, a
check payable to such holder in the amount necessary to pay for any fractional
shares of Oak Hill Financial Common which such holder would otherwise have been
entitled to receive, in accordance with subsection 8(b)(ii) hereof. No interest
shall be payable with respect to either the whole shares of Oak Hill Financial
Common or the cash payable in lieu of fractional shares. Immediately after the
third anniversary of the Effective Date, the Exchange Agent shall deliver to the
Surviving Corporation any unclaimed balance of cash owing with respect to
fractional shares and such cash shall be retained by, and become the property of
the Surviving Corporation, free and clear of any claims whatsoever.
(c) Neither Oak Hill Financial, the Surviving Corporation, nor
the Exchange Agent, shall be obligated to deliver a certificate for Oak Hill
Financial Common or a check for cash in lieu of fractional shares to a former
shareholder of Unity Savings until such former shareholder surrenders the
certificate or certificates representing shares of Unity Savings Common standing
in such former shareholder's name or, if such former shareholder is unable to
locate such certificate or certificates, an appropriate affidavit of loss and
indemnity agreement and bond as may be required by Oak Hill Financial. Until so
surrendered, each outstanding certificate for shares of Unity Savings Common
shall be deemed for all corporate purposes (except the payment of dividends) to
evidence ownership of the number of whole shares of Oak Hill Financial Common
into which the shares of Unity Savings Common represented thereby shall have
been converted.
(d) After the Effective Date and until the outstanding
certificates formerly representing shares of Unity Savings Common are so
surrendered, no dividends or distributions payable to holders of record of Oak
Hill Financial Common shall be paid to the holders of such outstanding Unity
Savings certificates in respect thereof. Promptly upon surrender of such
outstanding certificates there shall be paid to the holders of the certificates
for Oak Hill Financial Common issued in exchange therefor the amount of
dividends and other distributions, if any, which theretofore became payable with
respect to such full shares of Oak Hill Financial Common, but which have not
theretofore been paid on such stock. No interest shall be payable with respect
to the payment of any dividends or other distributions. All such dividends or
other distributions unclaimed at the end of one year from the Effective Date
shall, to the extent such dividends have been previously paid to the Exchange
Agent, be repaid by the Exchange Agent to Oak Hill Financial, and thereafter the
holders of such outstanding certificates for Unity Savings Common shall look,
subject to applicable escheat, unclaimed funds, and other laws, only to Oak Hill
Financial as general creditors for payment thereof.
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(e) The stock transfer books of Unity Savings shall be closed as
of the close of business on the day that is two business days prior to the
Effective Date.
(f) Oak Hill Financial is empowered to adopt additional
reasonable rules and regulations with respect to the matters referred to in this
Section 9 not inconsistent with the provisions of this Agreement.
(g) Adoption of this Agreement by the shareholders of Unity
Savings shall constitute ratification of the appointment of the Exchange Agent.
10. EFFECT OF THE MERGER.
(a) At the Effective Time, the effect of the Merger shall be as
provided by the applicable provisions of the laws of Ohio. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, the
separate existence of Unity Savings shall cease; all assets and property (real,
personal, and mixed, tangible and intangible, choses in action, rights, and
credits) then owned by each Constituent Corporation, or which would inure to
either of them, shall immediately, by operation of law and without any
conveyance, transfer, or further action, become the assets and property of the
Surviving Corporation. All rights and obligations of the Constituent
Corporations shall remain unimpaired and the Surviving Corporation shall succeed
to all such rights and obligations.
(b) From time to time, as and when requested by the Surviving
Corporation or by its successors, the officers and directors of Unity Savings in
office at the Effective Time shall execute and deliver such instruments and
shall take or cause to be taken such further or other action as shall be
necessary in order to vest or perfect in the Surviving Corporation, or to
confirm of record or otherwise, title to, and possession of, all the assets,
property, interests, rights, privileges, immunities, powers, franchises, and
authority of Unity Savings and otherwise to carry out the purposes of this
Agreement.
11. OFFICES. The principal executive offices of the Surviving
Corporation shall be located at 14621 State Route 93, Jackson, Ohio 45640.
12. SHAREHOLDER APPROVAL. This Agreement shall be submitted to the
shareholders of Unity Savings and of Oak Hill Financial for adoption as soon as
reasonably practicable following the execution of this Agreement.
13. ADDITIONAL AGREEMENTS. Subject to the terms and conditions provided
in this Agreement, the parties hereto shall use their reasonable best efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper, or advisable under applicable laws and regulations to
consummate and make effective, as soon as reasonably practicable, the
transactions contemplated by this Agreement, subject, however, to the adoption
of this Agreement by the shareholders of Unity Savings and the receipt of all
required regulatory approvals.
14. AMENDMENT. At any time prior to the Effective Time, the parties
hereto may amend, modify, or supplement this Agreement by mutual agreement
authorized by their respective boards of directors, whether before or after the
shareholders of Unity Savings have adopted this Agreement, provided that the
number of shares of Oak Hill Financial Common into which shares of Unity Savings
Common are to be converted as determined in Section 8 hereof shall not be
changed after the shareholders of Unity Savings have adopted this Agreement
without the approval of such shareholders in the same manner as required for the
adoption of this Agreement; and provided, further, that this Agreement may not
be amended, modified, or supplemented, except by an instrument in writing
executed and delivered by each of the parties hereto.
15. TERMINATION. Unless extended by the mutual agreement of the parties
hereto, this Agreement may be terminated, notwithstanding the adoption thereof
by the shareholders of Unity Savings, in the manner and under the circumstances
set forth in the Supplemental Agreement.
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16. ENTIRE AGREEMENT. This Agreement, the Supplemental Agreement, and
any exhibits hereto or thereto constitute the entire agreement among the parties
with respect to the subject matter thereof and supersede all prior agreements
and understandings, oral or written, among the parties with respect to such
subject matter and no party shall be liable or bound to the others in any manner
by any covenants, representations, or warranties except as specifically set
forth herein or therein.
17. TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
18. ASSIGNMENT. Neither this Agreement nor any rights, interests, or
obligations hereunder shall be assigned or transferred by operation of law or
otherwise by any of the parties hereto without the prior written consent of the
other parties.
19. BENEFIT. Nothing in this Agreement, express or implied, is intended
to confer upon any person or entity other than the parties hereto and their
successors in interest any rights or remedies under or by reason of this
Agreement.
20. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original for all purposes, but
such counterparts taken together shall constitute one and the same instrument.
21. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Ohio without regard to its conflict of
laws principles.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
OAK HILL BANKS
By: /s/ John D. Kidd
----------------------
John D. Kidd, President
UNITY SAVINGS BANK
By: /s/ D. Bruce Knox
----------------------
D. Bruce Knox, President
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<PAGE> 139
SUPPLEMENTAL AGREEMENT
----------------------
THIS SUPPLEMENTAL AGREEMENT (this "Agreement") is made as of April 28,
1997, among OAK HILL FINANCIAL, INC., an Ohio corporation ("Oak Hill
Financial"), OAK HILL BANKS, a banking corporation chartered under the law of
Ohio ("Oak Hill Banks"), and UNITY SAVINGS BANK, a savings bank corporation
chartered under the law of Ohio ("Unity Savings").
RECITALS
--------
A. Oak Hill Financial, Inc. is a registered bank holding company under
the Bank Holding Company Act of 1956, as amended. Oak Hill Banks is a wholly
owned subsidiary of Oak Hill Financial.
B. Unity Savings is a savings bank corporation chartered under the law
of Ohio.
C. Concurrently with the execution and delivery of this Agreement,
Unity Savings and Oak Hill Banks are entering into an Agreement and Plan of
Merger (the "Merger Agreement"), which provides for the merger of Unity Savings
into Oak Hill Banks in accordance with the terms and conditions contained in the
Merger Agreement and in this Agreement (the "Merger").
D. The parties hereto desire to enter into this Agreement for the
purpose of setting forth certain representations, warranties, and covenants made
by each party as an inducement to the other parties to execute and deliver the
Merger Agreement and to consummate the Merger and to set forth certain
additional terms and conditions applicable to the Merger.
AGREEMENT
---------
In consideration of the foregoing and of the mutual promises contained
herein, the parties agree as follows:
SECTION 1. DEFINITIONS
-----------
1.01 DEFINITIONS CONTAINED ELSEWHERE IN THIS AGREEMENT. For the
purposes of this Agreement, the following terms shall have the meanings assigned
to them in the preamble and Recitals of this Agreement:
(a) this "Agreement";
(b) "Unity Savings";
(c) "Oak Hill Banks";
(d) "Oak Hill Financial";
(e) the "Merger"; and
(f) the "Merger Agreement".
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<PAGE> 140
1.02 DEFINITIONS CONTAINED IN THE MERGER AGREEMENT. For the purposes of
this Agreement, the following terms shall have the meanings assigned to them in
the Merger Agreement:
(a) the "Effective Date";
(b) the "Effective Time";
(c) the "Exchange Agent";
(d) the "Dissenters' Rights Law";
(e) "Unity Savings Common";
(f) "Dissenting Share";
(g) "Oak Hill Banks Common"; and
(h) "Oak Hill Financial Common".
1.03 OTHER DEFINITIONS. For the purposes of this Agreement, certain
other terms shall be defined as follows:
(a) the "Accord" means the Legal Opinion Accord of the
American Bar Association Section of Business Law (1991);
(b) an "Acquisition Proposal" means an inquiry received from,
or an offer or proposal made by or on behalf of, any other corporation, firm,
association, person, or other entity relating to (i) the possible acquisition of
more than 25 percent of the shares of the capital stock of Unity Savings,
including, but not limited to, an exchange or tender offer therefor, (ii) the
possible acquisition of a majority of the assets of Unity Savings, (iii) a
merger or consolidation involving Unity Savings, other than a transaction in
which Unity Savings will be the owner of all of the stock of the surviving
corporation following the transaction, or (iv) a merger or consolidation
involving Unity Savings, other than a transaction in which Unity Savings will be
the surviving corporation and the current shareholders of Unity Savings will be
the owners of a majority of the stock of the surviving corporation following the
transaction;
(c) an "Affiliate" of a party means a director, officer,
employee, agent, or adviser of such party;
(d) the "Audited Financial Statements" mean the consolidated
financial statements of Unity Savings, consisting of balance sheets as of
December 31, 1996 and December 31, 1995, and statements of income, cash flows,
and changes in stockholders' equity for the fiscal years ended December 31, 1996
and December 31, 1995, with the report thereon of Norman, Jones, Enlow and Co.,
certified public accountants;
(e) "Average Closing Price" shall mean the average of the
daily average of the closing bid and asked prices of Oak Hill Financial Common
as reported on the Nasdaq National Market System (as reported in a mutually
agreed upon authoritative source) for the twenty most recent full trading days
in which such shares are traded on the Nasdaq National Market System ending at
the closing of trading on the date three days prior to the Closing Date.
(f) "CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended;
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(g) the "Code" means the Internal Revenue Code of 1986;
(h) "CRA" means the Community Reinvestment Act of 1977, as
amended;
(i) "Confidential Information" of or relating to a party means
any and all information received from or on behalf of such party or their
Affiliates concerning the Merger, the terms of this Agreement or the Merger
Agreement, or the assets, business, operations, or financial condition of such
party or their Affiliates, unless and to the extent that any such information is
in the public domain;
(j) the "Division of Financial Institutions " means the
Division of Financial Institutions, Ohio Department of Commerce;
(k) "Employee Benefit Plans" means any and all "employee
benefit plans" or "welfare benefit plans" as defined in ERISA;
(l) "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended;
(m) "Environmental Law" means CERCLA, the Resource
Conservation and Recovery Act, the Hazardous Materials Transportation Act, the
Toxic Substances Control Act, the Federal Water Pollution Control Act, the Clean
Water Act, the Clean Air Act, regulations promulgated thereunder, and any other
federal, state, county, municipal, local, foreign, provincial, or other statute,
law, ordinance, or regulation which may relate to or deal with human health or
the environment, all as may be amended from time to time;
(n) "FDIC" means the Federal Deposit Insurance Corporation;
(o) the "Federal Reserve Board" means the Board of Governors
of the Federal Reserve System, or its delegate;
(p) "Hazardous Substances" means (i) any "hazardous substance"
as defined in Section 101(14) of CERCLA or regulations promulgated thereunder;
(ii) any "solid waste," "hazardous waste," or "infectious waste," as such terms
are defined in any other Environmental Law; (iii) asbestos, urea-formaldehyde,
polychlorinated biphenyls (PCBs), nuclear fuel or material, chemical waste,
radioactive material, explosives, known carcinogens, petroleum products and
by-products, and other dangerous, toxic, or hazardous pollutants, contaminants,
chemicals, materials, or substances listed or identified in, or regulated by,
any Environmental Law; and (iv) any other substances or materials which are
classified or considered to be hazardous or toxic under any Environmental Law;
(q) "Index Group" shall mean the group of bank holding
companies listed in the SNL Securities All Bank Index;
(r) "Index Value" on a given date shall mean the
market-capitalization-weighted average (weighted pursuant to the SNL Securities
All Bank Index) of the closing prices of the companies composing the Index
Group;
(s) the "1934 Act" means the Securities Exchange Act of 1934,
as amended;
(t) the "1933 Act" means the Securities Act of 1933, as
amended;
(u) "Knowledge" as used herein shall mean those facts that are
known or should reasonably have been known after due inquiry by the President,
or any Senior or Executive Vice President of any party hereto;
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(v) the "Oak Hill Disclosure Memorandum" means a certain
Disclosure Memorandum, dated April __, 1997, which has been previously delivered
by Oak Hill Financial and Oak Hill Banks to Unity Savings, as the same has been
amended and supplemented through the date of this Agreement, and as the same may
subsequently be amended prior to the Effective Date;
(w) "Oak Hill Financial Stock Option Plan" means the Oak Hill
Financial 1995 Stock Option Plan as presently existing or hereafter amended;
(x) a "Principal Shareholder" of a party means a person who
owns five percent or more of the outstanding shares of any class of the capital
stock of such party;
(y) the "Real Property" means any and all real property owned
or leased by Unity Savings or Oak Hill Banks, as appropriate, as of the date of
this Agreement or acquired at any time after the date of this Agreement and
prior to the Effective Time, together with any and all improvements thereon;
(z) the "Registration Statement" means the registration
statement on the appropriate form filed or to be filed by Oak Hill Financial
with the SEC under the provisions of the 1933 Act for the purpose of registering
the shares of Oak Hill Financial Common to be issued by Oak Hill Financial
pursuant to the terms of the Merger Agreement, including, but not limited to,
the prospectus and proxy statement to be included therein as a part thereof;
(aa) "SAIF" means the Savings Association Insurance Fund of
the FDIC;
(bb) the "SEC" means the Securities and Exchange Commission;
(cc) "Starting Date" shall mean the date of this Agreement;
(dd) "Starting Price" shall mean the average of the daily
average of bid and asked closing prices of Oak Hill Financial Common as reported
on the Nasdaq National Market System (as reported in a mutually agreed upon
authoritative source) for the twenty most recent full trading days in which such
shares are traded on the Nasdaq National Market System ending on the Starting
Date;
(ee) the "Unity Disclosure Memorandum" means a certain
Disclosure Memorandum, dated April __, 1997, which has been previously delivered
by Unity Savings to Oak Hill Financial, as the same has been amended and
supplemented through the date of this Agreement, and as the same may
subsequently be amended prior to the Effective Date; and
(ff) an "Unsolicited Acquisition Proposal" means a written
Acquisition Proposal that is received by Unity Savings or made public by or on
behalf of the proponent of such Acquisition Proposal without any solicitation of
such proposal by any director, officer, Principal Shareholder, employee, agent,
or other person acting on behalf of Unity Savings.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF UNITY SAVINGS
-----------------------------------------------
Unity Savings represents and warrants to Oak Hill Financial and Oak
Hill Banks that, except as set forth in the Unity Disclosure Memorandum:
2.01 ORGANIZATION AND AUTHORITY. Unity Savings is a savings bank
corporation duly organized, validly existing, and in good standing under the
laws of the State of Ohio, is duly qualified to do business and is in good
standing in all jurisdictions where its ownership or leasing of property or the
conduct of its business requires it to be so qualified, and has the corporate
power and authority to own its properties and assets, to carry on its business
as it
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is presently being conducted, and, subject to the approval of its shareholders,
and to the filing of all requisite regulatory applications and notices and the
receipt of all requisite regulatory approvals, to enter into and carry out its
obligations under this Agreement and under the Merger Agreement.
2.02 CAPITALIZATION. The authorized capital stock of Unity Savings
consists of 2,000,000 shares of Unity Savings Common, of which 93,250 shares
were issued and outstanding as of the date of this Agreement. All of the
outstanding shares of Unity Savings Common are duly and validly authorized,
issued, and outstanding and are fully paid and nonassessable. There are no
existing options, warrants, or commitments of any kind which might require the
issuance by Unity Savings of any additional shares of Unity Savings Common or
other equity securities of Unity Savings.
2.03 SUBSIDIARIES. The Unity Disclosure Memorandum lists all
corporations in which Unity Savings owns, directly or indirectly, five percent
or more of any class of capital stock as of the date of this Agreement, and
indicates, with respect to the equity securities of each such corporation as of
such date, the number of shares of each class authorized, the number of shares
outstanding, and the number of shares owned or controlled directly or indirectly
by Unity Savings. Unity Savings does not own, directly or indirectly, more than
fifty percent (50%) of the capital stock of any other corporation. There are no
options, contracts, commitments, understandings, or arrangements by which Unity
Savings is bound to issue additional shares of its equity securities. Unity
Savings is a member of the Federal Home Loan Bank System and its deposits are
insured up to the applicable limits by the SAIF.
2.04 DIRECTORS, OFFICERS, AND PRINCIPAL SHAREHOLDERS. The Unity
Disclosure Memorandum contains a true and complete list of all directors,
executive officers, and Principal Shareholders of Unity Savings.
2.05 AUTHORIZATION. The execution, delivery, and performance of this
Agreement and the Merger Agreement by Unity Savings, and the consummation of the
transactions contemplated hereby and thereby have been duly approved by the
Board of Directors of Unity Savings, subject to the adoption of the Merger
Agreement and this Agreement by the shareholders of Unity Savings; and subject
to the adoption of the Merger Agreement and this Agreement by the shareholders
of Oak Hill Financial, and subject to applicable regulatory approvals and
expiration of waiting periods, if any.
2.06 ABSENCE OF DEFAULTS. Neither the execution and delivery of this
Agreement or the Merger Agreement, nor the consummation of the Merger, nor
compliance by Unity Savings with any provisions hereof or thereof will conflict
with or result in a breach of any provisions of the articles or certificate of
incorporation, regulations, bylaws, or other charter documents of Unity Savings
or result in a material breach or termination of, or accelerate the performance
required by, any note, bond, mortgage, lease, agreement, or other instrument to
which Unity Savings is a party or by which Unity Savings may be bound.
2.07 FINANCIAL STATEMENTS. Unity Savings has delivered the Audited
Financial Statements to Oak Hill Financial. The Audited Financial Statements
fairly present the financial position, results of operations, and cash flows of
Unity Savings at the dates shown and for the periods indicated in conformity
with generally accepted accounting principles applied on a consistent basis.
There are no obligations or liabilities, whether absolute, accrued, or
contingent (including, without limiting the generality of the foregoing,
liabilities for taxes), of Unity Savings which are required in conformity with
generally accepted accounting principles to be reflected or disclosed in the
Audited Financial Statements which have not been or will not be so reflected or
disclosed.
2.08 TITLE TO PROPERTIES.
(a) The Unity Disclosure Memorandum sets forth a complete and
correct list of all of the Real Property. Unity Savings has good and marketable
title to all of the Real Property listed as owned by it in the Unity Disclosure
Memorandum and valid leasehold interests in all of the Real Property listed as
leased by it in the Unity Disclosure Memorandum, free and clear of any liens and
encumbrances except taxes and assessments not delinquent
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and utility and other easements that do not interfere with the use of the
property for the business being conducted thereon. The Real Property and the
present use thereof by Unity Savings do not violate any local zoning or similar
land use laws, any governmental regulations, or any restrictive covenants. To
the knowledge of Unity Savings, after reasonable investigation, (i) the Real
Property and the use thereof by Unity Savings do not encroach upon any property
owned by any other person, and (ii) no property owned by any other person
encroaches upon any of the Real Property.
(b) Complete and correct copies of all deeds and leases
relating to the Real Property are included in the Unity Disclosure Memorandum.
(c) Each item of the personal property owned by Unity Savings,
including without limitation all contractual rights and assets reflected in the
Audited Financial Statements or acquired after December 31, 1996 (except for
assets sold or otherwise disposed of in the ordinary course of business since
such date or assets which, either individually or in the aggregate, are not
material to the operations or financial condition of Unity Savings), is owned by
Unity Savings, free and clear of any lien or encumbrance, except for assets
securing loans from the Federal Home Loan Bank of Cincinnati and assets pledged
for public deposits.
2.09 ABSENCE OF UNDISCLOSED LIABILITIES. Except to the extent reflected
or reserved against on the Audited Financial Statements, Unity Savings has no
liabilities, whether absolute, accrued, contingent, or otherwise, due or to
become due, including without limitation any liabilities as guarantor under any
guaranty or liabilities for taxes, except liabilities and taxes incurred in the
ordinary course of business, which have had or will have a material adverse
effect on the business, financial condition, or results of operations of Unity
Savings.
2.10 ABSENCE OF CERTAIN CHANGES. Since December 31, 1996, Unity Savings
has not:
(a) made or permitted to be made any changes in its capital or
corporate structure, certificate or articles of incorporation, regulations,
bylaws, or other charter documents;
(b) merged with any other corporation or bank, or permitted
any other corporation or bank to merge into or consolidate with either of them;
acquired control over any other firm, bank, corporation, or organization; or
created any subsidiaries;
(c) issued, sold, delivered, or agreed to issue, sell, or
deliver any additional shares of its capital stock or any options, warrants, or
rights to acquire any such capital stock, or securities convertible into or
exchangeable for such capital stock, except for capital stock issued pursuant to
the exercise of stock options previously issued, in accordance with their
respective terms;
(d) purchased, sold, transferred, or otherwise acquired or
disposed of, or agreed to purchase, sell, transfer, acquire, or dispose of, any
capital stock or other securities of any kind, or options or other rights to
acquire any such securities, of any other entity (including, but not limited to,
any such transactions involving Unity Savings with respect to the capital stock
or other securities), other than in the ordinary course of business;
(e) incurred any indebtedness, obligations, or liabilities,
whether absolute, accrued, contingent, or otherwise, including, without
limitation, liabilities as guarantor under any guaranty, other than
indebtedness, obligations, and liabilities incurred in the ordinary course of
its business or incurred under the contracts and commitments referred to in
Section 2.18 hereof;
(f) issued as borrower any promissory notes, guarantees, or
other evidences of indebtedness, other than in the ordinary course of business;
(g) forgiven or cancelled any indebtedness or contractual
obligation, other than in the ordinary course of business;
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(h) mortgaged, pledged, or subjected to any lien or lease any
of its assets, tangible or intangible, or permitted or suffered any such asset
to be subjected to any lien or lease, other than in the ordinary course of
business;
(i) purchased, sold, transferred, liquidated, or otherwise
acquired or disposed of any assets or properties, or entered into any contract
for any such purchase, sale, transfer, liquidation, acquisition, or disposition,
other than in the ordinary course of business;
(j) entered into any lease of real or personal property, other
than in the ordinary course of business;
(k) declared, paid, made, or set apart any sum or property
for, any dividend or other distribution, or otherwise paid or transferred any
funds or property to its shareholders, except for a semi-annual cash dividend to
be paid by Unity Savings to its shareholders in June, 1997 in the amount of
$1.00 per share; and a quarterly cash dividend of $.50 to be paid in September,
1997. An additional dividend of $.50 per share may be paid if Unity shareholders
would not receive the quarterly dividend of Oak Hill Financial payable in the
last calendar quarter of 1997;
(l) increased the wages, salaries, compensation, pension or
other fringe benefits, or perquisites payable to any executive officer by more
than eight percent of the amount thereof in effect as of December 30, 1996, or
granted any severance or termination pay, or entered into any contract to make
or grant any severance or termination pay, or entered into any employment or
consulting contract which is not terminable by Unity Savings, without cause and
without penalty, upon notice of 30 days or less, provided, no later than
Closing, Unity Savings may pay a cash bonus of up to ten percent (10%) of base
salary to all employees in accordance with past practices relating to calendar
year-end bonuses, provided such bonuses shall be prorated based upon the number
of calendar months of 1997, or any portion of a month, which have passed by the
Closing Date;
(m) made any loans or loan commitments, other than in the
ordinary course of business, to any director, officer, or Principal Shareholder
(or any person or business entity controlled by or affiliated with such
director, officer, or Principal Shareholder);
(n) modified, altered, amended, terminated, or withdrawn from
participation in any Employee Benefit Plan or any other plan or benefit provided
to one or more employees, or paid or distributed any sum from any such plan
except to participants in the ordinary course of the operation of the plan, or
made any payment or contribution to any such plan except as required by the
terms of such plan or consistent with past practices, but, in any event, not to
exceed eight percent (8%) of eligible salaries, in the aggregate, on an annual
basis;
(o) entered into any transaction involving the expenditure of
more than $50,000, other than in the ordinary course of business, except
pursuant to and in accordance with the terms of the contracts and commitments
referred to in Section 2.18 hereof;
(p) adopted any change in any accounting policy or method;
(q) revalued any asset or adjusted any reserve other than in
the ordinary course of business;
(r) failed to keep in full force and effect insurance and
bonds at least equal in amount and scope of coverage to the insurance and bonds
carried on December 31, 1996;
(s) suffered any material adverse change in its business,
financial condition, income, assets, or liabilities;
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(t) suffered any damage, destruction, or loss (whether or not
covered by insurance) which has had a material adverse effect, in any case or in
the aggregate, on its business, financial condition, operations, projects,
properties, or assets;
(u) suffered any strike, work stoppage, slow-down, or other
labor disturbance; or
(v) suffered any loss of employees or customers which has had
a material adverse effect on its business, operations, or prospects.
2.11 TAXES. Unity Savings has filed or caused to be filed all federal
and other tax returns which are required to be filed and have paid or made
provision for payment of all taxes shown as due on such returns. No deficiencies
for any tax, assessment, or governmental charge have been proposed, asserted, or
assessed against Unity Savings that have not been settled and paid. The federal
income tax returns of Unity Savings have not been examined by the Internal
Revenue Service for any of the ten years preceding the date of this Agreement.
2.12 LABOR MATTERS. Unity Savings is not a party to any collective
bargaining or other union agreement with any of its employees, or is involved in
any labor dispute.
2.13 LITIGATION. There is no action, suit, proceeding, or claim by any
governmental agency or other person or entity nor any investigation by any
governmental agency pending or, to the Knowledge of Unity Savings, threatened
against (i) Unity Savings, (ii) the assets, business, or goodwill of Unity
Savings, or (iii) any director, officer, or Principal Shareholder of Unity
Savings, in relation to the business of Unity Savings or any such person's
capacity as a director, officer, or Principal Shareholder of Unity Savings.
Unity Savings knows of no basis or grounds for any such action, suit,
proceeding, claim, or investigation. Unity Savings is not subject to any
supervisory agreement, consent order or decree, cease and desist order, or other
restriction on the business or assets of Unity Savings.
2.14 ENVIRONMENTAL MATTERS.
(a) To the Knowledge of Unity Savings, Unity Savings is and
has been at all times in substantial compliance with all applicable
Environmental Laws and Unity Savings has not engaged in any activity resulting
in a material violation of any applicable Environmental Law. No orders,
hearings, actions, or other proceedings by or before any court or governmental
agency in which Unity Savings is a party are pending or, to the Knowledge of
Unity Savings, threatened in connection with any alleged violation of any
applicable Environmental Law (i) by Unity Savings or (ii) in relation to any
part of the Real Property and Unity Savings has no Knowledge of any
investigations or inquiries with respect to any such alleged violation. No
claims have been made or, to the Knowledge of Unity Savings, threatened at any
time by any third party against Unity Savings relating to damage, contribution,
cost recovery, compensation, loss, or injury resulting from any Hazardous
Substance. To the Knowledge of Unity Savings, Unity Savings has not caused or
permitted any Hazardous Substance to be integrated into the Real Property or any
component thereof in such manner or quantity as may reasonably be expected to or
in fact would pose a threat to human health or the value of the Real Property.
None of the Real Property has been used by Unity Savings for the storage or
disposal of Hazardous Substances nor to the Knowledge of Unity Savings, is any
of the Real Property contaminated by any Hazardous Substance. To the Knowledge
of Unity Savings, none of the Real Property has in the past contained or
presently contains any underground storage tanks. To the Knowledge of Unity
Savings, Unity Savings has no interest, direct or indirect, in any property
owned by a third party which has been contaminated by Hazardous Substances
(excluding any property as to which the sole interest of Unity Savings is that
of a lien holder or mortgagee, but including any property as to which title has
been taken by Unity Savings pursuant to mortgage foreclosure or similar
proceeding and any property as to which Unity Savings has participated in the
financial management to a degree sufficient to influence the property's
treatment of Hazardous Substances).
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(b) To the Knowledge of Unity Savings, the representations set
forth in paragraph (a) above are also true and correct in relation to any and
all real property owned or leased by it at any time prior to the date of this
Agreement, together with any improvements located thereon.
2.15 COMMUNITY REINVESTMENT ACT COMPLIANCE. Unity Savings is in
compliance with the applicable provisions of the CRA and the regulations
promulgated thereunder, and has received a CRA rating of satisfactory or better
from the FDIC. Unity Savings knows of no fact or circumstance or set of facts or
circumstances which would cause Unity Savings to fail to comply with such
provisions or to cause the CRA rating of Unity Savings to fall below
satisfactory.
2.16 COMPLIANCE WITH LAWS. Unity Savings holds all permits, licenses,
certificates of authority, orders, and approvals of, and have made all filings,
applications, and registrations with, all governmental or regulatory bodies that
are required in order to permit them to carry on their respective businesses as
they are presently conducted. To the Knowledge of Unity Savings, Unity Savings
has conducted its businesses so as to comply in all material respects with all
applicable statutes, regulations, rules, and orders.
2.17 INFORMATION PROVIDED BY UNITY SAVINGS. None of the information
supplied or to be supplied by Unity Savings for inclusion in the Registration
Statement, the application for approval, or any other document to be filed with
the FDIC, the Federal Reserve Board, the Division of Financial Institutions, the
SEC, or any other federal or state regulatory authority in connection with the
transactions contemplated herein or in the Merger Agreement is or will be false
or misleading with respect to any material fact, or omits or will omit any
material fact necessary in order to make the statements therein not misleading.
2.18 MATERIAL CONTRACTS.
(a) The Unity Disclosure Memorandum contains a complete and
correct list of all written or oral agreements, leases, and other obligations
and commitments of the following types, to which either Unity Savings is a
party, by which Unity Savings or any of its property is bound, or which has been
authorized by Unity Savings:
(i) promissory notes, guaranties, mortgages, security
agreements, or other evidences of indebtedness of Unity Savings;
(ii) partnership or joint venture agreements;
(iii) employment, bonus, compensation, severance, or
consulting agreements;
(iv) collective bargaining agreements;
(v) Employee Benefit Plans and any other plans, benefits,
programs of benefits, or deferred compensation arrangements for the
benefit of directors, employees, or former or retired employees;
(vi) agreements or commitments for sale (other than in the
ordinary course of business) of assets exceeding $50,000 in the
aggregate;
(vii) agreements or commitments for capital expenditures
in excess of $50,000 in the aggregate;
(viii) agreements or other documents creating liens or
security interests relating to any real or personal property owned,
rented, or leased by Unity Savings and used in connection with the
business of such entity;
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(ix) leases of, commitments to lease, and other agreements
relating to the lease or rental of, real or personal property by Unity
Savings and used in connection with the business of such entity;
(x) all policies of insurance and fidelity bonds of Unity
Savings;
(xi) all direct or indirect loans or guaranties of loans
to any director, officer, or Principal Shareholder of Unity Savings or
their spouses or children or any partnership, corporation, or other
entity in which any such director, officer, or Principal Shareholder or
their spouses or children, have a significant (ten percent or more)
interest; and
(xii) all other contracts and commitments not made in the
ordinary course of business.
(b) The Unity Disclosure Memorandum includes complete and
correct copies of all written agreements, leases and commitments, except loan
commitments less than $500,000, together with all amendments thereto, listed in
the Unity Disclosure Memorandum and a complete and correct written description
of all oral agreements listed in the Unity Disclosure Memorandum.
(c) As of and through the date of this Agreement: (i) each
agreement, lease, and commitment of Unity Savings is valid and subsisting and in
full force and effect in all material respects; (ii) Unity Savings has in all
material respects performed all obligations required to be performed by it to
date under such agreements, leases, and commitments; and (iii) no event or
condition exists which constitutes or, after notice or lapse of time, would
constitute, a material default on the part of Unity Savings under any agreement,
lease, or commitment.
2.19 EMPLOYEE BENEFIT PLANS.
(a) All Employee Benefit Plans maintained by Unity Savings
comply in all material respects with the requirements of ERISA and the Code and
all such plans have been administered to date in compliance with the
requirements of ERISA, the Code, and subsequent legislation regulating ERISA
plans. Each of such plans that is an employee pension benefit plan within the
meaning of Section 3(2) of ERISA that is intended to be a qualified plan under
Section 401(a) of the Code has been amended to comply in all material respects
with current law as required or the remedial amendment period for such amendment
under Section 401(b) of the Code has not expired and Unity Savings has obtained
favorable determination letters with respect to all such plans. As of the date
hereof, Unity Savings has no liability on account of any accumulated funding
deficiency (as defined in Section 412 of the Code) or on account of any failure
to make contributions to or pay benefits under any such plan nor is Unity
Savings aware of any claim pending or threatened to be brought by any party
regarding such matters. No prohibited transaction has occurred with respect to
any such plan that would result, directly or indirectly, in the imposition of
any excise tax under Section 4975 of the Code; nor has any reportable event
under Section 4043 of ERISA occurred with respect to any such plan. Unity
Savings is not a defendant in any lawsuit or criminal action concerning such
entity's conduct as a fiduciary, party-in-interest, or disqualified person with
respect to any plan, nor is either of them engaged in litigation or a continuing
controversy with, or, to the knowledge of Unity Savings, under investigation or
examination by, the Department of Labor, Internal Revenue Service, Justice
Department, or Pension Benefit Guaranty Corporation involving compliance with
ERISA or the provisions of the Code relating to employee benefit plans. All
reporting and disclosure requirements of ERISA and the Code have been met in all
respects by all such plans. Unity Savings is not required to contribute to an
Employee Benefit Plan that is a "multiemployer plan" within the meaning of
Section 3(37) of ERISA.
(b) The Unity Disclosure Memorandum lists all Employee Benefit
Plans and any and all other benefit plans or programs currently in effect for
employees, former employees, and retired employees of Unity Savings including,
without limitation, those providing any form of medical, health, and dental
insurance, severance pay and benefits continuation, relocation assistance,
vacation pay, tuition aid, and matching gifts for charitable contributions to
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educational or cultural institutions, whether or not subject to ERISA. The Unity
Disclosure Memorandum includes complete and correct copies of all such plans or
programs, including each trust or other agreement under which any trustee or
custodian holds funds or property of the plan and all current financial and
actuarial reports, all current reporting and disclosure documents and filings,
and currently effective Internal Revenue Service rulings or determination
letters in respect thereof. If any of the Employee Benefit Plans listed in the
Unity Disclosure Memorandum has not been amended to comply with the Tax Reform
Act of 1986 and subsequent legislation, Unity Savings will also deliver to Oak
Hill Financial and Oak Hill Banks information and documentation regarding such
plan's operation during the remedial amendment period which is sufficient to
enable Oak Hill Financial and Oak Hill Banks to amend such plans to comply with
the Tax Reform Act of 1986 and subsequent legislation.
2.20 INSURANCE POLICIES. The Unity Disclosure Memorandum contains a
complete and correct list of the insurance policies and fidelity bonds currently
maintained by Unity Savings. The Unity Disclosure Memorandum includes complete
and correct copies of all such policies and bonds currently in effect together
with all riders and amendments thereto. All premiums due thereon have been paid
and Unity Savings has complied in all respects with the provisions of such
policies and bonds. Unity Savings has not failed to give any notice or present
any claim under any insurance policy or fidelity bond in due and timely fashion.
2.21 CAPITAL REQUIREMENTS. Unity Savings is in compliance with all
currently applicable capital requirements and guidelines prescribed by all
appropriate federal regulatory agencies.
2.22 LOAN LOSS RESERVES. Since December 31, 1996, Unity Savings has not
incurred any unusual or extraordinary loan losses. The allowance for loan losses
reflected on the financial statements of Unity Savings has been determined in
accordance with generally accepted accounting principles and in accordance with
all applicable regulations of all appropriate regulatory agencies and is
adequate in all material respects under requirements of GAAP to provide for
reasonably anticipated losses on outstanding loans. Unity Savings has no
knowledge of any potential losses that have not been considered in establishing
the current allowance for loan losses.
2.23 BROKERS; CERTAIN FEES. Unity Savings, nor any of its respective
officers, directors, or employees, has employed any broker or finder or incurred
any liability for any financial advisory fees, brokerage fees, commissions, or
finder's fees in connection with this Agreement or the Merger Agreement, or the
transactions contemplated herein or therein, except that Unity Savings has
retained McDonald & Company Securities, Inc. to perform various investment
banking services in connection with the Merger. The Unity Disclosure Memorandum
contains a complete and correct list as of the date of this Agreement of all
written or oral agreements between Unity Savings and McDonald & Company
Securities, Inc. The Unity Disclosure Memorandum includes complete and correct
copies of all written agreements between Unity Savings and McDonald & Company
Securities, Inc., together with amendments thereto, listed in the Unity
Disclosure Memorandum and a complete and correct written description of all oral
agreements between Unity Savings and McDonald & Company Securities, Inc. listed
in the Unity Disclosure Memorandum.
2.24 MATERIAL FACTS. Neither this Agreement, the Merger Agreement, the
Unity Disclosure Memorandum, nor any list, schedule, or certificate furnished to
Oak Hill Financial by or on behalf of Unity Savings contains any untrue
statement of a material fact or omits a material fact necessary in order to make
the statements contained therein not misleading in light of the circumstances in
which made; provided, however, that the scope of this representation does not
extend to any information relating to or furnished by Oak Hill Financial or Oak
Hill Banks.
2.25 TAX TREATMENT OF THE MERGER. Neither Unity Savings nor any
Affiliate thereof has taken any action or has any Knowledge of any fact or
circumstance that is reasonably likely to prevent the transactions contemplated
hereby, including the Merger, from qualifying as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code.
2.26 TAX TREATMENT OF CERTAIN PAYMENTS. Neither Unity Savings nor any
Affiliate thereof has taken any action or has any Knowledge of any fact or
circumstance that is reasonably likely to result in the treatment of any
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payments to any Unity Savings Affiliate which are contemplated hereby or in
connection with the amendment or termination of two Salary Continuation Plans
executed by George L. Knox and D. Bruce Knox on December 7, 1994, to be
characterized as excess parachute payments within the meaning of Section 280G of
the Internal Revenue Code.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF OAK HILL FINANCIAL
----------------------------------------------------
Oak Hill Financial and Oak Hill Banks represent and warrant, as the
case may be, to Unity Savings that, except as set forth in the Oak Hill
Disclosure Memorandum:
3.01 ORGANIZATION AND AUTHORITY OF OAK HILL FINANCIAL. Oak Hill
Financial is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Ohio, is duly qualified to do business
and is in good standing in all jurisdictions where its ownership or leasing of
property or the conduct of its business requires it to be so qualified, and has
the corporate power and authority to own its properties and assets, to carry on
its business as it is presently being conducted, and to enter into and carry out
its obligations under this Agreement.
3.02 ORGANIZATION AND AUTHORITY OF OAK HILL BANKS. Oak Hill Banks is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Ohio, is duly qualified to do business and is in good
standing in all jurisdictions where its ownership or leasing of property or the
conduct of its business requires it to be so qualified, and has the corporate
power and authority to own its properties and assets, to carry on its business
as it is presently being conducted, and to enter into and carry out its
obligations under this Agreement and the Merger Agreement.
3.03 CAPITALIZATION. The authorized capital stock of Oak Hill Financial
consists of (i) 5,000,000 shares of common stock, without par value, of which
2,884,700 shares were issued and outstanding as of December 31, 1996 (including
treasury shares) and 200,000 reserved for issuance upon exercise of existing
stock option, and (ii) 1,500,000 voting shares of preferred stock, without par
value, and 1,500,000 non-voting shares of preferred stock, without par value, of
which there are no shares issued and outstanding as of the date hereof. All the
outstanding shares of Oak Hill Financial Common are duly and validly authorized,
issued, and outstanding and are fully paid and nonassessable. All of the shares
of Oak Hill Financial Common to be issued pursuant to the Merger Agreement will,
when so issued, be duly and validly authorized, issued, and outstanding, fully
paid and nonassessable, and the issuance of such shares will not be subject to
any preemptive or similar rights.
3.04 AUTHORIZATION OF OAK HILL FINANCIAL. The execution, delivery, and
performance of this Agreement by Oak Hill Financial, and the consummation of the
transactions contemplated hereby, have been duly approved by the Board of
Directors of Oak Hill Financial. As soon as practicable and, in any event,
within ten (10) business days after the SEC has declared the Registration
Statement effective, Oak Hill Financial will call and mail notice of a meeting
of its shareholders for the purpose of adopting the Merger Agreement and this
Agreement, which meeting shall be held not more than 45 days from the date the
notice is mailed, and the Board of Directors of Oak Hill Financial will
recommend to the shareholders that they vote their shares in favor of the
Merger.
3.05 AUTHORIZATION OF OAK HILL BANKS. The execution, delivery, and
performance of this Agreement and the Merger Agreement by Oak Hill Banks, and
the consummation of the transactions contemplated hereby and thereby, have been
duly approved by the Board of Directors of Oak Hill Banks, and by Oak Hill
Financial in its capacity as the sole shareholder of Oak Hill Banks.
3.06 ABSENCE OF DEFAULTS. Neither the execution and delivery of this
Agreement, nor the consummation of the Merger, nor compliance by Oak Hill
Financial with any of the provisions hereof will conflict with or result in a
breach of any provision of the charter or bylaws of Oak Hill Financial or result
in a material breach or termination of, or accelerate the performance required
by, any material note, bond, mortgage, lease, agreement, or other instrument to
which Oak Hill Financial is a party or to which Oak Hill Financial may be bound.
Neither the execution and delivery
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of this Agreement or the Merger Agreement, nor the consummation of the Merger,
nor compliance by Oak Hill Banks with any of the provisions hereof or thereof
will conflict with or result in a breach of any provision of the articles of
incorporation or regulations of Oak Hill Banks or result in a material breach or
termination of, or accelerate the performance required by, any material note,
bond, mortgage, lease, agreement, or other instrument to which Oak Hill Banks is
a party or by which Oak Hill Banks may be bound.
3.07 INFORMATION PROVIDED BY OAK HILL FINANCIAL. None of the
information supplied or to be supplied by Oak Hill Financial for inclusion in
the Registration Statement, application for approval, or any other document to
be filed with the FDIC, the Federal Reserve Board, the Division of Financial
Institutions, the SEC, or any other federal or state regulatory authority in
connection with the transactions contemplated herein or in the Merger Agreement
is or will be false or misleading with respect to any material fact, or omits or
will omit any material fact necessary in order to make the statements therein
not misleading.
3.08 MATERIAL FACTS. Neither this Agreement nor the Merger Agreement
contains any untrue statement of a material fact or omits a material fact
necessary in order to make the statements contained therein not misleading in
light of the circumstances in which made; provided, however, that the scope of
this representation does not extend to any information relating to or furnished
by Unity Savings.
3.09 FILING OF REPORTS. Oak Hill Financial Common is registered
pursuant to Section 12 of the 1934 Act. Oak Hill Financial has been subject to
the reporting requirements of Section 13 of the 1934 Act for a period of at
least 90 days prior to the date hereof and has filed all reports required to be
filed thereunder during the twelve months preceding the date hereof. Since
January 1, 1996, Oak Hill Financial has filed with the SEC all documents and
reports (including all amendments, exhibits, and schedules thereto and documents
incorporated by reference therein) required to be filed by Oak Hill Financial
under the 1934 Act and the 1933 Act, and the rules and regulations promulgated
by the SEC thereunder. None of such documents or reports, as of their respective
dates and as amended through the date hereof, contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in view of the
circumstances under which they were made, not misleading.
3.10 INSURANCE OF ACCOUNTS. The deposits of Oak Hill Banks are insured
up to the applicable limits by the Bank Insurance Fund ("BIF").
3.11 ABSENCE OF UNDISCLOSED LIABILITIES. Except to the extent reflected
or reserved against on the Oak Hill Disclosure Memorandum, Oak Hill Banks has no
liabilities, whether absolute, accrued, contingent, or otherwise, due or to
become due, including without limitation any liabilities as guarantor under any
guaranty or liabilities for taxes, except liabilities and taxes incurred in the
ordinary course of business, which have had or will have a material adverse
effect on the business, financial condition, or results of operations of Oak
Hill Banks.
3.12 ABSENCE OF CERTAIN CHANGES. Except as provided in the Oak Hill
Disclosure Memorandum, since December 31, 1996, Oak Hill Financial and Oak Hill
Banks have not:
(a) made or permitted to be made any changes in their capital
or corporate structures, certificates or articles of incorporation, regulations,
bylaws, or other charter documents;
(b) merged with any other corporation or bank, or permitted
any other corporation or bank to merge into or consolidate with either of them;
acquired control over any other firm, bank, corporation, or organization; or
created any subsidiaries;
(c) issued, sold, delivered, or agreed to issue, sell, or
deliver any additional shares of their capital stock or any options, warrants,
or rights to acquire any such capital stock, or securities convertible into or
exchangeable for such capital stock, and except for capital stock issued
pursuant to the exercise of stock options previously issued, in accordance with
their respective terms;
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(d) purchased, sold, transferred, or otherwise acquired or
disposed of, or agreed to purchase, sell, transfer, acquire, or dispose of, any
capital stock or other securities of any kind, or options or other rights to
acquire any such securities, of any other entity (including, but not limited to,
any such transactions involving either of Oak Hill Banks or Oak Hill Financial
with respect to the capital stock or other securities of the other of them),
other than in the ordinary course of business;
(e) incurred any indebtedness, obligations, or liabilities,
whether absolute, accrued, contingent, or otherwise, including, without
limitation, liabilities as guarantor under any guaranty, other than
indebtedness, obligations, and liabilities incurred in the ordinary course of
their business;
(f) adopted any change in any accounting policy or method;
(g) revalued any asset or adjusted any reserve, other than in
the ordinary course of business;
(h) failed to keep in full force and effect insurance and
bonds at least equal in amount and scope of coverage to the insurance and bonds
carried on December 31, 1996;
(i) suffered any material adverse change in their business,
financial condition, income, assets, or liabilities; and
(j) made no material increase in dividends until the Effective
Date of this Agreement.
3.13 TAXES. Oak Hill Banks and Oak Hill Financial have filed or caused
to be filed all federal and other tax returns which are required to be filed and
have paid or made provision for payment of all taxes shown as due on such
returns. No deficiencies for any tax, assessment, or governmental charge have
been proposed, asserted, or assessed against Oak Hill Banks or Oak Hill
Financial that have not been settled and paid. The federal income tax returns of
Oak Hill Banks and Oak Hill Financial have not been examined by the Internal
Revenue Service for any of the ten years preceding the date of this Agreement.
3.14 LITIGATION. There is no action, suit, proceeding, or claims by any
governmental agency or other person or entity nor any investigation by any
governmental agency pending or, to the Knowledge of Oak Hill Banks or Oak Hill
Financial, threatened against (i) Oak Hill Banks, (ii) Oak Hill Financial, (iii)
the assets, business or goodwill of Oak Hill Banks or Oak Hill Financial, or
(iv) any director, officer, or Principal Shareholder of Oak Hill Banks or Oak
Hill Financial, in relation to the business of Oak Hill Banks or Oak Hill
Financial or any such person's capacity as a director, officer, or Principal
Shareholder of Oak Hill Banks or Oak Hill Financial.
3.15 COMPLIANCE WITH LAWS. Oak Hill Banks and Oak Hill Financial hold
all permits, licenses, certificates of authority, orders, and approvals of, and
have made all filings, applications, and registrations with, all governmental or
regulatory bodies that are required in order to permit them to carry on their
respective businesses as they are presently conducted. To the Knowledge of Oak
Hill Banks and Oak Hill Financial, Oak Hill Banks and Oak Hill Financial have
conducted their businesses so as to comply in all material respects with all
applicable statutes, regulations, rules, and orders.
3.16 ENVIRONMENTAL MATTERS.
(a) To the Knowledge of Oak Hill Banks, Oak Hill Banks is and
has been at all times in substantial compliance with all applicable
Environmental, and Oak Hill Banks has not engaged in any activity resulting in a
material violation of any applicable Environmental Law. No orders, hearings,
actions, or other proceedings by or before any court or governmental agency in
which Oak Hill Banks is a party are pending or, to the Knowledge of Oak Hill
Banks, threatened in connection with any alleged violation of any applicable
Environmental Law (i) by Oak Hill Banks or (ii) in relation to any part of the
Real Property, and Oak Hill Banks has no Knowledge of any investigations or
inquiries
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with respect to any such alleged violation. No claims have been made or, to the
Knowledge of Oak Hill Banks, threatened at any time by any third party against
Oak Hill Banks relating to damage, contribution, cost recovery, compensation,
loss, or injury resulting from any Hazardous Substance. To the Knowledge of Oak
Hill Banks, Oak Hill Banks has not caused or permitted any Hazardous Substance
to be integrated into the Real Property or any component thereof in such manner
or quantity as may reasonably be expected to or in fact would pose a threat to
human health or the value of the Real Property. None of the Real Property has
been used by Oak Hill Banks for the storage or disposal of Hazardous Substances
nor to the Knowledge of Oak Hill Banks, is any of the Real Property contaminated
by any Hazardous Substance. To the Knowledge of Oak Hill Banks, none of the Real
Property has in the past contained or presently contains any underground storage
tanks. To the Knowledge of Oak Hill Banks, Oak Hill Banks has no interest,
direct or indirect, in any property owned by a third party which has been
contaminated by Hazardous Substances (excluding any property as to which the
sole interest of Oak Hill Banks is that of a lien holder or mortgagee, but
including any property as to which title has been taken by Oak Hill Banks
pursuant to mortgage foreclosure or similar proceeding and any property as to
which Oak Hill Banks has participated in the financial management to a degree
sufficient to influence the property's treatment of Hazardous Substances).
(b) To the Knowledge of Oak Hill Banks, the representations
set forth in paragraph (a) above are also true and correct in relation to any
and all real property owned or leased by it at any time prior to the date of
this Agreement, together with any improvements located thereon.
3.17 EMPLOYEE BENEFIT PLANS. All Employee Benefit Plans maintained by
Oak Hill Banks or Oak Hill Financial comply in all material respects with the
requirements of ERISA and the Code and all such plans have been administered to
date in compliance with the requirements of ERISA, the Code, and subsequent
legislation regulating ERISA plans. Each of such plans that is an employee
pension benefit plan within the meaning of Section 3(2) of ERISA that is
intended to be a qualified plan under Section 401(a) of the Code has been
amended to comply in all material respects with current law as required or the
remedial amendment period for such amendment under Section 401(b) of the Code
has not expired and Oak Hill Banks or Oak Hill Financial has obtained favorable
determination letters with respect to all such plans. As of the date hereof, Oak
Hill Banks or Oak Hill Financial has no liability on account of any accumulated
funding deficiency (as defined in Section 412 of the Code) or on account of any
failure to make contributions to or pay benefits under any such plan nor is Oak
Hill Banks or Oak Hill Financial aware of any claim pending or threatened to be
brought by any party regarding such matters. No prohibited transaction has
occurred with respect to any such plan that would result, directly or
indirectly, in the imposition of any excise tax under Section 4975 of the Code;
nor has any reportable event under Section 4043 of ERISA occurred with respect
to any such plan. Neither Oak Hill Banks nor Oak Hill Financial is a defendant
in any lawsuit or criminal action concerning such entity's conduct as a
fiduciary, party-in-interest, or disqualified person with respect to any plan,
nor is either of them engaged in litigation or a continuing controversy with,
or, to the Knowledge of Oak Hill Banks or Oak Hill Financial, under
investigation or examination by, the Department of Labor, Internal Revenue
Service, Justice Department, or Pension Benefit Guaranty Corporation involving
compliance with ERISA or the provisions of the Code relating to employee benefit
plans. All reporting and disclosure requirements of ERISA and the Code have been
met in all respects by all such plans. Neither Oak Hill Banks nor Oak Hill
Financial is required to contribute to an Employee Benefit Plan that is a
"multiemployer plan" within the meaning of Section 3(37) of ERISA.
3.18 CAPITAL REQUIREMENTS. Oak Hill Financial and Oak Hill Banks are in
compliance with all currently applicable capital requirements and guidelines
prescribed by all appropriate federal regulatory agencies.
3.19 LOAN LOSS RESERVES. Since December 31, 1996, Oak Hill Banks has
not incurred any unusual or extraordinary loan losses. The allowance for loan
losses reflected on the financial statements of Oak Hill Banks has been
determined in accordance with generally accepted accounting principles and in
accordance with all applicable regulations of all appropriate regulatory
agencies and is adequate in all material respects under requirements of GAAP to
provide for reasonably anticipated losses on outstanding loans. Oak Hill Banks
has no Knowledge of any potential losses that have not been considered in
establishing the current allowance for loan losses.
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3.20 TAX TREATMENT OF THE MERGER. Neither Oak Hill Banks nor Oak Hill
Financial has taken any action or has any knowledge of any fact or circumstance
that is reasonably likely to prevent the transactions contemplated hereby,
including the Merger, from qualifying as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code.
SECTION 4. COVENANTS OF UNITY SAVINGS
Unity Savings covenants and agrees as follows:
4.01 APPLICATIONS FOR REGULATORY APPROVALS; REGISTRATION STATEMENT.
Unity Savings will cooperate, and will cause its respective directors, officers,
employees, agents, and advisers to cooperate, to the extent reasonably
necessary, with Oak Hill Financial and its advisers in connection with the
preparation of the Registration Statement and the applications for regulatory
approvals described in Section 5.02 hereof.
4.02 SHAREHOLDERS' MEETING. As soon as practicable and, in any event,
within ten business days after the SEC has declared the Registration Statement
effective, Unity Savings will call and mail notice of a meeting of its
shareholders for the purpose of adopting the Merger Agreement and this
Agreement, which meeting shall be held not more than 45 days from the date the
notice is mailed, and the Board of Directors of Unity Savings will to the extent
consistent with their fiduciary duty recommend to the shareholders that they
vote their shares in favor of the Merger.
4.03 CONDUCT OF BUSINESS. From the date of this Agreement until the
Effective Time, except as provided herein or as consented to by Oak Hill
Financial in writing, Unity Savings will conduct its respective operations only,
and shall not take any action except, in the ordinary and usual course of
business, and Unity Savings will use its best efforts to preserve intact its
business organization, assets, prospects, and business relationships, to keep
available the services of their officers and employees, and to maintain existing
relationships with other entities. Without limiting the generality of the
foregoing, subject to the exceptions stated above, during such period, Unity
Savings will not except as provided herein:
(a) enter into any agreement or commitment of the character
referred to in subsections 2.18(a)(i) through (xii) hereof; or
(b) take or permit to be taken any action of a character which
is listed in subsections (a) through (q) of Section 2.10 hereof; provided,
however, that, after prior consultation with Oak Hill Financial, Unity Savings
may take or permit such of those actions as may be required pursuant to any
change in applicable accounting rules or standards, or by law or any applicable
rules or regulations of any governmental authority.
4.04 ACCESS TO INFORMATION. Unity Savings shall give representatives of
Oak Hill Financial full access, during normal business hours and upon reasonable
notice, to all assets, properties, books, records, agreements, and commitments
of Unity Savings, provided that such access shall not unreasonably interfere
with the operations of Unity Savings, and shall furnish to representatives of
Oak Hill Financial all such information concerning its and their affairs as Oak
Hill Financial may reasonably request. It is expressly understood that no
investigation by Oak Hill Financial or Oak Hill Banks pursuant to this Section
4.04 or otherwise shall affect any representation or warranty made herein.
4.05 PRESS RELEASES. Unity Savings shall consult in advance with Oak
Hill Financial as to the form and substance of any press release, written
communication with its shareholders, or other public disclosure of matters
related to the Merger Agreement, this Agreement, or the Merger, and shall not
issue any such press release, written communication, or public disclosure
without the prior written consent of Oak Hill Financial; provided, however, that
nothing contained herein shall prohibit Unity Savings from making any disclosure
(after consultation with Oak Hill Financial with respect thereto) which its
counsel deems necessary under applicable law.
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4.06 BEST EFFORTS. Unity Savings shall use its best efforts to take or
cause to be taken all actions necessary, proper, or advisable to consummate the
Merger, including such actions as Oak Hill Financial may reasonably request in
writing.
4.07 ACQUISITION PROPOSALS. Unless and until this Agreement shall have
been terminated by either party pursuant to Section 11 hereof, Unity Savings
shall not (i) directly or indirectly, through any of its officers, directors,
agents, or affiliates, solicit, encourage, initiate, entertain, consider, or
participate in any negotiations or discussions with respect to any Acquisition
Proposal, or (ii) disclose any information not customarily disclosed to any
person or entity or provide access to its properties, books, or records or
otherwise assist or encourage any person or entity in connection with any
Acquisition Proposal; provided, however, that Unity Savings shall be entitled to
entertain, consider, and participate in negotiations and discussions regarding
an Unsolicited Acquisition Proposal, and to disclose such information and
provide such access in connection with such an Unsolicited Acquisition Proposal,
to the extent that the Board of Directors of Unity Savings determines in good
faith, after consultation with McDonald & Company Securities, Inc., as financial
advisor to Unity Savings, with respect to the financial aspects of the
Unsolicited Acquisition Proposal and the Merger, and with legal counsel to Unity
Savings, that failure to so consider or participate in such negotiations or
discussions would be inconsistent with the fiduciary obligations of the
directors of Unity Savings to the shareholders of Unity Savings. Unity Savings
shall give Oak Hill Financial prompt notice of any such Acquisition Proposals.
4.08 ADVICE OF CHANGES. Between the date hereof and the Effective Date,
Unity Savings shall advise Oak Hill Financial promptly, in writing, of any fact
which, if existing or known on the date hereof, would have been required to be
set forth or disclosed in or pursuant to this Agreement and any fact which, if
existing or known on the date hereof, would have made any of the representations
contained herein untrue. Prior to the Effective Date, Unity Savings shall
deliver to Oak Hill Financial a supplement to the Unity Disclosure Memorandum,
which shall contain a description of any and all such matters.
4.09 CONFIDENTIALITY. From and after the date of this Agreement, Unity
Savings shall, and shall cause its respective Affiliates to, treat all
Confidential Information of Oak Hill Financial and Oak Hill Banks, as
confidential, and Unity Savings shall, and shall cause its respective Affiliates
to, not use any such Confidential Information for any purpose except in
furtherance of the transactions contemplated hereby. In the event this Agreement
is terminated pursuant to Section 11 hereof, Unity Savings shall, and shall
cause its respective Affiliates to, promptly return to Oak Hill Financial all
documents and workpapers, and all copies thereof, containing any such
Confidential Information of Oak Hill Financial or Oak Hill Banks. The covenants
of Unity Savings contained in this Section 4.09 are of the essence and shall
survive any termination of this Agreement and the closing of the transactions
contemplated hereby.
4.10 COORDINATION OF DIVIDENDS. Unity Savings agrees to cooperate with
Oak Hill Financial to ensure that the shareholders of Unity Savings receive a
regular quarterly dividend from either Unity Savings or Oak Hill Financial
during the quarter in which the Effective Date occurs, but that they do not
receive dividends from both Unity Savings and Oak Hill Financial during such
quarter.
4.11 TAX REPRESENTATIONS. Unity Savings will use its reasonable efforts
to cause the Merger, and will take no action which would cause the Merger not to
qualify for treatment as a "reorganization" within the meaning of Section 368(a)
of the Internal Revenue Code for federal income tax purposes.
4.12 POOLING. The accounting firm of Norman, Jones, Enlow and Co. has
reviewed the proposed Merger and knows of no reason why the Merger would not
qualify as a "pooling of interest" for accounting purposes. Unity Savings shall
not intentionally take or cause to be taken any action, whether before or after
the Effective Date, which would disqualify the Merger as a "pooling of
interests" for accounting purposes or as a "reorganization" within the meaning
of Section 368(a) of the Code.
SECTION 5. COVENANTS OF OAK HILL FINANCIAL AND OAK HILL BANKS
--------------------------------------------------
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Oak Hill Financial and Oak Hill Banks covenant and agree as follows:
5.01 ISSUANCE OF OAK HILL FINANCIAL COMMON; PAYMENT FOR FRACTIONAL
SHARES. At the Effective Time, Oak Hill Financial shall (i) issue all of the
shares of Oak Hill Financial Common into which shares of Unity Savings Common
are to be converted in the Merger and will deliver the certificates for such
shares, or cause the same to be delivered, to the Exchange Agent; and (ii)
deliver to the Exchange Agent the amount of cash to be paid in lieu of issuing
fractional shares of Oak Hill Financial Common in accordance with subsections
8(b)(ii) and 9(a) of the Merger Agreement.
5.02 APPLICATIONS FOR REGULATORY APPROVALS. As soon as reasonably
practicable after the execution of this Agreement, Oak Hill Financial shall
prepare and file such applications with the FDIC, the Federal Reserve Board, the
Division of Financial Institutions, and any other regulatory authorities having
jurisdiction as may be required to secure all necessary regulatory approvals of
the Merger and shall use its best efforts to secure such approvals. Oak Hill
Financial shall deliver a draft or drafts of such regulatory applications to
Unity Savings and provide Unity Savings a reasonable opportunity to review such
draft or drafts prior to filing the same.
5.03 REGISTRATION STATEMENT. As soon as reasonably practicable after
the execution of this Agreement, Oak Hill Financial shall prepare and file the
Registration Statement with the SEC, shall use its best efforts to cause the
Registration Statement to become effective, and shall take such action as may be
required to register or qualify for exemption such shares under the securities
laws of the states where registration or an exemption from registration may be
required. Oak Hill Financial shall deliver a draft or drafts of the Registration
Statement to Unity Savings and provide Unity Savings a reasonable opportunity to
review such draft or drafts prior to filing the same.
5.04 SHAREHOLDERS' MEETING. As soon as practicable and, in any event,
within ten business days after the SEC has declared the Registration Statement
effective, Oak Hill Financial will call and mail notice of a meeting of its
shareholders for the purpose of adopting the Merger Agreement and this
Agreement, which meeting shall be held not more than 45 days from the date the
notice is mailed, and the Board of Directors of Oak Hill Financial will to the
extent consistent with their fiduciary duty recommend to the shareholders that
they vote their shares in favor of the Merger.
5.05 PRESS RELEASES. Oak Hill Financial shall consult in advance with
Unity Savings as to the form and substance of any press release, written
communication with its shareholders, or other public disclosure of matters
related to this Agreement, the Merger Agreement, or the Merger.
5.06 BEST EFFORTS. Oak Hill Financial will use its best efforts to take
or cause to be taken all actions necessary, proper, or advisable to consummate
the Merger.
5.07 CONFIDENTIALITY. From and after the date of this Agreement, Oak
Hill Financial and Oak Hill Banks shall, and shall cause their respective
Affiliates to, treat all Confidential Information of Unity Savings as
confidential, and Oak Hill Financial and Oak Hill Banks shall, and shall cause
their respective Affiliates to, not use any such Confidential Information for
any purpose except in furtherance of the transactions contemplated hereby. In
the event this Agreement is terminated pursuant to Section 11 hereof, Oak Hill
Financial and Oak Hill Banks shall, and shall cause their respective Affiliates
to, promptly return to Unity Savings all documents and workpapers, and all
copies thereof, containing any such Confidential Information of Unity Savings.
The covenants of Oak Hill Financial and Oak Hill Banks contained in this Section
5.07 are of the essence and shall survive any termination of this Agreement, but
shall terminate as of the closing of the transactions contemplated hereby.
5.08 COORDINATION OF DIVIDENDS. Oak Hill Financial agrees to cooperate
with Unity Savings to ensure that the shareholders of Unity Savings receive a
regular quarterly dividend from either Unity Savings or Oak Hill Financial
during the quarter in which the Effective Date occurs, but that they do not
receive dividends from both Unity Savings and Oak Hill Financial during such
quarter.
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5.09 INDEMNIFICATION OF DIRECTORS AND OFFICERS. Oak Hill Banks
acknowledges that, by operation of law, at the Effective Time, Oak Hill Banks
will assume any and all legally enforceable obligations of Unity Savings to
indemnify and defend the directors and officers of Unity Savings pursuant to, to
the extent of, and in accordance with the terms and conditions of any such
obligations that Unity Savings had to indemnify and defend such persons in
effect immediately prior to the Effective Time, in connection with such persons'
status or services as directors and officers of Unity Savings, whether by
contractual right or by any provision of the articles of incorporation or code
of regulations of Unity Savings, with respect to any claim asserted or made
prior to or at any time after the Effective Time. All such rights to
indemnification with respect to any such claim shall continue until the final
disposition of such claim regardless of when such claim was made or asserted;
provided, however, that nothing contained herein shall increase or lengthen the
duration of Oak Hill Banks' obligations with respect to such indemnification
over that to which Unity Savings would have been subject had the Merger not been
consummated. Oak Hill Banks agrees to use its reasonable best efforts to cover
directors and officers of Unity Savings in insurance policies.
5.10 EMPLOYEE BENEFIT AND WELFARE BENEFIT PLANS.
(a) Oak Hill Financial and Oak Hill Banks agree to use their
reasonable best efforts to coordinate the conversion of any pension Employee
Benefit Plans, practices, or policies of Unity Savings into similar plans of Oak
Hill Financial, to the extent that such plans may exist, and to give credit to
any and all employees of Unity Savings who become employees of Oak Hill Banks
following the consummation of the Merger for all service with Unity Savings
prior to the Effective Time for purposes of eligibility, vesting, and all other
purposes for which such service is taken into account or recognized, to the
extent feasible and permissible under all applicable laws and regulations and
the applicable terms of Oak Hill Financial's pension Employee Benefit Plans.
(b) Oak Hill Financial and Oak Hill Banks agree to use their
reasonable best efforts, including when permitted by law the amendment of
existing plans, to coordinate the maintenance of or conversion into similar
plans of Oak Hill Financial and Oak Hill Banks of any welfare Employee Benefit
Plan, practice, or policy of Unity Savings, to the extent feasible and
permissible under all applicable laws and regulations and the applicable terms
of Oak Hill Financial's or Oak Hill Banks' plans. Furthermore, the former
officers and employees of Unity Savings (and their spouses and dependents, if
applicable) who are under a Unity Savings plan on the Effective Date, may, upon
the cessation of their participation in a Unity Savings plan being maintained by
Oak Hill Banks after the Effective Date, immediately participate in the
corresponding benefit plan maintain by Oak Hill Banks without regard to
pre-existing conditions or waiting periods to the extent then-permitted by law.
5.11 ADVISORY BOARD. The present Board of Directors of Unity Savings
shall continue for one year as an advisory board of directors to Oak Hill Banks
and shall be paid for such service in accordance with the prior practice of
Unity Savings for such period.
5.12 EMPLOYEES OF UNITY SAVINGS. Upon satisfactory review of employment
files, all of Unity Savings' employees will continue to be employed by Oak Hill
Banks, subject to the employment practices and procedures of Oak Hill Banks.
5.13 POOLING. The accounting firm of Grant Thornton LLP has reviewed
the proposed Merger and determined that the Merger qualifies as a "pooling of
interests" for accounting purposes. Neither Oak Hill Financial nor Oak Hill
Banks shall intentionally take or cause to be taken any action, whether before
or after the Effective Date, which would disqualify the Merger as a "pooling of
interests" for accounting purposes or as a "reorganization" within the meaning
of Section 368(a) of the Code.
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF ALL PARTIES
--------------------------------------------------
The obligations of each of the parties hereto to consummate the Merger
are subject to the fulfillment, on or before the Closing Date, of the following
conditions precedent:
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6.01 SHAREHOLDER APPROVAL. The Merger shall have been approved by the
affirmative vote of the holders of at least two-thirds of the issued and
outstanding shares of Unity Savings Common, and by the affirmative vote of the
holders of a majority of the issued and outstanding shares of Oak Hill
Financial.
6.02 REGULATORY APPROVALS. The Merger and the acquisition of greater
than ten percent of the total of the outstanding number of Oak Hill Financial
Common by George Knox, Jr. and D. Bruce Knox, on a combined basis, shall have
been approved by the FDIC, the Federal Reserve Board, the Division of Financial
Institutions, and any other governmental authority having jurisdiction, and any
applicable waiting periods shall have expired, with no such approval or
authorization containing any provision which would be materially adverse to the
business of Unity Savings, Oak Hill Financial or Oak Hill Banks, either prior to
or subsequent to the proposed merger of Unity Savings and Oak Hill Banks.
6.03 LITIGATION. No suit, action, investigation by any governmental
body, or legal or administrative proceeding shall have been brought or
threatened which materially questions the validity or legality of the
transactions contemplated hereunder or under the Merger Agreement. For purposes
hereof, advisory opinions or written requests for information which could be
used in connection with such suit, investigation, or proceeding given by
governmental agencies may be deemed to constitute such a threat.
6.04 FAIRNESS OPINIONS. Unity Savings shall have received a fairness
opinion from McDonald & Company Securities, Inc. dated as of the date of the
proxy statement relating to the Merger stating that the exchange ratio is fair
to the shareholders of Unity Savings, as of such date, from a financial point of
view and Oak Hill Financial shall have received a fairness opinion from Trident
Financial Corporation dated as of the date of the proxy statement relating to
the Merger stating that the contemplated merger of Unity Savings and Oak Hill
Banks is fair to the shareholders of Oak Hill Financial, as of such date, from a
financial standpoint.
6.05 TAX OPINION. Oak Hill Financial, Oak Hill Banks, and Unity Savings
shall have received an opinion of Porter, Wright, Morris & Arthur substantially
to the effect that:
(a) the Merger will constitute a reorganization within the
meaning of Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Code and Unity
Savings, Oak Hill Financial, and Oak Hill Banks will each be a party to the
reorganization within the meaning of Section 368(b) of the Code;
(b) the basis of the assets of Unity Savings acquired by Oak
Hill Banks will be the same in the hands of Oak Hill Banks as the basis of those
assets in the hands of Unity Savings immediately prior to the Merger;
(c) the holding period of the assets of Unity Savings received
by Oak Hill Banks will, in each instance, include the period for which such
assets were held by Unity Savings;
(d) no gain or loss will be recognized by either Oak Hill
Financial or Oak Hill Banks (except for the inclusion in income of amounts
resulting from any required changes in accounting methods or similar items) upon
the consummation of the Merger;
(e) no gain or loss will be recognized by Unity Savings
(except for the inclusion in income of amounts resulting from any required
changes in accounting methods or similar items) upon consummation of the Merger;
(f) no gain or loss will be recognized by the shareholders of
Unity Savings who exchange their shares of Unity Savings Common for shares of
Oak Hill Financial Common, except to the extent of any cash received in lieu of
a fractional share of Oak Hill Financial Common;
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(g) the basis of the shares of Oak Hill Financial Common to be
received by shareholders of Unity Savings who receive solely shares of Oak Hill
Financial Common will be the same as the basis of the shares of Unity Savings
Common surrendered in exchange therefor;
(h) the holding period of the shares of Oak Hill Financial
Common received by shareholders of Unity Savings will include the holding period
of the shares of Unity Savings Common surrendered in exchange therefor, provided
that the Unity Savings Common was held as a capital asset in the hands of the
shareholder of Unity Savings on the Effective Date;
(i) where solely cash is received by a shareholder of Unity
Savings in exchange for his or her shares of Unity Savings Common pursuant to
the exercise of dissenters' rights, the cash will be treated as having been
received by such shareholder as a distribution in redemption of his Oak Hill
Financial Corporation Common shares received in connection with this
transaction, subject to the provisions and limitations of Section 302 of the
Code, and where, as a result of such distribution, a shareholder owns no shares
of Oak Hill Financial Common either directly or through the application of
Section 318(a) of the Code, the redemption will be a complete termination of
interest within the meaning of Section 302(b)(3) of the Code and such cash will
be treated as a distribution in full payment in exchange for his or her shares
of Unity Savings Common, as provided in Section 302(a) of the Code; and under
Section 1001 of the Code, gain or (subject to the limitations of Section 267 of
the Code) loss will be realized and recognized to such shareholders in an amount
equal to the difference between the amount of such cash and the adjusted basis
of the Unity Savings Common shares surrendered, as determined under Section 1011
of the Code; and
(j) the payment of cash in lieu of fractional shares of Oak
Hill Financial Common will be treated for federal income tax purposes as if the
fractional shares were distributed as part of the exchange and then were
redeemed by Oak Hill Financial; such cash payments will be treated as having
been received as distributions in full payment in exchange for the stock
redeemed subject to the conditions and limitations of Section 302 of the Code.
In rendering such tax opinion, Porter, Wright, Morris & Arthur
shall be entitled to rely upon representations of Unity Savings' officers,
directors and those shareholders of Unity Savings who own one percent or more of
the outstanding shares of Unity Savings Common and officers of Oak Hill
Financial reasonably satisfactory in form and substance to Porter, Wright,
Morris & Arthur.
6.06 MEDICAL/HEALTH INSURANCE COORDINATION. Oak Hill Financial and Oak
Hill Banks shall have received a written affirmation of Medical Mutual of Ohio
fka Blue Cross Blue Shield of Ohio Health Pool ("Health Pool") and Unity Savings
shall have received a written affirmation of Ohio League Trust ("Ohio League")
for medical/health insurance coverage that after the Effective Date, Oak Hill
Financial and Oak Hill Banks may implement one or more of the following option
or options:
(a) Health Pool will allow coverage of Oak Hill Financial's and
Oak Hill Banks' employees (including former Unity Savings
employees) under the Health Pool plan at an acceptable cost to
Oak Hill Financial and Oak Hill Banks;
(b) Health Pool will allow Oak Hill Financial and Oak Hill Banks
to offer more than one medical/health coverage plan to
employees of Oak Hill Financial and Oak Hill Banks (including
former Unity Savings employees), which other plan or plans may
be in addition to coverage under a plan sponsored by Health
Pool;
(c) Ohio League will allow coverage of Oak Hill Financial's and
Oak Hill Banks' employees (including former Unity Savings
employees) under the Ohio League plan at an acceptable cost to
Oak Hill Financial and Oak Hill Banks; or
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(d) Ohio League will allow Oak Hill Financial or Oak Hill Banks to
offer more than one medical/health coverage plan to employees
of Oak Hill Financial and Oak Hill Banks (including former
Unity Savings employees), which other plan or plans may be in
addition to coverage under a plan sponsored by Ohio League.
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF UNITY SAVINGS
----------------------------------------------------
The obligations of Unity Savings to consummate the Merger are subject
to the fulfillment on or before the Closing Date of the following additional
conditions precedent:
7.01 REPRESENTATIONS AND WARRANTIES. The representations and warranties
made by Oak Hill Financial herein shall be true and correct in all material
respects on the Effective Date with the same force and effect as though such
representations and warranties had been made on and as of such date; Oak Hill
Financial and Oak Hill Banks shall have performed in all material respects their
obligations hereunder and under the Merger Agreement to be performed on or
before the Closing Date; and an executive officer of Oak Hill Financial shall
have executed and delivered to Unity Savings a certificate or certificates,
dated as of the Closing Date, in respect of the foregoing matters and in respect
of such other matters as Unity Savings shall reasonably request.
7.02 OPINION OF COUNSEL. Unity Savings shall have received a favorable
opinion dated as of the Closing Date from Porter, Wright, Morris & Arthur,
counsel for Oak Hill Financial, to the effect that:
(a) Oak Hill Financial and Oak Hill Banks are corporations
duly organized, validly existing, and in good standing under the laws of the
State of Ohio; Oak Hill Financial and Oak Hill Banks have the corporate power
and authority to own all of their properties and assets and to carry on their
businesses as presently conducted in all jurisdictions in which such ownership
exists or such business is conducted; and Oak Hill Banks has the corporate power
and authority to merge with Unity Savings pursuant to this Agreement and the
Merger Agreement;
(b) the execution and delivery of this Agreement and the
Merger Agreement did not, and the consummation of the Merger will not, conflict
with any provision of the articles or certificate of incorporation, regulations,
bylaws, or other charter documents of Oak Hill Financial or Oak Hill Banks;
(c) the execution and delivery of this Agreement and the
Merger Agreement and the consummation of the Merger have been authorized by all
necessary corporate action of Oak Hill Financial and Oak Hill Banks; and this
Agreement and the Merger Agreement are valid and binding agreements of Oak Hill
Financial and Oak Hill Banks enforceable in accordance with their terms, except
as may be limited by bankruptcy, insolvency, or other similar laws affecting
enforcement of creditors' rights generally and except that the enforceability of
the obligations of Oak Hill Financial and Oak Hill Banks is subject to general
principles of equity;
(d) the shares of Oak Hill Financial Common to be issued by
Oak Hill Financial in the Merger have been authorized and, upon issuance, will
be fully paid and nonassessable and will not be subject to the preemptive rights
of any shareholder of Oak Hill Financial;
(e) all necessary regulatory approvals have been received and
all applicable waiting periods have expired;
(f) Oak Hill Financial is a duly and validly registered Bank
Holding Company;
(g) Oak Hill Banks is a state-chartered bank; and
(h) Oak Hill Banks deposit accounts are insured by BIF to the
fullest extent permitted by law.
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Such opinion may be governed by the Accord. In giving such opinion,
such counsel may rely as to matters of fact, without independent investigation,
to the extent such counsel deems such reliance to be customary, reasonable, and
appropriate, on certificates of federal, state, or local government officials
and on certificates of officers and directors of Oak Hill Financial or Oak Hill
Banks. Such counsel may expressly exclude any opinions as to choice of law
matters and antitrust matters and may add such other qualifications and
explanations of the basis of its opinions as are consistent with the Accord.
7.03 EFFECTIVENESS OF THE REGISTRATION STATEMENT; NASD LISTING. Unity
Savings shall have received a certificate from a duly authorized officer of Oak
Hill Financial to the effect that the Registration Statement has become
effective by an order of the SEC, the Oak Hill Financial Common to be exchanged
in the Merger has been qualified or is exempt under all applicable state
securities laws, and there has been no stop order issued or threatened by the
SEC that suspends or would suspend the effectiveness of the Registration
Statement, and no proceeding has been commenced or overtly threatened for such
purpose. The shares of Oak Hill Financial Common to be issued to Unity Savings
shareholders pursuant to the Merger Agreement shall have been authorized for
listing on the NASDAQ National Market upon official notice of issuance.
7.04 MATERIAL ADVERSE CHANGE. Since December 31, 1996, there shall not
have occurred any material adverse change in the results of operation, financial
condition, properties, or business of Oak Hill Financial on a consolidated
basis.
7.05 AVERAGE CLOSING PRICE. Neither of the following shall have
occurred:
(a) Both of the following conditions are satisfied: (1) the
Average Closing Price on the Closing Date of shares of Oak Hill
Financial Common shall be less than 85% of the Starting Price; and (2)
the Index Price on the Closing Date shall be greater than the product
of 0.85 and the Index Price on the Starting Date; or
(b) the Average Closing Price on the Closing Date of shares of
Oak Hill Financial Common shall be less than 80% of the Starting Price.
SECTION 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF OAK HILL FINANCIAL AND OAK
-----------------------------------------------------------------
HILL BANKS
----------
The obligations of Oak Hill Financial and Oak Hill Banks to consummate
the Merger are subject to the fulfillment on or before the Closing Date of the
following additional conditions precedent:
8.01 REGULATORY APPROVAL OF THE SUBSIDIARY MERGER. The Merger shall
have been approved by the FDIC, the Federal Reserve Board, the Division of
Financial Institutions, and any other governmental authority having
jurisdiction, and any applicable waiting periods shall have expired, with no
such approval or authorization containing any provision which would be
materially adverse to the business of Oak Hill Financial or Oak Hill Banks.
8.02 REPRESENTATIONS AND WARRANTIES. The representations and warranties
made by Unity Savings herein shall be true and correct in all material respects
on the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of such date; Unity
Savings shall have performed in all material respects its obligations hereunder
and under the Merger Agreement to be performed on or before the Closing Date;
and the chief executive officer and principal financial officer of Unity Savings
shall have executed and delivered to Oak Hill Financial certificates, dated as
of the Closing Date, in respect of the foregoing matters and in respect of such
other matters as Oak Hill Financial shall reasonably request.
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8.03 OPINION OF COUNSEL. Oak Hill Financial shall have received a
favorable opinion dated as of the Effective Date from Vorys, Sater, Seymour and
Pease, as counsel for Unity Savings, reasonably acceptable to Oak Hill
Financial, to the effect that:
(a) Unity Savings is a state chartered savings bank, duly
organized, validly existing, and in good standing under the laws Ohio; Unity
Savings is a member in good standing of the FHLB of Cincinnati; all eligible
accounts of deposit in Unity Savings is insured by the SAIF to the fullest
extent permitted by law; all corporate action required to be taken by the
directors and shareholders of Unity Savings to authorize the transactions
contemplated by this Agreement and the Merger Agreement have been taken; and
Unity Savings has the corporate power to effect the Merger in accordance with
the terms of this Agreement and the Merger Agreement;
(b) the execution and delivery of this Agreement and the
Merger Agreement did not, and the consummation of the Merger will not, conflict
with any provision of the articles or certificate of incorporation, regulations,
bylaws, or other charter documents of Unity Savings; and
(c) the execution and delivery of this Agreement and the
Merger Agreement and the consummation of the Merger have been authorized by all
necessary corporate action of Unity Savings; and this Agreement and the Merger
Agreement are valid and binding agreements of Unity Savings enforceable in
accordance with their terms, except as may be limited by bankruptcy, insolvency,
reorganization, or similar laws affecting enforcement of creditors' rights
generally and except that the enforceability of the obligations of Unity Savings
may be subject to general principles of equity.
Such opinion may be governed by the Accord. In giving such opinion, such counsel
may rely as to matters of fact, without independent investigation, to the extent
such counsel deems such reliance to be customary, reasonable, and appropriate,
on certificates of federal, state, or local government officials and on
certificates of officers and directors of Unity Savings. Such counsel may
expressly exclude any opinions as to choice of law matters and antitrust matters
and may add such other qualifications and explanations of the basis of its
opinions as are consistent with the Accord.
8.04 AGREEMENTS OF AFFILIATES. Each director and their "affiliates,"
for purposes of Rule 145 under the 1933 Act, shall deliver to Oak Hill Financial
prior to the Effective Date a written agreement, providing that such person will
not sell the shares of Oak Hill Financial Common to be received by such person
in the Merger unless such sales are pursuant to an effective registration
statement under the 1933 Act or pursuant to Rule 145 of the SEC or another
exemption from the registration requirements under the 1933 Act.
8.05 DISSENTING SHAREHOLDERS. The total number of shares of Unity
Savings Common, if any, as to which the right to dissent has been asserted under
Section 1701.85 of the Ohio Revised Code shall not exceed five percent (5%) of
the total number of outstanding shares of Unity Savings Common.
8.06 MATERIAL ADVERSE CHANGE. Since December 31, 1996, there shall not
have occurred any material adverse change in the consolidated results of
operations, financial condition, properties, or business of Unity Savings, other
than any such change attributable to or resulting from (i) changes in law,
regulation, or generally accepted accounting principles of general application
to the banking or thrift industries, (ii) changes in economic conditions that
affect the banking and thrift industries generally, including changes in the
general level of interest rates, or (iii) any matter or matters relating to
Unity Savings which have been disclosed in the Unity Disclosure Memorandum as of
the date of this Agreement.
8.07 TITLE INSURANCE. For each parcel of the Real Property described in
the Unity Disclosure Memorandum as being owned by Unity Savings, and for each
lease for any parcel of the Real Property described in the Unity Disclosure
Memorandum as being leased by Unity Savings, Oak Hill Banks or Oak Hill
Financial shall have obtained a title insurance commitment (ALTA 1966 form or
its equivalent) for a fee owner's title insurance policy or leasehold owner's
title insurance policy, as appropriate, each in an amount equal to the carrying
cost of the premises or leasehold
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interest to be insured (including all improvements thereon), on the books of
Unity Savings as of December 31, 1996. Each title insurance commitment shall
show that marketable fee simple title to the owned premises or that valid
leasehold title to the leased premises, as appropriate, is in the name of Unity
Savings, and that it is free and clear of any liens and encumbrances except
taxes and assessments not delinquent and utility and other easements that do not
interfere with the use of the property for the business being conducted thereon.
Each such commitment shall provide that such fee owner's policy committed for
therein shall be an ALTA 1970 form, revised in 1984, and each leasehold owner's
policy shall be an ALTA 1975 form, or other form acceptable to Oak Hill
Financial and Oak Hill Banks.
8.08 SURVEY. Oak Hill Financial or Oak Hill Banks shall have obtained
current land surveys of those parcels of the Real Property specifically
designated by Oak Hill Banks. Each survey to be conducted and prepared by a duly
licensed land surveyor, with such survey to be a duly certified ALTA/ACSM field
survey, which confirm that the Real Property is not subject to any easements,
restrictions, set backs, encroachments, or other limitations except utility and
other easements that do not interfere with the use of the Real Property for the
business then being conducted thereon, and that the Real Property is not located
in any flood hazard area.
8.09 PHASE I. For each parcel of the Real Property described in the
Unity Disclosure Memorandum as being leased or owned by Unity Savings, Oak Hill
Banks or Oak Hill Financial shall have completed a "Phase I" environmental site
assessment prepared by a licensed environmental engineering firm indicating that
there is no evidence of contamination with Hazardous Substances or other
violations of environmental Laws and concluding that no testing or additional
investigations appears to be warranted.
8.10 CONSENTS AND APPROVALS. Unity Savings shall have obtained any and
all consents or approvals that may be required under the terms of (i) any
contract, agreement, lease, or other obligation or commitment, including, but
not limited to, the types described in Section 2.18 hereof, to which either
Unity Savings is a party or by which either Unity Savings or any of their
property or assets is bound, or (ii) any license or permit of Unity Savings, in
order to avoid the occurrence of any breach or default which may result from the
consummation of the Merger and which, if not obtained, is reasonably likely to
have, individually or in the aggregate, a material adverse effect on Oak Hill
Financial, Oak Hill Banks or Unity Savings.
8.11 AGREEMENT TO VOTE. Oak Hill Financial shall have received from
each of Unity Savings' shareholders who own in excess of five percent (5%) of
the outstanding shares of Unity Savings Common an agreement, substantially in
the form attached hereto as EXHIBIT A, to vote in favor of the Merger all shares
of Unity Savings Common owned by them or over which they have the power to vote.
8.12 SHAREHOLDERS' EQUITY. The total shareholders' equity of Unity
Savings as of the end of the most recent calendar quarter preceding the Closing
Date and as of the Closing Date shall not be less than the total shareholders'
equity of Unity Savings as of December 31, 1996, except for Unity Savings'
expenses relating to the Merger and adjustments relating to the Merger and
requested by Oak Hill Financial.
8.13 EXECUTIVE COMPENSATION AGREEMENT. Unity Savings shall have
delivered to Oak Hill Financial and Oak Hill Banks, an executed copy of a
written release from David Bruce Knox, satisfactory to Oak Hill Financial and
Oak Hill Banks, which provides that the liability and obligations of Unity
Savings as a party to a certain Executive Salary Continuation Agreement between
Unity Savings and David Bruce Knox, dated December 7, 1994, are completely
extinguished by mutual agreement.
SECTION 9. CLOSING DATE
------------
Unless the parties otherwise agree, the closing of the transactions
contemplated by this Agreement and the Merger Agreement ("Closing Date") shall
be held at 11:00 a.m. at the offices of Porter, Wright, Morris & Arthur in
Columbus, Ohio, on the last business day of the month in which the conditions
specified in Sections 6.01 and 6.02 hereof have been satisfied.
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SECTION 10. AMENDMENT
---------
At any time prior to the Closing Date, the parties, subject to
paragraph 14 of the Merger Agreement, may modify, amend, or supplement this
Agreement by mutual agreement authorized by their respective boards of directors
and evidenced by an instrument in writing executed and delivered by the parties
hereto, whether before or after the shareholders of Unity Savings has adopted
this Agreement.
SECTION 11. TERMINATION
-----------
11.01 TERMINATION. This Agreement and the Merger Agreement shall
terminate on December 31, 1997, unless a later date is agreed upon in writing by
the parties, and may be terminated and the Merger may be abandoned at any time
prior to the Effective Time as follows:
(a) by the mutual consent, evidenced in writing, of the boards
of directors of Oak Hill Financial, Oak Hill Banks, and Unity Savings;
(b) by the board of directors of Oak Hill Financial, by giving
written notice thereof to Unity Savings, which notice shall specify in
reasonable detail the grounds therefor: (i) if any condition precedent to
performance by Oak Hill Financial and Oak Hill Banks has not been satisfied or
waived; (ii) if Unity Savings has not fully performed its obligations and
agreements hereunder and under the Merger Agreement; or (iii) if any of the
representations of Unity Savings set forth herein are untrue or incorrect in any
material respect; or
(c) by the board of directors of Unity Savings, by giving
written notice thereof to Oak Hill Financial, which notice shall specify in
reasonable detail the grounds therefor: (i) if any condition precedent to
performance by Unity Savings has not been satisfied or waived; (ii) if Oak Hill
Financial and Oak Hill Banks have not fully performed their obligations and
agreements hereunder and under the Merger Agreement; or (iii) if any of the
representations of Oak Hill Financial set forth herein are untrue or incorrect
in any material respect.
11.02 SURVIVAL OF CERTAIN PROVISIONS UPON TERMINATION. Upon a
termination of this Agreement as provided herein, this Agreement and the Merger
Agreement shall become void and there shall be no further obligation or
liability on the part of any party hereto or their respective shareholders,
directors, or officers, except pursuant to Sections 4.09, 5.07, 11.03, and 12
hereof, which shall survive a termination of this Agreement in accordance with
the express terms of such Sections.
11.03 TERMINATION FEE. During the term of this Agreement, if (i) an
Unsolicited Acquisition Proposal is submitted to and approved by the
shareholders of Unity Savings at any time prior to the Effective Time, or (ii)
an Unsolicited Acquisition Proposal is received by Unity Savings or is made
directly to the shareholders of Unity Savings at any time prior to the holding
of the meeting of the shareholders of Unity Savings to be called pursuant to
Section 4.02 hereof, the board of directors of Unity Savings fails to recommend
to the shareholders of Unity Savings approval of the Merger Agreement or this
Agreement, withdraws such recommendation previously made to the shareholders of
Unity Savings, or fails to solicit proxies of shareholders of Unity Savings to
approve the Merger, and the Merger Agreement and this Agreement are subsequently
rejected by the shareholders of Unity Savings at such meeting, then, in either
such event, Unity Savings shall pay to Oak Hill Financial, within five business
days after a termination of the Merger Agreement and this Agreement following
such an event, a cancellation fee in the amount of $325,000, as liquidated
damages, and not as a penalty, and, upon the payment in full thereof, Unity
Savings shall have no further liability under this Agreement or the Merger
Agreement. The obligations of Unity Savings under this Section 11.03 shall
survive a termination of this Agreement, provided that, at the time of such
termination, (1) an event described in Section 7.04 hereof has not occurred, and
(2) Unity Savings does not have the right to terminate this Agreement by virtue
of a material breach of this Agreement or the Merger Agreement by Oak Hill
Financial or Oak Hill Banks.
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SECTION 12. EXPENSES
--------
Except as otherwise expressly provided herein, all expenses incurred by
or on behalf of the parties hereto in connection with the authorization,
preparation, execution, and consummation of this Agreement and the Merger
Agreement, including, without limitation, all fees and expenses of agents,
representatives, printers, and counsel employed by the parties hereto, and
taxes, if any, shall be borne solely by the party which has or shall have
incurred the same. The covenants of the parties contained in this Section 12
shall survive a termination of this Agreement for any reason.
SECTION 13. NOTICES
-------
All notices, requests, demands, and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered
personally or sent by facsimile and confirmed by first-class, certified mail,
postage prepaid, addressed as indicated below, or at such other address as such
party may designate in writing to the other parties:
(a) If to Unity Savings, to:
D. Bruce Knox
President
Unity Savings Bank
115 West Main Street
P.O. Box 303
McArthur, Ohio 45651
with a copy to:
Roger Yurchuck
Vorys, Sater, Seymour and Pease
221 E. 4th Street, Suite 2100
Cincinnati, Ohio 45202
(b) If to Oak Hill Financial or Oak Hill Banks, to:
John D. Kidd
President
Oak Hill Financial, Inc.
14621 State Route 93
Jackson, Ohio 45640
with a copy to:
H. Grant Stephenson, Esq.
Porter, Wright, Morris & Arthur
41 South High Street
Columbus, Ohio 43215
SECTION 14. GENERAL PROVISIONS
------------------------
14.01 ENTIRE AGREEMENT. This Agreement, together with the Merger
Agreement and the documents referred to or incorporated herein or therein,
reflect the entire agreement among the parties with respect to the subject
matter thereof and supersede all prior agreements and understandings, oral or
written, among the parties with respect to such subject matter, and no party
shall be liable or bound to any other party in any manner by any
representations, warranties, or covenants except as specifically set forth
herein or therein.
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14.02 WAIVER. At any time on or prior to the Effective Date, any party
hereto may (i) waive any inaccuracies in the representations and warranties of
the other parties contained in this Agreement and the Merger Agreement or in any
document delivered pursuant hereto or thereto, or (ii) waive compliance by the
other parties with any of the conditions, covenants, and agreements contained in
this Agreement or the Merger Agreement.
14.03 ASSIGNMENT. Neither this Agreement nor any rights, interests, or
obligations hereunder shall be assigned or transferred by operation of law or
otherwise by any of the parties hereto without the prior written consent of the
other party.
14.04 BENEFIT. Except as specifically provided herein, nothing in this
Agreement, express or implied, is intended to confer upon any person or entity
other than the parties hereto and their successors in interest any rights or
remedies under or by reason of this Agreement.
14.05 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original for all purposes, but
such counterparts taken together shall constitute one and the same instrument.
14.06 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Ohio without regard to its conflicts of
laws principles.
14.07 INCORPORATION BY REFERENCE. The Merger Agreement, the Disclosure
Memoranda, and all Exhibits attached hereto are hereby incorporated by reference
herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
OAK HILL FINANCIAL, INC.
By: /s/ John D. Kidd
--------------------
John D. Kidd, President
OAK HILL BANKS
By: /s/ John D. Kidd
--------------------
John D. Kidd, President
UNITY SAVINGS BANK
By: /s/ D. Bruce Knox
--------------------
D. Bruce Knox, President
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APPENDIX B
______________, 1997
Board of Directors
Unity Savings Bank of Southeastern Ohio
115 West Main Street
McArthur, OH 45651
Gentlemen:
You have requested our opinion with respect to the fairness, from a
financial point of view, as of the date hereof, to the holders of common stock,
no par value ("Unity Common"), of Unity Savings Bank of Southeastern Ohio
("Unity") of the financial consideration as set forth in Section 8 (b)(i) of
the Agreement and Plan of Merger dated April 28, 1997, by and between Oak Hill
Financial Corp. ("Oak Hill") and Unity.
The Agreement and Plan of Merger and the Supplemental Agreement dated
April 28, 1997 (together, the "Merger Agreement") provides for the merger (the
"Merger") of Unity with and into Oak Hill, pursuant to which, among other
things, at the Effective Time (as defined in the Merger Agreement), outstanding
shares of Unity Common will be exchanged for 8.5 shares (the "Exchange Ratio")
of common stock, $1.00 par value ("Oak Hill Common") of Oak Hill, subject to
adjustment, as set forth in Section 8 (b)(i) of the Agreement and Plan of
Merger. The terms and conditions of the merger are more fully set forth in the
Merger Agreement.
McDonald & Company Securities, Inc., as part of its investment banking
business, is customarily engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
We have acted as Unity's financial advisor in connection with, and
have participated in certain negotiations leading to, the execution of the
Merger Agreement. In connection with rendering our opinion set forth herein, we
have among other things:
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<PAGE> 168
Board of Directors
_____________, 1997
Page Two
(i) Reviewed Unity's Annual Reports to Shareholders for each of
the years ended December 31, 1996, December 31, 1995 and
December 31, 1994, including the audited financial statements
contained therein, and Unity's Call Reports for the three
month period ended March 31, 1997;
(ii) Reviewed Oak Hill's Annual Reports to Shareholders and Annual
Reports on Form 10-KSB for each of the years ended December
31, 1996 and December 31, 1995, including the audited
financial statements contained therein, and Oak Hill's
unaudited financial statements for the three month period
ended March 31, 1997;
(iii) Reviewed certain other public and non-public information,
primarily financial in nature, relating to the respective
businesses, earnings, assets and prospects of Unity and Oak
Hill provided to us or publicly available;
(iv) Participated in meetings and telephone conferences with
members of senior management of Unity and Oak Hill concerning
the financial condition, business, assets, financial forecasts
and prospects of the respective companies, as well as other
matters we believed relevant to our inquiry;
(v) Reviewed certain stock market information for Unity Common and
Oak Hill Common, and compared it with similar information for
certain companies, the securities of which are publicly
traded;
(vi) Compared the results of operations and financial condition of
Unity and Oak Hill with that of certain companies which we
deemed to be relevant for purposes of this opinion;
(vii) Reviewed the financial terms, to the extent publicly
available, of certain acquisition transactions which we deemed
to be relevant for purposes of this opinion;
(viii) Reviewed the Merger Agreement and its schedules and exhibits
and certain related documents; and
(ix) Performed such other reviews and analyses as we have deemed
appropriate.
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<PAGE> 169
Board of Directors
______________, 1997
Page Three
In our review and analysis and in arriving at our opinion, we have
assumed and relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have relied upon the accuracy and
completeness of the representations, warranties and covenants of Unity and Oak
Hill contained in the Merger Agreement. We have not been engaged to undertake,
and have not assumed any responsibility for, nor have we conducted, an
independent investigation or verification of such matters. We have not been
engaged to and we have not conducted a physical inspection of any of the
assets, properties or facilities of either Unity or Oak Hill, nor have we made
or obtained or been furnished with any independent valuation or appraisal of
any of such assets, properties or facilities or any of the liabilities of
either Unity or Oak Hill. With respect to financial forecasts used in our
analysis, we have assumed that such forecasts have been reasonably prepared by
management of Unity and Oak Hill, as the case may be, on a basis reflecting the
best currently available estimates and judgments of the management of Unity and
Oak Hill, as to the future performance of Unity, Oak Hill, and Unity and Oak
Hill combined, as the case may be. We have not been engaged to assess the
reasonableness or achievability of such financial forecasts or the assumptions
on which they are based, and we express no view as to such financial forecasts
or assumptions. We have also assumed that all of the conditions to the
consummation of the Merger, as set forth in the Merger Agreement, would be
satisfied and that the Merger would be consummated on a timely basis in the
manner contemplated by the Merger Agreement, including the tax-free treatment
of the Merger to the holders of Unity Common.
We will receive a fee for our services as financial advisor to Unity,
a substantial portion of which is contingent upon closing of the Merger. We
will also receive a fee for our services in rendering this opinion.
In the ordinary course of business, we may actively trade securities
of Unity or Oak Hill for our own account and for the accounts of customers and,
accordingly, we may at any time hold a long or short position in such
securities. From time to time, we have also provided investment banking
services to Oak Hill, and served as managing underwriter for an initial public
offering of Oak Hill's Common. We received customary fees from Oak Hill for
these services. In addition, prior to our engagement to serve as Unity's
financial advisor, we participated in preliminary discussions with
representatives of Oak Hill and Unity concerning the financial aspect of a
transaction between the two companies.
This opinion is based on economic and market conditions and other
circumstances existing on, and information made available as of, the date
hereof. In addition, our opinion is, in any event, limited to the fairness, as
of the date hereof, from a financial point of view, of the Exchange Ratio to
the holders of Unity Common, and does not address the underlying business
decision by Unity's Board of Directors to effect the Merger, does not compare
or discuss the
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Board of Directors
_____________, 1997
Page Four
relative merits of any competing proposal or any other terms of the Merger, and
does not constitute a recommendation to any Unity shareholder as to how such
shareholder should vote with respect to the Merger. This opinion does not
represent an opinion as to what the value of Unity Common or Oak Hill Common
may be at the Effective Time of the Merger or as to the prospects of Unity's
business or Oak Hill's business.
This opinion has been prepared solely for the confidential use of the
Board of Directors of Unity and will not be reproduced, summarized, described
or referred to or given to any other person without our prior written consent.
Notwithstanding the foregoing, this opinion may be included in the proxy
statement to be mailed to the holders of Unity Common in connection with the
Merger, provided that this opinion will be reproduced in such proxy statement
in full, and any description of or reference to us or our actions, or any
summary of the opinion in such proxy statement, will be in a form acceptable to
us and our counsel.
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the Exchange Ratio is fair to the holders of Unity Common from
a financial point of view.
Very truly yours,
MCDONALD & COMPANY SECURITIES, INC.
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APPENDIX C
__________________, 1997
Board of Directors
Oak Hill Financial, Inc.
14621 State Route 93
Jackson, Ohio 45640
Gentlemen:
You have requested our opinion as to the fairness, from a financial
point of view, to the holders of shares of common stock (the "Oak Hill Common
Stock") of Oak Hill Financial, Inc. ("Oak Hill") of the consideration to be
paid by Oak Hill in the proposed acquisition (the "Acquisition") of Unity
Savings Bank, McArthur, Ohio ("Unity") by Oak Hill, pursuant to the Agreement
and Plan of Merger (the "Agreement") dated April 15, 1997. Unless otherwise
noted, all terms used herein shall have the same meaning as defined in the
Agreement.
As more specifically set forth in the Agreement, and subject to a
number of conditions and procedures described in the Agreement, each of the
issued and outstanding shares of Unity Common Stock shall be converted into the
right to receive 8.5 shares (the "Exchange Ratio") of Oak Hill Common Stock. In
the event that the Average Closing Price (the average of daily average closing
bid and asked prices of Oak Hill Common Stock as reported on the Nasdaq
National Market System for 20 consecutive trading days three days prior to the
closing date) is greater than 115% of the Starting Price (the average of daily
average closing bid and asked prices of Oak Hill Common Stock as reported on
the Nasdaq National Market System for five consecutive trading days ending on
the Starting Date, which is the date of the Agreement), the Exchange Ratio will
be adjusted such that the consideration to be received by each shareholder of
Unity Common Stock shall be equal to 115% of the Starting Price.
Trident Financial Corporation ("Trident") is a financial consulting
and investment banking firm experienced in the valuation of business
enterprises with considerable experience in the valuation of financial
institutions. Trident is not affiliated with Oak Hill or Unity, nor has Trident
been retained on a contingent fee basis.
In connection with rendering our opinion, we have reviewed and
analyzed, among other things, the following (i) the Agreement; (ii) the
Prospectus/Proxy Statement/Information Statement; (iii) certain publicly
available information concerning Oak Hill, including the audited financial
statements of Oak Hill for each of the years in the three year period ended
December 31, 1996 and unaudited financial statements for the three months ended
March 31, 1997; (iv) certain publicly available information concerning Unity,
including the audited financial statements of Unity for each of the years in
the three year period ended December 31, 1996 and unaudited financial
statements for the three months ended March 31, 1997; (v) certain other
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internal information, primarily financial in nature, concerning the business
and operations of Oak Hill and Unity furnished to us by Oak Hill and Unity for
purposes of our analysis; (vi) certain publicly available information with
respect to other companies that we believe to be comparable to Unity; and (vii)
certain publicly available information concerning the nature and terms of other
transactions that we consider relevant. We have also spoken with certain
officers and employees of Oak Hill, to discuss the foregoing as well as other
matters we believe relevant to our inquiry.
In our review and analysis and in arriving at our opinion, we have
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided to us or publicly available and have not
attempted independently to verify any such information. We did not perform a
review of the loan portfolio, and we did not assess the adequacy of Unity's
loan loss reserves. We have not conducted a physical inspection of Unity's
properties or facilities, nor have we made or obtained any independent
evaluations or appraisals of any of such properties or facilities.
In conducting our analysis and arriving at our opinion as expressed
herein, we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following: (i)
the historical and current financial condition and results of operations of Oak
Hill and Unity, including interest income, interest expense, net interest
income, net interest margin, interest sensitivity, non-interest income and
expense, earnings, dividends, book value, return on assets, return on equity,
capitalization, the amount and type of non-performing assets and the reserve
for loan losses; (ii) the business prospects of Oak Hill and Unity; (iii) the
economy of Oak Hill's and Unity's market areas, and (iv) the nature and terms
of certain other acquisition transactions that we believe to be relevant. We
have also taken into account our assessment of general economic, market,
financial and regulatory conditions and trends, as well as our knowledge of the
financial services industry, our experience in connection with similar
transactions, and our knowledge of securities valuation generally. Our opinion
necessarily is based upon conditions as they exist and can be evaluated on the
date hereof. Our opinion is, in any event, limited to the fairness, from a
financial point of view, of the consideration to be paid by Oak Hill in the
Acquisition and does not address Oak Hill's underlying business decision to
effect the Acquisition.
Based upon and subject to the foregoing, we are of the opinion that
the consideration to be paid by Oak Hill in the Acquisition is fair, as of the
date hereof, from a financial point of view, to the shareholders of Oak Hill.
This opinion is being delivered to the Board of Directors of Oak Hill
for its use and is not to be reproduced, disseminated or delivered to any third
party without the express written consent of Trident Financial Corporation,
except as required by law.
Very truly yours,
TRIDENT FINANCIAL CORPORATION
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APPENDIX D
SECTION 1701.85 OF THE OHIO GENERAL CORPORATION LAW
@1701.85 QUALIFICATION AND PROCEDURES FOR DISSENTING SHAREHOLDERS
(A)(1) A shareholder of a domestic corporation is entitled to relief as a
dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the corporation
involved, the dissenting shareholder shall be a record holder of the shares of
the corporation as to which he seeks relief as of the date fixed for the
determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the
date on which the vote on the proposal was taken at the meeting of the
shareholders, the dissenting shareholder shall deliver to the corporation a
written demand for payment to him of the fair cash value of the shares as to
which he seeks relief, which demand shall state his address, the number and
class of such shares, and the amount claimed by him as the fair cash value of
the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of merger
pursuant to section 1701.801 [1701.80.1] of the Revised code shall be a record
holder of the shares of the corporation as to which he seeks relief as of the
date on which the agreement of merger was adopted by the directors of that
corporation. Within twenty days after he has been sent the notice provided in
section 1701.80 or 1701.801 [1701.80.1] of the Revised Code, the dissenting
shareholder shall deliver to the corporation a written demand for payment with
the same information as that provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the address
specified in his demand, a request for the certificates representing the shares
as to which he seeks relief, the dissenting shareholder, within fifteen days
from the date of the sending of such request, shall deliver to the corporation
the certificates requested so that the corporation may forthwith endorse on them
a legend to the effect that demand for the fair cash value of such shares has
been made. The corporation promptly shall return such endorsed certificates to
the dissenting shareholder. A dissenting shareholder's failure to deliver such
certificates terminates his rights as a dissenting shareholder, at the option of
the corporation, exercised by written notice sent to the dissenting shareholder
within
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twenty days after the lapse of the fifteen-day period, unless a court for good
cause shown otherwise directs. If shares represented by a certificate on which
such a legend has been endorsed are transferred, each new certificate issued
for them shall bear a similar legend, together with the name of the original
dissenting holder of such shares. Upon receiving a demand for payment from a
dissenting shareholder who is the record holder of uncertificated securities,
the corporation shall make an appropriate notation of the demand for payment
in its shareholder records. If uncertificated shares for which payment has been
demanded are to be transferred, any new certificate issued for the shares shall
bear the legend required for certificated securities as provided in this
paragraph. A transferee of the shares so endorsed, or of uncertificated
securities where such notation has been made, acquires only such rights in the
corporation as the original dissenting holder of such shares had immediately
after the service of a demand for payment of the fair cash value of the shares.
A request under this paragraph by the corporation is not an admission by the
corporation that the shareholder is entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder have come to an
agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in case of a merger or consolidation may be the surviving or
new entity, within three months after the service of the demand by the
dissenting shareholder, may file a complaint in the court of common pleas of the
county in which the principal office of the corporation that issued the shares
is located or was located when the proposal was adopted by the shareholders of
the corporation, or, if the proposal was not required to be submitted to the
shareholders, was approved by the directors. Other dissenting shareholders,
within that three-month period, may join as plaintiffs or may be joined as
defendants in any such proceeding, and any two or more such proceedings may be
consolidated. The complaint shall contain a brief statement of the facts,
including the vote and the facts entitling the dissenting shareholder to the
relief demanded. No answer to such a complaint is required. Upon the filing of
such a complaint, the court, on motion of the petitioner, shall enter an order
fixing a date for a hearing on the complaint and requiring that a copy of the
complaint and a notice of the filing and of the date for hearing be given to the
respondent or defendant in the manner in which summons is required to be served
or substituted service is required to be made in other cases. On the day fixed
for the hearing on the complaint or any adjournment of it, the court shall
determine from the complaint and from such evidence as is submitted by either
party whether the dissenting shareholder is entitled to be paid the fair cash
value of any shares and, if so, the number and class of such shares. If the
court finds that the dissenting shareholder is so entitled, the court may
appoint one or more persons as appraisers to receive evidence and to recommend a
decision on the amount of the fair cash value. The appraisers have such power
and authority as is specified in the order of their appointment. The court
thereupon shall make a finding as to the fair cash value of a share and shall
render judgment against the corporation for the payment of it, with interest at
such rate and from such date as the court considers equitable. The costs of the
proceeding, including reasonable compensation to the appraisers to be fixed by
the court, shall be assessed or apportioned as the court considers equitable.
The proceeding is a special proceeding and final orders in it may be vacated,
modified, or reversed on appeal pursuant to the Rules of Appellate Procedure
and, to the extent not in conflict with those rules, Chapter 2505, of the
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Revised Code. If, during the pendency of any proceeding instituted under this
section, a suit or proceeding is or has been instituted to enjoin or otherwise
to prevent the carrying out of the action as to which the shareholder has
dissented, the proceeding instituted under this section shall be stayed until
the final determination of the other suit or proceeding. Unless any provision
in division (D) of this section is applicable, the fair cash value of the
shares that is agreed upon by the parties or fixed under this section shall be
paid withing thirty days after the date of final determination of such value
under this division, the effective date of the amendment to the articles, or
the consummation of the other action involved, whichever occurs last. Upon the
occurrence of the last such event, payment shall be made immediately to a
holder of uncertificated securities entitled to such payment. In the case of
holders of shares represented by certificates, payment shall be made only upon
and simultaneously with the surrender to the corporation of the certificates
representing the shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of the
corporation, fair cash value as to those shareholders shall be determined as of
the day prior to the day on which the vote by the shareholders was taken and,
in the case of a merger pursuant to section 1701.80 or 1701.801 [1701.80.1] of
the Revised Code, fair cash value as to shareholders of a constituent
subsidiary corporation shall be determined as of the day before the adoption of
the agreement of merger by the directors of the particular subsidiary
corporation. The fair cash value of a share for the purposes of this section is
the amount that a willing seller who is under no compulsion to sell would be
willing to accept and that willing buyer who is under no compulsion to purchase
would be willing to pay, but in no event shall the fair cash value of a share
exceed the amount specified in the demand of the particular shareholder. In
computing such fair cash value, any appreciation or depreciation in market value
resulting from the proposal submitted to the directors or to the shareholders
shall be excluded.
(D)(1) The right and obligation of a dissenting shareholder to receive such
fair cash value and to sell such shares as to which he seeks relief, and the
right and obligation of the corporation to purchase such shares and to pay the
fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this section,
unless the corporation by its directors waives such failure;
(b) the corporation abandons the action involved or is finally enjoined
or prevented from carrying it out, or the shareholders rescind their adoption
of the action involved;
(c) The dissenting shareholder withdraws his demand, with the consent
of the corporation by its directors;
(d) The corporation and the dissenting shareholder have not come to an
agreement as to the fair cash value per share, and neither the shareholder nor
the corporation has filed or joined in a complaint under division (B) of this
section within the period provided in that division.
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(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the corporation, all other rights accruing from
such shares, including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or distribution is paid in
money upon shares of such class or any dividend, distribution, or interest is
paid in money upon any securities issued in extinguishment of or in substitution
for such shares, an amount equal to the dividend, distribution, or interest
which, except for the suspension, would have been payable upon such shares or
securities, shall be paid to the holder of record as a credit upon the fair
cash value of the shares. If the right to receive fair cash value is terminated
other than by the purchase of the shares by the corporation, all rights of the
holder shall be restored and all distributions which, except for the
suspension, would have been made shall be made to the holder of record of the
shares at the time of termination.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) Article VI of the Company's Regulations provides that the Company
shall indemnify any person who was or is a party or is threatened to be made a
party to any action (other than an action by or in the right of the Company) by
reason of the fact that the person was or is a director of the Company; or while
a director of the Company such person was or is serving at the request of the
Company as a director, officer, or in some other agency capacity for another
entity. The Company may indemnify any person who was or is a party or is
threatened to be made a party to any action (other than an action by or in the
right of the Company) by reason of the fact that the person was or is an
officer, employee or agent of the Company, or while an officer, employee or
agent of the Company was or is serving at the request of the Company as a
director, officer or in some other agency capacity for another entity.
Indemnification covers expenses (including attorney's fees), judgments, fines
and amounts paid in settlements if such an aforementioned person acted in good
faith and in a manner in which they reasonably believed to be in or not opposed
to the best interests of the Company; and, with respect to a criminal
proceeding, the person had no reasonable cause to believe that the conduct was
unlawful. The termination of an action by judgment, order, settlement or
conviction, or upon a plea of nolo contendere, shall not, by itself, create a
presumption about a person's state of mind.
The Company may indemnify any person who was or is a party or is
threatened to be made a party in an action by or in the right of the Company to
procure a judgment in its favor by reason of the fact that the person is a
director, officer, employee or agent, or is serving at the request of the
Company as a director, officer or in some other agency capacity for another
entity. In actions by the Company, indemnification covers expenses (including
attorney's fees) incurred by a person in connection with defense or settlement
of such action if they acted in good faith and in a manner reasonably believed
to be in or not opposed to the best interests of the Company. No indemnification
shall be made in respect of (1) any action as to which such person is adjudged
to be liable for negligence or misconduct in the performance of their duties,
unless and only to the extent the court in which such action was brought
determines upon application that such person is reasonably entitled to indemnity
for such expenses as the court shall deem proper; or (2) any action in which the
only liability asserted against a director is pursuant to Section 1701.95 of the
Ohio Revised Code dealing with liability for unlawful loans, dividends or
distributions.
Any indemnification shall be made by the Company only as authorized in
the specific case upon a determination that the indemnification was proper
because the person met the applicable standard of conduct set forth above. Such
determination shall be made (1) by the Board of Directors by a majority vote of
a quorum of disinterested directors; (2) in a written opinion by independent
counsel; (3) by the shareholders; or (4) by the court where the action was
brought. Any determination made by the disinterested directors or independent
counsel shall be properly communicated to the person who threatened or brought
the action by or in the right of the Company. Such person shall have the right,
within ten days after notification, to petition the court to review the
reasonableness of such determination. To the extent that a director or other
person in an agency capacity has been successful on the merits or in defense of
an action referred to above, that person shall be indemnified against expenses
(including attorney's fees) reasonably incurred in connection with the action;
this type of indemnification does not require an authorized determination by the
Company.
Expenses (including attorney's fees) incurred by a director in
defending an action referred to above, except where the liability asserted
against a director is pursuant to Section 1701.95 of the Ohio Revised Code,
shall be paid by the Company as they are incurred in advance of the final
disposition of the action, if the director agrees to repay such amount if it is
proved that the director's action or failure to act was undertaken with
deliberate intent to cause injury to the Company or with reckless disregard for
the best interests of the Company. Expenses (including attorney's fees) incurred
by a director or other person in an agency capacity in defending an action
referred to above, including an action brought against a director pursuant to
Section 1701.95 of the Ohio Revised Code, may be paid by the Company as
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incurred before final disposition of the action as authorized by the directors
if such person agrees to repay the Company if it is ultimately determined that
the person is not entitled to be indemnified.
The indemnification authorized by Article VI is not exclusive of, and
is in addition to, any other rights granted to those seeking indemnification
under the Company's regulations, common law and corporation law of the State of
Ohio, or vote of shareholders or disinterested directors. Indemnification rights
shall continue in the person who has ceased to be affiliated with the Company
and shall inure to such person's heirs, executors and administrators.
The Company may purchase insurance on behalf of any person who was or
is a director, officer, employee or agent of the Company, or was or is serving
at the request of the Company as director, officer or in some other agency
capacity for another entity, against liability that is asserted or incurred by
such person in any such capacity, whether or not the Company has the power to
indemnify such person against liability under the provisions of Article VI.
Under Section 1701.13 of the Ohio General Corporation Law, a 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 who, while serving
in such capacity, is or was at the request of the corporation, a director,
officer, employee or agent of another corporation or legal entity or of an
employee benefit plan, against liability asserted against or incurred by such
person in any such capacity whether or not the corporation would have the power
to provide indemnity under Section 1701.13 of the Ohio General Corporation Law.
The above discussion of the Company's Regulations and of Section
1701.13 of the Ohio General Corporation Law is not intended to be exhaustive and
is respectively qualified in its entirety by such Regulations and statute.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
------ -----------
2(a) Agreement and Plan of Merger, dated as of April 28,
1997, among Oak Hill Banks and Unity Savings Bank
(Included as Appendix A to the Prospectus/Proxy
Statement, and incorporated herein by reference.)
2(b) Supplemental Agreement to the Agreement and Plan of
Merger, dated as of April 28, 1997, among the
Company, Oak Hill Banks, and Unity Savings Bank
(Included as Appendix A to the Prospectus/Proxy
Statement, and incorporated herein by reference.)
3(a) Second Amended and Restated Articles of Incorporation
of the Company. (Reference is made to Exhibit 3(i) to
Registration Statement on Form SB-2, as amended
(Registration No. 33-96214), filed with the
Securities and Exchange Commission on August 25,
1995, and incorporated herein by reference.)
3(b) Amended and Restated Code of Regulations of the
Company. (Reference is made to Exhibit 3(ii) to
Registration Statement on Form SB-2, as amended
(Registration No. 33-96214), filed with the
Securities and Exchange Commission on August 25,
1995, and incorporated herein by reference.)
3(c) Form of Specimen Stock Certificate. (Reference is
made to Exhibit 1 to the Company's Form 8-A, filed
with the Securities and Exchange Commission on
September 16, 1995, and incorporated herein by
reference.)
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4 Articles FOURTH, FIFTH, SEVENTH, EIGHTH, TENTH AND
ELEVENTH of the Registrant's Restated Articles of
Incorporation (contained in the Registrant's Restated
Certificate of Incorporation filed as Exhibit 3(a)
hereto) and Articles II, III, IV, VI and VIII of the
Registrant's Amended and Restated Code of Regulations
(contained in the Registrant's Amended and Restated
By-Laws filed as Exhibit 3(b) hereto).
5 * Opinion of Porter, Wright, Morris & Arthur regarding
legality.
8 * Opinion of Porter, Wright, Morris & Arthur regarding
tax matters.
10(a) Oak Hill Financial, Inc. Amended and Restated 1995
Stock Option Plan. (Reference is made to Appendix A
to the Definitive Proxy Statement for the 1997 Annual
Meeting of Shareholders, filed with the Securities
and Exchange Commission on March 31, 1997 and
incorporated herein by reference.)
10(b) * Employment Agreement between D. Bruce Knox and the
Registrant, dated April 28, 1997.
10(c) * Executive Salary Continuation Agreement between D.
Bruce Knox and Unity Savings Bank, dated December 7,
1994.
10(d) * Executive Salary Continuation Agreement between
George Knox and Unity Savings Bank, dated December 7,
1994.
10(e) * Amendment, dated September 18, 1995 to the Executive
Salary Continuation Agreement between George Knox and
Unity Savings Bank.
21 Subsidiaries of the Company. (Reference is made to
Exhibit 21 of Form SB-2, Registration No. 33-96216,
which is incorporated herein by reference.)
23(a) Consent of Porter, Wright, Morris & Arthur (included
in Exhibit 5 ).
23(b) * Consent of Grant Thornton LLP.
23(c) * Consent of Norman, Jones, Enlow and Co.
23(d) * Consent of McDonald & Company Securities, Inc.
23(e) * Consent of Trident Financial Corporation.
24 * Powers of Attorney.
99(a) * Form of proxy card of the Company.
99(b) * Form of proxy card for Unity.
- ----------
* Filed herewith.
(b) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because of the absence of the conditions
under which they are required or because the required information is included in
the financial statements or the notes thereto.
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(c) FAIRNESS OPINION
A copy of the fairness opinion of the McDonald & Company
Securities, Inc. and the Trident Financial Corporation fairness opinion are
included as Appendix B and C respectively, to the Prospectus/Proxy Statement.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes: (1) to file during any
period in which offers or sales are being made, a post effective amendment to
this registration statement: (i) to include any prospectus required by section
10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any
facts or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume or securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; (2) that for
the purpose of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof; (3)
to remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement 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.
The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of the Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed
pursuant to the immediately preceding paragraph, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the Registration Statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of
II-4
<PAGE> 181
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Registration Statement, within one business
day of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the Registration Statement
through the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Jackson,
State of Ohio, on June 27, 1997.
OAK HILL FINANCIAL, INC.
By: /s/ John D. Kidd
--------------------------
John D. Kidd, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John D. Kidd President, Chief June 27, 1997
- ---------------------------- Executive Officer, Director )
John D. Kidd (Principal Executive Officer) )
)
)
*Evan E. Davis Chairman of the Board ) June 27, 1997
- ----------------------------
Evan E. Davis )
)
)
*Richard P. LeGrand Executive Vice President and ) June 27, 1997
- ---------------------------- Director )
Richard P. LeGrand
)
)
*H. Tim Bichsel Secretary and Treasurer ) June 27, 1997
- ---------------------------- (Principal Financial and Accounting )
H. Tim Bichsel Officer) )
)
*Barry M. Dorsey Director ) June 27, 1997
- ----------------------------
Barry M. Dorsey )
)
)
*Rick A. McNelly Director ) June 27, 1997
- ----------------------------
Rick A. McNelly )
</TABLE>
II-5
<PAGE> 182
)
*Donald R. Seigneur Director ) June 27, 1997
- ------------------------- )
Donald R. Seigneur )
)
)
/s/ H. Grant Stephenson Director ) June 27, 1997
- ------------------------- )
H. Grant Stephenson )
)
)
*C. Clayton Johnson Director ) June 27, 1997
- ------------------------- )
C. Clayton Johnson )
)
)
*By /s/ H. Grant Stephenson ) June 27, 1997
-----------------------
H. Grant Stephenson, Attorney-in-fact
for each of the persons indicated
II-6
<PAGE> 183
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
OAK HILL FINANCIAL, INC.
EXHIBITS
<PAGE> 184
EXHIBIT INDEX
EXHIBIT EXHIBIT EXHIBIT INDEX
NUMBER DESCRIPTION PAGE NUMBER
- ------- ----------- -------------
2(a) Agreement and Plan of Merger, dated as of April 28,
1997, among Oak Hill Banks and Unity Savings Bank
(Included as Appendix A to the Prospectus/Proxy
Statement, and incorporated herein by reference.)
2(b) Supplemental Agreement to the Agreement and Plan of
Merger, dated as of April 28, 1997, among the
Company, Oak Hill Banks, and Unity Savings Bank
(Included as Appendix A to the Prospectus/Proxy
Statement, and incorporated herein by reference.)
3(a) Second Amended and Restated Articles of Incorporation
of the Company. (Reference is made to Exhibit 3(i) to
Registration Statement on Form SB- 2, as amended
(Registration No. 33-96214), filed with the
Securities and Exchange Commission on August 25,
1995, and incorporated herein by reference.)
3(b) Amended and Restated Code of Regulations of the
Company. (Reference is made to Exhibit 3(ii) to
Registration Statement on Form SB-2, as amended
(Registration No. 33-96214), filed with the
Securities and Exchange Commission on August 25,
1995, and incorporated herein by reference.)
3(c) Form of Specimen Stock Certificate. (Reference is
made to Exhibit 1 to the Company's Form 8-A, filed
with the Securities and Exchange Commission on
September 16, 1995, and incorporated herein by
reference.)
4 Articles FOURTH, FIFTH, SEVENTH, EIGHTH, TENTH AND
ELEVENTH of the Registrant's Restated Articles of
Incorporation (contained in the Registrant's Restated
Certificate of Incorporation filed as Exhibit 3(a)
hereto) and Articles II, III, IV, VI and VIII of the
Registrant's Amended and Restated Code of Regulations
(contained in the Registrant's Amended and Restated
By-Laws filed as Exhibit 3(b) hereto).
5 * Opinion of Porter, Wright, Morris & Arthur regarding
legality.
8 * Opinion of Porter, Wright, Morris & Arthur regarding
tax matters.
10(a) Oak Hill Financial, Inc. Amended and Restated 1995
Stock Option Plan. (Reference is made to Appendix A
to the Definitive Proxy Statement for the 1997 Annual
Meeting of Shareholders, filed with the Securities
and Exchange Commission on March 31, 1997 and
incorporated herein by reference.)
10(b) * Employment Agreement between D. Bruce Knox and the
Registrant, dated April 28, 1997.
<PAGE> 185
10(c) * Executive Salary Continuation Agreement between D. Bruce Knox
and Unity Savings Bank, dated December 7, 1994.
10(d) * Executive Salary Continuation Agreement between George Knox
and Unity Savings Bank, dated December 7, 1994.
10(e) * Amendment, dated September 18, 1995 to the Executive Salary
Continuation Agreement between George Knox and Unity Savings
Bank.
21 Subsidiaries of the Company. (Reference is made to Exhibit 21
of Form SB-2, Registration No. 33-96216, which is incorporated
herein by reference.)
23(a) Consent of Porter, Wright, Morris & Arthur (included in
Exhibit 5 ).
23(b) * Consent of Grant Thornton LLP.
23(c) * Consent of Norman, Jones, Enlow and Co.
23(d) * Consent of McDonald & Company Securities, Inc.
23(e) * Consent of Trident Financial Corporation.
24 * Powers of Attorney.
99(a) * Form of proxy card of the Company.
99(b) * Form of proxy card of Unity.
- ----------
* Filed herewith.
<PAGE> 1
Exhibit 5
41 South High Street
Columbus, Ohio 43215-6194
Telephone: 614-227-2000
Facsimile: 614-227-2100
Nationwide: 800-533-2794
June 27, 1997
Oak Hill Financial, Inc.
14621 State Route 93
Jackson, Ohio 44640
Re: Merger of Unity Savings Bank into Oak Hill Banks
Gentlemen:
This opinion is furnished with respect to the Registration Statement
on Form S-4 (the "Registration Statement") being filed by Oak Hill Financial,
Inc. (the "Company") with the Securities and Exchange Commission related to the
registration of a maximum of 792,625 shares of Company common stock, without
par value (the "Stock"), to be issued in connection with the proposed merger
(the "Merger") of Unity Savings Bank, an Ohio savings bank ("Unity"), with and
into Oak Hill Banks, a banking corporation chartered under the law of Ohio and
a wholly owned subsidiary of the Company (the "Bank").
We are counsel for the Company and have participated in the
preparation of the Registration Statement. We have reviewed the Agreement and
Plan of Merger and the Supplemental Agreement thereto, both dated as of April
28, 1997, among the Company, the Bank and Unity (the "Merger Agreement"), the
Company's Amended and Restated Articles of Incorporation and Amended and
Restated Code of Regulations, the corporate action taken to date in connection
with the Registration Statement and the issuance and sale of the Stock, and
such other documents and authorities as we deem relevant for the purpose of
this opinion.
Based upon the foregoing, we are of the opinion that:
(a) upon the proper approval of the Merger by the shareholders of
the Company and Unity and the filing of a certificate of
merger with the Ohio Secretary of State;
(b) upon compliance with the Securities Act of 1933, as amended,
and with the Securities or "blue sky" laws of the states in
which the Stock is to be offered for sale; and
Cincinnati * Cleveland * Columbus * Dayton * Naples, FL
* Washington, DC *
<PAGE> 2
Oak Hill Financial, Inc.
June 27, 1997
Page -2-
(c) upon satisfaction of all of the conditions stated in the
Merger Agreement and at the "Effective Time," as defined in
the Merger Agreement;
the Stock, when issued and delivered as provided in the Merger Agreement in
accordance with the resolutions heretofore adopted by the Board of Directors
and shareholders of the Company, will be legally issued, fully paid, and
nonassessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ PORTER, WRIGHT, MORRIS & ARTHUR
-----------------------------------
PORTER, WRIGHT, MORRIS & ARTHUR
<PAGE> 1
EXHIBIT 8
41 South High Street
Columbus, Ohio 43215-6194
Telephone: 614-227-2000
Facsimile: 614-227-2100
Nationwide: 800-533-2794
June 27, 1997
Oak Hill Financial, Inc.
14621 State Route 93
Jackson, Ohio 44640
Unity Savings Bank
115 West Main Street
McArthur, Ohio 45640
Gentlemen:
We have acted as counsel to Oak Hill Financial, Inc., an Ohio
corporation ("Oak Hill Financial") in connection with the proposed statutory
merger (the "Merger") of Unity Savings Bank, a savings bank that is chartered
under the laws of Ohio ("Unity Savings"), with and into Oak Hill Banks, a
banking corporation chartered under the laws of Ohio, and a wholly owned
subsidiary of Oak Hill Financial. Pursuant to the Merger, the shareholders of
Unity Savings will receive common shares, $1.00 par value, of Oak Hill Financial
("Oak Hill Financial Shares") subject to the Agreement and Plan of Merger and
Supplemental Agreement, both dated as of April 28, 1997, between Unity Savings,
Oak Hill Financial and Oak Hill Banks (the "Merger Agreement"), in exchange for
their outstanding common shares of Unity Savings ("Unity Savings Shares"). At
your request, we are rendering our opinion concerning certain federal income tax
consequences of the Merger. Terms not otherwise defined herein shall have the
same meaning as when used in the Merger Agreement.
In that connection, we have examined and relied upon originals, or
copies certified or otherwise identified to our satisfaction, of such records,
documents, and other instruments, and such other matters of fact and law, as we
have considered necessary or appropriate for the purposes of this opinion,
including an examination of: (i) the Merger Agreement and the other documents
and agreements referred to therein; and (ii) the Joint Proxy
Statement/Prospectus (the "Prospectus") relating to the Merger and included in
the Registration Statement of the Oak Hill Financial on Form S-4 (the
"Registration Statement") filed by the Oak Hill Financial with the Securities
and Exchange
Cincinnati o Cleveland o Columbus o Dayton o Naples, FL o
Washington, DC
<PAGE> 2
Oak Hill Financial, Inc.
Unity Savings Bank
June 27, 1997
Page 2
Commission. In our examination, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to the original documents
of all documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such latter documents.
For purposes of the opinions set forth below, we have assumed and are
relying upon the accuracy and completeness of the statements and representations
(which statements and representations we have neither investigated nor verified,
and upon which we are entitled to rely) contained, respectively, in certain
certificates of the officers of the Oak Hill Financial, Oak Hill Banks and Unity
Savings. We have also assumed that the transactions contemplated by the Merger
Agreement will be consummated in accordance with the Merger Agreement, the
Merger will constitute a statutory merger pursuant to the applicable provisions
of the law of the State of Ohio, and the facts, statements, and other
information contained in the Prospectus relating to the Merger are true,
correct, and complete in all material respects.
The opinions set forth below are based upon, and the section numbers
cited herein refer to, the Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury Regulations promulgated thereunder, the administrative
interpretations thereof and the judicial decisions with respect thereto, all as
currently in effect, and are further based upon the continued accuracy and
completeness of the documents, certifications, and representations referred to
in the two preceding paragraphs as of the Effective Time.
In reliance on the assumptions and the representations set forth above,
and further assuming that the shareholders of Unity Savings do not, for a
sufficient period of time to meet the continuity of interest requirements for a
reorganization, sell, exchange, transfer by gift, or otherwise dispose of a
number of Oak Hill Financial Shares received in the Merger that would reduce the
ownership of Oak Hill Financial Shares by the former shareholders of Unity
Savings to a number of shares having a value, as of the date of the Merger, of
less than 50 percent of the total value of all the formerly outstanding Unity
Savings Shares as of the same date, we are of the opinion that:
(1) The Merger will constitute a reorganization within the meaning
of Section 368(a)(1)(A) and (a)(2)(D) of the Code.
(2) Each of Unity Savings, Oak Hill Financial and Oak Hill Banks
will be a "party to a reorganization" within the meaning of
Section 368(b) of the Code.
(3) The discussion contained in the Registration Statement under
the caption "The Merger - Certain Federal Income Tax
Consequences" represents our opinion as to the material
federal income tax consequences of the Merger.
<PAGE> 3
Oak Hill Financial, Inc.
Unity Savings Bank
June 27, 1997
Page 3
We have given this opinion in connection with the transactions
contemplated thereby and such opinion is not to be relied upon for any other
purpose. This opinion may not be applicable to all shareholders, including,
without limitation, (1) a Unity Savings shareholder whose Unity Savings Shares
are not held as a capital asset; or (2) a Unity Savings shareholder who is
subject to special treatment under the Code, including without limitation, an
insurance company, a dealer in securities, a financial institution, a tax-exempt
investor, a foreign shareholder, or a shareholder who is subject to the "golden
parachute" provisions of the Code. This opinion further assumes no shareholder
acquired Unity Savings Shares in contemplation of or to effectuate the Merger.
In addition to the assumptions and exclusions above, no opinion is
expressed herein concerning the effect of state, local, and foreign tax laws.
Furthermore, no opinion is expressed herein about the tax treatment of the
transaction under other provisions of the Code or the Treasury Regulations
issued thereunder or about the tax treatment of any conditions existing at the
time of, or effects resulting from, the transaction that are not specifically
addressed by the foregoing opinion, including, without limitation, the exchange
of any Unity Savings Shares in the Merger that were acquired by the holder
pursuant to an employee stock option or employee stock purchase plan or
otherwise as compensation.
You should be aware that this opinion represents our conclusions as to
the application of existing law and is based on the certifications and
representations given as of the date hereof. The statutory provisions,
regulations, interpretations, and other authorities upon which our opinion is
based are subject to change, and such changes could apply retroactively. A
material change in any of the authorities upon which our opinion is based could
affect our conclusions herein. In addition, no advance ruling has been obtained
from the Internal Revenue Service ("Service") regarding the Merger. An opinion
of counsel represents counsel's best legal judgement, but has no binding effect
or official status of any kind. Accordingly, there can be no assurance that the
Service or Courts will not take positions contrary to the opinions stated above.
No person other than the addressees named herein may rely on this opinion for
any purpose.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement. By giving this consent, however, we do not admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Commission thereunder.
Very truly yours,
/s/ Porter, Wright, Morris & Arthur
PORTER, WRIGHT, MORRIS & ARTHUR
<PAGE> 1
Exhibit 10(b)
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is entered into this 28th day of April, 1997, between
OAK HILL BANKS, an Ohio corporation ("Employer"), and D. BRUCE KNOX
("Employee").
RECITALS:
---------
A. Oak Hill Banks is a banking corporation chartered under the law of
Ohio. Employee is employed by Unity Savings Bank, a savings bank that is
chartered under the law of Ohio ("Unity Savings").
B. Unity Savings has entered into (i) a certain Agreement and Plan of
Merger with Employer, dated April __, 1997 (the "Merger Agreement"), and (ii) a
certain Supplemental Agreement with Oak Hill Financial, Inc. and Employer, also
dated April __, 1997 (the "Supplemental Agreement"), pursuant to which Unity
Savings is to be merged into Employer (the "Merger") (the Merger Agreement and
the Supplemental Agreement collectively referred to as the "Merger Documents").
C. In accordance with the terms of the Merger Documents, and in
consideration of the consummation of the transactions contemplated thereunder,
Employer and Employee desire to enter into an agreement regarding the employment
of Employee by Employer, upon the terms and conditions set forth below.
AGREEMENT:
----------
In consideration of the foregoing Recitals and the mutual promises set
forth below, Employer and Employee hereby agree as follows:
1. EMPLOYMENT. Effective as of the Effective Time of the Merger (as
defined in the Merger Documents), Employer shall employ Employee upon and
subject to the terms and conditions contained in this Agreement.
2. TERM. Unless earlier terminated in accordance with Section 8 below,
the term of Employee's employment under this Agreement shall be for a period of
three (3) years, commencing on the Effective Date (collectively, the "Initial
Term" and, individually, an "Initial Employment Year"). The Initial Term may be
extended by the mutual, written agreement of the parties. If Employee continues
to be employed by Employer following the end of the Initial Term without a
written extension of this Agreement specifying a definite term for such
extension, such employment shall be on an "at will" basis, and may be terminated
by Employer at any time, without cause or notice. All of the terms and
conditions contained in this Agreement shall continue to apply during any such
extension or continuation of employment.
3. DUTIES. Employee shall be employed by Employer as Senior Vice
President. He shall report directly to the President and Chief Executive Officer
of Employer. He shall have such duties and responsibilities as are normally
associated with his position, and shall have such specific and additional duties
and responsibilities as may be assigned to him from time to time by the
President. He shall be appointed to serve as a member of the Board of Directors
of Employer and of Oak Hill Financial, Inc., to serve in accordance with the
requirements of applicable law and the terms of the regulations of the
respective corporations. During the term of his employment under this Agreement,
Employee shall devote his full business time and efforts to the performance of
his duties under this Agreement and shall not, without the express written
consent of the President of Employer, participate in any other business
activities, except for (i) personal investments that do not interfere with his
duties and responsibilities under this Agreement, (ii) vacations, (iii) other
leave time in accordance with the policies and practices of Employer; and (iv)
reasonable participation in community, civic, charitable, trade or similar
organizations. Employee shall, upon the request of Employer, serve as an officer
of affiliates of Employer.
<PAGE> 2
4. COMPENSATION. Employer agrees to pay to the Employee and the
Employee agrees to accept the following amounts as compensation in full for his
services in any capacity hereunder, including services as an officer, director,
member of any committee or in the performance of other like duties assigned to
him by the Board of Directors of Employer:
(a) BASE SALARY. During the employment period, Employer shall pay to
the Employee a base annual salary in the amount of One Hundred Thousand Dollars
($100,000.00), payable in installments in accordance with the standard payroll
practices of the Employer as in effect from time to time (the "Minimum Annual
Base Salary"). The compensation of the Employee may be reviewed in good faith by
both parties during the Initial Term and the renewal terms and may be increased
by mutual consent, but in no event shall the annual base salary be less than the
Minimum Annual Base Salary described above.
(b) BONUS COMPENSATION AND STOCK OPTIONS. The Employee shall be
immediately eligible to participate in Employer's 1997 bonus compensation
program. The Employee also shall be immediately eligible to participate in the
Employer's 1995 Stock Option Plan (the "Option Plan"), and shall receive at the
Effective Time options to purchase 20,000 shares of the Employer's common stock
at the then-prevailing market price in accordance with and subject to the terms
of the Option Plan, on the first anniversary of the Effective Time options to
purchase 5,000 shares (subject to adjustment in the nature of stock dividends,
stock splits, etc.) and on the second anniversary of the Effective Time, options
to purchase 2,500 shares (subject to adjustment in the nature of stock
dividends, stock splits, etc.) at the then-prevailing market price.
(c) DIRECTORS' FEES. Directors' fees shall be payable in addition to
the other compensation provided in this Section 4.
5. FRINGE BENEFITS. Employer shall reimburse Employee for all
reasonable and necessary business expenses incurred by him in connection with
the performance of his duties under this Agreement, specifically to include, but
not to be limited to, business development expenses and mileage on his personal
vehicle when used for business purposes, in accordance with Employer's standard
practices and procedures, as the same may be modified from time to time.
Employee shall also be entitled to participate in all group insurance and other
benefit plans and programs made available by Employer to its employees
generally, to the extent commensurate with his position with Employer. All
amounts payable to Employee hereunder will be paid in accordance with Employer's
standard procedures, and shall be subject to all applicable federal, state, and
local withholding requirements.
6. CONFIDENTIALITY. Except in the ordinary course of his employment
with Employer, or with the express consent of Employer, Employee shall not at
any time, whether during or at any time after the term of his employment with
Employer, in any fashion, form, or manner, either directly or indirectly,
divulge, disclose, or communicate to any person, firm, or corporation, any
confidential and material information concerning the business of Employer or its
affiliated corporations, nor any trade secrets of Employer, which shall be
deemed to include, but not be limited to, any and all activities of Employee in
connection with the business of Employer.
7. NONCOMPETITION. If, prior to the fourth anniversary of the date
hereof, Employee voluntarily terminates his employment with Employer or Employer
terminates the employment of Employee for cause or for a failure by Employee to
satisfy certain minimum performance standards, or if, on or at any time after
the fourth anniversary of the date hereof, the employment of Employee with
Employer is terminated for any reason, then, in any such case, during the period
of one year following the date of such termination, Employee will not (i)
solicit any business from any person who or entity which is a customer of
Employer at the time of such termination or was a customer of Employer at any
time within one year prior to such termination, (ii) induce or attempt to induce
any such customer of Employer to terminate any business with Employer, or (iii)
induce or attempt to induce any employee of Employer to terminate his or her
employment with Employer.
-2-
<PAGE> 3
8. TERMINATION.
(a) Employee's employment under this Agreement shall terminate
automatically upon Employee's death or disability. For purposes of this
Agreement, Employee shall be deemed to be disabled if, by reason of injury or
illness (mental or physical), he has been or will be unable to perform his
duties under this Agreement for a continuous period of 120 days or for an
aggregate of 180 days in any 365-day period.
(b) Employer may, at its option, terminate Employee's
employment under this Agreement immediately, without notice to Employee, upon
the happening of any of the following events, any of which shall constitute a
termination "for cause" for purposes of this Agreement:
(i) any material breach of this Agreement by
Employee;
(ii) any act of fraud, embezzlement, or other willful
misconduct by Employee in relation to the business or affairs of
Employer or gross negligence by Employee in the performance of his
duties hereunder; or
(iii) any other illegal (other than traffic
violations or similar minor offenses) conduct on the part of Employee.
(c) Employee may terminate his employment under this Agreement
at any time upon 60 days' written notice to Employer.
9. EFFECT OF TERMINATION BY EMPLOYER WITHOUT CAUSE. If, prior to the
end of the Initial Term, Employer terminates the employment of Employee without
cause (as defined in Section 8 above), Employer will pay to such Employee the
sum equal to the total of the unpaid salary installment payments remaining to be
paid during the Initial Term, which will be payable in equal monthly
installments commencing on the date of such termination and continuing monthly
thereafter until the end of the Initial Term, and Employer will provide to the
Employee at Employer's expense for the remainder of the Initial Term, health,
life, disability and other benefits substantially equal to those provided to the
Employee at termination. Such payments and benefits shall be in lieu of any
other severance or compensation that might otherwise be payable to such Employee
under such Employee's Employment Agreement or otherwise, except as specifically
provided in paragraph 4(b) above. The Employee shall not be required to mitigate
the amount of any payment provided for in this Section 9 by seeking other
employment or otherwise.
10. NONASSIGNABILITY. Neither party may assign this Agreement to a
third party without the written consent of the other party; provided, however,
that Employer may assign this Agreement without the consent of Employee to any
affiliate of Employer.
11. AGREEMENT COMPLETE; AMENDMENTS. This instrument contains the entire
agreement of the parties with respect to the subject matter hereof. It may not
be amended, supplemented, or otherwise modified, except by an agreement in
writing, signed by the party against whom enforcement of the amendment,
supplement, or other modification is sought.
12. APPLICABLE LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Ohio.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
EMPLOYER:
---------
OAK HILL BANKS
By: /s/ John D. Kidd
----------------------------
John D. Kidd, President
EMPLOYEE:
/s/ D. Bruce Knox
---------------------------------
D. Bruce Knox
-4-
<PAGE> 1
Exhibit 10(c)
EXECUTIVE SALARY CONTINUATION AGREEMENT
---------------------------------------
The Agreement, made and entered into this 7th day of December, 1994
by and between Unity Savings Bank, an Ohio Bank (hereinafter called "the
Bank"), and David Bruce Knox (hereinafter called "the Executive").
WITNESSETH:
-----------
The Executive has been and continues to be a valued Executive of the
Bank, and is now serving the Bank as its Executive Vice President; and,
It is the consensus of the Board of Directors that the Executive's
services to the Bank in the past have been of exceptional merit and have
constituted an invaluable contribution to the general welfare of the Bank and
in bringing it to its present status of operating efficiency, and its present
position in its field of activity; and,
The experience of the Executive, his knowledge of the affairs of the
Bank, his reputation and contacts in the industry are so valuable that
assurance of his best continued interests to the Bank to arrange terms of
continued employment for the Executive so as to reasonably assure his remaining
in the Bank's employment during his lifetime or until the age of retirement;
and,
It is the desire of the Bank that his services be retained as herein
provided; and,
The Executive is willing to continue in the employ of the Bank
provided the Bank agrees to pay to him or his beneficiaries certain benefits in
accordance with the terms and conditions hereinafter set forth:
Accordingly, it is the desire of the Bank and the Executive to enter
into this Agreement under which the Bank will agree to make certain payments to
the Executive at retirement or his beneficiary in the event of his premature
death while employed by the Bank; and,
Furthermore, it is the intent of the parties hereto that this
Agreement be considered an unfunded arrangement maintained primarily to provide
supplemental benefits for the Executive, as a member of a select group of
management or highly compensated employees of the Bank for the purposes of the
Employee Retirement Income Security Act of 1974, (ERISA):
Now therefore, in consideration of services performed in the past and
to be performed in the future as well as of the mutual promises and covenants
herein contained it is agreed as follows:
I. EMPLOYMENT
----------
The Bank agrees to employ the Executive in such capacity as the Bank
may from time to time determine. The Executive will continue in the
employ of the Bank in such capacity and with such duties and
responsibilities as may be assigned to him, and with such
<PAGE> 2
compensation as may be determined from time to time by the Board of
Directors of the Bank. Active employment shall include temporary
disability not to exceed six months and other "leave of absences"
specifically granted by the Board of Directors.
II. FRINGE BENEFITS
---------------
The salary continuation benefits provided by this Agreement are
granted by the Bank as a fringe benefit to the Executive and are not
part of any salary reduction plan or an arrangement deferring a bonus
or a salary increase. The Executive has no option to take any current
payment or bonus in lieu of these salary continuation benefits except
as set forth hereinafter.
III. RETIREMENT DATE
---------------
If the Executive remains in the continuous employ of the Bank, he
shall retire from active employment with the Bank on the December
31st nearest his sixty-fifth (65th) birthday.
IV. RETIREMENT BENEFIT AND POST-RETIREMENT DEATH BENEFIT
----------------------------------------------------
Commencing with the first day of the month following the date of
retirement, (Paragraph III above), the Bank shall pay the Executive
an annual benefit equal to $36,000 in equal monthly installments (of
1/12 of the annual benefit) for a period of two hundred twelve (212)
months, provided that if less than two hundred twelve (212) such
monthly payments have been made prior to the death of the Executive,
the Bank shall continue such monthly payments to whomever the
Executive shall have designated in writing and filed with the Bank,
until the full number of two hundred twelve (212) monthly payments
have been made. In the absence of any effective designation of
beneficiary, any such amounts becoming due and payable upon the death
of the Executive shall be payable to the duly qualified executor or
administrator of his estate.
V. DEATH BENEFIT PRIOR TO RETIREMENT
---------------------------------
In the event the Executive should die while actively employed by the
Bank at any time after the date of this Agreement but prior to his
attaining the age of sixty-five (65) years (or such later date as may
be agreed upon), the Bank will pay an annual benefit equal to $67,483
in equal monthly installments (each equal to 1/12 of the annual
benefit) for a period of one hundred eighty (180) months to such
individual or individuals as the Executive may have designated in
writing and filed with the Bank. The said monthly payments shall
begin the first day of the third month following the month of the
decease of the Executive. In the absence of any effective designation
of beneficiary, any such amounts becoming due and payable upon the
death of the Executive shall be payable to the duly qualified
executor or administrator of his estate. Provided, however, that
anything hereinabove to the contrary
2
<PAGE> 3
notwithstanding, no death benefit shall be payable hereunder if it is
determined that the Executive's death was caused by suicide on or
before June 9, 1996.
VI. BENEFIT ACCOUNTING
------------------
The Bank shall account for this benefit using the regulatory
accounting principles of the Bank's primary federal regulator. The
Bank shall establish an accrued liability retirement account for the
Executive into which appropriate reserves shall be accrued in the
amount determined by the Bank's certified public accounting firm.
VII. VESTING
-------
The Executive's interest in the benefits shall be vested at a rate of
ten percent (10%) per year of service subsequent to the effective
date of this agreement.
VIII. OTHER TERMINATION OF EMPLOYMENT
-------------------------------
In the event that the employment of the Executive shall terminate
prior to retirement from active employment, as provided in Paragraph
III, by his voluntary action, or by his discharge by the Bank, the
Bank shall pay to the Executive as severance compensation an amount
of money equal to the accrued balance of the Executive's liability
reserve account. This severance compensation shall be paid in one
hundred eighty (180) equal annual installments with interest equal to
the one year treasury bill as the date of termination.
In the event the Executive's death should occur after such severance
but prior to the completion of the monthly payments provided for in
this Paragraph VIII, the remaining installments shall be paid to such
individual or individuals as the Executive may have designated in
writing, and filed with the Bank. In the absence of any effective
designation of beneficiary, any such amounts shall be payable to the
duly qualified executor or administrator of his estate.
IX. PARTICIPATION IN OTHER PLANS
----------------------------
The benefits provided hereunder shall be in addition to the
Executive's annual salary as determined by the Board of Directors,
and shall not affect the right of the Executive to participate in any
current or future Bank Retirement Plan, group insurance, bonus, or in
any supplemental compensation arrangement which constitutes a part of
the Bank's regular compensation structure.
X. CHANGE IN CONTROL
-----------------
In the event there is a change in control of the ownership of the
Bank the Executive shall become one hundred percent (100%) vested for
the purposes of Paragraph VIII hereinabove.
3
<PAGE> 4
Change in control is defined for these purposes as the cumulative
transfer to any party other than current shareholders, from the date
of this Agreement, of more than fifty percent (50%) of the stock of
the Bank. For these purposes, transactions between family members
shall be disregarded and transfers on account of death or as a gift
shall also be disregarded.
XI. ALIENABILITY
------------
It is agreed that neither the Executive, nor his spouse, nor any
other designee, shall have any right to commute, sell, assign,
transfer or otherwise convey the right to receive any payments
hereunder, which payments and the right thereto are expressly
declared to be non-assignable and non-transferable; and, in the event
of any attempted assignment or transfer, the Bank shall have no
further liability hereunder.
XII. RESTRICTIONS ON FUNDING
-----------------------
The Bank shall have no obligation to set aside, earmark, or entrust
any fund or money with which to pay its obligations under this
Agreement. The Bank reserves the absolute right at its sole
discretion to either fund the obligations undertaken by this
Agreement or to refrain from funding the same and determine the
extent, nature, and method of such funding.
XIII. GENERAL ASSETS OF THE BANK
--------------------------
The rights of the Executive under this Agreement and of any
beneficiary of the Executive shall be solely those of an unsecured
creditor of the Bank. If the Bank shall acquire an insurance policy
or any other asset in connection with the liabilities assumed by it
hereunder, it is expressly understood and agreed that neither the
Executive nor any beneficiary of the Executive shall have any right
with respect to, or claim against, such policy or other asset. Such
policy or asset shall not be deemed to be held under any trust for
the benefit of the Executive or his beneficiaries or to be held in
any way as collateral security for the fulfilling of the obligations
of the Bank under this Agreement. It shall be, and remain, a general,
unpledged, unrestricted asset of the Bank and the Executive or any of
his beneficiaries shall not have a greater claim to the insurance
policy or other assets, or any interest in either of them, than any
other general creditor of the Bank.
XIV. REORGANIZATION
--------------
The Bank will not merge or consolidate with any other company or
organization, or permit its business activities to be taken over by
any other organization, unless the new entity expressly acknowledges
its obligations under this Agreement and abide by its terms.
4
<PAGE> 5
XV. AMENDMENT
---------
This Agreement may be amended in whole or in part from time to time
by the Employer, but only in writing.
XVI. NOT A CONTRACT OF EMPLOYMENT
----------------------------
This Agreement shall not be deemed to constitute a contract of
employment between the parties hereto, nor shall any provision hereof
restrict the right of the Bank to discharge the Executive, or
restrict the right of the Executive to terminate his employment.
XVII. HEADINGS
--------
Headings and subheadings of this Agreement are inserted for reference
and convenience only and shall not be deemed a part of this
Agreement.
XVIII. APPLICABLE LAW
--------------
The validity and interpretation of this Agreement shall be governed
by the laws of the State of Ohio.
XIX. EFFECTIVE DATE
--------------
The effective date of this Agreement shall be December 7, 1994.
XX. CLAIMS PROCEDURE AND ARBITRATION
--------------------------------
A. Named Fiduciary and Plan Administrator
--------------------------------------
The "Named Fiduciary and Plan Administrator" of this plan
shall be David Bruce Knox until his resignation or removal
by the Board of Directors. As Named Fiduciary for the
management, control and administration of the Executive
Salary Continuation Agreement as established herein, he may
delegate to others certain aspects of the management and
operation responsibilities of the plan including the
employment of advisors and the delegation of ministerial
duties to qualified individuals.
B. In the event a dispute arises over benefits under this Plan
Agreement and benefits are not paid to the Executive (or to
his beneficiary(ies) in the case of the Executive's death)
and such claimants feel they are entitled to receive such
benefits, then a written claim must be made to the Fiduciary
and Administrator named above within sixty (60) days from
the date payments are refused. The Plan Fiduciary and
Administrator and the Bank shall review the written claim
and if the claim is denied,
5
<PAGE> 6
in whole or in part, they shall provide in writing within
ninety (90) days of receipt of such claim their specific
reasons for such denial, reference to the provisions of this
Agreement upon which the denial is based and any additional
material or information necessary to perfect the claim. Such
written notice shall further indicate the additional steps
to be taken by claimants if a further review of the claim
denial is desired. A claim shall be deemed denied if the
Plan Fiduciary and Administrator fails to take any action
within the aforesaid ninety-day period.
If claimants desire a second review, they shall notify the
Plan Fiduciary and Administrator in writing within sixty
(60) days of the first claim denial. Claimants may review
the Plan Agreement or any documents relating thereto and
submit any written issues and comments they may feel
appropriate. In its sole discretion, the Plan Fiduciary and
Administrator shall then review the second claim and provide
a written decision within sixty (60) days of receipt of such
claim. This decision shall likewise state the specific
reasons for the decision and shall include reference to
specific provisions of the Plan Agreement upon which the
decision is based.
If claimants continue to dispute the benefit denial based
upon completed performance of the Agreement or the meaning
and effect of the terms and conditions thereof, then
claimants may submit the dispute to a Board of Arbitration
for final arbitration. Said Board shall consist of one
member selected by the Bank, one member selected by
claimant, and the third member selected by the first two
members. The Board shall operate under any generally
recognized set of arbitration rules. The parties hereto
agree that they and their heirs, personal representatives,
successors and assigns shall be bound by the decision of
such Board with respect to any controversy properly
submitted to it for determination.
Where a dispute arises as to the Bank's discharge of the
Executive "for cause", such dispute shall likewise be
submitted to arbitration as above described and the parties
hereto agree to be bound by the decision thereunder.
In witness whereof, the Bank has caused this Agreement to be signed
in its corporate name by its duly authorized officers, and the Executive
hereunto set his hand, all on the day and year first above written.
UNITY SAVINGS BANK
/s/ Richard Brown By: /s/ George L. Knox
- ---------------------------------- -----------------------------------
Witness Title
/s/ Chris Vaughan By: /s/ David Bruce Knox
- ---------------------------------- -----------------------------------
Witness David Bruce Knox
6
<PAGE> 7
BENEFICIARY DESIGNATION FORM
PRIMARY DESIGNATION:
Name Relationship
---- ------------
Doreen K. Knox Wife
- ---------------------------------- ----------------------------------------
- ---------------------------------- ----------------------------------------
- ---------------------------------- ----------------------------------------
CONTINGENT DESIGNATION:
Conner D. Knox Son
- ---------------------------------- ----------------------------------------
- ---------------------------------- ----------------------------------------
- ---------------------------------- ----------------------------------------
/s/ David Bruce Knox 12/7/94
- ---------------------------------- ----------------------------------------
David Bruce Knox Date
7
<PAGE> 1
Exhibit 10(d)
EXECUTIVE SALARY CONTINUATION AGREEMENT
---------------------------------------
The Agreement, made and entered into this 7th day of December , 1994
by and between Unity Savings Bank, an Ohio Bank (hereinafter called "the
Bank"), and George Knox (hereinafter called "the Executive").
WITNESSETH:
-----------
The Executive has been and continues to be a valued Executive of the
Bank, and is now serving the Bank as its President; and,
It is the consensus of the Board of Directors that the Executive's
services to the Bank in the past have been of exceptional merit and have
constituted an invaluable contribution to the general welfare of the Bank and
in bringing it to its present status of operating efficiency, and its present
position in its field of activity; and,
The experience of the Executive, his knowledge of the affairs of the
Bank, his reputation and contacts in the industry are so valuable that
assurance of his best continued interests to the Bank to arrange terms of
continued employment for the Executive so as to reasonably assure his remaining
in the Bank's employment during his lifetime or until the age of retirement;
and,
It is the desire of the Bank that his services be retained as herein
provided; and,
The Executive is willing to continue in the employ of the Bank
provided the Bank agrees to pay to him or his beneficiaries certain benefits in
accordance with the terms and conditions hereinafter set forth:
Accordingly, it is the desire of the Bank and the Executive to enter
into this Agreement under which the Bank will agree to make certain payments to
the Executive at retirement or his beneficiary in the event of his premature
death while employed by the Bank; and,
Furthermore, it is the intent of the parties hereto that this
Agreement be considered an unfunded arrangement maintained primarily to provide
supplemental benefits for the Executive, as a member of a select group of
management or highly compensated employees of the Bank for the purposes of the
Employee Retirement Income Security Act of 1974, (ERISA):
Now therefore, in consideration of services performed in the past and
to be performed in the future as well as of the mutual promises and covenants
herein contained it is agreed as follows:
I. EMPLOYMENT
----------
The Bank agrees to employ the Executive in such capacity as the Bank
may from time to time determine. The Executive will continue in the
employ of the Bank in such capacity and with such duties and
responsibilities as may be assigned to him, and with such
<PAGE> 2
compensation as may be determined from time to time by the Board of
Directors of the Bank. Active employment shall include temporary
disability not to exceed six months and other "leave of absences"
specifically granted by the Board of Directors.
II. FRINGE BENEFITS
---------------
The salary continuation benefits provided by this Agreement are
granted by the Bank as a fringe benefit to the Executive and are not
part of any salary reduction plan or an arrangement deferring a bonus
or a salary increase. The Executive has no option to take any current
payment or bonus in lieu of these salary continuation benefits except
as set forth hereinafter.
III. RETIREMENT DATE
---------------
If the Executive remains in the continuous employ of the Bank, he
shall retire from active employment with the Bank on the December
31st nearest his sixty-fifth (65th) birthday.
IV. RETIREMENT BENEFIT AND POST-RETIREMENT DEATH BENEFIT
----------------------------------------------------
Commencing with the first day of the month following the date of
retirement, (Paragraph III above), the Bank shall pay the Executive
an annual benefit equal to $36,000 in equal monthly installments (of
1/12 of the annual benefit) for a period of two hundred twelve (212)
months, provided that if less than two hundred twelve (212) such
monthly payments have been made prior to the death of the Executive,
the Bank shall continue such monthly payments to whomever the
Executive shall have designated in writing and filed with the Bank,
until the full number of two hundred twelve (212) monthly payments
have been made. In the absence of any effective designation of
beneficiary, any such amounts becoming due and payable upon the death
of the Executive shall be payable to the duly qualified executor or
administrator of his estate.
V. DEATH BENEFIT PRIOR TO RETIREMENT
---------------------------------
In the event the Executive should die while actively employed by the
Bank at any time after the date of this Agreement but prior to his
attaining the age of sixty-five (65) years (or such later date as may
be agreed upon), the Bank will pay an annual benefit equal to $67,483
in equal monthly installments (each equal to 1/12 of the annual
benefit) for a period of one hundred eighty (180) months to such
individual or individuals as the Executive may have designated in
writing and filed with the Bank. The said monthly payments shall
begin the first day of the third month following the month of the
decease of the Executive. In the absence of any effective designation
of beneficiary, any such amounts becoming due and payable upon the
death of the Executive shall be payable to the duly qualified
executor or administrator of his estate. Provided, however, that
anything hereinabove to the contrary
2
<PAGE> 3
notwithstanding, no death benefit shall be payable hereunder if it is
determined that the Executive's death was caused by suicide on or
before June 9, 1996.
VI. BENEFIT ACCOUNTING
------------------
The Bank shall account for this benefit using the regulatory
accounting principles of the Bank's primary federal regulator. The
Bank shall establish an accrued liability retirement account for the
Executive into which appropriate reserves shall be accrued in the
amount determined by the Bank's certified public accounting firm.
VII. VESTING
-------
The Executive's interest in the benefits shall be vested at a rate of
ten percent (10%) per year of service subsequent to the effective
date of this agreement.
VIII. OTHER TERMINATION OF EMPLOYMENT
-------------------------------
In the event that the employment of the Executive shall terminate
prior to retirement from active employment, as provided in Paragraph
III, by his voluntary action, or by his discharge by the Bank, the
Bank shall pay to the Executive as severance compensation an amount
of money equal to the accrued balance of the Executive's liability
reserve account. This severance compensation shall be paid in one
hundred eighty (180) equal annual installments with interest equal to
the one year treasury bill as the date of termination.
In the event the Executive's death should occur after such severance
but prior to the completion of the monthly payments provided for in
this Paragraph VIII, the remaining installments shall be paid to such
individual or individuals as the Executive may have designated in
writing, and filed with the Bank. In the absence of any effective
designation of beneficiary, any such amounts shall be payable to the
duly qualified executor or administrator of his estate.
IX. PARTICIPATION IN OTHER PLANS
----------------------------
The benefits provided hereunder shall be in addition to the
Executive's annual salary as determined by the Board of Directors,
and shall not affect the right of the Executive to participate in any
current or future Bank Retirement Plan, group insurance, bonus, or in
any supplemental compensation arrangement which constitutes a part of
the Bank's regular compensation structure.
X. CHANGE IN CONTROL
-----------------
In the event there is a change in control of the ownership of the
Bank the Executive shall become one hundred percent (100%) vested for
the purposes of Paragraph VIII hereinabove.
3
<PAGE> 4
Change in control is defined for these purposes as the cumulative
transfer to any party other than current shareholders, from the date
of this Agreement, of more than fifty percent (50%) of the stock of
the Bank. For these purposes, transactions between family members
shall be disregarded and transfers on account of death or as a gift
shall also be disregarded.
XI. ALIENABILITY
------------
It is agreed that neither the Executive, nor his spouse, nor any
other designee, shall have any right to commute, sell, assign,
transfer or otherwise convey the right to receive any payments
hereunder, which payments and the right thereto are expressly
declared to be non-assignable and non-transferable; and, in the event
of any attempted assignment or transfer, the Bank shall have no
further liability hereunder.
XII. RESTRICTIONS ON FUNDING
-----------------------
The Bank shall have no obligation to set aside, earmark, or entrust
any fund or money with which to pay its obligations under this
Agreement. The Bank reserves the absolute right at its sole
discretion to either fund the obligations undertaken by this
Agreement or to refrain from funding the same and determine the
extent, nature, and method of such funding.
XIII. GENERAL ASSETS OF THE BANK
--------------------------
The rights of the Executive under this Agreement and of any
beneficiary of the Executive shall be solely those of an unsecured
creditor of the Bank. If the Bank shall acquire an insurance policy
or any other asset in connection with the liabilities assumed by it
hereunder, it is expressly understood and agreed that neither the
Executive nor any beneficiary of the Executive shall have any right
with respect to, or claim against, such policy or other asset. Such
policy or asset shall not be deemed to be held under any trust for
the benefit of the Executive or his beneficiaries or to be held in
any way as collateral security for the fulfilling of the obligations
of the Bank under this Agreement. It shall be, and remain, a general,
unpledged, unrestricted asset of the Bank and the Executive or any of
his beneficiaries shall not have a greater claim to the insurance
policy or other assets, or any interest in either of them, than any
other general creditor of the Bank.
XIV. REORGANIZATION
--------------
The Bank will not merge or consolidate with any other company or
organization, or permit its business activities to be taken over by
any other organization, unless the new entity expressly acknowledges
its obligations under this Agreement and abide by its terms.
4
<PAGE> 5
XV. AMENDMENT
---------
This Agreement may be amended in whole or in part from time to time
by the Employer, but only in writing.
XVI. NOT A CONTRACT OF EMPLOYMENT
----------------------------
This Agreement shall not be deemed to constitute a contract of
employment between the parties hereto, nor shall any provision hereof
restrict the right of the Bank to discharge the Executive, or
restrict the right of the Executive to terminate his employment.
XVII. HEADINGS
--------
Headings and subheadings of this Agreement are inserted for reference
and convenience only and shall not be deemed a part of this
Agreement.
XVIII. APPLICABLE LAW
--------------
The validity and interpretation of this Agreement shall be governed
by the laws of the State of Ohio.
XIX. EFFECTIVE DATE
--------------
The effective date of this Agreement shall be December 7, 1994.
XX. CLAIMS PROCEDURE AND ARBITRATION
--------------------------------
A. Named Fiduciary and Plan Administrator
--------------------------------------
The "Named Fiduciary and Plan Administrator" of this plan
shall be David Bruce Knox until his resignation or removal
by the Board of Directors. As Named Fiduciary for the
management, control and administration of the Executive
Salary Continuation Agreement as established herein, he may
delegate to others certain aspects of the management and
operation responsibilities of the plan including the
employment of advisors and the delegation of ministerial
duties to qualified individuals.
B. In the event a dispute arises over benefits under this Plan
Agreement and benefits are not paid to the Executive (or to
his beneficiary(ies) in the case of the Executive's death)
and such claimants feel they are entitled to receive such
benefits, then a written claim must be made to the Fiduciary
and Administrator named above within sixty (60) days from
the date payments are refused. The Plan Fiduciary and
Administrator and the Bank shall review the written claim
and if the claim is denied,
5
<PAGE> 6
in whole or in part, they shall provide in writing within
ninety (90) days of receipt of such claim their specific
reasons for such denial, reference to the provisions of this
Agreement upon which the denial is based and any additional
material or information necessary to perfect the claim. Such
written notice shall further indicate the additional steps
to be taken by claimants if a further review of the claim
denial is desired. A claim shall be deemed denied if the
Plan Fiduciary and Administrator fails to take any action
within the aforesaid ninety-day period.
If claimants desire a second review, they shall notify the
Plan Fiduciary and Administrator in writing within sixty
(60) days of the first claim denial. Claimants may review
the Plan Agreement or any documents relating thereto and
submit any written issues and comments they may feel
appropriate. In its sole discretion, the Plan Fiduciary and
Administrator shall then review the second claim and provide
a written decision within sixty (60) days of receipt of such
claim. This decision shall likewise state the specific
reasons for the decision and shall include reference to
specific provisions of the Plan Agreement upon which the
decision is based.
If claimants continue to dispute the benefit denial based
upon completed performance of the Agreement or the meaning
and effect of the terms and conditions thereof, then
claimants may submit the dispute to a Board of Arbitration
for final arbitration. Said Board shall consist of one
member selected by the Bank, one member selected by
claimant, and the third member selected by the first two
members. The Board shall operate under any generally
recognized set of arbitration rules. The parties hereto
agree that they and their heirs, personal representatives,
successors and assigns shall be bound by the decision of
such Board with respect to any controversy properly
submitted to it for determination.
Where a dispute arises as to the Bank's discharge of the
Executive "for cause", such dispute shall likewise be
submitted to arbitration as above described and the parties
hereto agree to be bound by the decision thereunder.
In witness whereof, the Bank has caused this Agreement to be signed
in its corporate name by its duly authorized officers, and the Executive
hereunto set his hand, all on the day and year first above written.
UNITY SAVINGS BANK
/s/ Richard Brown By: /s/ David Bruce Knox
- ---------------------------------- ------------------------------------
Witness Title Executive President
/s/ Chris Vaughan By: /s/ George L. Knox
- ---------------------------------- ------------------------------------
Witness David Bruce Knox
6
<PAGE> 7
BENEFICIARY DESIGNATION FORM
PRIMARY DESIGNATION:
Name Relationship
---- ------------
Marianne G. Knox Wife
- ----------------------------------- ---------------------------------------
- ----------------------------------- ---------------------------------------
- ----------------------------------- ---------------------------------------
CONTINGENT DESIGNATION:
David Bruce Knox Son
- ----------------------------------- ---------------------------------------
Brian Keith Knox Son
- ----------------------------------- ---------------------------------------
Carl Franklin Knox Son
- ----------------------------------- ---------------------------------------
/s/ George L. Knox December 7, 1994
- ----------------------------------- ---------------------------------------
George Knox Date
7
<PAGE> 1
Exhibit 10(e)
AMENDMENT TO THE EXECUTIVE SALARY CONTINUATION AGREEMENT
DATED DECEMBER 7, 1994
BETWEEN UNITY SAVINGS BANK AND GEORGE L. KNOX
EXCERPT FROM SEPTEMBER 18, 1995 BOARD OF DIRECTORS MEETING OF UNITY SAVINGS
BANK:
It was moved by Emmett Conway, Jr. and seconded by G. Richard Brown that the
following amendments be made to the EXECUTIVE SALARY CONTINUATION AGREEMENT
dated December 7, 1994 between Unity Savings Bank and George L. Knox:
V. DEATH BENEFIT PRIOR TO RETIREMENT
---------------------------------
In the event the Executive should while actively employed by the Bank
at any time after the date of this Agreement but prior to this attaining the age
of seventy (70) years (or such later date as may be agreed upon), the Bank will
pay a benefit equal to the balance in the accrued liability retirement account
in a lump sum to such individual or individuals as the Executive may have
designated in writing and filed with the Bank. In the absence of any effective
designation of beneficiary any such amount becoming due and payable upon the
death of the Executive shall be payable to the duly qualified executor or
administrator of his estate provided, however that anything hereinabove to the
contrary notwithstanding, no death benefit shall be payable hereunder if it is
determined that the Executive's death was caused by suicide on or before
June 9, 1996.
VI. BENEFIT ACCOUNTING
------------------
The Bank shall account for this benefit using the regulatory accounting
principles of the Bank's primary federal regulator. The Bank shall establish an
accrued liability retirement account for the Executive into which appropriate
reserves shall be accrued in the amount determined by the Bank's certified
public accounting firm.
VII. VESTING
-------
The Executive's interest in the benefits shall not vest until the
Retirement Date (Paragraph III). On the Retirement Date, the Executive shall
become one hundred percent (100%) vested in the benefits under this Agreement.
VIII. OTHER TERMINATION OF EMPLOYMENT
-------------------------------
In the event that the employment of the Executive shall terminate prior
to retirement from active employment, as provided in Paragraph III, by his
voluntary action, or by his discharge by the Bank, the Bank shall pay to the
Executive as severance compensation an amount of money equal to the accrued
balance of the Executive's liability reserve account. This severance
compensation shall be paid in one hundred eighty (180) equal monthly
installments with interest equal to the one year treasury bill as the date of
termination.
<PAGE> 2
In the event the Executive's death should occur after such severance
but prior to the completion of the monthly payment provided for in the Paragraph
VIII, the remaining installments shall be paid to such individual or individuals
as the Executive may have designated in writing, and filed with the Bank. In the
absence of any effective designation of beneficiary any such amounts shall be
payable to the duly qualified executor or administrator of his estate.
VOTE: Adelmann-yes, Brown-yes, Conway-yes, Cotner-yes, D. Bruce
Knox-yes, George L. Knox-abstained, Simmons-yes."
I acknowledge and accept this amendment to the Executive Salary
Continuation Agreement originally adopted by the Board of Unity Savings Bank on
December 7, 1994.
/s/ George L. Knox September 19, 1995
- ---------------------------------- ---------------------------------------
George L. Knox Date
/s Sharon Baltz /s/ Paula L. Henderson
- ---------------------------------- ---------------------------------------
Witness Witness
2
<PAGE> 1
EXHIBIT 23(b)
ACCOUNTANTS' CONSENT
We have issued our report dated February 12, 1997 accompanying the
consolidated financial statements of Oak Hill Financial, Inc. contained in Form
S-4 to be filed with the Securities and Exchange Commission on or about June 27,
1997. We consent to the use of the aforementioned report in the Registration
Statement and Prospectus, and to the use of our name as it appears under the
caption "experts."
/s/ Grant Thornton LLP
Cincinnati, Ohio
June 26, 1997
<PAGE> 1
Exhibit 23(c)
Norman
Jones
Enlow
& Co.
The Board of Directors
Unity Savings Bank
McArthur, Ohio
We have issued our report dated January 24, 1997, accompanying the financial
statements of Unity Savings Bank of Southeastern Ohio contained in Form S-4 of
Oak Hill Financial, Inc. to be filed with the Securities and Exchange
Commission on or about June 26, 1997. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption "experts."
/s/ Norman Jones, Enlow & Co.
Zanesville, Ohio
June 24, 1997
<PAGE> 1
Exhibit 23(d)
CONSENT OF McDONALD & COMPANY SECURITIES, INC.
We consent to the inclusion in the Joint Prospectus/Proxy Statement of Oak
Hill Financial Inc. and Unity Savings Bank of the use of the form of our opinion
and to the summarization of our opinion in the Joint Proxy Statement/Prospectus
under the caption "Opinion of Unity's Financial Advisor." Further, we consent to
all references to our firm in such Joint Proxy Statement/Prospectus.
/s/ McDONALD & COMPANY SECURITIES, INC.
---------------------------------------
McDONALD & COMPANY SECURITIES, INC.
Cleveland, Ohio
June 25, 1997
<PAGE> 1
EXHIBIT 23(e)
TRIDENT FINANCIAL CORPORATION
Investment Bankers and Financial Advisors
4601 Six Forks Road
Raleigh, North Carolina 27609
We hereby consent to the use of our name and to the description of our
opinion letter, to be signed and dated the date of the Registration Statement,
under the caption "Opinion of Financial Advisor for Oak Hill", and to the
inclusion of such opinion letter as Appendix C to the Registration Statement on
Form S-4 of Oak Hill Financial, Inc.
TRIDENT FINANCIAL CORPORATION
By:/s/ John F. Schramm
------------------------------------------
John F. Schramm
Senior Vice President
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
-------------------
Each of the undersigned officers and/or directors of Oak Hill financial,
Inc., an Ohio corporation (the "Company"), hereby appoints John D. Kidd and H.
Grant Stephenson, as his true and lawful attorneys-in-fact, or any of them, with
power to act without the others, as his true and lawful attorney-in-fact, in his
name and on his behalf, and in any and all capacities stated below, to sign and
to cause to be filed with the Securities and Exchange Commission the Company's
Registration Statement on Form S-4 (the "Registration Statement") to register
under the Securities Act of 1933, as amended, a maximum of 792,625 shares of
Common Stock, without par value, of the Company, in connection with the
Agreement and Plan of Merger and Supplemental Agreement, dated April 28,1997,
among the Company, Oak Hill Banks, and Unity Savings Bank, and any and all
amendments, including post-effective amendments, to the Registration Statement,
hereby granting unto such attorneys-in-fact, and to each of them, full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all such capacities, every act and thing whatsoever necessary to be done in
and about the premises as fully as the undersigned could or might do in person,
hereby granting to each such attorney-in-fact full power of substitution and
revocation, and hereby ratifying all that any such attorney-in-fact or his
substitute may do by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 25th day of June,
1997.
SIGNATURE TITLE
President, Chief Executive Officer, Director
/s/ John D. Kidd (Principal Executive Officer)
- ------------------------
John D. Kidd
/s/ Evan E. Davis Chairman of the Board
- ------------------------
Evan E. Davis
/s/ Richard P. LeGrand Executive Vice President and Director
- ------------------------
Richard P. LeGrand
/s/ H. Tim Bichsel Secretary and Treasurer
- ------------------------ (Principal Accounting Officer)
H. Tim Bichsel
/s/ Barry M. Dorsey Director
- ------------------------
Barry M. Dorsey
/s/ Rick A. McNelly Director
- ------------------------
Rick A. McNelly
/s/ Donald R. Seigneur
- ------------------------ Director
Donald R. Seigneur
/s/ H. Grant Stephenson
- ------------------------ Director
H. Grant Stephenson
/s/ C. Clayton Johnson
- ------------------------ Director
C. Clayton Johnson
<PAGE> 1
EXHIBIT 99(a)
OAK HILL FINANCIAL, INC.
14621 STATE ROUTE 93
JACKSON, OHIO 44640
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
______ __, 1997
The undersigned hereby appoints JOHN D. KIDD and H. GRANT STEPHENSON, or
either of them, my attorneys and proxies, with full power of substitution, in
the name, place and stead of the undersigned, to vote at the Special Meeting of
Shareholders of Oak Hill Financial, Inc. (the "Company") to be held on ____, __,
1997, and at any adjournment thereof, with all of the powers I would have if
personally present, for the following purposes:
1. TO ADOPT THE AGREEMENT AND PLAN OF MERGER AND THE SUPPLEMENTAL AGREEMENT
THERETO, BOTH DATED AS OF APRIL 28, 1997 (COLLECTIVELY THE "MERGER AGREEMENT"),
PURSUANT TO WHICH UNITY SAVINGS BANK, AN OHIO SAVINGS BANK ("UNITY") WILL BE
MERGED WITH AND INTO OAK HILL BANKS, AN OHIO BANKING CORPORATION AND WHOLLY
OWNED SUBSIDIARY OF THE COMPANY, AND EACH SHAREHOLDER OF UNITY WILL RECEIVE 8.5
SHARES OF COMMON STOCK, WITHOUT PAR VALUE, OF THE COMPANY, AS SUCH NUMBER MAY BE
ADJUSTED DOWNWARD IN ACCORDANCE WITH THE TERMS OF THE MERGER AGREEMENT, IN
EXCHANGE FOR EACH SHARE OF COMMON STOCK OF UNITY.
/ / FOR / / AGAINST / / ABSTAIN
2. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING AND
ANY ADJOURNMENT THEREOF.
THIS PROXY, WHEN EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR PROPOSAL 1.
(Continued and to be signed on other side.)
<PAGE> 2
(Continued from other side.)
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Shareholders dated ____, 1997 and the Proxy Statement furnished
therewith. Any proxy heretofore given to vote said shares is hereby revoked.
DATED: ___________, 1997 _________________________(SIGNATURE)
_________________________(SIGNATURE)
SIGNATURE(S) MUST AGREE WITH THE
NAME(S) PRINTED ON THIS PROXY. IF
SHARES ARE REGISTERED IN TWO NAMES,
BOTH SHAREHOLDERS SHOULD SIGN THIS
PROXY.
IF SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE YOUR FULL TITLE AS SUCH.
PLEASE DATE, SIGN AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
<PAGE> 1
EXHIBIT 99.2(b)
REVOCABLE PROXY
UNITY SAVINGS BANK
SPECIAL MEETING OF SHAREHOLDERS
_________, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF UNITY SAVINGS BANK
The undersigned shareholder of Unity Savings Bank ("Unity") hereby
nominates, constitutes and appoints ______ and ______, or either of them, as
proxy or proxies for the undersigned, each with full power of substitution and
resubstitution, to vote all of the common shares of Unity which the undersigned
is entitled to vote at the Special Meeting of Shareholders of Unity to be held
on ______, 1997, at _____m., local time, and at any adjournment thereof (the
"Special Meeting"), on the following matters, which are described in the
accompanying Prospectus and Proxy Statement:
1. The adoption of the Agreement and Plan of Merger, dated as of April 28,
1997, by and between Unity and Oak Hill Banks and the Supplemental
Agreement, dated as of April 28, 1997, by and among Unity, Oak Hill Banks
and Oak Hill Financial, Inc,; and
/ / FOR / / AGAINST / / ABSTAIN
2. In their discretion, upon such other matters as may properly come before
the Special Meeting.
THE BOARD OF DIRECTORS OF UNITY RECOMMENDS A VOTE FOR THE PROPOSAL.
PLEASE SIGN AND DATE THIS REVOCABLE PROXY ON THE REVERSE SIDE.
<PAGE> 2
Unless this proxy is revoked, the shares represented by this revocable
proxy will be voted as directed by the undersigned shareholder. IF NO DIRECTION
IS GIVEN, THIS REVOCABLE PROXY WILL BE VOTED FOR THE PROPOSALS.
All Proxies previously given by the undersigned are hereby revoked.
Receipt of the Notice of the Special Meeting of Shareholders of Unity and of the
accompanying Prospectus and Proxy Statement is hereby acknowledged.
Without affecting any vote previously taken, this Revocable Proxy may
be revoked by the undersigned at any time before it is exercised (i) by filing
with Unity, at the address Unity set forth on the Notice of the Special Meeting,
written notice of such revocation, (ii) by executing a later-dated proxy which
is received by Unity prior to the Special Meeting; or (iii) by attending the
Special Meeting and giving notice of such revocation in person.
IF YOU ARE PLANNING TO ATTEND THE SPECIAL MEETING, PLEASE CHECK THIS BOX.
/ /
NOTE: Please sign your name exactly as it appears on your stock certificate(s).
Jointly owned shares require only one signature. Executors, Administrators,
Trustees, Guardians, Attorneys and Agents should given their full titles.
_______________________________ _______________________________
Signature Signature
_______________________________ _______________________________
Print or Type Name Print or Type Name
Dated:_________________________ Dated:_________________________
PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED FOR MAILING IN THE U.S.A.
