EXHIBIT 10.2
LETTER AGREEMENT REGARDING
APPRAISAL SERVICES AND BUSINESS PLAN PREPARATION
March 11, 1998
The Board of Directors
Home Federal Savings and Loan Association
00 X. Xxxx Xxxxxx
P.O. Box 311
Niles, Ohio 44446
Re: Business Plan Proposal
Attention: Xx. Xxxxxxx X. Xxxxxxxx, President and Chief Executive Officer
This letter represents our proposal to prepare a complete Business Plan for Home
Federal Savings and Loan Association ( "Home Federal" or the "Association") to
fulfill the requirements of the Office of Thrift Supervision ("OTS") relating to
the Association's stock conversion. The Plan will focus on Home Federal's new
three-year pro formas, the conversion impact on the Association and the planned
use of proceeds.
Xxxxxx & Company is experienced in preparing business plans for filing with and
approval by regulatory agencies. We prepared thirty-two business plans in 1995,
thirty in 1996 and thirty-four in 1997, and all have been approved. Your Plan
will be based on the format provided in the attached Exhibit A. We will prepare
the three-year pro formas and each discussion section in accordance with
regulatory requirements and based on your input. Our objective is to ensure that
your Business Plan is in compliance with all applicable requirements, and that
management and directorate are knowledgeable of and comfortable with the
assumptions, commitments and projections contained in the Plan, making the Plan
useful for the future.
Exhibit B provides a sample set of typical pro formas. Your pro formas will
incorporate the most current interest rate projections provided by OTS. Our
procedure is to request key financial information, including TFR Reports,
investment portfolio mix, recent lending activity, savings activity, costs and
yields and other data from Home Federal. Based on a review of this information,
I will then meet with management to discuss your plans and expectations for
1998, 1999 and 2000, focusing on such items as use of proceeds, deposit growth
expectations, loan origination projections, secondary market activity, new
products and services, increases in general valuation allowance, new branches,
capital improvements, increases in fixed assets, investment strategy, increases
in board fees and total compensation, etc. We will then prepare financial
projections tying the beginning figures to your December 31, 1997, balances,
incorporating your current yields on interest-earning assets and your current
costs of
Board of Directors
March 11, 1998
Page 2
interest-bearing liabilities. Assets and liabilities will be repriced based on
their maturity period, with such items tied to rate indices and their yields and
costs adjusting based on interest rate trends. The projections will be based on
your actual performance in 1997, in conjunction with the input from our
discussions. We can introduce numerous scenarios for internal use as part of the
preparation of the business plan to show the impact of alternative strategies.
With each set of pro formas, we will send you a discussion summary of the
assumptions for easy review and comments (Exhibit C). After your review of the
pro formas, we will make any adjustments that are required. When the pro formas
are complete, we will provide you with the final pro forma financial statements,
as well as pro formas for the holding company (Exhibit D).
With regard to the Business Plan text, we will complete each section in draft
form for your review, and revise each section based on your comments and
requests. We will also send a copy to your counsel for their input and comments.
The Plan will be in full compliance with all regulatory requirements. We also
prepare a quarterly comparison chart each quarter after the conversion for your
presentation to the board, showing the quarterly variance in actual performance
relative to projections and provide comments on the variance.
Our fee for the preparation of the Business Plan text and pro formas is $5,000,
including out-of-pocket expenses for travel, copying and binding.
I look forward to possibly working with you.
Sincerely,
XXXXXX and COMPANY, INC.
/s/ Xxxxxxx X. Xxxxxx
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Xxxxxxx X. Xxxxxx
President
MRK:jmm
enclosure
Accepted this 3rd day of June, 1998.
/s/ Xxxxxxx X. Xxxxxxxx
-------------------------------------
Xxxxxxx X. Xxxxxxxx
President and Chief Executive Officer
March 11, 1998
The Board of Directors
Home Federal Savings and Loan Association
00 X. Xxxx Xxxxxx
P.O. Box 311
Niles, Ohio 44446
Re: Conversion Valuation Agreement
Attn: Xx. Xxxxxxx X. Xxxxxxxx, President
Xxxxxx and Company, Inc. (hereinafter referred to as XXXXXX) hereby
proposes to prepare an independent conversion appraisal of Home Federal Savings
and Loan Association, Niles, Ohio (hereinafter referred to as HOME FEDERAL),
relating to the conversion of HOME FEDERAL from a mutual to a stock institution.
XXXXXX will provide a pro forma valuation of the market value of the shares to
be sold in the proposed conversion of HOME FEDERAL.
XXXXXX is a financial consulting firm that primarily serves the financial
institution industry. XXXXXX is experienced in evaluating and appraising thrift
institutions and thrift institution holding companies. XXXXXX is an experienced
conversion appraiser for filings with the Office of Thrift Supervision ("OTS")
and the Federal Deposit Insurance Corporation ("FDIC"), and is also approved by
the Internal Revenue Service as an expert in bank and thrift stock valuations.
XXXXXX agrees to prepare the conversion appraisal in the format required by
the OTS in a timely manner for prompt filing with the OTS and the Securities and
Exchange Commission and also agrees to prepare an analysis of the effect of the
establishment of a charitable foundation in connection with the conversion in
the conversion appraisal. XXXXXX will provide any additional information as
requested and will complete appraisal updates in accordance with regulatory
requirements.
The appraisal report will provide a detailed description of HOME FEDERAL,
including its financial condition, operating performance, asset quality, rate
sensitivity position, liquidity level and management qualifications. The
appraisal will include a description of HOME FEDERAL's market area, including
both economic and demographic characteristics and trends. An analysis of other
publicly-traded thrift institutions will be performed to determine a comparable
group, and adjustments to the appraised value will be made based on a comparison
of HOME FEDERAL with the comparable group.
In making its appraisal, XXXXXX will rely upon the information in the
Subscription and Community Offering Circular (Prospectus), including the
financial statements. Among other factors, XXXXXX will also consider the
following: the present and projected operating results and financial condition
of HOME FEDERAL; the economic and demographic conditions in HOME FEDERAL's
existing marketing area; pertinent historical financial and other information
relating to HOME FEDERAL; a comparative evaluation of the operating and
financial statistics of HOME FEDERAL with those of other thrift institutions;
the proposed price per share; the aggregate size of the offering of common
stock; the impact of the conversion on HOME FEDERAL's capital position and
earnings potential; HOME FEDERAL's proposed dividend policy; and the trading
market for securities of comparable institutions and general conditions in the
market for such securities. In preparing the appraisal, XXXXXX will rely solely
upon, and assume the accuracy and completeness of, financial and statistical
information provided by HOME FEDERAL, and will not independently value the
assets or liabilities of HOME FEDERAL in order to prepare the appraisal.
Upon completion of the conversion appraisal, XXXXXX will make a
presentation to the board of directors of HOME FEDERAL to review the content of
the appraisal, the format and the assumptions. A written presentation will be
provided to each board member as a part of the overall presentation.
For its services in making this appraisal, XXXXXX'x fee will be $19,000,
plus out-of-pocket expenses not to exceed $500. The appraisal fee will include
the preparation of one valuation update and any requested analysis regarding the
financial impact of a charitable foundation in the conversion appraisal. All
additional valuation updates will be subject to an additional fee of $1,000
each. Upon the acceptance of this proposal, XXXXXX shall be paid a retainer of
$3,000 to be applied to the total appraisal fee of $19,000, the balance of which
will be payable at the time of the completion of the appraisal.
HOME FEDERAL agrees, by the acceptance of this proposal, to indemnify
XXXXXX and its employees and affiliates for certain costs and expenses,
including reasonable legal fees, in connection with claims or litigation
relating to the appraisal and arising out of any misstatement
or untrue statement of a material fact in information supplied to XXXXXX by HOME
FEDERAL or by an intentional omission by HOME FEDERAL to state a material fact
in the information so provided, except where XXXXXX or its employees and
affiliates have been negligent or at fault.
XXXXXX agrees to indemnify HOME FEDERAL and its employees and affiliates
for certain cost and expenses, including reasonable legal fees, in connection
with claims or litigation relating to or based upon the negligence or willful
misconduct of XXXXXX or its employees or affiliates.
This proposal will be considered accepted upon the execution of the two
enclosed copies of this agreement and the return of one executed copy to XXXXXX,
accompanied by the specified retainer.
XXXXXX and COMPANY, INC.
By: /s/ Xxxxxxx X. Xxxxxx
---------------------
Xxxxxxx X. Xxxxxx
President
HOME FEDERAL SAVINGS AND LOAN
ASSOCIATION
By: /s/ Xxxxxxx X. Xxxxxxxx
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Xxxxxxx X. Xxxxxxxx
President
Date: June 3, 1998
